<PAGE>
UNITED STATES 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 period ended September 30, 1996
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 1-6715
NATIONAL MEDIA CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-2658741
- ------------------------------------------ ------------------------------------
(State or Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
1700 Walnut Street, Philadelphia, PA 19103
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (215) 772-5000
--------------
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 [ ]
There were 23,408,608 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at October 31, 1996. In addition, there were
711,930 shares of treasury stock as of such date.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
INDEX
Page
----
Facing Sheet ............................................................... 1
Index....................................................................... 2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
September 30, 1996 and March 31, 1996................... 3
Condensed Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995.......... 4
Condensed Consolidated Statements of Operations
Six months ended September 30, 1996 and 1995............ 5
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1996 and 1995............ 6
Notes to Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10
Part II. Other Information
Item 1. Legal Proceedings ....................................... 16
Item 4. Submission of Matters to a Vote of Security Holders...... 16
Item 6. Exhibits and Reports on Form 8-K......................... 18
Signatures................................................................. 19
-2-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ----------------
(Unaudited) (See Note Below)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 29,566 $ 18,405
Accounts receivable, net ....................................................... 40,486 32,051
Inventories .................................................................... 32,632 22,605
Prepaid media .................................................................. 6,236 4,271
Prepaid show production ........................................................ 9,115 5,469
Deferred costs ................................................................. 5,392 4,102
Prepaid expenses and other current assets ...................................... 4,856 2,339
Deferred income taxes .......................................................... 3,124 3,142
-------- --------
Total current assets ......................................................... 131,407 92,384
Property and equipment, net ....................................................... 10,949 6,954
Excess of cost over net assets of acquired businesses and other
intangible assets, net ......................................................... 52,757 14,303
Other assets ...................................................................... 9,075 2,907
-------- --------
Total assets ................................................................... $204,188 $116,548
======== ========
Current liabilities:
Accounts payable ............................................................... $ 12,955 $ 20,412
Accrued expenses ............................................................... 26,182 26,510
Deferred revenue ............................................................... 723 1,771
Income taxes payable ........................................................... 5,020 1,344
Deferred income taxes .......................................................... 2,749 2,749
Current portion of long-term debt and capital lease obligations................. 4,077 876
-------- --------
Total current liabilities .................................................... 51,706 53,662
Long-term debt and capital lease obligations ...................................... 4,352 4,054
Deferred income taxes ............................................................. 393 393
Other liabilities ................................................................. 1,837 1,977
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; issued
122,000 and 136,375 shares Series B convertible preferred stock, respectively 1 1
Common stock, $.01 par value; authorized 75,000,000 shares;
issued 24,114,538 and 18,177,292 shares, respectively ........................ 241 182
Additional paid-in capital ..................................................... 128,141 48,135
Retained earnings .............................................................. 26,113 16,569
Treasury stock, 711,930 and 686,710 shares, respectively, at cost .............. (4,273) (3,791)
Notes receivable, directors, officers, employees, consultants and others ....... - (473)
Foreign currency translation adjustment ........................................ (4,323) (4,161)
-------- --------
Total shareholders' equity ................................................... 145,900 56,462
-------- --------
Total liabilities and shareholders' equity ................................... $204,188 $116,548
======== ========
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
-3-
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Product sales .................................................... $ 89,742 $ 56,173
Retail royalties ................................................. 8,578 1,200
Sales commissions and other revenues ............................. 1,336 235
-------- --------
Net revenues ............................................ 99,656 57,608
Operating costs and expenses:
Media purchases .................................................. 34,060 17,272
Direct costs ..................................................... 45,557 29,664
Selling, general and administrative .............................. 11,997 6,695
Interest expense ................................................. 408 233
-------- --------
Total operating costs and expenses ...................... 92,022 53,864
-------- --------
Income before income taxes ......................................... 7,634 3,744
Income taxes ....................................................... 2,640 599
-------- --------
Net income ......................................................... $ 4,994 $ 3,145
======== ========
Income per common and common equivalent share:
Primary .......................................................... $ 0.18 $ 0.15
======== ========
Fully-diluted .................................................... $ 0.18 $ 0.14
======== ========
Weighted average number of common and common equivalent shares
outstanding:
Primary .......................................................... 28,422 22,429
======== ========
Fully-diluted .................................................... 28,422 22,429
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Product sales ................................................... $192,664 $119,971
Retail royalties ................................................ 13,765 2,358
Sales commissions and other revenues ............................ 2,527 324
-------- --------
Net revenues .................................................. 208,956 122,653
Operating costs and expenses:
Media purchases ................................................. 71,636 37,955
Direct costs .................................................... 98,798 63,647
Selling, general and administrative ............................. 23,125 13,724
Interest expense ................................................ 713 473
-------- --------
Total operating costs and expenses ............................ 194,272 115,799
-------- --------
Income before income taxes ......................................... 14,684 6,854
Income taxes ....................................................... 5,140 1,107
-------- --------
Net income ......................................................... $ 9,544 $ 5,747
======== ========
Income per common and common equivalent share:
Primary ......................................................... $ 0.36 $ 0.28
======== ========
Fully-diluted ................................................... $ 0.36 $ 0.27
======== ========
Weighted average number of common and common equivalent shares
outstanding:
Primary ......................................................... 26,887 22,272
======== ========
Fully-diluted ................................................... 26,887 22,297
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 9,544 $ 5,747
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization .............................. 1,960 773
Tax benefit from exercise of stock options............... 2,262 546
Changes in operating assets and liabilities, net of
effects from acquisitions.............................. (26,458) (5,634)
Other ...................................................... (3,819) 544
-------- --------
Net cash (used in) provided by operating activities ................ (16,511) 1,976
Cash flows from investing activities:
Additions to property and equipment ............................. (3,163) (1,204)
Investment in EarthLink ......................................... (1,250) -
Cost of companies acquired, net of cash acquired ................ (630) -
-------- --------
Net cash used in investing activities .............................. (5,043) (1,204)
Cash flows from financing activities:
Proceeds from borrowings ........................................ 9,400 -
Payments on borrowings .......................................... (11,241) (90)
Exercise of stock options and warrants........................... 5,998 1,370
Net proceeds from issuance of common stock....................... 28,891 -
Payments received on notes receivable ........................... - 1,520
-------- --------
Net cash provided by financing activities .......................... 33,048 2,800
Effect of exchange rate changes on cash and cash equivalents ....... (333) (882)
-------- --------
Net increase in cash and cash equivalents .......................... 11,161 2,690
Cash and cash equivalents at beginning of period ................... 18,405 13,467
-------- --------
Cash and cash equivalents at end of period ......................... $ 29,566 $ 16,157
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending March
31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended March 31, 1996.
2. Per Share Amounts
Income per share amounts have been computed based upon the weighted average
number of common shares and dilutive common equivalent shares (stock
options, warrants, and preferred stock) outstanding using the "if converted
method".
3. Contingent Matters
Lachance and Efron and Cohen Class Actions.
In July and December 1994, stockholders filed purported class action
lawsuits in federal court against the Company and certain of its former
officers and directors in connection with an aborted merger transaction
with ValueVision International, Inc. The parties have reached an agreement
in principle to settle these matters. Similar actions filed in Delaware
state court have been formally and finally settled. Such settlements (both
federal and Delaware state court) provided for aggregate cash payments by
the Company's insurer of approximately $1.1 million and aggregate cash
payments by the Company of $375,000, as to which the Company recorded a
charge against earnings in the fourth quarter of fiscal 1995. Consummation
of these federal court settlements is subject, among other things, to the
approval of such court.
Positive Response Shareholders' California Class Action.
On May 1, 1995, a purported class action suit was filed in the United
States District Court for the Central District of California against
Positive Response Television, Inc. ("PRTV") and its principal executive
officers alleging that PRTV has made false and misleading statements in its
public filings, press releases and other public statements with respect to
its business and financial prospects. The suit was filed on behalf of all
persons who purchased PRTV common stock during the period from January 4,
1995 to April 28, 1995. The suit seeks unspecified compensatory damages and
other equitable relief. An amended complaint was dismissed in late July
1995. On or about September 25, 1995, the plaintiffs filed a second amended
complaint, which added additional officers as defendants and attempted to
set forth new facts to support plaintiffs' entitlement to legal relief. On
October 31, 1995, PRTV again moved to dismiss plaintiffs' entire action.
The basis of PRTV's new motion was its contention that plaintiffs failed to
allege any new facts in support of a claim that has already been dismissed.
Oral argument in connection with PRTV's motion was held on December 11,
1995. PRTV's motion to dismiss was denied. Discovery is
-7-
<PAGE>
continuing. Management does not believe that the disposition of this matter
will have a material adverse effect on the Company's financial position.
Ab Roller Plus Patent Litigation.
On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the
United States District Court for the Central District of California against
certain parties, including the Company, alleging patent infringement,
unfair competition and other intellectual property claims. Such claims
relate to an alleged infringement of Precise's initial U.S. patent for an
exercise device. The suit claims that a product marketed by the Company
pursuant to a license granted by a third party violates Precise's initial
U.S. patent. Pursuant to the terms of such license, the third party is
contractually obligated to indemnify the Company in this suit. The suit
seeks an injunction and treble damages. The Company's independent legal
counsel has issued an opinion to the Company that the product marketed by
the Company does not infringe upon Precise's initial U.S. patent. The
Company just learned that a second U.S. patent will be issued to Precise on
November 26, 1996 for its exercise device. Precise has filed a motion to
amend its pleadings to include additional claims based on such new patent.
At present, in the normal course of business, the Company is only
undertaking limited television and print marketing of the Ab Roller Plus
product in the United States and is prepared to discontinue any further
U.S. marketing of the Ab Roller Plus product upon issuance of the new U.S.
patent, if necessary. The Company believes that it has valid defenses
against any claims for damages by Precise and that the foregoing will not
have any material adverse effect on the Company. However, unanticipated
adverse determinations in connection with this matter could have a material
adverse effect on the Company's results of operations in a future period.
4. Debt
In June 1996, the Company increased its revolving credit line from $5.0
million to $20.0 million. The revolving credit facility is available until
September 30, 1997 at which time its continuation will be considered.
Interest on cash advances under the facility will accrue at varying rates
based, at the Company's option, on the bank's national commercial rate, or
the London Interbank Offering Rate (LIBOR) plus 1.25%. The agreement
requires the Company to pay an annual fee of .25% on the unused portion of
the facility. At September 30, 1996, there were no borrowings outstanding
under this facility.
The facility is secured by a lien on substantially all of the Company's and
its subsidiaries' assets. Such lien on certain nondomestic assets of the
Company is subordinate to a lien held by Barclays Bank PLC ("Barclays"). At
present, the Company has an overdraft line with Barclays in the amount of
(pound).2 million (approximately $.3 million). Under its agreement with the
bank, the Company is subject to certain restrictions, including the payment
of dividends and must comply with covenants including the maintenance of
specific ratios. The Company is in compliance with these restrictions and
covenants.
5. Acquisitions
As previously reported, on May 17, 1996 the Company acquired all of the
issued and outstanding capital stock of PRTV, a publicly traded direct
marketing company and producer of infomercials, for 1,836,773 shares (of
which 211,146 shares have been deposited into an escrow account for
possible future delivery to PRTV shareholders) of the Company's common
stock valued at $25.9 million. The acquisition was accounted for as a
purchase and is included in the Company's financial statements from the
date of acquisition. A total of $35.6 million in assets were acquired and
included excess of cost over acquired assets of approximately $20.5 million
which is being amortized over 20 years.
On July 2, 1996, the Company also acquired two direct response marketing
companies, Prestige Marketing Limited and Prestige Marketing International
Limited (collectively, "Prestige") and Suzanne Paul Holdings Pty Limited
and its operating subsidiaries (collectively, "Suzanne Paul"). The
aggregate consideration paid by the Company for Prestige and Suzanne Paul
was approximately $4.2 million in cash, $2.8 million in a note payable due
December 5, 1996 and 787,879 shares of the Company's common stock valued at
$14.7 million. Upon consummation of these acquisitions, the Company also
funded a dividend of approximately $4.6 million to the shareholders of
Suzanne Paul. In addition, the Company may be required to issue up to an
aggregate of an additional $5.0 million in the Company's common stock,
valued at then present market prices, in 1997 and 1998, contingent upon the
levels of net income achieved in those years by
-8-
<PAGE>
Prestige and Suzanne Paul. The acquisition is being accounted for as a
purchase and is included in the Company's financial statements from the
date of acquisition. A total of $33.8 million were acquired and included
excess cost over acquired assets of approximately $18.8 million, which is
being amortized over 20 years.
The purchase price allocations for PRTV, Prestige and Suzanne Paul are
based on management's preliminary estimates of the fair value of assets
acquired and liabilities assumed. The final allocations may differ from
these estimates. Had the PRTV, Prestige and Suzanne Paul acquisitions been
made at April 1, 1995, pro forma unaudited condensed results from
operations for the six months ended September 30, 1996 and 1995 would have
been as follows (in thousands, except per share data):
Six months Ended September 30,
-------------------------------
1996 1995
---- ----
Net revenues $223,471 $159,224
Net income $ 9,768 $ 4,393
Primary income per share $ .35 $ .17
Fully diluted income per share $ .35 $ .17
These pro forma amounts do not give effect to any shares of the Company's
common stock which may be issued to the shareholders of Prestige and/or
Suzanne Paul in 1997 or 1998 as described above. In addition, the pro forma
information does not purport to be indicative of the combined results of
operations that would have been reported had the transactions taken place
on April 1, 1995 or of future results of operations and does not reflect
synergies or cost savings that may be realized as a result of the
acquisitions, particularly PRTV.
6. Public Offering
On August 6, 1996, the Company completed a public offering of an additional
2,000,000 shares of its common stock with net proceeds to the Company of
approximately $28.9 million. If these shares had been outstanding for the
entire six month periods ended September 30, 1996 and 1995 and the PRTV,
Prestige and Suzanne Paul acquisitions had been made at the beginning of
these periods, primary income and fully-diluted income per share would have
been $.34 for the six month period ended September 30, 1996 and $.16 for
the six month period ended September 30, 1995.
-9-
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report may be deemed to contain "forward-looking" statements. The Company
desires to take advantage of the new "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for the
express purpose of availing itself of the protections of such safe harbor with
respect to all of such forward-looking statements. Examples of forward-looking
statements include, but are not limited to (a) projections of revenues, income
or loss, earnings or loss per share, capital expenditures, growth prospects,
dividends, capital structure and other financial items, (b) statements of plans
and objectives of the Company or its management or Board of Directors, including
the introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulating authorities, (c) statements of
future economic performance and (d) statements of assumptions underlying other
statements and statements about the Company or its business.
The Company's ability to predict projected results or to predict the effect of
any legislation or other pending events on the Company's operating results is
inherently uncertain. Therefore, the Company wishes to caution each reader of
this report to carefully consider specific factors, including competition for
products, customers and media access; the risks of doing business abroad; the
uncertainty of developing or obtaining rights to new products that will be
accepted by the market; the limited market life of the Company's products; the
effects of government regulations and other factors discussed herein, because
such factors in some cases have affected, and in the future (together with other
factors) could affect, the ability of the Company to achieve its projected
results and may cause actual results to differ materially from those expressed
herein.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is engaged in the direct marketing of consumer products, primarily
through the use of infomercials. The Company continually attempts to diversify
and expand its product offerings to generate increased revenues. The Company's
diversification efforts are designed to reduce the risk associated with relying
on a limited number of successful products for a disproportionate amount of its
revenues. Such efforts include the expansion of its presence in the global
marketplace, thereby creating new markets for its products, and joining forces
with strategic partners to increase its product base. As the Company enters new
markets, it is able to air shows from its existing library, thus, reducing its
dependence on new products and new show productions. The Company takes advantage
of the product awareness created by its infomercials by extending the sales life
of its infomercial products through non-infomercial distribution channels, such
as retail arrangements and by entering into agreements with manufacturers of
consumer products in which the Company's strategic partners supply new products
and retail distribution channels for product sales.
-10-
<PAGE>
Results of Operations
The operating results for PRTV, Prestige and Suzanne Paul are included in the
Company's current period results from the date of each respective acquisition.
The following table sets forth the operating data of the Company as a percentage
of net revenues for the periods indicated below:
<TABLE>
<CAPTION>
--------------------------- ------------------------
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Media purchases 34.2% 30.0% 34.3% 30.9%
Direct costs 45.7% 51.5% 47.3% 51.9%
Selling, general and administrative 12.0% 11.6% 11.1% 11.2%
Interest expense 0.4% 0.4% 0.3% 0.4%
----- ----- ----- -----
Total operating costs and expenses 92.3% 93.5% 93.0% 94.4%
Income before income taxes 7.7% 6.5% 7.0% 5.6%
Income taxes 2.7% 1.0% 2.4% 0.9%
----- ----- ----- -----
Net income 5.0% 5.5% 4.6% 4.7%
===== ===== ===== =====
</TABLE>
Three months ended September 30, 1996 compared to September 30, 1995
- --------------------------------------------------------------------
Net Revenues
Net revenues were $99.7 million for the three months ended September 30, 1996 as
compared to $57.6 million for the three months ended September 30, 1995, an
increase of $42.1 million or 73.0%. Retail royalties were $8.6 million for the
quarter ended September 30, 1996 as compared to $1.2 million for the year
earlier period and principally reflect the royalties from sales of the Ab Roller
in the retail marketplace. The Company intends to introduce up to 15 new shows
in the second half of its fiscal year ending March 31, 1997, five of which are
already being aired. The Company believes it has created a pipeline of new shows
to support its domestic operations on an ongoing basis and to add to its library
of shows. The effect of such pipeline is unlikely to impact the quarter ending
December 31, 1996.
Core market revenues, which consist of net revenues in the United States,
Western Europe and Japan were $84.9 million for the three months ended September
30, 1996 as compared to $56.6 million for the three months ended September 30,
1995, an increase of $28.3 million or 49.9%. Approximately 32.6% of the
Company's core market revenues for the three months ended September 30, 1996
were generated from sales of the Ab Roller. In addition, sales of the Ab Roller
accounted for 44.6% of domestic net revenues during the quarter. The Company
anticipates that it may cease United States sales of the Ab Roller Plus product
(and accrual of any royalties based on United States retail sales of the
product) during the quarter ending December 31, 1996 (See Footnote 3 to the
financial statements.)
Emerging market revenues, which include the non-Japanese countries in the
Pacific Rim, Eastern Europe, the Middle East, Canada, Africa and Latin America,
were $14.8 million for the three months ended September 30, 1996 as compared to
$1.0 million for the three months ended September 30, 1995, an increase of $13.8
million. The growth was a result of ongoing expansion of the Company's
operations into new marketplaces. This included significant growth generated
from the Prestige acquisition.
-11-
<PAGE>
Operating Costs
Total operating costs and expenses were $92.0 million for the three months ended
September 30, 1996 as compared to $53.9 million for the three months ended
September 30, 1995, an increase of $38.1 million or 70.8%. This corresponds to
the 73.0% increase in net revenues during the period.
Media Purchases
Media purchases were $34.1 million (net of $2.1 million in media sales) for the
three months ended September 30, 1996 as compared to $17.3 million (net of $4.4
million in media sales) for the three months ended September 30, 1995, an
increase of $16.8 million or 97.2%. The increase was attributable to the growth
in revenues and higher U.S. media costs. The ratio of media purchases to net
revenues increased from 30.0% for the three months ended September 30, 1995 to
34.2% for the three months ended September 30 1996. This was primarily due to a
higher percentage of the current quarter's net revenues being earned in the
domestic marketplace, where media costs are typically higher, and significant
airings of the Ab Roller show to support the product's retail rollout. In
addition, the current period was unfavorably impacted by the Summer Olympics
which resulted in fewer airings in the international marketplace and viewership
being lost domestically.
