-----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, J/Q55J0iTqZnyp2+6hkAnHUdSSwDDSrHFxiD8wK3Zal4Kjp/cKaQQr+bytvqvxK7 JwztVWuKl8tTuGcsLQcaeg== 0001010410-00-000021.txt : 20000418 0001010410-00-000021.hdr.sgml : 20000418 ACCESSION NUMBER: 0001010410-00-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCSHARES INC /PA CENTRAL INDEX KEY: 0000944792 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232802415 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25976 FILM NUMBER: 602570 BUSINESS ADDRESS: STREET 1: 300 NORTH THIRD ST CITY: PHILADELPHIA STATE: PA ZIP: 19106 BUSINESS PHONE: 2158292265 MAIL ADDRESS: STREET 1: 2300 PACKARD BLDG STREET 2: 111 S 15TH ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-K 1 UNITED BANCSHARES, INC. 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999. UNITED BANCSHARES, INC. ----------------------- (Exact name of registrant as specified in its charter) 0-25976 (Registrant's file number) PENNSYLVANIA 23-2802415 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 300 NORTH THIRD STREET, PHILADELPHIA, PA 19106 ---------------------------------------------- (Address of principal executive offices, including zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 829-2265 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE ---------------------------- (Title of Class) 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 ( ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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 [ ] There is no market for the Common Stock. None of the shares of the Registrant's stock were sold within 60 days of the filing of this Form 10-K. As of March 30, 2000 the aggregate number of the shares of the Registrant's Common Stock outstanding was 1,028,793. 1 Registrant also has 500,000 authorized shares of Series Preferred Stock. The Board of Directors of United Bancshares, Inc. designated one series of the Series Preferred Stock (the "Series A Preferred Stock") of which 143,150 shares were outstanding as of March 31, 2000. The Board of Directors designated a subclass of the common stock, designated Class B Common Stock, by filing of Articles of Amendment with the Commonwealth of Pennsylvania on September 30, 1998. Of the 2,000,000 shares of Common Stock authorized, 250,000 have been designated Class B Common Stock. As of March 31, 2000, 191,667 shares of Class B Common Stock were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference as filed with the Registrant's 1998 Form 10-K: 1. Consolidated Balance Sheets at December 31, 1998 and 1997. 2. Consolidated Statements of Operations for the years ended December 31, 1998 and 1997. 3. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997. 4. Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997. 5. Articles of Incorporation of the Bank and UBS 6. Bylaws of the Bank and UBS 7. Voting Trust Agreements 8. Long Term Incentive Compensation Plan 9. Lease Agreements for the Bank's premises. 10. Employment Agreement among Registrant, the Bank and Dr. Emma C. Chappell 2 PART I ITEM 1 BUSINESS UNITED BANCSHARES, INC. United Bancshares, Inc. ("Registrant" or "UBS") is a holding company for United Bank of Philadelphia (the "Bank"). UBS was incorporated under the laws of the Commonwealth of Pennsylvania on April 8, 1993. The Registrant became the Bank Holding Company of the Bank, pursuant to the Bank Holding Company Act of 1956, as amended, on October 14, 1994. The Bank commenced operations on March 23, 1992. UBS provides banking services through the Bank. The principal executive offices of UBS and the Bank are located at 300 North Third Street, Philadelphia, Pennsylvania 19106. The Registrant's telephone number is (215) 829-2265. As of March 31, 2000, UBS and the Bank had a total of 100 employees. UNITED BANK OF PHILADELPHIA The Bank, an African-American-controlled, state-chartered member bank of the Federal Reserve System is regulated by both the Federal Reserve Board and the Commonwealth of Pennsylvania Department of Banking (the "Department"). The deposits held by the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank conducts all its banking activities through its eight offices located as follows: (i) MARKET STREET BRANCH 714 Market Street, Philadelphia, PA; (ii) CENTER CITY BRANCH Two Penn Center, Philadelphia, PA; (iii) WEST PHILADELPHIA BRANCH 37th & Lancaster Avenues, Philadelphia, PA; (iv) UNIVERSITY CITY BRANCH 40th and Chestnut Streets, Philadelphia, PA; (v) MOUNT AIRY BRANCH 1620 Wadsworth Avenue, Philadelphia, PA; (vi) FRANKFORD BRANCH 4806 Frankford Avenue, Philadelphia, PA; (vii) WEST GIRARD BRANCH 2836 West Girard Avenue, Philadelphia, PA; and (viii) PROGRESS PLAZA BRANCH 1015 North Broad Street, Philadelphia, PA. Through these locations, the Bank offers a broad range of commercial and consumer banking services. At December 31, 1999, the Bank had total deposits aggregating approximately $124.8 million and had total net loans outstanding of approximately $59.4 million. Although the Bank's primary service area for Community Reinvestment Act purposes is Philadelphia County, it also services, generally, the Delaware Valley, which consists of 3 portions of Montgomery, Bucks, Chester, and Delaware Counties in Pennsylvania; New Castle County in Delaware; and Camden, Burlington, and Gloucester Counties in New Jersey. The city of Philadelphia is comprised of 353 census tracts and, based on 1990 census data, 204 or 58% of these are designated as low to moderate-income tracts while 105 or 30% are characterized both as low to moderate-income and minority tracts. The Bank's primary service area consists of a population of 1,577,815, which includes a minority population of 752,309. The Bank engages in the commercial banking business, serving the banking needs of its customers with a particular focus on, and sensitivity to, groups that have been traditionally under-served, including Blacks, Hispanics and women. The Bank offers a wide range of deposit products, including checking accounts, interest-bearing NOW accounts, money market accounts, certificates of deposit, savings accounts and Individual Retirement Accounts. The focus of the Bank's lending activities is on the origination of commercial, consumer and residential loans. A broad range of credit products are offered to the businesses and consumers in the Bank's service area, including commercial loans, mortgage loans, student loans, home improvement loans, auto loans, personal loans, home equity loans and home equity lines of credit. At March 31, 2000 the Bank's maximum legal lending limit was approximately $1.2 million per borrower. However, the Bank's internal Loan Policy limits the Bank's lending to $500,000 per borrower in order to diversify the loan portfolio. The Bank has established relationships with correspondent banks to participate in loans that exceed the Bank's internal policies or legal lending limits. The Board of Directors of the Bank maintains the ability to waive its internal lending limit upon consideration of a loan. The Board of Directors has exercised this power with respect to loans and participations on a number of occasions. However, the Bank maintains no credit that exceeds its legal lending limit. The Bank also offers commercial and retail products. In the area of commercial loans, the Bank has flexibility to develop loan arrangements targeted at a customer's objectives. Typically, these loans are term loans or revolving credit arrangements with interest rate, collateral and repayments terms, varying based upon the type of credit, and various factors used to evaluate risk. The Bank participates in the government-sponsored Small Business Administration ("SBA") lending program and when the Bank deems it appropriate, obtains SBA guarantees for up to 90% of the loan amount. This guaranty effectively reduces the Bank's exposure to loss in its commercial loan portfolio. Commercial loans are typically made of the basis of cash flow to support repayment with secondary reliance placed on the underlying collateral. 4 The Bank's consumer loan program includes installment loans for home improvement and the purchase of consumer goods and automobiles, student loans, home equity and VISA secured and unsecured revolving lines of credit, and checking overdraft protection. The Bank also offers residential mortgage loans to its customers. The Bank's concentration in the retail area is in the category of student loans where it can minimize its risk of non-payment with government guaranties. In addition, the Bank offers safe deposit boxes, travelers' checks, money orders, direct deposit of payroll and Social Security checks, wire transfers and access to regional and national automated teller networks as well as international and trust services through correspondent institutions. COMPETITION There is substantial competition among financial institutions in the Bank's service area. The Bank competes with local, regional and national commercial banks, as well as savings banks and savings and loan associations. Many of these banks and financial institutions have an amount of capital that allows them to do more advertising and promotion and to provide a greater range of services to customers. To date, the Bank has attracted, and believes it will continue to attract its customers from the deposit base of such existing banks and financial institutions largely due to the Bank's mission to service groups of people who have traditionally been under-served and by its devotion to personalized customer service. The Bank's strategy has been, and will continue to be, to emphasize personalized services with special sensitivity to the needs of Blacks, Hispanics and women and to offer competitive rates to borrowers and depositors. In order to compete, the Bank relies upon personal contacts by the officers, directors, advisory board and employees of the Bank to establish and maintain relationships with Bank customers. The Bank focuses its efforts on the needs of individuals and small and medium-sized businesses. In the event there are customers whose loan demands exceed the Bank's lending limit, the Bank will seek to arrange for such loans on a participation basis with other financial institutions and intermediaries. The Bank will also assist those customers requiring other services not offered by the Bank to obtain such services from its correspondent banks. 5 Registrant believes that a portion of the Bank's customer base is derived from customers who were dissatisfied with the level of service provided at larger financial institutions. While some of such customers have followed officers of those institutions who were hired by the Bank, others were attracted to the Bank by calling programs of its officers and referrals from other customers. The Bank has sought, in the past, and intends to continue in the future, to hire customer contact officers who have good relationships with desirable customers. These personal relationships, provision of a high level of customer services, and referrals from satisfied customers, form the basis of the Bank's competitive approach, as opposed to advertising, rate competition or the development of proprietary banking products, services or programs. In the past, the principal competition for deposits and loans have been other depository institutions. However, now the Bank also competes with other financial intermediaries such as brokerage houses offering investment vehicles to the general public. Other entities, both public and private, seeking to raise capital through the issuance and sale of debt or equity securities are also competitors with banks and savings and loan associations in the acquisition of deposits. In order to address the risk of deposit reduction due to investment in non-bank alternatives, the Bank has established a relationship with American Express Financial Advisors ("AEFA"). The Bank receives compensation from AEFA for each securities purchase made through AEFA, thus yielding additional fee income. SUPERVISION AND REGULATION Holding Company. UBS, as a Pennsylvania business corporation, is subject to the jurisdiction of the Securities and Exchange Commission (the "SEC") and of state securities commissions for matters relating to the offering and sale of its securities. Accordingly, if UBS wishes to issue additional shares of its Common Stock, in order, for example, to raise capital or to grant stock options, UBS will have to comply with the registration requirements of the Securities Act of 1933 as amended, or find an applicable exemption from registration. UBS is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and to supervision by the Federal Reserve Board. The BHC Act requires UBS to secure the prior approval of the Federal Reserve Board before it owns or controls, directly or indirectly, more than 5% of the voting shares of any corporation, including another bank. In addition, the BHC Act prohibits UBS from acquiring more than 5% of the voting shares of, or interest in, or all or substantially all of the assets of, any bank located outside Pennsylvania, unless such an acquisition is specifically authorized by laws of the state in which such bank is located. 6 A bank holding company also is prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any such company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be closely related to banking or managing or controlling banks as to be a proper incident thereto. In making this determination, the Federal Reserve Board considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects. As a bank holding company, UBS is required to file an annual report with the Federal Reserve Board and any additional information that the Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve Board may also make examinations of the holding company and any or all of subsidiaries. Further, under Section 106 of the 1970 amendments to the BHC Act and the Federal Reserve Board's regulation, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit or provision of credit of any property or services. The so called "anti-tying" provisions state generally that a bank may not extend credit, lease, sell property or furnish any service to a customer on the condition that the customer obtain additional credit or service from the bank, its bank holding company or any other subsidiary of its bank holding company, or on the condition that the customer not obtain other credit or services from a competitor of the bank, its bank holding company or any subsidiary of its bank holding company. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act and by state banking laws on any extensions of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of the bank holding company and on taking of such stock or securities as collateral for loans to any borrower. Under Pennsylvania law, UBS is permitted to control an unlimited number of banks. However, UBS would be required under the BHC Act to obtain the prior approval of the Federal Reserve Board before acquiring all or substantially all of the assets of any bank, or acquiring ownership or control of any voting shares of any other than the Bank, if, after such acquisition, would control more than 5% of the voting shares of such bank. The Bank. The deposits of Royal Bank of Pennsylvania are insured by the FDIC. The Bank is subject to supervision, regulation and examination by the Pennsylvania Department of Banking and by the FDIC. In addition, the Bank is subject to a variety of local, state and federal laws that affect its operation. 7 Under the Pennsylvania Banking Code of 1965, as amended, the ("Code"), the Registrant has been permitted to control an unlimited number of banks. However, the Registrant would be required under the Bank Holding Company Act to obtain the prior approval of the Federal Reserve Board before it could acquire all or substantially all of the assets of any bank, or acquiring ownership or control of any voting shares of any bank other than the Bank, if, after such acquisition, the registrant would own or control more than 5 percent of the voting shares of such bank. The Bank Holding Company Act has been amended by the Riegle-Neal Interstate Banking and Branching Act of 1994 which authorizes bank holding companies subject to certain limitations and restrictions to acquire banks located in any state. In 1995, the Code was amended to harmonize Pennsylvania law with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 to enable Pennsylvania institutions to participate fully in interstate banking and to remove obstacles to the choice by banks from other states engaged in interstate banking to select Pennsylvania as a head office location. Some of the more salient features of the amendment are described below. A bank holding company located in Pennsylvania, another state, the District of Columbia or a territory or possession of the United States may control one or more banks, bank and trust companies, national banks, interstate banks and, with the prior written approval of the Pennsylvania Department of Banking, may acquire control of a bank and trust company or a national bank located in Pennsylvania. A Pennsylvania-chartered institution may maintain branches in any other state, the District of Columbia, or a territory or possession of the United States upon the written approval of the Pennsylvania Department of Banking. Finally, a banking institution existing under the laws of another jurisdiction may establish a branch in Pennsylvania if the laws of the jurisdiction in which it is located permit a Pennsylvania-chartered institution or a national bank located in Pennsylvania to establish and maintain a branch in such jurisdiction on substantially the same terms and conditions. 8 In 1995, the Pennsylvania General Assembly enacted the Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act which, among other things, provides protection to lenders from environmental liability and remediation costs under the environmental laws for releases and contamination caused by others. A lender who engages in activities involved in the routine practices of commercial lending, including, but not limited to, the providing of financial services, holding of security interests, workout practices, foreclosure or the recovery of funds from the sale of property shall not be liable under the environmental acts or common law equivalents to the Pennsylvania Department of Environmental resources or to any other person by virtue of the fact that the lender engages in such commercial lending practices. A lender, however, will be liable if it, its employees or agents, directly cause an immediate release or directly exacerbate a release of regulated substances on or from the property, or knowingly and willfully compelled the borrower to commit an action which caused such release or violation of an environmental act. The Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act, however, does not limit federal liability which still exists under certain circumstances. A subsidiary bank of a holding company is subject to certain restrictions imposed by the Federal Reserve Act, as amended, on any extensions of credit to the bank holding company or its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries, and on taking such stock or securities as collateral for loans. The Federal Reserve Act, as amended, and Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, such legislation and regulations may affect the terms upon which any person who becomes a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. Federal law also prohibits the acquisition of control of a bank holding company without prior notice to certain federal bank regulators. Control is defined for this purpose as the power, directly or indirectly, to direct the management or policies of the bank or bank holding company or to vote 25% or more of any class of voting securities of the bank holding company. From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Bank. It cannot be predicted whether any such legislation will be adopted or how such legislation would affect the business of the Bank. As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank's business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business. 9 Under the Federal Deposit Insurance Act ("FDIC Act"), the FDIC possesses the power to prohibit institutions regulated by it (such as the Bank) from engaging in any activity that would be an unsafe and unsound banking practice or in violation of applicable law. Moreover, the FDIC Act: (i) empowers the FDIC to issue cease-and-desist or civil money penalty orders against the Bank or its executive officers, directors and/or principal shareholders based on violations of law or unsafe and unsound banking practices; (ii) authorizes the FDIC to remove executive officers who have participated in such violations or unsound practices; (iii) restricts lending by the Bank to its executive officers, directors, principal shareholders or related interests thereof; (iv) restricts management personnel of a bank from serving as directors or in other management positions with certain depository institutions whose assets exceed a specified amount or which have an office within a specified geographic area. Additionally, the FDIC Act provides that no person may acquire control of the Bank unless the FDIC has been given 60-days prior written notice and within that time has not disapproved the acquisition or extended the period for disapproval. In April 1995, regulators revised the Community Reinvestment Act ("CRA") with an emphasis on performance over process and documentation. Under the revised rules, the five-point rating scale is still utilized by examiners to assign a numerical score for a bank's performance in each of three areas: lending, service and investment. Under the CRA, the FDIC is required to: (i) assess the records of all financial institutions regulated by it to determine if these institutions are meeting the credit needs of the community (including low-and moderate-income neighborhoods) which they serve, and (ii) take this record into account in its evaluation of any application made by any such institutions for, among other things, approval of a branch or other deposit facility, office relocation, a merger or an acquisition of bank shares. The CRA also requires the federal banking agencies to make public disclosures of their evaluation of each bank's record of meeting the credit needs of its entire community, including low-and moderate-income neighborhoods. This evaluation will include a descriptive rate ("outstanding," "satisfactory," "needs to improve" or "substantial noncompliance") and a statement describing the basis for the rating. After its most recent examination of the Bank under CRA, the FDIC gave the Bank a CRA rating of satisfactory. Under the Bank Secrecy Act ("BSA"), banks and other financial institutions are required to report to the Internal Revenue Service currency transactions of more than $10,000 or multiple transactions in any one day of which the Bank is aware that exceed $10,000 in the aggregate or other lesser amounts. Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information required by the BSA or for filing a false or fraudulent report. 10 RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. The Bank believes that further merger activity within Pennsylvania is likely to occur in the future, resulting in increased concentration levels in banking markets within Pennsylvania and other significant changes in the competitive environment. The Riegle-Neal allows adequately capitalized and managed bank holding companies to acquire banks in any state starting one year after enactment (September 29, 1995). Another provision of the Riegle-Neal Act allows interstate merger transactions beginning June 1, 1997. States are permitted, however, to pass legislation providing for either earlier approval of mergers with out-of-state banks, or "opting-out" of interstate mergers entirely. Through interstate merger transactions, banks will be able to acquire branches of out-of-state banks by converting their offices into branches of the resulting bank. The Riegle-Neal Act provides that it will be the exclusive means for bank holding companies to obtain interstate branches. Under the Riegle-Neal Act, banks may establish and operate a "de novo branch" in any State that "opts-in" to de novo branching. Foreign banks are allowed to operate branches, either de novo or by merger. These branches can operate to the same extent that the establishment and operation of such branches would be permitted if the foreign bank were a national bank or state bank. All these changes are expected to intensify competition in local, regional and national banking markets. The Pennsylvania Banking Code has been amended to enable Pennsylvania institutions to participate fully in interstate banking (see discussion above). FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 GENERAL. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDIC Improvement Act") includes several provisions that have a direct impact on the Bank. The most significant of these provisions are discussed below. The FDIC is required to conduct periodic full-scope, on-site examinations of the Bank. In order to minimize losses to the deposit insurance funds, the FDIC Improvement Act establishes a format to more monitor FDIC-insured institutions and to enable prompt corrective action by the appropriate federal supervisory agency if an institution begins to experience any difficulty. The FDIC Improvement Act establishes five "capital" categories. They are: (1) well capitalized, (2) adequately capitalized, (3)undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized. The overall goal of these new capital measures is to impose more scrutiny and operational restrictions on banks as they descend the capital categories from well capitalized to critically undercapitalized. 11 Under Current regulations, a "well-capitalized" institution would be one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio, a 5% Tier 1 Leverage Ratio, and is not subject to any written order or final directive by the FDIC to meet and maintain a specific capital level. The Bank is presently categorized as a "well-capitalized" institution. An "adequately capitalized" institution would be one that meets the required minimum capital levels, but does not meet the definition of a "well-capitalized" institution. The existing capital rules generally require banks to maintain a Tier 1 Leverage Ratio of at least 4% and an 8% total risk-based capital ratio. Since the risk-based capital requirement to be in the form of Tier 1 capital, this also will mean that a bank would need to maintain at least 4% Tier 1 risk-based capital ratio. An institution must meet each of the required minimum capital levels in order to be deemed "adequately capitalized." The most recent notification dated February 10, 2000, from the Federal Reserve Bank categorized the Bank as "adequately capitalized" under the regulatory framework for prompt and corrective action. An "undercapitalized" institution is one that fails to meet one or more of the required minimum capital levels for an "adequately capitalized" institution. Under the FDIC Improvement Act, an "undercapitalized" institution must file a capital restoration plan and is automatically subject to restrictions on dividends, management fees and asset growth. In addition, the institution is prohibited from making acquisitions, opening new branches or engaging in new lines of business without the prior approval of its primary federal regulator. A number of other restrictions may be imposed. A "critically undercapitalized" institution is one that has a tangible equity (Tier 1 capital) ratio of 2% or less. In addition to the same restrictions and prohibitions that apply to "undercapitalized" and "significantly undercapitalized" institutions, any institution that becomes "critically undercapitalized" is prohibited from taking the following actions without the prior written approval of its primary federal supervisory agency: engaging in any material transactions other than in the usual course of business; extending credit for highly leveraged transactions; amending its charter or bylaws; making any material changes in accounting methods; engaging in certain transactions with affiliates; paying excessive compensation or bonuses; and paying interest on liabilities exceeding the prevailing rates in the institution's market area. In addition, a "critically undercapitalized" institution is prohibited from paying interest or principal on its subordinated debt and is subject to being placed in conservatorship or receivership if its tangible equity capital level is not increased within certain mandated time frames. Management cannot anticipate what changes Congress may enact, or, if enacted, their impact on UBS's financial position and reported results of operation. As a consequence of the extensive regulation of commercial banking activities in the United States, UBS's business is particularly susceptible to being affected by federal and state legislation and regulations that may increase the costs of doing business. 