-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IUSY/m1pfVrzRtkFLAykyq7tW0hXjj7witw7v22qrc5sUAEO85Zqv+SfXsBjaRRx /Xp/jWOA8AtTG6Wmrujw3w== 0000950123-96-001423.txt : 19960401 0000950123-96-001423.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950123-96-001423 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: AMEX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER GROUP INC CENTRAL INDEX KEY: 0000075754 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132760086 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07367 FILM NUMBER: 96540964 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132000 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER INC DATE OF NAME CHANGE: 19840523 10-K 1 FORM 10-K PAINEWEBBER GROUP, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 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 1-7367 PAINE WEBBER GROUP INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2760086 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ---------------- Common Stock, $1 Par Value New York Stock Exchange, Inc. Pacific Stock Exchange, Inc. U.S. Dollar Increase Warrants on the Japanese Yen, expiring March 6, 1996 American Stock Exchange, Inc. U.S. Dollar Increase Warrants on the Japanese Yen, expiring April 30, 1996 New York Stock Exchange, Inc. U.S. Dollar Increase Warrants on the Japanese Yen, expiring July 31, 1996 American Stock Exchange, Inc. Stock Index Return Securities on the S&P MidCap 400 Index due June 2, 2000 American Stock Exchange, Inc.
------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./ / ------------------- The aggregate market value of voting stock held by non-affiliates of the Registrant was $1,375,952,624 as of March 19, 1996. (See Item 12.) On March 15, 1996, the Registrant had outstanding 94,642,015 shares of common stock of $1 par value, which is Registrant's only class of common stock. DOCUMENTS INCORPORATED BY REFERENCE: Parts I, II and IV incorporate information by reference from the Registrant's 1995 Annual Report to Stockholders. Part I and Part III incorporate information by reference from the Registrant's definitive proxy statement for the annual meeting to be held on April 30, 1996. ================================================================================ 2 PART I ITEM 1. BUSINESS Paine Webber Group Inc. ("PWG") is a holding Company which, together with its operating subsidiaries (collectively, the "Company"), forms one of the largest full-service securities and commodities firms in the industry. Founded in 1879, the Company employs approximately 15,900 people in 310 offices wordwide. In addition to the detailed information set forth below, incorporated herein by reference is the general business description information on the Company, under the caption "Management's Discussion and Analysis" on page 28 in the 1995 Annual Report to Stockholders. The Company's business activities are highly integrated and constitute a single industry segment. Financial information for the years ended December 31, 1995, 1994 and 1993, including the amount of total revenue contributed by class of similar products or services contributing 10% or more of consolidated revenue and information on geographic data, is set forth in the Consolidated Financial Statements and the Notes thereto, and the "Five Year Financial Summary," in the 1995 Annual Report to Stockholders incorporated herein by reference. BROKERAGE TRANSACTIONS A portion of the Company's revenues are generated from commissions or fees earned as a broker for individual and institutional clients in the purchase and sale of securities (listed and over-the-counter securities), mutual funds, insurance products, options, commodities and financial futures. The Company also earns commissions or fees for services provided in the areas of employee benefits, managed accounts and personal trusts. Securities transactions - The Company holds memberships in all major securities exchanges in the United States in order to provide services to its brokerage clients in the purchase and sale of listed securities. A major portion of the Company's revenues is derived from commissions from individual and institutional clients on brokerage transactions in listed securities and in over-the- counter ("OTC") markets. The largest portion of the Company's commission revenue (58%) is derived from brokerage transactions in listed securities. The Company also acts as broker for investors in the purchase and sale of U.S. government and municipal securities. The Company has established commission rates for brokerage transactions which vary with the size and complexity of the transaction and with the activity level of the client's account. Mutual funds - The Company distributes shares of mutual funds for which it serves as investment advisor and sponsor as well as shares of funds sponsored by others. Income from the sale of mutual funds is derived from standard dealers' discounts, which are determined by the terms of the selling agreement and the size of the transaction. In addition, the Company distributes shares of proprietary mutual funds for which it serves as investment advisor and administrator. Income from these proprietary mutual funds is also derived from management and distribution fees. Mutual funds include both taxable and tax-exempt funds and front-load, reverse-load, and level-load funds. Insurance - Through subsidiaries, PaineWebber Incorporated ("PWI") acts as agent for several life insurance companies and sells deferred annuities and life insurance. Additionally, variable annuities are issued by PaineWebber Life Insurance Company which are sold by PWI as agent. Managed accounts - The Company acts in a consulting capacity to both individuals and institutions in the selection of professional money managers. Services provided in this consulting capacity may include client profiling, asset allocation, manager selection and performance measurement. Money managers recommended may be either affiliated with the Company or non affiliated managers. Compensation for services is in the form of commissions or established fees. Options - The Company's options related services include the purchase and sale of options on behalf of clients, and the delivery and receipt of the underlying securities upon exercise of the options. In addition, the Company utilizes its securities research capabilities in the formulation of options strategies and recommendations for its clients. 3 Commodities and financial futures - The Company provides transaction services for clients in the purchase and sale of futures contracts, including metals, currencies, interest rates, stock indexes, agricultural products, managed futures and commodity funds. Transactions in futures contracts are on margin and are subject to individual exchange regulations. The risk to the Company's clients in futures transactions, and the resulting credit risk to the Company, is greater than the risk in cash securities transactions, principally due to the low initial margin requirements relative to the nominal value of the actual futures contract. Additionally, commodities exchange regulations governing daily price movements can have the effect of precluding clients from taking actions to mitigate adverse market conditions. These factors may increase the Company's risk of loss on collections of amounts due from clients. However, net worth requirements and other credit standards for customer accounts are utilized to limit this exposure. Employee benefit plans - PW Trust Company, a wholly owned subsidiary of PWG, offers and administers 401(K) plans for corporations and acts as trustee, custodian or investment manager of retirement assets for approximately 1,350 corporate retirement plans. Personal trust services - The Company offers its clients a full range of domestic and international personal trust services, including self trustee and corporate trustee options. Investment choices are broad and flexible. The Company serves its international clients through a trust company located in Guernsey, Channel Islands, and may serve its domestic clients through third party trustees. DEALER TRANSACTIONS The Company regularly makes a market in OTC securities and as a block positioner, acts as market-maker in certain listed securities, U.S. government and agency securities, investment-grade and high-yield corporate debt, and a full range of mortgage-backed securities. Equity - The Company effects transactions in large blocks of securities, usually with institutional investors, generally involving 5,000 or more shares of listed stocks. Such transactions are handled on an agency basis to the extent possible, but the Company may take a long or short position as principal to the extent that no buyer or seller is immediately available. By engaging in block positioning, the Company places a portion of its capital at risk to facilitate transactions for clients. Where possible, the Company seeks to reduce such risks by hedging with option positions. Despite the risks involved in block positioning, the aggregate brokerage commissions generated by the Company's willingness to commit a portion of its capital in repositioning, including commissions on other orders from the same clients, justifies such activities. The Company makes markets, buying and selling as principal, in common stocks, convertible preferred stocks, warrants and other securities traded on the Automated Quotation System of the National Association of Securities Dealers or in other OTC markets. The unlisted equity securities in which the Company makes markets are principally those in which there is substantial continuing client interest and include securities which the Company has underwritten. Fixed Income - The Company provides clients access to a multitude of fixed income products including: U.S. government and agency securities; mortgage related securities including those issued through Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corp. ("FHLMC"); corporate investment-grade and high-yield bonds; and options and futures contracts on these products. The Company's capital can be at risk to the extent significant price fluctuations occur. This risk is lessened by hedging inventory positions. As a "primary dealer" in U.S. government securities, the Company actively participates in the distribution of United States treasury securities and reports its inventory positions and market transactions to the Federal Reserve Bank on a weekly basis. The Company takes positions in government and government agency securities to facilitate transactions for its clients on a principal basis. Profits or losses are recognized from fluctuations in the value of securities in which it maintains positions. Additionally, trading activities include the purchase of securities under agreements to resell at future dates (reverse repurchase agreements) and the sale of the same or similar securities under agreements to repurchase at future dates (repurchase agreements). Profits and losses on the repurchase transactions result from the interest rate differentials. 4 The Company actively participates in the mortgage-backed securities markets through the purchase or sale of GNMA, FNMA, FHLMC, mortgage pass-through securities, Collateralized Mortgage Obligations ("CMOs") and other mortgage related securities, in order to meet client needs on a principal basis. As a means of financing its trading, the Company enters into repurchase agreements. The Company also structures and underwrites CMOs. Additionally, the Company serves as principal and financier in the purchase, sale, securitization and resale of first mortgage notes and the related servicing rights. The Company is an active participant in the corporate bond markets. Through the fixed income debt syndicate desk and institutional sales force, the Company distributes and markets new issuances of corporate debt securities. The corporate bond trading desk supports this effort as a dealer in the secondary markets by effecting transactions on behalf of clients or for the Company's own account. Revenues generated from these activities include underwriting fees on syndicate transactions and trading gains or losses. The Company also underwrites, makes markets, and facilitates trades for clients in the high-yield securities markets. High-yield securities refer to companies whose debt is rated as non-investment grade. The Company continually monitors its risk positions associated with high-yield debt securities and establishes limits with respect to overall market exposure, industry group and individual issuer. Municipal securities - Through its municipal bond department, the Company is a dealer in both the primary and secondary markets, buying and selling securities for its own account and for clients. Revenues derived from these activities include underwriting and management fees, selling concessions and trading profits. Derivatives - The Company is engaged in activities, primarily on behalf of clients, in equity derivative products, including listed and OTC options, warrants, futures and underlying equity securities. The Company has also engaged in creating structured products, which are sold to retail and institutional clients, that are based on baskets of securities and currencies, primary foreign and domestic market indexes and other equity and debt-based products. The Company generally hedges positions taken in these structured products based on option and other valuation models. Through the institutional options and futures group, the Company engages in interest rate, stock index, commodity options and futures contract transactions in connection with the Company's principal trading activities. In addition, the Company's mortgage and foreign currency businesses enter into forward and option purchase and sale agreements. Derivative financial instruments are subject to varying degrees of market and credit risk. The Company has developed a control environment, encompassing both its derivative-based and other businesses, that involves the interaction of a number of risk management and control groups. See "Management's Discussion and Analysis - Risk Management" on page 36 in the 1995 Annual Report to Stockholders for a discussion of these groups and their functions. The extent to which derivative financial instruments pose credit risk is determined by the market in which they are exchanged, provisions of the agreements regarding termination, collateral and counterparty creditworthiness. Credit risks are minimized for instruments traded on exchanges. The various futures markets are highly regulated and impose strict margin and other financial requirements on the Company and its clients. Transactions in futures and certain option contracts are conducted through regulated exchanges which clear and guarantee performance of counterparties. However, in the event that members of clearinghouses default on material obligations to such clearinghouses, the Company may have financial exposure. The Company is also subject to credit risk on derivatives not traded on formal exchanges, principally forward agreements and OTC options. These risks are controlled by the use of standard documentation whenever possible providing for early termination and collateral calls, and by entering into master netting agreements when feasible. The Company's risk of credit loss is mitigated further by adherence to formal credit control procedures which include approved customer and counterparty credit limits, periodic monitoring of customer and counterparty creditworthiness, and continuous assessment of credit exposure by comparing market value to contract value. Potential credit exposure on equity derivatives is also measured by simulating increases or decreases in each contract's underlying index. The Credit Department independently evaluates call and termination situations and makes recommendations to management. See also "Notes to Consolidated Financial Statements - Note 11: Financial Instruments with Off-Balance-Sheet Risk and Note 12: Risk Management", beginning on page 49 and page 52, respectively, in the 1995 Annual Report to Stockholders. 5 As a principal trader, the Company is exposed to market risk in the event of unfavorable changes in interest rates, volatility, foreign currency exchange rates or the market values of the securities underlying the instruments. The Company monitors its exposure to market risk through a variety of control procedures including a review of trading positions and hedging strategies, and establishing limits by the Risk Management Committee. Market risk monitoring is based on estimating loss exposure through daily stress testing. These results are compared to daily limits, and exceptions are subject to review and approval by senior management. INVESTMENT BANKING The Company manages and underwrites public offerings of debt and equity securities, arranges private placements and provides financial advice in connection with mergers and acquisitions, restructurings and reorganizations for domestic and international companies. The Company manages public offerings of corporate debt and equity securities or participates as an underwriter in syndicates of public offerings managed by others. Management of an underwriting account is generally more profitable than participation as a syndicate member since the managing underwriters receive a management fee and have more control over the allocation of securities available for distribution. The Company is invited to participate in many syndicates of negotiated public offerings managed by others. The Company is an industry leader in the management of tax-exempt bond offerings. Through its Municipal Securities Group, the Company provides financial advice to, and raises capital for, issuers of municipal securities to finance the construction and maintenance of a broad range of public-related facilities, including healthcare, housing, education, public power, water and sewer, airports, highways and other public finance infrastructure needs. The group also provides a secondary market for these securities and develops and markets a few derivative products. Significant risks are involved in the underwriting of securities. Underwriting syndicates agree to purchase securities at a discount from the public offering price. If the securities are ultimately sold below the cost to the syndicate, an underwriter will experience losses on the securities which it has purchased. In addition, losses may be incurred on stabilization activities taken during such underwriting. The Company, through certain subsidiaries, may participate from time to time as an equity investor or provide financing committments or other extensions of credit associated with merchant banking and other principal investments. ASSET MANAGEMENT Asset management activities are conducted principally by Mitchell Hutchins Asset Management Inc. ("MHAM") and Mitchell Hutchins Institutional Investors Inc. ("MHII"). MHAM and MHII provide investment advisory and portfolio management services to individuals and pension, endowment and mutual funds. Mutual funds, for which MHAM serves as an investment advisor, include both taxable and tax-exempt funds and front-load, reverse-load, and level-load funds. At December 31, 1995, total assets under management were $43.7 billion. MARGIN LENDING Client securities transactions are executed on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. The Company receives income from interest charged on such extensions of credit. Amounts loaned are limited by margin requirements which are subject to the Company's credit review and daily monitoring procedures and are generally more restrictive than the margin regulations of the Federal Reserve Board and other regulatory authorities. The Company may lend to other brokers or use as collateral a portion of the margin securities to the extent permitted by applicable margin regulations. 6 The financing of margin purchases can be an important source of revenue to the Company since the interest rate paid by the client on funds loaned by the Company exceeds the Company's cost of short-term funds. The amount of the Company's gross interest revenues is affected not only by prevailing interest rates, but also by the volume of business conducted on a margin basis. To finance margin loans to clients, the Company utilizes both interest-bearing and non-interest-bearing funds generated from a variety of sources in the course of its operations, including bank loans, free credit balances in client accounts, sale of securities under agreements to repurchase, the lending of securities and sales of securities not yet purchased. No interest is paid on a substantial portion of clients' free credit balances. By permitting a client to purchase on margin, the Company takes the risk that market declines could reduce the value of the collateral below the principal amount loaned, plus accrued interest, before the collateral could be sold. SECURITIES LENDING In connection with both its trading and brokerage transactions, the Company borrows and lends securities to and from brokers and dealers and banks, principally to cover short sales and to complete transactions where the customer has not delivered securities by the settlement date. The borrower of securities is generally required to deposit cash or another form of qualifying collateral with the lender. The borrower receives only a portion of the interest earned on the cash deposit or pays a fee to the lender, pursuant to an agreement between the parties specifying the terms of the transaction. INTERNATIONAL Portions of the Company's core business activities are conducted through PaineWebber International Inc. and its subsidiaries, and PaineWebber Asia Ltd., (collectively, the "foreign subsidiaries") which also function as introducing broker-dealers to PWI for U.S. market products and are members of various international exchanges. The foreign subsidiaries are also active in the sales, trading and underwriting of U.S. dollar denominated and non-U.S. dollar denominated Eurobonds. RESEARCH Research provides investment advice to institutional and individual clients and guidance for investment strategies. More than 780 companies in 73 industry sectors are covered by the division's analysts. In addition to fundamental company and industry research, the Company offers research products and services in the following areas: asset allocation, economics, fixed income and high-yield issues, convertible and closed-end bond funds, country funds and derivatives. OTHER ACTIVITIES The Commercial Real Estate group provides a full range of capital markets services to its real estate clients, including underwriting of debt and equity securities, principal lending activity, debt restructuring, property sales and bulk sales services, and other advisory services. PaineWebber Specialists Inc. ("PWSI") maintains trading posts on the Pacific, Boston and Cincinnati stock exchanges and an affiliation on the Chicago stock exchange. Specialists are responsible for executing transactions and maintaining an orderly market in certain securities. In this function, the specialist firm acts as an agent in executing orders entrusted to it and/or acts as a dealer. PWSI acts as a specialist for approximately 550 equity issues. Correspondent Services Corporation ("CSC"), a registered broker-dealer, provides execution and clearing services of securities for more than 100 broker-dealers on a fully disclosed and omnibus basis. CSC also provides margin loans to the clients of its correspondent brokers. PaineWebber Life Insurance Company ("PW Life") issues variable annuities which are sold by PWI as agent. PW Life also assumes reinsurance of variable annuities issued by other insurance companies. 7 KIDDER, PEABODY ACQUISITION In October 1994, the Company entered into an agreement, as thereafter supplemented, with General Electric Company ("GE") and Kidder, Peabody Group Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and liabilities (the "net assets"), and specific businesses of Kidder, in a series of transactions which were consummated in December 1994 and early 1995. The net assets acquired approximated $1.9 billion. The consideration given in exchange for the net assets and businesses acquired included cash of approximately $1.4 billion and the issuance of the Company's common and preferred stock valued at $603.5 million at the date of issuance. For further discussion on the Kidder acquisition, see "Management's Discussion and Analysis" and "Notes to Consolidated Financial Statements - Note 2: Business Acquisition" on page 29 and page 44, respectively, in the 1995 Annual Report to Stockholders. REGULATION The securities and commodities industry is one of the nation's most extensively regulated industries. The Securities and Exchange Commission ("SEC") is responsible for carrying out the federal securities laws and serves as a supervisory body over all national securities exchanges and associations. The regulation of broker-dealers has to a large extent been delegated, by the federal securities laws, to self-regulatory organizations ("SROs"). These SROs include all the national securities and commodities exchanges, the National Association of Securities Dealers and the Municipal Securities Rulemaking Board. Subject to approval by the SEC and the Commodity Futures Trading Commission ("CFTC"), these SROs adopt rules that govern the industry and conduct periodic examinations of the operations of certain subsidiaries of the Company. The New York Stock Exchange ("NYSE") has been designated by the SEC as the primary regulator of certain of the Company's subsidiaries including PWI. In addition, certain of these subsidiaries are subject to regulation of the laws of the 50 states, the District of Columbia, Puerto Rico and certain foreign countries in which they are registered to conduct securities, banking, insurance or commodities business. Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, record-keeping, and the conduct of directors, officers and employees. Violation of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines, and the suspension or expulsion of a firm. As a registered broker-dealer and member firm of the NYSE, PWI is subject to the Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which also has been adopted through incorporation by reference in NYSE Rule 325. The Net Capital Rule, which specifies minimum net capital requirements for registered broker-dealers, is designed to measure the financial soundness and liquidity of broker-dealers. The Net Capital Rule, as defined, prohibits registered broker-dealers from making substantial distributions of capital by means of dividends or similar payments, or unsecured advances and loans to certain related persons, including stockholders, without giving at least two business days prior or post notification to the SEC. Pre- notification requirement applies to any proposed withdrawal of capital if the aggregate of such withdrawals, on a net basis, within any 30 calendar day period would exceed 30% of the broker-dealer's excess net capital, as defined. Post notification requirement applies if the aggregate of such withdrawals, on a net basis, would exceed 20% of the broker-dealer's excess net capital, as defined. The rule permits the SEC, by order to restrict, for up to 20 business days, withdrawing of equity capital or making unsecured advances or loans to related persons under certain limited circumstances. Finally, broker-dealers are prohibited from making any withdrawal of capital that would cause the broker-dealer's net capital to be less than 25% of the deductions from net worth required by the Net Capital Rule as to readily marketable securities. Under the Market Reform Act of 1990, the SEC adopted regulations requiring registered broker-dealers to maintain, preserve and report certain information concerning the organizational structure, risk management policies and financial condition of any affiliate of the Company whose activities are reasonably likely to have a material impact on the financial and operational condition of the broker-dealer. Securities broker-dealers are also required to file with the SEC, specified information on a quarterly and annual basis. 8 Under the Futures Trading Practices Act of 1992, the CFTC adopted regulations requiring futures commission merchants ("FCMs") to maintain, preserve and report certain information concerning the organizational structure, risk management policies and financial condition of any affiliate of the Company whose activities are reasonably likely to have a material impact on the financial and operational condition of the FCM. FCMs are also required to file with the CFTC, specified information on a quarterly and annual basis. COMPETITION All aspects of the business of the Company are highly competitive. The Company competes directly with numerous other brokers and dealers, investment banking firms, insurance companies, investment companies, banks, commercial banks and other financial institutions. In recent years, competitive pressures from discount brokerage firms and commercial banks, increased investor sophistication and an increase in the variety of investment products have resulted, primarily through mergers and acquisitions, in the emergence of a few well capitalized national firms. The Company believes that the principal factors affecting competition in the securities industry are available capital, and the quality and prices of services and products offered. ITEM 2. PROPERTIES The principal executive offices of the Company are located at 1285 Avenue of the Americas, New York, New York under leases expiring through August 31, 2001. The Company is currently leasing approximately 585,000 square feet at 1285 Avenue of the Americas comprising the offices of its investment banking, asset management, institutional sales and trading, and corporate headquarters staff, as well as two branch offices for retail investment executives. The Company leases approximately 950,000 square feet of space at Lincoln Harbor in Weehawken, New Jersey under leases expiring December 31, 2013. The Lincoln Harbor facility houses the Private Client Group headquarters, systems, operations, administrative services, and finance and training divisions. At December 31, 1995, the Company maintained 310 offices worldwide under leases expiring between 1996 and 2014. In addition, the Company leases various furniture and equipment. ITEM 3. LEGAL PROCEEDINGS The Company is involved in a number of proceedings concerning matters arising in connection with the conduct of its business. Certain actions, in which compensatory damages of $145 million or more appear to be sought, are described below. The Company is also involved in numerous proceedings in which compensatory damages of less than $145 million appear to be sought, or in which punitive or exemplary damages, together with the apparent compensatory damages alleged, appear to exceed $145 million. The Company has denied, or believes it has legitimate defenses and will deny, liability in all significant cases pending against it, including those described below, and intends to defend actively each such case. IN RE NASDAQ MARKET-MAKER ANTITRUST LITIGATION In July 1994, PaineWebber Incorporated ("PaineWebber"), together with numerous unrelated firms, were named as defendants in a series of purported class action complaints that have since been consolidated for pre-trial purposes in the United States District Court for the Southern District of New York under the caption In Re NASDAQ Market-Maker Antitrust and Securities Litigation, MDL Docket No. 1023. The refiled consolidated complaint in these actions alleges that the defendant firms engaged in activities as market makers on the NASDAQ over-the-counter market that violated the federal antitrust laws. The plaintiffs seek declaratory and injunctive relief, damages in an amount to be determined and subject to trebling and additional relief. On December 18, 1995, PaineWebber filed its answer to plaintiffs' refiled consolidated complaint. The parties are presently engaged in pre-trial discovery. 9 PaineWebber and two other broker-dealers were named as defendants in litigation brought in November 1994 and subsequently styled In Re Merrill Lynch et al. Securities Litigation, Civ. No. 94-5343 (DRD). The amended complaint, filed in March 1995, alleged that defendants violated federal securities laws in connection with the execution of orders to buy and sell NASDAQ securities. On December 13, 1995, the District Court granted defendants' motion for summary judgment. On January 19, 1996, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. The matter on appeal is Newton, et al., v. Merrill Lynch, et al., No. 96-5045. LIMITED PARTNERSHIP CLASS ACTIONS A series of purported class actions concerning PaineWebber Incorporated's sale and sponsorship of various limited partnership investments have been filed against PaineWebber and Paine Webber Group Inc. (together "PaineWebber") among others, by partnership investors since November 1994. Several such actions (the "Federal Court Limited Partnership Actions") were filed in the United States District Court for the Southern District of New York, one was filed in the United States District Court for the Southern District of Florida and one complaint (the "New York Limited Partnership Action") was filed in the Supreme Court of the State of New York. The time to answer or otherwise move with respect to these complaints has not yet expired. The complaints in all of these cases make substantially similar allegations that, in connection with the sale of interests in approximately 50 limited partnerships between 1980 and 1992, PaineWebber (1) failed to provide adequate disclosure of the risks involved with each partnership; (2) made false and misleading representations about the safety of the investments and the anticipated performance of the partnerships; and (3) marketed the partnerships to investors for whom such investments were not suitable. The plaintiffs, who are suing on behalf of all persons who invested in limited partnerships sold by PaineWebber between 1980 and 1992, also allege that, following the sale of the partnership units, PaineWebber misrepresented financial information about the partnerships' value and performance. The Federal Court Limited Partnership Actions also allege that PaineWebber violated the Racketeer Influenced and Corrupt Organization Act ("RICO"), and certain of them also claim that PaineWebber violated the federal securities laws. The plaintiffs seek unspecified damages, including reimbursement for all sums invested by them in the partnerships, as well as disgorgement of all fees and other income derived by PaineWebber from the limited partnerships. In the Federal Court Limited Partnership Actions, the plaintiffs also seek treble damages under RICO. In addition, PaineWebber and several of its present or former officers were sued in two other purported class actions (the "Geodyne Limited Partnership Actions") filed in the state court in Harris County, Texas. Those cases, Nedick v. Geodyne Resources, Inc. et al. and Wolff v. Geodyne Resources, Inc. et al., are similar to the other Limited Partnership Actions except that the plaintiffs purport to sue only on behalf of those investors who bought interests in the Geodyne Energy Partnerships, which were a series of oil and gas partnerships that PaineWebber sold over several years. The plaintiffs in Geodyne Limited Partnership Actions allege that PaineWebber committed fraud and misrepresentation, breached its fiduciary obligations to its investors and brokerage customers, and breached certain contractual obligations. The complaints seek unspecified damages, including reimbursement of all sums invested by them in the partnerships, as well as disgorgement of all fees and other income derived by PaineWebber from the Geodyne partnerships. PaineWebber has filed an answer denying the allegations in plaintiffs' complaint. On January 18, 1996, PaineWebber signed and filed with the federal court a memorandum of understanding with the plaintiffs in both the New York Limited Partnership Actions and the Geodyne Limited Partnership Actions outlining the terms under which the parties have agreed to settle both actions. Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited $125 million into an escrow fund under the supervision of the United States District Court for the Southern District of New York to be used to resolve the New York and Geodyne Limited Partnership Actions in accordance with a definitive settlement agreement and plan of allocation which the parties expect to submit to the court for its consideration and approval within the next several months. 10 In addition, three actions were filed against the Company in the District Court for Brazoria County, Texas, two captioned Mallia v. PaineWebber, Inc. ("Mallia I" and "Mallia II") and one captioned Billy Hamilton v. PaineWebber ("Hamilton"), relating to the Company's sale and sponsorship of various limited partnership investments. Mallia I was originally filed as a class action, but was later amended to assert claims only on behalf of the named plaintiffs. The complaints in Mallia I, Mallia II, and Hamilton, collectively, make allegations on behalf of approximately 65 named plaintiffs that are substantially similar to those in the New York Partnership Actions except that the plaintiffs purport to bring only state law claims, principally for common law fraud, negligent misrepresentation, breach of fiduciary duty, violations of the Texas Securities Act, and violations of the Texas Deceptive Trade Practices Act, on behalf of those investors who bought interests in Pegasus aircraft leasing partnerships and in unspecified other limited partnerships and investments. The plaintiffs seek unspecified damages. All three actions have been removed to federal court and the two Mallia actions have been transferred to the United States District Court for the Southern District of New York. The Hamilton action has been dismissed with the consent of the parties on the grounds that it is duplicative of the two Mallia actions now before the federal court in new York. In April 1995, two investors in the Pegasus limited partnership filed a purported class action in the Circuit Court of the State of Illinois for Cook County entitled Jacobson v. PaineWebber, Inc., making allegations substantially similar to those alleged in the New York Limited Partnership Actions, but limited in subject matter to the sale of the Pegasus partnerships, and without a RICO claim. The complaint seeks unspecified damages. The plaintiffs in the Jacobson case simultaneously remained as participants in the New York Limited Partnership Actions, and subsequently sought to intervene in that action and to be named class representatives for a separate subclass that they asked the court to establish consisting of investors in the Pegasus partnerships. The court in the New York Limited Partnership Actions has not yet ruled on their request. GENERAL DEVELOPMENT CORPORATION SECURITIES LITIGATION On or about June 10, 1991, PaineWebber Incorporated ("PaineWebber") was served with a "First Amended Complaint" in an action captioned Rolo v. City Investing Liquidating Trust, et al., Civ. Action 90-4420 D.N.J., filed on or about May 13, 1991 naming it and other entities and individuals as defendants. The First Amended Complaint alleges conspiracy and aiding and abetting violations of: (1) one or more provisions of the Racketeer Influenced and Corrupt Organiztion Act ("RICO"); (2) one or more provisions of the Interstate Land Sales Full Disclosure Act; and (3) the common law, on behalf of all persons (excluding defendants) who purchases lots and/or houses from General Development Corporation ("GDC") or one of its affiliates and who are members of an association known as the North Port Out-of-State Lot Owners Association. The secondary liability claims in the First Amended Complaint relating to PaineWebber are premised on allegations that PaineWebber served as (1) the co-lead underwriter in connection with the April 8, 1988 offering by GDC of 12-7/8% senior subordinated notes pursuant to a Registration Statement and Prospectus and (2) the underwriter for a 1989 offering of Adjustable Rate General Development Residential Mortgage Pass-Through Certificates, Series 1989-A, which plaintiffs contend enabled GDC to acquire additional financial resources for the perpetuation of (and/or aided and abetted) an alleged scheme to defraud purchasers of GDC lots and/or houses. The First Amended Complaint requests certain declaratory relief, equitable relief, compensatory damages of not less than $500 million, punitive damages of not less than three times compensatory damages, treble damages with respect to the RICO count, pre-judgment and post-judgment interest on all sums awarded, and attorney's fees, costs, disbursement and expert witness fees. On December 27, 1993, the District Court entered an order dismissing plaintiffs' First Amended Complaint against PaineWebber and the majority of the other defendants for failure to state a claim upon which relief can be granted. On November 8, 1994, the United States Court of Appeals for the Third Circuit affirmed the District Court's order dismissing this action against PaineWebber. On November 18, 1994, plaintiffs filed a Petition for Rehearing and Suggestion for Rehearing En Banc with the Third Circuit. 11 On April 4, 1995, the United States Court of Appeals for the Third Circuit entered an order vacating its order of November 8, 1994, and granted plaintiffs' application for rehearing and remanded the case to the District Court for reconsideration. Following the remand by the Third Circuit Court of Appeals, on August 24, 1995, the District Court entered an order dismissing the action as to all defendants. On February 20, 1996, plaintiffs filed a notice of appeal from the District Court's order dismissing the action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant Incorporated herein by reference is the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 30, 1996 ("Proxy Statement") to be filed with the SEC not later than 120 days after the end of the fiscal year. Set forth below, in addition to information contained in the Proxy Statement, is certain information concerning the executive officers of PWG who do not also serve as directors of PWG: Theodore A. Levine, 51, is General Counsel, Vice President and Secretary of PWG, and is an Executive Vice President of PWI, positions he has held since June 15, 1993. Prior to joining the Company, Mr. Levine was a partner at the Washington D.C.- based law firm of Wilmer, Cutler and Pickering from February 1984 to June 1993. He was with the Securities and Exchange Commission from 1969 to 1984 where he rose to the position of Associate Director in the Division of Enforcement. Regina Dolan, 41, is Vice President and Chief Financial Officer of PWG, a position she has held since February 3, 1994. Prior thereto, she was the principal financial and accounting officer of PWG from October 1992 to February 3, 1994. Ms. Dolan is also Executive Vice President and has been Chief Financial Officer of PWI since February 3, 1994. From October 1992 to February 3, 1994, she was Director of Finance and Controls of PWI. Prior to joining the Company, Ms. Dolan was with Ernst & Young LLP from September 1975 to September 1992, where she rose to the position of Partner and served as Director of the firm's Securities Industry Practice. Pierce R. Smith, 52, has been Treasurer of PWG since February 16, 1988, Executive Vice President and Treasurer of PWI since February 2, 1988 and was Controller of PWI from February 15, 1993 to September 11, 1995. He was Senior Vice President and Treasurer of Norwest Corporation from August 1982 to December 1987. Anthony M. DiIorio, 52, is Vice President and Controller of PWG, and is Executive Vice President and Controller of PWI, positions he has held since September 11, 1995. Prior to joining the Company, Mr. DiIorio was Senior Vice President and Chief Financial Officer for the Capital Markets and Investment Banking Group of NationsBank Corporation from August 1994 to September 1995. He was with Goldman, Sachs & Company from March 1989 to August 1994 where he served as Vice President and Controller. Executive Officers are elected annually to serve until their successors are elected and qualify or until they sooner die, retire, resign or are removed. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the captions "Market for Common Stock" and "Common Stock Dividend History" in the 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Financial Highlights" in the 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis" beginning on page 28 in the 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, schedules and supplementary financial information required by this item and included in this report or incorporated herein by reference are listed in the index appearing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the age and principal occupation of each director is set forth under the caption "Information Concerning the Nominees and Directors" in the Proxy Statement and is incorporated herein by reference. Information concerning executive officers of the Registrant, who do not serve as directors, is given at the end of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information concerning compensation of directors and executive officers of the Registrant is set forth under the captions "Compensation of Directors," "Executive Compensation," "Other Benefit Plans and Agreements" and "Certain Transactions and Arrangements" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security ownership of executive officers, directors and certain beneficial owners is set forth under the caption "Security Ownership" in the Proxy Statement and is incorporated herein by reference. Solely for the purpose of calculating the aggregate market value of the voting stock held by non-affiliates of the Registrant as set forth on the cover of this report, it has been assumed that directors and executive officers of the Registrant are affiliates. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information related to certain transactions with directors of the Registrant is set forth under the captions "Certain Agreements with Directors" and "Certain Transactions and Arrangements" in the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. FINANCIAL STATEMENTS, FINANCIAL SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (a) Documents filed as a part of this Report: (1) Financial Statements The financial statements required to be filed hereunder are listed on page F-1 hereof. (2) Financial Statement Schedules The financial statement schedules required to be filed hereunder are listed on page F-1 hereof. (3) Exhibits Certain of the following exhibits, as indicated parenthetically, were previously filed as exhibits to other reports or registration statements filed by the Registrant under the Securities Act of 1933 or to reports or registration statements by the Registrant under the Securities Exchange Act of 1934, respectively, and are incorporated herein by reference to such reports. 1 - Distribution Agreement dated November 30, 1993 between Registrant, PWI and The First Boston Corporation (incorporated by reference to Exhibit 1.2 of Registrant's Registration Statement No. 33-52695 filed with the SEC on October 16, 1995). 14 3.1 - Restated Certificate of Incorporation of Registrant, as filed with the Office of the Secretary of State of the State of Delaware on May 4, 1987 (incorporated by reference to Exhibit 3.1 of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 3.2 - Certificate of Designations for the 6% Cumulative Convertible Redeemable Preferred Stock, Series A, of the Registrant as filed with the Secretary of State of the State of Delaware on December 15, 1994 (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K dated December 27, 1994). 3.3 - Certificate of Designations for the 9% Cumulative Convertible Redeemable Preferred Stock, Series C, of the Registrant as filed with the Secretary of State of the State of Delaware on December 15, 1994 (incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K dated December 27, 1994). 3.4 - Certificate of Amendment to the Restated Certificate of Incorporation of Registrant as filed with the office of the Secretary of State of the State of Delaware on June 6, 1994 (incorporated by reference to Registrant's Current Report on Form 8-K dated June 15, 1994). 3.5 - Certificate of Amendment to the Restated Certificate of Incorporation of Registrant as filed with the Office of the Secretary of State of the State of Delaware on June 3, 1988 (incorporated by reference to Exhibit 3.1 of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 3.6 - Certificate of Powers, Designations, Preferences and Rights relating to Registrant's 7.5% Convertible Preferred Stock as filed with the Office of the Secretary of State of Delaware on January 16, 1992 (incorporated by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended December 31, 1991). 3.7 - Certificate of Powers, Designations, Preferences and Rights relating to Registrant's 7.5% Convertible Preferred Stock, Series B, as filed with the Office of the Secretary of State of Delaware on January 16, 1992 (incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 1991). 3.8 - Certificate of Designation, Preference and Rights relating to Registrant's Cumulative Participating Convertible Voting Preferred Stock, Series A as filed with the Office of the Secretary of State of the State of Delaware on November 5, 1992 (incorporated by reference to Exhibit 3 of Registrant's Form 10-Q for the quarter ended September 30, 1992). 3.9 - By-laws of the Registrant as amended March 1, 1988 (incorporated by reference to Exhibit 3.2 of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 3.10 - Certificate of Stock Designation (elimination) relating to Registrant's 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series A as filed with the office of the Secretary of State of the State of Delaware on November 5, 1992 (incorporated by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended December 31, 1992). 3.11 - Certificate of Powers, Designations, Preferences and Rights relating to the Company's 6% Convertible Preferred Stock as filed with the Office of the Secretary of State of the State of Delaware on February 10, 1994 (incorporated by reference to Registrant's Form 8-K dated February 10, 1994). 15 4.1* - Form of Debt Securities (8-7/8% Notes due 2005). 4.2* - Form of Debt Securities (8-1/4% Notes due 2002). 4.3* - Form of Debt Securities (6-3/4% Notes due 2006). 4.4* - Form of Debt Securities (6-1/4% Notes due 1998). 4.5 - Form of Debt Securities (6-1/2% Notes due 2005) (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1994). 4.6 - Form of Debt Securities (7-5/8% Notes due 2014) (incorporated by reference to Exhibit 4.2 of Registrant's Form 10-K for the year ended December 31, 1994). 4.7 - Form of Debt Securities (7-3/4% Notes due 2002) (incorporated by reference to Exhibit 4.3 of Registrant's Form 10-K for the year ended December 31, 1994). 4.8 - Stockholders Agreement dated December 16, 1994 among the Registrant, General Electric Company and Kidder, Peabody Group Inc. (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated December 27, 1994). 4.9 - Copy of form of certificate of common stock to reflect a new signatory (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1993). 4.10 - Supplemental Indenture dated as of November 30, 1993 between Registrant and Chemical Bank (Delaware), as Trustee, relating to the Subordinated Debt Securities (incorporated by reference to Exhibit 4.2 of Registrant's Form 10-K for the year ended December 31, 1993). 4.11 - Indenture dated as of March 15, 1988 between Registrant and Chemical Bank (Delaware), as Trustee, relating to Registrant's Medium-Term Subordinated Notes, Series B and Series D (incorporated by reference to Exhibit 4.2d of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.12 - Supplemental Indenture dated as of September 22, 1989, to the Indenture dated as of March 15, 1988, between Registrant and Chemical Bank (Delaware), as Trustee, relating to Subordinated Debt Securities (incorporated by reference to Exhibit 4.2e of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.13 - Supplemental Indenture dated as of March 22, 1991 between Registrant and Chemical Bank (Delaware), as Trustee, relating to Subordinated Debt Securities (incorporated by reference to Exhibit 4.2f of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October l6, 1995). 4.14 - Indenture dated as of March 15, 1988 between Registrant and Chemical Bank, as Trustee, relating to Registrant's Medium-Term Senior Notes, Series A and Series C (incorporated by reference to Exhibit 4.2a of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.15 - Supplemental Indenture dated as of September 22, 1989, to the Indenture dated as of March 15, 1988 between Registrant and Chemical Bank, as Trustee, relating to Senior Debt Securities (incorporated by reference to Exhibit 4.2b of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). _______________________ * Filed herewith. 16 4.16 - Supplemental Indenture dated as of March 22, 1991 between Registrant and Chemical Bank, as Trustee, relating to Senior Debt Securities (incorporated by reference to Exhibit 4.2c of Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.17 - Form of Debt Securities (9-1/4% Notes Due 2001) (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated December 17, 1991 filed with the SEC). 4.18 - Form of 8% Convertible Debentures Due 2000 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1991). 4.19 - Form of 6.5% Convertible Debentures Due 2002 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1992). 4.20 - Form of Debt Securities (7% Notes Due 2000) (incorporated by reference to Exhibit 4.2 of Registrant's Form 10- K for the year ended December 31, 1992). 4.21 - Form of Debt Securities (7-7/8% Notes Due 2003) (incorporated by reference to Exhibit 4.1f of Registrant's Form 8-K dated February 11, 1993). 4.22 - Form of Book-Entry Global Security relating to Stock Index Return Securities on the S&P MidCap 400 Index due June 2, 2000 (incorporated by reference to Exhibit 4.1g of Registrant's Form 8-K dated May 25, 1993). 4.23 - Warrant Agreement dated as of March 16, 1994 among Registrant, Citibank, N.A., as Warrant Agent and PaineWebber Incorporated as Determination Agent relating to the Registrant's U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996 (incorporated by reference to Registrant's Current Report on Form 8-K dated March 17, 1994). 4.24 - Warrant Agreement dated as of May 1, 1995 among Registrant, Citibank, N. A. as Warrent Agent and PaineWebber Incorporated as Spot Rate Reference Agent relating to Registrant's 1,050,000 U.S. Dollar Increase Warrants on the Japanese Yen expiring April 30, 1996 (incorporated by reference to Exhibit 4.1 of Registrants Form 8-K dated May 1, 1995). 4.25 - Warrant Agreement, dated as of August 5, 1994, among the Registrant, Citibank, N.A., as Warrant Agent, and PaineWebber Incorporated, as Spot Rate Reference Agent relating to the Registrant's U.S. Dollar Increase Warrants on the Japanese Yen Expiring July 31, 1996 (incorporated by reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K dated August 5, 1994). 4.26 - Proposed Form of Debt Securities (Medium-Term Senior Note, Series C, Fixed Rate) (incorporated by reference to Exhibit 4.1a to Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.27 - Proposed Form of Debt Securities (Medium-Term Subordinated Note, Series D, Fixed Rate) (incorporated by reference to Exhibit 4.1b to Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.28 - Proposed Form of Debt Securities (Medium-Term Subordinated Note, Series C, Floating Rate) (incorporated by reference to Exhibit 4.1c to Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 4.29 - Proposed Form of Debt Securities (Medium-Term Subordinated Note, Series D, Floating Rate) (incorporated by reference to Exhibit 4.1d to Registrant's Registration Statement No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995). 17 4.30 - Proposed Form of Debt Securities (Senior Note, Fixed Rate) (incorporated by reference to Exhibit 4.1c to Registrant's Registration Statement No. 33-58124 on Form S-3 filed with the SEC on February 10, 1993). The credit agreements listed below have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, nor does the long-term indebtedness that they represent exceed, in the aggregate, 10% of the total assets of Registrant and its subsidiaries on a consolidated basis. Consequently, these instruments have not been filed as an exhibit with this report, but copies will be furnished to the Securities and Exchange Commission upon request. Credit Agreement dated as of December 20, 1994 among Registrant, the Initial Lenders named therein, and The Bank of New York and Citibank, N.A., as Co-Administrative Agents, relating to the $1.2 billion credit facility. Credit Agreement dated as of December 20, 1994 among Registrant, the Initial Lenders named therein, and The Bank of New York and Citibank, N.A., as Co-Administrative Agents, relating to the $800 million credit facility. 10.1 - Limited Partnership Agreement of PW Partners 1993 Dedicated L.P. dated as of January 6, 1994 (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1994). 10.2 - Limited Partnership Agreement of PW Partners 1993 L.P. dated as of February 2, 1994 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1994). 10.3 - Registrant's 1994 Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1994). 10.4 - Registrant's 1994 Senior Officer Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1994). 10.5 - Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Donald B. Marron (incorporated by reference to Exhibit 10.5 of Registrant's Form 10-K for the year ended December 31, 1994). 10.6 - Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Joseph J. Grano (incorporated by reference to Exhibit 10.7 of Registrant's Form 10-K for the year ended December 31, 1994). 10.7 - Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Regina A. Dolan (incorporated by reference to Exhibit 10.8 of Registrant's Form 10-K for the year ended December 31, 1994). 10.8 - Lease dated December 7, 1994 between IBM Credit Corporation and PWI (IBM 9032-003, 9076-303 and 9672-E02) (incorporated by reference to Exhibit 10.9 of Registrant's Form 10-K for the year ended December 31, 1994). 10.9 - Lease dated November 23, 1994 between AT&T Capital Corporation and PWI (IBM 9021-962)(incorporated by reference to Exhibit 10.10 of Registrant's Form 10-K for the year ended December 31, 1994). 10.10 - Asset Purchase Agreement dated as of October 17, 1994 between Paine Webber Group Inc., General Electric Company and Kidder, Peabody Group Inc. relating to the purchase of certain assets and businesses of Kidder, Peabody Group Inc. and its subsidiaries (incorporated by reference to Registrant's Form 10-Q for the quarter ended September 30, 1994). 18 10.11 - Supplemental Agreement dated as of December 9, 1994 among the Registrant, General Electric Company and Kidder, Peabody Group Inc. (incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K dated December 27, 1994). 10.12 - Second Supplemental Agreement dated as of December 16, 1994 among the Registrant, General Electric Company and Kidder, Peabody Group Inc. (incorporated by reference to Exhibit 4.3 to Registrant's Current Report on Form 8- K dated December 27, 1994). 10.13 - Third Supplemental Agreement dated as of January 27, 1995 among the Registrant, General Electric Company and Kidder, Peabody Group Inc. (incorporated by reference to Exhibit 10.3 to Registrant's Form 8-K/A dated February 24, 1995 which amended Registrant's Form 8-K dated December 27, 1994). 10.14 - Fourth Supplemental Agreement dated as of February 10, 1995 among the Registrant, General Electric Company and Kidder, Peabody Group Inc. (incorporated by reference to Exhibit 10.3 to Registrant's Form 8-K/A dated February 24, 1995 which amended Registrant's Form 8-K dated December 27, 1994). 10.15 - Registrant's 1994 Stock Award Plan (incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement No. 33-55457 on Form S-8 filed with the SEC on September 13, 1994). 10.16 - Registrant's 1994 Executive Stock Award Plan (incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement No. 33-55451 on Form S-8 filed with the SEC on September 13, 1994). 10.17 - Registrant's 1994 Non-Employee Director Stock Plan (incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement No. 33-53489 on Form S-8 filed with the SEC on May 5, 1994). 10.18 - Limited Partnership Agreement of PW Partners 1992 Dedicated L.P. dated as of September 2, 1992 (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1993). 10.19 - Employment agreement dated as of May 4, 1993 between Registrant, PWI and Theodore A. Levine (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1993). 10.20* - Letter dated as of October 27, 1995 amending certain provisions of the Employment Agreement between Registrant, PWI and Theodore A. Levine. 10.21 - Restated and Amended Agreement of Lease, dated as of January 1, 1989, between The Equitable Life Assurance Society of the United States and Registrant relating to property located at 1285 Avenue of the Americas, New York, New York (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1993). 10.22 - Amended and Restated Investment Agreement dated as of November 5, 1992 by and between Registrant and The Yasuda Mutual Life Insurance Company ("Yasuda") relating to the repurchase by Registrant of 1,685,394 shares of Registrant's 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series A ("7% Preferred Shares") and the replacement of the remaining 3,370,786 7% Preferred Shares for 7,758,632 shares of Registrant's Cumulative Participating Convertible Voting Preferred Stock, Series A (incorporated by reference to Exhibit 10 of Registrant's Form 10-Q for the quarter ended September 30, 1992). 10.23* - Employment Agreement dated as of January 2, 1987 between Registrant, PaineWebber Incorporated and Donald B. Marron. _______________________ * Filed herewith. 19 10.24* - Employment Agreement dated as of January 2, 1987 between Registrant, PWI and John A. Bult. 10.25* - Registrant's Supplemental Employee's Retirement Plan For Certain Senior Officers, as amended, dated January 1, 1990. 10.26* - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Donald B. Marron relating to the Supplemental Employees Retirement Plan. 10.27* - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and John A. Bult relating to the Supplemental Employees Retirement Plan. 10.28 - Agreement and Declaration of Trust for Supplemental Employees Retirement Plan dated as of January 1, 1990 between Registrant and Chase Manhattan Bank, N.A. as Trustee (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1990). 10.29 - Registrant's 1983 Stock Option Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 2-81554 on Form S-8 filed with the SEC on January 28, 1983). 10.30 - Registrant's 1984 Stock Award Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). 10.31 - Registrant's Stock Award Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 33-22265 on Form S-8 filed with the SEC on June 1, 1988). 10.32 - Registrant's 1986 Stock Award Plan (incorporated by reference to Registrant's Registration Statement No. 33- 2959 on Form S-8 filed with the SEC on February 4, 1986). 10.33 - Registrant's 1990 Stock Award and Option Plan (incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991). 10.34 - Registrant's Savings Investment Plan (incorporated by reference to Exhibit 4.1 to Registrant's Post-Effective Amendment No. 1 on Form S-8, No. 33-20240, filed with the SEC on October 31, 1990). 10.35 - Master Agreement between PWI and Quotron Systems Inc. dated February 11, 1991 (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1990). 10.36 - Third-Party Master Lease Agreement between PWI and AT&T Systems Leasing Corporation dated as of October 21, 1991 (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1991). 10.37* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Operations Center) located in Weehawken, New Jersey. 10.38* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Data Processing Center) located in Weehawken, New Jersey. 10.39* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Tower B Limited Partnership, as successor in interest to Hartz-PW Hotel Limited Partnership relating to the Lincoln Harbor Project (Tower B/Office Building) located in Weehawken, New Jersey. _______________________ * Filed herewith. 20 10.40* - Agreement of Limited Partnership of Hartz-PW Limited Partnership dated April 14, 1986 relating to the Lincoln Harbor Project (Operation Center and Data Processing Center) located in Weehawken, New Jersey. 10.41* - Agreement of Limited Partnership of Hartz-Tower B Limited Partnership dated April 14, 1986, as amended relating to the Lincoln Harbor Project (Tower B/Office Building) located in Weehawken, New Jersey. 10.42* - Ground lease between Hartz Mountain Industries and Hartz-PW Limited Partnership dated April 14, 1986 relating to the Operations Center at the Lincoln Harbor Project in Weehawken. 10.43 - Directors and Officers Liability and Corporation Reimbursement insurance policy with Fiduciary Liability Rider with National Union Fire Insurance Company (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1990). 10.44 - Limited Partnership Agreement of PW Partners 1991 Dedicated L.P. dated as of October 7, 1991 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1992). 10.45 - Letter Agreement dated as of March 9, 1993 between Registrant and The Yasuda Mutual Life Insurance Company (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1992). 10.46 - Form of License Agreement between Standard and Poor's Corporation and Registrant (incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K dated June 1, 1993). 10.47* - Limited Partnership Agreement of PW Partners 1995 L.P. dated as of October 31, 1995. Executive Compensation Plans and Arrangements o* Employment Agreement dated as of January 2, 1987 between Registrant, PaineWebber Incorporated and Donald B. Marron. o* Employment Agreement dated as of January 2, 1987 between Registrant, PWI and John A. Bult. o Employment Agreement dated as of May 4, 1993 between Registrant, PWI and Theodore A. Levine (filed as Exhibit 10.2 to this Form 10-K for the year ended December 31, 1993). _______________________ * Filed herewith. 21 o * Letter dated as of October 27, 1995 amending the Employment Agreement between Registrant, PWI and Theodore A. Levine. o* Registrant's Supplemental Employee's Retirement Plan for Certain Senior Officers dated August 4, 1988. o* Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Donald B. Marron relating to the Supplemental Employees Retirement Plan. o* Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and John A. Bult relating to the Supplemental Employees Retirement Plan. o Agreement and Declaration of Trust for Supplemental Employees Retirement Plan dated as of January 1, 1990 between Registrant and Chase Manhattan Bank, N.A. as Trustee (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1990). o Registrant's 1983 Stock Option Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 2-81554 on Form S-8 filed with the SEC on January 28, 1983). o Registrant's 1984 Stock Award Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). o Registrant's Stock Award Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 33-22265 on Form S-8 filed with the SEC on June 1, 1988). o Registrant's 1986 Stock Award Plan (incorporated by reference to Registrant's Registration Statement No. 33-2959 on Form S-8 filed with the SEC on February 4, 1986). o Registrant's 1990 Stock Award and Option Plan (incorporated by reference to Exhibit 4.1 of Registrant's Registration Statement No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991). o Form of 8% Convertible Debentures Due 2000 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1991). o Form of 6.5% Convertible Debenture Due 2002 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1992). o Limited Partnership Agreement of PW Partners 1991 Dedicated L.P. dated as of October 7, 1991 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1992). o Limited Partnership Agreement of PW Partners 1992 Dedicated L.P. dated as of September 2, 1992 (filed as Exhibit 10.1 to Registrant's Form 10-K for the year ended December 31, 1993). o Limited Partnership Agreement of PW Partners 1993 Dedicated L.P. dated as of January 6, 1994 (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1994). o Limited Partnership Agreement of PW Partners 1993 L.P. dated as of February 2, 1994 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1994). o* Limited Partnership Agreement of PW Partners 1995 L.P. dated as of October 31, 1995. _______________________ * Filed herewith. 22 o Registrant's 1994 Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1994). o Registrant's 1994 Senior Officer Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1994). o Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Donald B. Marron (incorporated by reference to Exhibit 10.5 of Registrant's Form 10-K for the year ended December 31, 1994). o Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Joseph J. Grano (incorporated by reference to Exhibit 10.7 of Registrant's Form 10-K for the year ended December 31, 1994). o Registrant's 1994 Senior Officer Deferred Compensation Plan Grantor Trust Agreement on behalf of Regina A. Dolan (incorporated by reference to Exhibit 10.8 of Registrant's Form 10-K for the year ended December 31, 1994). 11* - Computation of Earnings per Common Share. 12.1* - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 12.2* - Computation of Ratio of Earnings to Fixed Charges. 13* - 1995 Annual Report to Stockholders of Registrant. 21* - Subsidiaries of the Registrant. 23* - Consent of Independent Auditors. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated January 24, 1996 with the SEC reporting under item 5 ("Other Events") providing a press release related to the resolution of the Limited Partnership issues. ____________________ * Filed herewith. 23 PAINE WEBBER GROUP INC. ITEMS 8, 14(a)(1) AND (2) AND 14(d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Financial Statements Incorporated herein by reference are the following financial statements included in the 1995 Annual Report to Stockholders. With the exception of the following financial statements and the information incorporated by reference on items 1, 5, 6 and 7, the 1995 Annual Report to Stockholders is not to be deemed filed as part of this report.
1995 Annual Report Description (Page) ----------- --------------- Report of independent auditors 59 Consolidated statements of financial condition at December 31, 1995 and 1994 39 For the years ended December 31, 1995, 1994 and 1993: Consolidated statements of income 38 Consolidated statements of changes in stockholders' equity 40-41 Consolidated statements of cash flows 42 Notes to consolidated financial statements 43-58 Quarterly financial information (unaudited) 62
Schedules - --------- Form 10-K Description (Page) ----------- ---------------- Report of independent auditors F-2 I - Condensed financial information F-3 - F-6
All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the respective consolidated financial statements or notes thereto. F-1 24 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS PAINE WEBBER GROUP INC. We have audited the consolidated financial statements of Paine Webber Group Inc. as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated January 31, 1996. Our audits also included the financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedules on page F-1. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP New York, New York January 31, 1996 F-2 25 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- REVENUES Interest $ 224,487 $ 192,008 $ 104,600 Other 628 1,677 1,231 --------- --------- --------- Total revenues 225,115 193,685 105,831 Interest expense 238,172 237,871 138,627 --------- --------- --------- Net revenues (13,057) (44,186) (32,796) --------- --------- --------- NON-INTEREST EXPENSES 6,644 10,350 17,004 --------- --------- --------- Loss before income taxes and equity in income of affiliates (19,701) (54,536) (49,800) Benefit for income taxes 16,511 22,852 20,143 --------- --------- --------- Loss before equity in income of affiliates (3,190) (31,684) (29,657) Equity in income of affiliates 83,940 63,315 275,840 --------- --------- --------- NET INCOME $ 80,750 $ 31,631 $ 246,183 ========= ========= =========
See Notes to Condensed Financial Information of Registrant. F-3 26 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31, December 31, 1995 1994 ----------- ----------- ASSETS Cash and cash equivalents $ 12 $ 196 Trading assets, at fair value 32,575 66,162 Loans to and receivables from affiliates 3,272,502 4,222,553 Investments in affiliates 1,550,289 1,460,296 Other assets 248,445 228,751 ----------- ----------- $ 5,103,823 $ 5,977,958 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 719,608 $ 1,606,649 Trading liabilities, at fair value 32,575 66,162 Payables to affiliates 27,812 24,401 Other liabilities and accrued expenses 140,710 127,955 ----------- ----------- 920,705 1,825,167 Long-term borrowings 2,444,070 2,336,323 ----------- ----------- 3,364,775 4,161,490 ----------- ----------- Commitments and contingencies Redeemable Preferred Stock 186,760 185,969 Stockholders' Equity: Convertible Preferred Stock 100,000 100,000 Common stock, $1 par value, 200,000,000 shares authorized; issued 104,492,091 shares and 100,613,737 shares in 1995 and 1994, respectively 104,492 100,614 Additional paid-in capital 831,763 784,974 Retained earnings 719,325 715,052 ----------- ----------- 1,755,580 1,700,640 Treasury stock, at cost; 7,417,845 shares and 1,297,081 shares in 1995 and 1994, respectively (151,616) (21,981) Unamortized cost of restricted stock (55,302) (51,803) Foreign currency translation adjustment 3,626 3,643 ----------- ----------- 1,552,288 1,630,499 ----------- ----------- $ 5,103,823 $ 5,977,958 =========== ===========
See Notes to Condensed Financial Information of Registrant. F-4 27 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 80,750 $ 31,631 $ 246,183 Adjustments to reconcile net income to cash provided by (used for) operating activities: Noncash items included in net income: Equity in income of affiliates (83,940) (63,315) (275,840) Depreciation and amortization 2,925 388 362 Deferred income taxes 16,371 (25,940) (20,255) Other 6,299 15,855 2,812 (Increase) decrease in assets: Trading assets 33,587 (6,138) 74,098 Loans to and receivables from affiliates 1,626,049 483,700 (1,740,163) Investment in affiliates (3,106) (58,300) (12,875) Other assets (36,729) (70,617) 50,595 Increase (decrease) in liabilities: Payables to affiliates 3,411 23,887 200 Trading liabilities (33,587) 6,238 (74,098) Other liabilities and accrued expenses 21,744 70,662 14,638 Proceeds from: Dividends received from subsidiaries -- 19,102 169,339 ----------- ----------- ----------- Cash provided by (used for) operating activities 1,633,774 427,153 (1,565,004) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for: Net assets acquired in business acquisition (624,090) (726,217) -- Acquisition-related expenditures (15,649) -- -- Office equipment and leasehold improvements (55) (144) (327) ----------- ----------- ----------- Cash used for investing activities (639,794) (726,361) (327) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments on) proceeds from short-term borrowings (887,041) (100,996) 994,802 Proceeds from: Long-term borrowings 472,452 637,379 1,035,507 Employee stock transactions 36,203 11,078 21,121 Payments for: Long-term borrowings (366,550) (168,505) (243,012) Repurchases of common stock (173,525) (43,133) (116,627) Preferred stock transactions -- -- (104,425) Dividends (75,703) (36,474) (30,973) ----------- ----------- ----------- Cash (used for) provided by financing activities (994,164) 299,349 1,556,393 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents (184) 141 (8,938) Cash and cash equivalents, beginning of year 196 55 8,993 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 12 $ 196 $ 55 =========== =========== ===========
See Notes to Condensed Financial Information of Registrant. F-5 28 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS) GENERAL The condensed financial information of Paine Webber Group Inc. (Parent Company Only) should be read in conjunction with the consolidated financial statements of Paine Webber Group Inc. and the notes thereto incorporated by reference in this report. STATEMENT OF CASH FLOWS Interest payments for the years ended December 31, 1995, 1994 and 1993 approximated $229,390, $232,526 and $122,073, respectively. Income tax payments (consolidated) totaled $28,248, $68,455 and $128,089 for the years ended December 31, 1995, 1994 and 1993, respectively. The Condensed Statement of Cash Flows does not reflect noncash investing and financing activities relating to the purchase of certain assets and liabilities and specific businesses of Kidder, Peabody Group Inc., as discussed in Part I of this report. COMMITMENTS AND CONTINGENCIES The Company has guaranteed certain of its subsidiaries' unsecured lines of credit and contractual obligations. F-6 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 26, 1996. PAINE WEBBER GROUP INC. (Registrant) BY: /s/ Donald B. Marron ------------------------------------ Donald B. Marron Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 26, 1996. /s/ Donald B. Marron ------------------------------------ Donald B. Marron Chairman of the Board, Chief Executive Officer and Director (principal executive officer) /s/ Regina Dolan ------------------------------------ Regina Dolan Vice President and Chief Financial Officer /s/ T. Stanton Armour ------------------------------------ T. Stanton Armour Director /s/ E. Garrett Bewkes, Jr. ------------------------------------ E. Garrett Bewkes, Jr. Director /s/ Reto Brown ------------------------------------ Reto Braun Director ------------------------------------ John A. Bult Director 30 SIGNATURES /s/ Frank P. Doyle ------------------------------------ Frank P. Doyle Director /s/ Joseph J. Grano, Jr. ------------------------------------ Joseph J. Grano, Jr. Director ------------------------------------ John E. Kilgore, Jr. Director /s/ James W. Kinnear ------------------------------------ James W. Kinnear Director /s/ Naoshi Kiyono ------------------------------------ Naoshi Kiyono Director /s/ Robert M. Loeffler ------------------------------------ Robert M. Loeffler Director /s/ Edward Randall, III ------------------------------------ Edward Randall, III Director /s/ Henry Rosovsky ------------------------------------ Henry Rosovsky Director /s/ Yoshinao Seki ------------------------------------ Yoshinao Seki Director 31 EXHIBIT INDEX ------------- 4.1* - Form of Debt Securities (8-7/8% Notes due 2005). 4.2* - Form of Debt Securities (8-1/4% Notes due 2002). 4.3* - Form of Debt Securities (6-3/4% Notes due 2006). 4.4* - Form of Debt Securities (6-1/4% Notes due 1998). 10.20* - Letter dated as of October 27, 1995 amending certain provisions of the Employment Agreement between Registrant, PWI and Theodore A. Levine. 10.23* - Employment Agreement dated as of January 2, 1987 between Registrant, PaineWebber Incorporated and Donald B. Marron. 10.24* - Employment Agreement dated as of January 2, 1987 between Registrant, PWI and John A. Bult. 10.25* - Registrant's Supplemental Employee's Retirement Plan For Certain Senior Officers, as amended, dated January 1, 1990. 10.26* - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Donald B. Marron relating to the Supplemental Employees Retirement Plan. 10.27* - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and John A. Bult relating to the Supplemental Employees Retirement Plan. 10.37* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Operations Center) located in Weehawken, New Jersey. 10.38* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Data Processing Center) located in Weehawken, New Jersey. 10.39* - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Tower B Limited Partnership, as successor in interest to Hartz-PW Hotel Limited Partnership relating to the Lincoln Harbor Project (Tower B/Office Building) located in Weehawken, New Jersey. 10.40* - Agreement of Limited Partnership of Hartz-PW Limited Partnership dated April 14, 1986 relating to the Lincoln Harbor Project (Operation Center and Data Processing Center) located in Weehawken, New Jersey. 10.41* Agreement of Limited Partnership of Hartz-Tower B Limited Partnership dated April 14, 1986, as amended relating to the Lincoln Harbor Project (Tower B/Office Building) located in Weehawken, New Jersey. 10.42* - Ground lease between Hartz Mountain Industries and Hartz-PW Limited Partnership dated April 14, 1986 relating to the Operations Center at the Lincoln Harbor Project in Weehawken. 10.47* - Limited Partnership Agreement of PW Partners 1995 L.P. dated as of October 31, 1995. 11* - Computation of Earnings per Common Share. 12.1* - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 12.2* - Computation of Ratio of Earnings to Fixed Charges. 13* - 1995 Annual Report to Stockholders of Registrant. 21* - Subsidiaries of the Registrant. 23* - Consent of Independent Auditors. 27* - Financial Data Schedule. - ---------------- *Filed herewith. EX-4.1 2 FORM OF DEBT SECURITIES 8 7/8% NOTES DUE 2005 1 Exhibit 4.1 REGISTERED REGISTERED NUMBER R 0252 Paine Webber Group Inc. 8-7/8% NOTE DUE 2005 CUSIP 695629 AR 6 SEE REVERSE FOR CERTAIN DEFINITIONS Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to pay to 8-7/8% 8-7/8% DUE DUE 2005 2005 , or registered assigns, the principal sum of Dollars on March 15, 2005. [REGISTERED] INTEREST PAYMENT DATES: March 15 and September 15 RECORD DATES: March 1 and September 1 Additional provisions of this Note and certain definitions are set forth on the reverse hereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This in one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee By Authorized Officer [PAINE WEBBER GROUP INC. CORPORATE S E A L 1 9 7 3 DELAWARE] Paine Webber Group Inc., Attest By /s/ Theodore A. Levine /s/ David Buchanan Secretary Chairman of the Board 2 PAINE WEBBER GROUP INC. 8 7/8% NOTE DUE 2005 1. INDENTURE This Note is one of a series of unsecured debentures, notes or other evidences of indebtedness (collectively, the "Securities") of Paine Webber Group Inc., a Delaware corporation (the "Company"), issued and to be issued under an Indenture dated as of March 15, 1988 between the Company and the Trustee, as amended by a supplemental Indenture dated as of September 22, 1989 and by a supplemental Indenture dated as of March 22, 1991 (as so amended, the "Indenture"). The Indenture permits the issuance of an unlimited number of series of Securities in an unlimited aggregate principal amount. This Note is one of a series designated the 8 7/8% Notes Due 2005 (the "Notes"), which series is limited in aggregate principal amount to $125,000,000. The Notes are subject to the terms stated in the Indenture, and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Act"), and holders of Notes are referred to the Indenture and the Act for a statement of those terms. 2. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on March 15 and September 15 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or if no interest has been paid from March 15, 1993. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 3. METHOD OF PAYMENT The Company will pay interest on the Notes (except defaulted interest) to the persons who are registered Holders of Notes at the close of business on March 1 or September 1 next preceding the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest by its check payable in such money. It may mail an interest check to a holder's registered address. 4. PAYING AGENT AND REGISTRAR Initially, Chemical Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice. 5. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 and any multiple of $1,000. A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 6. PERSONS DEEMED OWNERS The registered holder of this Note may be treated as the owner of it for all purposes. 7. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes remains unclaimed for two years after such principal or interest has become due and payable, it shall be repaid by the Trustee or Paying Agent to the Company at its request. Thereafter, holders entitled to the money must look only to the Company and not to the Trustee or Paying Agent for payment. 8. AMENDMENT; SUPPLEMENT; WAIVER The Company and the Trustee may, without the consent of any holders of Securities, agree to amend or supplement the Indenture or the Securities to, among other things, add to the covenants of the Company for the benefit of holders of all or any series of Securities, add to the Events of Default with respect to all or any series of the Securities and, provided that such action shall not adversely affect the interests of the holders of any series of Securities in any material respect, cure ambiguities, defects or inconsistencies in the Indenture or make other provisions. Subject to certain exceptions, the holders of not less than a majority in principal amount of the outstanding Securities of any series may waive any past default by the Company, with respect to such series, on behalf of all holders of Securities of such series. Subject to certain exceptions, the Company and the Trustee may agree to amend or supplement the Indenture or the Securities of any series in any manner with the consent of holders of not less than 66-2/3% in principal amount of the outstanding Securities of each series to be affected. 9. OBLIGATIONS OF THE COMPANY The Notes are direct, unsecured obligations of the Company. The Indenture does not limit the amount of the Company's other unsecured debt. 10. SUCCESSOR CORPORATION Any successor corporation resulting from a consolidation or merger involving the Company, or from a conveyance, transfer or lease of the assets of the Company substantially as an entirety, shall succeed to all rights and obligations of the Company under the Notes and the Indenture, and thereafter, except in the case of a lease, the predecessor corporation will be relieved of all such obligations. 11. DEFAULTS AND REMEDIES An Event of Default is default for 30 days in payment of any interest on the Notes; default in payment of any principal on the Notes, default in the performance or breach by the Company of any covenant or warranty under the Indenture for the benefit of the Notes and the continuance of the default or breach for a period of 60 days following receipt of notice of such default or breach; and certain events of bankruptcy or insolvency affecting the Company. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes may declare the principal amount of the Notes to be due and payable immediately. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity satisfactory to it. Subject to the above and other limitations, holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power with respect to the Notes. The Trustee may withhold from holders of Notes notice of a default by the Company (except a default in payment of principal or interest) if it is determined that withholding notice is in the interest of such holders. 12. TRUSTEE DEALINGS WITH THE COMPANY Chemical Bank, the Trustee under the Indenture, in its individual or other capacity may make loans to, accept deposits from and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 13. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder of a Note by accepting such Note waives all such claims and releases such directors, officers, employees and stockholders from all such liability. Such waiver and release are part of the consideration for the issue of the Notes. 14. COPIES OF INDENTURE The Company will furnish to any holder of Notes upon written request and without charge a copy of the Indenture. Requests may be made to: Secretary, Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York 10019. 15. GOVERNING LAW The Notes shall be governed by and construed in accordance with the laws of the State of New York. _____________________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian ___________ (Cust) (Minor) under Uniform Gifts to Minors Act ________________ (State) Additional abbreviations may also be used though not in the above list. _____________________________ FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee _______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: ________________________ _______________________________________________ EX-4.2 3 FORM OF DEBT SECURITIES 8 1/4% NOTES DUE 2002 1 Exhibit 4.2 REGISTERED REGISTERED NUMBER R 0254 Paine Webber Group Inc. 8-1/4% NOTE DUE 2002 CUSIP 695629 AS 4 SEE REVERSE FOR CERTAIN DEFINITIONS Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to pay to 8-1/4% 8-1/4% DUE DUE 2002 2002 , or registered assigns, the principal sum of Dollars on May 1, 2002. INTEREST PAYMENT DATES: May 1 and November 1 RECORD DATES: April 15 and October 15 Additional provisions of this Note and certain definitions are set forth on the reverse hereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This in one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee By Authorized Officer [PAINE WEBBER GROUP INC. CORPORATE S E A L 1 9 7 3 DELAWARE] Paine Webber Group Inc., Attest By /s/ Theodore A. Levine /s/ David Buchanan Secretary Chairman of the Board 2 PAINE WEBBER GROUP INC. 8 1/4% NOTE DUE 2002 1. INDENTURE This Note is one of a series of unsecured debentures, notes or other evidences of indebtedness (collectively, the "Securities") of Paine Webber Group Inc., a Delaware corporation (the "Company"), issued and to be issued under an Indenture dated as of March 15, 1988 between the Company and the Trustee, as amended by a supplemental Indenture dated as of September 22, 1989 and by a supplemental Indenture dated as of March 22, 1991 (as so amended, the "Indenture"). The Indenture permits the issuance of an unlimited number of series of Securities in an unlimited aggregate principal amount. This Note is one of a series designated the 8 1/4% Notes Due 2002 (the "Notes"), which series is limited in aggregate principal amount to $125,000,000. The Notes are subject to the terms stated in the Indenture, and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Act"), and holders of Notes are referred to the Indenture and the Act for a statement of those terms. 2. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on May 1 and November 1 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or if no interest has been paid from May 1, 1995. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 3. METHOD OF PAYMENT The Company will pay interest on the Notes (except defaulted interest) to the persons who are registered Holders of Notes at the close of business on April 15 or October 15 next preceding the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest by its check payable in such money. It may mail an interest check to a holder's registered address. 4. PAYING AGENT AND REGISTRAR Initially, Chemical Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice. 5. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 and any multiple of $1,000. A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 6. PERSONS DEEMED OWNERS The registered holder of this Note may be treated as the owner of it for all purposes. 7. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes remains unclaimed for two years after such principal or interest has become due and payable, it shall be repaid by the Trustee or Paying Agent to the Company at its request. Thereafter, holders entitled to the money must look only to the Company and not to the Trustee or Paying Agent for payment. 8. AMENDMENT; SUPPLEMENT; WAIVER The Company and the Trustee may, without the consent of any holders of Securities, agree to amend or supplement the Indenture or the Securities to, among other things, add to the covenants of the Company for the benefit of holders of all or any series of Securities, add to the Events of Default with respect to all or any series of the Securities and, provided that such action shall not adversely affect the interests of the holders of any series of Securities in any material respect, cure ambiguities, defects or inconsistencies in the Indenture or make other provisions. Subject to certain exceptions, the holders of not less than a majority in principal amount of the outstanding Securities of any series may waive any past default by the Company, with respect to such series, on behalf of all holders of Securities of such series. Subject to certain exceptions, the Company and the Trustee may agree to amend or supplement the Indenture or the Securities of any series in any manner with the consent of holders of not less than 66-2/3% in principal amount of the outstanding Securities of each series to be affected. 9. OBLIGATIONS OF THE COMPANY The Notes are direct, unsecured obligations of the Company. The Indenture does not limit the amount of the Company's other unsecured debt. 10. SUCCESSOR CORPORATION Any successor corporation resulting from a consolidation or merger involving the Company, or from a conveyance, transfer or lease of the assets of the Company substantially as an entirety, shall succeed to all rights and obligations of the Company under the Notes and the Indenture, and thereafter, except in the case of a lease, the predecessor corporation will be relieved of all such obligations. 11. DEFAULTS AND REMEDIES An Event of Default is default for 30 days in payment of any interest on the Notes; default in payment of any principal on the Notes, default in the performance or breach by the Company of any covenant or warranty under the Indenture for the benefit of the Notes and the continuance of the default or breach for a period of 60 days following receipt of notice of such default or breach; and certain events of bankruptcy or insolvency affecting the Company. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes may declare the principal amount of the Notes to be due and payable immediately. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity satisfactory to it. Subject to the above and other limitations, holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power with respect to the Notes. The Trustee may withhold from holders of Notes notice of a default by the Company (except a default in payment of principal or interest) if it is determined that withholding notice is in the interest of such holders. 12. TRUSTEE DEALINGS WITH THE COMPANY Chemical Bank, the Trustee under the Indenture, in its individual or other capacity may make loans to, accept deposits from and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 13. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder of a Note by accepting such Note waives all such claims and releases such directors, officers, employees and stockholders from all such liability. Such waiver and release are part of the consideration for the issue of the Notes. 14. COPIES OF INDENTURE The Company will furnish to any holder of Notes upon written request and without charge a copy of the Indenture. Requests may be made to: Secretary, Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York 10019. 15. GOVERNING LAW The Notes shall be governed by and construed in accordance with the laws of the State of New York. _____________________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian ___________ (Cust) (Minor) under Uniform Gifts to Minors Act ________________ (State) Additional abbreviations may also be used though not in the above list. _____________________________ FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee _______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: ________________________ _______________________________________________ EX-4.3 4 FORM OF DEBT SECURITIES 6 3/4% NOTES DUE 2006 1 Exhibit 4.3 REGISTERED REGISTERED NUMBER R Paine Webber Group Inc. 6-3/4% NOTE DUE 2006 CUSIP 695629 AT 2 SEE REVERSE FOR CERTAIN DEFINITIONS Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to pay to 6-3/4% 6-3/4% DUE DUE 2006 2006 , or registered assigns, the principal sum of Dollars on February 1, 2006. INTEREST PAYMENT DATES: February 1 and August 1 RECORD DATES: January 15 and July 15 Additional provisions of this Note and certain definitions are set forth on the reverse hereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This in one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee By Authorized Officer [PAINE WEBBER GROUP INC. CORPORATE S E A L 1 9 7 3 DELAWARE] Paine Webber Group Inc., Attest By /s/ Theodore A. Levine /s/ David Buchanan Secretary Chairman of the Board 2 PAINE WEBBER GROUP INC. 6 3/4% NOTE DUE 2006 1. INDENTURE This Note is one of a series of unsecured debentures, notes or other evidences of indebtedness (collectively, the "Securities") of Paine Webber Group Inc., a Delaware corporation (the "Company"), issued and to be issued under an Indenture dated as of March 15, 1988 between the Company and the Trustee, as amended by a supplemental Indenture dated as of September 22, 1989 and by a supplemental Indenture dated as of March 22, 1991 (as so amended, the "Indenture"). The Indenture permits the issuance of an unlimited number of series of Securities in an unlimited aggregate principal amount. This Note is one of a series designate the 6 3/4% Notes Due 2006 (the "Notes"), which series is limited in aggregate principal amount to $100,000,000. The Notes are subject to the terms stated in the Indenture, and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Act"), and holders of Notes are referred to the Indenture and the Act for a statement of those terms. 2. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on February 1 and August 1 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or if no interest has been paid from February 1, 1996. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 3. METHOD OF PAYMENT The Company will pay interest on the Notes (except defaulted interest) to the persons who are registered Holders of Notes at the close of business on January 15 or July 15 next preceding the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest by its check payable in such money. It may mail an interest check to a holder's registered address. 4. PAYING AGENT AND REGISTRAR Initially, Chemical Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice. 5. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 and any multiple of $1,000. A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 6. PERSONS DEEMED OWNERS The registered holder of this Note may be treated as the owner of it for all purposes. 7. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes remains unclaimed for two years after such principal or interest has become due and payable, it shall be repaid by the Trustee or Paying Agent to the Company at its request. Thereafter, holders entitled to the money must look only to the Company and not to the Trustee or Paying Agent for payment. 8. AMENDMENT; SUPPLEMENT; WAIVER The Company and the Trustee may, without the consent of any holders of Securities, agree to amend or supplement the Indenture or the Securities to, among other things, add to the covenants of the Company for the benefit of holders of all or any series of Securities, add to the Events of Default with respect to all or any series of the Securities and, provided that such action shall not adversely affect the interests of the holders of any series of Securities in any material respect, cure ambiguities, defects or inconsistencies in the Indenture or make other provisions. Subject to certain exceptions, the holders of not less than a majority in principal amount of the outstanding Securities of any series may waive any past default by the Company, with respect to such series, on behalf of all holders of Securities of such series. Subject to certain exceptions, the Company and the Trustee may agree to amend or supplement the Indenture or the Securities of any series in any manner with the consent of holders of not less than 66-2/3% in principal amount of the outstanding Securities of each series to be affected. 9. OBLIGATIONS OF THE COMPANY The Notes are direct, unsecured obligations of the Company. The Indenture does not limit the amount of the Company's other unsecured debt. 10. SUCCESSOR CORPORATION Any successor corporation resulting from a consolidation or merger involving the Company, or from a conveyance, transfer or lease of the assets of the Company substantially as an entirety, shall succeed to all rights and obligations of the Company under the Notes and the Indenture, and thereafter, except in the case of a lease, the predecessor corporation will be relieved of all such obligations. 11. DEFAULTS AND REMEDIES An Event of Default is default for 30 days in payment of any interest on the Notes; default in payment of any principal on the Notes, default in the performance or breach by the Company of any covenant or warranty under the Indenture for the benefit of the Notes and the continuance of the default or breach for a period of 60 days following receipt of notice of such default or breach; and certain events of bankruptcy or insolvency affecting the Company. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes may declare the principal amount of the Notes to be due and payable immediately. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity satisfactory to it. Subject to the above and other limitations, holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power with respect to the Notes. The Trustee may withhold from holders of Notes notice of a default by the Company (except a default in payment of principal or interest) if it is determined that withholding notice is in the interest of such holders. 12. TRUSTEE DEALINGS WITH THE COMPANY Chemical Bank, the Trustee under the Indenture, in its individual or other capacity may make loans to, accept deposits from and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 13. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder of a Note by accepting such Note waives all such claims and releases such directors, officers, employees and stockholders from all such liability. Such waiver and release are part of the consideration for the issue of the Notes. 14. COPIES OF INDENTURE The Company will furnish to any holder of Notes upon written request and without charge a copy of the Indenture. Requests may be made to: Secretary, Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York 10019. 15. GOVERNING LAW The Notes shall be governed by and construed in accordance with the laws of the State of New York. _____________________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian ___________ (Cust) (Minor) under Uniform Gifts to Minors Act ________________ (State) Additional abbreviations may also be used though not in the above list. _____________________________ FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee _______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: ________________________ _______________________________________________ EX-4.4 5 FORM OF DEBT SECURITIES 6 1/4% NOTES DUE 1998 1 EXHIBIT 4.4 REGISTERED REGISTERED NUMBER R Paine Webber Group Inc. 6 1/4% NOTE DUE 1998 CUSIP 695629 AN 5 SEE REVERSE FOR CERTAIN DEFINITIONS Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to pay to 6 1/4% 6 1/4% DUE DUE 1998 1998 , or registered assigns, the principal sum of Dollars on June 15, 1998. INTEREST PAYMENT DATES: June 15 and December 15 RECORD DATES: June 1 and December 1 Additional provisions of this Note and certain definitions are set forth on the reverse hereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This in one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee By Authorized Officer [PAINE WEBBER GROUP INC. CORPORATE S E A L 1 9 7 3 DELAWARE] Paine Webber Group Inc., Attest By /s/ Theodore A. Levine /s/ Donald B. Marron Secretary Chairman of the Board 2 PAINE WEBBER GROUP INC. 6 1/4% NOTE DUE 1998 1. INDENTURE This Note is one of a series of unsecured debentures, notes or other evidences of indebtedness (collectively, the "Securities") of Paine Webber Group Inc., a Delaware corporation (the "Company"), issued and to be issued under an Indenture dated as of March 15, 1988 between the Company and the Trustee, as amended by a supplemental Indenture dated as of September 22, 1989 and by a supplemental Indenture dated as of March 22, 1991 (as so amended, the "Indenture"). The Indenture permits the issuance of an unlimited number of series of Securities in an unlimited aggregate principal amount. This Note is one of a series designated the 6 1/4% Notes Due 1998 (the "Notes"), which series is limited in aggregate principal amount to $200,000,000. The Notes are subject to the terms stated in the Indenture, and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Act"), and holders of Notes are referred to the Indenture and the Act for a statement of those terms. 2. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on June 15 and December 15 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or if no interest has been paid from June 15, 1993. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 3. METHOD OF PAYMENT The Company will pay interest on the Notes (except defaulted interest) to the persons who are registered Holders of Notes at the close of business on June 1 or December 1 next preceding the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest by its check payable in such money. It may mail an interest check to a holder's registered address. 4. PAYING AGENT AND REGISTRAR Initially, Chemical Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice. 5. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 and any multiple of $1,000. A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 6. PERSONS DEEMED OWNERS The registered holder of this Note may be treated as the owner of it for all purposes. 7. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes remains unclaimed for two years after such principal or interest has become due and payable, it shall be repaid by the Trustee or Paying Agent to the Company at its request. Thereafter, holders entitled to the money must look only to the Company and not to the Trustee or Paying Agent for payment. 8. AMENDMENT; SUPPLEMENT; WAIVER The Company and the Trustee may, without the consent of any holders of Securities, agree to amend or supplement the Indenture or the Securities to, among other things, add to the covenants of the Company for the benefit of holders of all or any series of Securities, add to the Events of Default with respect to all or any series of the Securities and, provided that such action shall not adversely affect the interests of the holders of any series of Securities in any material respect, cure ambiguities, defects or inconsistencies in the Indenture or make other provisions. Subject to certain exceptions, the holders of not less than a majority in principal amount of the outstanding Securities of any series may waive any past default by the Company, with respect to such series, on behalf of all holders of Securities of such series. Subject to certain exceptions, the Company and the Trustee may agree to amend or supplement the Indenture or the Securities of any series in any manner with the consent of holders of not less than 66-2/3% in principal amount of the outstanding Securities of each series to be affected. 9. OBLIGATIONS OF THE COMPANY The Notes are direct, unsecured obligations of the Company. The Indenture does not limit the amount of the Company's other unsecured debt. 10. SUCCESSOR CORPORATION Any successor corporation resulting from a consolidation or merger involving the Company, or from a conveyance, transfer or lease of the assets of the Company substantially as an entirety, shall succeed to all rights and obligations of the Company under the Notes and the Indenture, and thereafter, except in the case of a lease, the predecessor corporation will be relieved of all such obligations. 11. DEFAULTS AND REMEDIES An Event of Default is default for 30 days in payment of any interest on the Notes; default in payment of any principal on the Notes, default in the performance or breach by the Company of any covenant or warranty under the Indenture for the benefit of the Notes and the continuance of the default or breach for a period of 60 days following receipt of notice of such default or breach; and certain events of bankruptcy or insolvency affecting the Company. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes may declare the principal amount of the Notes to be due and payable immediately. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity satisfactory to it. Subject to the above and other limitations, holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power with respect to the Notes. The Trustee may withhold from holders of Notes notice of a default by the Company (except a default in payment of principal or interest) if it is determined that withholding notice is in the interest of such holders. 12. TRUSTEE DEALINGS WITH THE COMPANY Chemical Bank, the Trustee under the Indenture, in its individual or other capacity may make loans to, accept deposits from and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 13. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder of a Note by accepting such Note waives all such claims and releases such directors, officers, employees and stockholders from all such liability. Such waiver and release are part of the consideration for the issue of the Notes. 14. COPIES OF INDENTURE The Company will furnish to any holder of Notes upon written request and without charge a copy of the Indenture. Requests may be made to: Secretary, Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York 10019. 15. GOVERNING LAW The Notes shall be governed by and construed in accordance with the laws of the State of New York. _____________________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian ___________ (Cust) (Minor) under Uniform Gifts to Minors Act ________________ (State) Additional abbreviations may also be used though not in the above list. _____________________________ FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee _______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: ________________________ _______________________________________________ EX-10.20 6 LETTER DATED 10/27/95 1 Exhibit 10.20 [PAINEWEBBER LETTERHEAD] as of October 27, 1995 Mr. Donald B. Marron Chairman and Chief Executive Officer PaineWebber Group Inc. 1285 Avenue of the Americas New York, New York 10019 Mr. Joseph Jr. Grano, Jr. President PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Don and Joe: This is in reference to the Employment Contract dated May 4, 1993 between PaineWebber Group Inc. and PaineWebber Incorporated and the undersigned, a copy of which is attached. It is mutually understood and agreed that, by accepting the terms and conditions of the Executive Compensation Program which is set forth in the October 16, 1995 memo from you to me, the annual bonus provision of paragraph 5 of the May 4, 1993 Employment Contract with respect to 1995 and 1996 and the provisions of paragraphs 9(a) and (b) of the May 4, 1993 Employment Contract concerning non-competition are null and void. It is further understood and agreed that, in all other respects, the May 4, 1993 Employment Contract remains in effect as a valid and binding agreement. Very truly yours, /s/ Theodore A. Levine Theodore A. Levine EX-10.23 7 EMPLOYMENT AGREEMENT, DONALD B. MARRON 1 Exhibit 10.23 EMPLOYMENT AGREEMENT AGREEMENT dated as of January 2, 1987, by and between PAINE WEBBER GROUP INC., a Delaware corporation with its principal office at 1285 Avenue of the Americas, New York, New York 10019 ("PWG"), PAINEWEBBER INCORPORATED, a Delaware corporation with its principal office at 1285 Avenue of the Americas, New York, New York 10019 ("PWI"), as the employers, and DONALD B. MARRON, who resides at 555 Park Avenue, New York, New York 10021, as the employee (the "Executive"). WHEREAS, the Executive has been serving as President and Chief Executive Officer of PWG and as Chairman of the Board of Directors of PWG (the "PWG Board") and as Chief Executive Officer of PWI and Chairman of the Board of Directors of PWI; and WHEREAS, PWG and PWI each desire to assure the Executive of his rights to compensation and benefits that are granted to him because of his service in the foregoing capacities, and Executive desires to continue to serve in such capacities in consideration of the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein and for other good and valuable consideration, PWG, PWI and the Executive hereby agree as follows: 1. Definitions. (a) "Cause shall mean (i) the Executive is convicted of a crime involving moral turpitude, or (ii) the Executive, in carrying out his duties, is guilty of (A) willful gross neglect or (B) willful gross misconduct resulting, in either case, in material harm to PWG or PWI unless such act, or failure to act, was believed by the Executive in good faith to be in the best interests of PWG or PWI. (b) a "Change in Control" shall be deemed to have occurred if: 2 2 (i) any "person", as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934 (the "Act"), becomes a beneficial owner, as such term is used in Rule 13d-3 promulgated under the Act, of securities of PWG or PWI representing 20% or more of the combined voting power of the outstanding securities of PWG or PWI, as the case may be, having the right to vote in the election of directors (any such owner being herein referred to as an "Acquiring Person"); (ii) a majority of the PWG Board at any time consists of individuals elected to membership at a PWG Board meeting or a PWG shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors; (iii) all or substantially all the business of PWI is disposed of pursuant to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) in which PWI is not the surviving corporation or PWG is materially or completely liquidated; or (iv) PWG or PWI combines with another company and is the surviving corporation (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) but, immediately after the combination, the shareholders of PWG hold, directly or indirectly, less than 50% of the total outstanding securities of the combined company having the right to vote in the election of directors. (c) "Disinterested Director" shall mean any member of the PWG Board (i) who is not an officer or employee of PWG, PWI or any of their subsidiaries, (ii) who is not an Acquiring Person or an affiliate or associate of an Acquiring Person or a nominee or representative of an Acquiring Person or of any such affiliate or associate and (iii) who was a member of the PWG Board prior to the date of this 3 3 Agreement or was recommended for election or elected by a majority of the Disinterested Directors then on the PWG Board. (d) "Constructive Termination" shall mean that, without the Executive's prior written consent, one or more of the following events occurs and, within six months thereafter, the Executive, on his own initiative, terminates his employment: (i) The Executive is not reelected to or is otherwise removed from the position of Chairman of the Board of PWG or Chairman of the Board of PWI as described in Section 2(a) for any reason other than his termination of employment under Section 10(a), 10(b) or 10(d). (ii) The Executive is assigned any duties or responsibilities that are inconsistent, in any significant respect, with the scope of duties and responsibilities associated with his positions and offices as described in Section 2(a). (iii) The Executive suffers a reduction in the authorities, duties and responsibilities associated with his positions and offices as described in Section 2(a) on the basis of which he makes a determination in good faith that he can no longer carry out such positions or offices in the manner contemplated at the time this Agreement was entered into. (iv) The Executive's base salary or annual bonus decreases below the minimum level provided in Section 3 or 4, as the case may be, or his benefits under any employee benefit plan or program of PWG or PWI, or his incentive opportunity under any incentive program of PWG or PWI is materially reduced below the level, or opportunity, as the case may be, in effect on the Operative Date, unless PWG or PWI provides the Executive with a comparable plan or program having the economic equivalent thereof. (v) The principal office of PWG or PWI or the Executive's own office location as assigned to him by PWG or PWI is relocated outside of Manhattan. (e) "Disability" shall mean the Executive's inability to render for a period of six consecutive months, full and effective services hereunder by reason of permanent 4 4 disability, whether resulting from illness, accident or otherwise; provided, however, that in no event will the Executive be considered disabled for the purposes of this Agreement unless he is deemed disabled pursuant to the PWG Long Term Disability Plan. (f) "Operative Date" shall mean the date, if any, following a Change in Control that has been designated in a resolution adopted by a majority of the Disinterested Directors, in their sole discretion, as the Operative Date. (g) "Pro Rata Bonus" shall mean an amount equal to the annual bonus otherwise payable with respect to the fiscal year in question multiplied by a fraction, the numerator of which is the number of days in such fiscal year during which the Executive is employed, and the denominator of which is 365. (h) "Term of this Agreement" shall mean the period between the Operative Date and the third anniversary thereof, but only if the Executive is employed by PWG or PWI on the Operative Date. 2. Positions and Duties. (a) During the Term of this Agreement, the Executive shall be employed as President and Chief Executive Officer of PWG and as Chairman of the Board and Chief Executive Officer of PWI, and it is the intention of the parties during the Term of this Agreement that the Executive shall serve as Chairman of the PWG Board. The Executive shall during the Term of this Agreement be responsible for the overall policy of and the accomplishment of plans and objectives of PWG and PWI. The Executive, in carrying out his duties, during the Term of this Agreement, shall report to the PWG Board. During the Term of this Agreement and subject to the provisions of Section 2(b), the Executive shall devote reasonable business time and attention to the business and affairs of PWG and PWI and shall use his best efforts, skills and abilities to promote their interests. (b) Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from serving on the boards of directors of other companies, engaging in charitable and community affairs (including his serving as President of the Museum of Modern Art) and managing his personal investments, provided that such activities do not materially interfere with the performance of his duties or responsibilities hereunder. 5 5 3. Salary. During the Term of this Agreement, the Executive shall be paid by PWI a base salary payable no less frequently than in equal semi-monthly installments at an annualized rate of no less than the annual salary being paid to the Executive on the Operative Date. Such base salary shall be reviewed annually for increase in the discretion of the Compensation Committee of the PWG Board (the "Committee"), taking into account such factors as corporate and individual performance, salary increases for other senior officers and increases, if any, in the Consumer Price Index for New York (the "Consumer Price Index"). 4. Annual Bonus. For each fiscal year during the Term of this Agreement, PWI shall pay the Executive an annual bonus of not less than the average of the three annual bonuses awarded to him for the three fiscal years of PWI next preceding the Operative Date or such larger amount as the Committee in its discretion shall determine, taking into account such factors as corporate and individual performance, bonuses for other senior officers and increases, if any, in the Consumer Price Index. For the period of employment during the last fiscal year in which falls the Term of this Agreement, PWI shall pay the Executive a Pro Rata Bonus. All bonuses shall be paid to the Executive at the same time bonuses are paid to other senior officers of PWI, unless the Executive has elected to defer receipt of all or part of the bonus to which he is entitled in respect of such fiscal year in accordance with the terms of the PWI Deferred Compensation Program. 5. Restricted Stock. During the Term of this Agreement, the Executive shall be entitled to participate in the Restricted Stock Award Program under the Paine Webber Group Inc. 1986 Stock Award Plan (the "Stock Award Plan"), or any successor program or programs. Size and frequency of awards shall be determined in accordance with administrative policies consistent with those followed in the past. 6. Stock Option and Stock Appreciation Rights Awards. During the Term of this Agreement, the Executive shall be entitled to participate in the Stock Option program 6 6 under the Stock Award Plan, or any successor program or programs. Size and frequency of awards shall be determined in accordance with administrative policies consistent with those followed in the past. 7. PW Partners L.P. During the Term of this Agreement, the Executive shall be eligible to participate in PW Partners L.P. 8. Employee Benefit Programs. During the Term of this Agreement, the Executive shall be entitled to participate in all employee benefit programs of PWG or PWI now or hereafter made available to PWG or PWI executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, accidental death and dismemberment insurance, hospitalization, surgical, major medical coverage, sick leave (including salary continuation arrangements), long-term disability, vacations, holidays and other employee benefit programs sponsored by PWG or PWI. 9. Business Expense Reimbursement and Perquisites. (a) During the Term of this Agreement, the Executive shall be entitled to receive Proper reimbursement by PWG or PWI for all reasonable, out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by PWG or PWI for their senior executives) in performing services under this Agreement, provided that the Executive submits reasonable documentation with respect to such expenses. (b) During the Term of this Agreement, the Executive shall also be entitled to any of the PWG or PWI executive perquisites in accordance with the terms and provisions of such arrangements as are in effect and applicable on the Operative Date. 10. Termination of Employment. (a) Termination Due to Death or Disability. In the event the Executive's employment terminates during the Term of this Agreement as a result of death or termination 7 7 by PWG or PWI due to Disability, the Executive or his legal representative, as the case may be, shall be entitled to: (i) base salary as provided in Section 3, at the rate in effect at the time of his termination through the date of termination of employment; (ii) any bonus awarded but not yet paid under Section 4; (iii) a Pro Rata Bonus for the fiscal year in which death or disability occurs; (iv) any deferred bonus as provided in Section 4, including interest or other credits on the deferred amounts; (v) reimbursement for expenses incurred pursuant to Section 9(a) prior to termination; and (vi) such rights to other compensation and benefits as may be provided in applicable plans and programs of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6 and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. (b) Termination by PWG or PWI for Cause. In the event PWG or PWI terminates the Executive's employment during the Term of this Agreement for Cause, he shall be entitled to: (i) base salary as provided in Section 3 at the rate in effect at the time of his termination through the date of termination of employment; (ii) any bonus awarded but not yet paid under Section 4; (iii) any deferred bonus as provided in Section 4, including interest or other credits on the deferred amounts; (iv) reimbursement for expenses incurred pursuant to Section 9(a) prior to termination; and 8 8 (v) such rights to other compensation and benefits as may be provided in applicable plans and programs of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6, and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. In any case described in this Section 10(b), the Executive shall be given written notice, authorized by a vote of at least a majority of the members of the PWG Board (excluding the Executive), that PWG or PWI intends to terminate his employment for Cause under this Section 10(b). Such written notice shall specify the particular acts, or failures to act, on the basis of which the decision to so terminate employment has been made. The Executive shall be given the opportunity within 20 days of the receipt of such notice to meet with the PWG Board to defend such acts, or failures to act, and the Executive shall be given seven days after such meeting to correct such acts or failures to act. Upon failure of the Executive, within seven days, to correct such acts or failures to act, the Executive's employment by PWG and PWI shall automatically be terminated for Cause under this Section 10(b). (c) Termination Without Cause or Constructive Termination. (i) In the event that during the Term of this Agreement (A) either PWG or PWI terminates the Executive's employment without Cause, other than due to Disability, or (B) there is a Constructive Termination, the Executive shall thereupon be entitled to (x) a lump sum payment equal to the present value of: (aa) base salary until the end of the Term of this Agreement at the rate in effect immediately prior to the termination of employment; (bb) a bonus for the year of termination and bonuses for each year until the end of the Term of this Agreement, at an annualized rate equal to the average of the bonuses awarded to him with respect to the three years preceding the year in which termination occurs; and (cc) any bonus awarded but not yet paid (including deferred bonus); and (y) such rights to 9 9 compensation, benefits and reimbursements as may be provided in applicable plans, programs and policies of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6 and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. To the extent that, because of his termination under this Section 10(c), the Executive is ineligible for continued employee benefit coverage under the employee benefit programs as provided in Section 8, PWI shall provide him with the economic equivalent thereof. (ii) Notwithstanding anything herein to the contrary, if (A) any amounts due under Section 10(c)(i) constitute "Parachute Payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code (the "Code"), or successor provision, and (B) the amount of the Parachute Payments, reduced by all Federal, state and local taxes applicable with respect thereto, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount he would receive, after taxes, if he were paid only 2.99 times his "Base Amount" within the meaning of Section 280G(b)(3), then, in lieu of the Parachute Payments the Executive shall be paid an amount in cash equal to 2.99 times the Base Amount. The determinations made with respect to this Section 10(c) (ii) shall be made by an independent auditor (the "Auditor") jointly selected by PWG and the Executive, or his legal representatives. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of PWG or its affiliates. (iii) Any payments to which the Executive shall be entitled under this Section 10(c) shall be made as promptly as possible following the termination of the Executive's employment hereunder. (iv) In the event that during the term of this Agreement (A) either PWG or PWI terminates the Executive's employment without Cause, other than due to Disability, or (B) there is a Constructive Termination, either PWG or PWI shall provide, at its expense, the following to the 10 10 Executive for a period of ten years from the date of such Termination or Constructive Termination: (aa) the use of a full-time car and driver; (bb) a suitable office in midtown Manhattan having furnishings and a quality of building comparable to the office being provided to him immediately before the Operative Date with respect to such Termination or Constructive Termination; (cc) an executive assistant having a comparable skill level to that of the individual serving in such capacity on such Operative Date, such executive assistant to have salary and benefits no less than those in effect from time to time for the comparable level position at PWG or PWI; and (dd) continued coverage for him and those members of his immediate family who are eligible to participate under the terms of the then existing PWG or PWI medical or disability plans and programs. (d) Voluntary Termination. A "Voluntary Termination" under this Section 10(d) shall mean a termination of employment, during the Term of this Agreement, by the Executive on his own initiative other than (i) a termination due to disability under Section 10(a) or (ii) a Constructive Termination under Section 10(c). Such a termination shall not be deemed a breach of the Agreement and shall entitle the Executive to all of the rights and benefits to which he would be entitled in the event of a termination for Cause as described in Section 10(b). (e) No Mitigation; No Offset. In the event of any termination under this Section 10, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Section 10 on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Section 10 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. 11. Indemnification. PWG and PWI represent that, while the Executive is employed under this Agreement, he shall be serving as an officer of PWI at the request of PWG for purposes of the 11 11 provisions of Article IX of the Restated Certificate of Incorporation of PWG as proposed to the PWG stockholders to be amended at the 1987 Annual Meeting of Stockholders of PWG and as an officer of PWI for purposes of the provisions of Article X of the Restated Certificate of Incorporation of PWI as in effect on the date hereof. If either Certificate is amended so as to remove or diminish the Protection therein accorded to covered officers, PWG and/or PWI will notify the Executive within five days of such removal or diminution. PWG and PWI further agree to maintain the same liability insurance coverage for the Executive with respect to all periods during which the Executive serves or served as an officer of PWG or PWI as is maintained with respect to such periods for other senior executives of PWG and PWI. 12. Disputes Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in effect in the State of New York, and judgment upon such award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitration shall be held in Manhattan. The cost of the arbitration including, but not limited to, any reasonable legal fees or other expenses incident thereto, shall be determined by the arbitrator(s) and shall be borne by the parties to the arbitration. To the extent the Executive's position is upheld, any reasonable expenses (including costs of witnesses, evidence, and attorneys) incurred by the Executive in connection with the arbitration shall be reimbursed to the Executive by PWG or PWI. 13. Assignability No rights or obligations under this Agreement may be assigned or transferred by the Executive except (a) the Executive's rights to compensation and benefits hereunder shall, in the event of death, pass to his estate, or to this designated beneficiary, and may be transferred by will or operation of law, and (b) the Executive's rights under PWI and PWG plans, programs and policies as described in Sections 5, 6, 7 and 8 may be assigned or transferred in accordance with such plans, policies or practices. No rights or obligations of PWI or PWG under this Agreement may be assigned or transferred except that such rights or obligations may be assigned or transferred by operation of law in situations described in Section 368 of the Code, as amended, or successor provision, in liquidation, in 12 12 dissolution or otherwise where PWI or PWG is not the continuing entity, provided the assignee or transferee is the successor to all or substantially all the assets of PWI or PWG and such assignee or transferee assumes the rights, duties and liabilities of PWI or PWG, as contained in this Agreement, either contractually or as a matter of law. 14. Governing Law. This agreement shall be governed by the laws of the State of New York without reference to the principles of conflict of laws. 15. Entire Agreement. Except as otherwise specifically provided herein, this Agreement contains all the legally binding understandings and representations between PWG, PWI and the Executive pertaining to the subject matter hereof and supersedes all undertakings and agreements, if any, whether oral or in writing, previously entered into by PWG, PWI and the Executive with respect to such subject matter. 16. Amendment or Modification; Waiver. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of PWI or PWG. Except as otherwise specifically provided in this Agreement, no waiver by PWG, PWI or the Executive of any breach by the other of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. 17. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give notice of: 13 13 If to PWG or PWI: Painewebber Group Inc. 1285 Avenue of the Americas New York, New York 10019 Attn: Corporate Secretary If to the Executive: Donald B. Marron 555 Park Avenue New York, New York 10021 18. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 19. Survivorship. To the extent contemplated by this Agreement, the respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 20. Representations. (a) By the Executive. The Executive represents and warrants that the performance of his duties under this Agreement will not violate any agreement between him and any other person, firm or organization. (b) By PWG and PWI. PWG and PWI represent and warrant that they are fully authorized and empowered to enter into this Agreement. 21. Impact of Agreement on Other Benefits. Nothing in this Agreement shall curtail the Executive's entitlement to full participation in the executive compensation, employee benefit and other programs of PWG and PWI in which senior executives of PWG and PWI are eligible to participate. 22. References. In the event of the Executive's death or a judicial determination of his incompetence, reference in this 14 14 Agreement to the Executive will be deemed, where appropriate, to refer to his legal representative, or, where appropriate, to his beneficiary or beneficiaries. 23. Headings. Headings to the sections in this Agreement are intended solely for convenience and no provision of this Agreement shall be construed by reference to any heading. 24. Counterparts This agreement may be executed in one or more counterparts. IN WITNESS WHEREOF, the Executive, PWG and PWI have caused this Agreement to be executed as of the day and year first above written. PAINE WEBBER GROUP INC. by /s/ Paul B. Guenther ------------------------------------ PAINEWEBBER INCORPORATED by ------------------------------------ /s/ Donald B. Marron ------------------------------------ Donald B. Marron EX-10.24 8 EMPLOYMENT AGREEMENT, JOHN A. BULT 1 Exhibit 10.24 EMPLOYMENT AGREEMENT AGREEMENT dated as of January 2, 1987 by and between PAINE WEBBER GROUP INC., a Delaware corporation with its principal office at 1285 Avenue of the Americas, New York, New York 10019 ("PWG"), PAINEWEBBER INCORPORATED, a Delaware corporation with its principal office at 1285 Avenue of the Americas, New York, New York 10019 ("PWI"), as the employers, and JOHN A. BULT, who resides at 930 Fifth Avenue, New York, New York 10021, as the employee (the "Executive"). WHEREAS, the Executive has been serving as President of PW International; and WHEREAS, PWG and PWI each desire to assure the Executive of his rights to compensation and benefits that are granted to him because of his service in the foregoing capacities, and Executive desires to continue to serve in such capacities in consideration of the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein and for other good and valuable consideration, PWG, PWI and the Executive hereby agree as follows: 1. Definitions. (a) "Cause shall mean (i) the Executive is convicted of a crime involving moral turpitude, or (ii) the Executive, in carrying out his duties, is guilty of (A) willful gross neglect or (B) willful gross misconduct resulting, in either case, in material harm to PWG or PWI unless such act, or failure to act, was believed by the Executive in good faith to be in the best interests of PWG or PWI. (b) a "Change in Control" shall be deemed to have occurred if: (i) any "person", as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange 2 2 Act of 1934 (the "Act"), becomes a beneficial owner, as such term is used in Rule 13d-3 promulgated under the Act, of securities of PWG or PWI representing 20% or more of the combined voting power of the outstanding securities of PWG or PWI, as the case may be, having the right to vote in the election of directors (any such owner being herein referred to as an "Acquiring Person"); (ii) a majority of the Board of Directors of PWG ("PWG Board") at any time consists of individuals elected to membership at a PWG Board meeting or a PWG shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors; (iii) all or substantially all the business of PWI is disposed of pursuant to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) in which PWI is not the surviving corporation or PWG is materially or completely liquidated; or (iv) PWG or PWI combines with another company and is the surviving corporation (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) but, immediately after the combination, the shareholders of PWG hold, directly or indirectly, less than 50% of the total outstanding securities of the combined company having the right to vote in the election of directors. (c) "Disinterested Director" shall mean any member of the PWG Board (i) who is not an officer or employee of PWG, PWI or any of their subsidiaries, (ii) who is not an Acquiring Person or an affiliate or associate of an Acquiring Person or a nominee or representative of an Acquiring Person or of any such affiliate or associate and (iii) who was a member of the PWG Board prior to the date of this Agreement or was recommended for election or elected by a 3 3 majority of the Disinterested Directors then on the PWG Board. (d) "Constructive Termination" shall mean that, without the Executive's prior written consent, one or more of the following events occurs and, within six months thereafter, the Executive, on his own initiative, terminates his employment: (i) The Executive is not reelected to or is otherwise removed from the position of President of PW International as described in Section 2(a) for any reason other than his termination of employment under Section 10(a), 10(b) or 10(d). (ii) The Executive is assigned any duties or responsibilities that are inconsistent, in any significant respect, with the scope of duties and responsibilities associated with his position as described in Section 2(a). (iii) The Executive suffers a reduction in the authorities, duties and responsibilities associated with his position as described in Section 2(a) on the basis of which he makes a determination in good faith that he can no longer carry out such position in the manner contemplated at the time this Agreement was entered into. (iv) The Executive's base salary or annual bonus decreases below the minimum level provided in Section 3 or 4, as the case may be, or his benefits under any employee benefit plan or program of PWG or PWI, or his incentive opportunity under any incentive program of PWG or PWI is materially reduced below the level, or opportunity, as the case may be, in effect on the Operative Date, unless PWG or PWI provides the Executive with a comparable plan or program having the economic equivalent thereof. (v) The principal office of PWG or PWI or the Executive's own office location as assigned to him by PWG or PWI is relocated outside an area within ten miles of the headquarters of PWI in Manhattan on the date hereof. (e) "Disability" shall mean the Executive's inability to render for a period of six consecutive months, full and effective services hereunder by reason of permanent 4 4 disability, whether resulting from illness, accident or otherwise; provided, however, that in no event will the Executive be considered disabled for the purposes of this Agreement unless he is deemed disabled pursuant to the PWG Long Term Disability Plan. (f) "Operative Date" shall mean the date, if any, following a Change in Control that has been designated in a resolution adopted by a majority of the Disinterested Directors, in their sole discretion, as the Operative Date. (g) "Pro Rata Bonus" shall mean an amount equal to the annual bonus otherwise payable with respect to the fiscal year in question multiplied by a fraction, the numerator of which is the number of days in such fiscal year during which the Executive is employed, and the denominator of which is 365. (h) "Term of this Agreement" shall mean the period between the Operative Date and the third anniversary thereof, but only if the Executive is employed by PWG or PWI on the Operative Date. 2. Positions and Duties. (a) During the Term of this Agreement, the Executive shall be employed as President of PW International. The Executive shall report during the Term of this Agreement to the Chief Executive Officer of PWI and shall direct and control PWI's International Businesses in Securities Sales and Trading. He shall during the Term of this Agreement recommend objectives, policies and plans for these areas. During the Term of this Agreement and subject to the provisions of Section 2(b), the Executive shall devote his full business time and attention to the business and affairs of PWG and PWI and shall use his best efforts, skills and abilities to promote their interests. (b) Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from serving on the boards of directors of other companies, engaging in charitable and community affairs and managing his personal investments, provided that such activities do not materially interfere with the performance of his duties or responsibilities hereunder. 5 5 3. Salary. During the Term of this Agreement, the Executive shall be paid by PWI a base salary payable no less frequently than in equal semi-monthly installments at an annualized rate of no less than the annual salary being paid to the Executive on the Operative Date. Such base salary shall be reviewed annually for increase in the discretion of the Compensation Committee of the PWG Board (the "Committee"), taking into account such factors as corporate and individual performance, salary increases for other senior officers and increases, if any, in the Consumer Price Index for New York (the "Consumer Price Index"). 4. Annual Bonus. For each fiscal year during the Term of this Agreement, PWI shall pay the Executive an annual bonus of not less than the average of the three annual bonuses awarded to him for the three fiscal years of PWI next preceding the Operative Date or such larger amount as the Committee in its discretion shall determine, taking into account such factors as corporate and individual performance, bonuses for other senior officers and increases, if any, in the Consumer Price Index. For the period of employment during the last fiscal year in which falls the Term of this Agreement, PWI shall pay the Executive a Pro Rata Bonus. All bonuses shall be paid to the Executive at the same time bonuses are paid to other senior officers of PWI, unless the Executive has elected to defer receipt of all or part of the bonus to which he is entitled in respect of such fiscal year in accordance with the terms of the PWI Deferred Compensation Program. 5. Restricted Stock. During the Term of this Agreement, the Executive shall be entitled to participate in the Restricted Stock Award program under the Paine Webber Group Inc. 1986 Stock Award Plan (the "Stock Award Plan"), or any successor program or programs. Size and frequency of awards shall be determined in accordance with administrative policies consistent with those followed in the past. 6. Stock Option and Stock Appreciation Rights Awards. During the Term of this Agreement, the Executive shall be entitled to participate in the Stock Option program 6 6 under the Stock Award Plan, or any successor program or programs. Size and frequency of awards shall be determined in accordance with administrative policies consistent with those followed in the past. 7. PW Partners L.P. During the Term of this Agreement, the Executive shall be eligible to participate in PW Partners L.P. 8. Employee Benefit Programs. During the Term of this Agreement, the Executive shall be entitled to participate in all employee benefit programs of PWG or PWI now or hereafter made available to PWG or PWI executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, accidental death and dismemberment insurance, hospitalization, surgical, major medical coverage, sick leave (including salary continuation arrangements), long-term disability, vacations, holidays and other employee benefit programs sponsored by PWG or PWI. 9. Business Expense Reimbursement and Perquisites. (a) During the Term of this Agreement, the Executive shall be entitled to receive proper reimbursement by PWG or PWI for all reasonable, out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by PWG or PWI for their senior executives) in performing services under this Agreement, provided that the Executive submits reasonable documentation with respect to such expenses. (b) During the Term of this Agreement, the Executive shall also be entitled to any of the PWG or PWI executive perquisites in accordance with the terms and provisions of such arrangements as are in effect and applicable on the Operative Date. 10. Termination of Employment. (a) Termination Due to Death or Disability. In the event the Executive's employment terminates during the 7 7 Term of this Agreement as a result of death or termination by PWG or PWI due to Disability, the Executive or his legal representative, as the case may be, shall be entitled to: (i) base salary as provided in Section 3, at the rate in effect at the time of his termination through the date of termination of employment; (ii) any bonus awarded but not yet paid under Section 4; (iii) a Pro Rata Bonus for the fiscal year in which death or disability occurs; (iv) any deferred bonus as provided in Section 4, including interest or other credits on the deferred amounts; (v) reimbursement for expenses incurred pursuant to Section 9(a) prior to termination; and (vi) such rights to other compensation and benefits as may be provided in applicable plans and programs of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6 and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. (b) Termination by PWG or PWI for Cause. In the event PWG or PWI terminates the Executive's employment during the Term of this Agreement for Cause, he shall be entitled to: (i) base salary as provided in Section 3 at the rate in effect at the time of his termination through the date of termination of employment; (ii) any bonus awarded but not yet paid under Section 4; (iii) any deferred bonus as provided in Section 4, including interest or other credits on the deferred amounts; (iv) reimbursement for expenses incurred pursuant to Section 9(a) prior to termination; and 8 8 (v) such rights to other compensation and benefits as may be provided in applicable plans and programs of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6, and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. In any case described in this Section 10(b), the Executive shall be given written notice, authorized by a vote of at least a majority of the members of the PWG Board (excluding the Executive), that PWG or PWI intends to terminate his employment for Cause under this Section 10(b). Such written notice shall specify the particular acts, or failures to act, on the basis of which the decision to so terminate employment has been made. The Executive shall be given the opportunity within 20 days of the receipt of such notice to meet with the PWG Board to defend such acts, or failures to act, and the Executive shall be given seven days after such meeting to correct such acts or failures to act. Upon failure of the Executive, within seven days, to correct such acts or failures to act, the Executive's employment by PWG and PWI shall automatically be terminated for Cause under this Section 10(b). (c) Termination Without Cause or Constructive Termination. (i) In the event that during the Term of this Agreement (A) either PWG or PWI terminates the Executive's employment without Cause, other than due to Disability, or (B) there is a Constructive Termination, the Executive shall thereupon be entitled to (x) a lump sum payment equal to the present value of: (aa) base salary until the end of the Term of this Agreement at the rate in effect immediately prior to the termination of employment; (bb) a bonus for the year of termination and bonuses for each year until the end of the Term of this Agreement, at an annualized rate equal to the average of the bonuses awarded to him with respect to the three years preceding the year in which termination occurs: and (cc) any bonus awarded but not yet paid (including deferred bonus); and (y) such rights to 9 9 compensation, benefits and reimbursements as may be provided in applicable plans, programs and policies of PWG or PWI, including without limitation restricted stock as provided in Section 5, stock options as provided in Section 6 and interests in PW Partners L.P. as provided in Section 7, as well as applicable employee benefit plans and programs as provided in Section 8. To the extent that, because of his termination under this Section 10(c), the Executive is ineligible for continued employee benefit coverage under the employee benefit programs as provided in Section 8, PWI shall provide him with the economic equivalent thereof. (ii) Notwithstanding anything herein to the contrary, if (A) any amounts due under Section 10(c)(i) constitute "Parachute Payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code (the "Code"), or successor provision, and (B) the amount of the Parachute Payments, reduced by all Federal, state and local taxes applicable with respect thereto, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount he would receive, after taxes, if he were paid only 2.99 times his "Base Amount" within the meaning of Section 280G(b)(3), then, in lieu of the Parachute Payments the Executive shall be paid an amount in cash equal to 2.99 times the Base Amount. The determinations made with respect to this Section 10(c)(ii) shall be made by an independent auditor (the "Auditor") jointly selected by PWG and the Executive, or his legal representatives. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of PWG or its affiliates. (iii) Any payments to which the Executive shall be entitled under this Section 10(c) shall be made as promptly as possible following the termination of the Executive's employment hereunder. (d) Voluntary Termination. A "Voluntary Termination" under this Section 10(d) shall mean a termination of employment, during the Term of this Agreement, by the Executive on his own initiative other than (i) a termination due to disability under Section 10(a) or (ii) a Constructive 10 10 Termination under Section 10(c). Such a termination shall not be deemed a breach of the Agreement and shall entitle the Executive to all of the rights and benefits to which he would be entitled in the event of a termination for Cause as described in Section 10(b). (e) No Mitigation; No Offset. In the event of any termination under this Section 10, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Section 10 on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Section 10 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. 11. Indemnification. PWG and PWI represent that, while the Executive is employed under this Agreement, he shall be serving as an officer of PWI at the request of PWG for purposes of the provisions of Article IX of the Restated Certificate of Incorporation of PWG as proposed to the PWG stockholders to be amended at the 1987 Annual Meeting of Stockholders of PWG and as an officer of PWI for purposes of the provisions of Article X of the Restated Certificate of Incorporation of PWI as in effect on the date hereof. If either Certificate is amended so as to remove or diminish the protection therein accorded to covered officers, PWG and/or PWI will notify the Executive within five days of such removal or diminution. PWG and PWI further agree to maintain the same liability insurance coverage for the Executive with respect to all periods during which the Executive serves or served as an officer of PWG or PWI as is maintained with respect to such periods for other senior executives of PWG and PWI. 12. Disputes Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in effect in the State of New York, and judgment upon such award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitration shall be held in Manhattan. The cost of the arbitration including, but not limited to, any reasonable legal fees or other expenses incident thereto, shall be determined by the arbitrator(s) and shall be borne by the parties to the arbitration. To the extent the 11 11 Executive's position is upheld, any reasonable expenses (including costs of witnesses, evidence, and attorneys) incurred by the Executive in connection with the arbitration shall be reimbursed to the Executive by PWG or PWI. 13. Assignability No rights or obligations under this Agreement may be assigned or transferred by the Executive except (a) the Executive's rights to compensation and benefits hereunder shall, in the event of death, pass to his estate, or to this designated beneficiary, and may be transferred by will or operation of law, and (b) the Executive's rights under PWI and PWG plans, programs and policies as described in Sections 5, 6, 7 and 8 may be assigned or transferred in accordance with such plans, policies or practices. No rights or obligations of PWI or PWG under this Agreement may be assigned or transferred except that such rights or obligations may be assigned or transferred by operation of law in situations described in Section 368 of the Code, as amended, or successor provision, in liquidation, in dissolution or otherwise where PWI or PWG is not the continuing entity, provided the assignee or transferee is the successor to all or substantially all the assets of PWI or PWG and such assignee or transferee assumes the rights, duties and liabilities of PWI or PWG, as contained in this Agreement, either contractually or as a matter of law. 14. Governing Law. This agreement shall be governed by the laws of the State of New York without reference to the principles of conflict of laws. 15. Entire Agreement Except as otherwise specifically provided herein, this Agreement contains all the legally binding understandings and representations between PWG, PWI and the Executive pertaining to the subject matter hereof and supersedes all undertakings and agreements, if any, whether oral or in writing, previously entered into by PWG, PWI and the Executive with respect to such subject matter. 16. Amendment or Modification; Waiver. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in 12 12 writing, signed by the Executive and by a duly authorized officer of PWI or PWG. Except as otherwise specifically provided in this Agreement, no waiver by PWG, PWI or the Executive of any breach by the other of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. 17. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give notice of: If to PWG or PWI: PaineWebber Group Inc. 1285 Avenue of the Americas New York, New York 10019 Attn: Corporate Secretary If to the Executive: John A. Bult 930 Fifth Avenue New York, New York 10021 18. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 19. Survivorship. To the extent contemplated by this Agreement, the respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 20. Representations. (a) By the Executive. The Executive represents and warrants that the performance of his duties under this 13 13 Agreement will not violate any agreement between him and any other person, firm or organization (b) By PWG and PWI. PWG and PWI represent and warrant that they are fully authorized and empowered to enter into this Agreement. 21. Impact of Agreement on Other Benefits. Nothing in this Agreement shall curtail the Executive's entitlement to full participation in the executive compensation, employee benefit and other programs of PWG and PWI in which senior executives of PWG and PWI are eligible to participate. 22. References. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive will be deemed, where appropriate, to refer to his legal representative, or, where appropriate, to his beneficiary or beneficiaries. 23. Headings. Headings to the sections in this Agreement are intended solely for convenience and no provision of this Agreement shall be construed by reference to any heading. 24. Counterparts. This agreement may be executed in one or more counterparts. IN WITNESS WHEREOF, the Executive, PWG and PWI have caused this Agreement to be executed as of the day and year first above written. PAINE WEBBER GROUP INC. by /s/ Donald B. Marron -------------------------- 14 14 PAINEWEBBER INCORPORATED by /s/ Ronald M. Schwartz -------------------------- /s/ John A. Bult ------------------------------ John A. Bult EX-10.25 9 SUPPLEMENTAL EMPLOYEE'S RETIREMENT PLAN 1 Exhibit 10.25 9/10/90 PAINE WEBBER GROUP, INC. SUPPLEMENTAL EMPLOYEE'S RETIREMENT PLAN FOR CERTAIN SENIOR OFFICERS (Effective August 4, 1988) (As amended effective January 1, 1990)* - ---------------------------------------------------- * For text of amendments, see Riders A and B. 2 9/10/90 PAINE WEBBER GROUP, INC. SUPPLEMENTAL EMPLOYEE'S RETIREMENT PLAN FOR CERTAIN SENIOR OFFICERS (Effective August 4, 1988) (As amended effective January 1, 1990)* - --------------------------------------------------- * For text of amendments, see Riders A and B. 3 ARTICLE I 1.1 Creation of Plan Paine Webber Group, Inc. hereby establishes a Supplemental Employees' Retirement Plan for Certain Officers to be effective as and from the fourth day of August, 1988, and as more specifically set forth herein. Paine Webber Group, Inc. recognizes the unique services of the executive officers included as Participants herein and the importance to Paine Webber Group, Inc. and its stockholders of retaining such persons and, therefore, of providing compensation (including deferred compensation) that is competitive amongst similar firms. The Plan hereby created is intended to be a plan which is unfunded and is maintained by the employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA", 29 USC 1051, and similar sections of ERISA, passim.) 1.2 Concomitant Trust A concomitant trust is intended to be created hereby for the purpose of accumulating a corpus and income thereon which, subject to certain conditions precedent and subsequent shall be held in trust for the purpose of providing the benefits hereunder, and as specifically set forth in the Agreement and Declaration of Trust, it further being understood that under certain conditions the trusteeship created thereby shall be discharged and the corpus and income held thereby be paid to the settlor of the trust or its creditors rather than the 4 Page 2 individual Participants, as set forth in the Agreement and Declaration of Trust. The trust created hereby shall be revocable by the settlor until and unless the Internal Revenue Service shall rule (1) that contributions made to the trust shall not subject the Participants to income tax, until the proceeds of the trust shall be distributed to them and (2) that contributions made by the settlor to the trust shall not be deductible to the settlor in computing its net taxable income, but the amounts actually paid out to the Participants from the trust shall be so deductible, and shall be irrevocable thereafter. It is further intended that the trust created hereby shall be a grantor trust within the meaning of Section 673 of the Internal Revenue Code of 1986, as amended. 5 Page 3 ARTICLE II DEFINITIONS 2.1 "Act" shall mean the Securities Exchange Act of 1934 (15USC Ch 2B). 2.2 "Acquiring Person" shall mean any person (within the meaning of Sections 13(d) and 14(d) (2) of the Act) who becomes a beneficial owner (within the meaning of Section 13(d) of the Act and Rule 13d-3 of the rules of the SEC) of securities of Paine Webber Group, Inc. or PaineWebber Incorporated representing twenty percent (20%) or more of the combined voting power of the outstanding securities of Paine Webber Group, Inc. or PaineWebber Incorporated (as the case may be) having a right to vote at the election of directors. 2.3* "Basic Annual Compensation" shall mean the highest basic annual rate of compensation or remuneration paid to a Participant while employed by the Employer, exclusive of commissions, draw, bonuses or other irregular or special compensation. 2.4 "Board" means the Board of Directors of Paine Webber Group, Inc. 2.5 "Change in Control" shall mean the time when (i) an Acquiring Person shall acquire such shares as makes him an Acquiring Person, (ii) the majority of the members of the Board consists of persons elected to membership at the Board or shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors, (iii) all or substantially all of the business of Paine Webber Group, Inc. or PaineWebber Incorporated is disposed of pursuant - ---------------------------------------------------------------- * This Section has been amended. See Rider A for the text of Section 2.3 as amended effective January 1, 1990. 6 Page 4 to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with an entity of which fifty percent (50%) or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by the Paine Webber Group, Inc. both before and immediately after the merger, consolidation or other transaction) in which PaineWebber Incorporated is not the surviving corporation or Paine Webber Group, Inc. is materially or completely liquidated, or (iv) Paine Webber Group, Inc. or PaineWebber Incorporated combines with another entity and is the surviving corporation (other than a merger, consolidation or other transaction with an entity of which fifty percent (50%) or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by Paine Webber Group, Inc. both before and immediately after the merger, consolidation or other transaction) but, immediately after the combination, the shareholders of Paine Webber Group, Inc. hold, directly or indirectly, less than fifty percent (50%) of the total outstanding securities of the surviving corporation, but only with respect to such securities having a right to vote at the election of directors; but in all cases, if, and only if, the Disinterested Directors shall declare an Operative Date with respect to the occurrence of any of the aforesaid events. 2.6 "Compensation Committee" shall mean the Compensation Committee of the Board as from time to time constituted. 7 Page 5 2.7 "Disinterested Director" shall mean any member of the then Board of Directors other than (i) an officer or employee of the Employer, (ii) an Acquiring Person, or a nominee or representative of an Acquiring Person, or (iii) a person who was not a member of the Board on the Effective Date and who was nominated for election by other than a committee consisting solely of Disinterested Directors then on the Board (or elected by a majority of the Disinterested Directors then on the Board). 2.8 "Effective Date" shall mean January 1, 1988. 2.9 "Employer" shall mean Paine Webber Group, Inc., PaineWebber Incorpo- rated, Rotan Mosle Financial Corp., and PaineWebber International Inc. or any successors or assigns thereof. 2.10 "Participants" shall mean Donald B. Marron, Chairman and Chief Executive Officer; Donald E. Nickelson, President; Paul B. Guenther, Executive Vice President and Chief Administrative Officer; John A. Bult, President of PaineWebber International Inc.; and such other officers as the Compensation Committee shall, by resolution adopted by a majority of the Disinterested Directors then members of said Compensation Committee, determine from time to time. 2.11 "Plan" shall mean the Paine Webber Group, Inc. Supplemental Employees' Retirement Plan for Certain Senior Officers, as contained herein or as subsequently amended. 8 Page 6 2.12 "Operative Date" shall mean the date which the majority of the Disin- terested Directors determines any of the events set forth at items (i) through (iv), inclusive, of Section 2.5 hereof have occurred, unless the majority of said Disinterested Directors shall approve such merger, consolidation or other relevant event, in which latter case an Operative Date shall not be deemed to occur. 2.13 "SEC" shall mean the United States Securities and Exchange Commission. 9 Page 7 ARTICLE III PARTICIPATION 3.1 Initial Participants The initial Participants in this Plan shall be certain of the proxy officers of the Employer, viz.: (a) Donald B. Marron, Chairman and Chief Executive Officer; (b) Donald E. Nickelson, President; (c) Paul B. Guenther, Executive Vice President and Chief Administrative Officer; and (d) John A. Bult, President of PaineWebber International Inc. 3.2 Additional Participants Other officers shall become Participants hereunder, if, and only if, the Compensation Committee shall, by resolution adopted by a majority of the Disinterested Directors who are the members of said Compensation Committee, specifically so determine from time to time. 3.3 Reemployment If a Participant who shall terminate his participation hereunder without a right to receive a benefit under this Plan (pursuant to Article V hereof) shall again become an officer of the Employer (whether he was, during his first period of employment, an initial Participant pursuant to Section 3.2 hereof or an additional Participant pursuant to Section 3.2 hereof), he shall not again become a Participant under this Plan unless, and until, the Compensation 10 Page 8 Committee shall, by resolution adopted by a majority of the Disin- terested Directors who are the members of the Compensation Committee, specifically so determine. 11 Page 9 ARTICLE IV NORMAL RETIREMENT BENEFIT 4.1 Retirement Benefit With Fifteen or More Years of Service If a Participant hereunder shall retire after the Effective Date and on or after attaining his sixty-fifth birthday and he shall then have completed fifteen (15) or more years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date), then, in addition to all other retirement income there shall be paid to him a monthly retirement allowance which shall commence on the first day of the month coincident with or next following his date of retirement and shall be payable monthly thereafter as long as he shall live (but subject to the death benefit provided by Article VI hereof), with each such monthly payment being equal to one-twelfth of the difference between 1) item (a) below and 2) the sum of items (b) and (c) below, as follows: (a) The Participant's Basic Annual Compensation immediately prior to retirement, less (b) Twelve (12) times the primary insurance amount to which the Participant is then entitled in accordance with Section 215 of the Social Security Act of 1935, as amended (P.L. 74-271; 49 Stat 620), and (c) The annual retirement income to which the Participant is then entitled under the Paine Webber Pension Plan. 12 Page 10 4.2 Retirement Benefit with Five but less than Fifteen Years of Service If a Participant hereunder shall retire after the Effective Date and on or after attaining his sixty-fifth birthday and he shall then have completed five (5) or more years of service but less than fifteen (15) years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date), then, in addition to all other retirement income there shall be paid to him a monthly retirement allowance which shall commence on the first day of the month coincident with or next following his date of retirement and shall be payable monthly thereafter as long as he shall live (but subject to the death benefit provided by Article VI hereof), with each such monthly payment being equal to the difference between items (a) and (b) below, as follows: (a) The product of items (i) and (ii) below, as follows: (i) The Participant's Basic Annual Compensation immediately prior to retirement, multiplied by (ii) A fraction, not greater than one (1), the numerator of which is the number of years and fraction thereof of the Participant's "Credited Service" under the Paine Webber Pension Plan, as amended to date, at the time of his retirement, and the denominator of which is fifteen (15), less (b) The sum of items (i) and (ii) below, as follows: (i) Twelve (12) times the primary insurance amount to which the Participant is then entitled in accordance with Section 215 of the Social Security Act of 1935, as amended (P.L. 74-271;49 Stat 620), and 13 Page 11 (ii) The annual retirement income to which the Participant is then entitled under the Paine Webber Pension Plan. 4.3 No Benefit for Retirement with less than Five Years of Service If a Participant hereunder shall retire, whether on or after attaining his sixty-fifth birthday or otherwise and, at the time of such retirement, shall have completed less than five (5) years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date), no monthly retirement allowance or other retirement or death benefit shall be paid on account of such retirement or otherwise. 4.4 Election of Variable Annuity A Participant (or a spouse, contingent annuitant or beneficiary entitled to receive monthly retirement income hereunder), may, during an election period, elect that any such monthly retirement income be paid as a variable annuity in accordance with this Section 4.4. Any such election shall be made in the same manner as an election to receive an optional form of payment pursuant to Section 6.3 hereof. The election period herein prescribed shall commence on the ninetieth day preceding the commencement of the monthly retirement allowance provided by Articles IV or V hereof and shall end on the day in which such monthly retirement allowance commences. If so elected, then notwithstanding anything to the contrary, the following special rules shall be applicable with respect to the monthly retirement allowance so payable: 14 Page 12 (a) Effective with the date of commencement of such monthly retirement allowance continuing thereafter as long as such monthly retirement allowance continues to be paid, the Participant (or his spouse, contingent annuitant or beneficiary if then in receipt of such monthly retirement allowance) shall provide specific directions and instructions with respect to the investment of that person's aliquot share of the trust estate, in accordance with Section 5.3 of the Agreement and Declaration of Trust of the concomitant trust. (b) The amount of each such monthly retirement allowance payable until but not including the allowance for the next January immediately following the month in which the retirement allowance first commences shall be equal to that prescribed by Article IV, V or VI hereof, as applicable. (c) The amount of each such monthly retirement allowance payable for the calendar year following the year in which the monthly retirement allowance first commences shall be equal to the product of the amount determined in accordance with subparagraph b above and a fraction, the numerator of which shall be the assets representing the Participant's (or spouse's, contingent annuitant's or beneficiary's) aliquot share of the trust estate immediately following distribution of the retirement allowance for the preceding December and the denominator of which is the actuarially expected assets measured in the same manner as described above as if the investment assumption for the calendar year (or 15 Page 13 applicable part thereof) used by the actuary in valuing the Plan was exactly realized. Such calculation and result shall be performed by the actuary and duly certified by him. (d) The result determined by subparagraph c above shall constitute the amount of each monthly retirement allowance for the twelve months of the calendar year under consideration. (e) The monthly retirement allowance payable each month for the next succeeding calendar year, and each calendar year thereafter, shall be determined by applying the formula and methodology prescribed by subparagraph c above using the immediately prior and subsequent years for the purpose of the numerator of the fraction and the year in which payments are to be made, respectively. (f) If, because of the nature of the investments, at any time in which this election is in effect, the lack of liquidity of the investment makes it difficult or undesirable to make periodic payments of monthly retirement allowance, then, upon written request of the Participant (or spouse, contingent annuitant or beneficiary in receipt of payments) to the trustee of the concomitant trust, such payments during such period of illiquidity shall not be distributed but shall be accumulated on the books and records of the trustee and the total amount so accumulated shall be paid (without interest) on the first of the month next following written notice by the Participant (or spouse, contin- 16 Page 14 gent annuitant or beneficiary in receipt of payments) to the trustee advising the trustee that the illiquidity period has ceased and demanding payment from the trustee. 4.5 Determination of Social Security Amount Wherever herein a determination is required as to the primary insurance amount to which the Participant is entitled in accordance with Section 215 of the Social Security Act of 1935, as amended (P.L. 74-271; 49 Stat 620), such amount may be estimated in any reasonable, consistent and uniform manner. 17 Page 15 ARTICLE V TERMINATION OF EMPLOYMENT AND EARLY RETIREMENT 5.1 Termination of Employment Prior to Early Retirement of Initial Participants Any person who became a Participant pursuant to Section 3.1 hereof shall be fully and completely vested at all times after completion of five (5) years of service, in accordance with Section 4.3 hereof. Upon the termination of employment of such a Participant prior to attaining age fifty-five (55), a deferred monthly retirement allowance shall be payable which, at the sole election of the Participant, shall be equal to the benefit determined in accordance with either item (a) or item (b) below, as follows: (a) A monthly retirement allowance payable commencing on the first day of the month coincident with or next following the date that the Participant attained his fifty-fifth birthday (or on the first day of any intervening month prior to the commencement date for benefits provided by subsection (b) below) and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after attainment of age sixty-five (65), in accordance with Article VI hereof, except that his actual period of service to the date of his termination of employment shall be used, the primary insurance benefit under the Social Security Act shall be offset only when, and in the amount, actually payable (but the benefit shall 18 Page 16 be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable because of the Participant's termination of employment or retirement and shall be offset only when so payable. The resulting benefit shall be multiplied by a percentage, said percentage to equal one hundred percent (100%) less the sum of items (i) and (ii) below: (i) The product of twenty-five one hundredths percent (0.25%) and the number of months by which the later of the initial payment date of the early retirement benefit or the first day of the month coincident with or next following the Participant's sixtieth birthday precedes the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, plus (ii) The product of one-half percent (0.5%) and the number of months, if any, by which the initial payment date of the early retirement benefit precedes the first day of the month coincident with or next following the date that the Participant attains his sixtieth birthday. (b) A monthly retirement allowance payable commencing on the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after 19 Page 17 the attainment of age sixty-five (65), in accordance with Article IV hereof, except that his actual period of service to his early retirement date shall be used and that the primary insurance benefit under the Social Security Act shall be offset only in the amount actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable because of the Participant's early retirement or termination of employment. 5.2 Termination of Employment Prior to Early Retirement of Additional Participants Any Participant, other than a Participant described at Section 5.1 hereof, who terminates his employment with the Employer prior to either attaining his fifty-fifth birthday or both attaining his fiftieth birthday and completing ten (10) or more years of service (such service being measured and calculated in the same manner as is service for vesting purposes under the Paine Webber Pension Plan, as amended to date) shall not be entitled to any benefits from this Plan, but all such benefits shall be forfeited, except in the case of total and permanent disability, in accordance with Section 5.5 hereof. Any such Participant who terminates his employment prior to attaining his fifty-fifth birthday but after both attaining his fiftieth birthday and completing ten (10) or more years of service (such service being measured and calculated in the same manner as is service for vesting purposes under the Paine Webber Pension Plan, as amended to date) 20 Page 18 shall be entitled to a deferred monthly retirement allowance which, at the election of the Participant, shall be payable and determined in accordance with either item (a) or item (b) below, as follows: (a) A monthly retirement allowance payable commencing on the first day of the month coincident with or next following the date that the Participant attained his fifty-fifth birthday (or on the first day of any intervening month prior to the commencement date for benefits provided by subsection (b) below) and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after attainment of age sixty-five (65), in accordance with Article VI hereof, except that his actual period of service to the date of his termination of employment shall be used, the primary insurance benefit under the Social Security Act shall be offset only when, and in the amount, actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable because of the Participant's termination of employment or retirement and shall be offset only when so payable. The resulting benefit shall be multiplied by a percentage, said percentage to equal one hundred percent (100%) less the sum of items (i) and (ii) below: 21 Page 19 (i) The product of twenty-five one hundredths percent (0.25%) and the number of months by which the later of the initial payment date of the early retirement benefit or the first day of the month coincident with or next following, the Participant's sixtieth birthday precedes the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, plus (ii) The product of one-half percent (0.5%) and the number of months, if any, by which the initial payment date of the early retirement benefit precedes the first day of the month coincident with or next following the date that the Parti- cipant attains his sixtieth birthday. (b) A monthly retirement allowance payable commending on the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after the attainment of age sixty-five (65), in accordance with Article IV hereof, except that his actual period of service to his early retirement date shall be used and that the primary insurance benefit under the Social Security Act shall be offset only in the amount actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber 22 Page 20 Pension Plan shall be the actual amount payable because of the Participant's early retirement or termination of employment. 