<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1997 or
-------------
[_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _______
Commission file number 1-14482
-----------
UNISOURCE WORLDWIDE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-5369500
- ------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 Springdale Drive, Exton, PA 19341
P.O. Box 3000-0935, Berwyn, PA 19312
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 296-4470
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(Registrant's telephone number, including area code)
825 Duportail Road, Wayne, Pennsylvania 19087
P.O. Box 958, Valley Forge, Pennsylvania 19482
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _____ No _____
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997.
Common Stock, par value $0.001 67,101,116 shares
<PAGE>
INDEX
UNISOURCE WORLDWIDE, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 1997 3-4
and September 30, 1996
Condensed Consolidated Statements of Income--Three and Nine 5
Month Periods Ended June 30, 1997 and June 30, 1996
Condensed Consolidated Statements of Cash Flows -- Nine 6
Month Periods Ended June 30, 1997 and June 30, 1996
Notes to Condensed Consolidated Financial Statements-- 7-8
June 30, 1997
Item 2. Management's Discussion and Analysis of Results 9-13
of Operations and Financial Condition and Liquidity
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
INDEX TO EXHIBITS 16
- -----------------
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and shares)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1997 1996
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 59,318 $ 14,596
Accounts receivable, net 753,124 790,818
Inventories 472,138 470,217
Prepaid expenses and deferred taxes 44,831 54,853
----------- -----------
Total current assets 1,329,411 1,330,484
----------- -----------
LONG-TERM RECEIVABLES 7,489 21,890
PROPERTY AND EQUIPMENT, AT COST 409,632 396,681
Less accumulated depreciation 194,401 172,513
----------- -----------
215,231 224,168
----------- -----------
GOODWILL 542,712 509,850
DEFERRED COSTS AND OTHER ASSETS 143,171 105,322
----------- -----------
$ 2,238,014 $ 2,191,714
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and shares)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ -------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 644 $ 840
Notes payable 28,151 38,367
Trade accounts payable 412,163 438,899
Accrued salaries, wages and commissions 24,809 27,011
Restructuring costs 9,973 15,575
Other accrued expenses 98,156 59,000
----------- -----------
Total current liabilities 573,896 579,692
----------- -----------
LONG-TERM DEBT 627,142 21,097
NOTES AND ADVANCES PAYABLE TO IKON - 553,700
OTHER LIABILITIES
Deferred taxes 49,735 54,462
Restructuring costs 8,000 13,896
Other long-term liabilities 33,231 33,366
----------- -----------
90,966 101,724
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, 6/30/97 - par value $.001, authorized - 250,000,000
shares, issued and outstanding - 67,096,663 shares; 9/30/96 -
par value $.01, authorized - 10,000,000 shares, issued and
outstanding - 100,000 shares 67 1
Additional paid in capital 779,079 778,444
Retained earnings 197,818 181,458
Foreign currency translation adjustments (30,954) (24,402)
----------- -----------
946,010 935,501
----------- -----------
$ 2,238,014 $ 2,191,714
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- ------------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 1,764,041 $ 1,748,732 $ 5,208,482 $ 5,211,718
------------ ----------- ------------ ------------
COSTS AND EXPENSES
Cost of goods sold 1,469,633 1,457,268 4,321,991 4,361,068
Selling and administrative 261,683 239,407 779,723 693,124
Restructuring costs - 50,000 - 50,000
------------ ----------- ------------ ------------
1,731,316 1,746,675 5,101,714 5,104,192
------------ ----------- ------------ ------------
INCOME FROM OPERATIONS 32,725 2,057 106,768 107,526
INTEREST EXPENSE 10,541 7,878 30,932 22,952
------------ ----------- ------------ ------------
INCOME (LOSS) BEFORE TAXES 22,184 (5,821) 75,836 84,574
PROVISION FOR INCOME TAXES 9,650 172 32,603 35,707
------------ ----------- ------------ ------------
NET INCOME (LOSS) $ 12,534 $ (5,993) $ 43,233 $ 48,867
============ =========== ============ ============
EARNINGS PER SHARE $0.19 $0.64
PRO FORMA (LOSS) EARNINGS ($0.11) $0.65
PER SHARE
SHARES OUTSTANDING 67,533 67,576 67,735 67,576
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 43,233 $ 48,867
Additions (deductions) to reconcile net income
to net cash provided by operating activities:
Depreciation 22,582 20,889
Amortization 12,474 8,885
Provision for losses on accounts receivable 13,657 11,237
Provision (payments) for restructuring costs (11,498) 17,771
Changes in operating assets and liabilities, net
of effects from acquisitions:
Decrease in accounts receivable 27,323 138,879
Decrease in inventories 4,269 39,783
Decrease in prepaid expenses 10,961 3,834
Increase (decrease) in accounts payable
and accrued expenses 1,986 (153,060)
Miscellaneous (4,791) (4,120)
-------------- -----------
Net cash provided by operating activities 120,196 132,965
-------------- -----------
INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 7,823 6,739
Collection of notes receivable 21,577 -
Cost of companies acquired, net of cash acquired (51,017) (181,175)
Expenditures for property and equipment (21,070) (27,152)
Deferred cost expenditures (37,462) (45,626)
-------------- -----------
Net cash used in investing activities (80,149) (247,214)
-------------- -----------
FINANCING ACTIVITIES
Debt repayments (38,154) (48,151)
Proceeds from borrowings under credit facilities, net 624,600 -
(Repayments to) proceeds from IKON (553,700) 152,427
Payment of dividends (26,873) -
Purchase of treasury shares (2,864) -
Sale of treasury shares 1,666 -
-------------- -----------
Net cash provided by financing activities 4,675 104,276
-------------- -----------
NET INCREASE (DECREASE) IN CASH 44,722 (9,973)
CASH AT BEGINNING OF YEAR 14,596 23,657
-------------- -----------
CASH AT END OF PERIOD $ 59,318 $ 13,684
============== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
Note 1: Spin-off and Basis of Presentation
----------------------------------
Effective December 31, 1996, one share of Unisource Worldwide, Inc. (the
"Company" or "Unisource") common stock was distributed to holders of Alco
Standard Corporation ("Alco") common stock for every two shares of Alco common
stock owned at the established record date (the "Spin-off"). Effective January
23, 1997, Alco changed its name to IKON Office Solutions, Inc. ("IKON"). At the
time of the Spin-off, the Company became a separate publicly owned company.
The unaudited condensed consolidated financial statements included herein,
for periods prior to December 31, 1996, have been prepared on the historical
cost basis and present the Company's financial position, results of operations
and cash flows as derived from Alco's historical financial statements, except
that the method of allocation of general corporate expenses has been changed to
more appropriately reflect the Company's actual use of corporate services.
Alco's interest expense on consolidated borrowings for the three and nine month
periods ended June 30, 1996 was allocated to Unisource based on the relationship
of its net assets to consolidated Alco net assets. The Company's interest
expense for the three and nine month periods ended June 30, 1997 was based on
its actual borrowings, including notes and advances payable to IKON and
borrowings under the Company's credit facility described in Note 2.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three and nine month periods
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 1997. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of the Company included in its Form 10 Registration
Statement that became effective November 26, 1996.
Note 2: Debt
----
On November 22, 1996, the Company entered into a $1,000,000,000 five-year
unsecured revolving credit facility. The credit facility includes multicurrency
options for up to $100,000,000 in Pounds Sterling, Deutsche Marks and French
Francs and a $100,000,000 subfacility for Canadian dollar loans. Borrowings
under the revolver bear interest at either the Alternate Base Rate (as defined)
or LIBOR plus a spread equal to 18.5 basis points during the initial six months
of the credit facility. After the initial six month period, the LIBOR spread
will range from 14.5 to 30 basis points, depending on certain financial ratios
or credit ratings. The credit facility provides for certain fees, including a
facility fee and utilization fee. The facility fee ranges from 8 to 15 basis
points per annum on the full amount of the credit facility, determined in a
manner consistent with the LIBOR spread described above. A utilization fee of 5
basis points per annum accrues on the aggregate
-7-
<PAGE>
amount of all loans outstanding during the initial six months of the credit
facility, and 5 basis points per annum thereafter each day the aggregate amount
of all loans under the credit facility exceeds two-thirds of the aggregate
commitment. The credit facility includes financial covenants requiring a ratio
of funded debt to capitalization of less than 55% and a minimum net worth of
$745,000,000 plus 50% of consolidated net income (without deduction for losses)
after the date of the credit facility.
The amount outstanding under this facility at June 30, 1997 was
$574,600,000. The majority of these proceeds were used to repay intercompany
debt to IKON in conjunction with the Spin-off.
Total debt as of June 30, 1997 was $655,937,000, which consisted of
$574,600,000 outstanding under the credit facility (discussed above),
$50,000,000 outstanding under an uncommitted short term line of credit and
$31,337,000 representing other notes and long term obligations.
Note 3: Earnings Per Share and Pro Forma Earnings Per Share
---------------------------------------------------
Earnings per share for the three month period ended June 30, 1997 was
calculated based on the weighted average number of Company shares issued and
outstanding for the quarter, plus the dilutive effect of stock options.
Earnings per share for the nine month period ended June 30, 1997 was calculated
based upon the weighted average number of Company shares issued and outstanding
for the period December 31, 1996 ("Spin-off" date) through June 30, 1997, plus
the dilutive effect of stock options.
Pro Forma earnings per share for the three and nine month periods ended
June 30, 1996 includes additional pro forma interest expense of $2,133,000
($1,270,000 net of tax), and $7,637,000 ($4,613,000 net of tax), respectively,
which assumes that the Spin-off occurred on October 1, 1995. The share base
utilized for the pro forma earnings per share computation is based on the number
of Company shares issued and outstanding as of December 31, 1996, plus the
dilutive effect of stock options.
-8-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- --------------------------------------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
RESULTS OF OPERATIONS
---------------------
Revenues and income before taxes for the three and nine month periods ended June
30, 1997 compared to the three and nine month periods ended June 30, 1996 were
as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Nine Months Ended June 30
------------------------------ -----------------------------
($'s in millions) 1997 1996 % Change 1997 1996 % Change
-------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,764.0 $1,748.7 .9% $5,208.5 $5,211.7 -
======== ======== ======== ========
Gross Profit 294.4 291.5 1.0% 886.5 850.6 4.2%
Selling and
Administrative Expense 261.7 239.4 9.3% 779.7 693.1 12.5%
Restructuring Charge - 50.0 NM - 50.0 NM
-------- -------- -------- --------
Operating Income 32.7 2.1 NM 106.8 107.5 (.7)%
Interest Expense 10.5 7.9 32.9% 31.0 22.9 35.3%
-------- -------- -------- --------
Income (Loss) Before Taxes $ 22.2 $ (5.8) NM $ 75.8 $ 84.6 (10.4)%
======== ======== ======== ========
</TABLE>
NM = Not meaningful
QUARTER ENDED JUNE 30, 1997:
Revenues increased $15.3 million, or .9%, to $1.76 billion in the third quarter
of fiscal 1997 as compared to the same period in fiscal 1996. The change is due
to an increase of $64.6 million associated with current and prior year
acquisitions, which were offset by a decline of $49.3 million in base
operations. The decline in base operations is principally due to an estimated
average decrease in pricing of 4% for the quarter, as compared to the same
period last year. This price deflation was partially offset by volume gains in
the base operations.
Gross profit increased by $2.9 million, or 1.0%, to $294.4 million in the third
quarter of fiscal 1997, as compared to the same period in fiscal 1996. This
change is due to an increase of $17.4 million associated with current and prior
year acquisitions, offset by a decline of $14.5 million in base operations.
Gross profit as a percentage of revenues for the three month periods remained
level at 16.7% with higher gross margin percentages generated by acquired
companies offsetting slight margin compression in base operations.
Selling and administrative expense increased by $22.3 million, or 9.3%, in the
third quarter of fiscal 1997, when compared with the corresponding period of
fiscal 1996. The increase is primarily attributable to costs associated with
current and prior year acquisitions along with expenditures associated with the
implementation of the Company's new information technology system referred to as
NADS (North American Distribution System). In fiscal 1998, the Company expects
to implement NADS at multiple sites. Incremental expense of approximately $35
million is estimated in fiscal 1998 related to the operation, rollout and
amortization of deferred costs associated with NADS. Such costs are expected to
be significantly offset by cost reduction programs implemented by the Company
during the third quarter of fiscal 1997.
-9-
<PAGE>
Operating income increased $30.6 million for the quarter compared to the prior
year's quarter, primarily due to a $50 million restructuring charge recorded in
the third quarter of the prior fiscal year. The restructuring charge pertains
to costs associated with the regional realignment from ten to five U.S. regions
and related facility closure and severance costs. Excluding the impact of the
restructuring charge, operating income for the quarter decreased by $19.4
million as compared to the prior year's quarter. Operating income from base
operations declined $22.6 million for the three month period primarily due to
paper and supply system price declines and expenses related to the
implementation of NADS, which were partially offset by higher margin percentages
from our acquisitions and volume increases. Operating margins were 1.9% for the
quarter, compared to 3.0% for the corresponding period of fiscal 1996
(excluding the restructuring charge).
Interest expense increased by $2.6 million to $10.5 million during the quarter
as compared to the same period of the prior year. The increase was attributable
to higher average outstanding borrowings due to the recapitalization of the
Company as of September 30, 1996 in anticipation of the Spin-off (see Notes 1
and 2 of the Notes to Condensed Consolidated Financial Statements.) The $7.9
million of interest expense for the respective three month period of fiscal 1996
represents an allocation of Alco's outside interest expense based on the
relationship of the Company's net assets to Alco's net assets, plus interest
expense associated with direct indebtedness of the Company, which was not
significant. Interest expense on a pro forma basis for the three month period of
fiscal 1996 was $10.0 million, assuming that the Spin-off occurred on October 1,
1995.
Foreign Operations
Revenues from foreign operations decreased $9.6 million to $226.6 million for
the three month period ended June 30, 1997, as compared to the same period of
fiscal 1996. Revenues from Canadian operations decreased $4.7 million to $189.6
million, while revenues from Mexican operations increased $10.0 million to $30.8
million. The decrease in Canadian revenues was attributable to declining paper
prices, while the increase in Mexico was the result of acquisitions, which was
partially offset by lower paper prices. Also, revenues from the foreign sales
offices (Vienna and Hong Kong) decreased $14.9 million to $6.2 million for the
three month period. Fiscal 1996 revenues benefited from sales generated from a
supplier's excess inventory which did not recur in fiscal 1997.
Operating income from foreign operations decreased $.7 million to $9.9 million
for the three month period ended June 30, 1997, as compared to the same period
of fiscal 1996. Canadian operating income was essentially flat at $8.4 million
for the three month period ended June 30, 1997, despite lower paper prices.
Mexican operating income increased $.3 million for the three month period, as
compared to the corresponding period of the prior year, with the increase from
acquisitions offsetting a decline in paper prices. The foreign sales offices
operating income decreased by $.9 million for the quarter, as a result of the
decrease in volume.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations during the period as compared to the same period of
the prior fiscal year.
-10-
<PAGE>
NINE MONTHS ENDED JUNE 30, 1997:
Revenues for this period decreased $3.2 million to $5.208 billion, as compared
to the same period in fiscal 1996. The decrease was due to revenue declines of
$306.8 million in base operations for the nine month period ended June 30, 1997,
which were substantially offset by increases associated with current and prior
year acquisitions of $303.6 million. The decline in base operations is
principally due to an estimated decrease in pricing of 9%, partially offset by
volume gains.
Gross profit for this period increased by $35.9 million, or 4.2%, as compared
to the same period in fiscal 1996. This change is due to an increase of $80.3
million associated with current and prior year acquisitions, offset by declines
of $44.4 million in base operations for the nine month period ended June 30,
1997. Gross profit as a percentage of revenues rose to 17.0% from 16.3% for the
nine month period due to higher margin percentages generated by acquired
companies and lower costs from suppliers for many products.
Selling and administrative expense increased by $86.6 million, or 12.5%, for the
nine month period ended June 30, 1997, when compared with the corresponding
period of fiscal 1996. The increase is primarily attributable to costs
associated with current and prior year acquisitions along with costs associated
with the implementation of NADS (see "Quarter Ended June 30, 1997" at page 9 for
further discussion of NADS implementation).
Operating income for the nine month period decreased $.7 million, as
compared to the same period of fiscal 1996. Excluding the $50 million
restructuring charge recorded in the third quarter of fiscal 1996, operating
income decreased $50.7 million or 32.2%. This decrease in operating income was
due to a $65.4 million decrease in base operations, which was offset by a $14.7
million increase in operating income as a result of current and prior year
acquisitions. The decrease in base operations was primarily due to a decrease
in paper and supply system pricing and expenses related to the implementation of
NADS, which were partially offset by improvement in gross profit percentages and
volume increases. Operating margins were 2.1%, compared to 3.0% for the
corresponding nine month period of fiscal 1996 (excluding the restructuring
charge).
Interest expense increased by $8.1 million to $30.9 million as compared to the
corresponding nine month period of fiscal 1996. The increase was attributable to
higher average outstanding borrowings due to the recapitalization of the Company
as of September 30, 1996 in anticipation of the Spin-off. The $22.9 million of
interest expense for the nine month period of fiscal 1996 represents an
allocation of Alco's outside interest expense based on the relationship of the
Company's net assets to Alco's net assets, plus interest expense associated with
direct indebtedness of the Company, which was not significant. Interest expense
on a pro forma basis for the nine month period of fiscal 1996 was $30.5 million,
assuming that the Spin-off occurred on October 1, 1995.
-11-
<PAGE>
Foreign Operations
Revenues from foreign operations decreased $17.4 million to $661.6 million for
the nine month period ended June 30, 1997, as compared to the same period of
fiscal 1996. Revenues from Canadian operations decreased $31.4 million to $552.3
million, while revenues from Mexican operations increased $28.8 million to $84.3
million. The decrease in Canadian revenues was attributable to declining paper
prices, while the increase in Mexico was the result of acquisitions, which was
partially offset by lower paper prices. Also, revenues from the foreign sales
offices (Vienna and Hong Kong) decreased $14.8 million to $25.0 million for the
nine month period. Fiscal 1996 revenues benefited from sales generated from a
supplier's excess inventory which did not recur in fiscal 1997.
Operating income from foreign operations decreased $4.0 million to $24.9 million
for the nine month period, as compared to the same period of fiscal 1996.
Canadian operating income decreased $2.8 million to $21.1 million, primarily due
to lower paper prices. Mexican operating income was essentially flat at $4.2
million, with the increase from acquisitions being offset by a decline in paper
prices. The foreign sales offices operating income decreased by $1.4 million
for the nine month period ended June 30, 1997, primarily as a result of the
decrease in volume.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations during the first nine months of fiscal 1997 compared
to the first nine months of fiscal 1996.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Net cash provided by operating activities for the nine month period ended June
30, 1997 was $120.2 million. Included in operating activities were cash
expenditures of $11.5 million in connection with the Company's $50 million
restructuring program initiated in the third quarter of fiscal 1996. Remaining
restructuring cash expenditures are estimated at $18 million. During the same
period $80.2 million in cash was used for investing activities which included
deferred cost expenditures of $37.5 million principally associated with the
continuing development of the Company's new information technology system
(NADS), capital expenditures of $21.1 million and expenditures for acquisitions
of $51.0 million. Investing activity expenditures were partially offset by
proceeds received from the sale of property and the collection of notes
receivable. Cash provided by financing activities of $4.7 million included net
proceeds received from borrowings under the Company's credit facilities of
$624.6 million offset by a $553.7 million net debt repayment to IKON, $38.2
million of other third party debt payments, and dividend payments and treasury
shares purchases, net, of $28.0 million.
On June 30, 1997, total debt of $655.9 million was outstanding. The Company had
a total of $1 billion in bank credit commitments as of June 30, 1997, of which
$425.4 million was unused and available.
In August 1997, the Company declared a dividend on its Common Stock of $.20 per
share payable on September 10, 1997 to shareholders of record on August 25,
1997.