12 Regulatory Actions. In February 2000, as a result of a regulatory examination completed in December 1999, the Bank entered into a Written Agreement with its primary regulators with regard to, among other things, achievement of agreed-upon capital levels, implementation of a viable earnings/strategic plan, adequate funding of the allowance for loan losses, the completion of a management review and succession plan, and improvement in internal controls. See, Item 7., MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Beginning in 1996, the Bank has operated under a Supervisory Letter from its primary regulator. The Supervisory Letter prevents the Bank and the Company from declaring or paying dividends without the prior written approval of its regulators and prohibits the Bank and Company from issuing long-term debt. 13 ITEM 2 - PROPERTIES CORPORATE HEADQUARTERS In August, 1999 the Bank moved its corporate headquarters from the branch facility at 714 Market Street to 300 North Third Street, Philadelphia, Pennsylvania. It occupies this location pursuant to the terms of a 10 year lease from ECC Properties, LLC ("ECC Properties"). ECC Properties is a single member limited liability company owned by Emma C. Chappell, Chairman, President and CEO of the Bank. The facility consists of 25,000 square feet including executive offices, operations, finance, human resource, security and loss prevention functions. The entire facility is leased by the Bank. The Bank sublets approximately 2500 square feet to Philadelphia United Community Development Corporation and approximately 1400 square feet to Tucci & Tannenbaum, P.C. The aggregate rental for the facility is $26,927 per month. MARKET STREET BRANCH The Bank's Market Street Branch is located on the first floor of a multi-tenant retail and commercial office building at 714 Market Street, Philadelphia, PA 19106. The Bank occupies approximately 5,700 square feet of space pursuant to a lease which expires on February 28, 2002. The lease has renewal options for two five-year periods and is subject to escalation clauses. The first floor contains a banking lobby, the vault and customer service area, as well as the Bank's loan department. The aggregate monthly rent for this location is $9,069. MT. AIRY BRANCH The Bank operates a branch at 1620 Wadsworth Avenue, in the Mt. Airy section of Philadelphia. This facility, comprising a retail banking lobby, teller area, offices, vault and storage space is currently leased at a monthly rental of $3,375. CENTER CITY BRANCH The Bank operates a branch location at Two Penn Center, 15th Street and JFK Boulevard, Philadelphia, PA. The Bank leases approximately 4,769 square feet at its Two Penn Center location. The space includes lobby, teller area, customer service area, primary lending area and administrative offices, as well as a vault. The aggregate monthly rent for this location is $13,115. 14 FRANKFORD BRANCH In 1995, the Bank purchased a branch facility at 4806 Frankford Avenue. The main floor of the facility houses teller and customer service areas. The remainder of the facility is utilized as storage. WEST GIRARD BRANCH The Bank leases a facility located at 2836 West Girard Avenue. The facility is comprised of a teller area, customer service area, lobby, vault and administrative offices. The aggregate monthly rental for the facility is $1,375. A copy of this lease is submitted as an exhibit hereto. WEST PHILADELPHIA BRANCH On July 22, 1996, the Bank acquired a branch location at 3750 Lancaster Avenue from PNC Bank. The facility is comprised of approximately 3,000 square feet. The main floor houses teller and customer service areas, a drive-up teller facility and automated teller machine. The basement provides storage for the facility. The aggregate monthly rental is approximately $2,625 exclusive of taxes, insurance, utilities and janitorial service. UNIVERSITY CITY BRANCH The Bank leases a branch facility located at 40th and Chestnut Streets, in the University City Section of West Philadelphia from First Union National Bank ("First Union"). This facility was acquired from First Union in September, 1999. According t the terms of the approval of the acquisition of this facility by the Federal Reserve Board and Pennsylvania Department of Banking, the facility could remain open no longer than 6 months after the acquisition, and would then be merged with the Bank's West Philadelphia Branch. This branch comprises a banking lobby, teller and customer service areas, a vault and basement. The aggregate monthly rental for this facility is $4,570. A copy of this lease is submitted as an exhibit hereto. PROGRESS PLAZA BRANCH The Bank leases a branch facility located at 1015 North Broad Street, Philadelphia, PA. The facility comprises a teller and customer service area, lobby and vault. The aggregate monthly rental for this facility is $3,656 per month. A copy of this lease is submitted as an exhibit hereto. 15 ITEM 3 - LEGAL PROCEEDINGS Other than the following, no material claims have been instituted or threatened by or against UBS or its affiliates other than in the normal course of business. MONUMENT FINANCIAL GROUP. A writ of summons was filed by Monument Financial Group, Inc. and Ronald Hatfield, respectively, an accountholder and its principal (collectively, the "Plaintiffs") to commence an action against the Bank in the Court of Common Pleas, Philadelphia County on June 29,1999. Subsequently, a complaint was filed by the Plaintiffs. The suit involves the processing of transactions in alleged non-compliance with the deposit contract by permitting the processing of transactions with only one signature (the "Primary Claim"). This action by the Bank allegedly resulted in a loss to the Plaintiffs. The Bank has conducted in depth investigation into the circumstances arising in the Primary Claim. As a result of this investigation, the Bank has determined that the deposit contract was modified by the depositor. The depositor repeatedly affirmed, both by telephone, and in person, that transactions should be permitted with a single signature. This modification creates a firm defense to the Primary Claim. Even if the deposit contract was not modified, the amount of the Primary Claim must be reduced by the aggregate amount of the transactions utilized for valid business purposes of the Plaintiff. The Bank's investigations indicate that the proceeds of a substantial number of the transactions processed with one signature were utilized to pay expenses of Monument Financial Group, thus reducing any damage amount. Based upon the forgoing, the Bank believes that it will not be liable for the Primary Claim. In addition, the Bank has insurance which, it has been informed by the carrier representative, will cover any loss resulting from the Primary Claim, including costs of defense, in excess of a $50,000 deductible. The complaint also seeks damages for lost business opportunity, punitive damages for alleged consequential losses to potential business ventures of the Plaintiffs, and related claims (collectively, the "Ancillary Claims"). Based on general legal principles and the foregoing facts, the Bank and its counsel believe the Ancillary Claims are frivolous and without merit. The Bank and its counsel have reviewed the Bank's comprehensive general liability coverage and have indicated that any damages resulting from the Ancillary Claims will be wholly-covered by this insurance. The complaint was withdrawn without prejudice, ending the suit. However, there is no guaranty that the suit, or some form of the Primary Claim or Ancillary Claim, will not be re-filed by the Plaintiffs at a later date. NEXGEN SOLUTIONS, INC. In 1999 the Bank entered into a four year contract with Nexgen Solutions, Inc. ("Nexgen"). Pursuant to the terms of the contract, Nexgen agreed to provide all information technology services that the Bank would require at a pre-determined discount to Nexgen's regular fees. In 2000, for lack of performance and other reasons, the Bank terminated the contract. Nexgen has threatened legal action for the termination. In lieu of legal action, Nexgen has requested a payment of approximately $75 thousand. The Registrant believes that substantial defenses exist, including the failure to provide adequate support and service, justifying the termination of the contract. Therefore, the Registrant believes that the Bank may not be liable for the $75 thousand requested. 16 ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not Applicable. No matters were submitted to a vote of Registrant's security holders since the Registrant's last periodic filing. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK. COMMON STOCK As of March 31, 2000 there were 3,182 shareholders of record of UBS's Common Stock. The Common Stock is not traded on any national exchange or otherwise traded in any recognizable market. Prior to December 31, 1993, the Bank conducted a limited offering (the "Offering") pursuant to a registration exemption provided in Section 3(a)(2) of the Securities Exchange Act of 1933 (the "Act"). The price-per-share during the Offering was $12.00. Prior to the Offering, the Bank conducted an initial offering of the Common Stock (the "Initial Offering") at $10.00 per share pursuant to the same registration exemption. Beginning April 24, 1995, Registrant commenced a private offering solely to existing stockholders of 250,000 shares of its common stock and 750,000 warrants to purchase a share of the common stock. 18,465 shares and 55,395 warrants have been sold pursuant to this offering. Each unit, consisting of one share of common stock and three warrants to purchase one share of common stock in each of three subsequent years (total 3 shares), were issued at $12.00 per unit. The warrant exercise price was $8.00 per share for the 1996 Warrant was $9.00 per share for the 1997 Warrant, and was $10.00 per share for the 1998 Warrant. The units were offered pursuant to an exemption from registration contained in section 4(2) and 3(a)(5) of the Act. No underwriters were used and no commissions were paid as a result of this offering. The offering closed on December 31, 1995. In December 1995, the Registrant sold 41,666 shares of Registrant's common stock in an offering exempt from registration pursuant to section 4(2) of the Act at a purchase price of $12.00 per share. This sale was accomplished pursuant to a commitment to purchase these securities issued in December 1994. Beginning May 10, 1996, Registrant commenced a private offering solely to existing stockholders of 250,000 shares of its common stock. 6,934 shares were sold pursuant to this offering. The stock was offered pursuant to an exemption from registration contained in 4(2) and 17 3(a)(5) of the Act. During 1996, the Registrant received, $55,536 and issued 6,942 shares as a result of warrant exercises by shareholders to purchase common stock at a price of $8.00 per share. Beginning May 19, 1997, Registrant commenced an offering solely to existing stockholders of 250,000 shares of its common stock, initially on a pro-rata basis. 3,550 shares were sold pursuant to this offering. The stock was offered pursuant to an exemption contained in 4(2) and 3(a)(5) of the Act. During 1997, the Registrant received $34,710 and issued 3,856 shares as a result of exercise of the 1997 warrants at $9.00 per share. During 1998, Registrant received $14,922 as a result of the exercise of the 1998 Warrants at $10.00 per share and sold 6,492 shares of common stock as a result to its offering solely to stockholders of record. This offering was exempt pursuant to an exemption from registration contained in sections 4(2) and 3(a)(5) of the Act. As of March 31, 1999, there were no warrants outstanding to purchase common stock of the Bank. CLASS B COMMON STOCK On September 30, 1998, the Registrant filed Articles of Amendment to its Articles of Incorporation with the Secretary of State of the Commonwealth of Pennsylvania. The filing amended the Articles of Incorporation of the Registrant to designate a sub-class of ist Common Stock as Class B Common Stock. Pursuant to the terms of the amendment, holders of the Class B Common Stock have all rights of Common Stockholders, with the exception of voting rights. Effective October 9, 1998, the Registrant sold 83,333 shares of its Class B Common Stock to First Union Corporation ("First Union") for a purchase price of $12 per share. The sale was exempt from registration requirements pursuant to section 4(2) of the Act. Effective February 8, 1999, the Registrant sold 83,333 shares of its Class B Common Stock to First Union for a purchase price of $12 per share. The sale was exempt from registration requirements pursuant to section 4(2) of the Act. Effective September 23, 1999, Registrant sold 25, 000 shares of its Class B Common Stock to First Union Corporation at a purchase price of $12 per share. The sale was exempt from registration pursuant to section 4(2) of the Act. Effective December, 1999, the Registrant sold 5,000 shares of its Class B Common Stock to an individual for a purchase price of $12 per share. The sale was exempt from registration pursuant to section 4(2) of the Act. SERIES A PREFERRED STOCK Registrant has engaged in the sale of Series A Preferred Stock which has the characteristics identified in the UBS Articles of Incorporation incorporated by reference as an Exhibit hereto pursuant to an exemption from registration contained in Section 4(2) of the Securities Act. 18 DIVIDENDS Registrant has not, during the three most recent fiscal periods declared or paid any cash or stock dividends. The Pennsylvania Banking Code of 1965, as amended, provides that cash dividends may be declared and paid only from accumulated net earnings and that, prior to the declaration of any dividend, if the surplus of a bank is less than the amount of its capital, the bank shall, until surplus is equal to such amount, transfer to surplus an amount which is at least ten percent of the net earnings of the bank for the period since the end of the last fiscal year or any shorter period since the declaration of a dividend. If the surplus of a bank is less than 50% of the amount of its capital, no dividend may be declared or paid by the Bank without the prior approval of the Pennsylvania Department of Banking. Under the Federal Reserve Act, if a bank has sustained losses equal to or exceeding its undivided profits then on hand, no dividend shall be paid, and no dividends can ever be paid in an amount greater than such bank's net profits less losses and bad debts. Cash dividends must be approved by the Board if the total of all cash dividends declared by a bank in any calendar year, including the proposed cash dividend, exceeds the total of the Bank's net profits for that year plus its retained net profits from the preceding two years less any required transfers to surplus or to a fund for the retirement of preferred stock. Under the Federal Reserve Act, the Board has the power to prohibit the payment of cash dividends by a bank if it determines that such a payment would be an unsafe or unsound banking practice. As a result of this regulation, the Bank, and therefore the Registrant, will most likely be unable to pay any dividends while an accumulated deficit exists. The Registrant does not anticipate that dividends will be paid for the forseeable future. The Federal Deposit Insurance Act generally prohibits all payments of dividends by a bank which is in default of any assessment to the FDIC. 19 ITEM 6 - SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------------------------------------------------------------- (Dollars in thousands, except per share data) Net interest income $ 5,264 $ 5,241 $ 4,744 $ 4,259 $ 4,012 Provision for loan losses 1,007 351 97 85 78 Noninterest income 2,226 1,816 1,517 1,118 741 Noninterest expense 7,714 6,696 5,983 6,123 5,454 Net income (loss) (1,230) 10 181 (832) (779) Net income (loss) per share - basic (1.24) 0.01 0.22 (1.03) (1.04) Balance sheet totals: Total assets $137,249 $121,983 $108,914 $ 96,769 $ 92,635 Net loans 59,444 57,271 73,694 69,097 61,696 Investment securities 51,433 43,196 18,253 14,460 16,739 Deposits 124,766 109,063 99,427 88,761 84,228 Shareholders' equity 9,027 8,904 7,059 6,759 7,470 Ratios: Equity to assets 8.08% 6.40% 6.61% 7.45 % 7.36 % Return on assets (1.03)% 0.01% 0.18% (0.89)% (0.87)% Return on equity (12.71)% 0.14% 2.69% (12.02)% (11.83)%
20 ITEM 7 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In April 1993, the shareholders of United Bank of Philadelphia (the Bank) voted in favor of the formation of a bank holding company, United Bancshares, Inc. (the Company). Accordingly, in October 1994 the Company became a bank holding company in conjunction with the issuance of its common shares in exchange for the common shares of the Bank. The financial statements are prepared on a consolidated basis to include the accounts of the Company and the Bank. The purpose of this discussion is to focus on information about the Bank's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements included in this annual report. This discussion and analysis should be read in conjunction with the financial statements presented elsewhere in this report. RESULTS OF OPERATIONS SUMMARY The Company recorded a net loss of $1,230,000 for 1999 ($1.24 per share) compared to net income of $10,000 ($0.01 per share) for 1998 and net income of $181,000 ($0.22 per share) in 1997. The decline in earnings during 1999 is primarily attributable to a significant increase in the provision for loan losses. A more detailed explanation for each component of earnings is included in the sections below. Management continues to face the challenge of increasing the level of earning assets to generate additional income to cover the high operating costs associated with the Bank's mission of serving the under-served communities in the Philadelphia region. During 1999, the Bank acquired branches in close proximity to its existing branches in an effort to increase its earning assets without significantly increasing its operating costs. Consequently, average-earning assets increased approximately $9.1 million, or 8.76%, The result was an increase of $23,000 in net interest income from 1998 to 1999. 21 The allowance for loan losses as a percentage of total loans increased from 1.17% in 1998 to 2.57% in 1999. This increase is primarily attributable to a specific provision of approximately $668,000 for one commercial loan. TABLE 1 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE SUMMARY
DECEMBER 31, ----------------------------------------------------------------------------------------- 1999 1998 1997 ------------------------------ --------------------------- -------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ------------------------------ --------------------------- -------------------------- (Dollars in thousands) Assets: Interest-earning assets: Loans 68,526 5,589 8.16% 71,338 6,270 8.79% $ 68,887 $ 5,913 8.58% Investment securities held-to-maturity 21,692 1,226 5.65 11,436 746 6.52 10,222 659 6.45 Investment securities available-for-sale 9,275 612 6.60 8,392 557 6.63 6,252 434 6.94 Federal funds sold 13,753 681 4.95 12,959 688 5.31 9,187 483 5.26 ------ --- ---- ------ --- ---- ------- ------ ------ Total interest-earning assets 113,246 8,108 7.16 104,125 8,261 7.93 94,548 7,489 7.92 Noninterest-earning assets: Cash and due from banks 2,835 4,646 4,271 Premises and equipment, net 1,880 1,760 1,846 Other assets 3,366 3,576 1,564 Less allowance for loan losses (1,567) (565) (468) ------- ------- -------- Total 119,760 113,542 $101,761 ======= ======= ======== Liabilities and shareholders' equity: Interest-bearing liabilities: Demand deposits 19,892 569 2.86% 22,622 620 2.74% $ 14,812 379 2.56% Savings deposits 26,744 440 1.65 23,283 428 1.84 23,277 459 1.97 Time deposits 35,020 1,695 4.84 37,365 1899 5.08 37,627 1,852 4.92 Other borrowed funds 1,246 140 11.24 1,521 73 4.85 1,262 55 4.36 ------- ----- ----- ------- -------- ------ ----- Total interest-bearing liabilities 82,902 2,844 3.43 84,791 3,020 3.56 76,978 2,745 3.57 Noninterest-bearing liabilities: Demand deposits 24,019 19,740 15,905 Other 3,177 1,747 2,153 Shareholders' equity 9,662 7,264 6,725 ------- ------- -------- Total 119,760 113,542 $101,761 ======= ======= ======== Net interest earnings $ 5,264 $5,241 $ 4,744 Net yield on interest-earning assets 4.65% 5.03% 5.01%
For purposes of computing the average balance, loans are not reduced for nonperforming loans. 22 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED NET INTEREST INCOME Net interest income is an effective measure of how well management has balanced the Bank's interest rate-sensitive assets and liabilities. Net interest income, the difference between (a) interest and fees on interest-earning assets and (b) interest paid on interest-bearing liabilities, is a significant component of the Bank's earnings. Changes in net interest income result primarily from increases or decreases in the average balances of interest-earning assets, the availability of particular sources of funds and changes in prevailing interest rates. Net interest income for 1999 totaled $5.3 million, an increase of $23,000, or .45%, compared to 1998. Net interest income in 1998 totaled $5.2 million, an increase of $497,000, or 10.5%, compared to 1997. TABLE 2 - RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
1999 COMPARED TO 1998 1998 COMPARED TO 1997 ------------------------------------- ------------------------------------- INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO ------------------------------------- ------------------------------------- VOLUME RATE NET VOLUME RATE NET ------------------------------------- ------------------------------------- (Dollars in thousands) Interest earned on: Loans $(245) $(436) $(681) $ 221 $ 136 $ 357 Investment securities held-to-maturity 569 (89) 480 81 6 87 Investment securities available-for-sale 37 18 55 175 (52) 123 Federal funds sold 26 (33) (7) 203 2 205 ----- ----- ----- ----- ----- ----- Total interest-earning assets 387 (540) (153) 680 92 772 ----- ----- ----- ----- ----- ----- Interest paid on: Demand deposits (67) 16 (51) 218 23 241 Savings deposits 58 (46) 12 2 (33) (31) Time deposits (120) (84) (204) (9) 56 47 Other borrowed funds 56 11 65 9 9 18 ----- ----- ----- ----- ----- ----- Total interest-bearing liabilities (73) (103) (176) 220 55 275 ----- ----- ----- ----- ----- ----- Net interest income $460 $(437) $23 $ 460 $ 37 $ 497 ==== ===== === ===== ==== =====
Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances due to the interest sensitivity of consolidated assets and liabilities. In 1999, there was an increase in net interest income of $460,000 due to changes in volume but a decrease of $437,000 due to changes in rate. In 1998, there was an increase in net interest income of $460,000 due to changes in volume and an increase of $37,000 due to changes in rate. 23 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED Average earning assets increased from $104.1 million in 1998 to $113.2 million in 1999 and from $94.5 million in 1997 to $104.1 million in 1998. This growth in earning assets is primarily attributed to an increase in average noninterest-bearing demand deposit balances and savings deposits. On September 24, 1999, the Bank acquired $31.5 million in deposits from First Union Corporation. The acquired deposits primarily consisted of core noninterest checking deposits and savings deposits. In addition, in December 1997, the Bank implemented a new deposit transfer ("sweep") product for its nonprofit and municipal customers which provides for the overnight transfer of available funds from a noninterest-bearing account to an interest-bearing account. In April 1998, new "Prestige" checking products were developed. These products offer premiums such as life insurance, discount shopping, premium certificate of deposit rates, etc. While benefiting customers, these products also serve as a means of generating low cost funds for the Bank as well as a source of service charge income from monthly membership, low balance and overdraft fees. The net interest margin of the Bank was 5.03% in 1998 and 5.01% 1997 but declined to 4.65% in 1999. While the prime rate increased 75 basis points during 1999, the Bank did not experience a similar increase in yield on its loan portfolio. This is because much of the Bank's loan portfolio is fixed rate in nature and not related to prime. In addition, during 1999, the average loan balance declined from $71.3 million to $68.5 million. This decline was related to significant paydowns/payoffs in the purchased automobile loan portfolio of the Bank. Funds were placed in alternative investment products that have lower yields. During 1999, the average federal funds yield was 4.95% compared to 5.31% in 1998 and 5.26% in 1997. During 1999, the average investment in federal funds increased by $794,000 because of an increased level of deposits in the "sweep" checking account product of the Bank which represent high balance short-term deposits. In addition, during 1999, the Bank continued to experience high levels of payoffs/paydowns in its loan portfolio. Funds were temporarily placed in federal funds sold until other loans were originated or investments purchased. The yield on the investment portfolio decreased 63 basis points to 5.94% in 1999 compared to 6.57% in 1998 and 6.63% in 1997. The declining yield is due to call options in certain higher yielding Government Agency securities that were exercised during 1998. The Bank was not able to place the proceeds from these premature maturities into securities with comparable yields due to a lower rate environment. The cost of interest-bearing liabilities declined to 3.43% in 1999 compared to 3.56% in 1998 and 3.57% in 1997. Consistent with market conditions, during the last quarter of 1998 and the first quarter of 1999, the Bank reduced the rates it pays on many of its interest bearing products by as much as 25 basis points. PROVISION FOR LOAN LOSSES The provision is based on management's estimate of the amount needed to maintain an adequate allowance for loan losses. This estimate is based on the review of the loan portfolio, the level of net credit losses, past loan loss experience, the general economic outlook and other factors management feels are appropriate. The provision and allowance for loan losses charged against earnings in 1999 was $1,007,003 compared to $350,500 in 1998 and $97,500 in 1997. The increase in 1999 was primarily related to one community development construction project for which there was a specific provision allocated of $668,000. There was an increase of $100,000 in specific provisions in the consumer loan portfolio as a result of increased levels of delinquencies. Although a number of these loans are home equity loans and secured by real estate, the extent of collectibility is not known. In addition, during 1999, the Bank revised its policy to increase its allowance for uncertainties in loans classified as "Satisfactory". Management believes the level of the allowance for loan losses was adequate as of December 31, 1999. 24 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED NONINTEREST INCOME Noninterest income increased $410,000 in 1999 compared to 1998. The increase was primarily related to a $217,000 increase in ATM fees as a result of an increase in the surcharge on non-customer use of ATMs from $1.00 to $1.50 and growth in the ATM network from 28 to 31. In addition, continued growth in the number of demand deposit accounts to which activity charges apply resulted in a $323,000 increase in demand deposit-related fee income--including overdraft fees, low balance fees, and activity charges. Noninterest income increased $300,000 in 1998 compared to 1997. The increase was primarily related to an increased level of fees on deposits as a result of the elimination of the Bank's "free checking" product and the introduction of a new premium checking product--"Prestige checking". This new product offers premiums such as discount shopping, bonus certificate of deposit rates, insurance, etc. to customers but also has a minimum balance and monthly membership fee requirements. In addition, the Bank's ATM fees increased $142,000 during 1998 as a result of increased volume at its machines as well as growth in the ATM network from 26 to 28 machines. Finally, the Bank sold approximately $13.2 million in loans during 1998 for a gain of $202,000. NONINTEREST EXPENSE Noninterest expense increased $1 million, or 15.2%, in 1999 to $7.7 million compared to $6.7 million in 1998 and $6 million in 1997. Salaries and benefits increased $407,000, or 15.9%, in 1999 compared to an increase of $158,000, or 7%, in 1998. In addition to normal salary adjustments, the increase during 1999 was the result of an increase in the number of branches from 6 to 8 after the First Union acquisition, as there was an increase in staffing levels to fill open positions to handle increased work volumes due to growth in the Bank's deposit levels during the year. In addition, during 1997 the chief executive officer's employment contract was amended to provide her with a defined contribution retirement plan, which resulted in a $48,000 expense for both 1998 and 1997 and $52,000 in 1999. During 1998, the chief executive officer received incentive compensation totaling approximately $28,000. Occupancy and equipment expense increased approximately $162,000, or 12.7%, during 1999 compared to an increase of $260,000, or 26%, during 1998. The increase during 1999 was attributable to annual escalations in lease payments, new and increased maintenance cost to service the Bank's growing ATM network, and new branches acquired from First Union in September 1999. In conjunction with its acquisition of deposits from First Union, the Bank assumed the leases of 4 branches, 2 of which were in close proximity to its existing branches. Due to more favorable characteristics of these branches (i.e. visibility, drive-through, ATM's, etc.), the Bank relocated its branch operations to the acquired facilities. These facilities have higher rental rates. In addition, in July 1999, the Bank leased a 25,000 square foot building to house its corporate headquarters. Office operations and supplies expense increased by $189,000, or 36%, in 1999. This increase was primarily a result of the acquisition of branches from First Union and the relocation of the corporate headquarters. In addition, the growth in the ATM network resulted in an increase in ATM-related supplies (i.e. ribbons, paper receipts, etc.). Data processing expenses decreased by $5,000, or .6%, during 1999 compared to an increase of $25,000, or 3%, in 1998. The bulk of the Bank's data processing is outsourced to third-party processors. These expenses are reflective of the high level of low-balance accounts being serviced for which the Bank is charged a per-account charge by processors. Although there has been some progress, the Bank continues to study methods by which it may reduce its data processing costs, including, but not limited to, a consolidation of servicers, in-house processing versus outsourcing, and the possible re-negotiation of existing contracts with servicers. Marketing and public relations expense increased by $83,000, or 37.5%, in 1999 compared to an increase of $49,000, or 28%, in 1998. The increase in 1999 was primarily related to additional media advertising the Bank incurred relative to its Year 2000 Preparedness as well as other product-specific advertisements. In addition, the Bank had in place for the entire year (versus 8 months in 1998), its new "Prestige checking" product for which the Bank pays an outside vendor to provide premiums (i.e. life insurance, discount shopping, etc.). 25 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED Professional Services increased $161,000, or 69%, in 1999. This increase is primarily related to fees the Bank paid to consultants to assist in preparing contingency plans for the Year 2000. In addition, during 1999, the Bank contracted with consultants to assist with computer and management information sytstems projects as well as the preparation of its strategic plan. Federal deposit insurance premiums were $105,000 in 1999 compared to $82,000 in 1998 and $66,000 in 1997. FDIC insurance premiums are applied to all financial institutions based on a risk-based premium assessment system. Under this system, bank strength is based on three factors: 1) asset quality, 2) capital strength, and 3) management. Premium assessments are then assigned based on the institution's overall rating, with the stronger institutions paying lower rates. The Banks assessment was based on 1.29 basis points for BIF(Bank Insurance Fund)-assessable deposits and 6.28 basis points for SAIF(Savings Insurance Fund)-assessable deposits. The increase during 1999, is a result of increased deposit levels. All other expenses are reflective of the general cost to do business and compete in the current regulatory environment and maintenance of adequate insurance coverage. 26 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED FINANCIAL CONDITION SOURCES AND USES OF FUNDS The Bank's financial condition can be evaluated in terms of trends in its sources and uses of funds. The comparison of average balances in Table 3 indicates how the Bank has managed these elements. Average funding uses increased approximately $9.1 million, or 8.76%, in 1999 compared to $9.6 million, or 10.1%, in 1998. TABLE 3 - SOURCES AND USES OF FUNDS TRENDS