5.3 Early Retirement If a Participant shall retire on or after both attaining his fifty- fifth birthday and completion of five (5) years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date) but prior to attaining his sixty-fifth birthday, a monthly retirement allowance shall be payable, which, at the sole election of the Participant, shall be equal to the benefit determined in accordance with either item (a) or item (b) below, as follows: (a) A monthly retirement allowance payable commencing on the first day of the month coincident with or next following the date of the Participant's retirement as aforesaid (or on the first day of any intervening month prior to the commencement date for benefit provided by subsection (b) below) and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after attainment of age sixty-five (65), in accordance with Article IV hereof, except that his actual period of service to his early retirement date shall be used, the primary insurance benefit under the Social Security Act shall be offset only when, and in the amount, actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) 23 Page 21 and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable because of the Participant's early retirement. The resulting benefit shall be multiplied by a percentage, said percentage to equal one hundred percent (100%) less the sum of items (i) and (ii) below: (i) The product of one-half percent (0.5%) and the number of months by which the later of the initial payment date of the early retirement benefit or the first day of the month coincident with or next following the Participant's sixtieth birthday precedes the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, plus (ii) The product of twenty-five one hundredths percent (0.25%) and the number of months, if any, by which the initial payment date of the early retirement benefit precedes the first day of the month coincident with or next following the date that the Participant attains his sixtieth birthday. (b) A monthly retirement allowance payable commencing on the first day of the month coincident with or next following the date that the Participant attains his sixty-fifth birthday, and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after the attainment of age sixty-five (65), in accordance with Article IV hereof, except that his actual period of service to his early retirement date shall be used and that the primary insurance benefit under the Social Security Act shall be offset only when, 24 Page 22 and in the amount, actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable because of the Participant's early retirement. 5.4 Termination of Employment After Change in Control Notwithstanding the aforesaid, if a Participant shall terminate his employment with the Employer on or after the occurrence of a Change in Control and he shall then have completed five (5) or more years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date), he shall be fully vested in his benefit which shall be calculated and payable as follows: (a) A monthly retirement allowance shall be payable commencing on the first day of the month coincident with or next following the date of the Participant's termination of employment at or after the occurrence of a Change In Control and payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof). (b) Each such monthly payment shall be determined as for retirement at or after attainment of age sixty-five (65), in accordance with Article IV hereof, except that the service that he would have had upon his attainment of age sixty-five (65), had he continued in the employ of the Employer to such age and then retired, shall be used instead of his actual period of service 25 Page 23 to his termination date, the primary insurance benefit under the Social Security Act shall be offset only when, and in the amount, actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension shall be the actual amount payable because of the Participant's early retirement. 5.5 Disability Retirement If a Participant shall retire as a result of permanent and total disability and he shall then have completed five (5) or more years of service (such service being measured and calculated in the same manner as is "Credited Service" under the Paine Webber Pension Plan, as amended to date), then (notwithstanding anything to the contrary) he shall be entitled to a monthly retirement allowance as hereinafter described. For this purpose "permanent and total disability" shall mean such physical or mental incapacity from illness or accident as shall prevent said Participant from engaging in his usual and customary employment or any other employment for which he is reasonably fitted by education, training and experience and which is expected to last at least twelve (12) months or sooner result in death. A Participant eligible for Social Security disability benefits or payments under the Paine Webber Long Term Disability Plan shall be deemed 26 Page 24 totally and permanently disabled for this purpose. In all other cases, the Compensation Committee shall determine the total and permanent disability of a Participant based upon the findings and recommendations of a licensed physician. A Participant who so retires on account of total and permanent disability shall be entitled to a monthly retirement allowance which shall be payable commencing on the first day of the month coincident with or next following the date that the Participant retires from the employ of the Employer and shall be payable thereafter as long as he shall live (but subject to the death benefits provided by Article VI hereof) with each such monthly payment being determined as for retirement at or after attainment of age sixty-five (65). in accordance with Article VI hereof except that the service that he would have had upon his attainment of age sixty-five (65) had he continued in the employ of the Employer to such age and then retired, shall be used instead of his actual period of service to his termination date, the primary insurance benefit under the Social Security Act shall be offset only when, and in the amount, actually payable (but the benefit shall be assumed to have been elected to commence in a reduced amount at age sixty-two (62) unless the Participant shall provide evidence to the contrary) and the annual retirement income under the Paine Webber Pension Plan shall be the actual amount payable and shall be offset only when, and in the amount, so payable. 27 Page 25 5.6 Forfeiture Upon Entering Into Competitive Employment Notwithstanding anything to the contrary, if any Participant hereunder shall, simultaneously with, or subsequent to, his employment by the Employer (whether after retiring from the employment of the Employer or otherwise) become an owner, principal, officer, employee, consultant or investor in a financial services organization which is determined by the Compensation Committee to be in substantial and direct competition with the then core or basic lines of business of the Employer (whether the Participant personally participates in any such activities or not), then, in the sole and exclusive discretion of the Compensation Committee, any benefits otherwise due to such Participant under any Article hereunder may be forfeited and any assets related thereto reverted to the Employer. However, this Section 5.6 shall not be applicable in any event with respect to any of the Participant's activities after the earlier of (a) his attainment of age sixty (60), (b) following the first anniversary after the termination of his employment with the Employer, or (c) following a Change in Control. Furthermore, any investment of less than one percent (1%) of the stock of a publicly held company, if such investment is made solely for passive investment purposes and if such Participant shall not also become an officer, employee or consultant in a competing financial services organization shall not be deemed a sufficient investment so as to forfeit the benefits under this Plan. 28 Page 26 For the purpose of this Section 5.6, a "financial services organization in substantial and direct competition with the Employer" shall mean any organization, whether or not incorporated, engaging in any financial activities which are in substantial competition with the then core or basic lines of business of the Employer. Within two (2) weeks of a request of a Participant for a ruling (either after retirement or termination of employment or prior thereto), the Compensation Committee shall rule as to whether a particular organization would be considered a "financial services organization in substantial and direct competition with the Employer," provided the Compensation Committee may delay the ruling for a reasonable period of time for good cause, such as unavailability of Committee members. 29 Page 27 ARTICLE VI DEATH BENEFITS AND METHOD OF PAYMENT 6.1 Optional Form of Payment In lieu of the monthly retirement income payable to a Participant pursuant to Articles IV or V hereof, a Participant entitled to receipt of such monthly retirement income may elect, prior to commencement of such retirement income, to receive a lesser amount payable in accordance with any of the options set forth below at the election of the Participant: a. A ten year and life option. Under this option retirement income shall be payable monthly during the Participant's lifetime but not less than one hundred twenty (120) total monthly payments shall be made and if the Participant shall die before the minimum number of payments shall have been made, the remaining such payments shall be made to the beneficiary designated in writing by the Participant or if no such person shall be designated or no such beneficiary shall survive the Participant, the remaining such payments shall be paid to the Participant's estate. b. A contingent annuitant option. Under this option retirement income shall be payable monthly during the Participant's lifetime but if the Participant shall die and be survived by the person that he designated as contingent annuitant at the time his retirement income commenced (whether his spouse or any other 30 Page 28 person), then either one hundred percent (100%), seventy-five percent (75%) or fifty percent (50%), as designated by the Participant, of the retirement income amount payable to the Participant during his lifetime shall continue to be paid monthly during the remainder of the contingent annuitant's lifetime. 6.2 Actuarial Equivalent The amount of reduced monthly retirement income payable pursuant to Section 6.1 hereof shall be the actuarial equivalent of the benefits otherwise payable under Articles IV or V hereof, determined in the same manner, and with the same factors, assumptions and methodology as a similar calculation would have been performed under the Paine Webber Pension Plan. 6.3 Election of Optional Form of Payment A Participant may, by written election made prior to commencement of payments, elect any optional form provided by Section 6.1 hereof. Elections so made may be cancelled and new elections made prior to commencement of payments, but shall become irrevocable upon the commencement of such payments. In the case of multiple elections, the last such election prior to commencement of payments shall govern. The governing election shall include the name and date of birth of any designated contingent annuitant, if applicable. The election of a contingent annuitant option shall automatically become null and void if the designated contingent annuitant shall die prior to commencement of retirement income payments and the election of any option shall become null and void if the Participant shall die prior to commence- 31 Page 29 ment of monthly retirement income payments. However, a Participant may (either before or after retirement income payments commence) designate and redesignate the beneficiary or beneficiaries under a ten year and life option. The person or persons so designated shall acquire no vested rights in the designation during the lifetime of the Participant. A trust, or other entity may also be designated as beneficiary under a ten year certain and life option. 6.4 Special Election During Deferral Period A Participant who has retired early (pursuant to Article V hereof) but who has elected to defer commencement of monthly retirement income or who has terminated employment with a vested right to a deferred monthly retirement allowance pursuant to Section 5.1 or 5.2 hereof may elect that a payment option (pursuant to Section 6.3 hereof) become effective during the deferral period but not earlier than the date of retirement. The option of a Participant who makes such an election shall become irrevocable to the same extent provided by Section 6.3 hereof as and from the effective date of the election. If said Participant later dies during said deferral period but after the election became effective, monthly retirement income shall thereafter become payable to the same extent as if the payment of monthly retirement income commenced being paid to the Participant in the same month that the Participant's death occurred, or if later, the first date that the Participant could elect to receive a monthly retirement allowance if he survived. 6.5 [A new Section 6.5 has been added and became effective January 1, 1990. For the text of Section 6.5, see Rider B.] 32 Page 30 ARTICLE VII ADMINISTRATION 7.1 Authority to Administer The Compensation Committee shall be responsible for administering the Plan and shall have the exclusive authority to interpret it. The Compensation Committee shall have all powers and authorities necessary or appropriate to enable it to administer the Plan. 7.2 Expenses Expenses of the Plan and the concomitant trust provided by Section 1.2 hereof shall be borne by the Employer. The Compensation Committee shall receive no additional remuneration for administering the Plan. 33 Page 31 ARTICLE VIII MISCELLANEOUS 8.1 Amendment and Termination The Compensation Committee or the Board may terminate, modify or amend the Plan at any time in whole or in part. However, no such termination, modification or amendment shall adversely affect the right of any person to receive any benefits that have accrued hereunder prior to the date of such termination, modification, or amendment. 8.2 Spendthrift Clause No benefit of any Participant, contingent annuitant or beneficiary hereunder shall be subject to alienation, sale, transfer, assignment, pledge or encumbrance of any kind, either before or after his retirement or termination of employment. To the extent permitted by law, no such benefit shall be subject to levy, garnishment, attachment, distraint, or creditors' claims in bankruptcy or insolvency in any proceeding whatsoever; except that such payments may be subject to setoff, counterclaim or levy filed by or on behalf of the Employer. 8.3 Withholding Tax There shall be deducted and withheld from payments (and remitted to the taxing authority) any taxes required to be withheld by any Federal, state, local or other taxing authority. 34 Page 32 8.4 Interpretation Headings are inserted for convenience of reference only and are to be ignored in any interpretation of this Plan. The masculine includes the feminine and the singular the plural in all cases in which it would so apply. 35 Exhibit A The Plan has been amended by Board effective January 1, 1990. The amendment of the Plan consists of the following: (a) Section 2.3 has been revised. For the full text of Section 2.3 as amended by the Board effective January 1, 1990, see Exhibit A-1 which is attached. (b) A new Section 6.5 which became effective January 1, 1990, has been added by the Board. For the full text of Section 6.5, see Exhibit A-2 which is attached. 36 Exhibit A-1 2.3 "Basic Annual Compensation" shall mean the highest basic annual rate of compensation or remuneration paid to a Participant while employed by the Employer, exclusive of commissions, draw, bonuses or other irregular or special compensation except as may be provided otherwise as to any or all Participants by resolution adopted by a majority of the Disinterested Directors who are members of the Compensation Committee. 37 Exhibit A-2 6.5 Preretirement Spouse's Benefit (a) Eligibility for Spouse's Benefit. (i) Participants Named in Section 3.1 Hereof or who are Eligible for Benefits at Age 55 or Age 65. A surviving spouse of a Participant who dies while employed by the Employer (the "Spouse") shall be eligible to receive the greater of the annual Spouse's Benefit described in Section 6.5(b)(i) or the Spouse's Annuity described in Section 6.5(b)(ii) hereof, provided that at the time of the Participant's death either: (A) The Participant is named in Section 3.1 hereof or had attained age 55 and completed at least 10 years of service but had not attained age 65; or (B) The Participant had attained age 65 but he had not elected an optional form of benefit payment. (ii) Other Participants. If a Participant who is not named in Section 3.1 hereof and is not eligible to retire at age 55 or age 65 (A) has a vested interest in the benefits provided under this Plan, (B) dies before 38 2 he begins receiving any retirement income, and (C) has a Spouse, then his Spouse shall be eligible to receive the Spouse's Annuity (as defined in Section 6.5(b)(ii)). (b) Amount of Spouse's Benefit or Spouse's Annuity. (i) Participants Named in Section 3.1 Hereof or who are Eligible for Benefits at Age 55 or at Age 65. The Spouse's Benefit shall be an annual amount equal to 50% of the amount of retirement income which would have been payable to the Participant if he had retired on the first day of the month in which his death occurred. The payment of the Spouse's Benefit shall commence on the first day of the month immediately following the death of the Participant and subsequent payments shall be made on the first day of each month thereafter, with the last payment being made on the first day of the month coinciding with or preceding the death of the Spouse. (ii) Other Participants. For purposes of this Section, a Spouse's Annuity shall mean an annuity for the life of the Spouse where the amount of the payments to the Spouse shall be the same as (or the Actuarial 39 3 Equivalent of) the amount of the payments that would have been made under this Plan if: (A) in the case of a Participant who dies after attaining age 55, the Participant had retired on the day before his or her death with a contingent annuitant option, as described in Section 6.1(b) hereof, 50% payable to the Spouse, or (B) in the case of a Participant who dies on or before attaining age 55, the Participant had separated from service on the date of his or her death, survived until age 55, and retired at that time with a contingent annuitant option, as described in Section 6.1(b) hereof, 50% payable to the Spouse. The period for which the Spouse shall receive a payment under Clause (B) shall commence with the month in which the Participant would have attained age 55. 40 Rider A Section 2.3 is amended to read as follows: 2.3 "Basic Annual Compensation" shall mean the highest basic annual rate of compensation or remuneration paid to a Participant while employed by the Employer, exclusive of commissions, draw, bonuses or other irregular or special compensation except as may be provided otherwise as to any or all Participants by resolution adopted by a majority of the Disinterested Directors who are members of the Compensation Committee. 41 Rider B A new Section 6.5 is added to read as follows: 6.5 Preretirement Spouse's Benefit (a) Eligibility for Spouse's Benefit. (i) Participants Named in Section 3.1 Hereof or who are Eligible for Benefits at Age 55 or Age 65. A surviving spouse of a Participant who dies while employed by the Employer (the "Spouse") shall be eligible to receive the greater of the annual Spouse's Benefit described in Section 6.5(b)(i) or the Spouse's Annuity described in Section 6.5(b)(ii) hereof, provided that at the time of the Participant's death either: (A) The Participant is named in Section 3.1 hereof or had attained age 55 and completed at least 10 years of service but had not attained age 65; or (B) The Participant had attained age 65 but he had not elected an optional form of benefit payment. (ii) Other Participants. If a Participant who is not named in Section 3.1 hereof and is not eligible to retire at age 55 or age 65 (A) has a vested interest in the benefits provided under this Plan, (B) dies before 42 Rider B-2 he begins receiving any retirement income, and (C) has a Spouse, then his Spouse shall be eligible to receive the Spouse's Annuity (as defined in Section 6.5(b)(ii)). (b) Amount of Spouse's Benefit or Spouse's Annuity. (i) Participants Named in Section 3.1 Hereof or who are Eligible for Benefits at Age 55 or at Age 65. The Spouse's Benefit shall be an annual amount equal to 50% of the amount of retirement income which would have been payable to the Participant if he had retired on the first day of the month in which his death occurred. The payment of the Spouse's Benefit shall commence on the first day of the month immediately following the death of the Participant and subsequent payments shall be made on the first day of each month thereafter, with the last payment being made on the first day of the month coinciding with or preceding the death of the Spouse. (ii) Other Participants. For purposes of this Section, a Spouse's Annuity shall mean an annuity for the life of the Spouse where the amount of the payments to the Spouse shall be the same as (or the Actuarial 43 Rider B-3 Equivalent of) the amount of the payments that would have been made under this Plan if: (A) in the case of a Participant who dies after attaining age 55, the Participant had retired on the day before his or her death with a contingent annuitant option, as described in Section 6.1(b) hereof, 50% payable to the Spouse, or (B) in the case of a Participant who dies on or before attaining age 55, the Participant had separated from service on the date of his or her death, survived until age 55, and retired at that time with a contingent annuitant option, as described in Section 6.1(b) hereof, 50% payable to the Spouse. The period for which the Spouse shall receive a payment under Clause (B) shall commence with the month in which the Participant would have attained age 55. EX-10.26 10 DEFERRED COMPENSATION AGREEMENT, DONALD B. MARRON 1 EXHIBIT 10.26 DEFERRED COMPENSATION AGREEMENT BY AND BETWEEN PAINE WEBBER GROUP, INC. AND DONALD B. MARRON THIS AGREEMENT, made as of this 29 day of August, 1988 by and between Paine Webber Group, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal place of business at 1285 Avenue of the Americas, New York, New York 10019 ("Paine Webber") and Donald B. Marron of 555 Park Avenue, New York, New York 10021 ("Marron"); WITNESSETH WHEREAS, Marron is Chairman of the Board of Directors and Chief Executive Officer of Paine Webber; WHEREAS, Marron's services to Paine Webber are vital and unique; and WHEREAS, as consideration for Marron's continued employment, Paine Webber desires to provide Marron with deferred compensation in addition to current and deferred compensation otherwise or subsequently agreed to between the parties; NOW, THEREFORE, the parties hereto agree as follows, to wit: 2 Page 2 ARTICLE I ELIGIBILITY AND RELATION TO COMPENSATION AND OTHER BENEFITS 1.1 Marron shall be eligible for deferred compensation in accordance with this deferred compensation agreement and as further provided in the Paine Webber Group, Inc. Supplemental Employee's Retirement Plan for Certain Senior Officers (the "Plan"). In case of any conflict between the provisions of this deferred compensation agreement and the Plan, the provisions of the Plan shall govern. 1.2 The deferred compensation benefits herein provided shall be in addition to, and not in degradation of, any and all amounts of compensation, emoluments, perquisites and other remuneration previously agreed to between the parties or to be agreed to between the parties subsequent to the execution of this deferred compensation agreement; including, but not by way of limitation, any such compensation, emoluments, perquisites and other remuneration previously agreed to or to be agreed to between Marron and Paine Webber Incorporated, a wholely-owned subsidiary of Paine Webber, or any other subsidiary or affiliate of Paine Webber. DEFERRED COMPENSATION BENEFITS 2.1 If Marron shall retire from the employ of Paine Webber (or of any subsidiary or affiliated thereof including, but not limited to, Paine Webber Incorporated) upon or after attaining the age of sixty-five (65), then, in addition to all other retirement income, he shall receive a 3 Page 3 monthly retirement allowance payable as long as he shall live, with each such monthly retirement allowance equal to one-twelfth of the difference between item one below and item two below: 1. Marron's base compensation immediately prior to retirement, less 2. Marron's annual retirement income under the Paine Webber Pension Plan plus Marron's annual Primary Insurance Amount under the Social Security Act of 1935, as amended (49 Stat 620). 2.2 At the sole election of Marron (or his spouse, contingent annuitant or beneficiary then entitled to commence pension payments), which election shall be made in writing during a onetime election period which shall commence ninety (90) days prior to commencement of a monthly retirement allowance under any of the sections of this agreement and end on the day that such monthly retirement allowance commences, he shall make all of the specific investment directions and instructions with respect to his aliquot share of the trust estate, but only with respect to that period on and after his monthly retirement allowance commences. Marron may also designate an investment manager to issue such directions on his behalf. If Marron shall elect this option, the amount of each monthly retirement allowance shall be adjusted and determined as follows: 4 Page 4 (a) The monthly retirement allowance shall be equal to the amount otherwise determined under this agreement during the calendar year in which such monthly retirement allowance commences. (b) Thereafter, the monthly retirement allowance payable during each calendar year shall be equal to the monthly retirement allowance payable during the previous calendar year multiplied by a fraction, the numerator of which shall be Marron's aliquot share of the trust estate immediately following distribution of the retirement allowance of the preceding December and the denominator of which is the actuarially expected assets if the actuarially assumed investment assumption for the calendar year used by the actuary in valuing the Plan was exactly realized. 2.3 If Marron shall terminate his employment with Paine Webber (or of all of the subsidiaries and affiliates thereof, including but not limited to Paine Webber Incorporated), or his employment shall be terminated by Paine Webber (or the relevant subsidiary or affiliate) prior to his attaining age fifty-five (55), then, in addition to all other retirement income he may elect to have his benefit payable in accordance with subparagraphs (a) or (b) below (but not both such subparagraphs): (a) A monthly retirement allowance payable as long as he shall live to commence on the first of the month on or after attainment of age fifty-five, or on the first of any month thereafter prior to his attainment of age sixty-five, with such monthly retirement allowance determined in accordance with Section 2.1 hereof, except 5 Page 5 that the offsets provided by Section 2.1(2) hereof shall be subtracted only when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two) and shall be reduced for early retirement by multiplying the result by a percentage equal to one hundred percent (100%) less (i) One-half percent (0.5%) multiplied by the number of months by which the later of (1) the initial payment date or (2) the first day of the month coincident with or next following Marron's attainment of age sixty (60) precedes the first day of the month coincident with or next following the date that Marron attains age sixty-five (65), plus (ii) Twenty-five one hundredths percent (0.25%) multiplied by the number of months, if any, by which the initial payment date precedes the first day of the month coincident with or next following the date that Marron attains age sixty (60). (b) A monthly retirement allowance payable as long as he shall live to commence on the first day of the month coincident with or next following the date that Marron attains his sixty-fifth (65th) birthday, with such monthly retirement allowance determined in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted only when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 6 Page 6 2.4 If Marron shall retire from the employ of Paine Webber (or of any subsidiary or affiliate thereof including, but not limited to, Paine Webber Incorporated), after attaining the age of fifty-five (55) but prior to attaining the age of sixty-five (65), then, in addition to all other retirement income, he shall receive a monthly retirement allowance, payable as long as he shall live, which, at his election shall be payable in accordance with subparagraphs (a) or (b) below (but not both such subparagraphs): (a) A monthly retirement allowance to commence on the first day of the month coincident with or next following his date of retirement, or the first day of any month thereafter prior to his attainment of age sixty-five (65), with each such monthly retirement allowance determined in the same manner as for Section 2.3(a) hereof. (b) A monthly retirement allowance to commence on the first day of the month coincident with or next following the date that Marron attains his sixty-fifth (65th) birthday, with each such monthly retirement allowance determined in the same manner as for Section 2.3(b) hereof. 2.5 Notwithstanding anything to the contrary, if Marron shall retire or terminate his employment with Paine Webber (or any affiliate or subsidiary thereof) subsequent to a change in control (as defined in the Plan), then, in addition to all other retirement income his monthly retirement allowance hereunder shall commence on the first day of the month coincident with or next following his termination of employment 7 Page 7 and shall be payable as long as he shall live but the amount of monthly retirement allowance so payable shall be determined as for retirement at or after age sixty-five (65), in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 2.6 If Marron shall retire from the employ of Paine Webber (or of any subsidiary or affiliate thereof including, but not limited to, Paine Webber Incorporated) as a result of permanent and total disability (as defined in the Plan) then, in addition to all other retirement income, his monthly retirement allowance shall commence on the first day of the month coincident with or next following his termination of employment and shall be payable as long as he shall live, but the amount of monthly retirement allowance as payable shall be determined as for retirement at or after age sixty-five (65), in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 8 Page 8 2.7 Notwithstanding anything to the contrary, in the sole discretion of the Compensation Committee of the Board of Directors of Paine Webber, all benefits hereunder shall be forfeited, or all remaining benefits shall be forfeited, if Marron shall, at any time prior to the earliest of (1) one (1) year after termination of employment with Paine Webber, (2) attainment of age sixty (60) or (3) the occurrence of a Change in Control (as defined in the Plan), become an owner, principal, officer, employee, consultant or investor in a financial services organizations which is determined by the Compensation Committee of the Board of Directors of Paine Webber to be in substantial and direct competition with the then core or basic lines of business of Paine Webber. Upon request, within two (2) weeks, or a reasonable extension of that time for good cause, the Compensation Committee will rule as to whether employment with a specific organization will trigger the forfeiture herein provided. However, a passive investment of less than one percent (1%) of the stock of a publicly held company shall not, per se, be deemed engaging in substantial competition for this purpose. ARTICLE III DEATH BENEFITS AND PAYMENT OPTIONS 3.1 Notwithstanding anything to the contrary, at the sole election of Marron any monthly retirement allowance provided herein may be paid in any of the following forms of payment: a. For the lifetime of Marron only 9 Page 9 b. For the lifetime of Marron with a guarantee of a minimum of one hundred twenty (120) monthly payments (with guaranteed payments to be paid to the beneficiary designated by Marron if he shall die prior to receiving one hundred twenty (120) monthly payments). c. For the lifetime of Marron with payment of (as elected by Marron) one hundred percent (100%), seventy-five percent (75%) or fifty percent (50%) of the amount of each payment paid during Marron's lifetime continued after his death to his wife or other contingent annuitant designated by Marron. 3.2 If Marron shall elect any form of payment other than in accordance with Section 3.1(a) hereof, each monthly payment shall be the actuarial equivalent (as set forth in the Plan) of the monthly retirement allowance provided by Section 3.1(a) hereof. 3.3 If Marron elects, death benefit protection provided by the payment option pursuant to Section 3.2(c) hereof shall be effective after Marron's termination of employment or retirement but prior to commencement of the monthly retirement allowance hereunder, so as to protect the spouse or other contingent annuitant designated by Marron during the period in which payments are deferred. 10 Page 10 ARTICLE IV FUNDING AND ADMINISTRATION 4.1 The Compensation Committee of the Board of Directors shall have the authority to administer and interpret the provisions of this deferred compensation agreement and the Plan. 4.2 The obligations herein provided and provided under the Plan shall be contingently funded by certain assets held by a trustee, in trust, as an inter vivos trust for this purpose. Paine Webber and Marron, however, recognize that such assets are held in trust for this purpose subject to a condition precedent that Paine Webber will not become insolvent (as defined in the Agreement and Declaration of Trust) prior to any such distribution becoming due to Marron. If Paine Webber does become insolvent prior to that time, the trust estate will be reverted to Paine Webber or its creditors and, in that event, Marron will have an uninsured claim against Paine Webber for all benefits to which he is entitled under this deferred compensation agreement and the Plan and for which he did not receive a distribution from the assets held in the inter vivos trust aforesaid. 4.3 In any event Marron shall have the status of an unsecured creditor of Paine Webber with respect to all benefits due to Marron pursuant to this deferred compensation agreement and the Plan to the extent that such benefits are not paid out of the assets held in trust as aforesaid. 11 Page 11 4.4 Benefits herein provided are personal to Marron (and his beneficiary and contingent annuitant, if applicable) and may not be assigned, pledged, alienated, transferred, hypothecated or used for collateral and, to the extent permitted by law, may not be levied, attached or garnished or made subject to any proceeding in distraint or creditors' claims in bankruptcy or insolvency. IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN. /s/ Donald B. Marron (L.S.) PAINE WEBBER GROUP, INC. - -------------------------------- Donald B. Marron By /s/ Donald E. Nicholson ----------------------------- Title President -------------------------- 12 Rider A to the Deferred Compensation Agreement dated August 29, 1988 By And Between Paine Webber Group Inc. And Donald B. Marron. The Deferred Compensation Agreement By And Between Paine Webber Group Inc. and Donald B. Marron dated August 29, 1988 is hereby amended by adding a new Section 3.4, effective as of January 1, 1990, which reads in its entirety as follows: 3.4 In the event Marron dies while employed by Paine Webber or any affiliate thereof and with a surviving spouse, such spouse shall be eligible to receive the Preretirement Spouse's Benefit as provided in Section 6.5 of the Plan, as amended. /s/ Donald B. Marron (L.S.) Paine Webber Group Inc. - ------------------------------ Donald B. Marron By: /s/ James C. Treadway, Jr. --------------------------- Title: Vice President ------------------------ EX-10.27 11 DEFERRED COMPENSATION AGREEMENT, JOHN A. BULT 1 EXHIBIT 10.27 DEFERRED COMPENSATION AGREEMENT BY AND BETWEEN PAINE WEBBER GROUP, INC. AND JOHN A. BULT THIS AGREEMENT, made as of this 29th day of August, 1988 by and between Paine Webber Group, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal place of business at 1285 Avenue of the Americas, New York, New York 10019 ("Paine Webber") and John A. Bult of 980 Fifth Avenue, New York, New York 10021 ("Bult"); WITNESSETH WHEREAS, President of PaineWebber International Inc.; WHEREAS, Bult's services to Paine Webber are vital and unique; and WHEREAS, as consideration for Bult's continued employment, Paine Webber desires to provide Bult with deferred compensation in addition to current and deferred compensation otherwise or subsequently agreed to between the parties; NOW, THEREFORE, the parties hereto agree as follows, to wit: 2 Page 2 ARTICLE I ELIGIBILITY AND RELATION TO COMPENSATION AND OTHER BENEFITS 1.1 Bult shall be eligible for deferred compensation in accordance with this deferred compensation agreement and as further provided in the Paine Webber Group, Inc. Supplemental Employee's Retirement Plan for Certain Senior Officers (the "Plan"). In case of any conflict between the provisions of this deferred compensation agreement and the Plan, the provisions of the Plan shall govern. 1.2 The deferred compensation benefits herein provided shall be in addition to, and not in degradation of, any and all amounts of compensation, emoluments, perquisites and other remuneration previously agreed to between the parties or to be agreed to between the parties subsequent to the execution of this deferred compensation agreement; including, but not by way of limitation, any such compensation, emoluments, perquisites and other remuneration previously agreed to or to be agreed to between Bult and Paine Webber Incorporated, a wholely-owned subsidiary of Paine Webber, or any other subsidiary or affiliate of Paine Webber. DEFERRED COMPENSATION BENEFITS 2.1 If Bult shall retire from the employ of Paine Webber (or of any sub- sidiary or affiliate thereof including, but not limited to, Paine Webber Incorporated) upon or after attaining the age of sixty-five (65), then, in addition to all other retirement income, he shall receive a 3 Page 3 monthly retirement allowance payable as long as he shall live, with each such monthly retirement allowance equal to one-twelfth of the difference between item one below and item two below: 1. Bult's base compensation immediately prior to retirement, less 2. Bult's annual retirement income under the Paine Webber Pension Plan plus Bult's annual Primary Insurance Amount under the Social Security Act of 1935, as amended (49 Stat 620). 2.2 At the sole election of Bult (or his spouse, contingent annuitant or beneficiary then entitled to commence pension payments), which election shall be made in writing during a onetime election period which shall commence ninety (90) days prior to commencement of a monthly retirement allowance under any of the sections of this agreement and end on the day that such monthly retirement allowance commences, he shall make all of the specific investment directions and instructions with respect to his aliquot share of the trust estate, but only with respect to that period on and after his monthly retirement allowance commences. Bult may also designate an investment manager to issue such directions on his behalf. If Bult shall elect this option, the amount of each monthly retirement allowance shall be adjusted and determined as follows: 4 Page 4 (a) The monthly retirement allowance shall be equal to the amount otherwise determined under this agreement during the calendar year in which such monthly retirement allowance commences. (b) Thereafter, the monthly retirement allowance payable during each calendar year shall be equal to the monthly retirement allowance payable during the previous calendar year multiplied by a fraction, the numerator of which shall be Bult's aliquot share of the trust estate immediately following distribution of the retirement allowance of the preceding December and the denominator of which is the actuarially expected assets if the actuarially assumed investment assumption for the calendar year used by the actuary in valuing the Plan was exactly realized. 2.3 If Bult shall terminate his employment with Paine Webber (or of all of the subsidiaries and affiliates thereof, including but not limited to Paine Webber Incorporated), or his employment shall be terminated by Paine Webber (or the relevant subsidiary or affiliate) prior to his attaining age fifty-five (55), then, in addition to all other retirement income he may elect to have his benefit payable in accordance with subparagraphs (a) or (b) below (but not both such subparagraphs): (a) A monthly retirement allowance payable as long as he shall live to commence on the first of the month on or after attainment of age fifty-five, or on the first of any month thereafter prior to his attainment of age sixty-five, with such monthly retirement allowance determined in accordance with Section 2.1 hereof, except 5 Page 5 that the offsets provided by Section 2.1(2) hereof shall be subtracted only when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two) and shall be reduced for early retirement by multiplying the result by a percentage equal to one hundred percent (100%) less (i) One-half percent (0.5%) multiplied by the number of months by which the later of (1) the initial payment date or (2) the first day of the month coincident with or next following Bult's attainment of age sixty (60) precedes the first day of the month coincident with or next following the date that Bult attains age sixty-five (65), plus (ii) Twenty-five one hundredths percent (0.25%) multiplied by the number of months, if any, by which the initial payment date precedes the first day of the month coincident with or next following the date that Bult attains age sixty (60). (b) A monthly retirement allowance payable as long as he shall live to commence on the first day of the month coincident with or next following the date that Bult attains his sixty-fifth (65th) birthday, with such monthly retirement allowance determined in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted only when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 6 Page 6 2.4 If Bult shall retire from the employ of Paine Webber (or of any subsidiary or affiliate thereof including, but not limited to, Paine Webber Incorporated), after attaining the age of fifty-five (55) but prior to attaining the age of sixty-five (65), then, in addition to all other retirement income, he shall receive a monthly retirement allowance, payable as long as he shall live, which, at his election shall be payable in accordance with subparagraphs (a) or (b) below (but not both such subparagraphs): (a) A monthly retirement allowance to commence on the first day of the month coincident with or next following his date of retirement, or the first day of any month thereafter prior to his attainment of age sixty-five (65), with each such monthly retirement allowance determined in the same manner as for Section 2.3(a) hereof. (b) A monthly retirement allowance to commence on the first day of the month coincident with or next following the date that Bult attains his sixty-fifth (65th) birthday, with each such monthly retirement allowance determined in the same manner as for Section 2.3(b) hereof. 2.5 Notwithstanding anything to the contrary, if Bult shall retire or terminate his employment with Paine Webber (or any affiliate or subsidiary thereof) subsequent to a change in control (as defined in the Plan), then, in addition to all other retirement income his monthly retirement allowance hereunder shall commence on the first day of the month coincident with or next following his termination of employment and 7 Page 7 shall be payable as long as he shall live but the amount of monthly retirement allowance so payable shall be determined as for retirement at or after age sixty-five (65), in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 2.6 If Bult shall retire from the employ of Paine Webber (or of any subsidiary or affiliate thereof including, but not limited to, Paine Webber Incorporated) as a result of permanent and total disability (as defined in the Plan) then, in addition to all other retirement income, his monthly retirement allowance shall commence on the first day of the month coincident with or next following his termination of employment and shall be payable as long as he shall live, but the amount of monthly retirement allowance as payable shall be determined as for retirement at or after age sixty-five (65), in accordance with Section 2.1 hereof, except that the offsets provided by Section 2.1(2) hereof shall be subtracted when, and if, actually paid (subject to the rebuttable presumption of the payment of Social Security benefits commencing at age sixty-two). 8 Page 8 2.7 Notwithstanding anything to the contrary, in the sole discretion of the Compensation Committee of the Board of Directors of Paine Webber, all benefits hereunder shall be forfeited, or all remaining benefits shall be forfeited, if Bult shall, at any time prior to the earliest of (1) one (1) year after termination of employment with Paine Webber, (2) attainment of age sixty (60) or (3) the occurrence of a Change in Control (as defined in the Plan), become an owner, principal, officer, employee, consultant or investor in a financial services organizations which is determined by the Compensation Committee of the Board of Directors of Paine Webber to be in substantial and direct competition with the then core or basic lines of business of Paine Webber. Upon request, within two (2) weeks, or a reasonable extension of that time for good cause, the Compensation Committee will rule as to whether employment with a specific organization will trigger the forfeiture herein provided. However, a passive investment of less than one percent (1%) of the stock of a publicly held company shall not, per se, be deemed engaging in substantial competition for this purpose. ARTICLE III DEATH BENEFITS AND PAYMENT OPTIONS 3.1 Notwithstanding anything to the contrary, at the sole election of Bult any monthly retirement allowance provided herein may be paid in any of the following forms of payment: a. For the lifetime of Bult only 9 Page 9 b. For the lifetime of Bult with a guarantee of a minimum of one hundred twenty (120) monthly payments (with guaranteed payments to be paid to the beneficiary designated by Bult if he shall die prior to receiving one hundred twenty (120) monthly payments). c. For the lifetime of Bult with payment of (as elected by Bult) one hundred percent (100%), seventy-five percent (75%) or fifty percent (50%) of the amount of each payment paid during Bult's lifetime continued after his death to his wife or other contingent annuitant designated by Bult. 3.2 If Bult shall elect any form of payment other than in accordance with Section 3.1(a) hereof, each monthly payment shall be the actuarial equivalent (as set forth in the Plan) of the monthly retirement allowance provided by Section 3.1(a) hereof. 3.3 If Bult elects, death benefit protection provided by the payment option pursuant to Section 3.2(c) hereof shall be effective after Bult's termination of employment or retirement but prior to commencement of the monthly retirement allowance hereunder, so as to protect the spouse or other contingent annuitant designated by Bult during the period in which payments are deferred. 10 Page 10 ARTICLE IV FUNDING AND ADMINISTRATION 4.1 The Compensation Committee of the Board of Directors shall have the authority to administer and interpret the provisions of this deferred compensation agreement and the Plan. 4.2 The obligations herein provided and provided under the Plan shall be contingently funded by certain assets held by a trustee, in trust, as an inter vivos trust for this purpose. Paine Webber and Bult, however, recognize that such assets are held in trust for this purpose subject to a condition precedent that Paine Webber will not become insolvent (as defined in the Agreement and Declaration of Trust) prior to any such distribution becoming due to Bult. If Paine Webber does become insolvent prior to that time, the trust estate will be reverted to Paine Webber or its creditors and, in that event, Bult will have an uninsured claim against Paine Webber for all benefits to which he is entitled under this deferred compensation agreement and the Plan and for which he did not receive a distribution from the assets held in the inter vivos trust aforesaid. 4.3 In any event Bult shall have the status of an unsecured creditor of Paine Webber with respect to all benefits due to Bult pursuant to this deferred compensation agreement and the Plan to the extent that such benefits are not paid out of the assets held in trust as aforesaid. 11 Page 11 4.4 Benefits herein provided are personal to Bult (and his beneficiary and contingent annuitant, if applicable) and may not be assigned, pledged, alienated, transferred, hypothecated or used for collateral and, to the extent permitted by law, may not be levied, attached or garnished or made subject to any proceeding in distraint or creditors' claims in bankruptcy or insolvency. IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN. /s/ John A. Bult (L.S.) PAINE WEBBER GROUP, INC. - --------------------------------- John A. Bult By /s/ Donald B. Marron ---------------------------- Title ------------------------- 12 Rider A to the Deferred Compensation Agreement dated August 29, 1988 By And Between Paine Webber Group Inc. And John A. Bult. The Deferred Compensation Agreement By And Between Paine Webber Group Inc. and John A. Bult dated August 29, 1988 is hereby amended by adding a new Section 3.4, effective as of January 1, 1990, which reads in its entirety as follows: 3.4 In the event Bult dies while employed by Paine Webber or any affiliate thereof and with a surviving spouse, such spouse shall be eligible to receive the Preretirement Spouse's Benefit as provided in Section 6.5 of the Plan, as amended. /s/ John A. Bult (L.S.) PAINE WEBBER GROUP, INC. - --------------------------------- John A. Bult By: /s/ James Treadway ---------------------------- Title: Vice President ------------------------- EX-10.37 12 LEASE AGREEMENT 1 Exhibit 10.37 ================================================================= LEASE BETWEEN HARTZ-PW LIMITED PARTNERSHIP, as Landlord and PAINEWEBBER INCORPORATED as Tenant ================================================================= Premises: Operations Center LINCOLN HARBOR PROJECT 2 INDEX ARTICLE PAGE 1. Definitions ............................. 1 2. Demise and Term ......................... 7 3. Rent .................................... 7 4. Use of Building ......................... 9 5. Preparation of Building ................. 10 6. Tax and Operating Expense Payments ...... 12 7. Common Areas ............................ 15 6. Retail Space ............................ 17 9. Subordination ........................... 17 10. Quiet Enjoyment ......................... 20 11. Assignment, Subletting and Mortgaging ... 20 12. Compliance with Laws .................... 24 13. Insurance and Indemnity ................. 25 14. Rules and Regulations ................... 31 15. Alterations ............................. 32 16. Landlord's and Tenant's Property ........ 34 17. Repairs and Maintenance ................. 35 18. Electric Energy ......................... 37 19. Heat, Ventilation & Air Conditioning .... 37 20. Other Services: Service Interruption ... 37 21. Access, Changes and Name ................ 38 22. Mechanic's Liens and Other Liens ........ 38 23. Non-Liability and Indemnification ....... 39 24. Damage or Destruction ................... 40 25. Eminent Domain .......................... 45 26. Surrender ............................... 47 27. Conditions of Limitation ................ 48 28. Re-Entry by Landlord .................... 49 29. Damages ................................. 50 30. Affirmative Waivers ..................... 53 31. No Waivers .............................. 54 32. Curing Tenant's Defaults ................ 54 33. Broker .................................. 55 34. Notices ................................. 55 35. Estoppel Certificates ................... 56 36. Arbitration ............................. 56 37. Memorandum of Lease ..................... 57 38. Miscellaneous ........................... 57 39. Extension of Term ....................... 62 40. Determination of Fair Market Rent ....... 63 3 Exhibits Exhibit "A" Description of the Building Exhibit "B" Demised Premises Exhibit "C" Fixed Rent Exhibit "D" Floor Space Exhibit "E" Land Exhibit "F" Landlord's Work Exhibit "G" Loan Terms Exhibit "H" Operating Expenses Exhibit "I" Plans and Specifications Exhibit "J" Tenant's Work Exhibit "K" Parking Plan Exhibit "L" Lincoln Harbor Project Exhibit "M" Retail Space Exhibit "N-1" Form of Superior Mortgage Subordination, Nondisturbance and Attornment Agreement Exhibit "N-2" Form of Superior Lessor Subordination, Nondisturbance and Attornment Agreement Exhibit "O" Form of Ground Lessor Nondisturbance and Attornment Agreement Exhibit "P" Cleaning Standards ii 4 Lease, dated April 14, 1986 between HARTZ-PW LIMITED PARTNERSHIP, a New Jersey limited partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 and PAINEWEBBER INCORPORATED, a Delaware corporation, having an office at 1285 Avenue of the Americas, New York, New York 10019. ARTICLE 1 - DEFINITIONS 1.01 As used in this Lease (including in all Exhibits and any Riders attached hereto, all of which shall be deemed to be part of this Lease) the following words and phrases shall have the meanings indicated: A. Additional Charges: All amounts that become payable by Tenant to Landlord hereunder other than the Fixed Rent. B. Architect: Kenneth Carl Bonte, or as Landlord may designate, subject to Tenant's approval, which approval shall not be unreasonably withheld or delayed. C. Architect's Certificate: The certificate to be issued by Architect either (i) if Landlord is not designated by Tenant to perform Tenant's Work, that Landlord's Work has been completed in accordance with the Plans and Specifications, to the extent necessary so that Tenant may commence Tenant's Work, or (ii) if Landlord is designated by Tenant to perform Tenant's Work, that the Building and the Demised Premises have been Substantially Completed in accordance with the Plans and Specifications. D. Broker: Joseph Hilton & Associates Incorporated. E. Building: The building to be located on the Land as more particularly described on the plan attached hereto as Exhibit "A" and made a part hereof. F. Calendar Year: Any twelve-month period during the term of this Lease commencing on a January 1. G. Commencement Date: The earlier of (a) (i) if Landlord is not designated by Tenant to perform Tenant's Work, eight (8) months from the completion of Landlord's Work to the extent necessary so that Tenant may commence Tenant's Work, together with the delivery of 5 Architect's Certificate, or (ii) if Landlord is designated to perform Tenant's Work, the date on which Landlord Substantially Completes Landlord's Work and Tenant's Work and delivers the Demised Premises to Tenant, provided, however, that in the case of (i) or (ii) above, the Commencement Date shall not occur prior to the thirtieth (30th) day after delivery of the Commencement Notice, nor earlier than July 1, 1988, (b) the date Tenant, or anyone claiming under or through Tenant, first occupies the Demised Premises or any part thereof and is open for business, provided that in such event, the Commencement Date shall be deemed to have occurred only for the floors of the Demised Premises actually so occupied, or (c) the date upon which the Commencement Date would have occurred under (a) above, but for delays caused by the Tenant. H. Commencement Notice: Thirty (30) days prior written notice from Landlord to Tenant (i) if Landlord is not designated by Tenant to perform Tenant's Work, of the date on which Landlord's Work shall be completed to the extent necessary so that Tenant may commence Tenant's Work, or (ii) if Landlord is designated by Tenant to perform Tenant's Work, of the date on which the Building and the Demised Premises shall be Substantially Completed . I. Common Areas: All areas, spaces and improvements in the Building (other than the Demised Premises) and/or on the Land, which Landlord makes available from time to time for the common use and benefit of the tenants and occupants of the Building, including, without limitation, lobbies, hallways, parking areas, and planted areas, if any. J. Demised Premises: As defined on Exhibit "B" annexed hereto and made a part hereof. K. Expiration Date: The date that is the day before the twenty-fifth (25th) anniversary of the latest to occur of (i) the Commencement Date, or (ii) the Commencement Date of the Data Processing Lease (hereinafter defined) (as such term is defined in the Data Processing Lease), or (iii) the Commencement Date (as such term is defined in the Agreement of Lease, dated of even date herewith, between Hartz-PW Hotel Limited Partnership, as landlord, and Tenant, as tenant, for certain office premises in the Lincoln Harbor Project (the "Hotel/Office Lease")) of the Hotel/Office Lease, if the later to occur 2 6 of such dates is the first day of a month, or the twenty fifth (25th) anniversary of the last day of the month in which the later to occur of such dates occurs if the later to occur of such dates is not the first day of a month. However, if the Term is extended by the Tenant's effective exercise of any Renewal Option, the "Expiration Date" shall be changed to the last day of the applicable Renewal Term. For the purpose of this definition, the earlier termination of this Lease shall not affect the "Expiration Date." L. Fixed Rent: As set forth on the Rent Schedule on Exhibit "C" annexed hereto and made a part hereof, as redetermined pursuant to Section 39.02 hereof. M. Fixed Rent Commencement Date: The date(s) which is the first anniversary of the Commencement Date (or Dates) subject to adjustment as provided in Sec- tion 5.05 hereof. N. Floor Space: 578,028, as the same may be increased or decreased pursuant to Section 38.11 hereof, and as more particularly set forth on Exhibit "D" annexed hereto and made a part hereof. 0. Ground Lease: The Agreement of Lease, dated of even date herewith, between Ground Lessor, as landlord, and Landlord, as tenant, pursuant to which Ground Lessor, leased the Land to Landlord. P. Ground Lessor: Hartz Mountain Industries, Inc. ("Hartz"), its successors and assigns. Q. Insurance Requirements: Rules, regulations, orders and other requirements of the applicable board of underwriters and/or the applicable fire insurance rating organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance over the Land and Building, whether now or hereafter in force. R. Land: The land described on Exhibit "E" annexed hereto and made a part hereof. S. Landlord: On the date as of which this Lease is made, shall mean Hartz-PW Limited Partnership, a New Jersey limited partnership, having an address at 400 Plaza Drive, Secaucus, New Jersey 07094, but thereafter 3 7 "Landlord" shall mean only the ground lessee under the Ground Lease or if the Ground Lease shall have ceased to exist, the fee owner of the Land, or if there shall exist another Superior Lease or Leases, the tenant under the Superior Lease immediately prior in estate to this Lease. T. Landlord's Work: The materials and work to be furnished, installed and performed by Landlord at its expense in accordance with the provisions of Exhibit "F" annexed hereto and made a part hereof. U. Legal Requirements: Laws and ordinances of all federal, state and local governments, and rules, regulations, orders and directives of all departments, subdivisions, bureaus, agencies or offices thereof, and of any other governmental authorities having jurisdiction over the Land and Building. V. Mortgage: The mortgage creating a lien on the leasehold estate created by the Ground Lease, to be entered into pursuant to a loan commitment substantially on the terms set forth in the schedule annexed hereto as Exhibit "G" and made a part hereof, and any replacement, extension, modification or amendment thereto. W. Operating Expenses: An amount equal to the costs and expenses for the items set forth on Exhibit "H" annexed hereto and made a part hereof. X. Permitted Uses: General and executive office use and all uses incidental to securities trading and sales (including without limitation, retail securities trading and sales) including, without limitation, operation of trading floors and trading support systems. Y. Person: A natural person or persons, a partnership, a corporation, or any other form of business or legal association or entity. Z. Plans and Specifications: The schematics annexed hereto as Exhibit "I" and made a part hereof which have been approved by Tenant and all plans and specifications developed for the Building, which shall be subject to Tenant's prior written approval, which approval shall not be unreasonably withheld or delayed. AA. Project Common Areas: All areas, spaces and improvements in the Lincoln Harbor Project (other 4 8 than those located on the Land) which are made available from time to time for the common use and benefit of the tenants and occupants or the Lincoln Harbor Project, including, without limitation, non-exclusive parking areas, roads, walkways, sidewalks and landscapes and planted areas, if any. BB. Real Estate Taxes: The real estate taxes, assessments and special assessments imposed upon the Demised Premises by any federal, state, municipal or other governments or governmental bodies or authorities. If at any time during the Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate there shall be levied, assessed or imposed on Landlord specifically in substitution for any of the foregoing Real Estate Taxes (a) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, or (b) any other such additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges or the part thereof so measured or based shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof, calculated as if Landlord's only asset were the leasehold estate created by the Ground Lease. CC. Renewal Options: Shall have the meaning set forth in Section 39.01 hereof. DD. Renewal Terms: Shall have the meaning set forth in Section 39.01 hereof. EE. Rent: The Fixed Rent and the Additional Charges . FF. Rules and Regulations: The reasonable rules and regulations that may be promulgated by Landlord from time to time, as may be reasonably changed by Landlord from time to time. GG. Substantially Completed: Substantially Completed or terms of similar import shall mean the completion of construction, and the issuance of a temporary certificate of occupancy therefore, except for minor details, designated or punchlists delivered to Tenant, of 5 9 construction, decoration and mechanical adjustment, the non-completion of which will not materially interfere with the performance of Tenant's Work or Tenant's use and occupancy of the Demised Premises for Tenant's normal business purposes, and the completion of which is expected to occur within sixty (60) days after such Substantial Completion . HH. Successor Landlord: Shall have the meaning set forth in Section 9.03. II. Superior Lease: Any ground or underlying lease of the Land or the Building. JJ. Superior Lessor: The lessor of a Superior Lease or its successor in interest, at the time referred to . KK. Superior Mortgage: Any mortgage, including the Mortgage, which may hereafter affect the Land, the estate created under the Ground Lease or by any other Superior Lease, or the Building and all renewals, extensions, supplements, amendments, modifications, consolidations, and replacements thereof or thereto, substitutions therefore, and advances made thereunder. LL. Superior Mortgagee: The mortgagee of a Superior Mortgage at the time referred to, sometimes herein referred to as a Mortgagee. MM. Tenant: On the date of which this Lease is made shall mean PaineWebber Incorporated, but there after, "Tenant" shall mean only the tenant under this Lease at the time in question; provided, however, that the foregoing shall not be deemed to relieve PaineWebber Incorporated of any liability in the event of an assignment of its interest in this Lease except in accordance with the provisions of Section 11.04(b) hereof. NN. Tenant's Fraction: 95.62%, as the same may be decreased pursuant to Section 38.11 hereof. 00. Tenant's Property: Shall have the meaning set forth in Section 16.02. PP. Tenant's Work: The facilities, materials and work which may be undertaken by or for the account of Tenant (other than the Landlord's Work) to equip, deco- 6 10 rate and furnish the Demised Premises for Tenant's initial occupancy in accordance with the provisions of Exhibit "J" annexed hereto and made a part hereof. QQ. Term: The period commencing on the Commencment Date and ending at 11:59 P.M. of the Expiration Date unless otherwise terminated in accordance with the provisions hereof. RR. Unavoidable Delays: A delay arising from or as a result of a strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or civil commotion, act of war, fire or other catastrophe, Legal Requirement or an act of the other party and any cause beyond the reasonable control of that party, provided that the party asserting such Unavoidable Delay has exercised its best efforts to minimize such delay. The party asserting such delay, promptly upon becoming aware of such Unavoidable Delay, shall give written notice of such Unavoidable Delay to the other party. ARTICLE 2 - DEMISE AND TERM 2.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, for the Term. Promptly following the Commencement Date, the parties hereto shall enter into an agreement in form and substance reasonably satisfactory to Landlord and Tenant setting forth the Commencement Date. ARTICLE 3 - RENT 3.01 Tenant shall pay the Fixed Rent in equal monthly installments in advance on the first day of each and every calendar month beginning on the Fixed Rent Commencement Date. If the Fixed Rent Commencement Date occurs on a day other than the first day of a calendar month, the Fixed Rent for such partial calendar month shall be prorated on a per diem basis and paid on the Fixed Rent Commencement Date. 3.02 The Rent shall be paid in lawful money of the United States to Landlord by wire transfer of immediately available funds to a bank which is a member of the New York Clearinghouse Association, or by check to such other place as Landlord shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due and without any abatement, deduction or setoff for any reason 7 11 whatsoever, except as may be expressly provided in this Lease. In case of payment by check, Tenant shall assume the risk of lateness or failure of delivery of the mails, and no lateness or failure of the mails will excuse Ten- ant from its obligation to have made the payment in question when required under this Lease. 3.03 No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 3.04 If Tenant is in arrears in payments of Rent, Tenant waives Tenant's right, if any, to designate the items to which any payments made by Tenant are to be credited, and Landlord may apply any payments made by Tenant to such items as Landlord sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items to which any such payments shall be credited. 3.05 If Tenant shall fail to pay any installment of Fixed Rent within five (5) days or any other item of Rent within twenty (20) days after the date when such payment is due and Landlord shall have delivered a bill for the same (which delivery may be by invoice and shall not be required to comply with the requirements for notices specified in Article 34 hereof), then, any such payment shall bear interest calculated from the due date to the date such payment is received by Landlord at a rate equal to two (2) percentage points in excess of the rate of interest publically announced from time to time by Citibank, N.A., or its successor, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate") (the "Late Payment Rate"). 3.06 It is the intention of the parties that the Fixed Rent payable under this Lease shall be net to Landlord, so that this Lease shall yield to Landlord the Fixed Rent specified herein during the Term of this Lease, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised 8 12 Premises shall be paid by Tenant, other than liens placed on the Demised Premises by Landlord, or claims against Landlord for Landlord's negligence or default under the terms of this Lease (nothing herein shall be construed as affecting the provisions of any insurance carried by Landlord, Tenant, subtenant or assign with respect to the Demised Premises, including fire and hazard insurance, liability insurance and any other insurance). ARTICLE 4 - USE OF BUILDING 4.01 Tenant shall use and occupy the Demised Premises only for the Permitted Uses, and any other lawful purpose in keeping with the character of the Building and the Lincoln Harbor Project (as defined on Exhibit "K", annexed hereto and made a part hereof), and Tenant shall not use or permit or suffer the use of the Demised Premises or any part thereof for any illegal or hazardous purpose. 4.02 On or before the Commencement Date, Landlord shall obtain a certificate of occupancy for the core and shell of the Building. Each governmental license or permit, including the certificate of occupancy or its lawful functional equivalent, required for the proper and lawful conduct of Tenant's business in the Demised Premises or any part thereof, shall be duly procured either by Tenant if Tenant shall perform Tenant's Work, or by Landlord if Landlord shall perform Tenant's Work, and thereafter Tenant shall maintain such license or permit and submit the same to Landlord for inspection. Tenant shall at all times comply with the terms and conditions of each such license or permit. Tenant shall not at any time use or occupy, or suffer or permit anyone to use or occupy the Demised Premises, or do or permit anything on the Demised Premises, in any manner which (a) violates the certificate of occupancy for the Demised Premises; (b) causes injury to the Building, including the structure, roof or building systems thereof, (c) constitutes a violation of the Legal Requirements or Insurance Requirements; (d) impairs the character, reputation or appearance of the Building as a first-class office building; or (e) interferes with the right of quiet enjoyment of tenants or occupants of the Land or adjacent premises. 9 13 ARTICLE 5 - PREPARATION OF BUILDING 5.01 The Building shall be prepared for Tenant's Work in the manner described in, and subject to the provisions of, Exhibit "F" annexed hereto, on or before November 1, 1987, and Landlord's Work shall be Substantially Completed on or before December 1, 1987, in either event provided that Tenant shall deliver to Landlord plans and specifications for the core and shell of the Building on or before April 15, 1986. Such date for Substantial Completion of the Building shall be postponed one day for each day beyond April 15, 1986 on which Tenant does not deliver such plans and specifications. Tenant promptly shall enter the Demised Premises on the later to occur of the delivery of the Architect's Certificate or the date which is thirty (30) days after receipt of the Commencement Notice. Landlord shall, from time to time, upon request of Tenant advise Tenant of the progress of Landlord's Work and the estimated date that Tenant may commence or cause to be commenced Tenant's Work. Except as expressly provided to the contrary in this Lease, the commencement by Tenant of the Tenant's Work shall be evidence that the Demised Premises were in good and satisfactory condition at the time Tenant's Work was undertaken except as to (i) any defects in the Demised Premises which were not known or reasonably discoverable by Tenant by observation or an inspection ("Latent Defects"), (ii) any items of work performed by Landlord of which Tenant gives Landlord notice within one hundred twenty (120) days after the Commencement Date, and (iii) portions of the work performed by Landlord not completed, because under good construction scheduling practice such work should be done after completion of still incompleted finishing or other work to be done by or on behalf of Tenant. Landlord shall complete all such items of work not so completed within sixty (60) days after the date of Substantial Completion. Landlord, its agents, servants, employees and contractors shall have the right to enter the Demised Premises to complete or repair any such unfinished items and Latent Defects upon reasonable prior notice to Tenant. Landlord shall warrant all construction and equipment delivered in or with Landlord's Work for a period of one (1) year from the Commencement Date. Landlord shall assign such longer warranties as may be provided with any item of equipment or material installed in the Building shell to Tenant, or, if the same are not assignable, shall assign to Tenant the right to enforce the same. Landlord covenants that the warranty obtained 10 14 with respect to the roof shall be for a minimum of ten (10) years from completion of the roof in accordance with the Plans and Specifications. Landlord shall furnish Tenant with an assignment of such warranties to the extent that same are given by subcontractors or materialmen. 5.02 If the Substantial Completion of the Landlord's Work shall be delayed due to (a) any act or omission of Tenant or any of its employees, agents or contractors [including, without limitation, (i) any delays due to changes in or additions to the Landlord's Work made at the request of Tenant or (ii) any delays by Tenant in the submission of plans, drawings, specifications or other information or in approving any working drawings or estimates or in giving any authorizations or approval(s)], or (b) any additional time needed for the completion of the Landlord's Work by the inclusion in the Landlord's Work of any extra work required of Landlord by Tenant, then Landlord's Work in connection with the Demised Premises shall be deemed Substantially Complete on the date it would have been Substantially Complete but for such delay(s). Landlord promptly and contemporaneously shall notify Tenant of any delay in completion claimed to be caused by any of the items enumerated in sub-section (a) above. 5.03 Landlord reserves the right, at any time and from time to time, to increase, reduce or change the number, type, size, location, nature and use of any other improvements on the Land, including without limitation, the right to move and/or remove same, provided same shall not block or unreasonably interfere with Tenant's means of ingress or egress to and from the Building. Landlord shall insure that in connection with the development of the Lincoln Harbor Project, Ground Lessor shall not deviate materially from the approved site plan without Tenant's prior consent, which consent shall not be unreasonably withheld or delayed, and provided further that Tenant may thereupon request a recalculation of Operating Expenses in accordance with Section 38.11 hereof. 5.04 The interior finish of the Demised Premises is he responsibility of Tenant as Tenant's Work. Landlord shall provide an allowance ("Tenant's Fund") equal to the product of Twenty-Four Dollars ($24) and the Floor Space. 11 15 5.05 At Tenant's request from time to time, but not more frequently than once each month, Landlord shall disburse within fifteen (15) days of verification portions of the Tenant Fund to Tenant in an amount equal to the product of Twenty-Four Dollars ($24) and the percentage of completion of Tenant's Work, as certified by the architect employed by Tenant in connection with Tenant's Work and verified or objected to by Architect within fifteen (15) days of receipt thereof (it being agreed that if Architect shall fail to respond within such fifteen (15) day period, such certification shall be deemed to have been verified). Landlord shall be Permitted to bid upon the Tenant's Work. Tenant shall be responsible (and may employ a construction manager if Tenant so desires to employ such at its own expense) for all Tenant Work. In the event Landlord shall be awarded the bid, Landlord shall complete the Tenant Work of the Building within six (6) months of the completion of the shell of the Building; predicated upon Landlord receiving Tenant's request for proposal on or before August 1, 1987 and Landlord starting the Tenant Work in the tenth (10th) month of the Building shell construction. This shall provide eight (8) months total elasped time for Tenant's Work. In the event another contractor is awarded the bid, Landlord shall fully cooperate with such contractor to assist its timely completion of Tenant's Work and such contractor shall utilize employees and subcontractors who shall not cause union labor conflicts. ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS 6.01 On or before the Commencement Date, Landlord shall use its best efforts to obtain from the City of Weehawken, a separate tax lot and zoning lot number for the Building. Commencing on the Commencement Date and provided that Landlord shall have obtained a separate tax lot number for the Building, Tenant shall pay to Landlord an amount equal to Tenant's Fraction of the Real Estate Taxes for any year during the Term five (5) business days before any delinquency fee would be imposed upon the payment of the same. If Landlord shall not have obtained a separate tax lot number for the Building on or before the Commencement Date, then, commencing on the Commencement Date, Tenant shall pay to Landlord an amount equal to Tenant's Proportionate Share (hereinafter defined) of the Real Estate Taxes for the tax lot of which the Land forms a part for any year during the Term not later than five (5) business days before any delinquency 12 16 fee would be imposed upon the payment of the same, until such time as Landlord shall have obtained such separate tax lot number; but in no event shall Tenant's payment for Real Estate Taxes be more or less than that amount which Tenant would have paid if the Building were a separate tax lot. Tenant's "Proportionate Share" shall mean Tenant's Fraction of the sum of (x) the tax attributable to the Building and other improvements located on the Land, as may be separately assessed or as shown on the Tax Assessor's Notes, and (y) 4.42% of the tax attributable to the tax lot of which the Land forms a portion. Landlord agrees that, throughout the Term, the Building will constitute a separate tax lot, separate and apart from other real property. In determining the amount of Real Estate Taxes for the partial calendar years in which the Term shall commence or expire, Real Estate Taxes payable in such calendar year shall be apportioned for that portion of the Tax Year (hereinafter defined) occurring within the calendar year and Real Estate Taxes for such calendar year shall be prorated for the number of days in such calendar year occurring subsequent to the Commencement Date or prior to the Expiration Date, as the case may be. "Tax Year" shall mean the period January 1 through December 31 (or such other period as hereafter may be duly adopted by the City of Weehawken as its fiscal year for Real Estate Tax purposes), any portion of which occurs during the Term. Tenant shall have the right to institute, and in good faith prosecute, tax certiorari proceedings with respect to the Building and the Land. In the event of the institution of such proceedings, such proceedings shall be at Tenant's sole cost and expense and Landlord shall cooperate fully with Tenant in connection with any such proceedings. 6.02(a) Not less than ninety (90) days prior to the Commencement Date, Landlord shall deliver to Tenant a statement estimating the Operating Expenses for the partial calendar year commencing on the Commencement Date and Tenant shall pay to Landlord on the first day of each month during the first partial calendar year of the Term an amount equal to such estimated Operating Expenses divided by the number of months or partial months in such partial calendar year. On or before March 1 of each calendar year or partial calendar year subsequent to the first partial calendar year during the Term, Landlord shall furnish Tenant with an operating statement (the "Operating Statement") in reasonable detail setting forth the actual Operating Expenses for the preceding calendar 13 17 year. If such Operating Statement shall show that the actual Operating Expenses for the preceding calendar year were in excess of those estimated by Landlord and previously paid by Tenant, then within thirty (30) days after receipt of such actual Operating Statement, Tenant shall remit to Landlord any such deficiency. If such Operating Statement shall show that Tenant shall have paid amounts in excess of the actual Operating Expenses, then Landlord shall remit to Tenant, together with such Operating Statement, a check in the amount equal to such excess payments. (b) In addition, in each Operating Statement, Landlord may set forth any estimated increases in Operating Expenses for the then current calendar year, provided, however, that in no event shall Landlord's estimate exceed an amount equal to the sum of the actual Operating Expenses for the preceding calendar year and an amount equal to such actual Operating Expenses multiplied by the percentage increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y.-Northeastern N.J. Area, All Items (1967=100), or any successor index thereto, appropriately adjusted (the "CPI"). If the CPI ceases to be published, and there is no successor thereto, such other index as Landlord or Tenant shall agree upon in writing shall be substituted for the CPI. If Landlord or Tenant are unable to agree as to such substituted index, such matter shall be submitted to the American Arbitration Association or any successor organization for determination in accordance with the regulations and procedures thereof then obtaining for commercial arbitration. After receipt of such Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of the amount shown on such statement multiplied by the number of months of the Term in said calendar year preceding the demand, less the amount (if any) paid by Tenant prior to such demand pursuant hereto for such months, and hereafter, commencing with the month in which the demand is made in continuing hereafter for each month of the Term until the rendition of a new Operating Statement, 1/12th of the amount shown on such Operating Statement. 6.03 Each such statement given by Landlord pursuant to Section 6.02 shall be conclusive and binding upon Tenant unless within ninety (90) days after the receipt of the Operating Statement provided for above 14 18 Tenant shall notify Landlord that it disputes the correctness of the statement, specifying, to the extent the information is available, the particular respects in which the statement is claimed to be incorrect. If such notice is sent, Tenant and its accountants may examine Landlord's books and records relating to the Operating Expenses to determine the accuracy of the Operating Statement. If after such examination, Tenant still disputes such Operating Statement, either party may refer the decision of the issues raised to one of the so-called "big-eight" public accounting firms, mutually satisfactory to Landlord and Tenant, or if Landlord and Tenant shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: Landlord and Tenant shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to whom such decision shall be referred shall then be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. The firm so chosen may, in its discretion, retain one or more consultants to assist in he resolution of the dispute referred to it. The decision of such accountants, absent manifest error, shall be conclusively binding upon the parties. The fees and expenses (including he fees of such consultants) involved in such decisions shall be borne by the unsuccessful party (and if both parties are partially successful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). If such dispute is ultimately determined in Tenant's favor (either by agreement between Landlord or Tenant or by decision of the accountants), Landlord promptly after such determination shall pay to Tenant any amount overpaid by Tenant. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall, within ten (10) days after receipt of such statement, pay the Additional Charges in accordance with Landlord's statement, without prejudice to Tenant's position. ARTICLE 7 - COMMON AREAS 7.01 Subject to the provisions of Section 5.03, Landlord will operate, manage, equip, light, repair and maintain, or cause to be operated, managed, equipped, lighted, repaired and maintained, the Common Areas for their intended purposes and will enforce the Reciprocal Construction Operation and Easement Agreement, 15 19 between Ground Lessor and the Township of Weehawken. Landlord reserves the right, at any time and from time to time, to construct within the Common Areas kiosks, fountains, aquariums, planters, pools and sculptures, and to install vending machines, telephone booths, benches and the like provided same shall not block or interfere with Tenant's means of ingress or egress to and from the Building. 7.02 Tenant and its subtenants and and their respective officers, employees, agents, customers and invitees, shall have the non-exclusive right, in common with Landlord and all others to whom such right may have been or may hereafter be granted, but subject to the Rules and Regulations, if any to use the Common Areas. Landlord reserves the right, at any time and from time to time, to close temporarily all or any portions of the Common Areas (provided that such closure does not unreasonably interfere with Tenant's business at the Demised Premises, except in cases of emergency) when in Landlord's reasonable judgment any such closing is necessary or to (a) permit Hartz or its successors or assigns or designees to make repairs or changes or to effect construction within the Lincoln Harbor Project; (b) prevent the acquisition of public rights in such areas; or (c) to protect or preserve natural persons or property. Landlord may do such other acts in and to the Common Areas as in its reasonable judgment may be desirable to improve or maintain same, provided, however that Landlord shall not change the standard of maintenance of the Common Areas without Tenant's approval, which approval shall not be unreasonably withheld or delayed. In all such events, Landlord's Work shall be commenced and prosecuted diligently and with as little interference as possible with Tenant's use of the Demised Premises. 7.03 Tenant agrees that it, any subtenant or licensee and their respective officers, employees, contractors and agents will park their automobiles and other vehicles only where and as permitted by Landlord. Tenant will, if and when so requested by Landlord, furnish Landlord with the license numbers of any vehicles of Tenant, any subtenant or licensee and their respective officers, employees and agents. Tenant shall be furnished with the use of 1 unreserved parking space for every 690 square feet of Floor Space in the Demised Premises, as more particularly shown on Exhibit "K" annexed hereto and made a part hereof, of which spaces, at Tenant's request, five 16 20 percent (5%) shall be reserved for exclusive executive parking. Tenant shall have access to all such spaces twenty-four (24) hours a day, throughout the Term. Landlord shall maintain or cause to be maintained all such parking in a manner reasonably satisfactory to Tenant. ARTICLE 8 - RETAIL SPACE 8.01 Upon sixty (60) days' prior written notice from Tenant, Landlord will cause Hartz Mountain Industries, Inc. to enter into an agreement of sublease, substantially similar to the provisions hereof, to include up to 5,000 square feet of floor space (measured in accordance with Exhibit "C" annexed hereto and made a part hereof) in the retail area of the Building as shown on Exhibit "M" annexed hereto and made a part hereof, provided that such notice shall be given prior to the date which is the later to occur of (a) three (3) months from the date hereof, and (b) the date on which Landlord gives Tenant ten (10) business days' notice that there is a prospective lessee for such space and within such ten (10) business day period Tenant elects not to lease the same. The Fixed Rent, Operating Expenses and Tenant's Proportionate Share shall be determined in accordance with the ratio of such space to the aggregate rentable Floor Space in the retail area of the Building. Tenant shall use such space for the conduct of retail operations in connection with its normal business operations. 8.02 Landlord agrees that if Tenant shall exercise its option pursuant to Section 8.01 hereof to lease retail space in the Building, Landlord shall not lease, nor permit there to be used, any other space in the Lincoln Harbor Project for a retail brokerage operation; provided, however, that Landlord may lease other space in the Lincoln Harbor Project for a retail brokerage operation if the same is required by another major office tenant of the Lincoln Harbor Project in connection with the execution of such tenant's lease for office space in the Lincoln Harbor Project. ARTICLE 9 - SUBORDINATION 9.01 Provided that (a) a Superior Mortgagee shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form attached hereto and made a part hereof as Exhibit "N-1", to the effect that, provided no event of default has occurred and is continuing hereunder, such Superior Mortgagee will not 17 21 name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to such Superior Mortgagee under its Superior Mortgage, and to the further effect that if there shall be a foreclosure of its Superior Mortgage, that the Superior Mortgagee will not make Tenant a party defendant to such foreclosure, evict Tenant, disturb Tenant's possession under this Lease, or terminate or disturb Tenant's leasehold estate or rights hereunder, or (b) a Superior Lessor shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form annexed hereto as Exhibit "N-2", to the effect that, provided no Event of Default shall have occurred and is continuing hereunder, such Superior Lessor will not name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to such Lessor under its Superior Lease, and to the further effect that if its Superior Lease shall terminate or be terminated for any reason, such Superior Lessor will recognize Tenant as the direct tenant of such Superior Lessor on the same terms and conditions as are contained in this Lease (any such agreement, or any agreement of similar import from a Superior Mortgagee or Superior Lessor, as the case may be, being hereinafter called a "Nondisturbance Agreement"), this Lease shall be subject and subordinate to such Superior Mortgage or to such Superior Lease in respect of which a Nondisturbance Agreement shall have been delivered, and to all renewals, extensions, supplements, amendments, modifications, con- solidations and replacements of such Superior Mortgage or Superior Lease or any substitutions therefor, and advances made thereunder. The provisions of this Section 9.01 shall be self-operative and no further instrument of subordination shall be required upon delivery of such Nondisturbance Agreement, however, in confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver an instrument of evidencing such subordination; and if Tenant fails to execute, acknowledge or deliver any such instruments within thirty (30) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any such instruments for and on behalf of Tenant. 9.02 If any act or omission of Landlord 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 exer- 18 22 cise such right until and unless (a) it has given written notice of such act or omission to Landlord and each Superior Mortgagee and each Superior Lessor whose name and address shall previously have been furnished to Tenant, and (b) such act or omission shall not have been remedied within thirty (30) days following the giving of such notice and following the time when such Superior Mortgagee or Superior Lessor shall have become entitled under such Superior Mortgage or Superior Lease, as the case may be, to remedy the same (or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided such Superior Lessor or Superior Mortgagee commences and diligently pursues such remedy, which reasonable period shall in no event be less than the period to which the Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy). 9.03 If any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights ("Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment provided that such Successor Landlord shall then be entitled to possession of the Demised Premises and shall have either agreed to assume the obligations of Landlord hereunder or shall have entered into a Nondisturbance Agreement with Tenant. Upon such attornment this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord (unless such Successor Landlord is an affiliated entity of Landlord) shall not (a) be liable for any previous act or omission of Landlord under this Lease unless the same shall be continuing; (b) be subject to any offset, not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; or (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month's Fixed Rent or Additional Charges, unless such modification or prepayment shall have been expressly approved in writing by the 19 23 Superior Lessor of the Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 9.04 If any then present or prospective Superior Mortgagee shall require any modifications of this Lease, Tenant shall promptly execute and deliver to Landlord such instruments effecting such modification(s) as Landlord shall request, provided that such modification(s) do not adversely affect in any material respect any of Tenant's rights under this Lease, materially increase Tenant's obligations under this Lease or materially diminish Landlord's obligations under this Lease. ARTICLE 10 - QUIET ENJOYMENT 10.01 So long as no Event of Default shall have occurred and be continuing, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises without hindrance, ejection or molestation by Landlord or any person lawfully claiming through or under Landlord, subject, nevertheless, to the provisions of this Lease and the Ground Lease. ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING 11.01 Tenant shall have the absolute right, at any time, without Landlord's consent, to (a) assign or otherwise transfer this Lease, or offer or advertise to do so, and (b) sublet the Demised Premises or any part thereof, or offer or advertise to do so, or allow the same to be used, occupied or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner whatsoever. 11.02(a) Notwithstanding anything contained in Section 11.01 hereof, prior to the earlier to occur of either the fifth anniversary of the Commencement Date and the date on which the improvements to be constructed in the Lincoln Harbor Project, as more particularly set forth on Exhibit "L" annexed hereto and made a part hereof, shall be 90% leased, Tenant may not assign its interest in this Lease or sublet all or any portion of the Demised Premises, provided, however, that Tenant shall have the right during such period, without Landlord's prior consent, to sublet a portion or portions of the Demised Premises not to exceed 75,000 square feet of 20 24 floor space in the aggregate (such amount to be reduced, foot for foot, by an amount equal to the area sublet by Tenant pursuant to a similar provision in any other lease of which Tenant is tenant in the Lincoln Harbor Project) which amount Tenant agrees is fair and reasonable. (b) Notwithstanding the foregoing, however, the provisions of clause (a) of this Section 11.02 shall not be deemed to apply to (x) any assignment of Tenant's interest in this Lease to an Affiliate (hereinafter defined) or to any assignment, whether by operation of law or otherwise, to a company which is Tenant's successor-in-interest either by merger or consolidation, or to any assignment to a purchaser of all or substantially all of Tenant's assets, or (y) any subleasing of all or any portion of the Demised Premises to an Affiliate un- less the primary purpose of any such transaction is to transfer the estate created by this Lease in violation of Section 11.02(a) hereof. For purposes hereof, "Affiliate" shall be deemed to mean a corporation or other entity which shall (1) control, (2) be under the control of, or (3) shall be under common control with, Tenant (the term "control" as used herein shall be deemed to mean ownership of more than 5% of the voting stock of a corporation on a fully diluted basis, if such corporation is publically traded, or more than 50% of the voting stock of a privately held corporation, or other majority equity and control interest, if not a corporation. 11.03 If this Lease is assigned, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof are sublet or used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, and expiration of Tenant's time to cure such default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the Rent, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of this Article 11, or the acceptance of the assignee or subtenant as occupant or a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. 11.04(a) Any assignment or transfer shall be made only if, and shall not be effective until, the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance satisfactory to Landlord whereby the assignee shall assume Tenant's obliga- 21 25 tions under this Lease and whereby the assignee shall agree that all of the provisions in this Article 11 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect to all future assignments and transfers. Notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Rent by Landlord from an assignee, transferee, or any other party, the original Tenant and any other person(s) who at any time was or were Tenant shall remain fully liable for the payment of the Rent and for Tenant's other obligations under this Lease unless, in the event of such permitted assignment or transfer, Landlord releases Tenant from its obligations under this Lease as provided in Section 11.04(b) of this Lease. (b) In the event Tenant assigns its interest in this Lease, Landlord agrees, subject to the prior consent of any Superior Mortgagee, to release Tenant from its obligations under this Lease provided all of the following conditions are met: (i) Such permitted assignee has a net worth at least equal to $500,000,000, as the same shall be increased or decreased on each anniversary of the Commencement Date commencing on the fifth (5th) anniversary of the Commencement Date by an amount equal to the product of $500,000,000 and seventy-five percent (75%) of the percentage increase or decrease in the CPI for the immediately preceding twelve (12) month period; provided, however, that in no event shall the same be decreased to be less than $500,000,000; and (ii) Such permitted assignee is a well known business entity of high repute having a standing in the business community, in Landlord's reasonable judgment, at least equivalent to Paine Webber, Inc.; and (iii) Such permitted assignee executes an agreement in substance and form reasonably satisfactory to Landlord whereby such assignee assumes all of Tenant's obligations under this Lease. 22 26 11.05 Promptly after request therefor by Tenant, Landlord shall enter into a Nondisturbance Agreement with any permitted subtenant of Tenant occupying one or more full floors of the Demised Premises, substantially in the form annexed hereto as Exhibit "O". 11.06 The liability of the original named Tenant and any other Person(s) who at any time was or were Tenant for Tenant's obligations under this Lease shall not be discharged, released or impaired by any agreement or stipulation made by Landlord extending the time of, or modifying any of the obligations of, this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease. 11.07 The listing of any name other than that of Tenant, whether on the doors of the Building, the Building directory or otherwise, shall not operate to vest any right or interest in this Lease or in the Building, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Building or to the use or occupancy thereof by others. 11.08 Without limiting any of the provisions of Article 27, if pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), Tenant assigns this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one (1) year's Fixed Rent plus an amount equal to the Additional Charges for the Calendar Year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease, that if Tenant defaults in the full and prompt payment and performance of any of its obligations under this Lease, including, without limitation, the payment of Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent or any other sums as to which such tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of such Tenant's obligations under this Lease, including, without limitation, any damages or deficiency in the reletting of 23 27 the Demised Premises, whether such damages or deficiency accrue before or after summary proceedings or other reentry by Landlord. If Landlord shall so sue, apply or retain the whole or any part of the security, Tenant shall upon demand immediately deposit with Landlord a sum equal to the amount so used, applied and retained, as security as aforesaid. If Tenant shall fully and faithfully pay and perform all of Tenant's obligations under this Lease, the security or any balance thereof to which such tenant is entitled shall be returned or paid over to such tenant after the date on which this Lease shall expire or sooner end or terminate, and after delivery to Landlord of entire possession of the Demised Premises. In the event of any sale or leasing of the Building or leasing of Demised Premises, Landlord shall have the right to transfer the security to which Tenant is entitled to the vendee or lessee and Landlord shall thereupon be released by such tenant from all liability for the return or payment thereof; Tenant shall look solely to the new landlord for the return or payment of the same; and the provisions hereof shall apply to every transfer or assignment made of the same to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security, and neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. ARTICLE 12 - COMPLIANCE WITH LAWS 12.01 Tenant shall comply with all Legal Requirements which shall, in respect of the Demised Premises or the use and occupation thereof, or the abatement of any nuisance in, on or about the Demised Premises, impose any violation, order or duty on Landlord or Tenant; and Tenant shall pay all the cost, expenses, fines, penalties and damages which may be imposed upon Landlord or any Superior Lessor by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section 12.01. However, Tenant need not comply with any such law or requirement of any public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 12.02. Landlord shall be in full compliance with any Legal Requirements applicable to Landlord's Work on or before the Commencement Date, and the obligation of Tenant to comply with any Legal Requirement as set forth 24 28 immediately above shall not arise with respect to any such Legal Requirement with which Landlord is not in compliance as of the Commencement Date, until such time as non-compliance shall have been cured by Landlord. 12.02 Tenant may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirement, provided that (a) Landlord shall not be subject to criminal penalty or to prosecution for a crime and neither the Demised Premises nor any part thereof shall be subject to being condemned or vacated, by reason of non-compliance or otherwise by reason of such contest; (b) before the commencement of such contest, Tenant shall furnish to Landlord either (i) the bond of a surety company satisfactory to Landlord, which bond shall be, as to its provisions and form, satisfactory to Landlord, and shall be in an amount at least equal to 125% of the cost of such compliance (as estimated by a reputable contractor designated by Landlord) and shall indemnify Landlord against the cost thereof and against all liability for damages, interest, penalties and expenses (including reasonable attorneys' fees and expenses), resulting from or incurred in connection with such contest or noncompliance, or (ii) other security in place of such bond satisfactory to Landlord; (c) Tenant shall keep Landlord advised as to the status of such proceedings. Notwithstanding anything herein to the contrary, the provisions of (b) above shall not apply during such time as Paine Webber, Inc. remains obligated for Tenant's obligations under this Lease. Without limiting the application of the above, Landlord shall be deemed subject to prosecution for a crime if Landlord, or its managing agent, or any officer, director, partner, shareholder or employee of Landlord or its managing agent, as a individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charge is withdrawn before Landlord or its managing agent, or such officer, director, partner, shareholder or employee of Landlord or its managing agent (as the case may be) is required to plead or answer thereto. ARTICLE 13 - INSURANCE AND INDEMNITY 13.01(a) Tenant shall at all times during the term hereof maintain or cause to be maintained business interruption insurance with a rent insurance endorsement 25 29 payable to Landlord, covering a period of at least twelve (12) months. Landlord shall obtain and keep in full force and effect insurance against loss or damage by fire and other casualty to the Building, including any item of Tenant's Work, as may be insurable under then available standard forms of "all risk" insurance policies, in an amount equal to 100% of the replacement value thereof (and Tenant shall pay Tenant's Fraction of the cost thereof in accordance with Exhibit "H" annexed hereto and made a part hereof). Tenant shall notify Landlord of the completion of any Tenant's Work and of the costs thereof, and shall maintain adequate records with respect to such Tenant's Work to facilitate the adjustment of any insurance claims with respect thereto. Tenant shall cooperate with Landlord and Landlord's insurance companies in the adjustment of any claims for any damage to the Building or to such Tenant's Work. On or prior to the Commencement Date, Landlord shall deliver to Tenant appropriate certificates of insurance, including evidence of waivers of subrogation required pursuant to Section 13.05 hereof, required to be carried by Landlord pursuant to this Article 13. Evidence of each renewal or replacement of a policy shall be so delivered by Landlord to Tenant at least ten days prior to the expiration of such policy. Any certificates so deposited by Landlord with Tenant shall indicate whether the insurance required by this Article 13 is affected under a blanket insurance policy and, if so, shall certify to the aggregate amount of such blanket insurance policy and to the fact that there are no sublimits which derogate from the coverage required by this Article. 13.02 Tenant also shall maintain the following insurance: (a) comprehensive general public liability insurance in respect of the Demised Premises and the conduct and operation of business therein, with Landlord as an additional named insured, and at Landlord's request with any Superior Lessors as additional named insured(s), with limits of not less than $3,000,000 for bodily injury or death to any one person and $5,000,000 for bodily injury or death to any number of persons in any one occurrence, and $500,000 for property damage, including water damage and sprinkler leakage legal liability, and (b) any other insurance required for compliance with the Insurance Requirements. Tenant shall also obtain and keep in full force and effect a policy of insurance against loss or damage by fire, and such other risks and hazards (including burglary and theft) as are insurable under then available standard forms of "all risk" insurance policies, to Tenant's Property, for one hundred percent (100%) of the replacement value thereof or for such less- 26 30 er amount as will avoid co-insurance (including an "agreed amount" endorsement), protecting Landlord, Landlord's agents, any Superior Mortgagee, any Superior Lessor and Tenant as insured, as their interest may appear; provided, however, that no such additional insured party shall be entitled to adjust, or participate in the adjustment of, any loss or receive any proceeds under any such insurance policy, and the policies may so provide. Tenant shall deliver to Landlord and any additional named insured(s) certificates for such fully paid-for policies at least ten (10) days before the Commencement Date. Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional insured(s) certificates therefor at least 30 days before the expiration of any existing policy. All such policies shall be issued by companies of recognized responsibility licensed to do business in New Jersey, and all such policies shall contain a provision whereby the same cannot be cancelled unless Landlord and any additional insured(s) are given at least 20 days' prior written notice of such cancellation. 13.03 Tenant shall not do, permit or suffer to be done any act, matter, thing or failure to act in respect of the Demised Premises or use or occupy the Demised Premises or conduct or operate Tenant's business in any manner objectionable to any insurance company or companies whereby the fire insurance or any other insurance then in effect in respect to the Land and Building or any part thereof shall become void or suspended or whereby any premiums in respect of insurance maintained by Landlord shall be higher than those which would normally have been in effect for the occupancy contemplated under the Permitted Uses. In case of a breach of the provisions of this Section 13.03, in addition to all other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and the Superior Lessors and hold Landlord and the Superior Lessors harmless from and against any loss which would have been covered by insurance which shall have become void or suspended because of such breach by Tenant and (b) pay to Landlord any and all increases of premiums on any insurance, including, without limitation, rent insurance, resulting from any such breach. 13.04(a) Tenant shall indemnify and hold harmless Landlord and all Superior Lessors and its and their respective partners, joint venturers, directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) 27 31 Tenant's conduct or management of the Demised Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord) in the Demised Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, except to the extent due to Landlord's wrongful acts or gross negligence; (b) any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, joint ventures, directors, officers, agent, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Landlord's acts or negligence) occurring in the Demised Premises or the Common Areas; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease; together with all costs, expenses and obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Landlord and/or any Superior Lessor and/or its or their partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Landlord. (b) Landlord shall indemnify and hold harmless Tenant and its directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) Landlord's conduct or management of the Building or any business therein, or other work or thing whatsoever done, or any condition created (other than by Tenant), in the Building during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, to the extent due to Landlord's wrongful acts or gross negligence; (b) any act, omission or negligence of Landlord or its agents or their partners, joint ventures, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Tenant's acts or negligence) occurring in the Building and (d) any breach or default by Landlord in the prompt payment and performance of Landlord's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim 28 32 or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Tenant and/or its directors, officers, agents and/or employees by reason of any such claim, Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Tenant. 13.05 The parties hereto shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance covering the Demised Premises, the Building and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery against any party responsible for a casualty covered by such policy, and having obtained such clauses or endorsements or agreements of waiver of subrogation or consent to a waiver of right of recovery, the parties agree that they will not make any claim against or seek to recover from the other or anyone acting or claiming under or through the other or any of their respective officers, directors, shareholders, partners, employees, agents or contractors, for any loss or damage to its property or the property of others resulting from fire or other hazards covered by such fire and extended coverage insurance, provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by and coextensive with the terms and provisions of the waiver of subrogation clause or endorsements, or clauses or endorsements consenting to a waiver of right or recovery. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provision, each party shall advise the other of the amount of any such additional premiums and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if such clause may not be obtained, even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's 29 33 agreement not to make any claim or seek recover shall not be effective thereafter. If either party shall be unable to obtain the inclusion of such clause even with the payment of an additional premium, then such party shall attempt to name the other party as an additional insured (but not a loss payee) under the policy. If the payment of an additional premium is required for naming the other party as an additional insured (but not a loss payee), each party shall advise the other of the amount of any such additional premium and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium, the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if it shall not be possible to have the other party named as an additional insured (but not loss payee), even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement to name the other party as an additional insured shall be satisfied. If either party shall fail to have fire or extended coverage insurance in effect as required pursuant to this Article 13, the agreement not to make any claim or seek recovery contained in the first sentence of this Section 13.05 shall be in full force and effect to the same extent as if such required insurance (containing the required waiver of subrogation clause, endorsement or agreement) were in effect. ARTICLE 14 - RULES AND REGULATIONS 14.01 Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant, which in Landlord's reasonable judgment, shall be necessary for the reputation, safety, care or appearance of the Land and Building, or the preservation of good order therein, or the operation or maintenance of the Building or its equipment and fixtures, or the Common Areas, and which do not unreasonably affect the conduct of Tenant's business in the Building; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose 30 34 upon Landlord any duty or obligation to enforce the Rules and Regulations against any other tenant or any employees or agents of any other Tenant, and Landlord shall not be liable to Tenant for violation of the Rules and Regula- tions by any other tenant or its employees, agents, invitees or licensees, provided, however, Landlord shall not enforce any Rule or Regulation against Tenant which Landlord shall not then be enforcing against all other tenants in the Building, in the case of the Common Areas. If Tenant disputes the reasonableness of any additional Rule or Regulation hereafter adopted by Landlord, the dispute shall be determined by arbitration in the City of Newark in accordance with the rules and regulations then obtaining of the American Arbitration Association or its successor. Any such determination shall be final and binding upon the parties hereto, whether or not a judgment shall be entered in any court. ARTICLE 15 - ALTERATIONS 15.01 Tenant shall not make any structural alterations or additions to the Demised Premises which would adversely affect the structural integrity of the Building, or change the exterior color or architectural treatment of the Building, or which would otherwise impair the value of the Building without on each occasion first obtaining the prior written consent of Landlord, it being acknowledged that Landlord's consent shall not be required for any other alterations or additions. Tenant shall submit to Landlord plans and specifications for such work at the time landlord's consent is sought. Tenant shall pay to Landlord upon demand the reasonable cost and expense of Landlord for any action of Landlord in excess of (a) reviewing said plans and specifications and (b) inspecting the alterations to determine whether the same are being performed in accordance with the approved plans and specifications and all Legal Requirements and Insurance Requirements including without limitation, the fees of any architect or engineer employed by Landlord for such purpose. Before proceeding with any permitted alteration which will cost more than $350,000 (exclusive of the costs of decorating work and items constituting Tenant's Property), as estimated by a reputable contractor designated by Landlord, Tenant shall obtain and deliver to Landlord either (i) a performance bond and a labor and materials payment bond (issued by a corporate surety licensed to do business in New Jersey), each in an amount equal to 125% of such estimated cost and in form 31 35 satisfactory to Landlord, or (ii) such other security as shall be satisfactory to Landlord. Notwithstanding anything herein to the contrary, the provisions of the immediately preceding sentence shall not apply during such time as Paine Webber, Inc. remains liable for Tenant's obligations under this Lease. Tenant shall fully and promptly comply with and observe the Rules and Regulations then in force in respect of the making of such alterations. My review or approval by Landlord of any plans and/or specifications with respect to any such alterations is solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant in respect to the adequacy, correctness or efficiency thereof or otherwise. 15.02 Tenant shall obtain all necessary governmental permits and certificates for the commencement and prosecution of alterations and for final approval thereof upon completion, and shall cause alterations to be performed in compliance therewith all applicable Legal Requirements and Insurance Requirements. Alterations shall be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the better of the original installations of the Building. Alterations requiring Landlord's consent shall be performed by contractors licensed in the State of New Jersey (if applicable), whose use shall not invalidate any warranties applicable to the Building or its systems, and which contractors are either employed in connection with the performance of Landlord's Work or Tenant's Work or are reputable and skilled in their respective trades. Alterations shall be made in such a manner as not to unreasonably interfere with or delay and as not to impose any additional expense upon Landlord in the maintenance, repair or operation of the Building; and if any such additional expense shall be incurred by Landlord as a result of Tenant's making of any alterations, Tenant shall pay any such additional expense upon demand. Throughout the making of alterations, Tenant shall carry, or cause to be carried, workmen's compensation insurance in statutory limits and general liability insurance, with completed operation endorsement, for any occurrence in or about the Building, under which Landlord and its managing agent and any Supe- rior Lessor whose name and address shall previously have been furnished to Tenant shall be named as parties insured, in such limits as landlord may reasonably require, with issuers reasonably satisfactory to Landlord. Tenant 32 36 shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of alterations and, on request, at reasonable intervals thereafter during the making of alterations. ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY 16.01 All fixtures, equipment, improvements and appurtenances attached to or built into the Building at the commencement of or during the Term at the expense of Tenant (exclusive of the items to which Tenant's Fund has been applied) shall be deemed to be the property of Tenant. 16.02 All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Building, which are installed in the Building by or for the account of Tenant and can be removed without structural damage to the Building and all furniture, furnishings, and other personal property owned by Tenant and located in the Building (collectively, "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of the Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Building or the Common Areas resulting from the installation and/or removal thereof. Any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, shall not be considered as the Tenant's Property and shall be deemed the property of Landlord. 16.03 At or before the Expiration Date or the date of any earlier termination of this Lease, or within fifteen (15) days after such an earlier termination date, Tenant shall surrender the Demised Premises broom clean, vacant and in good condition, reasonable wear and tear and damage by casualty, excepted. Tenant may remove any alterations and fixtures and shall remove any alterations or fixtures which are not usual or customary for general office use and which would materially impair the reletting of the Demised Premises for general office use. Tenant shall repair any structural damage to the Demised Premises, the Building and the Common Areas and the Pro- 33 37 ject Common Areas resulting from any installation and/or removal of the Tenant's Property. Any items of the Tenant's Property which shall remain at the Demised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned and in such case such items may be retained by Landlord as its property or disposed of by Landlord, without accountability, in such manner as Landlord shall determine at Tenant's Expense. ARTICLE 17 - REPAIRS AND MAINTENANCE 17.01 Tenant shall, throughout the Term, take good care of the Demised Premises, the fixtures and appurtenances therein. Tenant shall be responsible for the cost and expense of all non-structural repairs (or replacements, if required), ordinary and extraordinary, in and to the Demised Premises (including the Building systems), including, but not limited to, repairs the need for which arises out of (a) the performance or existence of the Tenant's Work or alterations, (b) the installation, use or operation of the Tenant's Property in the Demised Premises, (c) the moving of the Tenant's Property in or out of the Building, or (d) the act, omission, misuse or neglect of Tenant or any of its subtenants or its or their employees, agents, contractors, or invitees. Tenant shall promptly replace all scratched, damaged or broken doors and glass in or about the Demised Premises and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in the Demised Premises and for the repair and maintenance of all sanitary and electrical fixtures and equipment therein. Tenant shall promptly make all repairs in or to the Demised Premises for which Tenant is responsible, provided that any repairs to the mechanical, electrical, plumbing, heating, ventilating or air conditioning systems of the Building shall only be made by contractors approved by Landlord in accordance with Section 15.02 hereof. Any other repairs in or to the Building and the facilities and systems thereof for which Tenant is responsible shall be performed by Landlord at Tenant's expense; but Landlord may, at its option, before commencing any such work or at any time thereafter, during such time as Paine Webber, Inc. is no longer liable for Tenant's obligations under this Lease, require Tenant to furnish to Landlord 34 38 such security, in form (including, without limitation, a bond issued by a corporate surety licensed to do business in New Jersey) and amount, as Landlord shall deem necessary to assure the payment for such work by Tenant. 17.02 Tenant shall be responsible for the ordinary maintenance, but not the repair or replacement, of the roof of the Building. Landlord shall be responsi- ble for the repair and replacement of the structure of the Building and the roof of the Building in excess of the Reserve Amounts (hereinafter defined) and for the maintenance of the Common Areas, all which shall be maintained in accordance with standards reasonably satisfactory to Landlord and Tenant. To the extent that Landlord shall fail to maintain the structure of the Building, the roof or such Common Areas, Tenant shall have the right to perform any such maintenance work on behalf of the Landlord and Landlord, promptly after receipt of demand therefor from Tenant, shall reimburse Tenant for any expenses incurred by Tenant on behalf of Landlord for such maintenance, together with interest thereon at the Late Payment Rate, calculated from the date of expenditure by Tenant through the date of repayment by Landlord. 17.03 Tenant shall deposit with Landlord, on or before the tenth (10th) day of each calendar year or portion thereof during the term, commencing on the Fixed Rent Commencement Date, an amount equal to the product of the Floor Space and three cents (.03 cents) (collectively, the "Reserve Amount") (which amount shall be prorated on a pro rata basis for any partial year during the Term hereof). Landlord shall hold such funds in escrow for the benefit of Tenant and shall invest such amounts as Tenant shall reasonably approve. Landlord shall have the right to apply any such amounts, together with all interest thereon, to the cost of any bona fide roof repairs to the Building (excluding, however, any amounts which are reimbursed to Landlord by reason of insurance, condemnation awards, warranties or otherwise, and any amounts required to fulfill Landlord's obligations hereunder with respect to the satisfactory completion of Landlord's Work), up to an amount not to exceed Tenant's Fraction of such cost. To the extent that as of the Expiration Date there shall remain any such funds, Landlord shall promptly return the same to Tenant, together with a full accounting thereof, on the Expiration Date. 35 39 17.04 Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's doing any repairs, maintenance or changes which Landlord is re- quired or permitted by this Lease, or required by Law, to make in or to any portion of the Building. ARTICLE 18 - ELECTRIC ENERGY 18.01 Tenant shall purchase the electric energy required by it in the Demised Premises at its own expense on a direct-metered basis from the public utility servicing the Building, and Landlord shall permit the rises, conduits and feeders in the Building, to the extent available, suitable and safely capable, to be used for the purpose of transmitting such electrical energy through the Building. Landlord shall not be liable for any failure, inadequacy or defect in the character or supply of electric current furnished to the Building except for actual damage suffered by Tenant by reason of any such failure, inadequacy or defect caused by the negligence or willful acts of Landlord. 18.02 Tenant's use of electric energy in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Building. Any additional risers or other equipment required by Tenant at any time during the Term shall be provided by Landlord and the actual cost thereof shall be paid by Tenant to Landlord on demand. ARTICLE 19 - HEAT, VENTILATION AND AIR CONDITIONING Tenant shall, at Tenant's sole cost and expense, subject to any guaranties or warranties made by Ground Lessor pursuant to the Guarantee, maintain and operate the heating, ventilating and air-conditioning systems ("HVAC") serving the Demised Premises, and shall furnish HVAC in the Demised Premises as Tenant may require. 36 40 ARTICLE 20 - OTHER SERVICES: SERVICE INTERRUPTION 20.01 Landlord shall cause the Common Areas to be cleaned in accordance with the standards set forth in Exhibit "P" annexed hereto and made a part hereof. 20.02 Landlord shall, at Tenants' sole cost and expense, cause water to be supplied to the Demised Premises and Tenant shall pay for such as shown on the public utility meters therefore. ARTICLE 21 - ACCESS, CHANGES AND NAME 21.01 Landlord and its agents shall have the right, with as little interference of Tenant's business as possible, to enter and/or pass through the Demised Premises upon reasonable notice and at reasonable times (a) to examine the Demised Premises and to show them to actual and prospective Superior Lessors, Superior Mortgagees, or prospective purchasers of the Building, and (b) to make such repairs, alterations, additions and improvements in or to the Building and/or its facilities and equipment as Landlord is required or desires to make. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required in connection therewith, without any liability to Tenant and without any reduction of Tenant's obligations hereunder. The right of Landlord and Landlord's agent to enter into the Demised Premises shall not include any area of the Demised Premises designated on written notice to Landlord as a "security area" unless a representative of Tenant shall be present, which representative Tenant agrees to have present at the Demised Premises upon reasonable advance oral notice by Landlord, provided, however, that in the event of any emergency, Landlord shall have the right to enter into any such security area without being accompanied by such representative of Tenant but shall be accompanied by a police officer, fireman or other public official. During the period of eighteen (18) months prior to the Expiration Date, Landlord and its agents may exhibit the Demised Premises to prospective tenants. 21.02 During such time as Paine Webber, Inc. or an affiliated entity is the Tenant, Tenant may name the Building, the Paine Webber Building, or any other name associated with Paine Webber, Inc. or its Affiliates, as the same may change from time to time as the result of mergers or consolidations or otherwise. 37 41 ARTICLE 22 - MECHANICS' LIENS AND OTHER LIENS Nothing contained in this Lease shall be deemed, construed or interpreted to imply any consent or agreement on the part of Landlord to subject Landlord's interest or estate to any liability under the mechanic's or other lien law. If any mechanic's or other lien or any notice of intention to file a lien is filed against the Land, or any part thereof, for any work, labor, service or materials claimed to have been performed or furnished for or on behalf of Tenant or anyone holding any part of the Demised Premises through or under Tenant, Tenant shall cause the same to be cancelled and discharged of record by payment, bond or order of a court of competent jurisdiction within fifteen (15) days after notice by Landlord to Tenant. ARTICLE 23 - NON-LIABILITY AND INDEMNIFICATION 23.01 In addition to the provisions of Article 13 of this Lease, except as set forth in the Guarantees, dated of even date herewith, by Ground Lessor for the benefit of Tenant (collectively, the "Guarantees"), neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or their property, irrespective of the cause of such injury, damage or loss, except to the extent caused by or resulting from the negligence of Landlord, its agents, servants or employees in the operating or maintenance of the Land or Building. Further, neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable (a) for any such damage caused by other tenants or Persons in, upon or about the Land or Building, or caused by operations in construction of any private, public or quasi-public work; or (b) even if negligent, for consequential damages arising out of any loss of use of the Demised Premises or any equipment or facilities therein by Tenant or any Person claiming through or under Tenant. 23.02 Notwithstanding any provision to the contrary, except as set forth in the Guarantees, Tenant shall look solely to the estate and property of Landlord in and to the Land and Building (or the proceeds net of bona fide liens and expenses received by Landlord on a sale of such estate and property). In the event of any 38 42 claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas, Tenant, (and its successor and assigns) agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas shall be limited to such estate and property of Landlord (or sale proceeds net of bona fide liens and expenses). No other properties or assets of Landlord or any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of, or in connection with, this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas. If Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Landlord's attorneys. ARTICLE 24 - DAMAGE OR DESTRUCTION 24.01 If the Building shall be partially or totally damaged or destroyed by fire or other casualty (and if this Lease shall not be terminated as in this Article 24 hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building (except for the Tenant's Property) in accordance with the Plans and Specifications, together with such changes as may be approved by Tenant, with reasonable dispatch after notice to it of the damage or destruction and the collection of the insurance proceeds attributable to such damage. 24.02 Subject to the provisions of Section 24.05, if all or part of the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, the Rent shall not be abated or reduced, as the case may be, to the extent of payments pursuant to Tenants business interruption insurance allocable to rental and, subsequent to the exhaustion of payments thereunder, the Rent 39 43 shall be abated or reduced, as the case may be, in proportion to the untenantable area of the Demised Premises for the period from the date of the damage or destruction to the date the damage to the Demised Premises shall be substantially repaired; provided, however, should Tenant reoccupy a portion of the Demised Premises during the period the repair or restoration work is taking place and prior to the date that the Demised Premises is substantially repaired or made tenantable the Rent allocable to such reoccupied portion, shall be payable by Tenant from the date of such occupancy. 24.03 If (a) the Demised Premises shall be totally damaged or destroyed by fire or other casualty, or (b) the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord and approved by Tenant, which approval shall not be unreasonably withheld, of more than twenty percent (20%) of the full insurable value of the Building immediately prior to the casualty, and, in either event, an engineer selected by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or delayed, shall reasonably estimate that there will be less than two (2) years remaining in the Term (including all Renewal Terms for which Tenant has validly exercised the applicable Renewal Option) upon completion of restoration of the Building or the Demised Premises, as the case may be, then in either such case Landlord or Tenant may terminate this Lease by giving the other notice to such effect within ninety (90) days after the date of the fire or other casualty. Notwithstanding anything contained in this Lease to the contrary, if there shall occur such a casualty at such time as there shall be estimated to be less than two years remaining in the Term of this Lease after completion of restoration but prior to the time that pursuant to the provisions of Article 39 hereof Tenant shall have the right to exercise any Renewal Option, then, prior to Landlord terminating this Lease, Tenant shall have the right to exercise any such Renewal Option otherwise in accordance with the provisions of Article 39 hereof. If either party shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.03, 40 44 Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.04 Except as provided for in Section 24.08 of this Lease, Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises pursuant to this Article 24. Landlord shall use its best efforts to make such repair or restoration promptly and in such manner as to not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, but Landlord shall not be required to do such repair or restoration work on an overtime basis unless fully reimbursed by Tenant. 24.05 Notwithstanding any of the foregoing provisions of this Article 24, if by reason of some act or omission on the part of Tenant or any of its subtenants or its or their partners, directors, officers, servants, employees, agents or contractors, either (a) Landlord or any Superior Lessor or any Superior Mortgagee shall be unable to collect all of the insurance process (including, without limitation, rent insurance proceeds) applicable to damage or destruction of the Building by fire or other casualty, or (b) the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement or reduction of the Rent. Further, nothing contained in this Article 24 shall relieve Tenant from any liability that may exist as a result of any damage or destruction by fire or other casualty. 24.06 Landlord will not carry insurance of any kind on the Tenant's Property, and, except as provided by law or by reason of Landlord's breach of any of its obligations hereunder, shall not be obligated to repair any damage or to replace the Tenant's Property. 24.07 The provisions of this Article 24 shall be deemed an express agreement governing any case of damage or destruction of the Building by fire or other casualty, and any law providing for such a contingency in 41 45 the absence of an express agreement, now or hereafter in force, shall have no application in such case. 24.08 Anything contained in this Article 24 to the contrary notwithstanding, within thirty (30) days after Landlord has notice of any damage that materially impairs Tenant's ability to conduct its business in the Demised Premises, Landlord shall deliver to Tenant a statement prepared by a reputable contractor approved by Tenant, which approval shall not be unreasonably withheld or delayed, setting forth such contractor's estimate as to the time required to repair such damage and the assumptions regarding the use of labor (including overtime labor, if applicable) and construction methods considered in arriving at such estimate. If the estimated time period exceeds twelve (12) months from the date of such damage or if such estimate is not delivered to Tenant as required, Tenant may elect to terminate this Lease by notice to Landlord not later than thirty (30) days following receipt of such statement or, if no statement is delivered, not later than thirty (30) days after the date such statement was to have been delivered. If Tenant makes such election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. If Tenant shall not have elected to terminate this Lease pursuant to this Article 24 (or is not entitled to terminate this Lease pursuant to this Article 24) and such repairs are (i) not commenced by Landlord within sixty (60) days after the date Landlord has notice of such damage, (ii) not prosecuted substantially on the basis specified in the contractor's estimate referred to in this paragraph so that the repairs cannot be Substantially Completed within the estimated time period (unless Landlord agrees to take such other measures required to Substantially Complete such repairs within such period), or (iii) not Substantially Completed by Landlord within twelve (12) months after the date Landlord has such notice, subject to Unavoidable Delays, but in no event later than fifteen (15) months after Landlord has such notice, Tenant may elect to terminate this Lease by notice to Landlord not later than fifteen (15) days following the expiration of either of the periods specified in clauses (i) and (iii) above or fifteen (15) days notice if Landlord shall not be prosecuting such repairs as required by clause (ii) hereof. Notwithstanding the foregoing, if at any time Tenant 42 46 believes that Landlord shall not be diligently prosecuting such repairs and shall so notify Landlord, Tenant shall have the right to seek injunctive relief. If Tenant makes such election, the Term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease under the conditions provided in this Section, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. Landlord shall advise Tenant of any Unavoidable Delays the Landlord shall have incurred in connection with any such repair, promptly after the same shall have occurred and the length thereof. 24.09 If, at any time during the Term, the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord and approved by Tenant, which approval shall not be unreasonably withheld, of more than twenty-five percent (25%) of the full insurable value of the Building immediately prior to the casualty and there shall be insufficient insurance proceeds available to Landlord to pay for the estimated cost of repair and restoration, then Landlord may terminate this Lease, whether or not Tenant shall have elected to terminate this Lease pursuant to Section 24.08 hereof, by giving Tenant notice to such effect within sixty (60) days after the date of the fire or other casualty. If Landlord shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.09, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.10 Notwithstanding anything contained in this Lease to the contrary, if pursuant to the provisions of the Data Processing Center Lease, dated of even date herewith, between Landlord, as landlord and Tenant, as tenant, (the "Data Processing Lease") the tenant thereunder shall have the right to, and shall, terminate such 43 47 lease in connection with a casualty and such tenant shall be Tenant or an affiliate of Tenant (and, if either the Demised Premises or the premises leased pursuant to the Data Processing Lease shall have been sublet, operations in one premises shall be dependent upon operations in the other premises) then Tenant, at Tenant's sole option, shall also have the right to terminate this Lease simultaneously with the termination of the Data Processing Lease. If Tenant shall make such election, the Term of this Lease shall expire on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice, and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions hereof. Upon the termination of this Lease hereunder, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. ARTICLE 25 - EMINENT DOMAIN 25.01 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expro- priation, or in the event of conveyance of the whole of the Demised Premises in lieu thereof, this Lease shall terminate as of the day possession shall be taken by such authority. If fifteen percent (15%) or less of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority. If more than fifteen percent (15%) of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority, but either party shall have the right to terminate this Lease upon notice given to the other party within thirty (30) days after taking such possession. If so much of the parking facilities shall be so taken or conveyed that the number of parking spaces necessary, for the continued operation of the Demised Premises shall not be available, Tenant may, by notice to Landlord, terminate this Lease as of the day possession shall be taken. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Rent shall be reduced in the proportion which the area of the part of the De- 44 48 mised Premises so acquired or condemned bears to the total area of the Demised Premises immediately prior to such acquisition or condemnation. Except as specifically provided herein, in the event of any such taking or conveyance there shall be no reduction in Rent. If this Lease shall be terminated in accordance with the provisions of this Section 25.01, this Lease and the Term shall come to an end and expire as of the date of the taking, with the same effect as if such date were the Expiration Date, and the Rent shall be apportioned as of the date of such termination and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. If this Lease shall continue in effect, Landlord shall, at its expense, but shall be obligated only to the extent of the net award or other compensation (after deducting all expenses in connection with obtaining same) available to Landlord for the improvements taken or conveyed (excluding any award or other compensation for land or for the unexpired portion of the term of any Superior Lease), make all necessary alterations so as to constitute the remaining Demised Premises a complete architectural and tenantable unit, except for the Tenant's Property, and Tenant shall make all alterations or replacements to the Tenant's Property and decorations in the Demised Premises. All awards and compensation for any taking or conveyance, whether for the whole or a part of the Land or Building, the Demised Premises or otherwise, shall be property of Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all such awards and compensation. Tenant shall be entitled to claim, prove and receive in the condemnation proceeding such award or compensation as may be allowed for the Tenant's Property, Tenant's trade fixtures and for loss of business, good will, moving and depreciation or injury to and cost of removal of the Tenant's Property, to the extent such award or compensation shall be made by the condemning authority in addition to, and shall not result in a reduction of, the award or compensation made by it to Landlord. 25.02 If the temporary use or occupancy of all or any part of the Demised Premises shall be taken during the Term, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking which represents compensation for the use and occupancy of the Demised Premises, for the taking of the Tenant's Property and for moving expenses, 45 49 and Landlord shall be entitled to receive that portion which represents reimbursement for the cost of restoration of the Demised Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award or payment which represents compensation for the use and occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive (except as otherwise provided below) so much thereof as represents compensation for the period up to and including the Expiration Date and Landlord shall receive so much thereof as represents compensation for the period after the Expiration Date. 25.03 In the event the premises leased pursuant to the Data Processing Lease are taken or such portions of said facilities are taken resulting in a termination of the Data Processing Lease, and the tenant under the Data Processing Lease shall be Tenant or an affiliate of Tenant (and, if either the Demised Premises or the premises leased pursuant to the Data Processing Lease shall have been sublet, operations in one premises shall be dependent upon operations in the other premises) then Tenant, at Tenant's option, shall have the right to terminate this Lease on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice; provided, however, that Tenant shall have the right to continue its occupancy of the Demised Premises subject to the terms of this Lease on a month-to-month basis (not to exceed twelve (12) months) until suitable moving arrangements are made. ARTICLE 26 - SURRENDER 26.01 On the Expiration Date, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord "broom-clean" and in good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this Lease, and Tenant shall remove any item of Tenant's Property therefrom required pursuant to this Lease. 46 50 26.02 If Tenant remains in possession of the Demised Premises after the expiration of the Term, Tenant shall be deemed to be occupying the Demised Premises as a tenant from month to month subject to all of the provisions of this Lease, except that the monthly Fixed Rent shall be twice the Fixed Rent in effect during the last month of the Term. 26.03 No act or thing done by Landlord or its agents shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid unless in writing and signed by Landlord. ARTICLE 27 - CONDITIONS OF LIMITATION 27.01 This Lease is subject to the limitation that whenever Tenant (a) shall make an assignment for the benefit of creditors, or (b) shall commence a voluntary case or have entered against it an order for relief under any chapter of the Federal Bankruptcy Code (Title II of the United States Code) or any similar order or decree under any federal or state law, now in existence, or hereafter enacted having the same general purpose, and such order or decree shall have not been stayed or vacated within 30 days after entry, or (c) shall cause, suffer, permit or consent to the appointment of a receiver, trustee, administrator, conservator, sequestrator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, and such appointment shall not have been revoked, terminated, stayed or vacated and such official discharged of his duties within 30 days of his appointment then Landlord, at any time after the occurrence of any such event, may give Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) period, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the Expiration Date of this Lease, but Tenant shall remain liable for damages as provided in Article 29. 27.02 This Lease is subject to the further limitations (collectively, "Events of Default") that: (a) if Tenant shall default in the payment of any in- stallment of Fixed Rent, and such default shall continue 47 51 for five (5) days after invoice for same by Landlord or for five (5) days after notice of such default, whichever is shorter, or (b) if Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Fixed Rent) and such default shall continue and not be remedied within thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of thirty (30) days and the continuance of which for the period required for cure will not subject Landlord or any Superior Lessor or prosecution for a crime (as more particularly described in the last sentence of Section 12.02) or termination of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said thirty (30) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (ii) duly commence within said thirty (30) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the default, and (iii) complete such remedy within a reasonable time after the date of said notice by Landlord, (c) if Tenant shall abandon the Demised Premises, or (d) if there shall be any default by Tenant (or any person which, directly or indirectly, controls, is controlled by, or is under common control with Tenant) under any other lease with Landlord (or any person which, directly or indirectly, controls, is controlled by, or is under common control with Landlord) which shall not be remedied within the applicable grace period, if any, provided therefor under such other lease, then in any of said cases Landlord may give to Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of the service of such notice of intention, and upon the expiration of said five (5) days, whether or not the Term shall theretofore have commenced this Lease shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall re main liable for damages as provided in Article 29. ARTICLE 28 - RE-ENTRY BY LANDLORD 28.01 If this Lease shall terminate as provided in Article 27, Landlord or Landlord's agents and employees may immediately or at any time thereafter re- enter the Demised Premises, or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, or otherwise, without being 48 52 liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any Person therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The word "re-enter", as used herein, is not restricted to its technical legal meaning. If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceedings or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time of such termination of this Lease, or of such recovery of posses- sion of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 29. 28.02 In the event of a breach by Tenant of any of its obligations under this Lease, Landlord shall also have the right of injunction. The special remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies to which Landlord may lawfully be entitled at any time and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 28.03 If this Lease shall terminate under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance Rent, security or other wise, but such monies shall be credited by Landlord against any Rent due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 29 or pursuant to law. ARTICLE 29 - DAMAGES 29.01 If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, or in the event of the termination of this Lease, or of 49 53 re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord, either: (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (i) the aggregate amount of the Rent which would have been payable by Tenant (conclusively presuming the average monthly Additional Charges payable for the year, or if less than 365 days have then elapsed since the Commencement Date, the partial year, immediately preceding such termination of re-entry) for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the Expiration Date, over (ii) the aggregate rental value of the Demised Premises for the same period, which amounts shall be discounted to present worth at a rate equal to nine percent (9%) per annum; or (b) sums equal to the Fixed Rent and the Additional Charges which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including, without limitation, altering and preparing the Demised Premises for new tenants, brokers' commissions, legal fees, and all other expenses properly chargeable against the Demised Prem- 50 54 ises and the rental therefrom, it being understood that any such reletting may be for a period shorter or longer than the period ending on the Expiration Date; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this subdivision (b) to a credit in respect of any rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Demised Premises or any part thereof, or if the Demised Premises or any part thereof are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease. 29.02 Suit or suits for the recovery of such damages or, any installments thereof, may be brought by Landlord at any time and from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provisions of Article 27, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for 51 55 and obtain as damages by reason of the termination of this Lease or re-entry on the Demised Premises for the default of Tenant under this Lease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, the governing the proceedings in which, such damages are to be proved whether or not such amount be greater than, equal to, or less than any of the sums referred to in Section 29.01. 29.03 In addition, if this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, Tenant covenants that: (a) the Demised Premises then shall be in the same condition as that in which Tenant has agreed to surrender the same to Landlord at the Expiration Date; (b) Tenant shall have performed prior to any such termination any obligation of Tenant contained in this Lease for the making of any alteration or for restoring or rebuilding the Demised Premises, or any part thereof; and (c) for the breach of any covenant of Tenant set forth above in this Section 29.03, Landlord shall be entitled immediately, without notice or other action by Landlord, to recover, and Tenant shall pay, as and for liquidated damages therefor, the cost of performing such covenant (as estimated by an independent contractor selected by Landlord). 29.04 In addition to any other remedies Land lord may have under this Lease, and without reducing or adversely affecting any of Landlord's rights and remedies under this Article 29, if any Rent or damages payable hereunder by Tenant to Landlord are not paid within five (5) days after demand therefor, the same shall bear interest at the Late Payment Rate from the due date thereof until paid, and the amounts of such interest shall be Additional Charges hereunder. ARTICLE 30 - AFFIRMATIVE WAIVERS 30.01 Tenant, on behalf of itself and any and all persons claiming through or under Tenant, does hereby waive and surrender all right and privilege which it, they or any of them might have under or by reason of any any present or future law, to redeem the Demised Premises or to have a continuance of this Lease after being dispossessed or ejected from the Demised Premises by process of law or under the terms of this Lease or after the termination of this Lease as provided in this Lease. 52 56 30.02 Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Demised Premises and use of the Common Areas, including, without limitation, any claim of injury or damage, and any emergency and other statutory remedy with respect thereto. Tenant shall not interpose any counterclaim of any kind in any action or proceeding commenced by Landlord to recover possession of the Demised Premises (unless failure to do so would constitute a waiver thereof) nor attempt to remove such action or proceeding to the law division of the Superior Court of New Jersey. ARTICLE 31 - NO WAIVERS The failure of either party to insist in. any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or Additional Charges with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. ARTICLE 32 - CURING TENANT'S DEFAULTS If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice in a case of emergency, and in any other case only if such default continues after the expiration of thirty (30) days from the date Landlord gives Tenant notice of the default. Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable attorneys fees and expenses, involved in collecting or endeavoring to collect the Rent or any part thereof or 53 57 enforcing or endeavoring to enforce any rights against Tenant or Tenant's obligations hereunder, under or in connection with this Lease or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings or in recovering possession of the Demised Premises after default by Tenant or upon the expiration of the Term or sooner termination of this Lease, and interest on all sums advanced by Landlord under this Article at the Late Payment Rate, may be sent to Landlord to Tenant monthly, or immediately, at Landlord's option, and such among shall be due and payable in accordance with the terms of such bills. ARTICLE 33 - BROKER Landlord and Tenant each represent to the other that no broker except the Broker was instrumental in bringing about or consummating this Lease and that it had no conversations or negotiations with any broker except the Broker concerning the leasing of the Demised Premises. Each party agrees to indemnify and hold harmless the other against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by the indemnifying party with any broker other than the Broker. Landlord shall pay any brokerage commissions due the Broker pursuant to a separate agreement between Landlord and the Broker. ARTICLE 34 - NOTICES Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Lease or pursuant to any applicable Legal Requirement, shall be in writing and shall be deemed to have been properly given, rendered or made only if hand delivered or sent by United States registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth (except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building) as to Landlord, to the attention of General Counsel with a copy to the attention of President and to Horowitz, Bross, Sinins and Imperial, 1180 Raymond Boulevard, Newark, New Jersey 07102-4172, Atten- 54 58 tion: Irwin A. Horowitz, Esq., and as to Tenant, to the attention of Facilities Department - Vice President, with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, Attention: Benjamin F. Needell, Esq., and shall be deemed to have been given, rendered or made on the day after the day so delivered or mailed, unless mailed outside the State of New Jersey in which case it shall be deemed to have been given, rendered or made on the third business day after the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, consents, approvals or other communications intended for it. ARTICLE 35 - ESTOPPEL CERTIFICATES Each party shall, at any time and from time to time, as requested by the other party, upon not less than ten (10) days' prior notice, execute and deliver to the requesting party a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the Fixed Rent and Additional Charges have been paid, stating whether or not, to the best knowledge of the party giving the statement, the requesting party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the party giving the statement shall have knowledge, and stating whether or not, to the best knowledge of the party giving the statement, any event has occurred which with the giving of notice of passage of time, or both, would constitute such a default of the requesting party, and, if so, specifying each such event; any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Each party also shall include in any such statement such other information concerning this Lease as the other party may reasonably request. ARTICLE 36 - ARBITRATION Landlord or Tenant may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the 55 59 nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. ARTICLE 37 - MEMORANDUM OF LEASE This Lease shall not be recorded, however, at the request of either party, Landlord and Tenant shall promptly execute, acknowledge. and deliver to the other party (i) a memorandum of lease in respect of this Lease sufficient for recording, and (ii) after each of the Commencement Date, the Fixed Rent Commencement Date, and any Renewal Term Commencement Date, either an agreement or a restated memorandum (if a memorandum shall have been executed or recorded as provided immediately above) stating the Commencement Date, Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be, each sufficient for recording. Failure by either party to request or to execute, acknowledge or deliver any such memorandum or agreement, however, shall not affect the determination of the Commencement Date, the Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be. Such memorandum shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease. Whichever party records such memorandum of Lease shall pay all recording costs and expenses, including any taxes that are due upon such recording. ARTICLE 38 - MISCELLANEOUS 38.01 Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement(s) which may be made between the parties concurrently with the execution and delivery of this Lease. All understandings and agreements heretofore had between the 56 60 parties are merged in this Lease and any other written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation. Neither party has relied upon any statement or representation not embodied in this Lease or in any other written agreement(s) made concurrently herewith. 38.02 No agreement shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing, refers expressly to this Lease and is signed by Landlord and Tenant. 38.03 If Tenant shall at any time request Landlord to sublet or let the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord of any liability for loss or damage to any of the Tenant's Property in connection with such subletting or letting. 38.04 Except as otherwise expressly provided in this Lease, the obligations under this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party is named or referred to; provided, however, that the provisions of this Section 38.04 shall not be construed as modifying the conditions of limitation contained in Article 27. 38.05 Except for Tenant's obligations to pay Rent, the time for Landlord or Tenant, as the case may be, to perform any of their respective obligations hereunder shall be extended if and to the extent that the performance thereof shall be prevented due to any Unavoidable Delays. Except as expressly provided to the contrary, the obligations of Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord have any liability whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease due to any of the matters set forth in the first sentence of this Section 38.05, or (b) because of any failure or defect in the supply, quality or character of electricity, water or any other utility or service furnished to the Demised Premises for any reason beyond Landlord's reasonable control. 57 61 38.06 Any liability for payments or reimbursement of payments hereunder (including, without limitation, Additional Charges) shall survive the expiration of the Term or earlier termination of this Lease. 38.07 Tenant shall not exercise its rights under Article 15 or any other provision of this Lease in a manner which would violate Landlord's union contracts or create any work stoppage, picketing labor disruption or dispute or any interference with the business of Landlord. 38.08 Tenant shall give prompt notice to Landlord of (a) any occurrence in or about the Demised Premises for which Landlord might be liable, (b) any fire or other casualty in the Demised Premises, (c) any damage to or defect in the Demised Premises, including the fixtures and equipment thereof, for the repair of which Landlord might be responsible, and (d) any damage to or defect in any part of the Demised Premises, sanitary, electrical, heating, ventilating, airconditioning, elevator or other systems located in passing through the Demised Premises or any part thereof. 38.09 This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall, be invalid or unenforceable, the remainder of this Lease shall not be affected and shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. If any words or phrases in this Lease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 58 62 38.10 Within thirty (30) days of each anniversary date of this Lease, annually Tenant shall furnish to Landlord a copy of its then current audited financial statement (or form 10-K) which shall not be distributed without the prior authorization of Tenant. 38.11 At any time after the Commencement Date, but prior to the Fixed Rent Commencement Date, Tenant shall have the right to request a recalculation of Floor Space and Tenant's Fraction. In addition, at any time during the Term, Tenant shall have the right to request a redetermination of Operating Expenses because of a claimed increase in the floor space of improvements constructed in the Lincoln Harbor Project, or because of a redetermination of Floor Space pursuant to this Section, the Floor Space shall be less than 578,028. If Tenant shall make any such request, then the Architect and an architect appointed by Tenant shall remeasure the floors of the Demised Premises or the floor space of the improvements in the Lincoln Harbor Project, as the case may be, in accordance with the standards set forth on Exhibit "D" annexed hereto and made a part hereof. If Architect and the architect appointed by Tenant shall agree, the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as determined by such architects shall be conclusive and binding upon the parties. If the Architect and the architect appointed by Tenant shall be unable to agree as to the Floor Space, Tenant's Fraction, or the Operating Expenses, as the case may be, then such architects shall select a third architect (or if such architects shall be unable to agree upon such third architect, the same shall be selected by the American Arbitration Association or successor organization) and such third architect shall select either the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as calculated by the Architect or the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as calculated by the architect appointed by Tenant. In no event, however, may either the Floor Space, Tenant's Fraction or the Operating Expenses be increased from the amounts set forth herein. Such finding shall be conclusive and binding upon the parties. 38.12 Notwithstanding anything contained in this Lease to the contrary, if Landlord shall have failed to deliver to Tenant the premises demised to Tenant pursuant to the Data Processing Lease on or before January 1, 1987, as the same may be extended by reason of Un- 59 63 avoidable Delays to a date no later than June 1, 1987, as to which date time shall be of the essence, Tenant shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice to Landlord of such cancellation no later than the tenth (10th) day after such date. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period provided that Landlord shall not have delivered such premises to Tenant during such period, and Landlord and Tenant shall be released and discharged of and from all liabilities under the provisions of this Lease as of the date of such Termination. In addition, if for any reason other than Tenants' fault, Substantial Completion of Landlord's Work shall not have occurred on or before January 1, 1989, as to which date time shall be of the essence, then, in addition to any other remedies set forth in this Lease, Tenant shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice to Landlord of such cancellation no later than the fifteenth (15th) day after such date. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period provided that the Commencement Date shall not have occurred during such period, and Landlord and Tenant shall be released from all liabilities under the provisions of this Lease as of the date of such termination. In addition, if for any reason other than Landlord's or Tenant's fault, the Commencement Date shall not have occurred on or before August 1, 1989, then, on the later to occur of August 1, 1989 and the date on which construction on the Building and the Demised Premises shall have experienced Unavoidable Delays equal to twelve (12) months in the aggregate, Landlord and Tenant each shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice of such cancellation to the other party. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period, and Landlord and Tenant shall be released from all liabilities under the provisions of this Lease as of the date of such termination. 38.13 Tenant acknowledges that pursuant to the provisions of the Agreement of Limited Partnership, dated of even date herewith, of Landlord, Tenant, as limited partner thereunder, has pledged its partnership interest 60 64 thereunder pursuant to Section 14.13 thereof to secure its obligations hereunder for a period of five (5) years from the Fixed Rent Commencement Date. ARTICLE 39 - EXTENSION OF TERM 39.01 Tenant shall have the option (the "Renewal Option") to extend the Term for two (2) additional periods of ten (10) years each (the "Renewal Terms"), shall (i) commence on the original Expiration Date and end on the date preceding the tenth (10th) anniversary of the original Expiration Date (the "First Renewal Term") and (ii) commence on the date immediately succeeding the last day of the First Renewal Term and end on the date preceding the twentieth (20th) anniversary of the original Expiration Date (the "Second Renewal Term") provided that (a) this Lease shall not have been previously terminated and (b) no material Event of Default shall have occurred and be continuing as of the date Tenant shall give the Renewal Notice (hereinafter defined). Each Renewal Option may be exercised with respect to the entire Demised Premises only and shall be exercisable by Tenant delivering to Landlord written notice (the "Renewal Notice") of Tenant's election to exercise the applicable Renewal Option at least nine (9) months prior to the original Expiration Date with respect to the First Renewal Term, and at lease nine (9) months prior to the tenth (10th) anniversary of the Commencement Date with respect to the Second Renewal Term. Upon the giving of the Renewal Notice with respect to the Second Renewal Term, Tenant shall have no further option or right to extend the Term. If Tenant exercises a Renewal Option, the Renewal Term with respect to which Tenant shall exercise the Renewal Option shall be on the same terms, covenants, and conditions as those contained in this Lease, except (i) the Fixed Rent payable for the Demised Premises during each Renewal Term shall be determined as provided in Section 39.03 hereof, and (ii) the provisions of Section 39.01 hereof with respect to Tenant's right to renew the Term of this Lease shall not be applicable during the Second Renewal Term. It is expressly understood that during the First Renewal Term that Tenant shall have the right as set forth in Section 39.01 only with respect to the Second Renewal Term, that during the Second Renewal Term Tenant shall have no further right to renew this Lease. 61 65 39.02 If Tenant exercises the Renewal Option applicable to the First Renewal Term or the Second Renewal Term, as the case may be, the Fixed Rent for the Demised Premises shall be an amount equal to the Fair Market Rent (hereinafter defined), determined in accordance with Article 40 hereof, for the Demised Premises. 39.03 If, for any reason whatsoever, the Fair Market Rent shall not have been determined pursuant to Article 40 hereof by the commencement of the First Renewal Term or Second Renewal Term, as the case may be, the Tenant shall pay to Landlord in monthly installments until such determination, on account of the Fixed Rent, an amount equal to the Fixed Rent in effect on the date immediately prior to commencement of the First Renewal Term or Second Renewal Term, as the case may be. Following the final determination of Fair Market Rent, a reconciliation shall be made as follows: if the monthly installments of Fixed Rent determined pursuant to this Article 39 are more than the amounts Tenant had paid therefor, Tenant shall pay to Landlord within ten (10) days of such determination the amount of such underpayment of Fixed Rent due. ARTICLE 40 - DETERMINATION OF FAIR MARKET RENT 40.01 For purposes of this Lease the term "Fair Market Rent" shall mean the annual fair market rental value of the Demised Premises determined as if the Demised Premises were available in the then rental market for comparable buildings in the Northern New Jersey metropolitan area on the terms of this Lease and assuming that Landlord has had a reasonable time to locate a tenant who rents with the knowledge of the uses permitted pursuant to this Lease, and that neither Landlord nor the prospective tenant is under any compulsion to rent, and taking into account: (i) tenant is required to pay the Operating Expenses; (ii) the remaining Term of this Lease and any remaining Renewal Term, as well as the portion of the Term then elapsed; (iii) the fact that the tenant is a major tenant, occupying in excess of 200,000 square feet; (iv) the fact that Landlord will not be obligated to perform any work in the Demised Premises to prepare the same for Tenant's occupancy or to contribute or to loan any money on account thereof whether in the form of rent, credit, cash or otherwise. 62 66 40.02 The Fair Market Rent shall be determined on the basis set forth in Section 40.01 of this Article and with the assumption that the tenant need not perform any work in order to occupy the Demised Premises for the conduct of business. 40.03 Landlord shall give Tenant written notice (the "Rent Notice") setting forth Landlord's determination of the Fair Market Rent (the "Landlord's Determination"). Such notice will be sent not later than forty-five (45) days after receipt by Landlord of each of the Renewal Notices. 40.04 Tenant shall give Landlord written notice ("Tenant's Notice"), within forty-five (45) days after Tenant's receipt of the Rent Notice, as to whether Tenant accepts or disputes Landlord's Determination or any portion thereof. If Tenant in Tenant's Notice accepts Landlord's Determination, or if Tenant fails or refuses to give Tenant's Notice as aforesaid, Tenant shall be deemed to have accepted Landlord's Determination. If Tenant in Tenant's Notice disputes any portion of Landlord's Determination, Tenant shall deliver to Landlord together with Tenant's Notice, Tenant's determination of the Fair Market Rent of the portion of the Demised Premises for which Tenant disputes Landlord's Determination (the "Tenant's Determination"); simultaneously therewith Tenant shall notify Landlord of an individual ("Tenant's Advisor") selected by Tenant to act on its behalf for the purposes of this Article 40. 40.05 Landlord shall give Tenant written notice ("Landlord's Notice") within ten (10) business days of after Landlord's receipt of Tenant's Determination, as to whether Landlord accepts or disputes Tenant's Determination. If Landlord in Landlord's Notice accepts Tenant's Determination or if Landlord fails or refuses to give Landlord's Notice as aforesaid, Landlord shall be deemed to have accepted Tenant's Determination. If Landlord in Landlord's Notice disputes Tenant's Determination, Landlord shall in such Notice advise Tenant of the name of an individual ("Landlord's Advisor") selected by Landlord to act on its behalf for the purposes of this Article 40. If within twenty (20) days after Tenant's receipt of Landlord's Notice, Landlord's Advisor and Tenant's Advisor shall mutually agree upon the determina- tion ("Mutual Determination") of the Fair Market Rent, their determination shall be final and binding upon the 63 67 parties. If Landlord's Advisor and Tenant's Advisor shall be unable to reach a Mutual Determination within said twenty (20) day period, both of the advisors shall jointly select an independent real estate appraiser (the "Appraiser") whose fee shall be borne equally by Landlord and Tenant. In the event that Landlord's Advisor and Tenant's Advisor shall be unable to jointly agree on the designation of the Appraiser within five (5) days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association or any successor organization to designate the Appraiser in accordance the rules, regulations and/or procedures of the American Arbitration Association or successor organization then obtaining with respect to real estate valuation disputes. 40.06 The Appraiser shall proceed to determine the Fair Market Rent in accordance herewith. The two determinations of the Advisors and the Appraiser which are closest shall then be averaged and such averaged amount shall be conclusive and binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article 40, including the expenses and fees of any Advisor selected by it in accordance with the provisions of this Article 40. The Appraiser appointed pursuant to this Article 40 shall be a real estate appraiser with at least ten (10) years experience in the leasing of office space in, and valuation, of properties which are similar in character to the Building, a member of the American Institute of Appraisers of the National Association Real Estate Boards or successor organization and a member of the Society of Real Estate Appraiser or its successor organization. Neither the Appraiser nor the Advisors shall have the power to add to, modify or change any of the provisions of this Lease. 40.07 If the Fair Market Rent shall be finally determined to be in excess of five percent (5%) greater than Tenants' Determination, then Tenant, within ten (10) days after receipt of the final determination may notify Landlord of its election not to renew the Term, in which event, Tenant shall be deemed not to have exercised the applicable Renewal Option and this Lease and the Term shall expire as if such applicable Renewal Option had not been exercised. 64 68 40.08 It is expressly understood that any determination of the Fair Market Rent pursuant to this Article 40 shall be based upon the criteria stated herein. 40.09 Anything herein to the contrary notwithstanding, the Fair Market Rent shall not be less than the Fixed Rent payable immediately prior to the commencement of the Renewal Term in question. 40.10 After final determination has been made of Fair Market Rent for any purpose of this Lease, the parties shall execute and deliver to each other an instrument setting forth the amount thereof and the amount of Fixed Rent payable as a result of such determination; provided, however, that failure to execute such supplementary agreement shall not affect the determination of Fixed Rent. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. Landlord: HARTZ-PW LIMITED PARTNERSHIP By: Hartz Mountain Industries, Inc., general partner By: /s/ Stephen M. Kelty -------------------------------- Stephen M. Kelty, Vice President Tenant: PAINEWEBBER INCORPORATED By: /s/ Rodger Parker -------------------------------------- Rodger Parker, Senior Vice President 65 69 EXHIBIT "A" Description of the Building The proposed Operations Center is to be located at the Lincoln Harbor Project. The 10-11 story, center core building, of approximately 604,528 gross square feet, will house a retail area, cafeteria, print center, bulk storage and mail area. The Operations Center is to be connected by a "skywalk" to the existing Data Processing Center. A-1 70 EXHIBIT "B" Demised Premises The Demised Premises shall consist of all of that space, including the "skywalk," excluding retail space and the Common Areas. B-1 71 EXHIBIT "C" Fixed Rent The Fixed Rent during the Term, subject to adjustment as provided in this Lease, shall be determined as follows: (a) Commencing on the Fixed Rent Commencement Date and terminating on the day prior to the nineteenth (19th) anniversary of the Fixed Rent Commencement Date, the Fixed Rent shall be equal to the sum of (i) the Base Amount (as defined below), and (ii) 77.56% of debt service* per annum (principal and interest) under the Mortgage. The percentage of debt service for the Mortgage shall be determined by dividing (x) the Floor Space of the Demised Premises by (y) the floor space upon which the Mortgage is based (578,028 / 745,926 = .7756). Debt service shall be determined by using a debt service constant not to exceed 11.979.