Direct Costs
Direct costs consist of the cost of materials, freight, infomercial production,
commissions and royalties, fulfillment, inbound telemarketing, credit card
authorization and warehousing. Direct costs were $45.5 million for the three
months ended September 30, 1996 as compared to $29.7 million for the three
months ended September 30, 1995, an increase of $15.9 million or 53.6%. This is
reflective of the 73.0% increase in net revenues during the three months ended
September 30, 1996 as compared to the same period in the prior year. The ratio
of direct costs to net revenues decreased from 51.5% in the year earlier period
to 45.7% in the current period. The decline in direct costs as a percentage of
net revenues reflects the Company's continued efforts to lower its costs and
become a more efficient operator, as well as the favorable impact of retail
royalties which carry very low direct costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately 79.2% from
$6.7 million for the three months ended September 30, 1995 to $12.0 million for
the three months ended September 30, 1996, primarily due to costs associated
with the Company's continued global expansion. Selling, general and
administrative expenses as a percentage of net revenues increased slightly from
11.6% for the three months ended September 30, 1995 to 12.0% for the three
months ended September 30, 1996.
Interest Expense
Interest expense was $.4 million for the three months ended September 30, 1996
as compared to $.2 million for the three months ended September 30, 1995. The
increase was primarily due to an increase in the average outstanding
indebtedness during the current period.
Income Taxes
The Company's effective tax rate was 34.6% for the three months ended September
30, 1996 as compared to 16.0% for the three months ended September 30, 1995. The
lower rate in the prior year was a result of the Company's utilization of net
operating losses to offset U.S. federal income taxes.
-12-
<PAGE>
Six months ended September 30, 1996 compared to September 30, 1995
- ------------------------------------------------------------------
Net Revenues
Net revenues were $209.0 million for the six months ended September 30, 1996 as
compared to $122.7 million for the six months ended September 30, 1995, an
increase of $86.3 million or 70.4%. Retail royalties were $13.8 million for the
six months ended September 30, 1996 versus $2.4 million for the six months ended
September 30, 1995.
Core market revenues were $189.2 million for the six months ended September 30,
1996 as compared to $120.0 million for the six months ended September 30, 1995,
an increase of $69.2 million or 57.7%. Approximately 44.1% of the Company's core
market revenues for the six months ended September 30, 1996 were generated from
sales of the Ab Roller. In addition, sales of the Ab Roller accounted for 61.3%
of domestic net revenues during the period.
Emerging market revenues were $19.8 million for the six months ended September
30, 1996 as compared to $2.7 million for the six months ended September 30,
1995, an increase of $17.1 million. The growth was a result of ongoing expansion
of the Company's operations into new marketplaces via acquisitions and internal
growth.
Operating Costs
Total operating costs and expenses were $194.3 million for the six months ended
September 30, 1996 as compared to $115.8 million for the six months ended
September 30, 1995, an increase of $78.5 million or 67.8%. This corresponds with
the 70.4% increase in revenues during the current period.
Media Purchases
Media purchases were $71.6 million (net of $3.5 million in media sales) for the
six months ended September 30, 1996 as compared to $38.0 million (net of $7.9
million in media sales) for the six months ended September 30, 1995, an increase
of $33.6 million or 88.7%. The increase was attributable to the growth in
revenues and higher U.S. media costs. The ratio of media purchases to net
revenues increased from 30.9% for the six months ended September 30, 1995 to
34.3% for the six months ended September 30, 1996. This was primarily due to a
higher percentage of the current period's net revenues being earned in the
domestic marketplace where media costs are typically higher and significant
airings of the Ab Roller show to support its rollout in retail. The current six
month period was also unfavorably impacted by the Summer Olympics (lower
domestic viewership and fewer international airings).
Direct Costs
Direct costs were $98.8 million for the six months ended September 30, 1996 as
compared to $63.6 million for the six months ended September 30, 1995, an
increase of $35.2 million or 55.2%. This is reflective of the 70.4% increase in
net revenues during the six months ended September 30, 1996 as compared to the
same period in the prior year. The ratio of direct costs to net revenues
decreased from 51.9% in the year earlier period to 47.3% in the current period.
The decline in direct costs as a percentage of net revenues reflects the
Company's continued efforts to lower its costs and become a more efficient
operator, as well as the favorable impact from retail royalties which carry very
low direct costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately 68.5% from
$13.7 million for the six months ended September 30, 1995 to $23.1 million for
the six months ended September 30, 1996, primarily due to costs associated with
the Company's continued global expansion. Selling, general and administrative
expenses as a percentage of net revenues decreased slightly from 11.2% for the
six months ended September 30, 1995 to 11.1% for the six months ended September
30, 1996.
-13-
<PAGE>
Interest Expense
Interest expense was $.7 million for the six months ended September 30, 1996 as
compared to $.4 million for the six months ended September 30, 1995. This was
primarily due to an increase in the Company's average outstanding indebtedness
during the current period.
Income Taxes
The Company's effective tax rate was 35.0% for the six months ended September
30, 1996 as compared to 16.2% for the six months ended September 30, 1995. The
lower rate in the prior year was a result of the Company's utilization of net
operating losses to offset U.S. federal income taxes.
Liquidity and Capital Resources
The Company's working capital was $79.7 million at September 30, 1996 as
compared to $38.7 million at March 31, 1996, an increase of $41.0 million. This
was principally due to increases in accounts receivable and inventory associated
with increased sales volume as a result of the Company's continued global
expansion and acquisitions, and the reduction of accounts payable and accrued
expenses and the proceeds from the public offering. Cash flow used in operations
was $16.5 million for the six months ended September 30, 1996 as compared to
cash provided by operations of $2.0 million in the six months ended September
30, 1995, principally due to the increase in working capital accounts mentioned
above.
In June 1996, the Company increased its revolving credit line from $5.0 million
to $20.0 million. This credit facility is available for working capital,
acquisitions and general corporate purposes as well as for the issuance of
letters of credit. There were no borrowings outstanding under this facility as
of September 30, 1996.
The Company believes that its available cash, cash from operations and available
borrowings under its revolving credit facility will be sufficient to meet its
normal operating, capital expenditure and debt service requirements for the near
term.
The Company intends to pursue acquisition and expansion opportunities as they
may arise. During the six months ended September 30, 1996, the Company completed
its acquisition of PRTV in a stock for stock transaction, which resulted in the
issuance of approximately 1,836,773 shares of the Company's common stock,
211,146 of which have been issued into escrow and may be delivered to the former
shareholders of PRTV on or before November 1997 upon the realization of certain
assets. In addition, the Company repaid approximately $1.0 million of
outstanding debt of PRTV. Also, during the six month period, the Company
acquired two direct response marketing companies, Prestige and Suzanne Paul. The
aggregate consideration paid by the Company for Prestige and Suzanne Paul was
approximately $4.2 million in cash, $2.8 million in a note payable due December
5, 1996 and 787,879 shares of the Company's common stock. Upon consummation of
these acquisitions, the Company also funded a dividend of approximately $4.6
million to the shareholders of Suzanne Paul. These cash amounts were funded by
borrowings under the Company's aforementioned revolving credit facility. In
addition, the Company may be required to issue up to an additional $5.0 million
in the Company's common stock, valued at then present market prices, in 1997 and
1998, contingent upon the levels of net income achieved in those years by
Prestige and Suzanne Paul.
During the current period, the Company and the creator of the Ab Roller Plus
contributed equal amounts of cash into an escrow fund designed to establish a
sharing of a portion of the product's retail partner's cash risk among the
Company, the retail partner and the creator of the product. The amount
contributed by the Company is not material to the Company's financial condition
and is only availalbe to the retail partner in very limited circumstances.
On August 6, 1996, the Company completed its public offering of an additional
2,000,000 shares of its common stock with net proceeds to the Company of
approximately $28.9 million. The Company used the net proceeds to retire
approximately $10.7 million of indebtedness incurred in connection with the
acquisitions of PRTV, Prestige and Suzanne Paul. The Company has or will use the
remaining proceeds to (i) retire the $2.8 million note payable due December 5,
1996 incurred in connection with the Prestige and Suzanne Paul acquisitions and
-14-
<PAGE>
(ii) provide for the acquisition and retention of media access contracts,
including acquiring the rights to use, for a one-year period, a twenty-four hour
analog satellite transponder to be utilized by the Company to air its
infomercials in European markets. Any remaining proceeds will be used for
general corporate purposes, including working capital requirements and
expenditures related to potential future acquisitions. Pending the application
of the offering proceeds to the above uses, the Company will invest the proceeds
in short-term income producing investments.
On August 7, 1996, the Company completed its acquisition of Nancy Langston &
Associates, Inc. ("Langston"), a media agency. The Company's previously
announced letter of intent to acquire Hawthorne Communications, Inc. expired
pursuant to its terms during the current period with no consequences to either
party.
-15-
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information contained in Note 3 (Contingent Matters) to the Condensed
Consolidated Financial Statements in Part I of this report is incorporated
herein by reference. All of the matters referred to in Note 3 (Contingent
Matters) have been the subject of disclosure in prior reports on Form 10-Q
and/or 10-K.
As a result of prior settlements with the Federal Trade Commission (the "FTC"),
the Company has agreed to two consent orders. Prior to the Company's acquisition
of PRTV, PRTV and its Chief Executive Officer, Michael S. Levey, also agreed to
a consent order with the FTC. Among other things, such consent orders require
the Company, PRTV and Mr. Levey to submit compliance reports to the FTC staff.
The Company, PRTV and Mr. Levey have submitted compliance reports as well as
additional information requested by the FTC staff. In addition, in connection
with the acquisition by the Company of PRTV, both the Company and PRTV were
required pursuant to such consent orders to, and did, notify the FTC of such
acquisition and Michael S. Levey was required to, and did, notify the FTC of his
pending affiliation with the Company. In early June 1996, the Company received a
request from the FTC for additional information regarding two of the Company's
infomercials in order to determine whether the Company is operating in
compliance with the consent orders referred to above. Such request also included
a request for additional information concerning the Company's acquisition of
PRTV. The Company responded to such request. The FTC recently advised the
Company that it believed the Company had violated one of the consent orders by
allegedly failing to substantiate certain claims made in one of its infomercials
which was aired by the Company between 1993 and 1995. This infomercial is not
currently being aired. The Company provided information to the FTC to
demonstrate substantiation. If the Company's substantiation were deemed to be
insufficient by the FTC, the FTC has a variety of enforcement mechanisms
available to it, including, but not limited to, monetary penalties. While no
assurances can be given, the Company does not believe that any remedies to which
it may become subject will have a material adverse effect on the Company's
results of operations or financial condition. It is possible that the
notifications referred to above will result in additional requests for
information from the Company and Mr. Levey and/or additional scrutiny of the
Company's operations. In an effort to maintain continued compliance with the
terms of its consent order, shortly following its acquisition of PRTV, the
Company caused PRTV to cease airing two of its infomercials until the Company
could make changes to such infomercials or take such other actions as it deems
appropriate to conform such infomercials to the Company's standards, if
possible. The airing of one of such infomercials by the Company has been
terminated and the other has begun re-airing. The Company does not believe that
such infomercials or the Company's actions regarding them will have a material
adverse effect on the Company's financial condition.
As discussed in Note 5 in Part I of this report, the Company consummated its
acquisition of PRTV on May 17, 1996. The Company also acquired Prestige and
Suzanne Paul in early July 1996, and Langston in early August 1996. As a result
of these acquisitions, all liabilities of such entities became the
responsibility of the Company.
Other Matters
The Company in the normal course of its business is a party to litigation
relating to trademark and copyright infringement, product liability,
contract-related disputes and other actions. It is the Company's policy to
vigorously defend all such claims and to enforce its rights in these areas.
Except as disclosed herein, the Company does not believe any of these actions,
either individually or in the aggregate, will have a material adverse effect on
the Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Annual Meeting") on
July 25, 1996. The Annual Meeting was held to elect ten Directors; to consider
and approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock; to consider and
approve amendments to the Company's 1991 Stock Option Plan and the Company's
Management Incentive Plan; and
-16-
<PAGE>
to ratify the appointment of Ernst & Young LLP, independent certified public
accountants, as auditors for the fiscal year ending March 31, 1997. All
proposals were approved as follows:
<TABLE>
<CAPTION>
Against or
For Withheld Abstain
--- ---------- -------
<S> <C> <C> <C>
1. Election of Directors
David J. Carman 18,072,133 61,836 0
Constantinos I. Costalas 18,072,456 61,513 0
Albert R. Dowden 17,858,347 275,622 0
Michael J. Emmi 18,075,908 58,061 0
William M. Goldstein, Esquire 18,072,775 61,194 0
Frederick S. Hammer 18,073,108 60,861 0
Mark P. Hershhorn 18,074,908 59,061 0
Ira M. Lubert 17,839,408 294,561 0
Brian McAdams 18,075,975 57,994 0
Jon W. Yoskin II 17,856,030 277,939 0
2. Amendment to Company's
Certificate of Incorporation 18,629,292 576,952 90,225
3. Amendments to the Company's
1991 Stock Option Plan (1) 9,492,485 4,542,761 126,770
4. Amendments to the Company's
Management Incentive Plan(1) 10,811,165 3,216,125 134,726
5. Ratification of Ernst & Young LLP,
independent certified public accountants,
as auditors for the fiscal year ending
March 31, 1997 19,217,194 24,362 54,913
</TABLE>
- ----------------
1 Broker non-votes as to such proposal equaled 5,134,453.
-17-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 National Media Corporation Lease, 11 Penn Center, Philadelphia,
Pennsylvania
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) The Company filed the following Current Reports on Form 8-K during the
three month period ended September 30, 1996.
Current Report on Form 8-K dated August 13, 1996
Item 5. Other Events - Announcement by the Company of its acquisition
of Nancy Langston & Associates, Inc.
-18-
<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.
NATIONAL MEDIA CORPORATION
Registrant
Date: November 14, 1996 /s/ Mark P. Hershhorn
------------------------------------------------
Mark P. Hershhorn
President, Chief Executive Officer and Director
Date: November 14, 1996 /s/ James M. Gallagher
------------------------------------------------
James M. Gallagher
Vice President and Chief Financial Officer
-19-
<PAGE>
EXHIBIT INDEX
Exhibit No.
10.1 National Media Corporation Lease, 11 Penn Center, Philadelphia,
Pennsylvania
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
-20-
<PAGE>
EXHIBIT 10.1
**lease and addendum
<PAGE>
LEASE AGREEMENT
BETWEEN
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
Landlord
AND
NATIONAL MEDIA CORPORATION
a ____________________, Tenant
DATED ___________, 1996___
<PAGE>
TABLE OF CONTENTS
1. Premises.............................................................. 1
2. Term.................................................................. 1
3. Rental................................................................ 2
4. Construction.......................................................... 6
5. Use of the Premises................................................... 9
6. Alterations........................................................... 10
7. Mechanics' Liens...................................................... 12
8. Maintenance and Repair................................................ 12
9. Common Areas.......................................................... 13
10. Building Services..................................................... 14
11. Estoppel Certificates................................................. 15
12. Indemnification; Waiver of Claims..................................... 16
13. Insurance............................................................. 16
14. Waiver of Subrogation................................................. 17
15. Holding Over.......................................................... 18
16. Assignment and Sublease............................................... 18
17. Quiet Enjoyment....................................................... 19
18. Compliance with Laws and with Rules and Regulations................... 19
19. Fire and Casualty..................................................... 20
20. Eminent Domain........................................................ 20
21. Default............................................................... 21
22. Waiver of Default or Remedy........................................... 24
23. Intentionally Deleted................................................. 25
24. Intentionally Deleted................................................. 25
25. Force Majeure......................................................... 25
<PAGE>
26. Subordination of Lease................................................ 25
27. Notices and Consents.................................................. 25
28. Security Deposit...................................................... 26
29. Miscellaneous Taxes; Use and Occupancy Tax............................ 26
30. Substitute Premises................................................... 27
31. Brokerage Commission.................................................. 27
32. Hazardous Devices and Contaminants.................................... 27
33. Exculpation........................................................... 28
34. Signs................................................................. 28
35. Locks................................................................. 28
36. Employment............................................................ 28
37. Plumbing.............................................................. 28
38. Certain Rights Reserved to Landlord................................... 28
39. Miscellaneous......................................................... 29
40. Relationship of Parties............................................... 30
41. Gender and Number..................................................... 30
42. Topic Headings........................................................ 30
43. Counterparts.......................................................... 30
44. Entire Agreement...................................................... 30
45. Recording............................................................. 30
46. Governing Law; Invalidity of any Provisions........................... 30
47. Option to Lease....................................................... 30
48. Renewal............................................................... 31
49. Parking............................................................... 33
50. Right of First Offer.................................................. 33
<PAGE>
EXHIBITS
A Floor Plan
B Legal Description
C Commencement Date Agreement
D Tenant Improvements
E Tenant Estoppel Certificate
F Rules and Regulations
G Cleaning Specifications
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), dated ______________, 1996, between ELEVEN
COLONIAL PENN PLAZA ASSOCIATES ("Landlord"), and NATIONAL MEDIA CORPORATION, a
________ corporation ("Tenant").
1. Premises. In consideration of the rents, terms, provisions and covenants
of this Lease, Landlord hereby leases unto Tenant and Tenant hereby rents and
accepts from Landlord those certain premises containing 25,235 rentable square
feet, located on the 11th Floor (the "Premises"). The Premises are outlined on
the floor plan attached hereto as Exhibit A and incorporated herein by
reference. The Premises are contained in that certain building known as Eleven
Penn Center (or such other name as Landlord may from time to time designate) and
located at the northeast corner of 19th and Market Streets, Philadelphia,
Pennsylvania (the "Building"), which Building contains approximately Six Hundred
Seventy Nine Thousand Six Hundred Eighteen (679,618) net rentable square feet of
office space and approximately Three Thousand Eight Hundred Fifty-Five (3,855)
net rentable square feet of retail space. The land on which the Building is
situated, together with all improvements located thereon (collectively, the
"Property"), is more particularly described on Exhibit B, attached hereto and
incorporated herein by reference.
2. Term.
(a) Initial Term. Subject to and upon the terms and conditions set
forth below, the initial term of this Lease shall be for a period of Eleven (11)
Lease Years (as hereinafter defined), commencing on the Commencement Date (as
hereinafter defined) and ending on last day of the last month of the 11th Lease
Year.
(b) Definitions. For purposes of this Lease, the following terms shall
have the following meanings:
(i) "Commencement Date" shall mean the earlier of (i) fifteen days
after the date upon which the Premises are substantially completed (as
hereinafter defined) or (ii) the date upon which Tenant or anyone claiming under
or through Tenant occupies or takes possession of the Premises, (entry by Tenant
to equip or furnish the Premises, or to install cabling or wiring, in accordance
with Paragraph 4(c) shall not constitute occupancy or possession). Promptly upon
determination of the Commencement Date, Landlord and Tenant shall execute a
memorandum, setting forth the Commencement Date and the expiration date of this
Lease, in form and substance substantially similar to that attached hereto as
Exhibit C and incorporated by reference.
(ii) "Lease Year" shall mean each twelve (12) month period
commencing on the later of (i) the first day of the first full month after the
Commencement Date or (ii) November 1, 1996, and each anniversary thereafter
during the Term (as hereinafter defined) of this Lease; provided, however, that
if the Commencement Date is the first day of the month, the first Lease Year
shall commence on the Commencement Date. The first Lease Year shall commence on
the Commencement Date and end on the last day of the last month of the first
Lease Year regardless of whether the first Lease Year is longer than twelve (12)
months.
(iii) "Term" shall mean the initial term of this Lease and any
renewals or extensions thereof.
(iv) "Base Year" shall mean calendar year 1996.