1999 1998 1997 --------------------------------- ---------------------------------- ------- INCREASE INCREASE AVERAGE (DECREASE) AVERAGE (DECREASE) AVERAGE BALANCE AMOUNT PERCENT BALANCE AMOUNT PERCENT BALANCE ------- ------ ------- ------- ------ ------- ------- (Dollars in thousands) Funding uses: Loans $ 68,526 $(2,812) (3.94)% $ 71,338 $ 2,451 3.56% $68,887 Investment securities: Held-to-maturity 21,692 10,256 89.68 11,436 1,214 11.88 10,222 Available-for-sale 9,275 883 10.52 8,392 2,140 34.23 6,252 Federal funds sold 13,753 794 6.13 12,959 3,772 41.06 9,187 -------- ------ -------- ------- ------- Total uses $113,246 9,121 $104,125 $ 9,577 $94,548 ======== ====== ======== ======= ======= Funding sources: Demand deposits: Noninterest-bearing 24,019 $4,279 21.68% $ 19,740 $ 3,835 24.11% $15,905 Interest-bearing 19,892 (2,730) (12.07) 22,622 7,810 52.73 14,812 Savings deposits 26,744 3,461 14.86 23,283 6 0.03 23,277 Time deposits 35,020 (2,345) (6.28) 37,365 (262) (0.70) 37,627 Other borrowed funds 1,246 (275) (18.08) 1,521 259 20.52 1,262 -------- ------ -------- ------- ------- Total sources $106,921 $2,390 $104,531 $11,648 $92,883 ======== ====== ======== ======= =======
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS The Bank's investment portfolio is classified as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are carried at amortized cost and are those securities the Bank has both the intent and ability to hold to maturity. Investments classified as available-for-sale are those investments the Bank intends to hold for an indefinite amount of time, but not necessarily to maturity, and are carried at fair value, with the unrealized holding gains and losses reported as a component of shareholders' equity on the balance sheet. Average investment securities and federal funds sold, in the aggregate, increased by $11.9 million, or 36.2%, in 1999 compared to an increase of $7.1 million, or 27.8%, in 1998. The increase during 1999 is a result of the acquisition of deposits from First Union in September 1999. These deposits were acquired without corresponding loans and were therefore placed in US Government Agency and mortgage-backed securities to maximize the yield. In addition, the Bank invested the funds from paydowns/payoffs in the loan portfolios in similar securities. The Bank's strategy is to use the paydowns from its mortgage-backed securities to fund new loan originations. 27 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED The Bank's investment portfolio primarily consists of mortgage-backed pass-through agency securities, U.S. Treasury securities, and other government-sponsored agency securities. The Bank does not invest in high-risk securities or complex structured notes. As reflected in Table 4, the assumed average maturity of the investment portfolio was 5.08 years at year-end 1999. Approximately 43.4% of the portfolio consist of mortgage-backed pass-through securities that have longer-term contractual maturities but are sometimes paid off/down before maturity or have repricing characteristics that occur before final maturity. The Bank has attempted to minimize the repayment risk (risk of very fast or very slow repayment) associated with these types of securities by investing primarily in a number of seasoned mortgage pools for which there is a repayment history. This history better enables the Bank to project the repayment speeds of these pools. In addition, the Bank has minimized the interest rate risk associated with these mortgage-backed securities by investing in a variety of pools, many of which have variable rates with indices that track closely with the current interest rate environment. TABLE 4 - ANALYSIS OF INVESTMENT SECURITIES
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS ------------------ ------------------ ----------------- ---------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL ------ ----- ------ ----- ------ ----- ------ ----- ----- (Dollars in thousands) Other government securities $ -- -- $ 12,698 6.50% $15,906 6.83% $ -- 28,604 Mutual funds 94 5.60 -- 94 Other investments 406 6.00 -- 406 Mortgage-backed securities 22,329 ------- -------- ------- ------ -------- Total securities $ 94 $ 12,698 $16,312 $ -- $ 51,433 ======= ======== ======= ====== ======== Average maturity 5.08 years
The above table sets forth the maturities of investment securities at December 31, 1999 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security). LOANS Average loans decreased approximately $2.8 million, or 3.94%, in 1999 compared to an increase of $2.5 million, or 3.56%, in 1998. Although, the Bank purchased a $22 million portfolio of seasoned automobile loans from NationsBank in February 1999, close to 50% of this portfolio had paid down by year-end. In addition, mortgage loans continue to decline as a result of payoffs/paydowns and refinancings due to the low mortgage rate environment without a high volume of new originations to replace them. The Bank's policy is to make its loans and commitments in the market area it serves. However, from time-to-time, the Bank has purchased a significant portion of its loan portfolio to adequately match its level of deposits and to improve the net interest margin. The Bank continues to originate loans and has a pipeline of loans located within the Philadelphia region. 28 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED
TABLE 5 - LOANS OUTSTANDING, NET OF UNEARNED INCOME DECEMBER 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands) Commercial and industrial $13,664 $13,643 $12,095 $10,107 $ 8,021 Commercial real estate 1,288 1,518 1,515 649 627 Consumer loans 19,822 11,424 22,611 17,340 16,254 Residential mortgages 26,237 31,365 35,962 36,622 37,271 Loans held-for-sale -- -- 1,979 4,906 -- ------- ------- ------- ------- ------- Total loans $61,011 $57,950 $74,162 $69,624 $62,173 ======= ======= ======= ======= =======
TABLE 6 - LOAN MATURITIES AND INTEREST SENSITIVITY
WITHIN AFTER ONE BUT AFTER ONE YEAR WITHIN FIVE YEARS TEN YEARS TOTAL -------- ----------------- --------- ----- (Dollars in thousands) Commercial and industrial $ 5,957 $ 4,288 $ 3,419 $13,664 Commercial real estate 750 - 538 1,288 Consumer loans 1,455 15,431 2,916 19,822 Residential mortgages 2,309 5,537 18,481 26,237 ------- ------- ------- ------- Total loans $10,471 $25,256 $25,354 $61,011 ======= ======= ======= ======= Loans maturing after one year with: Fixed interest rates $43,152 ======= Variable interest rates $ 7,140 =======
NONPERFORMING LOANS Table 7 reflects the Bank's nonperforming loans for the last five years. The Bank generally determines a loan to be "nonperforming" when interest or principal is past due 90 days or more. If it otherwise appears doubtful that the loan will be repaid, management may consider the loan to be nonperforming before the lapse of 90 days. The Bank's policy is to charge off unsecured loans after 90 days past due. Interest on nonperforming loans ceases to accrue except for loans that are well-collateralized and in the process of collection. When a loan is placed on nonaccrual, previously accrued and unpaid interest is generally reversed out of income unless adequate collateral from which to collect the principal of, and interest on, the loan appears to be available. 29 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED
TABLE 7 - NONPERFORMING LOANS 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands) Nonaccrual loans $2,027 $1,720 $1,179 $ 800 $ 949 Interest income included in net income for the year 67 37 14 6 23 Interest income that would have been recorded under original terms 113 189 112 45 37 Loans past due 90 days and still accruing 53 125 306 408 10
There is no known information about possible credit problems other than those classified as nonaccrual that causes management to be uncertain as to the ability of any borrower to comply with present loan terms. The Bank grants commercial, residential, and consumer loans to customers primarily located in Philadelphia County, Pennsylvania and surrounding counties in the Delaware Valley. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy. At December 31, 1999, approximately 28% of the commercial loan portfolio of the Bank was concentrated in loans made to religious organizations. From inception, the Bank has received support in the form of investments and deposits and has developed strong relationships with the Philadelphia region's religious community. Loans made to these organizations were primarily for expansion and repair of church facilities. At December 31, 1999, none of these loans was nonperforming. During 1999, nonaccrual loans increased to $2 million, up from $1.7 million at December 31, 1998. This increase is primarily attributable to one community development construction project that accounts for $754,000 of the total nonaccrual loans. At December 31, 1999, approximately $411,000 of the total nonaccrual loans was residential mortgages. The underlying real estate collateral associated with these loans minimizes the risk of loss. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses reflects management's continuing evaluation of the loan portfolio, assessment of economic conditions, the diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount and quality of nonperforming loans. Table 8 presents the allocation of loan losses by major category for the past five years. The specific allocations in any particular category may prove to be excessive or inadequate and consequently may be reallocated in the future to reflect then-current conditions. 30 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED TABLE 8 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
1999 1998 1997 1996 ------------------------ ---------------------- ----------------------- ---------------------- PERCENT PERCENT PERCENT PERCENT OF LOANS OF LOANS OF LOANS OF LOANS IN EACH IN EACH IN EACH IN EACH CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS ------ ----------- ------ ----------- ------ ----------- ------ ----------- (Dollars in thousands) Commercial and Industrial $ 263 22.40% $ 272 23.55% $ 144 16.31% $ 222 14.52% Commercial real estate 877 2.11 132 2.62 13 2.04 13 0.93 Residential mortgages 144 43.00 55 19.71 180 48.49 245 52.60 Consumer loans 283 32.49 188 54.12 97 33.16 44 31.95 Unallocated 32 -- 34 -- 4 -- ------ ------ ------ ------ ------ ------ ------ ------ $1,567 100.00% $ 679 100.00% $ 468 100.00% $ 528 100.00% ====== ====== ====== ====== ====== ====== ====== ======
Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of the examination. 31 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED TABLE 9 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (Dollars in thousands) Balance at January 1 $ 679 $ 468 $ 528 $ 476 $ 726 ------- ------- ------- ------- ------- Charge-offs: Commercial and industrial (25) -- (66) (17) (195) Commercial real estate -- -- -- -- -- Residential mortgages (47) -- (9) -- -- Consumer loans (315) (180) (160) (25) (5) ------- ------- ------- ------- ------- (387) (180) (235) (42) (200) Recoveries - consumer loans 268 41 78 9 6 ------- ------- ------- ------- ------- Net charge-offs (119) (139) (157) (33) (194) Provisions charged to operations 1,007 350 97 85 78 Allowance previously allocated to sold loans -- -- -- -- (134) ------- ------- ------- ------- ------- Balance at December 31 $ 1,567 $ 679 $ 468 $ 528 $ 476 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans outstanding 0.17% 0.19% 0.23% 0.05% 0.34% ======= ======= ======= ======= =======
The amount charged to operations and the related balance in the allowance for loan losses are based upon the periodic evaluations of the loan portfolio by management. These evaluations consider several factors, including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, and management's estimate of future potential losses. DEPOSITS Average deposits grew approximately $2.7 million, or 2.6%, in 1999 compared to growth of $11.4 million, or 12.4%, in 1998. The increase is primarily related to the acquisition of $31.5 million in deposits from First Union Corporation in September 1999. These deposits included primarily core deposits consisting of checking and savings accounts. The Bank introduced "sweep" deposit accounts in late 1997 as a vehicle to attract larger deposits by sweeping funds out of noninterest-bearing demand deposit accounts and investing them overnight in interest-bearing deposit accounts. At December 31, 1999, there were $7 million in such accounts compared to $10 million in 1998. 32 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED TABLE 10 - AVERAGE DEPOSITS BY CLASS AND RATE
1999 1998 1997 ---------------------- ---------------------- -------------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ------ ---- ------ ---- ------ ---- (Dollars in thousands) Noninterest-bearing demand deposits $24,019 --% $19,740 --% $15,905 --% Interest-bearing demand deposits 19,892 2.86 22,622 2.74 14,812 2.56 Savings deposits 26,744 1.65 23,283 1.84 23,277 1.97 Time deposits 35,020 4.84 37,365 5.08 37,627 4.92
OTHER BORROWED FUNDS The average balance for other borrowed funds decreased $275,000, or 18.08%, in 1999 compared to an increase of $259,000, or 20.52%, in 1998. The decrease in 1999 was due to the March 31, 1999 maturity of a $1.5 million reverse repurchase agreement the Bank entered into in 1998. This decline was offset by a $1.5 million capital lease obligation related to the Bank's lease of a building for its corporate offices in July 1999. Generally, the level of other borrowed funds is dependent on many items such as loan growth, deposit growth, customer collateral/security requirements and interest rates paid for these funds. LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT The primary functions of asset/liability management are to assure adequate liquidity and maintain appropriate balance between interest-sensitive earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and enhance consistent growth of net interest income through periods of changing interest rates. The Bank is required to maintain minimum levels of liquid assets as defined by Federal Reserve Board (FRB) regulations. This requirement is evaluated in relation to the composition and stability of deposits; the degree and trend of reliance on short-term, volatile sources of funds, including any undue reliance on particular segments of the money market or brokered deposits; any difficulty in obtaining funds; and the liquidity provided by securities and other assets. In addition, consideration is given to the nature, volume and anticipated use of commitments; the adequacy of liquidity and funding policies and practices, including the provision for alternate sources of funds; and the nature and trend of off-balance-sheet activities. As of December 31, 1999, management believes the Bank's liquidity is satisfactory and in compliance with FRB regulations The Bank's principal sources of asset liquidity include investment securities consisting principally of U.S. Government and agency issues, particularly those of shorter maturities, and mortgage-backed securities with monthly repayments of principal and interest. There are no securities maturing in one year or less. However, other types of assets such as federal funds sold, as well as maturing loans, are sources of liquidity. Approximately $10.5 million in loans are scheduled to mature within one year. The Bank's overall liquidity has been enhanced by a significant level of core deposits which management has determined are less sensitive to interest rate movements. The Bank has avoided reliance on large-denomination time deposits as well as brokered deposits. Table 11 provides a breakdown of the maturity of deposits of $100,000 or more. 33 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED TABLE 11 - MATURITY OF DEPOSITS OF $100,000 OR MORE (Dollars in thousands) 3 months or less $ 7,472 Over 3 through 6 months 4,632 Over 6 months through 1 year -- Over 1 through five years 402 Over five years 128 ------- Total $12,634 ======= Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans that are tied to prime or other short-term indices differ considerably from long-term investment securities and fixed-rate loans. Similarly, time deposits are much more interest-sensitive than passbook savings accounts. The shorter-term interest rate sensitivities are key to measuring the interest sensitivity gap or excess interest-earning assets over interest-bearing liabilities. Management of interest sensitivity involves matching repricing dates of interest-earning assets with interest-bearing liabilities in a manner designed to optimize net interest income within the limits imposed by regulatory authorities, liquidity determinations and capital considerations. Table 12 sets forth the earliest repricing distribution of the Bank's interest-earning assets and interest-bearing liabilities at December 31, 1999, the Bank's interest rate sensitivity gap ratio (i.e. excess of interest rate-sensitive assets over interest rate-sensitive liabilities, divided by total assets) and the Bank's cumulative interest rate sensitivity gap ratio. For purposes of the table, except for savings deposits, an asset or liability is considered rate-sensitive within a specified period when it matures or could be repriced within such period or repriced within such period in accordance with its contractual terms. At December 31, 1999, an asset sensitive position is maintained on a cumulative basis through one year of 6.66%. This level is within the Bank's policy guidelines of +/-15% on a cumulative one-year basis. The current gap position is relatively evenly matched as a result of the number of loans either repricing or maturing in 12 months closely matching certificate of deposit maturities. Interest rate risk is minimized by the Bank's high level of core deposits that have been placed in longer repricing intervals. Generally, because of the Bank's positive gap position in shorter time frames, the Bank can anticipate that decreases in market rates will have a negative impact on the net interest income, while increases will have the opposite effect. For purposes of the gap analysis, such deposits (savings, MMA, NOW) which do not have definitive maturity dates and do not readily react to changes in interest rates have been placed in longer repricing intervals versus immediate repricing time frames, making the analysis more reflective of the Bank's historical experience. 34 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED TABLE 12 - INTEREST SENSITIVITY ANALYSIS
INTEREST RATE SENSITIVITY GAPS AS OF DECEMBER 31, 1999 OVER OVER 1 YEAR OVER 3 MONTHS 3 THROUGH 12 THROUGH 3 THROUGH OVER FIVE OR LESS MONTHS 3 YEARS 5 YEARS YEARS CUMULATIVE ------- ------ ------- ------- ----- ---------- (Dollars in thousands) Interest-sensitive assets: Interest-bearing deposits with banks $ 92 $ 91 $ 183 $ $ $ 366 Investment securities: 3,003 2,440 5,168 25,676 15,146 51,433 Federal funds sold 7,158 7,158 Loans 14,545 5,180 9,062 10,770 19,887 59,444 --------- ------- -------- -------- -------- --------- Total interest-sensitive assets 24,798 7,711 14,413 36,446 35,033 $ 118,401 --------- --------- --------- --------- -------- ========= Cumulative totals 24,798 32,509 46,922 83,368 118,401 --------- ------- -------- -------- -------- Interest-sensitive liabilities: Interest checking accounts -- 3,828 1,688 3,220 $ 20,384 29,120 Savings accounts -- -- 3,027 3,027 27,288 33,342 Certificates less than 100,000 6,788 3,473 6,791 6,412 -- 23,464 Certificates of $100,000 or more 7,524 1,565 3,036 509 -- 12,634 Other Borrowed Funds 1,445 -- -- 1,445 --------- ------- -------- -------- -------- --------- Total interest-sensitive liabilities $ 15,757 8,866 14,542 13,168 47,672 $ 100,005 --------- --------- --------- --------- --------- ========= Cumulative totals $ 15,757 $ 24,623 $ 39,165 $ 52,333 $ 100,005 ========= ========= ========= ========= ========= Interest sensitivity gap $ 9,041 ($ 1,155) ($ 129) $ 23,278 ($ 12,639) ========= ========= ========= ========= ========= Cumulative gap $ 9,041 $ 7,886 $ 7,757 $ 31,035 $ 18,396 ========= ========= ========= ========= ========= Cumulative gap/total earning Assets 7.64% 6.66% 6.55% 26.21% 15.54% ======= ====== ======= ======= ======= Interest-sensitive assets to interest-sensitive liabilities 157.38% 86.97% 99.11% 276.78% 73.49% ======= ====== ======= ======= =======
Core deposits such as checking and savings deposits have been placed in repricing intervals based on historical trends and management's estimates. While using the interest sensitivity gap analysis is a useful management tool as it considers the quantity of assets and liabilities subject to repricing in a given time period, it does not consider the relative sensitivity to market interest rate changes that are characteristic of various interest rate-sensitive assets and liabilities. Consequently, even though the Bank currently has a positive gap position because of unequal sensitivity of these assets and liabilities, management believes this position will not materially impact earnings in a changing rate environment. For example, changes in the prime rate on variable commercial loans may not result in an equal change in the rate of money 35 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED market deposits or short-term certificates of deposit. A simulation model is therefore used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the net income of the Bank. The calculated estimates of net income or "earnings" at risk at December 31, 1999 are as follows: PERCENT OF CHANGES IN RATE NET INTEREST INCOME CHANGE --------------- ------------------- ------ (Dollars in thousands) +200 basis points 6,019 (3.7)% +100 basis points 6,209 (0.7) Flat rate 6,252 -- -100 basis points 6,322 1.1 -200 basis points 6,372 1.9 A simulation model is also used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the economic value of the Bank. This model produces an interest rate exposure report that measures the long-term rate risks in the balance sheet by valuing the Bank's assets and liabilities at market. It simulates what amount would be left over if the Bank liquidated its assets and liabilities. This is otherwise known as "economic value" of the capital of the Bank. The calculated estimates of economic value at risk at December 31, 1999 are as follows: PERCENT OF CHANGES IN RATE NET EQUITY CHANGE --------------- ---------- ------ (Dollars in thousands) +200 basis points 19,439 (6.8)% +100 basis points 20,751 (0.5) Flat rate 20,863 -- -100 basis points 20,287 (2.8) -200 basis points 19,757 (5.3) The assumptions used in evaluating the vulnerability of the Company's earnings and equity to changes in interest rates are based on management's consideration of past experience, current position and anticipated future economic conditions. The interest sensitivity of the Company's assets and liabilities, as well as the estimated effect of changes in interest rates on the earnings and equity, could vary substantially if different assumptions are used or actual experience differs from the assumptions on which the calculations were based. The Bank's Board of Directors and management consider all of the relevant factors and conditions in the asset/liability planning process. Interest rate exposure is not significant and is within the policy limits of the Bank at December 31, 1999. However, if significant interest rate risk arises, the Board of Directors and management may take (but are not limited to) one or all of the following steps to reposition the balance sheet as appropriate: 1. Limit jumbo certificates of deposit and movement into money market deposit accounts and short-term certificates of deposit through pricing and other marketing strategies. 2. Purchase quality loan participations with appropriate interest rate/gap match for the Bank's balance sheet. 3. Restructure the Bank's investment portfolio. The Board of Directors has determined that active supervision of the interest rate spread between yield on earning assets and cost of funds will decrease the Bank's vulnerability to interest rate cycles. 36 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED CAPITAL RESOURCES Total shareholders' equity increased $123 thousand in 1999 compared to an increase of approximately $1.9 million in 1998. The increase in 1999 is a result of the sale of common stock ($1.4 million) and the sale of preferred stock ($203,000). However, the net loss of $1.2 million resulted in an increase in the accumulated deficit The FRB standards for measuring capital adequacy for U.S. Banking organizations require that banks maintain capital based on "risk-adjusted" assets so that categories of assets with potentially higher risk will require more capital backing than assets with lower risk. In addition, banks are required to maintain capital to support, on a risk-adjusted basis, certain off-balance-sheet activities such as loan commitments. The FRB standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 consists of common shareholders' equity, noncumulative and cumulative perpetual preferred stock, and minority interests less goodwill and/or intangible assets). Tier 2 capital consists of allowance for loan losses, hybrid capital instruments, term subordinated debt, and intermediate-term preferred stock. Banks are required to meet a minimum ratio of 8% of qualifying capital to risk-adjusted total assets with at least 4% Tier 1 capital and a Tier I leverage ratio of at least 6%. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital. As indicated in Table 13, the Company's risk-based capital ratios are above the minimum requirements. Management continues the objective of raising additional capital by offering additional stock (preferred and common) for sale to the public as well as increasing the rate of internal capital growth as a means of maintaining the required capital ratios. However, the Bank's growth, continued losses and the additional provisions to the allowance for loans losses may have an adverse effect on its capital ratios The Company and the Bank do not anticipate paying dividends in the near future.