-12-
<PAGE>
On August 11, 1997, the Company announced that a definitive merger agreement
was signed with National Sanitary Supply Company, which will become a wholly-
owned subsidiary. The purchase price, including debt repayment and other
considerations, totals approximately $163 million. The merger, which is subject
to normal and customary conditions as well as completion of due diligence by the
Company, is expected to be consummated within ninety days.
The Company believes that its operating cash flow, together with financing
arrangements, will be sufficient to finance current operating requirements,
including capital and deferred cost expenditures, acquisitions, other cash
requirements, and future dividends.
The preceding sentence and the other statements set forth herein with respect to
anticipated cost reduction programs and the implementation of and costs
associated with NADS are forward looking statements based upon management's
current plans and expectations and are subject to a number of uncertainties and
risks that could cause actual results to differ materially. Such uncertainties
and risks include changes in pulp and paper prices and market conditions within
the Company's businesses, delays or difficulties associated with systems
implementation programs, debt service requirements, and the availability of, and
ability to close, acquisition opportunities on terms acceptable to the Company.
For further detail and information concerning the foregoing, please consult the
"Forward-Looking Information" and "Risk Factors" sections of the Company's
Information Statement dated November 26, 1996 that is included as part of its
Registration Statement on Form 10.
-13-
<PAGE>
PART II. - OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE NO.
- ----------------------------------------- --------
<S> <C>
(a) The following Exhibits are furnished pursuant to Item 601 of
Regulation S-K: 16
Exhibit No. Description
----------- -----------
10(a) Southpoint Five Office Building Lease
Agreement dated February 1, 1997 by and
between Terramics/Southpoint Associates V
Limited Partnership and Unisource
Worldwide, Inc., in connection with the
Company's principal executive offices.
27 Article 5 FDS - Financial Data Schedule for
the Nine Months Ended June 30, 1997
(b) Reports on Form 8-K -
The Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated August 11,
1997, with respect to Item 5 reporting on the signing of the
definitive merger agreement with National Sanitary Supply
Company.
</TABLE>
-14-
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. This report has also been signed by the
undersigned in his capacity as the chief accounting officer of the Registrant.
UNISOURCE WORLDWIDE, INC.
Date: August 14, 1997 /s/ Robert M. McLaughlin
------------------------
Robert M. McLaughlin
Vice President and Controller
(Chief Accounting Officer)
-15-
<PAGE>
INDEX TO EXHIBITS
-------------------
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10(a) Southpoint Five Office Building Lease Agreement dated
February 1, 1997 by and between Terramics/Southpoint
Associates V Limited Partnership and Unisource Worldwide,
Inc., in connection with the Company's principal executive
offices.
27 Article 5 FDS - Financial Data Schedule for the Nine Months
Ended June 30, 1997
</TABLE>
-16-
<PAGE>
EXHIBIT 10(a)
SOUTHPOINT FIVE OFFICE BUILDING LEASE
BETWEEN
TERRAMICS/SOUTHPOINT ASSOCIATES V
LIMITED PARTNERSHIP
Landlord
AND
UNISOURCE WORLDWIDE, INC.
Tenant
DATED: February 1, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C> <C>
1. Premises and Lease............................................ 2
------------------
(a) Description of Premises................................ 2
-----------------------
(b) Lease of Premises...................................... 3
-----------------
2. Completion by Landlord........................................ 3
----------------------
(a) Building Shell Plans................................... 3
--------------------
(b) Interior Improvement Plans............................. 4
--------------------------
(c) Modification of Plans.................................. 6
---------------------
(d) Construction........................................... 8
------------
(e) Fit-Out Allowance...................................... 10
-----------------
(f) Payment or Credit for Construction..................... 11
----------------------------------
(g) Tenant's Representative................................ 13
-----------------------
3. Term........................................................... 15
----
(a) Commencement........................................... 15
------------
(b) Duration............................................... 15
--------
(c) Memorandum............................................. 16
----------
(d) Early Entry for Performance of Tenant Finish........... 16
--------------------------------------------
(e) Date of Substantial Completion......................... 17
------------------------------
(f) Punch List; Latent Defects............................. 18
--------------------------
(g) Delays................................................. 20
------
4. Use of Premises............................................... 23
---------------
(a) General................................................ 23
-------
(b) System Changes......................................... 23
--------------
5. Rent........................................................... 24
----
(a) Minimum Annual Rent.................................... 24
-------------------
(b) Additional Rent on Account of Taxes and Operating
-------------------------------------------------
Costs.................................................. 26
-----
(c) Overdue Payments....................................... 37
----------------
6. Redecoration Allowance......................................... 37
----------------------
7. Insurance...................................................... 39
---------
(a) Required Coverage...................................... 39
-----------------
(b) Landlord's Insurance; Tenant's Optional Insurance...... 40
-------------------------------------------------
(c) Insureds............................................... 41
--------
(d) Waiver of Subrogation.................................. 41
---------------------
8. Repairs and Maintenance....................................... 42
-----------------------
(a) Tenant's Obligation.................................... 42
-------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(b) Landlord's Repairs..................................... 43
-------------------
(c) Capital Items.......................................... 44
-------------
9. Electricity and Gas........................................... 45
-------------------
(a) Separate Metering..................................... 45
-----------------
(b) Limitation Regarding Services......................... 45
-----------------------------
(c) Interruption in Services; Rent Abatement.............. 46
----------------------------------------
10. Janitorial and Other Services................................. 47
-----------------------------
(a) Janitorial and Trash Removal Services................. 47
-------------------------------------
(b) First Class Standard.................................. 48
--------------------
11. Governmental Regulations...................................... 48
------------------------
(a) General............................................... 48
-------
(b) Environmental......................................... 50
-------------
12. Directory; Signs; Building Name............................... 51
-------------------------------
13. Alterations, Additions and Fixtures........................... 52
-----------------------------------
(a) Trade Fixtures........................................ 52
--------------
(b) General Restrictions.................................. 52
--------------------
(c) Rooftop Antenna....................................... 55
---------------
14. Mechanics' Liens.............................................. 56
----------------
15. Landlord's Right of Entry..................................... 57
-------------------------
(a) General Rights........................................ 57
--------------
(b) Prospects............................................. 58
---------
16. Damage by Fire or Other Casualty.............................. 59
--------------------------------
(a) Restoration........................................... 59
-----------
(b) Time.................................................. 59
----
(c) Tenant's Property..................................... 60
-----------------
(d) Rent Abatement........................................ 61
--------------
17. Non-Abatement of Rent......................................... 61
---------------------
18. Indemnity..................................................... 61
---------
(a) Tenant's Indemnification of Landlord.................. 61
------------------------------------
(b) Landlord's Indemnification of Tenant.................. 62
------------------------------------
(c) Limitation of Indemnity............................... 63
-----------------------
19. Condemnation.................................................. 64
------------
(a) Termination........................................... 64
-----------
(b) Partial Condemnation.................................. 65
--------------------
(c) Award................................................. 66
-----
(d) Temporary Taking...................................... 66
----------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
20. Quiet Enjoyment.............................................. 67
---------------
(a) Quiet Enjoyment; Rules and Regulations............... 67
--------------------------------------
(b) Landlord's Representations........................... 67
--------------------------
(c) Tenant's Right to Pledge Personalty ................. 68
-----------------------------------
21. Assignment and Subletting.................................... 69
-------------------------
(a) General.............................................. 69
-------
(b) Consent.............................................. 69
-------
(c) Conditions Upon Assignment or Subletting............. 70
----------------------------------------
(d) Conditions........................................... 72
----------
(e) Mortgagee Consent.................................... 74
-----------------
(f) Limitation on Other Rights........................... 75
--------------------------
(g) Assignment to Affiliates............................. 75
------------------------
22. Subordination and Nondisturbance............................. 76
--------------------------------
(a) Subordination........................................ 76
-------------
(b) Nondisturbance....................................... 77
--------------
(c) Notice to Tenant of Landlord's or Fee Owner's
---------------------------------------------
Mortgages............................................ 78
----------
(d) Title Report......................................... 78
------------
(e) Confirmation of Subordination........................ 78
-----------------------------
23. Tenant's Estoppel Certificate................................ 79
-----------------------------
24. Curing Tenant's Defaults..................................... 80
------------------------
25. Surrender.................................................... 81
---------
(a) Lease Termination.................................... 81
-----------------
(b) Holding Over......................................... 82
------------
26. Defaults; Remedies........................................... 83
------------------
(a) Insolvency........................................... 83
----------
(b) Events of Default.................................... 84
-----------------
(c) Accelerated Recovery Component....................... 87
------------------------------
(d) Re-entry............................................. 88
--------
(e) Continuing Liability................................. 89
--------------------
(f) Credit............................................... 91
------
(g) No Duty to Relet..................................... 91
----------------
(h) Bankruptcy........................................... 92
----------
(i) Non-Waiver........................................... 92
----------
(j) Rights and Remedies Cumulative....................... 92
------------------------------
(k) Landlord's Default; Limited Right of Offset.......... 93
-------------------------------------------
27. Office Park Declaration...................................... 94
-----------------------
28. Interpretation............................................... 95
--------------
(a) Captions............................................. 95
--------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
(b) Entire Agreement...................................... 95
----------------
(c) Exhibits.............................................. 96
--------
(d) Arbitration........................................... 96
-----------
(e) Consents.............................................. 97
--------
29. Definitions................................................... 97
-----------
(a) "Landlord."........................................... 97
--------
(b) "Tenant."............................................. 98
-------
(c) "Mortgage" and "Mortgagee"............................ 99
------------------------
(d) "Person."............................................. 100
-------
(e) "Date of this Lease".................................. 100
------------------
30. Notices...................................................... 100
-------
31. Miscellaneous................................................ 101
-------------
(a) Brokers.............................................. 101
-------
(b) Partial Invalidity................................... 102
------------------
(c) Additional Charges................................... 103
------------------
(d) Authority............................................ 103
---------
(e) Time of the Essence.................................. 103
-------------------
(f) Binding Effect....................................... 103
--------------
32. Renewal Option............................................... 104
--------------
(a) Conditions........................................... 104
----------
(b) Renewal Terms........................................ 104
-------------
33. Expansion Rights............................................. 109
----------------
(a) Expansion Space...................................... 109
---------------
34. Sublet Assistance and Purchase Option........................ 112
-------------------------------------
(a) General.............................................. 112
-------
(b) Sublet Assistance.................................... 112
-----------------
(c) Purchase Option...................................... 113
---------------
(d) Purchase Price....................................... 114
--------------
(e) Other Purchase Terms................................. 115
--------------------
(f) Landlord's Rescission Option......................... 116
----------------------------
35. Construction Contingency..................................... 117
------------------------
(a) Satisfaction of Contingency.......................... 117
---------------------------
36. Ground Lease Provision....................................... 118
----------------------
(a) No Modification of Ground Leases..................... 118
--------------------------------
(b) No Merger............................................ 119
---------
</TABLE>
-iv-
<PAGE>
SCHEDULE A - DESCRIPTION OF LAND
- ----------
SCHEDULE B - GROUND LEASE
- ----------
SCHEDULE 2(A) - BUILDING SHELL AND SITE SPECIFICATIONS
- -------------
SCHEDULE 2(B) - PRELIMINARY PLANS FOR TENANT WORK
- -------------
SCHEDULE 3(c) - MEMORANDUM OF COMMENCEMENT
- -------------
SCHEDULE 10(a) - JANITORIAL SERVICES
- --------------
SCHEDULE 20(b) - RULES AND REGULATIONS
- --------------
SCHEDULE 27(a) - OFFICE PARK DECLARATION
- --------------
SCHEDULE 27(b) - REVISIONS TO OFFICE PARK DECLARATION
- --------------
-v-
<PAGE>
SOUTHPOINT FIVE OFFICE BUILDING LEASE
THIS AGREEMENT OF LEASE ("Lease") is made by and between
TERRAMICS/SOUTHPOINT ASSOCIATES V LIMITED PARTNERSHIP, a limited partnership
organized and existing under the laws of the Commonwealth of Pennsylvania
(herein called "Landlord"), and UNISOURCE WORLDWIDE, INC., a Delaware
corporation (herein called "Tenant"), with joinder by SOUTHPOINT LAND HOLDINGS,
INC., a Pennsylvania corporation (herein called "Fee Owner").
BACKGROUND
----------
A. Fee Owner owns certain vacant land at the intersection of Cassatt
Road and Route 252 in Tredyffrin Township, Chester County, Pennsylvania,
adjoining the "Southpoint" office park in Berwyn, Pennsylvania (the "Office
Park") and which contains approximately 3.5 acres, as described on Schedule A
----------
hereto (the "Land").
B. The Land is leased from Fee Owner to Landlord pursuant to a ground
lease (the "Ground Lease"), a copy of which (as amended) is attached hereto as
Schedule B. The Ground Lease, dated December 28, 1989, is between The Real
- ----------
Estate Center Partnership (as landlord) and Landlord (as tenant). The
landlord's interest thereunder was assigned from Real Estate Center Partnership
to Fee Owner by Assignment of Lessor's Interest in Ground Lease dated December
28, 1989, simultaneously with conveyance to Fee Owner of the underlying fee
interest in the Land.
C. Landlord has the power and authority to lease the Land, as the
same may hereafter be improved, to third parties. This Lease sets forth the
terms and conditions under which Tenant shall lease from Landlord the Land and
the improvements to be constructed thereon, as well as the terms and conditions
under which Tenant may purchase such property.
NOW, THEREFORE, Landlord and Tenant agree as follows, intending to be
legally bound hereby, and hereby incorporate into their agreement the foregoing
background provisions.
1. Premises and Lease.
------------------
(a) Description of Premises. The term "Building" means the proposed
-----------------------
two-story building containing approximately 43,480 rentable square feet, to be
known as "Southpoint FIVE" and to be constructed on the Land. The Building is
expected to have a mailing address of 1140 West Swedesford Road, Berwyn,
Pennsylvania, 19312. The Building, the Land and any other improvements existing
or to be constructed thereon are herein
<PAGE>
collectively called the "Premises."
(b) Lease of Premises. Landlord does hereby lease to Tenant, and
-----------------
Tenant does hereby lease from Landlord, for the term and upon the terms,
covenants, conditions and provisions set forth herein, the Premises, including
the Building which shall be completed in accordance with Section 2 hereof. The
Building rentable square foot area as reflected herein is consistent with the
Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-
1996.
2. Completion by Landlord.
----------------------
(a) Building Shell Plans. Landlord and Tenant have agreed upon
--------------------
outline specifications for the Building shell as well as a site plan showing the
footprint of the Building on the Land and related features and specifications,
as identified on Schedule 2(a) hereto (the "Building Shell and Site
-------------
Specifications"). The Building Shell and Site Specifications include and
describe, without limitation: architectural design features, materials,
mechanical systems, finish qualities and site work (including a new road
entrance and signage monument). The Building Shell and Site Specifications may
include, to the extent specifically indicated therein, improvements or features
which are to be charged to Tenant, and against which Tenant is to receive an
allowance as hereafter set forth ("Special Tenant Shell Features").
(b) Interior Improvement Plans. The interior improvements to the
--------------------------
Building which are required by Tenant and which are not included in the Building
Shell and Site Specifications (the "Tenant Improvement Work") shall be performed
by a contractor or contractors engaged by Landlord in accordance with final,
sealed construction and engineering drawings and specifications and finish plans
to be developed by Tenant (the "Final Tenant Plans"). In such connection, it is
understood that the Final Tenant Plans shall incorporate mechanical, electrical
and plumbing drawings and specifications to be prepared by Landlord's designated
engineering firm ("Landlord's Engineer"), based upon Tenant's requirements. The
Final Tenant Plans shall be consistent with the Building Shell and Site
Specifications, and shall be sufficient for bidding, permitting and construction
purposes. The Tenant Improvement Work does not include such additional fixturing
and installations as Tenant may elect to perform through its own contractors in
accordance with the terms of this Lease. The Final Tenant Plans (which will
incorporate the drawings and specifications of Landlord's Engineer as set forth
above) shall be prepared by a reputable architectural firm ("Tenant's
Architect") selected by Tenant. Landlord agrees that Balongue Design of Exton,
Pennsylvania is acceptable to Landlord
<PAGE>
for such purpose. Preliminary architectural and engineering plans and outline
specifications for the Tenant Improvement Work ("Preliminary Plans"), showing
generally the proposed configuration and finish level and the proposed
structural, electrical and mechanical requirements of Tenant's space in the
Building, have been submitted to Landlord and are identified on Schedule 2(b)(1)
----------------
hereto. Based upon the Preliminary Plans, Landlord shall, within five (5)
business days following the date hereof, furnish to Tenant preliminary comments
and preliminary pricing information (based upon takeoffs performed by Landlord's
contractor, Barclay White Incorporated). After performing such value engineering
as it deems appropriate, but in no event later than March 10, 1997, Tenant shall
deliver to Landlord its Final Tenant Plans, excluding the drawings and
specifications to be prepared by Landlord's Engineer, for Landlord's final
review and approval (not to be unreasonably withheld). Such Final Tenant Plans
shall include all required information on colors, finishes, specialized millwork
and the like. Landlord and Landlord's Engineer shall review and approve or
comment on the Final Tenant Plans (using reasonable commercial judgment), and
shall prepare and submit to Tenant the drawings and specifications prepared by
Landlord's Engineer, within five (5) business days after Landlord's receipt of
such Final Tenant Plans. Tenant shall cause Tenant's Architect to revise the
Final Tenant Plans in accordance with Landlord's comments (for which Landlord
shall be available for good faith discussion) and shall resubmit same to
Landlord in accordance with the foregoing procedures, incorporating the drawings
and specifications prepared by Landlord's Engineer, not later than five (5)
business days after Tenant's receipt of Landlord's comments and the drawings and
specifications of Landlord's Engineer.
(c) Modification of Plans. The Building Shell and Site Specifications
---------------------
and the Final Tenant Plans shall be subject to additional refinement and
modification as may be mutually agreed to by Landlord and Tenant, or as may be
reasonably necessary or desirable in the implementation of final site approvals
and other required approvals or as a result of field conditions; provided,
however, that:
(i) except as provided in subsection (ii) below, no change or
modification in a previously approved plan, specification or detail which
adversely affects either party to a substantial degree (in terms of cost, time
or otherwise) shall be implemented unless the affected party (and any mortgagee
of the Premises having approval rights) shall first agree thereto in writing
(including, for a change requested by Tenant, an agreement as to the cost to be
chargeable to, or amount credited to, Tenant therefor and the estimated
extension of the construction period resulting therefrom (it being further
<PAGE>
understood that any additional time resulting from a Tenant-requested change
order shall constitute a Tenant Delay); and
(ii) Landlord may implement changes or refinements to previously
approved plans, specifications or details as may be reasonably necessary or
appropriate in connection with final site approvals or other necessary permits
and approvals, or as a result of field conditions or scarcity or unavailability
of specified products or materials, but only if (A) the change does not impair
the general level of Building quality, functionality and anticipated aesthetics,
(B) any substitution of materials is made with materials of a quality and
functionality which is equal to or greater than that of the previously specified
materials, (C) Landlord assumes responsibility for any special redesign and/or
retrofit construction costs incurred as a result thereof, and (D) any change
which directly affects the Tenant Improvement Work or the anticipated aesthetics
of the Building must be approved or rejected in writing by Tenant, whose
approval shall not be unreasonably withheld or delayed; provided that, for such
purposes, if disapproval with specific explanation shall not be delivered to
Landlord within five (5) business days after notification of the proposed
change, any resulting delay shall be considered a Tenant Delay (defined in
subsection (d) below).