(c) Landlord presently anticipates that the date of substantial
completion will be that date which is one hundred twenty (120) days after the
date of Landlord's approval of the Final Approved Plans and Specifications (the
"Estimated Completion Date"). If substantial completion occurs prior to November
1, 1996, but in no event prior to September 1, 1996, Tenant shall have the right
to occupy the Premises on such earlier date, and Tenant shall not have the
obligation to pay rent from the date that Tenant takes possession of the
Premises through October 31, 1996. In the event that Tenant occupies the
Premises prior to November 1, 1996, as set forth in this paragraph, the
"Commencement Date" shall be the date that Tenant first takes possession of the
Premises, the first day of the first Lease Year will be November 1, 1996 and the
<PAGE>
original term of the Lease will terminate on October 31, 2007 (subject to the
terms of this Lease).
3. Rental.
(a) Base Rental. Tenant shall pay to Landlord, as base rental (the
"Base Rental") during Lease Years 1 through 5 inclusive, the annual sum of Four
Hundred Seventy-Nine Thousand Four Hundred Sixty-Five Dollars ($479,465.00) per
year, payable in equal monthly installments of Thirty-Nine Thousand Nine Hundred
Fifty-Five and 42/100 Dollars ($39,955.42), and during Lease Years 6 through 11
inclusive, the annual sum of Five Hundred Sixty-Seven Thousand Seven Hundred
Eighty-Seven and 50/100 Dollars ($567,787.50) per year, payable in equal monthly
installments of Forty-Seven Thousand Three Hundred Fifteen and 63/100 Dollars
($47,315.63); provided, however, that so long as Tenant is not in default of its
obligations hereunder, Base Rental shall abate until November 1, 1997. Each such
monthly installment shall be due and payable in advance, on or before the first
day of each and every month during the Term, without notice, demand or set-off;
provided, however, that the first month's rent shall be due and payable upon
execution of this Lease. Base Rental for any part of a month at the beginning or
end of the Term shall be provided on a per diem basis.
(b) Definitions. For purposes of this Lease, the following terms shall
have the following meanings:
(i) "Tenant's Proportionate Share of Operating Expenses" shall
mean a percentage factor, determined by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in the
office portion the Building, or three and 71/100 percent (3.71%).
(ii) "Tenant's Proportionate Share of Real Estate Taxes" shall
mean a percentage factor, determined by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in the
office and retail portions of the Building, or three and 69/100 percent (3.69%).
(iii) "Operating Expenses" shall mean those expenses paid or
incurred by or on behalf of Landlord in respect to the management, operation,
service and maintenance of the Property during each calendar year, in accordance
with accepted principles of sound management and accounting practices as applied
to, and consistent with, comparable first-class office buildings in
Philadelphia, Pennsylvania. Operating Expenses shall include, but not be limited
to, (A) premium costs for liability, boiler, extended coverage, casualty and
other insurance covering the Property to be maintained by Landlord and required
by the terms of this Lease; (B) electricity, gas, water and other utility
charges for the Property, based on the charges imposed by the utility providers;
(C) repair and maintenance of HVAC systems, elevators, irrigation systems and
other mechanical systems; (D) repair and maintenance of the Common Areas (as
hereinafter defined) and the Building structure and roof; (E) trash removal and
snow removal; (F) janitorial service; (G) wages, salaries and fees of operating,
auditing, accounting, maintenance and management personnel in connection with
the Property; (H) all payroll charges for such personnel, such as unemployment
and social security taxes, workers' compensation, health, accident and group
insurance, and other so-called fringe benefits; (I) rental charges for office
space chargeable to the operation and management of the Property; (J) license
permits and inspection fees; (K) supplies and materials used in the operation
and management of the Property; (L) furnishings and equipment not treated by
Landlord as capital expenditures of the Property; (M) the cost of any labor
saving devices that may, from time to time, be placed in operation as a part of
Landlord's maintenance program; (N) personal property taxes on property used in
the operation, maintenance, service and management of the Property; (O) the
cost, as reasonably amortized by Landlord, with interest at the rate of ten
percent (10%) per annum on the unamortized amount, of any capital improvement
made after completion of initial construction of the Building which reduces
Operating Expenses, but in an amount not to exceed such reduction for the
relevant year; (P) the cost, as reasonably amortized by Landlord, with interest
at the rate of ten percent (10%) per annum on the unamortized amount, of any
improvement, capital or otherwise, made after completion of initial construction
of the Building, which directly enhances the safety of the tenants in the
Building generally; (Q) commercially reasonable management fees relating to the
Property; (R) the cost of any installation or improvement, capital or otherwise,
required by reason of any law, ordinance or regulation, which requirement did
not exist on the date of the Lease and is generally applicable to similar office
buildings; and (S) all other expenses necessary for the operation and management
of the Property. Operating Expenses shall not include any capital improvements
<PAGE>
made to the Building or the Property (except as permitted in clauses (O), (P)
and (R) above), expenses for repairs or other work occasioned by fire, windstorm
or other insured casualty to the extent covered or required to be covered by
insurance; expenses incurred in leasing or procuring new tenants (including
without limitation lease commissions, advertising expenses and expenses for
demolishing or renovating space for new tenants); legal expenses for preparing,
negotiating and enforcing the terms of any lease; interest or amortization
payments on any mortgage or mortgages (or any cost incident to obtaining or
closing such mortgages) and rental under any ground or underlying lease or
leases; and salaries or other compensation paid to any executive employees of
Landlord; the cost of Landlord's federal, state or local income taxes; expenses
incurred as the result of the default of any other tenant of the Building;
Landlord's general overhead; labor or personnel costs included by Landlord in
Operating Expenses if and to the extent such personnel do not perform work
exclusively at or for the Building, it being the intention of Landlord and
Tenant that only that portion of such costs equivalent to the percentage of time
directly spent by such personnel at or for the Building shall be included in
Operating Expenses; the cost of remediation of any Contaminant (defined below)
except as caused by Tenant; expenses for special goods or services provided to
other tenants of the Building and not to Tenant; or the cost of repairs or
maintenance costs necessitated by the willful misconduct or gross negligence of
Landlord, its agents, contractors or employees or due to defects relating to
design, labor or materials in the construction or reconstruction of the Building
or the Premises or the default by Landlord under this Lease. In no event shall
the total pass-throughs for Operating Expenses chargeable to all tenants of the
Building for any Lease Year exceed the total of all Operating Expenses.
(iv) "Real Estate Taxes" shall mean all taxes and assessments,
special or otherwise, exclusive of penalties or discounts levied upon or with
respect to the Property, including the Premises, imposed by any federal, state
or local governmental agency, including, without limitation, any form of real
property tax or assessment, rapid transit tax or assessment, benefit assessment,
business or license fee or tax, commercial rental tax, assessment for Center
City District services or any use, occupancy, excise, sales or other like taxes
(other than general income taxes on rent or other income from the Building and
USC and Occupancy Tax which is covered in Paragraph 29(b) below). Real Estate
Taxes also shall include the actual, included expense of contesting the amount
or validity of any such taxes, charges or assessments, such expense to be
applicable to the period of the item contested. Real Estate Taxes shall not,
however, include income, franchise, capital stock, estate or inheritance taxes
unless Landlord reasonably determines that such taxes are in lieu of real estate
taxes, assessments, rental, occupancy and other like excise taxes or interest
and penalties assess on account of late payments unless such late payments are
caused by Tenant's failure to pay Tenant's Proportionate Share of Real Estate
Taxes. For purposes of this Lease, Real Estate Taxes for any calendar year shall
be those taxes the last timely payment date for which occurs within such
calendar year. In case of special taxes or assessments payable in installments,
only the amount of the installment(s) the last timely payment date for which
occurs on or after the first day and on or before the last day of such year
shall be included in Real Estate Taxes for that year. Landlord agrees that it
shall pass through to Tenant any savings that Landlord achieves on account of
the early payment of taxes, but Landlord shall be under no obligation to pay
Real Estate Taxes early in order to achieve such discounts or reductions.
(c) Additional Rental. For and with respect to each calendar year
subsequent to the Base Year, Tenant shall pay to Landlord, as "Additional
Rental", (i) Tenant's Proportionate Share of Operating Expenses of the total
dollar increase, if any, in Operating Expenses for such year over Operating
Expenses for the Base Year and (ii) Tenant's Proportionate Share of Real Estate
Taxes of the total dollar increase, if any, in Real Estate Taxes for such year
over Real Estate Taxes for the Base Year (collectively the "Tax and Operating
Expense Adjustment"). Said Additional Rental shall be prorated on a per diem
basis for any partial calendar year included within the Term.
(d) Payment of Tax and Operating Expense Adjustment. To provide for
current payments of Operating Expenses and Real Estate Taxes, Tenant shall pay
the Tax and Operating Expense Adjustment, as reasonably estimated by Landlord
from time to time, in twelve (12) monthly installments, commencing on the first
day of the month following the month in which Landlord notifies Tenant of the
amount of its estimated Tax and Operating Expense Adjustment. It is intended
-3-
<PAGE>
that the estimated amount of Tenant's Tax and Operating Expense Adjustment shall
be made for each year and Landlord shall then reconcile such estimated expenses
in the following year based on actual Operating Expenses and Real Estate Taxes
for such year paid by Landlord. If Tenant's Tax and Operating Expense Adjustment
shall be greater than or less than the aggregate of all installments so paid on
account to Landlord for such twelve (12) month period, then within twenty (20)
days of Tenant's receipt of Landlord's itemized statement of reconciled Real
Estate Taxes and Operating Expenses, audited and certified by an independent
certified public accountant ("Landlord's Statement") and similar in form and
substance to the statement delivered to Tenant prior to the execution of this
Lease, Tenant shall pay to Landlord the amount of such underpayment, or Landlord
shall credit Tenant for the amount of such overpayment against the next maturing
installment(s) of rent, as the case may be. The obligation of Tenant with
respect to the payment of Tenant's Tax and Operating Expenses Adjustment shall
survive the termination of this Lease. Any payment, refund, or credit made
pursuant to this subparagraph 3(d) shall be made without prejudice to any right
of Tenant to dispute Landlord's Statement as hereinafter provided, or of
Landlord to correct any item(s) as billed pursuant to the provisions hereof.
Landlord's failure to give Landlord's Statement shall not constitute a waiver by
Landlord of its right to recover rent that is due and payable pursuant to this
subparagraph 3(d), except Tenant shall not be obligated to accelerate or
increase any Additional Rental payments as a result of any such delay. Landlord
shall deliver to Tenant the Landlord's Statement for the Base Year in the same
manner as for subsequent years.
(e) Stabilization. Tenant's Proportionate Share of Operating Expenses
is a fixed percentage and does not vary with changing occupancy levels of the
Building. Operating Expenses are computed for the Building as a whole.
Accordingly, in order to stabilize the calculation of increases in Operating
Expenses on a rentable square foot basis for the Premises, a further adjustment
is to be made as follows: In determining Operating Expenses for any year
(including the Base Year), if the Building was less than fully occupied during
such entire year, or was not in operation during such entire year, then
Operating Expenses shall be annualized by Landlord (taking into account seasonal
variations) and adjusted to reflect the amount that such expenses would normally
be expected to have been, in the reasonable estimate of Landlord, had the
Building been fully occupied and operational throughout such year, except that
in no event shall such adjustment result in an amount less than the actual
Operating Expenses.
(f) Dispute of Operating Expenses and Taxes. If Tenant questions in
writing Landlord's Statement (or a revised Landlord's Statement as described
below), including the Landlord's Statement for the Base Year, and if the
question is not amicably settled between Landlord and Tenant within sixty (60)
days after Landlord's Statement (or revised Landlord's Statement), including the
Landlord's Statement for the Base Year, has been given, Landlord shall, during
the sixty (60) days next following the expiration of such sixty (60) day period,
employ an independent certified public accountant which must be a "Big 6" or its
equivalent accounting firm (other than Landlord's regular certified public
accountant) who is knowledgeable in highrise office buildings and who is
reasonably acceptable to Tenant to audit Landlord's Statement. The determination
of such accountant shall be final, conclusive and binding upon Landlord and
Tenant. Tenant understands that the actual itemization of, and the amount of
individual items constituting Landlord's Statement is confidential; and while
Landlord shall keep and make available to such accountant all records in
reasonable detail, and shall permit such accountant to examine and audit such of
Landlord's records as may reasonably be required to verify Landlord's Statement,
at reasonable times during business hours, Landlord shall not be required to
(and the accountant shall not be permitted to) disclose to any person, firm or
corporation, including to Tenant, any such details (it being the intent of the
parties that such accountant shall merely certify to Landlord and to Tenant the
correct amount of Landlord's Statement for the calendar year). Any change in
Landlord's Statement required by such accountant's determination shall be made
within thirty (30) days after such determination has been rendered. The expenses
involved in such determination shall be borne by Tenant and deemed to be Other
Charges (as hereinafter defined) under this Lease, unless the results of such
audit determine that the difference between the Landlord's Statement as
determined by the audit and Landlord's Statement as determined by Landlord is
greater than five percent (5%) of Landlord's Statement as determined by
Landlord, in which case such expenses shall be borne by Landlord. If Tenant does
not, in writing, question the reconciled Landlord's Statement within the time
allowed, Tenant shall be deemed to have approved and accepted such reconciled
Landlord's Statement.
-4-
<PAGE>
(g) Adjustments to Operating Expenses and Real Estate Taxes. If any
error occurs or Landlord or Landlord's accountants discover facts or
circumstances, which error or discovery causes Tenant's Tax and Operating
Expense Adjustment for any period to increase or decrease, upon notice by
Landlord to Tenant of the adjustment to Tenant's Tax and Operating Expense
Adjustment for such calendar year, said adjustment and corresponding deficiency
or overpayment shall be paid by Tenant or taken as a credit by Tenant according
to the provisions set forth above; provided, however, that Tenant shall not be
obligated to pay such deficiencies if the demand for payment thereof is not made
by Landlord within one (1) year of Tenant's receipt of Landlord's Notice. This
provision shall survive the termination of the Lease.
(h) Real Estate Tax Appeal. Landlord shall retain the sole right to
participate in any proceedings to establish or contest the amount of Real Estate
Taxes. If a complaint against valuation, protest of tax rates or other action
increases or decreases the Real Estate Taxes for any calendar year, resulting in
an increase or decrease in rent hereunder, the Real Estate Taxes for the
affected calendar year shall be recalculated accordingly and the resulting
increased rent plus the expenses incurred in connection with such contest, or
decreased rent, less the expenses incurred in connection with such contest,
shall be paid simultaneously with or applied as a credit against, as the case
may be, the rent next becoming due.
(i) Other Charges. All costs, expenses and other sums that Tenant
assumes or agrees to pay to Landlord pursuant to this Lease ("Other Charges")
shall be deemed rental and, in the event of nonpayment thereof, Landlord shall
have all the rights and remedies herein provided for in case of nonpayment of
Base Rental. If a monthly installment of rent is not received on or before the
fifth (5th) day of the month in which it is due, other remedies for nonpayment
of rent notwithstanding, Tenant shall pay to Landlord, a late charge of five
percent (5%) of such installment as rent for the purpose of defraying Landlord's
administrative expenses incident to the handling of such overdue payment, and
such past due rent shall bear interest at the greater of (i) a rate of interest
equal to fifteen percent (15%) per annum; or (ii) a rate of interest equal to
the prime rate as announced from time to time by Bank One, Columbus, N.A., plus
three percent (3%) per annum (the "Default Rate"), for each day from the first
day of the month through the date such monthly installment of rent is received
by Landlord. For purposes of this Lease, "rent" shall mean Base Rental,
Additional Rental, and Other Charges.
(j) Place of Payment. Tenant shall pay all rent and other charges due
under this Lease without demand, deduction or set off to Landlord c/o CB
Commercial Real Estate Group, Department 1396, Cincinnati, Ohio 45263-1396, or
at such other place as Landlord may designate from time to time hereafter by
written notice to Tenant.
4. Construction.
(a) Improvements to be Constructed. Landlord shall perform at
Landlord's expense, but subject to the Allowance provisions set forth below, and
complete the work and make the installations in the Premises (the "Work" or
"Landlord's Work) in accordance with the Final Approval Plans and Specifications
(as defined in Paragraph 4(i) below). Tenant shall be entitled to a construction
allowance equal to Thirty-Three Dollars ($33.00) per rentable square foot of the
Premises or Eight Hundred Thirty-Two Thousand Seven Hundred Fifty-Five Dollars
($832,755.00) (the "Allowance"). The Allowance shall be applied against (i) the
total cost of the Plans (including all architectural and engineering plans),
(ii) the cost of any demolition of the Premises, (iii) telephone and wiring
costs, (iv) the construction management fee payable to Landlord's construction
manager (which fee shall not exceed 2% of the total contracted price payable to
Landlord's contractor for the Landlord's Work), (v) Tenant's actual moving costs
and (vi) the cost of the Work. To the extent such costs exceed the Allowance,
the excess shall be paid by Tenant to Landlord prior to the Commencement Date.
In the event that the amount of the Allowance exceeds the cost of the Work,
Tenant shall be entitled to a credit against Base Rent in an amount equal to
such excess, but not to exceed two months of Base Rent. Landlord reserves the
right (x) to make substitutions of materials or components of equivalent grade
and quality when and if any specified material or component shall not be readily
available, and (y) to make changes to the work reasonably necessitated by
conditions met in the course of construction, except that no architectural or
aesthetic changes may be made without Tenant's prior consent. In the event, and
each time that any change order by Tenant causes the cost of the Work to be
increased,
-5-
<PAGE>
Tenant shall be responsible for such increased cost. Except as
expressly set forth in Final Approval Plans and Specifications or elsewhere in
this Lease, Landlord has made no promise to alter, remodel or improve the
Premises, the Building or the Property. The term "Landlord's Work" shall include
all labor, material, utilities and utility connections, all supervision,
approvals, licenses, certificates and permits and all inspections necessary to
perform and complete the Landlord's Work as required under this Lease,
including, without limitation, all engineering and balancing of the heating and
air conditioning system. The Landlord's Work shall comply with (A) the Final
Approved Plans and Specifications, (B) the provisions of this Lease, and (C) all
laws, statutes, rules, regulations, requirements and orders of all governmental
authorities, and of the Board of Fire Underwriters, having jurisdiction over the
Premises. The Landlord's Work shall be pursued and completed in a diligent,
first class and workmanlike manner, using only first-quality materials that are
new, free from defects and in usable condition. Tenant shall appoint a
representative ("Tenant's Representative") to interact with Landlord during the
course of the Landlord's Work. During the course of construction, provided that
there is no interference with the Landlord's Work, Tenant's Representative may
from time to time enter upon the Premises and inspect the Landlord's Work
(but is under no obligation to do so) for the purpose of determining whether the
Landlord's Work conforms in all material respects with the Final Approved Plans
and Specifications and with the terms of this Lease. If Tenant or its other
authorized agent reasonably determines that the Landlord's Work does not so
conform, Tenant shall promptly notify Landlord.
(b) Work Prior to Commencement Date. Landlord and Tenant shall
cooperate with each other and respond promptly to all submissions in order to
expeditiously complete and approve the Final Approved Plans and Specifications
and meet the Estimated Completion Date. Any extension of time and modifications
to plans and specifications shall be in writing, dated and signed by both
parties. The Estimated Completion Date shall be postponed in the event of (i)
the unavailability of materials and equipment that have been specified and
requested by Tenant or (ii) delays caused by acts of God, strikes and other
events beyond the reasonable control of Landlord, and neither circumstance shall
give rise to liability of Landlord. Promptly after approval of the Final
Approved Plans and Specifications, Landlord shall solicit written bids for the
Landlord's Work from a list of at least three (3) reputable, independent
contractors reasonably acceptable to Tenant, all of whom must use union
employees for the Landlord's Work. Landlord shall identify and advise Tenant of
the lowest bidder who is responsive to the bid package and who has demonstrated
an ability to complete the Landlord's Work in compliance with the requirements
of this Lease and within the required construction period. Following the
selection and approval of the winning bid, Landlord shall promptly enter into a
construction contract with the selected bidder, which contract shall include a
one year warranty of Landlord's Work running from the contractor to Tenant.