TABLE 13 - CAPITAL RATIOS 1999 1998 1997 ---- ---- ---- (Dollars in thousands) Total Capital $ 9,223 $ 8,823 $ 6,891 Less: Intangible Assets (2,429) -- -- -------- -------- -------- Tier 1 capital 6,794 8,823 6,891 Tier 2 capital 770 679 468 -------- -------- -------- Total qualifying capital $ 7,564 $ 9,502 $ 7,359 ======== ======== ======== Risk-adjusted total assets (including off- balance-sheet exposures) $ 60,795 $ 54,373 $ 51,868 ======== ======== ======== Tier 1 risk-based capital ratio 11.18% 16.23% 13.29% Total (Tier I and II) risk-based capital ratio 12.44% 17.48% 14.19% Tier 1 leverage ratio 5.08% 7.67% 6.59%
REGULATORY MATTERS In February 2000, as a result of a regulatory examination completed in December 1999, the Bank entered into a Written Agreement with its primary regulators with regard to, among other things, achievement of agreed-upon capital levels, implementation of a viable earnings/strategic plan, adequate funding of the allowance for loan losses, the completion of a management review and succession plan, and improvement in internal controls. Management has begun to address all matters outlined in the Agreement and expects to be in full compliance with its terms and conditions within the required timelines. As part of this Agreement, the Bank is required to achieve a Tier 1 leverage ratio of 6.50% by June 30, 2000 and at all times thereafter during the term of this Agreement, maintain its Tier 1 leverage ratio at a level of no less than 7%. Failure to comply could result in additional regulatory supervision and/or actions. 37 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED The most recent notification dated February 10, 2000, from the Federal Reserve Bank categorized the Bank as "adequately" under the regulatory framework for prompt and corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. The Bank's growth, continued losses and the additional provisions to the allowance for loans losses may have an adverse effect on its capital ratios. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity. Subsequent to this statement, SFAS No 137 was issued, which amended the effective date of SFAS No. 133 to be all fiscal years beginning after June 15, 2000. Based on the Company's minimal use of derivatives at the current time, management does not anticipate the adoption of SFAS No. 133 will have a significant impact on earnings or financial position of the Company. However, the impact from adopting SFAS No. 133 will depend on the nature and purpose of the derivative instruments in use by the Company at that time. CAUTIONARY STATEMENT Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based upon various assumptions (some of which are beyond the control of the Bank and the Company), may be identified by reference to a future period, or periods, or by the use of forward-looking terminology such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, economic growth; governmental monetary policy, including interest rate policies of the FRB; sources and costs of funds; levels of interest rates; inflation rates; market capital spending; technological change; the state of the securities and capital markets; acquisition; consumer spending and savings; expense levels; tax, securities, and banking laws; and prospective legislation. 38 United Bancshares, Inc. and Subsidiary MANAGEMENT DISCUSSION AND ANALYSIS--CONTINUED YEAR 2000 The Bank was successfully prepared for the Year 2000 potential problems that could have resulted from computer programs being written using two digits rather than four to define the applicable year. This could have resulted in major system failures or miscalculations. The Company completed a comprehensive review of its computer systems, both internal and outsourced processing, to identify the systems that could be affected by the "Year 2000" issue. Where necessary, software and hardware were replaced/remediated. As a result, there were no reportable events or exceptions related to the Year 2000. However, while not expected, there can be no assurance that the Company will not experience any problems in the future. If any problems were to occur in the future, the Company will follow its contingency plan. 39 ITEM 8 - FINANCIAL STATEMENTS See Consolidated Financial Statements attached hereto as Exhibits. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) DIRECTORS OF THE REGISTRANT.
PRINCIPAL OCCUPATION AND YEAR FIRST TERM NAME AGE OTHER DIRECTORSHIPS BECAME DIRECTOR WILL EXPIRE - ---- --- ------------------- --------------- ----------- James F. Bodine 78 Retired as Managing 1993 2002 Partner, Urban Affairs Partnership Phila., PA. S. Amos Brackeen 81 Founder and Pastor, 1993 2003 Philippian Baptist Church of Phila., PA. Emma C. Chappell 59 Chairman of 1993 2003 the Board, President and CEO of Registrant and United Bank of Philadelphia Kemel G. Dawkins 76 President, Kemrodco 1993 2001 Development and Construction Company, Inc., President, Kem-Her Construction Company Inc., Phila., PA. 40 L. Armstead Edwards 57 Treasurer, 1993 2000 United Bancshares, Inc. Owner and President, P.A.Z., Inc., Philadelphia., PA Marionette 55 Partner, 1996 2000 Y. Frazier John Frazier, Inc. Philadelphia, PA William C. Green 75 Co-founder, Ivy Leaf 1993 2002 Middle School, Philadelphia, PA Angela M. Huggins 60 President and CEO 1993 2001 RMS Technologies Inc. Foundation William B. Moore 57 Secretary, 1993 2003 United Bancshares, Inc. Pastor, Tenth Memorial Baptist Church, Philadelphia, PA Ernest L. Wright 71 Founder, President and 1993 2000 CEO of Ernest L. Wright Construction Company Phila., PA 41
(b) EXECUTIVE OFFICERS OF REGISTRANT. NAME AGE OFFICE - ---- --- ------ Emma C. Chappell (1) 59 Chairman, President and Chief Executive Officer James F. Bodine 78 Vice Chairman Reverend William B. Moore 57 Secretary L. Armstead Edwards 57 Treasurer (1) Dr. Chappell is the only Executive Officer of the Registrant compensated for her services as such. Dr. Chappell serves as Chairman, President and Chief Executive Officer of the Bank pursuant to a written employment agreement entered into September 13, 1993 and amended as of January 1, 1994 by and among Dr. Chappell, the Bank and United Bancshares, Inc. This employment agreement provides for an employment term ending December 31, 2000 and further provides that Dr. Chappell will receive a guaranteed annual base salary of $150,000. A copy of this employment agreement was filed with Registrant's 1998 Form 10-K and is incorporated herein by reference. The employment agreement was amended effective January 1, 1997 to revise the defined benefit nature of the retirement benefit identified in the contract to a defined contribution retirement obligation. (c) FAMILY RELATIONSHIPS. There are no family relationships between any director, executive officer or person nominated or chosen by the Bank to become a director or executive officer. (d) OTHER There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years. 42 ITEM 11 - EXECUTIVE COMPENSATION. COMPENSATION TABLE
NAME OF INDIVIDUAL OR NUMBER CAPACITIES IN IN GROUP WHICH SERVED - -------- ------------ 1999 SALARY 1999 BONUS 1999 OPTIONS SERP ----------- ---------- ------------ ---- Emma C. Chairman, President $174,500 $11,183 $ 0 $51,840 Chappell Chief Executive Officer 1998 SALARY 1998 BONUS 1998 OPTIONS SERP ----------- ---------- ------------ ---- $165,000 $18,000 $29,694(1) $48,000 1997 SALARY 1997 BONUS SERP ----------- ---------- ---- $162,000 $0 $48,000
(1) These options to purchase the Registrant's Common Stock at $8.54 per share were issued in December 1998 to replace options that expired in 1998. The options have a five year term. Directors of the Bank are compensated for each meeting attended in the amount of three hundred dollars fifty ($350) per Board meeting attended and one hundred fifty dollars ($150) for each committee meeting attended. Directors who are also salaried officers of the Bank receive no remuneration for their services as Directors. During the year ended December 31, 1999, the Bank paid Directors' fees to its "non-interested" Directors totaling $31,550. UBS has paid no director fees since its inception. Dr. Emma C. Chappell, Chairman of the Board and Chief Executive Officer of the Bank and Registrant since its formation, receives a minimum annual salary of $150,000. A copy of the employment agreement entered into among Dr. Chappell, the Bank and UBS is incorporated herein by reference. 43 One hundred thousand shares of the Bank's Common Stock are subject to a Long Term Incentive Compensation Plan (the "Plan") under which options to purchase the Bank's Common Stock may be granted to key employees of a price not less than the fair market value thereof at the date of the grant ("Options"), and Common Stock may be awarded as Restricted Stock, subject for a period of time to substantial risk of forfeiture and restrictions on disposition as determined by the Compensation Committee as of the date of the grant ("Restricted Stock"). Pursuant to the Plan, options are granted in tandem with Stock Appreciation Rights allowing the holder of an Option to surrender the Option and receive an amount equal to the appreciation in market value of a fixed number of shares of Common Stock from the date of the grant of the Option ("SARs"). SARs may be payable in Common Stock or cash or a combination of both. The Plan also allows the Compensation Committee to grant Performance Shares, which are contingent rights to receive, when certain performance criteria have been attained, amounts of Common Stock and cash determined by the Compensation Committee for such an award. Such rights are subject to forfeiture or reduction if performance goals specified are not met during the performance period. No such options, restricted stock or SARs were granted for 1999 performance. No deferred compensation, incentive compensation or any further compensation pursuant to any plan has been paid by the Bank, or will be paid by the Bank based on services rendered to the Bank to the date of this filing. At its annual meeting held May 6, 1994, the shareholders of the Registrant approved the establishment of an Employee Stock Ownership Plan ("ESOP"). The ESOP has not been formally activated by the Registrant. No purchases have been made pursuant to the ESOP. 44 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SHAREHOLDERS OWNING IN EXCESS OF FIVE PERCENT OF REGISTRANT'S COMMON STOCK AMOUNT OF UBS PERCENTAGE SHAREHOLDERS BENEFICIAL OWNERSHIP COMMON STOCK - ------------ -------------------- ------------ First Union Corporation 241,666 23.49% Broad and Chestnut Streets (50,000 or 4.86% are Philadelphia, PA 19101 voting shares) Philadelphia Municipal 71,667 6.97% Retirement System 2000 Two Penn Center Philadelphia, PA 19102 DIRECTORS AND OFFICERS OF THE BANK SHARES OF REGISTRANT'S COMMON STOCK NAME BENEFICIALLY OWNED PERCENTAGE - ---- ------------------ ---------- James F. Bodine 10,833 1.19% S. Amos Brackeen 5,000 .56% Emma C. Chappell(1) 7,000 .77% Kemel G. Dawkins 8,333 .91% L. Armstead Edwards 10,833 1.19% Marionette Y. Frazier 9,350 1.02% William C. Green (2) 13,833 1.51% Angela M. Huggins 4,200 .46% William B. Moore 1,000 .11% Ernest L. Wright 5,000 .55% ------ ----- TOTAL 75,382 8.27% ====== ===== (1) Dr. Chappell also acts as Trustee of a voting trust agreement pursuant to which Fahnstock, Inc deposited 5,209 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. Dr. Chappell acts as Trustee of a voting trust agreement pursuant to which NationsBank Corporation deposited 33,500 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. Dr. Chappell also owns options to purchase up to 29,694 shares of the common stock of UBS at a purchase price of $8.54 per share . This option was awarded in December, 1998 and remains in effect for a term of five years from that date. (2) Owned jointly with Liller B. Green, his wife. 45 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. UNITED BANK OF PHILADELPHIA United Bank of Philadelphia ("UBP") is a Pennsylvania bank subsidiary of Registrant. The Directors of UBP are as follows: PRINCIPAL OCCUPATION YEAR FIRST NAME AGE OTHER DIRECTORSHIPS BECAME DIRECTOR - ---- --- ------------------- --------------- James F. Bodine ... 78 Retired as Managing 1992 Partner, Urban Affairs Partnership Phila., PA. S. Amos Brackeen ... 81 Founder and Pastor, 1992 Philippian Baptist Church of Phila., PA. Emma C. Chappell ... 59 Founder, Chairman of 1992 the Board, President and CEO of the Bank and Registrant. of Philadelphia & Vicinity. Kemel G. Dawkins ... 76 President, Kemrodco 1992 Development and Construction Company, Inc., President, Kem-Her Construction Company Inc., Phila., PA. L. Armstead Edwards ... 57 Owner and President, 1992 P.A.Z., Inc., Philadelphia., PA Marionette Y. 55 Partner 1996 Frazier ... John Frazier, Inc. Philadelphia, PA William C. Green .... 75 Co-Founder, Ivy Leaf 1992 Middle School, Philadelphia, PA Angela M. Huggins ... 60 President and CEO 1992 RMS Technologies, Inc. Foundation Moorestown, NJ William B. Moore ... 57 Pastor, Tenth Memorial 1992 Baptist Church, Philadelphia, PA Ernest L. Wright ... 71 Founder, President and 1992 CEO of Ernest L. Wright Construction Company, Phila., PA Each of these officers and directors are officers and directors of the Registrant. PHILADELPHIA UNITED Dr. Chappell, Chairman, President and CEO of the Bank and Registrant also serves as Chairman of Philadelphia United Community Development Corporation ("Philadelphia United"). Her daughter, Tracey Carter serves as President of Philadelphia United. The Bank subleases office space to Philadelphia United. A copy of this lease is submitted as an exhibit hereto. 300 NORTH THIRD STREET The Bank leases its corporate headquarters facility from ECC Properties, LLC. ECC Properties, LLC is owned by Dr. Chappell. For a detailed discussion of this transaciton, see "Item 2 - Properties". 46 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K Leases for office space and branch locations a. 1. FINANCIAL STATEMENTS: December 31, 1999 Report of Independent Auditors, April 10, 2000 Consolidated Balance Sheets at December 31, 1999 and 1998. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto. 3. The following exhibits are filed herewith or incorporated by reference as a part of this Annual Report. 3(i) Articles of Incorporation (Incorporated by reference to Registrant's 1997 Form 10-K). 3(ii) Bylaws (Incorporated by reference to Registrant's 1997 Form 10-K). 9.l Voting Trust Agreement with NationsBank (Incorporated by reference to Registrant's 1997 Form 10-K). 9.2 Voting Trust Agreement with Fahnstock (Incorporated by reference to Registrant's 1997 Form 10-K). 10.1 Lease Agreements between the Bank and various landlords. 10.2 Lease Agreement between ECC Properties, LLC and the Bank 10.3 Lease Agreement between the Bank and Philadelphia United Community Development Corporation. 10.4 Written Agreement by and among United Bancshares, Inc., United Bank of Philadelphia and Federal Reserve Bank of Philadelphia 11. Statement of Computation of Earnings Per Share. Included at Item 8 hereof. 12. Statement of Computation of Ratios. Included at Item 8 hereof. 23. Consent of Independent Accountants. 27. Financial Data Schedule. (b) Report on 8-K filed February 25, 2000 incorporated by reference. (c) The exhibits required to be filed by this item are listed under Item 14(a)3 above. (d) Not applicable. 47 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 UNITED BANCSHARES, INC. By: /s/ Emma C. Chappell ----------------------------- Emma C. Chappell, Chairman, Date: April 14, 2000 President & CEO - ----------------------------- James F. Bodine - ----------------------------- S. Amos Brackeen - ----------------------------- Emma C. Chappell - ----------------------------- Kemel G. Dawkins - ----------------------------- L. Armstead Edwards - ----------------------------- Marionette Y. Frazier - ----------------------------- William C. Green - ----------------------------- Angela M. Huggins - ----------------------------- William B. Moore - ----------------------------- Ernest L. Wright 48 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF UNITED BANCSHARES, INC. AND SUBSIDIARY Report of Independent Auditors, April 10, 2000 50 Consolidated Balance Sheets at December 31, 1999 and 1998 51 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 52 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 53 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 54 Notes to Consolidated Financial Statements 55 49 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Shareholders and Board of Directors United Bancshares, Inc. and subsidiary We have audited the accompanying consolidated balance sheets of United Bancshares, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 1999. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 16 to the financial statements, the Bank entered into a Written Agreement with the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking dated February 10, 2000. Management's plans in regard to this matter are described in Note 16. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Bancshares, Inc. and Subsidiary as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Philadelphia, Pennsylvania April 10, 2000 50 United Bancshares, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------------------- 1999 1998 ---- ---- ASSETS Cash and due from banks $ 9,396,669 $ 3,675,010 Interest-bearing deposits with banks 365,547 350,024 Federal funds sold 7,158,000 12,318,000 ------------ ------------ Cash and cash equivalents 16,920,216 16,343,034 Investment securities: Available-for-sale, at market value 19,129,535 8,049,875 Held-to-maturity, at amortized cost (market value of $31,470,822 and $35,203,274 in 1999 and 1998, respectively) 32,303,774 35,146,148 Loans, net of unearned discount of $225,302 and $301,540 in 1999 and 1998, respectively 61,010,995 57,950,133 Less allowance for loan losses (1,566,642) (679,557) ------------ ------------ Net loans 59,444,353 57,270,576 Bank premises and equipment, net 3,825,321 1,565,131 Accrued interest receivable 1,221,679 1,749,623 Foreclosed real estate 397,641 262,368 Core deposit intangible 2,428,524 -- Prepaid expenses and other assets 1,578,036 1,595,926 ------------ ------------ $137,249,079 $121,982,681 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Demand deposits, noninterest-bearing $ 26,206,218 $ 19,999,226 Demand deposits, interest-bearing 29,119,779 29,114,084 Savings deposits 33,342,400 23,393,986 Time deposits, $100,000 and over 12,633,964 13,942,008 Time deposits 23,464,035 22,614,098 ------------ ------------ 124,766,396 109,063,402 Long-term debt -- 11,191 Securities sold to repurchase -- 1,557,755 Obligations under capital leases 1,444,607 -- Accrued interest payable 600,546 598,352 Accrued expenses and other liabilities 1,410,215 1,847,665 ------------ ------------ Total liabilities 128,221,764 113,078,365 ------------ ------------ Shareholders' equity: Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 143,150 and 132,999 issued and outstanding in 1999 and 1998 1,432 1,330 Common stock, $0.01 par value; 2,000,000 shares authorized; 1,028,753 and 913,490 issued and outstanding in 1999 and 1998, respectively 10,288 9,134 Additional paid-in-capital 13,870,169 12,286,233 Accumulated deficit (4,658,391) (3,428,169) Accumulated other comprehensive income (loss) (196,183) 35,788 ------------ ------------ Total shareholders' equity 9,027,315 8,904,316 ------------ ------------ $137,249,079 $121,982,681 ============ ============
The accompanying notes are an integral part of these statements. 51 United Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 ---- ---- ---- Interest income: Interest and fees on loans $ 5,589,589 $ 6,270,323 $ 5,912,901 Interest on investment securities 1,812,983 1,275,542 1,067,762 Interest on federal funds sold 680,715 688,285 482,856 Interest on time deposits with other banks 24,834 26,329 25,333 ----------- ----------- ----------- Total interest income 8,108,121 8,260,479 7,488,852 ----------- ----------- ----------- Interest expense: Interest on time deposits 1,695,078 1,898,967 1,852,080 Interest on demand deposits 568,903 619,921 379,397 Interest on savings deposits 440,002 427,682 459,035 Interest on borrowed funds 140,075 73,265 54,841 ----------- ----------- ----------- Total interest expense 2,844,058 3,019,835 2,745,353 ----------- ----------- ----------- Net interest income 5,264,063 5,240,644 4,743,499 Provision for loan losses 1,007,003 350,500 97,500 ----------- ----------- ----------- Net interest income after provision for loan losses 4,257,060 4,890,144 4,645,999 ----------- ----------- ----------- Noninterest income: Gain on sale of loans 43,856 201,664 187,471 Customer service fees 2,031,245 1,457,508 1,181,082 Gain on sale of investments -- 1,201 -- Other income 151,303 155,663 148,867 ----------- ----------- ----------- Total noninterest income 2,226,404 1,816,036 1,517,420 ----------- ----------- ----------- Noninterest expense: Salaries, wages, and employee benefits 2,962,500 2,555,774 2,397,861 Occupancy and equipment 1,437,775 1,275,902 1,015,419 Office operations and supplies 715,207 525,771 522,525 Marketing and public relations 304,537 221,348 172,326 Professional services 393,607 232,793 274,999 Data processing 863,208 868,665 844,009 Deposit insurance assessments 104,991 82,389 66,274 Other operating 931,861 933,605 689,416 ----------- ----------- ----------- Total noninterest expense 7,713,686 6,696,247 5,982,829 ----------- ----------- ----------- Net income (loss) $(1,230,222) $ 9,933 $ 180,590 =========== =========== =========== Net income (loss) per common share - basic and diluted $ (1.24) $ 0.01 $ 0.22 =========== =========== =========== Weighted average number of common shares 995,699 845,902 818,240 =========== =========== ===========
The accompanying notes are an integral part of these statements. 52 United Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years ended December 31, 1999, 1998 and 1997
SERIES A ACCUMULATED TOTAL PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER SHARE- --------------- ------------ PAID-IN ACCUMULATED COMPREHENSIVE HOLDERS' COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) EQUITY INCOME (LOSS) ------ ------ ------ ------ ------- ------- ------------- ------ ------------- Balance at January 1, 1997 93,150 $932 816,355 $8,163 $10,348,989 $(3,618,692) $19,276 $6,758,668 Proceeds from issuance of common stock -- -- 7,340 73 76,637 -- 76,710 Unrealized gains on investment securities -- -- -- -- -- -- 42,887 42,887 $ 42,887 Net income -- -- -- -- -- 180,590 -- 180,590 180,590 -------- ------ --------- ------- ----------- ---------- --------- ---------- ------------ Balance at December 31, 1997 93,150 932 823,695 8,236 10,425,626 (3,438,102) 62,163 7,058,855 223,477 ============ Proceeds from issuance of preferred stock 39,849 398 -- -- 796,582 -- -- 796,980 Proceeds from issuance of common stock 89,795 898 1,064,025 1,064,923 Unrealized losses on investment securities -- -- -- -- -- -- (26,375) (26,375) (26,375) Net income -- -- -- -- -- 9,933 -- 9,933 9,933 -------- ------ --------- ------- ----------- ---------- --------- ---------- ------------ BALANCE AT DECEMBER 31, 1998 132,999 1,330 913,490 9,134 12,286,233 (3,428,169) 35,788 8,904,316 (16,442) ============ PROCEEDS FROM ISSUANCE OF PREFERRED STOCK 10,151 102 202,918 203,020 PROCEEDS FROM ISSUANCE OF COMMON STOCK 115,263 1,154 1,381,018 1,382,172 UNREALIZED LOSSES ON INVESTMENT SECURITIES (231,971) (231,971) (231,971) NET LOSS -- -- -- -- -- (1,230,222) (1,230,222) (1,230,222) -------- ------ --------- ------- ----------- ---------- --------- ---------- ------------ BALANCE AT DECEMBER 31, 1999 143,150 $1,432 1,028,753 $10,288 $13,870,169 ($4,658,391) $(196,183) $9,027,315 $(1,462,193) ======= ====== ========= ======= =========== =========== ========= ========== ===========
The accompanying notes are an integral part of this statement. 53 United Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ (1,230,222) $ 9,933 $ 180,590 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for loan losses 1,007,003 350,500 97,500 Gain on sale of loans (43,856) (201,664) (187,471) Depreciation and amortization 677,452 584,744 542,193 (Increase) decrease in accrued interest receivable and other assets 410,561 (1,345,070) (244,534) (Decrease) increase in accrued interest payable and other liabilities (435,256) 1,402,386 (131,570) ------------ ------------ ------------ Net cash provided by (used in) operating activities 385,682 800,828 256,708 ------------ ------------ ------------ Cash flows from investing activities: Purchase of available-for-sale investments (14,688,776) (11,708,818) (3,738,899) Purchase of held-to-maturity investments (48,678,917) (33,748,996) (6,094,788) Proceeds from maturity and principal reductions of available-for-sale investments 3,377,145 11,057,565 1,856,565 Proceeds from maturity and principal reductions of held-to-maturity investments 51,501,203 9,429,511 4,185,109 Net proceeds from branch acquisitions 27,694,690 -- -- Proceeds from sale of student loans 2,975,360 12,846,705 9,677,111 Net decrease (increase) in loans 15,870,049 8,276,373 (4,512,352) Purchase of residential mortgage loans -- -- (1,623,782) Purchase of automobile loans (21,982,333) (4,848,864) (8,047,769) Purchase of premises and equipment (1,429,324) (203,413) (495,501) ------------ ------------ ------------ Net cash (used in) provided by investing activities 14,639,097 (8,899,937) (8,794,306) ------------ ------------ ------------ Cash flows from financing activities: Net increase (decrease) in deposits (14,463,843) 9,636,339 10,666,092 Repayments on long-term debt (11,191) (32,497) (30,873) Securities sold to repurchase (1,557,755) 216,702 1,341,053 Net proceeds from issuance of common stock 1,382,172 1,064,922 76,710 Net proceeds from issuance of preferred stock 203,020 796,980 -- ------------ ------------ ------------ Net cash provided by (used in) financing activities (14,447,597) 11,682,446 12,052,982 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 577,182 3,583,338 3,515,384 Cash and cash equivalents at beginning of year 16,343,034 12,759,696 9,244,312 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 16,920,216 $ 16,343,034 $ 12,759,696 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 2,780,355 $ 2,960,086 $ 2,726,349 ============ ============ ============