Years Commencing on the Fixed Rent Commencement Date "Base Amount" per Year --------------------------- ---------------------- 1 - 4 $ 545,692.00 5 - 9 $ 996,627.00 10 -14 $2,717,511.00 15 -19 $5,012,023.00
- ---------------- * The stated percentage is predicated upon there being one (1) mortgage covering both the Ground Lease and the Agreement of Ground Lease, dated of even date herewith, between Fee Owner, as landlord, and Landlord, as tenant, for the premises known as the Operations Center and the Data Processing Center, respectively. In the event that a separate mortgage is obtained in connection with each such leasehold estate this Exhibit shall be amended accordingly. C-1 72 (b) Notwithstanding the foregoing, in no event shall the Fixed Rent (inclusive of the "Base Amount") per square foot exceed $11.97 for years 1-4, $13.47 for years 5-9, $16.47 for years 10-14, or $20.47 for years 15-19. (c) Commencing on the twentieth anniversary of the Commencement Date and terminating on the original Expiration Date, the Fixed Rent shall be an amount equal to the lesser of (x) the Fair Market Rent, determined in accordance with Article 40 hereof and (y) the product of the Floor Space and Forty-Two and 45/100 Dollars ($42.45), but in no event less than the Fixed Rent payable during the twentieth (20th) year of the Term. Promptly after the closing of the Mortgage and upon each occasion of redetermination of Fixed Rent, as provided in this Lease, the parties hereto shall prepare and execute a revised schedule of such redetermined Fixed Rent. C-2 73 EXHIBIT "D" Floor Space As to a demised premises, the sum of the floor area stated in square feet bounded by the exterior faces of the exterior walls, or by the exterior or common areas face of any wall between the premises and any portion of the common areas, or by the center line of any wall between the premises and space leased or available to be leased to another tenant or occupant. Any reference to floor space of a building shall mean the floor area of all levels or stories of such building, excluding any roof, except such portion thereof as is permanently enclosed, and including any interior basement level or mezzanine area not occupied or used by a tenant on a continuing or repetitive basis, and any mechanical room, enclosed or interior truck dock, interior common areas, and areas used by a landlord for storage, for housing meters and/or other equipment or for other purposes. Any reference to the floor space is intended to refer to floor space of the entire area in question irrespective of the person(s) who may be the owner(s) of all or any part thereof. The anticipated Floor Space of the Demised Premises is estimated to be 578,028. D-1 74 EXHIBIT "E" Land (including skywalk easement) BLOCK 34C LOT 4.03 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30" E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Properties of Hartz Mountain Industries, Inc.," and prepared by Azzolina & Feury Engineering Company, dated February 27, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E, 86.70 feet along said property line to a point on curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 and a radial bearing of N 14 degrees-11'-23" W through a central angle of 25 degrees-01'-56" for an arc distance of 477.53 feet; thence, C) Along said property line, N 38 degrees-30'-00" E, 550.05 feet; thence, D) Departing from said property line, S 50 degrees-33'-12" E, 86.23 feet to the point of beginning; thence, 1) N 38 degrees-52'-10" E, 383.37 feet to a point of curvature; thence, 2) Northeasterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, 3) S 51 degrees-07'-50" E, 156.00 feet; thence, 4) S 38 degrees-52'-10" W, 286.00 feet; thence, E-1 75 5) Along the outer face of the wall of Tower 1, S 51 degrees-07'-50" E, 392.18 feet; thence, 6) S 38 degrees-52'-10" W, 132.37 feet to a point of curvature; thence, 7) Southwesterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, 8) N 51 degrees-07'-50" W, 513.18 feet to a point of curvature; thence 9) Northwesterly, on a curve to the right having a radius of 35 feet through a central angle of 90 degrees-00'-00" for an arc distance of 54.98 feet to the point or place of beginning. Containing 156,420 square feet (3.59 acres). and The easement created pursuant to the Reciprocal Easement and Maintenance Agreement, dated of even date herewith, among Hartz, Landlord and Landlord for the "skywalk." E-2 76 [SURVEY OF SUBDIVISION OF LINCOLN HARBOR] E-3 77 EXHIBIT "F" Landlord's Work F-1 78 [PAINEWEBBER LETTERHEAD] March 4, 1986 Stephen M. Kelty, Vice President Hartz Mountain Industries 400 Plaza Drive Secaucas, NJ RE: PaineWebber, Inc. Dear Steve: I have reviewed the two feasibility studies and have found the following changes required to be made: Data Center We have added two pages (6A and 6B) plus section 12 which is a summary of budgetary costs of PaineWebber data center. Operations Building We have added the summary of budgetary costs of PaineWebber operations center (page 30). If you have any questions, please call at (212) 437-3532. Sincerely /s/ Rodger G. Parker/at Rodger G. Parker Senior Vice President at Attachments 79 Exhibit "F" HARTZ MOUNTAIN INDUSTRIES, INC. LINCOLN HARBOR FEASIBILITY STUDY OPERATIONS BUILDING 80 PROJECT DESCRIPTION The proposed Paine Webber Operations Building is to be located at Lincoln Harbor, Weehawken, New Jersey. The 10-11 story, center core building, of approximately 550,000 gross square feet, will have a population of 3300 and will house a cafeteria, print center, bulk storage and mail area. The Operations Center is to be connected by above ground bridge, to the existing Seatrain Building. In addition to the requirements described herein, the construction of the building and all related facilities shall be in conformance with the most recent editions of all applicable codes, standards, specifications and regulations. - 1 - 81 SITE DEVELOPMENT A. Site Preparation: Sufficient fill will be brought into the site so that all occupied first floor elevation will be at +11.0 feet. This is above the 100 year flood level. 1. All utilities, which will be underground, will be brought to the building site. 2. All major supporting roads on the site will be constructed to insure adequate access and traffic circulation, to include a bridge over railroad right of way. B. Building Foundations: Foundation will be supported by end bearing piles which will be driven to bedrock. Piles will be concrete filled, steel casing, rated at 100 tons. Concrete pile caps will complete the foundation. C. Parking: Grade and structured parking will be provided for a total of 1,000 cars. About 350 parking spaces will be provided in a structure on the south side of the existing office building (data center). 1. Elevated covered walkway will be provided to connect this structure to both office buildings. The remaining 650 spaces will be provided in a parking structure to the immediate west of the new office building, part of which will be above the print plant/mail room. 2. Structure will be designed and constructed so as to have normal drainage and waterproofing expected of a structural roof. D. Landscaping: The area to the east of the new office building will be developed into a large plaza leading to Harbor Boulevard. 1. All areas around both buildings will be heavily landscaped. - 2 - 82 STRUCTURAL A. Structural System Description: The primary structural system for the building shall be a structural steel frame. All steel members shall be standard rolled sections. The typical floor and roof slab consist of composite metal decking and concrete reinforced with welded wire fabric. The floor framing shall be sized to act compositely with the metal deck slab. Floor framing shall be evaluated by deflection and vibration control criteria in addition to strength. Floor framing shear connections shall be sized for a minimum of 125% of the maximum uniform load capacity of the composite member. The minimum structural bay size shall be 30 ft. by 30 ft. Steel columns shall transmit the gravity loads. A positive means of resisting laterals loads shall be provided. The structure shall be spray-fireproofed to the applicable ratings required by code. B. Structural Loadings: 1. Live Loads Typical Floor 100 psf Roof per Code (incl. (boca snow drift) Print Center 200 psf minimum (subject to verification of equipment) Live Load reduction per code on floor girders, columns and foundations only. 2. Lateral Loads Structural Steel per Code Cladding plus/minus 30 psf minimum C. Structural Materials: 1. Structural Steel A-36 or A-527, gr. 50 2. Concrete fc = 4000 psi min. - 3 - 83 EXTERIOR ENCLOSURE A. Vertical Walls Above Grade: Wall system shall be based upon two distinct lines of defense against water and air infiltration. 1. Wall system shall resist positive and negative loads of 35 psf. 2. Glazing System: Facade glass to be insulating type with CBA certification. All glass thickness and heat treatment to sustain wind loads and to resist temperature stress breakage. Limit breakage to 8 lites per 1,000. Fixed aluminum frames with continuous PVC thermal break with either hard coat anodized finish or resinous ("Kynar") coated of selected color. Provide a glazing system utilizing neoprene gaskets and a pressure plate system designed using the pressure equalized rain screen principle. 3. Insulation: Rigid insulation with vapor barrier which will achieve a total wall "R" value of 12.5 minimum installed. 4. Water Control: Continuous at line coincident with head of windows at each level to anticipate water infiltration potential at sealant joints. Weep system incorporated at glazing enframement. There will be a continuous vapor barrier between interior and exterior spaces. 5. Mock-up and Testing: Cladding material, anchorage, glazing enframement, glass, sealant and flashing systems will be tested for air infiltration, water penetration, and structural performance. Extent of mock-ups will be shown on drawing. The entire exterior wall system is estimated to be 140,000 square feet and is budgeted to cost no more than $22.00 per square foot or $3,080,000 complete, including mock-up test estimated at $100,000. B. Roofing: The roofing is to be designed for controlled flow drainage. Provide a complete insulated membrane (IRMA) roofing system; consisting of steel framing with metal decking, covered with 5/8" type X gypsum board. A three ply build up roof consisting of fiberglass felts to be applied over gypsum board covered by styrofoam R M brand insulation with a "U" value of 0.08 BTU/sq./ft. Deg F. and stone ballast. - 4 - 84 C. Parking Structure: Requirements to be determined. D. Moisture Protection: Provide the following systems as required in conjunction with other assemblies as follows: 1. Waterproofing: Provide fluid applied two-part orethane rubber waterproofing (Gates) with protection board as specified by the manufacturer. 2. Damproofing: Provide a cold applied asphalt based damproofing to all exterior foundations not requiring waterproofing. Provide asphaltic protection board. 3. Elevator Pit Waterproofing: Capillary waterproofing (Vandex). 4. Sealants: Provide two component urethane sealant (Tramco/Dymeric) for all building seals other than structural glazing. 5. Flashing: ASTM A167, Tpe 304, deal soft fully annealed, 0.015 in. unless greater thickness required. 6. Roof Accessories: Premanufactured products best suited for intended use. Provide stainless steel fabrications. 7. Insulation: a. Fire Safing: Thermafiber Safing (US Gypsum). b. Insulation: Rigid fiberglass board insulation with reinforced foil vapor barrier facing on each side. Thickness as required for "U" value required. E. Roll-Up Doors: Electrically operated automatic roll-up doors (Cornell Iron Works) F. Loading Dock Equipment: Provide manual dock levelers, dock bumpers and other accessories (Kelly Dock Levelers). G. Ornamental Metals: ASTM A167, Tpe 302 or 304 stainless steel, No. 8 mirror finish. Thicknesses as required to provide flat surfaces free from distortion. - 5 - 85 INTERIOR - BASE BUILDING: A. Entrance Lobby: 1. Floors: Granite. (costing no more than $15.00 per sq. ft.) 3 cm. min. set in a full mortar bed (see sample) 2. Walls: Granite adhesive applied (see sample) 3. Ceilings: Portland cement plaster on suspended metal lath. 4. Lighting: Recessed incandescent. B. Typical Floor Elevator Lobbies: 1. Floors: Carpet (allowance $2.00 per sq. ft.) 2. Walls: Vinyl (allowance $1.50 per sq. ft.) 3. Ceilings: Gypsum wallboard. 4. Lighting: Recessed incandescent. C. General Office Area: 1. Floors: Steel troweled concrete, sealed for dustproofing. D. Toilets and Vestibules: 1. Floors: 1" x 1" ceramic mosaic tile with sanitary cove base, of color to be selected, set onto waterproof membrane. - 6 - 86 2. Walls: All walls with 2" x 2" ceramic tile, of color to be selected, set on moisture resistant gypsum wallboard with organic adhesive, extending to ceiling. a. Shaft walls: Cavity walls with 2 hr. fire-rating, minimum STC of 47 db., consisting of 1" shaft wall liner panel, C-H studs 24" o.c., and two layers 1/2" gypsum wallboard. b. Fire-rates Walls: 2 hr. fire-rating and minimum STC of 48 db., consisting of two layers 5/8" gypsum wallboard on each side of metal studs spaced 24" o.c., painted. c. Non-Fire-rated Walls: One layer 5/8" gypsum wallboard on each side of metal studs (with insulation to underside of construction, STC 45 db.) 3. Ceilings: Suspended 5/8" thick gypsum wallboard with required metal access panels, painted with enamel. 4. Lighting: Recessed parabolic fluorescent fixtures. 5. Doors, Frames, Hardware: a. Doors: Flush seamless hollow metal 1-3/4" thick, 16 ga., full height, width as required, factory primed, field painted, and labeled at fire-rated walls and partitions. b. Frames: Welded hollow metal, 16 ga., size as required, factory primed, field painted, and labeled at fire-rated walls and partitions. c. Hardware: Mortise locksets with lever handles, ball bearing hinges and parallel arm closers; polished stainless steel finish. 6. Toilet Partitions: Ceiling hung flush metal type with baked enamel finish and vandalproof hardware. 7. Toilet Accessories: Stainless steel units with No. 4 satin finish, including combination towel dispenser and disposal, napkin dispenser and disposal, tissue dispenser, soap dispenser, grab bars, mirrors and shelves. Provide 1/4" thick mirrors complying with FS DD-G-451 type 1 class 1 quality 9. 8. Lavatory Countertops: "Corian" on marine grade plywood with back and side splashes with miscellaneous metal framing. - 7 - 87 E. Stairs: 1. Stairs and Landings: Cement filled steel pan, surfaces hardened and sealed. Underside and other exposed metal surfaces finish painted. 2. Railings, Guards: 1-1/2" diameter steel tube, finish painted. 3. Walls: Continuous metal stud and gypsum board partitions for full height of stair enclosure. Painted finish. 4. Ceilings: Exposed construction, painted. 5. Lighting: Strip fluorescent fixtures, surface mounted. F. Doors and Frames, Hardware: 1. Doors: Flush, hollow metal, 1-3/4" thick, 18-gauge at interior, 16-gauge galvanized at exterior, ceiling high, width as required, factory prime, field painted, labeled at rated walls and partitions. Provide vision panel in all service vestibule doors. 2. Frames: Welded hollow metal, 16-gauge at interior, 14-gauge galvanized at exterior, size as required, factory prime, field painted, labeled at rated walls and partitions. 3. Hardware: Same as D5c. G. Electrical and Telephone Closers: 1. Floors: Steel troweled concrete, sealed for dustproofing. Alternate: 8" raised floor consisting of 2' x 2' steel panel with high pressure plastic laminate finish. Alternate: Add raised flooring in electrical and telephone closets. Based on 1,900 square feet total areas and sevein model 50 by Donn Corporation 1,900 sq. ft. @ $7.11 per sq. ft. $14,650 2. Shaft Walls: Cavity walls with 2 hr. fire-rating and minimum STC of 47db. consisting of 1" shaft wall liner panel, C-H studs at 24" o.c. and two layers 1/2" gypsum wallboard on room side, painted. Spacing of studs to be doubled at blind shaft conditions. - 8 - 88 H. Parking Area: 1. Floor: All floors above occupied areas to be waterproofed. I. Interior Masonry Walls: Concrete masonry units complying with ASTM C90, Grade N-1 and ASTM C145, Grade N-1, maximum density of 95 lbs. Provide portland-cement-lime mortar complying with ASTM C270, Type N. J. Miscellaneous Metals: Shop primed, A36 steel, rolled sections. Sizes and shapes best suited for intended use and capable of sustained imposed loads. K. Rough Carpentry: Provide rough carpentry as required for use with other work. Provide fire-resistance treated wood for all interior locations. L. Ornamental Metals: ASM A167, Type 302 and 304 stainless steel, No. 8 mirror finish. Thickness is required to provide flat surfaces free from distortion. M. Paint: First line quality, alkyd enamel of PPG, Glidden or Benjamin Moore. Provide eggshell finish. - 9 - 89 VERTICAL TRANSPORTATION: A. Materials and Equipment: 1. Elevators required to serve a building population of approximately 3300 people on Floors 2 - 11 will consist of two (2) groups of six (6) elevators each at approximately 1/3 points of the long dimension of the building. Each group will be six (6) 4000 pound elevators operating at 350 fpm, with 48 inch wide center-opening doors. 2. The elevators are designed to provide a five minute handling capacity of 14.1% of the population at an interval of 27.1 seconds. 3. Passenger elevators shall be based on Westinghouse Epoch supervisory control system, center opening doors and traffic sentinel door controls (or equal). 4. Two (2) service elevators are required. Each will have a capacity of 6000 pounds and be designed to handle 10 foot sections of drywall. B. Materials Handling: A materials handling system is recommended to provide both vertical and horizonal delivery of documents from central mail, file, supply and reproduction center. Such system will consist of self-propelled automatic "tote" boxes on a dedicated track system operating in vertical shaftways and ceiling space. Multiple entry and re-entry stations are envisioned on each floor. This item description is too vague and has not been priced and it is not the obligation of Hartz. - 10 - 90 Plumbing: A. Sanitary System: Provide a complete system of sanitary services, including toilet facilities, fixtures, drains, veins, water, etc., including all connections to site work services. 1. Provide a complete plumbing system with mens and ladies facilities on each floor to handle the total population of the Tenant. A minimum of 12 flush valve fixtures and 8 lavatories shall be provided on each floor for each sex. Toilet facilities shall be so located that no paint on the floor is more than 200 feet from a Toilet room. Provisions shall be made in each toilet for the physically handicapped. Four drinking fountains shall be provided per floor. 2. Provide 8 wet stacks consisting of soil vent, cold water and hot water to facilitate future Tenant installations. 3. All branch water connections shall include a stop valve for maintenance purposes. B. Hot and Cold Water Piping System: 1. Provide a system of hot and cold water piping, as required, for plumbing fixtures, interior and exterior hose bibbs, water coolers, etc. The hot water system shall include a central heating plant utilizing the most efficient energy source available. Submit for Paine Webber approval an economic analysis for the various fuel sources considered. Provide circulation pumps and piping to assure prompt availability of water at a minimum of 110 degrees F. The cold water system shall include pumps, tanks and valves as required to supply water to fixtures at a minimum of 25 psig and a maximum of 85 psig. - 11 - 91 2. Provide for flushing and sterilization as required by code of all domestic water piping. C. Sanitary Drains and Vents: Provide a system of drains and vents to convey sanitary wastes from the building to the sewer system. D. Storm Drainage: Provide a system of drains and piping to convey the storm water from the building to a point of disposal on the site. - 12 - 92 E. Plumbing Fixtures: 1. Plumbing fixtures specified are as manufactured by Kohler or American Standard, or the equal may be furnished at Paine Webber's option. 2. Flush valves specified are as manufactured by Sloan. The same type flush valves as manufactured by Delaney may be furnished at the Contractor's option. 3. Carriers as manufactured by Zurn, J.R. Smith or Wade shall be furnished. 4. All exposed metal parts and fittings on plumbing fixtures shall be chrome plated unless otherwise called for. 5. Provide stop valves on hot and cold water lines for all plumbing fixtures. F. Water Closets: 1. Vitreous china, wall hung, siphon jet action, elongate bowl, 1-1/2 inch top spud for chrome plated exposed flush valve with metal oscillating handle 1 inch screwdriver angle stop vacuum breaker, flush connection, coupling for 1-1/2 inch top spud, wall and spud flanges. White seat, with extended back for elongated bowl, open front, no cover, stainless steel check hinge. 2. Horizontal or vertical carrier with short foot. Use neoprene gaskets and bolt carrier to floor. Mount closet with rim 15 inches above floor. 3. Equipment manufacturers and model numbers are as follows: Bowl Afwall Flush Valve 110 Seat Church 5320.114, white G. Lavatories: Vitreous china, front overflow, antisplash rim, cast-in soap dish American Standard "Roxalyn" pattern in 20 inch size. Fittings to be American Standard "Heritage" N2131 combination supply and drain fitting with aerator spout. Drain plug with integral perforated grid and 1-1/2 inch tailpiece. Provide 3/8 inch chrome plated supply stop valves R-2604-1 with screwdriver stop and escutcheons. H. Drinking Fountains: Remote, wall recessed cooler, completely automatic with precooler, tank, cooling coil, hermetic condensing unit, insulated cooling system, serving stainless steel wall mounted fountains. A minimum of one dual level fountain for handicapped shall be provided per floor. - 13 - 93 I. Materials: Service Materials Underground water and site Cement lined ductile iron fire protection Underground gas and air Welded wrapped black steel Site storm drainage 12 inches and below - PVC or concrete pipe 14 inches and above - reinforce concrete Site sanitary Cast iron or PVC Underslab sanitary Cast iron or PVC Above slab sanitary Cast iron Plumbing vents Cast iron J. Insulation: Insulate pipes and other surfaces inside the building as follows: 1. Hot water pipes. 2. Cold water pipes. 3. Horizontal storm pipes over tenanted areas including leader to roof drain. - 14 - 94 Fire Protection: A. Provide a full standpipe and sprinkler system in accordance with applicable NFPA Standards. Sprinkler system shall be hydraulically designed to deliver .1 gpm/sq. ft. in office areas and appropriate densities in ordinary hazard areas. Sufficient heads shall be allowed for partitioning. Standpipe system shall include pumps and valves as required, but hose may be eliminated if permitted by the authorities. Hartz will, as part of its "base building" provide the system in the core of the building. Distribution into floors will be part of tenant allowance at an estimated cost of $320,000. This price is based on chrome pendant heads. - 15 - 95 ELECTRICAL (Core Work) A. Electric Service: 1. Electric service to be capable of supporting the demand load on a first contingency basis for service feeders and transformers. 2. If unit substations are employed, they shall be primary selective double-ended with secondary tie. Each transformer shall be sized to accommodate the total demand load based on an overload rating with forced air cooling. 3. Two levels of ground fault protection shall be provided at 460 volt. 4. Provide (2) 4160 volt emergency feeder from generator distribution switchgear located in Data Center Building sized to support, in addition to code required systems, a unit demand load density of 7.2 watts per sq. ft. of gross area distributed as detailed in Paragraph B below. B. Normal/Emergency Lighting and Utility Distribution: Interior distribution for lighting and utility shall all be on emergency service, and be sized at 8.5 watts per sq. ft. demand at 265/460 volts, 3 phase 4 wire through two (2) vertical risers of plug-in bus ducts. Local dry type transformers shall be provided for 5 watts per sq. ft. at 120/208 volts, 3 phase 4 wire with the number of branch circuits based on a per circuit loading of 1200 watts, equally distributed on the floor at four (4) closet locations. The number of branch circuits for lighting panels shall be based on a per circuit loading of 3600 watts equally distributed on the floor at two (2) closet locations. H. Life Safety System: Shall be in accordance with governing high rise Code requirements. - 16 - 96 HEATING, VENTILATING AND AIR CONDITIONING: A. Temperature and Humidity Design Conditions: Summer: Outside Air: Dry bulb: 91 degrees F. Wet bulb: 76 degrees F. Inside Air: Dry bulb: 75 degrees F. Wet bulb: 63 degrees F. Winter: Outside Air: Dry bulb: 0 degrees F. Inside Air: Dry bulb: 70 degrees F. Cooling Tower Summer Design: Wet bulb: 78 degrees F. Return Water Temperature: 95 degrees F. Supply Water Temperature: 85 degrees F. B. Load Conditions: In addition to the solar and transmission loads, the supply air quantities and refrigeration tonnage shall be designed for the following unit load densities: Lighting: 2.0 watts/sq.ft. useable Power: 3.0 watts/sq.ft. useable C. Air Conditioning Systems: 1. The air conditioning system shall be an all air-variable air volume system. Supply air shall originate at a central Fan Room consisting of multiple supply air and return air systems. The supply air systems shall be built-up type arranged in a blow-through configuration, utilizing vane-axial fans with variable speed motors. The return air fans shall also be vane-axial type with variable speed motors. The supply fans shall be headered together for operating flexibility and reliability. 2. Supply air to and return air from each floor shall be distributed to the various floors by means of four (4) riser shafts with a supply air takeoff on each floor off of each riser. A pneumatically operated two-position automatic damper shall be provided in each supply air and return air duct tap on each floor. Supply duct construction from fan discharge to capped outlets on each floor shall be of medium pressure construction with all seams and joints sealed and completely insulated. - 17 - 97 3. The air quantities shall be based on a room temperature minus entering room supply air temperature differential of 18 degrees F. D. Heating Systems: 1. The building will be heated by forced hot water convectors located at the perimeter of the building below the sill of the window. The system will be fed by a pair of supply and return risers located every 60 feet at the perimeter columns and piped in a reverse return arrangement. An automatic control valve shall be provided for every 30 lineal feet of exterior wall. Convector lengths and locations shall be arranged such that each curtain wall module is covered by a heating element. 2. Operating supply water temperature shall be 180 degrees F. with a 20 degrees F. or 30 degrees F. temperature differential. An alternate price shall be provided for a system utilizing heat pump water at a supply temperature of 105 degrees F. and a 10 degrees F. temperature differential. 3. The boiler plant shall consist of three packaged hot water fire tube boilers with dual fuel burners (natural gas and No. 2 fuel oil). NOTE: The primary fuel should be natural gas with fuel oil as a backup. Two boilers shall be each sized at 67% of total load. The third boiler shall be sized for summertime domestic hot water load requirements. E. Refrigeration Plant: Shall consist of three machines, one sized at 20% of the total load and the other two each sized at 40% of load. Machines shall be hermetic electric motor driven type. Space shall be provided for a redundant or standby machine of each size. A chilled water and condenser water pump shall be provided for each machine plus a standby pump for each service and size. Machines shall be piped in a parallel flow arrangement. Refrigeration machines shall produce 44 degrees F. supply water with a 56 degrees F. return water temperature with condenser water at 85 degrees F. supply and 95 degrees F. return. F. Cooling Tower: 1. Cooling tower shall consist of multiple cells sized for tonnage required plus an allowance of 400 tons of additional capacity for future needs. A spare cooling tower cell shall be provided. 2. Cooling tower cells shall be of the packaged cross-flow type with two-speed reversing motors. Towers shall have stainless steel basins and sumps with hot dipped galvanized frames and noncombustible fill. - 18 - 98 3. Each cooling tower cell shall be winterized. 400 ton space capacity is to be distributed by means of a separate pair of risers sized for the full capacity from top to bottom of the building. A separate set of circulating pumps shall be provided (three pumps each sized at 50% of 1200 qpm). Valved outlets shall be provided at floor (sized at 4 inches). G. Automatic Controls and Building Automation System: 1. The building control system shall be, in general, a pneumatic system. Building automation system shall be an electronic microprocessor based system employing direct digital control technology. Each main air handling system and each water system shall be provided with a separate DDC cabinet. 2. System shall be able to start and stop all equipment remotely and monitor and reset from a remote location air system supply air temperatures, outside air temperatures, fan discharge temperatures, return air temperatures, supply and return temperatures of all water systems with reset of supply water temperatures. In addition to points required for the operations building allow five hundred (500) points for data center. 3. System shall provide alarms for all off-normal conditions and status of remotely controlled motors by either pressure or floor switches. 4. System graphics shall be provided for each system. 5. System shall remotely control each supply air and each return air automatic damper in the duct tape at each floor from a central location both for part load operation and smoke control. 6. Provide a duplicate operators console (color CRT, alarm printer, logging printer, etc.) at data center in addition to that required at operations center. H. Boiler Plant Fuel Oil System: Provide a fuel oil system for the boiler plant. Provide a 15,000 gallon fuel oil tank (No. 2 fuel oil) for main storage with fuel oil transfer pumps and day tank at the boiler room. I. Life Safety System and Smoke Control System: In general, the normal building air conditioning supply and return fans shall be utilized for smoke control by means of pressurization and exhaust. J. Elevator Machine Rooms: Elevator Machine Rooms shall be air conditioned utilizing packaged DX condenser water cooled units. - 19 - 99 The HVAC system as specified will result in an additional cost to Paine Webber of $716,500 which is above the Hartz $1,700,000 cost for the base system in the core. The additional items of cost are broken down as follows: Increased prices / JB - B outline specifications over Hartz standard. 1. Refrigeration Plant JB-B 3 chillers Hartz design 2 dual chillers increase chiller cost plus piping and rigging 22,000 2. Increase air system JB-B 18 degrees D T Hartz design 20 degrees D T V A V system increase 40,000 cfm @ $3.50 140,000 @ $3.50 3. Spare 400 tons capacity in cooling tower with 3 pumps @ 600 gpn and 8" pipe with capped valves 37,500 4. Spare cell with cooling tower 600 T.R. 30,000 5. Stainless Steel Basin and Sump in lieu of standard 20,000 6. Condenser water and chilled water pumping system JB-B 5 pumps ea system Hartz design 4 pumps ea system 8,500 7. Back-up fuel oil system 18,000
- 20 - 100 8. V A V Fan system control JB-B variable speed, motor drive Hartz Design vortex inlet dampers 88,500 9. Control system JB-B pneumatic control Hartz Design electric controls 98,000 10. Baseboard Radiation 7200 lf JB-B Architectural covers 254,000 w/Z tier 105 degrees radiation total increase in base design cost $716,000
NOTE: No cost has been developed for heat recovery piping system between buildings. - 21 - 101 INTERIOR - TENANT WORK:
* A. General Office Area: Usable Sq. Ft. ------------------- -------------- 1. Space Allocation: *SEE NEXT PAGE FOR a. Enclosed Offices 10'-0"X15'-0" 100,000 sq.ft. VERIFICATION b. Low Wall Partition Cubicles 10'-0"X10'-0" 50,000 sq.ft. c. Open Office Area 240,000 sq.ft. d. Vault 5,000 sq.ft. e. Print Shop/Mail Room 40,000 sq.ft. f. Bulk Storage Room 20'-0"Xceiling 10,000 sq.ft. ------- 445,000 sq.ft. 2. Finishes a. Floors: High quality modular carpet tile of anti-static synthetic fiber, PLUS Roberson Walker Duct. * Alternate: Accessible floor consisting of 2' x 2' *SEE NEXT PAGE cement filled steel panel, 8' high, pedestals FOR ALTERNATE interconnected with stringers. Provide high quality modular carpet tile of anti-static synthetic fiber. Vinyl composition tile to be used in utility areas such as print shop, storage room, mail room etc. b. Column Enclosures: 5/8" gypsum wallboard attached to metal furring secured to the underside of construction above, painted as required. Fire rated as required. c. Walls: Metal stud and gypsum wallboard partitions to underside of construction above. Painted finish with resilient wall base. Aluminum framed glass partition system with baked on paint finish with flush wood doors maximum 9'-0" high, for perimeter office walls parallel to the exterior wall. d. Ceiling: Fully accessible, 2' X 2' acoustical tile. e. Lighting: Recessed parabolic fluorescent fixtures - size to be determined. f. Window Treatment: Perimeter windows with 1" slat venetian blinds.
- 22 - 102 General Office Areas: Floors (carpet tiles) 445,000 sq. ft. $ 925,600 @ $2.08/PSF Floors (Roberson Walker Duct) 445,000 sq. ft. @ $2.50/PSF (see item 9 of qualification) 1,112,500 ALTERNATE BID: A D D RAISED FLOORS 395,000 sq. ft. @ $8.95/PSF 3,535,250 (including electrical grounding) V A T 50,000 sq. ft. @ $9.80/PSF 40,000 DEDUCT BASE BID CARPET TILES & ROBERSON WALKER DUCT (2,038,100) ----------- TOTAL ALTERNATIVE Add 1,537,150 ----------- Walls (allowance) 863,840 Ceilings 445,000 sq.ft. @ $.90/PSF 400,000 Window Treatment 1,800 blinds @ $75 ea 135,000 Doors/H.M.D./Frames 90 @ $550 ea 49,500 Glass Partition 6,600 lin.ft. @ $106 l.f. (incl. 660 doors) 699,600
Qualifications: 1. Partition Walls ARE NOT INCLUDED IN OPEN OFFICE AREA 2. Lin. footage of partitions for vault, print/mail room and bulk storage is determined by 1 LF partition (to 9" A.F.F.) per 20 sq.ft. of area. 3. Door quantity is determined by 1 door per office at enclosed offices; no door at low wall partition cubicles and 1 door per 50 LF of partition at vault, print/mail room and bulk storage. 4. Window treatment - 1: slat Riviera aluminum venetian blinds 5' x 5' each. (see sample) 5. Carpet tiles are based on 18" x 18" tile glued direct, 22 oz. Olefin antistatic under 1KV, 10 G.A. level loop. 6. Ceiling tile is based on 2' x 2' x 5/8" square edge fissure lay-in system standard grid. ARMSTRONG MINABOARD #756 or APPROVED EQUAL. (see sample) - 23 - 103 7. Aluminum framed glass partitions system is based on H.L. Bryun Series #200 with birch stain grade doors, locksets with layer handles ballbearing hinges, polished stainless steel finish. (see sample) 8. Raised floor based on Donn-Severn model 54. 1000 lb. concentrated load. (see sample) 9. a. Electrified deck based on Robertson Q Floor/Taproute system. Wiring unit costs are called out in electrical section. b. Provide a horizontal distribution system for power, telephone and data on each floor with interface to respective closets at each floor. System shall be a three cell electrified deck with three compartment trench header system or accessible raised floor. Cellular deck sections shall utilize a cell section providing a minimum cross-sectional area of 15 square inches each for telephone and data with electrified sections on a maximum of 5 foot centers. Trench header capacity shall be based on a minimum allowance of one square inch total per 100 square feet net useable area for both data and telephone. Alternate: In lieu of electrified cellular floor provide grounding for 25% of accessible floor pedestals furnished by others and described in INTERIOR TENANT WORK item A.2.a. c. Any additional cost for spray fireproofing if necessary for Robertson electrified deck system will be at tenants expense. - 24 - 104 * B. Cafeteria: 1. Space Allocation USABLE SQ. FT. a. Kitchen Area 10,000 sq. ft. b. Dining Area 10,000 sq. ft. ------ 20,000 sq. ft. *SEE NEXT PAGE FOR VERIFICATION 2. Finishes a. Floors: Carpet tile. b. Kitchen Floor: Quarry tile, non-slip. c. Walls: Gypsum wallboard, with ceramic in kitchen. d. Ceiling: Mineral fiber, acoustical tile. Perforated metal tile in kitchen. e. Lighting: same as A.2.a. * C. Print Center: 1. Space Allocation USABLE SQ. FT. a. Print Center 25,000 sq. ft. 2. Finishes a. Floors: Accessible floor consisting of 2' x 2' steel panels 24" h. with high pressure laminate finish, pedestals interconnected with stringers, grounded. b. Column Enclosures: Same as A.2.b. c. Walls: Gypsum wallboard partitions to underside of construction above. Painted finish, resilient wall base. Sound attenuation blankets as required. Support partitions for equipment provided as required, structural metal studs and gypsum wallboard. d. Ceilings: Same as A.2.d. e. Lighting: Same as A.2.e. D. Security: 1. Security provisions including, but not limited to electronic hardware connected to life safety system and/or building security such as contact switches, electric lock, electric strike release, electric hold-open devices, cameras, card readers and intercoms connected to security station; location to be determined. THIS ITEM IS VAGUE AND HAS NOT BEEN PRICED AND IS NOT THE OBLIGATION OF HARTZ. - 25 - 105 Cafeteria Kitchen Area: Floors (Quarry Tile) - 10,000 sq.ft. @ $8.45 sq.ft. = $84,500 Walls 3,600 sq.ft. @ $7.55 sq.ft. = 27,180 Ceilings 10,000 sq.ft. @ $2.75 sq.ft. = 27,500 Qualifications: 1. Quarry tile floor is based on 6"x6"x1/2" by American Oleson, mud set, Standard Colors. (See sample) 2. Ceramic tile walls is based on 4 1/2" X 4 1/2" Standard Colors. 400 lin. ft. @ 9' A.F.F. (See sample) 3. Ceiling is based on 2' x 4' x 5/8" conwed suspended unperforated metal tile. (See sample) Cafeteria Dining Area: Floors - (Carpet Tiles) 10,000 sq.ft. @ $2.08 sq.ft. = $20,800 Walls 3,600 sq.ft. @ $2.54 sq.ft. = 9,144 Ceilings 10,000 sq.ft. @ $ .90 sq.ft. = 9,000 Qualifications: 1. Carpet tiles are the same as general office area. 2. Wall is based on 400 lin. ft. at 9' A.F.F., no wall finishes indicated except vinyl base. Print Center: Floors 25,000 sq. ft. @ $7.39 sq. ft. = $184,750 Walls 1,250 lin. ft. @ $38.70 l.f. = 48,375 Ceilings 25,000 sq.ft. @ $0.90 sq. ft. = 22,500 Qualifications: 1. Access flooring is based on Severn Model 50 by Donn Corporation (See sample) 2. Ceiling tile is 2'x2'x5/8" square edge fissure lay-in system Standard grid. (See sample) ARMSTRONG MINABOARD #756 OR APPROVED EQUAL. - 26 - 106 TENANT FINISHING FOR HVAC SYSTEM H V A C Tenant work will consist of all work throughout the occupied space starting from the main shaft. The work will consist of all medium pressure duct work, variable air volume terminal units, low pressure air distribution duct work with 2' x 2' ceiling diffusers, automatic temperature control, start up check, test and balance. $1,569,130 - 27 - 107 ELECTRICAL (Tenant Work) 1. 2 x 4 Parabolic light fixtures with (4) 40W cool white bulbs included. Branch wiring to C.B. panel board 1,072,500 Allow one switch per 8 fixtures (812) 44,660 2. Telecommunications Provisions: Two main and one satellite closets shall be provided for vertical and horizontal telecommunication services. Three inch conduit ties shall be provided on each floor between the two main riser closets and each of two satellite closets. Six 4 inch riser sleeves shall be provided between floors in each main closet. 45,748 3. Data Provisions: Two main data communication closets shall be provided for vertical and horizontal data distribution. Four 4 inch riser sleeves shall be provided between floors with a three inch horizontal conduit tie between closets on each floor. 16,590 4. Special Grounding: Provide a 4/0 copper insulated isolated ground riser in each of two main electric riser closets terminating in each closet in a ground detail box. Each riser shall connect directly to main service ground point for the building. 7,439 5. Each lighting panel shall be provided with a split bus and remotely controlled contractor to enable 2/3 of the lighting to be shed upon loss of normal power. 16,000 6. Lighting Protection: Provide a Master Labeled lightning protection system. 35,000 7. Tenant feeder & panels including power of 1 1/2 watts per square foot for mini computer rooms. 184,000 8. Kitchen equipment connection & panels (allowance) 80,000
- 28 - 108 9. Empty conduits between buildings (96) 4" conduits (allowance) 12,915 10. Print shop/mail room equipment connection and panels (allowance) 189,126
The following are unit prices for general purpose power distribution which are an addition to above costs.
Unit Prices - ----------- 1. Duplex receptacle in dry wall partition 55.00 ea 2. Power outlet in underfloor system (8/ckt) 148.00 ea 3. Power monument on raised floor (8/ckt) 148.00 ea 4. Data and/or telephone floor outlet (excluded conduit & cables) 81.00 ea 5. Fire annunciator speakers in tenant space 110.00 ea
- 29 - 109 BUDGETARY COSTS OF PAINE WEBBER OPERATIONS CENTER 550,000 Square Feet All Tenant Work Based on 1986 Prices
ITEM UPGRADE COST ---- ------- ---- H V A C (add) 1,440,000 J B & B spec $1,569,130 H V A C (specified upgrade) (add) 716,500 (core) Plumbing (specified upgrade) (add) 40,000 (fixtures & wet cols) (add) (room size) Cafeteria area (finishes) 139,180 Dining area (finishes) 38,944 Print center (finishes) 255,625 Roberson deck 1,112,500 Carpet tiles 925,600 Raised flooring (alt) (add) 1,537,150 Walls (allowance) 863,840 Ceilings 400,000 Window treatment 135,000 Doors/hardware/frames 49,500 Glass partitions 699,600 Sprinkler 320,000 Electrical 1,704,000 Electrical general outlets (est. 5,000 x $100) 500,000 ---------- TOTAL $8,712,919 SQUARE FOOT COST 550,000/ $ 15.84 Total Upgrade $3,469,570 (Westinghouse Elev)
- 30 - 110 EXHIBIT "G" Loan Terms PRINCIPAL AMOUNT: $75,000,000 TERM: Minimum 17 years 6 months from the Commencement Date (as defined in the Data Pro- cessing Lease) AMORTIZATION SCHEDULE: 11.979 constant INTEREST RATE: 11.25% or less per annum SECURITY: Senior leasehold mortgage, subordinated fee, no personal liability G-1 111 EXHIBIT "H" Operating Expenses Operating Expenses: The sum of the following: (a) The operating cost and expense (whether or not within the contemplation of the parties) for the repair, maintenance, and operation of the Common Areas, of the Building and Land, as set forth in detail below; and (b) the Operating Expenses (as such term is defined in the Ground Lease of the Land upon which this Building is located, dated of even date herewith) attributable to the Demised Premises thereunder through the RCOEA. Operating Expenses shall mean the operating costs specified in Category A hereof to the extent that such costs are properly allocable to the operation, repair and maintenance of the Common Areas of the Building and Land during the year, it being understood that, notwithstanding anything to the contrary contained herein: (i) any cost allocable to the items specified in Category B hereof shall be excluded from Operating Expenses; and (ii) the Operating Expense for each year shall, if the Building shall not have been ninety-five percent (95%) occupied by tenants during such year, be calculated as though the Building had been ninety-five percent (95%) occupied by tenants during such year. Items Included in Building and Land Common Area Operating Expense ("Category A"): 1. Labor costs (as hereinafter defined) for the services of the following classes of employees of Landlord for the portion of their time reasonably devoted to performing services required in connection with the operation, repair and maintenance of the Common Areas of the Building and Land; (i) the property manager, his assistants and the clerical staff attached to the Building superintendent's office; provided, however, that such expenses with regard to a property manager and his staff shall not be included H-1 112 within Operating Expenses in the event Landlord engages a managing agent; (ii) elevator operators; (iii) window cleaners, miscellaneous handymen, and cleaning services for the Common Areas; (iv) cleaners and janitors employed in the Building for the performance of services with respect to the exterior or interior of the Common Areas of the Building and Land or the sidewalks adjoining the Building; (v) watchmen, caretakers and persons engaged in patrolling and protecting the Common Areas of the Building and Land; and (vi) carpenters, engineers, firemen, mechanics, electricians and plumbers engaged in the operation, repair and maintenance of any part of the Common Areas of the Building and Land, and the heating, air conditioning, ventilating ("HVAC") plumbing, electrical and elevator systems of the Common Areas of the Building and Land. 2. the cost of tools, equipment, materials and supplies used in the operation, repair and maintenance of the Common Areas of the Building; 3. amounts charged to Landlord by independent contractors for services, materials, and supplies furnished in connection with the operation, repair, maintenance and cleaning of any part of the Common Areas of the Building and Land excluding such work or service performed for a tenant, and the HVAC, plumbing, electrical and elevator systems of the Common Areas of the Building; 4. premiums for casualty, including fire (with extended coverage) and public liability insurance maintained by Landlord in respect of the Common Areas, the Building and the Land; 5. charges (including applicable taxes) for utilities (except utilities for the use of any tenant) re- H-2 113 quired in the operation of the Common Areas of the Building and Land; 6. water charges and sewer rents of the Common Areas of the Building; 7. the cost of painting or otherwise decorating any part of any Floor Space in the Common Areas of the Building, but such cost shall not include any painting, repainting, decorating cost incurred in connection with the occupancy of any tenant; 8. the cost of furnishing HVAC services during business hours on business days to the Common Areas of the Building; 9. the management fees paid to a third party managing the Building which are not in excess of the then prevailing rates for management fee of other first-class office facilities in Hudson County; 10. reasonable legal, accounting and other professional fees with respect to operation of the Building, except insofar as related to the financing, refinancing, construction on, or sale of the Land and/or Building; and 11. if no managing agent is employed four percent (4%) of the resulting total (excluding those items contemplated in (i) and 9.) of all of the foregoing items for Landlord's office administration and overhead. Operating Expense shall be "net" only, and for that purpose shall be reduced by the amounts of any reimbursement or credit in respect of any Operating Expense received by Landlord. "Labor Costs" shall mean all expense incurred by Landlord which shall be directly related to employment of personnel, including amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, workmen's compensation insurance, disability benefits, pensions, hospitalization, retirement plans and group insurance, uniforms and working clothes and the cleaning thereof, and expenses imposed on Landlord pursuant to any collective bargaining agreement. H-3 114 Notwithstanding anything to the contrary contained in this Lease these items are excluded from Building Operating Expense ("Category B"): 1. the cost of any electric current furnished to the Demised Premises or to other leased or leasable portions of the Building; 2. the cost of any work or service performed for or facilities furnished by any tenant or by Landlord pursuant to an agreement with any such tenant (including Tenant) at such tenant's cost either directly or through rent, including, without limitation, the cost of tenant installations and decorations incurred in connection with preparing space for new tenants; 3. the cost of installing, operating and maintaining any special facilities, such as broadcasting facilities or luncheon, athletic or recreational club; 4. Landlord's costs in respect of officers and executives of Landlord; however, the property manager shall not be deemed such an officer or executive; 5. the cost of any insurance premium to the extent that Landlord is entitled to be reimbursed therefor by any tenant in the Building; 6. the cost of any work or service performed for or facilities furnished to any tenant of the Building (other than Tenant); 7. the cost of any items for which Landlord is reimbursed through the proceeds of insurance or other wise compensated or has the right to be compensated by any tenant (including Tenant) of the Building; 8. the cost of any tools, equipment, materials and supplies, repairs, alterations, additions, charges, replacements and other items which under generally accepted accounting principles are or should be properly classified as capital expenditures except for the portion of the useful life thereof that falls within such year; 9. any costs directly or indirectly incurred in furnishing overtime HVAC or overtime use of elevators H-4 115 or other services to Tenant or any other tenant of the Building; 10. depreciation of the Building or interest or amortization expense with respect to the Building Mortgage; 11. any costs allocable to activities relating to the solicitation or entering into of leases of space in the Building or in connection with the collection of money under such lease or the enforcement of same; 12. any monies whatsoever owed by another tenant of the Building to Landlord; 13. leasing commissions; 14. franchise or income taxes imposed upon Landlord; 15. ground rent; 16. financing costs; and 17. legal fees incurred in connection with the negotiation of, or disputes arising out of, any space lease in the Building. Notwithstanding anything contained herein to the contrary, it is the intention of the parties that the sum of Tenants' Fraction of Operating Expenses and Tenant's Fraction (as such term is defined in the Agreement of Lease, dated of even date herewith, between Landlord, as landlord, and Hartz, as tenant, for certain premises located in the Building) of Operating Expenses shall equal 100%. H-5 116 EXHIBIT "I" Plans and Specifications The Plans and Specifications for Landlord's Work are contained in the Exhibit entitled Landlord's Work. In addition to the Plans and Specifications for Landlord's Work, such Exhibit includes items in excess thereof, which items are identified as budgeted amounts, which amounts are based upon the price as of the date hereof, and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. I-1 117 EXHIBIT "J" Tenant's Work Tenant's Work shall consist of that work performed by Tenant in addition to Landlord's Work to finish the interior of the shell of the Building to Tenant's requirements. Within the Landlord's Work Exhibit are items in excess of Landlord's Work obligation which items are identified as budgeted amounts, which amounts are based upon the 1986 price and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. J-1 118 EXHIBIT "K" Parking Plan The parking shall be located on the parking decks constituting part of the Building and the parking lot located on the premises leased pursuant to the Data Processing Lease. K-1 119 EXHIBIT "L" Lincoln Harbor Project L-1 120 [SURVEY OF BOUNDARY LINE OF LINCOLN HARBOR] L-2 121 EXHIBIT "M" Retail Space M-1 122 [SURVEY OF RETAIL AREA ON GRADE] M-2 123 EXHIBIT "N-1" Form of Superior Mortgagee Subordination, Non- disturbance and Attornment Agreement SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of the ____ day of ___________, 19__ , by and between ________________, a _________________ corporation having an office at ___________________ (the "Mortgagee"), and PAINEWEBBER INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 (the "Space Tenant"). W I T N E S S E T H : WHEREAS, the Mortgagee is the owner and holder of a Promissory Note, dated of even date herewith, in the amount of $______, by HARTZ-PW LIMITED PARTNERSHIP (the "Landlord"), payable to the Mortgagee (the "Note"), which Note is secured by a Mortgage, dated of even date herewith, between the Landlord, as mortgagor, and the Mortgagee, as mortgagee (the "Mortgagee"), covering the Landlord's right, title and interest in the Building and any other improvements located on the Land, as such terms are defined in the Agreement of Lease (the "Ground Lease"), dated __________, 1986, between Fee Owner, as landlord, and the Landlord, as tenant, and the leasehold estate created thereby (the "Leasehold Estate") in the land, located in the Lincoln Harbor Project, in Weehawken, New Jersey, as such land is more particularly described in Exhibit A annexed hereto and made a part hereof (said Land, Building, improvements and such other property being hereinafter collectively referred to as the "Premises"), and pursuant to which Mortgage Hartz Mountain Industries, Inc. ("Fee Owner") executed the same for purposes of subordination of its fee interest in the Land to the Mortgagee; and WHEREAS, the Space Tenant has entered into a lease (the "Space Lease") with the Landlord, dated as of __________, 1986, covering a portion of the Premises (the "Demised Premises"); and N-1-1 124 WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of the Space Tenant by the Mortgagee. NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to be legally bound thereby, the Mortgagee and the Space Tenant hereby covenant and agree as follows: 1. The Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Mortgage and the lien thereof and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Mortgage, with the same force and effect as if the Mortgage had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Mortgage and the Space Lease or any Memorandum of the Space Lease. 2. Mortgagee expressly agrees that no subsequent modification of the Mortgage shall adversely affect in any material respect any of Space Tenant's rights under the Space Lease, materially increase Space Tenant's obligations under the Space Lease or materially diminish Landlord's obligations under the Space Lease. 3. The Space Tenant and Mortgagee agree that if any act or omission of Landlord would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall not exercise such right (a) until and unless it has given written notice of such act or omission to Mortgagee and any successor or assign whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Mortgagee shall have become entitled under the Mortgage to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Mortgagee commences and diligently pursues such N-1-2 125 remedy (which reasonable period shall in no event be less than the period to which Landlord would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). The Space Tenant and Mortgagee further agree that in the event of any default on the part of the Landlord, arising out of or accruing under the Mortgage, whereby the Mortgage might be accelerated, terminated or foreclosed by the Mortgagee, by reason of any such default or defaults, the Mortgagee will given written notice thereof to the Space Tenant at the address set forth herein, or its successor or assigns whose name and address previously shall have been furnished to the Mortgagee in writing, and after the time when the Landlord shall have become entitled under the Mortgage to cure such defaults, grant to the Space Tenant a reasonable time (in no event to exceed ninety (90) days, for all defaults other than payment of principal or interest on the Mortgage, for which the time period shall be limited to ten (10) business days), which shall be not less than the period of time granted to the Landlord by the terms of the Mortgage, after the giving of such notice by the Mortgagee to the Space Tenant to cure or to undertake the elimination of such defaults, provided that after receipt of such notice, Space Tenant shall with due diligence give the Mortgagee notice of intention to remedy such act or omission, and to the extent possible and reasonably reasonable shall commence and continue to remedy such act or omission, it being expressly understood that such right on the part of the Space Tenant to cure any such default or defaults shall not be deemed to create any obligation on the Space Tenant's part to cure or to undertake the elimination of any such default or defaults. 4. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle the Landlord to terminate the Space Lease or dispossess the Space Tenant thereunder as of the date Mortgagee files a lis pendens in, or otherwise commences, a foreclosure action or any time thereafter, the Mortgagee shall not name the Space Tenant as a party defendant to any action for foreclosure or other enforcement thereof, nor shall the Space Lease be terminated by the Mortgagee in connection with or by reason of foreclosure or other proceedings for the enforcement of the Mortgage or by reason of a transfer of the Landlord's interest under the Space Lease or under N-1-3 126 the Ground Lease or the Fee Owner's interest in the Land pursuant to an assignment in lieu of foreclosure, or otherwise, and any sale, or assignment pursuant thereto shall be subject to the Space Lease nor shall the Space Tenant's use or possession of the Demised Premises be interfered with by the Mortgagee or any such assignee or purchaser, except that the person acquiring the interest of the Landlord or Fee Owner as a result of any such action or proceeding and such person's successors and assigns (any of the foregoing being hereinafter referred to as the "Successor") shall not be (a) subject to any credits, offsets, defenses or claims, not expressly provided for in the Space Lease, which the Space Tenant might have against any prior landlord, (b) bound by any previous modification or amendment of the Space Lease or by any prepayment of more than one month's Fixed Rent or Additional Charges (as such terms are defined in the Space Lease), unless such modification or prepayment shall have been made with the Mortgagee's prior written consent, or (c) liable for any act or omission of any prior landlord which constitutes a default under the Space Lease, provided, however, Successor shall be liable for any such default or defaults which are continuing beyond the time where the interest of the Landlord under the Space Lease has been transferred to the Successor. 5. If the interest of the Landlord under the Space Lease or under the Ground Lease or the interest of Fee Owner in the Land shall be transferred to the Mortgagee by reason of foreclosure or other proceedings for enforcement of the Mortgage or pursuant to any assignment in lieu of foreclosure, or otherwise, the Space Lease shall not terminate but shall continue in full force and effect as, or as if it were, a direct lease between the Successor, or its designee and Space Tenant, whereby the Space Tenant shall be bound to the Successor, and, except as provided in this Agreement, the Successor shall be bound to the Space Tenant, under all of the terms, covenants and conditions of the Space Lease for the balance of the term thereof remaining, and the Space Tenant does hereby agree to attorn to the Successor, including the Mortgagee if it be the Successor, as its landlord, to affirm its obligations under the Space Lease and does agree to make payments of all sums due under the Space Lease to the Successor. Space Tenant shall promptly execute and deliver any instrument that Mortgagee may reasonably request to evidence such attornment. N-1-4 127 6. If and to the extent that the Space Lease or any provision of law shall entitle the Space Tenant to notice of any mortgage, the Space Tenant acknowledges and agrees that this Agreement shall constitute said notice to the Space Tenant of the existence of the Mortgage. 7. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 8. Nothing contained in this Agreement shall in any way impair or affect the lien created by the Mortgage, except as specifically set forth herein. 9. The Space Tenant agrees that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. The Space Tenant and Mortgagee agree that Mortgagee shall be deemed a "Superior Mortgagee" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agreement. The Space Tenant further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by the Mortgagee, the terms and provisions hereof shall be controlling. The Mortgagee agrees that this Agreement satisfies any condition or requirement in the Mortgage (or mortgage commitment) relating to the granting of a subordination agreement and attornment agreement. The Mortgagee further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with subordination and attornment by the Space Tenant, the terms and provisions hereof shall be controlling. 10. The Space Tenant acknowledges that it has notice that the Space Lease and the rent and all other sums due thereunder have been assigned to the Mortgagee as part of the security for the note secured by the Mortgage. 11. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must N-1-5 128 be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. 12. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if requested) as may be necessary or appropriate to fully implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Mortgagee: By:___________________________, Space Tenant: PAINEWEBBER INCORPORATED By:___________________________ N-1-6 129 [ACKNOWLEDGEMENTS] N-1-7 130 EXHIBIT A Land N-1-8 131 EXHIBIT "N-2" Form of Superior Lessor Subordination, Nondisturbance and Attornment Agreement SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of the ____ day of __________, 1986, by and between _______________________, a ______________________ having an office at _____________________________ ("Superior Lessor"), and PAINEWEBBER INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 ("Space Tenant"). W I T N E S S E T H : WHEREAS, HARTZ MOUNTAIN INDUSTRIES, INC. ("Ground Lessor") is the owner of the land (the "Land") described in Schedule "A" annexed hereto and made a part hereof; and WHEREAS, Ground Lessor has entered into a ground lease (the "Superior Lease"), dated as of ___________, whereby Ground Lessor demised and leased, as ground lessor, all of the Land to Superior Lessor; and WHEREAS, Superior Lessor has become the landlord under the entered ground lease (the "Ground Lease") , dated as of ___________, 1986 whereby Ground Lessor demised and leased, all of the Land to HARTZ-PW LIMITED PARTNERSHIP ("Ground Lessee"); and WHEREAS, Space Tenant has entered into a lease (the "Space Lease") with Ground Lessee, dated as of ____________, 1986 , covering a portion of the space in the building known as the [Paine Webber Building (the "Demised Premises"), as more fully described in such Space Lease; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Space Tenant by Superior Lessor. N-2-1 132 NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to be legally bound thereby, Superior Lessor and Space Tenant hereby covenant and agree as follows: 1. Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Ground Lease and to all renewals , extensions, supplements , amendments , modifications, consolidations and replacements of such Ground Lease, with the same force and effect as if the Ground Lease had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Ground Lease and the Space Lease or any Memorandum of the Space Lease. 2. Space Tenant and Superior Lessor agree that if any act or omission of Ground Lessee would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall riot exercise such right (a) until and unless it has given written notice of such act or omission to Ground Lessee and Superior Lessor whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Superior Lessor shall have become entitled under the Ground Lease to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Superior Lessor commences and diligently pursues such remedy (which reasonable period shall in no event be less than the period to which Ground Lessee would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). 3. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle Ground Lessee to terminate the Space Lease or dispossess Space Tenant thereunder, Superior Lessor shall not name Space Tenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights grant- N-2-2 133 ed to Superior Lessor under its Ground Lease, and Superior Lessor will not terminate the Space Lease or take any action to recover the premises demised to Space Tenant or affect or disturb Space Tenant's possession or rights under the Space Lease. 4. If Superior Lessor shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Ground Lessee under the Space Lease by reason of the termination of the Ground Lease or otherwise, and if Space Tenant is not then in default under the Space Lease beyond the time permitted therein to cure such default, then (a) the Space Lease shall not terminate, (b) Space Tenant shall attorn to Superior Lessor, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Space Lease, and (c) Superior Lessor shall accept such attornment and recognize Space Tenant as Superior Lessor's lessee under the Space Lease. Upon such attornment and recognition, the Space Lease shall continue in full force and effect as, or as if it were, a direct lease between Superior Lessor and Space Tenant, upon all of the then executory terms, conditions and covenants as set forth in the Space Lease and which shall be applicable after such attornment, except that Superior Lessor shall not be (i) liable for any previous act or omission of Ground Lessee which constitutes a default under the Space Lease; (ii) subject to any offset or defenses not expressly provided for in the Space Lease which Space Tenant might have against Ground Lessee; (iii) bound by any prepayment of more than one month's [Fixed Rent] or (Additional Charges] (as such terms are defined in the Space Lease); and (d) bound by any amendment or modification of the Space Lease made without Superior Lessor's prior written consent. 5. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 6. Space Tenant and Superior Lessor agree that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. Space Tenant and Superior Lessor agree that Superior Lessor shall be deemed a "Superior N-2-3 134 Lessor" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agreement. Space Tenant and Superior Lessor further agree that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by Superior Lessor, the terms and provisions hereof shall be controlling. 7. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. 8. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 9. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if re- quested) as may be necessary or appropriate to fully N-2-4 135 implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Superior Lessor: By:_________________________ Space Tenant: PAINEWEBBER INCORPORATED By:_________________________ N-2-5 136 [Acknowledgements] N-2-6 137 SCHEDULE "A" Land N-2-7 138 EXHIBIT "O" Form of Ground Lessor Nondisturbance Agreement THIS AGREEMENT, dated as of the ___ day of ___________, 19__, between HARTZ-PW LIMITED PARTNERSHIP, a New Jersey limited partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 ("Landlord"), and __________, a __________ having an office at __________ ("Subtenant"). W I T N E S S E T H : WHEREAS, Landlord has entered into an Agreement of Lease, dated as of the ____ day of _____________, 1986 (the "Space Lease"), with PAINEWEBBER INCORPORATED (the "Space Tenant") pursuant to which Landlord leased and demised to Space Tenant a portion of the space in the building known as the [Paine Webber Building] (the "Demised Premises"), as more fully described in such Space Lease; WHEREAS, Space Tenant has entered into an Agreement of Sublease (the "Sublease") , dated as of the ___ day of ___________, 19__, pursuant to which Space Tenant subleased and demised to Subtenant [the Demised Premises or a portion thereof], as more fully described in Exhibit "A" annexed hereto and made a part hereof; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Subtenant by Landlord. NOW, THEREFORE, the parties hereto agree as follows : 1. So long as the Sublease is in full force and effect, and no default of Subtenant exists nor has any event occurred which with the passage of time or notice would entitle Space Tenant to terminate the Sublease or dispossess Subtenant, Landlord will not name or join Subtenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Landlord under the Space Lease or to terminate such Space Lease, and the Landlord will not terminate the Sublease or take any action to recover possession of the premises demised to Subtenant or affect or disturb Subtenant's possession or rights under the Sublease. O-1 139 2. If Landlord or its designee shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Space Tenant under the Space Lease by reason of the termination of the Space Lease or otherwise, and if Subtenant is not then in default under the Sublease beyond the time permitted therein to cure such default, then (a) the Sublease shall not terminate, (b) Subtenant shall attorn to Landlord or its designee, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Sublease, and (c) Landlord or its designee shall accept such attornment and recognize Subtenant as the Landlord's lessee under the Sublease. Upon such attornment and recognition, the Sublease shall continue in full force and effect as, or as if it were, a direct lease between the Landlord or its designee and Subtenant, upon all of the then executory terms, conditions and covenants as set forth in the Sublease and which shall be applicable after such attornment, except that Landlord shall not be (i) liable for any previous act or omission of Space Tenant which constitutes a default under the Sublease; (ii) subject to any offset or defenses not expressly provided for in the Sublease which the Subtenant might have against Space Tenant; (iii) bound by any prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Sublease); and (d) bound by any amendment or modification of the Sublease made without Landlord's prior written consent. 3. The terms of this Agreement shall bind and inure to the benefit of the parties hereto, and their respective heirs, successors and assigns. 4. All notices and other communications hereunder shall be in writing and shall be hand delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed (a) if to Landlord at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094, Attention: General Counsel with a copy to Horowitz, Bross, Sinins & Imperial, P. A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin Horowitz, Esq., or at such other address as Landlord shall have furnished to Subtenant in writing, or (b) if to Subtenant , at __________________________________________ ____________ Attention: ___________________, or at such other address as Subtenant shall have furnished to Landlord in writing. O-2 140 5. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6. This Agreement may not be discharged or modified orally or in any manner other than by an agreement in writing specifically referring to this Agreement and signed by the party or parties to be charged thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HARTZ-PW LIMITED PARTNERSHIP By: Hartz Mountain Industries, Inc. By: ________________________________ [SUBTENANT] By: ________________________________ 141 [ACKNOWLEDGEMENT] O-4 142 EXHIBIT "A" Demised Premises O-5 143 EXHIBIT "P" Cleaning Standards NIGHTLY ENTRANCE LOBBY AREAS Sweep and wash flooring including spray buffing. Wash all rubber mats. Clean all cigarette urns and replace sand and water as necessary. Vacuum floors, dust and rub down walls, metalwork and saddles in all elevator cabs. NIGHTLY FOR GENERAL CLEANING Thoroughly vacuum all carpeted areas moving light furniture. Wash all stairways. MONTHLY HIGH DUSTING Dust all pictures, frames, charts and other wall hangings not reached in nightly cleaning. Dust all vertical surfaces such as walls, partitions, doors, brick, louvers, not reached in nightly cleaning. Dust all window frames. Machine scrub all ceramic tile floors. Thoroughly wash and polish all wall tile and stalls in toilet areas. Dust and wash down lobby walls. Window washing will be performed TWO times per year. P-1 EX-10.38 13 LEASE AGREEMENT 1 Exhibit 10.38 LEASE BETWEEN HARTZ-PW LIMITED PARTNERSHIP, as Landlord and PAINEWEBBER INCORPORATED as Tenant Premises: Data Processing Center LINCOLN HARBOR PROJECT 2 INDEX ARTICLE PAGE ------- ---- 1. Definitions ............................... 1 2. Demise and Term ........................... 6 3. Rent ...................................... 6 4. Use of Building ........................... 8 5. Preparation of Building ................... 8 6. Tax and Operating Expense Payments ........ 11 7. Common Areas .............................. 14 8. Labor Harmony ............................. 15 9. Subordination ............................. 15 10. Quiet Enjoyment ........................... 18 11. Assignment, Subletting and Mortgaging ..... 18 12. Compliance with Laws ...................... 22 13. Insurance and Indemnity ................... 23 14. Rules and Regulations ..................... 28 15. Alterations ............................... 29 16. Landlord's and Tenant's Property .......... 31 17. Repairs and Maintenance ................... 32 18. Electric Energy ........................... 33 19. Heat, Ventilation & Air Conditioning ...... 33 20. Other Services: Service Interruption ..... 33 21. Access, Changes and Name .................. 33 22. Mechanic's Liens and Other Liens .......... 34 23. Non-Liability and Indemnification ......... 35 24. Damage or Destruction ..................... 36 25. Eminent Domain ............................ 41 26. Surrender ................................. 44 27. Conditions of Limitation .................. 44 28. Re-Entry by Landlord ...................... 46 29. Damages ................................... 47 30. Affirmative Waivers ....................... 50 31. No Waivers ................................ 50 32. Curing Tenant's Defaults .................. 50 33. Broker .................................... 51 34. Notices ................................... 52 35. Estoppel Certificates ..................... 52 36. Arbitration ............................... 53 37. Memorandum of Lease ....................... 53 38. Miscellaneous ............................. 54 39. Extension of Term ......................... 57 40. Determination of Fair Market Value ........ 59 3 Exhibits -------- Exhibit "A" Description of the Building Exhibit "B" Fixed Rent Exhibit "C" Floor Space Exhibit "D" Land Exhibit "E" Landlord's Work Exhibit "F" Loan Terms Exhibit "G" Operating Expenses Exhibit "H" Plans and Specifications Exhibit "I" Tenant's Work Exhibit "J" Lincoln Harbor Project Exhibit "K-1" Form of Superior Mortgagee Subordina- tion, Nondisturbance and Attornment Agreement Exhibit "K-2" Form of Superior Lessor Subordina- tion, Nondisturbance and Attornment Agreement Exhibit "M" Form of Ground Lessor Nondisturbance Agreement ii 4 Lease, dated April 14, 1986 between HARTZ-PW LIMITED PARTNERSHIP, a New Jersey limited partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 and PAINEWEBBER INCORPORATED, a Delaware corporation having an office at 1285 Avenue of the Americas, New York, New York 10019. ARTICLE 1 - DEFINITIONS 1.01 As used in this Lease (including in all Exhibits and any Riders attached hereto, all of which shall be deemed to be part of this Lease) the following words and phrases shall have the meanings indicated: A. Additional Charges: All amounts that become payable by Tenant to Landlord hereunder other than the Fixed Rent. B. Architect: Kenneth Carl Bonte, or as Landlord may designate, subject to Tenant's approval, which approval shall not be unreasonably withheld or delayed. C. Architect's Certificate: The certificate to be issued by Architect that the Building has been Substantially Completed in accordance with the Plans and Specifications. D. Broker: Joseph Hilton & Associates Incorporated. E. Building: The improvements located on the Land as more particularly described on the plan attached hereto as Exhibit "A" and made a part hereof. F. Calendar Year: Any twelve-month period during the term of this Lease commencing on a January 1. G. Commencement Date: August 1, 1986, as the same may be extended pursuant to the provisions hereof. H. Demised Premises: The Building and the Land, collectively. I. Expiration Date: The date that is the day before the twenty-fifth (25th) anniversary of the latest to occur of (i) the Commencement Date, or (ii) the Commencement Date of the Office Lease (hereinafter defined) (as such term is defined in the Office Lease), or (iii) 5 the Commencement Date (as such term is defined in the Agreement of Lease, dated of even date herewith, between Hartz-PW Hotel Limited Partnership, as landlord, and Tenant, as tenant, for certain office premises in the Lincoln Harbor Project (the "Hotel/Office Lease")) of the Hotel/Office Lease, if the later to occur of such dates is the first day of a month, or the twenty-fifth (25th) anniversary of the last day of the month in which the later to occur of such dates occurs if the later to occur of such dates is not the first day of a month. However, if the Term is extended by the Tenant's effective exercise of any Renewal Option, the "Expiration Date" shall be changed to the last day of the applicable Renewal Term. For the purpose of this definition, the earlier termination of this Lease shall not affect the "Expiration Date." J. Fixed Rent: As set forth on the Rent Schedule on Exhibit "B" annexed hereto and made a part hereof, as redetermined pursuant to Section 39.02 hereof. K. Fixed Rent Commencement Date: The date(s) which is the first anniversary of the Commencement Date, subject to adjustment as provided in Section 5.05 hereof. L. Floor Space: 140,768 and as more particularly set forth on Exhibit "C" annexed hereto and made a part hereof. M. Ground Lease: The Agreement of Lease, dated of even date herewith, between Ground Lessor, as landlord, and Landlord, as tenant, pursuant to which Ground Lessor, leased the Land to Landlord. N. Ground Lessor: Hartz Mountain Industries, Inc. ("Hartz"), its successors and assigns. O. Insurance Requirements: Rules, regulations, orders and other requirements of the applicable board of underwriters and/or the applicable fire insurance rating organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance over the Demised Premises, whether now or hereafter in force. P. Land: The land described on Exhibit "D" annexed hereto and made a part hereof. 2 6 Q. Landlord: On the date as of which this Lease is made, shall mean Hartz-PW Limited Partnership, a New Jersey limited partnership, having an address at 400 Plaza Drive, Secaucus, New Jersey 07094, but thereafter "Landlord" shall mean only the ground lessee under the Ground Lease or if the Ground Lease shall have ceased to exist, the fee owner of the Land, or if there shall exist another Superior Lease or Leases, the tenant under the Superior Lease immediately prior in estate to this Lease. R. Landlord's Work: The materials and work to be furnished, installed and performed by Landlord at its expense in accordance with the provisions of Exhibit "E" annexed hereto and made a part hereof in accordance with the Plans and Specifications. S. Legal Requirements: Laws and ordinances of all federal, state and local governments, and rules, regulations, orders and directives of all departments, subdivisions, bureaus, agencies or offices thereof, and of any other governmental authorities having jurisdiction over the Demised Premises. T. Mortgage: The mortgage creating a lien on the leasehold estate created by the Ground Lease, to be entered into pursuant to a loan commitment substantially on the terms set forth in the schedule annexed hereto as Exhibit "F" and made a part hereof, and any replacement, extension, modification or amendment thereto. U. Operating Expenses: An amount equal to the costs and expenses for the items set forth on Exhibit "G" annexed hereto and made a part hereof. V. Permitted Uses: General and executive office use, use for data processing services and all uses incidental thereto. W. Person: A natural person or persons, a partnership, a corporation, or any other form of business or legal association or entity. X. Plans and Specifications: The schematics annexed hereto as Exhibit "H" and made a part hereof which have been approved by Tenant and all plans and specifications developed for the restoration of the Building, which shall be subject to Tenant's prior writ- 3 7 ten approval, which approval shall not be unreasonably withheld or delayed. AA. Project Common Areas: All areas, spaces and improvements in the Lincoln Harbor Project (other than those located on the Land) which are made available from time to time for the common use and benefit of the tenants and occupants of the Lincoln Harbor Project, including, without limitation, non-exclusive parking areas, roads, walkways, sidewalks and landscapes and planted areas, if any. BB. Real Estate Taxes: The real estate taxes, assessments and special assessments imposed upon the Demised Premises by any federal, state, municipal or other governments or governmental bodies or authorities. If at any time during the Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate there shall be levied, assessed or imposed on Landlord specifically in substitution for any of the foregoing Real Estate Taxes (a) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, or (b) any other such additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges or the part thereof so measured or based shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof, calculated as if Landlord's only asset were the leasehold estate created by the Ground Lease. CC. Renewal Options: Shall have the meaning set forth in Section 39.01 hereof. DD. Renewal Terms: Shall have the meaning set forth in Section 39.01 hereof. EE. Rent: The Fixed Rent and the Additional Charges. FF. Substantially Completed: Substantially Completed or terms of similar import shall mean the completion of construction, and the issuance of a temporary certificate of occupancy therefore, except for minor details, designated or punchlists delivered to Tenant, of 4 8 construction, decoration and mechanical adjustment, the non-completion of which will not materially interfere with the performance of Tenant's Work or Tenant's use and occupancy of the Demised Premises for Tenant's normal business purposes, and the completion of which is expected to occur within sixty (60) days after such Substantial Completion. GG. Successor Landlord: Shall have the meaning set forth in Section 9.03. HH. Superior Lease: Any ground or underlying lease of the Land or the Building. II. Superior Lessor: The lessor of a Superior Lease or its successor in interest, at the time referred to. JJ. Superior Mortgage: Any mortgage, including the Mortgage, which may hereafter affect the Land, the estate created under the Ground Lease or by any other Superior Lease, or the Building and all renewals, extensions, supplements, amendments, modifications, consolidations, and replacements thereof or thereto, substitutions therefore, and advances made thereunder. KK. Superior Mortgagee: The mortgagee of a Superior Mortgage at the time referred to, sometimes herein referred to as a Mortgagee. LL. Tenant: On the date of which this Lease is made shall mean PaineWebber Incorporated but thereafter, "Tenant" shall mean only the tenant under this Lease at the time in question, provided, however, that the foregoing shall not be deemed to relieve Paine Webber, Inc. of any liability in the event of an assignment of its interest in this Lease except in accordance with the provisions of Section 11.04(b) hereof. MM. Tenant's Fraction: One hundred percent (100%). NN. Tenant's Property: Shall have the meaning set forth in Section 16.02. OO. Tenant's Work: The facilities, materials and work which may be undertaken by or for the account of Tenant (other than the Landlord's Work) to equip, deco- 5 9 rate and furnish the Building for Tenant's initial occupancy in accordance with the provisions of Exhibit "I" annexed hereto and made a part hereof. PP. Term: The period commencing on the Commencement Date and ending at 11:59 P.M. of the Expiration Date unless otherwise terminated in accordance with the provisions hereof. QQ. Unavoidable Delays: A delay arising from or as a result of a strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or civil commotion, act of war, fire or other catastrophe, Legal Requirement or an act of the other party and any cause beyond the reasonable control of that party, provided that the party asserting such Unavoidable Delay has exercised its best efforts to minimize such delay. The party asserting such delay, promptly upon becoming aware of such Unavoidable Delay, shall give written notice of such Unavoidable Delay to the other party. ARTICLE 2 - DEMISE AND TERM 2.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, for the Term. Promptly following the Commencement Date, the parties hereto shall enter into an agreement in form and substance reasonably satisfactory to Landlord and Tenant setting forth the Commencement Date. ARTICLE 3 - RENT 3.01 Tenant shall pay the Fixed Rent in equal monthly installments in advance on the first day of each and every calendar month beginning on the Fixed Rent Commencement Date. If the Fixed Rent Commencement Date occurs on a day other than the first day of a calendar month, the Fixed Rent for such partial calendar month shall be prorated on a per diem basis and paid on the Fixed Rent Commencement Date. 3.02 The Rent shall be paid in lawful money of the United States to Landlord by wire transfer of immediately available funds to a bank which is a member of the New York Clearing House Association or by check to such other place, as Landlord shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due and without any abatement, deduction or setoff for any reason 6 10 whatsoever, except as may be expressly provided in this Lease. In case of payment by check, Tenant shall assume the risk of lateness or failure of delivery of the mails, and no lateness or failure of the mails will excuse Tenant from its obligation to have made the payment in question when required under this Lease. 3.03 No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 3.04 If Tenant is in arrears in payments of Rent, Tenant waives Tenant's right, if any, to designate the items to which any payments made by Tenant are to be credited, and Landlord may apply any payments made by Tenant to such items as Landlord sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items to which any such payments shall be credited. 3.05 If Tenant shall fail to pay any installment of Fixed Rent within five (5) days or any other item of Rent within twenty (20) days after the date when such payment is due and Landlord shall have delivered a bill for the same (which delivery may be by invoice and shall not be required to comply with the requirements for copies of notices specified in Article 34 hereof), then, any such payment shall bear interest calculated from the due date to the date such payment is received by Landlord at a rate equal to two (2) percentage points in excess of the rate of interest publicly announced from time to time by Citibank, N.A., or its successor, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate") (the "Late Payment Rate"). 3.06 It is the intention of the parties that the Fixed Rent payable under this Lease shall be net to Landlord, so that this Lease shall yield to Landlord the Fixed Rent specified herein during the Term of this Lease, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised 7 11 Premises shall be paid by Tenant, other than liens placed on the Demised Premises by Landlord, or claims against Landlord for Landlord's negligence or default under the terms of this Lease (nothing herein shall be construed as affecting the provisions of any insurance carried by Landlord, Tenant, subtenant or assign with respect to the Demised Premises, including fire and hazard insurance, liability insurance and any other insurance). ARTICLE 4 - USE OF BUILDING 4.01 Tenant shall use and occupy the Building only for the Permitted Uses, and any other lawful purpose in keeping with the character of the Lincoln Harbor Project (as defined on Exhibit "J", annexed hereto and made a part hereof), and Tenant shall not use or permit or suffer the use of the Building or any part thereof for any illegal or hazardous purpose. 4.02 On or before the Commencement Date, Landlord shall obtain a certificate of occupancy for the Building. Each governmental license or permit, including the certificate of occupancy or its lawful functional equivalent, required for the proper and lawful conduct of Tenant's business in the Demised Premises or any part thereof, shall be duly procured by Landlord, and thereafter Tenant shall maintain such license or permit and submit the same to Landlord for inspection. Tenant shall at all times comply with the terms and conditions of each such license or permit. Tenant shall not at any time use or occupy, or suffer or permit anyone to use or occupy the Building, or do or permit anything on the Building, in any manner which (a) violates the certificate of occupancy for the Building; (b) causes injury to the Building, including the structure, roof or building systems thereof, (c) constitutes a violation of the Legal Requirements or Insurance Requirements; (d) impairs the character, reputation or appearance of the Building as a first-class office building; or (e) interferes with the right of quiet enjoyment of tenants or occupants of the adjacent premises. ARTICLE 5 - PREPARATION OF BUILDING 5.01 The Building, including Tenant's Work, shall be Substantially Completed on or before August 1, 1986, provided that Tenant shall have provided Landlord with the Plans and Specifications and all plans and 8 12 specifications for each item of Tenant's Work at such time and to permit Landlord to complete Landlord's Work and Tenant's Work on or before August 1, 1986, in accordance with good construction practices and taking into consideration the requirements of any "long lead time" items. Landlord agrees to cooperate to the fullest extent and to use good faith and due diligence in the design and performance of Landlord's Work and Tenant's Work, provided, however, that Landlord shall not be obligated to employ labor at overtime rates in connection with Landlord's Work or Tenant's Work unless Tenant shall reimburse Landlord therefor. Landlord shall notify Tenant of any anticipated delays arising by reason of Tenant's action or inaction. Taking possession of the Building by Tenant shall be evidence that the Building was in good and satisfactory condition at the time of Tenants' taking of possession except as to (i) any defects in the Building which were not known or reasonably discoverable by Tenant by observation or an inspection ("Latent Defects"), (ii) any items of work performed by Landlord of which Tenant gives Landlord notice within one hundred twenty (120) days after the Commencement Date, and (iii) portions of the work performed by Landlord not completed, because under good construction scheduling practice such work should be done after completion of still incompleted finishing or other work to be done by or on behalf of Tenant. Landlord shall complete all such items of work not so completed within sixty (60) days after the date of Substantial Completion. Landlord, its agents, servants, employees and contractors shall have the right to enter the Building to complete or repair any such unfinished items and Latent Defects upon reasonable prior notice to Tenant. Landlord shall warrant all construction and equipment delivered in or with Landlord's Work for a period of one (1) year from the Commencement Date. Landlord shall assign such longer warranties as may be provided with any item of equipment or material installed in the Building to Tenant, or, if the same are not assignable, shall assign to Tenant the right to enforce the same. Landlord covenants that the warranty to be assigned with respect to the roof shall be for a minimum of ten (10) years from completion of the roof in accordance with the Plans and Specifications. Landlord shall furnish Tenant with an assignment of such warranties to the extent that same are given by subcontractors or materialmen. 5.02 If the Substantial Completion of the 9 13 Landlord's Work or Tenant's Work performed by Landlord shall be delayed, in spite of Landlord's and Tenant's compliance with the provisions of Section 5.01 hereof, due to (a) any act or omission of Tenant or any of its employees, agents or contractors including, without limitation, (i) any delays due to changes in or additions to the Landlord's Work made at the request of Tenant or (ii) any delays by Tenant in the submission of plans, drawings, specifications or other information or in approving any working drawings or estimates or in giving any authorizations or approval(s), or (b) any additional time needed for the completion of the Landlord's Work by the inclusion in the Landlord's Work of any extra work required of Landlord by Tenant, then Landlord's Work in connection with the Building shall be deemed Substantially Complete on the date it would have been Substantially Complete but for such delay(s). Landlord covenants that the warranty to be assigned with respect to the roof shall be for a minimum of ten (10) years from completion of the roof in accordance with the Plans and Specifications. 5.03 Landlord reserves the right, at any time and from time to time, to increase, reduce or change the number, type, size, location, nature and use of any other improvements on the Land including without limitation, the right to move and/or remove same, provided same shall not block or unreasonably interfere with Tenant's means of ingress or egress to and from the Building. Landlord shall insure that in connection with the development of Lincoln Harbor Project, Ground Lessor shall not deviate materially from the approved site plan without Tenant's prior consent, which consent shall not be unreasonably withheld or delayed, and provided further that Tenant may thereupon request a recalculation of Operating Expenses in accordance with Section 38.10 hereof. 5.04 Tenants' Work is the financial responsibility of Tenant. Landlord shall provide an allowance ("Tenant's Fund") equal to the product of Twenty-Four Dollars ($24) and the Floor Space. 5.05 Landlord shall credit Tenant's Fund against the cost of Tenant's Work as certified by the Architect and verified or objected to by the architect employed by Tenant in connection with Tenant's Work within fifteen (15) days of receipt thereof (it being agreed 10 14 that if the architect employed by Tenant in connection with Tenant's Work shall fail to respond within such fifteen (15) day period, such certification shall be deemed to have been verified). To the extent the cost of Tenants' Work shall exceed Tenant's Fund, Tenant shall pay Landlord therefor (together with Landlord's fee equal to eight percent (8%) of the cost of Tenant's Work) within fifteen (15) days after Substantial Completion of each line item of Tenant's Work and receipt of an invoice therefor so certified and verified. ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS 6.01 On or before the Commencement Date, Landlord shall use its best efforts to obtain from the City of Weehawken, a separate tax lot and zoning lot number for the Demised Premises. Commencing on the Commencement Date and provided that Landlord shall have obtained a separate tax lot number for the Demised Premises, Tenant shall pay to the appropriate governmental authority the Real Estate Taxes for the Land and the Building for any year during the Term five (5) business days before any delinquency fee would be imposed upon the payment of the same. If Landlord shall not have obtained a separate tax lot number for the Demised Premises on or before the Commencement Date, then, commencing on the Commencement Date, Tenant shall pay to Landlord an amount equal to Tenant's Proportionate Share (hereinafter defined) of the Real Estate Taxes for the tax lot of which the Land forms a part not later than five (5) business days before any delinquency fee would be imposed upon the payment of the same, until such time as Landlord shall have obtained such separate tax lot number; but in no event shall Tenant's payment for Real Estate Taxes be more or less than that amount which Tenant would have paid if the Demised Premises were a separate tax lot. Tenant's "Proportionate Share" shall mean Tenant's Fraction of the sum of (x) the tax attributable to the Building and other improvements located on the Land, as may be separately assessed or as shown on the Tax Assessor's notes, and (y) 3.60% of the tax attributable to the tax lot of which the Land forms a portion. Landlord agrees that, throughout the Term, the Demised Premises will constitute a separate tax lot, separate and apart from other real property. In determining the amount of Real Estate Taxes for the partial calendar years in which the Term shall commence or expire, Real Estate Taxes payable in such calendar year shall be apportioned for that portion of the Tax Year 11 15 (hereinafter defined) occurring within the calendar year and Real Estate Taxes for such calendar year shall be prorated for the number of days in such calendar year occurring subsequent to the Commencement Date or prior to the Expiration Date, as the case may be. "Tax Year" shall mean the period January 1 through December 31 (or such other period as hereafter may be duly adopted by the City of Weehawken as its fiscal year for Real Estate Tax purposes), any portion of which occurs during the Term. Tenant shall have the right to institute, and in good faith prosecute, tax certiorari proceedings with respect to the Demised Premises. In the event of the institution of such proceedings, such proceedings shall be at Tenant's sole cost and expense and Landlord shall cooperate fully with Tenant in connection with any such proceedings. 6.02(a) Not later than the Commencement Date, Landlord shall deliver to Tenant a statement estimating the Operating Expenses for the partial calendar year commencing on the Commencement Date and Tenant shall pay to Landlord on the first day of each month during the first partial calendar year of the Term an amount equal to such estimated Operating Expenses divided by the number of months or partial months in such partial calendar year. On or before March 1 of each calendar year or partial calendar year subsequent to the first partial calendar year during the Term, Landlord shall furnish Tenant with an operating statement (the "Operating Statement") in reasonable detail setting forth the actual Operating Expenses for the preceding calendar year. If such Operating Statement shall show that the actual Operating Expenses for the preceding calendar year were in excess of those estimated by Landlord and previously paid by Tenant, then within thirty (30) days after receipt of such actual Operating Statement, Tenant shall remit to Landlord any such deficiency. If such Operating Statement shall show that Tenant shall have paid amounts in excess of the actual Operating Expenses, then Landlord shall remit to Tenant, together with such Operating Statement, a check in the amount equal to such excess payments . (b) In addition, in each Operating Statement, Landlord may set forth any estimated increases in Operating Expenses for the then current calendar year, provided, however, that in no event shall Landlord's estimate exceed an amount equal to the sum of the actual 12 16 Operating Expenses for the preceding calendar year and an amount equal to such actual Operating Expenses multiplied by the percentage increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y. - Northeastern N.J. Area, All Items (1967 = 100), or any successor index hereto, appropriately adjusted (the "CPI"). If the CPI ceases to be published, and there is no successor thereto, such other index as Landlord or Tenant shall agree upon in writing shall be substituted for the CPI. If Landlord or Tenant are unable to agree as to such substituted index, such matter shall be submitted to the American Arbitration Association or any successor organization for determination in accordance with the regulations and procedures thereof then obtaining for commercial arbitration. After receipt of such Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of the amount shown on such statement multiplied by the number of months of the Term in said calendar year preceding the demand, less the amount (if any) paid by Tenant prior to such demand pursuant hereto for such months, and thereafter, commencing with the month in which the demand is made in continuing thereafter for each month of the Term until the rendition of a new Operating Statement, 1/12th of the amount shown on such Operating Statement. 6.03 Each such statement given by Landlord pursuant to Section 6.02 shall be conclusive and binding upon Tenant unless within ninety (90) days after the receipt of the Operating Statement provided for above Tenant shall notify Landlord that it disputes the correctness of the statement, specifying, to the extent the information is available, the particular respects in which the statement is claimed to be incorrect. If such notice is sent, Tenant and its accountants may examine Landlord's books and records relating to the Operating Expenses to determine the accuracy of the Operating Statement. If after such examination, Tenant still disputes such Operating Statement, either party may refer the decision of the issues raised to one of the so-called "Big-Eight" public accounting firms, mutually satisfactory to Landlord and Tenant, or if Landlord and Tenant shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: Landlord and Tenant shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to whom such decision shall be referred shall then 13 17 be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. The firm so chosen may, in its discretion, retain one or more consultants to assist in the resolution of the dispute referred to it. The decision of such accountants, absent manifest error, shall be conclusively binding upon the parties. The fees and expenses (including the fees of such consultants) involved in such decisions shall be borne by the unsuccessful party (and if both parties are partially successful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). If such dispute is ultimately determined in Tenant's favor (either by agreement between Landlord or Tenant or by decision of the accountants), Landlord promptly after such determination shall pay to Tenant any amount overpaid by Tenant. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall, within ten (10) days after receipt of such statement, pay the Additional Charges in accordance with Landlord's statement, without prejudice to Tenant's position. ARTICLE 7 - COMMON AREAS 7.01 Subject to the provisions of Section 5.03, Landlord will enforce the Reciprocal Construction Operation and Easement Agreement, between Ground Lessor and the Township of Weehawken. 7.02 Tenant and its subtenants and their respective officers, employees, agents, customers and invitees, shall have the non-exclusive right, in common with Landlord and all others to whom such right may have been or may hereafter be granted, but subject to the Rules and Regulations, if any, to use the common areas. Landlord reserves the right, at any time and from time to time, to close temporarily all or any portions of the common areas of the Lincoln Harbor Project (provided that such closure does not unreasonably interfere with Tenant's business at the Demised Premises, except in cases of emergency) when in Landlord's reasonable judgment any such closing is necessary or to (a) permit Hartz or its successors or assigns or designees to make repairs or changes or to effect construction within the Lincoln Harbor project; (b) prevent the acquisition of public rights in such areas; or (c) to protect or preserve natural persons or property. Landlord may do such other acts in and to the 14 18 common areas of the Lincoln Harbor Project as in its reasonable judgment may be desirable to improve or maintain same, provided, however that Landlord shall not change the standard of maintenance of the common areas of the Lincoln Harbor Project without Tenant's approval, which approval shall not be unreasonably withheld or delayed. In all such events, Landlord's Work shall be commenced and prosecuted diligently and with as little interference as possible with Tenant's use of the Demised Premises. 7.03 Tenant agrees that it, any subtenant or licensee and their respective officers, employees, contractors and agents will park their automobiles and other vehicles only where and as permitted by Landlord. Tenant will, if and when so requested by Landlord, furnish Landlord with the license numbers of any vehicles of Tenant, any subtenant or licensee and their respective officers, employees and agents. Tenant shall be furnished with the use of 1 unreserved parking space for every 690 square feet of Floor Space in the Building, of which spaces, at Tenant's request, five percent (5%) shall be reserved for exclusive executive parking. Tenant shall have access to all such spaces twenty-four (24) hours a day, throughout the Term. Landlord shall maintain or cause to be maintained all such parking in a manner reasonably satisfactory to Tenant. ARTICLE 8 - LABOR HARMONY 8.01 Tenant shall not exercise its rights under Article 15 or any other provision of this Lease in a manner which would violate Landlord's union contracts or create any work stoppage, picketing labor disruption or dispute or any interference with the business of Landlord. ARTICLE 9 - SUBORDINATION 9.01 Provided that (a) a Superior Mortgagee shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form attached hereto and made a part hereof as Exhibit "K-1", to the effect that, provided no event of default has occurred and is continuing hereunder, such Superior Mortgagee will not name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to such Superior Mortgagee under its Superior 15 19 Mortgage, and to the further effect that if there shall be a foreclosure of its Superior Mortgage, that the Superior Mortgagee will not make Tenant a party defendant to such foreclosure, evict Tenant, disturb Tenant's possession under this Lease, or terminate or disturb Tenant's leasehold estate or rights hereunder, or (b) a Superior Lessor shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form annexed hereto as Exhibit "K-2", to the effect that, provided no Event of Default shall have occurred and is continuing hereunder, such Superior Lessor will not name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to such Lessor under its Superior Lease, and to the further effect that if its Superior Lease shall terminate or be terminated for any reason, such Superior Lessor will recognize Tenant as the direct tenant of such Superior Lessor on the same terms and conditions as are contained in this Lease (any such agreement, or any agreement of similar import from a Superior Mortgagee or Superior Lessor, as the case may be, being hereinafter called a "Nondisturbance Agreement"), this Lease shall be subject and subordinate to such Superior Mortgage or to such Superior Lease in respect of which a Nondisturbance Agreement shall have been delivered, and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Superior Mortgage or Superior Lease or any substitutions therefor, and advances made thereunder. The provisions of this Section 9.01 shall be self-operative and no further instrument of subordination shall be required upon delivery of such Nondisturbance Agreement, however, in confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver an instrument of evidencing such subordination; and if Tenant fails to execute, acknowledge or deliver any such instruments within thirty (30) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any such instruments for and on behalf of Tenant. 9.02 If any act or omission of Landlord 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 until and unless (a) it has given written notice of such act or omission to Landlord and each Superior Mortgagee and each Superior Lessor whose name and 16 20 address shall previously have been furnished to Tenant, and (b) such act or omission shall not have been remedied within thirty (30) days following the giving of such notice and following the time when such Superior Mortgagee or Superior Lessor shall have become entitled under such Superior Mortgage or Superior Lease, as the case may be, to remedy the same (or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided such Superior Lessor or Superior Mortgagee commences and diligently pursues such remedy, which reasonable period shall in no event be less than the period to which the Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy). 9.03 If any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights ("Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment provided that such Successor Landlord shall then be entitled to Possession of the Demised Premises and shall have either agreed to assume the obligations of Landlord hereunder or shall have entered into a Nondisturbance Agreement with Tenant. Upon such attornment this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord (unless such Successor Landlord is an affiliated entity of Landlord) shall not (a) be liable for any previous act or omission of Landlord under this Lease unless the same shall be continuing; (b) be subject to any offset, not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; or (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month's Fixed Rent or Additional Charges, unless such modification or prepayment shall have been expressly approved in writing by the Superior Lessor of the Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of which the 17 21 Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 9.04 If any then present or prospective Superior Mortgagee shall require any modifications of this Lease, Tenant shall promptly execute and deliver to Landlord such instruments effecting such modification(s) as Landlord shall request, provided that such modification(s) do not adversely affect in any material respect any of Tenant's rights under this Lease, materially increase Tenant's obligations under this Lease or materially diminish Landlord's obligations under this Lease. ARTICLE 10 - QUIET ENJOYMENT 10.01 So long as no Event of Default shall have occurred and be continuing, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises without hindrance, ejection or molestation by Landlord or any person lawfully claiming through or under Landlord, subject, nevertheless, to the provisions of this Lease and the Ground Lease. ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING 11.01 Tenant shall have the absolute right, at any time, without Landlord's consent, to (a) assign or otherwise transfer this Lease, or offer or advertise to do so, and (b) sublet the Demised Premises or any part thereof, or offer or advertise to do so, or allow the same to be used, occupied or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner whatsoever. 11.02(a) Notwithstanding anything contained in Section 11.01 hereof, prior to the earlier to occur of either the fifth anniversary of the Commencement Date and the date on which the improvements to be constructed in the Lincoln Harbor Project, as more particularly set forth on Exhibit "K" annexed hereto and made a part hereof, shall be 90% leased, Tenant may not assign its interest in this Lease or sublet all or any portion of the Demised Premises, provided, however, that Tenant shall have the right during such period, without Landlord's prior consent, to sublet a portion or portions of the Demised Premises not to exceed 75,000 square feet of floor space in the aggregate (such amount to be reduced, foot for foot, by an amount equal to the area sublet by 18 22 Tenant pursuant to a similar provision in any other lease of which Tenant is tenant in the Lincoln Harbor Project) which amount Tenant agrees is fair and reasonable. (b) Notwithstanding the foregoing, however, the provisions of clause (a) of this Section 11.02 shall not be deemed to apply to (x) any assignment of Tenant's interest in this Lease to an Affiliate (hereinafter defined) or to any assignment, whether by operation of law or otherwise, to a company which is Tenant's successor-in-interest either by merger or consolidation, or to any assignment to a purchaser of all or substantially all of Tenant's assets, or (y) any subleasing of all or any portion of the Demised Premises to an Affiliate unless the summary purpose of any such transaction is to transfer the estate created by this Lease in violation of Section 11.02(a) hereof. For purposes hereof, "Affiliate" shall be deemed to mean a corporation or other entity which shall (1) control, (2) be under the control of, or (3) shall be under common control with, Tenant (the term "control" as used herein shall be deemed to mean ownership of more than 5% of the voting stock of a corporation on a fully diluted basis, if such corporation is publicly traded, or more than 50% of the voting stock of a privately held corporation, or other majority equity and control interest, if not a corporation. 11.03 If this Lease is assigned, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof are sublet or used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, and expiration of Tenant's time to cure such default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the Rent, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of this Article 11, or the acceptance of the assignee or subtenant as occupant or a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. 11.04(a) Any assignment or transfer shall be made only if, and shall not be effective until, the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance satisfactory to Landlord whereby the assignee shall assume Tenant's obligations under this Lease and whereby the assignee shall agree that all of the provisions in this Article 11 19 23 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect to all future assignments and transfers. Notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Rent by Landlord from an assignee, transferee, or any other party, the original Tenant and any other person(s) who at any time was or were Tenant shall remain fully liable for the payment of the Rent and for Tenant's other obligations under this Lease unless, in the event of such permitted assignment or transfer, Landlord releases Tenant from its obligations under this Lease as provided in Section 11.04(b) of this Lease. (b) In the event Tenant assigns its interest in this Lease, Landlord agrees, subject to the prior consent of any Superior Mortgagee, to release Tenant from its obligations under this Lease provided all of the following conditions are met: (i) Such permitted assignee has a net worth at least equal to $250,000,000, as the same shall be increased or decreased on each anniversary of the Commencement Date commencing on the fifth (5th) anniversary of the Commencement Date by an amount equal to the product of $250,000,000 and seventy-five percent (75%) of the percentage increase or decrease in the CPI for the immediately preceding twelve (12) month period; provided, however, that in no event shall the same be decreased to be less than $250,000,000; and (ii) Such permitted assignee is a well known business entity of high repute having a standing in the business community, in Landlord's reasonable judgment, at least equivalent to Paine Webber, Inc.; and (iii) Such permitted assignee executes an agreement in substance and form reasonably satisfactory to Landlord whereby such assignee assumes all of Tenant's obligations under this Lease. 11.05 Promptly after request therefor by Tenant, Landlord shall enter into a Nondisturbance Agreement with any subtenant of Tenant occupying one or more full 20 24 floors of the Demised Premises, substantially in the form annexed hereto as Exhibit "L". 11.06 The liability of the original named Tenant and any other Person(s) who at any time was or were Tenant for Tenant's obligations under this Lease shall not be discharged, released or impaired by any agreement or stipulation made by Landlord extending the time of, or modifying any of the obligations of, this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease. 11.07 The listing of any name other than that of Tenant, whether on the doors of the Building or otherwise, shall not operate to vest any right or interest in this Lease or in the Demised Premises, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Demised Premises or to the use or occupancy thereof by others. 11.08 Without limiting any of the provisions of Article 27, if pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), Tenant assigns this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one (1) year's Fixed Rent plus an amount equal to the Additional Charges for the Calendar Year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease, that if Tenant defaults in the full and prompt payment and performance of any of its obligations under this Lease, including, without limitation, the payment of Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent or any other sums as to which such tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of such Tenant's obligations under this Lease, including, without limitation, any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrue before or after summary proceedings or other re-entry by Landlord. If Landlord shall so sue, apply or retain the whole or any part of the security, Tenant 21 25 shall upon demand immediately deposit with Landlord a sum equal to the amount so used, applied and retained, as security as aforesaid. If Tenant shall fully and faithfully pay and perform all of Tenant's obligations under this Lease, the security or any balance thereof to which such tenant is entitled shall be returned or paid over to such tenant after the date on which this Lease shall expire or sooner end or terminate, and after delivery to Landlord of entire Possession of the Demised Premises. In the event of any sale or leasing of the Building or leasing of Demised Premises, Landlord shall have the right to transfer the security to which Tenant is entitled to the vendee or lessee and Landlord shall thereupon be released by such tenant from all liability for the return or payment thereof; Tenant shall look solely to the new landlord for the return or payment of the same; and the provisions hereof shall apply to every transfer or assignment made of the same to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security, and neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. ARTICLE 12 - COMPLIANCE WITH LAWS 12.01 Tenant shall comply with all Legal Requirements which shall, in respect of the Demised Premises or the use and occupation thereof, or the abatement of any nuisance in, on or about the Demised Premises, impose any violation, order or duty on Landlord or Tenant; and Tenant shall pay all the cost, expenses, fines, penalties and damages which may be imposed upon Landlord or any Superior Lessor by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section 12.01. However, Tenant need not comply with any such law or requirement of any public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 12.02. Landlord shall be in full compliance with any Legal Requirements applicable to Landlord's Work on or before the Commencement Date, and the obligation of Tenant to comply with any Legal Requirement as set forth immediately above shall not arise with respect to any such Legal Requirement with which Landlord is not in compliance as of the Commencement Date, until such time as non-compliance shall have been cured by Landlord. 22 26 12.02 Tenant may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirement, provided that (a) Landlord shall not be subject to criminal penalty or to prosecution for a crime and neither the Demised Premises nor any part thereof shall be subject to being condemned or vacated, by reason of non-compliance or otherwise by reason of such contest; (b) before the commencement of such contest, Tenant shall furnish to Landlord either (i) the bond of a surety company satisfactory to Landlord, which bond shall be, as to its provisions and form, satisfactory to Landlord, and shall be in an amount at least equal to 125% of the cost of such compliance (as estimated by a reputable contractor designated by Landlord) and shall indemnify Landlord against the cost thereof and against all liability for damages, interest, penalties and expenses (including reasonable attorneys' fees and expenses), resulting from or incurred in connection with such contest or noncompliance, or (ii) other security in place of such bond satisfactory to Landlord; (c) Tenant shall keep Landlord advised as to the status of such proceedings. Notwithstanding anything herein to the contrary, the provisions of (b) above shall not apply during such time as Paine Webber, Inc. remains obligated for Tenant's obligations under this Lease. Without limiting the application of the above, Landlord shall be deemed subject to prosecution for a crime if Landlord, or its managing agent, or any officer, director, partner, shareholder or employee of Landlord or its managing agent, as an individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charge is withdrawn before Landlord or its managing agent, or such officer, director, partner, shareholder or employee of Landlord or its managing agent (as the case may be) is required to plead or answer thereto. ARTICLE 13 - INSURANCE AND INDEMNITY 13.01(a) Tenant shall at all times during the term hereof maintain or cause to be maintained business interruption insurance with a rent insurance endorsement payable to Landlord, covering a period of at least twelve (12) months. Landlord shall obtain and keep in full force and effect insurance against loss or damage by fire and other casualty to the Building, including any item of Tenant's Work, as may be insurable under then available 23 27 standard forms of "all risk" insurance policies, in an amount equal to 100% of the replacement value thereof (and Tenant shall pay Tenant's Fraction of the cost thereof in accordance with Exhibit "H" annexed hereto and made a part hereof). Tenant shall notify Landlord of the completion of any Tenant's Work and of the costs thereof, and shall maintain adequate records with respect to such Tenant's Work to facilitate the adjustment of any insurance claims with respect thereto. Tenant shall cooperate with Landlord and Landlord's insurance companies in the adjustment of any claims for any damage to the Building or to such Tenant's Work. On or prior to the Commencement Date, Landlord shall deliver to Tenant appropriate certificates of insurance, including evidence of waivers of subrogation required pursuant to Section 13.05 hereof, required to be carried by Landlord pursuant to this Article 13. Evidence of each renewal or replacement of a policy shall be so delivered by Landlord to Tenant at least ten days prior to the expiration of such policy. Any certificates so deposited by Landlord with Tenant shall indicate whether the insurance required by this Article 13 is affected under a blanket insurance policy and, if so, shall certify to the aggregate amount of such blanket insurance policy and to the fact that there are no sublimits which derogate from the coverage required by this Article. 13.02 Tenant also shall maintain the following insurance: (a) comprehensive general public liability insurance in respect of the Demised Premises and the conduct and operation of business therein, with Landlord as an additional named insured, and at Landlord's request with any Superior Lessors as additional named insured(s), with limits of not less than $3,000,000 for bodily injury or death to any one person and $5,000,000 for bodily injury or death to any number of persons in any one occurrence, and $500,000 for property damage, including water damage and sprinkler leakage legal liability, and (b) any other insurance required for compliance with the Insurance Requirements. Tenant shall also obtain and keep in full force and effect a policy of insurance against loss or damage by fire, and such other risks and hazards (including burglary and theft) as are insurable under then available standard forms of "all risk" insurance policies, to Tenant's Property, for one hundred percent (100%) of the replacement value thereof or for such lesser amount as will avoid co-insurance (including an "agreed amount" endorsement), protecting Landlord, Land- 24 28 lord's agents, any Superior Mortgagee, any Superior Lessor and Tenant as insured, as their interest may appear; provided, however, that no such additional insured party shall be entitled to adjust, or participate in the adjustment of, any loss or receive any proceeds under any such insurance policy, and the policies may so provide. Tenant shall deliver to Landlord and any additional named insured(s) certificates for such fully paid-for policies at least ten (10) days before the Commencement Date. Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional insured(s) certificates therefor at least 30 days before the expiration of any existing policy. All such policies shall be issued by companies of recognized responsibility licensed to do business in New Jersey, and all such policies shall contain a provision whereby the same cannot be cancelled unless Landlord and any additional insured(s) are given at least 20 days' prior written notice of such cancellation. 13.03 Tenant shall not do, permit or suffer to be done any act, matter, thing or failure to act in respect of the Demised Premises or use or occupy the Demised Premises or conduct or operate Tenant's business in any manner objectionable to any insurance company or companies whereby the fire insurance or any other insurance then in effect in respect to the Demised Premises or any part thereof shall become void or suspended or whereby any premiums in respect of insurance maintained by Landlord shall be higher than those which would normally have been in effect for the occupancy contemplated under the Permitted Uses. In case of a breach of the provisions of this Section 13.03, in addition to all other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and the Superior Lessors and hold Landlord and the Superior Lessors harmless from and against any loss which would have been covered by insurance which shall have become void or suspended because of such breach by Tenant and (b) pay to Landlord any and all increases of premiums on any insurance, including, without limitation, rent insurance, resulting from any such breach. 13.04(a) Tenant shall indemnify and hold harmless Landlord and all Superior Lessors and its and their respective partners, joint venturers, directors, officers, agents, servants and employees from and against any 25 29 and all claims arising from or in connection with (a) Tenant's conduct or management of the Demised Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord) in the Demised Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, except to the extent due to Landlord's wrongful acts or gross negligence; (b) any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, joint ventures, directors, officers, agent, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Landlord's acts or negligence) occurring in the Demised Premises or the common areas of the Lincoln Harbor Project; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease; together with all costs, expenses and obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys ' fees and expenses. In case any action or proceeding is brought against Landlord and/or any Superior Lessor and/- or its or their partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Landlord. (b) Landlord shall indemnify and hold harmless Tenant and its directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) Landlord's conduct or management of the Building or any business therein, or other work or thing whatsoever done, or any condition created (other than by Tenant), in the Building during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, to the extent due to Landlord's wrongful acts or gross negligence; (b) any act, omission or negligence of Landlord or its agents or their partners, joint ventures, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Tenant's acts or negligence) occurring in the Building 26 30 and (d) any breach or default by Landlord in the prompt payment and performance of Landlord's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Tenant and/or its directors, officers, agents and/or employees by reason of any such claim, Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Tenant. 13.05 The parties hereto shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance covering the Building and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery, or an express agreement that the applicable insurance policy.shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery against any party responsible for a casualty covered by such policy, and having obtained such clauses or endorsements or agreements of waiver of subrogation or consent to a waiver of right of recovery, the parties agree that they will not make. any claim against or seek to recover from the other or anyone acting or claiming under or through the other or any of their respective officers, directors, shareholders, partners, employees, agents or contractors, for any loss or damage to its property or the property of others resulting from fire or other hazards covered by such fire and extended coverage insurance, provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by and coextensive with the terms and provisions of the waiver of subrogation clause or endorsements, or clauses or endorsements consenting to a waiver of right or recovery. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provision, each party shall advise the other of the amount of any such additional premiums and the other party at its own election may, but shall not be obligated to, pay the same. If such other party 27 31 shall not elect to pay such additional premium or if such clause may not be obtained, even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement not to make any claim or seek recover shall not be effective thereafter. If either party shall be unable to obtain the inclusion of such clause even with the payment of an additional premium, then such party shall attempt to name the other party as an additional insured (but not a loss payee) under the policy. If the payment of an additional premium is required for naming the other party as an additional insured (but not a loss payee), each party shall advise the other of the amount of any such additional premium and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium, the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if it shall not be possible to have the other party named as an additional insured (but not loss payee), even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement to name the other party as an additional insured shall be satisfied. If either party shall fail to have fire or extended coverage insurance in effect as required pursuant to this Article 13, the agreement not to make any claim or seek recovery contained in the first sentence of this Section 13.05 shall be in full force and effect to the same extent as if such required insurance (containing the required waiver of subrogation clause, endorsement or agreement) were in effect. ARTICLE 14 - RULES AND REGULATIONS 14.01 Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant, which in Landlord's reasonable judgment, shall be necessary for the reputation, safety, care or appearance of the Demised Premises, or the preservation of good order therein, or the operation or maintenance of the Building or its equipment and fixtures, or the common areas of the Lincoln Harbor Project, and which do not unreasonably affect the conduct of Tenant's business in 28 32 the Building; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations against any other tenant or any employees or agents of any other Tenant, and Landlord shall not be liable to Tenant for violation of the Rules and Regulations by any other tenant or its employees, agents, invitees or licensees, provided, however, Landlord shall not enforce any Rule or Regulation against Tenant which Landlord shall not then be enforcing against all other tenants of the Lincoln Harbor Project. If Tenant disputes the reasonableness of any additional Rule or Regulation hereafter adopted by Landlord, the dispute shall be determined by arbitration in the City of Newark in accordance with the rules and regulations then obtaining of the American Arbitration Association or its successor. Any such determination shall be final and binding upon the parties hereto, whether or not a judgment shall be entered in any court. ARTICLE 15 - ALTERATIONS 15.01 Tenant shall not make any structural alterations or additions to the Building which would adversely affect the structural integrity of the Building, or change the exterior color or architectural treatment of the Building, or which would otherwise impair the value of the Building without on each occasion first obtaining the prior written consent of Landlord, it being acknowledged that Landlord's consent shall not be required for any other alterations or additions. Tenant shall submit to Landlord plans and specifications for such work at the time landlord's consent is sought. Tenant shall pay to Landlord upon demand the reasonable cost and expense of Landlord for any action of Landlord in excess of (a) reviewing said plans and specifications and (b) inspecting the alterations to determine whether the same are being performed in accordance with the approved plans and specifications and all Legal Requirements and Insurance Requirements including without limitation, the fees of any architect or engineer employed by Landlord for such purpose. Before proceeding with any permitted alteration which will cost more than $350,000 (exclusive of the costs of decorating work and items constituting Tenant's Property), as estimated by a reputable contrac- 29 33 tor designated by Landlord, Tenant shall obtain and deliver to Landlord either (i) a performance bond and a labor and materials payment bond (issued by a corporate surety licensed to do business in New Jersey), each in an amount equal to 125% of such estimated cost and in form satisfactory to Landlord, or (ii) such other security as shall be satisfactory to Landlord. Notwithstanding anything herein to the contrary, the provisions of the immediately preceding sentence shall not apply during such time as Paine Webber, Inc. remains liable for Tenant's obligations under this Lease. Tenant shall fully and promptly comply with and observe the Rules and Regulations then in force in respect of the making of such alterations. Any review or approval by Landlord of any plans and/or specifications with respect to any such alterations is solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant in respect to the adequacy, correctness or efficiency thereof or otherwise. 15.02 Tenant shall obtain all necessary governmental permits and certificates for the commencement and prosecution of alterations and for final approval thereof upon completion, and shall cause alterations to be performed in compliance therewith all applicable Legal Requirements and Insurance Requirements. Alterations shall be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the better of the original installations of the Building. Alterations requiring Landlord's consent shall be performed by contractors licensed in the State of New Jersey (if applicable), whose use shall not invalidate any Warranties applicable to the Building or its systems, and which contractors are either employed in connection with the performance of Landlord's Work and Tenant's Work or are reputable and skilled in their respective trades. Alterations shall be made in such a manner as not to unreasonably interfere with or delay and as not to impose any additional expense upon Landlord in the maintenance, repair or operation of the Building; and if any such additional expense shall be incurred by Landlord as a result of Tenant's making of any alterations, Tenant shall pay any such additional expense upon demand. Throughout the making of alterations, Tenant shall carry, or cause to be carried, workmen's compensation insurance in statutory limits and general liability insurance, with completed operation endorsement, for any occurrence in or about the Building, 30 34 under which Landlord and its managing agent and any Superior Lessor whose name and address shall previously have been furnished to Tenant shall be named as parties insured, in such limits as landlord may reasonably require, with issuers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of alterations and, on request, at reasonable intervals thereafter during the making of alterations. ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY 16.01 All fixtures, equipment, improvements and appurtenances attached to or built into the Building at the commencement of or during the Term at the expense of Tenant (exclusive of the items to which Tenant's Fund has been applied) shall be deemed to be the property of Tenant. 16.02 All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Building, which are installed in the Building by or for the account of Tenant and can be removed without structural damage to the Building and all furniture, furnishings, and other personal property owned by Tenant and located in the Building (collectively, "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of the Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Building resulting from the installation and/or removal thereof. Any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, shall not be considered as the Tenant's Property and shall be deemed the property of Landlord. 16.03 At or before the Expiration Date or the date of any earlier termination of this Lease, or within fifteen (15) days after such an earlier termination date, Tenant shall surrender the Demised Premises broom clean, vacant and in good condition, reasonable wear and tear and damage by casualty, excepted. Tenant may remove any alterations and fixtures and shall remove any alterations 31 35 or fixtures which are not usual or customary for general office use and which would materially impair the reletting of the Demised Premises for general office use. Tenant shall repair any structural damage to the Building resulting from any installation and/or removal of the Tenant's Property. Any items of the Tenant's Property which shall remain at the Demised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned and in such case such items may be retained by Landlord as its property or disposed of by Landlord, without accountability, in such manner as Landlord shall determine at Tenant's Expense. ARTICLE 17 - REPAIRS AND MAINTENANCE 17.01 Tenant shall, throughout the Term, take good care of the Demised Premises, the fixtures and appurtenances therein. Tenant shall be responsible for the cost and expense of all repairs (including replacement, if required), ordinary and extraordinary, structural and non-structural, in and to the Building (including the Building systems) and for the ordinary maintenance including, but not limited to, repairs the need for which arises out of (a) the performance or existence of the Tenant's Work or alterations, (b) the installation, use or operation of the Tenant's Property in the Building, (c) the moving of the Tenant's Property in or out of the Building, or (d) the act, omission, misuse or neglect of Tenant or any of its subtenants or its or their employees, agents, contractors, or invitees. Tenant shall promptly replace all scratched, damaged or broken doors and glass in or about the Building and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in the Building and for the repair and maintenance of all sanitary and electrical fixtures and equipment therein. Tenant shall promptly make all repairs in or to the Building for which Tenant is responsible, provided that any repairs to the mechanical, electrical, plumbing, heating, ventilating or air conditioning systems of the Building shall only be made by contractors approved by Landlord in accordance with Section 15.02 hereof. 17.02 Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Ten- 32 36 ant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's doing any repairs, maintenance or changes which Landlord is permitted by this Lease, or required by law, to make in or to any portion of the Building. ARTICLE 18 - ELECTRIC ENERGY 18.01 Tenant shall purchase the electric energy required by it in the Building at its own expense on a direct-metered basis from the public utility servicing the Building. Landlord shall not be liable for any failure, inadequacy or defect in the character or supply of electric current furnished to the Building except for actual damage suffered by Tenant by reason of any such failure, inadequacy or defect caused by the negligence or willful acts of Landlord. 18.02 Tenant's use of electric energy in the Building shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Building. ARTICLE 19 - HEAT, VENTILATION AND AIR CONDITIONING 19.01 Tenant shall, at Tenant's sole cost and expense, subject to any guaranties or warranties made by Ground Lessor pursuant to the Guarantee maintain and operate the heating, ventilating and air-conditioning systems ("HVAC") serving the Demised Premises, and shall furnish HVAC in the Demised Premises as Tenant may require. ARTICLE 20 - OTHER SERVICES: SERVICE INTERRUPTION 20.01 Landlord shall, at Tenants' sole cost and expense, cause water to be supplied to the Demised Premises and Tenant shall pay for such as shown on the public utility meters therefore. ARTICLE 21 - ACCESS, CHANGES AND NAME 21.01 Landlord and its agents shall have the right, with as little interference of Tenant's business as possible, to enter and/or pass through the Demised Premises upon reasonable notice and at reasonable times 33 37 (a) to examine the Demised Premises and to show them to actual and prospective Superior Lessors, Superior Mortgagees, or prospective purchasers of the Demised Premises, and (b) to make such repairs, alterations, additions and improvements in or to the Building and/or its facilities and equipment as Landlord is required or desires to make. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required in connection therewith, without any liability to Tenant and without any reduction of Tenant's obligations hereunder. The right of Landlord and Landlord's agent to enter into the Demised Premises shall not include any area of the Demised Premises designated on written notice to Landlord as a "security area" unless a representative of Tenant shall be present, which representative Tenant agrees to have present at the Demised Premises upon reasonable advance oral notice by Landlord, provided, however, that in the event of any emergency, Landlord shall have the right to enter into any such security area without being accompanied by such representative of Tenant but shall be accompanied by a police officer, fireman or other public official. During the period of eighteen (18) months prior to the Expiration Date, Landlord and its agents may exhibit the Demised Premises to prospective tenants. 21.02 During such time as Paine Webber, Inc. or an affiliated entity is the Tenant, Tenant may name the Building, any name associated with Paine Webber, Inc. or its Affiliates, as the same may change from time to time as the result of mergers or consolidations or otherwise. ARTICLE 22 - MECHANICS' LIENS AND OTHER LIENS 22.01 Nothing contained in this Lease shall be deemed, construed or interpreted to imply any consent or agreement on the part of Landlord to subject Landlord's interest or estate to any liability under the mechanic's or other lien law. If any mechanic's or other lien or any notice of intention to file a lien is filed against the Land, or any part thereof, for any work, labor, service or materials claimed to have been performed or furnished for or on behalf of Tenant or anyone holding any part of the Demised Premises through or under Tenant, Tenant shall cause the same to be cancelled and discharged of record by payment, bond or order of a court of 34 38 competent jurisdiction within fifteen (15) days after notice by Landlord to Tenant. ARTICLE 23 - NON-LIABILITY AND INDEMNIFICATION 23.01 In addition to the provisions of Article 13 of this Lease, except as set forth in the Guarantees, dated of even date herewith, by Ground Lessor for the benefit of Tenant (collectively, the "Guarantees"), neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or their property, irrespective of the cause of such injury, damage or loss, except to the extent caused by or resulting from the negligence of Landlord, its agents, servants or employees in the operating or maintenance of the Demised Premises. Further, neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable (a) for any such damage caused by other tenants or Persons in, upon or about the Demised Premises, or caused by operations in construction of any private, public or quasi-public work; or (b) even if negligent, for consequential damages arising out of any loss of use of the Demised Premises or any equipment or facilities therein by Tenant or any Person claiming through or under Tenant. 23.02 Notwithstanding any provision to the contrary, except as set forth in the Guarantees, Tenant shall look solely to the estate and property of Landlord in and to the Demised Premises (or the proceeds received by Landlord on a sale of such estate and property net of bona fide liens and expenses). In the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Project Common Areas, Tenant, (and its successor and assigns) agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Project Common Areas shall be limited to such estate and property of Landlord (or sale proceeds net of bona fide liens and expenses). No other properties or assets of Landlord or any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other 35 39 judicial process) or for the satisfaction of any other remedy of Tenant arising out of, or in connection with, this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises or the Project Common Areas. If Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Landlord's attorneys. ARTICLE 24 - DAMAGE OR DESTRUCTION 24.01 If the Building shall be partially or totally damaged or destroyed by fire or other casualty (and if this Lease shall not be terminated as in this Article 24 hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building (except for the Tenant's Property) in accordance with the Plans and Specifications, together with such changes as may be approved by Tenant, with reasonable dispatch after notice to it of the damage or destruction and the collection of the insurance proceeds attributable to such damage. 24.02 Subject to the provisions of Section 24.05, if all or part of the Building shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, the Rent shall not be abated or reduced, as the case may be, to the extent of payments pursuant to Tenant's business interruption insurance allocable to rental and, subsequent to the exhaustion of payments thereunder, the Rent shall be abated or reduced, as the case may be, in proportion to the untenantable area of the Building for the period from the date of the damage or destruction to the date the damage to the Building shall be substantially repaired; provided, however, should Tenant reoccupy a portion of the Building during the period the repair or restoration work is taking place and prior to the date that the Building is substantially repaired or made tenantable the Rent allocable to such reoccupied portion, shall be payable by Tenant from the date of such occupancy. 24.03 If (a) the Building shall be totally damaged or destroyed by fire or other casualty, or (b) the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor 36 40 or architect designated by Landlord and approved by Tenant which approval shall not be unreasonably withheld, of more than twenty percent (20%) of the full insurable value of the Building immediately prior to the casualty, and, in either event, an engineer selected by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or delayed, shall reasonably estimate that there will be less than two (2) years remaining in the Term (including all Renewal Terms for which Tenant has validly exercised the applicable Renewal Option) upon completion of restoration of the Building, then in either such case Landlord or Tenant may terminate this Lease by giving the other notice to such effect within ninety (90) days after the date of the fire or other casualty. Notwithstanding anything contained in this Lease to the contrary, if there shall occur such a casualty at such time as there shall be estimated to be less than two years remaining in the Term of this Lease after completion or restoration but prior to the time that pursuant to the provisions of Article 39 hereof Tenant shall have the right to exercise any Renewal Option, then, prior to Landlord terminating this Lease, Tenant shall have the right to exercise any such Renewal Option otherwise in accordance with the provisions of Article 39 hereof. If either party shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.03, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.04 Except as provided for in Section 24.08 of this Lease, Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Building pursuant to this Article 24. Landlord shall use its best efforts to make such repair or restoration promptly and in such manner as to not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, but Landlord shall not be required to do such repair or restoration work on an overtime basis unless fully reimbursed by Tenant. 37 41 24.05 Notwithstanding any of the foregoing provisions of this Article 24, if by reason of some act or omission on the part of Tenant or any of its subtenants or its or their partners, directors, officers, servants, employees, agents or contractors, either (a) Landlord or any Superior Lessor or any Superior Mortgagee shall be unable to collect all of the insurance proceeds (including, without limitation, rent insurance proceeds) applicable to damage or destruction of the Building by fire or other casualty, or (b) the Building shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement or reduction of the Rent. Further, nothing contained in this Article 24 shall relieve Tenant from any liability that may exist as a result of any damage or destruction by fire or other casualty. 24.06 Landlord will not carry insurance of any kind on the Tenant's Property, and, except as provided by law or by reason of Landlord's breach of any of its obligations hereunder, shall not be obligated to repair any damage or to replace the Tenant's Property. 24.07 The provisions of this Article 24 shall be deemed an express agreement governing any case of damage or destruction of the Building by fire or other casualty, and any law providing for such a contingency in the absence of an express agreement, now or hereafter in force, shall have no application in such case. 24.08 Anything contained in this Article 24 to the contrary notwithstanding, within thirty (30) days after Landlord has notice of any damage that materially impairs Tenant's ability to conduct its business in the Building, Landlord shall deliver to Tenant a statement prepared by a reputable contractor approved by Tenant, which approval shall not be unreasonably withheld or delayed, setting forth such contractor's estimate as to the time required to repair such damage and the assumptions regarding the use of labor (including overtime labor, if applicable) and construction methods considered in arriving at such estimate. If the estimated time period exceeds twelve (12) months from the date of such damage or if such estimate is not delivered to Tenant as required, Tenant may elect to terminate this Lease by notice to Landlord not later than thirty (30) days fol- 38 42 lowing receipt of such statement or, if no statement is delivered, not later than thirty (30) days after the date such statement was to have been delivered. If Tenant makes such election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. If Tenant shall not have elected to terminate this Lease pursuant to this Article 24 (or is not entitled to terminate this Lease pursuant to this Article 24) and such repairs are (i) not commenced by Landlord within sixty (60) days after the date Landlord has notice of such damage, (ii) not prosecuted substantially on the basis specified in the contractor's estimate referred to in this paragraph so that the repairs cannot be Substantially Completed within the estimated time period (unless Landlord agrees to take such other measures required to Substantially Complete such repairs within such period), or (iii) not Substantially Completed by Landlord within twelve (12) months after the date Landlord has such notice, subject to Unavoidable Delays, but in no event later than fifteen (15) months after Landlord has such notice, Tenant may elect to terminate this Lease by notice to Landlord not later than fifteen (15) days following the expiration of either of the periods specified in clauses (i) and (iii) above or fifteen (15) days notice if Landlord shall not be prosecuting such repairs as required by clause (ii) hereof. Notwithstanding the foregoing, if at any time Tenant believes that Landlord shall not be diligently prosecuting such repairs and shall so notify Landlord, Tenant shall have the right to seek injunctive relief. If Tenant makes such election, the Term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease under the conditions provided in this Section, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. Landlord shall advise Tenant of any Unavoidable Delays the Landlord shall have incurred in connection with any such repair, promptly after the same shall have occurred and the length thereof. Notwithstanding the foregoing, however, if Tenant shall elect to terminate this Lease and within ten (10) days after notice of such election is given by Tenant, Landlord shall 39 43 offer to relocate Tenant's entire operation (or so much thereof as Tenant may request) located at the Demised Premises to other premises located in the Lincoln Harbor Project, which shall permit Tenant to promptly resume its operations, and Landlord shall in fact so relocate Tenant within ninety (90) days after notice of such election, (or such shorter period as may be possible and provided that Landlord shall use its best efforts) then Tenant's election to terminate this Lease shall be deemed to be rescinded and of no further force or effect, and Tenant's obligations hereunder shall remain unaffected. Landlord shall proceed with the restoration and repair of the Demised Premises in accordance with the provisions hereof. 24.09 If, at any time during the Term, the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord and approved by Tenant, which approval shall not be unreasonably withheld, of more than twenty-five percent (25%) of the full insurable value of the Building immediately prior to the casualty and there shall be insufficient insurance proceeds available to Landlord to pay for the estimated cost of repair and restoration, then Landlord may terminate this Lease, whether or not Tenant shall have elected to terminate this Lease pursuant to Section 24.08 hereof, by giving Tenant notice to such effect within sixty (60) days after the date of the fire or other casualty. If Landlord shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.09, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.10 Notwithstanding anything contained in this Lease to the contrary, if pursuant to the provisions of the Office Premises Lease, dated of even date herewith, between Landlord, as landlord and Tenant, as tenant, (the "Office Lease") the Tenant thereunder shall have the right to, and shall, terminate such lease in connection with a casualty, and such tenant shall be Tenant or an affiliate of Tenant, then Tenant, at Tenant's sole 40 44 option, shall also have the right to terminate this Lease simultaneously with the termination of the Office Lease. If Tenant shall make such election, the Term of this Lease shall expire on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice, and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions hereof. Upon the termination of this Lease hereunder, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. ARTICLE 25 - EMINENT DOMAIN 25.01 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of conveyance of the whole of the Demised Premises in lieu thereof, this Lease shall terminate as of the day possession shall be taken by such authority. If fifteen percent (15%) or less of the Floor Space of the Building shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority. If more than fifteen percent (15%) of the Floor Space of the Building shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority, but either party shall have the right to terminate this Lease upon notice given to the other party within thirty (30) days after taking such possession. If so much of the parking facilities shall be so taken or conveyed that the number of parking spaces necessary, for the continued operation of the Demised Premises shall not be available, Tenant may, by notice to Landlord, terminate this Lease as of the day possession shall be taken. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Rent shall be reduced in the proportion which the area of the part of the Building so acquired or condemned bears to the total area of the Building immediately prior to such acquisition or condemnation. Except as specifically provided herein, in the event of any such taking or conveyance there shall be no reduction in Rent. If this Lease shall be terminated in accordance with the provisions of this Section 25.01, 41 45 this Lease and the Term shall come to an end and expire as of the date of the taking, with the same effect as if such date were the Expiration Date, and the Rent shall be apportioned as of the date of such termination and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. Notwithstanding the foregoing, however, if this Lease shall be terminated by reason of a taking of the whole of the Demised Premises or by reason of Tenant electing to terminate this Lease pursuant to the provisions hereof, and if Landlord, within five (5) days after such taking or after notice of such election is given by Tenant, Landlord shall offer to relocate Tenant's entire operation located at the Demised Premises to other premises located in the Lincoln Harbor Project, which other premises shall be of comparable size and quality and Landlord in fact shall so relocate Tenant within ninety (90) days (or such shorter period as may be possible and provided that Landlord shall use its best efforts) after notice of such election, then either such Termination shall be deemed to be rescinded and of no further force or effect and Tenant's obligations hereunder shall remain unaffected. In the case of such relocations, Fixed Rent, Tenants' Fraction, Tenants' Proportionate Share, if applicable, and Operating Expenses shall be equitably adjusted based upon the floor space of such other premises. If this Lease shall continue in effect, Landlord shall, at its expense, but shall be obligated only to the extent of the net award or other compensation (after deducting all expenses in connection with obtaining same) available to Landlord for the improvements taken or conveyed (excluding any award or other compensation for land or for the unexpired portion of the term of any Superior Lease), make all necessary alterations so as to constitute the remaining Building a complete architectural and tenantable unit, except for the Tenant's Property, and Tenant shall make all alterations or replacements to the Tenant's Property and decorations in the Building. All awards and compensation for any taking or conveyance, whether for the whole or a part of the Land or Building or otherwise, shall be property of Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all such awards and compensation. Tenant shall be entitled to claim, prove and receive in the condemnation proceeding such award or compensation as may be allowed for the Tenant's Property, Tenant's trade fixtures and for loss of business, goodwill, moving and depreciation or injury to and cost of removal of the Tenant's Property, to the 42 46 extent such award or compensation shall be made by the condemning authority in addition to, and shall not result in a reduction of, the award or compensation made by it to Landlord. 25.02 If the temporary use or occupancy of all or any part of the Demised Premises shall be taken during the Term, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking which represents compensation for the use and occupancy of the Demised Premises, for the taking of the Tenant's Property and for moving expenses, and Landlord shall be entitled to receive that portion which represents reimbursement for the cost of restoration of the Demised Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award or payment which represents compensation for the use and occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive (except as otherwise provided below) so much thereof as represents compensation for the period up to and including the Expiration Date and Landlord shall receive so much thereof as represents compensation for the period after the Expiration Date. 25.03 In the event the premises leased pursuant to the Office Lease are taken or such portions of said facilities are taken resulting in a termination of the Office Lease and the tenant under the Office Lease shall be Tenant or an affiliate of Tenant, then Tenant, at Tenant's option, shall have the right to terminate this Lease on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice; provided, however, that Tenant shall have the right to continue its occupancy of the Demised Premises subject to the terms of this Lease on a month-to-month basis (not to exceed twelve (12) months) until suitable moving arrangements are made. 43 47 ARTICLE 26 - SURRENDER 26.01 On the Expiration Date, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord "broom-clean" and in good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this Lease, and Tenant shall remove any item of Tenant's Property therefrom required pursuant to this Lease. 26.02 If Tenant remains in possession of the Demised Premises after the expiration of the Term, Tenant shall be deemed to be occupying the Demised Premises as a tenant from month to month subject to all of the provisions of this Lease, except that the monthly Fixed Rent shall be twice the Fixed Rent in effect during the last month of the Term. 26.03 No act or thing done by Landlord or its agents shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid unless in writing and signed by Landlord. ARTICLE 27 - CONDITIONS OF LIMITATION 27.01 This Lease is subject to the limitation that whenever Tenant (a) shall make an assignment for the benefit of creditors, or (b) shall commence a voluntary case or have entered against it an order for relief under any chapter of the Federal Bankruptcy Code (Title II of the United States Code) or any similar order or decree under any federal or state law, now in existence, or hereafter enacted having the same general purpose, and such order or decree shall have not been stayed or vacated within 30 days after entry, or (c) shall cause, suffer, permit or consent to the appointment of a receiver, trustee, administrator, conservator, sequestrator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, and such appointment shall not have been revoked, terminated, stayed or vacated and such official discharged of his duties within 30 days of his appointment then Landlord, at any time after the occurrence of any such event, may give Tenant a notice of intention to end 44 48 the Term at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) period, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the Expiration Date of this Lease, but Tenant shall remain liable for damages as provided in Article 29. 27.02 This Lease is subject to the further limitations (collectively, "Events of Default") that: (a) if Tenant shall default in the payment of any installment of Fixed Rent, and such default shall continue for five (5) days after invoice for same by Landlord or for five (5) days after notice of such default, whichever is shorter, or (b) if Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Fixed Rent) and such default shall continue and not be remedied within thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of thirty (30) days and the continuance of which for the period required for cure will not subject Landlord or any Superior Lessor or prosecution for a crime (as more particularly described in the last sentence of Section 12.02) or termination of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said thirty (30) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (ii) duly commence within said thirty (30) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the default, and (iii) complete such remedy within a reasonable time after the date of said notice by Landlord, (c) if Tenant shall abandon the Demised Premises, or (d) if there shall be any default by Tenant (or any person which, directly or indirectly, controls, is controlled by, or is under common control with Tenant) under any other lease with Landlord (or any person which, directly or indirectly, controls is controlled by, or is under common control with Landlord) which shall not be remedied within the applicable grace period, if any, provided therefor under such other lease, then in any of said cases Landlord may give to Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of the service of such notice of intention, and upon the expiration of said five (5) days, whether or not the Term shall theretofore have commenced this Lease 45 49 shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall remain liable for damages as provided in Article 29. ARTICLE 28 - RE-ENTRY BY LANDLORD 28.01 If this Lease shall terminate as provided in Article 27, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises, or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, or otherwise, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any Person therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The word "re-enter", as used herein, is not restricted to its technical legal meaning. If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceedings or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 29. 28.02 In the event of a breach by Tenant of any of its obligations under this Lease, Landlord shall also have the right of injunction. The special remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies to which Landlord may lawfully be entitled at any time and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 28.03 If this Lease shall terminate under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance Rent, security or otherwise, 46 50 but such monies shall be credited by Landlord against any Rent due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 29 or pursuant to law. ARTICLE 29 - DAMAGES 29.01 If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord, either: (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (i) the aggregate amount of the Rent which would have been payable by Tenant (conclusively presuming the average monthly Additional Charges payable for the year, or if less than 365 days have then elapsed since the Commencement Date, the partial year, immediately preceding such termination of re-entry) for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the Expiration Date, over (ii) the aggregate rental value of the Demised Premises for the same period, which amounts shall be discounted to present worth at a rate equal to nine percent (9%) per annum; or (b) sums equal to the Fixed Rent and the Additional Charges which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such relet- 47 51 ting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including, without limitation, altering and preparing the Demised Premises for new tenants, brokers' commissions, legal fees, and all other expenses properly chargeable against the Demised Premises and the rental therefrom, it being understood that any such reletting may be for a period shorter or longer than the period ending on the Expiration Date; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this subdivision (b) to a credit in respect of any rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Demised Premises or any part thereof, or if the Demised Premises or any part thereof are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease. 29.02 Suit or suits for the recovery of such damages or, any installments thereof, may be brought by Landlord at any time and from time to time at its election, and nothing contained herein shall be deemed to 48 52 require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provisions of Article 27, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for and obtain as damages by reason of the termination of this Lease or re-entry on the Demised Premises for the default of Tenant under this Lease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, the governing the proceedings in which, such damages are to be proved whether or not such amount be greater than, equal to, or less than any of the sums referred to in Section 29.01. 