(c) Availability of Premises Prior to Commencement Date. Landlord
shall, at Tenant's request, make the Premises available to Tenant before the
Commencement Date to decorate, furnish, and equip the Premises, except that in
entering the Premises for those purposes, Tenant shall not interfere with the
completion of Landlord's Work. Notwithstanding anything to the contrary
contained in this Lease, Tenant's use of the Premises for such work shall not
create a landlord-tenant relationship between the parties, or constitute
occupancy of the Premises within the meaning of the next sentence, but the
provisions of Paragraphs 12 and 13 of this Lease shall apply. Provided that
Tenant does not interfere with the Landlord's Work, Landlord and Landlord's
contractor will cooperate and coordinate, to the extent feasible, with Tenant
and Tenant's contractors, before and after the Commencement Date, to facilitate
Tenant's installation of communications and computer equipment and cabling.
Tenant shall use only union contractors when performing any work at the
Premises.
(d) Substantial Completion. As used herein, the work in the Premises
shall be "substantially completed" when (i) the work has been completed in
accordance with the Final Approved Plans and Specifications (subject to the
completion of punch list items and in compliance with the requirements of this
Lease), which will, except for any improvements or work to be performed by
Tenant, allow Tenant to lawfully utilize and occupy the Premises for its
intended purposes without significant interference to the customary business
activities of Tenant by reason of the completion of Landlord's Work, and (ii)
Landlord's architect, general contractor or construction representative has
certified in writing that the Landlord's Work has been substantially completed
in compliance
-6-
<PAGE>
with the requirements of this Lease (including all Exhibits). When
Landlord believes that the Landlord's Work is substantially completed, Landlord
will notify Tenant in writing and shall at the same time submit to Tenant the
items required under this Section 4(d) to the extent not previously provided.
Within five (5) business days from receipt of that notice by Tenant,
representatives of Landlord and Tenant shall inspect the Premises and shall
cooperate in producing and shall sign a punch list identifying all items of work
to be performed hereunder by Landlord which has either not been completed or
which has not been completed properly (the "Punch List Items") and the time
allowed by Landlord to complete such Punch List Items, and Landlord shall cause
all Punch List Items to be diligently completed or corrected without additional
cost, and in any event within sixty (60) days after the Commencement Date, but
items shall not cause a postponement in the commencement of the Term.
Notwithstanding anything set forth herein, Tenant acknowledges that it is
unlikely that an unconditional certificate of occupancy will be issued by the
City of Philadelphia at or prior to the Commencement Date. Within forty-five
(45) days after the Landlord's Work is substantially completed, Landlord shall
provide Tenant with a report and back up documentation reasonably acceptable to
Tenant identifying and itemizing the actual cost of the Landlord's Work and of
any portion of the Allowance that has not been spent.
(e) Delays. In the event of delays in substantial completion of the
Premises by reason of any of the following (a "Tenant Delay"), rent shall
commence to accrue as if the delay had not occurred. Accordingly, on the date
the Premises are substantially completed, Tenant shall lose one day of its free
rent period for each day of such delays:
(i) changes in the work to be performed by Landlord in preparing
the Premises for Tenant's occupancy, which are requested by Tenant after
approval of the Final Approved Plans and Specifications; or
(ii) delays, not caused by Landlord, in furnishing materials or
procuring labor required for installations or work in the Premises which are not
customarily provided by Landlord for office tenants in the Building (except that
Landlord's approval of the Final Approved Plans and Specifications shall
constitute an acknowledgement that all materials and labor called for therein
are customarily provided for office tenants in the Building), provided that
Tenant shall be notified of Landlord's good faith estimate of the anticipated
delay promptly after discovery thereof by Landlord, and shall be given an
opportunity to specify alternative materials or requirements or to return to
installations or work customarily provided by Landlord for office tenants, and
further provided that, in the event Tenant shall specify such alternative
materials or requirements, any delay incurred prior to Landlord's notice of the
anticipated delay with respect to the work in question shall not be considered
to be a delay chargeable to Tenant under this Section 4(e) (and shall therefore
not be subtracted in determining the Commencement Date); or
(iii) any failure by Tenant, without regard to any grace period
applicable thereto, to furnish any required plan, information, approval or
consent within a required period of time.
(f) Condition of Premises. Except as otherwise agreed to in writing,
Tenant's taking possession of the Premises shall be conclusive evidence against
Tenant that the Premises were in good order and satisfactory condition when
Tenant took possession subject to punch list items, latent defects and the
warranty given by Landlord's contractor. Landlord has made no representation
respecting the condition of the Premises, the Building or the Property, except
as is expressly set forth in Final Approved Plans and Specifications or
elsewhere in this Lease. At the termination of this Lease, by lapse of time or
otherwise, Tenant shall remove all Tenant's property, including but not limited
to, trade fixtures, from the Premises, and shall return the Premises broom-clean
and in as good a condition as when Tenant took possession or as same may
thereafter have been put by Landlord, except for ordinary wear and tear, loss by
fire or other casualty, and repairs that Landlord is required to make under this
Lease. If Tenant fails to remove any or all of its property upon termination of
this Lease, such property shall be deemed to be abandoned and shall become the
property of Landlord.
(g) Effect of Delays. Landlord presently estimates that the date of
substantial completion of the Premises will be one hundred twenty (120) days
after the date of approval of Final Approved Plans and Specifications. If
-7-
<PAGE>
substantial completion of the Premises shall occur at a later date, or if
Landlord shall be delayed in the delivery of possession of the Premises to
Tenant, or if repairs or improvements of the Premises to be performed by
Landlord are not completed, or for any other reason, whether or not within
Landlord's control, Landlord shall not be subject to any liability to Tenant.
Under such circumstances, but subject to the provisions of Section 4(e)
concerning delays attributable to Tenant, the rent reserved and covenanted to be
paid herein shall not commence until possession of the Premises can be given to
Tenant in the required state, and no such failure to give possession shall in
any other respect affect the validity of this Lease or any obligation of the
Tenant hereunder.
(h) Overload. To coordinate orderly move-ins and move-outs, no
furniture, freight or equipment of any kind exceeding three hundred (300) pounds
shall be brought into the Building without prior notice to Landlord and Landlord
shall have the right to designate the time and manner of moving of the same.
Landlord shall have the right to prescribe the weight, size and position of all
safes and other heavy equipment brought into the Building and also the times and
manner of moving the same in and out of the Building. Safes or other heavy
objects shall, if considered necessary by Landlord, stand on supports of such
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such safe or property from any
cause, and all damage done to the Building by moving or maintaining any such
safe or other property shall be repaired at Tenant's expense.
(i) Construction Documents. Tenant shall cause to be prepared complete
and final "Construction Documents," consisting of (a) working drawings and (b)
specifications, for the construction of the Premises for Tenant's occupancy.
Tenant shall submit the Construction Documents to Landlord for Landlord's
approval, which shall not be unreasonably withheld. Notwithstanding the
foregoing, Landlord's approval may be withheld if, in Landlord's sole opinion,
the work, as described in item of the Construction Documents: (i) is likely to
adversely affect Building systems, the structure of the Building or the safety
of the Building and/or its occupants; (ii) might impair Landlord's ability to
furnish services to Tenant or other tenants in the Building: (iii) would
increase the cost of operating the Building: (iv) would violate any governmental
laws, rules or ordinances (or interpretations thereof); (v) contains or uses
hazardous or toxic materials or substances; or (vi) would adversely affect the
appearance of the Building: (vii) might adversely affect another tenant's
premises. The approval by Landlord of the Construction Documents shall be
subject to the following procedural requirements: Landlord shall review the
Construction Documents and either approve the same or return the same to Tenant
with requested modifications. In the event that Landlord fails to return the
Construction Documents to Tenant within fifteen (15) days of the date of
Landlord's receipt thereof, Tenant shall resubmit the Construction Documents to
Landlord. Any Construction Document or modified Construction Document submitted
to Landlord for approval a second time and not returned to Tenant with a written
notice from Landlord requesting modifications within ten (10) business days
after the date the document is received by Landlord shall be deemed approved by
Landlord. The Construction Documents approved by Landlord (or deemed approved)
shall be deemed the Final Approved Plans and Specifications for purposes of this
Lease. In the event that Tenant desires to install a supplemental heating,
ventilating and air conditioning system (at Tenant's sole cost and expense),
Tenant shall prepare plans of such system and submit such plans to Landlord for
its approval pursuant to the mechanism set forth above.
(j) Landlord Delays. Notwithstanding anything contained in this Lease
to the contrary but subject to Tenant Delays and Force Majeure, if the
Landlord's Work is not substantially completed by the date which is one hundred
fifty (150) days after the date of approval of the Final Approved Plans and
Specifications, Tenant shall receive an abatement of all Base Rental, Additional
Rental and Other Charges payable hereunder at the rate of one (1) day for each
one (1) day after such date until the Landlord's Work is substantially
completed. If substantial completion has not occurred by that date which is two
hundred seventy (270) days after approval of the Final Approved Plans and
Specifications, then at any time thereafter and prior to the date the Landlord's
Work is substantially completed, Tenant may cancel this Lease by written notice
to Landlord.
5. Use of the Premises.
-8-
<PAGE>
(a) Use. Tenant shall use the Premises for general office purposes in
connection with Tenant's business and for no other purpose whatsoever (the
"Permitted Use"). In connection with the Permitted Use, Tenant may enjoy certain
other ancillary uses typical in such spaces, including, without limitation,
storage space, computer and telephone facilities, meeting rooms, multi-media
facilities, and a kitchen or lunchroom for Tenant's employees and invitees,
which may include, without limitation, a sink, refrigerator, ice machine,
microwave oven, toaster oven, vending machines and related items and equipment.
Tenant shall not, without the prior written consent of Landlord, exhibit, sell
or offer for sale on the Premises or in the Building any article or thing,
except those articles and things essentially connected with Tenant's stated use
of the Premises.
(b) Advertisement. Tenant shall not advertise the business, profession
or activities of Tenant conducted in the Building in any manner which violates
the letter of any code of ethics adopted by any recognized association or
organization pertaining to such business of Tenant, and shall never use any
picture or likeness of the Building in any circulars, notices, advertisements or
correspondence without Landlord's prior written consent.
(c) Solicitation. Tenant shall not disturb, solicit, or canvass any
occupant of the Building and shall cooperate with Landlord to prevent same.
(d) Care. Tenant shall use and occupy the Premises so that no other
occupant of any adjoining premises will be unreasonably disturbed and shall
create no nuisance in, upon or about the Premises. Subject to the provisions of
Paragraph 8(b) and the other maintenance and repair obligations of Landlord
described in this Lease, Tenant shall take good care of the Premises, the
fixtures and appurtenances thereto, and all alterations, additions and
improvements thereto. Tenant will not make or permit to be made any use of the
Premises or any part thereof, and will not bring into or keep anything in the
Premises or any part thereof, that (i) violates any of the covenants,
agreements, terms, provisions and conditions of this Lease; (ii) directly is
forbidden by public law, ordinance or regulation of any governmental or public
authority (including zoning ordinances); (iii) is dangerous to life, limb or
property; (iv) increases the risk to Landlord or any other tenant or invalidate
or increase the premium cost of any policy of insurance carried on the Building
or covering its operation; or (v) in the sole judgment of Landlord, in any way
impairs or tends to impair the character, reputation or appearance of the
Property as a first-class office building, or impairs or interferes with any of
the services performed by Landlord for the Property. Landlord confirms that the
Permitted Use of the Premises, and the ancillary uses to the extent that same
are performed in strict confidence with applicable Insurance Requirements, shall
not constitute a violation of clause (iv) above.
(e) Noise; Odors. Tenant shall not use, keep or permit to be used or
kept any foul or noxious gas or substance in the Premises; permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations; interfere in any way with other tenants or those having business
therein; or bring in or keep any animals or birds in the Premises. Tenant shall
not use the Premises for housing accommodations or lodging or sleeping purposes,
or do any cooking therein, or use any illumination other than electric light.
Landlord confirms that use by Tenant of its business machines and equipment,
including telephones, calculators, copy machines, fax machines, computers and
multi-media equipment in connection with its normal operations in compliance
with the Permitted Use under this Lease shall not constitute a violation of this
paragraph (e) and that this paragraph (e) shall not preclude the use of
microwave oven and/or toaster oven in its kitchen or lunchroom.
6. Alterations.
(a) Prohibition. Tenant shall not make any alterations, additions or
improvements (collectively, the "Alterations") in or to the Premises, or in or
to the Building without the express prior written consent of Landlord; provided,
however, that Landlord shall not be unreasonable in withholding consent to
nonstructural Alterations. Before commencing any work in connection with the
Alterations for which Landlord's approval is required, Tenant shall furnish to
Landlord for its approval the following: (i) detailed plans and specifications
-9-
<PAGE>
therefor, (ii) names and addresses of each of the contractors and
subcontractors, (iii) copies of all contracts, subcontracts and necessary
permits, (iv) a payment and performance bond, or other indemnification, in form
and amount satisfactory to Landlord, protecting Landlord against any and all
claims, costs, damages, liabilities and expenses that may arise in connection
with the Alterations, (v) sworn contractor's statements and mechanic lien
waivers covering all work to be performed and such other documentation as is
necessary to comply fully with the mechanics' lien law of the state in which the
Premises is located, and (vi) certificates of insurance, in form and amount
satisfactory to Landlord, from all contractors and subcontractors who will
perform labor or furnish materials, insuring Landlord against any and all
liability for personal injury, including workers' compensation claims and for
property damage that may arise out of or be in any manner connected with the
Alterations. Notwithstanding anything to the contrary contained in the preceding
subparagraph (a), Tenant shall have the right, without having to first obtain
Landlord's consent, to decorate the Premises (including without limitation
painting, installing of wall covering and hanging artwork), to install
partitions and to make other non-structural alterations within the Premises
(collectively, "Permitted Alterations") provided that Tenant gives Landlord
prior written notice of any such Permitted Alterations. Tenant shall use only
union contractors when performing any Alterations.
(b) Indemnification. In addition to the indemnity set forth in
Paragraph 12 of this Lease, Tenant hereby specifically agrees to indemnify and
hold harmless Landlord from and against any and all liabilities, costs and
expenses of every kind and description, including attorneys' fees, that may
arise out of or in any manner be connected with any Alterations made by Tenant.
Tenant shall pay the cost of all such Alterations and all costs associated with
decorating the Premises that may be occasioned thereby. Upon completion of any
such Alterations for which Landlord's consent is required, Tenant shall furnish
Landlord with (i) upon Landlord's request, receipted bills covering all labor
and materials used, (ii) such documentation as is necessary to comply fully with
the mechanics' lien law of the state in which the Premises are located; (iii) a
true and correct copy of the certificate of occupancy, if one is issued; and
(iv) a certificate of Tenant's architect, engineer or general contractor stating
that such Alterations were made in accordance with the plans and specifications.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for such labor or material shall attach to or affect
the reversion or other estate or interest of Landlord in and to the Premises.
(c) Compliance and Supervision of Alterations. All Alterations made by
Tenant hereunder shall be installed in a good and workmanlike manner, using only
materials of the same or higher quality as those installed in the Building. All
Alterations shall comply with all requirements of Landlord's insurance carriers
and with all applicable laws, rules, ordinances and regulations of any lawful
authority. Tenant shall permit Landlord to supervise construction operations in
connection with any such Alterations, if Landlord requests the right to do so
(but Landlord shall have no obligation to make such requests, or having done so,
to supervise construction). Landlord's supervision of construction shall be done
solely for the benefit of Landlord and shall not alter Tenant's liability and
responsibility under this Paragraph 6.
(d) Landlord's Property. All Alterations, whether temporary or
permanent, including hardware, non-trade fixtures and wall and floor coverings,
whether placed in or upon the Premises by Landlord or Tenant, shall become
Landlord's property and shall remain with the Premises at the termination of
this Lease, whether by lapse of time or otherwise, without compensation,
allowance or credit to Tenant; provided, however, that notwithstanding the
foregoing, Landlord may request that any or all of said Alterations in or upon
the Premises made by Tenant be removed by Tenant at the termination of this
Lease (except that in any event, Tenant may at its option leave its computer
cabling and telephone wiring behind). If Landlord requests such removal or if
Tenant removes its trade fixtures, Tenant shall remove the same prior to the end
of the Term and shall repair all damage to the Premises, the Building or the
Property caused by such removal. Tenant shall not, however, be required to
remove pipes and wires concealed in floors, walls or ceilings, provided that
Tenant properly cuts and caps the same, and seals them off in a safe, lawful and
workmanlike manner, in accordance with Landlord's reasonable requirements and
all applicable building codes. If Tenant does not remove any Alterations when
requested by Landlord to do so, Landlord may remove the same and repair all
damage caused thereby, and Tenant shall pay to Landlord the cost of such removal
-10-
<PAGE>
and repair immediately upon demand therefor by Landlord, plus fifteen percent
(15%) of the cost of such removal to reimburse Landlord for its administrative
expense. Tenant's obligation to observe or perform this covenant shall survive
the expiration or termination of this Lease.
(e) Wiring. Landlord will direct electricians as to where and how
telephone and computer wires are to be introduced. After completion of work, no
boring or cutting for wires will be allowed without Landlord's written consent.
The location of telephones, call boxes and other office equipment affixed to the
Premises after the completion of Landlord's work shall be subject to Landlord's
approval.
7. Mechanics' Liens.
(a) Tenant's Discharging of Liens. If, because of any act or omission
of Tenant, any mechanic's lien or other lien, charge or order for the payment of
money shall be filed against any portion of the Premises, Tenant, at its own
cost and expense, shall cause the same to be discharged of record or bonded
against within twenty (20) days of the filing thereof unless Tenant shall
contest the validity of such lien by appropriate legal proceedings diligently
conducted in good faith and without expense to Landlord; and Tenant shall
indemnify and save harmless Landlord against and from all costs, liabilities,
suits, penalties, claims and demands, including reasonable attorneys' fees, on
account thereof.
(b) Landlord's Discharging of Liens. If Tenant shall fail to cause
such liens to be discharged of record or bonded against within the aforesaid
twenty (20) day period or shall fail to satisfy such liens within ten (10) days
after any judgment in favor of such lien-holders from which no further appeal
might be taken, then Landlord shall have the right to cause the same to be
discharged. All amounts paid by Landlord to cause such liens to be discharged,
plus interest on such amounts at the Default Rate shall constitute Other Charges
payable by Tenant to Landlord.
8. Maintenance and Repair.
(a) Tenant's Maintenance. Subject to Landlord's janitorial
obligations, and the other maintenance and repair obligations of Landlord stated
in this Lease, Tenant, at its sole cost and expense, shall maintain and repair
during the Term of this Lease the Premises and every part thereof and any and
all appurtenances thereto, including but not limited to, the doors and interior
walls of the Premises; special light fixtures installed by or at Tenant's
request or as part of the Landlord's Work; kitchen fixtures; auxiliary heating,
ventilation, or air-conditioning equipment installed by or at Tenant's request
that serve the Premises only; private bathroom fixtures and any other type of
special equipment, together with related plumbing or electrical services; and
rugs, carpeting, wall coverings, and drapes within the Premises, whether
installed by Tenant or by Landlord on behalf of Tenant, and whether or not such
items will become Landlord's property upon expiration or termination of this
Lease. Notwithstanding the provisions hereof, in the event that repairs required
to be made by Tenant become immediately necessary to avoid possible injury or
damage to persons or property, Landlord may, but shall not be obligated to, make
repairs to such items at Tenant's expense, which shall constitute Other Charges
payable by Tenant to Landlord. Within ten (10) days after Landlord renders a
bill for the cost of said repairs, Tenant shall reimburse Landlord. Tenant may
satisfy its maintenance and repair obligations hereunder by requesting Landlord
to cause its contractors to perform such maintenance or repairs on Tenant's
behalf and bill Tenant for the cost thereof, the payment of which is due within
ten (10) days after Landlord renders the bill to Tenant.