(d) Construction. As used herein, the term "Project Work" means all
------------
work and services required to construct, fit-out and equip the Building
(including the Tenant Improvement Work), and to perform all other on and off-
site work and improvements, in accordance with the Building Shell and Site
Specifications and the Final Tenant Plans. The Project Work shall be performed
by Landlord utilizing Barclay White Incorporated, or another reputable
contractor or contractors designated by Landlord and acceptable to Tenant
("Landlord's Contractor"). Landlord and Tenant shall, promptly following their
entry into this Lease, and in cooperation with Landlord's Contractor, develop a
mutually approved list of subcontractors for whom bids shall be solicited (and
the lowest responsive and responsible bid selected) for the Project Work, it
being further acknowledged that Landlord and Landlord's Contractor have agreed
to a base fee of 3 1/2% of costs and a 5% fee for change orders. Tenant shall
be afforded the right to review and submit comments and recommendations on the
bids for the Tenant Improvement Work and the Special Tenant Shell Features (or
those components of the bids which directly relate to the Tenant Improvement
Work and Special Tenant Shell Features). The Project Work shall be commenced
promptly upon the satisfaction of the Closing Contingency (as defined in Section
35 hereof) and shall be diligently prosecuted by Landlord so as to be
substantially completed on October 24, 1997 (the "Target Commencement Date"),
subject to (i) Force Majeure (defined below) and to (ii) any delays ("Tenant
Delay") caused by or attributable
<PAGE>
to Tenant, Tenant's Architect, contractors, or any other persons or firms
engaged by Tenant to provide plans, specifications or information relating to
the Tenant Improvement Work or to perform work or services in the Premises
(including without limitation Tenant's failure to timely submit a required plan
or approval or Tenant's request for changes). All construction shall be done in
a good and workmanlike manner and in accordance with applicable laws, codes,
ordinances, regulations and orders of the federal, state, county or other
governmental authorities having jurisdiction thereof (including requirements of
the Americans With Disabilities Act), provided that Tenant and Tenant's
Architect, and not Landlord, shall be responsible for legal compliance of the
Final Tenant Plans (excluding legal compliance of the plans prepared by
Landlord's Engineer which are incorporated into the Final Tenant Plans) and for
the consequences of constructing the work in accordance with the Final Tenant
Plans (exclusive of the plans prepared by Landlord's Engineer as aforesaid). A
"Force Majeure" delay, with respect to exoneration of a party's liability
therefor, is a delay attributable to strikes or other labor troubles; area-wide
scarcity, unavailability or delays in obtaining fuel, labor or materials; war or
other national emergency; floods; fire damage or other casualties; unusual
weather conditions; or any other causes similar or dissimilar to the foregoing
which are beyond the reasonable control of such party. For purposes of this
Lease, delays caused by or attributable to a third party with whom the party in
question has contracted (such as Tenant's Architect or Landlord's Contractor)
shall be considered to be Force Majeure delays only if the underlying reason for
such third party's delay is otherwise within the scope of Force Majeure (e.g.,
fire), and shall not be considered to be Force Majeure delays if attributable to
the failure of such third party to comply with the terms of its contractual
arrangement.
(e) Fit-Out Allowance. The term "Tenant Improvement Cost" means
-----------------
Landlord's total costs paid or incurred for the design and performance of the
Tenant Improvement Work and the Special Tenant Shell Features (if any). The
Tenant Improvement Cost is composed of the amounts payable (i) to Landlord's
Contractor and (to the extent of the cost of preparing the drawings and
specifications referred to in Section 2(b) above), Landlord's Engineer (not to
exceed $17,500 for the services outlined in the proposal of C.J. Engineers dated
January 31, 1997, but exclusive of extensive revisions due to Tenant's value
engineering); (ii) to Tenant's Architect, to the extent Tenant elects to seek
reimbursement of same from Landlord in accordance with the terms hereof, (iii)
to any other contractors, vendors or others furnishing labor or materials for
the completion of the Tenant Improvement Work and Special Tenant Shell Features
(including without limitation cabling and other
<PAGE>
telecommunications-related costs) on account of labor, materials and
supervision, and (iv) to governmental authorities for all licenses and permits
required for construction, use and occupancy of the Tenant Improvement Work and
Special Tenant Shell Features. Landlord has agreed that Tenant shall be entitled
to an allowance of Thirty One Dollars ($31.00) per rentable square foot of the
Building, or $1,347,880 based on 43,480 square feet (the "Fit-Out Allowance") on
account of the Tenant Improvement Cost.
(f) Payment or Credit for Construction.
----------------------------------
(1) Promptly after final receipt by Landlord of approved Final
Tenant Plans, Landlord shall obtain and present to Tenant a final schedule, in
reasonable detail, of the Tenant Improvement Cost and the various major
components thereof (the "Cost Schedule"), including therein such specific
contingencies and allowances as may be appropriate and as are consistent with
the foregoing provisions of this Article 2. The Cost Schedule as it pertains to
construction costs shall be based upon a guaranteed maximum price and
competitively-bid subcontracts with a 3 1/2% fee to Landlord's Contractor.
Tenant shall thereupon have five (5) business days within which to accept the
Cost Schedule or to perform value engineering and submit to Landlord revised
Final Tenant Plans; provided that said 5 business day period shall be extended
by the number of business days, beyond 1 business day, in obtaining a response
from Landlord's Contractor to Tenant's alternative pricing requests. Tenant's
failure to accept the Cost Schedule or submit revised Final Tenant Plans to
Landlord, within said five (5) business day period (extended as aforesaid),
shall result in a Tenant Delay from that time until the actual time submitted.
(2) If the Tenant Improvement Cost as reflected in the Cost Schedule
is in excess of the Fit-Out Allowance, Tenant shall pay such excess to Landlord
in progress payments within twenty (20) days after receiving a bill therefor
(accompanied by Landlord's itemization of the amount due), but only after the
Fit-Out Allowance has been fully used. Any such excess costs shall also include
a net increase in the Tenant Improvement Cost resulting from a change order
requested by Tenant or by reason of a change in the Final Tenant Plans requested
by Tenant. If the Tenant Improvement Cost is less than the Fit-Out Allowance,
the savings shall be applied as a credit against the next installments of
minimum rent due under this Lease, or, at Tenant's option, any unused allowance
may be applied by Tenant for reimbursement (upon presentation of Tenant's
statement showing the particular amounts and categories of expenses in question)
of other costs associated with its move to the Premises, including furniture,
moving expenses, telephone systems, and the like.
<PAGE>
(g) Tenant's Representative. Tenant may, by notice to Landlord,
-----------------------
designate not more than two individuals (in addition to Tenant's Architect and
officers and designated employees of Tenant), to be known as "Tenant's
Representatives," and to be afforded reasonable access, at their sole expense,
to the Premises during the course of construction of the Tenant Improvement Work
and Special Tenant Shell Features and to inspect and monitor the performance of
the Tenant Improvement Work and Special Tenant Shell Features in progress or
completed and for taking field measurements; provided that any such access shall
be during normal business hours, shall be upon reasonable prior notice to a
designated construction representative of Landlord (whose identity shall be
furnished to Tenant upon commencement of construction of the Project Work), and
shall require escorting by Landlord's construction representative or his
designees. Tenant shall cause Tenant's Representatives to work in harmony with,
and avoid any interference to, Landlord's Contractor and its subcontractors,
engineers and others who are involved in the Project Work, and any delays caused
by such interference shall be considered a Tenant Delay. Tenant's
Representatives shall have no right to approve or disapprove change orders or
otherwise be afforded any contractual rights in connection with the Project Work
or this Lease and shall not have the right to legally bind Tenant. Tenant's
Representatives shall have the right to attend periodic job meetings with
Landlord's Contractor (as well as ensuing inspections) and shall be entitled to
reasonable advance notice of such meetings. Inspections and other proper and
lawful activities of Tenant's Representatives in accordance with the foregoing
provisions shall not abrogate the responsibilities of Landlord and Landlord's
Contractor for the Project Work.
3. Term.
----
(a) Commencement. The commencement of the term of this Lease
------------
("Commencement Date") shall be fourteen (14) days following the Date of
Substantial Completion (as hereafter defined) or, if earlier, the date upon
which Tenant shall have taken occupancy of the Building and commenced actual
business operations therein. The parties have targeted October 24, 1997 for
Substantial Completion. Landlord shall keep Tenant reasonably advised of
anticipated changes in the Date of Substantial Completion and shall furnish
notice to Tenant at least ten (10) days' in advance of the actual Date of
Substantial Completion. Following the Date of Substantial Completion and
continuing for a 2 week period thereafter, Landlord shall run the HVAC system in
the Building on a 24 hour per day basis in order to reduce new construction-
related vapors.
(b) Duration. Unless sooner terminated or extended in accordance with
--------
the terms hereof, the term of this Lease shall end without the necessity for
notice from either party to the
<PAGE>
other at 11:59 p.m. local time on the last day of the one hundred eightieth
(180th) full calendar month following the Commencement Date (herein called the
"Expiration Date").
(c) Memorandum. When the Commencement Date is established, Landlord
----------
and Tenant shall promptly execute and acknowledge a memorandum thereof in form
substantially as set forth in Schedule 3(c) hereto.
-------------
(d) Early Entry for Performance of Tenant Finish. Tenant and its
--------------------------------------------
authorized agents, employees and contractors shall have the right, at Tenant's
own risk, expense and responsibility, and with insurance coverages in place
reasonably acceptable to Landlord, (i) at all reasonable times prior to the
Commencement Date to enter Premises to inspect the progress of construction and
to take measurements, and (ii) within the sixty (60) day period prior to the
anticipated Date of Substantial Completion (or earlier, with Landlord's
approval, if deemed appropriate by Tenant in order to expedite its work or the
work of Landlord's Contractor), to enter the Premises to install
telecommunications cabling and wiring and to perform any other work necessary to
prepare the Premises for occupancy by Tenant, but the performance of any such
work or installations shall be subject to (A) obtaining Landlord's written
consent for any work other than telecommunications cabling, wiring and
installation of work stations, which consent shall not to be unreasonably
withheld or delayed, and (B) the requirements of Section 13 of this Lease and in
all cases consistent with good construction practices and the orderly completion
of the Building. In so doing, Tenant shall not interfere with or delay the work
to be performed hereunder by Landlord's Contractor or by other parties engaged
by Landlord, and Tenant shall use contractors and workmen compatible with the
contractors and workmen engaged in the work to be performed hereunder by
Landlord. Tenant shall have no obligation to pay minimum annual rent or other
sums payable under this Lease, or (except as to the insurance provisions of
Section 7 or the indemnity provisions of Section 18) to otherwise perform the
terms of this Lease as the result of performing such work. Landlord shall use
commercially reasonable efforts to stage the completion of the Project Work to
permit Tenant's contractors reasonable access to the Building in time to
complete the installation of Tenant's furniture, fixtures and equipment and the
performance of any other work to be performed by Tenant's contractors prior to
the Commencement Date.
(e) Date of Substantial Completion. For purposes of this Lease, the
------------------------------
"Date of Substantial Completion" shall be the date when the Project Work and the
improvements required to be constructed by Landlord under Section 2 hereof are
substantially complete, as evidenced by the occurrence of the following: (i)
<PAGE>
Landlord has delivered the Premises to Tenant with all the Project Work
substantially completed (meaning such state of completion, exclusive of
improvements to be performed by Tenant or Tenant's contractors, as will allow
Tenant to utilize the Building for its intended purpose, except for "punch list"
items which do not materially affect Tenant's use or occupancy of the Premises
and which can be completed without material interference with Tenant's
business), (ii) Landlord has delivered to Tenant a copy of a temporary or
permanent Certificate of Occupancy for the Building lawfully permitting Tenant's
intended uses, (iii) all systems and facilities required for Tenant's occupancy
have been installed and are operational, and (iv) paved access to the Building
and Land, and parking for at least 145 automobiles, exist as contemplated by the
Building Shell and Site Specifications. Tenant shall cause Tenant's Architect
to perform periodic inspections (at least monthly) of the construction of
improvements performed pursuant to the Final Tenant Plans and to give Landlord
and Landlord's Contractor prompt written notification of any deviations
therefrom or of any other observed condition which is objectionable.
(f) Punch List; Latent Defects. Upon receipt by Tenant of Landlord's
--------------------------
10 day advance notification of the Date of Substantial Completion, Tenant and
Tenant's Architect and Tenant's Representatives shall perform a comprehensive
inspection of the Premises in conjunction with Landlord and its designated
representatives. Based upon such inspection, Tenant and Landlord shall document
a "punch list" of incomplete Project Work. In addition, Tenant and Landlord and
their respective representatives shall, at Tenant's request, reinspect the
Premises and document an updated punch list of remaining incomplete,
nonconforming or defective Project Work within sixty (60) days after the
Commencement Date. Landlord shall promptly undertake and diligently prosecute
the completion of all such punch list items. Landlord shall likewise correct
all latent defects in the Project Work which were not reasonably susceptible of
discovery upon visual inspection within said sixty (60) day period, provided
Tenant notifies Landlord thereof within sixty (60) days after discovery but in
no event later than twenty four (24) months following the Commencement Date.
The foregoing provisions shall not limit the terms of any contractor's,
manufacturer's or installer's warranties which are obtained in connection with
the Project Work. Landlord shall use reasonable efforts to enforce all such
warranties in accordance with their terms. Landlord shall obtain a warranty
from Landlord's Contractor covering defects in workmanship and materials for two
(2) years following the Date of Substantial Completion, and shall obtain from
the vendor or manufacturer, as the case may be, a transferable five (5) year
warranty on the HVAC compressors, a 15 year transferable warranty on the roof,
and a 5 year transferable
<PAGE>
warranty on window seals. Landlord shall obtain from
Landlord's Contractor and shall furnish to Tenant a manual describing the
Building systems and their use and maintenance, including copies of all
warranties (which shall, to the extent possible as to systems other than those
specifically referred to above, be transferable).
(g) Delays. No delay in the commencement, construction or completion
-------
of the Project Work shall affect the obligations of the parties hereunder, or
give rise to any damages or other compensation, except as otherwise set forth in
this subparagraph (g).
(1) If there shall be delays in the progress of the Project Work such
that the Date of Substantial Completion shall occur after December 1,
1997 (or, if construction of the Project Work shall be commenced later
than April 1, 1997, if such delays cause the Date of Substantial
Completion to occur later than the expiration of eight (8) months
thereafter), and if such delays are attributable to causes within
Landlord's reasonable control (not including the period of any Tenant
Delay or Force Majeure), then Tenant shall be entitled to one (1) day
of abatement of minimum annual rent for each one (1) day of such delay
beyond December 1, 1997 (or beyond the 8th month following
commencement of construction), such abatement to be available against
the minimum annual rent otherwise first payable under this Lease.
Notwithstanding the foregoing, the abatement provisions referred to in
this subsection (i.e., one day of abatement of minimum annual rent for
each day of delay beyond December 1, 1997) shall also apply even if
the delay in question is due to Force Majeure, but only to the extent
that Landlord is able to recover rent insurance proceeds for rental
loss attributable to the delay for which Tenant receives such
abatement. Landlord agrees to use its reasonable commercial efforts
to obtain such rent loss insurance (it being acknowledged that such
insurance is not available for all types of Force Majeure conditions).
(2) If there shall be delays in the progress of the Project Work such
that the Date of Substantial Completion shall occur after December 1,
1997 (or, if construction of the Project Work shall be commenced later
than April 1, 1997, if such delays cause the Date of Substantial
Completion to occur later than the expiration of eight (8) months
thereafter), and if such delays are attributable to causes within
Tenant's reasonable control (not including Force Majeure), then
<PAGE>
Tenant shall pay an additional (1) day of minimum annual rent for each
one (1) day of such delay beyond December 1, 1997 (or beyond the 8th
month following commencement of construction), such additional rent to
be payable to Landlord on the Commencement Date. (3) If there shall be
delays in the progress of the Project Work such that the Date of
Substantial Completion shall occur more than eighteen (18) months from
the date of commencement of construction (the "Outside Delay Date"),
regardless of Force Majeure but not including the period of any Tenant
Delay, Tenant shall have the right to terminate this Lease without
further liability of either party; provided that, (A) if Landlord
shall notify Tenant, at any time, of an anticipated delay which, in
Landlord's opinion, is likely to extend beyond the Outside Delay Date
(including in such notice a detailed explanation of the underlying
causes of the delay, the anticipated action plan and the anticipated
Date of Substantial Completion, which shall thereupon constitute a new
Outside Delay Date for purposes of this Lease), then Tenant's right of
termination may be exercised only within thirty (30) days after
receipt of such notice by Landlord, and (B) if Tenant shall decline to
exercise its right of termination within said 30 day period, the new
Outside Completion Date shall be as specified in Landlord's notice as
set forth above.
(4) Commencement of construction of the Project Work, as referred to
in this Lease, does not include preliminary site work, preparation or
grading prior to closing of Landlord's contemplated construction loan.
4. Use of Premises.
---------------
(a) General. Tenant shall utilize the Premises throughout the term
-------
for and only for general office purposes.
(b) System Changes. Subject to all of the other requirements of this
--------------
Lease regarding alterations, Tenant shall not exceed the capacity of any of the
electrical conductors and equipment in the Premises or Building and shall not
install any equipment of any kind or nature which would necessitate any changes,
replacements or additions to (or which might cause damage to) the plumbing
systems, heating systems, air-conditioning systems or the electrical systems
servicing the Premises or the Building without first making arrangements with
Landlord to pay Landlord for all costs in connection with such replacements,
changes or additions and subsequent repairs
<PAGE>
thereto.
5. Rent.
----
(a) Minimum Annual Rent. Beginning on the Commencement Date, the
-------------------
minimum annual rent shall accrue under this Lease as follows:
(i) for and during the period from the Commencement Date through the
end of the five (5) year period thereafter, Twenty Three and 75/100 Dollars
($23.75) multiplied by the area of the Building in rentable square feet, or One
Million Thirty Two Thousand Six Hundred Fifty Dollars ($1,032,650) per year and
$86,054.17 per month (based on the square footage referred to in this Lease);
(ii) for and during the five (5) year period following the period
referred to in subclause (i) above, Twenty Five and 75/100 Dollars ($25.75)
multiplied by the area of the Building in rentable square feet, or One Million
One Hundred Nineteen Thousand Six Hundred Ten Dollars ($1,119,610) per year and
$93,300.83 per month (based on said square footage); and
(iii) for and during the balance of the initial term of this lease,
Twenty Eight and 00/100 Dollars ($28.00) multiplied by the area of the Building
in rentable square feet, or One Million Two Hundred Seventeen Thousand Four
Hundred Forty Dollars ($1,217,440) per year and $101,453.33 per month (based on
said square footage).
Such minimum annual rent shall be paid without notice or demand, and without
setoff, in equal monthly installments in advance, on the first day of each
calendar month during the term of this Lease, the first such installment to be
payable upon the Commencement Date. If the Commencement Date shall fall on a
day other than the first day of a calendar month, the rent shall be apportioned
pro rata on a per diem basis. In addition, Tenant shall pay Landlord without
setoff the additional rent as hereinafter set forth. Unless otherwise
specifically provided, all sums shall be paid to Landlord at the address given
in Section 30 hereof.
(b) Additional Rent on Account of Taxes and Operating Costs.
-------------------------------------------------------
(i) Share of Annual Operating Costs and Taxes. For and with respect
-----------------------------------------
to each calendar year within which the term of this Lease (and any extension or
renewal thereof, except as otherwise specifically set forth herein) falls, there
shall accrue, as additional rent, (1) the amount by which Annual Operating Costs
for such year exceeds Annual Operating Costs for
<PAGE>
the calendar year 1998, and (2) the amount by which Taxes for such year exceeds
Taxes for the calendar year 1998; provided that if Taxes for any year subsequent
to the calendar year 1998 shall be less than Taxes for the calendar year 1998,
the savings shall accrue as a credit against minimum annual rent payable by
Tenant. The additional rent under this subsection (i) shall be prorated on a
per-diem basis for any partial calendar year included within the beginning and
end of the term. Annual Operating Costs for said base year of 1998 shall be
increased by Landlord in good faith to take into consideration reduced operating
expenses accountable solely to the fact that the Building and its related
equipment are in new condition and that many of the costs that would otherwise
be expended in said base year for repairs and maintenance will be covered by
initial warranties covering such new Building and equipment; provided further,
however, that if it shall be determined, within the first two (2) years
following the base year 1998, that the adjustment by Landlord was significantly
overstated or understated based upon actual experience, Landlord shall make a
further good faith retroactive adjustment to the base year in order to correct
the discrepancy.