29.03 In addition, if this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, Tenant covenants that: (a) the Demised Premises then shall be in the same condition as that in which Tenant has agreed to surrender the same to Landlord at the Expiration Date; (b) Tenant shall have performed prior to any such termination any obligation of Tenant contained in this Lease for the making of any alteration or for restoring or rebuilding the Demised Premises, or any part thereof; and (c) for the breach of any covenant of Tenant set forth above in this Section 29.03, Landlord shall be entitled immediately, without notice or other action by Landlord, to recover, and Tenant shall pay, as and for liquidated damages therefor, the cost of performing such covenant (as estimated by an independent contractor selected by Landlord). 29.04 In addition to any other remedies Landlord may have under this Lease, and without reducing or adversely affecting any of Landlord's rights and remedies under this Article 29, if any Rent or damages payable hereunder by Tenant to Landlord are not paid within five (5) days after demand therefor, the same shall bear interest at the Late Payment Rate from the due date thereof until paid, and the amounts of such interest shall be Additional Charges hereunder. 49 53 ARTICLE 30 - AFFIRMATIVE WAIVERS 30.01 Tenant, on behalf of itself and any and all persons claiming through or under Tenant, does hereby waive and surrender all right and privilege which it, they or any of them might have under or by reason of any present or future law, to redeem the Demised Premises or to have a continuance of this Lease after being dispossessed or ejected from the Demised Premises by process of law or under the terms of this Lease or after the termination of this Lease as provided in this Lease. 30.02 Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Demised Premises and use of the Common Areas, including, without limitation, any claim of injury or damage, and any emergency and other statutory remedy with respect thereto. Tenant shall not interpose any counterclaim of any kind in any action or proceeding commenced by Landlord to recover possession of the De- mised Premises (unless failure to do so would constitute a waiver thereof) nor attempt to remove such action or proceeding to the law division of the Superior Court of New Jersey. ARTICLE 31 - NO WAIVERS The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or Additional Charges with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. ARTICLE 32 - CURING TENANT'S DEFAULTS If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, 50 54 without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice in a case of emergency, and in any other case only if such default continues after the expiration of thirty (30) days from the date Landlord gives Tenant notice of the default. Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable attorneys' fees and expenses, involved in collecting or endeavoring to collect the Rent or any part thereof or enforcing or endeavoring to enforce any rights against Tenant or Tenant's obligations hereunder, under or in connection with this Lease or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings or in recovering possession of the Demised Premises after default by Tenant or upon the expiration of the Term or sooner termination of this Lease, and interest on all sums advanced by Landlord under this Article at the Late Payment Rate, may be sent to Landlord to Tenant monthly, or immediately, at Landlord's option, and such among shall be due and payable in accordance with the terms of such bills. ARTICLE 33 - BROKER Landlord and Tenant each represent to the other that no broker except the Broker was instrumental in bringing about or consummating this Lease and that it had no conversations or negotiations with any broker except the Broker concerning the leasing of the Demised Premises. Each party agrees to indemnify and hold harmless the other against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by the indemnifying party with any broker other than the Broker. Landlord shall pay any brokerage commissions due the Broker pursuant to a separate agreement between Landlord and the Broker. 51 55 ARTICLE 34 - NOTICES Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Lease or pursuant to any applicable Legal Requirement, shall be in writing and shall be deemed to have been properly given, rendered or made only if hand delivered or sent by United States registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth (except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building) as to Landlord, to the attention of General Counsel with a copy to the attention of President and to Horowitz, Bross, Sinins and Imperial, 1180 Raymond Boulevard, Newark, New Jersey 07102-4172, Attention: Irwin A. Horowitz, Esq., and as to Tenant, to the attention of Facilities Department-Vice President, with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, Attention: Benjamin F. Needell, Esq., and shall be deemed to have been given, rendered or made on the day after the day so delivered or mailed, unless mailed outside the State of New Jersey in which case it shall be deemed to have been given, rendered or made on the third business day after the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, consents, approvals or other communications intended for it. ARTICLE 35 - ESTOPPEL CERTIFICATES Each party shall, at any time and from time to time, as requested by the other party, upon not less than ten (10) days' prior notice, execute and deliver to the requesting party a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the Fixed Rent and Additional Charges have been paid, stating whether or not, to the best knowledge of the party giving the statement, the requesting party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the party giving the statement shall have knowledge, and stating whether or not, to the best knowledge of the party giving the statement, any 52 56 event has occurred which with the giving of notice of passage of time, or both, would constitute such a default of the requesting party, and, if so, specifying each such event; any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Each party also shall include in any such statement such other information concerning this Lease as the other party may reasonably request. ARTICLE 36 - ARBITRATION Landlord or Tenant may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. ARTICLE 37 - MEMORANDUM OF LEASE This Lease shall not be recorded, however, at the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver to the other party (i) a memorandum of lease in respect of this Lease sufficient for recording, and (ii) after each of the Commencement Date, the Fixed Rent Commencement Date, and any Renewal Term Commencement Date, either an agreement or a restated memorandum (if a memorandum shall have been executed or recorded as provided immediately above) stating the Commencement Date, Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be, each sufficient for recording. Failure by either party to request or to execute, acknowledge or deliver any such memorandum or agreement, however, shall not affect the determination of the Commencement Date, the Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be. Such memorandum 53 57 shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease. Whichever party records such memorandum of Lease shall pay all recording costs and expenses, including any taxes that are due upon such recording. ARTICLE 38 - MISCELLANEOUS 38.01 Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement(s) which may be made between the parties concurrently with the execution and delivery of this Lease. All understandings and agreements heretofore had between the parties are merged in this Lease and any other written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation. Neither party has relied upon any statement or representation not embodied in this Lease or in any other written agreement(s) made concurrently herewith. 38.02 No agreement shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing, refers expressly to this Lease and is signed by Landlord and Tenant. 38.03 If Tenant shall at any timer request Landlord to sublet or let the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord of any liability for loss or damage to any of the Tenant's Property in connection with such subletting or letting. 38.04 Except as otherwise expressly provided in this Lease, the obligations under this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party is named or referred to; provided, however, that the provisions of this Section 38.04 shall not be construed as modifying the conditions of limitation contained in Article 27. 54 58 38.05 Except for Tenant's obligations to pay Rent, the time for Landlord or Tenant, as the case may be, to perform any of their respective obligations hereunder shall be extended if and to the extent that the performance thereof shall be prevented due to any Unavoidable Delays. Except as expressly provided to the contrary, the obligations of Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord have any liability whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease due to any of the matters set forth in the first sentence of this Section 38.05, or (b) because of any failure or defect in the supply, quality or character of electricity, water or any other utility or service furnished to the Demised Premises for any reason beyond Landlord's reasonable control. 38.06 Any liability for payments or reimbursement of payments hereunder (including, without limitation, Additional Charges) shall survive the expiration of the Term or earlier termination of this Lease. 38.07 Tenant shall give prompt notice to Landlord of (a) any occurrence in or about the Demised Premises for which Landlord might be liable, (b) any fire or other casualty in the Building, (c) any damage to or defect in the Building, including the fixtures and equipment thereof, for the repair of which Landlord might be responsible, and (d) any damage to or defect in any part of the Building, sanitary, electrical, heating, ventilating, airconditioning, elevator or other systems located in passing through the Building or any part thereof. 38.08 This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall, be invalid or unenforceable, the remainder of this Lease shall not be affected and shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. If any words or phrases in this Lease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or 55 59 otherwise eliminated. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 38.09 Within thirty (30) days of each anniversary date of this Lease, annually Tenant shall furnish to Landlord a copy of its then current audited financial statement (or form 10-K) which shall not be distributed without the prior authorization of Tenant. 38.10 In addition, at any time during the Term, Tenant shall have the right to request a redetermination of Operating Expenses because of a claimed increase in the floor space of improvements constructed in the Lincoln Harbor Project. If Tenant shall make any such request, then the Architect and an architect appointed by Tenant shall remeasure the floor space of the improvements in the Lincoln Harbor Project, in accordance with the standards set forth on Exhibit "D" annexed hereto and made a part hereof. If Architect and the architect appointed by Tenant shall agree, the Operating Expenses as determined by such architects shall be conclusive and binding upon the parties. If the Architect and the architect appointed by Tenant shall be unable to agree as to the Operating Expenses, then such architects shall select a third architect (or if such architects shall be unable to agree upon such third architect, the same shall be selected by the American Arbitration Association or successor organization) and such third architect shall select either the Operating Expenses as calculated by the Architect or the Operating Expenses as calculated by the architect appointed by Tenant. In no event, however, may the Operating Expenses be increased from the amounts set forth herein. Such finding shall be conclusive and binding upon the parties. 38.11 Notwithstanding anything contained in this Lease to the contrary, if Landlord shall have failed to deliver to Tenant the Demised Premises to Tenant on or before January 1, 1987, as the same may be extended by reason of Unavoidable Delays to a date no later than June 1, 1987, as to which date time shall be of the essence, Tenant shall have the option to cancel this Lease 56 60 and the Term by giving thirty (30) days' notice to Landlord of such cancellation no later than the tenth (10th) day after such date. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period provided that Landlord shall not have delivered the Demised Premises to Tenant during such period, and Landlord and Tenant shall be released and discharged of and from all liabilities under the provisions of this Lease as of the date of such Termination. In addition, if for any reason other than Landlord's fault, the Commencement Date shall not have occurred on or before June 1, 1987, then, on the later to occur of June 1, 1987 and the date on which restoration of the Demised Premises shall have experienced Unavoidable Delays equal to twelve (12) months in the aggregate, Landlord shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice of such cancellation to Tenant. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period, and Landlord and Tenant shall be released from all liabilities under the provisions of this Lease as of the date of such termination. 38.12 Tenant acknowledges that pursuant to the provisions of the Agreement of Limited Partnership, dated of even date herewith, of Landlord, Tenant, as limited partner thereunder, has pledged its partnership interest thereunder pursuant to Section 14.13 thereof to secure its obligations hereunder for a period of five (5) years from the Fixed Rent Commencement Date. 38.13 Landlord hereby represents and warrants that the floor load capacity of the Building is not less than 100 pounds live load. Landlord acknowledges that Tenant has informed it that it believes that the Building may not have such a floor load; if any repairs or reinforcements are, in fact, required to make such representation true and correct, Landlord, at its sole cost and expense, promptly after request by Tenant, shall perform and each work. ARTICLE 39 - EXTENSION OF TERM 39.01 Tenant shall have the option (the "Renewal Option") to extend the Term for two (2) additional 57 61 periods of ten (10) years each (the "Renewal Terms"), shall (i) commence on the original Expiration Date and end on the date preceding the tenth (10th) anniversary of the original Expiration (the "First Renewal Term"), and (ii) commence on the date immediately succeeding the last day of the First Renewal Term and end on the date preceding the twentieth (20th) anniversary of the original Expiration Date (the "Second Renewal Term") provided that (a) this Lease shall not have been previously terminated and (b) no material Event of Default shall have occurred and be continuing as of the date Tenant shall give the Renewal Notice (hereinafter defined). Each Renewal Option may be exercised with respect to the entire Demised Premises only and shall be exercisable by Tenant delivering to Landlord written notice (the "Renewal Notice") of Tenant's election to exercise the applicable Renewal Option at least nine (9) months prior to the original Expiration Date with respect to the First Renewal Term, and at lease nine (9) months prior to the tenth (10th) anniversary of the Commencement Date with respect to the Second Renewal Term. Upon the giving of the Renewal Notice with respect to the Second Renewal Term, Tenant shall have no further option or right to extend the Term. If Tenant exercises a Renewal Option, the Renewal Term with respect to which Tenant shall exercise the Renewal Option shall be on the same terms, covenants, and conditions as those contained in this Lease, except (i) the Fixed Rent payable for the Demised Premises during each Renewal Term shall be determined as provided in Section 39.03 hereof, and (ii) the provisions of Section 39.01 hereof with respect to Tenant's right to renew the Term of this Lease shall not be applicable during the Second Renewal Term. It is expressly understood that during the First Renewal Term that Tenant shall have the right as set forth in Section 39.01 only with respect to the Second Renewal Term, that during the Second Renewal Term Tenant shall have no further right to renew this Lease. 39.02 If Tenant exercises the Renewal Option applicable to the First Renewal Term or the Second Renewal Term, as the case may be, the Fixed Rent for the Demised Premises shall be an amount equal to the Fair Market Rent (hereinafter defined), determined in accordance with Article 40 hereof, for the Demised Premises. 39.03 If, for any reason whatsoever, the Fair Market Rent shall not have been determined pursuant to Article 40 hereof by the commencement of the First Renew- 58 62 al Term or Second Renewal Term, as the case may be, the Tenant shall pay to Landlord in monthly installments until such determination, on account of the Fixed Rent, an amount equal to the Fixed Rent in effect on the date immediately prior to commencement of the First Renewal Term or Second Renewal Term, as the case may be. Following the final determination of Fair Market Rent, a reconciliation shall be made as follows: if the monthly installments of Fixed Rent determined pursuant to this Article 39 are more than the amounts Tenant had paid therefor, Tenant shall pay to Landlord within ten (10) days of such determination the amount of such underpayment of Fixed Rent due. ARTICLE 40 - DETERMINATION OF FAIR MARKET RENT 40.01 For purposes of this Lease the term "Fair Market Rent" shall mean the annual fair market rental value of the Demised Premises determined as if the Demised Premises were available in the then rental market for comparable buildings in the northern New Jersey metropolitan area on the terms of this Lease and assuming that Landlord has had a reasonable time to locate a tenant who rents with the knowledge of the uses permitted pursuant to this Lease, and that neither Landlord nor the prospective tenant is under any compulsion to rent, and taking into account: (i) tenant is required to pay the Operating Expenses; (ii) the remaining Term of this Lease and any remaining' Renewal Term, as well as the portion of the Term then elapsed; (iii) the fact that the tenant is the sole tenant; (iv) the fact that Landlord will not be obligated to perform any work in the Demised Premises to prepare the same for Tenant's occupancy or to contribute or to loan any money on account thereof whether in the form of rent, credit, cash or otherwise. 40.02 The Fair Market Rent shall be determined on the basis set forth in Section 40.01 of this Article and with the assumption that the tenant need not perform any work in order to occupy the Demised Premises for the conduct of business. 40.03 Landlord shall give Tenant written notice (the "Rent Notice") setting forth Landlord's determination of the Fair Market Rent (the "Landlord's Determination"). Such notice will be sent not later than forty-five (45) days after receipt by Landlord of each of the Renewal Notices. 59 63 40.04 Tenant shall give Landlord written notice ("Tenant's Notice"), within forty-five (45) days after Tenant's receipt of the Rent Notice, as to whether Tenant accepts or disputes Landlord's Determination or any portion thereof. If Tenant in Tenant's Notice accepts Landlord's Determination, or if Tenant fails or refuses to give Tenant's Notice as aforesaid, Tenant shall be deemed to have accepted Landlord's Determination. If Tenant in Tenant's Notice disputes any portion of Landlord's Determination, Tenant shall deliver to Landlord together with Tenant's Notice, Tenant's determination of the Fair Market Rent of the portion of the Demised Premises for which Tenant disputes Landlord's Determination (the "Tenant's Determination"); simultaneously therewith Tenant shall notify Landlord of an individual ("Tenant's Advisor") selected by Tenant to act on its behalf for the purposes of this Article 40. 40.05 Landlord shall give Tenant written notice ("Landlord's Notice") within ten (10) business days of after Landlord's receipt of Tenant's Determination, as to whether Landlord accepts or disputes Tenant's Determination. If Landlord in Landlord's Notice accepts Tenant's Determination or if Landlord fails or refuses to give Landlord's Notice as aforesaid, Landlord shall be deemed to have accepted Tenant's Determination. If Landlord in Landlord's Notice disputes Tenant's Determination, Landlord shall in such Notice advise Tenant of the name of an individual ("Landlord's Advisor") selected by Landlord to act on its behalf for the purposes of this Article 40. If within twenty (20) days after Tenant's receipt of Landlord's Notice, Landlord's Advisor and Tenant's Advisor shall mutually agree upon the determination ("Mutual Determination") of the Fair Market Rent, their determination shall be final and binding upon the parties. If Landlord's Advisor and Tenant's Advisor shall be unable to reach a Mutual Determination within said twenty (20) day period, both of the advisors shall jointly select an independent real estate appraiser (the "Appraiser") whose fee shall be borne equally by Landlord and Tenant. In the event that Landlord's Advisor and Tenant's Advisor shall be unable to jointly agree on the designation of the Appraiser within five (5) days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association or any successor organization to designate the Appraiser in accordance the rules, regulations and/or procedures of the American Arbitration Association or suc- 60 64 cessor organization then obtaining with respect to real estate valuation disputes. 40.06 The Appraiser shall proceed to determine the Fair Market Rent in accordance herewith. The two determinations of the Advisors and the Appraiser which are closest shall then be averaged and such averaged amount shall be conclusive and binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article 40, including the expenses and fees of any Advisor selected by it in accordance with the provisions of this Article 40. The Appraiser appointed pursuant to this Article 40 shall be a real estate appraiser with at least ten (10) years experience in the leasing of office space in, and valuation, of properties which are similar in character to the Building, a member of the American Institute of Appraisers of the National Association Real Estate Boards or successor organization and a member of the Society of Real Estate Appraiser or its successor organization. Neither the Appraiser nor the Advisors shall have the power to add to, modify or change any of the provisions of this Lease. 40.07 If the Fair Market Rent shall be finally determined to be in excess of five percent (5%) greater than Tenants' Determination, then Tenant, within ten (10) days after receipt of the final determination may notify Landlord of its election not to renew the Term, in which event, Tenant shall be deemed not to have exercised the applicable Renewal Option and this Lease and the Term shall expire as if such applicable Renewal Option had not been exercised. 40.08 It is expressly understood that any determination of the Fair Market Rent pursuant to this Article 40 shall be based upon the criteria stated herein. 40.09 Anything herein to the contrary notwithstanding, the Fair Market Rent shall not be less than the Fixed Rent payable immediately prior to the commencement of the Renewal Term in question. 61 65 40.10 After final determination has been made of Fair Market Rent for any purpose of this Lease, the parties shall execute and deliver to each other an instrument setting forth the amount thereof and the amount of Fixed Rent payable as a result of such determination; provided, however, that failure to execute such supplementary agreement shall not affect the determination of Fixed Rent. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. Landlord: HARTZ-PW LIMITED PARTNERSHIP By: Hartz Mountain Industries, general partner By: /s/ Steven M. Kelty -------------------------------- Steven M. Kelty, Vice President Tenant: PAINEWEBBER INCORPORATED By: /s/ Rodger Parker -------------------------------------- Rodger Parker, Senior Vice President 62 66 Exhibit "A" Building The proposed Data Processing Center is to be the renovated existing Seatrain Building, in the Lincoln Harbor Project. The existing building consists of four floors, designated as Ground, Mezzanine, First and Second. A-1 67 Exhibit "B" Fixed Rent The Fixed Rent during the Term, subject to adjustment as provided in this Lease, shall be determined as follows: (a) Commencing on the Fixed Rent Commencement Date and terminating on the day prior to the nineteenth (19th) anniversary of the Fixed Rent Commencement Date, the Fixed Rent shall be equal to the sum of (i) the Base Amount (as defined below), and (ii) 18.87% of debt service* per annum (principal and interest) under the Mortgage. The percentage of debt service for the Mortgage shall be determined by dividing (x) the Floor Space Premises by (y) the floor space upon which the Mortgage is based (140,768/745,926 = .1887). Debt service shall be determined by using a debt service constant not to exceed 11.979. Years commencing on the Fixed Rent Commencement Date "Base Amount" Per Year - ---------------------------- ---------------------- 1-4 $ 133,930.00 5-9 $ 244,603.00 10-14 $ 666,961.00 15-19 $1,230,105.00 (b) Notwithstanding the foregoing, in no event shall the Fixed Rent (inclusive of the "Base Amount") per square foot exceed - --------------- * The stated percentage is predicated upon there being one (1) mortgage covering both the Ground Lease and the Agreement of Ground Lease, dated of even date herewith, between Fee Owner, as landlord, and Landlord, as tenant, for the premises known as Operations Center and the Data Processing Center, respectively. In the event that a separate mortgage is obtained in connection with each such leasehold estate this Exhibit shall be amended accordingly. B-1 68 $11.97 for years 1-4, $13.47 for years 5-9, $16.47 for years 10-14, or $20.47 for years 15-19. (c) Commencing on the twentieth anniversary of the Commencement Date and terminating on the original Expiration Date, the Fixed Rent shall be an amount equal to the lesser of (x) the Fair Market Rent, determined in accordance with Article 40 hereof and (y) the product of the Floor Space and Forty-Two and 45/100 Dollars ($42.45), but in no event less than the Fixed Rent payable during the twentieth (20th) year of the Term. Promptly after the closing of the Mortgage and upon each occasion of redetermination of Fixed Rent, as provided in this Lease, the parties hereto shall prepare and execute a revised schedule of such redetermined Fixed Rent. B-2 69 Exhibit "C" Floor Space As to a demised premises, the sum of the floor area stated in square feet bounded by the exterior faces of the exterior walls, or by the exterior or common areas face of any wall between the premises and any portion of the common areas, or by the center line of any wall between the premises and space leased or available to be leased to another tenant or occupant. Any reference to floor space of a building shall mean the floor area of all levels or stories of such building, excluding any roof, except such portion thereof as is permanently enclosed, and including any interior basement level or mezzanine area not occupied or used by a tenant on a continuing or repetitive basis, and any mechanical room, enclosed or interior truck dock, interior common areas, and areas used by a landlord for storage, for housing meters and/or other equipment or for other purposes. Any reference to the floor space is intended to refer to floor space of the entire area in question irrespective of the person(s) who may be the owner(s) of all or any part thereof. C-1 70 Exhibit "D" Land PROPOSED BLOCK 34C LOT 4.02 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30"E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Lincoln Harbor Block 34C Lots 4, 5-1, 5 and Block 36D Lot 6C," and prepared by Azzolina & Feury Engineering Company, dated February 26, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E, 86.70 feet along said property line to a point on curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 feet, said radial having a bearing of N 14 degrees-11'-23" W, through a central angle of 25 degrees-01'-56", an arc distance of 477.53 feet; thence, C) Departing said property line, S 7 degrees-48'-45"E, 55.40 feet to the point of beginning; thence, 1) N 38 degrees-28'-38"E, 476.59 feet to a point of nontangency; thence, 2) Southeasterly, along a curve to the right having a radius of 360.00 feet through a central angle of 16 degrees-55'-38", an arc distance of 106.36 feet; thence 3) S 51 degrees-07'-50"E, 188.34 feet to a point of curvature; thence, 4) South and southwesterly on a curve to the right having a radius of 40.00 feet through a central angle of 90 degrees-00'-00", an arc distance of 62.83 feet; thence, 5) S 38 degrees-52'-10"W, 51.43 feet to a point of D-1 71 curvature; thence, 6) Southwesterly, on a curve to the right having a radius of 328.57 feet through a central angle of 34 degrees-09'-59", an arc distance of 195.93 feet; thence 7) S 38 degrees-28'-38"W, 15.35 feet; thence, 8) S 73 degrees-55'-33"W, 16.49 feet; thence, 9) S 83 degrees-28'-38"W, 262.43 feet; thence, 10) N 51 degrees-31'-22"W, 79.53 feet to the point or place of beginning. Containing 127,537 square feet (2.93 acres). D-2 72 [SURVEY OF SUBDIVISION OF LINCOLN HARBOR] 73 Exhibit "E" Landlord's Work E-1 74 PAINE WEBBER - -------------------------------------------------------------------------------- LINCOLN HARBOR FEASIBILITY STUDY DATA CENTER - -------------------------------------------------------------------------------- SKIDMORE, OWINGS & MERRILL JAROS, BAUM & BOLLES LEHRER / MCGOVERN REVISED 31 OCTOBER 1985 REVISED 14 NOVEMBER 1985 BY HARTZ MOUNTAIN INDUSTRIES, INC. 75 Qualifications for Data Center Raised Flooring: 2' x 2' steel panels 24" high with high pressure laminate finish, pedestals interconnected with stringers, grounded. Severn Model 50 1000 lbs. point load by Donn Corporation or approved equal. 2' x 2' cement filled steel panels 8" high pedestals interconnected with stringers, grounded. Severn Model 54 1000 lbs. point load by Donn Corporation or approved equal. Carpet tiles are 18" x 18" 22oz. level loop clefin under 1KV antistatic synthetic fiber or approved equal. Vinyl Composition Tile: 12" x 12 " x 1/8" Kentile architectural series or approved equal. Ceilings: 2' x 2' suspended acoustical ceiling tile. Armstrong minaboard fissure lay-in system or approved equal. Resin Membrane: Resin matrix traffic bearing waterproofing membrane. Vulkin 350 - 351 2-part system by Memeco or approved equal. Partition Walls: Hartz has not included any partition walls because the size or number of offices have not been determined, however, PaineWebber can budget partitions as follows. A. 3 5/8" metal studs 2'o.c., 5/8" gypsum board both sides 9'-0" high with two coats latex paint @ $3.40/sq.ft. B. 3 5/8" metal studs 2'o.c., 5/8" gypsum board both sides 13' high with two coats latex paint @ $3.75/sq.ft. C. Aluminum framed glass partitions based on H.L. Bryun series #200 9' A.F.F. @ 106/L.F. 76 CONTENTS I. PROJECT DESCRIPTION II. SITE DEVELOPMENT III. EXTERIOR ENCLOSURE IV. INTERIOR V. STRUCTURAL VI. VERTICAL TRANSPORTATION VII. MECHANICAL VIII. PLUMBING IX. FIRE PROTECTION X. ELECTRICAL XI. SCHEMATIC DESIGN ALTERNATE 1 ALTERNATE 2 77 I. PROJECT DESCRIPTION A. The proposed Paine Webber Data Center is to be the renovated existing Seatrain Building, in the Lincoln Harbor Development Weehawken, New Jersey. The existing building consists of four floors, designated as ground, Mezzanine, First and Second. The proposed renovation includes: the replacement of the roofing, the removal of a section of the mezzanine to accommodate new generators, as required by the Data Center, and the elimination of the North Entrance. (Main Employee Entrance to be from the south parking lot, the Visitor Entrance to be from the east side of the building). Also included are the following alternatives: Alternate 1 - removal and required structural patching of the existing skylight. Alternate 2 - the repair of the existing skylight and the increased structural loading of the mezzanine to accommodate computer equipment. The items excluded from the Landlord's obligation are: the computer and telecommunications equipment as well as the Voice and Data cabling. In addition to the requirements described herein, the renovation of the building and all related facilities shall be in conformance with the most recent editions of all applicable codes, standards, specifications and regulations. - 1 - 78 II. SITE DEVELOPMENT Information not included at this time. - 2 - 79 III. EXTERIOR ENCLOSURE A. Glazing System: Double glazing along the perimeter on the first and second floors in the computer room area. Glazing system to provide thermal break at mullions and to prevent condensation at all times, as well as maintain an RH of 50%. B. Roofing: Remove existing roofing to the slab. Replace with new insulated membrane roof, consisting of roofing aggregate ballast or cast-in-place concrete over water pervious membrane over extruded expanded polystyrene insulation having a "U" value of 0.08 BRU/sq. ft./degree F. or better, over a fluid-applied membrane waterproofing. C. Wall Louvers: Continuous type, stormproof, of extruded aluminum sections with either hardcoat anodized finish or resinous ("Kynar coated of selected color, to match glazing enframement. Louvers to have bird screens and insulated blank-off panels. Louvers to be added to the west facade on both the ground and mezzanine floors at the generator area. - 3 - 80 IV. INTERIOR A. Main Entrance and Visitor Lobbies 1. Floors: To be determined 2. Walls: To be determined 3. Ceilings: Gypsum wallboard 4. Lighting: Recessed incandescent. B. Typical Floor Elevator Lobbies 1. Floors: Steel troweled concrete sealed for dustproofing. With carpet tile 2. Walls: Vinyl wallcovering. 3. Ceilings: Gypsum wallboard. 4. Lighting: Incandescent. C. General Office Area 1. Floors: Access floor consisting of 2' x 2' cement filled steel panels 8" high pedestals interconnected with stringers, grounded. Provide high quality modular carpet tiles of anti-static synthetic fiber. 2. Column Enclosures: 5/8" gypsum wallboard attached to metal furring secured to the underside of construction above, painted as required. Fire rated as required. 3. Walls: Metal stud and gypsum wallboard partitions to underside of construction above. Painted finish with resilient wall base. Aluminum framed glass partition system with baked on paint finish with flush wood doors maximum 9'-0" high, for perimeter office walls parallel to the exterior wall. Perimeter Walls: Remove existing indication units and enclosures. Install new convectors and architectural convector enclosures. 4. Ceiling: Fully accessible, 2' x 2' acoustical tile. 5. Lighting: Recessed parabolic fluorescent fixtures - size to be determined. 6. Window Treatment: Perimeter windows with 1" slat venetian blinds. - 4 - 81 D. Computer Area 1. Floors: Access floor consisting of 2' x 2' steel panels 24" h. with high pressure laminate finish, pedestals interconnected with stringers, grounded. 2. Column Enclosures: 5/8" gypsum wallboard attached to meet furring secured to the underside of construction above, painted as required. Fire rated as required. 3. Walls: Same as C.3, in addition. Partitions to extend from slab to underside of structure at perimeter of halon zones or perimeter of controlled environment. Partitions separating humidity controlled areas from non-controlled areas to receive blanket insulation with foil vapor barrier. Curtain wall at these levels is to receive 22 gauge galvanized steel vapor barriers in lieu of typical foil. 4. Ceiling: Fully accessible 2' x 2' mineral fiber acoustical tile. Alternate: For Alternate 1 - (Computer Area on 2nd floor). Provide a resin matrix traffic bearing waterproofing membrane for penthouse space above computer area. 5. Lighting: Same as C.5. E. Equipment Area 1. Floors: Steel troweled concrete, sealed for dustproofing, vinyl composition tile finish. 2. Walls: Concrete masonry unit or metal stud and gypsum board partitions to underside of construction above. Heavy duty painted finish. Epoxy paint in wet areas. 3. Ceilings: Gypsum wall board or mineral fiber acoustical tile. 4. Lighting: Strip fluorescent fixtures, suspended or surface mounted. F. Doors, Frames and Hardware 1. Doors: Flush, hollow metal, 1-3/4" thick, 18-gauge at interior, 16-gauge galvanized at exterior, ceiling high, width as required, factory prime, field painted, labeled at rated walls and partitions. Provide vision panel in all service vestibule doors. 2. Frames: Welded hollow metal, 16-gauge at interior, 14-gauge galvanized at exterior size as required, factory prime, field painted, labeled at rated walls and partitions. - 5 - 82 3. Hardware: Mortise locksets with lever handles, ball bearing hinges and parallel arm closers; polished stainless steel finish. G. Telephone and Electric Closets 1. Floors: Access floors consisting of 2' x 2' steel panels with high pressure laminate finish at the same height as the surrounding floor. H. Security Security provisions including, but not limited to: electronic hardware connected to life safety system and/or building security such as contact switches, electric locks, electric strike release, electric hold-open devices, cameras, card readers and intercoms connected to a central security station - location to be determined. This item is vague and has not been priced and is not the obligation of Hartz. - 6 - 83 V. STRUCTURAL A. Structural Evaluation: The primary structural system is composed of a reinforced concrete flat slab first floor and upper floors framed in structural steel rolled sections. The recent additions of a mezzanine between the ground floor and first floor and on infill slab below the skylight are framed in steel open web bar joists. The first floor slab was designed for a superimposed live load of 100 psf. Although flat slab construction is extremely difficult to modify after it is cast, i.e. reinforce for additional loading capacity or add significant vertical penetrations, it is expected that this floor could be a serviceable floor for data center applications. The upper floors were evidently designed for a superimposed loading of 50 psf live load plus 20 psf partition allowance - the code minimum loading for office occupancy. This loading is generally low for a data center application. The floor framing (and columns, if required) could be locally reinforced for specific loading conditions and/or equipment could be placed within the constraints of the system. Flexibility through the life of the building would be restricted unless there was a general reinforcement of the floor to approximately 100 psf. The areas which have been recently added are also evidently designed for the 50+20 psf loading. These floors will be extremely difficult to reinforce and use for occupancy other than general office. Penthouse floor framing is designed for 200 psf which is generally appropriate for a mechanical penthouse. B. Structural recommendation: Specifics to be determined pending analysis of existing structures. - 7 - 84 VI. VERTICAL TRANSPORTATION A. Existing Elevators: Cabs to be renovated, finishes to be determined. Primary use to be for passengers, occasional service use. B. Additional Elevator: Study to be done to determine need for additional passenger elevator. - 8 - 85 VII. HEATING, VENTILATING & AIR CONDITIONING A. Refrigeration Plant: 1. Provide two (2) 225 TR cooling/300 TR heating heat recovery machines. Carrier "HR" machines as std. In addition, provide two (2) 500 TR hermetic straight cooling machines. Initial total cooling load required is 1000 TRS & ultimately is 1400 TRS. 2. Provide three (3) chilled water pumps at 450 gpm each vs. 120' of head with 25 HP motors each; one pump is a stand-by. Provide three (3) additional chilled water pumps at 1000 gpm each vs. 120' of head with 60 HP motors each; one pump is a stand-by. 3. Provide three (3) condenser water pumps at 675 gpm each vs. 140' of head with 50 HP motors each; one pump is a stand-by. Provide three (3) additional condenser water pumps at 1500 gpm each vs. 140' of head with 100 HP motors each; one pump is a stand-by. 4. Provide three (3) secondary chilled water pumps at 1150 gpm each vs. 120' of head with 60 HP motors each; one pump is a stand-by. 5. Provide a plate & frame heat exchanger for secondary chilled water and condenser water free cooling. Secondary chilled water sized for 2300 gpm., 60 degrees F ENT. H2O with 50 degrees F LVG H2O and condenser water flow of 3000 gpm with 48 degree F ENT. H2O and 56 degrees LVG. H2O. 6. Provide four (4) Marley as standard. Series 8900 NC-11 cooling tower cells. Each cell size 8916. Towers to be provided with stainless steel basins and sumps and non-combustible fill. All cells to be winterized. Motor horsepowers are 40 HP each. Motors to be two-speed, reversing type. B. Computer Room Packaged Air Conditioning Units 1. For each computer floor (floors 1 & 2) provide (35) units per floor (total of 70). Piping distribution for these floors shall be sized for future units. Future growth will require (52) units per floor (total of 104). Each computer floor unit shall be Liebert as std. "Deluxe System/3" chilled water units. Each unit shall be FH248C, 120,000 BTUH sensible @ 72 degrees db, 45% RH room. Units to be provided with electric humidification & no reheat. - 9 - 86 2. For the UPS, 5kv switchgear room, incoming and emergency switchgear room, and the substation rooms provide a total of (19) units initially for these rooms with the distribution piping sized for (26) units ultimately. Each unit shall be Liebert as std. "Deluxe System/3" chilled water unit, model No. UH248C. Units shall not contain humidifiers, nor reheat. C. Heating Plant & Distribution 1. Provide one (1) 100 BHP Scotch Marine type fire tube boiler to serve as a stand-by or back-up to heat recovery machines. Boilers shall be dual fuel fired (natural/gas No. 2 oil). Provide two (2) circulation pumps sized at 375 gpm vs. 60' of head each with 15 HP motors. 2. Heat pump hot water shall be distributed to heat building via convectors located at the sill of the windows on each floor. Convectors shall be located around the entire perimeter of each floor of the building. Convectors shall be two (2) rows high. Allow .8 linear feet of convectors for each linear foot of exterior wall. Convectors shall be copper tube aluminum fin 1-1/4" tube with 4-1/4 x 4-1/4" fin, 40 fins/per foot. Provide architectural convector enclosures. D. Air Conditioning Systems 1. Provide two (2) 100% outside ventilation systems for computer rooms. One located at the east end of penthouse the other at the west end. Systems shall provide conditioned air (cooled in summer, tempered & humidified in winter) to the computer floors (1st & 2nd floors). Systems shall be 5000 CFM each with 7-1/2 HP motors. Each system shall be provided with a packaged electric steam generator for humidification. Steam generators shall have a capacity of 200 lbs/hr for each system. 2. Provide two (2) packaged air conditioning supply air systems to serve the ground floor and mezzanine floor office and lobby spaces. These supply air systems shall have associated return air fans. Systems will be variable air volume type. Systems will be 35,000 CFM each. The supply fan motors will be 60 HP and the return air fans will be 25 HP. The supply air and return air will be ducted to the two (2) floors served via four (4) riser points with duct takeoffs at each riser point at each floor served. The return air fans for these floors will also be used as the halon purge fans from the computer floors. The supply fans will also serve as purge makeup to the computer floors. This will be accomplished through a series of damper sequencing. - 10 - 87 E. Emergency Generator Ventilation System 1. Provide five (5) tubular centrifugal general exhaust fans hung above the generators in the generator room on the ground floor. Each fan will be sized for 125,000 CFM with a 50 HP motor. Sound traps shall be provided on each fan discharge. Discharge will be through the west facade. The intake ventilation air will also enter through the west facade (low) through a plenum, ALD's and sound traps. Note: The entire west elevation at the present ground floor and mezzanine floor is required to be louvered for ventilation air intake & discharge. F. Fuel Oil System 1. Provide a system of fuel oil storage and distribution for the emergency generator plant. Provide two (2) buried fiberglass fuel oil storage tanks of 25,000 gallons capacity each. Fuel oil storage will provide for two days operation at full load based on ultimate generator plant capacity of six (6) engines running at 1,400 kw. each (8,400 kw. total). G. Automatic Temperature Controls: 1. The building control system shall be, in general, a pneumatic system. Building automation system shall be an electronic microprocessor based system employing direct digital control technology. Each main air handling system and each water system shall be provided with a separate DDC cabinet. 2. System shall be able to start and stop all equipment remotely and monitor and reset from a remote location air system supply air temperatures, outside air temperatures, fan discharge temperature, return air temperatures, supply and return temperatures of all water systems with reset of supply water temperatures. In addition to points required for the operations building allow five hundred (500) points for data center. 3. System shall provide alarms for all off-normal conditions and status of remotely controlled motors by either pressure or flow switches. 4. System graphics shall be provided for each system. 5. System shall remotely control each supply air and each return air automatic damper in the duct taps at each floor from a central location both for part load operation and smoke control. - 11 - 88 6. Provide a duplicate operations console (color CRT, alarm printer, logging printer, etc.) at data center in addition to that required at operations center. H. Demolition 1. Remove all existing heating ventilating equipment, piping and ductwork. - 12 - 89 VIII. PLUMBING A. Demolish existing plumbing associated with toilet rooms on the 1st and 2nd floors. B. Provide new plumbing fixtures on 1st and 2nd floors and connect to existing plumbing piping. Provide the following number of fixtures. MEN WOMEN - -------------------------------------------------------------------------------- 1. 1st Fl. 1-SS 1-DF 1-WC 1-UR 1-LAV 2-WC 1-LAV 2. 2nd Fl. 1-SS 1-DF 1-WC 1-UR 1-LAV 2-WC 1-LAV C. Plumbing fixtures shall be: 1. WC - water closets, American Standard "AFWALL" 2477.016, vitreous china siphon jet, elongated quiet action wall hung, with Sloan Royal No 11DYC "Continental", complete with carrier and seat. 2. UR - Urinals, American Standard "Trimbrook" 6560.015, vitreous china siphon jet wall hung urinal with Sloan Royal 186-11YC quiet action flush valve, complete with carrier. 3. LAV - Lavatories, American Standard "Roxalyn 0194.076, 8 inch center 20" x 18" vitreous china lavatory with 2248.516-BR 6313-02 chrome plated brass lever handles, complete with aerator on spout, supplies and carrier. 4. SS - Slop sink, American Standard "Akron" 7696.016, 24" x 20" cast iron acid resisting enameled service sink with 3" standard trap, wall hanger and 8344.111 exposed wall mounted faucet. 5. DF - Drinking Fountain, Elkay electric water cooler, barrier free, Model ERHP-2-8, wall hung stainless steel fountain complete with mounting box. D. Materials 1. Waste and vent piping shall be service weight cast iron no-hub, with no-hub fittings. 2. Water piping shall be copper type "L" with 95-5 solder joint sweat end fittings. Insulate all water piping with 1/2 inch fiberglass insulation. 3. Provide valves as required and match existing. - 13 - 90 XI. FIRE PROTECTION A. The building will be fully sprinkled other than the electric switchgear room, elevator machine rooms, UPS and battery rooms. Computer room protection shall be as described herein. B. All sprinkler systems will be hydraulically calculated. In general, spaces will be light hazard, calculated to .10 GPM/sq. ft. over 1500 sq. ft. Ordinary hazard areas such as storage will be calculated to .16 GPM/sq.ft. over 1500 sq. ft. C. The sprinkler systems will be extended from the existing 6 inch sprinkler main at the ground floor level. The supply to each system will be provided with a shut-off valve (with tamper switch), paddle water flow detector, drain valve and sight glass connecting to a drain riser. D. All sprinkler control valves and alarms will be supervised and will annunciate at the fire control panel. E. The UPS rooms and battery rooms will be protected by total flooding Halon 1301 fire suppression systems. Provide two complete separate systems; one for each UPS room and its associated battery room. Each smoke detection system will be "cross-zoned" with four detection zones per system. The Halon system shall be a main-reserve central storage type, and will be piped to nozzles in the area. F. Provide the following individual fire protection systems for the 1st and 2nd floor computer rooms: 1. Base System Provide a "fire cycle" on-off type sprinkler system as manufactured by the Viking Corp. The system will be complete with control panel, valve trim panel, special water control valve, thermal detectors, fire cycle cable, batteries and air compressor panel. The system will be a recycling type, which automatically shuts the water off when the fire has been extinguished. The system will sense a fire condition through a thermal detection system which causes the special water control valve to open or close. The detection system will re-open the control valve if the fire rekindles. The piping system will use air-pressure (1-1/2 - 2 PSI) to monitor the piping. Provide a total flooding Halon 1301 fire suppression system for the computer room underfloor area. Provide a "cross-zoned" detection system in the underfloor and a single zone on the ceiling. Operation of the ceiling detectors will transmit an alarm only. Operation of the underfloor "cross-zoned" detectors will cause discharge of the Halon system. - 14 - 91 The Halon system shall be a "single shot" central storage type and will be piped to nozzles in the underfloor area. a. Alternate No. 1: Provide a "fire cycle" on-off sprinkler system same as base scheme. Provide a total flooding Halon 1301 fire supression system for the computer room and underfloor area. Provide cross-zoned detection on the ceiling and the underfloor area (four zones). Operation of the underfloor detection system will cause discharge into the underfloor only. Operation of the ceiling detection system will cause discharge of Halon into the room and underfloor. The Halon System shall be a "single-shot", central storage type and piped separately to the ceiling and underfloor nozzles. b. Alternate No. 2: Provide a total flooding Halon 1301 system for the computer room and underfloor area. Provide cross-zoned detection system as alternate no. 1. The Halon system shall be a main-reserve, central storage type piped the same as alternate no. 1. The reserve shall be connected and will be of same capacity as main. G. Halon Systems 1. All Halon 1301 systems will be complete with a central control panel, graphic annunciator panel for ceiling and underfloor detectors, emergency standby batteries, ionization type smoke detectors, alarm bells, horns, and lights, interfacing relays for HVAC and computer power shut down, manual release stations, conduit and wires, Halon storage containers and piping, complete and ready for operation. System will provide a 6% concentration. 2. Each system shall be capable of signaling an alarm prior to the development of visible smoke due to a fire condition. The system will provide audible and visual annunciation at the central control panel and throughout the protected area. The system will be provided with timed-delayed abort switches and discharge delay timers. The entire system shall be electrically supervised. 3. The entire detection and Halon 1301 systems shall be provided under the responsibility of one contract. 4. Halon 1301/smoke detection equipment shall be Fenwal, Pyrotronics, Ansul or Kidde. 5. Provide Halon for the various schemes in the following amounts: - 15 - 92 HALON 1301 QUALITY REQUIREMENTS
COMPUTER ROOMS AREA FT(2) VOL FT.(3) LBS. HALON REQ. 5% - -------------- ---------- ---------- ------------------ Base Scheme 1st fl. Computer Room U/F 32,800 65,600 1,640 2nd fl. Computer Room U/F 32,800 65,600 1,640 Alternate No. 1 1st fl. Computer Room 295,200 7,380 1st fl. Computer Room U/F 65,600 1,640 2nd fl. Computer Room 32,800 295,000 1,640 2nd fl. Computer Room U/F 65,600 7,380 Alternate No. 2 1st fl. Computer Room 7380 MAIN + 7380 RES 1st fl. Computer Room U/F 1640 + 1640 2nd fl. Computer Room 7380 + 7380 2nd fl Computer Room U/F 1640 + 1640 UPS & Battery Rm. #1 2500 30,000 750 MAIN + 750 RES UPS & Battery Rm. #2 2500 30,000 750 MAIN + 750 RES
- 16 - 93 H. Piping Systems: 1. Fire Standpipe Piping: Black Steel, Schedule 40 pipe, ASTM A120-73 or ASTM A53-73. 2. Sprinkler Piping: a. One Inch to Three Inch: Black steel, Schedule 40 pipe, ASTM A120-73 or ASTM A53-73. b. Four Inch to Six Inch: Black steel, ASTM A120-72a or ASTM A53-72a, thin wall pipe, with minimum wall thickness .188 inch. 3. Fittings for Fire Standpipe System: Screwed, standard weight cast iron fittings, UL approved for fire service. 4. Fittings for Sprinkler Systems: a. One Inch to Three Inch: Screwed, standard weight cast iron fitting, UL approved for fire service. b. Four Inch to Six Inch: Mechanical groove couplings (complete with housing, gasket, nuts and bolts), Victaulic Standard Style 77, with grooves rolled on the pipe by an approved groove rolling machine. 5. Victaulic couplings (Standard Style 77) may be used in lieu of iron fittings. 6. Halon 1301 Piping: Black steel, Schedule 40 pipe, ASTM A53-73. 7. Fittings for Halon 1301 Piping: Malleable iron, 300 pounds, ASTM A197. 8. Alarm Devices: All alarm panels, gongs or other alarm receiving devices and all inter Connecting electrical wiring will be furnished under the Specifications of other Trades, except Halon system alarms, wiring and panels, which shall be provided by this Contractor. Provide all switches directly connected to equipment provided by this Trade, required for the transmission of alarm impulses. All water control valves shall be provided with pamper switches. 17 94 9. Valves: All water control valves within the building shall be wedge gate valves with painted iron wheel handles, shall have gland followers in stuffing boxes, constructed so that they may be repacked while open and under pressure. All valves shall have the name of the manufacturer and working pressure cast or stamped thereon. All valves shall be UL approved. Provide valves as follows: a. Gate Valves Material W.W.P. ----------- -------- ------ Flanged OS&Y IBBM 175 Screwed (drains, etc.) Bronze 175 b. Check Valves ------------ Flanged IBBM 175 Screwed (drains, etc.) Bronze 200 10. Sprinkler Heads: Provide automatic sprinkler heads of finish as approved by the Architect. Sprinkler heads in finished areas shall be cover plate flush type sprinkler heads, Reliable Model G1 (Concealer), color as selected by the Architect; all other sprinkler heads shall be Reliable Model G automatic water spray heads, or as approved. - 18 - 95 X. Electrical A. Estimated Demand Load - Data Center 1. Initial - 4300 KW/5060 KVA 2. Ultimate - 6210 KW/7305 KVA B. Incoming Normal Service - Data Center: 2-4160V, 1200A feeders from PSE & G C. Estimated Emergency Loads 1. Initial: 4300 KW Data Center 1990 KW Office Building ---- Total: 6290 KW 2. Ultimate: 6200 KW Data Center 3225 KW Office Building ---- Total: 9425 KW D. Emergency Generators/Diesel 1. Initial: 5 @ 1400 KW - 4160V output/.8 pf 2. Ultimate: 7 @ 1400 KW - 4160V output/.8 pf E. 5 KV Switchgear/Input & Generator Output: Electrically operated draw-out air circuit breakers for service input, generator output, and paralelling and load transfer per following single line diagram. Lineup to include generator control cubicles with automatic start up synchronizing and paralelling equipment, metering, reverse current relays, etc. Load shedding shall be accomplished via the energy management portion of the building automation system. See diagram on following page. - 19 - 96 GENERATOR SWITCHGEAR SCHEMATIC [CHART] - 20 - 97 F. 5 KV Switchgear/Building Distribution: Electrically operated draw-out air circuit breakers with load break air interrupter isolation switches for mains and tie per the following schematic. [CHART] - 21 - 98 G. Unit Substations: Primary 4160 fused air interrupter selector switch with dry type transformer (forced air cooled) 460/265 V secondary with insulated case circuit breakers with solid state trip units and ground fault protection on mains, ties and distribution protective devices. See following schematic. [CHART] - 22 - 99 H. Static UPS Systems: Two static UPS systems at 460 volt, 60 Hz. Each initially sized at 800 KW redundant (3-400 KW modules) expandable to 1200 KW redundant (4-400 KW modules). Each module to be connected to its own string of lead calcium batteries through a separate battery disconnect. Batteries to be sized for 15 minutes. Each UPS system shall be supported by its own switchboard lineup containing module input and output breakers, static bypass, UPS & system isolation breakers and maintenance bypass breakers with an output distribution switchboard section. Each system to contain system control cabinet as well as remote monitoring panel in computer room. I. Computer Room Electric Service: 265/460 V feeders to be extended from UPS distribution switchboards to distribution panels in electric closets contiguous to data processing area. Distribution panels to have 225A-3P shunt trip breakers feeding local floor power distribution units with integral isolation transformer to 120/208 V, 3 phase, 4 wire, and associated secondary panelboards (2 to 3 section). 14-150 KVA PDU's will initially be required with an ultimate of 20 PDU's. Local floor A/C units will be fed from 460 volt panelboards in same electric closets as PPU distribution panelboards. - 23 - 100 IX. SCHEMATIC DESIGN - 24 - 101 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - GROUND FLOOR] ALTERNATE 1 102 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - MEZZANINE] ALTERNATE 1 103 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - 1ST FLOOR] ALTERNATE 1 104 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - 2ND FLOOR] ALTERNATE 1 105 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - BUILDING SECTION] ALTERNATE 1 106 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - GROUND FLOOR] ALTERNATE 2 107 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - MEZZANINE] ALTERNATE 2 108 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - 1ST FLOOR] ALTERNATE 2 109 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - 2ND FLOOR] ALTERNATE 2 110 [SURVEY OF LINCOLN HARBOR FEASIBILITY STUDY - BUILDING SECTION] ALTERNATE 2 111 BUDGETARY COSTS OF PAINE WEBBER DATA CENTER 140,000 Square Feet All Tenant Work Based on 1986 Prices
ITEM UPGRADE COST - ---- ------- ---- Floors (alternate scheme #2) $ 766,800 Ceilings (alternate scheme #2 111,210 Window treatment (alternate scheme #2) 6,750 Halon (base) 352,000 Alternate #1 (add) $ 403,000 Alternate #2 (add) 764,000 Electrical (including credit for ops. gen. 26,000) 5,339,422 HVAC: to maintain an all 2,310,000 electric building; reuse electric boilers, perimeter radiation & heat pump units in non-computer areas. Balance of building will comply with JB-B specs. 140,000 sq. ft. @ $16.50 HVAC: as per JB-B outline and specified design add $1.39/sq. ft. (add) 194,600 Resin Membrane at penthouse (add) 25,605 Fire protection 135,000 ---------- Total $9,021,182 by 140,000 sq. ft./SQUARE FOOT COST $ 64.43
NOTES: 1. If existing HVAC system is used, credit will be given for not wiring new equipment. 2. If existing 2' x 4' standard lighting fixtures for lower two floors are used, credit for new parabolics will be given. 3. If alternate layout scheme #1 is used, the up-charge will be $22,000 for floors, ceilings and window treatment. 4. Grounding of access flooring follows operations specification. - 25 - 112 Exhibit "F" Loan Terms PRINCIPAL AMOUNT: $75,000,000 TERM: Minimum 17 years 6 months from Commencement Date AMORTIZATION SCHEDULE: 11.979 constant INTEREST RATE: 11.25% or less per annum SECURITY: Senior Leasehold Mortgage, subordinated fee, no personal liability F-1 113 Exhibit "G" Operating Expense Tenant is the sole tenant of the Building and Land and is thereby solely responsible for its operations thereon. In addition, Tenant shall pay the Operating Expenses (as such term is defined in the Ground Lease) attributable to the premises demised thereunder. G-1 114 Exhibit "H" Plans and Specifications The Plans and Specifications for Landlord's renovation of the Data Processing Center are contained in the Exhibit entitled Landlord's Work. In addition to the Plans and Specifications for Landlord's Work, such Exhibit includes items in excess thereof, which items are identified as budgeted amounts, which amounts are based upon the price as of the date hereof, and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. The replacement of the roof required in Sections I and III has been completed. The Section I removal of mezzanine is no longer required as the generators are being housed without the Building. H-1 115 Exhibit "I" Tenant's Work Tenant's Work shall consist of that work performed by Tenant in addition to Landlord's Work to finish the interior of the shell of the Building to Tenant's requirements. Within the Landlord's Work Exhibit are items in excess of Landlord's Work obligation which items are identified as budgeted amounts, which amounts are based upon the 1986 price and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. I-1 116 Exhibit "J" Lincoln Harbor Project J-1 117 [SURVEY OF LINCOLN HARBOR PROJECT] 118 Exhibit "K-1" Subordination, Non-Disturbance and Attornment Agreement THIS AGREEMENT, made as of the ____ day of ____________, 19__, by and between ___________, a ____________ corporation having an office at _________________ (the "Mortgagee"), and PAINEWEBBER, INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 (the "Space Tenant"). WITNESSETH: WHEREAS, the Mortgagee is the owner and holder of a Promissory Note, dated of even date herewith, in the amount of $______, by HARTZ-PW LIMITED PARTNERSHIP (the "Landlord"), payable to the Mortgagee (the "Note"), which Note is secured by a Mortgage, dated of even date herewith, between the Landlord, as mortgagor, and the Mortgagee, as mortgagee (the "Mortgagee"), covering the Land- lord's right, title and interest in the Building and any other improvements located on the Land, as such terms are defined in the Agreement of Lease (the "Ground Lease"), dated __________, 1986, between Fee Owner, as landlord, and the Landlord, as tenant, and the leasehold estate created thereby (the "Leasehold Estate") in the land, located in the Lincoln Harbor Project, in Weehawken, New Jersey, as such land is more particularly described in Exhibit A annexed hereto and made a part hereof (said Land, Building, improvements and such other property being hereinafter collectively referred to as the "Premises"), and pursuant to which Mortgage Hartz Mountain Industries, Inc. ("Fee Owner") executed the same for purposes of subordination of its fee interest in the Land to the Mortgagee; and WHEREAS, the Space Tenant has entered into a lease (the "Space Lease") with the Landlord, dated as of __________, 1986, covering a portion of the Premises (the "Demised Premises"); and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of the Space Tenant by the Mortgagee. K-1-1 119 NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to be legally bound thereby, the Mortgagee and the Space Tenant hereby covenant and agree as follows: 11. The Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Mortgage and the lien thereof and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Mortgage, with the same force and effect as if the Mortgage had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Mortgage and the Space Lease or any Memorandum of the Space Lease. 12. Mortgagee expressly agrees that no subsequent modification of the Mortgage shall adversely affect in any material respect any of Space Tenant's rights under the Space Lease, materially increase Space Tenant's obligations under the Space Lease or materially diminish Landlord's obligations under the Space Lease. 13. The Space Tenant and Mortgagee agree that if any act or omission of Landlord would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall not exercise such right (a) until and unless it has given written notice of such act or omission to Mortgagee and any successor or assign whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Mortgagee shall have become entitled under the Mortgage to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Mortgagee commences and diligently pursues such remedy (which reasonable period shall in no event be less than the period to which Landlord would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). K-1-2 120 The Space Tenant and Mortgagee further agree that in the event of any default on the part of the Landlord, arising out of or accruing under the Mortgage, whereby the Mortgage might be accelerated, terminated or foreclosed by the Mortgagee, by reason of any such default or defaults, the Mortgagee will given written notice thereof to the Space Tenant at the address set forth herein, or its successor or assigns whose name and address previously shall have been furnished to the Mortgagee in writing, and after the time when the Landlord shall have become entitled under the Mortgage to cure such defaults, grant to the Space Tenant a reasonable time (in no event to exceed ninety (90) days, for all defaults other than payment of principal or interest on the Mortgage, for which the time period shall be limited to ten (10) business days), which shall be not less than the period of time granted to the Landlord by the terms of the Mortgage, after the giving of such notice by the Mortgagee to the Space Tenant to cure or to undertake the elimination of such defaults, provided that after receipt of such notice, Space Tenant shall with due diligence give the Mortgagee notice of intention to remedy such act or omission, and to the extent possible and reasonably reasonable shall commence and continue to remedy such act or omission, it being expressly understood that such right on the part of the Space Tenant to cure any such default or defaults shall not be deemed to create any obligation on the Space Tenant's part to cure or to undertake the elimination of any such default or defaults. 14. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle the Landlord to terminate the Space Lease or dispossess the Space Tenant thereunder as of the date Mortgagee files a lis pendens in, or otherwise commences, a foreclosure action or any time thereafter, the Mortgagee shall not name the Space Tenant as a party defendant to any action for foreclosure or other enforcement thereof, nor shall the Space Lease be terminated by the Mortgagee in connection with or by reason of foreclosure or other proceedings for the enforcement of the Mortgage or by reason of a transfer of the Landlord's interest under the Space Lease or under the Ground Lease or the Fee Owner's interest in the Land pursuant to an assignment in lieu of foreclosure, or otherwise, and any sale, or assignment pursuant thereto shall be subject to the Space Lease nor shall the Space Tenant's use or possession of the Demised K-1-3 121 Premises be interfered with by the Mortgagee or any such assignee or purchaser, except that the person acquiring the interest of the Landlord or Fee Owner as a result of any such action or proceeding and such person's successors and assigns (any of the foregoing being hereinafter referred to as the "Successor") shall not be (a) subject to any credits, offsets, defenses or claims, not expressly provided for in the Space Lease, which the Space Tenant might have against any prior landlord, (b) bound by any previous modification or amendment of the Space Lease or by any prepayment of more than one month's Fixed Rent or Additional Charges (as such terms are defined in the Space Lease), unless such modification or prepayment shall have been made with the Mortgagee's prior written consent, or (c) liable for any act or omission of any prior landlord which constitutes a default under the Space Lease, provided, however, Successor shall be liable for any such default or defaults which are continuing beyond the time where the interest of the Landlord under the Space Lease has been transferred to the Successor. 15. If the interest of the Landlord under the Space Lease or under the Ground Lease or the interest of Fee Owner in the Land shall be transferred to the Mortgagee by reason of foreclosure or other proceedings for enforcement of the Mortgage or pursuant to any assignment in lieu of foreclosure, or otherwise, the Space Lease shall not terminate but shall continue in full force and effect as, or as if it were, a direct lease between the Successor, or its designee and Space Tenant, whereby the Space Tenant shall be bound to the Successor, and, except as provided in this Agreement, the Successor shall be bound to the Space Tenant, under all of the terms, covenants and conditions of the Space Lease for the balance of the term thereof remaining, and the Space Tenant does hereby agree to attorn to the Successor, including the Mortgagee if it be the Successor, as its landlord, to affirm its obligations under the Space Lease and does agree to make payments of all sums due under the Space Lease to the Successor. Space Tenant shall promptly execute and deliver any instrument that Mortgagee may reasonably request to evidence such attornment. 16. If and to the extent that the Space Lease or any provision of law shall entitle the Space Tenant to notice of any mortgage, the Space Tenant acknowledges and agrees that this Agreement shall constitute said notice to the Space Tenant of the existence of the Mortgage. K-1-4 122 17. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 18. Nothing contained in this Agreement shall in any way impair or affect the lien created by the Mortgage, except as specifically set forth herein. 19. The Space Tenant agrees that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. The Space Tenant and Mortgagee agree that Mortgagee shall be deemed a "Superior Mortgagee" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agreement. The Space Tenant further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by the Mortgagee, the terms and provisions hereof shall be controlling. The Mortgagee agrees that this Agreement satisfies any condition or requirement in the Mortgage (or mortgage commitment) relating to the granting of a subordination agreement and attornment agreement. The Mortgagee further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with subordination and attornment by the Space Tenant, the terms and provisions hereof shall be controlling. 20. The Space Tenant acknowledges that it has notice that the Space Lease and the rent and all other sums due thereunder have been assigned to the Mortgagee as part of the security for the note secured by the Mortgage. 21. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. K-1-5 123 22. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 23. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if requested) as may be necessary or appropriate to fully implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Mortgagee: By: , ------------------------ Space Tenant: PAINEWEBBER INCORPORATED By: ------------------------- K-1-6 124 [NOTARY PAGE] K-1-7 125 EXHIBIT A Land K-1-8 126 Exhibit "K-2" Subordination, Non-Disturbance and Attornment Agreement THIS AGREEMENT, made as of the ____ day of ______________, 1986, by and between __________, a __________ having an office at ________________ ("Superior or Lessor"), and PAINEWEBBER INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 ("Space Tenant"). WITNESSETH: WHEREAS, HARTZ MOUNTAIN INDUSTRIES, INC. ("Ground Lessor") is the owner of the land (the "Land") described in Schedule "A" annexed hereto and made a part hereof; and WHEREAS, Ground Lessor has entered into a ground lease (the "Superior Lease"), dated as of _____________, whereby Ground Lessor demised and leased, as ground lessor, all of the Land to Superior Lessor; and WHEREAS, Superior Lessor has become the landlord under the entered ground lease (the "Ground Lease"), dated as of __________, 1986, whereby Ground Lessor demised and leased, all of the Land to HARTZ-PW LIMITED PARTNERSHIP ("Ground Lessee"); and WHEREAS, Space Tenant has entered into a lease (the "Space Lease") with Ground Lessee, dated as of __________, 1986, covering a portion of the space in the building known as the [Data Processing Center] (the "Demised Premises"), as more fully described in such Space Lease; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Space Tenant by Superior Lessor. NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to be legally bound thereby, Superior Lessor and Space Tenant hereby covenant and agree as follows: K-2-1 127 1. Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Ground Lease and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Ground Lease, with the same force and effect as if the Ground Lease had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Ground Lease and the Space Lease or any Memorandum of the Space Lease. 2. Space Tenant and Superior Lessor agree that if any act or omission of Ground Lessee would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall not exercise such right (a) until and unless it has given written notice of such act or omission to Ground Lessee and Superior Lessor whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Superior Lessor shall have become entitled under the Ground Lease to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Superior Lessor commences and diligently pursues such remedy (which reasonable period shall in no event be less than the period to which Ground Lessee would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). 3. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle Ground Lessee to terminate the Space Lease or dispossess Space Tenant thereunder, Superior Lessor shall not name Space Tenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Superior Lessor under its Ground Lease, and Superior Lessor will not terminate the Space Lease or take any action to recover the premises demised to Space Tenant or affect or disturb Space Tenant's possession or rights under the Space Lease. K-2-2 128 4. If Superior Lessor shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Ground Lessee under the Space Lease by reason of the termination of the Ground Lease or otherwise, and if Space Tenant is not then in default under the Space Lease beyond the time permitted therein to cure such default, then (a) the Space Lease shall not terminate, (b) Space Tenant shall attorn to Superior Lessor, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Space Lease, and (c) Superior Lessor shall accept such attornment and recognize Space Tenant as Superior Lessor's lessee under the Space Lease. Upon such attornment and recognition, the Space Lease shall continue in full force and effect as, or as if it were, a direct lease between Superior Lessor and Space Tenant, upon all of the then executory terms, conditions and covenants as set forth in the Space Lease and which shall be applicable after such attornment, except that Superior Lessor shall not be (i) liable for any previous act or omission of Ground Lessee which constitutes a default under the Space Lease; (ii) subject to any offset or defenses not expressly provided for in the Space Lease which Space Tenant might have against Ground Lessee; (iii) bound by any prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Space Lease); and (d) bound by any amendment or modification of the Space Lease made without Superior Lessor's prior written consent. 5. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 6. Space Tenant and Superior Lessor agree that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. Space Tenant and-Superior Lessor agree that Superior Lessor shall be deemed a "Superior Lessor" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agreement. Space Tenant and Superior Lessor further agree that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by Supe- K-2-3 129 rior Lessor, the terms and provisions hereof shall be controlling. 7. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. 8. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 9. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if requested) as may be necessary or appropriate to fully implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Superior Lessor: By:______________________ Space Tenant: PAINEWEBBER INCORPORATED By:______________________ K-2-4 130 [ACKNOWLEDGEMENTS] K-2-5 131 Schedule "A" Land K-2-6 132 Exhibit "L" Non-Disturbance and Attornment Agreement THIS AGREEMENT, dated as of the ____ day of ___________, 19__, between HARTZ-PW LIMITED PARTNERSHIP, a New Jersey limited partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 ("Landlord"), and __________, a __________ having an office at __________ ("Subtenant"). WITNESSETH: WHEREAS, Landlord has entered into an Agreement of Lease, dated as of the ____ day of __________, 1986 (the "Space Lease"), with PAINEWEBBER INCORPORATED (the "Space Tenant") pursuant to which Landlord leased and demised to Space Tenant a portion of the space in the building known as the [Data Processing Center] (the "Demised Premises"), as more fully described in such Space Lease; WHEREAS, Space Tenant has entered into an Agreement of Sublease (the "Sublease"), dated as of the ____ day of __________, 19__, pursuant to which Space Tenant subleased and demised to Subtenant [the Demised Premises or a portion thereof], as more fully described in Exhibit "A" annexed hereto and made a part hereof; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Subtenant by Landlord. NOW, THEREFORE, the parties hereto agree as follows: 1. So long as the Sublease is in full force and effect, and no default of Subtenant exists nor has any event occurred which with the passage of time or notice would entitle Space Tenant to terminate the Sublease or dispossess Subtenant, Landlord will not name or join Subtenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Landlord under the Space Lease or to terminate such Space Lease, and the Landlord will not terminate the Sublease or take any action to recover possession of the L-1 133 premises demised to Subtenant or affect or disturb Subtenant's possession or rights under the Sublease. 2. If Landlord or its designee shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Space Tenant under the Space Lease by reason of the termination.of the Space Lease or otherwise, and if Subtenant is not then in default under the Sublease beyond the time permitted therein to cure such default, then (a) the Sublease shall not terminate, (b) Subtenant shall attorn to Landlord or its designee, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Sublease, and (c) Landlord or its designee shall accept such attornment and recognize Subtenant as the Landlord's lessee under the Sublease. Upon such attornment and recognition, the Sublease shall continue in full force and effect as, or as if it were, a direct lease between the Landlord or its designee and Subtenant, upon all of the then executory terms, conditions and covenants as set forth in the Sublease and which shall be applicable after such attornment, except that Landlord shall not be (i) liable for any previous act or omission of Space Tenant which constitutes a default under the Sublease; (ii) subject to any offset or defenses not expressly provided for in the Sublease which the Subtenant might have against Space Tenant; (iii) bound by any prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Sublease); and (d) bound by any amendment or modification of the Sublease made without Landlord's prior written consent. 3. The terms of this Agreement shall bind and inure to the benefit of the parties hereto, and their respective heirs, successors and assigns. 4. All notices and other communications hereunder shall be in writing and shall be hand delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed (a) if to Landlord at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094, Attention: General Counsel, with a copy to Horowitz, Bross, Sinins & Imperial, P.A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin Horowitz, Esq. or at such other address as Landlord shall have furnished to Subtenant in writing, or (b) if to Subtenant, at _________________________________________ L-2 134 ______________ Attention : ____________, or at such other address as Subtenant shall have furnished to Landlord in writing. 5. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6. This Agreement may not be discharged or modified orally or in any manner other than by an agreement in writing specifically referring to this Agreement and signed by the party or parties to be charged thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HARTZ-PW LIMITED PARTNERSHIP By: Hartz Mountain Industries, Inc. By: ___________________________ [SUBTENANT] By: ___________________________ L-3 135 [NOTARY PUBLIC PAGE] L-4 136 Exhibit "A" Demised Premises L-5 EX-10.39 14 LEASE AGREEMENT 1 Exhibit 10.39 LEASE BETWEEN HARTZ-PW HOTEL LIMITED PARTNERSHIP, as Landlord and PAINEWEBBER INCORPORATED as Tenant Premises: Hotel/Office Building Bldg. B LINCOLN HARBOR PROJECT 2 INDEX ----- ARTICLE PAGE - ------- ---- 1. Definitions ......................................... 1 2. Demise and Term ..................................... 7 3. Rent ................................................ 8 4. Use of Building ..................................... 9 5. Preparation of Building ............................. 10 6. Tax and Operating Expense Payments .................. 12 7. Common Areas ........................................ 16 8. Labor Harmony ....................................... 17 9. Subordination ....................................... 17 10. Quiet Enjoyment ..................................... 20 11. Assignment, Subletting and Mortgaging ............... 20 12. Compliance with Laws ................................ 24 13. Insurance and Indemnity ............................. 25 14. Rules and Regulations ............................... 30 15. Alterations ......................................... 31 16. Landlord's and Tenant's Property .................... 33 17. Repairs and Maintenance ............................. 34 18. Electric Energy ..................................... 35 19. Heat, Ventilation & Air Conditioning ................ 36 20. Other Services: Service Interruption ............... 36 21. Access, Changes and Name ............................ 36 22. Mechanic's Liens and Other Liens .................... 37 23. Non-Liability and Indemnification ................... 37 24. Damage or Destruction ............................... 38 25. Eminent Domain ...................................... 43 26. Surrender ........................................... 46 27. Conditions of Limitation ............................ 46 28. Re-Entry by Landlord ................................ 48 29. Damages ............................................. 49 30. Affirmative Waivers ................................. 52 31. No Waivers .......................................... 52 32. Curing Tenant's Defaults ............................ 53 33. Broker .............................................. 53 34. Notices ............................................. 54 35. Estoppel Certificates ............................... 54 36. Arbitration ......................................... 55 37. Memorandum of Lease ................................. 55 38. Miscellaneous ....................................... 56 39. Extension of Term ................................... 60 40. Determination of Fair Market Rent ................... 62 i 3 Exhibits - -------- Exhibit "A" Description of the Building Exhibit "B" Demised Premises Exhibit "C" Fixed Rent Exhibit "D" Floor Space Exhibit "E" Land Exhibit "F" Landlord's Work Exhibit "G" Loan Terms Exhibit "H" Operating Expenses Exhibit "I" Plans and Specifications Exhibit "J" Tenant's Work Exhibit "K" Lincoln Harbor Project Exhibit "L" Parking Plan Exhibit "M-1" Form of Superior Mortgage Subordina- tion, Nondisturbance and Attornment Agreement Exhibit "M-2" Form of Ground Lessor Superior Lessor Subordination, Nondisturbance and Attornment Agreement Exhibit "N" Form of Ground Lessor Nondisturbance Agreement Exhibit "O" Cleaning Standards ii 4 Lease, dated April 14, 1986 between HARTZ-PW HOTEL LIMITED PARTNERSHIP, a New Jersey limited Partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 and PAINEWEBBER INCORPORATED, a Delaware corporation having an office at 1285 Avenue of the Americas, New York, New York 10019. ARTICLE 1 - DEFINITIONS 1.01 As used in this Lease (including in all Exhibits and any Riders attached hereto, all of which shall be deemed to be Part of this Lease) the following words and phrases shall have the meanings indicated: A. Additional Charges: All amounts that become payable by Tenant to Landlord hereunder other than the Fixed Rent. B. Architect: Kenneth Carl Bonte, or as Landlord may designate, subject to Tenant's approval, which approval shall not be unreasonably withheld or delayed. C. Architect's Certificate: The certificate to be issued by Architect either (i) if Landlord is not designated by Tenant to perform Tenant's Work, that Landlord's Work has been completed in accordance with the Plans and Specifications, to the extent necessary so that Tenant may commence Tenant's Work, or (ii) if Landlord is designated by Tenant to perform Tenant's Work, that the Building and the Demised Premises have been Substantially Completed in accordance with the Plans and Specifications. D. Broker: Joseph Hilton & Associates Incorporated. E. Building: The building to be located on the Land as more particularly described on the plan attached hereto as Exhibit "A" and made a Part hereof. F. Calendar Year: Any twelve-month period during the term of this Lease commencing on a January 1. G. Commencement Date: The earlier of (a) (i) if Landlord is not designated by Tenant to perform Tenant's Work, six (6) months from the completion of the core and shell of the Building to the extent necessary so that Tenant may commence Tenant's Work, together with the 5 delivery of Architect's Certificate, or (ii) if Landlord is designated to perform Tenant's Work, the date on which Landlord Substantially Completes Tenant's Work and delivers the Demised Premises to Tenant, provided, however, that in the case of (i) or (ii) above, the Commencement Date shall not occur prior to the thirtieth (30th) day after delivery of the Commencement Notice, nor earlier than January 1, 1999, (b) the date Tenant, or anyone claiming under or through Tenant, first occupies the Demised Premises or any part thereof and is open for business, provided that in such event, the Commencement Date shall be deemed to have occurred only for the floors of the Demised Premises actually so occupied and provided further that if Tenant shall occupy any part of the Demised Premises and shall be open for business prior to January 1, 1989, the Commencement Date shall not be deemed to have occurred until January 1, 1989, provided that Tenant shall occupy the Demised Premises on all of the terms and conditions of this Lease and Tenant shall pay as rent hereunder an amount equal to the product of fifty cents (50cts) and the Floor Space per month as well as all Additional changes incurred pursuant to the provisions hereof for every month or portion thereof commencing on the date Tenant shall so occupy the Demised Premises or any portion thereof and be open for business and terminating on the day prior to the Commencement Date, or (c) the date upon which the Commencement Date would have occurred under (a) above, but for delays caused by the Tenant. H. Commencement Notice: Thirty (30) days prior written notice from Landlord to Tenant (i) if Landlord is not designated by Tenant to perform Tenant's Work, of the date on which Landlord's Work shall be completed to the extent necessary so that Tenant may commence Tenant's Work, or (ii) if Landlord is designated by Tenant to perform Tenant's Work, of the date on which the Building and the Demised Premises shall be Substantially Completed. I. Common Areas: All areas, spaces and improvements in the Building (other than the Demised Premises) and/or on the Land, which Landlord makes available from time to time for the common use and benefit of the tenants and occupants of the Building, including, without limitation, lobbies, hallways (but not the lobby (it being understood that a portion of the hotel lobby may be used in connection with the office portion of the Build- 2 6 ing and, accordingly, such common portion shall be part of the Common Areas) or hallways of the hotel portion of the Building), and planted areas, if any. J. Demised Premises: As defined on Exhibit "B" annexed hereto and made a part hereof. K. Expiration Date: The date that is the day before the twenty-fifth (25th) anniversary of the latest to occur of (i) the Commencement Date, or (ii) the Commencement Date (as such term is defined in the Data Processing Lease, dated of even date herewith, between Hartz-PW Limited Partnership, as landlord, and Tenant as tenant (the "Data Processing Lease")) of the Data Processing Lease, or (iii) the Commencement Date (as such term is defined in the Office Lease) of the Office Lease, if the later to occur of such dates is the first day of a month, or the twenty-fifth (25th) anniversary of the last day of the month in which the later to occur of such dates is not the first day of a month. However, if the Term is extended by the Tenant's effective exercise of any Renewal Option, the "Expiration Date" shall be changed to the last day of the applicable Renewal Term. For the purpose of this definition, the earlier termination of this Lease shall not affect the "Expiration Date." L. Fixed Rent: As set forth on the Rent Schedule on Exhibit "C" annexed hereto and made a part hereof as redetermined pursuant to Section 39.02 hereof. M. Fixed Rent Commencement Date: The date(s) which is the first anniversary of the Commencement Date (or Dates) subject to adjustment as provided in Section 5.05 hereof. N. Floor Space: 141,669, as the same may be increased or decreased pursuant to Section 38.13 hereof, and as more particularly set forth on Exhibit "D" annexed hereto and made a part hereof. O. Ground Lease: The Agreement of Lease, dated of even date herewith, between Ground Lessor, as landlord, and Landlord, as tenant, pursuant to which Ground Lessor, leased the Land to Landlord. P. Ground Lessor: Hartz Mountain Industries, Inc. ("Hartz"), its successors and assigns. 3 7 Q. Insurance Requirements: Rules, regulations, orders and other requirements of the applicable board of underwriters and/or the applicable fire insurance rating organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance over the Land and Building, whether now or hereafter in force. R. Land: The land described on Exhibit "E" annexed hereto and made a part hereof. S. Landlord: On the date as of which this Lease is made, shall mean Hartz-PW Hotel Limited Partnership, a New Jersey limited partnership, having an address at 400 Plaza Drive, Secaucus, New Jersey 07094, but thereafter "Landlord" shall mean only the ground lessee under the Ground Lease or if the Ground Lease shall have ceased to exist, the fee owner of the Land, or if there shall exist another Superior Lease or Leases, the tenant under the Superior Lease immediately prior in estate to this Lease. T. Landlord's Work: The materials and work to be furnished, installed and performed by Landlord at its expense in accordance with the provisions of Exhibit "F" annexed hereto and made a part hereof in accordance with the Plans and Specifications. U. Legal Requirements: Laws and ordinances of all federal, state and local governments, and rules, regulations, orders and directives of all departments, subdivisions, bureaus, agencies or offices thereof, and of any other governmental authorities having jurisdiction over the Land and Building. V. Mortgage: The mortgage creating a lien on the leasehold estate created by the Ground Lease, to be entered into pursuant to a loan commitment substantially on the terms set forth in the schedule annexed hereto as Exhibit "G" and made a part hereof, and any replacement, extension, modification or amendment thereto. W. Operating Expenses: An amount equal to the costs and expenses for the items set forth on Exhibit "H" annexed hereto and made a part hereof. X. Permitted Uses: General and executive office use and all uses incidental to securities trading 4 8 and land sales (including without limitation, retail securities trading and sales) including, without limitation, operation of trading floors and trading support systems. Y. Person: A natural person or persons, a partnership, a corporation, or any other form of business or legal association or entity. Z. Plans and Specifications: The schematics annexed hereto as Exhibit "I" and made a part hereof which have been approved by Tenant and all plans and specifications developed for the Building, which shall be subject to Tenant's prior written approval, which approval shall not be unreasonably withheld or delayed. AA. Project Common Areas: All areas, spaces and improvements in the Lincoln Harbor Project (other than those located on the Land) which are made available from time to time for the common use and benefit of the tenants and occupants or the Lincoln Harbor Project, including, without limitation, non-exclusive parking areas, roads, walkways, sidewalks and landscapes and planted areas, if any. BB. Real Estate Taxes: The real estate taxes, assessments and special assessments imposed upon the Demised Premises by any federal, state, municipal or other governments or governmental bodies or authorities. If at any time during the Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate there shall be levied, assessed or imposed on Landlord specifically in substitution for any of the foregoing Real Estate Taxes (a) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, or (b) any other such additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges or the part thereof so measured or based shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof, calculated as if Landlord's only asset were the leasehold estate created by the Ground Lease. CC. Renewal Options: Shall have the meaning set forth in Section 39.01 hereof. 5 9 DD. Renewal Terms: Shall have the meaning set forth in Section 39.01 hereof. EE. Rent: The Fixed Rent and the Additional Charges. FF. Rules and Regulations: The reasonable rules and regulations that may be promulgated by Landlord from time to time as to the office portion of the Building, as may be reasonably changed by Landlord from time to time. GG. Substantially Completed: Substantially Completed or terms of similar import shall mean the completion of construction, and the issuance of a temporary certificate of occupancy therefore, except for minor details, designated or punchlists delivered to Tenant, of construction, decoration and mechanical adjustment, the non-completion of which will not materially interfere with the performance of Tenant's Work or Tenant's use and occupancy of the Demised Premises for Tenant's normal business purposes, and the completion of which is expected to occur within sixty (60) days after such Substantial Completion. HH. Successor Landlord: Shall have the meaning set forth in Section 9.03. II. Superior Lease: Any ground or underlying lease of the Land or the Building. JJ. Superior Lessor: The lessor of a Superior Lease or its successor in interest, at the time referred to. KK. Superior Mortgage: Any mortgage, including the Mortgage, which may hereafter affect the Land, the estate created under the Ground Lease or by any other Superior Lease, or the Building and all renewals, extensions, supplements, amendments, modifications, consolidations, and replacements thereof or thereto, substitutions therefore, and advances made thereunder. LL. Superior Mortgagee: The mortgagee of a Superior Mortgage at the time referred to, sometimes herein referred to as a Mortgagee. 6 10 MM. Tenant: On the date of which this Lease is made shall mean PaineWebber, Inc., but thereafter, "Tenant" shall mean only the tenant under this Lease at the time in question; provided, however, that the foregoing shall not be deemed to relieve PaineWebber, Inc. of any liability in the event of an assignment of its interest in this Lease except in accordance with the provisions of Section 11.04(b) hereof. NN. Tenant's Fraction: 44.86%, as the same may be decreased pursuant to Section 38.12 hereof. OO. Tenant's Property: Shall have the meaning set forth in Section 16.02. PP. Tenant's Work: The facilities, materials and work which may be undertaken by or for the account of Tenant (other than the Landlord's Work) to equip, decorate and furnish the Demised Premises for Tenant's initial occupancy in accordance with the provisions of Exhibit "J" annexed hereto and made a part hereof. QQ. Term: The period commencing on the Commencement Date and ending at 11:59 P.M. of the Expiration Date unless otherwise terminated in accordance with the provisions hereof. RR. Unavoidable Delays: A delay arising from or as a result of a strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or civil commotion, act of war, fire or other catastrophe, Legal Requirement or an act of the other party and any cause beyond the reasonable control of that party, provided that the party asserting such Unavoidable Delay has exercised its best efforts to minimize such delay. The party asserting such delay, promptly upon becoming aware of such Unavoidable Delay, shall give written notice of such Unavoidable Delay to the other party. ARTICLE 2 - DEMISE AND TERM 2.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, for the Term. Promptly following the Commencement Date, the parties hereto shall enter into an agreement in form and substance reasonably satisfactory to Landlord and Tenant setting forth the Commencement Date. 7 11 ARTICLE 3 - RENT 3.01 Tenant shall pay the Fixed Rent in equal monthly installments in advance on the first day of each and every calendar month beginning on the Fixed Rent Commencement Date. If the Fixed Rent Commencement Date occurs on a day other than the first day of a calendar month, the Fixed Rent for such partial calendar month shall be prorated on a per diem basis and paid on the Fixed Rent Commencement Date. 3.02 The Rent shall be paid in lawful money of the United States to Landlord by wire Transfer of immediately available funds to a bank which is a member of the New York Clearing House Association, or by check to such other place, as Landlord shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due and without any abatement, deduction or setoff for any reason whatsoever, except as may be expressly provided in this Lease. In case of payment by check, tenant shall assume the risk of lateness or failure of delivery of the mails, and no lateness or failure of the mails will excuse Tenant from its obligation to have made the payment in question when required under this Lease. 3.03 No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 3.04 If Tenant is in arrears in payments of Rent, Tenant waives Tenant's right, if any, to designate the items to which any payments made by Tenant are to be credited, and Landlord may apply any payments made by Tenant to such items as Landlord sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items to which any such payments shall be credited. 3.05 If Tenant shall fail to pay any installment of Fixed Rent within five (5) days or any other item of Rent within twenty (20) days after the date when such payment is due and Landlord shall have delivered a bill 8 12 for the same (which delivery may be by invoice and shall not be required to comply with the requirements for copies of notices specified in Article 34 hereof), then, any such payment shall bear interest calculated from the due date to the date such payment is received by Landlord at a rate equal to two (2) percentage points in excess of the rate of interest publicly announced from time to time by Citibank, N.A., or its successor, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate") (the "Late Payment Rate"). 3.06 It is the intention of the parties that the Fixed Rent payable under this Lease shall be net to Landlord, so that this Lease shall yield to Landlord the Fixed Rent specified herein during the Term of this Lease, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised Premises shall be paid by Tenant, other than liens placed on the Demised Premises by Landlord, or claims against Landlord for Landlord's negligence or default under the terms of this Lease (nothing herein shall be construed as affecting the provisions of any insurance carried by Landlord, Tenant, subtenant or assign with respect to the Demised Premises, including fire and hazard insurance, liability insurance and an other insurance). ARTICLE 4 - USE OF BUILDING 4.01 Tenant shall use and occupy the Demised Premises only for the Permitted Uses, and any other lawful purpose in keeping with the character of the Building and the Lincoln Harbor Project (as defined on Exhibit "K", annexed hereto and made a part hereof), and Tenant shall not use or permit or suffer the use of the Demised Premises or any part thereof for any illegal or hazardous purpose. 4.02 On or before the Commencement Date, Landlord shall obtain a certificate of occupancy for the Building. Each other governmental license or permit required for the proper and lawful conduct of Tenant's business in the Demised Premises or any part thereof, shall be duly procured either by Tenant if Tenant shall perform Tenant's Work, or by Landlord if Landlord shall perform Tenant's Work, and thereafter Tenant shall maintain such license or permit and submit the same to Landlord for inspection. Tenant shall at all times comply with the terms and conditions of each such license or 9 13 permit. Tenant shall not at any time use or occupy, or suffer or permit anyone to use or occupy the Demised Premises, or do or permit anything on the Demised Premises in any manner which (a) violates the certificate of occupancy for the Demised Premises; (b) causes injury to the Building, including the structure, roof or building Systems thereof, (c) constitutes a violation of the Legal Requirements or Insurance Requirements; (d) impairs the character, reputation or appearance of the Building as a first-class office building; or (e) interferes with the right of quiet enjoyment of tenants or occupants of the Land or adjacent premises. ARTICLE 5 - PREPARATION OF BUILDING 5.01 The Building shall be Substantially Completed and prepared for Tenant's Work in the manner described in, and subject to the provisions of, Exhibit "F" annexed hereto, on or before July 1, 1988 and Substantially Completed on or before August 1, 1988, in either event provided that Tenant shall deliver to Landlord plans and specifications for the core and shell of the Building on or before December 15, 1986. Such date for Substantial Completion of the Building shall be postponed one day for each day beyond December 15, 1986 on which Tenant does not deliver such plans and specifications. Tenant promptly shall enter the Demised Premises on the later to occur of the delivery of the Architect's Certificate or the date which is thirty (30) days after receipt of the Commencement Notice. Landlord shall, from time to time, upon request of Tenant advise Tenant of the progress of Landlord's Work and the estimated date that Tenant may commence or cause to be commenced Tenant's Work. Except as expressly provided to the contrary in this Lease, the commencement by Tenant of the Tenant's Work shall be evidence that the Demised Premises were in good and satisfactory condition at the time Tenant's Work was undertaken except as to (i) any defects in the Demised Premises which were not known or reasonably discoverable by Tenant by observation or an inspection ("Latent Defects"), (ii) any items of work performed by Landlord of which Tenant gives Landlord notice within one hundred twenty (120) days after the Commencement Date, and (iii) portions of the work performed by Landlord not completed, because under good construction scheduling practice such work should be done after completion of still incompleted finishing or other work to be done by or on behalf of Tenant. Landlord shall complete all such items of work 10 14 not so completed within sixty (60) days after the date of Substantial Completion. Landlord, its agents, servants, employees and contractors shall have the right to enter the Demised Premises to complete or repair any such unfinished items and Latent Defects upon reasonable prior notice to Tenant. Landlord shall warrant all construction and equipment delivered in or with Landlord's Work for a period of one (1) year from the Commencement Date. Landlord covenants that the warranty obtained with respect to the roof shall be for a minimum of ten (10) years from completion of the roof in accordance with the Plans and Specifications. 5.02 If the Substantial Completion of the Landlord's Work shall be delayed due to (a) any act or omission of Tenant or any of its employees, agents or contractors [including, without limitation, (i) any delays due to changes in or additions to the Landlord's Work made at the request of Tenant or (ii) any delays by Tenant in the submission of plans, drawings, specifications or other information or in approving any working drawings or estimates or in giving any authorizations or approval(s)], or (b) any additional time needed for the completion of the Landlord's Work by the inclusion in the Landlord's Work of any extra work required of Landlord by Tenant, then Landlord's Work in connection with the Demised Premises shall be deemed Substantially Complete on the date it would have been Substantially Complete but for such delay(s). Landlord covenants that the warranty with respect to the roof shall be for a minimum of ten (10) years from completion of the roof in accordance with the Plans and Specifications. Landlord promptly and contemporaneously shall notify Tenant of any delay in completion claimed to be caused by any of the items enumerated in sub-section (a) above. 5.03 Landlord reserves the right, at any time and from time to time, to increase, reduce or change the number, type, size, location, nature and use of any other improvements on the Land, including without limitation, the right to move and/or remove same, provided same shall not block or unreasonably interfere with Tenant's means of ingress or egress to and from the Building. Landlord shall insure that in connection with the development of the Lincoln Harbor Project, Ground Lessor shall not deviate materially from the approved site plan without Ten- ant's prior consent, which consent shall not be unreasonably withheld or delayed, and provided further that Ten- 11 15 ant may thereupon request a recalculation of Operating Expenses in accordance with Section 38.10 hereof. 5.04 The interior finish of the Demised Premises is the responsibility of Tenant as Tenant's Work. Landlord shall provide an allowance ("Tenant's Fund") equal to the product of Twenty-Four Dollars ($24) and the Floor Space. 5.05 At Tenant's request from time to time, but not more frequently than once each month, Landlord shall disburse within fifteen (15) days of verification portions of the Tenant Fund to Tenant in an amount equal to the product of Twenty-Four Dollars ($24) and the percentage of completion of Tenant's Work, as certified by Architect or the architect employed by Tenant in connection with Tenant's Work and verified or objected to by Architect within fifteen (15) days of receipt thereof (it being agreed that if Architect shall fail to respond within such fifteen (15) day period, such certification shall be deemed to have been verified). Landlord shall be permitted to bid upon the Tenant's Work. Tenant shall be responsible (through a construction manager if Tenant so desires to employ such at its own expense) for all Tenant Work. In the event Landlord shall be awarded the bid, Landlord shall complete the Tenant Work of the Building within four (4) months of the completion of the shell of the Building; predicated upon Landlord receiving Tenant's request for proposal on or before February 1, 1988 and Landlord starting the Tenant Work in the tenth (10th) month of the Building shell construction. This shall provide six (6) months total elasped time for Tenant s Work. In the event another contractor is awarded the bid, Landlord shall fully cooperate with such contractor to assist its timely completion of Tenant's Work and such contractor shall utilize employees and subcontractors who shall not cause union labor conflicts. ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS 6.01 On or before the Commencement Date, Landlord shall use its best efforts to obtain from the City of Weehawken, a separate tax lot and zoning lot number for the Building. Commencing on the Commencement Date and provided that Landlord shall have obtained a separate tax lot number for the Building, Tenant shall pay to Landlord an amount equal to Tenant's Fraction of the Real Estate Taxes for any year during the Term five (5) busi- 12 16 ness days before any delinquency fee would be imposed upon the payment of the same. If Landlord shall not have obtained a separate tax lot number for the Building on or before the Commencement Date, then, commencing on the Commencement Date, Tenant shall pay to Landlord an amount equal to Tenant's Proportionate Share (hereinafter defined) of the Real Estate Taxes for the tax lot of which the Land forms a part not later than five (5) business days before any delinquency fee would be imposed upon the payment of the same, until such time as Landlord shall have obtained such separate tax lot number; but in no event shall Tenant's payment for Real Estate Taxes be more than that amount which Tenant would have paid if the Building were a separate tax lot. Tenant's "Proportionate Share" shall mean Tenant's Fraction of the sum of (x) the tax attributable to the Building and other improvements located on the Land, as may be separately assessed or as shown on the Tax Assessor's notes, and (y) 2.12% of the tax attributable to the tax lot of which the Land forms a part. Landlord agrees that, throughout the Term, the Building will constitute a separate tax lot, separate and apart from other real property. In determining the amount of Real Estate Taxes for the partial calendar years in which the Term shall commence or expire, Real Estate Taxes payable in such calendar year shall be apportioned for that portion of the Tax Year (hereinafter defined) occurring within the calendar year and Real Estate Taxes for such calendar year shall be prorated for the number of days in such calendar year occurring subsequent to the Commencement Date or prior to the Expiration Date, as the case may be. "Tax Year" shall mean the period January 1 through December 31 (or such other period as hereafter may be duly adopted by the City of Weehawken as its fiscal year for Real Estate Tax purposes), any portion of which occurs during the Term. Tenant shall have the right to institute, and in good faith prosecute, tax certiorari proceedings with respect to the Building and the Land. In the event of the institution of such proceedings, such proceedings shall be at Tenant's sole cost and expense and Landlord shall cooperate fully with Tenant in connection with any such proceedings. 6.02(a) Not less than ninety (90) days prior to the Commencement Date, Landlord shall deliver to Tenant a statement estimating the Operating Expenses for the partial calendar year commencing on the Commencement Date and Tenant shall pay to Landlord on the first day of each 13 17 month during the first partial calendar year of the Term an amount equal to such estimated Operating Expenses divided by the number of months or partial months in such partial calendar year. On or before March 1 of each calendar year or partial calendar year subsequent to the first partial calendar year during the Term, Landlord shall furnish Tenant with an operating statement (the "Operating Statement") in reasonable detail setting forth the actual Operating Expenses for the preceding calendar year. If such Operating Statement shall show that the actual Operating Expenses for the preceding calendar year were in excess of those estimated by Landlord and previously paid by Tenant, then within thirty (30) days after receipt of such actual Operating Statement, Tenant shall remit to Landlord any such deficiency. If such Operating Statement shall show that Tenant shall have paid amounts in excess of the actual Operating Expenses, then Landlord shall remit to Tenant, together with such Operating Statement, a check in the amount equal to such excess payments. (b) In addition, in each Operating Statement, Landlord may set forth any estimated increases in Operating Expenses for the then current calendar year, provided, however, that in no event shall Landlord's estimate exceed an amount equal to the sum of the actual Operating Expenses for the preceding calendar year and an amount equal to such actual Operating Expenses multiplied by the percentage increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y. - Northeastern N.J. Area, All Items (1967 = 100), or any successor index thereto, appropriately adjusted (the "CPI"). If the CPI ceases to be published, and there is no successor thereto, such other index as Landlord or Tenant shall agree upon in writing shall be substituted for the CPI. If Landlord or Tenant are unable to agree as to such substituted index, such matter shall be submitted to the American Arbitration Association or any successor organization for determination in accordance with the regulations and procedures thereof then obtaining for commercial arbitration. After receipt of such Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of the amount shown on such statement multiplied by the number of months of the Term in said calendar year preceding the demand, less the amount (if any) paid by Tenant prior to such demand pursuant hereto for such months, and thereafter, commencing with 14 18 the month in which the demand is made in continuing thereafter for each month of the Term until the rendition of a new Operating Statement, 1/12th of the amount shown on such Operating Statement. 6.03 Each such statement given by Landlord pursuant to Section 6.02 shall be conclusive and binding upon Tenant unless within ninety (90) days after the receipt of the Operating Statement provided for above Tenant shall notify Landlord that it disputes the correctness of the statement, specifying, to the extent the information is available, the particular respects in which the statement is claimed to be incorrect. If such notice is sent, Tenant and its accountants may examine Landlord's books and records relating to the Operating Expenses to determine the accuracy of the Operating Statement. If after such examination, Tenant still disputes such Operating Statement, either party may refer the decision of the issues raised to one of the so-called "big-eight" public accounting firms, mutually satisfactory to Landlord and Tenant, or if Landlord and Tenant shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: Landlord and Tenant shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to whom such decision shall be referred shall then be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. The firm so chosen may, in its discretion, retain one or more consultants to assist in the resolution of the dispute referred to it. The decision of such accountants, absent manifest error, shall be conclusively binding upon the parties. The fees and expenses (including the fees of such consultants) involved in such decisions shall be borne by the unsuccessful party (and if both parties are partially successful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). If such dispute is ultimately determined in Tenant's favor (either by agreement between Landlord or Tenant or by decision of the accountants), Landlord promptly after such determination shall pay to Tenant any amount overpaid by Tenant. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall, within ten (10) days after receipt of such statement, pay the Additional Charges in accordance with Landlord's statement, without prejudice to Tenant's position. 15 19 ARTICLE 7 - COMMON AREAS 7.01 Subject to the provisions of Section 5.03, Landlord will operate, manage, equip, light, repair and maintain, or cause to be operated, managed, equipped, lighted, repaired and maintained, the Common Areas for their intended purposes and will enforce the Reciprocal Construction Operation and Easement Agreement, between Ground Lessor and the Township of Weehawken. Landlord reserves the right, at any time and from time to time, to construct within the Common Areas kiosks, fountains, aquariums, planters, pools and sculptures, and to install vending machines, telephone booths, benches and the like provided same shall not block or interfere with Tenant's means of ingress or egress to and from the Building. 7.02 Tenant and its subtenants and their respective officers, employees, agents, customers and invitees, shall have the non-exclusive right, in common with Landlord and all others to whom such right may have been or may hereafter be granted, but subject to the Rules and Regulations, if any, to use the Common Areas. Landlord reserves the right, at any time and from time to time, to close temporarily all or any portions of the Common Areas (provided that such closure does not unreasonably interfere with Tenant's business at the Demised Premises, except in cases of emergency) when in Landlord's reasonable judgment any such closing is necessary or to (a) permit Hartz or its successors or assigns or designees to make repairs or changes or to effect construction within the Lincoln Harbor Project; (b) prevent the acquisition of public rights in such areas; or (c) to protect or preserve natural persons or property. Landlord may do such other acts in and to the Common Areas as in its reasonable judgment may be desirable to improve or maintain same, provided, however that Landlord shall not change the standard of maintenance of the Common Areas without Tenant's approval, which approval shall not be unreasonably withheld or delayed. In all such events, Landlord's Work shall be commenced and prosecuted diligently and with as little interference as possible with Tenant's use of the Demised Premises. 7.03 Tenant agrees that it, any subtenant or licensee and their respective officers, employees, contractors and agents will park their automobiles and other vehicles only where and as permitted by Landlord. Tenant 16 20 will, if and when so requested by Landlord, furnish Landlord with the license numbers of any vehicles of Tenant, any subtenant or licensee and their respective officers, employees and agents. Tenant shall be furnished with the non-exclusive use of one (1) unreserved parking space for every 690 square feet of Floor Space in the Demised Premises, of which spaces, at Tenant's request, five percent (5%) shall be reserved for exclusive executive parking, as shown on the parking plan annexed hereto as Exhibit "L" and made a part hereof. Tenant shall have access to all such spaces twenty-four (24) hours a day, throughout the Term. Landlord shall maintain or cause to be maintained all such parking in a manner reasonably satisfactory to Tenant. ARTICLE 8 - LABOR HARMONY 8.01 Tenant shall not exercise its rights under Article 15 or any other provision of this Lease in a manner which would violate Landlord's union contracts or create any work stoppage, picketing labor disruption or dispute or any interference with the business of Landlord. ARTICLE 9 - SUBORDINATION 9.01 Provided that (a) a Superior Mortgagee shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form attached hereto and made a part hereof as Exhibit "M-1", to the effect that, provided no event of default has occurred and is continuing hereunder, such Superior Mortgagee will not name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to such Superior Mortgagee under its Superior Mortgage, and to the further effect that if there shall be a foreclosure of its Superior Mortgage, that the Superior Mortgagee will not make Tenant a party defendant to such foreclosure, evict Tenant, disturb Tenant's possession under this Lease, or terminate or disturb Tenant's leasehold estate or rights hereunder, or (b) a Superior Lessor shall execute and deliver to Tenant an agreement, in recordable form, substantially in the form annexed hereto as Exhibit "M-2", to the effect that, provided no Event of Default shall have occurred and is continuing hereunder, such Superior Lessor will not name or join Tenant as a party defendant or otherwise in any suit, action or proceeding to enforce any rights granted to 17 21 such Lessor under its Superior Lease, and to the further effect that if its Superior Lease shall terminate or be terminated for any reason, such Superior Lessor will recognize Tenant as the direct tenant of such Superior Lessor on the same terms and conditions as are contained in this Lease, (any such agreement, or any agreement of similar import from a Superior Mortgagee or Superior Lessor, as the case may be, being hereinafter called a "Nondisturbance Agreement"), this Lease shall be subject and subordinate to such Superior Mortgage or to such Superior Lease in respect of which a Nondisturbance Agreement shall have been delivered, and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Superior Mortgage or Superior Lease or any substitutions therefor, and advances made thereunder. The provisions of this Section 9.01 shall be self-operative and no further instrument of subordination shall be required upon delivery of such Nondisturbance Agreement, however, in confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver an instrument of evidencing such subordination; and if Tenant fails to execute, acknowledge or deliver any such instruments within thirty (30) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any such instruments for and on behalf of Tenant. 9.02 If any act or omission of Landlord 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 until and unless (a) it has given written notice of such act or omission to Landlord and each Superior Mortgagee and each Superior Lessor whose name and address shall previously have been furnished to Tenant, and (b) such act or omission shall not have been remedied within thirty (30) days following the giving of such notice and following the time when such Superior Mortgagee or Superior Lessor shall have become entitled under such Superior Mortgage or Superior Lease, as the case may be, to remedy the same (or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided such Superior Lessor or Superior Mortgagee commences and diligently pursues such remedy, which reasonable period shall in no event be less than the period to which the 18 22 Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy). 9.03 If any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights ("Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment provided that such Successor Landlord shall then be entitled to possession of the Demised Premises and shall have either agreed to assume the obligations of Landlord hereunder or shall have entered into a Nondisturbance Agreement with Tenant. Upon such attornment this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord (unless such Successor Landlord is an affiliated entity of Landlord) shall not (a) be liable for any previous act or omission of Landlord under this Lease unless the same shall be continuing; (b) be subject to any offset, not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; or (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month's Fixed Rent or Additional Charges, unless such modification or prepayment shall have been expressly approved in writing by the Superior Lessor of the Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 9.04 If any then present or prospective Superior Mortgagee shall require any modifications of this Lease, Tenant shall promptly execute and deliver to Landlord such instruments effecting such modification(s) as Landlord shall request, provided that such modification(s) do not adversely affect in any material respect any of Tenant's rights under this Lease, materially increase Tenant's obligations under this Lease or materially diminish Landlord's obligations under this Lease. 19 23 ARTICLE 10 - QUIET ENJOYMENT 10.01 So long as no Event of Default shall have occurred and be continuing, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises without hindrance, ejection or molestation by Landlord or any person lawfully claiming through or under Landlord, subject, nevertheless, to the provisions of this Lease and the Ground Lease. ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING 11.01 Tenant shall have the absolute right, at any time, without Landlord's consent, to (a) assign or otherwise transfer this Lease, or offer or advertise to do so, and (b) sublet the Demised Premises or any part thereof, or offer or advertise to do so, or allow the same to be used, occupied or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner whatsoever. 11.02(a) Notwithstanding anything contained in Section 11.01 hereof, prior to the earlier to occur of either the fifth anniversary of the Commencement Date and the date on which the improvements to be constructed in the Lincoln Harbor Project, as more particularly set forth on Exhibit "K" annexed hereto and made a part hereof, shall be 90% leased, Tenant may not assign its interest in this Lease or sublet all or any portion of the Demised Premises, provided, however, that Tenant shall have the right during such period, without Landlord's prior consent, to sublet a portion or portions of the Demised Premises not to exceed 75,000 square feet of floor space in the aggregate (such amount to be reduced, foot for foot, by an amount equal to the area sublet by Tenant pursuant to a similar provision in any other lease of which Tenant is tenant in the Lincoln Harbor Project) which amount Tenant agrees is fair and reasonable. (b) Notwithstanding the foregoing, however, the provisions of clause (a) of this Section 11.02 shall not be deemed to apply to (x) any assignment of Tenant's interest in this Lease to an Affiliate (hereinafter defined) or to any assignment, whether by operation of law or otherwise, to a company which is Tenant's successor-in-interest either by merger or consolidation, or to any assignment to a purchaser of all or substantially all of Tenant's assets, or (y) any subleasing of all or 20 24 any portion of the Demised Premises to an Affiliate unless the primary purpose of any such transaction is to transfer the estate created by this Lease in violation of Section 11.02(a) hereof. For purposes hereof, "Affiliate" shall be deemed to mean a corporation or other entity which shall (1) control, (2) be under the control of, or (3) shall be under common control with, Tenant (the term "control" as used herein shall be deemed to mean ownership of more than 5% of the voting stock of a corporation on a fully diluted basis, if such corporation is publicly traded, or more than 50% of the voting stock of a privately held corporation, or other majority equity and control interest, if not a corporation. 11.03 If this Lease is assigned, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof are sublet or used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, and expiration of Tenant's time to cure such default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the Rent, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of this Article 11, or the acceptance of the assignee or subtenant as occupant or a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. 11.04(a) Any assignment or transfer shall be made only if, and shall not be effective until, the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance satisfactory to Landlord whereby the assignee shall assume Tenant's obligations under this Lease and whereby the assignee shall agree that all of the provisions in this Article 11 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect to all future assignments and transfers. Notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Rent by Landlord from an assignee, transferee, or any other party, the original Tenant and any other person(s) who at any time was or were Tenant shall remain fully liable for the payment of the Rent and for Tenant's other obligations under this Lease unless, in the event of such permitted assignment or transfer, Landlord releases Tenant from its obligations under this Lease as provided in Section 11.04(b) of this Lease. 21 25 (b) In the event Tenant assigns its interest in this Lease, Landlord agrees, subject to the prior consent of any Superior Mortgagee, to release Tenant from its obligations under this Lease provided all of the following conditions are met: (i) Such Permitted assignee has a net worth at least equal to $250,000,000, as the same shall be increased or decreased on each anniversary of the Commencement Date commencing on the fifth (5th) anniversary of the Commencement Date by an amount equal to the product of $250,000,000 and seventy-five percent (75%) of the percentage increase or decrease in the CPI for the immediately preceding twelve (12) month period, provided, however, that in no event shall the same be decreased to be less than $250,000,000; and (ii) Such permitted assignee is a well known business entity of high repute having a standing in the business community, in Landlord's reasonable judgment, at least equivalent to PaineWebber, Inc.; and (iii) Such permitted assignee executes an agreement in substance and form reasonably satisfactory to Landlord whereby such assignee assumes all of Tenant's obligations under this Lease. 11.05 Promptly after request therefor by Tenant, Landlord shall enter into a Nondisturbance Agreement with any permitted subtenant of Tenant occupying one or more full floors of the Demised Premises, substantially in the form annexed hereto as Exhibit "N". 11.06 The liability of the original named Tenant and any other Person(s) who at any time was or were Tenant for Tenant's obligations under this Lease shall not be discharged, released or impaired by any agreement or stipulation made by Landlord extending the time of, or modifying any of the obligations of, this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease. 11.07 The listing of any name other than that of Tenant, whether on the doors of the Building, the 22 26 Building directory or otherwise, shall not operate to vest any right or interest in this Lease or in the Building, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Building or to the use or occupancy thereof by others. 11.08 Without limiting any of the provisions of Article 27, if pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), Tenant assigns this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one (1) year's Fixed Rent plus an amount equal to the Additional Charges for the Calendar Year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease, that if Tenant defaults in the full and prompt payment and performance of any of its obligations under this Lease, including, without limitation, the payment of Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent or any other sums as to which such tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of such Tenant's obligations under this Lease, including, without limitation, any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrue before or after summary proceedings or other reentry by Landlord. If Landlord shall so sue, apply or retain the whole or any part of the security, Tenant shall upon demand immediately deposit with landlord a sum equal to the amount so used, applied and retained, as security as aforesaid. If Tenant shall fully and faithfully pay and perform all of Tenant's obligations under this Lease, the security or any balance thereof to which such tenant is entitled shall be returned or paid over to such tenant after the date on which this Lease shall expire or sooner end or terminate, and after delivery to Landlord of entire possession of the Demised Premises. In the event of any sale or leasing of the Building or leasing of Demised Premises, Landlord shall have the right to transfer the security to which Tenant is entitled to the vendee or lessee and Landlord shall thereupon 23 27 be released by such tenant from all liability for the return or payment thereof; Tenant shall look solely to the new landlord for the return or payment of the same; and the provisions hereof shall apply to every transfer or assignment made of the same to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security, and bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. ARTICLE 12 - COMPLIANCE WITH LAWS 12.01 Tenant shall comply with all Legal Requirements which shall, in respect of the Demised Premises or the use and occupation thereof, or the abatement of any nuisance in, on or about the Demised Premises, impose any violation, order or duty on Landlord or Tenant; and Tenant shall pay all the cost, expenses, fines, penalties and damages which may be imposed upon Landlord or any Superior Lessor by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section 12.01. However, Tenant need not comply with any such law or requirement of any public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 12.02. Landlord shall be in full compliance with any Legal Requirements applicable to Landlord's Work on or before the Commencement Date, and the obligation of Tenant to comply with any Legal Requirement as set forth immediately above shall not arise with respect to any such Legal Requirement with which Landlord is not in compliance as of the Commencement Date, until such time as non-compliance shall have been cured by Landlord. 12.02 Tenant may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirement, provided that (a) Landlord shall not be subject to criminal penalty or to prosecution for a crime and neither the Demised Premises nor any part thereof shall be subject to being condemned or vacated, by reason of non-compliance or otherwise by reason of such contest; (b) before the commencement of such contest, Tenant shall furnish to Landlord either (i) the bond of a surety company satisfactory to Landlord, which bond shall be, as to its provisions and form, satisfactory to Landlord, and shall be in an amount at least 24 28 equal to 125% of the cost of such compliance (as estimated by a reputable contractor designated by Landlord) and shall indemnify Landlord against the cost thereof and against all liability for damages, interest, penalties and expenses (including reasonable attorneys' fees and expenses), resulting from or incurred in connection with such contest or noncompliance, or (ii) other security in place of such bond satisfactory to Landlord; (c) Tenant shall keep Landlord advised as to the status of such proceedings. Notwithstanding anything herein to the contrary, the provisions of (b) above shall not apply during such time as PaineWebber, Inc. remains obligated for Tenant's obligations under this Lease. Without limiting the application of the above, Landlord shall be deemed subject to prosecution for a crime if Landlord, or its managing agent, or any officer, director, partner, shareholder or employee of Landlord or its managing agent, as an individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charge is withdrawn before Landlord or its managing agent, or such officer, director, partner, shareholder or employee of Landlord or its managing agent (as the case may be) is required to plead or answer thereto. ARTICLE 13 - INSURANCE AND INDEMNITY 13.01(a) Tenant shall at all times during the term hereof maintain or cause to be maintained business interruption insurance with a rent insurance endorsement payable to Landlord, covering a period of at least twelve (12) months. Landlord shall obtain and keep in full force and effect insurance against loss or damage by fire and other casualty to the Building, including any item of Tenant's Work, as may be insurable under then available standard forms of "all risk" insurance policies, in an amount equal to 100% of the replacement value thereof (and Tenant shall pay Tenant's Fraction of the cost thereof in accordance with Exhibit "H" annexed hereto and made a part hereof). Tenant shall notify Landlord of the completion of any Tenant's Work and of the costs thereof, and shall maintain adequate records with respect to such Tenant's Work to facilitate the adjustment of any insurance claims with respect thereto. Tenant shall cooperate with Landlord and Landlord's insurance companies in the adjustment of any claims for any damage to the Building or to such Tenant's Work. On or prior to the Commencement Date, Landlord shall deliver to Tenant appropriate 25 29 certificates of insurance, including evidence of waivers of subrogation required pursuant to Section 13.05 hereof, required to be carried by Landlord pursuant to this Article 13. Evidence of each renewal or replacement of a policy shall be so delivered by Landlord to Tenant at least ten days prior to the expiration of such policy. Any certificates so deposited by Landlord with Tenant shall indicate whether the insurance required by this Article 13 is affected under a blanket insurance policy and, if so, shall certify to the aggregate amount of such blanket insurance policy and to the fact that there are no sublimits which derogate from the coverage required by this Article. 13.02 Tenant also shall maintain the following insurance: (a) comprehensive general public liability insurance in respect of the Demised Premises and the conduct and operation of business therein, with Landlord as an additional named insured, and at Landlord's request with any Superior Lessors as additional named insured(s), with limits of not less than $3,000,000 for bodily injury or death to any one person and $5,000,000 for bodily injury or death to any number of persons in any one occurrence, and $500,000 for property damage, including water damage and sprinkler leakage legal liability, and (b) any other insurance required for compliance with the Insurance Requirements. Tenant shall also obtain and keep in full force and effect a policy of insurance against loss or damage by fire, and such other risks and hazards (including burglary and theft) as are insurable under then available standard forms of "all risk" insurance policies, to Tenant's Property, for one hundred percent (100%) of the replacement value thereof or for such lesser amount as will avoid co-insurance (including an "agreed amount" endorsement), protecting Landlord, Landlord's agents, any Superior Mortgagee, any Superior Lessor and Tenant as insured, as their interest may appear; provided, however, that no such additional insured party shall be entitled to adjust, or participate in the adjustment of, any loss or receive any proceeds under any such insurance policy, and the policies may so provide. Tenant shall deliver to Landlord and any additional named insured(s) certificates for such fully paid-for policies at least ten (10) days before the Commencement Date. Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional insured(s) certificates therefor at least 30 days before 26 30 the expiration of any existing policy. All such policies shall be issued by companies of recognized responsibility licensed to do business in New Jersey, and all such policies shall contain a provision whereby the same cannot be cancelled unless Landlord and any additional insured(s) are given at least 20 days' prior written notice of such cancellation. 13.03 Tenant shall not do, permit or suffer to be done any act, matter, thing or failure to act in respect of the Demised Premises or use or occupy the Demised Premises or conduct or operate Tenant's business in any manner objectionable to any insurance company or companies whereby the fire insurance or any other insurance then in effect in respect to the Land and Building or any part thereof shall become void or suspended or whereby any premiums in respect of insurance maintained by Landlord shall be higher than those which would normally have been in effect for the occupancy contemplated under the Permitted Uses. In case of a breach of the provisions of this Section 13.03, in addition to all other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and the Superior Lessors and hold Landlord and the Superior Lessors harmless from and against any loss which would have been covered by insurance which shall have become void or suspended because of such breach by Tenant and (b) pay to Landlord any and all increases of premiums on any insurance, including, without limitation, rent insurance, resulting from any such breach. 13.04(a) Tenant shall indemnify and hold harmless Landlord and all Superior Lessors and its and their respective partners, joint venturers, directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) Tenant's conduct or management of the Demised Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord) in the Demised Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, except to the extent due to Landlord's wrongful acts or gross negligence; (b) any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, joint ventures, directors, officers, agent, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by 27 31 Landlord's acts or negligence) occurring in the Demised Premises or the Common Areas; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease; together with all costs, expenses and obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Landlord and/or any Superior Lessor and/or its or their partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Landlord. (b) Landlord shall indemnify and hold harmless Tenant and its directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) Landlord's conduct or management of the Building or any business therein, or other work or thing whatsoever done, or any condition created (other than by Tenant), in the Building during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, to the extent due to Landlord's willful acts or gross negligence; (b) any act, omission or negligence of Landlord or its agents or their partners, joint ventures, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Tenant's acts or negligence) occurring in the Building and (d) any breach or default by Landlord in the prompt payment and performance of Landlord's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Tenant and/or its directors, officers, agents and/or employees by reason of any such claim, Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Counsel appointed by the insurance company insuring the Building shall be deemed satisfactory to Tenant. 28 32 13.05 The parties hereto shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance covering the Demised Premises, the Building and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery against any party responsible for a casualty covered by such policy, and having obtained such clauses or endorsements or agreements of waiver of subrogation or consent to a waiver of right of recovery, the parties agree that they will not make any claim against or seek to recover from the other or anyone acting or claiming under or through the other or any of their respective officers, directors, shareholders, partners, employees, agents or contractors, for any loss or damage to its property or the property of others resulting from fire or other hazards covered by such fire and extended coverage insurance, provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by and coextensive with the terms and provisions of the waiver of subrogation clause or endorsements, or clauses or endorsements consenting to a waiver of right or recovery. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provision, each party shall advise the other of the amount of any such additional premiums and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if such clause may not be obtained, even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement not to make any claim or seek recover shall not be effective thereafter. If either party shall be unable to obtain the inclusion of such clause even with the payment of an additional premium, then such party shall attempt to name the other party as an additional insured (but not a loss payee) under the policy. If the payment of an additional premium is required for naming the other party as an additional insured (but not a loss payee), each party shall advise the other of the amount of any such additional premium and the other party at its own 29 33 election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium, the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if it shall not be possible to have the other party named as an additional insured (but not loss payee), even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement to name the other party as an additional insured shall be satisfied. If either party shall fail to have fire or extended coverage insurance in effect as required pursuant to this Article 13, the agreement not to make any claim or seek recovery contained in the first sentence of this Section 13.05 shall be in full force and effect to the same extent as if such required insurance (containing the required waiver of subrogation clause, endorsement or agreement) were in effect. ARTICLE 14 - RULES AND REGULATIONS 14.01 Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant, which in Landlord's reasonable judgment, shall be necessary for the reputation, safety, care or appearance of the Land and Building, or the preservation of good order therein, or the operation or maintenance of the Building or its equipment and fixtures, or the Common Areas, and which do not unreasonably affect the conduct of Tenant's business in the Building; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations against any other tenant or any employees or agents of any other Tenant, and Landlord shall not be liable to Tenant for violation of the Rules and Regulations by any other tenant or its employees, agents, invitees or licensees, provided, however, Landlord shall not enforce any Rule or Regulation against Tenant which Landlord shall not then be enforcing against all other office tenants in the Building, in the case of the Common Areas. If Tenant disputes the reasonableness of any additional 30 34 Rule or Regulation hereafter adopted by Landlord, the dispute shall be determined by arbitration in the City of Newark in accordance with the rules and regulations then obtaining of the American Arbitration Association or its successor. Any such determination shall be final and binding upon the parties hereto, whether or not a judgment shall be entered in any court. ARTICLE 15 - ALTERATIONS 15.01 Tenant shall not make any structural alterations or additions to the Demised Premises which would adversely affect the structural integrity of the Building, or change the exterior color or architectural treatment of the Building, or which would otherwise impair the value of the Building without on each occasion first obtaining the prior written consent of Landlord, it being acknowledged that Landlord's consent shall not be required for any other alterations or additions. Tenant shall submit to Landlord plans and specifications for such work at the time landlord's consent is sought. Tenant shall pay to Landlord upon demand the reasonable cost and expense of Landlord for any action of Landlord in excess of (a) reviewing said plans and specifications and (b) inspecting the alterations to determine whether the same are being performed in accordance with the approved plans and specifications and all Legal Requirements and Insurance Requirements including without limitation, the fees of any architect or engineer employed by Landlord for such purpose. Before proceeding with any permitted alteration which will cost more than $350,000 (exclusive of the costs of decorating work and items constituting Tenant's Property), as estimated by a reputable contractor designated by Landlord, Tenant shall obtain and deliver to Landlord either (i) a performance bond and a labor and materials payment bond (issued by a corporate surety licensed to do business in New Jersey), each in an amount equal to 125% of such estimated cost and in form satisfactory to Landlord, or (ii) such other security as shall be satisfactory to Landlord. Notwithstanding anything herein to the contrary, the provisions of the immediately preceding sentence shall not apply during such time as PaineWebber, Inc. remains liable for Tenant's obligations under this Lease. Tenant shall fully and promptly comply with and observe the Rules and Regulations then in force in respect of the making of such alterations. Any review or approval by Landlord of any plans and/or specifications with respect to any such 31 35 alterations is solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant in respect to the adequacy, correctness or efficiency thereof or otherwise. 15.02 Tenant shall obtain all necessary governmental permits and certificates for the commencement and prosecution of alterations and for final approval thereof upon completion, and shall cause alterations to be performed in compliance therewith all applicable Legal Requirements and Insurance Requirements. Alterations shall be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the better of the original installations of the Building. Alterations requiring Landlord's consent shall be performed by contractors licensed in the State of New Jersey (if applicable), whose use shall not invalidate any warrants applicable to the Building or its Systems, and which contractors are either employed in connection with the performance of Landlord's Work or Tenant's Work or are reputable and skilled in their respective trades. Alterations shall be made in such a manner as not to unreasonably interfere with or delay and as not to impose any additional expense upon Landlord in the maintenance, repair or operation of the Building; and if any such additional expense shall be incurred by Landlord as a result of Tenant's making of any alterations, Tenant shall pay any such additional expense upon demand. Throughout the making of alterations, Tenant shall carry, or cause to be carried, workmen's compensation insurance in statutory limits and general liability insurance, with completed operation endorsement, for any occurrence in or about the Building, under which Landlord and its managing agent and any Superior Lessor whose name and address shall previously have been furnished to Tenant shall be named as parties insured, in such limits as landlord may reasonably require, with issuers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of alterations and, on request, at reasonable intervals thereafter during the making of alterations. 32 36 ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY 16.01 All fixtures, equipment, improvements and appurtenances attached to or built into the Demised Premises at the commencement of or during the Term at the expense of Tenant (exclusive of the items to which Tenant's Fund has been applied) shall be deemed to be the property of Tenant. 16.02 All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Building, which are installed in the Demised Premises by or for the account of Tenant and can be removed without structural damage to the Building and all furniture, furnishings, and other personal property owned by Tenant and located in the Demised Premises (collectively, "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of the Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Building or the Common Areas resulting from the installation and/or removal thereof. Any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, shall not be considered as the Tenant's Property and shall be deemed the property of Landlord. 16.03 At or before the Expiration Date or the date of any earlier termination of this Lease, or within fifteen (15) days after such an earlier termination date, Tenant shall surrender the Demised Premises broom clean, vacant and in good condition, reasonable wear and tear and damage by casualty, excepted. Tenant may remove any alterations and fixtures and shall remove any alterations or fixtures which are not usual or customary for general office use and which would materially impair the reletting of the Demised Premises for general office use. Tenant shall repair any structural damage to the Demised Premises, the Building and the Common Areas and the Project Common Areas resulting from any installation and/or removal of the Tenant's Property. Any items of the Tenant's Property which shall remain at the Demised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned 33 37 and in such case such items may be retained by Landlord as its property or disposed of by Landlord, without accountability, in such manner as Landlord shall determine at Tenant's Expense. ARTICLE 17 - REPAIRS AND MAINTENANCE 17.01 Tenant shall, throughout the Term, take good care of the Demised Premises, the fixtures and appurtenances therein. Tenant shall be responsible for the cost and expense of all non-structural repairs (or replacements, if required), ordinary and extraordinary, in and to the Demised Premises (including the Building systems), the need for which arises out of (a) the performance or existence of the Tenant's Work or alterations, (b) the installation, use or operation of the Tenant's Property in the Demised Premises, (c) the moving of the Tenant's Property in or out of the Building, or (d) the act, omission, misuse or neglect of Tenant or any of its subtenants or its or their employees, agents, contractors, or invitees. Tenant shall promptly replace all scratched, damaged or broken doors and glass in or about the Demised Premises and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in the Demised Premises and for the repair and maintenance of all sanitary and electrical fixtures and equipment therein. Tenant shall promptly make all repairs in or to the Demised Premises for which Tenant is responsible, provided that any repairs to the mechanical, electrical, plumbing, heating, ventilating or air conditioning systems of the Building shall only be made by contractors approved by Landlord in accordance with Section 15.02 hereof. Any other repairs in or to the Building and the facilities and systems thereof for which Tenant is responsible shall be performed by Landlord at Tenant's expense; but Landlord may, at its option, before commencing any such work or at any time thereafter, during such time as PaineWebber, Inc. is no longer liable for Ten- ant's obligations under this Lease, require Tenant to furnish to Landlord such security, in form (including, without limitation, a bond issued by a corporate surety licensed to do business in New Jersey) and amount, as Landlord shall deem necessary to assure the payment for such work by Tenant. 34 38 17.02 Landlord shall be responsible for the maintenance, repair and replacement of the structure of the Building and the roof of the Building and for the maintenance of the Common Areas, all which shall be maintained in accordance with standards reasonably satisfactory to Landlord and Tenant. To the extent that Landlord shall fail to maintain the structure of the Building, the roof or such Common Areas, Tenant shall have the right to perform any such maintenance work on behalf of the Landlord and Landlord, promptly after receipt of demand therefor from Tenant, shall reimburse Tenant for any expenses incurred by Tenant on behalf of Landlord for such maintenance, together with interest thereon at the Late Payment Rate, calculated from the date of expenditure by Tenant through the date of repayment by Landlord. 17.03 Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's doing any repairs, maintenance or changes which Landlord is required or permitted by this Lease, or required by Law, to make in or to any portion of the Building. ARTICLE 18 - ELECTRIC ENERGY 18.01 Tenant shall purchase the electric energy required by it in the Demised Premises at its own expense on a direct-metered basis from the public utility servicing the Building, and Landlord shall permit the rises, conduits and feeders in the Building, to the extent available, suitable and safely capable, to be used for the purpose of transmitting such electrical energy through the Building. Landlord shall not be liable for any failure, inadequacy or defect in the character or supply of electric current furnished to the Building except for actual damage suffered by Tenant by reason of any such failure, inadequacy or defect caused by the negligence or willful acts of Landlord. 18.02 Tenant's use of electric energy in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Building. Any additional risers or other equipment required by Tenant at any time during 35 39 the Term shall be provided by Landlord and the actual cost thereof shall be paid by Tenant to Landlord on demand. ARTICLE 19 - HEAT, VENTILATION AND AIR CONDITIONING Landlord shall, at Tenant's sole cost and expense, subject to any guaranties or warranties made by Ground Lessor pursuant to the Guarantee, maintain and operate the heating, ventilating and air-conditioning systems ("HVAC") serving the Demised Premises, and shall furnish HVAC in the Demised Premises as Tenant may require. ARTICLE 20 - OTHER SERVICES: SERVICE INTERRUPTION 20.01 Landlord shall cause the exterior of the windows of the Building and the Common Areas to be cleaned in accordance with the standards set forth in Exhibit "Q" annexed hereto and made a part hereof. 20.02 Landlord shall, at Tenants' sole cost and expense, cause water to be supplied to the Demised Premises and Tenant shall pay for such as shown on the public utility meters therefore. ARTICLE 21 - ACCESS, CHANGES AND NAME 21.01 Landlord and its agents shall have the right, with as little interference of Tenant's business as possible, to enter and/or pass through the Demised Premises upon reasonable notice and at reasonable times (a) to examine the Demised Premises and to show them to actual and prospective Superior Lessors, Superior Mortgagees, or prospective purchasers of the Building, and (b) to make such repairs, alterations, additions and improvements in or to the Building and/or its facilities and equipment as Landlord is required or desires to make. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required in connection therewith, without any liability to Tenant and without any reduction of Tenant's obligations hereunder. The right of Landlord and Landlord's agent to enter into the Demised Premises shall not include any area of the Demised Premises designated on written notice to Landlord as a "security area" unless a representative of Tenant shall be present, which representative Tenant agrees to have present at the Demised Premises upon reasonable 36 40 advance oral notice by Landlord, provided, however, that in the event of any emergency, Landlord shall have the right to enter into any such security area without being accompanied by such representative of Tenant but shall be accompanied by a police officer, fireman or other public official. During the period of eighteen (18) months prior to the Expiration Date, Landlord and its agents may exhibit the Demised Premises to prospective tenants. 21.02 During such time as PaineWebber, Inc. or an affiliated entity is the Tenant, Tenant may name the Building any name associated with PaineWebber, Inc. or its Affiliates, as the same may change from time to time as the result of mergers or consolidations or otherwise. ARTICLE 22 - MECHANICS' LIENS AND OTHER LIENS Nothing contained in this Lease shall be deemed, construed or interpreted to imply any consent or agreement on the part of Landlord to subject Landlord's interest or estate to any liability under the mechanic's or other lien law. If any mechanic's or other lien or any notice of intention to file a lien is filed against the Land, or any part thereof, for any work, labor, service or materials claimed to have been performed or furnished for or on behalf of Tenant or anyone holding any part of the Demised Premises through or under Tenant, Tenant shall cause the same to be cancelled and discharged of record by payment, bond or order of a court of competent jurisdiction within fifteen (15) days after notice by Landlord to Tenant. ARTICLE 23 - NON-LIABILITY AND INDEMNIFICATION 23.01 In addition to the provisions of Article 13 of this Lease, except as set forth in the Guarantees, dated of even date herewith, by Ground Lessor for the benefit of Tenant (collectively, the "Guarantees"), neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or their property, irrespective of the cause of such injury, damage or loss, except to the extent caused by or resulting from the negligence of Landlord, its agents, servants or employees in the operating or maintenance of the Land or Building. Further, neither Landlord nor any partner, joint ventur- 37 41 er, director, officer, agent, servant or employee of Landlord shall be liable (a) for any such damage caused by other tenants or Persons in, upon or about the Land or Building, or caused by operations in construction of any private, public or quasi-public work; or (b) even if negligent, for consequential damages arising out of any loss of use of the Demised Premises or any equipment or facilities therein by Tenant or any Person claiming through or under Tenant. 23.02 Notwithstanding any provision to the contrary, except as set forth in the Guarantees, Tenant shall look solely to the estate and property of Landlord in and to the Land and Building (or the proceeds received by Landlord on a sale of such estate and property net of bona fide liens and expenses. In the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas, Tenant, (and its successor and assigns) agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas shall be limited to such estate and property of Landlord (or sale proceeds net of bona fide liens and expenses). No other properties or assets of Landlord or any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of, or in connection with, this Lease, the relationship of Landlord and Tenant or Tenant's use of the Building, the Demised Premises, the Common Areas or the Project Common Areas. If Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Landlord's attorneys. ARTICLE 24 - DAMAGE OR DESTRUCTION 24.01 If the Building shall be partially or totally damaged or destroyed by fire or other casualty (and if this Lease shall not be terminated as in this 38 42 Article 24 hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building (except for the Tenant's Property) in accordance with the Plans and Specifications, together with such changes as may be approved by Tenant, with reasonable dispatch after notice to it of the damage or destruction and the collection of the insurance proceeds attributable to such damage. 24.02 Subject to the provisions of Section 24.05, if all or part of the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, the Rent shall not be abated or reduced, as the case may be, to the extent of payments pursuant to Tenants' business interruption insurance allocable to rental and, subsequent to the exhaustion of payments thereunder, the Rent shall be abated or reduced, as the case may be, in proportion to the untenantable area of the Demised Premises for the period from the date of the damage or destruction to the date the damage to the Demised Premises shall be substantially repaired; provided, however, should Tenant reoccupy a portion of the Demised Premises during the period the repair or restoration work is taking place and prior to the date that the Demised Premises is substantially repaired or made tenantable the Rent allocable to such reoccupied portion, shall be payable by Tenant from the date of such occupancy. 24.03 (a) the Demised Premises shall be totally damaged or destroyed by fire or other casualty, or (b) the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord and approved by Tenant, which approval shall not be unreasonably withheld, of more than twenty percent (20%) of the full insurable value of the Building immediately prior to the casualty, and, in either event, an engineer selected by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or delayed, shall reasonably estimate that there will be less than two (2) years remaining in the Term (including all Renewal Terms for which Tenant has validly exercised the applicable Renewal Option) upon completion of restoration of the Building, then in either such case Landlord or Tenant may terminate this Lease by giving the other notice to such effect within ninety (90) days after the date of the fire or other casualty. Notwithstanding anything contained in this Lease to the 39 43 contrary, if there shall occur such a casualty at such time as there shall be estimated to be less than two years remaining in the Term of this Lease after completion of restoration but prior to the time that pursuant to the provisions of Article 39 hereof Tenant shall have the right to exercise any Renewal Option, then, prior to Landlord terminating this Lease, Tenant shall have the right to exercise any such Renewal Option otherwise in accordance with the provisions of Article 39 hereof. If either party shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.03, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.04 Except as provided for in Section 24.08 of this Lease, Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises pursuant to this Article 24. Landlord shall use its best efforts to make such repair or restoration promptly and in such manner as to not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, but Landlord shall not be required to do such repair or restoration work on an overtime basis unless fully reimbursed by Tenant. 24.05 Notwithstanding any of the foregoing provisions of this Article 24, if by reason of some act or omission on the part of Tenant or any of its subtenants or its or their partners, directors, officers, servants, employees, agents or contractors, either (a) Landlord or any Superior Lessor or any Superior Mortgagee shall be unable to collect all of the insurance proceeds (including, without limitation, rent insurance proceeds) applicable to damage or destruction of the Building by fire or other casualty, or (b) the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement or reduction of the Rent. Further, nothing contained in 40 44 this Article 24 shall relieve Tenant from any liability that may exist as a result of any damage or destruction by fire or other casualty. 24.06 Landlord will not carry insurance of any kind on the Tenant's Property, and, except as provided by law or by reason of Landlord's breach of any of its obligations hereunder, shall not be obligated to repair any damage or to replace the Tenant's Property. 