(b) Landlord's Maintenance. Subject to Paragraph 8(a) above, Landlord
shall, at Landlord's cost (except to the extent required to be reimbursed to
Landlord as provided elsewhere in this Lease) keep, repair and maintain the
Building (including the roof and structural members, the Common Areas,
mechanical and electrical equipment, the exterior and architectural finish, and
all items except those excepted elsewhere in this Lease) of which the Premises
are a part, and the lawn, shrubs and other landscaping on the Property, all in
good and tenantable condition comparable to other first class office buildings
in Philadelphia, Pennsylvania, during the Term of this Lease and shall comply
with all laws applicable to the operation of the Building. In addition, subject
-11-
<PAGE>
to the provisions of Paragraph 19 relating to fire and other casualty, Landlord
shall perform all necessary replacements of portions of the Building. Landlord
shall, in addition, supply reasonable snow removal for the walkways of the
Property during Normal Business Hours (as hereinafter defined). Tenant shall
notify Landlord promptly when any repair to be made by Landlord is necessary. If
any portion of the Building or the Premises is damaged through the fault or
negligence of Tenant, its agents, employees, invitees or customers, then Tenant
shall promptly and properly repair the same at no cost to Landlord; provided,
however, that Landlord may, at its option, make such repairs and Tenant shall,
on demand, pay the cost thereof, together with interest at the Default Rate to
Landlord as Other Charges. Tenant shall promptly give Landlord written notice of
any defect or need for repairs, after which notice Landlord shall have
reasonable opportunity to repair same or cure such defect. For the purposes of
making any repairs or performing any maintenance, Landlord may temporarily
block, close or change any entrances, doors, corridors, elevators, or other
facilities in the Building or in the Premises, and may temporarily close, block
or change sidewalks, driveways or parking areas of the Property. Landlord shall
not be liable to Tenant, except as expressly provided in this Lease, for any
damage or inconvenience and Tenant shall not be entitled to any abatement of
rent by reason of any repairs, alterations or additions made by Landlord under
this Lease. Landlord represents and warrants that its operation of the Building
is not currently in violation of any applicable laws.
(c) Inspection. Tenant shall permit Landlord, its agents, employees
and contractors, at any time in the event of an emergency, and otherwise at
reasonable times, and upon at least 24 hours prior notice, to take any and all
measures, including inspections, repairs, alterations, additions and
improvements to the Premises or to the Building, as may be necessary or
desirable to safeguard, protect or preserve the Premises, the Building or
Landlord's interests; to operate or improve the Building; to comply on behalf of
Tenant with all laws, orders and requirements of governmental or other authority
with which Tenant is obligated to comply under this Lease (if Tenant fails to do
so); to examine the Premises to verify Tenant's compliance with all of the
terms, covenants, obligations and conditions of this Lease; or to exercise any
rights with respect to the Premises that Landlord may exercise in the event of
default by Tenant. Each such entry shall be, to the extent possible,
accomplished without unreasonable disruption of Tenant's business.
9. Common Areas.
(a) Grant. During the Term of this Lease, Landlord grants to Tenant,
its employees, customers and invitees, a nonexclusive license to use, in common
with all others to whom Landlord has granted or may hereafter grant a license to
use, the common areas of the Property, including but not limited to, the
sidewalks, lobbies, halls, passages, exits, entrances, elevators, stairways,
restrooms, parking areas (except as provided for in subparagraph (b) below),
driveways and landscaped areas (collectively, the "Common Areas") subject to
reasonable rules and regulations respecting the Common Areas as Landlord may
from time to time promulgate and provided that such rules and regulations do not
discriminate against Tenant, are uniformly enforced against all Tenants of the
Building, and do not unreasonably restrict Tenant's rights under this Lease. The
Common Areas shall not be obstructed by Tenant or used for any purpose other
than for ingress to and egress from the Premises. The Common Areas are not for
the use of the general public and Landlord shall in all cases retain the right
to control and prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom Tenant
normally deals in the ordinary course of Tenant's business unless such persons
are engaged in illegal activities. Neither Tenant nor its employees, customers
or invitees shall go upon the roof or mechanical floors or into mechanical areas
of the Building.
(b) Right to Change Common Areas. Landlord may do and perform such
acts in and to the Common Areas as, Landlord, in the exercise of good business
judgment, shall determine to be advisable. Landlord hereby reserves the right to
make alterations, additions, deletions or changes to the Common Areas,
including, but not limited to, changes in its size and configuration.
Notwithstanding anything to the contrary contained in this Paragraph 9(b), in no
-12-
<PAGE>
event shall Landlord diminish any service or make any change which would
diminish the usable area of the Premises.
10. Building Services.
(a) Electric. Landlord shall provide electric power to the Premises.
Electric power furnished by Landlord is intended to be sufficient for that which
is consumed in normal office use during Normal Business Hours for lighting,
heating, ventilating, air conditioning and operating all office equipment
(including, without limitation, free standing photocopiers and computers), and
Landlord shall replace light bulbs, ballasts, and tubes when required, if
requested by Tenant (the cost of such replacement light bulbs, ballasts and
tubes, plus the labor cost of such replacement, to be chargeable to Tenant).
Landlord reserves the right, if Tenant's consumption of electricity exceeds that
required for normal office use during Normal Business Hours, to include a charge
for such electricity as rent. Such charge shall be based upon the average cost
per unit of electricity for the Building (based on the rates imposed by the
utility provider) applied to the excess use as determined by a reputable
independent engineer selected by Landlord, or at Landlord's option, to be
determined by a submeter to be furnished and installed at Tenant's expense. If
Tenant refuses to pay upon demand of Landlord such excess charge, such refusal
shall constitute a breach of the obligation to pay rent under this Lease and
shall entitle Landlord to the rights granted in this Lease for such breach.
Tenant shall use reasonable care and caution to ensure that all electricity is
shut off to prevent waste or damage.
(b) Water. Landlord shall provide hot and cold water sufficient for
drinking, lavatory and toilet purposes from the regular Building supply (at the
prevailing temperature), and shall provide sanitary sewer facilities, through
fixtures installed by Landlord (or by Tenant with Landlord's prior written
consent); provided that Tenant shall reimburse Landlord, at rates fixed by
Landlord, for water used by Tenant for supplementary air-conditioning or
refrigerating installed by or exclusively for Tenant and for any other water
used by Tenant (except for public drinking water and public lavatory use).
(c) Air-Conditioning and Heat. Landlord shall provide, at no extra
charge except for excess and after hours usage, air conditioning and heat to the
Premises for comfortable occupancy during Normal Business Hours consistent with
similar first class office buildings in Philadelphia, Pennsylvania, subject at
all times, however, to restrictions placed upon Landlord by any duly constituted
governmental agency and/or by any utility supplier. Tenant shall cooperate fully
with Landlord to assure the effective operation of the Building's
air-conditioning and heating systems, including the closing of venetian blinds
and drapes, and if windows are operable, to keep them closed when the
air-conditioning or heating system is in use. Tenant shall not use any apparatus
or device in, upon or about the Premises that in any way may increase the amount
of such services usually furnished or supplied to tenants in the Building, and
Tenant shall not connect any apparatus or device with the conduits or pipes, or
other means by which such services are supplied for the purpose of using
additional or unusual amounts of such services, without the prior written
consent of Landlord. If Tenant uses such services under this provision to
excess, Landlord reserves the right to charge Tenant for such services, as rent.
If Tenant refuses to make payment upon demand of Landlord, such excess charge
shall constitute a breach of the obligation to pay rent under this Lease and
shall entitle Landlord to the rights granted in this Lease for such breach. If
Tenant desires to obtain air-conditioning or heating in excess of the services
provided by Landlord as set forth above, Tenant may obtain such excess service
from Landlord at the cost that Landlord is then charging for such excess
service, which as of the date of this Lease is five cents per ton per hour for
condensed water plus all additional electrical charges associated with the
operation of the heating or air-conditioning system, which as of this date is
$265.00 per hour.
(d) Janitor Service. Landlord shall provide at no extra charge to
Tenant janitor service in and about the Premises and the Building as set forth
on Exhibit G at the end of each Monday, Tuesday, Wednesday, Thursday and Friday,
except for Holidays (as hereinafter defined). Tenant shall not provide any
janitor service without Landlord's prior written consent. If Landlord consents
to janitor service provided by Tenant, the same shall be subject to Landlord's
rules and regulations and to Landlord's supervision, but at Tenant's sole cost
and expense (without reduction in Base Rental or Additional Rental). Landlord
shall further provide carpet cleaning in the Common Areas and window cleaning at
-13-
<PAGE>
such times as may be consistent with comparable first-class office buildings in
Philadelphia, Pennsylvania. Each Tenant shall cooperate with any janitor service
in keeping the Premises reasonably neat and clean. Landlord shall be in no way
responsible to Tenant, its agents, employees or invitees, for any loss of
property from the Premises or for any damage to property thereon, from any
cause.
(e) Elevator Service. Landlord shall provide passenger elevator and
freight elevator during Normal Business Hours and shall provide at least one
passenger elevator to the Premises at all other times in order to comply with
Paragraph 10 (H) below.
(f) Interruption of Services. Tenant hereby acknowledges that any one
or more of the utilities or building services specified in this Paragraph 10 may
be interrupted or diminished temporarily by Landlord or other person until
certain repairs, alterations or other improvements to the Premises or other
parts of the Property can be made or by any event or cause which is beyond
Landlord's reasonable control, including, without limitation, any ration or
curtailment of utility services; that Landlord does not represent, warrant or
guarantee to Tenant the continuous availability of such utilities or building
services, except that Landlord shall use reasonable efforts to restore any
interrupted or diminished utilities or services; and, except as otherwise
provided in this Lease, that any such interruption shall not be deemed or
construed to be an interference with Tenant's right of possession, occupancy and
use of the Premises, shall not render Landlord liable to Tenant for damages or
entitle Tenant to any reduction of Base Rental, and shall not relieve Tenant
from its obligation to pay Base Rental and to perform its other obligations
under this Lease.
(g) Energy Curtailment. Landlord and Tenant specifically acknowledge
that energy shortages in the region in which the Property is located may from
time to time necessitate reduced or curtailed energy consumption on the
Property. Tenant shall comply with all such rules and regulations as may be
promulgated from time to time by any governmental authority with respect to
energy consumption, and during such period of time as such governmental
authority may so require, Tenant shall reduce or curtail operations in the
Premises as shall be directed by Landlord or such governmental authority.
Compliance with such rules and regulations and/or such reduction or curtailment
of operation shall not constitute a breach of Landlord's covenant of quiet
enjoyment or otherwise invalidate or affect this Lease, and Tenant shall not be
entitled to any diminution or abatement in Base Rental during the periods of
reduction or curtailment of operations.
(h) Normal Business Hours. For purposes of this Lease, "Normal
Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday, and
8:00 a.m. to 1:00 p.m. on Saturday and not including Sundays and Holidays.
Notwithstanding anything contained in this Lease to the contrary, but subject to
the rules and regulations and the Building's security plan in effect from time
to time, Tenant, its employees, agents and invitees shall have access to the
Premises through at least one passenger elevator twenty-four (24) hours a day,
seven days a week.
(i) Holidays. For purposes of this Lease, Holidays shall mean New
Year's Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas.
(j) Directory. Landlord shall maintain a directory of office tenants
in the lobby area of the Building, on which shall be listed the name of Tenant
and its organizational divisions or affiliates.
11. Estoppel Certificates.
(a) Within ten (10) business days after written request by Landlord,
Tenant shall execute, acknowledge and deliver to Landlord or to Landlord's
mortgagee, prospective mortgagee, land lessor or prospective purchaser of the
Property or any part thereof, an estoppel certificate, in form and substance
substantially similar to that attached as Exhibit E and incorporated herein by
reference. Tenant shall make such modifications to such estoppel certificate as
may be necessary to make such certificate true and accurate, it being intended
that any such statement delivered pursuant to this Paragraph 11 may be relied
upon by any such mortgagee, prospective mortgagee, prospective purchaser, or
-14-
<PAGE>
land lessor of the Property. If Tenant fails to provide such estoppel
certificate with ten (10) business days after Landlord's request, Tenant shall
be deemed to have approved the contents of any such certificate submitted to
Tenant by Landlord and Landlord is hereby authorized to so certify.
(b) Within thirty (30) business days after written request by Tenant
in connection with Tenant's borrowing of funds or the sale of all or
substantially all of the assets of Tenant or a controlling ownership interest in
Tenant only, Landlord shall execute, acknowledge and deliver to Tenant or to
Tenant's lender, prospective lender, purchaser or prospective purchaser, an
estoppel certificate, in form and substance substantially similar to that
attached as Exhibit E-1 and incorporated herein by reference. Landlord shall
make such modifications to such estoppel certificate as may be necessary to make
such certificate true and accurate, it being intended that any such statement
delivered pursuant to this Paragraph 11(b) may be relied upon by any such
lender, prospective lender, purchaser or prospective purchaser. If Landlord
fails to provide such estoppel certificate with thirty (30) business days after
Tenant's request, Landlord shall be deemed to have approved the contents of any
such certificate submitted to Landlord by Tenant and Tenant is hereby authorized
to so certify.
12. Indemnification; Waiver of Claims.
(a) Tenant shall protect, indemnify, defend, and hold harmless
Landlord, its agents, servants, employees, officers, directors and partners
forever against and from (i) any penalty, damages, charges or costs imposed or
resulting from any violation of any law, order or ordinance of any governmental
agency, or by the use and occupancy of the Premises by Tenant, whether
occasioned by the neglect of Tenant or those holding under Tenant; (ii) all
claims, losses, costs, damages and expenses, including attorneys' fees, arising
out of or from any accident or other occurrence on or about the Premises or the
Property causing injury to any person or property, except caused by the sole
active negligence or intentional act or omission of Landlord or its servants,
agents or employees; (iii) all claims, losses, costs, damages and expenses,
including attorneys' fees, arising out of any failure of Tenant in any respect
to comply with or perform all the requirements and provisions of this Lease or
arising out of any use of the Premises or the Property by Tenant or any one
claiming by, through or under Tenant.
(b) Landlord shall not be liable for, and Tenant hereby waives all
claims against Landlord, (i) for any and all damage or loss to fixtures,
equipment or other property of Tenant and its servants, agents, employees,
contractors, suppliers, invitees, patrons and guests, in, upon or about the
Premises or the Property, or (ii) for injury or death to any person, occurring
in, upon or about the Premises or the Property, resulting from any cause
whatever (except caused by the sole active negligence or intentional act or
omission of Landlord or its servants, agents or employees), including, but not
limited to, water, snow, frost, ice, explosion, falling plaster, fire or gas,
smoke or other fumes, nor by reason of the leaking, breaking, backing up or
other malfunction of any lines, wires, pipes, tanks, boilers, lifts or any other
appurtenances, regardless by whom installed or maintained (Tenant hereby
expressly assuming all responsibility for the safety and security of the person
and property of Tenant, and its servants, agents, employees, contractors,
suppliers, invitees, patrons and guests, while in, upon or about the Premises).
The occurrence of any event described in this Paragraph 12 shall not constitute
a breach of Landlord's covenant of quiet enjoyment set forth in Paragraph 17.
13. Insurance.
(a) Tenant's Insurance. Tenant, at its sole cost and expense, shall
carry during the entire Term of this Lease, the following types of insurance:
(i) Commercial general liability insurance against injuries to
persons occurring in, upon or about the Premises, with minimum coverage of Five
Million Dollars ($5,000,000.00) per occurrence and Five Million Dollars
($5,000,000.00) aggregate coverage per one (1) accident or disaster, and One
Million Dollars ($1,000,000.00) for property damage;
-15-
<PAGE>
(ii) Fire, extended coverage, vandalism and malicious mischief,
and sprinkler damage and all-risk insurance coverage on all personal property,
trade fixtures, floor coverings, wall coverings, furnishings, furniture, and
contents for their full insurable value on a replacement cost basis;
(iii) Business interruption insurance, against loss or damage
resulting from the same risks as are covered by the insurance mentioned in
subparagraph (i) above in an amount equal to the aggregate of one (1) year's
requirement of (A) Base Rental, (B) the amounts payable by Tenant for Additional
Rental as provided in subparagraph 3(b), and (C) insurance premiums necessary to
comply with this Paragraph 13; and
(iv) Workers' Compensation or similar insurance, if and to the
extent required by law and in form and amounts required by law.
(b) Landlord as Additional Insured. All such insurance required to be
maintained by Tenant shall name Landlord as an additional insured and shall be
written with a company or companies reasonably satisfactory to Landlord, having
a policyholder rating of at least "A" and be assigned a financial size category
of at least "Class XIV" as rated in the most recent edition of "Best's Key
Rating Guide" for insurance companies, and authorized to engage in the business
of insurance in the state in which the Premises are located. Tenant shall
deliver to Landlord copies of such policies and customary insurance certificates
evidencing such paid-up insurance. Such insurance shall further provide that the
same may not be canceled, terminated or modified unless the insurer gives
Landlord and Landlord's mortgagee(s) at least sixty (60) days' prior written
notice thereof.
(c) Landlord's Insurance. Landlord shall maintain in force, at all
times during the Term of this Lease, a policy or policies of fire insurance to
the extent of at least one hundred percent (100%) of the insurable value of the
Building.
(d) Increase in Premiums. If insurance premiums payable by Landlord or
any other tenant are increased as a result of any breach of Tenant's obligations
under this Lease or as a result of Tenant's particular use and occupancy of the
Premises, Tenant shall pay to Landlord an amount equal to any increase in such
insurance premiums.
14. Waiver of Subrogation. Notwithstanding anything contained in this Lease
to the contrary, neither Landlord nor Tenant shall be liable to the other for
any business interruption or any loss or damage to property or in any manner
growing out of or connected with Tenant's use and occupation of the Premises,
the Building or the Property or the condition thereof, or of the adjoining
property, whether or not caused by the negligence or other fault of Landlord or
Tenant or of their respective agents, employees, subtenants, licensees or
assignees; provided, however, that this release shall apply only to the extent
that such business interruption or loss or damage is covered by insurance or is
required to be covered by insurance under this Lease, regardless of whether such
insurance is payable to or protects Landlord or Tenant or both. Nothing in this
Paragraph 14 shall be construed to impose any other or greater liability upon
either Landlord or Tenant than would have existed in the absence hereof. Because
this Paragraph 14 will preclude the assignment of any claim mentioned in it by
way of subrogation (or otherwise) to an insurance company (or any other person),
each party to this Lease agrees immediately to give to each insurance company
that has issued to it policies of fire and extended coverage insurance, written
notice of the terms of the mutual waivers contained in this paragraph, and to
have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages because of the mutual waivers contained
in this Paragraph 14.
15. Holding Over. If Tenant retains possession of the Premises or any part
thereof after the termination of this Lease, such tenancy shall (without
limitation on any one of Landlord's rights or remedies therefor) be one at
sufferance from month to month and Tenant shall pay Landlord rent at one and
one-half (1 1/2) times the monthly rate in effect immediately prior to the
termination of this Lease for the time the Tenant remains in possession. No
acceptance of rent by, or other act or statement whatsoever on the part of
Landlord or its agent or employee, in the absence of a writing signed by
Landlord, shall be construed as an extension of or as a consent for further
-16
<PAGE>
occupancy. Tenant shall indemnify Landlord for all damages, consequential as
well as direct, sustained by reason of Tenant's retention of possession. The
provisions of this Paragraph 15 do not exclude pursuit of Landlord's right of
re-entry or any other right hereunder.