(ii) Definition of Annual Operating Costs. As used herein, the term
-------------------------------------
"Annual Operating Costs" shall mean the aggregate of all costs paid or incurred
by Landlord (without mark-up by Landlord) in operating and maintaining the
Premises during each calendar year of the term, determined on a consistent basis
in accordance with sound accounting practices in accordance with the further
terms of this Lease. Such costs shall include by way of example rather than
limitation: insurance premiums for casualty, liability and other risks
(including rent protection), but excluding insurance premiums paid directly by
Tenant to its insurance carrier in substitution for insurance to be otherwise
provided by Landlord (and with the consent of Landlord); costs for repairs,
maintenance, service contracts; license and permit fees (not including
construction permits); management fees; governmental permits; the portion of
common area expenses of the Office Park allocated to the Premises as herein set
forth; janitorial service; trash removal; security services; costs of furnishing
water, sewer, fuel and other utility services (excluding electricity which is
separately metered to the Building and paid by Tenant and excluding gas which,
if available to the Building, shall be similarly metered and separately paid by
Tenant); landscaping and grounds maintenance; and the costs of any other items
attributable to operating or maintaining any or all of the Premises, exclusive
of Taxes. Annual Operating Costs shall also include the annual amortization
(over the anticipated useful life) of the cost (including financing charges) of
a capital improvement within any of the following categories: (A) a labor
saving device or improvement which reduces or eliminates a component of
Operating Costs (but the annual cost included on
<PAGE>
account thereof shall not exceed the anticipated annual savings); (B) an
installation or improvement required by reason of any law, ordinance or
regulation which is generally applicable to similar office buildings and which
is not in effect as of the date of signing this Lease; or (C) an installation or
improvement enhancing the safety or security of Tenant, its employees or
invitees, made with Tenant's approval (which may be withheld in Tenant's
discretion). Whenever an Operating Cost or a component of Taxes is attributable
not only to the Building or Land, but also to any one or more of the other
buildings owned by Landlord or Landlord's affiliates which comprise the Office
Park (such as, for example, landscaping costs), then the portion thereof
allocable to the Premises, for the purpose of computing Annual Operating Costs
and Taxes, shall be determined in accordance with any specific allocation set
forth in the "Office Park Declaration" as referred to in Paragraph 27 below, or
in the absence of such specific allocation, in accordance with a good faith
allocation by Landlord to reflect the share equitably attributable to the
Premises, and such allocation shall be accompanied by Landlord's statement
indicating the basis for same in form and detail reasonably satisfactory to
Tenant.
(iii) Definition of Taxes. As used herein, the term Taxes means the
-------------------
aggregate of all ad valorem real estate taxes and assessments, levies, and any
and all other governmental charges, general or special, ordinary or
extraordinary, foreseen or unforeseen, of any kind and nature which may, by any
present or future federal, state, township, county or other governmental or
taxing authority or agency thereof, or under any statute, law, ordinance or
regulation, be assessed, levied or imposed upon or become a lien against the
Building or Land or any portion thereof or any future additions or improvements
thereto, or upon this Lease or upon any personal property within the Premises
(but not including any federal, state or local income taxes imposed upon
Landlord); provided that any personal property taxes or other taxes and
assessments imposed upon Tenant by reason of its business operations or by
reason of its ownership of property shall be the sole responsibility of Tenant
and shall not be a part of Operating Costs or Taxes. Such real estate taxes and
assessments shall include, without limitation, any assessment imposed by any
public or private entity by reason of the Building being located in a special
services district, transportation district or similar designation. If, due to a
future change in the method of taxation, any other tax, however designated, is
imposed in substitution for real estate taxes, then such other tax shall be
included within Taxes.
(iv) Exclusions. Annual Operating Costs and Taxes shall be "net" and
-----------
shall be reduced by reimbursements, recoupments, discounts, and the like
received by Landlord (other
<PAGE>
than reimbursements by Tenant pursuant to this Section 5). Notwithstanding
anything contained in the foregoing, the following shall be excluded from Annual
Operating Costs and Taxes:
(1) costs of Landlord's general corporate overhead and general
administrative expenses, which would not be chargeable to
operating expenses of the Building in accordance with generally
accepted accounting principles, consistently applied;
(2) auditing fees, other than those in connection with the
maintenance and operation of the Building or in connection with
the preparation of Landlord's statements for Annual Operating
Costs and Taxes;
(3) wages and costs associated with home office, off-site
employees of Landlord other than professional services provided
by such employees which would otherwise be provided by outside
professionals;
(4) costs incurred in advertising and promotional activities for
the Building;
(5) the cost of repairing or restoring any portion of the
Premises damaged by a hazard, to the extent such hazard is
covered by insurance available to Landlord or to the extent such
hazard is customarily insured against by landlords of office
buildings of similar size, age and construction in the area,
provided that any portion of such cost not covered by reason of
such insurance or customary or actual deductibles, whichever is
less (and the entire deductible amount, in the case of casualty
insurance maintained by Tenant) shall be included in Annual
Operating Costs;
(6) the cost of repairs, alterations or replacements required as
a result of the exercise of any right of eminent domain to the
extent Landlord receives condemnation proceeds therefor;
(7) costs of correcting defects in the design or construction of
the Building (including latent defects in the Building) or in the
Building equipment, to the extent covered by Landlord's
<PAGE>
correction obligation in subparagraph 3 (f) of this Lease;
(8) interest on debt or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying leases or
lease;
(9) depreciation and amortization of the Building and personalty
related to the Building, except to the extent specifically
authorized under subsection (ii) above;
(10) interest or penalties incurred by Landlord for late payments
of taxes, insurance, or any other sum payable by Landlord, unless
resulting from default by Tenant in its monetary obligations
under this Lease;
(11) costs incurred due to the violation or noncompliance by
Landlord with any code, law, regulation or ordinance enacted
prior to this Lease which results, on the Commencement Date, in
the noncompliance of the Building with such law, code, regulation
or ordinance, but not including noncompliance resulting from
Tenant's particular business activities, and not including
noncompliance resulting from the plans and specifications
prepared by Tenant's Architect;
(12) overhead, fees and profit paid to Landlord or its
subsidiaries or affiliates for management or other services or
for supplies or materials, in excess of reasonably competitive
amounts for the Building as a single-tenant building (so long as
it is single-tenanted);
(13) rental payments for the leasing of equipment which, if
purchased, would be excluded from Operating Costs as capital
expenditures; and
(14) legal fees relating to the defense of Landlord's title to,
or interest in, the Premises.
(v) Payments and Estimates. Landlord shall make from time to time a
-----------------------
reasonable estimate of the additional rent on account of Annual Operating Costs
and Taxes which may become due hereunder with respect to any calendar year, and,
upon notification to Tenant thereof, Tenant shall pay to Landlord, at the time
the monthly installments of minimum annual rent are payable, the amount obtained
by dividing such estimate of additional rent by the number of months remaining
in such
<PAGE>
calendar year after the giving of such notice to Tenant. Tenant shall continue
to pay the estimated monthly amount until Tenant receives a new estimate from
Landlord. Landlord shall cause the actual amount of Annual Operating Costs and
Taxes to be computed and forwarded in writing to Tenant as soon as practicable
following the end of each calendar year (but in no event later than April 30 of
such year), and Tenant or Landlord, as the case may be, shall within thirty (30)
days after receipt of same, pay to the other the amount of any deficiency or
overpayment with respect to such calendar year. Landlord agrees to make
available its books and records relating to Annual Operating Costs and Taxes for
Tenant's audit, at Landlord's offices in the Philadelphia metropolitan area,
upon notice given by Tenant for such purpose within the fifteen (15) month
period following delivery of the statement of Annual Operating Costs or Taxes in
question, Tenant may, but only within thirty (30) days following the giving of
such notice, commence and diligently complete its audit. If Tenant desires to
dispute the accuracy or validity of Landlord's statement, Tenant must furnish to
Landlord its written objection and the basis therefor not later than 90 days
after the giving of Tenant's original notice of intention to audit, following
which the parties shall endeavor in good faith to resolve the dispute, and if
unresolved, the dispute shall be subject to arbitration as provided in Paragraph
28 (d) herein. Any sums determined to be due as a result of such arbitration or
other adjustment shall be promptly paid or credited, with interest from the date
of adjustment or determination at the rate specified in subsection (c) below.
Tenant's failure to provide notice of audit within said 15 month period shall
constitute Tenant's unconditional acceptance of Landlord's statement.
(v) Final Determinations. For purposes of determining Tenant's
--------------------
share of increases in Taxes, any assessment shall be deemed to be the amount
initially assessed until such time as an abatement, refund, rebate or increase,
if any (retroactive or otherwise), shall be finally determined to be due, and
upon such final determination, Landlord shall promptly notify Tenant of the
amount, if any, due to Tenant or Landlord, as the case may be, as a result of
the adjustment, and appropriate payment to Landlord or Tenant, as the case may
be, shall thereafter be promptly made. In the event of any reduction in taxes
by reason of legal or other action taken by Landlord in contest of taxes, there
shall be added to and be deemed a part of the taxes in question the amount of
Landlord's reasonable legal and other costs and expenses in obtaining the
reduction (but not an amount in excess of the tax savings). Landlord shall have
no duty to contest or appeal any taxes, but Tenant may, at its election and upon
notice to and in cooperation with Landlord, contest or appeal any taxes assessed
against the Land and Building. Tenant will have the right to directly benefit
from
<PAGE>
any tax abatement program applicable to the Building (if any, it being
acknowledged that no such program is currently contemplated); in such case the
minimum annual rent will be reduced by the real estate tax abatement and the
base year amount will also be reduced to reflect the lower real estate taxes.
At Tenant's option, any tax or assessment which is payable in installments shall
be paid over the longest term permitted by the taxing authority, provided that
any interest or other deferred payment charge shall be the sole responsibility
of Tenant.
(c) Overdue Payments. If minimum annual rent, additional rent or any
----------------
other sum due from Tenant to Landlord, or any refunds or other payments due from
Landlord to Tenant, shall be overdue for more than ten (10) days beyond the time
the same were due (which, in the case of refunds or other sums due to Tenant,
shall run from the date it is actually determined that the sum is due and
Landlord is notified thereof), interest shall accrue and be payable thereon at a
rate which is two percent (2%) per annum above the prime rate of interest in
effect from time to time for major commercial banks as published in the Wall
----
Street Journal (which is presently referred to as the "Prime Rate" in the "Money
- --------------
Rates" column) or, if no longer published in the Wall Street Journal, in a
similar publication (the "Default Rate").
6. Redecoration Allowance. As of each of the fifth (5th) and tenth
----------------------
(10th) anniversaries of the Commencement Date, Landlord shall provide Tenant
with an allowance of One Dollar ($1.00) per rentable square foot of the Building
(the "Redecoration Allowance") for any interior redecoration of the Building
which Tenant thereafter proposes to perform or which Tenant has performed within
the six (6) month period immediately preceding such 5th and 10th anniversaries.
Funds from the Redecoration Allowance shall be paid to Tenant upon presentation
to Landlord of receipts or invoices for the out-of-pocket costs of such
redecoration.
7. Insurance.
---------
(a) Required Coverage. Tenant shall provide and maintain, at Tenant's
-----------------
sole cost and expense, during the term of this Lease, with an insurance company
or companies licensed to do business in the Commonwealth of Pennsylvania
reasonably satisfactory to Landlord and the holder of any mortgage or mortgages
created by Landlord against the Premises or any part thereof:
(i) general liability insurance covering accidents or occurrences in,
upon or about the Premises, in an amount at least equal to Three Million Dollars
($3,000,000) with respect to injury, death or property damage, combined single
<PAGE>
limit;
(ii) workers' compensation insurance in statutory amounts or other
insurance against liability arising from claims of any of Tenant's employees and
contractors;
(iii) insurance covering at least 80% of the value of Tenant's
contents in the Building against loss by fire and extended coverage type risks;
and
(iv) increases in coverage amounts for the types of insurance listed
above, reasonably required by Landlord's mortgagee or reasonably required by
Landlord and customarily maintained by prudent lessees of similar properties.
(b) Landlord's Insurance; Tenant's Optional Insurance. Landlord shall
-------------------------------------------------
keep the Building and other improvements on the Land insured against damage and
destruction from "all risks" for the full replacement value from time to time
and in all cases sufficient to meet the requirements of any of Landlord's
mortgages on the Premises, including rent protection for minimum annual rent and
additional rent for a period of not less than 12 months. At Tenant's option,
exercisable by written notice to Landlord and subject to approval by Landlord's
first mortgagee, Tenant may maintain such casualty insurance with an insurer and
on policy forms reasonably approved by Landlord and its first mortgagee. If and
during such time as Tenant maintains such casualty insurance, the premiums
therefor shall be payable directly by Tenant and shall not be included in Annual
Operating Costs, and, correspondingly, the Annual Operating Costs for the 1998
base year, as well as the minimum annual rent, shall be reduced by the amount
allocated to such casualty insurance as part of the 1998 base year Annual
Operating Costs.
(c) Insureds. All policies of insurance required herein shall name
--------
Tenant, Landlord and Landlord's mortgagee(s) as additional insureds, as their
interest may appear (except as to contents, business interruption and workmen's
compensation insurance which shall name Tenant only) and shall provide that no
cancellation or amendment may be made except upon thirty (30) days prior written
notice to Landlord and Landlord's mortgagee(s). Casualty insurance shall
contain a loss payee clause whereby proceeds shall be adjusted by, and payable
to, Landlord and/or its mortgagee, to be utilized for the benefit of the
insureds in accordance with this Lease. Tenant shall deliver original policies
of insurance or certificates thereof to Landlord on the Commencement Date and
thereafter at least 20 days prior to expiration of the applicable policy.
(d) Waiver of Subrogation. Each of the parties hereto hereby releases
---------------------
the other, to the extent of the releasing party's insurance coverage, from any
and all liability for any loss or
<PAGE>
damage covered by such insurance which may be inflicted upon the property of
such party even if such loss or damage shall be brought about by the fault or
negligence of the other party, its agents or employees; provided, however, that
this release shall be effective only with respect to loss or damage occurring
during such time as the appropriate policy of insurance shall contain a clause
to the effect that this release shall not affect the policy or the right of the
insured to recover thereunder. If any policy does not permit such a waiver by
reason of future industry-wide custom, and if the party to benefit therefrom
requests that such a waiver be obtained, the other party agrees to obtain an
endorsement to its insurance policies permitting such waiver of subrogation if
it is available. If an additional premium is charged for such waiver, the party
benefiting therefrom agrees to pay the amount of such additional premium
promptly upon being billed therefor.
8. Repairs and Maintenance.
-----------------------
(a) Tenant's Obligation. Tenant, at its sole cost and expense and
-------------------
throughout the term of this Lease and any renewals or extensions thereof, shall
keep and maintain the Building in a neat, safe and orderly condition, and shall
use all reasonable precautions to prevent waste, damage or injury to the
Premises. Tenant shall make all necessary repairs or replacements to the
Building which are not expressly the responsibility of the Landlord hereunder
(i.e., not including structural, HVAC and other repairs referred to in
subsection (b) below), and without limiting the foregoing, shall also make any
repairs or replacements to any of Tenant's property and to any fixtures
installed by Tenant which are not part of the initial Project Work and which
require a degree of maintenance or repair which is substantially greater than
that for the initial Project Work (collectively, "Special Installations").
Repairs or replacements to the Premises arising out of or caused by the
negligence or misuse of Tenant or any employee, agent, contractor, or invitee of
Tenant, shall be made at the sole cost and expense of Tenant.
(b) Landlord's Repairs. Landlord, throughout the term of this Lease
------------------
and any renewals or extensions thereof, shall make all necessary structural
repairs and replacements to the Building, any necessary repairs or replacements
to the mechanical, HVAC, electrical and plumbing systems in or servicing the
Premises, excluding repairs or replacements of Special Installations, and
repairs and replacements to the roof, flashing, exterior walls, foundations,
footings, sidewalks and paving. However, Landlord shall have no responsibility
to make any repairs or replacements unless and until Landlord becomes aware of
the need for such repair or replacement. Landlord shall operate and maintain
the Premises in a first-class manner as
<PAGE>
hereafter set forth and, pursuant thereto, shall maintain in effect such service
and maintenance contracts on the elevators, HVAC and other major mechanical and
electrical systems as are customarily maintained for similar properties in
first-class suburban office parks. Landlord shall keep repaired and maintain all
sidewalks, parking areas, curbs and access ways adjoining the Premises in a
reasonably clean and orderly condition, reasonably free of accumulation of dirt,
rubbish, snow and ice, and shall keep and maintain all landscaped areas in a
neat and orderly condition. All costs and expenses incurred by Landlord in
connection with the foregoing shall be includable as part of Annual Operating
Costs except as otherwise specifically excluded by the terms of this Lease. Any
work or improvements required solely by reason of Tenant's noncompliance with
any of the terms and provisions of this Lease or by reason of a particular use
of the Premises by Tenant other than general office use, shall be paid for
entirely by Tenant, promptly upon demand.
(c) Capital Items. Notwithstanding the provisions set forth above or
-------------
elsewhere contained in this Lease, any capital improvements required solely by
reason of Tenant's noncompliance with any of the terms and provisions of this
Lease or by reason of a particular use of the Premises by Tenant, promptly upon
demand, and shall not be subject to apportionment or amortization.
<PAGE>
9. Electricity and Gas.
-------------------
(a) Separate Metering. Landlord, as part of the Project Work, shall
------------------
cause the Building and associated amenities and fixtures on the Premises to be
separately metered for electricity sufficient to provide 6.0 watts per useable
square foot of the Building for convenience outlets and for lighting within the
Building. Tenant shall arrange to be billed directly for all such metered
electricity use, demand and consumption. Tenant shall pay for all such charges,
promptly upon being billed, directly to the utility provider. If for any reason
bills are not rendered separately to Tenant by the provider but are instead
rendered to Landlord, then Tenant shall pay the charges in question (without
markup by Landlord) within thirty (30) days after billing by Landlord. It is
not presently contemplated that gas service will be provided to the Building;
however, if gas service is made available to the Building, it shall be
separately metered and paid for by Tenant as in the case of electricity (it
being recognized that gas is a supplement and/or alternative to electricity).
(b) Limitation Regarding Services. In the event of any interruption
-----------------------------
or suspension of service of any of the heating, ventilating, air-conditioning,
electric, water, sanitary, elevator or other Building systems, whenever and for
so long as may be necessary by reason of accident, emergencies, strikes or the
making of repairs or changes, or by reason of difficulty in securing proper
supplies of fuel, steam, water, electricity, labor or supplies, or by reason of
any other cause whether similar or dissimilar to the foregoing, including
without limitation mechanical failure and governmental restrictions on the use
of materials or the use of any of the Building systems, Landlord shall have no
liability to Tenant. In each instance, however, Landlord shall exercise
reasonable diligence to the extent practicable and within Landlord's control to
eliminate the cause of interruption and to effect restoration of service. Tenant
shall not be entitled to any diminution or abatement of rent or other
compensation or damages nor shall this Lease or any of the obligations of the
Tenant be affected or reduced by reason of the interruption, stoppage or
suspension of any of the Building systems or services arising out of the causes
set forth in this Section except as set forth in Subsection (c) below.
(c) Interruption in Services; Rent Abatement. Notwithstanding
----------------------------------------
anything contained herein to the contrary, if a cessation of the electric,
water, heating, ventilation or air conditioning service occurs, and if (i) such
cessation is not due to any fault or neglect by Tenant, its agents, employees or
<PAGE>
invitees, (ii) restoration of such service is within Landlord's reasonable
control but Landlord shall fail after reasonable notice to restore such service,
and if (iii) such occurrence results in a "Shut-Down Condition" which shall
exist for more than five (5) consecutive business days, then the minimum annual
rent hereunder shall abate for each day that the Shut-Down Condition shall
thereafter persist (i.e., each day after the five (5) business day period).
"Shut-Down Condition" means that (i) Tenant's personnel cannot reasonably
perform their normal functions in the Building, and (ii) Tenant shall have
substantially closed its business operations in the Building as a result.