24.07 The provisions of this Article 24 shall be deemed an express agreement governing any case of damage or destruction of the Building by fire or other casualty, and any law providing for such a contingency in the absence of an express agreement, now or hereafter in force, shall have no application in such case. 24.08 Anything contained in this Article 24 to the contrary notwithstanding, within thirty (30) days after Landlord has notice of any damage that materially impairs Tenant's ability to conduct its business in the Demised Premises, Landlord shall deliver to Tenant a statement prepared by a reputable contractor approved by Tenant, which approval shall not be unreasonably withheld or delayed, setting forth such contractor's estimate as to the time required to repair such damage and the assumptions regarding the use of labor (including overtime labor, if applicable) and construction methods considered in arriving at such estimate. If the estimated time period exceeds twelve (12) months from the date of such damage or if such estimate is not delivered to Tenant as required, Tenant may elect to terminate this Lease by notice to Landlord not later than thirty (30) days following receipt of such statement or, if no statement is delivered, not later than thirty (30) days after the date such statement was to have been delivered. If Tenant makes such election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. If Tenant shall not have elected to terminate this Lease pursuant to this Article 24 (or is not entitled to terminate this Lease pursuant to this Article 24) and such repairs are (i) not commenced by Landlord within sixty (60) days after the date Landlord has notice of such damage, (ii) not prosecuted substantially on the basis specified in the contractor's estimate referred to in this paragraph so that the re- 41 45 pairs cannot be Substantially Completed within the estimated time period (unless Landlord agrees to take such other measures required to Substantially Complete such repairs within such period), or (iii) not Substantially Completed by Landlord within twelve (12) months after the date Landlord has such notice, subject to Unavoidable Delays, but in no event later than fifteen (15) months after Landlord has such notice, Tenant may elect to terminate this Lease by notice to Landlord not later than fifteen (15) days following the expiration of either of the periods specified in clauses (i) and (iii) above or fifteen (15) days notice if Landlord shall not be prosecuting such repairs as required by clause (ii) hereof. Notwithstanding the foregoing, if at any time Tenant believes that Landlord shall not be diligently prosecuting such repairs and shall so notify Landlord, Tenant shall have the right to seek injunctive relief. If Tenant makes such election, the Term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease under the conditions provided in this Section, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. Landlord shall advise Tenant of any Unavoidable Delays the Landlord shall have incurred in connection with any such repair, promptly after the same shall have occurred and the length thereof. 24.09 If, at any time during the Term, the Building shall be so damaged or destroyed by fire or other casualty that its repair or restoration requires the expenditure, as estimated by a reputable contractor or architect designated by Landlord and approved by Tenant, which approval shall not be unreasonably withheld, of more than twenty-five percent (25%) of the full insurable value of the Building immediately prior to the casualty and there shall be insufficient insurance proceeds available to Landlord to pay for the estimated cost of repair and restoration, then Landlord may terminate this Lease, whether or not Tenant shall have elected to terminate this Lease pursuant to Section 24.08 hereof, by giving Tenant notice to such effect within sixty (60) days after the date of the fire or other casualty. If Landlord shall elect to so terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice 42 46 is given and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of this Lease. Upon the termination of this Lease in accordance with this Section 24.09, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. 24.10 Notwithstanding anything contained in this Lease to the contrary, if pursuant to the provisions of the Office Center Lease, dated of even date herewith, between Hartz-PW Limited Partnership, as landlord and Tenant, as tenant, (the "Office Lease") the tenant thereunder shall have the right to, and shall, terminate the Office Lease in connection with a casualty and such tenant shall be Tenant or an affiliate of Tenant, then Tenant, at Tenant's sole option, shall also have the right to terminate this Lease simultaneously with the termination of the Office Lease. If Tenant shall make such election, the Term of this Lease shall expire on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice, and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions hereof. Upon the termination of this Lease hereunder, Tenant's liability for Rent thereafter due and payable shall cease and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. ARTICLE 25 - EMINENT DOMAIN 25.01 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of conveyance of the whole of the Demised Premises in lieu thereof, this Lease shall terminate as of the day possession shall be taken by such authority. If fifteen percent (15%) or less of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority. If more than fifteen percent (15%) of the Floor Space of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority, but either party shall have the right to terminate this Lease upon 43 47 notice given to the other party within thirty (30) days after taking such possession. If so much of the parking facilities shall be so taken or conveyed that the number of parking spaces necessary, for the continued operation of the Demised Premises shall not be available, Tenant may, by notice to Landlord, terminate this Lease as of the day possession shall be taken. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Rent shall be reduced in the proportion which the area of the part of the Demised Premises so acquired or condemned bears to the total area of the Demised Premises immediately prior to such acquisition or condemnation. Except as specifically provided herein, in the event of any such taking or conveyance there shall be no reduction in Rent. If this Lease shall be terminated in accordance with the provisions of this Section 25.01, this Lease and the Term shall come to an end and expire as of the date of the taking, with the same effect as if such date were the Expiration Date, and the Rent shall be apportioned as of the date of such termination and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. If this Lease shall continue in effect, Landlord shall, at its expense, but shall be obligated only to the extent of the net award or other compensation (after deducting all expenses in connection with obtaining same) available to Landlord for the improvements taken or conveyed (excluding any award or other compensation for land or for the unexpired portion of the term of any Superior Lease), make all necessary alterations so as to constitute the remaining Demised Premises a complete architectural and tenantable unit, except for the Tenant's Property, and Tenant shall make all alterations or replacements to the Tenant's Property and decorations in the Demised Premises. All awards and compensation for any taking or conveyance, whether for the whole or a part of the Land or Building, the Demised Premises or otherwise, shall be property of Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all such awards and compensation. Tenant shall be entitled to claim, prove and receive in the condemnation proceeding such award or compensation as may be allowed for the Tenant's Property, Tenant's trade fixtures and for loss of business, goodwill, moving and depreciation or injury to and cost of removal of the Tenant's Property, to the extent such award or compensation shall be made by the condemning authority in addition to, and shall not result in a re- 44 48 duction of, the award or compensation made by it to Landlord. 25.02 If the temporary use or occupancy of all or any part of the Demised Premises shall be taken during the Term, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking which represents compensation for the use and occupancy of the Demised Premises, for the taking of the Tenant's Property and for moving expenses, and Landlord shall be entitled to receive that portion which represents reimbursement for the cost of restoration of the Demised Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award or payment which represents compensation for the use and occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive (except as otherwise provided below) so much thereof as represents compensation for the period up to and including the Expiration Date and Landlord shall receive so much thereof as represents compensation for the period after the Expiration Date. 25.03 In the event the premises leased pursuant to the Office Lease are taken or such portions of said facilities are taken resulting in a termination of the Office Lease or the Office Lease shall be terminated as a result of a taking of the premises leased pursuant to the Data Processing Lease, and the tenant under the Office Lease shall be Tenant or an affiliate of Tenant then Tenant, at Tenant's option, shall have the right to terminate this Lease on the date specified in such notice of election, which date shall be not less than six (6) months nor more than eighteen (18) months from the date of such notice; provided, however, that Tenant shall have the right to continue its occupancy of the Demised Premises subject to the terms of this Lease on a month-to-month basis (not to exceed twelve (12) months) until suitable moving arrangements are made. 45 49 ARTICLE 26 - SURRENDER 26.01 On the Expiration Date, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord "broom-clean" and in good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this Lease, and Tenant shall remove any item of Tenant's Property therefrom required pursuant to this Lease. 26.02 If Tenant remains in possession of the Demised Premises after the expiration of the Term, Tenant shall be deemed to be occupying the Demised Premises as a tenant from month to month subject to all of the provisions of this Lease, except that the monthly Fixed Rent shall be twice the Fixed Rent in effect during the last month of the Term. 26.03 No act or thing done by Landlord or its agents shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid unless in writing and signed by Landlord. ARTICLE 27 - CONDITIONS OF LIMITATION 27.01 This Lease is subject to the limitation that whenever Tenant (a) shall make an assignment for the benefit of creditors, or (b) shall commence a voluntary case or have entered against it an order for relief under any chapter of the Federal Bankruptcy Code (Title II of the United States Code) or any similar order or decree under any federal or state law, now in existence, or hereafter enacted having the same general purpose, and such order or decree shall have not been stayed or vacated within 30 days after entry, or (c) shall cause, suffer, permit or consent to the appointment of a receiver, trustee, administrator, conservator, sequestrator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, and such appointment shall not have been revoked, terminated, stayed or vacated and such official discharged of his duties within 30 days of his appointment then Landlord, at any time after the occurrence of any such event, may give Tenant a notice of intention to end 46 50 the Term at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) period, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the Expiration Date of this Lease, but Tenant shall remain liable for damages as provided in Article 29. 27.02 This Lease is subject to the further limitations (collectively, "Events of Default") that: (a) if Tenant shall default in the payment of any installment of Fixed Rent, and such default shall continue for five (5) days after invoice for same by Landlord or for five (5) days after notice of such default, whichever is shorter, or (b) if Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Fixed Rent) and such default shall continue and not be remedied within thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of thirty (30) days and the continuance of which for the period required for cure will not subject Landlord or any Superior Lessor or prosecution for a crime (as more particularly described in the last sentence of Section 12.02) or termination of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said thirty (30) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (ii) duly commence within said thirty (30) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the default, and (iii) complete such remedy within a reasonable time after the date of said notice by Landlord, (c) if Tenant shall abandon the Demised Premises, or (d) if there shall be any default by Tenant (or any person which, directly or indirectly, controls, is controlled by, or is under common control with Tenant) under any other lease with Landlord (or any person which, directly or indirectly, controls is controlled by, or is under common control with Landlord) which shall not be remedied within the applicable grace period, if any, provided therefor under such other lease, then in any of said cases Landlord may give to Tenant a notice of intention to end the Term at the expiration of five (5) days from the date of the service of such notice of intention, and upon the expiration of said five (5) days, whether or not the Term shall theretofore have commenced this Lease 47 51 shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall remain liable for damages as provided in Article 29. ARTICLE 28 - RE-ENTRY BY LANDLORD 28.01 If this Lease shall terminate as provided in Article 27, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises, or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, or otherwise, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any Person therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The word "re-enter", as used herein, is not restricted to its technical legal meaning. If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceedings or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 29. 28.02 In the event of a breach by Tenant of any of its obligations under this Lease, Landlord shall also have the right of injunction. The special remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies to which Landlord may lawfully be entitled at any time and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 28.03 If this Lease shall terminate under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance Rent, security or other- 48 52 wise, but such monies shall be credited by Landlord against any Rent due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 29 or pursuant to law. ARTICLE 29 - DAMAGES 29.01 If this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord, either: (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (i) the aggregate amount of the Rent which would have been payable by Tenant (conclusively presuming the average monthly Additional Charges payable for the year, or if less than 365 days have then elapsed since the Commencement Date, the partial year, immediately preceding such termination of re-entry) for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the Expiration Date, over (ii) the aggregate rental value of the Demised Premises for the same period, which amounts shall be discounted to present worth at a rate equal to nine percent (9%) per annum; or (b) sums equal to the Fixed Rent and the Additional Charges which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the 49 53 net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including, without limitation, altering and preparing the Demised Premises for new tenants, brokers' commissions, legal fees, and all other expenses properly chargeable against the Demised Premises and the rental therefrom, it being understood that any such reletting may be for a period shorter or longer than the period ending on the Expiration Date; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this subdivision (b) to a credit in respect of any rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Demised Premises or any part thereof, or if the Demised Premises or any part thereof are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease. 29.02 Suit or suits for the recovery of such damages or, any installments thereof, may be brought by Landlord at any time and from time to time at its elec- 50 54 tion, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provisions of Article 27, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for and obtain as damages by reason of the termination of this Lease or re-entry on the Demised Premises for the default of Tenant under this Lease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, the governing the proceedings in which, such damages are to be proved whether or not such amount be greater than, equal to, or less than any of the sums referred to in Section 29.01. 29.03 In addition, if this Lease is terminated under the provisions of Article 27, or if Landlord shall re-enter the Demised Premises under the provisions of Article 28, Tenant covenants that: (a) the Demised Premises then shall be in the same condition as that in which Tenant has agreed to surrender the same to Landlord at the Expiration Date; (b) Tenant shall have performed prior to any such termination any obligation of Tenant contained in this Lease for the making of any alteration or for restoring or rebuilding the Demised Premises, or any part thereof; and (c) for the breach of any covenant of Tenant set forth above in this Section 29.03, Landlord shall be entitled immediately, without notice or other action by Landlord, to recover, and Tenant shall pay, as and for liquidated damages therefor, the cost of performing such covenant (as estimated by an independent contractor selected by Landlord). 29.04 In addition to any other remedies Landlord may have under this Lease, and without reducing or adversely affecting any of Landlord's rights and remedies under this Article 29, if any Rent or damages payable hereunder by Tenant to Landlord are not paid within five (5) days after demand therefor, the same shall bear interest at the Late Payment Rate from the due date thereof until paid, and the amounts of such interest shall be Additional Charges hereunder. 51 55 ARTICLE 30 - AFFIRMATIVE WAIVERS 30.01 Tenant, on behalf of itself and any and all persons claiming through or under Tenant, does hereby waive and surrender all right and privilege which it, they or any of them might have under or by reason of any any present or future law, to redeem the Demised Premises or to have a continuance of this Lease after being dispossessed or ejected from the Demised Premises by process of law or under the terms of this Lease or after the termination of this Lease as provided in this Lease. 30.02 Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Demised Premises and use of the Common Areas, including, without limitation, any claim of injury or damage, and any emergency and other statutory remedy with respect thereto. Tenant shall not interpose any counterclaim of any kind in any action or proceeding commenced by Landlord to recover possession of the Demised Premises (unless failure to do so would constitute a waiver thereof) nor attempt to remove such action or proceeding to the law division of the Superior Court of New Jersey. ARTICLE 31 - NO WAIVERS The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or Additional Charges with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. 52 56 ARTICLE 32 - CURING TENANT'S DEFAULTS If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice in a case of emergency, and in any other case only if such default continues after the expiration of thirty (30) days from the date Landlord gives Tenant notice of the default. Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable attorneys' fees and expenses, involved in collecting or endeavoring to collect the Rent or any part thereof or enforcing or endeavoring to enforce any rights against Tenant or Tenant's obligations hereunder, under or in connection with this Lease or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings or in recovering possession of the Demised Premises after default by Tenant or upon the expiration of the Term or sooner termination of this Lease, and interest on all sums advanced by Landlord under this Article at the Late Payment Rate, may be sent to Landlord to Tenant monthly, or immediately, at Landlord's option, and such among shall be due and payable in accordance with the terms of such bills. ARTICLE 33 - BROKER Landlord and Tenant each represent to the other that no broker except the Broker was instrumental in bringing about or consummating this Lease and that it had no conversations or negotiations with any broker except the Broker concerning the leasing of the Demised Premises. Each party agrees to indemnify and hold harmless the other against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by the indemnifying party with any broker other than the Broker. Landlord shall pay any brokerage commissions due the Broker pursuant to a separate agreement between Landlord and the Broker. 53 57 ARTICLE 34 - NOTICES Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Lease or pursuant to any applicable Legal Requirement, shall be in writing and shall be deemed to have been properly given, rendered or made only if hand delivered or sent by United States registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth (except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building) as to Landlord, to the attention of General Counsel with a copy to the attention of President and to Horowitz, Bross, Sinins and Imperial, 1180 Raymond Boulevard, Newark, New Jersey 07102-4172, Attention: Irwin A. Horowitz, Esq., and as to Tenant, to the attention of Facilities Department-Vice President, with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, Attention: Benjamin F. Needell, Esq., and shall be deemed to have been given, rendered or made on the day after the day so delivered or mailed, unless mailed outside the State of New Jersey in which case it shall be deemed to have been given, rendered or made on the third business day after the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, consents, approvals or other communications intended for it. ARTICLE 35 - ESTOPPEL CERTIFICATES Each party shall, at any time and from time to time, as requested by the other party, upon not less than ten (10) days' prior notice, execute and deliver to the requesting party a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the Fixed Rent and Additional Charges have been paid, stating whether or not, to the best knowledge of the party giving the statement, the requesting party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the party giving the statement shall have knowledge, and stating whether or not, to the best knowledge of the party giving the statement, any 54 58 event has occurred which with the giving of notice of passage of time, or both, would constitute such a default of the requesting party, and, if so, specifying each such event; any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Each party also shall include in any such statement such other information concerning this Lease as the other party may reasonably request. ARTICLE 36 - ARBITRATION Landlord or Tenant may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. ARTICLE 37 - MEMORANDUM OF LEASE This Lease shall not be recorded, however, at the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver to the other party (i) a memorandum of lease in respect of this Lease sufficient for recording, and (ii) after each of the Commencement Date, the Fixed Rent Commencement Date, and any Renewal Term Commencement Date, either an agreement or a restated memorandum (if a memorandum shall have been executed or recorded as provided immediately above) stating the Commencement Date, Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be, each sufficient for recording. Failure by either party to request or to execute, acknowledge or deliver any such memorandum or agreement, however, shall not affect the determination of the Commencement Date, the Fixed Rent Commencement Date or any Renewal Term Commencement Date, as the case may be. Such memorandum 55 59 shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease. Whichever party records such memorandum of Lease shall pay all recording costs and expenses, including any taxes that are due upon such recording. ARTICLE 38 - MISCELLANEOUS 38.01 Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement(s) which may be made between the parties concurrently with the execution and delivery of this Lease. All understandings and agreements heretofore had between the parties are merged in this Lease and any other written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation. Neither party has relied upon any statement or representation not embodied in this Lease or in any other written agreement(s) made concurrently herewith. 38.02 No agreement shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing, refers expressly to this Lease and is signed by Landlord and Tenant. 38.03 If Tenant shall at any time request Landlord to sublet or let the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord of any liability for loss or damage to any of the Tenant's Property in connection with such subletting or letting. 38.04 Except as otherwise expressly provided in this Lease, the obligations under this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party is named or referred to; provided, however, that the provisions of this Section 38.04 shall not be construed as modifying the conditions of limitation contained in Article 27. 56 60 38.05 Except for Tenant's obligations to pay Rent, the time for Landlord or Tenant, as the case may be, to perform any of their respective obligations hereunder shall be extended if and to the extent that the performance thereof shall be prevented due to any Unavoidable Delays. Except as expressly provided to the contrary, the obligations of Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord have any liability whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease due to any of the matters set forth in the first sentence of this Section 38.05, or (b) because of any failure or defect in the supply, quality or character of electricity, water or any other utility or service furnished to the Demised Premises for any reason beyond Landlord's reasonable control. 38.06 Any liability for payments or reimbursement of payments hereunder (including, without limitation, Additional Charges) shall survive the expiration of the Term or earlier termination of this Lease. 38.07 Tenant shall give prompt notice to Landlord of (a) any occurrence in or about the Demised Premises for which Landlord might be liable, (b) any fire or other casualty in the Demised Premises, (c) any damage to or defect in the Demised Premises, including the fixtures and equipment thereof, for the repair of which Landlord might be responsible, and (d) any damage to or defect in any part of the Demised Premises, sanitary, electrical, heating, ventilating, air conditioning, elevator or other systems located in passing through the Demised Premises or any part thereof. 38.08 This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall, be invalid or unenforceable, the remainder of this Lease shall not be affected and shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. If any words or phrases in this Lease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the 57 61 fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 38.09 Within thirty (30) days of each anniversary date of this Lease, annually Tenant shall furnish to Landlord a copy of its then current audited financial statement (or form 10-K) which shall not be distributed without the prior authorization of Tenant. 38.10 At any time after the Commencement Date, but prior to the Fixed Rent Commencement Date, Tenant shall have the right to request a recalculation of Floor Space and Tenant's Fraction. In addition, at any time during the Term, Tenant shall have the right to request a redetermination of Operating Expenses because of a claimed increase in the floor space of improvements constructed in the Lincoln Harbor Project, or because of a redetermination of Floor Space pursuant to this Section, the Floor Space shall be less than 141,669. If Tenant shall make any such request, then the Architect and an architect appointed by Tenant shall remeasure the floors of the Demised Premises or the floor space of the improvements in the Lincoln Harbor Project, as the case may be,in accordance with the standards set forth on Exhibit "D" annexed hereto and made a part hereof. If Architect and the architect appointed by Tenant shall agree, the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as determined by such architects shall be conclusive and binding upon the parties. If the Architect and the architect appointed by Tenant shall be unable to agree as to the Floor Space, Tenant's Fraction, or the Operating Expenses, as the case may be, then such architects shall select a third architect (or if such architects shall be unable to agree upon such third architect, the same shall be selected by the American Arbitration Association or successor organization) and such third architect shall select either the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as calculated by the Architect or the Floor Space, Tenant's Fraction or the Operating Expenses, as the case may be, as calculated by the architect appointed 58 62 by Tenant. In no event, however, may either the Floor Space, Tenant's Fraction or the Operating Expenses be increased from the amounts set forth herein. Such finding shall be conclusive and binding upon the parties. 38.11 Notwithstanding anything contained in this Lease to the contrary, if pursuant to Section 38.12 of the Office Lease, the tenant thereunder shall elect to cancel the Office Lease, then Tenant shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice to Landlord of such cancellation no later than the tenth (10th) day after such date. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period provided that Landlord shall not have delivered such premises to Tenant during such period, and Landlord and Tenant shall be released and discharged of and from all liabilities under the provisions of this Lease as of the date of such Termination. In addition, if for any reason other than Tenants' fault, the Commencement Date shall not have occurred on or before July 1, 1989, as to which date time shall be of the essence, then, in addition to any other remedies set forth in this Lease, Tenant shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice to Landlord of such cancellation no later than the fifteenth (15th) day after such date. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period provided that the Commencement Date shall not have occurred during such period, and Landlord and Tenant shall be released from all liabilities under the provisions of this Lease as of the date of such termination. In addition, if for any reason other than Landlord's or Tenant's fault, the Commencement Date shall not have occurred on or before February 1, 1990, then, on the later to occur of February 1, 1990, and the date on which construction on the Building and the Demised Premises shall have experienced Unavoidable Delays equal to twelve (12) months in the aggregate, Landlord and Tenant each shall have the option to cancel this Lease and the Term by giving thirty (30) days' notice of such cancellation to the other party. Upon the giving of such notice, this Lease and the Term shall expire and come to an end as of the expiration of such thirty (30) day period, and Landlord and Tenant shall be 59 63 released from all liabilities under the provisions of this Lease as of the date of such Termination. 38.12 Tenant acknowledges that pursuant to the provisions of the Agreement of Limited Partnership, dated of even date herewith, of Landlord, Tenant, as limited partner thereunder, has pledged its partnership interest thereunder to secure its obligations hereunder for a period of five years from the Fixed Rent Commencement Date. 38.13 Notwithstanding anything contained herein to the contrary, Tenant shall have the right, by written notice given to Landlord at any time prior to October 14, 1986, to increase or decrease the Floor Space of the Demised Premises by an amount, in the case of an increase, not to exceed the remaining portion of the office space in the Building, and in the case of a decrease, by any amount, including all the Floor Space, resulting in a termination of this Lease. Within ten (10) business days after the giving of such notice (except in the case of a decrease resulting in a termination of this Lease), the parties hereto shall enter into an amendment to this Lease (and to any memorandum of lease recorded in connection herewith), setting forth the amended Floor Space, Tenant's Fraction and Tenant's Proportionate Share, if applicable. ARTICLE 39 - EXTENSION OF TERM 39.01 Tenant shall have the option (the "Renewal Option") to extend the Term for two (2) additional periods of ten (10) years each (the "Renewal Terms"), shall (i) commence on the original Expiration Date and end on the date preceding the tenth (10th) anniversary of the original Expiration Date (the "First Renewal Term"), and (ii) commence on the date immediately succeeding the last day of the First Renewal Term and end on the date preceding the twentieth (20th) anniversary of the original Expiration Date (the "Second Renewal Term") provided that (a) this Lease shall not have been previously terminated and (b) no material Event of Default shall have occurred and be continuing as of the date Tenant shall give the Renewal Notice (hereinafter defined). Each Renewal Option may be exercised with respect to the entire Demised Premises only and shall be exercisable by Tenant delivering to Landlord written notice (the "Renew 60 64 al Notice") of Tenant's election to exercise the applicable Renewal Option at least nine (9) months prior to the original Expiration Date with respect to the First Renewal Term, and at lease nine (9) months prior to the tenth (10th) anniversary of the Commencement Date with respect to the Second Renewal Term. Upon the giving of the Renewal Notice with respect to the Second Renewal Term, Tenant shall have no further option or right to extend the Term. If Tenant exercises a Renewal Option, the Renewal Term with respect to which Tenant shall exercise the Renewal Option shall be on the same terms, covenants, and conditions as those contained in this Lease, except (i) the Fixed Rent payable for the Demised Premises during each Renewal Term shall be determined as provided in Section 39.03 hereof, and (ii) the provisions of Section 39.01 hereof with respect to Tenant's right to renew the Term of this Lease shall not be applicable during the Second Renewal Term. It is expressly understood that during the First Renewal Term that Tenant shall have the right as set forth in Section 39.01 only with respect to the Second Renewal Term, that during the Second Renewal Term Tenant shall have no further right to renew this Lease. 39.02 If Tenant exercises the Renewal Option applicable to the First Renewal Term or the Second Renewal Term, as the case may be, the Fixed Rent for the Demised Premises shall be an amount equal to the Fair Market Rent (hereinafter defined), determined in accordance with Article 40 hereof, for the Demised Premises. 39.03 If, for any reason whatsoever, the Fair Market Rent shall not have been determined pursuant to Article 40 hereof by the commencement of the First Renewal Term or Second Renewal Term, as the case may be, the Tenant shall pay to Landlord in monthly installments until such determination, on account of the Fixed Rent, an amount equal to the Fixed Rent in effect on the date immediately prior to commencement of the First Renewal Term or Second Renewal Term, as the case may be. Following the final determination of Fair Market Rent, a reconciliation shall be made as follows: if the monthly installments of Fixed Rent determined pursuant to this Article 39 are more than the amounts Tenant had paid therefor, Tenant shall pay to Landlord within ten (10) days of such determination the amount of such underpayment of Fixed Rent due. 61 65 ARTICLE 40 - DETERMINATION OF FAIR MARKET RENT 40.01 For purposes of this Lease the term "Fair Market Rent" shall mean the annual fair market rental value of the Demised Premises determined as if the Demised Premises were available in the then rental market for comparable office space in the northern New Jersey area on the terms of this Lease and assuming that Landlord has had a reasonable time to locate a tenant who rents with the knowledge of the uses permitted pursuant to this Lease, and that neither Landlord nor the prospective tenant is under any compulsion to rent, and taking into account: (i) tenant is required to pay the Operating Expenses; (ii) the remaining Term of this Lease and any remaining Renewal Term, as well as the portion of the Term then elapsed; (iii) the fact that the tenant is a major tenant; (iv) the fact that Landlord will not be obligated to perform any work in the Demised Premises to prepare the same for Tenant's occupancy or to contribute or to loan any money on account thereof whether in the form of rent, credit, cash or otherwise. 40.02 The Fair Market Rent shall be determined on the basis set forth in Section 40.01 of this Article and with the assumption that the tenant need not perform any work in order to occupy the Demised Premises for the conduct of business. 40.03 Landlord shall give Tenant written notice (the "Rent Notice") setting forth Landlord's determination of the Fair Market Rent (the "Landlord's Determination"). Such notice will be sent not later than forty-five (45) days after receipt by Landlord of each of the Renewal Notices. 40.04 Tenant shall give Landlord written notice ("Tenant's Notice"), within forty-five (45) days after Tenant's receipt of the Rent Notice, as to whether Tenant accepts or disputes Landlord's Determination or any portion thereof. If Tenant in Tenant's Notice accepts Landlord's Determination, or if Tenant fails or refuses to give Tenant's Notice as aforesaid, Tenant shall be deemed to have accepted Landlord's Determination. If Tenant in Tenant's Notice disputes any portion of Landlord's Determination, Tenant shall deliver to Landlord together with Tenant's Notice, Tenant's determination of the Fair Market Rent of the portion of the Demised Premises for which Tenant disputes Landlord's 62 66 Determination (the "Tenant's Determination"); simultaneously therewith Tenant shall notify Landlord of an individual ("Tenant's Advisor") selected by Tenant to act on its behalf for the purposes of this Article 40. 40.05 Landlord shall give Tenant written notice ("Landlord's Notice") within ten (10) business days of after Landlord's receipt of Tenant's Determination, as to whether Landlord accepts or disputes Tenant's Determination. If Landlord in Landlord's Notice accepts Tenant's Determination or if Landlord fails or refuses to give Landlord's Notice as aforesaid, Landlord shall be deemed to have accepted Tenant's Determination. If Landlord in Landlord's Notice disputes Tenant's Determination, Landlord shall in such Notice advise Tenant of the name of an individual ("Landlord's Advisor") selected by Landlord to act on its behalf for the purposes of this Article 40. If within twenty (20) days after Tenant's receipt of Landlord's Notice, Landlord's Advisor and Tenant's Advisor shall mutually agree upon the determination ("Mutual Determination") of the Fair Market Rent, their determination shall be final and binding upon the parties. If Landlord's Advisor and Tenant's Advisor shall be unable to reach a Mutual Determination within said twenty (20) day period, both of the advisors shall jointly select an independent real estate appraiser (the "Appraiser") whose fee shall be borne equally by Landlord and Tenant. In the event that Landlord's Advisor and Tenant's Advisor shall be unable to jointly agree on the designation of the Appraiser within five (5) days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association or any successor organization to designate the Appraiser in accordance the rules, regulations and/or procedures of the American Arbitration Association or successor organization then obtaining with respect to real estate valuation disputes. 40.06 The Appraiser shall proceed to determine the Fair Market Rent in accordance herewith. The two determinations of the Advisors and the Appraiser which are closest shall then be averaged and such averaged amount shall be conclusive and binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article 40, including the expenses and fees of any Advisor selected by it in accordance with the provisions of this Article 40. The Appraiser appointed pursu- 63 67 ant to this Article 40 shall be a real estate appraiser with at least ten (10) years experience in the leasing of office space in, and valuation, of properties which are similar in character to the Building, a member of the American Institute of Appraisers of the National Association Real Estate Boards or successor organization and a member of the Society of Real Estate Appraiser or its successor organization. Neither the Appraiser nor the Advisors shall have the power to add to, modify or change any of the provisions of this Lease. 40.07 If the Fair Market Rent shall be finally determined to be in excess of five percent (5%) greater than Tenants' Determination, then Tenant, within ten (10) days after receipt of the final determination may notify Landlord of its election not to renew the Term, in which event, Tenant shall be deemed not to have exercised the applicable Renewal Option and this Lease and the Term shall expire as if such applicable Renewal Option had not been exercised. 40.08 It is expressly understood that any determination of the Fair Market Rent pursuant to this Article 40 shall be based upon the criteria stated herein. 40.09 Anything herein to the contrary notwithstanding, the Fair Market Rent shall not be less than the Fixed Rent payable immediately prior to the commencement of the Renewal Term in question. 64 68 40.10 After final determination has been made of Fair Market Rent for any purpose of this Lease, the parties shall execute and deliver to each other an instrument setting forth the amount thereof and the amount of Fixed Rent payable as a result of such determination; provided, however, that failure to execute such supplementary agreement shall not affect the determination of Fixed Rent. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. Landlord: HARTZ-PW HOTEL LIMITED PARTNERSHIP By: Hartz Mountain Industries, Inc., general partner By: /s/ Stephen M. Kelty, ---------------------------- Stephen M. Kelty, Vice President Tenant: PAINEWEBBER INCORPORATED By: /s/ Rodger Parker, --------------------------------- Rodger Parker, Senior Vice President 65 69 Exhibit "A" Description of the Building The proposed Tower II Building is to be located at Lincoln Harbor, Weehawken, New Jersey. The 11 story building will consist of lobbies and retail (42,300+ square feet) on the grade and mezzanine levels. A hotel (121,700+ square feet) on the second thru fifth floors and office space on the sixth thru eleventh floors. The gross square footage of office space is 273,500+ including penthouse, lobby, and a portion of the atrium lobby. The core mechanical design (HVAC, electric, plumbing, and sprinklers) is designed to meet the build out standards in this specification. Any modification to the base mechanicals will be at tenant's expense. A-1 70 Exhibit "B" Demised Premises Floors 6, 7 and 8 B-1 71 Exhibit "C" Fixed Rent (a) Commencing on the Fixed Rent Commencement Date: $11.97 for years 1-4, $13.47 for years 5-9, $16.47 for years 10-14, or $20.47 for years 15-19. (b) Commencing on the twentieth anniversary of the Commencement Date and terminating on the original Expiration Date, the Fixed Rent shall be an amount equal to the lesser of (x) the Fair Market Rent, determined in accordance with Article 40 hereof and (y) the product of the Floor Space and Forty-Two and 45/100 Dollars. ($42.45), but in no event less than the Fixed Rent payable during the twentieth (20th) year of the term. C-1 72 Exhibit "D" Floor Space As to a demised premises, the sum of the floor area stated in square feet bounded by the exterior faces of the exterior walls, or by the exterior or common areas face of any wall between the premises and any portion of the common areas, or by the center line of any wall between the premises and space leased or available to be leased to another tenant or occupant. Any reference to floor space of a building shall mean the floor area of all levels or stories of such building, excluding any roof, except such portion thereof as is permanently enclosed, and including any interior basement level or mezzanine area not occupied or used by a tenant on a continuing or repetitive basis, and any mechanical room, enclosed or interior truck dock, interior common areas, and areas used by a landlord for storage, for housing meters and/or other equipment or for other purposes. Any reference to the floor space is intended to refer to floor space of the entire area in question irrespective of the person(s) who may be the owner(s) of all or any part thereof. The anticipated Floor Space of the Demised Premises is estimated to be 141,669. D-1 73 Exhibit "E" HOTEL/OFFICE Land BLOCK 34C LOT 4.04 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30"E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Properties of Hartz Mountain Industries, Inc.," and prepared by Assolina & Feury Engineering Company, dated March 14, 1986, revised to March 14, 1986, and running; thence, A) N 21 degrees-21'-30" E, along said property line 86.70 feet to a point on curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 and a radial bearing of N 14 degrees-11'-23" W through a central angle of 25 degrees-01'-56", for an arc distance of 477.53 feet; thence, C) Along said property line, N 38 degrees-30'-00" E, 550.05 feet; thence, D) Departing said property line, S 50 degrees-33'-12" E, 86.23 feet to a point; thence, E) N 38 degrees-52'-10" E, 383.37 feet to a point of curvature; thence, F) Northeasterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, G) S 51 degrees-07'-50" E, 156.00 feet to a point; thence, H) S 38 degrees-52'-10" W, 35.00 feet to the point of beginning; thence, E-1 74 1) S 51 degrees-07'-50" E, 101.00 feet; thence, 2) N 38 degrees-52'-10" E, 121.00 feet; thence 3) S 51 degrees-07'-50" E, 124.00 feet; thence, 4) S 38 degrees-52'-10" W, 122.13 feet; thence, 5) S 8 degrees-06'-20" E, 41.04 feet; thence, 6) S 38 degrees-52'-10" W, 91.74 feet; thence, 7) S 85 degrees-50'-40" W, 41.04 feet; thence, 8) S 38 degrees-52'-10" W, 102.13 feet; thence, 9) N 51 degrees-07'-50" W, 225.00 feet; thence, 10) N 38 degrees-52'-10" E, 251.00 feet to the point of beginning. Containing 75,071 square feet (1.72 acres). E-2 75 [SURVEY OF LINCOLN HARBOR] E-3 76 Exhibit "F" Landlord's Work F-1 77 EXHIBIT "F" HARTZ MOUNTAIN INDUSTRIES, INC. LINCOLN HARBOR TOWER II HOTEL/OFFICE BUILDING March 17, 1986 78 PROJECT DESCRIPTION The proposed Tower II Building is to be located at Lincoln Harbor, Weehawken, New Jersey. The 11 story building will consist of lobbies & retail on the grade and mezzanine levels. A hotel on the second thru fifth floors and office space on the sixth thru eleventh floors. The gross square footage of office space is 269,500+ including penthouse, lobby, and a portion of the atrium lobby. The core mechanical design (HVAC, electric, plumbing, & sprinklers) is designed to meet the build out standards in this specification. Any modification to the base mechanicals will be at tenant's expense. In addition to the requirements described herein, the construction of the building and all related facilities shall be in conformance with the most recent editions of all applicable codes, standards, specifications, and regulations. - 1 - 79 SITE DEVELOPMENT (Same as Paine Webber Operations Building) A. Site Preparation: Sufficient fill will be brought into the site so that all occupied first floor elevation will be at +11.0 feet. This is above the 100 year flood level. 1. All utilities, which will be underground, will be brought to the building site. 2. All major supporting roads on the site will be constructed to insure adequate access and traffic circulation, to include a bridge over railroad right of way. B. Building Foundations: Foundation will be supported by end bearing piles which will be driven to bedrock. Piles will be concrete filled, steel casing, rated at 100 tons. Concrete pile caps will complete the foundation. C. Parking: Decked parking will be provided at one (1) space for 690 sq. ft. D. Landscaping: The area to the east of the new office building will be developed into a large plaza leading to Harbor Boulevard. 1. All areas around building will be heavily landscaped. - 2 - 80 STRUCTURAL: (Same as Paine Webber Operations Building) A. Structural System Description: The primary structural system for the building shall be concrete flat plate design for the hotel floors and structural steel rolled members with composite deck and concrete slab and steel columns for the office floors above. B. Structural Loadings: 1. Live Loads Typical Floor 100 psf Roof per Code (incl. (boca snow drift) Print Center 200 psf minimum (subject to ventilation) of equipment) Live Load reduction per code on floor girders, columns and foundations only. 2. Lateral Loads Structural Frame per Code Cladding 30 psf minimum C. Structural Materials: 1. Structural Steel A - 36 or A - 527, gr. 50 2. Concrete for a 4000 psf. min. - 3 - 81 EXTERIOR ENCLOSURE (Same as Paine Webber Operations Building) A. Vertical Walls Above Grade: Wall system shall be based upon two distinct lines of defense against water and air infiltration. 1. Wall system shall resist positive and negative loads of 35 psf. 2. Glazing System: Facade glass to be insulating type with CPA certification. All glass thickness and heat treatment to sustain wind loads and to resist temperature stress breakage. Limit breakage to certification per 1,000. Fixed aluminum frames with continuous PVC thermal break with either hardcoat anodized finish or resinous ("Kynar") coated of selected color. Provide a glazing system utilizing neoprene gaskets and a pressure plate system designed using the pressure equalized rain screen principle. 3. Insulation: Rigid insulation with vapor barrier which will achieve a total wall "R" value of 12.5 minimum installed. 4. Water Control: Control is at lime coincident with head of windows at each level to anticipate water infiltration potential at sealant points. Weep system incorporated at glazing enframement. There will be a continuous vapor barrier between internal and external spaces. 5. Mock-Up and Testing: Cladding material, anchorage, glazing enframement, glass, sealant and flashing systems will be tested for air infiltration, water penetration, and structural performance. Extent of mock-ups will be shown on drawing. 6. Roofing: The roofing is to be designed for controlled flow drainage. Provide a complete insulated membrane (IRMA) roofing system; consisting of steel framing with metal decking, covered with 5/8" type x gypsum board. A three ply build up roof consisting of fiberglass felts to be applied over gypsum board covered by styrofoam F. M. brand insulation with a "U" value of 0.08 BTU sq. ft. Deg F. and stone ballast. - 4 - 82 C. Parking Structure: Requirements to be determined. D. Moisture Protection: Provide the following systems as required in conjunction with other assemblies as follows: 1. Waterproofing: Provide fluid applied two-part urethane rubber waterproofing (Gates) with protection board as specified by the manufacturer. 2. Damproofing: Provide a cold applied asphalt based damproofing to all exterior foundations not requiring waterproofing. Provide asphalt protection board. 3. Elevator Pit Waterproofing: Capillary waterproofing (Vandex). 4. Sealants: Provide two component urethane sealant (Tremco/Dymeric) for all building seals other than structural glazing. 5. Flashing: ASTM A167, Tpe 304, deal soft fully annealed, 0.015 in. unless greater thickness required. 6. Roof Accessories: Premanufactured products best suited for intended use. Provide stainless steel fabrications. 7. Insulation: a. Fire Safing: Thermafiber Safing US Gypsum b. Insulation: Rigid fiberglass board insulation with reinforced foil vapor barrier facing on each side. Thickness as required for "U" value required. - 5 - 83 INTERIOR - BASE BUILDING: (Same standards as Paine Webber Operation Building) A. Entrance Lobby: 1. Floors: Granite. (costing no more than $15.00 per sq. ft.) 3 cm. min. set in a full mortar bed (see sample) 2. Walls: Granite adhesive applied (see sample) 3. Ceilings: Portland cement plaster on suspended metal lath. 4. Lighting: Recessed incandescent. B. Typical Floor Elevator Lobbies: 1. Floors: Carpet (allowance $2.00 per sq. ft.) 2. Walls: Vinyl (allowance $1.50 per sq. ft.) 3. Ceilings: Gypsum wallboard. 4. Lighting: Recessed incandescent. C. General Effects Area: 1. Floors: Steel troweled concrete, sealed for dustproofing. D. Toilets and Vestibules: 1. Floors: 1" x 1" ceramic mosaic tile with sanitary cove base, of color to be selected, set onto waterproof membrane. - 6 - 84 2. Walls: All walls with 2" x 2" ceramic tile, of color to be selected, set on moisture resistant gypsum wallboard with organic adhesive, extending to ceiling. a. Shaft Walls: Cavity walls with 2 hr. fire-rating, minimum STC of 47 db., consisting of 1" shaft wall liner panel, C-H studs 24" o.c., and two layers 1/2" gypsum wallboard. b. Fire-rates Walls: 2 hr. fire-rating and minimum STC of 48 db., consisting of two layers 5/8" gypsum wallboard on each side of metal studs spaced 24" o.c., painted. c. Non-Fire-rated Walls: One layer 5/8" gypsum wallboard on each side of metal studs (with insulation to underside of construction, STC 45 db.) 3. Ceilings: Suspended 5/8" thick gypsum wallboard with required metal access panels, painted with enamel. 4. Lighting: Recessed parabolic fluorescent fixtures. 5. Doors, Frames, Hardware: a. Doors: Flush seamless hollow metal 1-3/4" thick, 16 ga., full height, width as required, factory primed, field painted, and labeled as fire-rated walls and partitions. b. Frames: Welded hollow metal, 16 ga., size as required, factory primed, field painted, and labeled at pre-rated walls and partitions. c. Hardware: Mortise locksets with lever handles, ball bearing hinges and parallel arm closeures; polished stainless steel finish. 6. Toilet Partitions: Ceiling hung flush metal type with baked enamel finish and vandalproof hardware. 7. Toilet Accessories: Stainless steel units with No. 4 satin finish, including combination towel dispenser and disposal, napkin dispenser and disposal, tissue dispenser, soap dispenser, grab bars, mirrors and shelves. Provide 1/4" thick mirrors complying with F5 DD-G-451 type 1 class 1 quality 9. 8. Lavatory Countertops: "Corian" on marble grade plywood with back and side splashes with miscellaneous metal framing. - 7 - 85 E. Stairs: 1. Stairs and Landings: Cement filled steel pan, surfaces hardened and sealed. Underside and other exposed metal surfaces finish painted. 2. Railings, Guards: 1-1/2" diameter steel tube, finish painted. 3. Walls: Continuous metal stud and gypsum board partitions for full height of stair enclosure. Painted finish. 4. Ceilings: Exposed construction, painted. 5. Lighting: Strip fluorescent fixtures, surface mounted. F. Doors and Frames, Hardware. 1. Doors: Flush, hollow metal, 1-3/4" thick, 18-gauge at interior, 16-gauge galvanized at exterior, ceiling high, width as required, factory prime, field painted, labeled at rated walls and partitions. Provide vision panel in all service vestibule doors. 2. Frames: Welded hollow metal, 16-gauge at interior, 14-gauge galvanized at exterior, size as required, factory prime, field painted, labeled at rated walls and partitions. 3. Hardware: Same as Dbc. G. Electrical and Telephone Closets: 1. Shaft Walls: Cavity walls with 2 hr. fire-rating and minimum STC of 47db. consisting of 1" shaft wall liner panel, C-H studs at 24" o.c. and two layers 1/2" gypsum wallboard on room side, painted. Spacing of studs to be doubled at blind shaft condimones. - 8 - 86 H. Parking Area: 1. Floor: All floors above occupied areas to be waterproofed. I. Interior Masonry Walls: Concrete masonry units complying with ASTM C90, Grade N-1 and ASTM C145, Grade N-1, maximum density of 95 lbs. Provide portland-cement-lime mortar complying with ASTM C270, Type N. J. Miscellaneous Metals: Shop primed A36 steel, rolled sections. Sizes and shapes best suited for intended use and capable of sustained imposed loads. K. Rough Carpentry: Provide rough carpentry as required for use with other work. Provide fire - resistance treated wood for all interior locations. L. Ornamental Metals: ASM A167, Type 3C2 and 304 stainless steel, No. 6 mirror finish. Thickness is required to provide flat surfaces free from distortion. M. Paint: First line quality, alkyd enamel of PPG. Glidden or Benjamin Moore. Provide enamel finish. - 9 - 87 VERTICAL TRANSPORTATION A. Materials & Equipment 1. Elevators serving the office floors of the building will consist of (5) 4000 lb. passenger elevators operating at 350 F.P.M. with 48" wide center opening doors. 2. The elevators will be designed to provide a five minute handling capacity of 14% of the population at an interval of 27.1 seconds. 3. Passenger elevators shall be based on Westinghouse Epoch Supervisory Control System, center opening doors, and traffic sentinel door controls (or equal). 4. One service elevator with a 6000 lb. capacity will be installed. - 10 - 88 Plumbing: A. Sanitary System: Provide a complete system of sanitary services, including toilet facilities, fixtures, drains, vents, water, etc., including all connections to the work services. 1. Provide a complete plumbing system with mens and ladies facilities on each floor to handle the total population of the Tenant. A minimum of 7 flush valve fixtures and 4 lavatories shall be provided on each floor for each sex. Toilet facilities shall be so located that no point on the floor is more than 200 feet from a Toilet room. Provisions shall be made in each toilet for the physically handicapped. Four drinking fountains shall be provided per floor. 2. Provide 4 wet stacks consisting of soil vent, cold water and hot water to facilitate future Tenant installations. 3. All branch water connections shall include a stop valve for maintenance purposes. B. Hot and Cold Water Piping System: 1. Provide a system of hot and cold water piping, as required, for plumbing fixtures, interior and exterior hose bibbs, water coolers, etc. The hot water system shall include a central heating plant utilizing the most efficient energy source available. Submit for Paine Webber approval an economic analysis for the various fuel sources considered. Provide circulation pumps and piping to assure prompt availability of water at a minimum of 110 degrees F. The cold water system shall include pumps, tanks and valves as required to supply water to fixtures at a minimum of 25 psig and a maximum of 85 psig. -11 - 89 2. Provide for flushing and sterilization as required by code of all domestic water piping. C. Sanitary Drains and Vents: Provide a system of drains and vents to convey sanitary wastes from the building to the sewer system. D. Storm Drainage: Provide a system of drains and piping to convey the storm water from the building to a point of disposal on the site. - 12 - 90 E. Plumbing Fixtures: 1. Plumbing fixtures specified are as manufactured by Kohler or American Standard, or the equal may be furnished at Paine Webber's option. 2. Flush valves specified are as manufactured by Sloan. The U type flush valves as manufactured by Delaney may be furnished at the Contractor's option. 3. Carriers as manufactured by Zurn, J.R. Smith or Wade shall be furnished. 4. All exposed metal parts and fittings on plumbing fixtures shall be chrome plated unless otherwise called for. 5. Provide stop valves on hot and cold water lines at all plumbing fixtures. F. Water Closets: 1. Vitreous china, wall hung, siphon jet action, elongated bow 1-1/2 inch top spud for chrome plated exposed flush valve metal oscillating handle 1 inch screwdriver angle stop valve, flush connection, coupling for 1-1/2 inch top spud wall and spud flanges. White seat, with extended back for elongated bowl, open front, no cover, stainless steel check hinge. 2. Horizontal or vertical carrier with short foot. Use neopore gaskets and bolt carrier to floor. Mount closet with the rim inches above floor. 3. Equipment manufacturers and model numbers are as follows: Bowl Afwall Flush Valve 110 Seat Chilton 5326.114, units G. Lavatories: Vitreous china, front overflow, antisplash rim, cast-in soap dish American Standard "Roxalyn" pattern in 20 size. Fittings to be American Standard "heritage" 2131 combination supply and drain fitting with aerator spout. Drain plug with integral perforated grid and 1-1/2 inch tailpiece. Provide 3/8 inch chrome plated supply stop valves R-2624-1 with screwdriver stop and escutcheons. H. Drinking Fountains: Remote, wall recessed cooler, completely automatic with precooler, tank, cooling coil, hermetic condensing unit, insulated cooling system, serving stainless steel wall mounted fountains. A minimum of one dual level fountain for handicapped shall be provided per floor. - 13 - 91 I. Materials: Service Materials ------- --------- Underground water and site Cement lined ductile iron fire protection Underground gas and air Welded wrapped black steel Site storm drainage 12 inches and below - PVC or concrete pipe 14 inches and above - reinforced concrete Site sanitary Cast iron or PVC Underslab sanitary Cast iron or PVC Above slab sanitary Cast iron Plumbing vents Cast iron J. Insulation: Insulate pipes and other surfaces inside the building as follows: 1. Hot water pipes. 2. Cold water pipes. 3. Horizontal storm pipes over concreted areas including leader to roof drain. - 14 - 92 Fire Protection A. Provide a full standpipe and sprinkler system in accordance with applicable NFPA Standards. Sprinkler system shall be hydraulically designed to deliver .1 gpm/sq. ft. in offices areas and appropriate densities in ordinary hazard areas. Sufficient heads shall be allowed for partitioning. Standpipe system shall include pumps and valves as required, but hose may be eliminated if permitted by the authorities. Hartz will, as part of its "base building" provide for system in the core of the building. Distribution into floors will be part of tenant allowance. - 15 - 93 ELECTRICAL Electrical Design of the office portion of the building is based on the following criteria. The core work will stop at the riser panels on the individual floors and sized to meet the following specifications. SCOPE The work to be furnished shall consist of the furnishing of all labor, materials, equipment, and appliances for the complete execution of all electrical work indicated on the plans and/or called for in this specification as required by the site conditions for the proposed building, in accordance with all rules and regulations of the municipality and all other authorities having jurisdiction including National Electric Code. The scope of the work to be performed shall include but not be limited to the following: 1. Temporary power and power provisions. 2. Installation of Distribution Switch Board and Accessories. 3. Excavation, trenching and backfilling. 4. Installation of underground duct bank system for primary services, and Telephone Co. provisions. 5. Conduit and wiring for lighting and power distribution systems. 6. Installation of all control devices and accessories for all equipment furnished under other divisions of these specifications. - 16 - 94 Office Building Scope 7. Distribution equipment, panelboards, and (Continued) feeders. 8. Distribution transformers, and accessories. 9. Lighting fixtures, lamps and installation. 10. Lighting, receptacle and power panelboards. 11. Metering provisions and equipment. 12. Misc. step-down transformers. 13. Connections to all motorized equipment and accessories furnished by other trades. 14. Lighting standards. 15. Concrete work. 16. Devices and accessories. 17. Wire mold and wireways. Materials and All materials, devices, appliances and Workmanship specialties, when in multiple use, shall be of a single manufacture to simplify spares and repairs. Whenever specified, or called for, the Contractor shall furnish the following: guarantees of durability operating capacity, manufacturer's certified drawings, test certificates, performance curves, etc. This shall also include manufacturer's supervised installation of equipment, adjustments, or any other special service that may be required. Main Distribution Furnish and install where indicated, series I Switchboards building type switchboards. Switchboards shall consist of a completely enclosed, self-supporting metal structure of the required number of formed and welded vertical panel sections, incorporation circuit breakers, switches and other associated equipment as indicated on the plans. All fastenings between vertical panel sections shall be bolted. Lighting - Receptacle Furnish and install and Power Panels automatic circuit break type panelboards. The panelboards shall be of the dead-front type and shall be in accordance with Underwriters' Laboratories, Inc., "Standard for Panelboards" and - 17 - 95 Office Building Lighting-Receptacle "Standard for Cabinets and Boxes" and shall be and Power Panels so labeled. Where panelboards are to be used as service entrance equipment, they shall be so labeled. Lighting Fixtures Provide all lighting fixtures and lamps required and Lamps for a complete installation. Fixtures shall be mounted individually or continuous as indicated and shall be suitable for type of mounting shown. Lighting circuits shall be connected to switches and panels as indicated. Where the unbalance on any one light panel exceeds 10 percent, this Contractor shall rearrange the circuits to attain an unbalance of 10 percent or less. Provide lamps in each fixture of size and type as called for in schedule on drawings. Lamps shall be as manufactured by Westinghouse, G.E. or Sylvania. All fluorescent lamps shall be cool white, unless noted otherwise. All mercury vapor lamps shall be delux white. All fixtures shall be U.L. approved and shall contain all labels. Parking Lot and In accordance with the drawings, furnish and Exterior Lighting install all exterior pole standards, flood lights, bases, grounding, brackets, supports and miscellaneous components complete with required luminaries, feeder runs and all connections to accommodate exterior lighting throughout. Disconnect Switches Where required by code and as noted on drawings, provide and install all disconnect switches to disconnect all circuit wiring to all motor or miscellaneous motorized units. Fire Alarm and The Owner shall furnish, install and place in Detection System operating condition an electronically operated, (if required by Code) closed circuit fire alarm system as described herein and as per local codes. All units of the alarm system shall be listed by Underwriters Laboratories, Inc. for fire alarm use, and the control panel shall bear the UL label. The system shall be installed in accordance with requirements of the National Electric Code and in compliance with applicable provisions of Standard #72 published by the National Fire Protection Assoc. - 18 - 96 Office Building Telephone and Conduit Furnish and install conduit for underground telephone service from exterior of building to telephone equipment room. Furnish black painted 1" plywood mounting board in telephone equipment room. SPECIFICALLY EXCLUDED: Telephone service Telephone equipment All telephone wiring within the building including but not limited to wiring, shielded cable, conduit telephone floor and wall outlets, and any other equipment required for public or private telephone system. Equipment Furnished by The Electrical Contractor shall provide all Others labor and material required for all equipment furnished by others or as indicated on the drawings. The Electrical Contractor shall be fully responsible for a complete electrical system left in operating order. This work shall include but not be limited to the following principal items of work: 1. HVAC equipment. 2. Plumbing equipment including starters, aquastats, solenoid valves, etc. 3. Miscellaneous motor starters, thermostats, and accessories. 4. In general - special owners equipment and misc. areas where solid connections are required. 5. Miscellaneous vending equipment. 6. Electrical contractor shall furnish and install all connections to starters and equipment furnished by all trades and or the Owners. Emergency and Exit Lighting Units Furnish and install all 12 volt - D. C. emergency lighting units as manufactured by the Dual-Lite Company, Lightalarm Co., or approved equal. Unit shall contain Underwriters Labels. Wiring for Elevators Provide all power and control wiring to facilitate the elevator installation, all in accordance with manufacturers detail drawings and diagrams. Provide all required disconnect switches, pit lights, shaft outlets, control and lighting circuits, and all wire. - 19 - 97 Office Building Wiring for Elevators conduit, etc. as required for the complete (Continued) installation. Service and Metering Provide two 4" schedule 40 PVA-conduits from the Utility Company pole to the transformer pad. Primary feeder will be installed and connected by the Utility Company. The conduit riser on the pole and transformer pad to be galvanized rigid steel. General Lighting and General office lighting shall be 75 F.C. using Convenience Receptacles commercial recessed 2' x 4' fluorescent fixtures. Allowance to be 1 per 80 square feet of net office area. Hallways shall contain maximum 20 F.C. fluorescent fixtures. Lobby lighting shall be as designed and directed to the Owner. All fluorescent fixture lamps shall be as manufactured by G.E., Sylvania, or Westinghouse equal. One (1) 110 volt duplex receptacle on standard Circuiting allowed shall be for each 100 sf of floor area. SPECIFICALLY EXCLUDED FORM ELECTRICAL WORK Music systems Intercom systems Specific tenants equipment electrical requirements for computer room or other specialty equipment. HEATING, VENTILATING, AND AIR CONDITIONING Design for the office space is based on the following criteria. The core work stops at the vertical risers ready for horizontal distribution on the floors. Design Conditions Summer Outside 95 degrees F.D.B. 76 degrees F.W.B. Summer Inside 78 degrees F.D.B.+2 F 50 percent R.H.+5 Winter Outside 13 degrees F. 15 MPH wind Winter Inside 72 degrees F.D.B. Zoning Each area having different heat gain characteristics caused by exposure i.e. North, East, West, South and corners will be zoned. Interior zones based on approximately one (1) per 3000 sq.ft. with one (1) office per 250 sq.ft. Equipment, machine placement, people density may be separately zoned and independently temperature-controlled during the heating and cooling cycle. Human Occupancy Cooling Design: 250 BTU sensible heat and 200 latent heat per person using 1 person per 200 sq. ft. - 20 - 98 Office Building Air Quantities Primary air to be based upon a 20-22 degree temperature difference. A supply air limit of 3 degrees F. of heat pickup is to be transferred from the supply duct work to the surrounding ambient. Ventilation air quantities. Electric Loads Based upon actual installed wattage of ceiling lights or a maximum of 3 1/2 watts per sq. ft. for all office areas including 1/2 watt per sq. ft. for outlets. Design of Ductwork Size according to static regain method as derived from data in ASHRAE Guide. Grilles, Registers, and Supply grilles or registers face velocities Ceiling Outlets limited to 800 FPM, supply grilles to be equipped with volume control. Return air grilles or registers; face velocity limit to 600 FPM. Ceiling diffusers shall be perforated face type. Ceiling diffuser neck velocities limited to 800 FPM equipped with control grids and selected for NC 45 maximum. Office Areas The basic engineering concept of HVAC for use in this building incorporates the latest technological information available, to provide a system which will be most economical to maintain, both from the usage of energy as well as the life of the equipment installed. The envelope system of heating, using hot water baseboard, together with a variable air volume cooling system provides the most versatile and most comfortable environment for this climate. The primary heating of the building is provided along the perimeter areas of the building, using hot water baseboard heating which is continually modulated in temperature with the outdoor temperature. The air system which provides ventilation and cooling is a variable air volume system so that just the right amount of air is provided for minimum ventilation re- - 21 - 99 Office Building Office Areas quirements and minimum cooling requirements to (Continued) maintain the space temperatures. The air conditioning, heating and ventilating system will be designed and installed to conform to local codes, ordinances, as well as the BOCA Code. The system will consist of chilled water air conditioning units with associated duct work to provide adequate air distribution to all parts of the building. All duct work will be installed in accordance with SMACNA and ASHRAE. Cafeteria, computer rooms, special use areas, special exhaust requirements, etc. can be provided with individual controls, but are not included in base building. Fresh air will be provided through the air conditioning units to provide filtered and tempered fresh air during the operation of system. All toilets and janitor's closets will be exhausted by fans, using excess air from the air conditioning systems. During occupied periods, fans in the air handling units will run constantly. The operation of all equipment will be completely automatic to maintain the temperature of the building based upon the requirements for heating or cooling. All refrigeration piping will be Type L copper tubing with brazed joints. All hot water piping will be schedule 40 black steel cast fittings, or copper tubing. Exhaust Ventilation Lunch rooms and conference room to be exhausted with manual switches. General Mechanical Building heating system shall consist of a Notes boiler system sized for 120% of the building heating loss. Entire ceiling void to be used as a return air renew. Office system is to be set for economy winter cycle below 55 degrees with the ability to use 100% outside air for cooling by modulating fresh air, return and release. - 22 - 100 Office Building General Mechanical All equipment shall be installed properly Notes isolated from building structures to prevent noise and vibration. Elevation of thermostat to be 5'0" above floor or in return air slots of light fixtures. Control system to be proportioning type. Except limit control being two (2) position. Refrigeration units shall be of centrifugal electric drive type with fire proof water tower with capacity for unloading each compressor. All refrigeration lines are to be sized with manufacturer's recommendations. Static pressure controller shall be provided for fans equipped with variable volume inlet vanes. Control panels where applicable shall be provided with indicating pilot lights for operation of fans condensing units, boilers, and pumps showing on or off mode. Supply air temperature, return air temperature, mixed air temperature and outside air temperature. All chilled water piping is to be insulated with 3'4 molded fiberglass pipe insulation with vapor barrier hot water as required by BOAC. - 23 - 101 Exhibit "G" Loan Terms PRINCIPAL AMOUNT: Up to $87 per square foot of Floor Space SECURITY: Senior leasehold mortgage, subordinated fee, no personal liability G-1 102 Exhibit "H" Operating Expenses Operating Expenses: The sum of the following: (a) The operating cost and expense (whether or not within the contemplation of the parties) for the repair, maintenance, and operation of the Common Areas, of the Building and Land, as set forth in detail below; and (b) the Operating Expenses (as such term is defined in the Ground Lease of the Land upon which this Building is located, dated of even date herewith) attributable to the Demised Premises thereunder through the RCOEA. Operating Expenses shall mean the operating costs specified in Category A hereof to the extent that such costs are properly allocable to the operation, repair and maintenance of the Common Areas of the Building and Land during the year, it being understood that, notwithstanding anything to the contrary contained herein: (i) any cost allocable to the items specified in Category B hereof shall be excluded from Operating Expenses; and (ii) the Operating Expense for each year shall, if the Building shall not have been ninety-five percent (95%) occupied by tenants during such year, be calculated as though the Building had been ninety-five percent (95%) occupied by tenants during such year (in no event, however, shall Tenant be required to pay in excess of Landlord's actual cost). Items Included in Building and Land Common Area Operating Expense ("Category A"): 1. Labor costs (as hereinafter defined) for the services of the following classes of employees of Landlord for the portion of their time reasonably devoted to performing services required in connection with the operation, repair and maintenance of the Common Areas of the Building and Land; (i) the property manager, his H-1 103 assistants and the clerical staff attached to the Building superintendent's office; provided, however, that such expenses with regard to a property manager and his staff shall not be included within Operating Expenses in the event Landlord engages a managing agent; (ii) elevator operators; (iii) window cleaners, miscellaneous handymen, and cleaning services for the Common Areas; (iv) cleaners and janitors employed in the Building for the performance of services with respect to the exterior or interior of the Common Areas of the Building and Land or the sidewalks adjoining the Building; (v) watchmen, caretakers and persons engaged in patrolling and protecting the Common Areas of the Building and Land; and (vi) carpenters, engineers, firemen, mechanics, electricians and plumbers engaged in the operation, repair and maintenance of any part of the Common Areas of the Building and Land, and the heating, air conditioning, ventilating ("HVAC") plumbing, electrical and elevator systems of the Common Areas of the Building and Land. 2. the cost of tools, equipment, materials and supplies used in the operation, repair and maintenance of the Common Areas of the Building; 3. amounts charged to Landlord by independent contractors for services, materials, and supplies furnished in connection with the operation, repair, maintenance and cleaning of any part of the Common Areas of the Building and Land excluding such work or service performed for a tenant, and the HVAC, plumbing, electrical and elevator systems of the Common Areas of the Building; 4. premiums for casualty, including fire (with extended coverage) and public liability insurance maintained by Landlord in respect of the Common Areas, the Building and the Land; H-2 104 5. charges (including applicable taxes) for utilities (except utilities for the use of any tenant) required in the operation of the Common Areas of the Building and Land; 6. water charges and sewer rents of the Common Areas of the Building; 7. the cost of painting or otherwise decorating any part of any Floor Space in the Common Areas of the Building, but such cost shall not include any painting, repainting, decorating cost incurred in connection with the occupancy of any tenant; 8. the cost of furnishing HVAC services during business hours on business days to the Common Areas of the Building; 9. the management fees paid to a third party managing the Building which are not in excess of the then prevailing rates for management fee of other first-class office facilities in Hudson County; 10. reasonable legal, accounting and other professional fees with respect to operation of the Building, except insofar as related to the financing, refinancing, construction on, or sale of the Land and/or Building; and 11. if no managing agent is employed four percent (4%) of the resulting total (excluding those items contemplated in (i) and 9.) of all of the foregoing items for Landlord's office administration and overhead. Operating Expense shall be "net" only, and for that purpose shall be reduced by the amounts of any reimbursement or credit in respect of any Operating Expense received by Landlord. "Labor Costs" shall mean all expense incurred by Landlord which shall be directly related to employment of personnel, including amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, workmen's compensation insurance, disability benefits, pensions, hospitalization, retirement plans and group insurance, uniforms and working clothes and the cleaning thereof, H-3 105 and expenses imposed on Landlord pursuant to any collective bargaining agreement. Notwithstanding anything to the contrary contained in this Lease these items are excluded from Building Operating Expense ("Category B"): 1. the cost of any electric current furnished to the Demised Premises or to other leased or leasable portions of the Building; 2. the cost of any work or service performed for or facilities furnished by any tenant or by Landlord pursuant to an agreement with any such tenant (including Tenant) at such tenant's cost either directly or through rent, including without limitation, the cost of tenant installations and decorations incurred in connection with preparing space for new tenants; 3. the cost of installing, operating and maintaining any special facilities, such as broadcasting facilities or luncheon, athletic or recreational club; 4. Landlord's costs in respect of officers and executives of Landlord; however, the property manager shall not be deemed such an officer or executive; 5. the cost of any insurance premium to the extent that Landlord is entitled to be reimbursed therefor by any tenant in the Building; 6. the cost of any work or service performed for or facilities furnished to any tenant of the Building (other than Tenant); 7. the cost of any items for which Landlord is reimbursed through the proceeds of insurance or otherwise compensated or has the right to be compensated by any tenant (including Tenant) of the Building; 8. the cost of any tools, equipment, materials and supplies, repairs, alterations, additions, charges, replacements and other items which under generally accepted accounting principles are or should be properly classified as capital expenditures except for the portion of the useful life thereof that falls within such year; H-4 106 9. any costs directly or indirectly incurred in furnishing overtime HVAC or overtime use of elevators or other services to Tenant or any other tenant of the Building; 10. depreciation of the Building or interest or amortization expense with respect to the Building Mortgage; 11. any costs allocable to activities relating to the solicitation or entering into of leases of space in the Building or in connection with the collection of money under such lease or the enforcement of same; 12. any monies whatsoever owed by another tenant of the Building to Landlord; 13. leasing commissions; 14. franchise or income taxes imposed upon Landlord; 15. ground rent; 16. financing costs; and 17. legal fees incurred in connection with the negotiation of, or disputes arising out of, any space lease in the Building. H-5 107 Exhibit "I" Plans and Specifications The Plans and Specifications for Landlord's work are contained in the Exhibit entitled Landlord's Work. In addition to the Plans and Specifications for Landlord's Work, such Exhibit includes items in excess thereof, which items are identified as budgeted amounts, which amounts are based upon and price as of the date hereof, and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. I-1 108 Exhibit "J" Tenant's Work Tenant's Work shall consist of the work performed by Tenant in addition to Landlord's Work to finish the interior of the shell of the Building to Tenant's requirements. Within the Landlord's Work Exhibit are items in excess of Landlord's Work obligation which items are identified as budgeted amounts, which amounts are based upon the 1986 price and which prices are used for estimating purposes only. In the event Tenant elects to have those budgeted items of Tenant's Work performed by the Landlord, Tenant shall reimburse Landlord in such amount for that specific work, increased by such increases, if any, as may occur in construction or labor costs. J-1 109 Exhibit "K" Lincoln Harbor Project K-1 110 [SURVEY OF LINCOLN HARBOR PROJECT] 111 Exhibit "L" Parking Plan The parking shall be located on the parking decks constituting a portion of the premises based pursuant to the Office Lease. L-1 112 Exhibit "M-1" SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of the ____ day of ___________, 198__, by and between ___________ , a ________ corporation having an office at ________________ (the "Mortgagee"), and PAINEWEBBER INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 (the "Space Tenant"). WITNESSETH : WHEREAS, the Mortgagee is the owner and holder of a Promissory Note, dated of even date herewith, in the amount of $______ by HARTZ-PW HOTEL LIMITED PARTNERSHIP (the "Landlord"), payable to the Mortgagee (the "Note"), which Note is secured by a Mortgage, dated of even date herewith, between the Landlord, as mortgagor, and the Mortgagee, as mortgagee (the "Mortgagee"), covering the Landlord's right, title and interest in the Building and any other improvements located on the Land, as such terms are defined in the Agreement of Lease (the "Ground Lease"), dated __________ , 1986, between Fee Owner, as landlord, and the Landlord, as tenant, and the leasehold estate created thereby (the "Leasehold Estate") in the land, located in the Lincoln Harbor Project, in Weehawken, New Jersey, as such land is more particularly described in Exhibit A annexed hereto and made a part hereof (said Land, Building, improvements and such other property being hereinafter collectively referred to as the "Premises"), and pursuant to which Mortgage Hartz Mountain Industries, Inc. ("Fee_Owner") executed the same for purposes of subordination of its fee interest in the Land to the Mortgagee; and WHEREAS, the Space Tenant has entered into a lease (the "Space Lease") with the Landlord, dated as of ___________ , 1986, covering a portion of the Premises (the "Demised Premises"); and M-1-1 113 WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of the Space Tenant by the Mortgagee. NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to be legally bound thereby, the Mortgagee and the Space Tenant hereby covenant and agree as follows: 1. The Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Mortgage and the lien thereof and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Mortgage, with the same force and effect as if the Mortgage had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Mortgage and the Space Lease or any Memorandum of the Space Lease. 2. Mortgagee expressly agrees that no subsequent modification of the Mortgage shall adversely affect in any material respect any of Space Tenant's rights under the Space Lease, materially increase Space Tenant's obligations under the Space Lease or materially diminish Landlord's obligations under the Space Lease. 3. The Space Tenant and Mortgagee agree that if any act or omission of Landlord would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall not exercise such right (a) until and unless it has given written notice of such act or omission to Mortgagee and any successor or assign whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Mortgagee shall have become entitled under the Mortgage to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Mortgagee commences and diligently pursues such M-1-2 114 remedy (which reasonable period shall in no event be less than the period to which Landlord would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). The Space Tenant and Mortgagee further agree that in the event of any default on the part of the Landlord, arising out of or accruing under the Mortgage, whereby the Mortgage might be accelerated, terminated or foreclosed by the Mortgagee, by reason of any such default or defaults, the Mortgagee will given written notice thereof to the Space Tenant at the address set forth herein, or its successor or assigns whose name and address previously shall have been furnished to the Mortgagee in writing, and after the time when the Landlord shall have become entitled under the Mortgage to cure such defaults, grant to the Space Tenant a reasonable time (in no event to exceed ninety (90) days, for all defaults other than payment of principal or interest on the Mortgage, for which the time period shall be limited to ten (10) business days), which shall be not less than the period of time granted to the Landlord by the terms of the Mortgage, after the giving of such notice by the Mortgagee to the Space Tenant to cure or to undertake the elimination of such defaults, provided that after receipt of such notice, Space Tenant shall with due diligence give the Mortgagee notice of intention to remedy such act or omission, and to the extent possible and reasonably reasonable shall commence and continue to remedy such act or omission, it being expressly understood that such right on the part of the Space Tenant to cure any such default or defaults shall not be deemed to create any obligation on the Space Tenant's part to cure or to undertake the elimination of any such default or defaults. 4. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle the Landlord to terminate the Space Lease or dispossess the Space Tenant thereunder as of the date Mortgagee files a lis pendens in, or otherwise commences, a foreclosure action or any time thereafter, the Mortgagee shall not name the Space Tenant as a party defendant to any action for foreclosure or other enforcement thereof, nor shall the Space Lease be terminated by the Mortgagee in connection with or by reason of foreclosure or other proceedings for the enforcement of the Mortgage or by reason of a transfer of the Landlord's interest under the Space Lease or under M-1-3 115 the Ground Lease or the Fee Owner's interest in the Land pursuant to an assignment in lieu of foreclosure, or otherwise, and any sale, or assignment pursuant thereto shall be subject to the Space Lease nor shall the Space Tenant S use or Possession of the Demised Premises be interfered with by the Mortgagee or any such assignee or purchaser, except that the person acquiring the interest of the Landlord or Fee Owner as a result of any such action or proceeding and such person's successors and assigns (any of the foregoing being hereinafter referred to as the "Successor") shall not be (a) subject to any credits, offsets, defenses or claims, not expressly provided for in the Space Lease, which the Space Tenant might have against any prior landlord, (b) bound by any previous modification or amendment of the Space Lease or by any prepayment of more than one month's Fixed Rent or Additional Charges (as such terms are defined in the Space Lease), unless such modification or prepayment shall have been made with the Mortgagee's prior written consent, or (c) liable for any act or omission of any prior landlord which constitutes a default under the Space Lease, provided, however, Successor shall be liable for any such default or defaults which are continuing beyond the time where the interest of the Landlord under the Space Lease has been transferred to the Successor. 5. If the interest of the Landlord under the Space Lease or under the Ground Lease or the interest of Fee Owner in the Land shall be transferred to the Mortgagee by reason of foreclosure or other proceedings for enforcement of the Mortgage or pursuant to any assignment in lieu of foreclosure, or otherwise, the Space Lease shall not terminate but shall continue in full force and effect as, or as if it were, a direct lease between the Successor, or its designee and Space Tenant, whereby the Space Tenant shall be bound to the Successor, and, except as provided in this Agreement, the Successor shall be bound to the Space Tenant, under all of the terms, covenants and condition. of the Space Lease for the balance of the term thereof remaining, and the Space Tenant does hereby agree to attorn to the Successor, including the Mortgagee if it be the Successor, as its landlord, to affirm its obligations under the Space Lease and does agree to make payments of all sums due under the Space Lease to the Successor. Space Tenant shall promptly execute and deliver any instrument that Mortgagee may reasonably request to evidence such attornment. M-1-4 116 6. If and to the extent that the Space Lease or any provision of law shall entitle the Space Tenant to notice of any mortgage, the Space Tenant acknowledges and agrees that this Agreement shall constitute said notice to the Space Tenant of the existence of the Mortgage. 7. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 8. Nothing contained in this Agreement shall in any way impair or affect the lien created by the Mortgage, except as specifically set forth herein. 9. The Space Tenant agrees that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. The Space Tenant and Mortgagee agree that Mortgagee shall be deemed a "Superior Mortgagee" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agreement. The Space Tenant further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by the Mortgagee, the terms and provisions hereof shall be controlling. The Mortgagee agrees that this Agreement satisfies any condition or requirement in the Mortgage (or mortgage commitment) relating to the granting of a subordination agreement and attornment agreement. The Mortgagee further agrees that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with subordination and attornment by the Space Tenant, the terms and provisions hereof shall be controlling. 10. The Space Tenant acknowledges that it has notice that the Space Lease and the rent and all other sums due thereunder have been assigned to the Mortgagee as part of the security for the note secured by the Mortgage. 11. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must M-1-5 117 be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. 12. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if requested) as may be necessary or appropriate to fully implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Mortgagee: By: ________________________ Space Tenant: PAINEWEBBER INCORPORATED By: _______________________ M-1-6 118 [NOTARY PAGE] M-1-7 119 EXHIBIT A Land M-1-8 120 Exhibit "M-2" SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of the ___ day of ___________, 1986, by and between ___________, a ________________ having an office at ______________ ("Superior Lessor"), and PAINEWEBBER INCORPORATED having an office at 1285 Avenue of the Americas, New York, New York 10019 ("Space Tenant"). WITNESSETH: WHEREAS, HARTZ MOUNTAIN INDUSTRIES, INC. ("Ground Lessor") is the owner of the land (the "Land") described in Schedule "A" annexed hereto and made a part hereof; and WHEREAS, Ground Lessor has entered into a ground lease (the "Superior Lease"), dated as of __________ , whereby Ground Lessor demised and leased, as ground lessor, all of the Land to Superior Lessor; and WHEREAS, Superior Lessor has become the landlord under the entered ground lease (the "Ground Lease"), dated as of __________, 1986, whereby Ground Lessor demised and leased, all of the Land to HARTZ-PW HOTEL LIMITED PARTNERSHIP ("Ground Lessee"); and WHEREAS, Space Tenant has entered into a lease (the "Space Lease") with Ground Lessee, dated as of ___________, 1986, covering a portion of the space in the building known as the [Hotel/Office Building] (the "Demised Premises"), as more fully described in such Space Lease; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Space Tenant by Superior Lessor. NOW THEREFORE, in consideration of the covenants and agreements contained herein, and intending to M-2-1 121 be legally bound thereby, Superior Lessor and Space Tenant hereby covenant and agree as follows: 1. Space Tenant covenants and agrees that the Space Lease shall at all times be subject and subordinate in each and every respect to the Ground Lease and to all renewals, extensions, supplements, amendments, modifications, consolidations and replacements of such Ground Lease, with the same force and effect as if the Ground Lease had been executed and delivered prior to the execution and delivery of the Space Lease and without regard to the order of priority of recording of the Ground Lease and the Space Lease or any Memorandum of the Space Lease. 2. Space Tenant and Superior Lessor agree that if any act or omission of Ground Lessee would give Space Tenant the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or which Space Tenant claims gives it the right, immediately or after lapse of a period of time or after notice or after both, to cancel or terminate the Space Lease, or to claim a partial or total eviction, Space Tenant shall not exercise such right (a) until and unless it has given written notice of such act or omission to Ground Lessee and Superior Lessor whose name and address shall previously have been furnished to Space Tenant, and (b) until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when Superior Lessor shall have become entitled under the Ground Lease to remedy the same or such longer period as may be reasonably required if such condition is not susceptible to remedy within such thirty (30) day period provided Superior Lessor commences and diligently pursues such remedy (which reasonable period shall in no event be less than the period to which Ground Lessee would be entitled under the Space Lease or otherwise, after similar notice, to effect such remedy). 3. As long as no default under the Space Lease exists which is continuing beyond the expiration of any applicable grace period, which would entitle Ground Lessee to terminate the Space Lease or dispossess Space Tenant thereunder, Superior Lessor shall not name Space Tenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Superior Lessor under its Ground Lease, and Superior Lessor will not terminate the Space Lease or take any M-2-2 122 action to recover the premises demised to Space Tenant or affect or disturb Space Tenant's possession or rights under the Space Lease. 4. If Superior Lessor shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Ground Lessee under the Space Lease by reason of the termination of the Ground Lease or otherwise, and if Space Tenant is not then in default under the Space Lease beyond the time permitted therein to cure such default, then (a) the Space Lease shall not terminate, (b) Space Tenant shall attorn to Superior Lessor, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Space Lease, and (c) Superior Lessor shall accept such attornment and recognize Space Tenant as Superior Lessor's lessee under the Space Lease. Upon such attornment and recognition, the Space Lease shall continue in full force and effect as, or as if it were, a direct lease between Superior Lessor and Space Tenant, upon all of the then executory terms, conditions and covenants as set forth in the Space Lease and which shall be applicable after such attornment, except that Superior Lessor shall not be (i) liable for any previous act or omission of Ground Lessee which constitutes a default under the Space Lease; (ii) subject to any offset or defenses not expressly provided for in the Space Lease which Space Tenant might have against Ground Lessee; (iii) bound by any prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Space Lease); and (d) bound by any amendment or modification of the Space Lease made without Superior Lessor's prior written consent. 5. This Agreement may not be modified except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, representatives, successors and assigns. 6. Space Tenant and Superior Lessor agree that this Agreement satisfies any condition or requirement in the Space Lease relating to the granting of a non-disturbance agreement. Space Tenant and Superior Lessor agree that Superior Lessor shall be deemed a "Superior Lessor" as such term is defined in the Space Lease, subject however to the terms and provisions of this Agree- M-2-3 123 ment. Space Tenant and Superior Lessor further agree that in the event there is any inconsistency between the terms and provisions hereof and the terms and provisions of the Space Lease dealing with non-disturbance by Superior Lessor, the terms and provisions hereof shall be controlling. 7. All notices, demands or requests made pursuant to, under, or by virtue of this Agreement must be in writing and mailed to the party to whom the notice, demand or request is being made by certified or registered mail, return receipt requested, at its address set forth above. Any party may change the place that notices and demands are to be sent by written notice delivered in accordance with this Agreement. 8. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 9. Each of the parties hereto agrees to execute and deliver, upon the request of the other, such documents and instruments (in recordable form, if requested) as may be necessary or appropriate to fully implement or to further evidence the understandings and agreements contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written. Superior Lessor: By:_______________________ Space Tenant: PAINEWEBBER INCORPORATED By: ______________________ M-2-4 124 [ACKNOWLEDGEMENTS] M-2-5 125 Schedule "A" Land M-2-6 126 Exhibit "N" NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, dated as of the ___ day of ___________, 198_, between HARTZ:-PW HOTEL LIMITED PARTNERSHIP, a New Jersey limited partnership, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 ("Landlord"), and __________, a ___________ having an office at ___________ ("Subtenant"). WITNESSETH: WHEREAS, Landlord has entered into an Agreement of lease, dated as of the ___ day of ______________, 1986, (the "Space Lease"), with PAINEWEBBER INCORPORATED (the "Space Tenant") pursuant to which Landlord leased and demised to Space Tenant a portion of the space in the building known as the [Hotel/Office Building] (the "Demised Premises") as more fully described in such Space Lease; WHEREAS, Space Tenant has entered into an Agreement of Sublease (the "Sublease"), dated as of the _____ day of ___________, 19 , pursuant to which Space Tenant subleased and demised to Subtenant [the Demised Premises or a portion thereof] , as more fully described in Exhibit "A" annexed hereto and made a part hereof; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Subtenant by Ground Lessor. NOW, THEREFORE, the parties hereto agree as follows: 1. So long as the Sublease is in full force and effect, and no default of Subtenant exists nor has any event occurred which with the passage of time or notice would entitle Space Tenant to terminate the Sublease or dispossess Subtenant, Landlord will not name or join Subtenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Landlord under the Space Lease or to terminate N-1 127 such Space Lease, and the Landlord will not terminate the Sublease or take any action to recover Possession of the premises demised to Subtenant or affect or disturb Subtenant's possession or rights under the Sublease. 2. If Landlord or its designee shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Space Tenant under the Space Lease by reason of the termination of the Space Lease or otherwise, and if Subtenant is not then in default under the Sublease beyond the time permitted therein to cure such default, then (a) the Sublease shall not terminate, (b) Subtenant shall attorn to Landlord or its designee, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Sublease, and (c) Landlord or its designee shall accept such attornment and recognize Subtenant as the Landlord lessee under the Sublease. Upon such attornment and recognition, the Sublease shall continue in full force and effect as, or as if it were, a direct lease between the Landlord or its designee and Subtenant, upon all of the then executory terms, conditions and covenants as set forth in the Sublease and which shall be applicable after such attornment, except that Landlord shall not be (i) liable for any previous act or omission of Space Tenant which constitutes a default under the Sublease; (ii) subject to any offset or defenses not expressly provided for in the Sublease which the Subtenant might have against Space Tenant; (iii) bound by any Prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Sublease); and (d) bound by any amendment or modification of the Sublease made without Landlord's prior written consent. 3. The terms of this Agreement shall bind and inure to the benefit of the parties hereto, and their respective heirs, successors and assigns. 4. All notices and other communications hereunder shall be in writing and shall be hand delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed (a) if to Landlord at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094, Attention: General Counsel, with a copy to Horowitz, Bross, Sinins & Imperial, P.A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin Horowitz, Esq., or at such other address as Landlord N-2 128 shall have furnished to Subtenant in writing, or (b) if to Subtenant, at ________________________________________ ____________ Attention: ___________, or at such other address as Subtenant shall have furnished to Landlord in writing. 5. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6. This Agreement may not be discharged or modified orally or in any manner other than by an agreement in writing specifically referring to this Agreement and signed by the party or parties to be charged thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HARTZ-PW HOTEL LIMITED PARTNERSHIP By: Hartz Mountain Industries, Inc. By: ___________________________ [SUBTENANT] By: _______________________________ N-3 129 [NOTARY PUBLIC PAGE] N-4 130 EXHIBIT "A" Demised Premises N-5 131 Exhibit "O" Cleaning Standards NIGHTLY ENTRANCE LOBBY AREAS Sweep and wash flooring including spray buffing. Wash all rubber mats. Clean all cigarette urns and replace sand and water as necessary. Vacuum floors, dust and rub down walls, metalwork and saddles in all elevator cabs. NIGHTLY FOR GENERAL CLEANING Thoroughly vacuum all carpeted areas moving light furniture. Wash all stairways. MONTHLY HIGH DUSTING Dust all pictures, frames, charts and other wall hangings not reached in nightly cleaning. Dust all vertical surfaces such as walls, partitions, doors, brick, louvers, not reached in nightly cleaning. Dust all window frames. Machine scrub all ceramic tile floors. Thoroughly wash and polish all wall tile and stalls in toilet areas. Dust and wash down lobby walls. OTHER SPECIAL CHORES NOT DESCRIBED IN NIGHTLY, WEEKLY OR MONTHLY CLEANING SERVICES Window washing will be performed TWO times per year. O-1 EX-10.40 15 AGREEMENT OF LIMITED PARTNERSHIP 1 Exhibit 10.40 AGREEMENT OF LIMITED PARTNERSHIP OF HARTZ-PW LIMITED PARTNERSHIP 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I FORMATION 1.01 Formation ......................................... 2 1.02 Name .............................................. 2 1.03 Place of Business ................................. 2 1.04 Term .............................................. 3 ARTICLE II DEFINITIONS ....................................... 3 ARTICLE III PURPOSE AND BUSINESS 3.01 Business .......................................... 16 3.02 Authorized Activities ............................. 17 ARTICLE IV PARTNERSHIP INTERESTS AND CAPITAL 4.01 General Partner ................................... 19 4.02 Limited Partner ................................... 20 4.03 Loans and Capital Contributions to the Partnership by the Partners ..................... 21 4.04 Default by General Partner ........................ 25 4.05 Interest .......................................... 30 4.06 Capital Account ................................... 30 4.07 Withdrawal of Capital Contributions ............... 30 4.08 Restoration of Negative Capital Accounts ........................................ 30 ARTICLE V PROFITS, LOSSES AND DISTRIBUTIONS 5.01 Determination of Profits and Losses ............... 31 5.02 Allocation of Profits and Losses .................. 31 5.03 Profits and Losses from Capital Transactions .................................... 35 5.04 Distribution of Net Operating Revenues ........................................ 39 5.05 Distribution of Proceeds of Capital Transactions other than in Liquidation ..................................... 40 5.06 Partnership Adjustments ........................... 41 5.07 Allocation to Transferred Interests ............... 42
i 3
PAGE ---- ARTICLE VI RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER 6.01 Management ........................................... 42 6.02 Authority ............................................ 43 6.03 Limitations on the General Partner ............................................ 44 6.04 Additional Limitations ............................... 49 6.05 Business with Affiliates ............................. 49 6.06 Liability for Acts and Omissions ..................... 50 6.07 Other Activities ..................................... 51 6.08 Classification as a Partnership ...................... 52 6.09 Net Worth of General Partner ......................... 52 6.10 Management ........................................... 53 ARTICLE VII WITHDRAWAL OF GENERAL PARTNER 7.01 Assignment or Withdrawal by General Partner ..................................... 53 7.02 Involuntary Withdrawal of a General Partner ............................................. 53 7.03 Obligation of a Prior General Partner ................ 54 7.04 Remaining General Partner ............................ 54 7.05 Removal of General Partner ........................... 55 7.06 Successor General Partner ............................ 57 7.07 Additional Limitation on Transferability ..................................... 58 7.08 Permitted Assignments by the General Partner ................................ 58 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER 8.01 Management of the Partnership ........................ 60 8.02 Limitation on Liability .............................. 61 8.03 Power of Attorney .................................... 61 8.04 Admission of Additional Partners ..................... 64 ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS 9.01 No Unpermitted Transfers ............................. 65 9.02 Assignment by Limited Partner ........................ 65 9.03 Substitute Limited Partner ........................... 66
ii 4
PAGE ---- 9.04 Involuntary Withdrawal by Limited Partner ............................................ 68 9.05 Additional Limitation on Transferability .................................... 68 ARTICLE X DISSOLUTION AND LIQUIDATION 10.01 Dissolution ......................................... 66 10.02 Liquidation of Partnership Assets ................... 69 ARTICLE XI RECONSTITUTION 11.01 Reconstitution ...................................... 71 11.02 Continuation of Business ............................ 72 ARTICLE XII ACCOUNTING AND REPORTS 12.01 Books and Records ................................... 72 12.02 Annual Tax Returns .................................. 73 12.03 Reports to Partners ................................. 74 12.04 Partnership Funds ................................... 75 ARTICLE XIII AMENDMENTS AND MEETINGS 13.01 Amendment Procedure ................................. 76 13.02 Meetings and Voting ................................. 76 ARTICLE XIV MISCELLANEOUS 14.01 Title to Partnership Property ....................... 77 14.02 Validity ............................................ 77 14.03 Applicable Law ...................................... 78 14.04 Binding Agreement ................................... 78 14.05 Waiver of Action for Partition ...................... 78 14.06 Headings ............................................ 78 14.07 Terminology ......................................... 78 14.08 Right of First Offer ................................ 79 14.09 General Partner Representations ..................... 85 14.10 Counterparts ........................................ 89 14.11 Entire Agreement .................................... 90 14.12 Arbitration ......................................... 90
iii 5
PAGE ---- 14.13 Security Interest in Limited Partner's Interest ................................. 90 14.14 Financing, Transfer of Land ......................... 91 14.15 Use of Certain Capital Proceeds by the Limited Partner ............................. 92 14.16 Limited Partner Representations ..................... 94
Exhibit "A-1" Description of Data Processing Center Land Exhibit "A-2" Description of Office Center Land Exhibit "B" Terms of Commitment Exhibit "C" Easements Exhibit "D" Contracts Exhibit "E" Taxes iv 6 AGREEMENT OF LIMITED PARTNERSHIP OF HARTZ-PW LIMITED PARTNERSHIP THIS AGREEMENT OF LIMITED PARTNERSHIP is made as of the 14th day of April, 1986, between HARTZ MOUNTAIN INDUSTRIES, INC., a New York corporation (the "General Partner"), as general partner, and PAINE WEBBER, INC., a Delaware corporation (the "Limited Partner"), as limited partner. The Limited Partner and the General Partner may be referred to herein individually as a "Partner" and collectively as the "Partners." WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership (the "Partnership") for the purpose of entering into the Ground Leases and of acquiring and/or constructing the Improvements, certain of which Improvements and the Land leased pursuant to the Ground Leases are currently owned by the General Partner, and for the purposes hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto hereby form the Partnership pursuant to the laws of the State of New Jersey, upon the following terms and conditions: 7 ARTICLE I FORMATION 1.01 Formation. The Partnership is being formed as a limited partnership under the laws of the State of New Jersey. Upon execution of this Agreement by all parties, the General Partner and the Limited Partner shall execute a certificate of limited partnership of the Partnership to reflect the provisions of this Agreement, and all such other certificates and documents conforming thereto, and shall do all such filing, recording, and publishing, and the General Partner shall take all other necessary action, required by law to perfect and maintain the Partnership as a limited partnership under the Act or under the laws of all other jurisdictions in which the Partnership may elect to conduct business. 1.02 Name. The name of the Partnership shall be "HARTZ-PW LIMITED PARTNERSHIP", which name may be changed by the General Partner after Notice to the Partners. 1.03 Place of Business. The principal office and place of business of the Partnership shall be located at 400 Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094. The General Partner may change the location of the Partnership's principal office and may establish such 2 8 additional offices of the Partnership as it may from time to time determine after Notice to the Partners. 1.04 Term. The Partnership shall continue in full force and effect until December 31, 2086, unless sooner dissolved in accordance with the provisions of this Agreement. ARTICLE II DEFINITIONS The following terms have the definitions hereinafter indicated whenever used in this Agreement with initial capital letters: 2.01 Act: The Revised New Jersey Uniform Limited Partnership Act, N.J.S.A. 42: 2A-1 et. seq. as it may be amended from time to time. 2.02 Affiliate: When used with reference to a specific Person, a Person who (i) directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the specified Person; (ii) is a partner of the specified Person; (iii) owns or controls ten percent (10%) or more of the outstanding voting securities of the specified Person; or, (iv) is an entity in which the specified Person is a partner. 3 9 2.03 Agreement: This Agreement of Limited Partnership, as it may be amended from time to time. 2.04 Bankruptcy: For purposes of this Agreement the institution by a referenced Person of a voluntary case in bankruptcy, or the voluntary taking advantage by a referenced Person of any bankruptcy or insolvency law, or the adjudication of such Person as bankrupt or insolvent, or the filing by such Person of any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or the filing by such Person of any answer admitting (or the failure by such Person to make a required responsive pleading to) the material allegations of a petition filed against such Person in any such proceeding or the seeking or consenting to or acquiescence in the judicial appointment of any trustee, fiscal agent, receiver or liquidator of such Person or of all or any substantial part of its properties or the taking of any action looking to its dissolution or liquidation, or if, within ninety (90) days after the commencement of an involuntary case or action against such Person seeking any bankruptcy, reorganization, arrangement, composition, readjustment, liquidation, dissolution 4 10 or similar relief under any present or future statute, law or regulation, the failure of such case or action to have been dismissed or all orders in proceedings thereunder affecting the operations or the business of such Person stayed, or if the stay of any such order or proceeding thereafter shall be set aside, or if, within ninety (90) days after the judicial appointment without the consent or acquiescence of such Person of any trustee, fiscal agent, receiver or liquidator of such Person or of all or any substantial part of its properties, such appointment shall not have been vacated, such insolvency being deemed to occur when such Person shall make a general assignment for the benefit of creditors or shall admit in writing that its assets are insufficient to pay its liabilities as they come due. 2.05 Budget: On or before the thirtieth (30th) day after the commencement date of each Fiscal Year, the General Partner shall submit to the Limited Partner a budget for such Fiscal Year for the operation of the business of the Partnership. 2.06 Capital Account: The account maintained by the Partnership for each Partner which, as of any given date, reflects its Capital Contributions paid to the Partnership, (i) increased to reflect its distribu- 5 11 tive share of Partnership income and gain (or item thereof), including income exempt from tax, for each Fiscal Year (or fraction thereof), and (ii) decreased to reflect its distributive share of Partnership losses and deductions for each Fiscal Year (or fraction thereof) and the amount of cash or the fair market value of property distributed by the Partnership to it and its distributive share of expenses of the Partnership described in Section 705(a)(2)(B) of the Code. In addition, Capital Accounts shall be adjusted to take account of any other items which give rise to Capital Account adjustments under the regulations issued pursuant to Section 704 of the Code, as finally adopted. Notwithstanding the foregoing, amounts paid to Paine Webber pursuant to the Lease Acquisition Agreement and the Transportation and Completion Agreement will be paid to Paine Webber in its capacity as tenant, not in its capacity as Limited Partner, and thus, payment of such amounts will not affect the Capital Account of the Limited Partner. 2.07 Capital Contribution: The total amount of money or the fair market value of other property contributed by each Partner to the Partnership pursuant to the terms of this Agreement, including the Capital Con- 6 12 tributions made by any predecessor holders(s) of the Interest of such Partner. 2.08 Capital Proceeds: The aggregate of (i) the net cash proceeds resulting from any condemnation of the Properties (and not used to repair or restore the Properties or applied by the holder of the First Mortgage or of any other mortgage or deed of trust affecting the Properties to the reduction of the principal amount thereof), (ii) the net cash proceeds resulting from the settlement of any title, fire or extended coverage insurance claim (and not used to repair or restore the Properties or applied by the holder of the First Mortgage or any other mortgage of deed of trust affecting the Properties, to the reduction of the principal amount thereof), (iii) the net cash proceeds from the sale of all or a portion of the Properties, (iv) the net cash proceeds actually received by the Partnership from the refinancing of any mortgage or deed of trust affecting the Properties, including the First Mortgage (and not applied to the reduction of the Partnership's liabilities, used to pay the expenses of the Partnership in connection with such refinancing, to repair or improve the Properties or set aside by the General Partner to create or maintain reasonable reserves for improvements to the Properties), 7 13 and (v) any reserves previously set aside from Capital Proceeds which are deemed available for distribution by the General Partner or Liquidator. 2.09 Capital Transaction: Any event giving rise to Capital Proceeds. 2.10 Code: The Internal Revenue Code of 1954, as amended from time to time, and any successor statute. 2.11 Commitment: A loan commitment on the terms set forth on Exhibit "B" annexed hereto and made a part hereof. 2.12 Commencement Date: Shall have the meaning set forth in the Office Lease. 2.13 Consent: Either the written consent of a Person, or the affirmative vote of such Person at a meeting duly called and held pursuant to this Agreement, as the case may be, to do the act or thing for which the Consent is solicited, or the act of granting such Consent, as the context may require. 2.14 Data Center Lease: The lease, dated of even date herewith, between the Partnership, as landlord, and the Limited Partner, as tenant, pursuant to which the Partnership subleased the property known as the Data Processing Center to the Limited Partner. 8 14 2.15 Deficit Capital Contributions: Shall have the meaning set forth in Section 4.03 hereof. 2.16 Easements: The easements more particularly described in Exhibit "C" annexed hereto and made a part hereof. 2.17 First Mortgage: The first mortgage, to be entered into pursuant to the Commitment, affecting the Properties, and any modification, extension or replacement thereof. 2.18 Fiscal Year: The taxable year of the Partnership, which shall be the calendar year. 2.19 General Partner: Hartz Mountain Industries, Inc. and any and all other Persons who become successor General Partner in accordance with the provi- sions of the Agreement. 2.20 Ground Leases: The two Ground Leases, dated of even date herewith, between the General Partner, as landlord, and the Partnership, as tenant, pursuant to which the General Partner leased to the Partnership the Land and the Easements. 2.21 Hartz Lease: The Lease, dated of even date herewith, between the Partnership, as Landlord, and the General Partner, as tenant, pursuant to which the 9 15 Partnership subleased a portion of the Building known as the Paine Webber Building to the General Partner. 2.22 Improvements: The 604,528 square foot office and print center building and parking therefor and skywalk to be constructed, and the data center building to be purchased and renovated, on the Land. 2.23 Interest: The ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement and, to the extent not inconsistent with this Agreement, in the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement and of the Act, which ownership Interest for voting and certain other purposes of this Agreement shall, absent proof to the contrary, be as set forth in Article IV of this Agreement. 2.24 IRS: The Internal Revenue Service, an agency of the United States Government. 2.25 Land: The land more particularly described in Exhibits "A-1" (on which is constructed the Data Processing Center) and "A-2" (on which is constructed the Paine Webber Building) annexed hereto and made a part hereof. 10 16 2.26 Lease Acquisition Agreement: The Lease Acquisition Agreement, dated of even date herewith, among the Partnership, Paine Webber, Inc. and Hartz Mountain Industries, Inc. 2.27 Leasehold Estate: The leasehold estates created by the Ground Leases. 2.28 Leases: The Office Lease and the Data Center Lease, collectively. 2.29 Limited Partner(s): The Limited Partner, and any and all Persons who become a Substitute Limited Partner in accordance with the provisions of this Agreement. 2.30 Liquidator: The General Partner or, if there is no General Partner at the time in question, a Person designated by the Limited Partner to act as Liquidator, or if the Limited Partner does not designate a Person to act as Liquidator, such other Person who may be appointed in accordance with applicable law, who shall be responsible for taking all action necessary or appropriate to wind up the affairs of, and distribute the assets of, the Partnership upon its dissolution. 11 17 2.31 MAI Appraiser: Shall have the meaning set forth in Section 14.08 hereof. 2.32 Net Operating Revenues: For any period, Operating Revenues, less Operating Expenses. 2.33 Notice: A writing containing the information required by this Agreement to be communicated to a Person and personally delivered to such Person or sent by registered or certified mail, postage prepaid, return receipt requested, to such Person at the last known address of such Person as shown on the books of the Partnership, the date of personal delivery, registry or certification, as the case may be, being deemed the effective date of such Notice. 2.34 Office Lease: The Lease, dated of even date herewith, between the Partnership, as landlord, and the Limited Partner, as tenant, pursuant to which the Partnership leased a portion of the Paine Webber Building to the Limited Partner. 2.35 Operating Deficits: For any period, any shortfall in the Operating Revenues over the Operating Expenses. 12 18 2.36 Operating Deficit Loan: Shall have the meaning set forth in Section 4.03 hereof. 2.37 Operating Expenses: For any period, all costs and expenses (including capital expenditures) of operation and management of the Partnership and the Properties, including, without limitation, any rent due pursuant to the Ground Leases determined on an accrual basis and any reasonable operating reserves set aside by the General Partner, but excluding any debt service on the First Mortgage or any other financing and any payments required to be made by the Partnership pursuant to the Lease Acquisition Agreement and the Transportation and Completion Agreement. 2.38 Operating Revenues: For any period, the sum of (i) all receipts of the Partnership determined on an accrual basis, excluding Capital Proceeds and Capital Contributions, (ii) the net proceeds of any insurance, other than title or fire and extended coverage insurance, and (iii) any reserves previously set aside from Operating Revenues which are deemed available by the General Partner. 13 19 2.39 Partner(s): The General Partner, the Limited Partner, any Substitute Limited Partner and any Special Limited Partner. 2.40 Partnership: Shall have the meaning set forth in the first WHEREAS clause of this Agreement, as said limited partnership may from time to time be constituted. 2.41 Partnership Accountants: Any firm of certified public accountants reasonably satisfactory to the Partners. 2.42 Partnership Assets: All property and assets, whether real or personal, tangible or intangible, at any time owned by the Partnership or in which the Partnership shall have all interest, including, without limitation, the Ground Leases and the Improvements. 2.43 Person: Any individual, partnership, corporation, trust or other entity. 2.44 Prime Rate: The rate of interest publically announced from time to time by Citibank, N.A., or its successors, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate"). 2.45 Properties: The estates created by the Ground Leases, together with the Improvements. 14 20 2.46 Purchase Option Agreement: Collectively, the two Purchase Option Agreements, dated of even date herewith, between the General Partner and the Limited Partner. 2.47 Purchase Price: Shall have the meaning set forth in Section 14.08 hereof. 2.48 Receiving Partner: Shall have the meaning set forth in Section 14.08 hereof. 2.49 Sending Notice: Shall have the meaning set forth in Section 14.08 hereof. 2.50 Sending Partner: Shall have the meaning set forth in Section 14.08 hereof. 2.51 Special Limited Partner: Shall have the meaning set forth in Section 7.05 hereof. 2.52 Substitute Limited Partner(s): Any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof. 2.53 Successor Limited Partnership: A limited partnership which shall continue the business of the Partnership following its dissolution and reconstitution in accordance with the provisions of Article XI. 15 21 2.54 Title Commitment: Shall have the meaning set forth in Section 14.09 hereof. 2.55 Transfer: Shall have the meaning set forth in Section 7.01 hereof. 2.56 Transportation and Completion Agreement: The Transportation and Completion Agreement, dated of even date herewith, between the Partnership and Paine Webber, Inc. ARTICLE III PURPOSE AND BUSINESS 3.01 Business. The principal purpose and character of the business of the Partnership shall be to acquire, own, construct, renovate, hold for capital appreciation and finance the Properties, to cause the General Partner to complete construction and renovation of the Improvements, to manage, rent and otherwise operate the Properties, to sell, exchange, dispose of, lease, mortgage and otherwise encumber all or any part of the Properties, to incur indebtedness, whether secured or unsecured, for any of the foregoing purposes, and to engage in any other kind of lawful activity for profit related to the foregoing. 16 22 3.02 Authorized Activities. In carrying out the purposes of this Partnership, but subject to all other provisions of this Agreement and applicable law, the Partnership is empowered and authorized to: (A) lease, hold and operate the Properties and any other real or personal property which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership and, in appropriate circumstances, to sell, transfer or otherwise dispose of the Properties; (B) construct, renovate, operate, maintain, finance, improve, own, sell, convey, assign, mortgage or lease any real estate and any personal property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; (C) borrow money and issue evidences of indebtedness in furtherance of the Partnership business, and to secure the same by mortgage, pledge or other lien on any assets of the Partnership; provided that such evidence of indebtedness and documents securing the same, if any, shall effectively provide in substance and legal effect that the Limited Partner shall not have any personal liability for the payment of such indebtedness beyond its Interest, 17 23 (D) enter into, perform and carry out contracts of any kind, including contracts with Affiliates of the General Partner pursuant to Section 6.04, necessary or incidental to the accomplishment of the purposes of the Partnership; (E) bring and defend actions at law or in equity or arbitration; (F) purchase, cancel or otherwise retire or dispose of the Interest of any Partner pursuant to the express provisions of this Agreement; (G) execute and deliver all documents for the sale of Interests; (H) prepay, in whole or in part, refinance, recast, increase, reduce, modify, or extend mortgages (including, without limitation, the First Mortgage) affecting the Properties, and in connection therewith to execute any extensions, renewals or modifications of any mortgage or deed of trust on the Properties; (I) sell, exchange, dispose of or refinance mortgages (including, without limitation, the First Mortgage) on all or part of the Partnership property; 18 24 (J) make interim investments in government obligations, insured obligations, bank time deposits, commercial paper, tax-exempt investments, money market funds, certificates of deposit and banker's acceptances; and (K) engage in any kind of lawful activity, and perform and carry out contracts of any kind, necessary or advisable in connection with the accomplishment of the purposes of the Partnership. ARTICLE IV PARTNERSHIP INTERESTS AND CAPITAL 4.01 General Partner: (A) The address of the General Partner is 400 Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094. (B) The General Partner previously has contributed to the Partnership in cash an initial Capital Contribution of $666.67. As of the date hereof, the Capital Account of the General Partner is equal to $666.67. (C) The General Partner shall be obligated to make the Operating Deficit Loans or Deficit Capital Contributions to the Partnership as set forth in, and when required pursuant to, Section 4.03 hereof and to 19 25 make such additional Capital Contributions as are necessary to make the payments under the Lease Acquisition Agreement and the Transportation and Completion Agreement and any amounts required in order to complete the Improvements in accordance with the provisions of the Ground Leases and the Leases, but may not make any other additional Capital Contributions to the Partnership. (D) The General Partner shall fund any and all costs and expenses of the Properties from the date hereof through the day prior to the Fixed Rent Commencement Date (as such term is defined in the Office Lease) to the extent required by reason of the Partnership having insufficient funds for such purpose. (E) Nothing contained in this Agreement shall be deemed to create any third party beneficiary status, or grant any rights to any Capital Contributions, to any party or Person who is not a Partner. 4.02 Limited Partner. (A) The address of the Limited Partner is 1285 Avenue of the Americas, New York, New York 10019. (B) The Limited Partner has contributed to the Partnership in cash an initial Capital Contribution of $333.33. As of the date hereof, the Capital Account of the Limited Partner is equal to $333.33. 20 26 (C) The Limited Partner may make the Limited Partner Loan or Additional Capital Contributions as set forth in Section 4.03 hereof but shall not be required to make any additional loans or Capital Contributions to the Partnership. (D) Nothing contained in this Agreement shall be deemed to create any third party beneficiary status, or grant any rights to any Capital Contributions, to any party or Person who is not a Partner. 4.03 Loans and Capital Contributions to the Partnership by the Partners. (A) Upon the occurrence of Operating Deficits or if the Net Operating Revenues shall be insufficient to pay all debt service on any loan, secured or unsecured, including without limitation, the First Mortgage, affecting the Properties or the Partnership, for any reason other than the failure of the tenant under the Leases to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm either of the Leases, the General Partner shall be obligated, from time to time, at its option either (x) to lend (collectively, the "Operating Deficit Loan") to the 21 27 Partnership such funds, (y) to make Capital Contributions (the "Deficit Capital Contributions") of such funds, or (z) cause the Partnership to borrow such funds pursuant to Section 4.03(C) hereof, as may be necessary to fund such Operating Deficits and debt service on the First Mortgage and other financing, upon the terms and conditions hereinafter set forth; provided, however, that if such Operating Deficits shall arise by reason of a required capital expenditure, the General Partner shall use its best efforts to cause the Partnership to borrow such funds prior to making any Operating Deficit Loan or Deficit Capital Contribution. Notwithstanding the foregoing, however, the General Partner may make neither an Operating Deficit Loan nor make Deficit Capital Contributions nor cause the Partnership to borrow funds in connection with Operating Deficits to the extent the same shall arise by reason of failure of the tenant under the Hartz Lease to make any payment required thereunder. Subsequent to the twenty-fifth (25th) anniversary of the Commencement Date (as such term is defined in Office Lease), the General Partner shall have the right, but not the obligation, to make Operating Deficit Loans and Deficit Capital Contributions. 22 28 (B) The Operating Deficit Loan shall bear interest at a rate equal to that charged under the First Mortgage, compounded annually. The Operating Deficit Loan, as well as interest thereon, shall be repayable in accordance with the provisions of Sections 5.04 and 5.05 hereof. The Deficit Capital Contributions shall be repaid, together with an amount in the nature of interest calculated at a rate equal to that charged under the First Mortgage, compounded annually, in accordance with the provisions of Sections 5.04 and 5.05 hereof. (C) Notwithstanding anything contained in Paragraph (B) hereof, the General Partner shall have the option, in lieu of funding the Operating Deficit Loan or making the Deficit Capital Contributions, of borrowing, or causing the Partnership to borrow the funds necessary to fund Operating Deficits or such debt service, and to secure any such loans with the Properties or any other assets of the Partnership. (D) Notwithstanding the foregoing and provided that the applicable Operating Deficit Loan or Deficit Capital Contribution shall not have been made or the funds committed, in writing, by a third party, the Limited Partner shall have the right, but not the obligation, upon ten (10) days' written notice to the General 23 29 Partner, from time to time, to lend (collectively, the "Limited Partner Loan") or to make an additional Capital Contribution ("Additional Capital Contribution") to the Partnership of its proportionate share of such funds as may be necessary to fund any such Operating Deficits or such debt service (it being understood that the General Partner shall be under no obligation to notify the Limited Partner prior to the General Partner making any Operating Deficit Loans or Deficit Capital Contributions or obtaining funds from a third party in the event of an emergency or due date requirement). The General Partner may dispute the existence of any Operating Deficits claimed by the Limited Partner pursuant to Section 14.12 hereof. The Limited Partner Loan shall bear interest at a rate equal to that charged under the First Mortgage, compounded annually. The Limited Partner Loan, as well as interest thereon, shall be repayable in accordance with the provisions of Sections 5.04 and 5.05 hereof. The Additional Capital Contributions shall be repaid, together with an amount in the nature of interest calculated at a rate equal to that charged under the First Mortgage, compounded annually, in accordance with the provisions of Sections 5.04 and 5.05 hereof. 24 30 (E) Notwithstanding anything contained herein, none of the Partners shall have any personal liability for the repayment of the Limited Partner Loan or the Operating Deficit Loan nor shall the General Partner have any personal liability beyond its Interest for failure to make any Operating Deficit Loan or Deficit Capital Contribution. 4.04 Default by General Partner. (A) In the event the General Partner shall fail (i) to make the Operating Deficit Loan or the Deficit Capital Contributions to the Partnership or to cause the Partnership to borrow the required funds for any reason other than the fact that the Operating Deficits shall have arisen by reason of the failure of the tenant under the Leases to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm either of the Leases, or (ii) to make the Capital Contributions required pursuant to Section 4.01(C) hereof, and such default continues for twenty (20) days after notice from the Limited Partner (or such shorter period of time as is reasonably required to protect Partnership Assets), in addition to the remedies 25 31 provided in Paragraph (B) of this Section 4.04 or otherwise at law, the Limited Partner shall have the right, at its option, to fund the Operating Deficit Loan or such Capital Contributions by either: (i) causing there to be lent to the Partnership by any person, firm or corporation, all or any part of the necessary amounts, which loan shall bear interest at a rate equal to two percentage points in excess of the then Prime Rate, shall be non-recourse and shall be secured by the General Partner's Interest and interest in the Operating Deficit Loan and the Deficit Capital Contributions (the principal and interest of such loan to be repaid out of the first distributions or payments to be paid to the General Partner pursuant to this Agreement); or (ii) to lend to the Partnership all or any part of such funds, which loan shall bear interest at a rate equal to two percentage points in excess of the then Prime Rate, shall be non-recourse and shall be secured by the General Partner's Interest and interest in the Operating Deficit Loan and the Deficit Capital Contributions (the principal and interest of such loan to be repaid out of the first distributions or payments to be paid to the General Partner pursuant to this Agreement). 26 32 (B) If the Limited Partner shall elect to lend to the Partnership all or any part of such funds, and such funds shall, in the aggregate (whether pursuant to one or more advances) exceed $150,000, as the same shall be increased (but not decreased) on each anniversary of the date hereof by an amount equal to the product of $150,000 and the percentage increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y. -- Northeastern N.J. Area, All Items (1967 = 100), or any successor index thereto, appropriately adjusted (the "CPI") for the preceding twelve (12) calendar months, then, in addition to the remedies provided for in Paragraphs (A) and (B), the percentage Interest of the General Partner and/or any Special Limited Partner to whom the General Partner may have transferred any portion of its Interest (it being agreed that the Limited Partner, in its sole discretion, may elect whether the General Partner's or the Special Limited Partners' Interest shall be diluted and in what proportion, except that as to any Special Limited Partners, all such Partners' Interests shall be diluted on a pro rata basis) in the Partnership automatically will be deemed to be decreased and the percentage Interest in the 27 33 Partnership of the Limited Partner automatically will be deemed to be increased by that number of percentage points equal in amount to one (1) percentage point for every $150,000 (as the same shall be increased (but not decreased) by an amount equal to the product of $150,000 and the percentage increase (but not decrease) in the CPI from the date hereof to the date of dilution) (including such initial $150,000, as increased). (C) The General Partner hereby pledges and grants to the Partnership a security interest in its Interest, as security for its obligations to fund the Operating Deficit Loan or to contribute Deficit Capital Contributions or to cause the Partnership to borrow the required funds, to make any Capital Contributions necessary to make the payments required pursuant to the Lease Acquisition Agreement or the Transportation and Completion Agreement or to fund all construction costs of the Improvements required to be constructed by the Partnership as landlord under the Leases and, through the day prior to the twenty-fifth (25th) anniversary of the Commencement Date (as such term is defined in the Office Lease), as security for the obligations of the tenant under the Hartz Lease, and agrees that the Partnership shall have, in addition to the rights provided for here- 28 34 in, all of the rights and remedies of a secured party under the New Jersey Uniform Commercial Code, other than the right to obtain a deficiency judgment in connection therewith, in respect to its Interest in the event of the failure of the General Partner to comply with its obligations as provided in this Section 4.04 or the obligations of the Tenant under the Hartz Lease. (D) If, pursuant to Section 4.03(A) hereof, the General Partner is obligated to make an Operating Deficit Loan or a Deficit Capital Contribution and failed to do so and, if the General Partner shall fail to execute any and all documents, including without limitation, loan agreements, promissory notes, and transfer and sale documents which the Limited Partner reasonably deems necessary to implement the rights and remedies set forth in this Section 4.04 for ten (10) days after request therefor by the Limited Partner, the General Partner hereby appoints the Limited Partner its attorney-in-fact for the purpose of executing any and all such documents. Such power of attorney granted herein shall be deemed to be coupled with an interest, and such power of attorney shall, to the extent permitted by law, survive the death, disability, incompetency, withdrawal, removal, or Bankruptcy of the General Partner. 29 35 4.05 Interest. Except as specifically herein provided, interest earned on Partnership funds shall inure to the benefit of the Partnership. The Partners shall not receive interest on their Capital Contributions. 4.06 Capital Account. The Partnership shall maintain a Capital Account for each Partner as described in Section 2.06 hereof. 4.07 Withdrawal of Capital Contributions. Except as otherwise provided in this Agreement or by law, (i) no Partner shall have the right to withdraw or reduce its Capital Contributions, or to demand and receive property other than cash from the Partnership in return for its Capital Contributions and (ii) any return of Capital Contributions to the Limited Partner shall be solely from Partnership assets, and the General Partner shall not be personally liable for any such return. 4.08 Restoration of Negative Capital Accounts. At no time during the term of the Partnership or upon the dissolution and liquidation of the Partnership shall a Partner with a negative balance in his Capital Account have any obligation to the Partnership or to any other Partner to restore such negative balance, except in respect of any negative balance resulting from withdrawal 30 36 of capital or a distribution in contravention of this Agreement. ARTICLE V PROFITS, LOSSES AND DISTRIBUTIONS 5.01 Determination of Profits and Losses. All profits and losses of the Partnership shall be determined by the Partnership Accountants in accordance with the accrual method of accounting for Federal income tax purposes, subject to appropriate adjustments resulting from any election pursuant to Section 5.06 hereof . 5.02 Allocation of Profits and Losses from Operations. (A) Losses. (i) Subject to Section 5.02(C), losses of the Partnership incurred prior to the Fixed Rent Commencement Date other than Losses arising from Capital Transactions, shall be allocated as follows: a) Deductions for non-cash losses shall be allocated 66 2/3% to the General Partner and 33 1/3% to the Limited Partner; and b) Losses (calculated by excluding deductions for non-cash losses) shall be allocated 100% to the General Partner. 31 37 (ii) Subject to Section 5.02(C), Losses of the Partnership incurred on or after the Fixed Rent Commencement Date, other than Losses arising from Capital Transactions, shall be allocated 66 2/3 to the General Partner and 33 1/3 to the Limited Partner. (B) Profits. Subject to Section 5.02(C), profits, other than profits arising from Capital Transactions, shall be allocated, after making all distributions pursuant to Sections 5.04 and 5.05 for the taxable year, as follows: (i) first, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of (a) the aggregate of all amounts distributed to such Partner pursuant to Section 5.04(A) or 5.05(A)(2) for all taxable years (other than interest on Operating Deficit Loans or Limited Partner Loans) over (b) the sum of (1) all amounts previously allocated to such Partner pursuant to this Section 5.02(B)(i), Section 5.03(A)(ii), or Section 5.02(D) and (2) the difference between the total amount of such loans and the amount allocated to such Partner pursuant to Section 5.02(C)(ii) with respect to such loans; 32 38 (ii) second, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of (a) the aggregate of all amounts distributed to such Partner pursuant to Section 5.04(B) or 5.05(A)(3) for all taxable years (other than amounts in the nature of interest on Deficit Capital Contributions or Additional Capital Contributions) over (b) the sum of (1) all amounts previously allocated to such Partner pursuant to this Section 5.02(B)(ii), Section 5.03(A)(ii), or Section 5.02(D) and (2), the difference between the total amount of such capital contributions and the amount allocated to such Partner pursuant to Section 5.02(C)(ii) with respect to such capital contributions; (iii) thereafter, 66 2/3% to the General Partner and 33 1/3% to the Limited Partner. (C) Special Allocations. Notwithstanding Sections 5.02(A) and 5.02(B), (i) any deductions or losses attributable to payments made under the Lease Acquisition Agreement or the Transportation and Completion Agreement shall be allocated to the General Partner; and (ii) to the extent that any Operating Deficit Loan, Limited Partner Loan, Deficit Capital Contribution or Additional Capital Contribution is made 33 39 by reason of a partnership cash expenditure with respect to which the Partnership is entitled to a deduction, such deduction shall be allocated to the Partner making such Operating Deficit Loan, Limited Partner Loan, Deficit Capital Contribution or Additional Capital Contribution. (D) Anything to the contrary in this Article V notwithstanding, losses shall not be allocated to a Partner who has a negative Capital Account balance when any other Partner has a positive Capital Account balance, but shall first be allocated to Partners who have positive Capital Account balances. In addition, notwithstanding any other provision of Section 5.02 or 5.03, if at any time the sum of the deficit capital account balances of the partners should exceed the partnership's minimum gain (as defined in Prop. Reg. Section 1.704-1(b)(4)(iv), as proposed March 9, 1983), an amount of income or gains equal to such excess shall first be allocated to such Partners, in proportion to their respective shares of such excess. 34 40 5.03 Profits and Losses from Capital Transactions. (A) All net gains of the Partnership, as determined for Federal income tax purposes for the Fiscal Year, in connection with a Capital Transaction, shall be allocated among the Partners (after giving effect to all charges and credits for the then current Fiscal Year pursuant to Section 5.02 above, all distributions for such Fiscal Year pursuant to Section 5.04, and all charges, credits and distributions attributable to transactions which occurred earlier than the transaction pursuant to which the gain is being allocated, pursuant to Sections 5.01, 5.02, 5.03, 5.04 or 5.05, but not including any distributions pursuant to Section 5.05 with respect to the transaction pursuant to which the gain is then being allocated or any charges, credits, and distributions attributable to transactions which occurred subsequent to the transaction pursuant to which the gain is being allocated) as follows and in the following order of priority: (i) first, if the Capital Account of any Partner or Partners has a negative balance, such gain shall be allocated to any such Partner or Partners whose Capital Account has a negative balance in propor- 35 41 tion to such negative balances, until the balance of each such Partner's Capital Account is equal to zero; (ii) second, gain shall be allocated to the General Partner and the Limited Partner, respectively, until the positive balance in each Partner's Capital Account is equal to the sum of the amounts distributed during that Fiscal Year, or available for distribution as of the end of that Fiscal Year to such Partner pursuant to Section 5.05(A)(2) and 5.05(A)(3) (other than interest on Operating Deficit Loans or Limited Partner Loans, and other than amounts in the nature of interest on Deficit Capital Contributions and Additional Capital Contributions) by reason of the Capital Transaction pursuant to which gain is being allocated; (iii) third, gain shall be allocated to the General Partner and the Limited Partner, respectively, until the ratio of (a) the amount, if any, by which the General Partner's Capital Account balance exceeds the amount distributed during that Fiscal Year, or available for distribution as of the end of that Fiscal Year to it pursuant to Sections 5.05(A)(2) and 5.05(A)(3) (other than interest on Operating Deficit Loans, and other than amounts in the nature of interest on Deficit Capital Contributions), to (b) the amount, if 36 42 any, by which the Limited Partner's Capital Account balance exceeds the amount distributed during that Fiscal Year, or available for distribution as of the end of that Fiscal Year to it pursuant to Sections 5.05(A)(2) and 5.05(A)(3) (other than interest on Limited Partner Loans, and other than amounts in the nature of interest on Additional Capital Contributions), is 2 to 1; and (iv) thereafter, the balance shall be allocated 66 2/3% to the General Partner and 33 1/3% to the Limited Partner. (B) Any loss incurred by the Partnership, as determined for Federal income tax purposes, in connection with a Capital Transaction, shall be allocated among the Partners (after giving effect to all charges and credits for the then current Fiscal Year pursuant to Section 5.02 above, all distributions for such Fiscal Year pursuant to Sections 5.04 or 5.05, and all prior charges, credits and distributions, if any, during such Fiscal Year pursuant to Sections 5.01, 5.02, 5.03 or 5.04, but not including any charges and credits with respect to the transaction pursuant to which the loss is then being allocated or any charges, credits, and distributions which occurred subsequent to the transaction pursuant to which the loss is being allocated, but in- 37 43 cluding the distributions resulting from such transaction) as follows and in the following order of priority: (i) first, if the Capital Account of any Partner or Partners has a positive balance, such loss shall be allocated to the Capital Account of any such Partner or Partners whose Capital Account has a positive balance to make the ratio of the positive Capital Accounts of the General Partner and the Limited Partner to the sum of the Capital Accounts of the Partners 66 2/3% and 33 1/3% respectively; (ii) thereafter, the balance of such loss shall be allocated 66 2/3% to the General Partner and 33 1/3% to the Limited Partner. (C) In the event that any gain realized upon a sale of the Property is characterized as ordinary income as a result of the recapture of cost recovery or depreciation deductions attributable to the Property, such ordinary income shall be allocated among the Partners in accordance with the percentages that the aggregate cost recovery or depreciation deductions were allocated. Notwithstanding the foregoing, in no event shall a Partner be allocated such ordinary income in excess of the gain allocated and to be allocated to that Partner pursuant to Section 5.03(A) hereof. 38 44 5.04 Distribution of Net Operating Revenues. Eighty-five percent (85%) of Net Operating Revenues, after payment of debt service on the First Mortgage or any other financing affecting the Property or the Partnership, shall be distributed quarterly, in accordance with the Budget, within thirty (30) days after the end of each quarter of each Fiscal Year by the General Partner, in the following manner and order of priority: (A) first, to pay any accrued and unpaid interest on the principal, and the outstanding principal balance, of the Operating Deficit Loan and the Limited Partner Loan, on a pari passu basis; (B) second, to pay any accrued and unpaid amount in the nature of interest on and the outstanding principal balance of any Deficit Capital Contributions or Additional Capital Contributions, on a pari passu basis; and (C) third, the balance, if any, shall be distributed 66 2/3% to the General Partner and 33 1/3% to the Limited Partner. 39 45 Such quarterly payments shall be adjusted annually, within ninety (90) days after the end of each Fiscal Year, and excess amounts, if any, shall be credited against future required payments; underpayments will be paid at the time of such adjustment. 5.05 Distribution of Proceeds of Capital Transactions other than in Liquidation. (A) Capital Proceeds (other than in liquidation) shall be distributed as follows and in the following order of priority: (1) first, to the repayment of the First Mortgage or any other mortgage or deed of trust or interim financing affecting the Property, if required thereunder, including principal, interest and any fees or penalties incurred in connection therewith; (2) second, to the repayment of the outstanding principal balance of the Operating Deficit Loan and the Limited Partner Loan, on a pari passu basis, including any interest accrued thereon; and (3) third, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of any Deficit Capital Contributions or Additional Capital Contributions, including any amount in the nature of interest accrued thereon, as the case may be, over the 40 46 amount previously distributed pursuant to this Section 5.05(A)(3) or Section 5.04(B), in proportion to such excesses; and (4) thereafter, the balance, if any, shall be paid 66 2/3% to the General Partner and 33 1/3% to the Limited Partner. (B) Notwithstanding anything contained herein, any proceeds secured by the First Mortgage and actually received by the Partnership in excess of those required in connection with payments under any construction agreement for the construction of the Improvements shall be paid to the General Partner and deemed to be payment for certain amounts previously advanced or contributed to the Partnership in connection with the acquisition and construction of the Improvements. 5.06 Partnership Adjustments. The Partnership shall elect to adjust the basis of the Partnership property pursuant to the election provided for in Section 754 of the Code. Any increase or decrease in the amount of any item of income, gain, loss, deduction or credit attributable to an adjustment to the basis of Partnership assets made pursuant to such election, and pursuant to the corresponding provisions of applicable state and local income tax laws, shall be charged or credited, as 41 47 the case may be, to those Partners entitled thereto under such laws. 5.07 Allocations to Transferred Interests. Profits, gains, losses, deductions and credits allocated to an Interest assigned or reissued during a Fiscal Year shall be allocated to each Person who was the holder of such Interest during such Fiscal Year, in proportion to the number of days that each such holder was recognized as the owner of such Interest during such Fiscal Year or by an interim closing of the books or in any other proportion permitted by the Code and selected by the General Partner in accordance with this Agreement, without regard to the results of Partnership operations or the date, amount or recipient of any distributions which may have been made with respect to such Interest. The effective date of any assignment shall be (i) in the case of a voluntary assignment, the actual date the assignment is recorded on the books of the Partnership, or (ii) in the case of involuntary assignment, the date of the operative event. 42 48 ARTICLE VI RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER 6.01 Management. Subject to and limited by the provisions of this Agreement, the General Partner shall have full, exclusive and complete authority, discretion, obligation and responsibility to make all decisions affecting the business of the Partnership. The General Partner shall manage and control the affairs of the Partnership to the best of its ability and shall use its best efforts to carry out the business of the Partnership. The General Partner shall devote to the Partnership such time as, in its discretion, may be necessary for the proper performance of its duties hereunder. The General Partner shall render to the Partnership such services as are reasonably necessary for the management and conduct of the business of the Partnership and shall be entitled to be reimbursed for out-of-pocket expenses reasonably and necessarily incurred in connection with the performance of its duties hereunder, including, without limitation, its acting as "Tax Matters" Partner. 6.02 Authority. The General Partner shall have authority to bind the Partnership, by execution of documents or otherwise, to any obligation not inconsis- 43 49 tent with the provisions of this Agreement. Except as otherwise provided in Section 6.05, the General Partner may contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform such acts or services for the Partnership as the General Partners may approve. 6.03 Limitations on the General Partner. A. The General Partner shall not have any authority to: (i) perform any act in violation of any applicable law or regulation thereunder, including applicable Federal and state securities laws; (ii) perform any act in violation of the Act or this Agreement; (iii) consent to (a) any initial permanent mortgage financing affecting the Properties other than on the terms and in the amount of the Commitment, (b) any refinancing of the First Mortgage or other initial permanent mortgage financing, (c) any attempted sale or actual sale of any of the Properties except as specifically set forth herein or exercise of the Partnership's rights under the Ground Leases to cancel the same except in connection with a termination of the Leases by 44 50 Paine Webber, Inc. pursuant to Section 38.12 of the Office Lease, (d) any modification of the First Mortgage or such other initial permanent mortgage financing, or (e) any sale or transfer of, or financing secured by, the fee estate of the General Partner as landlord under the Ground Leases, if such consent shall be required thereunder, without the prior Consent of the Limited Partner, which Consent shall not be unreasonably withheld; (iv) voluntarily file for Bankruptcy, unless the need for the same shall arise by reason of the failure of the tenant under the Leases to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm either of the Leases; or (v) perform any other act expressly requiring the Consent of the Limited Partner under this Agreement without first obtaining such Consent. B. Notwithstanding the provisions of clause A(iii)(a) of this Section 6.03, however, subsequent to the fifteenth (15th) anniversary of the Commencement Date, the General Partner shall have the right to sell all or any one of the Properties (but not any part thereof) (together with fee interest therein), without the 45 51 prior consent of the Limited Partner, provided that the proceeds of such sale, when distributed to the Partners pursuant to Section 5.05 hereof, shall be sufficient so that the Limited Partner shall receive an amount equal to the sum of (x) the Limited Partner's full federal, state and local tax liability in connection with such sale, and (y) an amount equal to the sum of the Limited Partner's projected cash distribution of Net Operating Revenues and tax benefits from the date of such sale to the twenty-fifth anniversary of the date hereof, discounted to the then present value at the rate of 9% per annum. If there shall be any dispute as to the value of the Limited Partner's projected tax benefits or projected Net Operating Revenues, either party may refer the decision of the issues raised to one of the so-called "big eight" public accounting firms, mutually satisfactory to the Partners, or if the Partners shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: the Partners shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to which such decision shall be referred shall then be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. The 46 52 decision of such accountants shall be conclusively binding upon the Partners. The fees and expenses involved in such a decision shall be borne by the unsuccessful Partner (and if both Partners are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each Partner). C. In addition, notwithstanding the provisions of clause A(iii)(b) of this Section 6.03, if any such proposed refinancing shall be non-recourse, unguaranteed (or if, in spite of the General Partner's best efforts, it is not possible to obtain non-recourse and unguaranteed financing, recourse or guaranteed financing) and on terms and at an interest rate which are commercially reasonable for the type of property and the location thereof, if the Limited Partner shall fail to approve the same, then the Limited Partner shall be obligated to lend or to cause here to be lent to the Partnership by any person, firm or corporation, including the Limited Partner, any amount not less than the proposed refinancing on the same or better terms. If there shall be a dispute as to whether the terms of the financing proposed by the Limited Partners shall in fact be the same as or better than those of the financing proposed by the Limited Part- 47 53 ner, then, pending resolution of such dispute, the General Partner shall have the authority, without the Limited Partner's Consent, to obtain any necessary interim financing. The Limited Partner shall notify the General Partner of whether it approves or disapproves of any such proposed refinancing within ten (10) business days after notice thereof from the General Partner. Failure to respond within such period shall be deemed to constitute approval by the Limited Partner. In addition, if the Limited Partner shall fail to approve any proposed refinancing required in connection with the repayment of any outstanding balance of any loan on maturity or accelerated due date, then, provided that the General Partner shall have notified the Limited Partner of the terms of the proposed refinancing not less than one hundred eighty (180) days prior to the date on which such prior loan shall be due, or such shorter period as may be reasonable if such due date shall be accelerated by the Lender, the Limited Partner shall be obligated to lend, or cause there to be lent, an amount sufficient to repay such outstanding balance not less than one hundred twenty (120) days prior to the date on which the same shall be due. 48 54 6.04 Additional Limitations. The General Partner shall not be entitled to: (A) cause the Partnership to make loans to, or accept loans from (other than on commercially reasonable terms), the General Partner or its Affiliates; or (B) accept rebates, subject to Section 6.05, or engage in any reciprocal business arrangements which would violate this Section. 6.05 Business with Affiliates. Except as provided in Section 6.04 hereof, the General Partner may cause the Partnership to transact business with any of its Affiliates for goods or services reasonably required in the conduct of the Partnership's day-to-day business, provided that any such transaction shall be effected only if: (A) The Limited Partner shall have Consented to such transaction; or (B) The following conditions shall have been complied with: (i) the transaction is on terms competitive with those that may be obtained from unaffiliated Persons; 49 55 (ii) any and all such transactions are disclosed to all Partners; and (iii) any goods or services provided by the General Partner or its Affiliates to the Partnership shall be pursuant to a written contract which sets forth the goods and services to be provided and the compensation to be paid, and shall be terminable without cause or penalty upon sixty (60) days' Notice. 6.06 Liability for Acts and Omissions. (A) The General Partner shall not be liable, responsible or accountable in damages or otherwise to any of the Partners for any act or omission performed or omitted in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of the authority granted by this Agreement and in the best interests of the Partnership, but shall be so liable, responsible or accountable for fraud, gross negligence, willful misconduct or any material breach of its fiduciary duty with respect to such acts or omissions. (B) The General Partner shall be indemnified and held harmless by the Partnership (but not any Partner) from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever arising out of or incidental to the 50 56 General Partner's management of the Partnership affairs, except where the General Partner has committed fraud, gross negligence or willful misconduct. The indemnification authorized by this Section 6.06 shall include, without limitation, payment of: (i) reasonable attorneys' fees or other expenses incurred in connection with settlement or in any legal proceeding; and (ii) the removal of any liens affecting any property of the indemnitee. The indemnification rights contained in this Section 6.06 shall be cumulative of, and in addition to, any and all rights, remedies, and recourses to which the General Partner shall be entitled, whether pursuant to the provisions of this Agreement, at law, or in equity. Indemnifications hereunder shall be made from Partnership Assets as an expense of the Partnership and no general partner or limited partner(s) shall be personally liable to any indemnitee. 6.07 Other Activities. Except as provided in Section 6.05 hereof, the Partners and their Affiliates may engage in or possess an interest in other business ventures of every nature and description for their own 51 57 account, independently or with others, including, without limitation, real estate business ventures, whether or not such other enterprises shall be in competition with any activities of the Partnership; and neither the Partnership nor the other Partners shall have any right by virtue of this Agreement in and to such independent ventures or to the income or profits derived therefrom. 6.08 Classification as a Partnership. In conducting the operation of the Partnership, the General Partner shall at no time engage in any conduct that might cause the Partnership not to be classified for Federal income tax purposes as a partnership but as an association taxable as a corporation. 