16. Assignment and Sublease.
(a) Prohibition.
(i) Except as expressly permitted below, Tenant shall not assign,
convey, mortgage, pledge, encumber or otherwise transfer this Lease or any
interest therein, sublet the Premises or any part thereof, or permit the use or
occupancy of the Premises or any part thereof by anyone other than Tenant,
without receiving Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Any purported transfer, encumbrance, pledge,
mortgage, assignment or subletting not in compliance herewith shall be void and
of no force or effect. In the event of any assignment, subletting, transfer or
occupancy by someone other than Tenant, whether or not expressly or impliedly
approved by Landlord, Tenant shall, nevertheless, at all times, remain fully
responsible and jointly and severally liable for the payment of the rent and for
compliance with all other obligations imposed upon Tenant under the terms,
provisions and covenants of this Lease. Any assignment or sublease shall contain
a provision whereby the assignee or subtenant agrees to comply with and be bound
by all of the terms, covenants, conditions, provisions and agreements of this
Lease to the extent applicable, and Tenant shall deliver to Landlord, promptly
after execution, an executed copy of each assignment or sublease and an
agreement of compliance by each assignee or subtenant. Any sublease shall also
contain a provision that in the event of default by Tenant hereunder and a
termination of this Lease by Landlord, such subtenant shall, at Landlord's
option, attorn to Landlord as if Landlord were the lessor under the sublease.
Notwithstanding the foregoing, Tenant shall have the right to assign this Lease
or sublet all or a portion of the Premises to its parent corporation, any
wholly-owned subsidiary, any entity which controls or is under common control
with Tenant or any entity which acquires all or substantially all of the stock
or assets of Tenant as a result of consolidation, merger or sale. Tenant shall
also have the right to restructure or reconfigure as a limited liability
company, permit the transfer of stock among existing shareholders or members,
admit new shareholders or members and publicly offer stock or other ownership
units.
(ii) Notwithstanding anything to the contrary contained in this
Paragraph 16(a), it is understood and agreed that Tenant may without Landlord's
prior written consent, and without becoming subject to the provisions of this
Paragraph 16:
(1) Restructure or reconfigure as a limited liability
company;
(2) Transfer stock among existing stockholders or members or
admit new stockholders or members, and publicly trade stock, provided no change
in operational control of Tenant occurs as a result. For purposes of this
Section 16(a)(ii), "control" shall be deemed to mean ownership of at least fifty
per cent (50%) of all voting stock of a corporation or at least fifty per cent
(50%) of all legal and equitable interests in any other entity.
(b) Option to Cancel. Upon receipt of Tenant's written request for
Landlord's consent to subletting, assignment, transfer or occupancy by someone
other than Tenant, Landlord shall have the option to cancel this Lease as of the
date the requested subletting, assignment, transfer or occupancy by someone
other than Tenant is to be effective. Landlord shall exercise its option to
cancel this Lease by written notice to Tenant within thirty (30) days after
Landlord receives Tenant's request for Landlord's consent. This subparagraph (b)
shall not apply with respect to an assignment or subletting permitted under
Paragraph 16(a)(ii) above.
(c) Right to Collect Rents Directly. Upon the occurrence of an "event
of default" as set forth in Paragraph 21 hereof, if all or any part of the
Premises is then assigned, sublet, transferred or occupied by someone other than
Tenant, then, in addition to any other remedies provided in this Lease or
provided by law, Landlord, at its option, may collect directly from the
-17-
<PAGE>
assignee, subtenant, transferee or occupant all rent becoming due to Tenant by
reason of the assignment, sublease, transfer or occupancy. Any collection
directly by Landlord from the assignee or subtenant shall not be construed to
constitute a novation or a release of Tenant from the further performance of its
obligations under this Lease.
(d) Excess Rent. If Tenant assigns this Lease or sublets all or a
portion of the Premises for an amount in excess of (i) the Base Rental (or the
pro rata share of Base Rental in the case of a sublease of a portion of the
Premises), minus (ii) all expenses associated directly with such sublease or
assignment, including, without limitation, construction fees and expenses, free
rental, advertising fees, promotion expenses, brokerage commissions and legal
fees, then Tenant shall pay to Landlord, as rent, fifty percent (50%) of such
excess received by Tenant.
17. Quiet Enjoyment. If Tenant shall pay the rents and other sums due to be
paid by Tenant hereunder as and when the same become due and payable, and if
Tenant shall keep, observe and perform all of the other terms, covenants and
agreements of this Lease on Tenant's part to be kept, observed and performed,
Tenant shall, at all times during the Term herein granted, peacefully and
quietly have and enjoy possession of the Premises without any encumbrance or
hindrance by, from or through Landlord, except for regulations imposed by any
governmental or quasi-governmental agency on the occupancy of Tenant or the
conduct of Tenant's business operations. Notwithstanding anything to the
contrary contained in this Lease, if Tenant is prevented in whole or in part
from the free, uninterrupted and unimpeded enjoyment of the use of the Premises
or the fixtures therein or the utilities serving the Premises, and as a result
Tenant's business is substantially interfered with, and such interference
continues for more than five (5) consecutive business days by reason of (i)
Landlord's default under this Lease, (ii) Landlord's making of repairs or
alterations, other than repairs or alterations made on behalf of Tenant pursuant
to Paragraph 8(a) above, in or to the Building or the Premises or (iii) any
cause within the reasonable control of Landlord, then and in each and all such
cases, all rent payable under this Lease shall be abated retroactively to the
first day of such interruption and shall continue until full use and enjoyment
of the Premises is restored to Tenant.
18. Compliance with Laws and with Rules and Regulations.
(a) Laws. Tenant, at its sole cost and expense, shall procure any
permits and licenses required for the transaction of Tenant's particular
business in the Premises. Tenant, at its sole cost and expense, shall promptly
observe and comply with all present and future laws, ordinances, requirements,
orders, directives, rules and regulations of all state, federal, municipal and
other agencies or bodies having jurisdiction relating to the use, condition and
occupancy of or activities in the Premises, the Building and the Property
("Governmental Requirements") at any time in force, applicable to the Premises
or to Tenant's use thereof, except that Tenant shall not be under any obligation
to comply with any law, ordinance, rule or regulation requiring any structural
alteration of the Premises, unless such alteration is required because of a
condition that has been created by, or at the instance of, Tenant, or is
required by reason of a breach of any of Tenant's covenants and agreements under
this Lease. Landlord shall not be required to repair any injury or damage by
fire or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railing, ceiling, floor covering, partitions, or
any other property installed in the Premises by Tenant. Tenant, shall also,
during the Term and any extension or renewals hereunder, comply with at its own
cost and expense, and shall promptly correct any violation of all requirements
of any insurance underwriters ("Insurance Requirements") caused by Tenant.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all losses, damages, claims of third parties and cost of correcting expenses
(including attorneys fees and costs of suit or administrative proceedings) or
fines arising out of Tenant's failure to comply with Governmental Requirements
or Insurance Requirements. The provisions of this Paragraph 18(a) shall survive
the expiration or termination of this Lease. Landlord shall comply with all
Governmental Requirements and Insurance Requirements regarding the Building
except to the extent Tenant must comply under this Paragraph 18(a) or other
tenants of the Building must comply under comparable provisions of their leases.
-18-
<PAGE>
(b) Rules and Regulations. Subject to the qualifications set forth in
Paragraph 9(a) above, Tenant shall comply with all rules and regulations for the
Building, which current rules and regulations are attached hereto as Exhibit F
and with such reasonable modifications thereof and additions thereto as Landlord
may make hereafter, from time to time. Notwithstanding anything contained in
this Lease, Landlord shall not be responsible nor liable to Tenant, its agents,
representatives, employees, invitees or licensees, for the nonobservance by any
other tenant of any rules and regulations.
19. Fire and Casualty.
(a) Termination. If the Premises or the Building or any substantial
part of either is damaged or destroyed by fire or other casualty, cause or
condition whatsoever, and such damage or destruction cannot be repaired within
one hundred twenty days (120) days (as estimated by a reputable architect or
engineer within 30 days after such casualty), either Landlord or Tenant may
terminate this Lease, by written notice to the other given within thirty (30)
days after such damage. If the Premises are damaged or destroyed or access
thereto or use thereof is affected by the damage, then Landlord's termination
shall be effective as of the date of such damage; otherwise said termination
shall be effective thirty (30) days after such notice.
(b) Restoration. Unless this Lease is terminated as herein above
provided, Landlord shall proceed with due diligence to restore, repair and
replace the Premises and the Building to the same condition as they were in as
of the Commencement Date. Provided such damage or destruction was not caused or
contributed to by an intentional act or negligence of Tenant, its agents,
employees, invitees or those for whom Tenant is responsible, from and after the
date of such damage to date of completion of said repairs, replacements and
restorations, a just proportion of the rent shall abate according to the extent
Tenant is deprived of the full use and enjoyment of the Premises for its normal
business operations by reason of such damage. Landlord shall be under no duty to
restore any alterations, improvements or additions made by Tenant. In all cases,
due allowance shall be given to Landlord for any reasonable delays caused by
adjustment of insurance loss, strikes, labor difficulties or any cause beyond
Landlord's control. However, if for any reason the damage is not repaired within
270 days from the date such damage occurred, Tenant shall have the right to
cancel this Lease by giving Landlord written notice of its intention to do so,
which notice shall be effective thirty (30) days after the date Landlord
receives such notice unless such damage has been restored by such date.
20. Eminent Domain.
(a) Taking. If all the Premises or a substantial part thereof shall be
taken for any public or quasi-public use under any statute or by rights of
eminent domain or by private purchase in lieu thereof, this Lease shall
terminate as of the date of vesting of title. Landlord shall be entitled to
receive the entire award paid for such taking or condemnation, Tenant hereby
assigning to Landlord all Tenant's right, title and interest therein, if any.
Nothing contained herein shall be deemed to give Landlord any interest in or to
require Tenant to assign to Landlord any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant, for the interruption of or
damage to Tenant's business or for Tenant's moving expenses but only if such
award shall be in addition to the award for the Property and the Building (or
portion thereof) containing the Premises.
(b) Termination. If fifty percent (50%) or more of the Building other
than the Premises shall be condemned, taken or purchased in lieu thereof, then
Landlord may terminate this Lease by notifying Tenant of such termination within
sixty (60) days after the date of vesting of title. This Lease shall expire on
the date specified in such notice of termination, which date shall be not less
than sixty (60) days after the giving of such notice. The rent hereunder shall
be apportioned as of such termination date.
(c) No Reduction in Rent. Any such taking, condemnation or temporary
requisition which does not result in a termination of this Lease, as
hereinbefore provided in this Paragraph 20, shall not be cause for any reduction
or diminution of the rental payment hereunder.
-19-
<PAGE>
21. Default.
(a) Defaults. If (i) Tenant fails to pay within five (5) days of the
date when due any rent, or any other sums required to be paid hereunder by
Tenant and such failure continues for more than five (5) days after written
notice of such failure from Landlord (except that Landlord shall not be required
to give such notice more than once for the same default during any 24 month
period during the term); or (ii) Tenant defaults in the performance or
observance of any other agreement or condition on its part to be performed or
observed, and Tenant shall fail to cure said default within twenty (20) days
after receipt of written notice thereof by Landlord; (except that if such
default is of such nature that it cannot be cured within 20 days, Tenant shall,
within such period, have commenced to cure such default and shall diligently
pursue such cure, then Tenant shall have an additional 40 days to cure); or
(iii) Tenant files a voluntary petition in bankruptcy or is adjudicated a
bankrupt or insolvent, or files any petition or answer seeking any arrangement,
composition, liquidation or dissolution under any present or future federal,
state or other statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors or seeks or consents to or acquiesces in the
appointment of any trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties, or of the Premises, or makes any general
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due; or (iv) a court enters an order,
judgment or decree approving a petition filed against Tenant seeking any
arrangement, composition, liquidation, dissolution or similar relief under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order, judgment or
decree shall remain unvacated or unstayed for an aggregate of sixty (60) days
(whether or not consecutive); or (v) Tenant fails to operate or closes its
business upon the Premises, for reasons other than fire or other casualty or
condemnation, for a period of fifteen (15) consecutive days; or (vii) Tenant
abandons or vacates the Premises; then in any such event and at any time
thereafter, Landlord may, without further notice to Tenant, and in addition to
and not in lieu of any other rights or remedies available to Landlord at law or
in equity, exercise any one or more of the following rights: (i)
Upon five (5) days notice to Tenant, declare to be immediately due and
payable, on account of rent and other charges herein reserved for the balance of
the Term (taken without regard to any early termination of the Term on account
of default), a sum equal to the Accelerated Rent 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 Rent
Component, terminate this Lease on at least five (5) days notice to Tenant and,
on the date specified in said 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.
(b) Accelerated Rent Component. For purposes hereof, the Accelerated
Rent Component shall mean the aggregate of:
(i) all Base Rental, Additional Rental and Other Charges due from
Tenant to Landlord and in arrears at the time of the election of Landlord to
recover the Accelerated Rent Component;
(ii) the Base Rental reserved for the then entire unexpired
balance of the Term (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 Rent Component, discounted to present value at the rate of three
percent (3%) per annum; and
(iii) Landlord's good faith estimate of the Additional Rental and
Other Charges herein agreed to be paid by Tenant up to the end of the Term which
shall not be capable of precise determination as aforesaid (and for such
purposes no estimate of any component of Additional Rental or Other Charges to
accrue pursuant to the provisions of this Lease shall be less than the amount
which would be due if each such component continued at the highest monthly rate
or amount in effect during the twelve (12) months immediately preceding the
default), discounted to present value at the rate of three percent (3%) per
annum.
-20-
<PAGE>
(c) 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 Rent Component and any portion of such sum shall remain unpaid,
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,
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) 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.
(d) Continuing Liability. Tenant shall, with respect to all periods of
time up to and including the expiration of the Term (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 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 Rent Component (but without prejudice to the right of Landlord to
demand and receive the Accelerated Rent 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 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 Rent Component paid by Tenant to Landlord (but without prejudice
to the right of Landlord to demand and receive the Accelerated Rent Component),
and any amount 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.
(e) No Duty to Relet. 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.
(f) Additional Rights. As a cumulative and alternative remedy of
Landlord in the event of termination of this Lease by Landlord following any
breach or default by Tenant, Landlord, at its option, shall be entitled to
recover damages for such breach in an amount equal to the Accelerated Rent
Component (determined from and after the date of Landlord's election under this
Section 21(f)) less the fair rental value of the Premises (determined with an
equivalent discount to present value) for the remainder of the Term (taken
without regard to the early termination), and such damages shall be payable by
Tenant upon demand.
(g) 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.
(h) Overdue Payments. If rent due from Tenant to Landlord shall be
overdue for more than fifteen (15) days after notice from Landlord, it shall
thereafter bear interest at the Default Rate, including without limitation from
and after judgment, execution sale, filing of a bankruptcy petition and the
like.
-21-
<PAGE>
(i) Waiver of Defects. 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) Right or Remedy. 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) Confession of Judgment. LANDLORD SHALL HAVE THE FOLLOWING RIGHTS
TO CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING THROUGH TENANT, FOR
POSSESSION OF THE PREMISES AND/OR FOR MONIES OWED TO LANDLORD:
(i) If rent or any charges hereby reserved as rent, or damages by
reason thereof, or any other sum due and payable in connection with this Lease,
including without limitation any late fees or interest accrued or accruing
thereon, and any reimbursement for attorney fees owed by Tenant (collectively,
the "Amounts Due"), shall remain unpaid on any day when the same is due beyond
any applicable grace period or cure (if any), whether prior to or after the
termination or expiration of this Lease, Tenant hereby empowers any
Prothonotary, Clerk of Court or attorney of any court of record to appear for
Tenant in any and all actions which may be brought for the Amounts Due, or any
portions thereof, or for amounts agreed to be paid by Tenant, and to confess
judgment against Tenant in any competent court for the recovery of rent or other
charges, payments, costs and expenses. In such suits or actions, Tenant empowers
such Prothonotary, Clerk of Court or attorney to confess judgment against Tenant
for all or any part of the rent specified in this Lease and then unpaid or any
other Amount Due, including without limitation, at Landlord's option, the
Accelerated Rent Component or the rent for the entire unexpired balance of the
Term, and for interest and costs, together with reasonable attorney's
commission, but in no event less than $5,000. Such authority shall not be
exhausted by one exercise thereof, but judgment may be confessed as aforesaid
from time to time as often as any rent or any other Amount Due shall fall due or
be in arrears, including without limitation for the same Amounts Due as
previously confessed if and to the extent that a previous confession of judgment
shall be stricken or otherwise invalidated without a final decision on the
merits of the claim. Such powers may be exercised as well after the expiration
of the Term, during any extension or renewal, and/or after the termination of
this Lease.
(ii) When this Lease shall be terminated by reason of a default
by Tenant beyond applicable grace or cure periods or any other reason
whatsoever, either during the Term or any renewal or extension thereof, and also
when the Term or any extension thereof shall have expired, it shall be lawful
for any attorney as attorney for Tenant to confess judgment in ejectment in any
competent court against Tenant and all persons claiming under Tenant for the
recovery by Landlord of possession of the Premises, for which this Lease shall
be Landlord's sufficient warrant. Upon such confession of judgment for
possession, if Landlord so desires, a writ of execution or of possession may
issue forthwith, without any prior writ or proceedings whatsoever. If for any
reason after such action shall have been commenced, the same shall be determined
and the possession of the Premises shall remain in or be restored to Tenant,
then Landlord shall have the right upon any subsequent or continuing default or
defaults, or after expiration of the Lease, or upon the termination of this
Lease as hereinbefore set forth, to confess judgment in ejectment against Tenant
as hereinbefore set forth to recover possession of the Premises.
(iii) In any action of ejectment and/or for rent in arrears or
other Amount Due, Landlord shall cause to be filed in such action an affidavit
made by Landlord or someone acting for Landlord setting forth the facts
necessary to authorize the entry of judgment, of which facts such affidavit
shall be conclusive evidence. If a true copy of this Lease shall be filed in
such action (and of the truth of the copy such affidavit shall be sufficient
evidence), it shall not be necessary to file the original Lease as a warrant of
attorney, any rule of court, custom or practice to the contrary notwithstanding.
(iv) INTENTIONALLY DELETED PRIOR TO EXECUTION
-22-
<PAGE>
(v) The right to enter judgment against Tenant and to enforce all
of the other provisions of this Lease herein provided for, at the option of any
assignee of this Lease, may be exercised by any assignee of Landlord's right,
title and interest in this Lease in Tenant's own name, notwithstanding the fact
that any or all assignments of said right, title and interest may not be
executed and/or witnessed in accordance with the Act of Assembly of May 28,
1715, 1 Sm. L. 94, and all supplements and amendments thereto that have been or
may hereafter be passed. Tenant hereby expressly waives the requirements of said
Act of Assembly and any and all laws regulating the manner and/or form in which
such assignments shall be executed and witnessed.
22. Waiver of Default or Remedy. No waiver of any covenant or condition or
of the breach of any covenant or condition of this Lease shall be taken to
constitute a waiver of any subsequent breach of such covenant or condition nor
to justify or authorize the nonobservance on any other occasion of the same or
of any other covenant or condition hereof, nor shall the acceptance of rent by
Landlord at any time when Tenant is in default under any covenant or condition
hereof be construed as a waiver of such default or of Landlord's right to
terminate this Lease on account of such default, nor shall any waiver or
indulgence granted by Landlord to Tenant be taken as an estoppel against
Landlord, it being expressly understood that if at any time Tenant shall be in
default in any of its covenants or conditions hereunder an acceptance by
Landlord of rental during the continuance of such default or the failure on the
part of Landlord promptly to avail itself of such rights or remedies as Landlord
may have, shall not be construed as a waiver of such default, but Landlord may
at any time thereafter, if such default continues, terminate this Lease or
assert any other rights or remedies available to it on account of such default
in the manner hereinbefore provided.