10. Janitorial and Other Services.
-----------------------------
(a) Janitorial and Trash Removal Services. Landlord shall contract,
-------------------------------------
as part of Annual Operating Costs, for trash removal and janitorial services, a
schedule of which (which shall be subject to modification from time to time with
the consent of Tenant) is attached hereto as Schedule 10 (a). Landlord may
---------------
elect to contract for trash removal or other services common to other buildings
in the Office Park, so as to promote efficient or economic operations (but not
so as to overlap services in a manner which would increase the cost to Tenant),
and the cost thereof shall be apportioned to Tenant as in the case of other
common area costs. Tenant may elect, on reasonable prior notice to Landlord, to
perform janitorial services for the Building through a reputable and qualified
contractor of its own selection and at Tenant's sole cost, in which case
janitorial costs for the Building shall not be included as part of Annual
Operating Costs, and the minimum annual rent, as well as the Annual Operating
Costs for the 1998 base year, shall be reduced by the janitorial cost component
of the 1998 base year allocation.
(b) First Class Standard. Landlord shall maintain and operate the
--------------------
Premises as a first-class mid-rise suburban office building consistent with the
general level of maintenance and operation of other first-class office buildings
in the same geographic area, and shall furnish (as part of Annual Operating
Costs) all labor, material and supervision necessary to do so, including,
without limitation, elevator service, security, and other services required from
Landlord under this Lease.
11. Governmental Regulations.
------------------------
(a) General. At the Commencement Date, the Premises will be delivered
-------
by Landlord in compliance with all laws, ordinances, notices, orders, rules,
regulations and requirements of any federal, state or municipal government or
any department, commission, board or officer thereof, including without
<PAGE>
limitation the Americans with Disabilities Act, or of the National Board of Fire
Underwriters or any other body exercising similar functions, as well as all
fire, environmental, health and safety laws (collectively, "Laws").
Notwithstanding the foregoing, Tenant, at its expense, shall be responsible for
the compliance with Laws (i) respecting all improvements constructed in
accordance with plans and specifications provided by Tenant's Architect, and
(ii) respecting all alterations and improvements made by Tenant or Tenant's
contractors, agents or employees, whether made during early entry prior to the
Commencement Date or thereafter. From and after the Commencement Date, Tenant,
at its own expense, shall cause the Premises and all portions thereof to remain
in compliance with all Laws, including any changes in Laws thereafter enacted,
and including any compliance required by reason of the specific use of the
Premises by Tenant; provided that Landlord, as part of Annual Operating Costs,
shall cause the Premises to remain in compliance with all Laws respecting
general office occupancy and which are not violated by acts or omissions of
Tenant.
(b) Environmental. Landlord represents and warrants to Tenant that
-------------
Landlord has no knowledge of the presence on the Premises or Office Park of any
Hazardous Substances, as hereafter defined, other than Permitted Substances,
hereafter defined, used within the Office Park, and that Landlord shall be
responsible for any actual violation by Landlord of environmental laws
respecting the Premises. Landlord shall deliver a copy of a Phase 1
environmental site assessment of the Premises to be prepared for Landlord's
mortgage lender to Tenant as soon as the same is available. Tenant shall not
use, generate, store, treat, dispose of, or otherwise introduce into, on or
about the Premises or Office Park any Hazardous Substances (as hereinafter
defined), nor shall Tenant cause or permit any other person or entity to do so.
Hazardous Substances means any hazardous waste, hazardous substance, pollutant,
contaminant or solid waste as defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S)9601 et seq., and any
-- ---
other applicable federal, state or local laws or ordinances, and in the rules
and regulations thereunder, as may be amended, supplemented or superseded from
time to time, including without limitation any polychlorinated biphenyls
(PCB's), urea formaldehyde, or asbestos, or any other substance which may at any
time be a violation or support a claim or cause of action under common law or
any federal, state or local environmental statute, regulation, ordinance or
other environmental regulatory requirement, whether currently or as a result of
future removal. However, the foregoing restrictions shall not apply to the
storage and use of common office and cleaning supplies necessary for routine
office operations, which are properly and lawfully stored in reasonable
quantities ("Permitted Substances"). Tenant agrees to clean up all Hazardous
<PAGE>
Substances (other than Permitted Substances) on the Premises or Office Park if
caused by Tenant (or if Tenant shall be otherwise responsible therefor), in a
manner which shall comply with all applicable environmental laws and
requirements. Upon request, Tenant shall cooperate with Landlord in furnishing
to a governmental authority any information which may be required regarding
environmental matters relating to the Premises. Landlord and Tenant shall
mutually indemnify and hold each other harmless from any loss, damage or
liability arising out of their respective non-compliance with the provisions of
this Section 11(b). The provisions of this Lease regarding environmental
matters shall survive the expiration or sooner termination of this Lease.
12. Directory; Signs; Building Name. Except for such monument signage as
-------------------------------
is contemplated under the Building Shell and Site Specifications (including one
(1) lighted sign located on the retaining wall at Cassatt Avenue and Route 252),
no signs shall be placed, erected, maintained or painted by Tenant at any place
upon the Building or the Premises which are visible from the exterior of the
Building. Tenant and its executives and senior administrative personnel will be
listed on a lobby directory to be placed in the Building as part of the Project
Work.
13. Alterations, Additions and Fixtures.
-----------------------------------
(a) Trade Fixtures. Tenant shall have the right to install in the
--------------
Building its equipment and trade fixtures from time to time during the term of
this Lease; provided, however, that no such installation or removal thereof
shall affect the structural portion or mechanical or electrical systems of the
Building and that Tenant shall repair and restore any damage or injury to the
Building or the Premises caused thereby. All trade fixtures and equipment
installed by or for Tenant in the Building shall remain the property of Tenant.
(b) General Restrictions. Tenant shall not make any alterations,
--------------------
additions, installations, substitutions, improvements or the like to the
Premises except as permitted under the following provisions. Tenant, at its
sole cost and expense, may make Non-Material Alterations (hereafter defined) to
the Building, after written notice to Landlord and subject to the applicable
requirements set forth in this Lease, but without Landlord's consent. "Non-
Material Alterations" shall mean non-structural, interior changes (including
cosmetic changes) to the Building which do not adversely affect any Building
systems. In addition, Tenant, at its sole cost and expense, may make other
alterations, improvements or additions to the Building (each, a "Material
Alteration") subject to Landlord's consent, which consent shall not be
<PAGE>
unreasonably withheld or delayed as to interior, non-structural changes but
which may be withheld in Landlord's discretion for other changes. In any event,
Landlord may condition its consent to any modifications of Building systems on
Tenant's performance of such work in accordance with recommendations by
Landlord's consultants and with Landlord's reasonable instructions and
requirements, including, without limitation Tenant's assuming full
responsibility for the cost of any rebalancing of the HVAC system which may be
required from time to time because of such modifications. Tenant shall not make
or permit to be made (i) any Material Alterations or (ii) any Non-Material
Alterations which affect any Building system or cost more than $50,000 (in 1997
dollars, adjusted for inflation in accordance with the Consumer Price Index for
Philadelphia, All Items), without on each occasion first presenting to Landlord
plans, specifications and any necessary permits therefor at least twenty (20)
days in advance of commencing construction thereof. In any event, in making any
alterations or improvements: (i) Tenant shall supply any necessary permits and
certificates of insurance therefor; (ii) such alterations and improvements shall
not impair the structural strength of the Building or any other improvements, or
reduce the value of the Premises, or (without Landlord's consent, which may be
withheld in Landlord's discretion) affect the outside appearance of the
Building, or adversely affect the proper functioning of the HVAC, plumbing,
sprinkler, electrical, sanitary or other systems of the Building; (iii) Tenant
shall take or cause to be taken all steps that are required by Section 14 hereof
and that are required or permitted by law in order to avoid the imposition of
any mechanic's, laborer's or materialman's lien upon the Premises or Building;
(iv) Tenant shall use a contractor reasonably acceptable to Landlord; and (v)
the work is performed so as to cause minimum annoyance or disruption to the
other occupants of the Office Park. Any and all alterations, improvements and
additions to the Building which are constructed, installed or otherwise made by
Tenant shall be the property of Tenant until the expiration or sooner
termination of this Lease. Upon expiration or termination of the Lease, all
alterations and additions shall remain on the Premises and become the property
of Landlord without payment therefor by Landlord, except that Landlord may
require Tenant to remove any particular alterations and improvements requiring
Landlord's consent which are not of a customary nature for office use if at the
time of granting consent thereto Landlord shall have notified Tenant that Tenant
must remove the same upon the termination of this Lease.
(c) Rooftop Antenna. Tenant will have the right to place satellite,
---------------
antennae and similar electronic sending and receiving devices on the roof of the
Building, and to connect those devices to Tenant's equipment in the Building,
<PAGE>
all at Tenant's sole risk and expense, including the expense of any necessary
licenses, zoning approvals and permits from governmental authorities (but
without additional rent payable to Landlord for use of the roof); provided that
all such installations and work shall be subject to Landlord's review and
approval of plans and engineering, including review and approval of materials,
equipment and placement. Landlord's approval will not be unreasonably withheld,
but will include consideration of the visibility of Tenant's rooftop equipment
and the overall aesthetics of the Building and its compatibility with the
aesthetics of the Office Park. All installations and work by Tenant shall be
subject to the further requirements and standards applicable to other
alterations and additions by Tenant. Tenant shall, at its own cost, (1)
maintain all such rooftop equipment in good, safe, sightly order and condition
and in accordance with applicable laws, codes and ordinances, making repairs and
replacements when necessary, (2) position, relocate, re-orient or otherwise
modify any such rooftop equipment in order to minimize interference with other
transmitting and receiving sources, and (3) indemnify, defend and hold harmless
Landlord and its managing agent from and against all loss, damage and liability
in any way relating to the construction, use and operation of such system and
equipment. Upon termination of this Lease, Tenant shall remove all such systems
and equipment and shall repair any damage caused by the removal, including the
patching of any holes or openings.
14. Mechanics' Liens. Tenant shall promptly pay any contractors and
----------------
materialmen who supply labor, work or materials to Tenant at the Premises so as
to prevent the possibility of a lien attaching to the Premises or any portion
thereof. Tenant shall take all steps permitted by law in order to avoid the
imposition of any such mechanic's, laborer's or materialman's lien. Should any
such lien or notice of lien be filed, Tenant shall bond against or discharge the
same within thirty (30) days after the lien or claim is filed or formal notice
of the lien or claim has been issued regardless of the validity of such lien or
claim. Nothing in this Lease is intended to authorize Tenant to do or cause any
work or labor to be done or any materials to be supplied for the account of
Landlord, or to allow any mechanics lien to attach to Landlord's interest, all
of the same to be solely for Tenant's account and at Tenant's risk and expense.
Throughout this Lease the term "mechanic's lien" is used to include any lien,
encumbrance or charge levied or imposed upon the Premises or the Premises or any
interest therein or income therefrom on account of any mechanic's, laborers or
materialman's lien or claim or arising out of any debt or liability to or any
claim or demand of any contractor, mechanic, supplier, materialman or laborer
hired directly or indirectly by Tenant. Notwithstanding the foregoing, Tenant
may contest any mechanics' lien or liens upon the deposit by Tenant with
<PAGE>
Landlord of an indemnity bond issued by a corporate surety in an amount equal to
the amount of the lien claim, if such procedure shall be acceptable to the then
existing mortgagee(s) of the Premises. Such bond shall name Landlord and such
other parties as Landlord may direct as obligees thereunder.
15. Landlord's Right of Entry.
-------------------------
(a) General Rights. Tenant shall permit Landlord and the authorized
--------------
representatives of Landlord and of any mortgagee or any prospective mortgagee to
enter the Building and the Premises at all reasonable times, upon reasonable
prior notice to Tenant (except in emergencies), for the purpose of (i)
inspecting them or (ii) making any necessary repairs thereto and performing any
other work which is required to be performed by Landlord, or which Tenant is
required but has failed to perform and which Landlord elects to perform,
provided that Landlord shall endeavor to ensure that such entry does not
unreasonably interfere with the conduct of Tenant's business or its use of the
Premises, and is subject to any reasonable security regulations of Tenant.
During the progress of any work on the Premises or the Building, Landlord will
attempt to minimize any inconvenience to Tenant, but except as set forth above,
shall not be liable for inconvenience, annoyance, disturbance, loss of business
or other damage to Tenant by reason of making any repair or by bringing or
storing materials, supplies, tools and equipment in the Premises during the
performance of any work, and the obligations of Tenant under this Lease shall
not be thereby affected in any manner whatsoever.
(b) Prospects. Landlord shall have the right at all reasonable times
---------
with an authorized representative of Tenant to escort Landlord and its
prospects, to enter and to exhibit the Building and the Premises for the purpose
of sale or mortgage, and, during the last eighteen (18) months of the term of
this Lease, to enter and to exhibit the Building and the Premises to any
prospective tenant.
16. Damage by Fire or Other Casualty.
--------------------------------
(a) Restoration. If the Building shall be damaged or destroyed by
-----------
fire or other casualty, Tenant shall promptly notify Landlord, and Landlord,
subject to the conditions and limitations set forth in this Section 16, shall
repair, rebuild or replace such damage and restore the Building (including all
Project Work other than as expressly excluded under subparagraph (c) below) to
substantially the same condition in which it was immediately prior to such
damage or destruction.
(b) Time. The work shall be commenced promptly and completed with due
----
<PAGE>
diligence, taking into account the time required by Landlord to effect a
settlement with, and procure insurance proceeds from, the insurer, and for
delays beyond Landlord's reasonable control. If the casualty causes destruction
or substantial damage to more than 20,000 square feet of the Building, Landlord
shall furnish to Tenant promptly after the casualty, the estimate of a reputable
contractor of the time necessary to rebuild and restore. If such estimated time
exceeds eighteen (18) months, Tenant may, but only within thirty (30) days after
receipt of the estimate, terminate this Lease by written notice to Landlord.
All insurance losses (other than for property owned by Tenant) shall be adjusted
by Landlord (and/or its mortgage lender) and all proceeds in excess of that
required to repair and to restore the Premises and to pay any mortgage shall
belong to Landlord. If Tenant does not so terminate, or if said termination
provisions do not apply, this Lease shall remain in effect regardless of whether
the actual restoration time differs from the estimate.
(c) Tenant's Property. Landlord's obligation to restore the Building
-----------------
and Project Work under this Section 16 shall not include the repair, restoration
or replacement of the fixtures (including trade fixtures), improvements,
alterations, furniture or any other property owned, installed or made by Tenant,
except to the extent of permanent Building installations made by Tenant and
actually covered by applicable insurance policies maintained by Landlord or
Tenant. If Tenant has elected to maintain casualty insurance, Tenant shall have
the obligation to insure such permanent installations; if Landlord maintains
the casualty insurance, Landlord shall include such permanent installations in
its insurance policies if and when Tenant has notified Landlord in writing of
the making of such installations and the details and value thereof. If such
permanent installations are made during the 1998 calendar year and if casualty
insurance is included in the base year Annual Operating Costs, any increased
insurance premium attributable to such permanent installations shall be paid by
Tenant as a separate item of additional rent.
(d) Rent Abatement. In the event of fire or other casualty as set
--------------
forth above, the minimum annual rent and additional rent on account of Annual
Operating Costs and Taxes shall be abated to the extent and during the time the
Building or any substantial portion thereof is rendered untenantable.
17. Non-Abatement of Rent. Except as otherwise expressly provided in this
---------------------
Lease, there shall be no abatement or reduction of the minimum annual rent,
additional rent or other sums payable hereunder for any cause whatsoever, and
this Lease shall not terminate, and Tenant shall not be entitled to surrender
the Premises.
<PAGE>
18. Indemnity.
---------
(a) Tenant's Indemnification of Landlord. Tenant will indemnify
------------------------------------
Landlord and save Landlord (which, for purposes of this Article includes
Landlord's managing agent, Landlord's affiliates, and the respective partners,
officers, employees and agents of Landlord, its managing agent and its
affiliates) harmless from and against any and all claims, actions, damages,
liability and expense (including without limitation reasonable fees of
attorneys, investigators and experts) in connection with loss of life, personal
injury or damage to property occurring on or within the Premises or Building,
unless such loss, injury or damage was caused by the negligence or wilful
misconduct of Landlord. Without limiting the foregoing or any other waivers in
favor of Landlord set forth in this Lease, Tenant will forever release and hold
Landlord harmless from all claims arising out of damage to Tenant's property
unless such damage occurs as a result of Landlord's negligent or wilful failure
to make repairs within a reasonable time after having received written notice of
the need for such repair, and in no event shall Landlord be liable for damage to
Tenant's property to the extent that it is or could have been insured against by
Tenant under commonly available insurance policies.
(b) Landlord's Indemnification of Tenant. Subject to the provisions
------------------------------------
of subsection (a) above, and to any other waivers, releases, or limitations as
expressly set forth in this Lease, Landlord will indemnify Tenant (which, for
purposes of this Section 18, includes Tenant's affiliates, officers, directors,
agents and employees) and save Tenant harmless from and against any and all
claims, actions, damages, liability and expense (including without limitation
reasonable fees of attorneys, investigators and experts) in connection with the
loss of life, bodily injury or damage to property caused by the negligence or
wilful misconduct of Landlord, its agents or employees and occurring in areas
within the Premises or Office Park which are under Landlord's control, use and
possession.
(c) Limitation of Indemnity. A party from whom indemnification is
-----------------------
sought pursuant to this Lease (an "Indemnifying Party") shall be relieved of
obligation and liability to the other party (the "Indemnified Party") if and to
the extent that the Indemnified Party shall be covered under an enforceable
insurance policy as a named insured, against the loss or damage in question.
Such relief of liability shall not include portions of claims that are not
covered because of deductibles, policy limits or co-insurance provisions. If
any claim, action or proceeding for which a party is indemnified hereunder is
<PAGE>
brought against an Indemnified Party, then upon notice from the Indemnified
Party to the Indemnifying Party, and at the Indemnifying Party's sole cost and
expense, the Indemnifying Party shall resist or defend such claim, action or
proceeding or shall cause it to be resisted or defended by an insurer.
Notwithstanding the foregoing, to the extent that the terms of this Section may
be inconsistent with the waiver of subrogation contained in Section 7(d) hereof,
the provisions of Section 7(d) shall prevail.
19. Condemnation.
------------
(a) Termination. If (i) all of the Premises is covered by a
-----------
condemnation; or (ii) if any part of the Premises is covered by a condemnation
and the remainder thereof (after taking into account any restoration which
Landlord has agreed to perform, if any) is insufficient in Tenant's reasonable
judgment for the operation therein of Tenant's business as historically
conducted; or, (iii) if any of the Premises is covered by a condemnation and, in
Landlord's reasonable opinion, it would be impractical or the condemnation
proceeds are insufficient to restore the remainder of the Premises; then, in any
such event, this Lease shall terminate and all obligations hereunder shall cease
as of the date upon which possession is taken by the condemnor and the rent
herein reserved shall be apportioned and paid in full by Tenant to Landlord to
that date and all rent prepaid for periods beyond that date shall forthwith be
repaid by Landlord to Tenant. Such termination shall be without prejudice to
the rights of either Landlord or Tenant to recover compensation from the
condemning authority for any loss or damage caused by such condemnation in
accordance with Section 19(c) below.
(b) Partial Condemnation.
--------------------
(i) If there is a partial condemnation and this Lease has not been
terminated pursuant to Section 19(a) hereof, then Landlord shall restore the
Building and the improvements which are part of the Premises to a condition,
functionality and size as nearly comparable, as reasonably possible, to the
condition, functionality and size thereof immediately prior to the date upon
which possession shall have been taken by the condemnor.
(ii) If there is a partial condemnation and this Lease has not been
terminated by the date upon which the condemnor shall have obtained possession,
then the obligations of Landlord and Tenant under this Lease shall be unaffected
by such condemnation except that there shall be an equitable abatement for the
balance of the term of the minimum annual rent according to the value of the
<PAGE>
Building before and after the date upon which the condemnor shall have taken
possession. If the parties are unable to agree upon the amount of such
abatement, either party may submit the issue to arbitration in accordance with
Section 28(d) hereof.
(c) Award. In the event of a condemnation of the Premises affecting
-----
Tenant, Tenant shall have the right to make a claim against the condemnor for
removal expenses, business dislocation damages and moving expenses, and any
other separate claim which would not reduce the award payable to Landlord and
Fee Owner. All rights to the award in respect to the entire fee interest in the
Premises are hereby assigned to Landlord.