The accompanying notes are an integral part of these statements. 54 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of United Bancshares, Inc. (the Company) and its wholly owned subsidiary, United Bank of Philadelphia (the Bank). All significant intercompany transactions and balances have been eliminated. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold on an overnight basis. SECURITIES HELD-TO-MATURITY Bonds, notes, and debentures for which the Bank has both the positive intent and ability to hold are classified as held-to-maturity and carried at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. SECURITIES AVAILABLE-FOR-SALE Available-for-sale securities consist of bonds, notes and debentures, and certain equity securities for which the Bank does not have positive intent to hold to maturity. These securities are carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried as a separate component of shareholders' equity net of related income tax effects. Gains and losses on the sale of available-for-sale securities are determined by the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. LOANS The Bank has both the positive intent and ability to hold its loans to maturity. These loans are stated at the amount of unpaid principal, reduced by net unearned discount and an allowance for loan losses. Interest income on loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding and accretion of discount. It is the Bank's policy to discontinue the accrual of interest income when a default of principal or interest exists for a period of 90 days except when, in management's judgment, the collection of principal and interest is reasonably anticipated or adequate collateral exists. Interest received on nonaccrual loans is either applied against principal or reported as interest income according to management's judgment as to collectibility of principal. When interest accruals are discontinued, interest credited to income is reversed and the loan is classified as nonperforming. 55 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Unearned discount is amortized over the weighted average maturity of the mortgage loan portfolio. Loan origination and commitment fees and certain direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield. The Bank is amortizing these amounts over the contractual life of the loan. LOANS HELD-FOR-SALE Loans held-for-sale are carried at the aggregate of lower of cost or market value. For purchased loans, the discount remaining after the loan loss allocation is being amortized over the remaining life of the purchased loans using the interest method. ALLOWANCE FOR LOAN LOSSES The Bank adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures". Under SFAS No. 114, the allowance for loan losses related to "impaired loans" is based on the discounted cash flows using the impaired loans' initial effective interest rate as the discount rate, or the fair value of the collateral for collateral-dependent loans. A loan is impaired when it meets the criteria to be placed on nonaccrual status. Loans which are evaluated for impairment pursuant to SFAS No. 114 are assessed on a loan-by-loan basis and include only commercial nonaccrual loans. Large groups of smaller, homogeneous loans, such as credit cards, student loans, residential mortgages, and other student loans, are evaluated collectively for impairment. The allowance for loan losses is maintained at a level considered adequate to provide for potential losses in the loan portfolio. The allowance is increased by provisions charged to operating expenses and reduced by charge-offs net of recoveries. Management's determination of the adequacy of the allowance is based on continuous credit reviews of the loan portfolio, consideration of the current economic conditions, review of specific problem loans, and other relevant factors. This evaluation is subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. However, actual losses on specific loans, which are encompassed in the analysis, may vary from estimated losses. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed over the shorter of the related lease term or the useful life of the assets. INCOME TAXES The liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 56 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME (LOSS) PER SHARE During 1997, the Company adopted the provisions of SFAS No. 128, which eliminates primary and fully diluted earnings per share (EPS) and requires presentation of basic and diluted EPS in conjunction with the disclosure of the methodology used in computing such EPS. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the financial statements when they become payable. FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Bank in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity. Subsequent to this statement, SFAS No 137 was issued, which amended the effective date of SFAS No. 133 to be all fiscal years beginning after June 15, 2000. Based on the Company's minimal use of derivatives at the current time, management does not anticipate the adoption of SFAS No. 133 will have a significant impact on earnings or financial position of the Company. However, the impact from adopting SFAS No. 133 will depend on the nature and purpose of the derivative instruments in use by the Company at that time. Loans held-for-sale: Fair values are estimated using quoted rates based upon secondary market sources for similar loans. 57 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Loans: The fair value of loans was estimated using a discounted cash flow analysis, which considered estimated prepayments and amortizations. Prepayments and discount rates were based on current marketplace estimates and pricing. Residential mortgage loans were discounted at the current effective yield, including fees, of conventional loans, adjusted for their maturities with a spread to the Treasury yield curve. Deposit liabilities: The fair values disclosed for demand deposits (e.g. interest and noninterest checking, passbook savings, and certain types of money market accounts) are equal to the amounts payable on demand at the reporting date (e.g. their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate the fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation. The Treasury yield curve was utilized for discounting cash flows as it approximates the average marketplace certificate of deposit rates across the relevant maturity spectrum. Commitments to extend credit: The carrying amounts for commitments to extend credit approximate fair value as such commitments are not substantially different from the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparts. FORECLOSED REAL ESTATE Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management, and the real estate is carried at the lower of carrying amount or fair value less the cost to sell. Revenue and expenses from operations and changes in valuation allowance are charged to operations. The historical average holding period for such properties is 24 months. MANAGEMENT'S USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. SEGMENTS On January 1, 1998, the Bank adopted Statement of Financial Accounting Standards (SFAS) No. 131, which redefines how operating segments are determined and requires disclosures of certain financial and descriptive information about the Bank's operating segments. Management has determined the Bank operates in one business segment, community banking. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. 58 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED ORGANIZATIONAL COSTS On January 1, 1999, the Company adopted the American Institute of Certified Public Accountants' Statement of Position (SOP) 98-5, Reporting on Costs of Start-Up Activities which requires that costs of start-up activities, as defined, including organizational costs, be expensed as incurred. The adoption of SOP 98-5 had no material impact on the Company's financial statements. COMPREHENSIVE INCOME On January 1, 1998, the Company adopted SFAS No. 130, which establishes new standards for reporting comprehensive income which includes net income as well as certain other items which result in a change to equity during the period. These financial statements have been reclassified to reflect the provisions of SFAS No. 130. The income tax effects allocated to comprehensive income (loss) is as follows for the year ended: DECEMBER 31, 1999 -------------------------------------- NET OF BEFORE TAX TAX TAX AMOUNT BENEFIT AMOUNT ------ ------- ------ Unrealized losses on securities Unrealized holding losses arising during period $(348,498) ($116,527) $(231,971) Less reclassification adjustment for gains realized in net income -- -- -- --------- --------- --------- Other comprehensive loss, net $(348,498) ($116,527) $(231,971) ========= ========= ========= DECEMBER 31, 1998 -------------------------------------- NET OF BEFORE TAX TAX TAX AMOUNT BENEFIT AMOUNT ------ ------- ------ Unrealized losses on securities Unrealized holding losses arising during period $(39,462) ($12,282) $(27,180) Less reclassification adjustment for gains realized in net income 1,201 396 805 -------- -------- -------- Other comprehensive loss, net $(38,261) ($11,886) $(26,375) ======== ======== ======== 59 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 DECEMBER 31, 1997 -------------------------------------- NET OF BEFORE TAX TAX TAX AMOUNT BENEFIT AMOUNT ------ ------- ------ Unrealized gains on securities Unrealized holding gains arising during period $72,284 $29,397 $42,887 Less reclassification adjustment for gains realized in net income -- -- -- ------- ------- ------- Other comprehensive income, net $72,284 $29,397 $42,887 ======= ======= ======= 2. CASH AND DUE FROM BANK BALANCES The Bank maintains various deposit accounts of $645,328 with other banks to meet normal funds transaction requirements and to compensate other banks for certain correspondent services. The withdrawal or usage restrictions of these balances did not have a significant impact on the operations of the Bank as of December 31, 1999. 60 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 3. INVESTMENTS The amortized cost, gross unrealized holding gains and losses, and estimated market value of the available-for-sale and held-to-maturity investment securities by major security type at December 31, 1999 and 1998 are as follows:
1999 -------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---- ----- ------ ----- AVAILABLE-FOR-SALE: OTHER GOVERNMENT SECURITIES $ 11,255,096 $ (207,335) $ 11,047,761 MORTGAGE-BACKED SECURITIES 7,668,672 (86,940) 7,581,732 ------------ ------------ ------------ ------------ TOTAL DEBT SECURITIES 18,923,768 -- (294,275) 18,629,493 INVESTMENTS IN MUTUAL FUNDS 94,092 -- -- 94,092 OTHER INVESTMENTS 405,950 -- -- 405,950 ------------ ------------ ------------ ------------ $ 19,423,810 $ -- $ (294,275) $ 19,129,535 ============ ============ ============ ============ HELD-TO-MATURITY: OTHER GOVERNMENT SECURITIES 17,556,702 -- (506,631) 17,050,071 MORTGAGE-BACKED SECURITIES 14,747,072 -- (326,321) 14,420,751 ------------ ------------ ------------ ------------ $ 32,303,774 $ -- $ (832,952) $ 31,470,822 ============ ============ ============ ============ 1998 -------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---- ----- ------ ----- Available-for-sale: Other Government Securities $ 2,248,700 $ 5,840 $ -- $ 2,254,540 Mortgage-backed securities 5,337,225 48,383 -- 5,385,608 ----------- ----------- ----------- ----------- Total debt securities 7,585,925 54,223 -- 7,640,148 Investments in mutual funds 89,527 -- -- 89,527 Other investments 320,200 -- -- 320,200 ----------- ----------- ----------- ----------- $ 7,995,652 $ 54,223 $ -- $ 8,049,875 =========== =========== =========== =========== Held-to-maturity: U.S. Treasury securities $ 1,000,141 $ 1,109 $ -- $ 1,001,250 Other Government securities 31,633,770 50,483 -- 31,684,253 Mortgage-backed securities 2,512,237 5,534 -- 2,517,771 ----------- ----------- ----------- ----------- $35,146,148 $ 57,126 $ -- $35,203,274 =========== =========== =========== ===========
Maturities of investment securities classified as available-for-sale and held-to-maturity at December 31, 1999 were as follows. Expected maturities may differ from contractual maturities. 61 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 3. INVESTMENTS - CONTINUED AMORTIZED MARKET COST VALUE ---- ----- AVAILABLE-FOR-SALE: DUE AFTER ONE YEAR THRU THREE YEARS $ 250,000 $ 247,260 DUE AFTER THREE YEARS THROUGH FIVE YEARS 5,690,486 5,404,452 DUE AFTER FIVE YEARS THROUGH FIFTEEN YEARS 5,314,610 5,396,049 MORTGAGE-BACKED SECURITIES 7,668,672 7,581,732 ----------- ----------- TOTAL DEBT SECURITIES 18,923,768 18,629,493 INVESTMENTS IN MUTUAL FUNDS 94,092 94,092 OTHER INVESTMENTS 405,950 405,950 ----------- ----------- $19,423,810 $19,129,535 =========== =========== HELD-TO-MATURITY: DUE AFTER ONE YEAR THROUGH THREE YEARS 1,250,000 1,230,030 DUE AFTER THREE YEARS THROUGH FIVE YEARS 5,796,809 5,663,703 DUE AFTER FIVE YEARS THROUGH FIFTEEN YEARS 10,509,893 10,156,338 MORTGAGE-BACKED SECURITIES 14,747,072 14,420,751 ----------- ----------- $32,303,774 $31,470,822 =========== =========== There were no sales of investments during 1999 or 1997. The Bank recorded a gain on the sale of investments during 1998 of $1,201. As of December 31, 1999 and 1998, investment securities with a book value of $9,964,172 and $11,703,948, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law. 4. LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of the net loans is as follows: 1999 1998 ---- ---- Commercial and industrial $ 13,664,212 $ 13,643,535 Commercial real estate 1,288,232 1,517,979 Residential mortgages 26,236,947 31,364,864 Consumer loans 19,821,604 11,423,755 ------------ ------------ Total loans 61,010,995 57,950,133 Less allowance for loan losses (1,566,642) (679,557) ------------ ------------ Net loans $ 59,444,353 $ 57,270,576 ============ ============ 62 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 4. LOANS AND ALLOWANCE FOR LOAN LOSSES - CONTINUED As of December 31, 1999 and 1998, the Bank had loans to certain officers and directors and their affiliated interests in aggregate dollar amounts of approximately $1,442,600 and $1,148,000, respectively. During 1999, new loans to such related parties amounted to $429,000 and repayments amounted to $126,700. Such transactions are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for other nonrelated party transactions. Nonaccrual loans totaled approximately $2,027,000 and $1,720,000 as of December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, unamortized deferred fees and costs totaled $151,645 and $177,847, respectively. Loans having a carrying value of $406,400 and $127,800 were transferred to foreclosed real estate in 1999 and 1998, respectively. Changes in the allowance for possible loan losses are as follows: 1999 1998 1997 ---- ---- ---- Balance, beginning of year $ 679,557 $ 468,806 $ 527,507 Provision 1,007,003 350,500 97,500 Charge-offs (387,480) (180,727) (234,638) Recoveries 267,562 40,978 78,437 ---------- --------- --------- Balance, end of year $1,566,642 $ 679,557 $ 468,806 ========== ========= ========= At December 31, 1999 and 1998, the recorded investment in loans that were on a nonaccrual basis and were considered to be impaired under SFAS No. 114 was $844,300 and $845,500, respectively. At December 31, 1999 and 1998, the related allowance for loan losses was $674,100 and $183,000, respectively. The average recorded investment in impaired loans during the years ended December 31, 1999 and 1998 was approximately $844,300 and $526,000, respectively. For the years ended December 31, 1999, 1998 and 1997, the Bank recognized interest income on those impaired loans of $9,100, $36,800 and $0, respectively. The Bank grants commercial, residential, and consumer loans to customers primarily located in Philadelphia County, Pennsylvania and surrounding counties in the Delaware Valley. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy. During 1999, approximately 28% of the Bank's commercial loan portfolio was concentrated in loans made to religious organizations. 63 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 5. BANK PREMISES AND EQUIPMENT The major classes of bank premises and equipment and the total accumulated depreciation are as follows: ESTIMATED USEFUL LIFE 1999 1998 ----------- ---- ---- Buildings, capital lease and leasehold improvements 10-15 years $ 3,654,194 $ 1,343,898 Furniture and equipment 3-7 years 2,710,371 2,183,743 ----------- ----------- 6,364,565 3,527,641 Less accumulated depreciation and amortization (2,539,244) (1,962,510) ----------- ----------- $ 3,825,321 $ 1,565,131 =========== =========== The Bank occupies a building which houses its corporate headquarters under a non-cancellable capital lease from a related party which expires in the year 2009. This lease is with a company which is owned by an officer of the Bank. This lease is recorded as a capital lease at December 31, 1999 in the amount of $1,483,000 with accumulated depreciation of $74,150. The Bank leases other facilities and other equipment under non-cancelable operating lease agreements. The amount of expense for operating leases for the years ended December 31, 1999, 1998, and 1997 was $367,554, $323,330, and $288,959. Future minimum lease payments under capital and operating leases are as follows: CAPITALIZED OPERATING YEAR ENDING DECEMBER 31, LEASES LEASES ------------------------ ------ ------ 2000 $ 323,125 $ 417,566 2001 331,250 392,797 2002 338,750 296,611 2003 346,250 233,502 2004 353,750 49,115 Thereafter 1,680,000 57,000 ----------- ----------- Total minimum lease payments $ 3,373,125 $ 1,446,591 =========== Less amount representing interest (1,928,518) ----------- Present value of future minimum rentals $ 1,444,607 =========== 64 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 6. DEPOSITS The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000, was $12,633,964 and $13,942,008 at December 31, 1999 and 1998, respectively. At December 31, 1999, the scheduled maturities of certificates of deposit are as follows (dollars in thousands): 2000 $29,047 2001 2,915 2002 1,589 2003 1,517 2004 805 Thereafter 225 ------- $36,098 ======= 8. REVERSE REPURCHASE AGREEMENTS The Bank entered into sales of securities under agreements to repurchase identical securities or reverse repurchase agreements. The amounts advanced to the Bank under these agreements represent short-term loans and would be reflected as a payable in the balance sheet. The securities underlying the agreements are book-entry securities maintained at the Federal Reserve Bank of Philadelphia. The average balance of reverse purchase agreements entered into during 1998 was $1.5 million, and the maximum amount outstanding at any month-end during 1998 was $1.5 million. The repurchase agreement matured on March 31, 1999. 9. CAPITAL STOCK OFFERINGS On September 30, 1998, the Company designated a subclass of its Common Stock as Class B. Pursuant to the terms of the amendment, holders of the Class B Common Stock have rights of Common Stockholders, with the exception of voting rights. On October 9, 1998, the Company sold 83,333 shares of Class B Common Stock to one shareholder for a purchase price of $12 per share. On February 9, 1999 and September 24, 1999, the Bank sold 83,333 and 25,000 shares of Class B Stock, respectively, to the same shareholder at $12 per share. In April 1997, the Bank began its fifth offering of a maximum 250,000 shares of common stock at a price of $12 per share ($0.01 par value). As of December 31, 1997, the Bank had received $42,600 and had issued 3,550 shares of common stock from this offering. This offering was limited to existing shareholders of record as of April 20, 1997. The offering terminated on December 31, 1997. During 1997, the Bank received $34,110 and issued 3,790 shares as a result of warrants exercised by shareholders to purchase common stock at a price of $9.00 per share. As of December 31, 1997, 7,733 warrants remained outstanding. During 1998, the Bank received $64,922 and issued 6,492 shares as a result of warrants exercised by shareholders to purchase common stock at a price of $10.00 per share. As of December 31, 1998, no warrants remained outstanding. 65 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 9. CAPITAL STOCK OFFERINGS--CONTINUED In July 1998, the Company began a limited offering of its Series A Preferred Stock (noncumulative, 6%. $.01 par value) to Fannie Mae Corporation. The nonvoting preferred stock was offered at a price of $20 per share, in an amount for which the aggregate purchase price does not exceed the lesser of (1) 9.99% of the total equity. During 1998, the Company received $796,980 and issued 39,849 shares of preferred stock from this offering. During 1999, the Company received $203,020 from Fannie Mae and issued 10,151 shares of preferred stock from this offering. Upon the declaration of a common dividend, each of the Series A preferred shares will be accorded a non-cumulative dividend preference equal to 6% of the purchase price of the stock per annum prior to the payment of any dividend on account of any other class or series of the Company. No dividends have been declared or paid. 10. INCOME TAXES The Bank accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." At December 31, 1999, the Bank has net operating loss carryforwards of approximately $2,500,000 for income tax purposes that begin to expire in 2008. 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 amount used for income tax purposes. For financial reporting purposes, a valuation allowance of $1,499,042 and $1,120,565 as of December 31, 1999 and 1998, respectively, has been recognized to offset the deferred tax assets related to the cumulative temporary differences and the tax loss carryforwards. Significant components of the Bank's deferred tax assets are as follows:
1999 1998 ---- ---- Deferred tax assets: Provision for loan losses $ 467,180 $ 164,653 Unrealized losses (gains) on investment securities 98,092 (18,435) Depreciation 29,390 42,725 Net operating loss carryforwards 880,707 903,192 Other 23,673 28,430 Valuation allowance for deferred tax assets (1,499,042) (1,120,565) ----------- ----------- Net deferred tax assets $ -- $ -- =========== ===========
66 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 10. INCOME TAXES--CONTINUED 1999 1998 1997 ---- ---- ---- Effective rate reconciliation: Tax at statutory rate $(418,275) $ 3,377 $ 61,400 Nondeductible expenses 33,742 17,634 11,849 Increase in valuation allowance 379,094 -- -- Other 6,055 Utilization of net operating loss (616) (21,011) (73,249) --------- --------- --------- Total tax expense $ -- $ -- $ -- ========= ========= ========= 11. FINANCIAL INSTRUMENT COMMITMENTS The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, which are conditional commitments issued by the Bank to guarantee the performance of an obligation of a customer to a third party. Both arrangements have credit risk essentially the same as that involved in extending loans and are subject to the Bank's normal credit policies. Collateral may be obtained based on management's assessment of the customer. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments is represented by the contractual amount of those instruments. Summaries of the Bank's financial instrument commitments are as follows: 1999 1998 ---- ---- Commitments to extend credit $6,140,622 $ 7,269,229 Outstanding letters of credit 259,000 259,000 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and unused credit card lines. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. 67 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 12. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value information about financial instruments is required to be disclosed, whether or not recognized in the balance sheet, where it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flows or other valuation techniques. Those techniques are significantly affected by assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Bank.