23. Intentionally deleted prior to execution.
24. Intentionally deleted prior to execution.
25. Force Majeure. If Landlord or Tenant shall be delayed, hindered in or
prevented from the performance of any act required hereunder (other than the
payment of rent and other charges payable by Tenant) by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
riots, insurrection, the act, failure to act or default of the other party, war
or any other reason beyond the reasonable control of the party who is seeking
additional time for the performance of such act, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a reasonable period, in no event to exceed
a period equivalent to the period of such delay. Except as otherwise provided in
this Lease, no such interruption of any service to be provided by Landlord shall
ever be deemed to be an eviction, actual or constructive, or disturbance of
Tenant's use and possession of the Premises, the Building or the Property.
26. Subordination of Lease.
(a) General. (a) Landlord reserves the right and privilege to subject
and subordinate this Lease to any and all mortgages, deeds of trust or land
leases now existing upon or that may be hereafter placed upon the Premises and
the Property and to all advances made or to be made thereon and all renewals,
modifications, consolidations, replacements or extensions thereof and if such
right is exercised, the lien of any such mortgages, deeds of trust or land
leases shall be superior to all rights hereby or hereunder vested in Tenant, to
the full extent of all sums secured thereby. In confirmation of such
subordination, Tenant shall, on request of Landlord or the holder of any such
mortgages, deed(s) of trust and land leases, execute and deliver to Landlord
within ten (10) days any instrument that Landlord or such holder may reasonably
request. Landlord shall use commercially reasonable efforts to obtain a
subordination, nondisturbance and attornment agreement from any lender with a
mortgage encumbering the Property.
(b) Rights of Purchaser. If the interest of Landlord under this Lease
shall be transferred by reason of foreclosure, deed in lieu of foreclosure, or
other proceedings for enforcement of any first mortgage or deed of trust on the
-23-
<PAGE>
Premises, Tenant shall be bound to the transferee (the "Purchaser") under the
terms, covenants and conditions of this Lease for the balance of the Term
remaining, and any extensions or renewals, with the same force and effect as if
the Purchaser were the landlord under this Lease, and at the option of
Purchaser, Tenant shall attorn to the Purchaser (including the mortgagee under
any such mortgage, if it be the Purchaser), as its landlord, the attornment to
be effective and self-operative without the execution of any further instruments
upon the Purchaser succeeding to the interest of Landlord under this Lease. The
respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the Term of this
Lease, and any extensions and renewals, shall be and are the same as those set
forth in this Lease.
(c) Rights of Mortgagee. In the event of any act or omission of
Landlord which would give Tenant the right, immediately or after lapse of a
period of time, to cancel or terminate this Lease, or to claim a partial or
total eviction, Tenant shall not exercise such right (i) until it has given
written notice of such act or omission to the holder of each such mortgage and
ground lease whose name and address shall previously have been furnished to
Tenant in writing, and (ii) until a reasonable period for such holder to remedy
such act or omission shall have elapsed following the giving of such notice
(which reasonable period shall in no event be less than the period to which
Landlord would be entitled, under this Lease or otherwise, after similar notice,
to effect such remedy).
27. Notices and Consents. All notices, demands, requests, consents and
approvals that may or are required to be given by either party to the other
shall be in writing and shall be deemed given when sent by United States
certified or registered mail, postage prepaid, or by overnight courier (a) if
for Tenant, addressed to Tenant at the Building, or at such other place as
Tenant may from time to time designate by notice to Landlord, or (b) if for
Landlord, addressed to Eleven Colonial Penn Plaza Associates, c/o STRS of Ohio,
275 E. Broad Street, Columbus, Ohio 43215-3771, Attention: Director Real Estate
Assets, with a copy to CB Commercial Real Estate Group, Inc., Eleven Penn
Center, Suite 2705, 1835 Market Street, Philadelphia, Pennsylvania 19103, or at
such other place as Landlord may from time to time designate by notice to
Tenant. All consents and approvals provided for herein must be in writing to be
valid. Notice shall be deemed to have been given if addressed and mailed as
above provided on the date three (3) business days after deposit in the United
States mail or one (1) day after deposit with an overnight courier.
28. Security Deposit.
(a) As security for the full and faithful performance of every
provision of this Lease to be performed by Tenant, Tenant has deposited with
Landlord an irrevocable letter of credit payable to the order of Landlord and/or
its successors and/or assigns in the original principal amount of Four Hundred
Seventy-Five Thousand Dollars ($475,000). The original principal amount of the
letter of credit shall be in effect for Lease Years 1 and 2, and shall decrease
on the first day of each of Lease Years 3, 4 and 5 by twenty-five percent (25%)
of the original principal amount. If no uncured default on the part of Tenant
has occurred before the end of the Lease Year 5, Landlord shall promptly after
Lease Year 5 ends return the letter of credit to Tenant. If Tenant defaults with
respect to any provision of this Lease, including, but not limited to, the
provisions relating to the payment of rent, Landlord may take all steps
necessary to receive payment under the Letter of Credit and thereafter use,
apply or retain all or any part of the proceeds thereof for the payment of any
rent or any other sum in default or for the payment of any other amount that
Landlord may spend or become obligated to spend by reason of Tenant's default,
or to compensate Landlord for any other loss, cost or damage that Landlord may
suffer by reason of Tenant's default. In the event of bankruptcy or other
debtor-creditor proceedings against Tenant, such security deposit shall be
deemed to be applied first to the payment of rent and other charges due Landlord
for all periods prior to filing of such proceedings.
(b) Landlord may deliver the Letter of Credit to the purchaser of
Landlord's interest in the Premises in the event that such interest be sold and
thereupon Landlord shall be discharged from any further liability with respect
to such Letter of Credit, and this provision shall also apply to any subsequent
transferees of Landlord.
29. Miscellaneous Taxes; Use and Occupancy Tax.
-24-
<PAGE>
(a) Other Taxes. Tenant shall pay, prior to delinquency, all taxes
assessed against or levied upon its occupancy of the Premises, or upon the
fixtures, furnishings, equipment and all other personal property of Tenant
located in the Premises, if nonpayment thereof shall give rise to a lien on the
Premises, and when possible Tenant shall cause said fixtures, furnishings,
equipment and other personal property to be assessed and billed separately from
the property of Landlord. In the event any or all of Tenant's fixtures,
furnishing, equipment and other personal property, or upon Tenant's occupancy of
the Premises, shall be assessed and taxed with the property of Landlord, Tenant
shall pay to Landlord its share of such taxes within thirty (30) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's fixtures, furnishings, equipment or
personal property.
(b) Use and Occupancy Tax. Without limiting the foregoing, Tenant will
pay promptly when due and in any event not later than twenty (20) days after
receipt of a bill (whether said bill be submitted by Landlord, the City of
Philadelphia or otherwise), all City of Philadelphia School District Use and
Occupancy Tax imposed upon the use and occupancy of the Premises. Provided that
Tenant has paid to Landlord all sums as required above, Landlord agrees to pay
any sums collected by it to the proper governmental authorities in a timely
fashion and will pay any penalties or interest occasioned by Landlord's delay in
remitting such sums.
30. Substitute Premises.INTENTIONALLY DELETED PRIOR TO EXECUTION
31. Brokerage Commission. Except for any broker, agent or other person
named below, Landlord and Tenant represent and warrant each to the other that
each has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction. Landlord hereby agrees to pay to CB Commercial Real Estate Group,
Inc. ("Agent") a leasing commission as set forth in that certain Property
Management Agreement between Landlord and Agent, from which Agent shall pay a
"co-op" leasing commission to Julien J. Studley, Inc. ("Co-op Broker") pursuant
to a separate agreement between Agent and Co-op Broker provided that the Co-op
Broker continues to represent Tenant on the date of the execution of this Lease.
Landlord and Tenant agree to indemnify and hold each other harmless from and
against any claims by any other broker, agent or other person (including,
without limitation, Co-op Broker) claiming a commission or other form of
compensation by virtue of having dealt with Landlord or Tenant with regard to
this leasing transaction. The provisions of this Paragraph 31 shall survive the
termination of this Lease.
32. Hazardous Devices and Contaminants.
(a) Prohibition. Except with the prior written consent of Landlord,
Tenant shall not install or operate any steam or internal combustion engine,
boiler, machinery, refrigerating or heating device or air-conditioning apparatus
in or about the Premises, or carry on any mechanical business therein. Except
for Contaminants (as hereinafter defined) used in the ordinary course of
business and in compliance with Requirements of Law (as hereinafter defined),
Tenant and its agents, employees, contractors and invitees shall not use, store,
release, generate or depose of or permit to be used, stored, released, generated
or disposed of any Contaminants on or in the Premises.
(b) Indemnification. Tenant shall indemnify and hold harmless
Landlord, its agents, servants, employees, officers and directors forever from
and against any and all liability, claims, demands and causes of action,
including, but not limited to, any and all liability, claims, demands and causes
of action by any governmental authority, property owner or any other third
person and any and all expenses, including attorneys' fees (including, but not
limited to, attorneys' fees to enforce Tenant's obligation of indemnification
under this Paragraph 32(b)), relating to any environmental liability resulting
from (i) any Release (as hereinafter defined) by Tenant of any Contaminant at
the Premises or emanating from the Premises to adjacent properties or the
surrounding environment during the Term of this Lease; (ii) during the Term of
this Lease, any generation, transport, storage, disposal, treatment or other
handling of any Contaminant by Tenant at the Premises, including, but not
limited to, any and all off-site transport, storage, disposal, treatment or
other handling of any Contaminant generated, produced, used and/or originating
in whole or in part from the Premises as a result of Tenant's use of
-25-
<PAGE>
or activities in the Premises; and (iii) any by Tenant activities at the
Premises during the Term of this Lease that fail to comply with any Requirements
of Law.
(c) Definitions.
(i) "Contaminant" shall mean any substance or waste containing
hazardous substances, pollutants, and contaminants as those terms are defined in
the federal Comprehensive Environmental Response Compensation and Liability Act,
42 U.S.C. Section 9601 et seq. and any substance similarly defined or identified
in any other federal, provincial or state laws, rules or regulations governing
the manufacture, import, use, handling, storage, processing, release or disposal
of substances or wastes deemed hazardous, toxic, dangerous or injurious to
public health or to the environment. This definition includes friable asbestos
and petroleum or petroleum-based products.
(ii) "Requirements of Law" shall mean any federal, state or local
law, rule, regulation, permit, agreement, order or other binding determination
of any governmental authority relating to the environment, health or safety.
(iii) "Release" shall have the same meaning as in the federal
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq.
(d) Landlord's Representation. To the best of Landlord's actual
knowledge without inquiry, the Property does not contain any Contaminants in
violation of any Requirements of Law.
33. Exculpation. This Lease is executed by certain general partners of
Landlord, not individually, but solely on behalf of, and as the authorized
nominee and agent for State Teachers Retirement System of Ohio ("STRBO"),
Landlord's general partner, and in consideration for entering into this Lease,
Tenant hereby waives any rights to bring a cause of action against the
individuals executing this Lease on behalf of Landlord (except for any cause of
action based upon lack of authority or fraud), and the obligations hereunder are
not binding upon, nor shall resort be had to the private property of any of, the
trustees, officers, directors, employees or agents of STRBO.
34. Signs. Except as otherwise provided in this Lease, Tenant shall not
display, inscribe, print, paint, maintain or affix on any place in or about the
Building any sign, notice, legend, direction, figure or advertisement, except on
the doors of the Premises, and then only such name(s) and matter, and in such
color, size, place and materials, as shall first have been approved by Landlord
in writing. Landlord reserves the right to install and maintain a sign or signs
on the exterior or interior of the Building. Notwithstanding anything to the
contrary contained in this Paragraph 34 or elsewhere in this Lease, Tenant shall
be allowed, without having to first obtain Landlord's consent, to place
nameplate signs on interior doors and work stations, and to place its logo on
interior walls and glass.
35. Locks. No additional locks or similar devices shall be attached to any
door or window without Landlord's prior written consent. Except for those keys
provided by Landlord, no keys for any door shall be made. If more than two keys
for one lock are desired, Landlord will provide the same upon payment by Tenant.
All keys must be returned to Landlord at the expiration or Termination of this
Lease. Tenant shall see that the doors and windows, if operable, of the Premises
are closed and securely locked before leaving the Building.
36. Employment. Tenant shall not contract for any work or service that
involves the employment of labor incompatible with the Building employees or
employees of contractors doing work or performing services by or on behalf of
Landlord.
37. Plumbing. Tenant must observe reasonably diligent care and caution that
all water faucets and water apparatus are shut off before Tenant or its
employees leave the Building to prevent waste or damage. Plumbing
-26-
<PAGE>
fixtures and appliances shall be used only for purposes for which constructed,
and no sweepings, rubbish, rags or other unsuitable material shall be thrown or
placed therein. Damage resulting to any such fixtures or appliances from misuse
by Tenant shall be paid by Tenant and Landlord shall not in any case be
responsible therefor.
38. Certain Rights Reserved to Landlord. Landlord reserves the following
rights:
(a) To name the Building and to change the name or street address of
the Building;
(b) To designate all sources furnishing sign painting and lettering,
ice, drinking water, towels, toilet supplies, shoe shining, vending machines,
mobile vending service, catering, and like services used on the Premises or in
the Building;
(c) On reasonable prior notice to Tenant, to exhibit the Premises to
prospective tenants during the last twelve (12) months of the Term, and to
exhibit the Premises to any prospective purchaser, mortgagee, or assignee of any
mortgage on the Property and to others having a legitimate interest at any time
during the Term; and
(d) To install vending machines of all kinds in the Property, other
than in the Premises, and to provide mobile vending service therefor, and to
receive all of the revenue derived therefrom; provided, however, that no vending
machines shall be installed by Landlord in the Premises nor shall any mobile
vending service be provided therefor, unless Tenant so requests.
39. Miscellaneous.
(a) No receipt of money by Landlord from Tenant after the termination
of this Lease or after the service of any notice or after the commencement of
any suit, or after final judgment for possession of the Premises shall
reinstate, continue or extend the Term of this Lease or affect any such notice,
demand or suit or imply consent for any action for which Landlord's consent is
required.
(b) The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of Landlord are concerned, shall be limited to mean and
include only the owner (or ground lessor, as the case may be) for the time being
of the Premises. If the Premises or the underlying lease, if any, be sold or
transferred, the seller thereof shall be automatically and entirely released of
all covenants and obligations under this Lease from and after the date of
conveyance or transfer, provided the purchaser on such sale has assumed and
agreed to carry out all covenants and obligations contained in this Lease to be
performed on the part of Landlord hereunder, and Landlord has delivered all
security to such purchaser, it being hereby agreed that the covenants and
obligations contained in this Lease shall be binding upon Landlord, its
successors and assigns, only during their respective successive period of
ownership. The liability of Landlord and its successors in interest, under or
with respect to this Lease, shall be strictly limited to and enforceable only
out of its or their interest in the Building and Land, and the rents and the
refinance sale, insurance and condemnation proceeds therefrom shall not be
enforceable out of any other assets. Provided Landlord has complied with the
second sentence of this paragraph (b), no mortgagee or ground lessor 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 one (1)
month's rent, or (iv) be liable for any security not actually received by it.
Subject to the foregoing, the provisions hereof shall be binding upon and inure
to the benefit of the successors and assigns of Landlord.
(c) It is understood that Landlord may occupy portions of the Building
in the conduct of Landlord's business. In such event, all references herein to
other tenants of the Building shall be deemed to include Landlord as occupant.
-27-
<PAGE>
(d) All of the covenants of Tenant hereunder shall be deemed and
construed to be "conditions" as well as "covenants" as though the words
specifically expressing or implying covenants and conditions were used in each
separate instance.
(e) This Lease shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns, provided that
this provision shall in no manner enlarge Tenant's rights of assignment, which
right of assignment has been restricted under the foregoing provisions of this
Lease.
40. Relationship of Parties. Any intention to create a joint venture,
partnership or principal and agent relationship between the parties hereto is
hereby expressly disclaimed. This Lease shall create the relationship of
landlord and tenant between Landlord and Tenant.
41. Gender and Number. Whenever words are used herein in any gender, they
shall be construed as though they were used in the gender appropriate to the
context and the circumstances, and whenever words are used herein in the
singular or plural form, they shall be construed as though they were used in the
form appropriate to the context and the circumstances.
42. Topic Headings. Headings and captions in this Lease are inserted for
convenience and reference only and in no way define, limit or describe the scope
or intent of this Lease nor constitute any part of this Lease and are not to be
considered in the construction of this Lease.
43. Counterparts. Several copies of this Lease may be executed by all of
the parties. All executed copies constitute one and the same Lease, binding upon
all parties.
44. Entire Agreement. This Lease contains the entire understanding between
the parties and supersedes any prior understanding or agreements between them
respecting the subject matter. No representations, arrangement, or
understandings except those fully expressed herein, are or shall be binding upon
the parties. No changes, alterations, modifications, additions or qualifications
to the terms of this Lease shall be made or be binding unless made in writing
and signed by each of the parties.
45. Recording. The parties agree that this Lease shall not be recorded.
46. Governing Law; Invalidity of any Provisions. This Lease shall be
subject to and governed by the laws of the Commonwealth of Pennsylvania. If any
term or provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the other terms of
this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.
47. Option to Lease. Tenant is granted the right and option to lease up to
6,000 rentable square feet of space on any of Floors 3-17 of the Building which
is or becomes vacant during the term of this Lease (the "Option Space") under
the following terms and conditions:
(a) If Tenant desires to lease any portion of the Option Space, Tenant
shall so notify Landlord. Tenant shall not be entitled to lease less than 1000
rentable square feet and the location and configuration of such space shall be
determined by Landlord. Landlord shall notify Tenant within fifteen (15) days
after its receipt of Tenant's notice ("Option Notice") whether Landlord has any
vacant space on Floors 3-17 which satisfies Tenant's request and shall identify
the vacant space (the "Offered Space"). Tenant shall have ten (10) business days
from the date that it receives Landlord's notice regarding vacant space to elect
to lease the Offered Space.
(b) At the time of Tenant's election to lease the Offered Space and on
the commencement of Tenant's occupancy of the Offered Space, this Lease must be
in full force and effect and Tenant shall not be in default
-28-
<PAGE>
hereunder beyond any applicable period of grace nor shall any condition exist
which, but for the giving of notice and/or the passage of time, could constitute
a default hereunder.
(c) The Base Rental for the Offered Space shall accrue at the same
then escalated rate, on a rentable square foot basis, as the Base Rental for the
original Premises, beginning on the Option Date, and shall be subject to the
abatement of Base Rental if the Option Date occurs before November 1, 1997.
(d) Effective as of the Option Date, the Tenant's Proportionate Share
of Operating Expenses and Tenant's Proportionate Share of Real Estate Taxes
shall be adjusted to include the area which comprises the Offered Space in
accordance with the definitions set forth in Section 3(b)(i) and (ii).
(e) Landlord shall provide Tenant with an allowance (which shall be
deemed an Allowance for purposes of Article 4 above) with respect to the Offered
Space (the "Option Allowance") for improvements to the Offered Space, including
the cost of demolition, space planning and construction documents equal to the
amount derived by multiplying $33.00 per square foot of Offered Space and the
amount determined by dividing the number of full months remaining in the
original Term of the Lease (including any extensions that have been previously
exercised by Tenant on the date that Tenant executes the lease amendment whereby
it elects to lease the Offered Space) by 132 (plus the number of months in any
extension term that has been exercised by Tenant on the date that Tenant
executes the lease amendment whereby it elects to lease the Offered Space).