6.09 Net Worth of General Partner. The General Partner hereby covenants and agrees that it shall at all times have sufficient assets and net worth, exclusive of its Interest, to permit the Partnership to be taxed as a "partnership" and not as an association taxable as a corporation for Federal income tax purposes under the provisions of the Code and the regulations promulgated hereunder and in compliance with any requirements imposed by the IRS. 52 58 6.10 Management. The General Partner will exercise good faith in all activities relating to the conduct of the business of the Partnership, and will take no action with respect to the business or assets of the Partnership which is not reasonably related to the achievement of the purposes of the Partnership. ARTICLE VII WITHDRAWAL OF GENERAL PARTNER 7.01 Assignment or Withdrawal by a General Partner. No general partner of the Partnership may sell, transfer, assign or otherwise dispose of, or pledge, hypothecate or otherwise encumber (collectively, "Transfer") its Interest, in whole or in part, or withdraw from the Partnership, except as permitted by this Article, Section 4.04(C) and Section 14.08 hereof. 7.02 Involuntary Withdrawal of a General Partner. In the event of the involuntary withdrawal of a general partner due to death, disability, Bankruptcy, dissolution or legal incapacity, such general partner shall immediately cease to be a Partner and the Partnership shall purchase the Interest of such Partner for an amount payable in cash equal to its fair market value. For purposes of determining the fair market value under 53 59 this Section, the provisions of Section 14.08 hereof shall apply. 7.03 Obligations of a Prior General Partner. If any general partner withdraws or is removed from the Partnership under Sections 7.02 or 7.08 hereof it shall remain liable for all obligations and liabilities incurred by it as a general partner before the effective date of such event and shall be liable for all damages and costs to the Partnership, the General Partner (and any new general partner) and the Limited Partner (and any Substitute Limited Partner) as a result of such sale, transfer, assignment, withdrawal or removal. 7.04 Remaining General Partner. Upon the death, disability, Bankruptcy, dissolution, legal incapacity or removal of a general partner, the remaining general partner, if any, (i) shall immediately give Notice to the Limited Partner of such event, (ii) shall serve as the General Partner of the Partnership, and (iii) shall continue the business of the Partnership. Upon the death, disability, Bankruptcy, dissolution, legal incapacity or removal of the sole remaining general partner, or the Transfer by the sole remaining general partner of its Interest, a Person selected by the Limited Partner shall (i) serve as the General Partner of the 54 60 Partnership, and (ii) continue the business of the Partnership if the Partnership is reconstituted under Article XII. 7.05 Removal of General Partner. (A) The General Partner may be removed by the Limited Partner for fraud, willful misconduct, gross negligence or material breach of fiduciary duty. (B) Upon receipt of Notice from the Limited Partner seeking the removal of the General Partner pursuant to Section 7.05(A), and specifying the cause for such removal, the General Partner shall have the right within 20 calendar days of the date of receipt of such Notice to cure the alleged default or, if such breach cannot reasonably be cured in such period, to commence efforts to cure and diligently prosecute such cure. Should such cure not be so made or efforts commenced, then, unless the General Partner disputes such removal and within the 20-day period provides Notice to the Limited Partner of its intention to commence arbitration pursuant to Section 14.12 of this Agreement, the General Partner shall immediately cease to be a general partner and shall no longer have the powers and authorities conferred on it as general partner as to the operation of the Partnership business and the General Part- 55 61 ner's Interest shall be converted into that of a special limited partner ("Special Limited Partner") and shall be entitled to all profits, losses, gains, distributions and other credits and charges to which the General Partner was entitled under this Agreement, but shall not be entitled to vote with the Limited Partner or the Substitute Limited Partner(s) upon any matter which requires the consent or approval of the Limited Partner or the Substitute Limited Partner(s) under this Agreement. Promptly after such conversion, the Limited Partner shall file, or cause there to be filed, an amendment to the Certificate of Limited Partnership of the Partnership, indicating such conversion. The General Partner hereby makes, constitutes and appoints the Limited Partner, and/or its authorized officers, agents, successors or assigns, its true and lawful attorney-in-fact with full power and authority in its name, place and stead to make, execute, sign, acknowledge, deliver, file and record any such amendment. The General Partner shall remain liable for all liabilities and obligations of the Partnership incurred or arising out of Partnership operations during the time it was the General Partner, but shall be free from liability in respect of obligations and liabilities incurred or arising out of operations thereafter, unless 56 62 the Partnership is dissolved as a consequence of the act of the General Partner by law or by the provisions of this Agreement. 7.06 Successor General Partner. A Person shall be admitted as a general partner only if the following terms and conditions are satisfied: (A) the admission of such Person shall have been Consented to by any other general partner(s) and by the Limited Partner; (B) the Person shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments that may be required or appropriate in order to effect the admission of such Person as a general partner; (C) a certificate evidencing the admission of such Person as a general partner shall have been filed for recordation; (D) if the successor general partner is a corporation, it shall have provided counsel for the Partnership with a certified copy of a resolution of its Board of Directors authorizing it to become a general partner; and 57 63 (E) except in connection with a transfer pursuant to Section 14.08 hereof, counsel for the Partnership shall have rendered an opinion that none of the actions taken in connection with such transfer or admission will cause a termination of the Partnership pursuant to Section 708 of the Code, which opinion can be waived by the remaining general partner(s) and the Limited Partner. 7.07 Additional Limitation on Transferability. Anything to the contrary in this Agreement notwithstanding, except in connection with a transfer pursuant to Section 14.08 hereof, no general partner may Transfer its Interest, in whole or in part, if such Transfer will cause a termination of the Partnership pursuant to Section 708 of the Code, and any Transfer in violation of the provisions hereof shall be void. 7.08 Permitted Assignments by the General Partner. Notwithstanding anything contained herein to the contrary, the General Partner shall have the right, upon compliance with the provisions of Section 7.06(B)-(E) but subject to the provisions of Section 7.07, to assign its entire Interest to an Affiliate. In addition, the General Partner shall have the right, from time to time, upon compliance with the provisions of Section 58 64 7.06(B) and (E) and subject to the provisions of Sections 4.04(C) and 7.07, to assign a portion or portions of its Interest, not to exceed 65 2/3% in the aggregate, to Affiliates, to Leonard Stern, members of his immediate family or trusts for the benefit of Leonard Stern or members of his immediate family, and to charitable foundations established by Leonard Stern, provided, however, that no such assignee shall be deemed to be a general partner but rather a Special Limited Partner, and shall be entitled to all profits, losses, gains, distributions and other credits and charges to which the General Partner was entitled under this Agreement and which are allocable to the portion of the Interest so transferred, but shall not be entitled to vote with the Limited Partner or the Substitute Limited Partner(s) upon any matter which requires the consent or approval of the Limited Partner or the Substitute Limited Partner(s) under this Agreement and provided further that each such assignee shall consent in writing to its Interest being pledged to secure the obligations of the General Partner in accordance with Section 4.04(C) hereof. In addition, upon compliance with the provisions of Section 7.06(B) and (E) and subject to the provisions of Sections 4.04(C) and 7.07, in the event of the death of Leonard Stern, the General 59 65 Partner may transfer its entire Interest to the Estate of Leonard Stern (the "Estate") in connection with the dissolution of the General Partner and the transfer of its assets to the Estate, provided that the Estate shall have a net worth not less than the General Partner's immediately prior to such transfer, the Estate shall acknowledge all claims against, and obligations of the General Partner, including, without limitation, the Guarantee, of even date hereof, by the General Partner for the benefit of the Limited Partner, and the Estate shall insure that there shall be a continuity of management of the Partnership and the Properties. Nothing contained herein shall be deemed to limit any rights the General Partner may have to pledge its Interest, subject, however, to its prior pledge pursuant to Section 4.04(C) hereof. ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER 8.01 Management of the Partnership. The limited Partner shall not take part in the management or control of the business of the Partnership or transact any business in the name of the Partnership. The Limited Partner shall not have the power or authority to bind the Partnership or to sign any agreement or document in the 60 66 name of the Partnership. The Limited Partner shall not have any power or authority with respect to the Partnership, except insofar as the Consent of the Limited Partner shall be expressly required by this Agreement. The exercise of any of the rights and powers of the Limited Partner pursuant to the terms of this Agreement shall not be deemed taking part in the day-to-day affairs of the Partnership or the exercise of control over Partnership affairs. 8.02 Limitation on Liability. The liability of the Limited Partner shall be limited hereunder to its Interest as and when it is payable under the provisions of this Agreement. The Limited Partner shall not have any other liability to contribute money to the Partnership, nor shall the Limited Partner be personally liable for any obligations of the Partnership. Nothing contained in this paragraph is intended to alter the provisions of any applicable state statutes regarding limitations on the liability of limited partners. 8.03 Power of Attorney. (A) The Limited Partner hereby makes, constitutes and appoints the General Partner, and/or its authorized officers, agents, successors or assigns, its true and lawful attorney-in-fact with full power and 61 67 authority in its name, place and stead to make, execute, sign, acknowledge, deliver, file and record at the appropriate public offices such documents as may be necessary or appropriate to carry out the provisions of this Agreement, including the following with respect to the Partnership: (i) the certificate of limited partnership of the Partnership, and all certificates, other agreements and amendments thereto, which the General Partner reasonably deems necessary to continue the Partnership as a Limited Partnership in each jurisdiction in which the Partnership conducts business; (ii) all instruments which the General Partner reasonably deems necessary to effect any sales or transfers by, or the dissolution and liquidation of, the Partnership or to reflect a change or modification of the Partnership, all made in accordance with the terms of this Agreement; or (iii) all such other instruments as may be reasonably deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement in accordance with its terms, or to manage and operate the Properties in the ordinary course of business (provided however, that nothing herein contained shall be 62 68 deemed to supersede any limitations specifically imposed on the General Partner by any provision of this Agreement, including, without limitation, those limitations which are contained in Sections 6.03 and 6.04 hereof). (B) The foregoing power of attorney is hereby declared to be irrevocable and coupled with an interest, and it shall survive the Bankruptcy, legal disability, dissolution or cessation to exist as a legal entity of the Limited Partner to the fullest extent permitted by law and extend to its heirs, executors, personal representatives, successors and assigns, and the transfer or assignment of all or any part of the Interest of such Partner; provided, however, that if the Limited Partner transfers all or any part of its Interest, the foregoing power of attorney of the transferor Limited Partner shall survive such transfer only until such time as the transferee shall have been admitted to the Partnership as a Substitute Limited Partner and all required documents and instruments shall have been duly executed, filed and recorded to effect such substitution. (C) The power of attorney granted to the General Partner shall not apply to Consent of the Limited Partner provided for in this Agreement unless any specific time period set forth herein in connection with 63 69 the granting or denying of such consent shall have expired. (D) The Limited Partner further agrees to execute any and all documents or instruments referred to in this Section 8.03 if the provisions of the Act render ineffective the power of attorney granted hereunder. 8.04 Admission of Additional Partners. Except as provided in this Agreement, no new partners may be admitted to the Partnership without the Consent of all of the Partners. The admission of additional partners is further subject to the condition that each such additional partner execute this Agreement or an appropriate supplement hereto pursuant to which he agrees to be bound by the terms and provisions hereof. The admission of an additional partner pursuant hereto shall not be cause for dissolution of the Partnership. 64 70 ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS 9.01 No Unpermitted Transfers. The Limited Partner may not sell, assign, transfer or otherwise dispose of, or pledge, hypothecate or otherwise encumber his Interest, or any part thereof, except as permitted in this Article IX and Sections 14.08 and 14.13 hereof, and any transaction in violation of this Article IX and Section 14.08 hereof shall be null and void as against the Partnership, except as otherwise provided by law. 9.02 Assignment by Limited Partner. (A) The Limited Partner may assign its Interest, in whole or in part, by an executed and acknowledged written instrument only if all of the following conditions are satisfied: (i) the assignor and assignee file a notice of transfer with the General Partner which contains the information reasonably required by the General Partner; and (ii) any reasonable costs of transfer shall have been paid to the Partnership; and (iii) the General Partner shall have Consented to the assignment, which Consent may be granted or withheld in its sole discretion. 65 71 (B) Any such assignment shall be recognized by the Partnership as effective only on the first day of the calendar month following receipt by the Partnership of such notice of the proposed assignment and satisfaction of the aforementioned conditions. (C) If an assignee of a Limited Partner does not become a Substitute Limited Partner pursuant to Section 9.03, the Partnership shall not recognize the assignment, and the assignee shall not have any rights to require any information on account of the Partnership's business, inspect the Partnership's books or vote on Partnership matters. (D) Notwithstanding anything contained herein to the contrary, upon compliance with the provisions of clauses (i) and (ii) of Paragraph (A) of this Section, the Limited Partner, or any limited partner, or Special Limited Partner, shall have the right to assign its Interest, in whole or in part, to an Affiliate. 9.03 Substitute Limited Partner. (A) An assignee of the whole or any portion of the Limited Partner's Interest in accordance with Section 9.02 shall have the right to become a Substitute Limited Partner in place of its assignor only if all of the following conditions are satisfied: 66 72 (i) the fully executed and acknowledged written instrument of assignment which has been filed with the Partnership sets forth a statement of the intention of the assignor that the assignee become a Substitute Limited Partner in his place; (ii) the assignee executes, adopts and acknowledges this Agreement, and a certificate evidencing the admission of such Person as a Substitute Limited Partner shall have been filed for recording; (iii) any reasonable costs of transfer shall have been paid to the Partnership; (iv) the assignee meets the investment requirements which may be established by the General Partner for investment in the Partnership; and (v) the General Partner shall have Consented to the substitution, which Consent may be granted or withheld in its sole discretion. (B) The General Partner may elect to treat an assignee who has not become a Substitute Limited Partner as a Substitute Limited Partner in the place of its assignor. 67 73 9.04 Involuntary Withdrawal by Limited Partner. (A) Upon the Bankruptcy, dissolution or other cessation to exist as a legal entity of the Limited Partner, at the election of the General Partner, the Limited Partner shall immediately cease to be a Partner and the Partnership shall purchase the Interest of the Limited Partner for an amount payable in cash equal to its fair market value. For purposes of determining the fair market value under this Section, the provisions of Section 14.08 hereof shall apply. (B) The Bankruptcy, dissolution or cessation to exist as a legal entity of the Limited Partner shall not dissolve or terminate the Partnership. 9.05 Additional Limitation on Transferability. Anything to the contrary in this Agreement notwithstanding, the Limited Partner may not Transfer its interest, in whole or in part, if such Transfer will cause a termination of the Partnership pursuant to Section 708 of the Code, and any Transfer in violation of the provisions hereof shall be void. ARTICLE X DISSOLUTION AND LIQUIDATION 10.01 Dissolution. Unless sooner terminated in accordance with its terms, the Partnership shall be 68 74 dissolved upon the occurrence of any one of the following: (A) an election to dissolve the Partnership is made by the General Partner with the Consent of the Limited Partner; (B) the sale, exchange or other disposition of all, or substantially all, of Partnership Assets; (C) subject to the provisions of Article VII, the death, disability, Bankruptcy, dissolution, legal incapacity, removal or withdrawal of the sole remaining general partner or the sale, transfer or assignment, pursuant to Section 7.01 or 7.08 hereof, by the sole remaining general partner of its Interest; (D) the occurrence of the date set forth in Section 1.05; (E) the tenant under the Leases shall elect pursuant to the provisions of Section 38.12 of the Office Lease to terminate the Leases; or (F) any other event causing dissolution of the Partnership under the Act. 10.02 Liquidation of Partnership Assets. In the event of a dissolution of the Partnership and the failure of the Partnership to be reconstituted under 69 75 Article XI, the Partnership shall be terminated. Upon such termination, a full accounting of the assets and liabilities shall be taken, the assets shall be liquidated, and the Capital Proceeds thereof shall be applied as follows: (a) All liabilities and obligations of the Partnership, other than liabilities and obligations to the Partners as Partners under this Agreement, shall be paid or provided for (whether by such reserve as the Liquidator shall deem appropriate or otherwise); (b) All liabilities and obligations of the Partnership to the Partners shall be paid or provided for (whether by such reserve as the Liquidator shall deem appropriate or otherwise) in the following order of priority: (i) to the repayment of the outstanding principal balance of the Operating Deficit Loan, the Deficit Capital Contributions, the Limited Partner Loan and the Additional Capital Contributions, on a pari passu basis, including interest accrued thereon; and 70 76 (c) After allocation of all income, gains and losses in accordance with Article 5, to the Partners in accordance with the positive balances in their Capital Accounts. ARTICLE XI RECONSTITUTION 11.01 Reconstitution. Notwithstanding any dissolution of the Partnership under Section 10.01(C) or (F), the business of the Partnership shall be continued with the Partnership property and the Partnership assets shall not be liquidated and the Partnership automatically shall be reconstituted with the remaining general partner or substituted general partner acting as the General Partner. If the Partnership is dissolved and no general partner is then serving in accordance with the provisions of Article VII, a successor Person may be admitted within ninety (90) days after a dissolution, effective as of the date of dissolution, as general partner with the Consent of the Limited Partner and upon the satisfaction of the terms and conditions set forth in Section 7.07 hereof. Upon the admission of such Person as a successor general partner, without any further Consent or approval of any 71 77 other Partner, the Partnership shall be reconstituted as a Successor Limited Partnership. 11.02 Continuation of Business. The Successor Limited Partnership shall continue the business of the Partnership with the Partnership property. The Interests of the Partners in the Successor Limited Partnership shall be in proportion to their Interests in the dissolved Partnership. Such Successor Limited Partnership shall be governed by the terms and provisions of this Agreement and references in this Agreement to the Partnership or to the Partners or their rights and obligations shall be understood to comprehend such Successor Limited Partnership and the Partners thereof and their rights and obligations. ARTICLE XII ACCOUNTING AND REPORTS 12.01 Books and Records. The General Partner shall maintain at the office of the Partnership full and accurate books of the Partnership showing all receipts and expenditures, assets and liabilities, profits and losses, and all other books, records and information required by the Act or necessary for recording the Partnership's business and affairs. The Partnership's books and records shall be maintained in accordance with the 72 78 accrual method of accounting. All Partners and their duly authorized representatives shall have the right to inspect and copy at their expense any and all of the Partnership's books and records, including books and records necessary to enable a Partner to defend any tax audit or related proceeding, during reasonable business hours, upon two (2) business days' Notice to the General Partner. 12.02 Annual Tax Returns. The General Partner shall cause the Partnership Accountants to prepare all tax returns required of the Partnership. The General Partner shall be the "tax matters partner" of the Partnership, as that term is defined in Section 6231(a)(7) of the Code. The General Partner shall be responsible for the preparation of filing of any tax shelter registration documents, if applicable, that may be required in Section 6111 of the Code. Notwithstanding the foregoing, however, the General Partner agrees that the first tax return filed after completion of the Improvements shall be subject to review by the Limited Partner. The Limited Partner shall notify the General Partner of any objections it may have thereto within fifteen (15) business days after receipt of such return. If the Limited Partner and the General Partner shall thereafter be unable to agree, such 73 79 dispute shall be submitted to one of the so-called "big eight" accounting firms for resolution in accordance with the provisions of Paragraph 4(c) of the Lease Acquisition Agreement. 12.03 Reports to Partners. As soon as practicable after the end of each Fiscal Year, the General Partners shall cause the Partnership Accountants to furnish the Partners with reports containing at least the following information: (A) By each March 15, as the same may be extended as a result of an extension pursuant to clause (B) of this Section 12.03, IRS Form K-1, or any similar form as may be required by the IRS, stating the Partner's distributive share of income, gain, loss, deduction or credit for the previous Fiscal Year; (B) By each April 15, as the same may be extended by the Partnership pursuant to requests to extend the date on which it must file its Federal income tax forms, an unaudited balance sheet and related statements of income, cash flow and Partners' capital and changes in financial position certified by an officer of the General Partner; 74 80 (C) By each April 30: (i) any information which the General Partner deems relevant or is required by applicable law; and (ii) a report of the activities of the Partnership during the previous Fiscal Year; (D) Within sixty (60) days after the end of each fiscal quarter, (i) a summary, prepared by the General Partner, of all transactions during such fiscal quarter between the Partnership and the General Partner or its Affiliates, if any (including the nature of the transaction and the payments involved and any other information which the General Partner reasonably deems relevant or is required by applicable law), and (ii) an unaudited operating statement for such fiscal quarter. 12.04 Partnership Funds. The General Partner shall have the responsibility for the safe-keeping and use of all funds and assets of the Partnership and the General Partner shall not employ such funds in any manner except for the benefit of the Partnership. All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking institutions as the General Partner shall determine. 75 81 ARTICLE XIII AMENDMENTS AND MEETINGS 13.01 Amendment Procedure. The amendment procedure is as follows: (A) amendments to this Agreement may be proposed by the General Partner or by the Limited Partner; and (B) a proposed amendment will be adopted and effective only if it receives the Consent of all the Partners. In the event all Partners Consent to any of the above changes, an amendment to this Agreement shall be executed and filed for recording in the manner prescribed by the Act. 13.02 Meetings and Voting. (A) Meetings of Partners may be called by the General Partner or by the Limited Partner for informational purposes or for any purpose permitted by this Agreement. The General Partner shall give all Partners Notice of the purpose of such proposed meeting not less than fifteen (15) nor more than sixty (60) days before the meeting. Meetings shall be held at a time and place reasonably selected by the General Partner. 76 82 (B) The General Partner may solicit required Consents of the Limited Partner under this Agreement at a meeting held pursuant to Section 13.02(A) or by written ballot. ARTICLE XIV MISCELLANEOUS 14.01 Title to Partnership Property. All Partnership Assets shall be deemed to be owned by the Partnership as an entity, and no Partner, individually shall have any ownership interest in such property. 14.02 Validity. Each provision of this Agreement shall be considered separate and, if for any reason, any provision(s) which is not essential to the effectuation of the basic purposes of this Agreement is determined to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not impair the operation of or affect those provisions of this Agreement which are otherwise valid, except that if the provisions of Section 8.02 hereof shall be determined to be invalid, illegal or unenforceable, this Agreement shall be deemed to be void and of no further force or effect. 77 83 14.03 Applicable Law. This Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the laws of the State of New Jersey. 14.04 Binding Agreement. This Agreement and all terms, provisions and conditions hereof shall be binding upon the parties hereto, and shall inure to the benefit of the parties hereto and, except as otherwise provided herein, to their respective heirs, executors, personal representatives, successors and assigns. 14.05 Waiver of Action for Partition. Each of the parties hereto irrevocably waives during the term of the Partnership any right that it may have to maintain any action for partition with respect to any Partnership Assets. 14.06 Headings. All section headings in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. 14.07 Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders, the singular shall include the plural, and vice versa, as the context may require. 78 84 14.08 Right of First Offer. (A) Any Partner (the "Sending Partner"), at any time, may give notice (the "Selling Notice") to the other Partners (the "Receiving Partners") of its desire to sell its Partnership Interest. At any time within sixty (60) days after receipt of the Selling Notice, the Receiving Partners each shall either: (i) elect, by notice to the Sending Partner, to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner; or (ii) elect not to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner. (B) If one or more Receiving Partner shall elect to purchase the Partnership Interest of the Sending Partner, then: (i) the purchase price (the "Purchase Price") of such interest shall be an amount equal to that which the Sending Partner would have been entitled to receive if the Properties were sold at the Fair Market Value, all liabilities of the Partnership, including non-recourse liabilities with respect to the Properties were to be satisfied and the Partnership were to be 79 85 dissolved and liquidated pursuant to the terms of Article X hereof; (ii) the Purchase Price will be paid either in cash or, at the election of any of the Receiving Partners, by delivery of a purchase money note in the principal amount of the Purchase Price, which note will be secured by either a collateral assignment of leases and rents or a second mortgage, and which note shall have a term of three (3) years, prepayable in full at any time without penalty and with interest only payable during such term, at a rate computed and payable monthly on the basis of a fraction, the denominator of which is 360 and the numerator of which is the number of days in the billing period, equal to the Prime Rate in effect as of the first day of the month preceding the month in which an installment of interest is due; and (iii) the Sending Partner shall be removed immediately from the Partnership and the Sending Partner shall not be entitled to receive any distributions in connection therewith. (C) Upon determination of the Fair Market Value, each Receiving Partner shall have the option, to be exercised within ten (10) business days after determination of the Fair Market Value, to rescind its 80 86 election to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner, in which event the provisions of Paragraph (D) of this Section 14.08 shall be deemed to apply. (D) If no Receiving Partner shall elect to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner, or if all Receiving Partners shall rescind their election to purchase or to cause their designee to purchase the Partnership Interest of the Sending Partner, then, upon compliance with the provisions of Sections 7.06(B)-(D) and 9.02(A)(i)-(ii) and subject to the provisions of Sections 7.07 and 9.05, as the case may be, the Sending Partner may assign its entire Interest to a third party for a purchase price, in the case of such a rescission, of not less than 95% of the price which the Receiving Partners would have paid if they had not so rescinded its election to purchase. In addition, in either event, if the Sending Partner shall not have assigned its interest within six (6) months after the Receiving Partners either shall have elected not to purchase or shall have rescinded their election, then, prior to assigning its interest to a third party, it shall once again offer its Interest to the Receiving Partners pursuant to this Section 14.08. 81 87 (E) If more than one Receiving Partner shall elect to purchase the Sending Partner's Interest, then such Interest and the Purchase Price shall be allocated among such Receiving Partners in the proportion that their Interests bear to each other. (F) For the purposes of this Section 14.08, "Fair Market Value" shall be deemed to mean the amount which a willing buyer would pay and a willing seller would accept, neither under a compulsion to buy or sell, as a purchase price, in cash, for the Interest of the Sending Partner. If there shall be a dispute between the Sending Partner and the Receiving Partners as to the fair market value of the Interests of the Sending Partner, each shall select and notify the other of the name and address of an appraiser who is a member of the American Institute of Appraisers of the National Association of Real Estate Boards (a "MAI Appraiser") (provided, however, that if there shall be more than one limited partner, then the Limited Partner, acting in its sole discretion, shall select an MAI Appraiser to act for all the limited partners). If one of the parties shall fail to give Notice to the other party within five (5) days thereafter, specifying the name and address of a MAI Appraiser designated by it, then the appraiser chosen by 82 88 the other party shall make the determination alone. If two appraisers have been designated, each appraiser shall promptly, within fifteen (15) days after the designation by each party, make a separate appraisal determining the then Fair Market Value of the Interest of the Sending Partner, using the standard set forth above, and each shall deliver to each other and both the parties a copy of their appraisals, each of which shall include therein all factors considered in reaching the fair market value of the Interest of the Sending Partner. Such two appraisers shall meet twenty (20) days after receipt of each other's determination, to confer with each other and to attempt to reach agreement on the Fair Market Value of the Interest of the Sending Partner. If such appraisers shall concur as to the determination of the Fair Market Value of the Interests, such concurrence shall be final and binding upon the parties. If such appraisers shall fail to concur, then they shall immediately designate a third MAI Appraiser. If the two appraisers shall fail to agree upon the designation of such third appraiser within five (5) days, then either party on behalf of both may apply to the American Arbitration Association for the designation of such third MAI Appraiser. The third appraiser shall conduct such hearings and investigations as 83 89 he may deem appropriate and shall, within ten (10) days after the date of his designation determine the Fair Market Value of the Interest of the Sending Partner, which determination in no event shall be higher than that of the appraiser of the Sending Partner or lower than that of the appraiser of the Receiving Partners. In making this determination, the third appraiser shall use as a standard for determining Fair Market Value the standard set forth in this Section 14.08. The two determinations closest to each other shall then be averaged and such average shall be binding upon the parties. Each party shall pay its own counsel fees and expenses, if any, in connection with any appraisal under this Section, including the expenses and fees of any MAI Appraiser selected by it in accordance with the provisions of this Section, and the parties shall share equally all other expenses and fees of such appraisal. The determination rendered in accordance with the provisions of this Section shall be final and binding in fixing Fair Market Value. For purposes of this Section, a MAI Appraiser shall be one who is independent, impartial and who shall have had at least ten (10) years experience in valuations of properties of the character and in the same general area as the Properties. 84 90 14.09 General Partner Representations. The General Partner represents and warrants to the Partnership that: (A) General Partner is a corporation duly formed and validly existing in good standing under the laws of the State of New York, and will be duly registered or qualified to conduct business in each jurisdiction or place in which the conduct of its business legally requires such registration or qualification; (B) The execution, delivery and performance of this Partnership Agreement by the General Partner and the consummation of the transactions contemplated hereby have been authorized by all requisite action by or with respect to the General Partner, and this Partnership Agreement, when executed by the General Partner, will constitute a valid and binding obligation of the General Partner, enforceable against the General Partner in accordance with its terms, subject to bankruptcy laws, and laws affecting creditors rights severally; (C) The General Partner is not in violation of its certificate of incorporation or bylaws or in default in any material respect in the performance of any material agreement to which the General Partner is a party or bound. The execution, delivery and performance 85 91 of this Partnership Agreement by the General Partner, and the fulfillment by the General Partner of the terms herein set forth and the consummation by the General Partner of the transactions herein contemplated, will not conflict with or constitute a breach of, or default in a material way under, the certificate of incorporation or bylaws of the General Partner, or any other material agreement or instrument to which the General Partner is a party or bound, or any law; (D) The Land is properly zoned for the completion of the Improvements, and the Improvements, as designed, will comply with all applicable zoning, environmental and other governmental laws, regulations and ordinances; (E) As of the date hereof, the Properties are not subject to any contract, agreement or other instrument which will be binding upon the Partnership, or otherwise affects the Properties, other than the Ground Leases, the Leases, the Hartz Lease and the Reciprocal Construction Operation and Easement Agreement, to be entered into substantially in the form of the draft dated March 5, 1986, between the General Partner and the Township of Weehawken and such other agreements as are set forth on the Title Insurance Commitment No. 819-055303, 86 92 issued by Commonwealth Land Title Insurance Company (the "Title Commitment"); (F) Attached hereto as Exhibit "D" is a true and complete list of all contracts, agreements and other instruments (including, without limitation, all policies of insurance affecting the Properties), which the General Partner has executed in connection with the Properties, other than any contracts or subcontracts executed in connection with the construction of the Improvements; the General Partner has performed all of its obligations under all of said documents and no event of default exists under any of said documents, nor does any event exist which, with the giving of notice, or passage of time, or both, would constitute an event of default thereunder (or, with respect to policies of insurance, cause the cancellation thereof); neither the execution and delivery of this Agreement, nor the assignment of said documents to the Partnership will cause any such event of default; (G) There are no actions, claims, suits, proceedings or investigations, either administrative or judicial, pending or affecting the Properties; 87 93 (H) The General Partner is the sole owner of the Land, free and clear of all exceptions to title, except for those set forth in the Title Commitment. (I) The General Partner has received no notice of, and has no knowledge of, any pending or contemplated condemnation of the Land or any part thereof; (J) No person or entity has any right or option to acquire the Properties or any portion thereof; (K) The General Partner has not received any notice of any violations of any Federal, state, county or municipal law, ordinance, order, regulation or requirement with respect to the Properties; (L) At present, and at no time since the General Partner acquired the Land, have hazardous substances or wastes within the meanings of the Environmental Cleanup Responsibility Act (N.J.S.A. 13:1K-6 et seq.) and the Spill Compensation and Control Act (N.J.S.A. 59:10-23.11 et seq.) or other toxic or other hazardous material ("hazardous substances") been produced, refined, treated, disposed of or discharged at the Land and the General Partner has no knowledge that the Land was so used prior to the purchase of the Land. The 88 94 General Partner has at all times during its ownership of the Land properly disposed of all hazardous substances and wastes of any kind generated by the use of the Land. The General Partner has not received any letter or other communication, written or oral, from the New Jersey Department of Environmental Protection relating to the presence of hazardous substances at the Land; (M) There are no leases, subleases, licenses, franchises, concessions or other occupancy agreements of any nature whatsoever, oral or written, affecting the use or occupancy of any portion of the Properties and to which the Partnership will be bound other than the Ground Leases, the Leases, and the Hartz Lease; and (N) The most currently available real estate taxes and assessments for the Properties are set forth on Exhibit "E" annexed hereto, and all such real estate taxes and assessments which are due and payable have been paid. 14.10 Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. 89 95 14.11 Entire Agreement. This Agreement contains the entire understanding among the parties hereto and supersedes all prior written or oral agreements among them respecting the within subject matter, unless otherwise provided herein. 14.12 Arbitration. Any Partner may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. 14.13 Security Interest in Limited Partner's Interest. For a period of five (5) years commencing on the Fixed Rent Commencement Date (as such term is defined in the Leases) of each Lease, the Limited Partner hereby 90 96 pledges and grants to the Partnership a security interest in its Interest, as security for its obligations as tenant under the Leases (provided that it shall not have been released from liability under the Leases prior to the expiration of such five (5) year period), and agrees that the Partnership shall have all of the rights and remedies of a secured party under the New Jersey Uniform Commercial Code (including the right to obtain a deficiency judgment against the Limited Partner) in respect to its Interest in the event of the failure of the Limited Partner to comply with its obligations as tenant in accordance with the provisions of the Leases. Subsequent to such five (5) year period (as the same may be decreased pursuant hereto), the Limited Partner shall have the right to pledge (such pledge shall not be deemed to affect any right the General Partner may have to Consent to any assignment of the Limited Partner's Interest pursuant to Section 9.02(A)(iii) hereof) its Interest to any third party. 14.14 Financing, Transfer of Land. In connection with any financing secured by the Improvements or the Ground Leases, including, without limitation, the First Mortgage, the General Partner shall have the obligation, upon request by the Limited Partner, to subject 91 97 its fee interest in the Land to any such secured financing, simultaneously with the closing of any such financing. In addition, in connection with any sale or transfer of any of the Properties, the Limited Partner shall have the obligation, upon request by the General Partner, to exercise its option pursuant to the Purchase Option Agreement to purchase up to a one-third interest in the fee interest in the Land simultaneously with the closing of such sale or transfer; provided, however, that in no event shall the Limited Partner be required to expend in connection with such purchase an amount in excess of the sums it will receive pursuant to Section 5.05 hereof as a result of such sale, less all amounts required to pay the Limited Partner's full federal, state and local tax liability in connection therewith, and provided further that if the General Partner shall make such request, then, simultaneously with the closing of such sale or transfer, the General Partner and the Limited Partner shall transfer title to the fee to the purchaser or transferee. 14.15 Use of Certain Capital Proceeds by the Limited Partner. Notwithstanding anything contained herein to the contrary, if at any time during the term of this Agreement, and provided that the applicable Ground 92 98 Lease shall be in effect the Limited Partner shall receive any funds pursuant to Section 5.05 hereof, then, within thirty (30) days after receipt of such funds, the Limited Partner shall use the same (less the amount of any Federal, state or local taxes that may be due from the Limited Partner in connection therewith) to purchase an interest in the fee (not to exceed a one-third interest in the aggregate) in accordance with the applicable Purchase Option Agreement. Thereafter, any amounts received by the Limited Partner as ground rent under the applicable Ground Lease shall be paid to the General Partner, to be held in a separate, interest-bearing escrow account and shall, together with any interest earned thereon, within thirty (30) days after the end of each fiscal quarter, be released from escrow by the General Partner and used by the Limited Partner (less the amount of any Federal, state or local taxes that may be due from the Limited Partner in connection therewith) to further purchase an interest in the fee (not to exceed a one-third interest in the aggregate) in accordance with the applicable Purchase Option Agreement. At such time as the Limited Partner shall have acquired a one-third interest in the fee of either portion of the Land, any funds received pursuant to Section 5.05 hereof or any 93 99 ground rent received by the Limited Partners shall continue to be applied by the Limited Partner in accordance with this Section pursuant to the other Purchase Option Agreement. At such time as the Limited Partner shall have acquired a full one-third or more (other than pursuant to the Default Option (as such term is defined in the Purchase Option Agreements)) interest in the fee interest in the applicable portion of the Land, at the election of the General Partner or the Limited Partner, the applicable Ground Lease shall be terminated in accordance with the provisions thereof and the applicable Land conveyed to the Partnership. 14.16 Limited Partner Representations. The Limited Partner represents and warrants to the Partnership that: (A) The Limited Partner is a corporation duly formed and validly existing in good standing under the laws of the State of Delaware, and will be duly registered or qualified to conduct business in each jurisdiction or place in which the conduct of its business legally requires such registration or qualification; (B) The execution, delivery and performance of this Partnership Agreement by the Limited Partner and the consummation of the transactions contemplated 94 100 hereby have been authorized by all requisite action by or with respect to the Limited Partner, and this Partnership Agreement, when executed by the Limited Partner, will constitute a valid and binding obligation of the Limited Partner, enforceable against the Limited Partner in accordance with its terms, subject to bankruptcy laws, and laws affecting creditors rights severally; and (C) The Limited Partner is not in violation of its certificate of incorporation or bylaws or in default in any material respect in the performance of any material agreement to which the Limited Partner is a party or bound. The execution, delivery and performance of this Partnership Agreement by the Limited Partner, and the fulfillment by the Limited Partner of the terms herein set forth and the consummation by the Limited Partner of the transactions herein contemplated, will not conflict with or constitute a breach of, or default in a material way under, the certificate of incorporation or bylaws. of the Limited Partner, or any other material 95 101 agreement or instrument to which the Limited Partner is a party or bound, or any law. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. GENERAL PARTNER: HARTZ MOUNTAIN INDUSTRIES, INC. By: /s/ Stephen M. Kelty ------------------------------------- Stephen M. Kelty, Vice President LIMITED PARTNER: PAINE WEBBER, INC. By: /s/ Rodger Parker ------------------------------------- Rodger Parker, Senior Vice President 96 102 Exhibit "A-1" Data Processing Center Land PROPOSED BLOCK 34C LOT 4.02 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30"E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Lincoln Harbor Block 34C Lots 4, 5-1, 5 and Block 36D Lot 6C," and prepared by Azzolina & Feury Engineering Company, dated February 26, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E, 86.70 feet along said property line to a point on curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 feet, said radial having a bearing of N 14 degrees-11'-23" W, through a central angle of 25 degrees-01'-56", an arc distance of 477.53 feet; thence, C) Departing said property line, S 7 degrees-48'-45" E, 55.40 feet to the point of beginning; thence, 1) N 38 degrees-28'-38" E, 476.59 feet to a point of nontangency; thence, 2) Southeasterly, along a curve to the right having a radius of 360.00 feet through a central angle of 16 degrees-55'-38", an arc distance of 106.36 feet; thence 3) S 51 degrees-07'-50" E, 188.34 feet to a point of curvature; thence, 4) South and southwesterly on a curve to the right having a radius of 40.00 feet through a central angle of 90 degrees-00'-00", an arc distance of 62.83 feet; thence, 5) S 38 degrees-52'-10" W, 51.43 feet to a point of 103 curvature; thence, 6) Southwesterly, on a curve to the right having a radius of 328.57 feet through a central angle of 34 degrees-09'-59", an arc distance of 195.93 feet; thence 7) S 38 degrees-28'-38"W, 15.35 feet; thence, 8) S 73 degrees-55'-33"W, 16.49 feet; thence, 9) S 83 degrees-28'-38"W, 262.43 feet; thence, 10) N 51 degrees-31'-22" W, 79.53 feet to the point or place of beginning. Containing 127,537 square feet (2.93 acres). A-1-2 104 [SURVEY OF SUBDIVISION OF LINCOLN HARBOR] 105 Exhibit "A-2" Operations Center Land Property Description Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30" E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Properties of Hartz Mountain Industries, Inc.," and prepared by Azzolina & Feury Engineering Company, dated February 27, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E, 86.70 feet along said property line to a point on curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 and a radial bearing on N 14 degrees-11'-23" W through a central angle of 25 degrees-01'-56" for an arc distance of 477.53 fee; thence, C) Along said property line, N 38 degrees-30'-00" E, 550.05 feet; thence, D) Departing from said property line, S 50 degrees-33'-12" E, 86,23 feet to the point of beginning; thence, 1) N 38 degrees-52'-10" E, 383.37 feet to a point of curvature; thence, 2) Northeasterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence 3) S 51 degrees-07'-50" E, 156.00 feet; thence, 4) S 38 degrees-52'-10" W, 286.00 feet; thence, 5) Along the outer face of the wall of Tower 1, S 51 degrees-07'-50" E, 392.18 feet; thence 6) S 38 degrees-52'-10" W, 132.37 feet to a point of curvature; thence, A-2-1 106 7) Southwesterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, 8) 51 degrees-07'-50" W, 513.18 feet to a point of curvature; thence, 9) Northwesterly, on a curve to the right having a radius of 35 feet through a central angle of 90 degrees-00'-00" for an arc distance of 54.98 feet to the point or place of beginning. Containing 156,420 square feet (3.59 acres). A-2-2 107 [SURVEY OF SUBDIVISION OF LINCOLN HARBOR] 108 Exhibit "B" Terms of Commitment Principal Amount: $75,000,000 Term: Minimum of 17 years, 6 months from the Commence- ment Date (as such term is defined in the Data Center Lease) Amortization Schedule: 11.979 constant Interest Rate: 11.25% or less per annum Security: Senior leasehold mortgage subordinated fee, no per- sonal liability B-1 109 Exhibit "C" Easements The easements granted pursuant to the Reciprocal Easement and Maintenance Agreement, dated of even date herewith, among the General Partner, the Partnership and the Partnership C-1 110 Exhibit "D" Contracts
NAME OF DOCUMENT PARTIES DATE - ---------------- ------- ---- Cover Note Insurance J.H. Minet & Co. Ltd and Hartz May 1, 1985 Binder Mountain Industries, Inc., et al. Liability Insurance Firemen's Fund Insurance Company June 17, 1985 Policy and Hartz Mountain Industries, Inc., et al. Property Coverage The Aetna Casualty and Surety May 1, 1983 Insurance Policy Company and Hartz Mountain Industries, Inc. et al.
D-1 111 Exhibit "E" Taxes E-1 112 TOWNSHIP OF SECOND HALF 1985 WEEHAWKEN, N.J. TAX BILL FOR FIRST HALF 1986 - ----------------------------------------------------------------------------------------------------- DEDUCTIONS NET TOTAL LAND IMPROVEMENTS EXEMPTION ASSESSED VALUE GROSS TAX ------------------ 1995 TAX SR. CIT. VETERAN - ----------------------------------------------------------------------------------------------------- 3514,1001 1485,900 15,000,000 1021,500.00 1021,500.00 - ----------------------------------------------------------------------------------------------------- 34.C E OF JCT RR BULKHEAD LESS 1ST HALF 572,625.00 4 73.09 ACRES AC 001320 PREVIOUSLY BILLED --------------------------------- L5 BALANCE OF 1985 TAX DISTRIBUTED TO 3rd & 448,875.00 4th QUARTER OF 1985 --------------------------------- --------------------------------- ESTIMATED TAX FOR 1st HALF OF 1985 DIS- 510,750.00 TRIBUTED TO 1st & 2nd QUARTER OF 1986 --------------------------------- INSTRUCTIONS REVERSE SIDE HARTZ MOUNTAIN INDUSTRIES INC ONE HARMON PLAZA SECAUCUS, NJ 07094 Your Municipal officials have no control over School or County Taxes THIS IS HOW YOUR TAXES ARE DISTRIBUTED - ----------------------------------------------------------------------------------------------------- TOWNSHIP OF WEEHAWKEN, N.J. YOUR TAXES LOCAL LOCAL SCHOOL REFUSE HUDSON COUNTY 2nd QUARTER 1986 GOVERNMENT PAYABLE BY MAY 1, 1986 - ----------------------------------------------------------------------------------------------------- 1021,500.00 402,000.00 319,950.00 42,000.00 257,550.00 B 34.C AC 001820 TAX RATE PER 1,000 L 4 ASSESSED VALUATION 68.10 26.800 21.330 2.800 17,170 TOTAL TAXES TO BE RAISED 7,929,422.30 3,120,676 2,484,313 325,000 1,999,433 HARTZ MOUNTAIN - ----------------------------------------------------------------------------------------------------- INDUSTRIES INC - -------------------------------------------------- ------------------------------------------------- --------------- 3rd QUARTER TAX 4th QUARTER TAX 1st QUARTER TAX 2nd QUARTER TAX 2nd QUARTER TAX PAYABLE BY AUG. 1st 1985 PAYABLE BY NOV. 1st 1985 PAYABLE BY FEB. 1st 1986 PAYABLE BY MAY 1st 1986 --------------- 255,375.00 -- PAY THIS 224,437.50 224,437.50 255,375.00 255,375.00 --------------- AMOUNT - -------------------------------------------------- ------------------------------------------------- INTEREST INTEREST INTEREST INTEREST INTEREST (59,587.50) $195,787.50 --------------- - -------------------------------------------------- ------------------------------------------------- TOTAL / / CHECK TOTAL TOTAL TOTAL TOTAL 195,787.50 / / CASH --------------- / / MONEY - -------------------------------------------------- ------------------------------------------------- ORDER COLLECTOR COLLECTOR COLLECTOR COLLECTOR - -----------------------------------------------------------------------------------------------------
113 TOWNSHIP OF WEEHAWKEN Collector of Taxes 400 Park Avenue Interest Charge 8% 1st 1,500.00 1985 Added Tax 18% 1,500.00 & over Tax Rate $68.10 per M After Nov. 1st 1985
- ----------------------------------------------------------------------------------------------------------------------------- Added Assessment No. of Months Prorated Assessment Exemptions 1985 Rate Total Added Tax THIS AMOUNT IS DUE - ------------------------------------------------------------------------------------------------------- $1,500,000. 7 $875,000. $68.10 $59,587.50 <------ per M NOV. 1, 1985 - ---------------------------------------------------------------------------------------------------------------------------- Assessed in Accordance with Account No. 1820AA Interest CHAPTER 397 - LAWS OF 1941 ----------------------------- Total -----------------------------
Owner & Location Block 34.C Hartz Mountain Ind., Inc. Lot 4 East of Jct RR Bulkhead Hartz Mountain Industries, Inc. One Harmon Plaza Secaucus, N.J. 07094 This Bill is in addition to all other 1985 Tax Bills Save This Bill ---------------------------------------------- /s/ A. GARRISON ---------------------------------------------- DATE PAID Rec. of Payment AMOUNT PAID Record of Payment EX-10.41 16 AGREEMENT OF LIMITED PARTNERSHIP 1 EXHIBIT 10.41 AGREEMENT OF LIMITED PARTNERSHIP OF HARTZ-PW HOTEL LIMITED PARTNERSHIP 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I FORMATION 1.01 Formation.............................................. 2 1.02 Name................................................... 2 1.03 Place of Business...................................... 2 1.04 Term................................................... 3 ARTICLE II DEFINITIONS............................................ 3 ARTICLE III PURPOSE AND BUSINESS 3.01 Business............................................... 16 3.02 Authorized Activities.................................. 16 ARTICLE IV PARTNERSHIP INTERESTS AND CAPITAL 4.01 General Partner........................................ 19 4.02 Limited Partner........................................ 20 4.03 Loans and Capital Contributions to the Partnership by the Partners.......................... 21 4.04 Default by General Partner............................. 25 4.05 Interest............................................... 28 4.06 Capital Account........................................ 28 4.07 Withdrawal of Capital Contributions.................... 28 4.08 Restoration of Negative Capital Accounts............................................. 29 ARTICLE V PROFITS, LOSSES AND DISTRIBUTIONS 5.01 Determination of Profits and Losses.................... 29 5.02 Allocation of Profits and Losses from Operations...................................... 29 5.03 Profits and Losses from Capital Transactions......................................... 33 5.04 Distribution of Net Operating Revenues.............................................. 37 5.05 Distribution of Proceeds of Capital Transactions other than in Liquidation.......................................... 38 5.06 Partnership Adjustments................................ 39 5.07 Allocation to Transferred Interests.................... 40
i 3
PAGE ---- ARTICLE VI RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNERS 6.01 Management............................................. 41 6.02 Authority.............................................. 41 6.03 Limitations on General Partner......................... 42 6.04 Additional Limitations................................. 47 6.05 Business with Affiliates............................... 47 6.06 Liability for Acts and Omissions....................... 48 6.07 Other Activities....................................... 50 6.08 Classification as a Partnership........................ 50 6.09 Net Worth of General Partner........................... 51 6.10 Management............................................. 51 ARTICLE VII WITHDRAWAL OF GENERAL PARTNER 7.01 Assignment or Withdrawal by General Partner....................................... 51 7.02 Involuntary Withdrawal of a General Partner............................................... 52 7.03 Obligations of a Prior General Partner................. 52 7.04 Remaining General Partner.............................. 52 7.05 Removal of General Partner............................. 53 7.06 Successor General Partner.............................. 55 7.07 Additional Limitation on Transferability...................................... 56 7.08 Permitted Assignments by the General Partner.................................. 56 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER 8.01 Management of the Partnership.......................... 58 8.02 Limitation on Liability................................ 59 8.03 Power of Attorney...................................... 59 8.04 Admission of Additional Partners....................... 62 ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS 9.01 No Unpermitted Transfers............................... 62 9.02 Assignment by Limited Partner.......................... 62 9.03 Substitute Limited Partner............................. 64 9.04 Involuntary Withdrawal by Limited Partner.............................................. 65
ii 4
PAGE ---- 9.05 Additional Limitation on Transferability....................................... 66 ARTICLE X DISSOLUTION AND LIQUIDATION 10.01 Dissolution............................................ 66 10.02 Liquidation of Partnership Assets...................... 67 ARTICLE XI RECONSTITUTION 11.01 Reconstitution......................................... 69 11.02 Continuation of Business............................... 69 ARTICLE XII ACCOUNTING AND REPORTS 12.01 Books and Records...................................... 70 12.02 Annual Tax Returns..................................... 71 12.03 Reports to Partners.................................... 72 12.04 Partnership Funds...................................... 73 ARTICLE XIII AMENDMENTS AND MEETINGS 13.01 Amendment Procedure.................................... 74 13.02 Meetings and Voting.................................... 74 ARTICLE XIV MISCELLANEOUS 14.01 Title to Partnership Property.......................... 75 14.02 Validity............................................... 75 14.03 Applicable Law......................................... 76 14.04 Binding Agreement...................................... 76 14.05 Waiver of Action for Partition......................... 76 14.06 Headings............................................... 76 14.07 Terminology............................................ 76 14.08 Right of First Offer................................... 77 14.09 General Partner Representations........................ 83 14.10 Counterparts........................................... 87 14.11 Entire Agreement....................................... 88 14.12 Arbitration............................................ 88 14.13 Security Interest in Limited Partner's Interest................................... 88
iii 5
PAGE ---- 14.14 Transfer, Financing of Land............................ 90 14.15 Use of Certain Capital Proceeds by the Limited Partner................................ 91 14.16 Limited Partner Representations........................ 92
Exhibit "A" Description of Land Exhibit "B" Terms of Commitment Exhibit "C" Easements Exhibit "D" Contracts Exhibit "E" Taxes iv 6 AGREEMENT OF LIMITED PARTNERSHIP OF HARTZ-PW HOTEL LIMITED PARTNERSHIP THIS AGREEMENT OF LIMITED PARTNERSHIP is made as of the 14th day of April, 1986, between HARTZ MOUNTAIN INDUSTRIES, INC., a New York corporation (the "General Partner"), as general partner, and PAINEWEBBER INCORPORATED, a Delaware corporation (the "Limited Partner"), as limited partner. The Limited Partner and the General Partner may be referred to herein individually as a "Partner" and collectively as the "Partners." WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership (the "Partnership") for the purpose of entering into the Ground Lease and of constructing the Improvements, which Land leased pursuant to the Ground Lease is currently owned by the General Partner, and for the purposes hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto hereby form the Partnership pursuant to the laws of the State of New Jersey, upon the following terms and conditions: 7 ARTICLE I FORMATION 1.01 Formation. The Partnership is being formed as a limited partnership under the laws of the State of New Jersey. Upon execution of this Agreement by all parties, the General Partner and the Limited Partner shall execute a certificate of limited partnership of the Partnership to reflect the provisions of this Agreement, and all such other certificates and documents conforming thereto, and shall do all such filing, recording, and publishing, and the General Partner shall take all other necessary action, required by law to perfect and maintain the Partnership as a limited partnership under the Act or under the laws of all other jurisdictions in which the Partnership may elect to conduct business. 1.02 Name. The name of the Partnership shall be "HARTZ-PW HOTEL LIMITED PARTNERSHIP", which name may be changed by the General Partner after Notice to the Partners. 1.03 Place of Business. The principal office and place of business of the Partnership shall be located at 400 Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094. The General Partner may change the location of the Partnership' 5 principal office and may establish such 2 8 additional offices of the Partnership as it may from time to time determine after Notice to the Partners. 1.04 Term. The Partnership shall continue in full force and effect until December 31, 2086, unless sooner dissolved in accordance with the provisions of this Agreement. ARTICLE II DEFINITIONS The following terms have the definitions hereinafter indicated whenever used in this Agreement with initial capital letters: 2.01 Act: The Revised New Jersey Uniform Limited Partnership Act, N.J.S.A. 42: 2A-1 et. seq. as it may be amended from time to time. 2.02 Affiliate: When used with reference to a specific Person, a Person who (i) directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the specified Person; (ii) is a partner of the specified Person; (iii) owns or controls ten percent (10%) or more of the outstanding voting securities of the specified Person; or, (iv) is an entity in which the specified Person is a partner. 3 9 2.03 Agreement: This Agreement of Limited Partnership, as it may be amended from time to time. 2.04 Bankruptcy: For purposes of this Agreement the institution by a referenced Person of a voluntary case in bankruptcy, or the voluntary taking advantage by a referenced Person of any bankruptcy or insolvency law, or the adjudication of such Person as bankrupt or insolvent, or the filing by such Person of any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or the filing by such Person of any answer admitting (or the failure by such Person to make a required responsive pleading to) the material allegations of a petition filed against such Person in any such proceeding or the seeking or consenting to or acquiescence in the judicial appointment of any trustee, fiscal agent, receiver or liquidator of such Person or of all or any substantial part of its properties or the taking of any action looking to its dissolution or liquidation, or if, within ninety (90) days after the commencement of an involuntary case or action against such Person seeking any bankruptcy, reorganization, arrangement, composition, readjustment, liquidation, dissolution 4 10 or similar relief under any present or future statute, law or regulation, the failure of such case or action to have been dismissed or all orders in proceedings thereunder affecting the operations or the business of such Person stayed, or if the stay of any such order or proceeding thereafter shall be set aside, or if, within ninety (90) days after the judicial appointment without the consent or acquiescence of such Person of any trustee, fiscal agent, receiver or liquidator of such Person or of all or any substantial part of its properties, such appointment shall not have been vacated, such insolvency being deemed to occur when such Person shall make a general assignment for the benefit of creditors or shall admit in writing that its assets are insufficient to pay its liabilities as they come due. 2.05 Budget: On or before the thirtieth (30th) day after the commencement date of each Fiscal Year, the General Partner shall submit to the Limited Partner a budget for such Fiscal Year for the operation of the business of the Partnership. 2.06 Capital Account: The account maintained by the Partnership for each Partner which, as of any given date, reflects its Capital Contributions paid to the Partnership (i) increased to reflect its distributive 5 11 share of Partnership income and gain (or item thereof), including income exempt from tax, for each Fiscal Year (or fraction thereof), and (ii) decreased to reflect its distributive share of Partnership losses and deductions for each Fiscal Year (or fraction thereof) and the amount of cash or the fair market value of property distributed by the Partnership to it and its distributive share of expenses of the Partnership described in Section 705(a)(2)(B) of the Code. In addition, Capital Accounts shall be adjusted to take account of any other items which give rise to Capital Account adjustments under the regulations issued pursuant to Section 704 of the Code, as finally adopted. 2.07 Capital Contribution: The total amount of money or the fair market value of other property contributed by each Partner to the Partnership pursuant to the terms of this Agreement, including the Capital Contributions made by any predecessor holders(s) of the Interest of such Partner. 2.08 Capital Proceeds: The aggregate of (i) the net cash proceeds resulting from any condemnation of the Property (and not used to repair or restore the Property or applied by the holder of the First Mortgage or of any other mortgage or deed of trust affecting the 6 12 Property to the reduction of the principal amount thereof), (ii) the net cash proceeds resulting from the settlement of any title, fire or extended coverage insurance claim (and not used to repair or restore the Property or applied by the holder of the First Mortgage or any other mortgage of deed of trust affecting the Property, to the reduction of the principal amount thereof), (iii) the net cash proceeds from the sale of all or a portion of the Property, (iv) the net cash proceeds actually received by the Partnership from the refinancing of any mortgage or deed of trust affecting the Property, including the First Mortgage (and not applied to the reduction of the Partnership's liabilities, used to pay the expenses of the Partnership in connection with such refinancing, to repair or improve the Property or set aside by the General Partner to create or maintain reasonable reserves for improvements to the Property), and (v) any reserves previously set aside from Capital Proceeds which are deemed available for distribution by the General Partner or Liquidator . 2.09 Capital Transaction: Any event giving rise to Capital Proceeds. 7 13 2.10 Code: The Internal Revenue Code of 1954, as amended from time to time, and any successor statute. 2.11 Commitment: A loan commitment on the terms set forth on Exhibit "B" annexed hereto and made a part hereof. 2.12 Commencement Date: Shall have the meaning set forth in the Hotel/Office Lease. 2.13 Consent: Either the written consent of a Person, or the affirmative vote of such Person at a meeting duly called and held pursuant to this Agreement, as the case may be, to do the act or thing for which the Consent is solicited, or the act of granting such Consent, as the context may require. 2.14 Deficit Capital Contributions: Shall have the meaning set forth in Section 4.03 hereof. 2.15 Easements: The easements more particularly described in Exhibit "C" annexed hereto and made a part hereof. 2.16 First Mortgage: The first mortgage, to be entered into pursuant to the Commitment, affecting the Properties, and any modification, extension or replacement thereof. 8 14 2.17 Fiscal Year: The taxable year of the Partnership, which shall be the calendar year. 2.18 General Partner: Hartz Mountain Industries, Inc. and any and all other Persons who become successor General Partner in accordance with the provisions of the Agreement. 2.19 Ground Lease: The Ground Lease, dated of even date herewith, between the General Partner, as landlord, and the Partnership, as tenant, pursuant to which the General Partner leased to the Partnership the Land and the Easements. 2.20 Guarantee: The Guarantee, dated of even date herewith, by the Limited Partner, as guarantor, for the benefit of the General Partner. 2.21 Hartz Lease: The Lease, dated of even date herewith, between the Partnership, as Landlord, and the General Partner, as tenant, pursuant to which the Partnership leased the retail portion of the Improvements to the General Partner. 2.22 Hotel/Office Lease: The Lease, dated of even date herewith, between the Partnership, as landlord, and the Limited Partner, as tenant, pursuant to which the Partnership leased a portion of the office portions of the Improvements to the Limited Partner. 9 15 2.23 Improvements: The 437,500 square foot office and hotel building to be constructed on the Land. 2.24 Interest: The ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement and, to the extent not inconsistent with this Agreement, in the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement and of the Act, which ownership Interest for voting and certain other purposes of this Agreement shall, absent proof to the contrary, be as set forth in Article IV of this Agreement. 2.25 IRS: The Internal Revenue Service, an agency of the United States Government. 2.26 Land: The land more particularly described in Exhibit "A" annexed hereto and made a part hereof. 2.27 Lease Acquisition Agreement: The Lease Acquisition Agreement, dated of even date herewith, among Hartz-PW Limited Partnership, PaineWebber Incorporated and Hartz Mountain Industries, Inc. 10 16 2.28 Leasehold Estate: The leasehold estate created by the Ground Lease. 2.29 Limited Partner(s): The Limited Partner, and any and all Persons who become a Substitute Limited Partner in accordance with the provisions of this Agreement. 2.30 Liquidator: The General Partner or, if there is no General Partner at the time in question, a Person designated by the Limited Partner to act as Liquidator, or if the Limited Partner does not designate a Person to act as Liquidator, such other Person who may be appointed in accordance with applicable law, who shall be responsible for taking all action necessary or appropriate to wind up the affairs of, and distribute the assets of, the Partnership upon its dissolution. 2.31 MAI Appraiser: Shall have the meaning set forth in Section 14.08 hereof. 2.32 Net Operating Revenues: For any period, Operating Revenues, less Operating Expenses. 2.33 Notice: A writing containing the information required by this Agreement to be communicated to a Person and personally delivered to such Person or sent by registered or certified mail, postage prepaid, return receipt requested, to such Person at the last known 11 17 address of such Person as shown on the books of the Partnership, the date of personal delivery, registry or certification, as the case may be, being deemed the effective date of such Notice. 2.34 Operating Deficits: For any period, any shortfall in the Operating Revenues over the Operating Expenses. 2.35 Operating Deficit Loan: Shall have the meaning set forth in Section 4.03 hereof. 2.36 Operating Expenses: For any period, all costs and expenses (including capital expenditures) of operation and management of the Partnership and the Properties, including, without limitation, any rent due pursuant to the Ground Lease determined on an accrual basis and any reasonable operating reserves set aside by the General Partner, but excluding any debt service on the First Mortgage or any other financing. 2.37 Operating Revenues: For any period, the sum of (i) all receipts of the Partnership determined on an accrual basis, excluding Capital Proceeds and Capital Contributions, (ii) the net proceeds of any insurance, other than title or fire and extended coverage insurance, and (iii) any reserves previously set aside from Operat- 12 18 ing Revenues which are deemed available by the General Partner. 2.38 Partner(s): The General Partner, the Limited Partner, any Substitute Limited Partner and any Special Limited Partner. 2.39 Partnership: Shall have the meaning set forth in the first WHEREAS clause of this Agreement, as said limited partnership may from time to time be constituted. 2.40 Partnership Accountants: Any firm of certified public accountants reasonably satisfactory to the Partners. 2.41 Partnership Assets: All property and assets, whether real or personal, tangible or intangible, at any time owned by the Partnership or in which the Partnership shall have all interest, including, without limitation, the Ground Lease and the Improvements. 2.42 Person: Any individual, partnership, corporation, trust or other entity. 2.43 Prime Rate: The rate of interest publically announced from time to time by Citibank, N.A., or its successors, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate"). 13 19 2.44 Property: The estate created by the Ground Lease, together with the Improvements. 2.45 Purchase Option Agreement: The Purchase Option Agreement, dated of even date herewith, between the General Partner and the Limited Partner. 2.46 Purchase Price: Shall have the meaning set forth in Section 14.08 hereof. 2.47 Receiving Partner: Shall have the meaning set forth in Section 14.08 hereof. 2.48 Sending Notice: Shall have the meaning set forth in Section 14.08 hereof. 2.49 Sending Partner: Shall have the meaning set forth in Section 14.08 hereof. 2.50 Special Limited Partner: Shall have the meaning set forth in Section 7.05 hereof. 2.51 Substitute Limited Partner(s): Any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof. 2.52 Successor Limited Partnership: A limited partnership which shall continue the business of the Partnership following its dissolution and reconstitution in accordance with the provisions of Article XI. 14 20 2.53 Title Commitment: Shall have the meaning set forth in Section 14.09 hereof. 2.54 Transfer: Shall have the meaning set forth in Section 7.01 hereof. 2.55 Transportation and Completion Agreement: The Transportation and Completion Agreement, dated of even date herewith, between Hartz-PW Limited Partnership and PaineWebber Incorporated. 15 21 ARTICLE III PURPOSE AND BUSINESS 3.01 Business. The principal purpose and character of the business of the Partnership shall be to acquire, own, construct, renovate, hold for capital appreciation and finance the Property, to cause the General Partner to complete construction of the Improvements, to manage, rent and otherwise operate the Property, to sell, exchange, dispose of, lease, mortgage and otherwise encumber all or any part of the Property, to incur indebtedness, whether secured or unsecured, for any of the foregoing purposes, and to engage in any other kind of lawful activity for profit related to the foregoing. 3.02 Authorized Activities. In carrying out the purposes of this Partnership, but subject to all other provisions of this Agreement and applicable law, the Partnership is empowered and authorized to: (A) lease, hold and operate the Property for any legal use, including, without limitation, hotel use, and any other real or personal property which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership and, in appropriate circumstances, to sell, transfer or otherwise dispose of the Property; 16 22 (B) construct, renovate, operate, maintain, finance, improve, own, sell, convey, assign, mortgage or lease any real estate and any personal property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; (C) borrow money and issue evidences of indebtedness in furtherance of the Partnership business, and to secure the same by mortgage, pledge or other lien on any assets of the Partnership; provided that such evidence of indebtedness and documents securing the same, if any, shall effectively provide in substance and legal effect that the Limited Partner shall not have any personal liability for the payment of such indebtedness beyond its Interest; (D) enter into, perform and carry out contracts of any kind, including contracts with Affiliates of the General Partner pursuant to Section 6.04, necessary or incidental to the accomplishment of the purposes of the Partnership; (E) bring and defend actions at law or in equity or arbitration; 17 23 (F) purchase, cancel or otherwise retire or dispose of the Interest of any Partner pursuant to the express provisions of this Agreement; (G) execute and deliver all documents for the sale of Interests; (H) prepay, in whole or in part, refinance, recast, increase, reduce, modify, or extend mortgages (including, without limitation, the First Mortgage) affecting the Property, and in connection therewith to execute any extensions, renewals or modifications of any mortgage or deed of trust on the Property; (I) sell, exchange, dispose of or refinance mortgages (including, without limitation, the First Mortgage) on all or part of the Partnership property; (J) make interim investments in government obligations, insured obligations, bank time deposits, commercial paper, tax-exempt investments, money market funds, certificates of deposit and banker's acceptances; and (K) engage in any kind of lawful activity, and perform and carry out contracts of any kind, necessary or advisable in connection with the accomplishment of the purposes of the Partnership. 18 24 ARTICLE IV PARTNERSHIP INTERESTS AND CAPITAL 4.01 General Partner: (A) The address of the General Partner is 400 Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094. (B) The General Partner previously has contributed to the Partnership in cash an initial Capital Contribution of $791. As of the date hereof, the Capital Account of the General Partner is equal to $791. (C) The General Partner shall be obligated to make the Operating Deficit Loans or Deficit Capital Contributions to the Partnership as set forth in, and when required pursuant to, Section 4.03 hereof and to make such additional Capital Contributions as are required in order to complete the Improvements in accordance with the provisions of the Ground Lease and the Hotel/Office Lease, but may not make any other additional Capital Contributions to the Partnership. (D) The General Partner shall fund any and all costs and expenses of the Property from the date hereof through the day prior to the Fixed Rent Commencement Date (as such term is defined in the Hotel/Office 19 25 Lease) to the extent required by reason of the Partnership having insufficient funds for such purpose. (E) Nothing contained in this Agreement shall be deemed to create any third party beneficiary status, or grant any rights to any Capital Contributions, to any party or Person who is not a Partner. 4.02 Limited Partner. (A) The address of the Limited Partner is 1285 Avenue of the Americas, New York, New York 10019. (B) The Limited Partner has contributed to the Partnership in cash an initial Capital Contribution of $209. As of the date hereof, the Capital Account of the Limited Partner is equal to $209. (C) The Limited Partner may make the Limited Partner Loan or Additional Capital Contributions as set forth in Section 4.03 hereof but shall not be required to make any additional loans or Capital Contributions to the Partnership. (D) Nothing contained in this Agreement shall be deemed to create any third party beneficiary status, or grant any rights to any Capital Contributions, to any party or Person who is not a Partner. 20 26 4.03 Loans and Capital Contributions to the Partnership by the Partners. (A) Upon the occurrence of Operating Deficits or if the Net Operating Revenues shall be insufficient to pay all debt service on any loan, secured or unsecured, including without limitation, the First Mortgage, affecting the Property or the Partnership, for any reason other than the failure of (i) the Limited Partner being in default under the Guarantee or (ii) the tenant under the Hotel/Office Lease to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm the Hotel/Office Lease, the General Partner shall be obligated, from time to time, at its option either (x) to lend (collectively, the "Operating Deficit Loan") to the Partnership such funds, (y) to make Capital Contributions (the "Deficit Capital Contributions") of such funds, or (z) cause the Partnership to borrow such funds pursuant to Section 4.03(C) hereof, as may be necessary to fund such Operating Deficits and debt service on the First Mortgage and other financing, upon the terms and conditions hereinafter set forth; provided, however, that if such Operating Deficits shall arise by 21 27 reason of a required capital expenditure, the General Partner shall use its best efforts to cause the Partnership to borrow such funds prior to making any Operating Deficit Loan or Deficit Capital Contribution. Notwithstanding the foregoing, however, the General Partner may make neither an Operating Deficit Loan nor make Deficit Capital Contributions nor cause the Partnership to borrow funds in connection with Operating Deficits to the extent the same shall arise by reason of the failure of the tenant under the Hartz Lease to make any payment required thereunder. Subsequent to the twenty-fifth (25th) anniversary of the Commencement Date (as such term is defined in the Hotel/Office Lease), the General Partner shall have the right, but not the obligation, to make Operating Deficit Loans and Deficit Capital Contributions. (B) The Operating Deficit Loan shall bear interest at a rate equal to that charged under the First Mortgage, compounded annually. The Operating Deficit Loan, as well as interest thereon, shall be repayable in accordance with the provisions of Sections 5.04 and 5.05 hereof. The Deficit Capital Contributions shall be repaid, together with an amount in the nature of interest calculated at a rate equal to that charged under the 22 28 First Mortgage, compounded annually, in accordance with the provisions of sections 5.04 and 5.05 hereof. (C) Notwithstanding anything contained in Paragraph (B) hereof, the General Partner shall have the option, in lieu of funding the Operating Deficit Loan or making the Deficit Capital Contributions, of borrowing, or causing the Partnership to borrow the funds necessary to fund Operating Deficits or such debt service, and to secure any such loans with the Property or any other assets of the Partnership. (D) Notwithstanding the foregoing and provided that the applicable Operating Deficit Loan or Deficit Capital Contribution shall not have been made or the funds committed, in writing, by a third party, the Limited Partner shall have the right, but not the obligation, upon ten (10) days' written notice to the General Partner, from time to time, to lend (collectively, the "Limited Partner Loan") or to make an additional Capital Contribution ("Additional Capital Contribution") to the Partnership of its proportionate share of such funds as may be necessary to fund any such Operating Deficits or such debt service (it being understood that the General Partner shall be under no obligation to notify the Limited Partner prior to the General Partner making any 23 29 Operating Deficit Loans or Deficit Capital Contributions or obtaining funds from a third party in the event of an emergency or due date requirement). The General Partner may dispute the existence of any Operating Deficits claimed by the Limited Partner pursuant to Section 14.12 hereof. The Limited Partner Loan shall bear interest at a rate equal to that charged under the First Mortgage, compounded annually. The Limited Partner Loan, as well as interest thereon shall be repayable in accordance with the provisions of Sections 5.04 and 5.05 hereof. The Additional Capital Contributions shall be repaid, together with an amount in the nature of interest calculated at a rate equal to that charged under the First Mortgage, compounded annually in accordance with the provisions of Sections 5.04 and 5.05 hereof. (E) Notwithstanding anything contained herein, none of the Partners shall have any personal liability for the repayment of the Limited Partner Loan or the Operating Deficit Loan nor shall the General Partner have any personal liability beyond its Interest for failure to make any Operating Deficit Loan or Deficit Capital Contribution. 24 30 4.04 Default by General Partner. (A) In the event the General Partner shall fail to make any Operating Deficit Loan or any Deficit Capital Contribution to the Partnership or to cause the Partnership to borrow the required funds for any reason other than the fact that the Operating Deficits shall have arisen by reason of the Limited Partner being in default under the Guarantee or the failure of the tenant under the Hotel/Office Lease to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm the Hotel/Office Lease, and such default continues for twenty (20) days after notice from the Limited Partner (or such shorter period of time as is reasonably required to protect Partnership Assets), in addition to the remedies provided in Paragraph (B) of this Section 4.04 or otherwise at law, the Limited Partner shall have the right, at its option, to fund the Operating Deficit Loan or the Deficit Capital Contributions by either: (i) causing there to be lent to the Partnership by any person, firm or corporation, all or any part of the necessary amounts, which loan shall bear 25 31 interest at a rate equal to two percentage points in excess of the then Prime Rate, shall be non-recourse and shall be secured by the General Partner's Interest and interest in the Operating Deficit Loan and the Deficit Capital Contributions (the principal and interest of such loan to be repaid out of the first distributions or payments to be paid to the General Partner pursuant to this Agreement); or (ii) to lend to the Partnership all or any part of such funds, which loan shall bear interest at a rate equal to two percentage points in excess of the then Prime Rate, shall be non-recourse and shall be secured by the General Partner's Interest and interest in the Operating Deficit Loan and the Deficit Capital Contributions (the principal and interest of such loan to be repaid out of the first distributions or payments to be paid to the General Partner pursuant to this Agreement). (B) If the Limited Partner shall elect to lend to the Partnership all or any part of such funds, the Limited Partner shall be deemed to have been released from all obligations under the Guarantee and the same shall be deemed to have terminated as of the date of any such loan. 26 32 (C) The General Partner hereby pledges and grants to the Partnership a security interest in its Interest, as security for its obligations to fund the Operating Deficit Loan or to contribute Deficit Capital Contributions or to cause the Partnership to borrow the required funds, to make any Capital Contributions required to fund all construction costs of the Improvement and, through the day prior to the twenty-fifth (25th) anniversary of the Commencement Date, as security for the obligations of the tenant under the Hartz Lease, and agrees that the Partnership shall have, in addition to the rights provided for herein, all of the rights and remedies of a secured party under the New Jersey Uniform Commercial Code other than the right to obtain a deficiency judgment in connection therewith, in respect to its Interest in the event of the failure of the General Partner to comply with its obligations as provided in this Section 4.04 or the obligations of the tenant under the Hartz Lease. (D) If, pursuant to Section 4.03(A) hereof, the General Partner is obligated to make an Operating Deficit Loan or a Deficit Capital Contribution and fails to do so and, if the General Partner shall fail to execute any and all documents, including without limita- 27 33 tion, loan agreements, promissory notes, and transfer and sale documents which the Limited Partner reasonably deems necessary to implement the rights and remedies set forth in this Section 4.04 for ten (10) days after request therefor by the Limited Partner, the General Partner hereby appoints the Limited Partner its attorney-in-fact for the purpose of executing any and all such documents. Such power of attorney granted herein shall be deemed to be coupled with an interest, and such power of attorney shall, to the extent permitted by law, survive the death, disability, incompetency, withdrawal, removal, or Bankruptcy of the General Partner. 4.05 Interest. Except as specifically herein provided, interest earned on Partnership funds shall inure to the benefit of the Partnership. The Partners shall not receive interest on their Capital Contributions. 4.06 Capital Account. The Partnership shall maintain a Capital Account for each Partner as described in Section 2.06 hereof. 4.07 Withdrawal of Capital Contributions. Except as otherwise provided in this Agreement or by law, (i) no Partner shall have the right to withdraw or reduce its Capital Contributions, or to demand and receive prop- 28 34 erty other than cash from the Partnership in return for its Capital Contributions and (ii) any return of Capital Contributions to the Limited Partner shall be solely from Partnership assets, and the General Partner shall not be personally liable for any such return. 4.08 Restoration of Negative Capital Accounts. At no time during the term of the Partnership or upon the dissolution and liquidation of the Partnership shall a Partner with a negative balance in his Capital Account have any obligation to the Partnership or to any other Partner to restore such negative balance, except in respect of any negative balance resulting from withdrawal of capital or a distribution in contravention of this Agreement. ARTICLE V PROFITS, LOSSES AND DISTRIBUTIONS 5.01 Determination of Profits and Losses. All profits and losses of the Partnership shall be determined by the Partnership Accountants in accordance with the accrual method of accounting for Federal income tax purposes, subject to appropriate adjustments resulting from any election pursuant to Section 5.06 hereof. 29 35 5.02 Allocation of Profits and Losses from Operations. (A) Losses. (i) Subject to Section 5.02(C), losses of the Partnership incurred prior to the Fixed Rent Commencement Date, other than Losses arising from Capital Transactions, shall be allocated as follows: a) Deductions for non-cash losses shall be allocated 79.1% to the General Partner and 20.9% to the Limited Partner; and b) Losses (calculated by excluding deductions for non-cash losses) shall be allocated 100% to the General Partner. (ii) Subject to Section 5.02(C), Losses of the Partnership incurred on or after the Fixed Rent Commencement Date, other than Losses arising from Capital Transactions, shall be allocated 79.1% to the General Partner and 20.9% to the Limited Partner. (B) Profits. Subject to Section 5.02(C), profits, other than profits arising from Capital Transactions, shall be allocated, after making all distributions pursuant to Sections 5.04 and 5.05 for the taxable year, as follows: 30 36 (i) first, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of (a) the aggregate of all amounts distributed to such Partner pursuant to Section 5.04(A) or 5.05(A)(2) for all taxable years (other than interest on Operating Deficit Loans or Limited Partner Loans) over (b) the sum of (1) all amounts previously allocated to such Partner pursuant to this Section 5.02(B)(i), Section 5.03(A)(ii), or Section 5.02(D) and (2) the difference between the total amount of such loans and the amount allocated to such Partner pursuant to Section 5.02(C)(i) with respect to such loans; (ii) second, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of (a) the aggregate of all amounts distributed to such Partner pursuant to Section 5.04(B) or 5.05(A)(3) for all taxable years (other than amounts in the nature of interest on Deficit Capital Contributions or Additional Capital Contributions) over (b) the sum of (1) all amounts previously allocated to such Partner pursuant to this Section 5.02(B)(ii), Section 5.03(A)(ii), or Section 5.02(D) and (2), the difference between the total amount of such capital contributions and the 31 37 amount allocated to such Partner pursuant to Section 5.02(C)(i) with respect to such capital contributions; (iii) thereafter, 79.1% to the General Partner and 20.9% to the Limited Partner. (C) Special Allocations. Notwithstanding Sections 5.02(A) and 5.02(B), to the extent that any Operating Deficit Loan, Limited Partner Loan, Deficit Capital Contribution or Additional Capital Contribution is made by reason of a partnership cash expenditure with respect to which the Partnership is entitled to a deduction, such deduction shall be allocated to the Partner making such Operating Deficit Loan, Limited Partner Loan, Deficit Capital Contribution or Additional Capital Contribution. (D) Anything to the contrary in this Article V notwithstanding, losses shall not be allocated to a Partner who has a negative Capital Account balance when any other Partner has a positive Capital Account balance, but shall first be allocated to Partners who have positive Capital Account balances. In addition, notwithstanding any other provision of Section 5.02 or 5.03, if at any time the sum of the deficit capital account balances of the partners should exceed the partnership's minimum gain (as defined in Prop. Reg. Section 1.704- 32 38 1(b)(4)(iv), as proposed March 9, 1983), an amount of income or gains equal to such excess shall first be allocated to such Partners, in proportion to their respective shares of such excess. 5.03 Profits and Losses from Capital Transactions. (A) All net gains of the Partnership, as determined for Federal income tax purposes for the Fiscal Year, in connection with a Capital Transaction, shall be allocated among the Partners (after giving effect to all charges and credits for the then current Fiscal Year pursuant to Section 5.02 above, all distributions for such Fiscal Year pursuant to Section 5.04, and all charges, credits and distributions attributable to transactions which occurred earlier than the transaction pursuant to which the gain is being allocated, pursuant to Sections 5.01, 5.02, 5.03, 5.04 or 5.05, but not including any distributions pursuant to Section 5.05 with respect to the transaction pursuant to which the gain is then being allocated or any charges, credits, and distributions attributable to transactions which occurred subsequent to the transaction pursuant to which the gain is being allocated) as follows and in the following order of priority: 33 39 (i) first, if the Capital Account of any Partner or Partners has a negative balance, such gain shall be allocated to any such Partner or Partners whose Capital Account has a negative balance in proportion to such negative balances, until the balance of each such Partner's Capital Account is equal to zero; (ii) second, gain shall be allocated to the General Partner and the Limited Partner, respectively, until the positive balance in each Partner's Capital Account is equal to the sum of the amounts distributed during that Fiscal Year, or available for distribution as of the end of that Fiscal Year to such Partner pursuant to Section 5.05(A)(2) and 5.05(A)(3) (other than interest on Operating Deficit Loans or Limited Partner Loans, and other than amounts in the nature of interest on Deficit Capital Contributions and Additional Capital Contributions) by reason of the Capital Transaction pursuant to which gain is being allocated; (iii) third, gain shall be allocated to the General Partner and the Limited Partner, respectively, until the ratio of (a) the amount, if any, by which the General Partner's Capital Account balance exceeds the amount distributed during that Fiscal Year, or available for distribution as of the end of that Fis- 34 40 cal Year to it pursuant to Sections 5.05(A)(2) and 5.05(A)(3) (other than interest on Operating Deficit Loans, and other than amounts in the nature of interest on Deficit Capital Contributions), to (b) the amount, if any, by which the Limited Partner's Capital Account balance exceeds the amount distributed during that Fiscal Year, or available for distribution as of the end of that Fiscal Year to it pursuant to Sections 5.05(A)(2) and 5.05(A)(3) (other than interest on Limited Partner Loans, and other than amounts in the nature of interest on Additional Capital Contributions), is 2 to 1; and (iv) thereafter, the balance shall be allocated 79.1% to the General Partner and 20.9% to the Limited Partner. (B) Any loss incurred by the Partnership, as determined for Federal income tax purposes, in connection with a Capital Transaction, shall be allocated among the Partners (after giving effect to all charges and credits for the then current Fiscal Year pursuant to Section 5.02 above, all distributions for such Fiscal Year pursuant to Sections 5.04 or 5.05, and all prior charges, credits and distributions, if any, during such Fiscal Year pursuant to Sections 5.01, 5.02, 5.03 or 5.04, but not including any charges and credits with 35 41 respect to the transaction pursuant to which the loss is then being allocated or any charges, credits, and distributions which occurred subsequent to the transaction pursuant to which the loss is being allocated, but including the distributions resulting from such transaction) as follows and in the following order of priority: (i) first, if the Capital Account of any Partner or Partners has a positive balance, such loss shall be allocated to the Capital Account of any such Partner or Partners whose Capital Account has a positive balance to make the ratio of the positive Capital Accounts of the General Partner and the Limited Partner to the sum of the Capital Accounts of the Partners 79.1% and 20.9% respectively; (ii) thereafter, the balance of such loss shall be allocated 79.1% to the General Partner and 20.9% to the Limited Partner. (C) In the event that any gain realized upon a sale of the Property is characterized as ordinary income as a result of the recapture of cost recovery or depreciation deductions attributable to the Property, such ordinary income shall be allocated among the Partners in accordance with the percentages that the aggregate cost recovery or depreciation deductions were allo- 36 42 cated. Notwithstanding the foregoing, in no event shall a Partner be allocated such ordinary income in excess of the gain allocated and to be allocated to that Partner pursuant to Section 5.03(A) hereof. 5.04 Distribution of Net Operating Revenues. Eighty-five percent (85%) of Net Operating Revenues, after payment of debt service on the First Mortgage or any other financing affecting the Property or the Partnership, shall be distributed quarterly, in accordance with the Budget, within thirty (30) days after the end of each quarter of each Fiscal Year by the General Partner, in the following manner and order of priority: (A) first, to pay any accrued and unpaid interest on the principal, and the outstanding principal balance, of the Operating Deficit Loan and the Limited Partner Loan, on a pari passu basis; (B) second, to pay any accrued and unpaid amount in the nature of interest on and the outstanding principal balance of any Deficit Capital Contributions or Additional Capital Contributions, on a pari passu basis; and (C) third, the balance, if any, shall be distributed 79.1% to the General Partner and 20.9% to the Limited Partner. 37 43 Such quarterly payments shall be adjusted annually, within ninety (90) days after the end of each Fiscal Year, and excess amounts, if any, shall be credited against future required payments; underpayments will be paid at the time of such adjustment. 5.05 Distribution of Proceeds of Capital Transactions other than in Liquidation. (A) Capital Proceeds (other than in liquidation) shall be distributed as follows and in the following order of priority: (1) first, to the repayment of the First Mortgage or any other mortgage or deed of trust or interim financing affecting the Property; if required thereunder, including principal, interest and any fees or penalties incurred in connection therewith; (2) second, to the repayment of the outstanding principal balance of the Operating Deficit Loan and the Limited Partner Loan, on a pari passu basis, including any interest accrued thereon; and (3) third, to the General Partner and the Limited Partner, respectively, an amount equal to the excess of any Deficit Capital Contributions or Additional Capital Contributions, including any amount in the nature of interest accrued thereon, as the case may be, over the 38 44 amount previously distributed pursuant to this Section 5.05(A)(3) or Section 5.04(B), in proportion to such excesses; and (4) thereafter, the balance, if any, shall be paid 79.1% to the General Partner and 20.9% to the Limited Partner. (B) Notwithstanding anything contained herein, any proceeds secured by the First Mortgage and actually received by the Partnership in excess of those required in connection with payments under any construction agreement for the construction of the Improvements, shall be paid to the General Partner as repayment for certain amounts previously advanced or contributed to the Partnership in connection with the acquisition and construction of the Improvements. 5.06 Partnership Adjustments. The Partnership shall elect to adjust the basis of the Partnership property pursuant to the election provided for in Section 754 of the Code. Any increase or decrease in the amount of any item of income, gain, loss, deduction or credit attributable to an adjustment to the basis of Partnership assets made pursuant to such election, and pursuant to the corresponding provisions of applicable state and local income tax laws, shall be charged or credited, as 39 45 the case may be, to those Partners entitled thereto under such laws. 5.07 Allocations to Transferred Interests. Profits, gains, losses, deductions and credits allocated to an Interest assigned or reissued during a Fiscal Year shall be allocated to each Person who was the holder of such Interest during such Fiscal Year, in proportion to the number of days that each such holder was recognized as the owner of such Interest during such Fiscal Year or by an interim closing of the books or in any other proportion permitted by the Code and selected by the General Partner in accordance with this Agreement, without regard to the results of Partnership operations or the date, amount or recipient of any distributions which may have been made with respect to such Interest. The effective date of any assignment shall be (i) in the case of a voluntary assignment, the actual date the assignment is recorded on the books of the Partnership, or (ii) in the case of involuntary assignment, the date of the operative event. 40 46 ARTICLE VI RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNERS 6.01 Management. Subject to and limited by the provisions of this Agreement, the General Partner shall have full, exclusive and complete authority, discretion, obligation and responsibility to make all decisions affecting the business of the Partnership. The General Partner shall manage and control the affairs of the Partnership to the best of its ability and shall use its best efforts to carry out the business of the Partnership. The General Partner shall devote to the Partnership such time as, in its discretion, may be necessary for the proper performance of its duties hereunder. The General Partner shall render to the Partnership such services as are reasonably necessary for the management and conduct of the business of the Partnership and shall be entitled to be reimbursed for out-of-pocket expenses reasonably and necessarily incurred in connection with the performance of its duties hereunder, including, without limitation, its acting as "Tax Matters" Partner. 6.02 Authority. The General Partner shall have authority to bind the Partnership, by execution of documents or otherwise, to any obligation not inconsis- 41 47 tent with the provisions of this Agreement. Except as otherwise provided in Section 6.05, the General Partner may contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform such acts or services for the Partnership as the General Partners may approve. 6.03 Limitations on General Partner. A. The General Partner shall not have any authority to: (i) perform any act in violation of any applicable law or regulation thereunder, including applicable Federal and state securities laws; (ii) perform any act in violation of the Act or this Agreement; (iii) consent to (a) any initial permanent mortgage financing affecting the Property other than on the terms and in the amount of the Commitment, (b) any refinancing of the First Mortgage or other initial permanent mortgage financing, (c) any attempted sale or actual sale of the Property except as specifically set forth herein or exercise of the Partnership's rights under the Ground Lease to cancel the same except in connection with a termination of the Hotel/Office Lease by 42 48 PaineWebber Incorporated pursuant to Section 38.11 of the Hotel/Office Lease, (d) any modification of the First Mortgage or such other initial permanent mortgage financing, or (e) any sale or transfer of, or financing secured by, the fee estate of the General Partner as landlord under the Ground Lease, if such consent shall be required thereunder, without the prior Consent of the Limited Partner, which Consent shall not be unreasonably withheld; (iv) enter into any franchise agreement for the hotel operation to be conducted at the Property; (v) modify or cancel the Management Agreement, dated of even date herewith, between the Partnership and Hartz Hotel Management Corp., or to enter into a new management agreement; (vi) cause the Partnership to voluntarily file for Bankruptcy unless the need for the same shall arise by reason of the Limited Partner being in default under the Guarantee or the tenant under the Hotel/Office Lease to make any payments required thereunder, including, without limitation, a failure to make any such payments in connection with bankruptcy proceedings 43 49 and whether or not the trustee in bankruptcy shall disaffirm the Hotel /Office Lease; (vii) perform any other act expressly requiring the Consent of the Limited Partner under this Agreement without first obtaining such Consent. B. Notwithstanding the provisions of clause A(iii)(a) of this Section 6.03, however, subsequent to the fifteenth (15th) anniversary of the Commencement Date, the General Partner shall have the right to sell the Property (but not any part thereof) (together with fee interest therein), without the prior consent of the Limited Partner, provided that the proceeds of such sale, when distributed to the Partners pursuant to Section 5.05 hereof, shall be sufficient so that the Limited Partner shall receive an amount equal to the sum of (x) the Limited Partner's full federal, state and local tax liability in connection with such sale, and (y) an amount equal to the sum of the Limited Partner's projected cash distribution of Net Operating Revenues and tax benefits from the date of such sale to the twenty-fifth anniversary of the date hereof; discounted to the then present value at the rate of 9% per annum. If there shall be any dispute as to the value of the Limited Partner's project- 44 50 ed tax benefits or projected Net Operating Revenues, either party may refer the decision of the issues raised to one of the so-called "big eight" public accounting firms, mutually satisfactory to the Partners, or if the Partners shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: the Partners shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to which such decision shall be referred shall then be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. The decision of such accountants shall be conclusively binding upon the Partners. The fees and expenses involved in such a decision shall be borne by the unsuccessful Partner (and if both Partners are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each Partner). C. In addition, notwithstanding the provisions of clause A(iii)(b) of this Section 6.03, if any such proposed refinancing shall be non-recourse, unguaranteed (or if, in spite of the General Partner's best efforts, it is not possible to obtain non-recourse and unguaranteed financing, recourse or guaranteed financing) and on 45 51 terms and at an interest rate which are commercially reasonable for the type of property and the location thereof, if the Limited Partner shall fail to approve the same, then the Limited Partner shall be obligated to lend or to cause there to be lent to the Partnership by any person, firm or corporation, including the Limited Partner, any amount not less than the proposed refinancing on the same or better terms. If there shall be a dispute as to whether the terms of the financing proposed by the Limited Partners shall in fact be the same as or better than those of the financing proposed by the Limited Partner, then, pending resolution of such dispute, the General Partner shall have the authority, without the Limited Partner's Consent to obtain any necessary interim financing. The Limited Partner shall notify the General Partner of whether it approves or disapproves of any such proposed refinancing within ten (10) business days after notice thereof from the General Partner. Failure to respond within such period shall be deemed to constitute approval by the Limited Partner. In addition, if the Limited Partner shall fail to approve any proposed refinancing required in connection with the repayment of any outstanding balance of any loan on maturity or accelerated due date, then, provided that the General Partner 46 52 shall have notified the Limited Partner of the terms of the proposed refinancing not less than one hundred eighty (180) days prior to the date on which such prior loan shall be due or such shorter period as may be reasonable if such due date shall be accelerated by the Lender, the Limited Partner shall be obligated to lend, or cause there to be lent, an amount sufficient to repay such outstanding balance not less than one hundred twenty (120) days prior to the date on which the same shall be due. 6.04 Additional Limitations. The General Partner shall not be entitled to: (A) cause the Partnership to make loans to, or accept loans from (other than on commercially reasonable terms), the General Partner or its Affiliates; or (B) accept rebates, subject to Section 6.05, or engage in any reciprocal business arrangements which would violate this Section. 6.05 Business with Affiliates. Except as provided in Section 6.04 hereof, the General Partner may cause the Partnership to transact business with any of its Affiliates for goods or services reasonably required in the conduct of the Partnership's day-to-day business, 47 53 provided that any such transaction shall be effected only if: (A) The Limited Partner shall have Consented to such transaction; or (B) The following conditions shall have been complied with: (i) the transaction is on terms competitive with those that may be obtained from unaffiliated Persons; (ii) any and all such transactions are disclosed to all Partners; and (iii) any goods or services provided by the General Partner or its Affiliates to the Partnership shall be pursuant to a written contract which sets forth the goods and services to be provided and the compensation to be paid, and shall be terminable without cause or penalty upon sixty (60) days' Notice. 6.06 Liability for Acts and Omissions. (A) The General Partner shall not be liable, responsible or accountable in damages or otherwise to any of the Partners for any act or omission performed or omitted in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of the authority granted by this Agreement and in 48 54 the best interests of the Partnership, but shall be so liable, responsible or accountable for fraud, gross negligence, willful misconduct or any material breach of its fiduciary duty with respect to such acts or omissions. (B) The General Partner shall be indemnified and held harmless by the Partnership (but not any Partner) from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever arising out of or incidental to the General Partner's management of the Partnership affairs, except where the General Partner has committed fraud, gross negligence or willful misconduct. The indemnification authorized by this Section 6.06 shall include, without limitation, payment of: (i) reasonable attorneys' fees or other expenses incurred in connection with settlement or in any legal proceeding; and (ii) the removal of any liens affecting any property of the indemnitee. The indemnification rights contained in this Section 6.06 shall be cumulative of, and in addition to, any and all rights, remedies, and recourses to which the General Partner shall be entitled, whether pursuant to 49 55 the provisions of this Agreement, at law, or in equity. Indemnifications hereunder shall be made from Partnership Assets as an expense of the Partnership and no general partner or limited partner(s) shall be personally liable to any indemnitee. 6.07 Other Activities. Except as provided in Section 6.05 hereof, the Partners and their Affiliates may engage in or possess an interest in other business ventures of every nature and description for their own account, independently or with others, including, without limitation, real estate business ventures, whether or not such other enterprises shall be in competition with any activities of the Partnership; and neither the Partnership nor the other Partners shall have any right by virtue of this Agreement in and to such independent ventures or to the income or profits derived therefrom. 6.08 Classification as a Partnership. In conducting the operation of the Partnership, the General Partner shall at no time engage in any conduct that might cause the Partnership not to be classified for Federal income tax purposes as a partnership but as an association taxable as a corporation. 50 56 6.09 Net Worth of General Partner. The General Partner hereby covenants and agrees that it shall at all times have sufficient assets and net worth, exclusive of its Interest, to permit the Partnership to be taxed as a "partnership" and not as an association taxable as a corporation for Federal income tax purposes under the provisions of the Code and the regulations promulgated thereunder and in compliance with any requirements imposed by the IRS. 6.10 Management. The General Partner will exercise good faith in all activities relating to the conduct of the business of the Partnership, and will take no action with respect to the business or assets of the Partnership which is not reasonably related to the achievement of the purposes of the Partnership. ARTICLE VII WITHDRAWAL OF GENERAL PARTNER 7.01 Assignment or Withdrawal by a General Partner. No general partner of the Partnership may sell, transfer, assign or otherwise dispose of, or pledge, hypothecate or otherwise encumber (collectively, "Transfer") its Interest, in whole or in part, or withdraw from the Partnership, except as permitted by this Article, Section 4.04(C) and Section 14.08 hereof. 51 57 7.02 Involuntary Withdrawal of a General Partner. In the event of the involuntary withdrawal of a general partner due to death, disability, Bankruptcy, dissolution or legal incapacity, such general partner shall immediately cease to be a Partner and the Partnership shall purchase the Interest of such Partner for an amount payable in cash equal to its fair market value. For purposes of determining the fair market value under this Section, the provisions of Section 14.08 hereof shall apply. 7.03 Obligations of a Prior General Partner. If any general partner withdraws or is removed from the Partnership under Sections 7.02 or 7.08 hereof it shall remain liable for all obligations and liabilities incurred by it as a general partner before the effective date of such event and shall be liable for all damages and costs to the Partnership, the General Partner (and any new general partner) and the Limited Partner (and any Substitute Limited Partner) as a result of such sale, transfer, assignment, withdrawal or removal. 7.04 Remaining General Partner. Upon the death, disability, Bankruptcy, dissolution, legal incapacity or removal of a general partner, the remaining general partner, if any, (i) shall immediately give No- 52 58 tice to the Limited Partner of such event, (ii) shall serve as the General Partner of the Partnership, and (iii) shall continue the business of the Partnership. Upon the death, disability, Bankruptcy, dissolution, legal incapacity or removal of the sole remaining general partner, or the Transfer by the sole remaining general partner of its Interest, a Person selected by the Limited Partner shall (i) serve as the General Partner of the Partnership, and (ii) continue the business of the partnership if the Partnership is reconstituted under Article XII. 7.05 Removal of General Partner. (A) The General Partner may be removed by the Limited Partner for fraud, willful misconduct, gross negligence or material breach of fiduciary duty. (B) Upon receipt of Notice from the Limited Partner seeking the removal of the General Partner pursuant to Section 7.05(A), and specifying the cause for such removal, the General Partner shall have the right within 20 calendar days of the date of receipt of such Notice to cure the alleged default or, if such breach cannot reasonably be cured in such period, to commence efforts to cure and diligently prosecute such cure. Should such cure not be so made or efforts com- 53 59 menced, then, unless the General Partner disputes such removal and within the 20-day period provides Notice to the Limited Partner of its intention to commence arbitration pursuant to Section 14.12 of this Agreement, the General Partner shall immediately cease to be a general partner and shall no longer have the powers and authorities conferred on it as general partner as to the operation of the Partnership business and the General Partner's Interest shall be converted into that of a special limited partner ("Special Limited Partner") and shall be entitled to all profits, losses, gains, distributions and other credits and charges to which the General Partner was entitled under this Agreement, but shall not be entitled to vote with the Limited Partner or the Substitute Limited Partner(s) upon any matter which requires the consent or approval of the Limited Partner or the Substitute Limited Partner(s) under this Agreement. Promptly after such conversion, the Limited Partner shall file, or cause there to be filed, an amendment to the Certificate of Limited Partnership, indicating such conversion. The General Partner shall remain liable for all liabilities and obligations of the Partnership incurred or arising out of Partnership operations during the time it was the General Partner, but shall be free from liability in 54 60 respect of obligations and liabilities incurred or arising out of operations thereafter, unless the Partnership is dissolved as a consequence of the act of the General Partner by law or by the provisions of this Agreement. 7.06 Successor General Partner. A Person shall be admitted as a general partner only if the following terms and conditions are satisfied: (A) the admission of such Person shall have been Consented to by any other general partner(s) and by the Limited Partner; (B) the Person shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments that may be required or appropriate in order to effect the admission of such Person as a general partner; (C) a certificate evidencing the admission of such Person as a general partner shall have been filed for recordation; (D) if the successor general partner is a corporation, it shall have provided counsel for the Partnership with a certified copy of a resolution of its Board of Directors authorizing it to become a general partner; and 55 61 (E) except in connection with a transfer pursuant to Section 14.08 hereof, counsel for the Partnership shall have rendered an opinion that none of the actions taken in connection with such transfer or admission will cause a termination of the Partnership pursuant to Section 708 of the Code, which opinion can be waived by the remaining general partner(s) and the Limited Partner. 7.07 Additional Limitation on Transferability. Anything to the contrary in this Agreement notwithstanding, except in connection with a transfer pursuant to Section 14.08 hereof, no general partner may Transfer its Interest, in whole or in part, if such Transfer will cause a termination of the Partnership pursuant to Section 708 of the Code, and any Transfer in violation of the provisions hereof shall be void. 7.08 Permitted Assignments by the General Partner. Notwithstanding anything contained herein to the contrary, the General Partner shall have the right, upon compliance with the provisions of Section 7.06(B)-(E) but subject to the provisions of Section 7.07, to assign its entire Interest to an Affiliate. In addition, the General Partner shall have the right, from time to time, upon compliance with the provisions of Section 56 62 7.06(B) and (E) and subject to the provisions of Sections 4.04(C) and 7.07, to assign a portion or portions of its Interest, not to exceed 78.9% in the aggregate, to Affiliates, to Leonard Stern, members of his immediate family or trusts for the benefit of Leonard Stern or members of his immediate family, and to charitable foundations established by Leonard Stern, provided, however, that no such assignee shall be deemed to be a general partner but rather a Special Limited Partner, and shall be entitled to all profits, losses, gains, distributions and other credits and charges to which the General Partner was entitled under this Agreement and which are allocable to the portion of the Interest so transferred, but shall not be entitled to vote with the Limited Partner or the Substitute Limited Partner(s) upon any matter which requires the consent or approval of the Limited Partner or the Substitute Limited Partner(s) under this Agreement and provided further that each such assignee shall consent in writing to its Interest being pledged to secure the obligations of the General Partner in accordance with Section 4.04(C) hereof. In addition, upon compliance with the provisions of Section 7.06(B) and (E) and subject to the provisions of Sections 4.04(C) and 7.07, in the event of the death of Leonard Stern, the General Partner may 57 63 transfer its entire Interest to the Estate of Leonard Stern (the "Estate") in connection with the dissolution of the General Partner and the transfer of its assets to the Estate, provided that the Estate shall have a net worth not less than the General Partner's immediately prior to such transfer, the Estate shall acknowledge all claims against, and obligations of, the General Partner, including, without limitation, the Guarantee, of even date hereof, by the General Partner for the benefit of the Limited Partner, and the Estate shall insure that there shall be a continuancy of management of the Parternship and the Property. Nothing contained herein shall be deemed to limit any rights the General Partner may have to pledge its Interest, subject, however, to its prior pledge pursuant to Section 4.04(C) hereof. ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER 8.01 Management of the Partnership. The limited Partner shall not take part in the management or control of the business of the Partnership or transact any business in the name of the Partnership. The Limited Partner shall not have the power or authority to bind the Partnership or to sign any agreement or document in the 58 64 name of the Partnership. The Limited Partner shall not have any power or authority with respect to the Partnership, except insofar as the Consent of the Limited Partner shall be expressly required by this Agreement. The exercise of any of the rights and powers of the Limited Partner pursuant to the terms of this Agreement shall not be deemed taking part in the day-to-day affairs of the Partnership or the exercise of control over Partnership affairs. 8.02 Limitation on Liability. The liability of the Limited Partner shall be limited hereunder to its Interest as and when it is payable under the provisions of this Agreement. The Limited Partner shall not have any other liability to contribute money to the Partnership, nor shall the Limited Partner be personally liable for any obligations of the Partnership. Nothing contained in this paragraph is intended to alter the provisions of any applicable state statutes regarding limitations on the liability of limited partners. 8.03 Power of Attorney. (A) The Limited Partner hereby makes, constitutes and appoints the General Partner, and/or its authorized officers, agents, successors or assigns, its true and lawful attorney-in-fact with full power and 59 65 authority in its name, place and stead to make, execute, sign, acknowledge, deliver, file and record at the appropriate public offices such documents as may be necessary or appropriate to carry out the provisions of this Agreement, including the following with respect to the Partnership: (i) the certificate of limited partnership of the Partnership, and all certificates, other agreements and amendments thereto, which the General Partner reasonably deems necessary to continue the Partnership as a Limited Partnership in each jurisdiction in which the Partnership conducts business; (ii) all instruments which the General Partner reasonably deems necessary to effect any sales or transfers by, or the dissolution and liquidation of, the Partnership or to reflect a change or modification of the Partnership, all made in accordance with the terms of this Agreement; or (iii) all such other instruments as may be reasonably deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement in accordance with its terms, or to manage and operate the Property in the ordinary course of business (provided however, that nothing herein contained shall be 60 66 deemed to supersede any limitations specifically imposed on the General Partner by any provision of this Agreement, including, without limitation, those limitations which are contained in Sections 6.03 and 6.04 hereof). (B) The foregoing power of attorney is hereby declared to be irrevocable and coupled with an interest, and it shall survive the Bankruptcy, legal disability, dissolution or cessation to exist as a legal entity of the Limited Partner to the fullest extent permitted by law and extend to its heirs, executors, personal representatives, successors and assigns, and the transfer or assignment of all or any part of the Interest of such Partner; provided, however, that if the Limited Partner transfers all or any part of its Interest, the foregoing power of attorney of the transferor Limited Partner shall survive such transfer only until such time as the transferee shall have been admitted to the Partnership as a Substitute Limited Partner and all required documents and instruments shall have been duly executed, filed and recorded to effect such substitution. (C) The power of attorney granted to the General Partner shall not apply to Consent of the Limited Partner provided for in this Agreement unless any specific time period set forth herein in connection with 61 67 the granting or denying of such consent shall have expired. (D) The Limited Partner further agrees to execute any and all documents or instruments referred to in this Section 8.03 if the provisions of the Act render ineffective the power of attorney granted hereunder. 8.04 Admission of Additional Partners. Except as provided in this Agreement, no new partners may be admitted to the Partnership without the Consent of all of the Partners. The admission of additional partners is further subject to the condition that each such additional partner execute this Agreement or an appropriate supplement hereto pursuant to which he agrees to be bound by the terms and provisions hereof. The admission of an additional partner pursuant hereto shall not be cause for dissolution of the Partnership. ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS 9.01 No Unpermitted Transfers. The Limited Partner may not sell, assign, transfer or otherwise dispose of, or pledge, hypothecate or otherwise encumber his Interest, or any part thereof, except as permitted in this Article IX and Sections 14.08 and 14.13 hereof, and 62 68 any transaction in violation of this Article IX and Section 14.08 hereof shall be null and void as against the Partnership, except as otherwise provided by law.277 9.02 Assignment by Limited Partner. (A) The Limited Partner may assign its Interest, in whole or in part, by an executed and acknowledged written instrument only if all of the following conditions are satisfied: (i) the assignor and assignee file a notice of transfer with the General Partner which contains the information reasonably required by the General Partner; and (ii) any reasonable costs of transfer shall have been paid to the Partnership; and (iii) the General Partner shall have Consented to the assignment, which Consent may be granted or withheld in its sole discretion. (B) Any such assignment shall be recognized by the Partnership as effective only on the first day of the calendar month following receipt by the Partnership of such notice of the proposed assignment and satisfaction of the aforementioned conditions. 63 69 (C) If an assignee of a Limited Partner does not become a Substitute Limited Partner pursuant to Section 9.03, the Partnership shall not recognize the assignment, and the assignee shall not have any rights to require any information on account of the Partnership's business, inspect the Partnership's books or vote on Partnership matters. (D) Notwithstanding anything contained herein to the contrary, upon compliance with the provisions of clauses (i) and (ii) of Paragraph (A) of this Section, the Limited Partner, or any limited partner, or Special Limited Partner, shall have the right to assign its Interest, in whole or in part, to an Affiliate. 9.03 Substitute Limited Partner. (A) An assignee of the whole or any portion of the Limited Partner's Interest in accordance with Section 9.02 shall have the right to become a Substitute Limited Partner in place of its assignor only if all of the following conditions are satisfied: (i) the fully executed and acknowledged written instrument of assignment which has been filed with the Partnership sets forth a statement of the intention of the assignor that the assignee become a Substitute Limited Partner in his place; 64 70 (ii) the assignee executes, adopts and acknowledges this Agreement, and a certificate evidencing the admission of such Person as a Substitute Limited Partner shall have been filed for recording; (iii) any reasonable costs of transfer shall have been paid to the Partnership; (iv) the assignee meets the investment requirements which may be established by the General Partner for investment in the Partnership; and (v) the General Partner shall have Consented to the substitution, which Consent may be granted or withheld in its sole discretion. (B) The General Partner may elect to treat an assignee who has not become a Substitute Limited Partner as a Substitute Limited Partner in the place of its assignor. 9.04 Involuntary Withdrawal by Limited Partner. (A) Upon the Bankruptcy, dissolution or other cessation to exist as a legal entity of the Limited Partner, at the election of the General Partner, the Limited Partner shall immediately cease to be a Partner and the Partnership shall purchase the Interest of the Limited Partner for an amount payable in cash equal to its fair market value. For purposes of determining the 65 71 fair market value under this Section, the provisions of Section 14.08 hereof shall apply. (B) The Bankruptcy, dissolution or cessation to exist as a legal entity of the Limited Partner shall not dissolve or terminate the Partnership. 9.05 Additional Limitation on Transferability. Anything to the contrary in this Agreement notwithstanding, the Limited Partner may not Transfer its interest, in whole or in part, if such Transfer will cause a termination of the Partnership pursuant to Section 708 of the Code, and any Transfer in violation of the provisions hereof shall be void. ARTICLE X DISSOLUTION AND LIQUIDATION 10.01 Dissolution. Unless sooner terminated in accordance with its terms, the Partnership shall be dissolved upon the occurrence of any one of the following: (A) an election to dissolve the Partnership is made by the General Partner with the Consent of the Limited Partner; (B) the sale, exchange or other disposition of all, or substantially all, of Partnership Assets; 66 72 (C) subject to the provisions of Article VII, the death, disability, Bankruptcy, dissolution, legal incapacity, removal or withdrawal of the sole remaining general partner or the sale, transfer or assignment, pursuant to Section 7.01 or 7.08 hereof, by the sole remaining general partner of its Interest; (D) the occurrence of the date set forth in Section 1.05; (E) the tenant under the Hotel/Office Lease shall elect pursuant to the provisions of Section 38.11 of the Hotel/Office Lease to terminate the Hotel/ Office Lease; or (F) any other event causing dissolution of the Partnership under the Act. 10.02 Liquidation of Partnership Assets. In the event of a dissolution of the Partnership and the failure of the Partnership to be reconstituted under Article XI, the Partnership shall be terminated. Upon such termination, a full accounting of the assets and liabilities shall be taken, the assets shall be liquidated, and the Capital Proceeds thereof shall be applied as follows: 67 73 (a) All liabilities and obligations of the Partnership, other than liabilities and obligations to the Partners as Partners under this Agreement, shall be paid or provided for (whether by such reserve as the Liquidator shall deem appropriate or otherwise); (b) All liabilities and obligations of the Partnership to the Partners shall be paid or provided for (whether by such reserve as the Liquidator shall deem appropriate or otherwise) in the following order of priority: (i) to the repayment of the outstanding principal balance of the Operating Deficit Loan, the Deficit Capital Contributions, the Limited Partner Loan and the Additional Capital Contributions, on a pari passu basis, including interest accrued thereon; and (c) After allocation of all income, gains and losses in accordance with Article 5, to the Partners in accordance with the positive balances in their Capital Accounts. 68 74 ARTICLE XI RECONSTITUTION 11.01 Reconstitution. Notwithstanding any dissolution of the Partnership under Section 10.01(C) or (F), the business of the Partnership shall be continued with the Partnership property and the Partnership assets shall not be liquidated and the Partnership automatically shall be reconstituted with the remaining general partner or substituted general partner acting as the General Partner. If the Partnership is dissolved and no general partner is then serving in accordance with the provisions of Article VII, a successor Person may be admitted within ninety (90) days after a dissolution, effective as of the date of dissolution, as general partner with the Consent of the Limited Partner and upon the satisfaction of the terms and conditions set forth in Section 7.07 hereof. Upon the admission of such Person as a successor general partner, without any further Consent or approval of any other Partner, the Partnership shall be reconstituted as a Successor Limited Partnership. 11.02 Continuation of Business. The Successor Limited Partnership shall continue the business of the Partnership with the Partnership property. The Interests 69 75 of the Partners in the Successor Limited Partnership shall be in proportion to their Interests in the dissolved Partnership. Such Successor Limited Partnership shall be governed by the terms and provisions of this Agreement and references in this Agreement to the Partnership or to the Partners or their rights and obligations shall be understood to comprehend such Successor Limited Partnership and the Partners thereof and their rights and obligations. ARTICLE XII ACCOUNTING AND REPORTS 12.01 Books and Records. The General Partner shall maintain at the office of the Partnership full and accurate books of the Partnership showing all receipts and expenditures, assets and liabilities, profits and losses, and all other books, records and information required by the Act or necessary for recording the Partnership's business and affairs. The Partnership's books and records shall be maintained in accordance with the accrual method of accounting. All Partners and their duly authorized representatives shall have the right to inspect and copy at their expense any and all of the Partnership's books and records, including books and records necessary to enable a Partner to defend any tax 70 76 audit or related proceeding, during reasonable business hours, upon two (2) business days' Notice to the General Partner. 12.02 Annual Tax Returns. The General Partner shall cause the Partnership Accountants to prepare all tax returns required of the Partnership. The General Partner shall be the "tax matters partner" of the Partnership, as that term is defined in Section 6231(a)(7) of the Code. The General Partner shall be responsible for the preparation of filing of any tax shelter registration documents, if applicable, that may be required in Section 6111 of the Code. Notwithstanding the foregoing, however, the General Partner agrees that the first tax return filed after completion of the Improvements shall be subject to review by the Limited Partner. The Limited Partner shall notify the General Partner of any objections it may have thereto within fifteen (15) business days after receipt of such return. If the Limited Partner and the General Partner shall thereafter be unable to agree, such dispute shall be submitted to one of the so-called "big eight" accounting firms for resolution in accordance with the provisions of Paragraph 4(c) of the Lease Acquisition Agreement. 71 77 12.03 Reports to Partners. As soon as practicable after the end of each Fiscal Year, the General Partners shall cause the Partnership Accountants to furnish the Partners with reports containing at least the following information: (A) By each March 15, as the same may be extended as a result of an extension pursuant to clause (B) of this Section 12.03, IRS Form K-1, or any similar form as may be required by the IRS, stating the Partner's distributive share of income, gain, loss, deduction or credit for the previous Fiscal Year; (B) By each April 15, as the same may be extended by the Partnership pursuant to requests to extend the date on which it must file its Federal income tax forms, an unaudited balance sheet and related statements of income, cash flow and Partners' capital and changes in financial position certified by an officer of the General Partner; (C) By each April 30: (i) any information which the General Partner deems relevant or is required by applicable law; and 72 78 (ii) a report of the activities of the Partnership during the previous Fiscal Year; (D) Within sixty (60) days after the end of each fiscal quarter, (i) a summary, prepared by the General Partner, of all transactions during such fiscal quarter between the Partnership and the General Partner or its Affiliates, if any (including the nature of the transaction and the payments involved and any other information which the General Partner reasonably deems relevant or is required by applicable law), and (ii) an unaudited operating statement for such fiscal quarter. 12.04 Partnership Funds. The General Partner shall have the responsibility for the safe-keeping and use of all funds and assets of the Partnership and the General Partner shall not employ such funds in any manner except for the benefit of the Partnership. All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking institutions as the General Partner shall determine. 73 79 ARTICLE XIII AMENDMENTS AND MEETINGS 13.01 Amendment Procedure. The amendment procedure is as follows: (A) amendments to this Agreement may be proposed by the General Partner or by the Limited Partner; and (B) a proposed amendment will be adopted and effective only if it receives the Consent of all the Partners. In the event all Partners Consent to any of the above changes, an amendment to this Agreement shall be executed and filed for recording in the manner prescribed by the Act. 13.02 Meetings and Voting. (A) Meetings of Partners may be called by the General Partner or by the Limited Partner for informational purposes or for any purpose permitted by this Agreement. The General Partner shall give all Partners Notice of the purpose of such proposed meeting not less than fifteen (15) nor more than sixty (60) days before the meeting. Meetings shall be held at a time and place reasonably selected by the General Partner. 74 80 (B) The General Partner may solicit required Consents of the Limited Partner under this Agreement at a meeting held pursuant to Section 13.02(A) or by written ballot. ARTICLE XIV MISCELLANEOUS 14.01 Title to Partnership Property. All Partnership Assets, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership interest in such property. 14.02 Validity. Each provision of this Agreement shall be considered separate and, if for any reason, any provision(s) which is not essential to the effectuation of the basic purposes of this Agreement is determined to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not impair the operation of or affect those provisions of this Agreement which are otherwise valid, except that if the provisions of Section 8.02 hereof shall be determined to be invalid, illegal or unenforceable, this Agreement shall be deemed to be void and of no further force or effect. 75 81 14.03 Applicable Law. This Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the laws of the State of New Jersey. 14.04 Binding Agreement. This Agreement and all terms, provisions and conditions hereof shall be binding upon the parties hereto, and shall inure to the benefit of the parties hereto and, except as otherwise provided herein, to their respective heirs, executors, personal representatives, successors and assigns. 14.05 Waiver of Action for Partition. Each of the parties hereto irrevocably waives during the term of the Partnership any right that it may have to maintain any action for partition with respect to any property of the Partnership. 14.06 Headings. All section headings in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. 14.07 Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders, the singular shall include the plural, and vice versa, as the context may require. 76 82 14.08 Right of First Offer. (A) Any Partner (the "Sending Partner"), at any time, may give notice (the "Selling Notice") to the other Partners (the "Receiving Partners") of its desire to sell its Partnership Interest. At any time within sixty (60) days after receipt of the Selling Notice, the Receiving Partners each shall either: (i) elect, by notice to the Sending Partner, to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner; or (ii) elect not to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner. (B) If one or more Receiving Partner shall elect to purchase the Partnership Interest of the Sending Partner, then: (i) the purchase price (the "Purchase Price") of such interest shall be an amount equal to that which the Sending Partner would have been entitled to receive if the Property were sold at the Fair Market Value, all liabilities of the Partnership, including non-recourse liabilities with respect to the Property were to be satisfied and the Partnership were to be dis- 77 83 soland liquidated pursuant to the terms of Article X hereof; (ii) the Purchase Price will be paid either in cash or, at the election of any of the Receiving Partners, by delivery of a purchase money note in the principal amount of the Purchase Price, which note will be secured by either a collateral assignment of leases and rents or a second mortgage, and which note shall have a term of three (3) years, prepayable in full at any time without penalty and with interest only payable during such term, at a rate computed and payable monthly on the basis of a fraction, the denominator of which is 360 and the numerator of which is the number of days in the billing period, equal to the Prime Rate in effect as of the first day of the month preceding the month in which an installment of interest is due; and (iii) the Sending Partner shall be removed immediately from the Partnership and the Sending Partner shall not be entitled to receive any distributions in connection therewith. (C) Upon determination of the Fair Market Value, each Receiving Partner shall have the option, to be exercised within ten (10) business days after determination of the Fair Market Value, to rescind its 78 84 election to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner, in which event the provisions of Paragraph (D) of this Section 14.08 shall be deemed to apply. (D) If no Receiving Partner shall elect to purchase or to cause its designee to purchase the Partnership Interest of the Sending Partner, or if all Receiving Partners shall rescind their election to purchase or to cause their designee to purchase the Partnership Interest of the Sending Partner, then, upon compliance with the provisions of Sections 7.06(B)-(D) and 9.02(A)(i)-(ii) and subject to the provisions of Sections 7.07 and 9.05, as the case may be, the Sending Partner may assign its entire Interest to a third party for a purchase price, in the case of such a rescission, of not less than 95% of the price which the Receiving Partners would have paid if they had not so rescinded its election to purchase. In addition, in either event, if the Sending Partner shall not have assigned its interest within six (6) months after the Receiving Partners either shall have elected not to purchase or shall have rescinded their election, then, prior to assigning its interest to a third party, it shall once again offer its Interest to the Receiving Partners pursuant to this Section 14.08. 79 85 (E) If more than one Receiving Partner shall elect to purchase the Sending Partner's Interest, then such Interest and the Purchase Price shall be allocated among such Receiving Partners in the proportion that their Interests bear to each other. (F) For the purposes of this Section 14.08, "Fair Market Value" shall be deemed to mean the amount which a willing buyer would pay and a willing seller would accept, neither under a compulsion to buy or sell, as a purchase price, in cash, for the Interest of the Sending Partner. If there shall be a dispute between the Sending Partner and the Receiving Partners as to the fair market value of the Interests of the Sending Partner, each shall select and notify the other of the name and address of an appraiser who is a member of the American Institute of Appraisers of the National Association of Real Estate Boards (a "MAI Appraiser") (provided, however, that if there shall be more than one limited partner, then the Limited Partner, acting in its sole discretion, shall select an MAI Appraiser to act for all the limited partners). If one of the parties shall fail to give Notice to the other party within five (5) days thereafter, specifying the name and address of a MAI Appraiser designated by it, then the appraiser chosen by 80 86 the other party shall make the determination alone. If two appraisers have been designated, each appraiser shall promptly, within fifteen (15) days after the designation by each party, make a separate appraisal determining the then Fair Market Value of the Interest of the Sending Partner, using the standard set forth above, and each shall deliver to each other and both the parties a copy of their appraisals, each of which shall include therein all factors considered in reaching the fair market value of the Interest of the Sending Partner. Such two appraisers shall meet twenty (20) days after receipt of each other's determination, to confer with each other and to attempt to reach agreement on the Fair Market Value of the Interest of the Sending Partner. If such appraisers shall concur as to the determination of the Fair Market Value of the Interests, such concurrence shall be final and binding upon the parties. If such appraisers shall fail to concur, then they shall immediately designate a third MAI Appraiser. If the two appraisers shall fail to agree upon the designation of such third appraiser within five (5) days, then either party on behalf of both may apply to the American Arbitration Association for the designation of such third MAI Appraiser. The third appraiser shall conduct such hearings and investigations as 81 87 he may deem appropriate and shall, within ten (10) days after the date of his designation determine the Fair Market Value of the Interest of the Sending Partner, which determination in no event shall be higher than that of the appraiser of the Sending Partner or lower than that of the appraiser of the Receiving Partners. In making this determination, the third appraiser shall use as a standard for determining Fair Market Value the standard set forth in this Section 14.08. The two determinations closest to each other shall then be averaged and such average shall be binding upon the parties. Each party shall pay its own counsel fees and expenses, if any, in connection with any appraisal under this Section, including the expenses and fees of any MAI Appraiser selected by it in accordance with the provisions of this Section, and the parties shall share equally all other expenses and fees of such appraisal. The determination rendered in accordance with the provisions of this Section shall be final and binding in fixing Fair Market Value. For purposes of this Section, a MAI Appraiser shall be one who is independent, impartial and who shall have had at least ten (10) years experience in valuations of properties of the character and in the same general area as the Property. 82 88 14.09 General Partner Representations. The General Partner represents and warrants to the Partnership that: (A) General Partner is a corporation duly formed and validly existing in good standing under the laws of the State of New York, and will be duly registered or qualified to conduct business in each jurisdiction or place in which the conduct of its business legally requires such registration or qualification; (B) The execution, delivery and performance of this Partnership Agreement by the General Partner and the consummation of the transactions contemplated hereby have been authorized by all requisite action by or with respect to the General Partner, and this Partnership Agreement, when executed by the General Partner, will constitute a valid and binding obligation of the General Partner, enforceable against the General Partner in accordance with its terms, subject to bankruptcy laws, and laws affecting creditors rights severally; (C) The General Partner is not in violation of its certificate of incorporation or bylaws or in default in any material respect in the performance of any material agreement to which the General Partner is a party or bound. The execution, delivery and performance 83 89 of this Partnership Agreement by the General Partner, and the fulfillment by the General Partner of the terms herein set forth and the consummation by the General Partner of the transactions herein contemplated, will not conflict with or constitute a breach of, or default in a material way under, the certificate of incorporation or bylaws of the General Partner, or any other material agreement or instrument to which the General Partner is a party or bound, or any law; (D) The Land is properly zoned for the completion of the Improvements, and the Improvements, as designed, will comply with all applicable zoning, environmental and other governmental laws, regulations and ordinances; (E) The Property is not subject to any contract, agreement or other instrument which will be binding upon the Partnership, or otherwise affects the Property, other than the Ground Lease, the Hotel/Office Lease, the Hartz Lease and the Reciprocal Construction Operation and Easement Agreement, to be entered into substantially in the form of the draft dated March 5, 1986, between the General Partner and the Township of Weehawken and such other agreements as are set forth on the Title Insurance Commitment No. 819-055303, issued by 84 90 Commonwealth Land Title Insurance Company (the "Title Commitment"); (F) Attached hereto as Exhibit "D" is a true and complete list of all contracts, agreements and other instruments (including, without limitation, all policies of insurance affecting the Property), which the General Partner has executed in connection with the Property, other than any contracts or subcontracts executed in connection with the construction of the Improvements; the General Partner has performed all of its obligations under all of said documents and no event of default exists under any of said documents, nor does any event exist which, with the giving of notice, or passage of time, or both, would constitute an event of default thereunder (or, with respect to policies of insurance, cause the cancellation thereof); neither the execution and delivery of this Agreement, nor the assignment of said documents to the Partnership will cause any such event of default; (G) There are no actions, claims, suits, proceedings or investigations, either administrative or judicial, pending or affecting the Property; 85 91 (H) The General Partner is the sole owner of the Land, free and clear of all exceptions to title, except for those set forth in the Title Commitment. (I) The General Partner has received no notice of, and has no knowledge of, any pending or contemplated condemnation of the Land or any part thereof; (J) No person or entity has any right or option to acquire the Property or any portion thereof; (K) The General Partner has not received any notice of any violations of any Federal, state, county or municipal law, ordinance, order, regulation or requirement with respect to the Property; (L) At present, and at no time since the General Partner acquired the Land, have hazardous substances or wastes within the meanings of the Environmental Cleanup Responsibility Act (N.J.S.A. 13:1K-6 et seq.) and the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.) or other toxic or other hazardous material ("hazardous substances") been produced, refined, treated, disposed of or discharged at the Land and the General Partner has no knowledge that the Land was so used prior to the purchase of the Land. The General Partner has at all times during its ownership of 86 92 the Land properly disposed of all hazardous substances and wastes of any kind generated by the use of the Land. The General Partner has not received any letter or other communication, written or oral, from the New Jersey Department of Environmental Protection relating to the presence of hazardous substances at the Land; (M) There are no leases, subleases, licenses, franchises, concessions or other occupancy agreements of any nature whatsoever, oral or written, affecting the use or occupancy of any portion of the Properties and to which the Partnership will be bound other than the Ground Lease, the Hotel/Office Lease, and the Hartz Lease; and (N) The most currently available real estate taxes and assessments for the Property are set forth on Exhibit "E" annexed hereto, and all such real estate taxes and assessments which are due and payable have been paid. 14.10 Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. 87 93 14.11 Entire Agreement. This Agreement contains the entire understanding among the parties hereto and supersedes all prior written or oral agreements among them respecting the within subject matter, unless otherwise provided herein. 14.12 Arbitration. Any Partner may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. 14.13 Security Interest in Limited Partner's Interest. The Limited Partner hereby pledges and grants to the Partnership a security interest in its Interest, as security (i) for a period of five (5) years commencing 88 94 on the Fixed Rent Commencement Date, for its obligations as tenant under the Hotel/Office Lease (provided that it shall not have been released from liability under the Hotel/Office Lease prior to the expiration of such five (5) year period), and (y) for its obligations as guarantor under the Guarantee (provided that the Guarantee shall not have sooner terminated as a result of the General Partner's failure to make any required Deficit Capital Contribution or Operating Deficit Loan or to cause the Partnership to borrow the required funds) and agrees that the Partnership shall have all of the rights and remedies of a secured party under the New Jersey Uniform Commercial Code (including the right to obtain a deficiency judgment against the Limited Partner) in respect to its Interest in the event of the failure of the Limited Partner to comply with its obligations as tenant in accordance with the provisions of the Hotel/Office Lease. Subsequent to such five (5) year period (as the same may be decreased pursuant hereto), the Limited Partner shall have the right to pledge (such pledge shall not be deemed to affect any right the General Partner may have to Consent to any assignment of the Limited Partner's Interest pursuant to Section 9.02(A)(iii) hereof) its Interest to any third party. 89 95 14.14 Financing, Transfer of Land. In connection with any financing secured by the Improvements or the Ground Lease, including, without limitation, the First Mortgage, the General Partner shall have the obligation, upon request by the Limited Partner, to subject its fee interest in the Land to any such secured financing, simultaneously with the closing of any such financing. In addition, in connection with any sale or transfer of the Property, the Limited Partner shall have the obligation, upon request by the General Partner, to exercise its option pursuant to the Purchase Option Agreement to purchase up to a one-third interest in the fee interest in the Land simultaneously with the closing of such sale or transfer; provided, however, that in no event shall the Limited Partner be required to expend in connection with such purchase an amount in excess of the sums it will receive pursuant to Section 5.05 hereof as a result of such sale, less all amounts required to pay the Limited Partner's full Federal, state and local tax liability in connection therewith, and provided further that if the General Partner shall make such request, then, simultaneously with the closing of such sale or transfer, the General Partner and the Limited Partner 90 96 shall transfer title to the fee to the purchaser or transferee. 14.15 Use of Certain Capital Proceeds by the Limited Partner. Notwithstanding anything contained herein to the contrary, if at any time during the term of this Agreement, and provided that the Ground Lease shall be in effect, the Limited Partner shall receive any funds pursuant to Section 5.05 hereof then, within thirty (30) days after receipt of such funds, the Limited Partner shall use the same (less the amount of any Federal, state or local taxes that may be due from the Limited Partner in connection therewith) to purchase an interest in the fee (not to exceed a 20.9% interest in the aggregate) in accordance with the Purchase Option Agreement. Thereafter, any amounts received by the Limited Partner as ground rent under the Ground Lease shall be paid to the General Partner, to be held in a separate, interest-bearing escrow account and shall, together with any interest earned thereon, within thirty (30) days after the end of each fiscal quarter, be released from escrow by the General Partner and used by the Limited Partner (less the amount of any Federal, state or local taxes that may be due from the Limited Partner in connection therewith) to further purchase an interest on the fee 91 97 (not to exceed a 20.9% interest in the aggregate) in accordance with the Purchase Option Agreement. At such time as the Limited Partner shall have acquired a full 20.9% or more (other than pursuant to the Default Option (as such term is defined in the Purchase Option Agreement) interest in the fee interest in the Land, at the election of the General Partner or the Limited Partner, the Ground Lease shall be terminated in accordance with the provisions thereof and the Land conveyed to the Partnership. 14.16 Limited Partner Representations. The Limited Partner represents and warrants to the Partnership that: (A) The Limited Partner is a corporation duly formed and validly existing in good standing under the laws of the State of Delaware, and will be duly registered or qualified to conduct business in each jurisdiction or place in which the conduct of its business legally requires such registration or qualification; (B) The execution, delivery and performance of this Partnership Agreement by the Limited Partner and the consummation of the transactions contemplated hereby have been authorized by all requisite action by or with respect to the Limited Partner, and this Partnership 92 98 Agreement, when executed by the Limited Partner, will constitute a valid and binding obligation of the Limited Partner, enforceable against the Limited Partner in accordance with its terms, subject to bankruptcy laws, and laws affecting creditors rights severally; and (C) The Limited Partner is not in violation of its certificate of incorporation or bylaws or in default in any material respect in the performance of any material agreement to which the Limited Partner is a party or bound. The execution, delivery and performance of this Partnership Agreement by the Limited Partner, and the fulfillment by the Limited Partner of the terms herein set forth and the consummation by the Limited Partner of the transactions herein contemplated, will not conflict with or constitute a breach of, or default in a material way under, the certificate of incorporation or bylaws of the Limited Partner, or any other material 93 99 agreement or instrument to which the Limited Partner is a party or bound, or any law. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. GENERAL PARTNER: HARTZ MOUNTAIN INDUSTRIES, INC. By: /s/ Stephen M. Kelty, -------------------------------- Stephen M. Kelty, Vice President LIMITED PARTNER: PAINEWEBBER INCORPORATED By: /s/ Rodger Parker, -------------------------------- Rodger Parker, Senior Vice President 94 100 Exhibit "A" Description of Land BLOCK 34c LOT 4.04 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30" E 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Properties of Hartz Mountain Industries, Inc:," and prepared by Azzolina & Feury Engineering Company, dated March 14, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E along said property line, 86.70 feet to a point on a curve; thence, B) Northeasterly, along the property line on a curve to the left having a radius of 1093:01 and a radial bearing of N 14 degrees-11'-23" W through a central angle of 25 degrees-01'-56" for an arc distance of 477:53 feet; thence, C) Along said property line, N 38 degrees-30'-00" E, 550.05 feet; thence, D) Departing from said property line, S 50 degrees-33'-12" E, 86.23 feet to a point; thence, E) N 38 degrees-52'-10" E, 383.37 feet to a point of curvature; thence, F) Northeasterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, G) S 51 degrees-07'-50" E, 156.00 feet; thence, H) S 38 degrees-52'-10" W, 35.00 feet to the point of beginning; thence, 1) S 51 degrees-07'-50" E, 101.00 feet; thence, 2) N 38 degrees-52'-10" E, 121.00 feet; thence, A-1 101 3) S 51 degrees-07'-50" E, 124.00 feet; thence, 4) S 38 degrees-52'-10" W, 122.13 feet; thence, 5) S 8 degrees-06'-20" E, 41.04 feet; thence, 6) S 38 degrees-52'-10" W, 91.74 feet; thence, 7) S 85 degrees-50'-40" W, 41.04 feet; thence, 8) S 38 degrees-52'-10" W, 102.13 feet; thence, 9) N 51 degrees-07'-50" W, 225.00 feet; thence, 10) N 38 degrees-52'-10" E, 251.00 feet to the point of beginning. Containing 75,071 square feet (1.72 acres). A-2 102 [SUBDIVISION OF LINCOLN HARBOR] GRAPHIC A-3 103 Exhibit "B" Terms of Commitment Principal Amount: Up to $87 per square foot of floor space in the Improvements Term: Minimum of 17 years 6 months from the Commencement Date (as such term is defined in the Agreement of Lease, dated of even date herewith, between Hartz-PW Limited Partnership, as landlord, and the Limited Partner, as tenant, for the premises known as the Data Processing Center) Amortization Schedule: 11.97% constant Interest Rate: 11.25% or less per annum Security: Senior leasehold mortgage, subordinated fee, no personal liability B-1 104 Exhibit "C" Easements The easements granted pursuant to the Reciprocal Easement and Maintenance Agreement, dated of even date herewith, among the General Partner, the Partnership and Hartz-PW Limited Partnership. C-1 105 Exhibit "D" Contracts HARTZ-PW/HOTEL LIMITED PARTNERSHIP AGREEMENT
NAME OF DOCUMENT PARTIES DATE - ---------------- ------- ---- Cover Note Insurance J.H. Minet & Co. Ltd. May 1, 1985 Binder and Hartz Mountain Industries, Inc., et al. Liability Insurance Firemen's Fund Insurance June 17, 1985 Policy Company and Hartz Mountain Industries, Inc., et al. Property Coverage The Aetna Casualty and Surety May 1, 1983 Insurance Policy Company and Hartz Mountain Industries, Inc., et al.