1999 1998 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- (Dollars in thousands) Assets: Cash and cash equivalents $16,920 $16,920 $16,343 $16,343 Investment securities 51,433 50,600 43,196 43,253 Loans, net of allowance for loan losses 59,444 58,209 57,271 56,577 1999 1998 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- (Dollars in thousands) Liabilities: Demand deposits 55,326 55,326 49,113 49,113 Savings deposits 33,342 33,342 23,394 23,394 Time deposits 36,098 36,198 36,556 36,352 Off Balance Sheet: Commitments to extend credit 6,141 6,141 7,269 7,269 Outstanding letters of credit 259 259 259 259
13. EMPLOYEE COMPENSATION The Bank entered into a five-year employment agreement with its chief executive officer covering such items as salaries, bonuses, and benefits. The agreement expires in 2000 and provides for guaranteed minimum annual compensation of $150,000 over the term of the contract. The contract, entered into on September 13, 1993 and amended January 1, 1994, also granted the chief executive officer the option to acquire up to 4% of the Bank's stock as of December 31, 1993 at $8.54 per share, which was the book value at the date of grant. The contract, as amended on January 1, 1997, also provides for a minimum contribution of $58,200 per year to the chief executive officer's retirement benefit. The Company made no stock-based compensation awards to any employee during 1999, 1998, and 1997. 68 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 14. CORE DEPOSIT INTANGIBLE On September 24, 1999, the Bank acquired four branches from First Union Corporation with deposits totaling $31.5 million. The Bank paid a deposit premium of 7%, or $2,186,500, and incurred approximately $ 351,650 in consulting and other costs directly related to these branch acquisitions. Subsequent to the acquisition, the Bank transferred back to First Union one significant deposit relationship totaling $940,000 and received a $66,000 refund of deposit premium. The premium and branch acquisition costs are being amortized over 14 years. Amortization totaled $43,626 for the year ended December 31, 1999. 15. CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY CONDENSED BALANCE SHEETS DECEMBER 31, ----------------------- 1999 1998 ---- ---- (Dollars in thousands) Assets: Due from banks (subsidiary) $ 289 $ 265 Investment in United Bank of Philadelphia 8,738 8,639 -------- -------- Total assets $ 9,027 $ 8,904 ======== ======== Shareholders' equity: Series A preferred stock $ 1 $ 1 Common stock 10 9 Additional paid-in-capital 13,870 12,286 Accumulated deficit (4,658) (3,428) Net unrealized holding gains (losses) on securities available-for-sale (196) 36 -------- -------- Total shareholders' equity $ 9,027 $ 8,904 ======== ======== CONDENSED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- (Dollars in thousands) Equity in net income (loss) of subsidiary $(1,230) $ 10 $ 181 ------- ------- ------- Net income (loss) $(1,230) $ 10 $ 181 ======= ======= ======= 69 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 15. CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY--CONTINUED CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---- ---- ---- (Dollars in thousands) Cash flows from operating activities: Net income (loss) $(1,230) $ 10 $ 181 Equity in net income (loss) of subsidiary 1,230 (10) (181) ------- ------- ------- Net cash provided by operating activities -- -- -- ------- ------- ------- Cash flows from investing activities: Investment in subsidiary (1,561) (1,783) (76) ------- ------- ------- Net cash used in investing activities (1,561) (1,783) (76) ------- ------- ------- Cash flows from financing activities: Issuance of preferred stock 203 797 -- Issuance of common stock 1,382 1,065 76 ------- ------- ------- Net cash provided by financing activities 1,585 1,862 76 ------- ------- ------- Net increase in cash and cash equivalents 24 79 -- Cash and cash equivalents at beginning of year 265 186 186 ------- ------- ------- Cash and cash equivalents at end of year $ 289 $ 265 $ 186 ======= ======= =======
16. REGULATORY MATTERS The Bank engages in the commercial banking business, with a particular focus on serving Blacks, Hispanics and women, and is subject to substantial competition from financial institutions in the Bank's service area. As a bank holding company and a banking subsidiary, the Company and the Bank, respectively, are subject to regulation by the Federal Reserve Board and the Pennsylvania Department of Banking and are required to maintain capital requirements established by those regulators. Prompt corrective actions may be taken by those regulators against banks that do not meet minimum capital requirements. Prompt corrective actions range from restriction or prohibition of certain activities to the appointment of a receiver or conservator of an institution's net assets. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices, the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) for capital adequacy purposes. Management believes, as of December 31, 1999, that the Bank meets the capital adequacy requirements to which it is subject. 70 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 16. REGULATORY MATTERS - CONTINUED In February 2000, as a result of a regulatory examination completed in December 1999, the Bank entered into a Written Agreement ("Agreement") with its primary regulators with regard to, among other things, achievement of agreed-upon capital levels, implementation of a viable earnings/strategic plan, adequate funding of the allowance for loan losses, the completion of a management review and succession plan, and improvement in internal controls. The current Agreement requires the Bank to increase its capital ratio to 6.5% by June 30, 2000 and to 7% at all times thereafter. This will require an increase in capital and/or a reduction in assets. To achieve this capital ratio, Management has developed plans that include: increasing profitability, consolidating branches, and soliciting new and additional sources of capital. Management has begun to address all matters outlined in the Agreement and expects to be in full compliance with its terms and conditions within the required timelines. Failure to comply could result in additional regulatory supervision and/or actions. Beginning in 1996, the Bank has operated under a Supervisory Letter from its primary regulator. The Supervisory Letter prevents the Bank and the Company from declaring or paying dividends without the prior written approval of its regulators and prohibits the Bank and Company from issuing long-term debt. The most recent notification dated February 10, 2000, from the Federal Reserve Bank categorized the Bank as "adequately" capitalized under the regulatory framework for prompt and corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. The Bank's growth, continued losses and the additional provisions to the allowance for loans losses may have an adverse effect on its capital ratios. The Company's and the Bank's actual capital amounts and ratios are as follows: (IN THOUSANDS)
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ----------------- ----------------------------------- --------------------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- AS OF DECEMBER 31, 1999: TOTAL CAPITAL TO RISK- WEIGHTED ASSETS: COMPANY (CONSOLIDATED) $ 7,564 12.44% $ 4,864 equal or greater than 8.00% N/A BANK 7,275 12.07 4,822 equal or greater than 8.00 6,027 equal or greater than 10.00% TIER 1 CAPITAL TO RISK- WEIGHTED ASSETS: COMPANY (CONSOLIDATED) 6,794 11.18 2,431 equal or greater than 4.00 N/A BANK 6,505 10.80 2,409 equal or greater than 4.00 3,614 equal or greater than 6.00% TIER 1 CAPITAL TO AVERAGE ASSETS: COMPANY (CONSOLIDATED) 6,794 5.08 5,350 equal or greater than 4.00 N/A BANK 6,505 4.87 5,343 equal or greater than 4.00 6,679 equal or greater than 5.00%
71 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 16. REGULATORY MATTERS - CONTINUED
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ----------------- ----------------------------------- --------------------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- As of December 31, 1998: Total capital to risk- weighted assets: Company (consolidated) $9,502 17.48% $4,349 equal or greater than 8.00% N/A Bank 9,236 16.99 4,349 equal or greater than 8.00 5,436 equal or greater than 10.00% Tier 1 capital to risk- weighted assets: Company (consolidated) 8,823 16.23 2,175 equal or greater than 4.00 N/A Bank 8,557 15.74 2,175 equal or greater than 4.00 3,262 equal or greater than 6.00% Tier 1 capital to average assets: Company (consolidated) 8,823 7.67 4,601 equal or greater than 4.00 N/A Bank 8,557 7.44 4,601 equal or greater than 4.00 5,751 equal or greater than 5.00%
17. COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Bank is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company. 18. EARNINGS PER SHARE COMPUTATION In accordance with SFAS No. 128, income (loss) per share is calculated as follows: YEAR ENDED DECEMBER 31, 1999 ---------------------------------------- LOSS SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ NET LOSS $(1,230,222) =========== BASIC LOSS PER SHARE LOSS AVAILABLE TO STOCKHOLDERS $(1,230,222) 995,699 $(1.24) =========== ======== ====== YEAR ENDED DECEMBER 31, 1998 ---------------------------------------- LOSS SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ Net income $ 9,933 ======= Basic EPS Income available to stockholders $ 9,933 845,902 $0.01 ======= ======= ===== 72 United Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 and 1998 18. EARNINGS PER SHARE COMPUTATION--CONTINUED YEAR ENDED DECEMBER 31, 1997 ---------------------------------------- LOSS SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ Net income $180,590 Basic income per share Income available to stockholders $180,590 818,240 $0.22 ======== ======= ===== Effect of dilutive securities Warrants 7,733 ------- Diluted EPS Income available to common stockholders Plus assumed conversions $180,590 825,973 $0.22 ======== ======= ===== 73 EXHIBIT INDEX 3(i) Articles of Incorporation (Incorporated by reference to Registrant's 1997 Form 10-K). 3(ii) Bylaws (Incorporated by reference to Registrant's 1997 Form 10-K). 9.l Voting Trust Agreement with NationsBank (Incorporated by reference to Registrant's 1997 Form 10-K). 9.2 Voting Trust Agreement with Fahnstock (Incorporated by reference to Registrant's 1997 Form 10-K). 10.1 Lease Agreements between the Bank and various landlords. 10.2 Lease Agreement between ECC Properties, LLC and the Bank 10.3 Lease Agreement between the Bank and Philadelphia United Community Development Corporation. 10.4 Written Agreement by and among United Bancshares, Inc., United Bank of Philadelphia and Federal Reserve Bank of Philadelphia 11. Statement of Computation of Earnings Per Share. Included at Item 8 hereof. 12. Statement of Computation of Ratios. Included at Item 8 hereof. 23. Consent of Independent Accountants. 27. Financial Data Schedule. 74 EX-10 2 LEASE AGREEMENT Exhibit 10.1(a) CERTIFIED MAIL RETURN RECEIPT REQUESTED February 3, 1999 Emanual - Ruth Investment Corporation c/o Property Management Group 311 S. 13th Street Philadelphia, PA 19107 Re: Lease Agreement dated July 21,1980 between Emanual-Ruth Investment Corporation, as Landlord and First Union National Bank, as Tenant Premises: First Union National Bank 2836 West Girard Avenue Philadelphia, PA Gentlemen: Please be advised that Insignia/ESG is the exclusive real estate representative for First Union National Bank in Pennsylvania. Pursuant to Paragraph 1 of the Amendment To Lease dated April 30, 1997 for the above referenced Lease Agreement, First Union hereby exercises its option to extend the term of the lease for an additional two-year period. The extension term shall commence on May 1, 1999 and shall expire on April 30, 2001. Monthly rental during the extension term shall be $1,375.00. Emanual - Ruth Investment Corporation February 3, 1999 Page 2 of 2 This notice to extend was previously forwarded to you at the address provided for in the lease and was deemed undeliverable. A copy of the letter is attached for your reference. Please contact me with any questions or comments regarding the above. Sincerely, /s/ Robert E. Zwengler Robert E. Zwengler Senior Director cc: Glenn Blumenthal CERTIFIED MAIL RETURN RECEIPT REQUESTED October 30, 1998 Emanual - Ruth Investment Corporation 121 C. Benson Manor Washington Lane & Township Line Rd. Jenkintown, PA 19046 Re: First Union National Bank 2836 West Girard Avenue Philadelphia, PA Lease: 7121/80 Gentlemen: Please be advised that Insignia/ESG is the exclusive real estate representative for First Union National Bank in Pennsylvania. In accordance with the amendment dated April 30, 1997 to the above lease for the First Union Girard branch office, First Union hereby exercises its option to extend the term of the lease for an additional two-year period. The extension term shall commence on May 1, 1999 and shall expire on April 30, 2001. Monthly rental during the term shall be $1,375.00. Thank you. Sincerely, /s/ Robert E. Zwengler Robert E. Zwengler Senior Director cc: Glenn Blumenthal LEASE AGREEMENT This Agreement, made this 21st day of July one thousand nine hundred and eighty (1980), by and between Emanual-Ruth Investment Corporation (hereinafter called Lessor), of the one part, and Fidelity Bank (hereinafter called Lessee), of the other part. WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that certain building known as 2836 W. Girard Avenue, in the city of Philadelphia, State of Pennsylvania, to be used and occupied as a branch bank office for the term of eighty years beginning the first day of May one thousand nine hundred and eighty-two (1982), and ending the 30th day of April, one thousand nine hundred and ninety (1990), for the minimum monthly rental of Four hundred and Fifty (Dollars) ($450.00), lawful money of the United States of America payable in monthly installments in advance in sums of Four Hundred and Fifty ($450.00) dollars during the first three years of said lease Dollars ($____________) on the 1st day of each month, rent to begin from the 1st day of May, 1982, the first installment to be paid at the time of signing this lease. Beginning on May 1, 1985, the monthly rental shall be Five Hundred and Fifty $550.00) Dollars until April 20, 1958. On May 1, 1988, the rental shall be Six Hundred and Fifty ($650.00) Dollars per month until the termination of this lease on April 30, 1996. If Lessor is unable to give Lessee possessions of the demised premises, as herein provided, by reason of the holding over of a previous occupant, or by reason of any cause beyond the control of the Lessor, the Lessor shall not be liable in damages to the Lessee therefor, and during the period that the Lessor is unable to give possession, all rights and remedies of both parties hereunder shall be suspended. (a) Lessee agrees to pay as rent in addition to the minimum rental sums which may become due by reason of the failure of Lessee to comply with all the covenants of this lease and pay any and all damages, costs and expenses which the Lessor may suffer or incur by reason of any default of the Lessee or failure on his part to comply with the covenants of this lease, and each of the lands also any and all damages of the demised premises caused by any act or neglect of the Lessee. (b) Lessee further agrees to pay as rent in addition to the minimum rental herein reserved all taxes assessed or imposed upon the demised premises and/or the building of which the demised premises is a part during the term of this lease, in exceeds of and over and above 788.58. The amount due hereunder on account of such taxes shall be apportioned for that part of the first and last calendar years covered by the term hereof. The same shall be paid by Lessee to Lessor on or before the first day of ______ of each and every year. (c) Lessee further agrees to pay to lessor as additional rent all increase or increases in fire insurance premiums upon the demised premises and/or the building of which the demised premises is a part, due to an increase in the rate of fire insurance in excess of the rate on the demised premises at the time of making this lease. If said increase is caused by any act or neglect of the Lessee or the nature of the Lessee's business. (d) Lessee further agrees to pay as additional rent, if there is a metered water connection to the said premises, all charges for water consumed upon the demised premises in excess of the yearly minimum meter charge and all charges for repairs to the said meter or meters on the premises, whether such repairs are made necessary by ordinary wear and tear, freezing, hot water, accident or other cases, immediately when the same become due. (e) Lessee further agrees to pay as additional rent, if there is a metered water connection to said premises, all sewer rental or charges for use of sewers, sewage system, and sewage treatment works servicing the demised premises in excess of the yearly minimum of each sewer charges, immediately when the same become due. All rents shall be payable without prior notice or demand at the office of Lessor in c/o E.G. Weiss, Esq., 106 S. 16th Street, Phila., Pa. 19102 or at such other place as Lessor may from time to time designate by notice in writing. Lessee covenants and agrees that he will without demand (a) Pay the rent and all other charges herein reserved as rent on the days and times and at the place that the same are made payable, without fail, and if Lessor shall at any time or times accept said rent or rent charges after the same shall have become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute or be construed as a waiver of any of Lessor's rights. Lessee agrees that any charge or payment herein reserved, included or agreed to be treated or collected as rent and/or any other charges or taxes, expenses, or costs herein agreed to be paid by the Lessee may be proceeded for and recovered by the Lessor by distraint or other process in the same manner as rent due and in arrears. (b) Keep the demised premises clean and free from all ashes, dirt and other refuse matter: replace all glass windows, doors, etc., broken: keep all waste and drain pipes open: repair all damage to plumbing and to the premises in general: keep the same in good order and repair as they now are, reasonable wear and tear and damage by accidental fire or other casualty not occurring through negligence of Lessee or those employed by or acting for Lessee alone excepted. The Lessee agrees to surrender the demised premises in the same condition in which Lessee has herein agreed to keep the same during the continuance of this lease. (c) Comply with any requirements or any of the constituted public authorities, and with the terms of any State or Federal statute or local ordinance or regulation applicable to Lessee or his use of the demised premises, and save Lessor harmless from penalties, fines, costs or damages resulting from failure to do so. (d) Use every reasonable precaution against fire. (e) [TEXT INTENTIONALLY OMITTED] (f) Peaceably deliver up and surrender possession of the demised premises to the Lessor at the expiration or sooner termination of this lease, promptly delivering to Lessor at his office all keys for the demised premises. (g) Give to Lessor prompt written notice of any accident, fire, or damage occurring on or to the demised premises. (h) Lessee: [TEXT OMITTED] shall keep the pavement free from snow and ice: and shall be and hereby agrees that Lessee is solely liable for any accidents, due or alleged to be due [TEXT OMITTED] or to any accumulations of snow and ice. (i) The Lessee agrees that if, with the permission in writing of Lessor, Lessee shall vacate or decide at any time during the term of this lease, or any renewal thereof, to vacate the herein demised premises prior to the expiration of this lease, or any renewal hereof. Lessee will not cause or allow any other agent to represent Lessee in any sub-letting or reletting of the demised premises other than an agent approved by the Lessor and that should Lessee do so or attempt to do so, the Lessor may remove any signs that may be placed on or about the demised premises by such other agent without any liability to Lessor or to said agent, the lessee assuming all responsibility for such action. Lessee covenants and agrees that he will do none of the following things without the consent in writing of Lessor first had and obtained: (a) Occupy the demised premises in any other manner or for any other purpose than as above set forth. (b) Assign, mortgage or pledge this lease or under let or sub-lease the demised premises, or any part thereof, or permit any other person, firm or corporation occupy the demised premises, or any part thereof: nor shall any assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease, without an additional written consent by the Lessor, and without such consent no such assignment, mortgage or pledge shall be valid. If the Lessee becomes embarrassed or insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Lessee or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed or if the real or personal property of the Lessee shall be sold or levied upon by any Sheriff, Marshall or Constable, the same shall be a violation (c) [TEXT INTENTIONALLY OMITTED] (d) Make any alterations, improvements or additions to the demised premises. All alterations, improvements, additions or fixtures, whether installed before or after the execution of this lease, shall remain upon the premises as the expiration or sooner determination of this lease and become the property of Lessor, unless Lessor shall, prior to the determination of this lease, have given written notice to Lessee to order and condition in which event Lessee will remove such alterations, improvements and additions and restore the premises to the same good order and condition in which they now are. Should Lessee fail so to do, Lessor may do so collecting at Lessor's option, the cost and expense thereof from Lessee as additional rent except as set forth in Rider #29. (e) Use or operate any machinery that, in Lessor's opinion, is harmful to the building or disturbing to other tenants occupying other parts thereof. (f) Place any weights in any portion of the demised premises beyond the safe carrying capacity of the structure. (g) Do or suffer to be done, any act, manner or thing objectionable to the fire insurance companies whereby the fire insurance or any other insurance now in force or hereafter to be placed on the demised premises, or any part thereof, or on the building of which the demised premises may be a part, shall become void or suspended, or whereby the same shall be rated as a more hazardous risk than at the date of explosive matter of any kind in and about the demised premises. In case of a breach of this covenant (in addition to all other remedies given to Lessor in case of the breach of any of the conditions or covenants of this lease) Lessee agrees to pay to Lessor as additional rent any and all increase or increases of premiums insurance carried by Lessor on the demised premises, or any part thereof, or on the building of which the demised premises may be a part, caused in any way by the occupancy of Lessee. (h) [TEXT INTENTIONALLY OMITTED] (i) Vacate or desert said premises during the term of this lease, or permit the same to be empty and unoccupied. Lessee covenants and agrees that Lessor shall have the right to do the following things and matters in and about the demised premises: (a) At all reasonable times by himself or his daily authorized agents to go upon and inspect the demised premises and every part thereof, and/or at his option to make repairs, alterations and additions to the demised premises or the building of which the demised premises is a part. (b) [TEXT INTENTIONALLY OMITTED] (c) [TEXT INTENTIONALLY OMITTED] (d) The Lessor may discontinue all facilities furnished and services rendered, or any of them, by Lessor, not expressly covenanted for herein, it being understood that they constitute no part of the consideration for this lease. (a) Lessee agrees to be responsible for and to relieve and hereby relieves the Lessor from all liability by reason of any injury or damage to any person or property in the demised premises, whether belonging to the Lessee or any other person, caused by any fire, breakage or leakage in any part or portion of the demised premises, or any part or portion of the building of which the demised premises is a part, or from water, rain or snow that may leak into, issue or flow from any part of the said premises, or of the building of which the demised premises is a part, or from the drains, pipes, or plumbing work of the same, or from any place or quarter unless such breakage, leakage, injury or damage, injury, use, misuse or abuse be caused or result from the negligence of Lessor, his servants or agents. (b) Lessee also agrees to be reasonable for and to relieve and hereby relieves Lessor from all liability by reason of any damage or injury to any person or thing which may arise from or be due to the use, misuse or abuse of all or any of the elevators, hatches, openings, stairways, hallways, of any kind whatsoever, which may exist or hereafter be erected or constructed on the said premises or from any kind of injury which may arise from any other cause whatsoever on the said premises or the building of which the demised premises is a part unless such damage, injury, use, misuse or abuse be caused by or result from the negligence of Lessor, his servants or agents. (a) In the event that the demised premises is totally destroyed or so damaged by fire or other casualty not occurring through fault or negligence of the Lessee or those employed by or acting for him, that the same cannot be repaired or restored within a reasonable time, this lease shall absolutely cease and determine and the rent shall abate for the balance of the term. (b) If the damage caused as above be only partial and such that the premises can be restored to their then condition within a reasonable time, the Lessor may, at his option, restore the same with reasonable promptness, reserving the right to enter upon the demised premises for that purpose. The Lessor also reserves the right to enter upon the demised premises whenever necessary to repair damage caused by fire or other casualty to the building of which the demised premises is a part, even though the effect of such entry be to render the demised premises or a part thereof ___________.In either event the rent shall be apportioned and suspended during the time the Lessor is in possession, taking into account the proportion of the demised premises rendered unmeasurable and the duration of the Lessor's possession. If is a dispute arises as to the amount of rent due under this clause. Lessee agrees to pay the full amount claimed by Lessor. Lessee shall, however, have the right to proceed by law to recover the excess payment, if any. (c) Lessor shall make such election to repair the premises or terminate this lease by giving notice thereof to Lessee at the leased premises within thirty days from the day Lessor received notice that the demised premises had been destroyed or damaged by fire or other casualty. (d) Lessor shall not be liable for any damage, compensation or claim by reason of inconvenience or annoyance arising from the necessity of repairing any portion of the building, the interruption in the use of the premises, or the termination of this lease by reason of the destruction of the premises. (e) The Lessor has let the demised premises in their present condition and without any representations on the part of the Lessor, his officers, employees, servants and/or agents. It is understood and agreed that Lessor is under no duty to make repairs or alterations at the time of letting or at any time thereafter. (f) [INTENTIONALLY OMITTED] (a) No contract entered into or that may be subsequently entered into by Lessor with Lessee, relative to any alterations, additions, improvements or repairs, nor the failure of Lessor to make such alteration, additions, improvements or repairs as required by any such contract, nor the making by Lessor or his agents or contractors of such alterations, additions, improvements or repairs shall in any way affect the payment of the rent of said other charges at the time specified in this lease. (b) It is hereby expressly agreed and understood that the said ______________________ is acting as agent only and shall not in any event be held liable to the owner or to Lessee for the fulfillment or non-fulfillment of any of the terms or conditions of this lease, or for any actions or proceedings that may be taken by the owner against Lessee, or by Lessee against the owner. (c) It is hereby covenanted and agreed, any law, usage or custom to the contrary notwithstanding that Lessor shall have the right at all times to enforce the covenants and provisions of this lease in strict accordance with the terms hereof, notwithstanding any conduct or custom on the part of the Lessor in refraining from so doing at any time or times; and, further, that the failure of Lessor at any time or times to enforce his rights under said covenants and provisions strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions and covenants of this lease or as having in any way or manner modified the same. (d) This lease is granted upon the express condition that Lessee and/or the occupants of the premises herein leased, shall not conduct themselves in a manner which improper or objectionable and that if at any time during the term of this lease or any extension or continuation thereof, Lessee or any occupier of the said premises shall have conducted himself, herself or themselves in a manner which improper or objectionable, Lessee shall be taken to have broken the covenants and conditions of this lease, and Lessor will be entitled to all of the rights and remedies granted and reserved herein for the Lessee's failure to observe any of the covenants and conditions of this lease. (e) In the event of the failure of Lessee promptly to perform the covenants of Section 