(d) Temporary Taking. If the condemnor should take only the right to
----------------
possession for a fixed period of time or for the duration of an emergency or
other temporary condition, then, notwithstanding anything hereinabove provided,
this Lease shall continue in full force and effect with an equitable abatement
of minimum annual rent and additional rent to the extent the Premises are not
usable by Tenant for the operation of its business for a period longer than
thirty (30) days, and further provided that in the event of a taking for a
shorter period of time, Landlord shall apply the net proceeds from the condemnor
toward the amount due from Tenant for such period.
20. Quiet Enjoyment.
---------------
(a) Quiet Enjoyment; Rules and Regulations. Tenant, upon paying the
--------------------------------------
minimum annual rent, additional rent and other charges herein provided for, and
observing and keeping all covenants, agreements and conditions of this Lease on
its part to be kept, shall quietly have and enjoy the Premises during the term
of this Lease without hindrance or molestation by Landlord, Fee Owner, or anyone
claiming by or through Landlord or Fee Owner, subject, however, to the
exceptions, reservations and conditions of this Lease. Landlord hereby reserves
the right to prescribe reasonable rules and regulations (herein called the
"Rules and Regulations") governing the use and enjoyment of the Premises;
provided that the Rules and Regulations shall not materially interfere with the
Tenant's use and enjoyment of the Premises in accordance with the provisions of
this Lease regarding the permitted uses. Tenant shall adhere to the Rules and
Regulations and shall cause its agents, employees, invitees, visitors and guests
to do so. A copy of the Rules and Regulations in effect on the date hereof is
attached hereto as Schedule 20(a).
--------------
(b) Landlord's Representations. Landlord represents and warrants that
--------------------------
it is the tenant under the Ground Lease, and as such is the sole party with the
right and authority to enter into this Lease and that the general partner
executing this Lease on behalf of Landlord has the full authority to bind
Landlord.
<PAGE>
(c) Tenant's Right to Pledge Personalty. Notwithstanding anything
-----------------------------------
contained in this Lease to the contrary, Tenant shall have the right to finance
and to secure under the Uniform Commercial Code, inventory, trade fixtures (such
as demountable partitions, workstations and the like), furnishings, furniture,
equipment, machinery, and other personal property located at the Premises which
is not owned by Landlord. No property installed or placed in the Building as
part of the Project Work, excluding any of Tenant's trade fixtures and personal
property which may be included as part of the Tenant Improvement Work, shall be
considered to be Tenant's property. Landlord hereby agrees that any statutory
landlord's lien to which Landlord may have a right shall be subordinate to any
liens on Tenant's property granted in connection with such financing. Landlord
agrees to execute subordination agreements in favor of any purchase money
seller, lessor or lender which has financed or may finance in the future such
items in form and substance reasonably satisfactory to Landlord.
21. Assignment and Subletting.
-------------------------
(a) General. Tenant shall not assign, mortgage, pledge or encumber
-------
this Lease, or sublet the whole or any part of the Premises, without the prior
written consent of Landlord. Any assignment, mortgage, pledge, encumbrance or
sublet attempted without the consent of Landlord as required under this Lease
shall be void and shall not confer any rights, benefits or privileges to the
attempted grantee, unless ratified or accepted by Landlord in writing.
(b) Consent. Landlord agrees that its consent to subletting or
-------
assignment shall not be unreasonably withheld, subject to the qualifications and
limitations set forth in this Article 21 and elsewhere set forth in this Lease,
provided that Landlord may refuse, in its sole discretion, to consent to a
proposed assignment or subletting (i) with an existing tenant in the Office
Park, or with a prospective tenant of the Office Park who had previously
received a written lease proposal which is under active consideration, unless
the proposed assignee's or sublessee's space needs cannot be met by other space
in the Office Park, or (ii) with a governmental or quasi-governmental entity
which is anticipated to have significant public visitation, or (iii) with a user
who is not of a character and business in keeping with the commercially
reasonable and customary standards applicable to similar first class office
parks in the general geographic vicinity of the Premises, or (iv) which would
<PAGE>
involve (together with all previous assignments or subleases) more than twenty
percent (20%) of the Building, and which shall occur prior to the Initial
Funding Date. The "Initial Funding Date" means the earlier of (A) the date of
funding of first permanent mortgage loan (or closing of the permanent portion of
a combined construction-permanent loan) obtained in replacement of Landlord's
construction loan for the Project Work, or (B) 24 months following the
Commencement Date. Any assignee or subtenant approved by Landlord shall be
known as a "Permitted Assignee" or "Permitted Subtenant," respectively.
(c) Conditions Upon Assignment or Subletting. In the event of any
----------------------------------------
assignment of this Lease made with or without Landlord's consent, Tenant
nevertheless shall remain fully liable for the performance of all of the terms,
conditions and covenants of this Lease during the term and any renewal exercised
pursuant to the renewal option contained in this Lease, except as follows:
Unisource Worldwide, Inc. (sometimes referred to herein as
"Unisource") shall be released from liability under this Lease
which accrues from and after the assignment only upon
satisfaction of all of the following conditions, as evidenced by
written acknowledgement from Landlord of such release:
(i) the assignment must be to a Permitted Assignee;
(ii) There shall have been delivered to Landlord a written
request for such release of liability, accompanied by reasonably
detailed information relating to the assignment and to
satisfaction of these release conditions, including audited
financial statements of the assignee;
(iii) If the Permitted Assignee is the successor in interest to
Unisource by reason of a sale of substantially all of the assets
of Unisource to such Permitted Assignee for the purpose of
continuing Tenant's business, such Permitted Assignee must have a
net worth, established in accordance with generally accepted
accounting principles and evidenced by audited financial
statements delivered to Landlord, of at least eighty percent
(80%) of the net worth of Unisource as of the date of the
assignment or the date hereof (whichever is higher);
<PAGE>
(iv) If the Permitted Assignee does not qualify under
subparagraph (iii) above, such Permitted Assignee must have a net
worth, established and evidenced as set forth in subsection (iii)
above, of at least one hundred percent (100%) of the net worth of
Unisource as of the date of the assignment or the date hereof
(whichever is higher), and
(v) No uncured event of default shall then exist under this
Lease.
Landlord shall acknowledge the aforesaid release of liability in writing upon
satisfaction of the applicable terms and conditions set forth above.
(d) Conditions. If Landlord gives its consent to any sublease or
----------
assignment, it shall be a condition to effectiveness of such sublease or
assignment that a fully executed copy thereof (in form and substance reasonably
approved by Landlord) be delivered to Landlord, and that any assignee execute
and deliver to Landlord an assumption of liability agreement in form
satisfactory to Landlord, including an assumption by the assignee of all of the
obligations of Tenant and the assignee's ratification of and agreement to be
bound by all the provisions, waivers, terms and conditions of this Lease.
Landlord shall be entitled to, and Tenant shall promptly remit to Landlord,
fifty percent (50%) of any profit, calculated after recovery by Tenant of
Tenant's direct expenses (including concessions, free rent and the like
furnished by Tenant) related thereto, which may inure to the benefit of Tenant
as a result of any subletting of the Premises or assignment of this Lease,
whether or not consented to by Landlord, except where the assignee or subtenant
is an Affiliate (defined below). Consent to a subletting or assignment, in any
one instance, shall not be deemed a consent to any further subletting or
assignment. Tenant hereby collaterally grants, transfers and assigns to
Landlord all rights, title and interest of Tenant in and to any existing or
future subleases, together with all rents and other payments arising out of any
such subleases, for the purpose of securing all payments of rent by Tenant and
the performance of all of Tenant's obligations under this Lease, provided that
so long as no default shall exist under this Lease beyond any applicable notice,
grace or cure period, Tenant shall have the right to collect, but not more than
thirty (30) days prior to accrual, all rents and other sums due under any such
sublease.
(e) Mortgagee Consent. Landlord agrees to use its good faith efforts
-----------------
to cause its mortgage lender or lenders to agree to a release of Unisource's
liability to a Permitted Assignee as set forth in subclause (c)(iv) above if all
<PAGE>
other conditions to such release shall be satisfied. If such lender or lenders
shall, despite such good faith efforts, refuse to agree to release, Landlord
agrees that from and after the assignment, Unisource shall be considered to be
secondarily liable for the obligations under this Lease as a guarantor and not
as a surety, provided Unisource shall enter into such documentation with
Landlord to evidence such status as Landlord shall reasonably require. Such
documentation shall be substantially similar to surety agreements utilized by
reputable commercial financial institutions (including the customary waivers of
defenses) but shall provide that recourse will not be sought against Unisource
unless 30 days (or 90 days, so long as minimum annual rent is kept current) have
elapsed after a material default by Unisource's assignee and the failure, within
said time period, for such assignee to have cured the default.
(f) Limitation on Other Rights. Regardless of the obtaining of
--------------------------
Landlord's consent to any assignment or subletting, the rights of cure (under
Section 26(k)), expansion (under Section 33) and subletting assistance and
purchase (under Section 34) (collectively, the "Unisource Rights") are personal
to Unisource Worldwide, Inc. and shall not extend to, or be exercised for the
benefit of, any assignee or subtenant except as hereafter provided. The
Unisource Rights may be exercised by a Permitted Assignee which is an Affiliate
(hereafter defined) of Unisource Worldwide, Inc. An "Affiliate" of Unisource
Worldwide, Inc. is a corporation or partnership which is a successor by merger
or consolidation or which, through the ownership of voting securities or
partnership interests, controls, is controlled by, or is in common control with,
Unisource Worldwide, Inc.
(g) Assignment to Affiliates. Tenant shall have the right without
------------------------
Landlord's consent, but after notice to Landlord, to assign this Lease or sublet
all or any portion of the Premises (i) to an Affiliate, or (ii) to any entity
resulting from a merger or consolidation with Tenant, or which acquires all or
substantially all of Tenant's assets, or (iii) to an assignee acquiring its
interest by operation of law. No such assignment or subletting shall release
Tenant of its liabilities and obligations hereunder, except as otherwise
expressly provided in this Paragraph 21.
22. Subordination and Nondisturbance.
--------------------------------
(a) Subordination. Subject to the following conditions precedent,
-------------
this Lease and Tenant's rights hereunder shall be subject and subordinate at all
times in lien and priority to any first mortgage or other primary encumbrance
now or hereafter placed upon or affecting the Building or the Premises, and to
all renewals, modifications, consolidations and extensions thereof, as well as
<PAGE>
any subordinate mortgage held by the holder of the first mortgage, without the
necessity of any further instrument or act on the part of Tenant. Tenant shall
execute and deliver upon demand any further reasonable instrument or instruments
confirming the subordination of this Lease to the lien of any such first
mortgage or to the lien of any other mortgage if requested to do so by Landlord
with the consent of the first mortgagee, and any further instrument or
instruments of attornment that may be desired by any such mortgagee or Landlord.
Notwithstanding the foregoing, any mortgagee may at any time subordinate its
mortgage to this Lease, without Tenant's consent, by giving notice in writing to
Tenant, and thereupon this Lease shall be deemed prior to such mortgage without
regard to their respective dates of execution and delivery, and in that event
such mortgagee shall have the same rights with respect to this Lease as though
this Lease had been executed prior to the execution and delivery of the mortgage
and had been assigned to such mortgagee.
(b) Nondisturbance. The foregoing subordination of this Lease shall
--------------
be conditioned upon Tenant's receipt from any such mortgagee of a nondisturbance
and attornment agreement ("Non-Disturbance Agreement") in form and substance
reasonably acceptable to Tenant, which provides that as long as Tenant is not in
default under the Lease beyond the applicable grace, notice or cure periods,
such mortgagee (a) shall honor this Lease in accordance with its terms, (b)
shall not disturb Tenant in its possession of the Premises, (c) shall not name
Tenant in any foreclosure proceedings, and (d) shall cause Landlord's
obligations under this Lease to be performed, during such time as that mortgagee
shall be the Landlord hereunder (or mortgagee in possession), from and after the
date of any foreclosure, purchase or transfer, and by which Tenant agrees to
attorn to and recognize such mortgagee as Landlord in accordance with the terms
of this Lease, with the further understanding that such nondisturbance and
attornment agreement may contain such qualifications, terms and limitations as
the holder of the first mortgage shall customarily require for transactions of
similar scope and magnitude. Landlord shall, promptly after Lease execution,
deliver to Tenant from all then-existing mortgagees (if any), and from Fee
Owner, properly executed and acknowledged, recordable Nondisturbance Agreements.
(c) Notice to Tenant of Landlord's or Fee Owner's Mortgages. Landlord
-------------------------------------------------------
shall promptly notify Tenant of Landlord's or Fee Owner's execution of any new
mortgage(s) on the Premises. Promptly after the execution of any new mortgage,
Landlord shall endeavor to deliver to Tenant a properly executed, acknowledged,
recordable Nondisturbance Agreement in accordance with this Article from such
new mortgagee. Landlord shall use its commercially reasonable efforts to
<PAGE>
negotiate an agreement with its mortgagee to permit the use of any insurance
proceeds resulting from a fire or casualty, or any condemnation, for the purpose
of restoring the Premises and Building in accordance with this Lease, subject to
customary qualifications and conditions by such mortgagee.
(d) Title Report. Landlord shall obtain and deliver to Tenant a
------------
current title report on the Premises, including a complete list of all
mortgages, leases, encumbrances, and easements affecting the Premises.
(e) Confirmation of Subordination. Subject to the conditions set
-----------------------------
forth in this Article, Tenant agrees to execute and deliver any reasonable
instruments confirming such subordination as reasonably requested by any
mortgagees or ground lessors. In no event does Tenant appoint Landlord its
attorney-in-fact to execute or deliver any such instruments on Tenant's behalf;
Tenant shall execute and deliver any required instruments on its own behalf. No
property owned by Tenant shall be subject to the lien of any mortgage.
23. Estoppel Certificate. Tenant or Landlord, at any time and from time
--------------------
to time and within seven (7) days after the other party's written request, shall
execute, acknowledge and deliver to the requesting party a written instrument in
recordable form certifying that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that it is in full force and
effect as modified and stating the modifications); stating that the improvements
required by Section 2 hereof have been completed (or stating in detail any
incomplete items); certifying (as to Tenant) that Tenant has accepted possession
of the Premises; stating the date on which the term of the Lease commenced and
the dates to which minimum annual rent, additional rent and other charges have
been paid, including payments in advance, if any; stating that to the best
knowledge of the signer of such instrument the other party is not in default of
this Lease (or specifying in detail any defaults); stating any other fact or
certifying any other condition reasonably requested by the requesting party or
required by any mortgagee or prospective mortgagee or purchaser of the Premises
or any interest therein or any portion thereof; and stating that such instrument
may be relied upon by the requesting party, by any mortgagee or prospective
mortgagee or purchaser of the Premises, or any interest therein or any portion
thereof, or by any assignee of Landlord's interest in this Lease or by any
assignee of any mortgagee, but such statement shall in no way modify this Lease.
Promptly upon the request of any purchaser or mortgagee of the Premises or any
portion thereof (or any proposed purchaser or mortgagee under a bona fide
commitment or letter of intent) from time to time, Tenant shall provide its most
<PAGE>
recent annual audited financial statements (which, in the case of a public
corporation, shall be those publicly available) to such purchaser or mortgagee.
The foregoing information shall be addressed to Landlord and to any mortgagee,
prospective mortgagee, purchaser or other party specified by Landlord.
24. Curing Tenant's Defaults. If Tenant shall be in default in the
------------------------
performance of any of its obligations hereunder, Landlord, without any
obligation to do so, in addition to any other rights it may have in law or
equity, may elect to cure such default on behalf of Tenant after written notice
(except in the case of emergency) to Tenant. Tenant shall reimburse Landlord
upon demand for any reasonable sums paid or costs incurred by Landlord in curing
such default, including interest thereon (at the rate set forth in Section 5(c)
above) from the respective dates of Landlord's making the payments and incurring
such costs which sums and costs together with interest thereon shall be deemed
additional rent payable promptly upon being billed therefor. Regardless of
whether Landlord may or shall elect to cure a default by Tenant, Tenant shall
reimburse Landlord upon demand for any attorneys' fees and costs incurred by
Landlord after such default in connection with the enforcement of this Lease.
25. Surrender.
---------
(a) Lease Termination. Subject to the terms of Section 13 and Section
-----------------
16 hereof, at the expiration or earlier termination of the term hereof Tenant
shall promptly yield up, clean and neat, and in the same condition, order and
repair in which they are required to be kept throughout the term hereof, the
Premises and all improvements, alterations and additions thereto (except those
which, by the terms of this Lease, Tenant is permitted to remove and elects to
remove), and all fixtures and equipment servicing the Building, reasonable wear
and tear and damage by fire, the elements, or other casualty excepted. Tenant
waives its rights to the maximum extent not prohibited by law, to any notices to
quit and any other notices as may be specified in the Landlord and Tenant Act of
Pennsylvania, Act of April 6, 1951, as amended, and agrees that five (5) days
notice shall be sufficient in any case where a longer notice period may be
statutorily specified.
(b) Holding Over. If Tenant, or any person claiming through Tenant,
------------
shall continue to occupy the Premises after the expiration or earlier
termination of the term or any renewal thereof, such occupancy shall be deemed
to be under a day-to-day tenancy at sufferance under the same terms and
conditions set forth in this Lease; except, however, that the minimum annual
rent during such continued occupancy shall be (i) one hundred fifty percent
<PAGE>
(150%) of the amount in effect immediately prior to expiration (the "Previous
Rent") during the first two (2) months of the holdover, (ii) one hundred seventy
five percent (175%) of the Previous Rent during the next two months, and (iii)
two hundred percent (200%) of the Previous Rent thereafter. The foregoing
provisions shall not limit any damages or other relief to which Landlord shall
be entitled as a result of the holdover, which shall constitute a default
hereunder and shall be subject to all the remedies set forth in Section 26
hereof. A holdover shall not be presumed to create an extension of the term for
any fixed period, except as otherwise agreed in writing by Landlord and Tenant.
Notwithstanding the foregoing, upon request by Tenant given at least one (1)
year before the Expiration Date of this Lease, and provided that Landlord has
not theretofore entered into a new lease or binding commitment to lease the
Premises which is inconsistent with an extension of the term of this Lease,
Tenant may extend the term of this Lease for three (3) months upon the same
terms and conditions set forth in this Lease for the then current term, after
which the aforesaid holdover provisions shall apply.
26. Defaults; Remedies.
------------------
(a) Insolvency. The following shall constitute a breach of this Lease
----------
by Tenant, for which Landlord shall have, without need of further notice, the
rights enumerated in sub-section (b): (i) the appointment of a receiver or
trustee to take possession of all or a substantial portion of the assets of
Tenant (which, for purposes of this Section 26(a), includes any guarantor of the
obligations of Tenant hereunder), or (ii) an assignment by Tenant for the
benefit of creditors, or (iii) the institution by or against Tenant of any
proceedings for bankruptcy or reorganization under any state or federal law
(unless, in the case of involuntary proceedings, the same shall be dismissed
within ninety (90) days after institution), or (iv) any execution issued against
a significant portion of the assets of Tenant or against Tenant's leasehold
interest hereunder which is not stayed or discharged at least thirty (30) days
prior to a scheduled execution sale.
(b) Events of Default. The following shall constitute events of
-----------------
default by Tenant, for which Landlord shall have the rights enumerated below in
this subsection (b): (i) Tenant shall fail to pay rent or any other regularly
scheduled sum payable to Landlord hereunder when due, and such default shall
continue uncured for more than five (5) days after written notice from Landlord;
or (ii) Tenant shall fail to pay any other sum payable to Landlord hereunder
within fifteen (15) days after written demand from Landlord; or (iii) Tenant
<PAGE>
shall fail to perform or observe any of the other covenants, terms or conditions
contained in this Lease within thirty (30) days (or such longer period as is
reasonably required to correct any such default, provided Tenant promptly
commences and diligently continues to effectuate a cure) after written notice
thereof by Landlord (provided further that if a specific time period is provided
in this Lease for compliance with a particular requirement, the grace period
under this subsection (iii) shall not extend more than five (5) days beyond such
specific time period); or (iv) any of the events specified in Section 26(a)
above occur; or (v) Tenant fails to take actual, bona-fide occupancy of the
Premises on or about the scheduled commencement of the term; or (vi) a
"Prohibited Vacancy" shall occur as defined below. Tenant acknowledges that a
certain level of occupancy of the Building constitutes security for the Landlord
and its mortgage lender(s). A Prohibited Vacancy shall occur if, after taking
actual, bona-fide occupancy of the Premises, but prior to the Initial Funding
Date (as defined in Section 21(b)), Unisource Worldwide, Inc. and/or its
Affiliates shall fail to be in actual, bona-fide occupancy of at least eighty
percent (80%) of the Building.