D-1 106 Exhibit "E" Taxes E-1 107 [Weehawken Tax Bill] FRONT 108 [Weehawken Tax Bill] BACK 109 Prepared by: /s/ Debra L. Wenig, Esq. ---------------------------- Debra L. Wenig, Esq. HOROWITZ, BROSS, SININS & IMPERIAL, P.A. 500 Plaza Drive Secaucus, New Jersey 07096-3279 RESTATED CERTIFICATE OF LIMITED PARTNERSHIP OF HARTZ-PW HOTEL LIMITED PARTNERSHIP Pursuant to the Laws of the State of New Jersey WHEREAS, pursuant to the laws of the State of New Jersey and a certain Limited Partnership Agreement dated April 14, 1986 as amended by First Amendment to the Limited Partnership Agreement of Hartz-PW Hotel Limited Partnership, dated of even date herewith, (collectively, the "Partnership Agreement"), and as set forth in a certain Certificate of Limited Partnership of Hartz-PW Hotel Limited Partnership dated April 14, 1986 (the "Certificate"), a New Jersey Limited Partnership named Hartz-PW Hotel Limited Partnership (the "Partnership") was formed; WHEREAS, the partners desire to restate and amend the Certificate, as more particularly provided herein. NOW THEREFORE, the undersigned do hereby amend and restate the Certificate in its entirety as follows: WE, THE UNDERSIGNED, desiring to continue the Partnership as a limited partnership pursuant to the laws of the State of New Jersey and a certain Limited Partnership Agreement heretofore executed as amended (herein referred to collectively as the "Partnership Agreement") do hereby certify as follows: 1. NAME. The name of the limited partnership is: HARTZ-PW TOWER B LIMITED PARTNERSHIP. 110 2. NATURE OF BUSINESS. The purpose and character of the business of the Partnership is to acquire leasehold interest in, own, construct, renovate, hold for capital appreciation and finance certain properties, to cause the General Partner to complete construction and renovation of improvements thereto, to manage, rent and otherwise operate the properties, to sell, exchange, dispose of lease, mortgage and otherwise encumber all or any part of the properties, to incur indebtedness, for any of the foregoing purposes, and to engage in any other kind of lawful activity related to the foregoing. 3. REGISTERED OFFICE AND REGISTERED AGENT. The registered office of the Partnership in the State of New Jersey shall be c/o Hartz Mountain Industries, Inc., 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07096-1411 and the registered agent of the Partnership for service of process in the State of New Jersey shall be Hartz Mountain Industries, Inc., 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07096-1411. 4. NAMES, ADDRESSES AND CAPITAL CONTRIBUTIONS. (a) The name, business address and initial capital contribution of the General Partner is:
Capital Name Address Contribution ---- ------- ------------ Hartz Mountain 400 Plaza Drive $834.20 Industries, Inc. Secaucus, N.J. 07096-1411
(b) The name, business address and initial capital contribution of the Limited Partner is:
Capital Name Address Contribution ---- ------- ------------ PaineWebber 1285 Avenue of $165.80 Incorporated the Americas New York, N.Y. 10019
5. ADDITIONAL CONTRIBUTIONS. The General Partner shall be obligated to make Operating Deficit Loans or Deficit Capital Contributions (as such terms are defined in the Partnership Agreement) to the Partnership upon the occurrence of operating deficits if of the net operating revenues shall be insufficient to pay all debt service on any loan, secured or unsecured, including without limitation, -2- 111 the first mortgage, affecting the properties or the Partnership, for any reason other than the failure of the tenant under the lease to make all payments required thereunder, including, without limitation, in connection with bankruptcy proceedings and whether or not the trustee in bankruptcy shall disaffirm the lease, and to make such additional capital contributions as are necessary in order to complete the Improvements (as defined in the Partnership Agreement) in accordance with the provisions of the ground lease and the lease, but may not make any other additional capital contributions to the Partnership. The Limited Partner may make the Limited Partner Loan (as defined and set forth in the Partnership Agreement) but shall not be required to make any additional loans or capital contributions to the Partnership. 6. TERM. The term of the Partnership shall be from the date of filing of this Certificate until December 31, 2086. 7. ASSIGNMENT BY LIMITED PARTNER. The Limited Partner may assign its ownership interest in the Partnership in whole or in part, by an executed and acknowledged written instrument only if all of the following conditions are satisfied: (a) the assignor and assignee file a notice of transfer with the General Partner which contains the information reasonably required by the General Partner; and (b) any reasonable costs of transfer shall have been paid to the Partnership; and (c) the General Partner shall have consented to the assignment, which consent may be granted or withheld in its sole discretion, unless the Limited Partner assigns its interest in the Partnership, in whole or in part, to an Affiliate (as defined in the Partnership Agreement) . 8. WITHDRAWAL OF PARTNERS. The Limited Partner and the General Partner may transfer and sell their respective interests in the Partnership pursuant to the Partnership Agreement, subject to the Right of First Offer (as defined in the Partnership Agreement). 9. DISTRIBUTIONS OF PROPERTY. Capital Proceeds and eighty-five percent (85%) of Net Operating Revenues (as such terms are defined in the Partnership -3- 112 Agreement) shall be distributed quarterly, after the payment of debt service on the first mortgage or any other financing affecting property or the Partnership, (a) first to pay any accrued unpaid interest on the principal, and the outstanding principal balance of the Operating Deficit Loan, the Deficit Capital Contributions and the Limited Partner Loan (as such terms are defined in the Partnership Agreement), on a pari passu basis; and (b) second, the balance, if any, shall be distributed 83.42% to the General Partner and 16.58% to the Limited Partner. Such quarterly payments shall be adjusted annually within ninety (90) days after the end of each fiscal year, and excess amounts, if any shall be credited against future required payments; underpayments will be paid at the time of such adjustment. 10. RETURN OF CONTRIBUTION. No partner shall have the right to withdraw or reduce its capital contributions except, upon the dissolution of the Partnership, the Liquidator (as defined in the Partnership Agreement) shall liquidate the assets of the Partnership and contributions of the Partners will be returned to them in accordance with the positive balances in their capital accounts after the allocations of all income, gains and losses in accordance with provisions of the Partnership Agreement, subject, however, to prior satisfaction of the following: (a) all liabilities and obligations of the Partnership other than to the Partners; and (b) all liabilities and obligations of the Partnership to the Partners in the following order of priority: to repayment of the outstanding principal balance of the Operating Deficit Loan, the Deficit Capital Contributions, and the Limited Partner Loan (as such terms are defined in the Partnership Agreement) on a pari passu basis, including interest accrued thereon. 11. DISSOLUTION. The Partnership shall be dissolved upon the happening of any of the following events: (a) an election to dissolve the Partnership is made by the General Partner with the consent of the Limited Partner; -4- 113 (b) the sale, exchange, or other disposition of all, or substantially all of the Partnership's assets; (c) the death, bankruptcy, dissolution, disability, legal incapacity, removal or withdrawal of the sole remaining General Partner or the sale, transfer or assignment by the sole remaining General Partner of its general partnership interest; (d) the occurrence of December 31, 2086; (e) the tenant under the Lincoln Harbor Tower II Lease (as such term is defined in the Partnership Agreement) shall elect pursuant to Section 38.11 of the Lincoln Harbor Tower B Lease to terminate the lease; and (f) any other event causing dissolution of the Partnership under the Revised New Jersey Uniform Limited Partnership Act, N.J.S.A. 42:2A-1 et. seq. Upon dissolution of the Partnership, a full accounting of the assets shall be taken, the assets shall be liquidated, and the capital proceeds thereof shall be distributed. 12. CONTINUATION AFTER WITHDRAWAL OF A GENERAL PARTNER. Upon the death, bankruptcy, dissolution, disability, legal incapacity, or removal of a General Partner, the remaining General Partner, if any, shall serve as the General Partner of the Partnership, and shall continue the business of the Partnership. Upon the death, bankruptcy, dissolution, disability, legal incapacity, or removal of the sole remaining General Partner, or the transfer by the sole remaining General Partner of its partnership interest, a person selected by the Limited Partner shall serve as the General Partner of the Partnership and continue the business of the Partnership if the Partnership is reconstituted under the Partnership Agreement. -5- 114 13. AGREEMENT OF LIMITED PARTNERSHIP. The provisions of this Restated Certificate of Limited Partnership shall be subject to the Partnership Agreement. IN WITNESS WHEREOF, the undersigned have hereto set their hands this 30th day of March , 1988. GENERAL PARTNER: ATTEST: HARTZ MOUNTAIN INDUSTRIES, INC. BY: /s/ BY: /s/ ----------------------- ------------------------------------------ LIMITED PARTNER: PaineWebber Incorporated BY: /s/ BY: /s/ Rodger Parker, ----------------------- ------------------------------------------ Rodger Parker, Senior Vice President -6- 115 STATE OF NY ) :SS.: COUNTY OF NY ) BE IT REMEMBERED, that on this 14th day of March of 1988, before me the subscriber Martha Feltenstein personally appeared Rodger Parker, who I am satisfied, is the person who signed the within instrument as Vice President of PaineWebber Incorporated, the corporation named therein and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Martha Feltenstein ------------------------------ Notary Public -7- 116 STATE OF NJ ) :SS.: COUNTY OF HUDSON ) BE IT REMEMBERED, that on this 22nd day of March of 1988, before me the subscriber Renee E. Ranuro personally appeared Irwin A. Horowitz, who I am satisfied, is the person who signed the within instrument as Vice President of Hartz Mountain Industries, Inc., the corporation named therein and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Renee E. Ranuro ----------------------------- Notary Public -8- EX-10.42 17 GROUND LEASE 1 Exhibit 10.42 ----------------------------------------- GROUND LEASE BETWEEN HARTZ MOUNTAIN INDUSTRIES, INC. and HARTZ-PW LIMITED PARTNERSHIP ----------------------------------------- Premises: Operations Center Lincoln Harbor Project 2 INDEX
ARTICLE PAGE ------- ---- 1. Definitions .................................. 1 2. Demise and Term .............................. 4 3. Rent ......................................... 5 4. Use of Demised Premises ...................... 6 5. Construction of Building ..................... 6 6. Tax and Operating Expense Payments ........... 7 7. Common Areas ................................. 11 8. Mortgaging and Transfer by Landlord .......... 11 9. Quiet Enjoyment .............................. 12 10. Assignment, Subletting and Mortgaging ........ 12 11. Compliance with Laws ......................... 16 12. Insurance and Indemnity ...................... 17 13. Rules and Regulations ........................ 20 14. Alterations .................................. 21 15. Repairs and Maintenance ...................... 21 16. Electric Energy .............................. 22 17. Other Services: Service Interruption ........ 22 18. Access, Changes and Name ..................... 22 19. Mechanics' Liens and Other Liens ............. 23 20. Non-Liability and Indemnification ............ 23 21. Damage or Destruction ........................ 25 22. Eminent Domain ............................... 26 23. Surrender .................................... 28 24. Conditions of Limitation ..................... 28 25. Re-Entry by Landlord ......................... 29 26. Damages ...................................... 30 27. Affirmative Waivers .......................... 33 28. No Waivers ................................... 33 29. Broker ....................................... 34 30. Curing Tenant's Defaults ..................... 34 31. Notices ...................................... 35 32. Estoppel Certificates ........................ 35 33. Arbitration .................................. 36 34. Memorandum of Lease .......................... 36 35. Miscellaneous ................................ 37
EXHIBITS -------- Exhibit "A" Building Exhibit "B" Fixed Rent Exhibit "C" Floor Space Exhibit "D" Property Description Exhibit "E" Lincoln Harbor Project Exhibit "F" Mortgage Terms Exhibit "G" Operating Expenses Exhibit "H" Fee Mortgage Amounts Exhibit "I" Landlord's Share of Insurance Proceeds and Con- demnation Awards Exhibit "J" Nondisturbance Agreement
3 LEASE, dated April 14, 1986, between HARTZ MOUNTAIN INDUSTRIES, INC., a New York corporation having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094, and HARTZ-PW LIMITED PARTNERSHIP, a New Jersey limited partnership having an address at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094. ARTICLE 1 - DEFINITIONS 1.01. As used in this Lease the following words and phrases shall have the meanings indicated: A. Additional Charges: All amounts that become payable by Tenant to Landlord hereunder other than the Fixed Rent. B. Broker: Joseph Hilton & Associates Incorporated. C. Building: The building to be located on the Land as more particularly described on the plan attached hereto as Exhibit "A". D. Calendar Year: Any twelve-month period during the term of this Lease commencing on a January 1. E. Commencement Date: The date of this Lease. F. Demised Premises: The Land, and the Building and any other improvements now or hereafter located thereon, which Building and other improvements are and shall be the property of Tenant. G. Expiration Date: The date that is the day before the ninety-eighth (98th) anniversary of the Commencement Date if the Commencement Date is the first day of a month, or the ninety-eighth (98th) anniversary of the last day of the month in which the Commencement Date occurs if the Commencement Date is not the first day of a month. H. Fixed Rent: As set forth on the Rent Schedule annexed hereto as Exhibit "B". 4 I. Fixed Rent Commencement Date: Shall mean the Commencement Date (as defined in the Space Lease). J. Floor Space: 604,528, as the same may be increased or decreased pursuant to Section 35.13 hereof, and as more particularly set forth on Exhibit "C" annexed hereto and made a part hereof. K. Hartz Lease: The Agreement of Lease, dated of even date herewith, between Tenant, as landlord, and Hartz Mountain Industries, Inc., as tenant, pursuant to which Tenant subleased a portion of the Building to Hartz Mountain Industries, Inc. L. Insurance Requirements: Rules, regulations, orders and other requirements of the applicable board of underwriters and/or the applicable fire insurance rating organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance over the Land and Building, whether now or hereafter in force. M. Land: The land described on Exhibit "D" annexed hereto and made a part hereof. N. Landlord: On the date as of which this Lease is made, shall mean Hartz Mountain Industries, Inc., a New York corporation having an address at 400 Plaza Drive, Secaucus, New Jersey 07094, but thereafter "Landlord" shall mean only the fee owner of the Land. O. Legal Requirements: Laws and ordinances of all federal, state and local governments, and rules, regulations, orders and directives of all departments, subdivisions, bureaus, agencies or offices thereof, and of any other governmental authorities having jurisdiction over the Land and Building. P. Lincoln Harbor Project: The project more particularly described on Exhibit "E" annexed hereto and made a part hereof. Q. Mortgage: The mortgage creating a lien on the leasehold estate created pursuant to this Lease, to be entered into pursuant to a loan commitment substantially on the terms set forth in the schedule annexed hereto as Exhibit "F", and any replacement, extension, modification, or amendment thereto. 2 5 R. Operating Expenses: The costs and expenses for the items set forth on said Exhibit "G" annexed hereto and made a part hereof. S. Permitted Uses: Any and all uses permitted by law and which are in keeping with the character and quality of the Lincoln Harbor Project. T. Person: A natural person or persons, a partnership, a corporation, or any other form of business or legal association or entity. U. Project Floor Space: 2,206,457, as the same may be increased or decreased pursuant to Section 35.13 hereof, and as more particularly set forth on Exhibit "C" annexed hereto and made a part hereof. V. Real Estate Taxes: The real estate taxes, assessments and special assessments imposed upon the Demised Premises by any federal, state, municipal or other governments or governmental bodies or authorities. If at any time during the Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate there shall be levied, assessed or imposed on Landlord specifically in substitution for any of the foregoing Real Estate Taxes (a) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the rents received therefrom, or (b) any other such additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges or the part thereof so measured or based shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof, calculated as if Landlord's only asset were the leasehold estate created by this Lease. W. Rent: The Fixed Rent and the Additional Charges. X. Rules and Regulations: The reasonable rules and regulations that may be promulgated by Landlord from time to time in connection with the common areas of the Lincoln Harbor Project, as may be reasonably changed by Landlord from time to time. 3 6 Y. Space Lease: The Agreement of Lease, dated of even date herewith, between Tenant, as Landlord, and PaineWebber Incorporated, as tenant, pursuant to which Tenant subleased the Land and the Building to PaineWebber, Inc. Z. Subtenants: The tenants under the Space Lease and the Hartz Lease from time to time. AA. Tenant: On the date as of which this Lease is made shall mean Hartz-PW Limited Partnership, but thereafter "Tenant" shall mean only the tenant under this Lease at the time in question, provided, however, that nothing herein shall be construed as relieving Hartz-PW Limited Partnership of any liability for the obligations of Tenant hereunder in the event Hartz-PW Limited Partnership ceases to be the Tenant hereunder, except as otherwise expressly provided herein or by separate agreement between Landlord and Hartz-PW Limited Partnership. BB. Tenants' Fraction: 27.4%, determined by dividing the Floor Space by the Project Floor Space, as the same may be decreased pursuant to Section 35.13 hereof. CC. Term: The period commencing on the Commencement Date and ending at 11:59 P.M. of the Expiration Date, unless otherwise terminated in accordance with the provisions hereof. DD. Unavoidable Delay: A delay arising from or as a result of a strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or civil commotion, act of war, fire or other catastrophe, Legal Requirement or an act of the other party and any cause beyond the reasonable control of that party other than such party's financial condition, provided that the party asserting such Unavoidable Delay has exercised its best efforts to minimize such delay. The party asserting such delay promptly upon becoming aware of such Unavoidable Delay, shall give written notice of such Unavoidable Delay to the other party. 4 7 ARTICLE 3 - RENT 3.01. Tenant shall pay the Fixed Rent in equal monthly installments in advance on the fifth (5th) day of each and every calendar month beginning on the Fixed Rent Commencement Date. If the Fixed Rent Commencement Date occurs on a day other than the first day of a calendar month, the Fixed Rent for such partial calendar month shall be prorated on a per diem basis and paid on the Fixed Rent Commencement Date. 3.02. The Rent shall be paid in lawful money of the United States to Landlord at its office, or such other place, or Landlord's agent, as Landlord shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due and without any abatement, deduction or setoff for any reason whatsoever, except as may be expressly provided in this Lease. Tenant shall assume the risk of lateness or failure of delivery of the mails, and no lateness or failure of the mails will excuse Tenant from its obligation to have made the payment in question when required under this Lease. 3.03. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 3.04. If Tenant is in arrears in payment of Rent, Tenant waives Tenant's right, if any, to designate the items to which any payments made by Tenant are to be credited, and Landlord may apply any payments made by Tenant to such items as Landlord sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items to which any such payments shall be credited. 3.05. If Tenant shall fail to pay any installment of Fixed Rent within ten (10) days or any other item of Rent within thirty (30) days after the date when such payment is due and Landlord shall have delivered a bill for same (which delivery may be by invoice and shall not be required to comply with the requirements for notices 5 8 specified in Article 31 of this Lease), then any such payment shall bear interest calculated from the due date to the date such payment is received by Landlord, at a rate equal to two (2) percentage points in excess of the rate of interest publicly announced from time to time by Citibank, N.A., or its successor, as its "base rate" (or such other term as may be used by Citibank, N.A., from time to time, for the rate presently referred to as its "base rate") (the "Late Payment Rate"). 3.06. It is the intention of the parties that the Fixed Rent payable under this Lease shall be net to Landlord, so that this Lease shall yield to Landlord the Fixed Rent specified herein during the Term of this Lease, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised Premises shall be paid by Tenant, other than liens placed on the Demised Premises by Landlord, or claims against Landlord for Landlord's negligence or default under the terms of this Lease (nothing herein shall be construed as affecting the provisions of any insurance carried by Landlord, Tenant, subtenant or assign with respect to the Demised Premises, including fire and hazard insurance, liability insurance and any other insurance). ARTICLE 4 - USE OF DEMISED PREMISES 4.01. Tenant shall use and occupy the Demised Premises only for the Permitted Uses and in compliance with all Legal Requirements. ARTICLE 5 - CONSTRUCTION OF BUILDING 5.01. Tenant shall, at its own cost and expense, cause the construction of the Building and the other improvements contemplated in connection therewith substantially in accordance with the provisions of the Space Lease. 5.02. Tenant shall at all times during the term of this Lease, at its own cost and expense, keep and maintain in good condition, or cause to be kept and maintained, the Demised Premises in compliance with all Insurance Requirements and Legal Requirements. Landlord shall not be required to furnish any services or facilities or to make any improvements, repairs or alterations in or to the Demised Premises during the term of this Lease. 6 9 5.03. Tenant may, at its option and its own cost and expense, at any time and from time to time, make such alterations, changes, replacements, improvements and additions (herein collectively called "Alterations") in and to the Demised Premises as it may deem desirable. 5.04. At any time on or before the Expiration Date, Tenant shall have the right, but not the obligation, to remove all or any portion of the Building. If, on the Expiration Date, all or any portion of the Building shall remain on the Land, title thereto shall become the sole property of the Landlord. 5.05. Landlord reserves the right, at any time and from time to time, to increase, reduce or change the number, type, size, location, elevation, nature and use of any buildings and other improvements in the Lincoln Harbor Project, including, without limitation, the right to move and/or remove same, provided same shall not block or unreasonably interfere with Tenant's means of ingress or egress to and from the Building; provided that such shall not deviate materially from the approved site plan without Tenant's prior written consent, which consent shall not be unreasonably withheld or delayed, and provided further that Tenant may thereupon request a recalculation of Operating Expenses in accordance with Section 35.14 hereof. ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS 6.01. On or before the Commencement Date (as such term is defined in the Space Lease) Landlord shall use its best efforts to obtain from the City of Weehawken a separate tax lot and zoning lot number for the Demised Premises. Commencing on the Commencement Date and provided that Landlord shall have obtained a separate tax lot number for the Demised Premises, Tenant shall pay to the appropriate governmental authority the Real Estate Taxes for the Land and the Building for each year during the Term not later than one (1) business day before any delinquency fee would be imposed upon the payment of the same. If Landlord shall not have obtained a separate tax lot number for the Demised Premises on or before the Commencement Date, then, commencing on the Commencement Date, Tenant shall pay to Landlord an amount equal to its Proportionate Share (hereinafter defined) of the Real Estate Taxes for the Land and the Building for the tax lot of which the Demised Premises form a part for any 7 10 year during the Term not later than five (5) business days before any delinquency fee would be imposed upon the payment of the same, until such time as Landlord shall have obtained such separate tax lot number; but in no event shall Tenant's payment for Real Estate Taxes be more or less than that amount which Tenant would have paid if the Demised Premises were a separate tax lot. Tenant's "Proportionate Share" shall mean the sum of (x) the tax attributable to the Building and other improvements located on the Land, as may be separately assessed or as shown in the Tax Assessor's Notes, and (y) 4.42% of the tax attributable to the tax lot of which the Land forms a portion. Landlord agrees that, throughout the term thereafter, the Demised Premises will constitute a separate tax and zoning lot, separate and apart from other real property. In determining the amount of Real Estate Taxes for the partial calendar years in which the Term shall commence or expire, Real Estate Taxes payable in such calendar year shall be apportioned for that portion of the Tax Year (hereinafter defined) occurring within the calendar year and Real Estate Taxes for such calendar year shall be prorated for the number of days in such calendar year occurring subsequent to the Commencement Date or prior to the Expiration Date, as the case may be. "Tax Year" shall mean the period January 1 through December 31 (or such other period as hereafter may be duly adopted by the City of Weehawken as its fiscal year for Real Estate Tax purposes), any portion of which occurs during the Term. Tenant shall have the right to institute, and in good faith prosecute, tax certiorari proceedings with respect to the Building and the Land. In the event of the institution of such proceedings, such proceedings shall be at Tenant's sole cost and expense and Landlord shall cooperate fully with Tenant in connection with any such proceedings. 6.02. (a) Prior to the Commencement Date, Landlord shall deliver to Tenant a statement estimating the Operating Expenses for the partial calendar year commencing on the Commencement Date and Tenant shall pay to Landlord on a monthly basis on or before the tenth (10th) day of each calendar month during the first partial calendar year of the Term an amount equal to such estimated Operating Expenses divided by the number of months or partial months in such partial calendar year. On or before February 15 of each calendar year or partial calendar year during the Term, Landlord shall furnish Tenant with an operating statement (the "Operating State- 8 11 ment") in reasonable detail setting forth the actual Operating Expenses for the preceding calendar year. If such Operating Statement shall show that the actual Operating Expenses for the preceding calendar year were in excess of those estimated by Landlord and previously paid by Tenant, then within forty (40) days after receipt of such actual Operating Statement, Tenant shall remit to Landlord any such deficiency together with interest thereon at the Late Payment Rate, calculated from the date of each payment to the date of payment or refund, as the case may be. If such Operating Statement shall show that Tenant shall have paid amounts in excess of the actual Operating Expenses, then Landlord shall remit to Tenant together with such Operating Statement a check in the amount equal to such excess payments together with interest thereon at the Late Payment Rate, calculated from the date of each payment to the date of payment or refund, as the case may be. (b) In addition, in each Operating Statement, Landlord may set forth any estimated increases in Operating Expenses for the then current calendar year, provided, however, that in no event shall Landlord's estimate exceed an amount equal to the sum of the actual Operating Expenses for the preceding calendar year and an amount equal to such actual Operating Expenses multiplied by the percentage increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y. - Northeastern N.J. Area, All Items (1967 = 100), or any successor index thereto, appropriately adjusted (the "CPI"). If the CPI ceases to be published, and there is no successor thereto, such other index as Landlord and Tenant shall agree upon in writing shall be substituted for the CPI. If Landlord or Tenant are unable to agree as to such substituted index, such matter shall be submitted to the American Arbitration Association or any successor organization for determination in accordance with the regulations and procedures thereof then obtaining for commercial arbitration. After receipt of such Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of the amount shown on such statement multiplied by the number of months of the Term in said calendar year preceding the demand, less the amount (if any) paid by Tenant prior to such demand pursuant hereto for such months, and thereafter, commencing with the month in which the demand is made in continuing thereafter for each month of the Term until the rendition 9 12 of a new Operating Statement, 1/12th of the amount shown on such Operating Statement. 6.03. Each such statement given by Landlord pursuant to Section 6.02 shall be conclusive and binding upon Tenant unless within 120 days after the receipt of the Operating Statement provided for above Tenant shall notify Landlord that it or the Subtenant under the Space Lease disputes the correctness of the statement, specifying, to the extent the information is available, the particular respects in which the statement is claimed to be incorrect. If such notice is sent, Tenant, Subtenant, and its accountants may examine Landlord's books and records relating to the Operating Expenses to determine the accuracy of the Operating Statement. If, after such examination, Tenant or Subtenant still disputes such Operating Statement, any party may refer the decision of the issues raised to one of the so-called "big eight" public accounting firms, mutually satisfactory to Landlord, Tenant and Subtenant, or if Landlord, Tenant and Subtenant shall be unable to agree, then the firm to which the dispute shall be referred shall be chosen as follows: Landlord, Tenant and Subtenant shall each be permitted to exclude one of such firms from the pool of acceptable firms; the firm to whom such decision shall be referred shall then be chosen by lot from the pool of remaining firms, and if the firm chosen by lot shall refuse to serve, a substitute firm shall be chosen by lot. Provided, however, that if such a firm has been chosen by Tenant and the Subtenant by such process, the firm so chosen shall be deemed acceptable to Landlord and Tenant. The firm so chosen may, in its discretion, retain one or more consultants to assist in the resolution of the dispute referred to it. The decision of such accountants, absent manifest error, shall be conclusively binding upon the parties. The fees and expenses (including the fees of such consultants) involved in such decisions shall be borne by the unsuccessful party as between Landlord and Tenant (and if both parties are partially successful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). If such dispute is ultimately determined in Tenant's favor (either by agreement between Landlord or Tenant or by decision of the accountants), Landlord promptly after such determination shall pay to Tenant any amount overpaid by Tenant. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall, within twenty (20) days after 10 13 receipt of such statement, pay the Additional Charges in accordance with Landlord's statement, without prejudice to Tenant's position. ARTICLE 7 - COMMON AREAS 7.01. Tenant and its subtenants and concessionaires, and their respective officers, employees, agents, customers and invitees, shall have the non-exclusive right, in common with Landlord and all others to whom Landlord (or other owner of the Lincoln Harbor Project) has granted or may hereafter grant such right, but subject to the Rules and Regulations, to use the common areas of the Lincoln Harbor Project. Landlord reserves the right, at any time and from time to time, to close temporarily all or any portions of such common areas (provided that such closure does not unreasonably interfere with Tenant's business at the Demised Premises, except in cases of emergency) when in Landlord's reasonable judgment any such closing is necessary or to (a) make repairs or changes or to effect construction within the Lincoln Harbor Project; (b) prevent the acquisition of public rights in such areas; or (c) protect or preserve natural persons or property. Landlord also reserves the right to grant easements for public utilities (including, without limitation, easements affecting the Land, in connection with the development of the Lincoln Harbor Project. Landlord may do such other acts in and to such common areas as in its reasonable judgment may be desirable to improve or maintain same, provided, however that Landlord shall not change the standard of maintenance of such common areas without Tenant's approval, which approval shall not be unreasonably withheld or delayed. In all such events, such work shall be commenced and prosecuted diligently and with as little interference as possible with Tenant's use of the Demised Premises. 7.02. Tenant agrees that it, any subtenant or licensee and their respective officers, employees; contractors and agents will park their automobiles and other vehicles only upon the Land. ARTICLE 8 - MORTGAGING AND TRANSFER BY LANDLORD 8.01. Landlord may not mortgage the fee or the Land except in connection with a mortgage or mortgages in an aggregate amount not to exceed the amounts set forth 11 14 on Exhibit "H" annexed hereto and made a part hereof, with an aggregate annual debt service in no event to exceed the quotient of the Fixed Rent for such year divided by 1.2, and which shall be prepayable at any time without penalty. The lien of any such mortgage shall be expressly subordinate to the estate created by this Lease. Landlord may not further lease its fee interest in the Land. 8.02. Landlord may not sell, transfer or otherwise convey its interest in the Land except to an entity, person or partnership with a general partner or partners with a net worth at least $100,000,000, as the same shall be increased or decreased on each anniversary of the Commencement Date commencing on the fifth (5th) anniversary of the Commencement Date by an amount equal to the product of $100,000,000 and seventy-five percent (75%) of the percentage increase or decrease in the CPI for the immediately preceding twelve (12) month period; provided however, that in no event shall the same be decreased to be less than $100,000,000. ARTICLE 9 - QUIET ENJOYMENT 9.01. So long as no Event of Default shall have occurred and be continuing, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises without hindrance, ejection or molestation by Landlord or any person lawfully claiming through or under Landlord, subject, nevertheless, to the provisions of this Lease. ARTICLE 10 - ASSIGNMENT, SUBLETTING AND MORTGAGING 10.01. Tenant shall have the right, at any time, without Landlord's consent, upon thirty (30) days prior written notice to Landlord, to (a) assign or otherwise transfer this Lease, or offer or advertise to do so, and (b) sublet the Demised Premises or any part thereof, or offer or advertise to do so, or allow the same to be used, occupied or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner whatsoever. 10.02. If this Lease is assigned, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof are sublet or used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, and expiration of Tenant's time to cure such 12 15 default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the Rent, but no such assignment, subletting, occupancy or collection shall be deemed a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. 10.03. Any assignee shall execute, acknowledge and deliver to Landlord, within thirty (30) days after an assignment of this Lease, an agreement whereby the assignee shall assume Tenant's obligations under this Lease and whereby the assignee shall agree that all of the provisions in this Article 10 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect to all future assignments and transfers. 10.04. Without limiting any of the provisions of Article 27, if, pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), Tenant assigns this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one (1) year's Fixed Rent plus an amount equal to the Additional Charges for the Calendar Year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease. 10.05. Landlord agrees, upon written request of Tenant, to subordinate its fee interest in the Land and any interest it may have in the Building to the lien of the Mortgage or any other financing at any time secured by the estate created by this Lease. Landlord promptly shall execute and deliver any instruments confirming such subordination, including the Mortgage, requested by the holder of the Mortgage at any time. 10.06. In addition to the Mortgage, Tenant may further mortgage and otherwise encumber this Lease, provided such other mortgages and encumbrances shall be subject and subordinate in all respects to the Mortgage. 10.07. Landlord shall give to each mortgagee, including the holder of the Mortgage, of which it has been notified, at the address of such mortgagee set forth 13 16 in such notice, and otherwise in the manner provided by Article 34 hereof, a copy of each notice of an Event of Default by Tenant at the same time as, and whenever, any such notice of an Event of Default shall thereafter be given by Landlord to Tenant, and no such notice of an Event of Default by Landlord shall be deemed to have been duly given to Tenant unless and until a copy thereof shall have been so given to each mortgagee. Subject to the prior rights of the holder of the Mortgage, each other mortgagee (i) shall thereupon have a period of ten (10) business days more, after such notice is given to it, for remedying the Event of Default, or causing the same to be remedied, than is given Tenant after such notice is given to it, and (ii) shall, within such period and otherwise as herein provided, have the right to remedy such Event of Default or cause the same to be remedied. Landlord will accept performance by a mortgagee, including the holder of the Mortgage, of any covenant, condition, or agreement on Tenant's part to be performed hereunder with the same force and effect as though performed by Tenant. In addition, no Event of Default by Tenant shall be deemed to exist as long as the holder of the Mortgage or any other mortgagee, in good faith, shall have commenced promptly either (i) to cure the Event of Default and to prosecute the same to completion, or (ii) if possession of the Premises is required in order to cure the Event of Default or if the Event of Default is of a nature that is not susceptible to cure (i.e., bankruptcy), to institute foreclosure proceedings and obtain possession directly or through a receiver, to prosecute such proceedings with diligence and continuity and, upon obtaining such possession, commenced promptly to cure the Event of Default (if the same shall be susceptible of cure) and to prosecute the same to compliance with diligence and continuity, provided, however, that the mortgagee shall have delivered to Landlord, in writing, its agreement to take the action described in clause (i) or (ii) herein, and that during the period in which such action is being taken (and any foreclosure proceedings are pending) all of the other obligations of Tenant under this Lease, to the extent they are susceptible of being performed by the mortgagee, are being duly performed. However, at any time after the delivery of the aforementioned agreement, the mortgagee may notify Landlord, in writing, that it has relinquished possession of the Demised Premises or that it will not institute foreclosure proceedings or, if such proceedings have been commenced, that it has discontinued them, and in such event the 14 17 mortgagee shall have no further liability under such agreement from and after the date it delivers such notice to Landlord (except for any obligations accruing prior to the date it delivers such notice), and thereupon Landlord shall have the unrestricted right to terminate this Lease and to take any other action it deems appropriate by reason of any Event of Default by Tenant, and upon any such termination the provisions of Section 11.10 hereof shall be applicable. 10.08. Landlord and Tenant agree that they will not modify or amend this Lease in any respect, or cancel or terminate this Lease other than as provided herein, without the prior written consent of the holder of the Mortgage and any other mortgagee of which Landlord has notice. 10.09. (a) In case of termination of this Lease by reason of any Event of Default, Landlord shall give prompt notice thereof to each mortgagee holding a mortgage on Tenant's leasehold estate. Landlord, subject to the rights of the holder of the Mortgage, on written request of a mortgagee made any time within thirty (30) days after the giving of such notice by Landlord, shall execute and deliver a new lease of the Demised Premises to such mortgagee, or its designee or nominee, for the remainder of the Term, upon all the covenants, conditions, limitations and agreements herein contained, provided that the mortgagee shall pay to Landlord, simultaneously with the delivery of such new lease, all unpaid Rent due under this Lease up to and including the date of the commencement of the term of such new lease and all expenses including, but not limited to, reasonable attorneys' fees and disbursements and court costs incurred by Landlord in connection with the Event of Default by Tenant, the termination of this Lease and the preparation of the new lease. To the extent permitted by law, any such new lease and the leasehold estate thereby created shall, subject to the same conditions contained in this Lease, continue to maintain the same priority as this Lease with regard to the Mortgage or any other mortgage or any part thereof or any other lien, charge or encumbrance thereon whether or not the same shall then be in existence. Concurrently with the execution and delivery of such new lease, Landlord shall assign to tenant named therein all of its right, title and interest in and to moneys (including insurance and condemnation proceeds), if any, then held by or payable to Landlord, which Tenant would 15 18 have been entitled to receive but for the termination of this Lease, less any sums reasonably expended by Landlord as a result of such Event of Default, and any sums then held by or payable to Landlord shall be deemed to be held by or payable to it as Landlord under the new lease. (b) Upon the execution and delivery of a new lease under this Section 10.09, if the Space Lease, the Hartz Lease or any other sublease for the Demised Premises or a portion thereof theretofore shall have been assigned to Landlord, it thereupon shall be assigned and transferred, without recourse, by Landlord to tenant named in such new lease. Between the date of termination of this Lease and the date of execution and delivery of such new lease, if a mortgagee shall have requested such new lease as provided in paragraph (a) of this Section, Landlord will not cancel the Lease or any other such sublease or accept any cancellation, termination or surrender thereof (unless such termination shall be effected as a matter of law on the termination of this Lease or the Space Lease, the Hartz Lease, or such other sublease has expired in accordance with its terms) without the consent of the mortgagee. 10.10. If there is more than one mortgage, Landlord will recognize the holder of the Mortgage and, thereafter, the mortgagee whose mortgage is senior in lien, as the Person entitled to the rights afforded by Sections 10.07, 10.08 and 10.09 hereof. 10.11. No mortgagee shall become liable for the performance or observance of any covenants or conditions to be performed or observed by Tenant unless and until such mortgagee becomes the owner of Tenant's interest hereunder upon the exercise of any remedy provided far in any mortgage. Thereafter such mortgagee shall be liable for the Performance and observance of such covenants and conditions only so long as such mortgagee owns such interest. ARTICLE 11 - COMPLIANCE WITH LAWS 11.01. Tenant shall comply with all Legal Requirements which shall, in respect of the Demised Premises or the use and occupation thereof, or the abatement of any nuisance in, on or about the Demised Premises, impose any violation, order or duty on Landlord or Tenant; and Tenant shall pay all the cost, expenses, fines, 16 19 penalties and damages which may be imposed upon Landlord by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section 11.01. However, Tenant need not comply with any Such law or requirement of any public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 11.02. 11.02. Tenant may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any Legal Requirement, provided that (a) Landlord shall not be subject to criminal or civil penalty and neither the Demised Premises nor any part thereof shall be subject to being condemned or vacated, by reason of non-compliance or otherwise by reason of such contest; and (b) Tenant shall keep Landlord advised as to the status of such proceedings. Without limiting the application of the above, Landlord shall be deemed subject to prosecution for a crime if Landlord, or its managing agent, or any officer, director, partner, shareholder or employee of Landlord or its managing agent, as an individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise. ARTICLE 12 - INSURANCE AND INDEMNITY 12.01. (a) Tenant shall at all times during the term hereof maintain or cause to be maintained business interruption insurance with a rent insurance endorsement payable to Landlord, covering the Rent for a period of at least twelve (12) months. An endorsement or assignment of such insurance maintained by the Subtenants or other subtenants of Tenant may be provided to Landlord. Tenant also shall obtain and keep in full force and effect insurance against loss or damage by fire and other casualty to the Building, as may be insurable under then available standard forms of "all risk" insurance policies, in an amount equal to 100% of the replacement value thereof. Landlord shall cooperate with Tenant and Tenant's insurance companies in the adjustment of any claims for any damage to the Building. On or prior to the Commencement Date (as such term is defined in the Space Lease), Tenant shall deliver to Landlord appropriate certificates of insurance, including evidence of waivers of subrogation required pursuant to Section 12.04 hereof, required, to be carried by Tenant pursuant to this 17 20 Article 12. Evidence of each renewal or replacement of a policy shall be so delivered by Tenant to Landlord at least fifteen days prior to the expiration of such policy. Any certificates so deposited by Tenant with Landlord shall indicate whether the insurance required by this Article 12 is affected under a blanket insurance policy and, if so, shall certify to the aggregate amount of such blanket insurance policy and to the fact that there are no sublimits which derogate from the coverage required by this Article. 12.02. Tenant also shall maintain the following insurance: (a) comprehensive general public liability insurance in respect of the Demised Premises and the conduct and operation of business therein, with Landlord as an additional named insured, with limits of not less than $3,000,000 for bodily injury or death to any one person and $5,000,000 for bodily injury or death to any number of persons in any one occurrence, and $500,000 for property damage, including water damage and sprinkler leakage legal liability, and (b) any other insurance required for compliance with the Insurance Requirements. Tenant shall deliver to Landlord and any additional named insured(s) certificates for such fully paid-for policies at least ten (10) days before the Commencement Date (as such term is defined in the Space Lease). Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional insured(s) certificates therefor at least 20 days before the expiration of any existing policy. All such policies shall be issued by companies of recognized responsibility licensed to do business in New Jersey, and all such policies shall contain a provision whereby the same cannot be cancelled unless Landlord and any additional insured(s) are given at least 30 days' prior written notice of such cancellation. 12.03. The provisions of Section 20.02 of this Lease are incorporated herein by reference as though set forth more particularly at length in this Section 12.03. 12.04. The parties hereto shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance covering the Demised Premises and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right 18 21 of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery, or an express agreement that the applicable insurance policy shall not be invalidated if the insured waives, or has waived before the casualty, the right of recovery against any party responsible for a casualty covered by such policy, and having obtained such clauses or endorsements or agreements of waiver of subrogation or consent to a waiver of right of recovery, the parties agree that they will not make any claim against or seek to recover from the other or anyone acting or claiming under or through the other or any of their respective officers, directors, shareholders, partners, employees, agents or contractors, for any loss or damage to its property or the property of others resulting from fire or other hazards covered by such fire and extended coverage insurance, provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by and coextensive with the terms and provisions of the waiver of subrogation clause or endorsements, or clauses or endorsements consenting to a waiver of right of recovery. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provision, each party shall advise the other of the amount of any such additional premiums and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if such clause may not be obtained, even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement not to make any claim or seek recovery shall not be effective thereafter. If either party shall be unable to obtain the inclusion of such clause even with the payment of an additional premium, then such party shall attempt to name the other party as an additional insured (but not a loss payee) under the policy. If the payment of an additional premium is required for naming the other party as an additional insured (but not a loss payee), each party shall advise the other of the amount of any such additional premium and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium, the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium or if it shall not be possible to have the other 19 22 party named as an additional insured (but not loss payee), even with the payment of an additional premium, then (in either event) such party shall so notify the first party and the first party's agreement to name the other party as an additional insured shall be satisfied. If either party shall fail to have fire or extended coverage insurance in effect as required pursuant to this Article 12, the agreement not to make any claim or seek recovery contained in the first sentence of this Section 12.04 shall be in full force and effect to the same extent as if such required insurance (containing the required waiver of subrogation clause, endorsement or agreement) were in effect. ARTICLE 13 - RULES AND REGULATIONS 13.01. Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant, which in Landlord's reasonable judgment, shall be necessary for the operation or maintenance of the common areas of the Lincoln Harbor Project, and which do not unreasonably affect the conduct of Tenant's business in the Demised Premises; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations against any other tenant or any employees or agents of any other tenant, and Landlord shall not be liable to Tenant for violation of the Rules and Regulations by any other tenant or its employees, agents, invitees or licensees, provided, however, Landlord shall not enforce any Rule or Regulation against Tenant which Landlord shall not then be enforcing against all other tenants of the Lincoln Harbor Project. If Tenant disputes the reasonableness of any additional Rule or Regulation hereafter adopted by Landlord, the dispute shall be determined by arbitration in the City of Newark in accordance with the rules and regulations then obtaining of the American Arbitration Association or its successor. Any such determination shall be final and binding upon the parties hereto, whether or not a judgment shall be entered in any court. 20 23 ARTICLE 14 - ALTERATIONS 14.01. Subject to the provisions of the Mortgage or any leasehold mortgage to which Landlord may have subordinated its fee interest in the Land, and the Space Lease and the Hartz Lease, Tenant shall have the right to demolish, replace, remove and alter the Demised Premises, or any part thereof, and make any addition thereto, all in compliance with Legal Requirements. ARTICLE 15 - REPAIRS AND MAINTENANCE 15.01. Notwithstanding anything contained herein to the contrary, Landlord shall be responsible for maintenance of the common areas of the Lincoln Harbor Project, all which shall be maintained in accordance with standards reasonably satisfactory to Landlord and Tenant and in any event in accordance with the standards of a first-class office project in the northern New Jersey metropolitan area and with the provisions of the Reciprocal Construction Operation and Easement Agreement, to be entered into substantially in accordance with the draft dated March 5, 1986, between Landlord and the Township of Weehawken. Landlord hereby covenants and agrees to use its best efforts to enforce in accordance with their terms, the provisions of all other agreements affecting the Lincoln Harbor Project. To the extent that Landlord shall fail to maintain such common areas, upon thirty (30) days' prior written notice to Landlord (or such shorter notice as may be reasonable in the event of an emergency) Tenant shall have the right to perform any such maintenance work on behalf of the Landlord and Landlord, promptly after receipt of demand therefor from Tenant, shall reimburse Tenant for any expenses incurred by Tenant on behalf of Landlord for such maintenance, together with interest thereon at the Late Payment Rate, calculated from the date of expenditure by Tenant through the date of repayment by Landlord. 15.02. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's doing any repairs, maintenance, or changes which Landlord is required or permitted by this Lease, or required by law, to make in or to any portion of the Demised Premises. 21 24 ARTICLE 16 - ELECTRIC ENERGY 16.01. Tenant shall purchase the electric energy required by it in the Demised Premises at its own expense on a direct-metered basis from the public utility servicing the Demised Premises. Landlord shall not be liable for any failure, inadequacy or defect in the character or supply of electric current furnished to the Demised Premises except for actual damage suffered by Tenant by reason of any such failure, inadequacy or defect caused by the gross negligence or willful or wrongful act of Landlord. ARTICLE 17 - OTHER SERVICES: SERVICE INTERRUPTION 17.01. Tenant shall cause the Building, including the exterior and the interior of the windows of the Building, to be cleaned. 17.02. Landlord shall cause water to be supplied to the Demised Premises for Tenant's purposes and Tenant shall pay for such as shown on the public utility meters therefor. ARTICLE 18 - ACCESS, CHANGES AND NAME 18.01. Landlord and its agents shall have the right, with as little interference of Tenant's business as possible, to enter and/or pass through the Demised Premises upon reasonable notice and at reasonable times to examine the Demised Premises, without any liability to Tenant and without any reduction of Tenant's obligations hereunder. The right of Landlord and Landlord's agent to enter into the Demised Premises shall not include any area of the Demised Premises designated on written notice to Landlord as a "security area" unless a representative of Tenant shall be present, which representative Tenant agrees to have present at the Demised Premises upon reasonable advance oral notice by Landlord, provided, however, that in the event of any emergency, Landlord shall have the right to enter into any such security area without being accompanied by such representative of Tenant, but shall be accompanied by a police officer, fireman or other public official. During the period of eighteen (18) months prior to the Expiration Date, Landlord and its agents may exhibit the Demised Premises to prospective tenants. 22 25 18.02. Tenant shall have the right, from time to time, to name the Building. ARTICLE 19 - MECHANICS' LIENS AND OTHER LIENS Nothing contained in this Lease shall be deemed, construed or interpreted to imply any consent or agreement on the part of Landlord to subject Landlord's interest or estate to any liability under the mechanic's or other lien law. If any mechanic's or other lien or any notice of intention to file a lien is filed against the Land, or any part thereof, or the Demised Premises, or any part thereof, for any work, labor, service or materials claimed to have been performed or furnished for or on behalf of Tenant or anyone holding any part of the Demised Premises through or under Tenant, Tenant shall cause the same to be cancelled and discharged of record by payment, bond or order of a court of competent jurisdiction within thirty (30) days after notice by Landlord to Tenant. ARTICLE 20 - NON-LIABILITY AND INDEMNIFICATION 20.01. In addition to the provisions of Article 12 of this Lease, except as set forth in the Guarantees, dated of even date herewith, by Landlord for the benefit of Paine Webber, Inc. (collectively, the "Guarantees"), neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or their property, irrespective of the cause of such injury, damage or loss, except to the extent caused by or resulting from the gross negligence or willful acts of Landlord, its agents, servants or employees in the operation or maintenance of the common areas of the Lincoln Harbor Project. Further, neither Landlord nor any partner, joint venturer, director, officer, agent, servant or employee of Landlord shall be liable (a) for any damage caused by either tenants or Persons in, upon or about the Demised Premises, or caused by operations in construction of any private, public or quasi-public work; or (b) even if negligent, for consequential damages arising out of any loss of use of the Demised Premises or any equipment or facilities therein by Tenant or any Person claiming through or under Tenant. 20.02. Tenant shall indemnify and hold harmless Landlord and its partners, joint venturers, directors, officers, agents, servants and employees from and against any and all claims arising from or in connection with (a) Tenant's conduct or management of the Demised Premises or of any business therein, or any work or thing 23 26 whatsoever done, or any condition created (other than by Landlord) in the Demised Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises; (b) any act, omission or negligence of tenant or any of its subtenants or licensees or its or their partners, joint ventures, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (except to the extent caused by Landlord's willful acts or gross negligence) occurring in the Demised Premises or the common areas of the Lincoln Harbor Project; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon, including, without limitation, all attorneys' fees and expenses. In case any action or proceeding is brought against Landlord and/or its partners, joint venturers, directors, officers, agents and/or employees by reason of any such claim, Tenant, upon notice from Landlord, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. Counsel appointed by the insurance company insuring the Demised Premises shall be deemed satisfactory to Landlord. 20.03. Notwithstanding any provision to the contrary, except as set forth in the Guarantees, Tenant shall look solely to the estate and property of Landlord in and to the Demised Premises (or the proceeds net of bona fide liens and expenses received by Landlord on a sale of such estate and property). In the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises, or the common areas of the Lincoln Harbor Project, Tenant, (and its successors and assigns) agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises, or the common areas of the Lincoln Harbor Project shall be limited to such estate and property of Landlord (or sale proceeds net of bona fide liens and expenses). No other properties or assets of Landlord or any partner, joint Venturer, director, officer, agent, servant or employee of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other 24 27 remedy of Tenant arising out of, or in connection with, this Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised Premises, or the common areas of the Lincoln Harbor Project. If Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Landlord's attorneys. ARTICLE 21 - DAMAGE OR DESTRUCTION 21.01. Tenant hereunder shall have no obligation to repair or restore any damage by fire or other casualty to the Demised Premises. 21.02. Landlord shall have no right to terminate this Lease in connection with any casualty. Tenant shall have the right to terminate this Lease in accordance with the provisions of Section 35.12 hereof. 21.03. Except as provided for in Section 35.12 of this Lease, Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises pursuant to this Article 21. At no time shall there be an abatement or reduction of the Rent as a result of any casualty. 21.04. Notwithstanding any of the foregoing provisions of this Article 21, if by reason of some act or omission on the part of Tenant or any of its subtenants or its or their partners, directors, officers, servants, employees, agents or contractors, either (a) Tenant shall be unable to collect all of the insurance proceeds (including, without limitation, rent insurance proceeds) applicable to damage or destruction of the Demised Premises by fire or other casualty, or (b) the Demised Premises shall be damaged or destroyed or rendered completely or partially untenantable on account of fire or other casualty, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement or reduction of the Rent. Further, nothing contained in this Article 21 shall relieve Tenant from any liability that may exist as a re- 25 28 sult of any damage or destruction by fire or other casualty. 21.05. In the event of any casualty or other damage, all insurance proceeds shall be paid to and be the property of Tenant; provided, however, that if Tenant shall elect to terminate this Lease in accordance with the provisions of Section 35.12 hereof, or if this Lease is otherwise terminated prior to restoration all insurance proceeds shall first be paid to, and be the property of, Landlord in the amount set forth on Exhibit "I" annexed hereto and made a part hereof, and the balance shall be paid to, and be the property of Tenant. 21.06. The provisions of this Article 21 shall be deemed an express agreement governing any case of damage or destruction of the Demised Premises by fire or other casualty, and any law providing for such a contingency in the absence of an express agreement, now or hereafter in force, shall have no application in such case. ARTICLE 22 - EMINENT DOMAIN 22.01. If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of conveyance of the whole of the Demised Premises in lieu thereof (collectively referred to as a "Taking") this Lease shall terminate as of the day possession shall be taken by such authority, it being understood that there shall be no abatement of Fixed Rent but that Operating Expenses, Tenant's Fraction and Tenant's Proportionate Share, if applicable, shall be equitably adjusted. If fifteen percent (15%) or less of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority. If more than fifteen percent (15%) of the Demised Premises shall be so taken or conveyed, this Lease shall terminate only in respect of the part so taken or conveyed as of the day possession shall be taken by such authority, but Tenant shall have the right to terminate this Lease upon notice given to the other party within sixty (60) days after the filing of the declaration of taking. If so much of the parking facilities shall be so taken or conveyed that the number of parking spaces necessary, for the continued lawful operation of 26 29 the Demised Premises shall not be available, Tenant may, by notice to Landlord, terminate this Lease as of the day possession shall be taken. Except as specifically provided herein, in the event of any such taking or conveyance there shall be no reduction in Rent. If this Lease shall be terminated in accordance with the provisions of this Section 22.01, this Lease and the Term shall come to an end and expire as of the date of such termination, with the same effect as if such date were the Expiration Date, and the Rent shall be apportioned as of the date of such termination and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. If this Lease shall continue in effect, Tenant shall, at its expense, but shall be obligated only to the extent of the net award or other compensation (after deducting all expenses in connection with obtaining same) available to Tenant for the improvements taken or conveyed, make all necessary alterations so as to constitute the remaining Demised Premises a complete architectural and tenantable unit. It being understood that there shall be no abatement of Fixed Rent but that Operating Expenses, Tenant's Fraction and Tenant's Proportionate Share, if applicable, shall be equitably adjusted. All awards and compensation for any taking or conveyance, whether for the whole or a part the Demised Premises, shall be divided between Landlord and Tenant in accordance with the provisions of Section 22.03. 22.02. If the temporary use or occupancy of all or any part of the Demised Premises shall be taken during the Term, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking which represents compensation for the use and occupancy of the Demised Premises, for the taking of the Tenant's Property and for moving expenses, and restoration and Tenant shall restore the Demised Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award or payment which represents compensation for the use and occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive (except as otherwise provided below) so much thereof as represents compensation for the period up to and includ- 27 30 ing the Expiration Date and Landlord shall receive so much thereof as represents compensation for the period after the Expiration Date. 22.03. In the event this Lease is terminated as the result of a Taking the proceeds of any award given in connection with such Taking shall, subject to the provisions of the Mortgage, be paid first to Landlord up to the amount shown on Exhibit "I" annexed hereto and made a part hereof and the balance shall be paid to Tenant. In the event of a Taking which does not result in a termination of this Lease, any award or compensation given for any such Taking shall, subject to the provisions of the Mortgage, be paid to Tenant. ARTICLE 23 - SURRENDER 23.01. On the Expiration Date, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord. 23.02. If Tenant remains in possession of the Demised Premises after the expiration of the Term, Tenant shall be deemed to be occupying the Demised Premises as a tenant from month to month subject to all of the provisions of this Lease, except that the monthly Fixed Rent shall be twice the Fixed Rent in effect during the last month of the Term. 23.03. No act or thing done by Landlord or its agents shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid unless in writing and signed by Landlord. ARTICLE 24 - CONDITIONS OF LIMITATION 24.01. This Lease is subject to the limitations (collectively referred to as "Events of Default") that: (a) if Tenant shall default in the payment of any installment of Fixed Rent, and such default shall continue for ten (10) days after invoice for same by Landlord or for ten (10) days after notice of such default, whichever is shorter, or if Tenant shall default in the payment of any installment of Rent (other than Fixed Rent) and such default shall continue for forty-five (45) days after notice of such default, or (b) if Tenant shall, 28 31 whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Rent) and such default shall continue and not be remedied within forty-five (45) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of forty-five (45) days and the continuance of which for the period required for cure will not subject Landlord to prosecution for a crime (as more particularly described in the last sentence of Section 11.02), if Tenant shall not, (i) within said forty-five (45) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (ii) duly commence within said forty-five (45) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the default, and (iii) complete such remedy within a reasonable time after the date of said notice by Landlord, then in any of said cases Landlord may give to Tenant a notice of intention to end the Term at the expiration of fifteen (15) days from the date of the service of such notice of intention, and upon the expiration of said fifteen (15) days, whether or not the Term shall theretofore have commenced, this Lease shall terminate with the same effect as if that day were the expiration date of this Lease, but Tenant shall remain liable for damages as provided in Article 26. ARTICLE 25 - RE-ENTRY BY LANDLORD 25.01. If this Lease shall terminate as provided in Article 24, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises, or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, or otherwise, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any Person therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The word "re-enter", as used herein, is not restricted to its technical legal meaning. If this Lease is terminated under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 25, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceedings or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time of such 29 32 termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 26. 25.02. In the event of a breach by Tenant of any of its obligations under this Lease, Landlord shall also have the right of injunction. The special remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies to which Landlord may lawfully be entitled at any time and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 25.03. If this Lease shall terminate under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 25, or in the event of the termination of this Lease, or of re-entry by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance Rent, security or otherwise, but such monies shall be credited by Landlord against any Rent due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 26 or pursuant to law. ARTICLE 26 - DAMAGES 26.01. If this Lease is terminated under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of Article 25, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord, either: (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (i) the aggregate amount of the Rent which would have been payable by Tenant (conclusively presuming the average monthly Additional Charges to be the same as were the average monthly 30 33 Additional Charges payable for the year, or if less than 365 days have then elapsed since the Commencement Date, the partial year, immediately preceding such termination or re-entry) for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the Expiration Date, over (ii) the aggregate rental value of the Demised Premises for the same period, which amount shall be discounted to the then present worth at a rate equal to nine percent (9%) per annum; or (b) sums equal to the Fixed Rent and the Additional Charges which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the De-mised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including, without limitation, altering and preparing the Demised Premises for new tenants, brokers' commissions, legal fees, and all other expenses properly chargeable against the Demised Premises and the rental therefrom, it being understood that any such reletting may be for a period shorter or longer than the period ending on the Expiration Date; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this sub-division (b) to a credit in respect of any rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the 31 34 fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Demised Premises or any part thereof, or if the Demised Premises or any part thereof are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to rent or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease. 26.02. Suit or suits for the recovery of such damages or, any installments thereof, may be brought by Landlord at any time and from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provisions of Article 25, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for and obtain as damages by reason of the termination of this Lease or re-entry on the Demised Premises for the default of Tenant under this Lease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, the governing the proceedings in which, such damages are to be proved whether or not such amount be greater than, equal to, or less than any of the sums referred to in Section 26.01. 26.03. In addition, if this Lease is terminated under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of Article 25, Tenant covenants that for the breach of any covenant of tenant set forth above in this Section 26.03, Landlord shall be entitled immediately, without notice or other action by Landlord, to recover, and Tenant shall pay, as and for liquidated damages therefor, the cost of performing such covenant (as estimated by an independent contractor selected by Landlord). 32 35 26.04. In addition to any other remedies Landlord may have under this Lease, and without reducing or adversely affecting any of Landlord's rights and remedies under this Article 26, if any Rent or damages payable hereunder by Tenant to Landlord are not paid within ten (10) days after demand therefor, the same shall bear interest at the Late Payment Rate from the due date thereof until paid, and the amounts of such interest shall be Additional Charges hereunder. ARTICLE 27 - AFFIRMATIVE WAIVERS 27.01. Tenant, on behalf of itself and any and all persons claiming through or under Tenant, does hereby waive and surrender all right and privilege which it, they or any of them might have under or by reason of any present or future law, to redeem the Demised Premises or to have a continuance of this Lease after being dispossessed or ejected from the Demised Premises by process of law or under the terms of this Lease or after the termination of this Lease as provided in this Lease. 27.02. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Demised Premises and use of the Common areas, including, without limitation, any claim of injury or damage, and any emergency and other statutory remedy with respect thereto. Tenant shall not interpose any counterclaim of any kind in any action or proceeding commenced by Landlord to recover possession of the Demised Premises (unless failure to do so would constitute a waiver thereof) nor attempt to remove such action or proceeding to the law division of the Superior Court of New Jersey. ARTICLE 28 - NO WAIVERS The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect 33 36 with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or Additional Charges with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. ARTICLE 29 - CURING TENANT'S DEFAULTS If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice in a case of emergency, and in any other case only if such default continues after the expiration of forty-five (45) days from the date Landlord gives Tenant notice of the default. Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable attorneys' fees and expenses, involved in collecting or endeavoring to collect the Rent or any part thereof or enforcing or endeavoring to enforce any rights against Tenant or Tenant's obligations hereunder, under or in connection with this Lease or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings or in recovering possession of the Building after default by Tenant or upon the expiration of the Term or sooner termination of this Lease, and interest on all sums advanced by Landlord under this Article at the Late Payment Rate, may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option, and such amounts shall be due and payable in accordance with the terms of such bills. ARTICLE 30 - BROKER Landlord and Tenant each represent to the other that no broker except the Broker was instrumental in bringing about or consummating this Lease and that it had no conversations or negotiations with any broker except the Broker concerning the leasing of the Demised Premises. Each party agrees to indemnify and hold harmless the other against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by the indemnifying party 34 37 with any broker other than the Broker. The commissions due the Broker if any, shall be paid pursuant to a separate agreement with the Broker. ARTICLE 31 - NOTICES Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Lease or pursuant to any applicable Legal Requirement, shall be in writing and shall (except with respect to invoices for Fixed Rent) be deemed to have been properly given, rendered or made only if hand delivered or sent by United States registered or certified mail, return receipt requested, addressed with respect to Tenant c/o Hartz Mountain Industries, Inc., Attention General Counsel, with copies to Paine Webber, Inc., 1285 Avenue of the Americas, New York, New York 10019, Attention: Facilities Department - Vice President and to Skadden, Arps, Slate, Meagher and Flom, 919 Third Avenue, New York, New York 10022, Attention: Benjamin F. Needell, Esq., and to Horowitz, Bross, Sinins & Imperial, P.A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin A. Horowitz, Esq. and with respect to Landlord, to the attention of General Counsel with a concurrent notice to the attention of President, with a copy to Horowitz, Bross, Sinins & Imperial, P.A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin A. Horowitz, Esq., and any mailed notice, statement, demand, consent, approval or other communication, shall be deemed to have been given, rendered or made on the date delivered or if mailed on the day after the day so mailed, unless mailed outside the State of New Jersey in which case it shall be deemed to have been given, rendered or made on the third business day after the day so mailed. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands, consents, approvals or other communications intended for it. ARTICLE 32 - ESTOPPEL CERTIFICATES Each party shall, at any time and from time to time, as requested by the other party, upon not less than ten (10) days' prior notice, execute and deliver to the requesting party a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force 35 38 and effect as modified and stating the modifications), certifying the dates to which the Fixed Rent and Additional Charges have been paid, stating whether or not, to the best knowledge of the party giving the statement, the requesting party is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the party giving the statement shall have knowledge, and stating whether or not, to the best knowledge of the party giving the statement, any event has occurred which with the giving of notice or passage of time, or both, would constitute such a default of the requesting party, and, if so, specifying each such event; any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Each party also shall include in any such statement such other information concerning this Lease as each party may reasonably request. ARTICLE 33 - ARBITRATION Except as may be otherwise expressly provided in this Lease, Landlord or Tenant may at any time request arbitration, of any matter in dispute. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined in Newark, New Jersey, by a single arbitrator, in accordance with the rules then obtaining of the American Arbitration Association (or any organization which is the successor thereto). The award in such arbitration may be enforced on the application of either party by the order or judgment of a court of competent jurisdiction. The fees and expenses of any arbitration shall be borne by the parties equally, but each party shall bear the expense of its own attorneys and experts and the additional expenses of presenting its own proof. ARTICLE 34 - MEMORANDUM OF LEASE This Lease shall not be recorded, however, at the request of either party, landlord and Tenant shall promptly execute, acknowledge and deliver to the other party (i) a memorandum of lease in respect of this Lease sufficient for recording and (ii) after the Fixed Rent Commencement Date either an agreement or a restated memorandum (if a memorandum shall have been executed or re- 36 39 corded as provided immediately above) stating the Fixed Rent Commencement Date sufficient for recording. Failure by either party to request or to execute, acknowledge or deliver any such memorandum or agreement, however, shall not affect the determination of the Fixed Rent Commencement Date. Such memorandum shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease. Whichever party records such memorandum of Lease shall pay all recording costs and expenses, including any taxes that are due upon such recording. ARTICLE 35 - MISCELLANEOUS 35.01. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement(s) which may be made between the parties concurrently with the execution and delivery of this Lease. All understandings and agreements heretofore had between the parties are merged in this Lease and any other written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation. Neither party has relied upon any statement or representation not embodied in this Lease or in any other written agreement(s) made concurrently herewith. 35.02. No agreement shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing, refers expressly to this Lease and is signed by the Landlord and Tenant. 35.03. If Tenant shall at any time request Landlord to sublet or let the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord of any liability for loss or damage to any of the Tenant's Property in connection with such subletting or letting. 35.04. Except as otherwise expressly provided in this Lease, the obligations under this Lease shall bind and benefit the successors and assigns of the par- 37 40 ties hereto with the same effect as if mentioned in each instance where a party is named or referred to; provided, however, that the provisions of this Section 35.04 shall not be construed as modifying the conditions of limitation contained in Article 24. 35.05. Except for Tenant's obligations to pay Rent, the time for Landlord or Tenant, as the case may be, to perform any of their respective obligations hereunder shall be extended if and to the extent that the performance thereof shall be prevented due to any Unavoidable Delays. Except as expressly provided to the contrary, the obligations of Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord have any liability whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease due to any of the matters set forth in the first sentence of this Section 35.05, or (b) because of any failure or defect in the supply, quality or character of electricity, water or any other utility or service furnished to the Demised Premises for any reason beyond Landlord's reasonable control. 35.06. Any liability for payments or reimbursement of payments hereunder (including, without limitation, Additional Charges) shall survive the expiration of the Term or earlier termination of this Lease. 35.07. Tenant shall not exercise its rights under Article 14 or any other provision of this Lease in a manner which would violate Landlord's union contracts or create any work stoppage, picketing, labor disruption or dispute or any interference with the business of Landlord. 35.08. Tenant shall give prompt notice to Landlord of (a) any occurrence in or about the Demised Premises for which Landlord might be liable, and (b) any fire or other casualty in the Demised Premises. 35.09. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall, be invalid or unenforceable, the remainder of this Lease shall not be affected and shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. If any 38 41 words or phrases in this Lease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Lease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Lease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 35.10. Landlord recognizes and acknowledges that for so long as the Space Lease and the Hartz Lease shall be in full force and effect, all obligations of Tenant hereunder may be performed by the tenants under the Space Lease and the Hartz Lease. Notwithstanding anything contained herein to the contrary, to the extent that the tenant under the Space Lease or the Hartz Lease shall perform or comply with any obligation required to be performed or complied with thereunder, Landlord shall accept such performance and Tenant shall be deemed to have performed or complied with the corresponding obligation hereunder. 35.11. Upon request by the tenant under the Space Lease, Landlord shall enter into a non-disturbance agreement in the form annexed hereto and made a part hereof as Exhibit "J", with any subtenant of the tenant under the Space. Lease occupying one or more full floors of the Demised Premises. 35.12. Notwithstanding anything contained herein to the contrary, upon any termination of the Space Lease, including, but not limited to, whether because of (x) the exercise by the tenant thereunder of any rights it may have to so terminate, including pursuant to Section 38.11 of the Space Lease, or (y) the occurrence of an Event of Default (as such term is defined in the Space Lease) and the termination of the Space Lease by Tenant, as landlord thereunder, Tenant shall have the option to terminate this Lease effective as of the date of termination of the Space Lease. Upon the termination of this Lease, Tenant's liability for Rent thereafter accruing 39 42 shall cease. In addition, so long as the Space Lease is in full force and effect, neither Landlord nor Tenant shall have the right to exercise any option either may have to terminate this Lease, unless (x) the tenant under the Space Lease shall have exercised a parallel right to terminate the Space Lease and the same shall thereafter be terminated, or (y) if there shall be an Event of Default (as such term as defined in the Space Lease) under the Space Lease and Tenant, as landlord thereunder, shall have exercised its right to terminate the Space Lease. In addition, if the subtenant under the Space Lease exercises its option to purchase Landlord's fee interest or at least a one-third interest therein, in the Land pursuant to the Purchase Option, dated of even date herewith, between Landlord and PaineWebber, Inc., and if pursuant to the Agreement of Limited Partnership of Tenant, Tenant shall elect to terminate this Lease, this Lease shall automatically terminate simultaneously with the transfer of title to the fee, or interest therein in the Land. 35.13. If the Subtenant under the Space Lease shall at any time during the term of the Space Lease, pursuant to Section 38.10 of the Space Lease, request (x) a remeasurement of the Floor Space and redetermination of Tenant's Fraction (as such term is defined in the Space Lease) because of a claimed difference in Floor Space (as such term is defined in the Space Lease) of the Building, or (y) a redetermination of Operating Expenses (as such term is defined in the Space Lease) because of either a claimed increase in the floor space of improvements constructed in the Lincoln Harbor Project or because of a redetermination of the Floor Space (as such term is defined in the Space Lease), such Floor Space shall be less than 578,028, then Tenant shall have a parallel right hereunder, and whatever results shall be obtained thereunder may not be inconsistent with the results obtained pursuant hereto. It is acknowledged that for purposes of determining Operating Expenses hereunder and under the Space Lease, the Project Floor Space was deemed to be 2, 206,457. 35.14. If, in connection with the Mortgage, a lending institution shall request reasonable modifications of this Lease that do not materially increase Ten-ant's monetary obligations, materially increase Tenant's 40 43 other obligations, or materially and adversely affect the rights or obligations of Tenant under this Lease, Tenant shall make such modifications. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. Landlord: HARTZ MOUNTAIN INDUSTRIES, INC. By: /s/ Stephen M. Kelty ----------------------------------------- Stephen M. Kelty, Vice President Tenant: HARTZ-PW LIMITED PARTNERSHIP BY: Hartz Mountain Industries, Inc., General Partner By: /s/ Stephen M. Kelty ----------------------------------------- Stephen M. Kelty, Vice President 41 44 EXHIBIT "A" Building The proposed PaineWebber Operations Building is to be located at Lincoln Harbor, Weehawken, New Jersey. The 10-11 story, center core building, of approximately 604,528 gross square feet, and will house a retail area cafeteria, print center, bulk storage and mail area. The Operations Center is to be connected by a "skywalk," to the existing Data Processing Center building. A-1 45 EXHIBIT "B" Fixed Rent
Years Commencing on the Fixed Rent Commencement Date Fixed Rent - ----------------- ---------- 1 $ 79,108 2- 5 545,692 6-10 996,627 11-15 2,717,511 16-20 4,213,533 21-40 4,272,522 41-74 4,272,522, as increased by 1/2 CPI for the period from year 21 to year 40 75-98 rent for years 41-74, as increased by 1/2 CPI for the period from year 41 to year 74
B-1 46 EXHIBIT "C" Floor Space As to a building, the sum of the floor area stated in square feet bounded by the exterior faces of the exterior walls, or by the exterior or common areas face of any wall between the premises and any portion of the common areas, or by the center line of any wall between the premises and space leased or available to be leased to another tenant or occupant. Any reference to floor space of a building shall mean the floor area of all levels or stories of such building, excluding any roof, except such portion thereof as is permanently enclosed, and including any interior basement level or mezzanine area not occupied or used by a tenant on a continuing or repetitive basis, and any mechanical room, enclosed or interior truck dock, interior common areas, and areas used by a landlord for storage, for housing meters and/or other equipment or for other purposes. Any reference to the floor space is intended to refer to floor space of the entire area in question irrespective of the person(s) who may be the owner(s) of all or any part thereof. The anticipated Floor Space of the Building is estimated to be 604,528. C-1 47 EXHIBIT "D" Property Description (to include easement for skywalk) SKYWALK EASEMENT The precise metes and and bounds description (deed description) of the easement for the skywalk connecting the Data Processing Center and the Operations Center, created pursuant to the Reciprocal Easement and Maintenance Agreement, dated of even date herewith, among Hartz, Landlord and Landlord, is not capable of precise determination until such time as the design of the structure has been determined by Tenant. The easement shall be as mutually agreed between the two (2) parties connecting the two (2) structures. The easement shall be an air rights easement with rights of support at the locations which will be determined with specificity upon final approval by Tenant of the design for construction. Upon such determination, the precise metes and bounds description shall be prepared and attached to this Lease as part of this Exhibit and incorporated herein by reference. BLOCK 34C LOT 4.03 TOWNSHIP OF WEEHAWKEN HUDSON COUNTY, NEW JERSEY Commencing at a point in the easterly line of Park Avenue, said point being N 21 degrees-21'-30" E, 1129.16 feet along the same from its intersection with the northerly line of 15th Street, all as shown on a map entitled "Subdivision of Properties of Hartz Mountain Industries, Inc.," and prepared by Azzolina & Feury Engineering Company, dated February 27, 1986, revised to March 19, 1986, and running; thence, A) N 21 degrees-21'-30" E, 86.70 feet along said property line to a point on curve; thence, D-1 48 B) Northeasterly, along the property line on a curve to the left having a radius of 1093.01 and a radial bearing of N 14 degrees-11'-23" W through a central angle of 25 degrees-01'-56" for an arc distance of 477.53 feet; thence, C) Along said property line, N 38 degrees-30'-00" E, 550.05 feet; thence, D) Departing from said property line, S 50 degrees-33'-12" E, 86.23 feet to the point of beginning; thence, 1) N 38 degrees-52'-10" E, 383.37 feet to a point of curvature; thence, 2) Northeasterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, 3) S 51 degrees-07'-50" E, 156.00 feet; thence, 4) S 38 degrees-52'-10" W, 286.00 feet; thence, 5) Along the outer face of the wall of Tower 1, S 51 degrees-07'-50" E, 392.18 feet; thence, 6) S 38 degrees-52'-10" W, 132.37 feet to a point of curvature; thence, 7) Southwesterly, on a curve to the right having a radius of 40 feet through a central angle of 90 degrees-00'-00" for an arc distance of 62.83 feet; thence, 8) N 51 degrees-07'-50" W, 513.18 feet to a point of curvature; thence, 9) Northwesterly, on a curve to the right having a radius of 35 feet through a central angle of 90 degrees-00'-00" for an arc distance of 54.98 feet to the point or place of beginning. Containing 156,420 square feet (3.59 acres). D-2 49 [GRAPHIC] D-3 50 EXHIBIT "E" Lincoln Harbor Project E-1 51 [GRAPHIC] 52 EXHIBIT "F" MORTGAGE TERMS
PRINCIPAL AMOUNT: $75,000,009 TERM: Minimum 17 years and 6 months from the Commencement Date (as defined in the Agreement of Lease, dated of even date herewith, between Landlord, as landlord, and Tenant, as tenant, for the premises known as the Data Pro- cessing Center) AMORTIZATION SCHEDULE: 11.979 constant INTEREST RATE: 11.25% or less per annum SECURITY: Senior leasehold mortgage, subordi- nated fee, no personal liability
F-1 53 EXHIBIT "G" GROUND LEASE OFFICE PREMISES OPERATING EXPENSES The cost and expense (whether or not within the contemplation of the parties but only to the extent the same are treated, in accordance with GAAP, as expenses and not capital expenditures) for (a) the Common Open Space, Interior Walkway, Walkway and Private Roads, Shared Parking Facilities and Utility Trunk Lines (collectively, the "Areas") (as such terms are defined in the Reciprocal Construction Operating and Easement Agreement ("RCOEA") draft dated March 5, 1986) and (b) the real estate taxes, if any, in respect of the Areas, and (c) reasonable legal, accounting and other professional fees; plus four percent (4%) of the total of expenses under clause (a) above for office administration and overhead cost and expense. All items shall be stated in accordance with generally accepted accounting principles. The Operating Expenses attributable to the Demised Premises are determined by dividing the Floor Space constructed on the Demised Premises by the municipally approved Floor Space of the Lincoln Harbor Project (presently 2,206,457 square feet); provided, however that, except in the event of condemnation the 2,206,457 square feet of Floor Space shall be presumed to be the minimum Floor Space. For example, the Office Building, estimated at 604,528 square feet of Floor Space divided by 2,206,457 square feet of presently approved Floor Space divided by 2,206,457 square feet of presently approved Floor Space of the Lincoln Harbor Project equals 0.2740 or 27.40%). G-1 54 EXHIBIT "H" Fee Mortgage Amounts
Years Amount - ----- ------ 1- 3 $15,233,419 4- 6 19,151,510 7- 9 23,698,486 10-12 27,050,892 13-20 29,962,901 21-40 32,210,118 41-74 32,210,118, as increased by 1/2 CPI for the period from year 21 to year 40 75-98 fee mortgage amount for years 41-74, as increased by 1/2 CPI for the period from year 41 to year 74
H-1 55 EXHIBIT "I" Landlord's Share of Insurance Proceeds and Condemnation Awards
Years Amount - ----- ------ 1- 3 $19,041,774 4- 6 23,939,388 7- 9 29,623,108 10-12 33,813,614 13-20 37,453,627 21-40 40,262,649 41-74 40,262,649, as increased by 1/2 CPI for the period from year 21 to year 40 75-98 Landlord's share of insurance proceeds and condemnation awards for years 41-74 as increased by 1/2 CPI for the period from year 41 to year 74
I-1 56 EXHIBIT "J" NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, dated as of the _____ day of ___________, 19__, between HARTZ MOUNTAIN INDUSTRIES, INC., a New York corporation, having an office at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094 ("Ground Lessor"), and __________, a __________ having an office at __________ ("Subtenant"). WITNESSETH : WHEREAS, Ground Lessor is the owner of the land (the "Land") described in Exhibit "A" annexed hereto and made a part hereof; and WHEREAS, Ground Lessor has entered into a ground lease (the "Ground Lease") , dated as of _____________, whereby Ground Lessor demised and leased, as ground lessor, all of the Land to HARTZ-PW LIMITED PARTNERSHIP ("Ground Lessee") , as lessee; and WHEREAS, Ground Lessee has entered into an Agreement of Lease, dated as of the _____ day of March, 1986 (the "Space Lease") , with PAINEWEBBER INCORPORATED, ("Space Tenant") pursuant to which Ground Lessee leased and demised to Space Tenant a portion of the space in the building known as the [PaineWebber Building] (the "Demised Premises") , as more fully described in such Space Lease; WHEREAS, Space Tenant has entered into an Agreement of Sublease (the "Sublease") , dated as of the _____ day of ___________, 19__, pursuant to which Space Tenant subleased and demised to Subtenant [the Demised Premises or a portion thereof] , as more fully described in Exhibit "B" annexed hereto and made a part hereof; and WHEREAS, the parties hereto desire to provide inter alia for the non-disturbance of Subtenant by Ground Lessor. J-1 57 NOW, THEREFORE, the parties hereto agree as follows: 1. So long as the Sublease is in full force and effect, and no default of Subtenant exists nor has any event occurred which with the passage of time or notice would entitle Space Tenant to terminate the Sublease or dispossess Subtenant, Ground Lessor will not name or join (unless required by law or unless failure to do so by Ground lessor would result in a waiver by Ground Lessor of any rights) Subtenant as a party defendant or otherwise in any suit, action or proceeding brought to enforce any rights granted to Ground Lessor under the Ground Lease or the Space Lease or to terminate one or both of such leases, and the Ground Lessor will not terminate the Sublease or take any action to recover possession of the premises demised to Subtenant or affect or disturb Subtenant's possession or rights under the Sublease. 2. If Ground Lessor or its designee shall enter into and become lawfully possessed of the Demised Premises and shall succeed to the rights of Ground Lessee under the Ground Lease and Space Tenant under the Space Lease by reason of the termination of the Ground Lease and the Space Lease or otherwise, and if Subtenant is not then in default under the Sublease beyond the time permitted therein to cure such default, then (a) the Sublease shall not terminate, (b) Subtenant shall attorn to Ground Lessor or its designee, and recognize it as its landlord, such attornment to be upon the then executory terms and conditions of the Sublease, and (c) Ground Lessor or its designee shall accept such attornment and recognize Subtenant as the Ground Lessor's lessee under the Sublease. Upon such attornment and recognition, the Sublease shall continue in full force and effect as, or as if it were, a direct lease between the Ground Lessor or its designee and Subtenant, upon all of the then executory terms, conditions and covenants as set forth in the Sublease and which shall be applicable after such attornment, except that Ground Lessor shall not be (i) liable for any previous act or omission of Space Tenant which constitutes a default under the Sublease; (ii) subject to any offset or defenses not expressly provided for in the Sublease which the Subtenant might have against Space Tenant; (iii) bound by any prepayment of more than one month's [Fixed Rent] or [Additional Charges] (as such terms are defined in the Sublease); and (d) bound by any J-2 58 amendment or modification of the Sublease made without Ground Lessor's prior written consent. 3. The terms of this Agreement shall bind and inure to the benefit of the parties hereto, and their respective heirs, successors and assigns. 4. All notices and other communications hereunder shall be in writing and shall be hand delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed (a) if to Ground Lessor at 400 Plaza Drive, Post Office Box 1411, Secaucus, New Jersey 07094, Attention: General Counsel, with a copy to Horowitz, Bross, Sinino & Imperial, P.A., 1180 Raymond Boulevard, Newark, New Jersey 07102, Attention: Irwin Horowitz, Esq., or at such other address as Ground Lessor shall have furnished to Subtenant in writing, or (b) if to Subtenant, at _______________________________ _____________________ Attention: ____________, or at such other address as Subtenant shall have furnished to Ground Lessor in writing. 5. This Agreement shall be governed by the laws of the State of New Jersey. If any term of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term to any person or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6. This Agreement may not be discharged or modified orally or in any manner other than by an agreement in writing specifically referring to this Agreement and signed by the party or parties to be charged thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HARTZ MOUNTAIN INDUSTRIES, INC. By: _________________________ [SUBTENANT] By: _________________________ J-3 59 Acknowledgement J-4 60 EXHIBIT "A" Land J-5 61 EXHIBIT "B" Demised Premises J-6 EX-10.47 18 LIMITED PARTNERSHIP AGREEMENT 1 EXHIBIT 10.47 ========================================================================== LIMITED PARTNERSHIP AGREEMENT of PW PARTNERS 1995 L.P. Dated as of October 31, 1995 THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS. ========================================================================== 2 LIMITED PARTNERSHIP AGREEMENT of PW PARTNERS 1995 L.P. Table of Contents
Page ARTICLE I DEFINITIONS AND TERMS .............. 1 1.01. Definitions .............................................. 1 1.02. Terms Generally .......................................... 6 ARTICLE II THE PARTNERSHIP ................. 6 2.01. Name ..................................................... 6 2.02. Term ..................................................... 6 2.03. Principal Place of Business .............................. 6 2.04. Registered Office in Delaware ............................ 7 2.05. Names and Addresses of the Partners ...................... 7 ARTICLE III PURPOSE AND POWERS ................ 7 3.01. Purpose and Powers ....................................... 7 ARTICLE IV MANAGEMENT AND CONTROL .............. 8 4.01. Authority of General Partner ............................. 8 4.02. Expenses ................................................. 9 4.03. No Compensation to General Partner ....................... 9 ARTICLE V CAPITAL CONTRIBUTIONS AND LOANS .......... 9 5.01. Capital Contributions .................................... 9
3 5.02. Loans ................................................... 10 ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS ........... 11 6.01. Allocation of Income and Loss ........................... 11 6.02. Liability of General and Limited Partners ............... 12 6.03. Allocations for Tax Purposes ............................ 13 6.04. Valuation ............................................... 13 6.05. Distributions ........................................... 14 ARTICLE VII PARTNERS .................... 15 7.01. Designation of Limited Partners ......................... 15 7.02. Vesting of Interests; Purchase of a Limited Partner's Interest .............................................. 16 7.03. Transfer of a Limited Partner's Interest ................ 17 7.04. Transfer of General Partner's Interest .................. 17 7.05. Admission or Substitution of New Limited Partners ....... 17 7.06. Admission of Substitute or Additional General Partners .. 18 7.07. Withdrawal of a Limited or General Partner .............. 19 7.08. Final Events with Respect to a Partner .................. 19 7.09. Continuation of Partnership ............................. 19 7.10. Removal of General Partner .............................. 20 7.11. Compliance with Law ..................................... 20 ARTICLE VIII DISSOLUTION OF THE PARTNERSHIP .......... 20 8.01. Dissolution ............................................. 20 8.02. Amounts Reserved ........................................ 21 ARTICLE IX REPORTS TO PARTNERS ................ 22 9.01. Books of Account ........................................ 22 9.02. Audit and Report ........................................ 22 9.03. Fiscal Year ............................................. 23 ARTICLE X MISCELLANEOUS .................. 23 10.01. Governing Law ........................................... 23 10.02. Indemnification ......................................... 23
ii 4 10.03. Notice .................................................. 23 10.04. Counterparts ............................................ 23 10.05. Completeness and Amendments ............................. 23 10.06. Power of Attorney ....................................... 24
iii 5 PW PARTNERS 1995 L.P. LIMITED PARTNERSHIP AGREEMENT, dated as of October 31, 1995, among PAINEWEBBER PARTNERS II, INC., a Delaware corporation, as general partner, and the persons listed on the signature pages hereof, as limited partners. The Partners (as defined below), in consideration of their mutual covenants herein contained, hereby agree to become partners and to form a limited partnership (the "Partnership") under the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") upon the filing for record of the Certificate of Limited Partnership in the office of the Secretary of State as required by Section 17-201 of the Delaware Act, for the purposes and duration, and upon the terms and conditions, hereinafter set forth, and further hereby mutually covenant and agree as follows: ARTICLE I DEFINITIONS AND TERMS 1.01. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the corresponding meanings, except as otherwise specifically provided herein: "Affiliate" shall mean, with respect to another Person, any Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such other Person. "Bankruptcy" shall mean, with respect to any Person, the occurrence of any of the following events: (i) the filing of an application by such Person for, or a consent to, the appointment of a trustee or custodian of his assets; (ii) the filing by such Person of a voluntary petition in bankruptcy or the seeking of relief under Title 11 of the United States Code, as now constituted or hereafter amended, or the filing of a pleading in any court of record admitting in writing his inability to pay his debts as they become due; (iii) the failure of such Person to pay his debts as such debts become due; (iv) the making by such Person of a general assignment for the benefit of creditors; (v) the filing by such Person of an answer admitting the material allegations of, or his consenting to or defaulting in answering, a bankruptcy petition filed against him in any bankruptcy proceeding or petition seeking relief under Title 11 of the United States Code, as now constituted or as hereafter amended; or (vi) the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating such Person a bankrupt or insolvent or for relief in respect of such Person or appointing a trustee or custodian of his assets and the continuance of such order, judgment or decree unstayed and in effect for a period of 60 consecutive days. 6 2 "Capital Account" shall mean, with respect to any Partner, an account maintained for such Partner to which is credited such Partner's contributions to the Partnership and any net income allocated to such Partner pursuant to Section 6.01 and from which is debited any distributions to such Partner and any net losses allocated to such Partner pursuant to Section 6.01. In the case of any distribution in kind, Capital Accounts shall be adjusted as if the asset distributed had been sold in a taxable transaction and the proceeds distributed in cash, and any resulting gain or loss on such sale shall be allocated pursuant to Section 6.01. "Capital Contribution" shall mean, with respect to any Partner, all contributions of capital to the Partnership made by such Partner in accordance with Section 5.01. "Capital Gain (Loss)" shall mean, with respect to the sale or other disposition of an Investment, the amount, if any, by which (i) the proceeds of such sale or other disposition exceed (are less than) (ii) the cost or other basis of such Investment to the Partnership, plus any interest on indebtedness or other expenses incurred with respect thereto, less any interest, dividends or other income received with respect thereto. "Capital Percentage" shall mean, with respect to any Partner, the percentage that the Capital Contribution of such Partner bears to the sum of all Capital Contributions. "Capital Schedule" shall mean a capital schedule distributed pursuant to Section 5.01(a). "Certificate of Limited Partnership" shall mean the Certificate of Limited Partnership dated and filed for record in the Office of the Secretary of State of Delaware on October 31, 1995, pursuant to Section 17-201 of the Delaware Act. A "Change in Control" shall be deemed to have occurred if: (i) any "person", as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Act"), becomes a beneficial owner, as such term is used in Rule 13d-3 promulgated under the Act, of securities of PWG or PWI representing 20% or more of the combined voting power of the outstanding securities of PWG or PWI, as the case may be, having the right to vote in the election of directors (any such owner being herein referred to as an "Acquiring Person"); (ii) a majority of the Board of Directors of PWG ("PWG Board") at any time consists of individuals elected to membership at a PWG Board meeting or a PWG shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors; 7 3 (iii) all or substantially all the business of PWI is disposed of pursuant to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) in which PWI is not the surviving corporation or PWG is materially or completely liquidated; or (iv) PWG or PWI combines with another company and is the surviving corporation (other than a merger, consolidation or other transaction with a company of which 50% or more of the combined voting power of the outstanding securities having a right to vote at the election of directors is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) but, immediately after the combination, the shareholders of PWG hold, directly or indirectly, less than 50% of the total outstanding securities of the combined company having the right to vote in the election of directors. "Code" shall mean the Internal Revenue Code of 1986, as from time to time amended and in effect. "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of PWG. "Contribution Date" shall mean each date, fixed by the General Partner in its discretion, on which Capital Contributions shall be made by the Limited Partners. "Designated Investment Receipts" shall mean the cash receipts received by the Partnership in connection with the sale, transfer or other disposition of an Investment (other than (a) an Investment described in Section 3.01(b) and (b) Special Investments) and the amount of any dividend, interest, distribution or other income received with respect to an Investment (other than (a) an Investment described in Section 3.01(b) and (b) Special Investments), reduced by (i) the amount thereof applied to the repayment of interest (including any accrued but unpaid interest) on any loan described in Section 5.02(a) and (ii) the amount thereof that the General Partner distributes (or reserves for distribution) to the Partners in accordance with Section 6.05(b). "Disinterested Director" shall mean any member of the PWG Board (i) who is not an officer or employee of PWG, PWI or any of their subsidiaries, (ii) who is not an Acquiring Person or an affiliate or associate of an Acquiring Person or a nominee or representative of an Acquiring Person or of any such affiliate or associate and (iii) who was a member of the PWG Board prior to the date of this Agreement or was recommended for election or elected by a majority of the Disinterested Directors then on the PWG Board. 8 4 "Drawdown Date" shall mean the date on which the Partnership draws down on a loan contemplated by Section 5.02(a) in the manner contemplated by Section 5.02(b). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Final Event" shall mean the death, adjudication of incompetency, Bankruptcy, liquidation, dissolution or withdrawal from the Partnership of any Person who is a Partner. "General Partner" shall mean the Person named herein as General Partner and any Person admitted as an additional or substitute General Partner, so long as such Person shall remain a General Partner. "Investments" shall mean and include common and preferred stock (including warrants, rights, put and call options and other options relating thereto or any combination thereof), partnership interests, notes, bonds, debentures, trust receipts and other obligations, instruments or evidences of indebtedness, choses in action, other property or interests commonly regarded as securities, interests in real property, whether improved or unimproved, interests in oil and gas properties and mineral properties, interests in "hedge funds" or similar investment vehicles, whether or not registered under the Investment Company Act of 1940, as amended, short-term investments commonly regarded as money-market investments, bank deposits, interests in personal property of all kinds, whether tangible or intangible, and cash. "Limited Partner" shall mean any of the Persons named herein as Limited Partners or any other Person admitted as an additional or substitute Limited Partner, so long as such Person shall remain a Limited Partner. "Limited Partnership Percentage" shall mean, with respect to any Limited Partner, the Capital Contribution of such Limited Partner divided by the Capital Contributions of all the Limited Partners. For the purpose of this definition, all Limited Partnership interests held by the General Partner shall be excluded. "Loan Proceeds" shall mean the principal amount of a loan described in Section 5.02(a) which is applied to the purchase of an Investment. "Net Capital Gain" shall mean the sum of all Capital Gains realized by the Partnership on or prior to a given date, less the sum of the following: (i) all Capital Losses or, without duplication, other losses realized by the Partnership on or prior to such date; 9 5 (ii) a reserve established by the General Partner in its discretion for unrealized losses and, subject to clause (iii) below, for the repayment of indebtedness of the Partnership; (iii) the amount of any payment of interest or principal with respect to any loan of the Partnership that will become due and payable within 12 months after such date; and (iv) the value of all distributions previously made to the Limited Partners in accordance with Section 6.05 (valued, in the case of noncash distributions, at the time of such distribution). "Net Value" shall mean, with respect to any Investment as of any date, the value of the Investment on such date, as determined in Section 6.04, minus the sum of the Partnership's liabilities incurred with respect to such Investment. For the purpose of determining Net Value, the loans borrowed by the Partnership pursuant to Section 5.02 shall be deemed to have been incurred with respect to each of the Investments of the Partnership in proportion to the relative cost of each such Investment. "Operative Date" shall mean the date, if any, following a Change in Control that has been designated in a resolution adopted by a majority of the Disinterested Directors, in their sole discretion, as the Operative Date. "PaineWebber" shall mean PWG or any Affiliate of PWG. "Partner" shall mean any Person who is a partner in the Partnership, whether the General Partner or a Limited Partner. "Person" shall include any individual, corporation, partnership, association, trust, joint stock company or unincorporated organization. "PWG" shall mean Paine Webber Group Inc., a Delaware corporation. "PWI" shall mean PaineWebber Incorporated, a Delaware corporation. "Senior Limited Partners" shall mean the three individuals who are the Limited Partners who have the three largest Limited Partnership Percentages on the Operative Date. If more than three Limited Partners have Limited Partnership Percentages equal to or greater than the third largest Limited Partnership Percentage, then all such persons shall be Senior Limited Partners. If three or fewer persons are Limited Partners on the Operative Date, then such remaining Limited Partners shall be Senior Limited Partners. 10 6 "Special Investment" shall mean any short-term Investment of the Partnership with an anticipated investment period of less that twenty-four (24) months. "Successor in Interest" shall mean any (i) shareholder of; (ii) trustee, custodian, receiver or other Person acting in any bankruptcy or reorganization proceeding with respect to; (iii) assignee for the benefit of the creditors of; (iv) officer, director or partner of; (v) trustee or receiver, or former officer, director or partner, or other fiduciary acting for or with respect to the dissolution, liquidation or termination of; or (vi) other executor, administrator, committee, legal representative or other successor or assign of any Partner, whether by operation of law or otherwise. 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All the terms herein that relate to accounting matters shall be interpreted in accordance with generally accepted accounting principles from time to time in effect. All references to "Sections" and "Articles" shall refer to Sections and Articles of this Agreement unless otherwise specified. The words "hereof" and "herein" and similar terms shall relate to this Agreement. ARTICLE II THE PARTNERSHIP 2.01. NAME. The Partnership shall conduct its activities under the name of PW Partners 1995 L.P. The General Partner shall have the power at any time to change the name of the Partnership. The General Partner shall give prompt notice of any such change to each Limited Partner. 2.02. TERM. The Partnership commenced upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of Delaware on October 31, 1995, and shall continue through the close of business on December 31, 2008, unless sooner terminated pursuant to the provisions of Section 7.09 or Section 8.01(a). The General Partner may, at any time on or prior to December 31, 2008, extend the term of the Partnership for up to five years if such extension is deemed desirable to permit the orderly liquidation of the Partnership or otherwise to further the purposes of the Partnership. 2.03. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Partnership shall be at 1285 Avenue of the Americas, New York, New York 10019, or such other place, either within or without the State of Delaware, as may be designated by the General Partner from time to time. The General Partner shall give prompt notice of any change in its principal place of business to each Limited Partner. 11 7 2.04. REGISTERED OFFICE IN DELAWARE. The address of the Partnership's registered office in Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the Partnership's registered agent at such address is The Corporation Trust Company. 2.05. NAMES AND ADDRESSES OF THE PARTNERS. The name and business address of each Partner is as set forth opposite his signature. ARTICLE III PURPOSE AND POWERS 3.01. PURPOSE AND POWERS. The purpose of the Partnership is to acquire Investments that, in the opinion of the General Partner, present opportunities for Capital Gains and to engage in such other businesses and activities as the General Partner may, in its discretion, determine. In furtherance of this purpose, the Partnership shall have all powers necessary, suitable or convenient for the accomplishment of this purpose, alone or with others, as principal or agent, including the following: (a) to buy, sell and otherwise acquire Investments, whether such Investments are readily marketable or not, except that no such Investment may be acquired with Designated Investment Receipts; (b) to invest and reinvest the cash assets of the Partnership in money-market or other short-term Investments pending (i) the identification by the General Partner of Investments with suitable Capital Gains opportunities, (ii) the payment of interest on a loan described in Section 5.02(a), (iii) the repayment of principal on a loan described in Section 5.02(a) with Designated Investment Receipts or (iv) a distribution permitted under Section 6.05 or Article VIII; (c) to hold, receive, mortgage, pledge, lease, transfer, exchange or otherwise dispose of or grant options with respect to and otherwise deal in and exercise all rights, powers, privileges and other incidents of ownership or possession with respect to all property held or owned by the Partnership; (d) to borrow or raise money from time to time and to issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable and nonnegotiable instruments and evidences of indebtedness, to secure payment of the principal of any such indebtedness and the interest thereon by mortgage, pledge, conveyance or assignment in trust of, or the granting of a security interest in, the whole or any part of the property of the Partnership, whether at the time owned or thereafter acquired, to guarantee the obligations of others and to buy, sell, pledge or otherwise dispose of any such instrument or evidence of indebtedness; 12 8 (e) to lend any of its property or funds, either with or without security, at any legal rate of interest or without interest; (f) to have and maintain one or more offices within or without the State of Delaware, and in connection therewith, to rent or acquire office space, engage personnel and compensate them and do such other acts and things as may be advisable or necessary in connection with the maintenance of such office or offices; (g) to open, maintain and close accounts, including margin accounts, with brokers; (h) to open, maintain and close bank accounts and draw checks and other orders for the payment of moneys; (i) to engage accountants, custodians, investment advisers, attorneys and any and all other agents and assistants, both professional and nonprofessional, and to compensate them as may be necessary or advisable; (j) to form or cause to be formed and to own the stock of one or more corporations, whether foreign or domestic, and to form or cause to be formed and to participate in partnerships and joint ventures, whether foreign or domestic; (k) to enter into, make and perform all contracts, agreements and other undertakings as may be necessary or advisable or incident to carrying out its purpose; (l) to sue and be sued, to prosecute, settle or compromise all claims against third parties, to compromise, settle or accept judgment to claims against the Partnership, and to execute all documents and make all representations, admissions and waivers in connection therewith; and (m) to distribute, subject to the limitations hereinafter set forth in Sections 5.02 and 6.05 or otherwise, at any time and from time to time to all the Partners cash or Investments or other property of the Partnership or any combination thereof. ARTICLE IV MANAGEMENT AND CONTROL 4.01. AUTHORITY OF GENERAL PARTNER. (a) The management and operation of the Partnership and the formulation and execution of investment policy shall be vested exclusively in the General Partner. The General Partner shall, in its sole discretion, exercise all powers necessary or convenient for the purposes of the Partnership, including those enumerated in Section 3.01, on behalf and in the name of the 13 9 Partnership. If at any time the Partnership shall have two or more General Partners, then each such General Partner shall have the full authority of the General Partner under this Agreement, provided, however, that any controversy among the General Partners shall be resolved in favor of the General Partners having the greater interest in the Partnership (based upon Capital Contributions). (b) A Limited Partner shall have no right to, and shall not, take part in the management or control of the Partnership's business or act for or bind the Partnership, and shall have only the rights and powers granted to Limited Partners herein. (c) No provision of this Agreement shall be construed to preclude any Partner, or any Affiliate of any Partner, from engaging in any activity whatsoever, including receiving compensation from issuers of Investments for investment banking services, managing Investments, participating in Investments, brokerage or consulting arrangements or acting as an adviser to or participant in any corporation, partnership, trust or other business entity or from receiving compensation or profit therefor. 4.02. EXPENSES. To the extent not paid by PaineWebber, the General Partner shall pay all the expenses of the Partnership, excluding (i) costs and expenses directly related to the purchase or sale of Investments by the Partnership (including brokerage fees and commissions, transfer taxes and costs relating to the registration or qualification for sale of such Investments); (ii) any Federal, state, local or other taxes of the Partnership; and (iii) interest expense. 4.03. NO COMPENSATION TO GENERAL PARTNER. The General Partner shall not receive any fees or other compensation for serving as such pursuant to this Agreement. ARTICLE V CAPITAL CONTRIBUTIONS AND LOANS 5.01. CAPITAL CONTRIBUTIONS. (a) Prior to any Contribution Date, the General Partner shall prepare and distribute to each prospective Limited Partner designated pursuant to Section 7.01 a Capital Schedule for such date stating the current and cumulative Capital Contribution of the General Partner and of such prospective Limited Partner. The General Partner shall promptly notify each prospective Limited Partner of any change in such Capital Schedule relating to the General Partner or such prospective Limited Partner. (b) On or before each Contribution Date, the General Partner and each Limited Partner shall make a Capital Contribution to the Partnership in the amount and in the manner provided on the Capital Schedule for such Contribution Date. The 14 10 General Partner's Capital Contribution will at all times be an amount equal to 1% of the aggregate Capital Contributions of all Partners. (c) The General Partner may, in its sole discretion, determine that Capital Contributions shall be made in any number of installments. If, for any Contribution Date, the General Partner shall determine that Capital Contributions shall be made in installments, the Capital Schedule shall provide the amount of the first installment, which shall be due on the Contribution Date, and each subsequent installment shall be due in the amount and on the date determined by the General Partner upon not less than five business days' prior written notice to each Limited Partner. Any installments paid in the amount and on the date so determined shall be deemed to have been made as of the applicable Contribution Date. 5.02. LOANS. (a) Subject to the conditions in Section 5.02(c), promptly after any Contribution Date, the General Partner shall agree to loan to the Partnership on an unsecured basis an amount equal to five times the aggregate amount of capital contributed by the General Partner and Limited Partners on such Contribution Date, such loan to bear interest from the Drawdown Date at a variable rate equal to the greater of (i) the rate of interest set forth on the Reuters Screen LIBO Page which is offered for an amount substantially equal to the unpaid principal amount of the loan and for the six-month interest period of the loan plus 0.35% and (ii) the Applicable Federal Rate promulgated under Section 1274(d) of the Code for short-term loans with semiannual compounding originating in the month in which (A) the loan is made (in the case of the initial period) and (B) the day on which each subsequent interest period commences (in the case of subsequent interest periods), all as set forth more fully in the form of a promissory note executed and delivered by the Partnership to the General Partner. The interest period of the loan shall be six months, and the interest rate on the loan shall be redetermined by the General Partner for each interest period in accordance with the previous sentence. Interest on the loan shall be payable semiannually and at maturity. Overdue amounts of principal or interest on the loan shall bear interest payable on demand at a rate per annum equal at all times to two percent (2%) per annum above the interest rate described above. Designated Investment Receipts shall be applied within three days following the Partnership's receipt thereof to the repayment of the principal on any loan from the General Partner described in this Section 5.02(a) which is then outstanding, regardless of the portion of such outstanding loan allocable to such investment. If there is more than one loan from the General Partner outstanding at the time the Partnership receives any Designated Investment Receipts, such receipts shall be applied first to the outstanding principal amount of the loan which originated earliest in time, and any remaining portion of such Designated Investment Receipts shall be applied to the repayment of the outstanding principal amount of the other loans in the order of their origination. To the extent not previously repaid, any principal amount of a loan described in this Section 5.02 and any interest thereon shall be due and payable in full on December 31, 2008. 15 11 (b) At the time that the Partnership makes an Investment, the General Partner shall drawdown on the loan described in Section 5.02(a) in an amount that will cause the ratio of Loan Proceeds and Capital Contributions applied to the purchase price of such Investment to be approximately 5 to 1. The General Partner may drawdown on the loan at such other times to further the business purposes of the Partnership. (c) The obligation of the General Partner to make the loans referred to in Section 5.02(a) (or to permit any periodic drawdown on such loan) is subject in the case of each such loan to the conditions that (i) funds are available therefor, (ii) such loan may be made without jeopardizing the statutory requirements or loan covenants of PaineWebber and (iii) the General Partner, in the exercise of its own sound business judgment, shall not have concluded that such loan is inconsistent with the best interests of PaineWebber at the time such loan is to be made. (d) The General Partner shall not have the authority to make any change in the terms of any loan theretofore agreed to by it pursuant to this Section 5.02 except with the prior written approval of a majority in interest of the Limited Partners (based upon Limited Partnership Percentages). (e) The General Partner shall have the authority, on behalf of the Partnership, to refinance, with a loan from one or more third parties who are not Affiliates of PaineWebber or the Partnership, all or a portion of any loan described in this Section 5.02; provided, however, that (i) the proceeds from such refinancing shall be applied in full to the repayment of the loan described in Section 5.02(a), and (ii) a reserve which, in the opinion of the General Partner, is sufficient for the purposes of repayment of any then outstanding loans under Section 5.02(a) from the General Partner and the interest thereon and any losses or contingent losses of the Partnership shall have been established by the Partnership. ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS 6.01. ALLOCATION OF INCOME AND LOSS. (a) The net income (or net loss) of the Partnership shall be determined in each fiscal year in accordance with the accounting methods followed by the Partnership for Federal income tax purposes and shall be allocated among the Partners and credited to (or debited from) their respective Capital Accounts in accordance with their respective Capital Percentages; provided, however, that if Partners are deemed (in accordance with any reasonable convention permissible for Federal income tax purposes and selected by the General Partner) to be admitted to the Partnership at different times, no Partner shall be allocated items of net income or net loss allocable to periods prior to such Partner's admission to the 16 12 Partnership, but the Partners shall be specially allocated items of net income or net loss in the year in which Partners are admitted to the Partnership or in subsequent years so that, as rapidly as possible, the proportion that any Partner's Capital Account represents of the aggregate Capital Accounts of all Partners equals the proportion such Partner's Capital Contribution represents of all Capital Contributions. (b) The net loss allocated pursuant to Section 6.01(a) shall not exceed the maximum amount of net loss that can be so allocated and considered to have economic effect under Treasury Regulation Section 1.704-1(b)(2)(ii)(d). (c) If, during any fiscal year or other period of the Partnership, any Limited Partner unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit in such Limited Partner's Capital Account balance (as defined for purposes of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and as determined after all other allocations provided for in this Section 6.01 have been tentatively made as if this Section 6.01(c) were not in this Agreement), there shall be allocated to such Partner a pro rata portion of each item of Partnership income, including gross income, and gain for such year in an amount and manner sufficient to eliminate such Partner's deficit Capital Account balance as quickly as possible. Notwithstanding any other provision of this Section 6.01, the General Partner shall make such offsetting special allocations of Partnership income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the preceding sentence were not part of the Agreement and all Partnership items were allocated pursuant to Sections 6.01(b) and (c). 6.02. LIABILITY OF GENERAL AND LIMITED PARTNERS. (a) The General Partner shall have unlimited liability for the satisfaction and discharge of all losses, liabilities and expenses of the Partnership. (b) Each Limited Partner and former Limited Partner shall be liable for the satisfaction and discharge of all losses, liabilities and expenses of the Partnership allocable to him pursuant to Section 6.03, but only to the extent of his aggregate Capital Contribution. In no event shall any Limited Partner or former Limited Partner be obligated to make any additional capital contribution to the Partnership in excess of his initial Capital Contribution, or have any liability in excess of his aggregate Capital Contribution for the satisfaction and discharge of the losses, liabilities and expenses of the Partnership. However, after any Limited Partner or former Limited Partner has received the return in whole or in part of any Capital Contribution, he shall nevertheless be liable to the Partnership for the amount of cash, Investments or other assets (valued as of the date of distribution thereof) so received necessary to discharge any losses, liabilities and expenses of the Partnership to creditors who extended credit or whose 17 13 claims arose before such distribution was made, to the extent that the assets of the Partnership are not sufficient to discharge such losses, liabilities and expenses. Notwithstanding the foregoing, if the General Partner has purchased the partnership interest of a former Limited Partner pursuant to Section 7.02(b), the purchase price received by such former Limited Partner on such sale shall not be deemed to be a return of any of such former Limited Partner's Capital Contribution. (c) A Partner shall not have any obligation to the Partnership or to any other Partner to restore any negative balance in the Capital Account of such Partner. Until distribution of any such Partner's interest in the Partnership upon the dissolution of the Partnership, neither his Capital Account nor any part thereof shall be subject to withdrawal or redemption except with the consent of the General Partner. 6.03. ALLOCATIONS FOR TAX PURPOSES. (a) All items of income, deduction and credit realized by or allowable to the Partnership shall be determined and allocated among the Partners for Federal, state and local income tax purposes in the same manner as set forth in Section 6.01. (b) The General Partner shall be the "tax matters partner" for all purposes of the Code and shall have the power and authority to effect the allocations provided for in this Section 6.03 and to take such actions as the tax matters partner is required or permitted to take under the Code and to take all other actions that in the good faith opinion of the General Partner are necessary or convenient for the Partnership to take to ensure compliance with the Code or any other applicable law or regulation. Notwithstanding any other provision of this Agreement to the contrary, if in the good faith opinion of the General Partner any of the allocations provided for in this Section 6.03 shall be prohibited by the Code or other applicable law or regulation or shall subject the Partnership or any Partner to legal penalty or onerous condition, the General Partner shall have the power and authority to modify any such allocation to the extent necessary to comply with the Code or other applicable law or regulation or to avoid such legal penalty or onerous condition. 6.04. VALUATION. For the purpose of determining Net Value, the value of any Investment as of any date (or in the event such date is not a business day, as of the next preceding business day) shall be determined as follows: (a) marketable Investments listed on a national securities exchange shall be valued at the last sales price on the date of valuation or, in the absence of a sale on such date, at the last bid price on the date of valuation; (b) marketable Investments traded in the over-the-counter market and reported in the National Association of Securities Dealers' Automated Quotation System will be valued at the closing bid price as reported by such system; and 18 14 (c) all other Investments shall be valued at fair market value. All valuation decisions pursuant to this Section 6.04 shall be made by the General Partner. 6.05. DISTRIBUTIONS. (a) Following the date that the Limited Partners become fully vested in their interests in the Partnership in accordance with Section 7.02(a) (the "Vesting Date"), all cash receipts of the Partnership not required to be applied to the repayment of the loan or loans from the General Partner by Section 5.02(a) above (excluding cash receipts from an Investment described in Section 3.01(b) and, at the discretion of the General Partner, from Special Investments) (i) with respect to any Capital Gain realized on or after the Vesting Date shall be distributed as soon as practicable after the receipt thereof to the Partners and (ii) with respect to any Capital Gain realized prior to the Vesting Date for which a distribution has been delayed by the General Partner in accordance with the next sentence shall be distributed as soon as practicable after such Vesting Date, in either case in proportion to their respective Capital Accounts. Prior to the Vesting Date and except as otherwise required by Section 6.05(b), the cash receipts of the Partnership with respect to any Capital Gain realized prior to the Vesting Date which are not required to be applied to the repayment of the loan or loans from the General Partner by Section 5.02(a) above (including cash receipts from an investment described in Section 3.01(b) or from Special Investments) may, in the sole discretion of the General Partner, (i) be distributed in whole or in part in one or more installments prior to the Vesting Date to the Partners in proportion to their Capital Accounts or (ii) be retained in whole or in part by the Partnership until such time (and in such manner) as such cash receipts are required to be distributed to the Partners in accordance with the preceding sentence. Anything in this Section 6.05 to the contrary notwithstanding, in no event shall (A) a distribution be made under this Section 6.05(a) unless (I) the loans described in Section 5.02(a) have been completely repaid and the Partnership has agreed with the General Partner that no future loans will be drawn down or (II) the Partnership shall have established a reserve which, in the opinion of the General Partner, is sufficient for the purposes of repayment of any outstanding and future loans, the interest thereon and any interest which may accrue and any losses or contingent losses of the Partnership or (B) the amount to be distributed to the Partners under this Section 6.05 exceed the Net Capital Gain of the Partnership at the time of such distribution. (b) To the extent cash is available to the Partnership, the General Partner shall make annual distributions of cash to the Partners for payment of applicable Federal, state and local taxes on any substantial amount of net realized taxable income not otherwise distributed to the Partners for any fiscal year of the Partnership. Such distributions shall be disbursed as soon as possible after preparation and mailing of the report provided for in Section 9.02. The aggregate amount of any such distribution shall be determined by the General Partner, subject to the limitation that the minimum 19 15 aggregate amount of such distribution be the tax that would be payable if the taxable income of the Partnership were all allocated to an individual subject to the then-prevailing maximum combined Federal, New York State and New York City tax rates (taking into account the extent to which the taxable income allocated by the Partnership was composed of long-term capital gains and the extent to which state and local income taxes may be deductible for Federal income tax purposes). Each such distribution shall be allocated among the Partners in accordance with the allocation of taxable income to the Partners pursuant to Section 6.03. (c) In addition to distributions required by Section 6.05(a) and Section 6.05(b), the General Partner may, in its sole discretion, subject to the terms of any applicable investment agreement to which the Partnership is a party, at any other time make distributions to the Partners of cash, Investments or other assets or any combination thereof; provided, however, that (A) no distribution may be made under this Section 6.05(c) unless (I) the loans described in Section 5.02(a) have been completely repaid and the Partnership has agreed with the General Partner that no future loans will be drawn down or (II) the Partnership shall have established a reserve which, in the opinion of the General Partner, is sufficient for the purposes of repayment of any outstanding loans and the interest thereon and any losses or contingent losses of the Partnership and (B) no distribution may exceed the Net Capital Gain of the Partnership at the time of such distribution. Each such distribution shall be allocated to the Partners in accordance with their respective Capital Accounts. (d) Subject to Section 6.05(b), the General Partner may, in its sole discretion, reinvest some or all of the income or capital gains received with respect to a Special Investment. ARTICLE VII PARTNERS 7.01. DESIGNATION OF LIMITED PARTNERS. (a) The General Partner may at any time invite any Person to become a Limited Partner by delivery of a Capital Schedule prepared in accordance with Section 5.01. Any Person so invited who agrees in writing prior to the Contribution Date to make the Capital Contribution set forth on such Capital Schedule shall have the opportunity to do so, but no Person shall be deemed to be a Limited Partner until he has made a Capital Contribution and been admitted to the Partnership pursuant to Section 7.05. (b) At the request of any employee of PaineWebber who has been invited by the General Partner to become a Limited Partner, the General Partner may, in its sole discretion, permit a trust designated by such employee to make the Capital Contribution for such person and to become a Limited Partner of the Partnership. If under such 20 16 circumstances a trust is admitted as a Limited Partner, all references herein to the termination of employment of a Limited Partner or to any Final Event with respect to a Limited Partner shall be deemed to refer both to such trust and to the employee of PaineWebber who designated such trust. All references herein to an employee of PaineWebber shall include consultants to PaineWebber, and all references herein to employment by PaineWebber shall include the performance of services for PaineWebber as a consultant. (c) The General Partner's right to designate all the Limited Partners shall be exercised in its sole discretion and shall not be subject to challenge by any Limited Partner. The fact that a Limited Partner was a limited partner with respect to a previous partnership sponsored or established by PaineWebber shall not confer upon him any right to be a Limited Partner of this Partnership. 7.02. VESTING OF INTERESTS; PURCHASE OF A LIMITED PARTNER'S INTEREST. (a) Prior to the third anniversary of the first Contribution Date on which a Limited Partner makes a contribution to the Partnership, such Limited Partner shall be entirely invested in his interest in the Partnership. On and after the third anniversary of such Contribution Date, such Limited Partner shall be entirely vested in his interest in the Partnership. Notwithstanding anything in this Section 7.02(a) to the contrary, the General Partner (acting unanimously in the case of multiple General Partners), with the consent of the Compensation Committee (or, after an Operative Date has been declared, without such consent), may at any time or from time to time accelerate, in whole or in part, the vesting of all (but not less than all) of the Limited Partners. All Limited Partners shall be entirely vested in their interests upon the complete repayment by the Partnership of all loans and any interest accrued thereon and, in connection therewith, the agreement by the Partnership that it shall no longer be entitled to loans under Section 5.02. (b) In the event the employment of a Limited Partner by PaineWebber shall terminate for any reason whatsoever (other than death, permanent disability as determined by the Board of Directors of PWI, retirement pursuant to any then existing pension or retirement plan of PaineWebber or otherwise with the prior approval of the Compensation Committee), the General Partner shall have the right, exercisable in its sole discretion and on written notice given within the one hundred twenty (120) calendar day period beginning on the day following the date of such termination, to purchase for cash such Limited Partner's interest in the Partnership (or, if such Person has ceased to be a Limited Partner, his rights or the rights of his Successor in Interest, if any, to receive allocations and distributions with respect thereto) at a price determined as follows: 21 17 (i) If such termination occurs on or after such Limited Partner becomes entirely vested in his interest in the Partnership, an amount equal to the sum of (A) such Limited Partner's Capital Account (calculated as of the last business day of the Partnership's fiscal quarter in which such Limited Partner ceased to be employed by PaineWebber) plus (or minus) (B) such Limited Partner's share (based on his Capital Percentage) of any unrealized appreciation (or depreciation) in the Net Value of each Investment held by the Partnership; (ii) If such termination occurs before such Limited Partner becomes entirely vested in his interest in the Partnership, an amount equal to the lesser of (A) the sum calculated as set forth in subparagraph (i) above or (B) the sum of such Limited Partner's Capital Contribution. 