8(b) hereof, Lessor may go upon the demised premises and perform such covenants, the cost thereof, at the sole option of Lessor, to be charged to Lessee as additional and delinquent rent. If the Lessee (a) Does not pay in full when due any and all installments of rent and/or any other charge or payment herein reserved, included, or agreed to be rented or collected as rent and/or any other charge, expense, or cost herein agreed to be paid the Lessee; or (b) Violates or fails to perform or otherwise breaks any covenant or agreement herein contained; or (c) Vacates the demised premises or removes or attempts to remove or manifests an intention to remove any goods or property thereafter from otherwise than in the ordinary and usual course of business without having first paid and satisfied the Lessor in full for all rent and other charges then due or that may thereafter become due until the expiration of the then current terms, above mentioned; or (d) Becomes embarrassed or insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Lessee, or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed, or if proceedings for reorganization or for compos9ition with creditors under any State or Federal law be instituted by or against Lessee, or if the real or personal property of the Lessee shall be sold or levied upon by any Sheriff, Marshall or Constable; _________________________________ them and in any or either of said events, there shall be deemed to be a breach of this lease, and thereupon ipso facto and without entry or other action by Lessor; (1) The rent for the entire unexplored balance of the term of this lease, as well as all other charges, payments, costs and expenses herein agreed to be paid by the Lessee, or at the option of Lessor any part thereof, and also all costs and officers' commissions including watchmen's wages and further including the five percent chargeable by Act of Assembly to the Lessor, shall, in addition to any and all installments of rent already due and payable and in arrears and/or any other charge or payment herein reserved, included or agreed to be treated or collected as rent, and/ort any other charge, expense or cost herein agreed to be paid by the Lessor which may be due and payable treated or collected as rent, and/or any other charge, expense or cost herein agreed to be paid by the Lessor which may be due and payable and in arrears, be taken to be due and payable and in arrears as if by the terms and provisions of this lease, the whole balance of unpaid rent and other charges, payments, taxes, costs and expenses were on that date payable in advance: and if this lease or any part thereof is assigned, or if the premises or any part thereof is sub-let, Lessee hereby irrevocably constitutes and appoints Lessor Lessee's agent to collect the rents due by such assignee or sub-lessee and apply the same to the rent due hereunder without in any way affecting Lessee's obligation to pay any unpaid balance of rent due hereunder: save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken; whereupon, Lessor shall less the fair market value of the said demised premises, for the residue of said term. In the event of any default as above set forth in Section 14, the Lessor, or anyone acting on Lessor's behalf, at Lessor's option: (a) may without notice or demand enter the demised premises, breaking open locked doors if necessary to effect entrance, without liability to action for prosecution or damages for such entry or for the manner thereof, for the purpose of distraining or levying and for any other purposes, and take possession of and sell all goods and chattels at auction, not three days' notice served in person on the Lessee or left on the premises, and pay the said Lessor out of the proceeds, and even if the rent be not due and unpaid, should the Lessee at any time remove or attempt to remove goods and chattels from the premises without leaving enough thereon to meet the next periodical payment, sufficient of such goods to meet the proportion of rent accrued at the time of such removal; and the Lessee hereby releases and discharges the Lessor, and his agents, from all claims, actions, suits, damages, and penalties, for or by reason or on account of any entry, distraint, key, appraisement or sale; and/or (b) may enter the premises, and without demand, proceed by distress and sale of the goods there found to levy the rent and/or other charges herein payable as rent, and all costs and officers' commissions, including watchmen's wages and sums chargeable to Lessor, and further including a sum equal to 5% of the amount of the levy as commissions to the constable or other person making the levy, shall be paid by the Lessee, and in such case all costs, officers' commission and other charges shall immediately attach and become part of the claim of Lessor for rent, and any tender of rent without said costs, commission and charges made after the issue of a warrant of distress shall not be sufficient to satisfy the claim of the Lessor. Lesser hereby expressly waives in favor of Lessor the benefit of all laws now made or which may hereafter be made regarding any limitation as to the goods upon which, or the time within which, distress is to be made after removal of goods, and further relieves the Lessor of the obligations of proving or identifying such goods, it being the purpose and intent of this provision that all goods of Lessee, whether upon the demised premises or not, shall be liable to distress for rent. Lessee waives in favor of Lessor all rites under the Act of Assembly of April 6, 1951, P.L 69, and all supplements and amendments thereto that have been or may hereafter be passed, and authorizes the sale of any goods distrained for rent at any rime after fire days from said distraint without any appraisement and/or condemnation thereof. (c) The Lessee further waives the right to issue a Writ of Replevin tinder the Pennsylvania Rules of Civil Procedure. No. 1071 &c and Laws of the Commonwealth of Pennsylvania, or under arty other law piously enacted and now in force, or which tray be hereafter enacted for the recovery of any articles, household goods, furniture, etc. seized under a distress for rent or levy upon an execution for rent, damages or otherwise; all waivers hereinbefore mentioned are hereby extended to apply to any such; and/or (d) may lease said premises or any part or parts thereof to such person or persons as may in Lessor's discretion seem best and the Lessee shall be liable for any loss of rent for the balance of the then current term. The right to enter judgment against Lessee and to enforce all of the other provisions of this (case hereinabove provided for may, at the option of any assignee of this lease. be exercised by any assignee of the Lessor's right, title and interest in this lease in his, her or their own name, notwithstanding the fact that any or all assignments of the said right title and interest nay not be executed and/or witnessed in accordance with the Act of Assembly of May 28, 1715, 1 Sm. L 90. and all supplements and amendments thereto that have been or may hereafter be passed and Lessee hereby expressly waives the requirements of said Act of Assembly and any and all laws regulating the manner and/or form in which such assignments shall be executed and witnessed. All of the remedies hercinbefore given to Lessor and all rights and remedies Riven to him by law and equity shall be cumuiative and concurrent. No determination of this lease or the taking or recovering of the premises shall deprive Lessor of any of his remedies or actions against the Lessee for rent due at the time or which, under the terms hereof, would in the future become due as if there has been no determination. or for any and all sums due at the time or which. under the terms hereof, would in the future become due as if there had been no determination. nor shall the bringing of any action for rent or breach of covenant. or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the premises. In the event that the premises demised or any part thereof is taken or condemned condemned for a public or quasi-public use, this lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor. and rent shall abate lit proportion to the square feet of leased space taken or condemned or shall cease if the entire premises be so taken. In either event the Lessee waives all claims against the Lessor by reason of the complete or partial taking of the demised premises. and it is agreed that the Lessee shall not be entitled to any note whatsoever of the partial or complete termination of this lease by reason of the aforesaid. It is hereby mutually agreed that either party hereto may determine this lease at the end of said term by giving to the other party written notice thereof at least sixty days prior thereto, but in default of such notice, this lease shall continue upon the same terms and conditions in force immediately prior to the expiration of the term hereof as are herein contained for a further period of sixty and so on fromn sixty to sixty unless or until terminated by either party hereto, giving the other sixty days written notice for removal previous to expiration of the then current term: PROVIDED, however, that should this lease be continued for a further period under the terms hereinabove mentioned, any allowances given Lessee on the rent during the original term shall not extend beyond such original term, and further provided, however, that if Lessor shall have given such written notice prior to the termination of any term hereby created, of his intention to change the terms and conditions of this lease, and Lessee shall not within fifteen days from such notice notify Lessor of Lessee's intention to vacate the demised premises at the end of the then current term. Lessee shall be considered as Lessee under the terms and conditions mentioned in such notice for a further term as above provided. or for such further term as may be stated in such notice. In the event that Lessee shall give notice, as stipulated in this lease, of intention to vacate the demised premises at the end of the present term, or any renewal or extension thereof, and shail fail or refuse so to vacate the same on the date designated by such notice, then it is expressly agreed that Lessor shall have the option either (a) to disregard the notice so given as having no effect, in which case all the terms and conditions of this lease shall continue thereafter with full force precisely as if such notice had not been given, or (b) Lessor may, at any time within thirty days after the present term or any renewal or extension thereof, as aforesaid. give the said Lessee ten days' written notice of his intention to terminate the said lease: whereupon the Lessee expressly agrees to vacate said premises at the expiration of the said period of ten days specified in said notice. All powers granted to Lessor by this lease .nay be exercised and all obligations imposed upon Lessee by this lease shall be performed by Lessee as wall during any extension of the original term of this lease as during the original term itself. All notices required to be given by Lessor to Lessee shall be sufficiently given by leaving the same upon the demised premises, but notices given by Lessee to Lessor must he given by registered mail, and as against Lessor the only admissible evidence that notice has been given by Lessee shall be a registry return receipt signed by Lessor or his agent. It is expressly understood and agreed by and between the parties hereto that this lease and the riders attached hereto and forming a part hereof set forth all the promises agreements, conditions and understandings between Lessor or his Agents and Lessee relative to the demised premises, and that there are no promises, agreements, conditions tar understandings, either oral or written. between them other than are herein set forth. It is further understood and agreed that, except as herein otherwise provided. no subsequent alteration. amendment, change or addition to this lease shall be binding upon Lessor or Lessee unless reduced to writing and signed by them. All rights arid liabilities herein given to, imposed upon, the respective parties hereto shall extend to and the several and respective heirs, executors, administrators, succeed and assigns of said parties: and if there shall he more than Lessee, they shall all be bound jointly and severally by the terms. covenants and agreements herein, and the word "Lessee" shall be deemed and taken to mean each and every person or party mentioned as a Lessee herein, be the same one or more: and if there shall be more than one Lessee, any notice required or permitted by the terms of this lease may be given by or to any one thereof. and shall have the same force and effect as if given by or to all thereof. The words "his" and "him" wherever stated herein shall be deemed to refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be singular or plural and irrespective of gender. No rights, however, shall inure to the benefit of any assignee of Lessee unless the assignment to such assignee has been approved by Lessor in writing as aforesaid. Lesser shall, upon execution hereof, deposit with Lessor as security fur the performance of all the terms, covenants. and conditions of this lease, the sum of none. This deposit is to be retained by Lessor until the expiration of this lease and shall be returnable to Lessee provided that (1) premises have been vacated: (2) Lessor shall have inspected the premises after such vacation; and (3) Lessee shall have complied with all the terms, covenants and conditions of this lease, in which event the deposit so paid hereunder shall be returned to Lessee: otherwise, said sum deposited hereunder or any part thereof may he retained by Less at his option, as liquidated damages, or may be applied he Lessor against any actual loss, damage or injury chargeable to Lessee hereunder or otherwise, if Lessor determines that such loss, damage or injury exceeds said sum deposited. Lessor's determination of the amount, if any, to be returned to Lessee shall be final. It is understood that the said deposit is not to be considered ac the last rental due under the lease. Any headings preceding the text of the several paragraphs and sub-paragraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this lease, nor shall they affect its meaning, construction or effect. 30. Lessee agrees to furnish heat, light and power to the demised premises at its own expense. Lessee is given permission, at its own cost and expense, to lower the ceiling of the premises by installing a false ceiling. IN WITNESS WHEREOF, the parties hereto have executed these presents the day and pear first above written. and intend to be legally boned SEALED AND DELIVERED IN THE PRESENCE OF: FIDELITY BANK By: /s/ Thomas W. Barry ----------------------------------------- Sr. Vice President -- Thomas W. Barry ATTEST: /s/ ----------------------------------------- Emanuel-Ruth Investment Corp. BY: /s/ ----------------------------------------- ATTEST: /s/ ----------------------------------------- FOR VALUE RECEIVED ___________________________________ hereby assign, transfer and set over unto ___________________________________ Executors, Administrators, Successors and Assigns, all ______ right, title and interest in the within _____________ and all benefit and advantage to be derived therefrom. Witness ________ hand and seal this ________________ day of _____________________ A.D. 19____ SEALED AND DELIVERED IN PRESENCE OF ATTACHED TO AND FORMING PART OF LEASE BETWEEN EMANUEL G. WEISS, LESSOR; AND THE FIDELITY BANK, LESSEE; FOR PREMISES 2836 WEST GIRARD AVENUE, PHILADELPHIA, PENNSYLVANIA DATED THE 21ST DAY OF JULY 1980 29. Lessee shall pay for all heat, light, and power used in the demised premises. Lessee may make any necessary alterations and improvements to the demised premises; provided, however, that any such alterations or improvements shall first be submitted to Lessor, and Lessor's written approval obtained. Lessor shall not unreasonably withhold such approval. Lessee shall pay all costs of any such alterations or improvements and upon termination shall have the right to remove such alterations and improvements as in its discretion it shall choose, provided only that no structural damage shall be done to said building on removal. 30. Lessor shall maintain the roof of the premises. In the event of any roof defect, Lessee shall give prompt written notice to Lessor, who agrees to make repairs within ten working days from receipt of such notice. Lessor represents that the heater and boiler in the demised premises shall be in good operating condition at the commencement of this lease. In the event said heater and boiler are not in said condition, Lessor agrees to repair or replace the same as is necessary. Thereafter, Lessee shall provide ordinary maintenance to said heater, boiler and heating system. However, Lessor, if necessary, shall make any repairs or replacements costing in excess of one Hundred Fifty Dollars to said boiler and heater. Lessor shall have the privilege of employing its own plumbers and/or heater repairmen for said purpose. 32. Lessee shall have the privilege to install and maintain such signs as it customarily installs on its branch bank offices. 33. Lessor's right to inspect the premises as set forth in Paragraph 10 hereof or elsewhere shall be limited to inspections made during normal business hours of Lessee and a representative of Lessee shall accompany Lessor at all times. 34. Lessor shall not have the privilege of displaying a "For Sale" sign on the premises during the term of this lease or any renewal or extensions thereof. In the event Lessor receives a bona fide offer from a person not a member of Lessor's family group or a corporation owned by such group or any one of same, Lessee shall have the option to purchase said premises upon the same terms and conditions subject to Lessee's exercise of said option within 15 days of notice in writing by Lessor to Lessee of the existence of said offer. Lessor shall have the privilege to install a "For Rent" sign within the last six months of the term of this lease or any renewal or extension thereof. 35. Lessor, despite anything else to the contrary herein, shall not have the privilege or power to exercise any of his rights on default as defined or set forth herein unless and until he has given notice in writing to Lessee of the existence of such default and Lessee shall not have cured such default within fifteen days after receipt of such notice. EMANUEL-RUTH INVESTTHE FIDELITY BANK By: /s/ By: /s/ Thomas W. Barry ---------------------- ----------------------------- Thomas W. Barry, Sr. Vice President Attest: /s/ Attest: /s/ ----------------------- -------------------------- Asst. Secretary Asst. Secretary 123 SOUTH BROAD PHILADELPHIA, PENNSYIVANIA 19109-1199 215 985-6000 CERTIFIED MAIL - RETURN RECEIPT REQUESTED July 10, 1998 PROGRESS INVESTMENT ASSOCIATES, Inc. T/A Progress Plaza Shopping Center 1501 N. Broad Street Philadelphia, PA 19122 Re: First Union National Bank, successor by merger to CoreStates Bank Progress Plaza Branch, Philadelphia, PA. Dear Sir/Madam: Reference is made to the Lease dated October 15, 1988 between Progress Investment Associates, Inc. T/A Progress Plaza Shopping Center, Landlord, and First Pennsylvania Bank, N.A., Tenant. Please consider this formal notice that First Union National Bank, as successor by merger, hereby exercises its five year option as required under Section 1.9 of the lease agreement The term of the option will commence on November 1, 1998 and expire on October 31, 2003. I would appreciate it if you would acknowledge the receipt of this notice below on the duplicate letter and return it to me in the postage paid self addressed envelope. Sincerely, Dan G. Griffith Receipt is acknowledged that First Union Vice President National Bank has exercised its option to extend the lease as required under the Section 9 of agreement. By: ------------------------------------ COPY LEASE AGREEMENT By and Between PROGRESS INVESTMENT ASSOCIATES, INC. TRADING AS PROGRESS PLAZA SHOPPING CENTER LANDLORD AND THE FIRST PENNSYLVANIA BANK N.A. TENANT DATED: OCTOBER 15, 1988 TABLE OF CONTENTS SUBJECT SECTION PAGE - ------- ------- ---- Access by Landlord 8 11 Right of Entry 8.1 11 Excavation 8.2 11 Advertising, Merchant's Association 10 12 Name in Advertising 10.1 12 Merchants Association 10.2 12 Assignment and Subletting 15 16 Consent Required 15.1 16 Corporate Ownership (Deleted) 15.2 16 Conduct of Business by Tenant 6 8 Purpose of Use 6.1 8 Operation of Business 6.2 8 Competition (Deleted) 6.3 9 Storage, Office Space 6.4 9 Operation of Concessions 6.5 9 Default by Tenant 18 19 Right to Re-enter 18.1 19 Notice 3 Opportunity to Cure 21 Right to Re-let 18.2 21 Legal Expenses 18.3 21 Waiver of Jury Trial and Counterclaim 18.4 22 Waiver of Right of Redemption 18.5 22 Destruction of Leased Premises 13 15 Total or Partial Destruction 13.1 15 Partial Destruction of Shopping Center 13.2 15 Eminent Domain 17 17 Total Condemnation 17.1 17 Partial Condemnation 17.2 17 Total Condemnation of Parking Area 17.3 17 Partial Condemnation of Parking Area 17.4 18 Landlord's Damages 17.5 18 Tenant's Damages 17.6 18 Condemnation of Less than a Fee 17.7 18 Holding Over, Successors 19 22 Holding Over 19.1 22 Successors 19.2 22 Insurance and Indemnity 11 13 Liability Insurance 11.1 13 Increase in Fire Insurance Premium 11.2 14 Indemnification of Landlord 11.3 14 Boiler Insurance (Deleted) 11.4 14 Maintenance of Leased Premises 7 9 Maintenance by Tenant 7.1 9 Maintenance by Landlord 7.2 9 Surrender of Premises 7.3 10 Rules and Regulations 7.4 10 Notice by Tenant 7.5 10 Cost of Maintenance of Common Areas 7.6 10 i Table of Contents (continued) SUBJECT SECTION PAGE - ------- ------- ---- Notice by Tenant 7.5 10 Costs of Maintenance of Common Areas 7.6 10 Miscellaneous 21 23 Waiver 21.1 23 Accord and Satisfaction 21.2 23 Entire Agreement 21.3 23 No Partnership 21.4 23 Force Majeure 21.5 23 Notices 21.6 24 Captions and Section Numbers 21.7 24 Tenant Defined and Use of Pronoun 21.8 24 Brokers Commission 21.9 24 Partial Invalidity 21.10 24 No Option 21.11 24 Recording 21.12 25 Rider (Deleted) 21.13 25 Offset Statement, Attornment, Subordination 14 15 Offset Statement 14.1 15 Attornment 14.2 16 Subordination 14.3 16 Attorney-in-Fact 14.4 16 Quiet Enjoyment 20 22 Records and Books of Account 3 5 Tenant's Records 3.1 5 Reports by Tenant 3.2 5 Right to Examine Books 3.3 5 Audit 3.4 5 Rent 2 2 Minimum Rent 2.1 2 Percentage Rent 2.2 3 Gross Receipts Defined 2.3 3 Taxes 2.4 4 Additional Rent 2.5 4 Past Due Rent 2.6 4 Term 1 1 Leased Premises 1.1 1 Use of Additional Areas 1.2 1 Commencement and Ending Date 1.3 1 Lease Year Defined 1.4 1 Failure of Tenant to Open (Deleted) Joint Opening (Deleted) Renovations by Tenant 1.7 1 Delivery of Premises by Landlord 1.8 2 Acceptance of Premises by Tenant 1.9 2 Option to Renew 1.10 2 Security Deposit 4 6 Amount of Deposit (Deleted) 4.1 6 Use and Return of Deposit (Deleted) 4.2 6 Transfer of Deposit (Deleted) 4.3 6 11 Table of Contents - (Continued) SUBJECT SECTION PAGE - ------- ------- ---- Signs, Awnings, Canopies, Fixtures, Alterations 5 6 Installation 5.1 6 Changes and Additions to Building 5.2 7 Removal and Restoration by Tenant 5.3 7 Discharge of Liens 5.4 7 Signs, Awnings and Canopies 5.5 7 Parking and Common Use Areas 5.6 7 License 5.7 8 Tenant's Property 9 12 Loss and Damage 9.1 12 Utilities 12 14 Utility Charges 12.1 14 Waste, Governmental Regulations 16 16 Waste or Nuisance 16.1 16 Governmental Regulations 16.2 16 iii Tenant agrees as( follows: (1) All loading and unloading of goods shall be done only at such times, in the areas, and through the entrances, designated for such purposes by Landlord. (2) The delivery or shipping of merchandise, supplies and fixtures to and from the leased premises shall be subject to such rules and regulations as in the judgment of Landlord are necessary for the proper operation of the leased premises or Shopping Center. (3) All garbage and refuse shall be kept in the kind of container specified by Landlord, and shall be placed outside of the premises prepared for collection in the manner and at the times and places specified by Landlord. If Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any of Tenant's refuse or rubbish. (4) No television or other similar devise shall be installed without first obtaining in each instance Landlord's consent in writing. No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance, the written consent of Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time. (5) No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the premises without the prior written consent of Landlord. (6) If the leased premises are equipped with heating facilities separate from those in the remainder of the Shopping Center, Tenant shall keep the leased premises at a temperature sufficiently high to prevent freezing of water in pipes and fixtures. (7) The outside areas immediately adjoining the premises shall be kept clean and free from rubbish by Tenant to the satisfaction of Landlord, and Tenant shall not place or permit any obstructions or merchandise in such areas. (8) Tenant and Tenant's employees shall park their cars only in those portions of the parking area designated for that purpose by Landlord. Tenant shall furnish Landlord with State automobile license numbers assigned to Tenant's car or cars, and cars of Tenant's employees, within five (5) days after request of Landlord and shall thereafter notify Landlord of any changes within five (5) days after such changes occur. In the event that Tenant or its employees fail to park their cars in designated parking areas as aforesaid, then Landlord, at its option, shall charge Tenant Ten Dollars ($10.00) per day per car parked in any area other than those designated, as and for liquidated damage. (9) The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it. EXHIBIT "A" (10) Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. (11) Tenant shall not burn any trash or garbage of any kind in or about the leased premises, the Shopping Center, or within one mile of the outside property lines of the Shopping Center. (12) Tenant shall sponsor no kiddie rides or any other type of. promotion without the prior written consent of the Landlord except as the same may be sponsored by the Merchants Association. THIS LEASE AGREEMENT, made on the 1st day of November, 198 by PROGRESS INVESTMENT ASSOCIATES, a Pennsylvania Corporation, herein called "Landlord" and THE FIRST PENNSYLVANIA BANK, N.A., herein called "Tenant." W I T N E S S T H SECTION 1. TERM 1.1 LEASED PREMISES In consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of Tenant to be observed and performed, Landlord demises and leases to the Tenant, and Tenant rents from Landlord, those certain premises, now or hereinafter to be erected in the Progress Plaza Shopping Center, (herein called the "Shopping Center") at 1501 North Broad Street, Philadelphia, Pennsylvania, having a frontage of approximately 40 feet, said measurements being from center of partition to center of partition, except that in the event the demised premises is in an end position, measurements shall include full width of end wall, and a depth of 70 feet outside dimensions creating a first floor area of approximately 2,800 square feet, (herein collectively called the "leased premises") as shown on a floor plan attached hereto. 1.2 USE OF ADDITIONAL AREAS The use and occupancy by the Tenant of the leased premises shall include the use in common with others entitled thereto of the common areas, employees' parking areas, service roads, loading facilities, sidewalks and may be designated from time to time by the Landlord, subject however, to the terms and conditions of this agreement and to reasonable rules and regulations for the use thereof as prescribed from time to time by the Landlord. 1.3 COMMENCEMENT AND ENDING DATE OF TERM The term of this lease shall begin on November 1, 1988. Tenant's obligation to pay rent hereunder shall commence on said date. The term of this lease shall end at midnight on the last day of the 10th consecutive full lease year as said term "Lease year" is hereinafter defined, unless sooner terminated as hereinafter provided. See Section 1.10 re Option. Tenant waives any notice requiring to remove from the premises at the end of the term (see Section 1.10 re Option) and covenants to surrender at the end of the term. 1.4 LEASE YEAR DEFINED The term "lease year" as herein shall mean the twelve (12) calendar months commencing with the first day the rent obligation commences and midnight of the day immediately prior to the succeeding anniversaries thereof. 1.5 DELETED 1.7 DELETED 1 1.8 DELIVERY OF PREMISES BY LANDLORD Landlord agrees that upon the date of delivery of possession to the Tenant, the demised premises shall be free of all violations, orders, or notices of violations of all public authorities; vacant and broom clean. Landlord warrants the heat and air conditioning apparatus, systems are in good working order and condition, and the demised premises includes bathroom facilities in good working order and in accordance with City Zoning Code. Tenant shall maintain the heating and air conditioning systems, as well as the bathroom, and be responsible for there replacements when necessary. 