If any of the foregoing events of default shall occur (notwithstanding
any former breach of covenant or waiver thereof in a former instance), then
Landlord, in addition to all other rights and remedies available to it by law or
equity or by any other provisions hereof, may at any time thereafter:
(i) Upon ten (10) days written notice to Tenant, and subject to
the limitation set forth at the end of this Section 26(b), declare to be
immediately due and payable, on account of the rent and other charges
herein reserved for the balance of the term of this Lease (taken without
regard to any early termination of the term on account of default), a sum
equal to the Accelerated Recovery Component (as hereinafter defined), and
Tenant shall remain liable to Landlord as hereinafter provided; and/or
(ii) whether or not Landlord has elected to recover the
Accelerated Recovery Component, terminate this Lease on at least fifteen
(15) days written notice to Tenant and, on the date specified in the
notice, this Lease and the term hereby demised and all rights of Tenant
hereunder shall expire and terminate and Tenant shall thereupon quit and
surrender possession of the Premises to Landlord in the condition elsewhere
herein required and Tenant shall remain liable to Landlord as hereinafter
provided.
Notwithstanding the acceleration right set forth in clause (i) above,
if and at any time after Tenant shall have taken actual, bona fide occupancy of
<PAGE>
the Premises, the portion of the future term for which Landlord may recover the
Accelerated Recovery Component at any one time shall be limited to two years (or
if greater, 15% of the then remaining balance of rent and additional rent for
the entire unexpired term), provided, however, that this limitation shall remain
effective only so long as Tenant shall promptly pay any and all partial
Accelerated Recovery Component in accordance with this sentence. So long as the
limitation of the preceding sentence shall be applicable, Landlord may
periodically exercise its partial acceleration rights so that after each
anniversary of the declaration of Accelerated Recovery Component being due, the
Accelerated Recovery Component based upon the succeeding two years (or 15% of
said remaining balance, if greater) shall be paid. In any event, Landlord
reserves the right to recover immediately the entire Accelerated Recovery
Component without regard to the foregoing limitation, if Tenant shall fail to
pay within 20 days after the due date any and all partial amount demanded
pursuant to the foregoing provisions.
(c) Accelerated Recovery Component. For purposes hereof, the
------------------------------
Accelerated Recovery Component shall mean the aggregate of:
(i) all rent and other charges, payments, costs and expenses due
from Tenant to Landlord and in arrears at the time of the election of
Landlord to recover the Accelerated Recovery Component;
(ii) the minimum annual rent reserved for the then entire
unexpired balance of the term of this Lease (taken without regard to any
early termination of the term by virtue of any default), plus all other
charges, payments, costs and expenses herein agreed to be paid by Tenant up
to the end of the term which shall be capable of precise determination at
the time of Landlord's election to recover the Accelerated Recovery
Component, discounted to present value at the then current annual yield
rate (adjusted to the nearest 1/4%) for U.S. Treasury securities having a
maturity of 90 days after Landlord's election to recover the Accelerated
Recovery Component, as reported in the Wall Street Journal or similar
-------------------
publication; plus
(iii) Landlord's good faith estimate of all charges, payments,
costs and expenses herein agreed to be paid by Tenant up to the end of the
term which shall not be capable of precise determination as aforesaid,
discounted to present value at the aforesaid rate.
(d) Re-entry. In any case in which this Lease shall have been
--------
terminated, or in any case in which Landlord shall have elected to recover the
Accelerated Recovery Component and any portion of such sum shall remain unpaid,
<PAGE>
Landlord may, without further notice, enter upon and repossess the Premises, by
summary proceedings, ejectment or otherwise, and may dispossess Tenant and
remove Tenant and all other persons and property from the Premises and may have,
hold and enjoy the Premises and the rents and profits therefrom. Landlord may,
in its own name, as agent for Tenant, if this Lease has not been terminated, or
in its own behalf, if this Lease has been terminated, relet the Premises or any
part thereof for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions and provisions (which may include concessions or
free rent) as Landlord in its sole discretion may determine. Landlord may, in
connection with any such reletting, cause the Premises to be redecorated,
altered, divided, consolidated with other space or otherwise changed or prepared
for reletting. No reletting shall be deemed a surrender and acceptance of the
Premises.
(e) Continuing Liability. Tenant shall, with respect to all periods
--------------------
of time up to and including the expiration of the term of this Lease (or what
would have been the expiration date in the absence of default or breach) remain
liable to Landlord as follows:
(i) In the event of termination of this Lease on account of
Tenant's default or breach, Tenant shall remain liable to Landlord for
damages equal to the rent and other charges payable under this Lease by
Tenant as if this Lease were still in effect, less the net proceeds of any
reletting after deducting all costs incident thereto (including without
limitation all repossession costs, brokerage and management commissions,
operating and legal expenses and fees, alteration costs and expenses of
preparation for reletting) and to the extent such damages shall not have
been recovered by Landlord by virtue of payment by Tenant of the
Accelerated Recovery Component (but without prejudice to the right of
Landlord to demand and receive the Accelerated Recovery Component), such
damages shall be payable to Landlord, at Landlord's option, monthly upon
presentation to Tenant of a bill for the amount due or at such other
intervals or times as Landlord shall determine.
(ii) In the event and so long as this Lease shall not have been
terminated after default or breach by Tenant, the rent and all other
charges payable under this Lease shall be reduced by the net proceeds of
any reletting by Landlord (after deducting all costs incident thereto as
above set forth) and by any portion of the Accelerated Recovery Component
paid by Tenant to Landlord (but without prejudice to the right of Landlord
to demand and receive the Accelerated Recovery Component), and any amount
<PAGE>
due to Landlord shall be payable monthly, at Landlord's option, upon
presentation to Tenant of a bill for the amount due, or at such other
intervals or times as Landlord shall determine.
(f) Credit. If Landlord shall, after default or breach by Tenant,
------
recover the Accelerated Recovery Component from Tenant and it shall be
determined at the expiration of the term of this Lease (taken without regard to
early termination for default) that a credit is due Tenant because the net
proceeds of reletting, as aforesaid, plus the amounts paid to Landlord by Tenant
exceed the aggregate of rent and other charges accrued in favor of Landlord to
the end of the term, Landlord shall refund such excess to Tenant (but not so as
to return to Tenant more, for any particular period of time, than the rent and
additional rent paid by Tenant for such period), without interest, promptly
after such determination.
(g) No Duty to Relet. If Tenant shall deliver possession of the
----------------
Premises to Landlord following an Event of Default, Landlord shall use
reasonable commercial efforts to re-lease same, but Landlord shall in no event
be responsible or liable for any failure to relet the Premises or any part
thereof, or for any failure to collect any rent due upon a reletting.
(h) Bankruptcy. Nothing contained in this Lease shall limit or
----------
prejudice the right of Landlord to prove for and obtain as damages incident to a
termination of this Lease, in any bankruptcy, reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
when such damages are to be proved.
(i) Non-Waiver. No waiver by Landlord of any breach by Tenant or any
----------
of Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
(j) Rights and Remedies Cumulative. No right or remedy herein
------------------------------
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy provided herein or by law, including without limitation
consequential damages, but each shall be cumulative and in addition to every
other right or remedy given herein or now or hereafter existing at law or in
equity or by statute.
(k) Tenant's Cure Right. If Landlord defaults in the observance or
-------------------
<PAGE>
performance of any term or covenant required to be performed by Landlord under
this Lease beyond any periods of grace, notice or cure, which default in
Tenant's reasonable judgment shall adversely affect Tenant's business operations
in the Premises to a material degree, then Tenant, after not less than thirty
(30) days' written notice to Landlord, may, but shall not be obligated to,
remedy such default. Notwithstanding the foregoing, (i) Tenant may remedy any
such Landlord default without notice in the event of an emergency if Tenant
shall first make a good faith effort to notify Landlord of such emergency and
allow reasonable opportunity under the circumstances for Landlord to cure same,
and (ii) Tenant may not remedy any Landlord default which Landlord is
endeavoring diligently to cure. For purposes of effecting any cure permitted by
Tenant hereunder which shall affect Building structural components or Building
systems, Tenant shall employ contractors acceptable to Landlord. All proper and
reasonable sums expended by Tenant in connection with curing a Landlord default
as permitted hereunder shall be paid by Landlord to Tenant within thirty (30)
days after written demand.
27. Office Park Declaration. Tenant acknowledges that the Premises is
-----------------------
intended to be subject to the terms of a certain declaration of covenants,
easements and restrictions, created for the harmonious, orderly and efficient
operation and development of the Office Park (referred to in this Lease as the
"Office Park Declaration"). The Office Park Declaration is attached hereto as
Schedule 27-A and shall be amended by Landlord for the purpose of clarifying the
- -------------
provisions therein as they pertain to the Premises and Building in accordance
with the terms set forth on Schedule 27-B hereto. No revision to the Office
-------------
Park Declaration which shall have a material adverse effect on Tenant's rights
or obligations under this Lease shall be binding against Tenant without Tenant's
consent.
28. Interpretation.
--------------
(a) Captions. The captions in this Lease are for convenience only and
--------
are not a part of this Lease and do not in any way define, limit, describe or
amplify the terms and provisions of this Lease or the scope or intent thereof.
(b) Entire Agreement. This Lease represents the entire agreement
----------------
between the parties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises or the
Office Park. This Lease supersedes all prior negotiations, agreements,
informational brochures, letters, promotional information and other statements
and materials made or furnished by Landlord or its agents, including any
Requests for Proposal and Proposals relating to the subject matter of this
Lease. The submission of this Lease by Landlord, its attorneys or agents, for
<PAGE>
examination or for execution by Tenant, does not constitute a reservation of (or
option for) the Premises in favor of Tenant; and Tenant shall have no right or
interest in the Premises, and Landlord shall have no liability hereunder, unless
and until this Lease is executed and delivered by Landlord. No rights,
easements or licenses are acquired in the Premises or any land adjacent to the
Premises by Tenant by implication or otherwise except as expressly set forth in
the provisions of this Lease. This Lease shall not be modified in any manner
except by an instrument in writing executed by the parties. The masculine (or
neuter) pronoun, singular number, shall include the masculine, feminine and
neuter genders and the singular and plural number.
(c) Exhibits. Each writing or plan referred to herein as being
--------
attached hereto as an Exhibit or Schedule, or otherwise designated herein as an
Exhibit or Schedule hereto, is hereby made a part hereof.
(d) Arbitration. Wherever arbitration is set forth herein as the
-----------
appropriate resolution of a dispute, the issues in question shall be submitted
for arbitration to the American Arbitration Association in the city nearest to
the Premises in which offices of the American Arbitration Association are
located. Landlord and Tenant will comply with the American Arbitration
Association's rules then in effect and the determination of award rendered by
the arbitrator[s] shall be final, conclusive and binding upon the parties and
not subject to appeal, and judgment thereon may be entered in any court of
competent jurisdiction. Either Landlord or Tenant may require, at its option,
that a panel of three arbitrators instead of a single arbitrator be designated,
so long as such requirement is consistent with the American Arbitration
Association's rules. Fees, costs and expenses of the arbitrator[s] shall be
borne by the party against whom the arbitration shall be determined, or in such
proportions as the arbitrator[s] shall designate.
(e) Consents. Notwithstanding anything to the contrary set forth in
--------
this Lease, wherever any party's approval or consent is required, it shall not
be unreasonably withheld or delayed; except that, where discretion is expressly
reserved, such discretion need not be reasonably exercised.
29. Definitions.
-----------
(a) "Landlord." The word "Landlord" is used herein to include the
--------
Landlord named above as well as its heirs, successors and assigns, each of whom
shall have the same rights, remedies, powers, authorities and privileges as it
would have had, had it originally signed this Lease as Landlord. Any such
person, whether or not named herein, shall have no liability hereunder after it
<PAGE>
ceases to hold title to the Premises (except for obligations which may have
theretofore accrued). Neither Landlord, Fee Owner nor any principal of Landlord
or Fee Owner nor any owner of the Building, Land or Premises, whether disclosed
or undisclosed, shall have any personal liability with respect to any of the
provisions of this Lease or the Premises, and if Landlord is in breach or
default with respect to Landlord's obligations under this Lease or otherwise,
Tenant shall look solely to the equity of Landlord in the Premises for the
satisfaction of Tenant's remedies.
(b) "Tenant." The word "Tenant" is used herein to include the Tenant
------
named above as well as its successors and assigns, each of which shall be under
the same obligations, liabilities and limitations and, if such assignment shall
be permitted in accordance with the provisions of this Lease, each of which
shall have the same rights, privileges and powers as it would have possessed had
it originally signed this Lease as Tenant. Each and every of the persons named
above as Tenant shall be bound formally and severally by the terms, covenants
and agreements contained herein. However, no such rights, privileges or powers
shall inure to the benefit of any assignee of Tenant immediate or remote, unless
the assignment to such assignee is permitted by the terms of this Lease or has
been approved in writing by Landlord. All rights, benefits, remedies, waivers,
privileges and powers that shall benefit Landlord with respect to Tenant shall
also apply with respect to any subtenant, assignee or successor of Tenant.
(c) "Mortgage" and "Mortgagee". The word "mortgage" is used herein to
--------------------------
include any lien or encumbrance on the Premises or the Building or on any part
of or interest in or appurtenance to any of the foregoing, including without
limitation any ground lease if Landlord's interest is or becomes a leasehold
estate. The word "mortgagee" is used herein to include the holder of any
mortgage, including any ground lessor if Landlord's interest is or becomes a
leasehold estate. Wherever any right is given to a mortgagee, that right may be
exercised on behalf of such mortgagee by any representative or servicing agent
of such mortgagee. No mortgagee which shall succeed to the interest of Landlord
hereunder (either in terms of ownership or possessory rights) shall: (i) be
liable for any previous act or omission of a prior Landlord, (ii) be subject to
any rental offsets or defenses against a prior Landlord, (iii) be bound by any
amendment of this Lease made without its written consent, or by payment by
Tenant of rent in advance in excess of two (2) month's rent, (iv) be liable for
any security not actually received by it, or (v) be liable for any initial
construction of the improvements to be made to the Premises. If, in connection
with obtaining, continuing or renewing financing for which the Building, the
<PAGE>
Premises or any interest therein represents collateral in whole or in part, a
bank, insurance company or other institutional lender shall request reasonable
modifications of this Lease as a condition of such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not (i) increase the monetary, or increase non-monetary,
obligations of Tenant hereunder, or (ii) adversely affect the Tenant's (A)
leasehold interest hereby created, or (B) rights under this Lease.
(d) "Person." The word "person" is used herein to include a natural
------
person, a partnership, a corporation, an association, and any other form of
business association or entity.
(e) "Date of this Lease". The "date of this Lease" shall be the date
------------------
upon which this Lease becomes fully executed by both parties.
30. Notices. All notices, demands, requests, consents, certificates and
-------
waivers required or permitted hereunder from either party to the other shall be
in writing and shall be deemed sufficiently given if sent by overnight delivery
with receipted service by a reputable, national courier or by United States
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be addressed to:
825 Duportail Road
Wayne, Pennsylvania 19087
Attention: Leigh Purdy
or, after the Commencement Date, to the Building, sent to the attention of Law
Department, in either case with a copy to Stephen Volpicelli, Esq., Montgomery,
McCracken, Walker and Rhoades, 123 South Broad Street, Phila, Pa. 19109.
Notices to Landlord shall be addressed to Terramics Management Company,
Southpoint TWO, 1180 West Swedesford Road, Berwyn, PA 19312, with a further
copy to any mortgagee or other party designated by Landlord. Either party may
at any time, in the manner set forth for giving notices to the other, specify a
different address to which notices to it shall be sent.
31. Miscellaneous.
-------------
(a) Brokers. Tenant represents and warrants that it has not dealt
-------
with any broker or agent in the negotiation for or the obtaining of this Lease,
other than Huff Real Estate, Inc. ("Agent") and agrees to indemnify and hold
Landlord harmless from any and all cost or liability for compensation claimed by
any such broker or agent, other than Agent, employed by Tenant or claiming to
<PAGE>
have been engaged by Tenant in connection with this Lease. The parties
acknowledge that Agent has acted only as agent with respect to the procurement
and negotiation of this Lease, and agree that Agent shall not be responsible or
liable for any term, provision or condition of this Lease. Agent shall be
entitled to a leasing commission in connection with the making of this Lease to
be payable in accordance with the terms of a separate commission letter.
Subject to the preceding qualifications, each party shall indemnify and hold the
other harmless for any costs (including, but not limited to, court costs,
investigation costs and attorneys' fees), expenses or liability for commissions
or other compensation claimed by any broker or agent with respect to this Lease
that arise out of any agreement or dealings, or alleged agreement or dealings,
between such party and any such broker or agent.
(b) Partial Invalidity. If any of the provisions of this Lease, or
------------------
the application thereof to any person or circumstances, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
(c) Additional Charges. All sums payable by Tenant under this Lease
------------------
whether or not stated to be additional rent shall be collectable by Landlord as
rent, and in the event of a default thereof, Landlord shall have the same rights
and remedies as for failure to pay rent.
(d) Authority. The undersigned individuals who executed this Lease on
---------
behalf of Tenant hereby certify that the execution of this Lease by Tenant has
been duly authorized, with all necessary corporate actions, resolutions,
consents and approvals, as the case may be, having been obtained heretofore, and
that, subject to execution and delivery by Landlord, this Lease is legally
binding on the Tenant in accordance with its terms.
(e) Time of the Essence. When either Tenant or Landlord shall be
-------------------
required to take an action or give notice within a specific amount of time or by
a specified date, except where further qualified herein, such specified times
shall be deemed to be of the essence of this Lease.
(f) Binding Effect. Subject to the provisions and limitations
--------------
contained in this Lease, the provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto, their successors and assigns.
<PAGE>
32. Renewal Option.
--------------
(a) Conditions. Tenant is granted the right and option to extend the
----------
term of this Lease for one additional period of five (5) years, such renewal
term to commence upon the expiration of the then current term of this Lease, in
accordance with the following:
(i) Tenant must exercise its five (5) year renewal option, if at all,
by written notice to Landlord given at least eighteen (18) months prior to the
original expiration date of the then current term; and
(ii) As a condition to the effective exercise of any option, this
Lease shall be in full force and effect and there shall not exist any default by
Tenant which remains uncured beyond any applicable periods of notice, grace or
cure.
(b) Renewal Terms. If the foregoing option is effectively exercised,
-------------
all the terms and conditions contained in this Lease shall continue to apply
during the renewal term except that:
(i) There shall be no construction allowance, or other tenant
incentive, allowance or concession and no further right of renewal beyond the 5
year renewal option; and
(ii) For and during the renewal period, the minimum annual rent
hereunder shall be adjusted to the greater of (a) Twenty Eight Dollars ($28.00)
per rentable square foot (with the same provisions for Annual Operating Costs
and Taxes [including the same 1998 base year] as are applicable to the initial
term), or (b) the Adjusted Fair Market Rental determined in accordance with
subsection (iii) below.