7.03. TRANSFER OF A LIMITED PARTNER'S INTEREST. Each Limited Partner shall have the right to sell, assign, mortgage, pledge or otherwise dispose of or transfer all or any part of the interest in the Partnership to which such Limited Partner is entitled, but only with the prior written consent of the General Partner. No Person acquiring any Limited Partner's interest in the Partnership shall become a Partner of the Partnership, or acquire such Limited Partner's right to participate in the affairs of the Partnership to the extent permitted herein, unless such person shall be admitted as a Limited Partner pursuant to Section 7.05. Such Person, however, shall, to the extent of the interest transferred to him, be entitled to such Limited Partner's share of allocations and distributions pursuant to Articles VI and VIII (subject to the right of the General Partner to purchase such interest pursuant to Section 7.02(b)). 7.04. TRANSFER OF GENERAL PARTNER'S INTEREST. The General Partner may not transfer or assign its interest as General Partner of the Partnership to any Person other than PaineWebber, and no such transfer or assignment shall be effective unless and until the transferee or assignee shall have been admitted to the Partnership as a General Partner in accordance with Section 7.06. 7.05. ADMISSION OR SUBSTITUTION OF NEW LIMITED PARTNERS. (a) The General Partner shall admit as an additional Limited Partner any person not already a Limited Partner who shall make a Capital Contribution in accordance with Section 5.01. The General Partner also shall have the right, in its sole discretion, to admit as a substitute or additional Limited Partner any Person who acquires in accordance with this Agreement the interest in the Partnership, or any part thereof, of a Limited Partner. The admission of any Person as a substitute or additional Limited Partner shall be in writing signed by the General Partner but shall not be effective until such Person's written acceptance and adoption of all the terms and provisions of this Agreement. The General Partner's failure or refusal to admit a transferee (as to whom the General Partner has given his written consent pursuant to Section 7.03) as a substitute or additional Limited Partner shall not affect the right of such transferee to receive 22 18 allocations and distributions pursuant to Articles VI and VIII to which his predecessor in interest was entitled. (b) If the General Partner permits a Limited Partner to transfer all or part of such Limited Partner's interest to a trust designated by such Limited Partner, and the General Partner admits such trust into the Partnership as a Limited Partner, all references herein to the termination of employment of a Limited Partner or to any Final Event with respect to a Limited Partner shall be deemed to refer both to such trust and to the employee of PaineWebber who transferred such interest to such trust. (c) A transferee who is admitted as a substitute or additional Limited Partner pursuant to this Section 7.05 shall reimburse the General Partner or PaineWebber, as necessary, for any out-of-pocket expenses incurred by it directly as a result of such transferee's admission to the Partnership. 7.06. ADMISSION OF SUBSTITUTE OR ADDITIONAL GENERAL PARTNERS. (a) No Person other than PaineWebber shall be admitted to the Partnership as a General Partner unless such Person shall have been designated in writing by the Limited Partners. Except where this Agreement provides otherwise, the Limited Partners may designate a Person to be admitted as a General Partner by the action of two-thirds in interest of the Limited Partners (based upon Limited Partnership Percentages). (b) Subject to Section 7.06(a), the admission of a Person to the Partnership as General Partner shall become effective when such Person shall have agreed in writing to adopt and accept this Agreement and to be bound by all its terms and provisions as a General Partner. (c) Notwithstanding any other provision of this Agreement, on the Operative Date the then General Partner(s) shall automatically be deemed to have been removed as such without any further action of any nature whatsoever by the Limited Partners or such General Partner(s), and each such former General Partner shall thereupon cease to be a Partner, and the then Senior Limited Partners shall thereupon automatically become the only General Partners without any further action of any nature whatsoever by the Limited Partners or the former General Partner(s). All rights and interests of such Senior Limited Partners as limited partners of the Partnership shall continue in effect without change even though such Senior Limited Partners shall also be General Partners. (d) Within 30 days after the admission of a General Partner pursuant to this Section 7.06, the General Partner shall cause the Certificate of Limited Partnership of the Partnership to be amended in accordance with Section 17-202 of the Delaware Act. 23 19 7.07. WITHDRAWAL OF A LIMITED OR GENERAL PARTNER. (a) A Limited Partner may not withdraw from the Partnership without the consent of the General Partner, which may be withheld for any reason whatsoever or for no reason. (b) Subject to Section 7.07(c), a General Partner may withdraw from the Partnership as of the end of any fiscal year by delivery to each of the Limited Partners of written notice of such withdrawal not less than 50 days before the effective date thereof. (c) The withdrawal of any Partner shall be a Final Event with respect to such Partner, within the meaning of Section 7.08. 7.08. FINAL EVENTS WITH RESPECT TO A PARTNER. Upon the occurrence of a Final Event with respect to any Partner, such Partner shall thereupon cease to be a Partner. If such a Final Event shall occur, no Successor in Interest to any such Partner shall for any purpose hereof become or be deemed to become a Partner. The sole right, as against the Partnership and the remaining Partners, acquired hereunder by, or resulting hereunder to, a Successor in Interest to any Partner shall be to receive any distributions and allocations pursuant to Articles VI and VIII (subject to the right of the General Partner to purchase the interest of such former Partner pursuant to Section 7.02(b)) to the extent, at the time, in the manner and in the amount otherwise payable to such Partner had such a Final Event not occurred, and no other right shall be acquired hereunder by, or shall result hereunder to, a Successor in Interest to such Partner, whether by operation of law or otherwise. Until distribution of any such Partner's interest in the Partnership upon the dissolution of the Partnership as provided in Article VIII, neither his Capital Account nor any part thereof shall be subject to withdrawal or redemption without the consent of the General Partner. The Partnership shall be entitled to treat any Successor in Interest to such Partner as the only Person entitled to receive distributions and allocations hereunder. 7.09. CONTINUATION OF PARTNERSHIP. If a Final Event shall occur with respect to one or more Limited Partners, no dissolution or termination of the Partnership shall be effected thereby, and the remaining Partners shall continue the Partnership and its business until the dissolution or termination thereof as provided herein. If a Final Event shall occur with respect to a General Partner and there is no other General Partner in the Partnership, the Partnership shall terminate and shall be dissolved by the Limited Partners in accordance with Article VIII, unless, within 30 days after the occurrence of any such Final Event, (i) all the Limited Partners elect to continue the business of the Partnership and (ii) all the obligations of the General Partner hereunder are assumed by a successor General Partner approved in writing by all the Limited Partners, in which case the Partnership shall not be dissolved but shall continue. 24 20 7.10. REMOVAL OF GENERAL PARTNER. At any time after all loans made to the Partnership by the General Partner pursuant to Section 5.02 have been paid in full, the Partners may, by the action of Limited Partners having a majority interest in the Partnership (based upon Limited Partnership Percentages), remove the General Partner, which shall thereupon cease to be a Partner, and in such case the Limited Partners, by the action of Limited Partners having a majority interest in the Partnership (based upon Limited Partnership Percentages), shall designate a new General Partner which shall have the right to manage the affairs of the Partnership and to vote as a Partner to the extent of any interest in the Partnership. The sole right, as against the Partnership and the remaining Partners, of a General Partner removed pursuant to this Section 7.10 or pursuant to Section 7.06(c) shall be to receive any distributions and allocations pursuant to Articles VI and VIII, to the extent, in the manner and in the amount otherwise payable to it had it not been so removed, and no other rights shall be acquired hereunder by, or shall result hereunder to, such removed General Partner, whether by operation of law or otherwise. The Partnership shall be entitled to treat such removed General Partner as the only person entitled to receive distributions and allocations hereunder. Until distribution of such removed General Partner's interest in the Partnership upon the dissolution of the Partnership as provided in Article VIII, neither its capital account nor any part thereof shall be subject to withdrawal or redemption. 7.11. COMPLIANCE WITH LAW. Notwithstanding any provision hereof to the contrary, no sale or other disposition of an interest in the Partnership may be made except in compliance with all Federal, state and other applicable laws, including Federal and state securities laws. ARTICLE VIII DISSOLUTION OF THE PARTNERSHIP 8.01. DISSOLUTION. (a) The General Partner may, at any time prior to the occurrence of a Change of Control, dissolve the Partnership effective as of the end of the fiscal year during which such notice is given by written notice delivered to the Limited Partners not less than 30 days before the effective date of such dissolution. After the occurrence of a Change of Control, the General Partner shall not have the power or authority to dissolve the Partnership without the consent of 80% of the Limited Partners (based upon Limited Partnership Percentages). (b) When the Partnership is dissolved, whether by expiration of its full term (subject to extension as provided in Section 2.02) or otherwise, the business and property of the Partnership shall be wound up and liquidated by the General Partner or, in the event of the unavailability of the General Partner, such Limited Partners or other Persons as shall be named by a majority in interest (based upon Limited Partnership Percentages). 25 21 (c) Within 60 days after the effective date of dissolution of the Partnership, the Partnership's assets (except, in the case of clause (iii) below, for amounts reserved pursuant to Section 8.02) shall be distributed in the following manner and order: (i) first, all debts and liabilities to creditors of the Partnership who are not Partners shall be paid and discharged or provision therefor shall be made (through reserve accounts or otherwise); (ii) second, the claims of all creditors of the Partnership who are Partners shall be paid and discharged or provision therefor shall be made (through reserve accounts or otherwise); and (iii) third, the remaining assets of the Partnership shall be paid to the Partners in cash or Investments pro rata in accordance with the Partners' Capital Accounts. Investments divisible only into shares or other units shall be distributed pro rata to the extent practicable; leftover shares shall be sold and the cash distributed unless reserved in accordance with Section 8.02. 8.02. AMOUNTS RESERVED. (a) If there are any Investments which, in the judgment of the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)), cannot be sold, or properly distributed in kind in the case of dissolution, without sacrificing a significant portion of the value thereof, the value of a Partner's interest in each such Investment may be excluded from the amount distributed to such Partner pursuant to Section 8.01(c)(iii). Any Partner's interest, including his pro rata interest in any gains, losses or distributions, in Investments so excluded shall not be paid or distributed until such time as the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)) shall determine. (b) If there is any pending transaction, or claim by or against the Partnership, as to which the interest or obligation of any Partner therein cannot, in the judgment of the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)), be then ascertained, the value thereof or probable loss therefrom may be deducted from the amount distributable to such Partner pursuant to Section 8.01(c)(iii). No amount shall be paid or charged to any such Partner on account of any such transaction or claim until its final settlement or such earlier time as the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)) shall determine. The Partnership may meanwhile retain from other sums due such Partner an amount which the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)) estimates to be sufficient to cover the share of such Partner in any probable loss or liability on account of such transaction or claim. (c) Upon determination by the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)) that circumstances no longer require the 26 22 exclusion of Investments or retention of sums as provided in Sections 8.02(b) and (c), the General Partner (or any other appropriate party selected pursuant to Section 8.01(b)) shall, at the earliest practicable time, pay such sums or distribute such Investments or the proceeds realized from the sale of such Investments to each Partner from whom such sums or Investments have been withheld. ARTICLE IX REPORTS TO PARTNERS 9.01. BOOKS OF ACCOUNT. Appropriate books of account shall be kept, on a cash basis, at the principal place of business of the Partnership, and each Partner shall have access to all books, records and accounts and the right to make copies thereof under such conditions and restrictions as the General Partner may reasonably prescribe. 9.02. AUDIT AND REPORT. (a) The books and records of the Partnership shall be audited and reported on as of the end of each fiscal year by accountants selected by the General Partner for this purpose. Within 120 days after the end of each fiscal year or, if later, as soon as practicable after receipt of applicable financial information, the Partnership will cause to be mailed to each Partner a written report, which shall include (i) a statement prepared by the Partnership setting forth such Partner's Capital Account and the amount of such Partner's allocable share of the Partnership's items of income and deduction, capital gain and loss or credit for such year, in sufficient detail to enable him to prepare his Federal, state, local and other tax returns and (ii) a balance sheet, a statement of income and expense and a statement of changes in financial position of the Partnership for such fiscal year. (b) At the same time as financial statements are furnished pursuant to Section 9.02(a), the Partnership shall cause to be mailed to each Partner a written report setting forth a brief description of each Investment held by the Partnership as of the end of such fiscal year, the cost and value of each such Investment as determined by the General Partner and a brief description of the nature of the business of the issuer of each such Investment. (c) The Partnership shall cause to be mailed to each Limited Partner a copy of the Partnership's Federal, state and local income tax returns for each year promptly after such returns become available. (d) The General Partner shall also cause to be delivered to each Limited Partner such other information as such Limited Partner may reasonably request for the purpose of enabling him to comply with any reporting or filing requirements imposed by any governmental agency or authority pursuant to any statute, rule, regulation or otherwise. 27 23 9.03. FISCAL YEAR. The fiscal year of the Partnership shall end on December 31 of each calendar year unless otherwise determined by the General Partner. ARTICLE X MISCELLANEOUS 10.01. GOVERNING LAW. The terms of this Agreement and all rights and obligations of the Partners hereunder shall be governed by the laws of the State of Delaware. 10.02. INDEMNIFICATION. The General Partner shall not be liable to any Partner for any action taken or not taken by it or for any action taken or not taken by any other Partner or other person with respect to the Partnership. The Partnership shall indemnify the General Partner and each of its officers and directors against any losses, claims, damages or liabilities (including legal or other expenses reasonably incurred in investigating or defending against any such losses, claims, damages or liabilities), joint or several, to which it the General Partner may become subject by reason of its being the General Partner or to which such officers and directors may become subject by reason of their being officers and directors of the General Partner. Notwithstanding the above, the General Partner shall not be exculpated or exonerated from liability, and the General Partner and each of its officers and directors shall not be indemnified against loss, for violations of Federal or state securities laws, or for any other intentional or criminal wrongdoing. Limited Partners will not be personally obligated with respect to indemnification pursuant to this Section 10.02. 10.03. NOTICE. All notices hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail, return receipt requested, to the Partnership at 1285 Avenue of the Americas, New York, New York 10019, Attention of PaineWebber Partners II, Inc., or such other address or addresses as to which the Partners shall have been given notice, and to the Partners at the addresses as to which the Partnership shall have been given notice. 10.04. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which together shall constitute a single instrument. It shall not be necessary that any counterpart be signed by all the parties so long as all counterparts signed by each Limited Partner shall also be signed by the General Partner. 10.05. COMPLETENESS AND AMENDMENTS. This Agreement sets forth the entire understanding of all the parties. The provisions of this Agreement shall not be amended except by an instrument in writing executed (i) by the General Partner (or, if 28 24 there is more than one General Partner, by the General Partner or Partners entitled to act for the Partnership in accordance with the proviso to the last sentence of Section 4.01(a)) and (ii) by a majority in interest of the Limited Partners (based upon Limited Partnership Percentages), except that any provision of this Agreement requiring the approval or consent of greater than a majority in interest of the Limited Partners shall not be amended except by an instrument in writing executed by the percentage in interest of Limited Partners whose approval or consent would be required by such provision; provided, however, that no amendment of any provision of this Agreement shall, unless the same shall be in writing and signed by a lender described in Section 5.02 above, adversely affect the rights and duties of such lender under any promissory note delivered in connection with a loan made by it to the Partnership pursuant to Section 5.02. 10.06. POWER OF ATTORNEY. The Limited Partners hereby appoint the person who from time to time shall be a General Partner, including a successor General Partner pursuant to Section 7.06(c), as their true and lawful representative and attorney-in-fact, in their name, place and stead to make, execute, sign and file all instruments, documents and certificates which, from time to time, may be required by this Agreement (including Section 7.06(d)) or by the laws of the United States of America, the State of Delaware or any other state in which the Partnership shall determine to do business, or any political subdivision or agency thereof, to execute, implement and continue the valid and subsisting existence of the Partnership. The General Partner, as representative and attorney-in-fact, however, shall not have any rights, powers or authority to amend or modify this Agreement when acting in such capacity, except as expressly provided herein. Such power of attorney is coupled with an interest and shall continue in full force and effect notwithstanding the subsequent occurrence of a Final Event with respect to any Limited Partner. 29 IN WITNESS WHEREOF, the parties hereto have hereunto executed this Agreement as of the date first above written. GENERAL PARTNER: PAINEWEBBER PARTNERS II, INC. By: ------------------------ Name: Ronald M. Schwartz Title: President Address of General Partner: 1285 Avenue of the Americas New York, New York 10019 LIMITED PARTNER: - --------------------------- Name: - --------------------------- - --------------------------- Address THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS. EX-11 19 COMPUTATION OF EARNINGS PER COMMON SHARE 1 EXHIBIT 11 PAINE WEBBER GROUP INC. COMPUTATION OF EARNINGS PER COMMON SHARE (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- PRIMARY: Weighted average common shares outstanding 92,030,417 71,693,020 68,535,178 Incremental stock options and awards 9,241,691 6,370,453 5,824,821 Weighted average effect of Cumulative Participating Convertible Voting Preferred Stock -- -- 4,329,959 ------------- ------------- ------------- Weighted average common and common equivalent shares 101,272,108 78,063,473 78,689,958 ============= ============= ============= Net income $ 80,750 $ 31,631 $ 246,183 Interest savings on convertible debentures and short-term borrowings 3,322 1,330 -- Preferred dividend requirements (29,291) (1,219) (1,834) ------------- ------------- ------------- Net income applicable to common shares $ 54,781 $ 31,742 $ 244,349 ============= ============= ============= Primary earnings per common share $ 0.54 $ 0.41 $ 3.11 ============= ============= ============= FULLY DILUTED: Weighted average common shares outstanding 92,030,417 71,693,020 68,535,178 Incremental stock options and awards 9,241,691 7,673,929 6,785,963 Weighted average effect of Cumulative Participating Convertible Voting Preferred Stock -- -- 4,329,959 Weighted average common shares issuable assuming conversion of 8% Convertible Debentures and equity securities -- 1,647,190 4,676,191 ------------- ------------- ------------- Weighted average common and common equivalent shares 101,272,108 81,014,139 84,327,291 ============= ============= ============= Net income $ 80,750 $ 31,631 $ 246,183 Interest savings on convertible debentures and short-term borrowings 1,526 2,181 3,004 Preferred dividend requirements (29,291) (969) -- ------------- ------------- ------------- Net income applicable to common shares $ 52,985 $ 32,843 $ 249,187 ============= ============= ============= Fully diluted earnings per common share $ 0.52 $ 0.41 $ 2.95 ============= ============= =============
EX-12.1 20 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS OF DOLLARS)
Years Ended December 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Income before taxes $ 102,677 $ 44,385 $ 407,576 $ 339,115 $ 226,247 ---------- ---------- ---------- ---------- ---------- Preferred stock dividends 36,260 1,710 5,828 27,789 34,732 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 1,969,811 1,428,653 1,130,712 879,242 1,056,124 Interest factor in rents 59,491 51,102 50,133 45,962 43,804 ---------- ---------- ---------- ---------- ---------- Total fixed charges 2,029,302 1,479,755 1,180,845 925,204 1,099,928 ---------- ---------- ---------- ---------- ---------- Total fixed charges and preferred stock dividends 2,065,562 1,481,465 1,186,673 952,993 1,134,660 ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $2,131,979 $1,524,140 $1,588,421 $1,264,319 $1,326,175 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends 1.0 1.0 1.3 1.3 1.2 ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends (tax effected), "earnings" consist of income before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. EX-12.2 21 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.2 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS OF DOLLARS)
Years Ended December 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Income before taxes $ 102,677 $ 44,385 $ 407,576 $ 339,115 $ 226,247 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 1,969,811 1,428,653 1,130,712 879,242 1,056,124 Interest factor in rents 59,491 51,102 50,133 45,962 43,804 ---------- ---------- ---------- ---------- ---------- Total fixed charges 2,029,302 1,479,755 1,180,845 925,204 1,099,928 ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $2,131,979 $1,524,140 $1,588,421 $1,264,319 $1,326,175 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 1.1 1.0 1.3 1.4 1.2 ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. EX-13 22 1995 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 FINANCIAL HIGHLIGHTS
Years Ended December 31, (In thousands of dollars except per share amounts) 1995(1) 1994(2) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Operating Results Total revenues $ 5,320,090 $ 3,964,077 $ 4,004,717 $ 3,363,731 $ 3,165,895 Net revenues (including net interest) $ 3,350,279 $ 2,535,424 $ 2,874,005 $ 2,484,489 $ 2,109,771 Income before taxes $ 102,677 $ 44,385 $ 407,576 $ 339,115 $ 226,247 Net income $ 80,750 $ 31,631 $ 246,183 $ 213,175 $ 150,716 ------------------------------------------------------------------------- Per Common Share(3) Primary earnings $ 0.54 $ 0.41 $ 3.11 $ 2.83 $ 2.10 Fully diluted earnings $ 0.52 $ 0.41 $ 2.95 $ 2.37 $ 1.67 Dividends declared $ 0.48 $ 0.48 $ 0.38 $ 0.31 $ 0.24 Book value $ 15.62 $ 15.96 $ 16.29 $ 14.24 $ 12.23 ------------------------------------------------------------------------ Financial Condition Total assets $45,671,294 $35,856,125 $37,026,909 $26,508,982 $22,621,763 Long-term borrowings and Redeemable Preferred Stock $ 2,622,797 $ 2,501,384 $ 1,936,082 $ 1,150,553 $ 815,728 Stockholders' equity $ 1,552,288 $ 1,630,499 $ 1,195,047 $ 1,080,667 $ 1,050,478 Total capitalization $ 4,175,085 $ 4,131,883 $ 3,131,129 $ 2,231,220 $ 1,866,206 -------------------------------------------------------------------------
(1) The 1995 results include after-tax charges of $146 million ($230 million before income taxes) related to the resolution of the issues arising from the Company's sale of public proprietary limited partnerships. (2) The 1994 results include after-tax costs of $36 million ($50 million before income taxes) and $34 million ($57 million before income taxes) related to the purchase of certain net assets and specific businesses of Kidder, Peabody Group Inc. and a non-recurring mutual fund charge, respectively. (3) All per share data have been restated to reflect three-for-two common stock splits in March 1994 and December 1991. ----------------- PAGE 1 2 FINANCIAL PERFORMANCE Contents - -------------------------------------------------------------------------------- Management's Discussion and Analysis 28 Consolidated Financial Statements 38 Notes to Consolidated Financial Statements 43 Report of Independent Auditors 59 Five Year Financial Summary 60 Common Stock and Quarterly Information 62 Corporate Information 63 --------------- PAGE 27 3 MANAGEMENT'S DISCUSSION AND ANALYSIS - ------------------------------------------------------------------------------- BUSINESS DESCRIPTION Paine Webber Group Inc. ("PWG") is a holding company which, together with its operating subsidiaries (collectively, the "Company"), forms one of the largest full-service securities and commodities firms in the industry. Founded in 1879, the Company employs approximately 15,900 people in 310 offices worldwide. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients through its broker-dealer subsidiary, PaineWebber Incorporated ("PWI"), and other specialized subsidiaries. The Company holds memberships in all major securities and commodities exchanges in the United States, and makes a market in many securities traded on the National Association of Securities Dealers Automated Quotation system ("NASDAQ") or in other over-the-counter markets. The Company is comprised of interrelated business groups, including Research, the Private Client Group, the Municipal Securities Group, Investment Banking, Asset Management, Global Fixed Income and Commercial Real Estate, and Global Equities and Transaction Services, which utilize common operational and administrative personnel and facilities. The Research group provides investment advice to institutional and individual investors, and other business areas of the Company covering 786 companies in 73 industry sectors. The Private Client Group consists primarily of a domestic branch office system and consumer product groups through which PWI and certain other subsidiaries provide clients with financial services and products, including the purchase and sale of securities, option contracts, commodity and financial futures contracts, fixed income instruments, mutual funds, trusts and selected insurance products. The Company may act as principal or agent in providing these services. Fees charged vary according to the size and complexity of a transaction, and the activity level of a client's account. The Municipal Securities Group structures, underwrites, sells and trades taxable and tax-exempt issues for municipal and public agency clients. Through the Investment Banking group, the Company provides financial advice to, and raises capital for, a broad range of domestic and international corporate clients. Investment Banking manages and underwrites public and private offerings, participates as an underwriter in syndicates of public offerings managed by others, and provides advice in connection with mergers and acquisitions, restructurings and recapitalizations. The Asset Management group is comprised of Mitchell Hutchins Asset Management Inc. ("MHAM"), Mitchell Hutchins Institutional Investors Inc. ("MHII") and Mitchell Hutchins Investment Advisory division ("MHIA"). MHAM and MHII provide investment advisory and portfolio management services to pension and endowment funds. MHAM also provides investment advisory and portfolio management services to individuals and mutual funds. MHIA provides portfolio management services to individuals, trusts and institutions. Through the Global Fixed Income and Global Equities groups, the Company places securities for, and executes trades on behalf of, institutional clients both domestically and internationally. In addition, the Company takes positions in both fixed income securities and listed and over-the-counter equity securities to facilitate client transactions or for the Company's own account. The Commercial Real Estate group provides a full range of capital market services to real estate clients, including underwriting of debt and equity securities, principal lending activity, debt restructuring, property sales and bulk sales services, and a broad range of other advisory services. The Transaction Services group includes the correspondent services, prime brokerage and securities lending businesses, and specialist trading. Through Correspondent Services Corporation [csc], the Company provides execution and clearing services to broker-dealers --------------- PAGE 28 4 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- in the U.S. and overseas. The Company also acts as a specialist responsible for executing transactions and maintaining an orderly market in certain securities. The Company's businesses operate in one of the nation's most highly regulated industries. Violations of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines, and the suspension or expulsion of a firm. The Company's businesses are regulated by various agencies, including the Securities and Exchange Commission ("SEC"), the New York Stock Exchange ("NYSE"), the Commodity Futures Trading Commission ("CFTC") and the National Association of Securities Dealers. The Company's principal business activities are, by their nature, affected by many factors, including general economic and financial conditions, the level and volatility of interest rates, currency and security valuations, competitive conditions, counterparty risk, transactional volume and market liquidity. As a result, revenues and profitability are subject to fluctuations reflecting the impact of these factors. - -------------------------------------------------------------------------------- GENERAL BUSINESS ENVIRONMENT The general business environment was significantly more favorable in 1995 than in 1994. After growing at a rapid 4% pace in 1994, the U.S. economy slowed appreciably in 1995. This reduced the risk of inflation, making it possible for the Federal Reserve to ease monetary policy in the second half of 1995, and sparked a substantial increase in bond prices. The yield on the 30-year treasury bond declined nearly 200 basis points during the year. Despite the economic slowdown, profits of corporations included in the S&P 500 rose nearly 20% in 1995, as U.S. corporations benefited from cost-cutting, a weak dollar and strong global demand for high-technology equipment. Benefiting from both rising earnings and declining interest rates, stock prices rose strongly in 1995, with the S&P 500 rising 34% and the NASDAQ Composite rising 40%. Most major foreign stock markets also rose in 1995, but their performance generally lagged that of the U.S. With securities markets buoyant, business activity has increased. The value of mergers and acquisitions announced in 1995 was 32% higher than in 1994. Total common stock offerings increased by 46% in 1995. The NYSE average daily volume was 346 million shares in 1995, versus 291 million shares in 1994. As for the debt market, corporate debt underwriting volume rose 28%. - -------------------------------------------------------------------------------- THE KIDDER, PEABODY ACQUISITION In October 1994, the Company entered into an agreement, as thereafter supplemented, with General Electric Company ("GE") and Kidder, Peabody Group Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and liabilities (the "net assets"), and specific businesses of Kidder in a series of transactions which were consummated in December 1994 and early 1995. The net assets acquired approximated $1.9 billion. The consideration given in exchange for the net assets and businesses acquired included cash of approximately $1.4 billion and the issuance of the Company's common and preferred stock valued at $603.5 million at the date of issuance (See Note 2 in the Company's Notes to Consolidated Financial Statements). As a result of this transaction, GE owns approximately 25% of the common stock of the Company on a fully diluted basis. GE is restricted from increasing ownership of the Company pursuant to a stockholders' agreement among the Company, GE and Kidder, except in certain limited circumstances. The acquisition has been accounted for under the purchase method of accounting. The excess of the purchase price over the fair value of the net assets acquired resulted in the Company recording approximately $98 million in goodwill, which is being amortized over 35 years on a straight-line basis. The consolidated financial statements of the Company include the results --------------- PAGE 29 5 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- of operations of the Kidder businesses acquired in December 1994 and early 1995 from the date of acquisition. As a result of the acquisition, the Company recorded after-tax costs of approximately $36 million in the fourth quarter of 1994 relating primarily to the elimination of duplicate facilities, severance and other personnel-related costs. - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1995 COMPARED WITH 1994 Net income for the year ended December 31, 1995 was $226.8 million, or $1.98 per primary share ($1.90 per fully diluted share), before giving effect to after-tax charges of approximately $146 million ($230 million before income taxes) associated with the resolution of the issues arising from the Company's sale of public proprietary limited partnerships. This compares to net income of $101.5 million, or $1.30 per primary share ($1.27 per fully diluted share), earned during 1994 before giving effect to the costs related to the Kidder acquisition and a non-recurring charge in the second quarter related to the PaineWebber Short-Term U.S. Government Income Fund (the "Fund"). Net income for 1995, including the charges, was $80.8 million, or $0.54 per primary share ($0.52 per fully diluted share). This compares to 1994 net income of $31.6 million, or $0.41 per primary and fully diluted share, after giving effect to acquisition costs and the non-recurring charge related to the Fund. The results for the year ended December 31, 1995 were reduced by charges in the second and fourth quarters of $125.9 million ($200.0 million before income taxes) and $20.1 million ($30.0 million before income taxes), respectively, related to the costs of resolving the SEC, individual and class action claims, and administrative costs related to the Company's sale of public proprietary limited partnerships in the 1980s and early 1990s. The charges are included in "Other expenses" in the Consolidated Statement of Income. The Company has now reached a final and comprehensive resolution of the issues related to the sale of the limited partnerships, including an agreement to settle all pending class actions, a settlement with the SEC and an agreement to settle with various state regulators. The results for the year ended December 31, 1994 were reduced by after-tax costs in the fourth quarter of approximately $36 million ($50 million before income taxes) associated with the Kidder acquisition. The costs related to closing duplicate facilities, severance and other personnel-related costs are included in "Other expenses" in the Consolidated Statement of Income. In addition, results for the year ended December 31, 1994 were reduced by a non-recurring after-tax charge in the second quarter of approximately $34 million ($57 million before income taxes) relating to the reimbursement to certain shareholders of the Fund, a mutual fund managed by the Company's investment subsidiary, MHAM, for losses and other expenses attributable to mortgage-derivative securities owned by the Fund. The Fund's performance was adversely affected by the rapid and substantial decline in the mortgage-backed securities market which was triggered by rising interest rates. Beyond these unusual market conditions, however, the Company determined that certain Non-Planned Amortization Class ("non-PAC") interest only and principal only ("I/O and P/O") securities held by the Fund had shown an unacceptable level of volatility and reduced liquidity. In view of the Fund's stated investment objectives, the Company decided to reimburse certain then current and former Fund shareholders for the decline in the net asset value attributable to these securities. Revenues, net of interest expense, increased 32%, primarily attributable to the Kidder acquisition and improved market conditions. --------------- PAGE 30 6 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- Commission revenues earned during 1995 were $1,272.8 million, 31% higher than the $970.3 million earned during 1994. Commissions on listed securities increased $229.7 million, or 46%, mutual fund commissions increased $42.7 million, or 27%, and commissions from over-the-counter securities increased $34.8 million, or 49%. These increases were partially offset by lower insurance commissions due to decreased sales of insurance annuities. Principal transactions revenues increased $394.8 million, or 76%, primarily due to improved trading results in mortgage, corporate debt, municipal and equity securities. These gains were partially offset by lower trading results in U.S. government and agency obligations. Investment banking revenues were $326.8 million, as compared to $284.5 million, reflecting an increased number of equity and corporate debt underwritings and an increased dollar volume of lead-managed municipal issues. Asset management fees increased 12% to $399.5 million, primarily due to higher fees earned on managed or wrap accounts and trust accounts. Average assets in wrap and trust accounts during 1995 were 46% higher than during 1994. The increase also reflects higher advisory fees earned on money market and institutional accounts partially offset by lower advisory and distribution fees earned on proprietary long-term mutual funds. The average assets under management in money market, institutional and long-term mutual funds were approximately $42 billion during 1995 compared to $37 billion in 1994. Net interest increased $21.0 million, or 8%, primarily due to the expansion of the stock loan business and increased margin lending to clients. These increases were partially offset by lower spreads earned on fixed income positions. Other income increased $11.2 million,or 8%, due to increased transaction fees and higher fees from Individual Retirement Accounts ("IRAs") as a result of an increased number of accounts. These increases were partially offset by lower dividends on proprietary trading inventories. Compensation and benefit expenses for 1995 increased $458.1 million, or 30%, primarily due to higher revenue-driven compensation paid to retail and institutional investment executives and higher performance-based incentive compensation. The increased compensation costs also reflect the acquisition of Kidder businesses and normal salary increases. Compensation and benefits as a percentage of net revenues were 59.8% during 1995, as compared to 61.0% during 1994. All other operating expenses increased $298.4 million, or 32%, over 1994. In 1995, other expenses include the $230.0 million charge related to the limited partnership settlements, and, in 1994, other expenses include the charge related to the Fund and costs associated with the Kidder acquisition. Higher professional fees relate primarily to increased legal and consulting fees. Higher office and equipment, communications, business development, and brokerage and clearing fees are primarily attributable to the acquired Kidder businesses. All other operating expenses as a percentage of net revenues, excluding the non-recurring charges, were 30.2% in 1995, as compared to 33.0% during 1994. 1994 COMPARED WITH 1993 Net income for the year ended December 31, 1994, before giving effect to the costs related to the Kidder acquisition and the second quarter non-recurring charge related to the Fund, was $101.5 million, or $1.30 per primary share ($1.27 per fully diluted share), compared to $246.2 million, or $3.11 per primary share ($2.95 per fully diluted share), earned during 1993. Net income, including the acquisition costs and the charge related to the Fund, was $31.6 million, or $0.41 per primary and fully diluted share. During 1994, total revenues of $4.0 billion were relatively unchanged from --------------- PAGE 31 7 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- 1993, as decreases resulting from lower mutual fund sales and lower activity from retail and institutional clients were offset by higher interest income. Revenues, net of interest expense, decreased 12% to $2.5 billion. During 1994, commission revenues decreased 3% to $970.3 million as a result of lower mutual fund sales and a lower volume of activity among retail clients offset by higher activity among our institutional equity clients. Commissions from listed securities decreased $20.7 million, or 4%, commissions from over-the-counter securities decreased $6.2 million, or 8%, and mutual fund commissions decreased $5.4 million, or 3%. In addition, 1993 revenues included $18.0 million of commissions from the institutional commodities business. The Company exited this business during 1993. These decreases were partially offset by a $26.0 million increase in insurance commissions due to a higher level of annuity sales and expansion of the insurance business during 1994. Principal transactions revenues decreased by $260.0 million, or 33%, primarily due to reduced liquidity in the mortgage business and lower trading volumes in the fixed income markets. These declines were partially offset by improved results in U.S. government and agency obligations, and corporate equity securities. Investment banking revenues declined 31% during 1994 to $284.5 million. This decrease was attributable to the lower volume of corporate equity and debt issues underwritten and a lower dollar volume of lead-managed municipal issues. These declines were partially offset by higher merger and acquisition and increased private placement fees. Asset management fees increased 9% to $356.4 million primarily due to a 28% increase in the average level of assets in managed or wrap-fee accounts and trust accounts. The increase also reflects higher advisory fees earned on money market accounts and closed-end mutual funds. The average assets under management in money market, institutional and proprietary long-term mutual funds were approximately $37 billion during 1994 and $38 billion during 1993. Net interest increased $20.1 million, or 8%, as a result of higher margin lending to clients at improved spreads and expansion of the stock loan business partially offset by decreased interest income on lower fixed income inventory levels. Other income rose $25.6 million, or 23%, primarily due to higher transaction and account fees, increased proxy business and an increased number of IRAs and Resource Management Accounts ("RMAs"). During 1994, the number of IRAs and RMAs increased approximately 8% and 6%, respectively, from December 31, 1993. Compensation and benefit expenses decreased $82.4 million, or 5%, primarily due to lower performance-based incentive compensation and lower revenue-driven compensation paid to retail and institutional investment executives. These decreases were partially offset by salary increases, higher costs associated with employee benefit plan enhancements, a change in pension plan assumptions and severance costs. Compensation and benefit expenses as a percentage of net revenues were 61.0% during 1994 and 56.7% during 1993. All other operating expenses increased $107.0 million, or 13% over 1993, primarily due to costs related to the Kidder acquisition and charges related to the Fund. The increase also reflects higher consulting fees and increased costs related to technology initiatives. INCOME TAXES The effective tax rate for the year ended December 31, 1995 was 21.4% as compared to 28.7% for 1994. The decline in the effective rate was primarily due to lower state and local taxes, proportionally lower nondeductible expenses, and higher nontaxable interest for the year. The effective tax rate for the year ended December 31, 1994 declined 10.9% from the 1993 rate of 39.6%. This decline was due to higher nontaxable dividends and interest, and foreign tax credits. --------------- PAGE 32 8 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The primary objectives of the Company's funding policies are to insure ample liquidity at all times and a strong capital base. These objectives are met by maximization of self-funded assets, diversification of funding sources, maintenance of prudent liquidity and capital ratios, and contingency planning. LIQUIDITY The Company maintains a liquid balance sheet with the majority of the assets consisting of trading assets, securities borrowed, securities purchased under agreements to resell, and receivables from clients, brokers and dealers, which are readily convertible into cash. The nature of the Company's business as a securities dealer results in carrying significant levels of trading inventories in order to meet its client and proprietary trading needs. The Company's total assets may fluctuate from period to period as the result of changes in the level of trading positions held to facilitate client transactions, the volume of resale and repurchase transactions, and proprietary trading strategies. These fluctuations depend significantly upon economic and market conditions, and transactional volume. The Company's total assets at December 31, 1995 were $45.7 billion compared to $35.9 billion at December 31, 1994 reflecting increases primarily in securities purchased under agreements to resell and trading assets. The majority of the Company's assets are financed by daily operations such as securities sold under agreements to repurchase, free credit balances in client accounts and securities lending activity. Additional financing sources are available through bank loans and commercial paper, committed and uncommitted lines of credit, and the issuance of long-term senior and subordinated debt. The Company maintains committed and uncommitted credit facilities from a diverse group of banks. The Company has two unsecured senior revolving credit agreements to provide up to $2.0 billion, including $1.2 billion, which expires in December 1996 with provisions for renewal through December 1997, and $800.0 million, which expires in December 1997. The facilities are available for general corporate purposes and to finance asset purchases. At December 31, 1995, there were no outstanding borrowings under these credit facilities. Additionally, the Company had approximately $5.0 billion in uncommitted lines of credit at December 31, 1995. The Company maintains public shelf registration statements for the issuance of debt securities with the SEC. During 1995, the Company filed a shelf registration statement with the SEC providing for the issuance of an additional $400.0 million of debt securities. The Company issued $473.0 million of debt under these registration statements in 1995. At December 31, 1995, the Company had $784.6 million in debt securities available for issuance. Long-term borrowings at December 31, 1995 grew to $2,436.0 million from $2,315.4 million at December 31, 1994. This increase primarily reflects the issuances of $125.0 million of 8 7/8% Notes in March 1995, $125.0 million of 8 1/4% Notes in May 1995, and $223.0 million of Medium-Term Notes during the year. Offsetting these increases were the maturities of $150.0 million of 9 5/8% Notes in May 1995 and $215.0 million of Medium-Term Notes. In addition, on January 23, 1996, the Company issued $100.0 million of 6 3/4% Notes Due 2006. At December 31, 1995, $135.8 million of long-term borrowings had maturity dates in 1996. The weighted average maturity on all outstanding long-term borrowings at December 31, 1995 was 6.2 years. CAPITAL RESOURCES AND CAPITAL ADEQUACY The Company's businesses are capital intensive. In addition to a funding policy which provides for diversification of funding sources and maximization of liquidity, the Company maintains a strong capital base. The Company's total capital base, which includes long-term borrowings, redeemable preferred stock and stockholders' equity, was $4.2 billion at December 31, 1995, an increase of $43.2 million from the prior year. --------------- PAGE 33 9 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- The growth in total capital is primarily due to an increase in long-term borrowings of $120.6 million offset by a decline in stockholders' equity of $78.2 million. During 1995, the Company issued 6.4 million shares of common stock related to employee compensation programs, increasing equity capital by over $39 million. In the fourth quarter of 1995, the Company's Board of Directors increased the number of shares of common stock authorized for repurchase by 7.5 million shares. In accordance with the repurchase programs, 8.6 million shares of common stock were repurchased during the year for $173.5 million. At December 31, 1995, the remaining number of shares of common stock authorized to be repurchased by the Company's Board of Directors was 7.7 million. The Board of Directors declared regular quarterly cash dividends of $0.12 per share on the Company's common stock during 1995. Dividends were also declared on the Redeemable Preferred Stock and the Convertible Preferred Stock. Also, the stockholders of the Company approved an increase in the number of common shares authorized for issuance from 100.0 million shares to 200.0 million shares in the second quarter of 1994. PWI is subject to the net capital requirements of the SEC, the NYSE and the CFTC which are designed to measure the financial soundness and liquidity of broker-dealers. PWI has consistently maintained net capital in excess of the minimum requirements imposed by these agencies. In addition, the Company has other banking and securities subsidiaries, both domestic and foreign, which have also consistently maintained net regulatory capital in excess of requirements. MERCHANT BANKING AND HIGHLY LEVERAGED TRANSACTIONS In connection with its merchant banking activities, the Company has provided financing and made investments in companies, some of which are involved in highly leveraged transactions. Positions taken or commitments made by the Company may involve credit or market risk from any one issuer or industry. At December 31, 1995, the Company had investments in merchant banking transactions which were affected by liquidity, reorganization or restructuring issues amounting to $85.5 million, net of reserves, compared to $56.9 million, net of reserves, at December 31, 1994. These investments have not had a material effect on the Company's results of operations. Included in the portfolio at December 31, 1995 and 1994 was an investment of $52.2 million in a limited partnership which specializes in investments in corporate restructurings and special situations. The Company's activities include underwriting and market-making transactions in high-yield securities. These securities generally involve greater risks than investment-grade corporate debt securities because these issuers usually have high levels of indebtedness and lower credit ratings and are, therefore, more vulnerable to general economic conditions. At December 31, 1995, the Company held $215.1 million of high-yield securities, with approximately 74% of such securities attributable to three issuers. The Company continually monitors its risk positions associated with high-yield securities and establishes limits with respect to overall market exposure, industry group and individual issuer. The Company accounts for these positions at fair value, with unrealized gains and losses reflected in revenues. For the year ended December 31, 1995, the Company recorded pre-tax trading profits of $10.4 million on transactions in high-yield securities. For the years ended December 31, 1994 and 1993, the Company recorded a pre-tax trading loss and profit on transactions in high-yield securities of $16.3 million and $24.4 million, respectively. --------------- PAGE 34 10 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument represents a contractual agreement between counterparties and has value that is derived from changes in the value of some other underlying asset such as the price of another security, interest rates, currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P 500), or the value referenced in the contract. Derivatives such as futures, certain options contracts and structured products (e.g. indexed warrants) are traded on exchanges, while derivatives such as forward contracts, certain options contracts, interest rate swaps, caps and floors, and other structured products are negotiated in over-the-counter markets. In the normal course of business, the Company engages in a variety of derivative transactions in connection with its proprietary trading activities and asset and liability management, as well as on behalf of its clients. As a dealer, the Company regularly makes a market in and trades a variety of securities. The Company is also engaged in creating structured products which are sold to clients. In connection with these activities, the Company attempts to reduce its exposure to market risk by entering into offsetting hedging transactions which may include derivative financial instruments. The Company also enters into interest rate swap contracts to hedge its fixed rate borrowings and reduce overall borrowing costs. The notional amount of a derivative contract is used to measure the volume of activity and is not reflected on the Consolidated Statement of Financial Condition. The Company had off-balance-sheet derivative contracts outstanding with gross notional amounts of $43.0 billion and $39.4 billion at December 31, 1995 and 1994, respectively, which included $26.7 billion and $16.3 billion, respectively, related to "to be announced" mortgage securities requiring forward settlement. Also included in these amounts were $1.9 billion and $1.8 billion notional amounts of interest rate swap agreements used to hedge the Company's long-term borrowings at December 31, 1995 and 1994, respectively. (For further discussion on the Company's derivative financial instruments, see Note 11 in the Company's Notes to Consolidated Financial Statements.) The Company records any unrealized gains and losses on its derivative contracts used in a trading capacity by marking-to-market the contracts on a daily basis. The unrealized gain or loss is recorded on the Consolidated Statement of Financial Condition with the related profit or loss reflected in principal transactions or net interest, depending upon the type of contract. The Company accrues interest income and expense on interest rate swap agreements used to hedge its fixed rate long-term borrowings. The interest rate swap agreements had the effect of increasing net interest expense on the Company's long-term borrowings by $1.7 million for the year ended December 31, 1995 and reducing net interest expense on the Company's long-term borrowings by $29.6 million and $28.1 million for the years ended December 31, 1994 and 1993, respectively. The Company had no deferred gains or losses recorded at December 31, 1995 and 1994 related to terminated swap agreements. The fair value of an exchange traded derivative financial instrument is determined by quoted market prices, while over-the-counter derivatives are valued based upon pricing models which consider time value and volatility, as well as other economic factors. The fair values of the Company's derivative financial instruments held for trading purposes at December 31, 1995 were $375.5 million and $275.6 million for assets and liabilities, respectively, and are reflected on the Consolidated Statement of Financial Condition. The fair values of these instruments at December 31, 1994 were $302.4 million and $195.5 million for assets and liabilities, respectively. All financial instruments involve market risk. Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, foreign currency exchange rates or the market values of the assets underlying the instruments. The Company --------------- PAGE 35 11 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- actively monitors its market risk profile through a variety of control procedures including market risk modeling, review of trading positions and hedging strategies, and monitoring adherence to established limits by an independent risk management group. Credit risk represents the amount of accounting loss the Company would incur should counterparties to its proprietary transactions fail to perform and the value of any collateral prove inadequate. The Company manages credit risk by monitoring net exposure to individual counterparties, monitoring credit limits and requiring additional collateral where appropriate. The current credit exposure represents the fair value or replacement cost on contracts in which the Company has recorded an unrealized gain. At December 31, 1995 and 1994, the fair values amounted to $375.5 million and $302.4 million, respectively. - -------------------------------------------------------------------------------- RISK MANAGEMENT The Company monitors its exposure to market and counterparty risk on a daily basis through a variety of financial, security position, and credit exposure reporting and control procedures. Each department's trading positions, exposures, profits and losses, and trading strategies are reviewed by the senior management of each business group on a daily basis. The Company also has an independent risk management group that meets daily to review the Company's risk profile and adherence to established trading limits, and aids in the development of risk management policies. Trading position and exposure limits, as well as credit policy, are established by the Asset/Liability Management Committee which meets regularly and is comprised of senior corporate and business unit managers. Credit risk is substantially reduced by the industry practice of obtaining and maintaining adequate collateral until the commitments are settled. The Company also manages the credit exposure relating to its trading activities by entering into master netting agreements when feasible. The Company monitors its exposure to counterparty risk on a daily basis through the use of credit exposure information and monitoring of collateral values. The Credit department establishes and reviews credit limits for clients and other counterparties seeking margin, resale and repurchase agreement facilities, securities borrowed and securities loaned arrangements, and various other products. Although the Company closely monitors the creditworthiness of its clients, the debtors' ability to discharge amounts owed is dependent upon, among other things, general market conditions. The Company has no material concentration of credit risk with any individual counterparty. In addition to the above procedures, the Company has in place committees and management controls to review inventory positions, other asset accounts and asset agings on a regular basis. - -------------------------------------------------------------------------------- INFLATION Because the Company's assets are, to a large extent, liquid in nature, they are not significantly affected by inflation. However, inflation may result in increases in the Company's expenses, which may not be readily recoverable in the price of services offered. To the extent inflation results in rising interest rates and has other negative effects upon the securities markets, it may adversely affect the Company's financial condition and results of operations. --------------- PAGE 36 12 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- SEGMENT INFORMATION The Company's business activities encompass several classes of highly integrated services, primarily those of a full-line securities broker-dealer, and are considered a single business segment for purposes of Statement of Financial Accounting Standards ("SFAS") No. 14, "Financial Reporting for Segments of a Business Enterprise." (For information on geographic data, see Note 17 in the Company's Notes to Consolidated Financial Statements.) - -------------------------------------------------------------------------------- NEW ACCOUNTING DEVELOPMENTS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. SFAS No. 121 requires impairment losses to be recognized when the sum of the expected future cash flows from the use of the asset is less than the carrying amount of the asset. The Statement also addresses accounting for long-lived assets that are expected to be disposed. The adoption of the new standard in 1996 is not expected to have a material impact on the financial statements. --------------- PAGE 37 13 CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (In thousands of dollars except per share amounts) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Revenues Commissions $1,272,766 $ 970,294 $ 996,127 Principal transactions 914,201 519,438 779,444 Investment banking 326,777 284,503 413,643 Asset management 399,540 356,368 325,690 Other 150,056 138,902 113,253 Interest 2,256,750 1,694,572 1,376,560 --------------------------------------- Total revenues 5,320,090 3,964,077 4,004,717 Interest expense 1,969,811 1,428,653 1,130,712 --------------------------------------- Net revenues 3,350,279 2,535,424 2,874,005 --------------------------------------- Non-interest expenses Compensation and benefits 2,004,585 1,546,467 1,628,889 Office and equipment 266,291 225,375 211,880 Communications 149,047 130,095 123,601 Business development 90,752 85,430 93,962 Brokerage, clearing and exchange fees 93,657 82,577 79,752 Professional services 101,911 78,856 66,825 Other 541,359 342,239 261,520 --------------------------------------- Total non-interest expenses 3,247,602 2,491,039 2,466,429 --------------------------------------- Income before taxes 102,677 44,385 407,576 Provision for income taxes 21,927 12,754 161,393 --------------------------------------- Net income $ 80,750 $ 31,631 $ 246,183 ======================================= Net income applicable to common shares $ 54,781 $ 31,742 $ 244,349 ======================================= Earnings per common share: Primary $ 0.54 $ 0.41 $ 3.11 Fully diluted $ 0.52 $ 0.41 $ 2.95 ---------------------------------------
See Notes to Consolidated Financial Statements. --------------- PAGE 38 14 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, (In thousands of dollars except share and per share amounts) 1995 1994 - ----------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 222,497 $ 259,238 Cash and securities segregated and on deposit for federal and other regulations 427,068 369,585 Trading assets, at fair value 14,095,446 10,784,117 Securities purchased under agreements to resell 16,699,295 10,804,445 Securities borrowed 7,226,515 7,826,211 Receivables: Clients, net of allowance for doubtful accounts of $12,400 and $9,139 in 1995 and 1994, respectively 4,070,599 3,495,670 Brokers and dealers 279,676 432,565 Dividends and interest 263,948 229,462 Fees and other 200,444 233,027 Office equipment and leasehold improvement, net of accumulated depreciation and amortization of $288,807 and $245,225 in 1995 and 1994, respectively 322,056 272,365 Other assets 1,863,750 1,149,440 -------------------------- $45,671,294 $35,856,125 ========================== Liabilities and Stockholders' Equity Short-term borrowings $ 991,227 $ 1,889,609 Trading liabilities, at fair value 6,233,054 6,034,706 Securities sold under agreements to repurchase 25,199,377 16,873,848 Securities loaned 2,752,429 2,225,918 Payables: Clients 3,698,477 2,899,240 Brokers and dealers 155,118 303,244 Dividends and interest 256,338 218,719 Other liabilities and accrued expenses 1,639,403 933,977 Accrued compensation and benefits 570,786 344,981 -------------------------- 41,496,209 31,724,242 Long-term borrowings 2,436,037 2,315,415 -------------------------- 43,932,246 34,039,657 -------------------------- Commitments and contingencies Redeemable Preferred Stock 186,760 185,969 Stockholders' Equity: Convertible Preferred Stock 100,000 100,000 Common stock, $1 par value, 200,000,000 shares authorized; issued 104,492,091 shares and 100,613,737 shares in 1995 and 1994, respectively 104,492 100,614 Additional paid-in capital 831,763 784,974 Retained earnings 719,325 715,052 -------------------------- 1,755,580 1,700,640 Treasury stock, at cost; 7,417,845 shares and 1,297,081 shares in 1995 and 1994, respectively (151,616) (21,981) Unamortized cost of restricted stock (55,302) (51,803) Foreign currency translation adjustment 3,626 3,643 -------------------------- 1,552,288 1,630,499 -------------------------- $45,671,294 $35,856,125 ==========================
See Notes to Consolidated Financial Statements. --------------- PAGE 39 15 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cumulative Participating $1.375 6% Cumulative Convertible Convertible Convertible Voting Exchangeable Redeemable (In thousands of dollars except share and per share amounts) Preferred Stock Preferred Stock Preferred Stock - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1992 $ 150,000 $ 38,760 $ 0 - ------------------------------------------------------------------------------------------------------------------ Net income Dividends declared: Common stock, $.38 per share $1.375 Preferred Stock, $1.241 per share Participating Preferred Stock, $.33 per share Redemption and conversion of Participating Preferred Stock (150,000) Redemption or conversion of $1.375 Preferred Stock (38,760) Exercises of stock option Restricted stock awards Amortization of the cost of restricted stock Conversion of debentures Tax benefit relating to employee compensation programs Minimum pension liability Other Repurchases of common stock Foreign currency translation - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 0 0 0 - ------------------------------------------------------------------------------------------------------------------ Net income Dividends declared: Common stock, $.48 per share Dividends accrued: Redeemable Preferred Stock Convertible Preferred Stock Issuance of Convertible Preferred Stock 100,000 Issuance of common stock relating to business acquisition Exercises of stock options Restricted stock awards Amortization of the cost of restricted stock Conversion of debentures Tax benefit relating to employee compensation programs Other Repurchases of common stock Foreign currency translation - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 0 0 100,000 - ------------------------------------------------------------------------------------------------------------------ Net income Dividends declared: Common stock, $.48 per share Redeemable Preferred Stock, $9.00 per share Convertible Preferred Stock, $6.00 per share Exercises of stock options Restricted stock awards Amortization of the cost of restricted stock Conversion of debentures Tax benefit relating to employee compensation programs Other Repurchases of common stock Foreign currency translation - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 $ 0 $ 0 $ 100,000 - ------------------------------------------------------------------------------------------------------------------
See Notes in Consolidated Financial Statements. ---------------- PAGE 40 16 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unamortized Additional Cost of Common Paid-in Retained Treasury Restricted (In thousands of dollars except share and per share amounts) Stock Capital Earnings Stock Stock - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 $ 78,519 $ 470,315 $ 529,049 $(149,462) $ (30,709) - -------------------------------------------------------------------------------------------------------------------------------- Net income 246,183 Dividends declared: Common stock, $.38 per share (27,454) $1.375 Preferred Stock, $1.241 per share (1,833) Participating Preferred Stock, $.33 per share (1,686) Redemption and conversion of Participating Preferred Stock 3,247 (22,529) 93,420 Redemption or conversion of $1.375 Preferred Stock 551 10,261 (615) Exercises of stock options 888 (1,195) 19,428 Restricted stock awards 3,628 64,156 (67,784) Amortization of the cost of restricted stock 37,513 Conversion of debentures (13,912) 39,162 Tax benefit relating to employee compensation programs 29,651 Minimum pension liability 4,635 Other 17 1,329 1,689 Repurchases of common stock (116,627) Foreign currency translation - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 83,603 568,487 721,115 (112,390) (60,980) - -------------------------------------------------------------------------------------------------------------------------------- Net income 31,631 Dividends declared: Common stock, $.48 per share (36,475) Dividends accrued: Redeemable Preferred Stock (969) Convertible Preferred Stock (250) Issuance of Convertible Preferred Stock Issuance of common stock relating to business acquisition 14,000 177,374 127,095 Exercises of stock options 579 3,803 Restricted stock awards 2,432 32,464 (34,896) Amortization of the cost of restricted stock 44,073 Conversion of debentures (205) 1,455 Tax benefit relating to employee compensation programs 2,597 Other 454 4,992 Repurchases of common stock (43,133) Foreign currency translation - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 100,614 784,974 715,052 (21,981) (51,803) - -------------------------------------------------------------------------------------------------------------------------------- Net income 80,750 Dividends declared: Common stock, $.48 per share (47,203) Redeemable Preferred Stock, $9.00 per share (22,500) Convertible Preferred Stock, $6.00 per share (6,000) Exercises of stock options 942 (4,377) 34,388 Restricted stock awards 2,936 52,471 (55,407) Amortization of the cost of restricted stock 51,908 Conversion of debentures (4,252) 9,502 Tax benefit relating to employee compensation programs 2,947 Other (774) Repurchases of common stock (173,525) Foreign currency translation - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ 104,492 $ 831,763 $ 719,325 $(151,616) $ (55,302) - -------------------------------------------------------------------------------------------------------------------------------- Foreign Number of Shares Currency Total --------------------------- Translation Stockholders' Common Treasury (In thousands of dollars except share and per share amounts) Adjustment Equity Stock Stock - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 $ (5,805) $1,080,667 $ 78,518,729 $(12,476,834) - -------------------------------------------------------------------------------------------------------------------------- Net income 246,183 Dividends declared: Common stock, $.38 per share (27,454) $1.375 Preferred Stock, $1.241 per share (1,833) Participating Preferred Stock, $.33 per share (1,686) Redemption and conversion of Participating Preferred Stock (75,862) 7,500,000 Redemption or conversion of $1.375 Preferred Stock (28,563) 551,154 Exercises of stock options 19,121 888,409 1,537,137 Restricted stock awards 0 3,628,205 Amortization of the cost of restricted stock 37,513 Conversion of debentures 25,250 2,771,672 Tax benefit relating to employee compensation programs 29,651 Minimum pension liability 4,635 Other 3,035 16,765 135,592 Repurchases of common stock (116,627) (6,036,000) Foreign currency translation 1,017 1,017 - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 (4,788) 1,195,047 83,603,262 (6,568,433) - -------------------------------------------------------------------------------------------------------------------------- Net income 31,631 Dividends declared: Common stock, $.48 per share (36,475) Dividends accrued: Redeemable Preferred Stock (969) Convertible Preferred Stock (250) Issuance of Convertible Preferred Stock 100,000 Issuance of common stock relating to business acquisition 318,469 14,000,000 7,500,000 Exercises of stock options 4,382 578,593 Restricted stock awards 0 2,431,882 Amortization of the cost of restricted stock 44,073 Conversion of debentures 1,250 84,740 Tax benefit relating to employee compensation programs 2,597 Other 5,446 291,750 Repurchases of common stock (43,133) (2,605,138) Foreign currency translation 8,431 8,431 - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 3,643 1,630,499 100,613,737 (1,297,081) - -------------------------------------------------------------------------------------------------------------------------- Net income 80,750 Dividends declared: Common stock, $.48 per share (47,203) Redeemable Preferred Stock, $9.00 per share (22,500) Convertible Preferred Stock, $6.00 per share (6,000) Exercises of stock options 30,953 942,511 1,993,837 Restricted stock awards 0 2,935,843 Amortization of the cost of restricted stock 51,908 Conversion of debentures 5,250 524,303 Tax benefit relating to employee compensation programs 2,947 Other (774) Repurchases of common stock (173,525) (8,638,904) Foreign currency translation (17) (17) - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ 3,626 $1,552,288 $104,492,091 $ (7,417,845) - --------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. ---------------- PAGE 41 17 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (In thousands of dollars) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 80,750 $ 31,631 $ 246,183 Adjustments to reconcile net income to cash provided by (used for) operating activities: Noncash items included in net income: Depreciation and amortization 54,100 40,619 31,034 Deferred income taxes (90,778) (48,827) 3,609 Amortization of deferred charges 174,122 128,817 90,923 Other 213,852 29,232 51,058 (Increase) decrease in operating receivables: Clients 189,652 (82,116) (628,297) Brokers and dealers 152,889 479,265 (351,984) Dividends and interest (33,608) (12,205) (45,449) Fees and other 37,124 (113,067) 75,898 Increase (decrease) in operating payables: Clients 587,798 154,031 462,492 Brokers and dealers (148,126) (361,016) 40,546 Dividends and interest 37,602 (47,992) 66,767 Other 739,065 142,176 134,327 (Increase) decrease in: Cash and securities on deposit (57,483) (42,413) 149,760 Trading assets (3,310,637) 5,534,676 (5,919,229) Securities purchased under agreements to resell (5,820,114) (530,933) (3,895,664) Securities borrowed 599,696 (1,908,905) 352,572 Other assets (820,625) (318,193) (274,529) Increase (decrease) in: Trading liabilities 198,348 (1,502,636) 2,641,834 Securities sold under agreements to repurchase 8,285,379 (29,888) 4,096,326 Securities loaned 526,511 100,101 687,745 ----------------------------------------- Cash provided by (used for) operating activities 1,595,517 1,642,357 (1,984,078) ----------------------------------------- Cash flows from investing activities: Proceeds from (payments for): Net assets acquired in business acquisition (624,090) (726,217) -- Acquisition-related expenditures (46,157) -- -- Sales (purchases) of investments 112,499 (234,531) -- Office equipment and leasehold improvements (81,880) (82,904) (95,886) ----------------------------------------- Cash used for investing activities (639,628) (1,043,652) (95,886) ----------------------------------------- Cash flows from financing activities: Net proceeds from (payments on): Short-term borrowings (898,382) (889,604) 1,459,006 Proceeds from: Long-term borrowings 493,357 637,379 1,126,907 Employee stock transactions 36,203 11,078 21,121 Payments for: Long-term borrowings (374,580) (259,750) (316,997) Repurchases of common stock (173,525) (43,133) (116,627) Preferred stock transactions -- -- (104,425) Dividends (75,703) (36,475) (30,973) ----------------------------------------- Cash (used for) provided by financing activities (992,630) (580,505) 2,038,012 ----------------------------------------- Increase (decrease) in cash and cash equivalents (36,741) 18,200 (41,952) Cash and cash equivalents, beginning of year 259,238 241,038 282,990 ----------------------------------------- Cash and cash equivalents, end of year $ 222,497 $ 259,238 $ 241,038 =========================================
See Notes to Consolidated Financial Statements. ----------------- PAGE 42 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of dollars except share and per share amounts) - -------------------------------------------------------------------------------- NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Paine Webber Group Inc. ("PWG") is a holding company which, together with its operating subsidiaries (collectively, the "Company"), forms one of the largest full-service securities and commodities firms in the industry. The Company is engaged in one principal line of business, that of serving the investment and capital needs of individual, corporate, institutional and public agency clients. BASIS OF PRESENTATION The consolidated financial statements include the accounts of PWG and its wholly owned subsidiaries, including its principal subsidiary PaineWebber Incorporated ("PWI"). All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made in prior year amounts to conform to current year presentations. The consolidated financial statements are prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.Actual results could differ from those estimates. TRADING INSTRUMENTS Trading assets and liabilities are generally recorded in the Consolidated Statement of Financial Condition on settlement date. Recording such transactions on a trade date basis would not result in a material difference. Related revenues and expenses are generally recorded in the accounts on trade date. Trading assets and liabilities, including derivative contracts held for trading or to hedge trading inventory positions, are recorded at fair value in the Consolidated Statement of Financial Condition. Realized and unrealized gains and losses are reflected in revenues in the period during which the change in fair value occurs. Fair value is generally based upon quoted market prices. If quoted market prices are not available, or if liquidating the Company's position is reasonably expected to impact market prices, fair value is determined based upon other relevant factors, including dealer price quotations, price activity of similar instruments and pricing models. Pricing models consider the time value and volatility factors underlying the financial instruments and other economic measurements. COLLATERALIZED SECURITIES TRANSACTIONS Securities purchased under agreements to resell ("resale agreements") and securities sold under agreements to repurchase ("repurchase agreements"), principally U.S. government and agency securities, are recorded at the amount at which the securities will be resold or reacquired as specified in the respective agreements, plus accrued interest. It is Company policy to obtain possession or control of securities, which have a fair value in excess of the original principal amount loaned, in order to collateralize resale agreements. The Company is required to provide securities to counterparties in order to collateralize repurchase agreements. The Company monitors the fair value of the securities purchased and sold under these agreements daily. Should the fair value of the securities decline below or increase above the principal amount advanced or received, plus accrued interest, additional collateral is requested or excess collateral is returned when deemed appropriate. When specific conditions are met, including the existence of a legally enforceable master netting agreement, resale agreements and repurchase agreements are netted on the Consolidated Statement of Financial Condition as permitted under Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," and Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." Resale agreements and repurchase agreements for which the resale/repurchase date corresponds to the maturity date of the underlying securities, are accounted for as purchases and sales, respectively. Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received in connection with the transaction. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral. The initial collateral advanced or received has a fair value equal to, or greater than, the fair value of the securities borrowed or loaned. The Company monitors the fair value of the securities borrowed and loaned on a daily basis and requests additional collateral or returns excess collateral, as appropriate. OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS The Company depreciates office equipment using the straight-line method over estimated useful lives of ----------------- PAGE 43 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- three to ten years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease. INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred taxes are provided based upon the net tax effects of temporary differences between the book and tax bases of assets and liabilities. The Company files a consolidated federal income tax return. TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are translated at year-end rates of exchange, and revenues and expenses are translated at average rates of exchange during the year. Gains and losses resulting from translation adjustments are accumulated in a separate component of stockholders' equity. Gains or losses resulting from foreign currency transactions are included in net income. STOCK BASED COMPENSATION The Company grants stock options to employees and non-employee directors with an exercise price equal to the fair market value at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense related to the granting of such stock options. CASH FLOWS Cash and cash equivalents are defined as highly liquid investments not held for resale, with a maturity of three months or less when purchased. Total interest payments for the years ended December 31, 1995, 1994 and 1993 were $1,932,192, $1,499,398 and $1,063,945, respectively. ACCOUNTING DEVELOPMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. SFAS No. 121 requires impairment losses to be recognized when the sum of the expected future cash flows from the use of the asset is less than the carrying amount of the asset. SFAS No. 121 also addresses accounting for long-lived assets that are expected to be disposed. The adoption of SFAS No. 121 is not expected to have a material impact on the financial statements. - -------------------------------------------------------------------------------- NOTE 2: BUSINESS ACQUISITION In October 1994, the Company entered into an agreement, as thereafter supplemented, with General Electric Company ("GE") and Kidder, Peabody Group Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and liabilities (the "net assets"), and specific businesses of Kidder in a series of transactions which were consummated in December 1994 and early 1995. The net assets acquired approximated $1,900,000. The consideration given in exchange for the net assets and businesses acquired included cash of approximately $1,400,000 and the issuance of the Company's common and preferred stock valued at $603,469 at the date of issuance. The cash proceeds were obtained from various funding sources. The Company issued 21,500,000 shares of common stock valued at $318,469, 2,500,000 shares of 20 year 9% Cumulative Redeemable Preferred Stock, Series C valued at $185,000 at the date of issuance, and 1,000,000 shares of 20 year 6% Cumulative Convertible Redeemable Preferred Stock, Series A valued at $100,000 (See Note 8). As a result of this transaction, GE owns approximately 25% of the common stock of the Company on a fully diluted basis. GE is restricted from increasing ownership of the Company pursuant to a stockholders' agreement among the Company, GE and Kidder, except in certain limited circumstances. The acquisition has been accounted for under the purchase method of accounting. The excess of the purchase price over the fair value of the net assets acquired resulted in the Company recording approximately $98,000 in goodwill, which is being amortized over 35 years on a straight-line basis. The consolidated financial statements of the Company include the results of operations of the Kidder businesses acquired in December 1994 and early 1995 from the date of acquisition. As a result of the acquisition, the Company recorded after-tax costs of approximately $36,000 in the fourth quarter of 1994 relating primarily to the elimination of duplicate facilities, severance and other personnel-related costs. ----------------- PAGE 44 20 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- NOTE 3: LIMITED PARTNERSHIP INVESTMENT CHARGES The results for the year ended December 31, 1995 were reduced by after-tax charges of approximately $146,000 ($230,000 before income taxes) associated with the resolution of the issues arising from the Company's sale of public proprietary limited partnerships in the 1980s and early 1990s. The charges are included in "Other expenses" in the Consolidated Statement of Income. The Company has now reached a final and comprehensive resolution of the issues related to the sale of the limited partnerships, including an agreement to settle all pending class actions, a settlement with the Securities and Exchange Commission ("SEC") and an agreement to settle with various state regulators. - -------------------------------------------------------------------------------- NOTE 4: FAIR VALUE OF FINANCIAL INSTRUMENTS Substantially all of the Company's financial instruments are carried at fair value or amounts approximating fair value. Assets, including cash and cash equivalents, cash and securities segregated for regulatory purposes, trading assets, resale agreements, securities borrowed, and certain receivables, are carried at fair value or contracted amounts which approximate fair value. Similarly, liabilities, including short-term borrowings, trading liabilities, repurchase agreements, securities loaned, and certain payables, are carried at fair value or contracted amounts approximating fair value. At December 31, 1995 and 1994, the fair values of long-term borrowings were $2,478,095 and $2,107,538, respectively, as compared to the carrying amounts of $2,436,037 and $2,315,415, respectively. The estimated fair value of long-term borrowings is based upon quoted market prices for the same or similar issues and pricing models. However, for substantially all of its fixed rate debt, the Company enters into interest rate swap agreements to convert its fixed rate payments into floating rate payments, which partially offset the effect of the changes in interest rates on the fair value of the Company's long-term borrowings. The fair value of interest rate swaps used to hedge the Company's long-term borrowings is based upon the amounts the Company would receive or pay to terminate the agreements, taking into account current interest rates and creditworthiness of the counterparties. The fair values of the interest rate swaps were $33,756 receivable and $172,193 payable at December 31, 1995 and 1994, respectively. The carrying amounts of the interest rate swap agreements included in the Company's Consolidated Statement of Financial Condition at December 31, 1995 and 1994 were net receivables of $1,730 and $4,480, respectively. For discussion on the fair values of the Company's off-balance-sheet financial instruments see Notes 11 and 13. - -------------------------------------------------------------------------------- NOTE 5: TRADING INVENTORIES At December 31, 1995 and 1994, trading assets and liabilities, recorded at fair value, consisted of the following:
1995 1994 - ------------------------------------------------------------------------------- Trading assets U.S. government and agency obligations $ 4,854,878 $ 3,560,201 Mortgages and mortgage-backed securities 4,240,163 2,441,940 Corporate debt securities 2,364,597 1,816,747 Commercial paper and other short-term debt 1,252,652 1,242,988 State and municipal obligations 821,487 1,018,875 Corporate equity securities 561,669 703,366 ------------------------- $14,095,446 $10,784,117 ========================= Trading liabilities U.S. government and agency obligations $ 4,570,733 $ 4,918,655 Mortgages and mortgage-backed securities 127,708 44,370 Corporate debt securities 714,588 398,913 State and municipal obligations 21,467 57,751 Corporate equity securities 798,558 615,017 ------------------------- $ 6,233,054 $ 6,034,706 =========================
----------------- PAGE 45 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Trading liabilities commit the Company to deliver specified securities at predetermined prices. These transactions may result in market risk since, to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected in the Consolidated Statement of Financial Condition. - -------------------------------------------------------------------------------- NOTE 6: SHORT-TERM BORROWINGS The Company meets its short-term financing needs by obtaining bank loans on either a secured or unsecured basis; by issuing commercial paper and medium-term notes; by entering into agreements to repurchase, whereby securities are sold with a commitment to repurchase at a future date; and through securities lending activity. Short-term borrowings at December 31, 1995 and 1994 consisted of the following:
1995 1994 - --------------------------------------------------------------------- Commercial paper $ 547,554 $ 906,650 Bank loans and other 443,673 982,959 ------------------------ $ 991,227 $ 1,889,609 ========================
The interest rate on commercial paper fluctuates throughout the year. The weighted average interest rates on commercial paper borrowings outstanding at December 31, 1995 and 1994 were 6.00% and 5.90%, respectively, and during 1995 and 1994 were 6.09% and 4.34%, respectively. Bank loans generally bear interest at rates based on either the federal funds rate or the London Interbank Offered Rate ("LIBOR"). The weighted average interest rates on bank loans outstanding at December 31, 1995 and 1994 were 5.63% and 6.25%, respectively, and the weighted average interest rates during 1995 and 1994 were 6.63% and 4.37%, respectively. At December 31, 1995, the Company had committed and available two unsecured senior revolving credit facilities with a group of banks aggregating $2,000,000, of which $1,200,000 expires in December 1996 with provisions for renewal through December 1997, and $800,000 expires in December 1997. Interest on borrowings under the terms of the revolving credit facilities is computed, at the option of the Company, at a rate based on LIBOR or an alternate rate based on the higher of a base rate or the federal funds rate. The Company pays a fee on the commitments. At December 31, 1995, there were no outstanding borrowings under these credit facilities. At December 31, 1994, there was $500,000 outstanding under these facilities included in bank loans and other. - -------------------------------------------------------------------------------- NOTE 7: LONG-TERM BORROWINGS Long-term borrowings at December 31, 1995 and 1994 consisted of the following:
1995 1994 - -------------------------------------------------------------------------- Fixed Rate Notes due 1996 - 2014 $1,289,478 $ 1,177,159 Fixed Rate Subordinated Notes due 2002 174,412 174,324 Medium-Term Senior Notes 651,475 618,070 Medium-Term Subordinated Notes 283,150 308,150 Convertible Debentures 17,038 18,627 Other 20,484 19,085 ------------------------- $2,436,037 $ 2,315,415 =========================
---------------- PAGE 46 22 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- During 1995, the Company issued, in two separate offerings, fixed rate notes in an aggregate principal amount of $250,000 due 2002 and 2005, with interest rates of 8 1/4% and 8 7/8%, respectively. In the second quarter of 1995, $150,000 of 9 5/8% Notes matured. Interest rates on the remaining fixed rate notes and subordinated notes outstanding at December 31, 1995 range from 6 1/4% to 9 1/4% and the weighted average interest rate on these notes outstanding at December 31, 1995 was 7.56%. Interest on the notes is payable semi-annually. The Company has a Multiple Currency Medium-Term Note Program under the terms of which the Company may offer for sale medium-term senior and subordinated notes (collectively, the "Medium-Term Notes") due from nine months to thirty years from date of issuance. The Medium-Term Notes may be either fixed or variable with respect to interest rates. At December 31, 1995, the Company had outstanding $753,425 of fixed rate Medium-Term Notes and $181,200 of variable rate Medium-Term Notes. The Medium-Term Notes outstanding at December 31, 1995 had an average maturity of 3.7 years and a weighted average interest rate of 7.03%. The Company has entered into interest rate swap agreements which effectively convert substantially all of its fixed rate notes into floating rate obligations. The floating interest rates are based on LIBOR and generally adjust semi-annually. The effective weighted average interest rates on the fixed rate obligations, after giving effect to the interest rate swap agreements, were 7.07% and 6.86% at December 31, 1995 and 1994, respectively. The notional amounts and maturities of the interest rate swap agreements outstanding at December 31, 1995 were as follows:
- ---------------------------------------------------- 1996 - 1998 $ 461,700 1999 - 2001 642,000 2002 - 2004 535,000 2005 - 2007 300,000 ----------- $ 1,938,700 ============
Pursuant to an employee benefit plan, the Company has issued 8% Convertible Debentures (the "8% Debentures") due December 1998 and 2000, and 6.5% Convertible Debentures (the "6.5% Debentures") due December 2002 (collectively, "the Debentures"). The Debentures are shown net of receivables, representing loans by the Company to employees to finance a portion of the Debentures. A portion of the principal amount of the employee loans may be forgiven at the end of a calendar year in which certain specified pre-tax earnings are achieved by the Company. The 8% Debentures are fully convertible, at the option of the holders, into 340,000 shares of 7.5% Convertible Preferred Stock, which are then convertible into 927,383 shares of common stock. The 6.5% Debentures are fully convertible, at the option of the holders, into 1,945,009 shares of 6.0% Convertible Preferred Stock, which are then convertible into 2,917,514 shares of common stock. The Debentures are redeemable at the employees' option, subject to certain conditions through 1998. In January 1996, the Company called for the redemption of the 8% Debentures due 1998. The aggregate amount of principal repayment requirements on long-term borrowings for each of the five years subsequent to December 31, 1995, and the total amount due thereafter, are as follows:
- ---------------------------------------------------- 1996 $ 135,750 1997 168,750 1998 280,976 1999 155,475 2000 445,407 Thereafter 1,249,679 ----------- $2,436,037 ===========
----------------- PAGE 47 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8: PREFERRED STOCK The Company has authorization to issue up to 20,000,000 shares of preferred stock, in one or more series, with a par value of $20.00 per share. REDEEMABLE PREFERRED STOCK In connection with the acquisition of certain net assets of Kidder in December 1994 (See Note 2), the Company issued 2,500,000 shares of 20 year 9% Cumulative Redeemable Preferred Stock, Series C (the "Redeemable Preferred Stock"), with a stated value and liquidation preference of $100.00 per share. The Redeemable Preferred Stock was recorded at its fair value of $185,000 at the date of issuance, which is increased periodically by charges to retained earnings, using the interest method, so that the carrying amount equals the redemption amount of $250,000 at the mandatory redemption date on December 15, 2014. The Redeemable Preferred Stock is redeemable at any time on or after December 16, 1999, in whole or in part, at the option of the Company at a price of $100.00 per share, plus accrued and unpaid dividends. Dividends on the Redeemable Preferred Stock are cumulative and payable in quarterly installments. Holders of the Redeemable Preferred Stock have no voting rights except in the event of certain dividend payment defaults. CONVERTIBLE PREFERRED STOCK The Company also issued, in connection with the Kidder acquisition, 1,000,000 shares of 20 year 6% Cumulative Convertible Redeemable Preferred Stock, Series A (the "Convertible Preferred Stock"), with a stated value and liquidation preference of $100.00 per share. The Convertible Preferred Stock was recorded at its fair value of $100,000. The Convertible Preferred Stock is convertible into Common stock at any time, in whole or in part, at the option of the holder, at a conversion price of $18.13 per common share, subject to adjustment. The Convertible Preferred Stock is redeemable in cash at any time, in whole or in part, at the option of the Company, at redemption prices equal to the greater of $140.00 per share or a formula price for the first five years, then $105.00 per share on or after December 16, 1999 and declining by $1.00 per share per year to $100.00 per share on or after December 16, 2004, plus accrued and unpaid dividends. Beginning December 16, 1999, in lieu of a cash payment upon redemption, the Company may issue, subject to shareholder approval, shares of its common stock equivalent to the redemption price divided by the then current market price per common share. The Convertible Preferred Stock is subject to mandatory redemption on December 15, 2014. Dividends on the Convertible Preferred Stock are cumulative and payable in quarterly installments. Holders of the Convertible Preferred Stock have no voting rights, except in the event of certain dividend payment defaults. - -------------------------------------------------------------------------------- NOTE 9: COMMON STOCK During 1995, the Company repurchased 8,638,904 shares of its common stock at an aggregate cost of $173,525. In the fourth quarter of 1995, the Company's Board of Directors increased the number of shares of common stock authorized for repurchase by 7,500,000 shares. In accordance with the repurchase programs, the Company had available to repurchase at December 31, 1995 a maximum of 7,742,898 shares of common stock. As of December 31, 1995, the Company had 32,866,933 authorized shares of common stock reserved for issuance in connection with convertible securities, and stock option and stock award plans. In December 1994, the Company issued 21,500,000 shares of common stock valued at $318,469 in connection with the Kidder acquisition (See Note 2), of which 7,500,000 shares were issued from treasury stock at an average cost of $16.95 per share. On February 3, 1994, the Board of Directors of the Company declared a three-for-two common stock split in the form of a 50% stock dividend, effective on March 10, 1994. All share and per share data presented in this Annual Report to Stockholders reflect the effect of the split. In addition, during the second quarter of 1994, the stockholders of the Company approved an increase in the number of common shares authorized for issuance from 100,000,000 shares to 200,000,000 shares. ----------------- PAGE 48 24 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- NOTE 10: CAPITAL REQUIREMENTS PWI, a registered broker-dealer, is subject to the SEC Uniform Net Capital Rule and New York Stock Exchange ("NYSE") Growth and Business Reduction capital requirements. Under the method of computing capital requirements adopted by PWI, minimum net capital shall not be less than 2% of combined aggregate debit items arising from client transactions, plus excess margin collected on securities purchased under agreements to resell, as defined. A reduction of business is required if net capital is less than 4% of such aggregate debit items. Business may not be expanded if net capital is less than 5% of such aggregate debit items. As of December 31, 1995, PWI's net capital of $587,544 was 13% of aggregate debit items and its net capital in excess of the minimum required was $494,549. Advances, dividend payments and other equity withdrawals by PWI and other regulated subsidiaries are restricted by the regulations of the SEC, NYSE, and international securities and banking agencies, as well as by covenants in various loan agreements. At December 31, 1995, the equity of the Company's subsidiaries totaled approximately $1,550,000. Of this amount, approximately $469,000 was not available for payment of cash dividends and advances. Under the terms of certain borrowing agreements, the Company is subject to dividend payment restrictions and minimum net worth and net capital requirements. At December 31, 1995, these restrictions did not affect the Company's ability to pay dividends. - ------------------------------------------------------------------------------- NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK HELD OR ISSUED FOR TRADING PURPOSES In the normal course of business, the Company engages in a variety of derivative and non-derivative financial instrument transactions in connection with its market risk management, its principal trading activities and also on behalf of its clients. Derivative financial instruments include forward and futures contracts, options contracts, interest rate swaps and other contracts committing the Company to purchase or deliver other instruments at specified future dates and prices, or to make or receive payments based upon notional amounts and specified rates or indices. As defined by the FASB in SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," a derivative financial instrument also includes unsettled purchase and sale agreements and firm or standby commitments for the purchase of securities. It does not include on-balance-sheet receivables and payables whose values are derived from changes in the value of some underlying asset or index, such as mortgage-backed securities and structured notes. In connection with its market risk management and principal trading activities, the Company may enter into a derivative contract to manage the risk arising from other financial instruments or to take a position based upon expected future market conditions. The Company also takes positions to facilitate client transactions and acts as a market-maker in certain listed and unlisted securities. These contracts are valued at market, and unrealized gains and losses are reflected in the financial statements. A large portion of the Company's derivative financial instruments are "to be announced" mortgage securities requiring forward settlement. As a principal in the mortgage-backed securitization business, the Company has outstanding forward purchase and sale agreements committing the Company to deliver participation certificates and mortgage-backed securities. Set forth on the following page are the gross contract or notional amounts of all off-balance-sheet derivative financial instruments held or issued for trading purposes. These amounts are not reflected in the Consolidated Statement of Financial Condition and are indicative only of the volume of activity at December 31, 1995 and 1994. They do not represent amounts subject to market risks, and in many cases, limit the Company's overall exposure to market losses by hedging other on- and off-balance-sheet transactions. ----------------- PAGE 49 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Notional or Contract Amount December 31, 1995 December 31, 1994 ------------------------------------------------------ Purchases Sales Purchases Sales - ---------------------------------------------------------------------------------------------------------- Mortgage-backed forward contracts and options written and purchased $13,140,269 $15,861,501 $ 8,757,807 $ 9,256,738 Foreign currency forward contracts, futures contracts, and options written and purchased 1,894,724 2,040,414 2,325,721 1,855,557 Equity securities contracts including futures, forwards, and options written and purchased 993,161 1,220,400 1,931,330 2,216,565 Other fixed income securities contracts including futures, forwards, and options written and purchased 2,647,504 3,148,312 5,321,100 5,374,546 Interest rate swaps, caps and floors 104,050 - 285,450 230,000
Set forth below are the fair values of derivative financial instruments held or issued for trading purposes as of December 31, 1995 and 1994. The fair value amounts are determined by quoted market prices and pricing models which consider the time value and volatility of the underlying instruments. Changes in fair value are reflected in trading revenues or net interest as incurred, depending on the nature of the contract. The amounts are netted by counterparty only when the criteria of Financial Accounting Standards Board Interpretation No. 39 are met.
Fair Value at December 31, 1995 December 31, 1994 ---------------------------------------------------- Assets Liabilities Assets Liabilities - ------------------------------------------------------------------------------------------------------- Mortgage-backed forward contracts and options written and purchased $129,272 $116,536 $ 30,606 $ 25,209 Foreign currency forward contracts, futures contracts, and options written and purchased 83,222 48,710 55,345 44,244 Equity securities contracts including futures, forwards, and options written and purchased 135,977 52,250 204,938 116,973 Other fixed income securities contracts including futures, forwards, and options written and purchased 22,353 58,148 10,150 8,988 Interest rate swaps, caps and floors 4,660 - 1,372 128
Set forth below are the average fair values of derivative financial instruments held or issued for trading purposes during the years ended December 31, 1995 and 1994. The average fair value is based on the average of the month-end balances during the year.
Average Fair Value for the Years Ended December 31, 1995 December 31, 1994 ---------------------------------------------------- Assets Liabilities Assets Liabilities - ------------------------------------------------------------------------------------------------------- Mortgage-backed forward contracts and options written and purchased $118,784 $108,825 $202,484 $191,687 Foreign currency forward contracts, futures contracts, and options written and purchased 71,805 89,857 56,528 53,810 Equity securities contracts including futures, forwards, and options written and purchased 217,849 142,507 162,388 155,422 Other fixed income securities contracts including futures, forwards, and options written and purchased 16,620 21,449 23,527 13,293 Interest rate swaps, caps and floors 2,132 - 1,757 1,147
----------------- PAGE 50 26 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- The Company also enters into agreements to sell securities, at predetermined prices, which have not yet been purchased. The Company is exposed to market risk since to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected on the Consolidated Statement of Financial Condition. The off-balance-sheet derivative trading transactions are generally short-term. At December 31, 1995, over 98% of the off-balance-sheet derivative trading financial instruments had remaining maturities of less than one year. The Company's risk of loss in the event of counterparty default is limited to the current fair value or replacement cost on contracts in which the Company has recorded an unrealized gain. These amounts are reflected as assets on the Company's Consolidated Statement of Financial Condition and amounted to $375,484 and $302,411 at December 31, 1995 and 1994, respectively. Options written do not expose the Company to credit risk since they do not obligate the counterparty to perform. Transactions in futures contracts are conducted through regulated exchanges which have margin requirements, and are settled in cash on a daily basis, thereby minimizing credit risk. The following table summarizes the Company's principal transactions revenues (net trading revenues) by business activity for the years ended December 31, 1995 and 1994. Principal transactions revenues include realized and unrealized gains and losses in the fair value of derivative and other financial instruments.
Years Ended December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------- Corporate equities (includes equity securities, equity index futures, equity index options and swaps, and equity options contracts) $ 377,650 $ 324,178 Municipals (includes municipal and government securities) 139,764 139,039 U.S. government (includes U.S. government securities, financial futures and options contracts) 125,397 123,211 Mortgage and mortgage-backed (includes mortgage-backed and government securities, mortgage-backed forwards and options contracts) 110,836 (116,032) Corporate debt and other (includes debt, foreign currency forwards, futures and options contracts, and other securities) 160,554 49,042 ------------------------- $ 914,201 $ 519,438 =========================
HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING The Company enters into interest rate swap agreements to ensure that the interest rate characteristics of assets and liabilities are matched. As of December 31, 1995 and 1994, the Company had outstanding interest rate swap agreements with commercial banks with notional amounts of $1,938,700 and $1,836,250, respectively. These agreements effectively converted substantially all of the Company's fixed rate debt at December 31, 1995 into floating rate debt. The interest rate swap agreements entered into have had the effect of increasing net interest expense on the Company's long-term borrowings by $1,682 for the year ended December 31, 1995 and reducing net interest expense by $29,563 and $28,116 for the years ended December 31, 1994 and 1993, respectively. The difference to be received or paid on the swap agreements is included in interest expense as incurred and any related receivable from or payable to counterparties is reflected as an asset or liability, accordingly. The Company had no deferred gains or losses related to terminated swap agreements at December 31, 1995 and 1994. The Company is subject to market risk as interest rates fluctuate. The interest rate swaps contain credit risk to the extent the Company is in a receivable or gain position and the counterparty defaults. However, the counterparties to the agreements are large financial institutions and the Company has not experienced defaults in the past and management does not anticipate any counterparty defaults in the foreseeable future. See Note 4 for further discussion of interest rate swap agreements used for hedging purposes. ----------------- PAGE 51 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12: RISK MANAGEMENT Transactions involving derivative and non-derivative financial instruments involve varying degrees of both market and credit risk. The Company monitors its exposure to market and credit risk on a daily basis and through a variety of financial, security position and credit exposure reporting and control procedures. MARKET RISK Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, foreign currency exchange rates or the fair values of the securities underlying the instrument. The Company has a variety of methods to monitor its market risk profile. The senior management of each business group is responsible for reviewing trading positions, exposures, profits and losses, and trading strategies on a daily basis. The Company also has an independent risk management group which aids in setting and monitoring risk management policies of the Company, including monitoring adherence to the established limits, performing market risk modeling, and reviewing trading positions and hedging strategies. The Asset/Liability Management Committee, comprised of senior corporate and business unit managers, is responsible for establishing trading position and exposure limits. Market risk modeling is based on estimating loss exposure through daily stress testing. These results are compared to daily limits, and exceptions are subject to review and approval by senior management. Other market risk control procedures include monitoring inventory agings, reviewing traders' marks and regular meetings between the senior management of the business groups and the risk management group. CREDIT RISK IN PROPRIETARY TRANSACTIONS Counterparties to the Company's proprietary trading, hedging, financing and arbitrage activities are primarily financial institutions, including brokers and dealers, banks and institutional clients. Credit losses could arise should counterparties fail to perform and the value of any collateral proves inadequate. The Company manages credit risk by monitoring net exposure to individual counterparties on a daily basis, monitoring credit limits and requiring additional collateral where appropriate. Derivative credit exposures are calculated, aggregated and compared to established limits by the credit department. Credit reserve requirements are determined by senior management in conjunction with the Company's continuous credit monitoring procedures. Historically, reserve requirements arising from instruments with off-balance-sheet risk have not been material. Receivables and payables with brokers and dealers, and agreements to resell and repurchase securities are generally collateralized by cash, U.S. government and government-agency securities, and letters of credit. The market value of the initial collateral received is, at a minimum, equal to the contract value. Additional collateral is requested when considered necessary. The Company may pledge clients' margined securities as collateral in support of securities loaned and bank loans as well as to satisfy margin requirements at clearing organizations. The amounts loaned or pledged are limited to the extent permitted by applicable margin regulations. Should the counterparty fail to return the clients' securities, the Company may be required to replace them at prevailing market prices. At December 31, 1995, the market value of client securities loaned to other brokers approximated the amounts due or collateral obtained. CREDIT RISK IN CLIENT ACTIVITIES Client transactions are entered on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. Amounts loaned are limited by margin regulations of the Federal Reserve Board and other regulatory authorities and are subject to the Company's credit review and daily monitoring procedures. Market declines could, however, reduce the value of any collateral below the principal amount loaned, plus accrued interest, before the collateral can be sold. Client transactions include positions in commodities and financial futures, trading liabilities and written options. The risk to the Company's clients in these transactions can be substantial, principally due to price volatility which can reduce the clients' ability to meet their obligations. Margin deposit requirements pertaining to commodity futures and options transactions are generally lower than those for exchange-traded securities. To the extent clients are unable to meet their commitments to the Company and margin deposits are insufficient to cover outstanding liabilities, the Company may take market action and credit losses could be realized. Trades are recorded on a settlement date basis. Should either the client or broker fail to perform, the Company may be required to complete the transaction at prevailing market prices. Trades pending at December 31, 1995 were settled without adverse effect on the Company's financial statements, taken as a whole. ---------------- PAGE 52 28 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk that arise from financial instruments (whether on- or off-balance-sheet) exist for groups of counterparties when they have similar economic characteristics that would cause their ability to meet obligations to be similarly affected by economic, industry, or geographic factors. As a major securities firm, the Company engages in activities with a broad range of corporations, governments, and institutional and individual investors. The Company has no significant exposure to any individual counterparty. The Company seeks to control its credit risk and the potential for risk concentration through a variety of reporting and control procedures described above. The Company's most significant industry concentration, which arises within its normal course of business activities, is financial institutions including banks, brokers and dealers, mutual funds and insurance companies. At December 31, 1995, the Company had outstanding resale agreements and securities borrowed of $8,502,505 with brokers and dealers, and $7,032,233 with commercial banks which were collateralized by cash and securities of approximately equal fair value. - ------------------------------------------------------------------------------- NOTE 13: COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space and equipment under noncancelable operating lease agreements which expire at various dates through 2014. As of December 31, 1995, the aggregate minimum future rental payments required by operating leases with initial or remaining lease terms exceeding one year are as follows: - -------------------------------------------------------------------------------
1996 $ 146,640 1997 134,646 1998 120,294 1999 112,868 2000 78,731 Thereafter 404,511 --------- $ 997,690 =========
Rentals are subject to periodic escalation charges and do not include amounts payable for insurance, taxes and maintenance. In addition, minimum payments have not been reduced by future minimum sublease rental income of $27,680. For the years ended December 31, 1995, 1994 and 1993, rent expense under operating leases was $169,852, $145,508 and $143,120, respectively. OTHER COMMITMENTS AND CONTINGENCIES At December 31, 1995 and 1994, the Company was contingently liable under unsecured letters of credit totaling $114,090 and $212,211, respectively, which approximates fair value. In addition, at December 31, 1995, certain of the Company's subsidiaries were contingently liable as issuer of $86,160 of notes payable to managing general partners of various limited partnerships pursuant to Internal Revenue Service guidelines. There is no market for these guarantees, therefore, it is not practicable to estimate their fair value. In the opinion of management, these contingencies will not have a material adverse effect on the Company's consolidated financial statements, taken as a whole. The Company also had commitments to invest up to $9,100 in certain investment funds as of December 31, 1995. In February 1996, two limited partnerships, in which a subsidiary of the Company serves as the general partner and certain key employees serve as the limited partners, entered into two unsecured credit facilities with a commercial bank under which the bank agreed to make unsecured loans to the limited partnerships of up to $77,525. The Company entered into an agreement with the bank to purchase the loans under certain specific circumstances. At December 31, 1995 and 1994, securities with a fair value of $441,612 and $674,669, respectively, had been loaned or pledged as collateral for securities borrowed of approximately equal fair value. In meeting the financing needs of certain of its clients, PWI has issued standby letters of credit which amounted to $20,322 at December 31, 1995. The standby letters of credit are fully collateralized by marginable securities. In the normal course of business, the Company enters into when-issued transactions and underwriting ----------------- PAGE 53 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- commitments. Settlement of these transactions at December 31, 1995 would not have had a material impact on the Company's consolidated financial statements, taken as a whole. The Company has been named as defendant in numerous legal actions in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management of the Company, after consultation with various counsel handling such matters, these actions will be resolved with no material adverse effect on the Company's consolidated financial statements, taken as a whole. - ------------------------------------------------------------------------------- NOTE 14: STOCK OPTIONS AND STOCK AWARDS Under the Company's various Stock Option and Award Plans (the "Plans"), officers and other key employees are granted options (both non-qualified stock options and incentive stock options) to purchase shares of common stock at a price not less than the fair market value of the stock on the date the option is granted. Options for the Company's common stock have also been granted to limited partnerships, in which key employees of the Company are limited partners, and to non-employee directors. Options are exercisable at either the date of grant, in ratable installments or otherwise, generally over a period of one to four years from the date of grant. The rights generally expire within ten years after the date of grant. The activity during the years ended December 31, 1993, 1994, and 1995 was as follows:
Number of Option price Shares per share - ------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1992 (4,501,062 exercisable) 9,996,304 $ 6.55 - 16.27 Granted 5,244,957 14.75 - 20.42 Exercised (2,425,546) 6.55 - 19.47 Terminated (534,760) 7.22 - 19.47 ---------------------------- Options outstanding at December 31, 1993 (2,776,678 exercisable) 12,280,955 6.55 - 20.42 Granted 4,095,550 14.44 - 18.67 Exercised (574,586) 6.55 - 16.29 Terminated (630,309) 7.14 - 19.46 ---------------------------- Options outstanding at December 31, 1994 (5,201,831 exercisable) 15,171,610 6.55 - 20.42 Granted 5,666,430 14.44 - 20.13 Exercised (2,934,098) 6.55 - 19.46 Terminated (958,519) 6.55 - 19.46 ---------------------------- Options outstanding at December 31, 1995 (3,188,665 exercisable) 16,945,423 $ 6.55 - 20.42 ============================
The Plans also provide for the granting of cash and restricted stock awards, stock appreciation rights, restricted stock units, stock purchase rights, performance units and other stock based awards. The Company had no stock appreciation rights or stock purchase rights outstanding at December 31, 1995. Restricted stock awards are granted to key employees, whereby shares of the Company's common stock are awarded in the name of the employee, who has all rights of a stockholder, subject to certain sale and transfer restrictions. The awards generally contain restrictions on sales and transfer ranging from one to three years. The restricted stock awards are subject to forfeiture if the employee is terminated prior to the prescribed restriction period. During the years ended December 31, 1995, 1994 and 1993, the Company awarded 2,935,843, 2,431,882 and 3,628,205 shares, respectively, of restricted stock, net of forfeitures. The market value of the restricted shares awarded has been recorded as unamortized cost of restricted stock and is shown as a separate component of stockholders' equity. The unamortized cost of restricted stock is being amortized over the restricted period. The charge to compensation expense, net of forfeitures, amounted to $51,908, $44,073 and $37,513, in the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, there were 6,560,893 and 5,319,467 shares, respectively, available for future stock option, common stock and restricted stock awards under these Plans. ----------------- PAGE 54 30 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- NOTE 15: EMPLOYEE BENEFIT PLANS PENSION PLAN The Company has a non-contributory defined benefit pension plan (the "Plan"), which provides benefits to eligible employees. Pension expense for the years ended 1995, 1994 and 1993 for the Plan included the following components:
1995 1994 1993 - --------------------------------------------------------------------------------------------- Service cost for benefits earned during the period $ 14,641 $ 14,626 $ 9,906 Interest cost on projected benefit obligation 17,024 16,448 14,017 Actual return on Plan assets (47,269) 1,777 (20,203) Net amortization and deferral 32,424 (15,167) 9,247 ------------------------------------- Net periodic pension cost $ 16,820 $ 17,684 $ 12,967 =====================================
The following table summarizes the funded status and the prepaid pension asset included in "Other assets" on the Company's Consolidated Statement of Financial Condition at December 31, 1995 and 1994:
1995 1994 - --------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $254,656 $182,032 Non-vested 8,185 5,851 --------------------- Accumulated benefit obligation 262,841 187,883 Effect of projected future compensation levels 15,273 10,821 --------------------- Projected benefit obligation 278,114 198,704 Plan assets at fair value 274,505 216,761 --------------------- Plan assets in excess of (less than) projected benefit obligation (3,609) 18,057 Unrecognized net assets existing at January 1, 1987 being recognized over fifteen years (5,365) (6,205) Unrecognized prior service cost 5,817 7,854 Unrecognized net loss and actuarial experience 81,593 51,551 --------------------- Prepaid pension asset at year end $ 78,436 $ 71,257 =====================
The projected benefit obligation for the Plan was determined for 1995 and 1994 using assumed discount rates of 7 1/4% and 8 3/4%, respectively, and an assumed rates of compensation increase of 5%. The weighted average assumed rate of return on Plan assets was 9 1/2% for 1995, 1994 and 1993. The Company's funding policy is to contribute to the Plan amounts that can be deducted for federal income tax purposes. The Company's contributions paid for the Plan years 1995, 1994 and 1993 were $24,000, $10,295 and $66,604, respectively. Plan assets consist primarily of equity securities and U.S. government and agency obligations. SAVINGS INVESTMENT PLAN The PaineWebber Savings Investment Plan ("SIP") is a defined contribution plan for eligible employees of the Company. Under SIP, employee contributions are matched by the Company on a graduated scale, which for 1995 and 1994, was based in part on the Company's pre-tax earnings and the compensation of eligible employees. For 1993, the scale was based, in part, on the Company's pre-tax return on equity and the compensation of eligible employees. The provision for Company contributions for amounts contributed or to be contributed in cash or stock to SIP amounted to approximately $7,400, $5,900 and $3,500 for the years ended December 31, 1995, 1994 and 1993, respectively. OTHER BENEFIT PLANS The Company also provides certain life insurance and health care benefits to employees. The costs of such benefits for the years ended December 31, 1995, 1994 and 1993 were $55,600, $50,800 and $45,800, respectively. ----------------- PAGE 55 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 16: INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For financial reporting purposes, net deferred tax assets are included in "Other assets" in the Consolidated Statement of Financial Condition. Deferred tax assets are reflected without reduction for a valuation allowance. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 - --------------------------------------------------------------------------------------------------- Deferred tax assets: Employee benefits $ 98,389 $ 73,783 $57,489 Deferred deductions 99,205 44,388 30,735 Valuation of trading assets and investments - - 6,857 Other 26,998 28,456 - ----------------------------------- Total deferred tax assets 224,592 146,627 95,081 ----------------------------------- Deferred tax liabilities: Tax over book depreciation 15,543 14,135 13,087 Accelerated deductions and deferred income 16,809 10,379 24,608 Safe harbor leases 5,567 6,135 6,625 Valuation of trading assets and investments 5,270 17,154 - Other 3,711 11,910 12,674 ----------------------------------- Total deferred tax liabilities 46,900 59,713 56,994 ----------------------------------- $177,692 $ 86,914 $38,087 ===================================
The significant components of the provision for income taxes for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------- Current: Federal $ 64,953 $12,224 $103,890 State 27,033 9,930 35,403 Foreign 20,719 11,448 18,491 ------------------------------------ Total current 112,705 33,602 157,784 ------------------------------------ Deferred: Federal (65,601) (17,947) 7,935 State (25,177) (6,490) (737) Foreign - 3,589 (3,589) ------------------------------------ Total deferred (90,778) (20,848) 3,609 ------------------------------------ $ 21,927 $12,754 $161,393 ====================================
----------------- PAGE 56 32 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- The reconciliation of income taxes, computed at the statutory federal rate, to the provision for income taxes recorded for the years ended December 31, 1995, 1994 and 1993, is as follows:
1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % ------------------------------------------------------ Tax at statutory federal rate $35,937 35.0% $15,536 35.0% $142,652 35.0% State and local income taxes, net of federal tax benefit 1,206 1.2 2,236 5.0 22,533 5.5 Foreign rate differential (2,500) (2.4) (1,141) (2.6) (4,636) (1.1) Nontaxable dividends and interest (9,754) (9.5) (3,545) (8.0) (2,383) (0.6) Restricted stock dividends (1,025) (1.0) (864) (1.9) (636) (0.2) Nondeductible expenses 2,779 2.7 2,743 6.2 1,055 0.3 Other, net (4,716) (4.6) (2,211) (5.0) 2,808 0.7 --------------------------------------------------------- $21,927 21.4% $12,754 28.7% $161,393 39.6% =========================================================
Income taxes paid for the years ended December 31, 1995, 1994 and 1993 were $28,248, $68,455 and $128,089, respectively. Undistributed earnings of the Company's foreign subsidiaries are considered to be permanently reinvested and, accordingly, no provision for U.S. income taxes is required on such earnings. As of December 31, 1995, such earnings were estimated to be $128,000. The estimated U.S. income taxes that would be payable upon the repatriation of such earnings are not material. - ------------------------------------------------------------------------------- NOTE 17: GEOGRAPHIC DATA The Company's business activities are highly integrated and constitute a single industry segment for purposes of SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." The table below presents information about the Company's operations by geographic area. Calculations are based on the location of the Company's individual legal entities within their respective subsidiaries. Due to the global nature of the financial markets and the integration of the Company's business activities, the Company believes that the amounts derived in this manner are not necessarily meaningful in understanding its business.
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Total revenues: United States $ 5,107,476 $ 3,806,784 $ 3,848,280 Non-U.S.* 212,614 157,293 156,437 ----------------------------------------- $ 5,320,090 $ 3,964,077 $ 4,004,717 ========================================= Net revenues: United States $ 3,161,799 $ 2,399,884 $ 2,731,634 Non-U.S.* 188,480 135,540 142,371 ----------------------------------------- $ 3,350,279 $ 2,535,424 $ 2,874,005 ========================================= Income before taxes: United States $ 58,498 $ 220 $ 378,078 Non-U.S.* 44,179 44,165 29,498 ----------------------------------------- $ 102,677 $ 44,385 $ 407,576 ========================================= Identifiable assets: United States $36,575,206 $29,758,945 $ 33,997,979 Non-U.S.* 9,096,088 6,097,180 3,028,930 ------------------------------------------ $45,671,294 $35,856,125 $ 37,026,909 ==========================================
*Predominantly the United Kingdom. ----------------- PAGE 57 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 18: EARNINGS PER COMMON SHARE Earnings per common share is computed by dividing net income, adjusted for preferred stock dividends and any interest savings, by the weighted average common and common equivalent shares outstanding during each period presented. Common equivalent shares include common shares issuable under the Company's stock option and award plans, the conversion of convertible debentures and preferred stock, and restricted stock outstanding. In 1995 and 1994, the Company computed its earnings per common share under the modified treasury stock method in accordance with Accounting Principles Board Opinion No. 15, "Earnings Per Share." The modified treasury stock method is used when the number of shares obtainable upon exercise of outstanding options, warrants and their equivalents, in the aggregate, exceeds 20% of the Company's outstanding common stock. Under this method, all options, warrants and their equivalents are assumed to have been exercised, whether or not dilutive, and the aggregate proceeds used to repurchase up to 20% of the outstanding shares. Any remaining proceeds are then used to reduce short-term borrowings. In 1993, the Company computed its earnings per common share under the treasury stock method which assumes the aggregate proceeds obtainable upon exercise of dilutive options, warrants and their equivalents were used to repurchase outstanding shares. The Company calculated primary and fully-diluted earnings per common share as follows:
Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Primary: Weighted average common shares outstanding 92,030,417 71,693,020 68,535,178 Incremental stock options and awards 9,241,691 6,370,453 5,824,821 Weighted average effect of Cumulative Participating Convertible Voting Preferred Stock - - 4,329,959 ---------------------------------------- Weighted average common and common equivalent shares 101,272,108 78,063,473 78,689,958 ======================================== Net income $80,750 $31,631 $246,183 Interest savings on convertible debentures and short-term borrowings 3,322 1,330 - Preferred dividend requirements (29,291) (1,219) (1,834) ----------------------------------------- Net income applicable to common shares $54,781 $31,742 $244,349 ========================================= Primary earnings per common share $ 0.54 $ 0.41 $ 3.11 ========================================= Fully Diluted: Weighted average common shares outstanding 92,030,417 71,693,020 68,535,178 Incremental stock options and awards 9,241,691 7,673,929 6,785,963 Weighted average effect of Cumulative Participating Convertible Voting Preferred Stock - - 4,329,959 Weighted average common shares issuable assuming conversion of 8% Debentures and equity securities - 1,647,190 4,676,191 ----------------------------------------- Weighted average common and common equivalent shares 101,272,108 81,014,139 84,327,291 ========================================= Net income $80,750 $31,631 $246,183 Interest savings on convertible debentures and short-term borrowings 1,526 2,181 3,004 Preferred dividend requirements (29,291) (969) - ----------------------------------------- Net income applicable to common shares $52,985 $32,843 $249,187 ========================================= Fully diluted earnings per common share $ 0.52 $ 0.41 $ 2.95 =========================================
---------------- PAGE 58 34 PAINEWEBBER ANNUAL REPORT 1995 - -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS PAINE WEBBER GROUP INC. We have audited the accompanying consolidated statements of financial condition of Paine Webber Group Inc. as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Paine Webber Group Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. New York, New York January 31, 1996 /s/ Ernst & Young LLP ----------------------- ----------------- PAGE 59 35 FIVE YEAR FINANCIAL SUMMARY (in thousands of dollars except share and per share amounts)
Years Ended December 31, 1995(1) 1994(2) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % Amount % Amount % ------------------------------------------------------------------------------------------------- Revenues Commissions Listed securities $ 734,525 21.9 $ 504,829 19.9 $ 525,541 18.3 $ 434,957 17.5 $ 390,434 18.5 Mutual funds 198,897 5.9 156,242 6.2 161,661 5.6 127,425 5.1 104,087 4.9 Options 81,992 2.5 75,494 3.0 74,058 2.6 65,615 2.6 47,092 2.2 Direct investments 74 0.0 858 0.0 4,553 0.2 15,288 0.6 24,937 1.2 Commodities 47,456 1.4 38,171 1.5 55,374 1.9 71,900 2.9 67,463 3.2 Over-the-counter securities 106,065 3.2 71,254 2.8 77,471 2.7 53,874 2.2 42,250 2.0 Insurance 103,757 3.1 123,446 4.9 97,469 3.4 52,819 2.2 46,785 2.2 ------------------------------------------------------------------------------------------------- 1,272,766 38.0 970,294 38.3 996,127 34.7 821,878 33.1 723,048 34.2 ------------------------------------------------------------------------------------------------- Principal transactions Corporate securities 627,203 18.7 330,480 13.0 345,360 12.0 293,422 11.8 365,815 17.4 U.S. government and agency obligations 98,557 3.0 82,584 3.3 321,514 11.2 331,071 13.3 205,565 9.7 Municipal obligations 188,441 5.6 106,374 4.2 112,570 3.9 95,296 3.8 77,912 3.7 ------------------------------------------------------------------------------------------------- 914,201 27.3 519,438 20.5 779,444 27.1 719,789 28.9 649,292 30.8 ------------------------------------------------------------------------------------------------- Investment banking Selling concessions and underwriting fees: Corporate securities 171,903 5.1 136,494 5.4 223,745 7.8 217,180 8.8 160,950 7.6 Municipal obligations 35,842 1.1 32,228 1.3 55,573 1.9 40,705 1.6 30,288 1.4 Underwriting management fees: Corporate securities 35,596 1.0 44,592 1.7 70,510 2.4 51,394 2.1 37,485 1.8 Municipal obligations 7,736 0.2 7,413 0.3 13,303 0.5 9,385 0.4 6,033 0.3 Private placement and other fees 75,700 2.3 63,776 2.5 50,512 1.8 65,657 2.6 62,847 3.0 ------------------------------------------------------------------------------------------------- 326,777 9.7 284,503 11.2 413,643 14.4 384,321 15.5 297,603 14.1 ------------------------------------------------------------------------------------------------- Asset management 399,540 11.9 356,368 14.1 325,690 11.3 267,088 10.8 217,433 10.3 ------------------------------------------------------------------------------------------------- Other 150,056 4.5 138,902 5.5 113,253 3.9 76,114 3.1 64,271 3.1 ------------------------------------------------------------------------------------------------- Interest Resale agreements 850,013 25.4 538,532 21.2 419,520 14.6 382,766 15.4 457,507 21.7 Securities borrowed 143,560 4.3 88,552 3.5 46,519 1.6 33,667 1.3 67,600 3.2 Trading inventory 876,583 26.2 569,990 22.5 621,828 21.6 463,956 18.7 443,114 21.0 Client margin accounts 309,429 9.2 220,382 8.7 158,440 5.5 132,388 5.3 133,711 6.4 Other 77,165 2.3 277,116 10.9 130,253 4.6 81,764 3.3 112,316 5.3 ------------------------------------------------------------------------------------------------- 2,256,750 67.4 1,694,572 66.8 1,376,560 47.9 1,094,541 44.0 1,214,248 57.6 ------------------------------------------------------------------------------------------------- Total revenues 5,320,090 158.8 3,964,077 156.4 4,004,717 139.3 3,363,731 135.4 3,165,895 150.1 Interest expense 1,969,811 (58.8) 1,428,653 (56.4) 1,130,712 (39.3) 879,242 (35.4) 1,056,124 (50.1) ------------------------------------------------------------------------------------------------- Net revenues $3,350,279 100.0 $2,535,424 100.0 $2,874,005 100.0 $2,484,489 100.0 $2,109,771 100.0 =================================================================================================
--------------- PAGE 60 36 FIVE YEAR FINANCIAL SUMMARY (in thousands of dollars except share and per share amounts)
Years Ended December 31, 1995(1) 1994(2) 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % Amount % Amount % ------------------------------------------------------------------------------------------------- Non-interest expenses Compensation and benefits $ 2,004,585 59.8 $1,546,467 61.0 $1,628,889 56.7 $1,432,930 57.7 $1,228,070 58.2 Office and equipment 266,291 7.9 225,375 8.9 211,880 7.4 192,948 7.8 187,985 8.9 Communications 149,047 4.5 130,095 5.1 123,601 4.3 112,255 4.5 113,780 5.4 Business development 90,752 2.7 85,430 3.4 93,962 3.3 75,061 3.0 67,420 3.2 Brokerage, clearing and exchange fees 93,657 2.8 82,577 3.2 79,752 2.8 75,689 3.1 63,219 3.0 Professional services 101,911 3.0 78,856 3.1 66,825 2.2 59,820 2.4 52,479 2.5 Other 541,359 16.2 342,239 13.5 261,520 9.1 196,671 7.9 170,571 8.1 ------------------------------------------------------------------------------------------------- Total non-interest expenses 3,247,602 96.9 2,491,039 98.2 2,466,429 85.8 2,145,374 86.4 1,883,524 89.3 ------------------------------------------------------------------------------------------------- Income before taxes 102,677 3.1 44,385 1.8 407,576 14.2 339,115 13.6 226,247 10.7 Provision for income taxes 21,927 0.7 12,754 0.5 161,393 5.6 125,940 5.0 75,531 3.6 ------------------------------------------------------------------------------------------------- Net income $ 80,750 2.4 $ 31,631 1.3 $ 246,183 8.6 $ 213,175 8.6 $ 150,716 7.1 ================================================================================================= Earnings per common share:(3) Primary $ 0.54 $ 0.41 $ 3.11 $ 2.83 $ 2.10 Fully diluted $ 0.52 $ 0.41 $ 2.95 $ 2.37 $ 1.67 ================================================================================================= Weighted average common shares:(3) Primary 101,272,108 78,063,473 78,689,958 69,379,863 60,745,674 Fully diluted 101,272,108 81,014,139 84,327,291 92,365,438 95,178,175 ================================================================================================= Dividends declared per share: Common stock(3) $ .48 $ .48 $ .38 $ .31 $ .24 Preferred stock: Redeemable Preferred Stock $ 9.00 $ -- $ -- $ -- $ -- Convertible Preferred Stock $ 6.00 $ -- $ -- $ -- $ -- 7% Preferred Stock $ -- $ -- $ -- $ 2.336 $ 3.115 $1.375 Preferred Stock $ -- $ -- $ 1.241 $ 1.375 $ 1.375 Participating Preferred Stock $ -- $ -- $ .33 $ .053 $ -- =================================================================================================
(1) The 1995 results include after-tax charges of $146 million ($230 million before income taxes) related to the resolution of the issues arising from the Company's sale of public proprietary limited partnerships. (2) The 1994 results include after-tax costs of $36 million ($50 million before income taxes) and $34 million ($57 million before income taxes) related to the purchase of certain net assets and specific businesses of Kidder, Peabody Group Inc. and a non-recurring mutual fund charge, respectively. (3) All share and per share data have been restated to reflect three-for-two common stock splits in March 1994 and December 1991. --------------- PAGE 61 37 COMMON STOCK AND QUARTERLY INFORMATION - ------------------------------------------------------------------------------- COMMON STOCK DIVIDEND HISTORY During 1995, Paine Webber Group Inc. continued its policy of paying quarterly common stock dividends. Dividends declared during the last twelve quarters were as follows:
Calendar Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------------------- 1995 $ .12 $ .12 $ .12 $ .12 1994 .12 .12 .12 .12 1993 .08 .10 .10 .10
On February 1, 1996, Paine Webber Group Inc. declared its 1996 first quarter dividend of $0.12 per share. However, there is no assurance that dividends will continue to be paid in the future since they are dependent upon income, financial condition and other factors, including the restrictions described in Note 10 in the Notes to Consolidated Financial Statements. - ------------------------------------------------------------------------------- MARKET FOR COMMON STOCK The common stock of Paine Webber Group Inc. is listed on the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange. The following table summarizes the high and low sales prices per share of the common stock as reported on the Composite Tape for the periods indicated:
High Low - --------------------------------------------------------------------------- Calendar 1995 4th Quarter $ 23.13 $ 18.00 3rd Quarter 20.88 18.63 2nd Quarter 20.38 15.88 1st Quarter 18.13 14.38 ====================== Calendar 1994 4th Quarter $ 15.88 $ 12.75 3rd Quarter 17.13 14.13 2nd Quarter 17.50 15.00 1st Quarter 19.75 16.50 ======================
On February 16, 1996, the last reported sale price per share of common stock on the NYSE was $20.63. The approximate number of holders of record of Paine Webber Group Inc. common stock as of the close of business on February 16, 1996 was 6,528. Included as one holder of record is PaineWebber Incorporated, which holds securities beneficially owned by approximately 5,815 clients. - ------------------------------------------------------------------------------- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Earnings (loss) per Income (loss) Net common share (In thousands of dollars Total Net before Income Primary/Fully except per share amounts) Revenues Revenues taxes (loss) diluted - ----------------------------------------------------------------------------------------------------------- Calendar 1995 4th Quarter $ 1,374,377 $ 887,672 $ 78,803 (1) $ 58,798 (1) $ .52/.50 (1) 3rd Quarter 1,379,558 912,025 116,702 78,190 .71/.67 2nd Quarter 1,332,245 824,798 (145,613)(1) (90,548)(1) (1.06)/(1.06)(1) 1st Quarter 1,233,910 725,784 52,785 34,310 .27/.27 =============================================================================== Calendar 1994 4th Quarter $ 1,039,231 $ 614,567 $(40,499)(2) $(19,299)(2) $ (.28)/(.28)(2) 3rd Quarter 940,049 589,814 33,895 20,337 .27/.26 2nd Quarter 902,349 578,966 (41,758)(3) (25,055)(3) (.35)/(.35)(3) 1st Quarter 1,082,448 752,077 92,747 55,648 .71/.70 ===============================================================================
The sum of the quarterly earnings per common share amounts does not equal the annual amount reported, as per share amounts are computed independently for each quarter and the full year based on respective weighted average common and common equivalent shares outstanding during each period. (1) Includes after-tax charges of $125.9 million ($200 million before income taxes) and $20.1 million ($30 million before income taxes) in the second and fourth quarters, respectively, related to the resolution of the issues arising from the Company's sale of public proprietary limited partnerships. (2) Includes after-tax costs of $36 million ($50 million before income taxes) related to the Kidder acquisition. (3) Includes an after-tax charge of $34 million ($57 million before income taxes) related to a non-recurring mutual fund charge. ---------------- PAGE 62 EX-21 23 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 PAINE WEBBER GROUP INC. SUBSIDIARIES OF THE REGISTRANT A list of significant subsidiaries, all of which are consolidated, of Paine Webber Group Inc. (the "Company") as of December 31, 1995 and the state or jurisdiction in which organized follows. In each case, 100% of the voting securities are owned by the Company. Certain subsidiaries have been omitted because, in the aggregate, they do not constitute a significant subsidiary.
State or jurisdiction of incorporation or Name organization ---- ------------------ PaineWebber Incorporated Delaware Mitchell Hutchins Asset Management Inc. Delaware Correspondent Services Corporation (csc) Delaware PaineWebber International (U.K.) Ltd. United Kingdom PaineWebber Real Estate Inc. Delaware
EX-23 24 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Paine Webber Group Inc. of our report dated January 31, 1996, included in the 1995 Annual Report to Stockholders of Paine Webber Group Inc. We also consent to the incorporation by reference in the registration statements on Form S-8 (Registration Nos. 2-56284, 2- 64984, 2-74819, 2-78627, 2-81554, 2-87418, 2-92770, 33-2959, 33-20240, 33-22265, 33-39539, 33-40489, 33-45583, 33-65296, 33- 65298, 33-53489, 33-55451 and 33-55457) and on Form S-3 (Registration Nos. 2-99979, 33-7738, 33-29253, 33-33613, 33-38960, 33-39818, 33-47267, 33-58124, 33-53776, 33-51149 and 33-52695) of Paine Webber Group Inc. and in the related prospectuses, of our reports dated January 31, 1996 with respect to the consolidated financial statements and financial statement schedule of Paine Webber Group Inc. included and/or incorporated by reference in this 1995 Annual Report on Form 10-K for the year ended December 31, 1995. /s/ ERNST & YOUNG LLP NEW YORK, NEW YORK MARCH 26, 1996 EX-27 25 FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000075754 N/A 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 649,565 4,814,667 16,699,295 7,226,515 14,095,446 322,056 45,671,294 991,227 5,749,336 25,199,377 2,752,429 6,233,054 2,436,037 186,760 100,000 104,492 1,347,796 45,671,294 914,201 2,256,750 1,272,766 326,777 399,540 1,969,811 2,004,585 102,677 80,750 0 0 80,750 0.54 0.52
-----END PRIVACY-ENHANCED MESSAGE-----