Prior to the commencement of any construction to the Option Space, Landlord and
Tenant shall first reach a written agreement concerning such work and the manner
of payment therefor, and in no event shall Landlord be obligated to furnish or
pay for any such work or improvements in excess of the Option Allowance.
(f) The lease term with respect to the Offered Space shall commence
when the improvements to the Offered Space are substantially completed,
estimated to be within one hundred twenty (120) days of Landlord's receipt of
Tenant's notice exercising said option. Landlord shall furnish Tenant with at
least ten (10) days prior written notice of the commencement date with respect
to the Offered Space (the "Option Date").
(g) Except as set forth herein, all of the terms and provisions of
this Lease shall be applicable to the Offered Space (which shall be deemed part
of the "Premises" as of the Option Date) including without limitation the
expiration date of the Term and additional rent on account of Offered Expenses
and Real Estate Taxes. There shall be no tenant concessions applicable to the
Offered Space except as set forth in this Section 48.
(h) Within fifteen (15) days after submission to Tenant of a formal
lease modification agreement embodying the terms applicable to the Offered
Space, Tenant shall execute and deliver such agreement to Landlord.
(i) The rights afforded to Tenant in this Paragraph 47 do not
constitute a "right of first refusal" or a "right of first offer" on any of the
Option Space. Landlord shall not be required to offer any of the Option Space to
Tenant before leasing or offering to lease such space to other tenants or
prospective tenants.
48. Renewal.
(a) Conditions. Tenant is granted the right and option to extend the
term of this Lease with respect to the then leased premises for one (1)
additional period of five (5) years, such renewal term to commence upon the
expiration of the initial term of the Lease, provided that:
(i) Such option must be exercised, if at all, by written notice
to Landlord given at least nine (9) months prior to the expiration of the
initial term ("Extension Notice"); and
-29-
<PAGE>
(ii) At the time of the exercise of such option, the Lease shall
be in full force and effect and there shall exist no default by Tenant beyond
any applicable period of grace nor shall any condition exist which, but for the
giving of notice and/or the passage of time, could constitute a material default
hereunder.
(b) Renewal Terms. In the event the foregoing option is effectively
exercised, all the terms and conditions contained in the Lease shall continue to
apply during the renewal term except that:
(i) There shall be no tenant incentives or concessions (except
that Landlord shall, at its own expense, repaint and recarpet the then-leased
Premises in accordance with the Original Specifications therefor contained in
the Final Approved Plans and Specification), and no further right of renewal;
and
(ii) For and during the renewal term, the minimum annual rent
shall be adjusted to ninety-five percent (95%) of the "Fair Market Rental"
(defined in Paragraph 48(c) below) of the then leased premises.
(c) Fair Market Rental. As used herein, the term "Fair Market Rental"
shall mean the prevailing fair market rental rate on a square foot basis (taking
into account all concessions and inducements furnished over the lease term, but
without deduction for tenant improvements or architectural-related costs or
allowances) for tenancies of similar size and term, based upon previous rental
rates obtained for the Building and/or comparable buildings located on Market
Street between Broad Street and 30th Street; provided that if the manner of
charging operating costs or other items of escalation to tenants in the Building
(or for any comparable buildings utilized by Landlord) is different from that
set forth in this Lease, Landlord shall make a further adjustment to take such
difference into account.
(d) Notice. Within fifteen (15) days after Extension Notice is given,
Landlord shall determine the Fair Market Rental, as set forth above, and
Landlord shall send written notice to Tenant thereof and shall advise Tenant of
the adjustment to minimum annual rent resulting therefrom. Tenant shall then
have thirty (30) days thereafter to: (A) advise Landlord that it accepts
Landlord's determination of the new minimum annual rent; (B) advise Landlord
that it does not accept Landlord's determination, in which event, the minimum
annual rent shall be determined as provided below; or (C) elect to cancel its
exercise of the option to extend the term of this Lease. If Tenant fails to
notify Landlord within such thirty (30) day period of Tenant's acceptance or
non-acceptance of Landlord's determination or of Tenant's decision to cancel its
exercise of such option, Tenant shall be deemed to have elected to cancel its
exercise of the option.
(e) Rent.
(i) If Tenant notifies Landlord that it does not agree with
Landlord's determination of Fair Market Rental as provided above, and if
Landlord and Tenant cannot agree on the Fair Market Rental within fifteen (15)
days after such notice, then at the option of either Landlord or Tenant, the
Fair Market Rental shall be determined as follows:
(A) Within fifteen (15) days following the expiration of
such fifteen (15) day period, Landlord and Tenant shall: (I) each notify the
other in writing of their determination of Fair Market Rental, and (II) Landlord
shall provide Tenant with the names and qualifications of three (3) appraisers
who are acceptable to Landlord. Each appraiser shall be a member in good
standing of the appraisal institute holding an MAI designation and currently
certified or licensed as a state certified general appraiser in the Commonwealth
of Pennsylvania and have a minimum of five (5) years experience in Philadelphia,
Pennsylvania with respect to similar types of real estate. Tenant shall within
five (5) business days thereafter select one of the three appraisers and shall
notify Landlord in writing of its selection.
(B) The appraiser selected above shall determine whether the
Landlord's or the Tenant's determination of the Fair Market Rental is more
correct, and the applicable percentage of the estimate of the Fair
-30-
<PAGE>
Market Rental so determined to be the most correct by the appraiser shall be the
Base Rental for the renewal term. This determination shall be final, conclusive
and binding on Landlord and Tenant. The costs and expenses involved in such
determination shall be borne by the party against whom the decision is rendered.
(ii) It is the intention of the parties hereto that the Fair
Market Rental be determined prior to the commencement date of the renewal term;
however, in the event the parties are proceeding diligently to determine such
Fair Market Rental in accordance with the above provisions, but the Fair Market
Rental is not determined prior to the commencement date of the renewal term,
then Tenant shall continue to pay to Landlord the Base Rental applicable to the
Premises immediately prior to such renewal term until the Fair Market Rental is
determined and, when it is determined, the difference between the Base Rental
actually paid by Tenant to Landlord and the new Base Rental determined hereunder
shall be divided by six (6) and paid to Landlord in six (6) equal installments
concurrently with the next six (6) following monthly installments of Base Rent.
49. Parking. Provided that Tenant is not in default under its Lease, Tenant
shall have the uninterrupted right to lease six (6) non-reserved valet parking
spaces in the parking garage adjacent to the Building at the then applicable
monthly rate (currently $225.00 per month) and subject to the rules and
regulations applicable to the parking garage.
50. Right of First Offer. For purposes of this Lease, the "Right of First
Offer Space" shall mean the approximately 6,028 rentable square feet of space on
the Tenth Floor of the Building as depicted on Exhibit H-1 attached hereto and
the approximately 6,667 rentable square feet of space on the Tenth Floor of the
Building as depicted on Exhibit H-2 attached hereto. Provided Tenant is not in
default under the Lease, beyond any applicable notice/grace period and provided
that no condition exists which, but for the giving of notice and/or the passage
of time, could constitute a material default hereunder, and subject to the prior
rights of Greater Atlantic Health Services to both spaces constituting the Right
of First Offer Space, at the time the Right of First Offer Space becomes
available, or at any time through and including execution of a lease amendment
by the Landlord for the subject space, Tenant shall have a continuous right of
first offer to lease either or both portions of the Right of First Offer Space
so offered, such right commencing on the date of execution of this Agreement and
continuing so long as there are two (2) full years remaining in the Term (not
including any renewal term which has not been exercised). For purposes of this
Section, if less than two (2) years remain in the initial lease term, and if the
renewal option can be exercised by Tenant under Section 48 above so as to meet
the two (2) year requirement, Tenant may exercise its right of first offer
hereunder, if it contemporaneously exercises such option to renew. Tenant's
right of first offer shall be subject to the following terms and conditions:
(a) Landlord shall provide Tenant with written notice ("Availability
Notice") of the availability of all or part of the Right of First Offer Space
and the date when such space shall become vacant and within Landlord's
possession and control, or at such earlier time as Landlord is otherwise
desirous of providing Tenant with advance notice of the availability of such
space. The Availability Notice shall include Landlord's quotation of the base
rent for the applicable Right of First Offer Space, which shall be (i) for the
first two (2) years of the initial term of this Lease, the same then escalated
rate, on a rentable square foot basis, as the Base Rental for the original
Premises, including an improvement allowance determined in accordance with the
formula set forth in Paragraph 47(e) (with the Right of First Offer Space
constituting the "Offered Space" or the "Option Space" for purposes of such
formula); and (ii) thereafter that monthly base rental rate per rentable square
foot which Landlord is willing to quote to and accept from a third party for a
lease with respect to that part of the Right of First Offer Space in question,
to begin upon substantial completion of the tenant improvements for the Right of
First Offer Space (for a term coterminous with the lease term for the Premises),
subject to any additional rent or rent escalation provisions and factors which
Landlord is willing to quote to and accept from such third party, including but
not limited to, such provisions and factors based on increases in operating
costs, real estate taxes including, without limitation, tenant concessions then
prevailing in the market ("Landlord's Right of First Offer Space Rent"). The
Availability Notice shall also specify any other applicable terms and conditions
which Landlord would require as a part of its lease with a third party.
-31-
<PAGE>
(b) If Tenant desires to lease such Right of First Offer Space, Tenant
shall, within thirty (30) days after its receipt of the Availability Notice,
notify Landlord in writing that it elects to exercise its right of first offer
for the applicable Right of First Offer Space, which notification shall be
deemed an acceptance of the terms and conditions of the Availability Notice,
except that unless otherwise stated in the Availability Notice, (i) the
commencement date of the lease for each particular Right of First Offer Space
shall be fifteen (15) days after any improvements to the Right of First Offer
Space have been substantially completed but in no event more than forty-five
(45) days after such Right of First Offer Space is delivered to the Tenant broom
clean, free of tenants or other occupants, and otherwise in good condition, (ii)
the termination date shall be the same as state in this Lease for the Premises
including any renewal terms (exercised or to be exercised), and (iii) such lease
shall be upon the other terms and conditions stated in this Lease. If Tenant
does not so notify Landlord, Landlord shall be free to offer offer that portion
of the Right of First Offer Space described in the Availability Notice on the
market for the longer of (i) six (6) months or (ii) the time required to
negotiate and execute any lease where the initial contact between Landlord and
the prospective tenant occurred during such six (6) month period. Furthermore,
in the event that Landlord materially revises the terms described in the
Availability Notice, Landlord shall provide Tenant with written notice of such
revised terms, but only in the event such terms are more favorable to Tenant
than those described in the original Availability Notice, and either events, the
Tenant shall again have the right to lease such Right of First Offer Space on
the revised terms, pursuant to the provision of this Section 50.
(c) Landlord and Tenant shall confirm the exercise of its right of
first offer by its execution of a written amendment to this Lease (to be
prepared by Landlord) consistent with the terms of the Availability Notice,
within fifteen (15) days after receipt by Tenant of such amendment.
51. Storage Area. In addition to the Premises, Tenant shall have the right
and option, exercisable within thirty (30) days after the Commencement Date only
to lease, during the term hereof (any renewal or extension) approximately 1,000
useable square feet of storage located in the basement of the Building in areas
on the Eleventh Floor of the Building designated by Landlord (the "Storage
Area"). Tenant shall pay a Base Rental for the Storage Area in the amount of
$10.00 per useable square foot or __________________ Dollars per annum. Such
rent shall be in addition to the Base Rental payable under Section 3(a) hereof.
Landlord shall not provide any utility, janitorial or other services for the
Storage Area. Tenant acknowledges that Landlord shall not provide any security
(other than the initial installation of a padlock or other similar type of lock
on the door to the storage area), policing or monitoring of any type with
respect to the Storage Area, and Tenant assumes all risks of loss or damage to
any property stored therein from any cause whatsoever. The Storage Area shall be
used only for storage incidental to Tenant's use of the Premises. The Storage
Area shall not be included within the meaning of the word "Premises" except with
respect to the provisions of this Lease regarding alterations, assignment and
subletting, waivers and indemnifications, Landlord's remedies upon default,
insurance and Hazardous Contaminants.
52. Authority. Landlord represents and warrants to Tenant that Landlord
has full right, power and authority to enter into this Lease, and the person
signing this Lease on behalf of the Landlord has the authority to do so.
53. Rules and Regulations. Notwithstanding anything to the contrary
contained in this Lease or the Rules and Regulations attached to this Lease as
Exhibit "F"
(a) Paragraph 2 of the Rules and Regulations shall apply only after
the Commencement Date.
(b) In the event of a conflict between the provisions of the Lease and
the Rules and Regulations, the provisions of this Lease shall control.
54. Legal Fees. In the event any party commences any action against any
party by reason of any claimed breach of any provision of this Agreement, the
party prevailing in such action shall be entitled to recover from the other
party or parties reasonable attorney's fees and costs.
-32-
<PAGE>
55. Building Representations. Landlord represents and warrants that the
Building is one hundred (100%) percent sprinklered, all fire towers are
pressurized and manned security is provided in the lobby seven (7) days a week,
24 hours a day; provided, however, that Landlord shall not be obligated to
retain the manned security if the trend among owners of other comparable first
class buildings in Philadelphia is to terminate manned security.
56. Subordination of Landlord's Lien. Upon request from Tenant's lender,
Landlord shall subordinate Landlord's rights to distrain upon or secure a lien
against Tenant's personal property in or upon the Premises by a written
agreement acceptable to Landlord in form and substance. However, if Landlord
does so subordinate its rights to Tenant's lender, Landlord shall not be
required (among other things) to permit the Premises to be used for storage on
behalf of such lender of Tenant or to give notice of defaults to such lender.
Furthermore, such lender shall be required to restore any damage caused to the
Premises by removal of any collateral therefrom.
-33-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Witness: LANDLORD:
ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a limited partnership
____________________________________
____________________________________ By: THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO, its general partner
By: _______________________________
TENANT:
NATIONAL MEDIA CORPORATION
____________________________________
____________________________________ By:____________________________________
-34-
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this ___ day __________, 19__, before me, the
subscriber, a Notary Public and for said County and State, personally appeared
the above-named _______________ organized under the laws of the State of
__________ by ________________, its __________, known to me and known to me to
be the person who signed the foregoing instrument as such ______________, who
acknowledged to me that ____ signed said instrument as such __________, duly
authorized by the ________________________ of said ___________________ so to do,
and that the signing of the same was ___ free act and deed, as such officer, for
and on behalf of said _________________, for the uses and purposes therein set
forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at _______________, _______________, on the day and
year last above written.
__________________________________
Notary Public
-35-
<PAGE>
STATE OF ___________ )
) SS:
COUNTY OF __________ )
BE IT REMEMBERED, that on this ___ day __________, 19__, before me, the
subscriber, a Notary Public and for said County and State, personally appeared
the above-named _______________ organized under the laws of the State of
__________ by ________________, its __________, known to me and known to me to
be the person who signed the foregoing instrument as such ______________, who
acknowledged to me that ____ signed said instrument as such __________, duly
authorized by the ________________________ of said ___________________ so to do,
and that the signing of the same was ___ free act and deed, as such officer, for
and on behalf of said _________________, for the uses and purposes therein set
forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at _______________, _______________, on the day and
year last above written.
__________________________________
Notary Public
-36-
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT ("Lease"), dated ______________,
1996, between ELEVEN COLONIAL PENN PLAZA ASSOCIATES ("Landlord"), and NATIONAL
MEDIA CORPORATION, a Delaware corporation ("Tenant").
BACKGROUND
A. Pursuant to Paragraph 28 of the Lease Agreement of event date herewith
between Landlord and Tenant (the "Lease"), Tenant is obligated to obtain and
deliver to Landlord a letter of credit with an original principal amount of
$475,000.00 which declines over a five (5) year basis.
B. The parties desire to amend the lease to provide for replacement letters of
credit.
NOW THEREFORE, for and in consideration of the mutual undertakings
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Landlord acknowledges that Tenant has offered a $475,000.00 letter of
credit which remains effective until September 30, 1997. On or before September
25, 1997, Tenant shall deliver to Landlord a replacement letter of credit in the
amount of $475,000.00. On or before September 25 of each of the next three
years, Tenant shall deliver replacement letters of credit in the amounts
determined by Paragraph 28 of the Lease. In the event that Tenant fails to
deliver a replacement letter of credit to Landlord as set forth herein, Landlord
shall have the right to immediately draw upon the currently effective letter of
credit and shall hold the proceeds thereof until the replacement letter of
credit is delivered to Landlord at which time such funds shall be returned to
Tenant.
2. Except as amended hereby, the Lease remains unmodified and in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Witness: LANDLORD:
ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a limited partnership
________________________________ By: THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO, its general partner
________________________________
By: ____________________________________
TENANT:
NATIONAL MEDIA CORPORATION
________________________________
________________________________ By:_____________________________________
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Six Months Ended
September 30 September 30
----------------------- ---------------------
Primary 1996 1995 1996 1995
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding 22,580 14,489 20,630 14,357
Conversion of preferred stock 1,364 2,558 1,263 2,558
Net effect of common stock equivalents (2)(3) 4,478 5,382 4,994 5,357
------- ------- ------- -------
Total 28,422 22,429 26,887 22,272
======= ======= ======= =======
Net income $ 4,994 $ 3,145 $ 9,544 $ 5,747
Adjustments to net income:
Reduction of interest expense (net of tax)
related to retired debt 35 196 - 397
Increase in interest income (net of tax) from
investment of excess proceeds in short-term paper - 35 - 93
------- ------- ------- -------
Adjusted net income $ 5,029 $ 3,376 $ 9,544 $ 6,237
======= ======= ======= =======
Per share earnings:
Net income $ .18 $ .15 $ .36 $ .28
======= ======= ======= =======
Fully Diluted
Average shares outstanding 22,580 14,489 20,630 14,357
Conversion of preferred stock 1,364 2,558 1,263 2,558
Net effect of common stock equivalents (2)(4) 4,478 5,382 4,994 5,382
------- ------- ------- -------
Total 28,422 22,429 26,887 22,297
======= ======= ======= =======
Net income $ 4,994 $ 3,145 $ 9,544 $ 5,747
Adjustments to net income:
Reduction of interest expense (net of tax)
related to retired debt 35 86 - 172
Increase in interest income (net of tax) from
investment of excess proceeds in short-term paper - - - -
------- ------- ------- -------
Adjusted net income $ 5,029 $ 3,231 $ 9,544 $ 5,919
======= ======= ======= =======
Per share earnings:
Net income (1) $ .18 $ .14 $ .36 $ .27
======= ======= ======= =======
</TABLE>
(1) This calculation is submitted in accordance with the requirements of
Regulation S-K although not required by APB opinion No. 15 because it
results in dilution of less than 3%.
(2) Common stock equivalents include the effect of the exercise of stock
options and warrants.
(3) Based on common stock equivalents using the if converted method and
average market price.
(4) Based on common stock equivalents using the if converted method and the
period-end market price, if higher than the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 29,566
<SECURITIES> 0
<RECEIVABLES> 44,507
<ALLOWANCES> (4,021)
<INVENTORY> 32,632
<CURRENT-ASSETS> 131,407
<PP&E> 18,344
<DEPRECIATION> (7,395)
<TOTAL-ASSETS> 204,188
<CURRENT-LIABILITIES> 51,706
<BONDS> 0
0
1
<COMMON> 241
<OTHER-SE> 145,658
<TOTAL-LIABILITY-AND-EQUITY> 204,188
<SALES> 208,956
<TOTAL-REVENUES> 208,956
<CGS> 170,434
<TOTAL-COSTS> 193,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 713
<INCOME-PRETAX> 14,684
<INCOME-TAX> 5,140
<INCOME-CONTINUING> 9,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,544
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