(iii) If Tenant duly exercises its option by notice to Landlord as set
forth above, Landlord will propose to Tenant, promptly following such exercise,
an Adjusted Fair Market Rental which is intended to be equal to the fair market
rate for the Premises for the renewal period (taking into account other
associated economic terms consistent with such fair market rate, including by
way of example and not limitation, an adjusted base year for Annual Operating
Costs and Taxes, which shall be specified as part of the Adjusted Fair Market
Rental, but not including adjustment for any allowances, concessions or
incentives which would ordinarily be applicable to such fair market rate), plus
a cash allowance, payable at the inception of the renewal period, equal to the
"Allowance Factor" as defined below. Tenant can accept or reject the Adjusted
Fair Market Rental proposed by Landlord, but if Tenant shall fail to so accept
<PAGE>
or reject within fifteen (15) days after receipt of Landlord's proposal, Tenant
shall be deemed to have rejected Landlord's proposal. In the event Tenant
rejects (or is deemed to reject) Landlord's determination of the Adjusted Fair
Market Rental within said 15 day period, then the Adjusted Fair Market Rental
(including associated economic terms as set forth above) shall be determined by
three (3) independent appraisers who shall be members of the American Institute
of Real Estate Appraisers of the National Association of Realtors, with at least
seven (7) years of experience in evaluating market rents and/or economic terms
for leases of space in similar first-class office buildings in the Greater
Philadelphia Area, with one appointed by the Tenant, one appointed by the
Landlord ("Appointed Appraisers") (such appraisers to be appointed within ten
(10) business days following the written rejection by Tenant of Landlord's
calculation of Adjusted Fair Market Rental) and the third selected by the two
(2) appraisers so appointed ("Selected Appraiser"). If either Tenant or
Landlord shall fail to timely appoint an appraiser, or if the two (2) appraisers
so determined shall be unable to agree within five (5) business days of their
being appointed on a selection of a third appraiser, then either appraiser, on
behalf of both, may request the chapter of MAI appraisers located nearest to the
Building to make such appointment. Each Appointed Appraiser shall make a
determination of the applicable fair market rental and the Allowance Factor of
similar space in class "A" office buildings that are similarly situated and
competitive with the Building in the same office market, taking into account
variations in location, building size and tenant size. The Appointed Appraisers
shall submit their determinations ("Initial Determinations") to the Selected
Appraiser within fifteen (15) days after the panel of three appraisers is
constituted. The Appointed Appraisers shall then cooperate in good faith under
the direction of the Selected Appraiser to reach an agreement on a determination
of the applicable Adjusted Fair Market Rental, to be reported to the parties in
writing with full explanation of the decision. If the Appointed Appraisers
cannot reach such an agreement within seven (7) business days despite their best
efforts in good faith to do so, the Selected Appraiser shall, within five (5)
business days thereafter, make a determination in writing with full explanation
of the decision, taking into account the Initial Determinations and any other
information the Selected Appraiser deems relevant. Whether the final Adjusted
Fair Market Rental determination is a cooperative effort of all Appraisers or is
the sole determination of the Selected Appraiser, it shall be binding on both
Landlord and Tenant. After receipt of the appraisal, Tenant shall have ten (10)
business days in which to decide whether to accept the appraisal, and shall so
notify Landlord within such period. In the event Tenant does not accept such
appraisal, Tenant's renewal option shall be deemed rescinded and this Lease
<PAGE>
shall not be renewed. Each party shall pay the cost of its Appointed Appraiser
and shall share equally the cost of the Selected Appraiser, except that Tenant
shall pay the costs of all Appointed Appraisers and the Selected Appraiser if,
following its receipt of the appraisal, it declines to accept the appraisal and
the renewal option is rescinded. If the renewal option is not rescinded, the
parties shall promptly enter into a confirmatory formal agreement evidencing the
applicable lease terms. The Allowance Factor means that if the fair market
rental for the designated comparables shall consist of a "face" or "stated
lease" rate, plus one or more concessions or allowances for tenant improvements
("TI Allowance"), free rent or the like (which will not be provided to Tenant
except for the Allowance Factor), then the Adjusted Fair Market Rental for the
Premises shall be based solely upon the "stated lease" rate without deduction
for a TI Allowance or other allowances, and the Allowance Factor shall be equal
to the sum of: (1) fifty percent (50%) of the TI Allowance, plus (2) one hundred
percent (100%) of applicable concessions or allowances other than a TI
Allowance. There shall be no adjustment for the lack of brokerage commissions
nor shall brokerage commissions be considered in computing the Allowance Factor.
For example, if the fair market rental for comparable space for a comparable
term were $30 per rentable square foot, with 1 month free rent and a
$25/rentable square foot construction allowance, then the Adjusted Fair Market
Rental for the Premises, for the renewal period, would be $30 per rentable
square foot, and the cash allowance would be equal to 1 month's minimum rent
plus $12.50 multiplied by the rentable square foot area of the space leased by
Tenant in the Building.
33. Expansion Rights.
----------------
(a) Expansion Space. Tenant may desire to lease additional space
---------------
within the Office Park from time to time. In connection therewith, Landlord
(with the joinder of Landlord's affiliates who own the remaining buildings in
the Office Park) has agreed as follows:
(i) So long as this Lease is in full force and effect and there shall
not exist any default by Tenant which remains uncured beyond any applicable
period of notice, grace or cure, Tenant may notify Landlord in writing of its
desire for expansion space in the Office Park, specifying in such notice the
size and preferred location of such space and the targeted commencement and
length of the term desired by Tenant. Landlord (which designation, for purposes
hereof, shall include the owner of the other buildings in question within the
Office Park) shall thereupon meet with Tenant for the purpose of developing a
good faith projection of space which may be (or become) available to suit
<PAGE>
Tenant's needs and the anticipated rental and other economic terms applicable
thereto (which shall be equal to the fair market rental and terms applicable to
unrelated third parties). Space shall not be deemed available if it is subject
to any preferential rights or options in favor of another party, if it is the
subject of on-going good faith negotiations, or the leasing of such space would
adversely impact the reasonable leasing program established by Landlord for the
building in question. Landlord shall not be obligated to reserve any space in
connection with, or in anticipation of, such request by Tenant for expansion
space nor shall this Lease create any option or reservation in favor of Tenant,
but if Tenant does make such request, and so long as this Lease is in full force
and effect without default by Tenant, Landlord shall cooperate with Tenant in
good faith in order to allow Tenant to lease such available space on fair market
terms.
(ii) If Landlord and Tenant are able to agree on the leasing of
expansion space to suit Tenant's needs, they shall evidence such agreement by
the entry into a formal lease agreement, which lease agreement shall be
generally consistent with the form utilized for the building in question.
(iii) Landlord shall endeavor to provide notice to Tenant when space
becomes available for leasing in the Office Park (i.e., available within the
meaning of subsection (i) above and after all other prior or preferential rights
on the space in question expire), including the size and location of such space
and the period for which such space may be leased.
34. Sublet Assistance and Purchase Option.
-------------------------------------
(a) General. Tenant has advised Landlord of its desire to be able to
-------
control its obligations relating to this Lease in the event Tenant shall, at a
future date, determine in its discretion that its space needs at the Premises
and/or Office Park cannot be satisfied by reason of Tenant's expansion needs, or
if Tenant shall contract its business operations in the Philadelphia
metropolitan area such that its space requirements are substantially less than
the area of the Building, or if for any other reason, in Tenant's discretion,
Tenant shall determine that the Premises is unsuitable for its continued
business operations (in any such case, a "Space Incompatibility").
(b) Sublet Assistance. If a Space Incompatibility shall occur and,
-----------------
as a consequence, Tenant desires to sublet space within the Premises, and if
Tenant shall notify Landlord thereof (including in such notice details on areas
of the Building which Tenant desires to sublet), Landlord agrees to cooperate
with Tenant in good faith in endeavoring to secure, on behalf of Tenant and on
<PAGE>
terms approved by Tenant, one or more subtenants to occupy the proposed sublet
area(s), or an assignee of the Lease. Such assistance by Landlord shall be
based upon Landlord's then existing knowledge of the leasing market, the various
relationships developed by Landlord with respect to the leasing market and the
Office Park, and the prospects from time to time interested in the Office Park.
However, Landlord's assistance shall be without cost to Landlord, and Landlord
has and shall make no commitments, assurances or guarantees to Tenant as to the
ability to secure subtenants or the terms of any subtenancies or assignment. It
is further understood that Landlord's assistance shall be subject to the
qualifications on subleasing and assignment as set forth in Paragraph 21 above
and in no event shall Landlord be required to prefer the Premises to other
available space in the Office Park or in other buildings in which Landlord or
its affiliates have an economic interest; provided, however, that for purposes
of this Paragraph 34, any assignee or subtenant procured directly by Tenant
(i.e., without assistance by Landlord) shall not be subject to the limitations
of Paragraph 21(b)(i), relating to existing tenants and prospects of the Office
Park.
(c) Purchase Option. Regardless of whether a Space Incompatibility
---------------
shall occur, Tenant shall have a right to purchase the Premises (referred to as
the "Purchase Right"), on the terms and conditions hereinafter set forth. The
Purchase Right, as well as the right to subletting assistance as set forth in
subparagraph (b) above, shall be effective only for so long as this Lease shall
be in full force and effect, without default by Tenant remaining outstanding
beyond any applicable notice, grace or cure period. To effectively exercise its
Purchase Right, Tenant must notify Landlord of its exercise thereof, if at all,
within the period commencing on the first day of the fifty eighth (58th) month
of the term of this Lease and ending on the last day of the one hundred
twentieth (120th) month of the term of this Lease. Following notice to Landlord
of exercise of Tenant's Purchase Right, Tenant and Landlord agree to confer on
the possibility of an alternative arrangement to the Purchase Right (but without
obligation of Landlord or Tenant of any sort to reach such alternative
agreement), and if such alternative arrangement is not mutually agreed to,
Landlord shall have the option to nullify the Purchase Right by exercising its
Termination Right under the terms and conditions set forth in subparagraph (f)
below.
(d) Purchase Price. If the Purchase Right is exercised, and Landlord
--------------
does not exercise its Termination Right, Landlord (and Fee Owner) shall sell to
Tenant and Tenant shall purchase from Landlord and Fee Owner, the entire fee
interest in the Premises for a purchase price ("Price") determined as follows:
<PAGE>
If the purchase closes during the 6th year of the term of
this Lease: $226 per square foot of the Building, for a total of
$9,826,480.
If the purchase closes during the 7th year of the term of
this Lease: $232 per square foot of the Building, for a total of
$10,087,360.
If the purchase closes during the 8th year of the term of
this Lease: $238 per square foot of the Building, for a total of
$10,348,240.
If the purchase closes during the 9th year of the term of
this Lease: $244 per square foot of the Building, for a total of
$10,609,120.
If the purchase closes during the 10th year of the term of
this Lease (or within the time allotted for closing for the
latest exercise of the Purchase Right): $250 per square foot of
the Building, for a total of $10,870,000.
(e) Other Purchase Terms. Provided Landlord does not exercise its
--------------------
Termination Right under subparagraph (f) below, Closing on the Purchase Right
shall occur not later than the ninetieth (90th) day after Landlord's Termination
Right under subparagraph (e) below shall expire without exercise, or if earlier,
the ninetieth (90th) day after Landlord shall advise Tenant that it declines to
exercise such Termination Right. At such Closing, the Price shall be paid by
Tenant, in cash or equivalent, and fee title to the Premises shall be conveyed
to Tenant in good and marketable condition, subject to no mortgages or other
monetary liens but subject to (i) all existing matters of record as disclosed in
the title report to be delivered to Tenant pursuant to Section 22 (d) hereof,
(ii) any additional easements or other matters as may be created in connection
with the development of the Premises and Building for Tenant's occupancy, and
(iii) such other matters as may from time to time be created in connection with
the development and use of the Premises and Office Park and do not materially
interfere with Tenant's rights under this Lease, or as may be created by or with
the consent of Tenant. The Purchase Price shall be subject to customary
adjustments and apportionments for real estate taxes, utility charges and the
like and for rents and additional rents payable under the Lease, it being
understood that Tenant shall be responsible for all charges otherwise payable
under the Lease for periods prior to the closing. Realty transfer taxes, if
any, shall be shared equally. At Tenant's option, in order to minimize transfer
taxes or for any other reason, Tenant may elect to accept an assignment of the
tenant's interest under the Ground Lease and/or to take a separate conveyance of
the underlying landlord's interest in the Ground Lease.
<PAGE>
(f) Landlord's Rescission Option. Notwithstanding the provisions set
----------------------------
forth above, if Tenant shall exercise its Purchase Right, Landlord shall have
the right and option, but not the obligation, to nullify and rescind Tenant's
Purchase Right by notifying Tenant, within ninety five (95) days following
Landlord's receipt of notice of exercise of the Purchase Right, that Landlord
elects to terminate the Lease (a "Termination Right"). If Landlord exercises
the Termination Right, Tenant shall have no right or option to purchase the
Premises, but instead (i) this Lease shall be terminated as of a date no later
than fifteen (15) months following the date of exercise of the Termination
Right, the exact date to be designated by Tenant in its discretion within 30
days after Tenant receives notice of the Termination Right (the end of such 15
month period being referred to as the "Outside Termination Date"), and (ii)
regardless of the actual date of termination and regardless of the extent of
Tenant's occupancy of the Premises prior to the Outside Termination Date, Tenant
shall continue to pay to Landlord all rent, additional rent and other sums
otherwise payable up until the Outside Termination Date, it being in Tenant's
discretion to occupy the Premises up to the Outside Termination Date. On the
specified termination date, Tenant shall surrender the Premises to Landlord in
the condition required upon normal expiration of the term, but rent and
additional rent shall continue to be payable until the Outside Termination Date
as set forth above.
35. Construction Contingency.
------------------------
(a) Satisfaction of Contingency. The validity and effectiveness of
---------------------------
this Lease shall be subject to the satisfaction of the condition that there
shall have occurred, on or before the date set forth below, commencement of
construction of the Project Work and closing and funding of the initial
construction advances under a mortgage loan obtained by Landlord to finance such
construction, as well as the obtaining of land development and construction
approvals from the applicable municipal authorities (the "Closing Contingency").
The principal amount of the mortgage loan shall be at least 5.5 Million Dollars.
This Lease shall be null and void, and without further force and effect, at the
option of either party, if the Closing Contingency shall not have occurred on or
before April 4, 1997; provided that the date for satisfying the Closing
Contingency shall be extended by the period of any Tenant Delay; and provided
further that Tenant, at its sole option, shall have the right to extend the
period for satisfying the Closing Contingency for up to 30 days by notice to
Landlord. Any such termination shall be without further liability of either
party.
36. Ground Lease Provisions. The Landlord's interest in the Premises is
-----------------------
based on its interest as a tenant under the Ground Lease. Accordingly, the
parties agree as follows:
<PAGE>
(a) No Modification of Ground Leases. So long as Tenant is not in
--------------------------------
material default of a material term of this Lease beyond applicable periods of
notice, grace and cure, the Landlord shall not alter or modify any provision of
the Ground Lease in a manner that shall materially adversely affect Tenant's
rights or liabilities under this Lease.
(b) No Merger. If the Landlord acquires the fee simple title or any
---------
other estate or interest in the Ground Lease, such acquisition will not merge
the leasehold estate created by the Ground Lease with the fee simple title or
such other estate or interest, unless such other estate or interest will
immediately become subject to the terms of this Lease.
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
Lease and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this Lease to be duly executed under seal
this _____ day of ___________, 1997.
Tenant: Landlord:
UNISOURCE WORLDWIDE, INC. TERRAMICS/SOUTHPOINT ASSOCIATES V
LIMITED PARTNERSHIP
By:______________________ By: Terramics Property Associates
Title:___________________
Attest:__________________ By: __________________________
Title: ___________________ Authorized General Partner
JOINDER AND ESTOPPEL CERTIFICATION BY FEE OWNER
-----------------------------------------------
The undersigned hereby (i) consents to the Purchase Right granted
under Section 34 of the foregoing Lease, (ii) agrees that such Purchase Right
shall also apply to the fee interest of the undersigned in the Premises, and
(iii) certifies that the Lease is not subject to any approval rights of the
undersigned under the terms of the Ground Lease therein referred to.
The undersigned hereby certifies that Landlord under the foregoing
Lease is not in default under the Ground Lease.
Date signed: SOUTHPOINT LAND HOLDINGS, INC.
___________________
By: _____________________________
, (Vice) President
<PAGE>
SCHEDULE A - DESCRIPTION OF LAND
- ----------
<PAGE>
SCHEDULE B - GROUND LEASE
- ----------
<PAGE>
SCHEDULE 2(A) - BUILDING SHELL AND SITE SPECIFICATIONS
- -------------
<PAGE>
SCHEDULE 2(b) - PRELIMINARY PLANS FOR TENANT WORK
- -------------
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
----------------------
<S> <C>
PAGE
---
"Affiliate"............................... 75
"Agent"................................... 101
"Allowance Factor"........................ 106
"Annual Operating Costs".................. 27
"Appointed Appraisers".................... 106
"Building Shell and Site Specifications".. 3
"Building"................................ 2
"Closing Contingency"..................... 118
"Commencement Date"....................... 15
"Cost Schedule"........................... 12
"Date of Substantial Completion".......... 17
"Date of this Lease"...................... 100
"Default Rate"............................ 37
"Expiration Date"......................... 15
"Fee Owner"............................... 1
"Final Tenant Plans"...................... 4
"Fit-Out Allowance"....................... 11
"Force Majeure"........................... 9
"Ground Leases"........................... 1
"Indemnified Party"....................... 63
"Indemnifying Party"...................... 63
"Initial Determinations".................. 107
"Initial Funding Date".................... 70
"Land".................................... 1
"Landlord"................................ 1
"Landlord's Contractor"................... 8
"Landlord's Engineer"..................... 4
"Laws".................................... 49
"Lease"................................... 1
"Material Alteration"..................... 53
"mechanic's lien"......................... 57
"Money Rates"............................. 37
"mortgage"................................ 99
"mortgagee"............................... 99
"Non-Disturbance Agreement"............... 77
"Non-Material Alterations"................ 53
"Office Park Declaration"................. 29
"Office Park"............................. 1
"Permitted Assignee"...................... 70
"Permitted Substances".................... 51
"Permitted Subtenant"..................... 70
"Person."................................. 100
"Preliminary Plans"....................... 5
"Premises"................................ 3
"Previous Rent"........................... 82
"Price"................................... 114
"Prime Rate".............................. 37
"Prohibited Vacancy"...................... 85
"Project Work"............................ 8
"punch list".............................. 18
"Purchase Right".......................... 113
"Redecoration Allowance".................. 38
"Rules and Regulations"................... 67
"Selected Appraiser"...................... 106
"Shut-Down Condition"..................... 47
"Southpoint FIVE.......................... 2
"Southpoint".............................. 1
"Space Incompatibility"................... 112
"Special Installations"................... 43
"Special Tenant Shell Features"........... 4
"Target Commencement Date"................ 9
"Tenant Delay"............................ 9
"Tenant Improvement Cost"................. 10
"Tenant Improvement Work"................. 4
"Tenant."................................. 98
"Tenant".................................. 1
"Tenant's Architect"...................... 5
"Tenant's Representatives"
"Tenant's Representatives"........... 13
"Termination Right"....................... 116
"TI Allowance"............................ 108
"Title Report"............................ 78
"Unisource Rights"........................ 75
"Unisource"............................... 70
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF UNISOURCE WORLDWIDE, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> $59,318,000
<SECURITIES> 0
<RECEIVABLES> 777,797,000
<ALLOWANCES> 24,673,000
<INVENTORY> 472,138,000
<CURRENT-ASSETS> 1,329,411,000
<PP&E> 409,632,000
<DEPRECIATION> 194,401,000
<TOTAL-ASSETS> 2,238,014,000
<CURRENT-LIABILITIES> 573,896,000
<BONDS> 627,142,000
0
0
<COMMON> 67,000
<OTHER-SE> 945,943,000
<TOTAL-LIABILITY-AND-EQUITY> 2,238,014,000
<SALES> 5,208,482,000
<TOTAL-REVENUES> 5,208,482,000
<CGS> 4,321,991,000
<TOTAL-COSTS> 4,321,991,000
<OTHER-EXPENSES> 766,066,000<F1>
<LOSS-PROVISION> 13,657,000
<INTEREST-EXPENSE> 30,932,000
<INCOME-PRETAX> 75,836,000
<INCOME-TAX> 32,603,000
<INCOME-CONTINUING> 43,233,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $43,233,000
<EPS-PRIMARY> $0.64
<EPS-DILUTED> $0.64
<FN>
<F1>REPRESENTS SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES, EXCLUDING PROVISION
FOR LOSSES ON ACCOUNTS RECEIVABLE.
</FN>
</TABLE>