1.9 OPTION TO RENEW The Tenant shall have the option to renew this Lease for one (1) five (5) year period(s) under the same terms and conditions as herein contained, except that the minimum rental shall be increased by six (6) percent every two (2) years. Notice of acceptance of the renewal option must be given to the Landlord in writing at least ninety (90) days before the expiration of the initial term or preceding option period. Nothing herein construed shall require Tenant to exercise said extension option. SECTION 2 RENT 2.1 MINIMUM RENT Tenant agrees to pay to Land lord at the office of Landlord, or at such other place designated by Landlord, without any prior demand therefor. and without any deduction or set-off whatsoever, and as fixed minimum rent; on the first day of each calendar month: 2.1a Commencing on the beginning date and continuing thereafter for each Lease Year during the term and the renewal term of the Lease. Tenant covenants to pay unto Landlord, as rental for the Leased Premises, of each calendar month: (a) A Fixed Annual Guarantee Minimum Rental for the particular Lease Years and in the amounts as follows; payable monthly in equal monthly installments in advance upon the first day of each calendar month. (1) From the Rent Commencement Date through the second (2) anniversary thereof (calendar year 1990) in the amount of Thirty One Thousand Eighty ($31,080.00) per year; (2) From such anniversary date in 1990 through the fourth (4th) anniversary of the Rent Commencement Date (Calendar year 1992) in the amount of Thirty Three Thousand Eight Hundred Eighty ($33,880.00) per year; (3) From such anniversary date in (1992) thru the sixth (6th) anniversary of the Rent Commencement Date (calendar year 1994) in the amount of Thirty Six Thousand Nine Hundred Thirty Two ($36,932.00) per year; 2 (4) From such anniversary date in (199_) thru the eighth (8th) anniversary of the Rent Commencement Date (calendar year 1996) in the amount of Forty Thousand Two Hundred Sixty Four ($40,265.00) per year; (5) From such anniversary date in (1996) thru the tenth (10th) anniversary of the Rent Commencement Date (Calendar year 1998) in the amount of Forty Three Thousand Eight Hundred Seventy Six ($43,876.00) per year. 2.1b If the term shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, upon the commencement date of the term, a pro-rata portion of the fixed monthly rent described in the fractional calendar month preceeding the commencement of the first lease year thereof. 2.2 DELETED 2.3 DELETED 3 2.4 TAXES Owner will pay in the first instance all real property taxes which may be levied or assessed by any lawful authority against the land and improvements in the Shopping Center. If the amount of the real property taxes levied or assessed against the land and building of which the leased premises form a part at the time of commencement of the term hereof shall exceed in any subsequent lease year the amount of such taxes for the first full lease year, Tenant shall pay that portion of such excess equal to the product obtained by multiplying said excess by a fraction, the numerator of which shall be the square-foot area of the leased premises, and the denomimator of which shall be the square-foot area of the Shopping Center exclusive of common areas. For the purpose of this section and of the computation aforesaid, each two (2) square feet of basement or second floor space shall be counted as noe (1) square-foot. The term "first full tax year" shall mean the year 1988. The tax year of any lawful authority commencing during any lease year shall be deemed to correspond to such lease year. The additional rent provided for in this Section 2.4 shall be paid within twenty (20) days after demand therefor by Landlord. A copy of the Jurisdictions taxing authority's tax bill submitted and certified true by Landlord to Tenant shall be sufficient evidence of the amount of taxes assessed or levied against the parcel or real property to which such bill relates. Should the taxing authorities include in such real estate taxes the value of any improvements made by Tenant or include machinery, equipment, fixtures, inventory or other personal property or assets of Tenant, then Tenant shall pay the entire real estate taxes for such items. Tenant, at all times, shall be responsible for and shall pay before delinquency, all municipal, county, state, or federal taxes assessed against any leasehold interest or any personal property of any kind owned, installed or used by Tenant, except if Landlord is required to collect such tax by law, Tenant shall pay the amount of such tax to Landlord as additional rent in the manner as aforesaid. 2.5 ADDITIONAL RENT The Tenant shall pay as additional rent any money require to be paid pursuant to paragraphs 2.4, 7.1, 7.2, 7.6, 11.2, and 12.1 and all other sums of money or charges required to be paid by Tenant under this lease, whether or not the same be designated "additional rent." If such amounts or charges are not paid at the time provided in this lease, they shall nevertheless, if not paid when due, be collectable as additional rent with the next installment of rent thereafter falling due hereunder, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder, or limit any other remedy of the Landlord. 2.6 PAST DUE RENT AND ADDITIONAL RENT If Tenant shall fail to pay, when the same is due and payable, any rent or any additional rent, or amounts or charges of the character described in Section 2.5 hereof, such unpaid amount shall bear interest from the due date thereof to the date of payment at the rate of two percent (2x) per month. 4 SECTION 5. SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS, CONSTRUCTION 5.1 INSTALLATION BY TENANT All fixtures installed by Tenant shall be new or completely reconditioned. Tenant shall not make or cause to be made any alterations, additions or improvements or install or cause to be installed any trade fixture, exterior signs, floor covering, interior or exterior lighting, or plumbing fixtures, shades or awnings or make any changes to the store front without first obtaining Landlord's written approval and consent. Tenant shall present to the Landlord plans and specifications for such work at the time approval is sought. 6 5.2 CHANGES AND ADDITIONS TO BUILD Landlord hereby reserves the right, at any time, to make alterations or additions to and to build additional stories on the building in which the premises are contained and to build adjoining the same. Landlord also reserves the right to construct other buildings of improvements in the Shopping Center from time to time, and to make alterations thereof or additions thereto and to build additional stories on any such building or buildings and to build adjoining same and to construct doubledeck or elevated parking facilities, to close any skylights or windows and run necessary pipes, conduits and ducts through the herein leased premises and carry on any work, repair, alterations or improvements in, about, or in the vicinity thereof, the demised premises. Tenant hereby waives any claim for damages or inconvenience caused thereby. 5.3 REMOVAL AND RESTORATION BY TENANT All lighting fixtures and air conditioning equipment, any and all alterations, decorations, additions or trade fixtures, other than attached movable trade fixtures improvements and decorations installed or paid for by the Tenant or made by the Landlord on the Tenant's behalf by agreement under this lease shall, upon the expiration or earlier termination of this lease, become the sole property of the Landlord, Such alterations, decorations, additions, improvement and trade fixtures, shall not be removed from the premises prior to the end of the term hereof without the prior consent in writing from the Landlord. 5.4 DISCHARGE OF LIENS Tenant shall promptly pay all contractors and materialmen, so as to minimize the possibility of a lien attaching to the leased premises, and should any such lien be made or filed, Tenant shall bond against or discharge the same within ten (10) days after written request by Landlord. 5.5 SIGNS, AWNINGS AND CANOPIES Tenant will not place or suffer to be placed or maintained on any exterior door, wall or window of the leased premises any sign, awning or canopy, or advertising matter or other things of any kind, and will not place or maintain any decorations, lettering or advertising matter on the glass of any window or door of leased premises without first obtaining Landlord's written approval and consent. Tenant further agrees to maintain such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved in good condition and repair at all times. For the benefit of Tenant, Landlord approves the signage plan as set forth. 5.6 PARKING AND COMMONS USE AREAS AND FACILITIES All automobile parking areas, driveways, entrances and exits thereto, and other facilities furnished by Landlord in or near the Shopping Center, including employee parking areas, the truck way or ways, loading docks, package pick-up stations, pedestrian sidewalks and ramps, landscaped areas, exterior stairs, first aid stations, comfort stations and other areas and improvements provided by Landlord for the general use, in common, of Tenants, their officers, agents, employees and customers, shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right, from time to time, to establish, modify and enforce reasonable rules and regulations with respect to all facilities and areas mentioned in this Article. Landlord shall have the right to construct, to police the same, from time to time, to change the area, level, location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by Tenants, their officers, agents and employees, to employee parking areas; to enforce parking charges (by operation of meters or otherwise) with appropriate provision for free parking ticket validation by Tenants; to close all or any portion of said areas or facilities to such extent as may, in the opinion of Landlords. 7 counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the parking areas or facilities; to discourage noncustomer parking; and to do and perform such other acts in and to said areas and improvements as, in the use of good business judgement, the Landlord shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ all personnel and to make all rules and regulations pertaining to and necessary for the proper operation and maintenance of the common areas and facilities. Tenant and its employees shall park their cars only in those portions of the parking area designated for that purpose by Landlord. Tenant shall furnish Landlord with State automobile license numbers assigned to Tenant's care or cars and cars of its employees within five (5) days after request from Landlord, and shall thereafter notify Landlord of any changes within five (5) days after changes occur. If Tenant or its employees fail to park their cars in the designated parking areas, after giving notice to Tenant, Landlord shall have the right to charge Tenant ten dollars ($10.00) per day per car parked in any parking area other than those designated. 5.7 LICENSE All common areas and facilities not within the leased premises which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if the amount of such areas be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such diminution of such areas be deemed constructive or actual eviction. SECTION 6. CONDUCT OF BUSINESS BY TENANT 6.1 PURPOSE OF USE Tenant shall use the leased premises solely for the purpose of conducting the business of: Banking and related business. Tenant will not use or permit, or suffer the use of, the leased premises for any other business or purpose. Tenant shall not conduct catalogue sales in or from the leased premises except of merchandise which Tenant is permitted to sell "over the counter" in or at the leased premises pursuant to the provisions of this Section 6.1. 6.2 OPERATION OF BUSINESS -- DELETE 8 6.3. STORAGE, OFFICE SPACE -- DELETE 6.5 OPERATIONS OF CONCESSIONS -- DELETE SECTION 7. MAINTENANCE OF LEASED PREMISES 7.1 MAINTENANCE BY TENANT Tenant shall, at all times, keep the leased premises )including maintenance of exterior entrances, all glass and show window mouldings) and all partitions, doors, fixtures, equipment and appurtenances thereof (including lighting, heating and plumbing fixtures, escalators, elevators, and any air conditioning system) in good order, condition and repair, (including reasonably periodic painting as reasonably determined as to frequency thereof by Landlord), except for structural portions of the premises, which shall be maintained by Landlord, but if Landlord is required to make all repairs to structural portions by reason of Tenant's negligent acts of omission to act, Landlord may add the cost of such repairs to rent which shall thereafter become due. The Roof is structural and therefore part of Landlord responsibility 7.2 MAINTENANCE BY LANDLORD If Tenant refuses or neglects to repair property as required hereunder and to the reasonable satisfaction of Landlord as soon as reasonably possible after written demand, or if Landlord is required to make repairs otherwise required of tenant under this Lease, Landlord may make such repairs without liability to Tenant for any loss or damage that may accrue to Tenant's business by reason thereof, and upon completion thereof, Tenant shall pay Landlord's costs for making such repairs, plus twenty percent (20%) of overhead, upon presentation of bill therefore, as additional rent. 9 7.3 SURRENDER OF PREMISE At the expiration of the tenancy hereby created, Tenant shall surrender the leased premises in the same condition as the leased premises were in upon delivery of possession thereto under this lease, reasonable wear and tear excepted, and shall surrender all keys for the leased premises to Landlord of all combinations on locks and safes, if any, in the leased premises. Tenant shall remove all its personal property, and trade fixtures before surrendering the premises as aforesaid, and shall repair any damage to the leased premises caused thereby. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this lease. If the Tenant fails to remove such alterations, decorations, additions and improvements and restore the leased premises, then upon the expiration of this lease, or any renewal thereof, and upon the Tenant's removal from the premises, all such alterations, decorations, additions and improvements shall become the property of the Landlord. 7.4 RULES AND REGULATIONS The rules and regulations appended to this lease, as Exhibit A, are hereby made a part of this lease, and Tenant agrees to comply with the observe the same. Tenant's failure to keep and observe said rules and regulations shall constitute a breach of the terms of this lease in the manner as if the same were contained herein as covenants, Landlord reserves the right, from time to time, to reasonably amend or supplement said rules and regulations and to adopt and promulgate additional reasonable rules and regulations applicable to leased premises and Shopping Center. Notice of such additional rules and regulations, and amendments and supplements, if any, shall be given to. Tenant, and Tenant agrees thereupon to comply with and observe all such rules and regulations, and amendments thereto and supplements thereof, provided the same shall apply uniformly to all Tenants of the Shopping Center. 7.5 NOTICE BY TENANT Tenant shall give immediate notice to Landlord in case of fire, damage, repairs needed to, or accidents in the leased premises or in the building of which the premises are a part, of defects therein, or in any fixtures of equipment. 7.6 COST OF MAINTENANCE OF COMMON AREAS (a) In each lease year, Tenant will pay to Landlord, in addition to the rentals specified in Section 2 hereof, as further additional rent, subject to the limitation hereinafter set forth, a proportion of the Shopping Center's operating costs, hereinafter defined, based upon the ratio of the square feet of the leased premises to the total square feet of all the building space leasable in the Shopping Center, except that for the purpose of this computation each two (2) square feet of basement or second floor space shall be counted as one square foot. (b) For the purpose of this Paragraph 7.6, the Shopping Center's Operating cost means the total cost and expense incurred in operating and maintaining the common facilities, herein defined actually used or available for use by Tenant and the employees, agents, servants, customers and other invitees of Tenant, excluding only items of expense commonly known and designated as carrying charges, but specifically including, without limitation, gardening and landscaping, the cost of all Landlord's insurance including but not limited to bodily injury, public liability, property damage liability, automobile insurance, sign insurance any other insurance carried by Landlord for the common areas in limits selected by Landlord, hearing ventilating and air conditioning of the enclosed mall, if any, rental of signs, and equipment, real estate taxes and assessments, repairs, line painting, lighting, sanitary control, removal of snow, trash, rubbish, garbage and other refuse, depreciation on machinery and equipment used in such maintenance, the cost of personnel to implement such services, to direct parking, and to police the 10 common facilities and 10% off all the foregoing costs (excluding real estate taxes and assessments) to cover the Landlord's administrative and overhead costs. "Common facilities" means all areas, space, equipment and special services provided by Landlord for the common or joint use and benefit of the occupants of the Shopping Center, their employees, agents, servants, customers and other invitees, including without limitation, parking areas, access roads, driveways, retailing walls, landscaped areas, truck serviceways or tunnels, loading docks, pedestrian mall, courts, stairs, ramps and sidewalks, comfort and first aid stations, washrooms and parcel pick up stations, and community hall or auditorium, if any, and including any such area as may be added to the Shopping Center by its expansion. Tenant reserves the right to audit books of landlord to verify costs. (c) The additional rent provided to be paid in this Paragraph shall be. computed monthly during the calendar year on such dates as may be designated by the Landlord and shall be payable during each lease year. The total monthly cost shall be divided by the total square feet of the Shopping Center and the square foot rate multiplied by the total square feet of the leased premises. (d) Changes in any particular floor area occurring during any quarterly period shall be effective on the first day of the next succeeding quarterly period, and the amount of any floor area in effect for the whole of any quarterly period shall be the average of the total amounts in effect on the first day of each calendar month in such quarterly period. SECTION 8. ACCESS BY LANDLORD 8.1 RIGHT OF ENTRY Landlord or Landlord's agents shall have the right to enter the leased premises at all times to examine the same, and to show them prospective purchasers or lessees of the building, and to make such repairs, alterations, improvements or additions as Landlord may deem necessary or desirable, and Landlord shall be allowed to take all material into and upon said premises that may be required therefor without the same constituting and eviction of Tenant in whole or in part and the rent reserved shall in no wise abate while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. [ text deleted ] Landlord may exhibit the premises to prospective tenants or purchasers. [ text deleted ] Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever, for the care, maintenance or repair of the building, or any part thereof, except as otherwise herein specifically provided. Landlord shall have the right to place, maintain and repair all utility equipment of any kind in, upon and under the demised premises as may be necessary for the servicing of the demised premises and other portions of the Shopping Center. Landlord shall not enforce its rights under this section in any manner as to reasonably interferes with the tenants use and enjoyment of the leased premises. 8.2 EXCAVATION If an excavation shall be made upon land adjacent to the leased premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause excavation, license to enter upon 11 The leased premises for the purpose of doing such work as Landlord shall reasonably deem necessary to preserve the wall or the building of which the leased premises form a part from injury or damage and to support the same by proper foundation, without any claim for damages or indemnification against Landlord or diminution or abatement of rent. Provided that if Tenant should determine in its reasonable business judgement that such entrance upon or into the leased premises makes it impracticable for Tenant to operate the store, then the rent shall abate, for that period of such intrusion. SECTION 9. TENANT'S PROPERTY 9.1 LOSS AND DAMAGE Landlord shall not be liable for any damage to property of Tenant or of others located on the leased premises, not the loss of or damage to any property of Tenant or of others by theft or otherwise. Tenant hereby waives any and all claims against Landlord or Landlord's agents or employees for any loss of, or damage to, personal property, or for any injury sustained in, or about, or in connection with, the use or condition of the leased premises. Landlord shall not be liable for any latent defect in the leased premises or in the building of which they form a part, except for a period of one (1) year from the date Tenant takes possession of the leased premises. All property of Tenant kept or stored on the leased premises shall be so kept or stored at the risk of Tenant only, and Tenant shall hold Landlord harmless from any claims arising out of damage to the same, including subrogation claims by Tenant's insurance carrier. SECTION 10. ADVERTISING, MERCHANTS ASSOCIATION 10.1 NAME IN ADVERTISING Tenant and Tenant's employees and agents shall not solicit business in the parking or other common areas, nor shall Tenant distribute any handbills or other advertising matter in automobiles parked in the parking area or in other common areas. 10.2 MERCHANTS' ASSOCIATION Tenant shall promptly become a member of and during the entire term of this lease, participate fully in, and remain in good standing in the Merchants' Association limited to tenants occupying premises in the Shopping Center and adjoining stores and abide by the regulations of such association. Each member tenant shall have one vote and the Landlord shall also have one vote in the operation of said association. The objects of such association shall be to encourage its members to deal fairly and courteously with their customers, to sell their merchandise or services at fair prices, to follow ethical business practices, to assist the business of the tenants by sales promotions and center-wide advertising, and in particular, to help the interests of members of the said association, The tenant agrees to pay dues to the Merchants' Association in the amount of 11 cents per square foot per year of the total area of the leased premises. Said amounts shall be collectible by the Merchants' Association or by Landlord as additional rent hereunder and shall be payable in each year of the term in twelve (12) equal monthly installments at the times and places and in the same manner as fixed minimum rent is payable hereunder. In any event, the continuing monthly contributions to the Association will be adjusted annually by a percentage equal to the percentage increase from the base period of the United States Department of Labor, Bureau 12 of Labor Statistics Cost of Living Index, provided that J Index has increased by at least ten percent (10%) or more from the base period. The term "Base period" shall refer to the date of which said Index is published, which. is closest to the date of the formation of the Merchant's Association. (1) The Tenant agrees to advertise in special Merchants' Association newspaper sections or advertisements and agrees to cooperate in the Merchants' Association special sales and promotions; subject to tenant's approval of the cost thereof at Tenant's sole discretion. SECTION 11 INSURANCE INDEMNIFY 11.1 LIABILITY INSURANCE Tenant shall procure and keep in force, at all times, during the term of the lease and during such other time as lessee occupies the leased premises, at its expense, insurance as follows: (1) Public liability insurance which shall include the Landlord and its respective agents and employees among the named insured parties, in amounts of not less than five Hundred Thousand Dollars ($500,000) for personal injury to any one person; One Million Dollars ($1,000,000) for personal injuries arising out of any one accident; and Fifty Thousand Dollars ($50,000) property damage. (2) Plate glass insurance covering all plate glass at the leased premises, naming Landlord as a named insured party. Tenant will carry said insurance or be self insured. (3) Fire and extended coverage insurance on Tenant's approval property, including inventory, trade fixtures, floor covering, furniture and other property removable by Tenant. (4) Fire and Public Liability Insurance. Tenant shall furnish Landlord with certificate, or certificates issued by the insurance carrier evidencing the above-mentioned insurance. Such insurance shall be procured from a reputable insurance company or companies, and in form satisfactory to Landlord. If the nature of Tenant's operation is such as to place any or all of its employees under the coverage of local Workmen's Compensation or similar statutes, Tenant shall also keep in force, at its expense, so long as this Lease remains in effect and during such other times as Tenant occupies the leased premises or any part thereof, workmen's compensation or similar insurance affording statutory coverage and containing statutory limits. If Tenant shall not comply with its covenants made in this paragraph, Landlord may cause insurance as aforesaid to be issued, and in such event Tenant agrees to pay, as additional rent, the premium for such insurance upon Landlord's demand. Tenant shall, at its own expense exclude from its liability insurance policy the "Care, Custody and Control Exclusion." The Landlord agrees to carry insurance against fire and such other risks as are, from time to time, included in standard extended coverage endorsements, insurable value of the improvements and betterments installed by the Tenant in the demised premises, whether the same has been paid for entirely or partially by the Tenant. All of the Tenant's insurance policies shall name Landlord as an Additional insurer. 13 It is expressly agreed that Tenant is solely responsible for the maintenance and replacement of the plate glass display or other windows on its premises. It is also agreed that Tenant is solely responsible for maintaining and replacing its personal property located on the premises including inventory, trade fixtures, floor covering, furniture and other property removable by Tenant. Tenant shall indemnify and hold harmless Landlord for any damage to persons or to its plate glass or personal property on the leased premises caused by fire, vandalism or other casualty of whatever nature and kind. 11.2 INCREASE IN FIRE INSURANCE PREMIUM Tenant agrees that it will not keep, use, sell or offer for sale in or upon the leased premises any article which may be prohibited by the standard form of fire insurance policy. Tenant agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the term of this lease on the amount of such insurance which may be carried by Landlord on said premises or the building of which they are a part, resulting from the type of merchandise sold by Tenant in the leased premises, whether or not Landlord has consented to the same. In determining whether increased premiums are the result of Tenant's use of the leased premises, a schedule, issued by the organization making the insurance rate, shall be conclusive evidence of the several items and charges which make up the fire insurance rate of the lease premises. In the event Tenant's occupancy causes any increase of premium for the fire, boiler and/or casualty rates on the leased premises or any part thereof above the rate of the least hazardous type of occupancy legally permitted in the leased premises, the Tenant shall pay the additional premium on the fire, boiler and/or casualty insurance policies by reason thereof. The Tenant also shall pay in such event, any additional premium on the rent insurance policy that may be carried by the Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord to Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as additional rent. 11.3 INDEMNIFICATION OF LANDLORD Tenant will hold and save Landlord harmless of and from any and all claims, or liabilities in connection with any loss of or damage to property, loss of life or personal injury arising from or out of the occupancy or use of the leased premises or any part thereof or any other part of the Landlord's property by Tenant or any licensee, visitor, customer, employees, servants, agents, or contractor of Tenant occasioned wholly or in part by any act or omission of Tenant or any of the Tenant's agents or employees, and shall indemnify Landlord for any loss, damage or expense which may be sustained or incurred by Landlord except for Landlords negligence, as a result of any of the foregoing, including legal expenses and reasonable attorney's fees in defending against any such claim or liability. 11.4 -- DELETED SECTION 12. UTILITIES. 12.1 UTILITIES CHARGES Tenant shall be solely responsible for and promptly pay all charges for heat, water, gas electricity or any other utility used or consumed in the leased premises. Should Landlord elect to supply the water, gas, heat, electricity or any other utility used or consumed in the leased premises, Tenant agrees to purchase and pay for the same as additional rent at the applicable rages filed by the Landlord with the proper regulatory authority. In no event shall Landlord be liable for an interruption or failure in the supply of any such utilities to the leased premises. 14 Should the Landlord elect to install a central heating and/or air conditioning system and offer to supply either chilled air or water or warm air or water, Tenant agrees to adopt Landlord's heating and cooling equipment and at Tenant's expense to connect said equipment to facilities provided by Landlord, and to pay for such chilled air or water and/or warm air, as metered through meters installed by the Landlord.. All charges for services provided by Landlord under this paragraph shall be paid by Tenant within ten (10) days after receipt of the bill from Landlord SECTION 13. DESTRUCTION OF LEASED PREMISES 13.1 TOTAL OR PARTIAL DESTRUCTION If the leased premises shall be damaged by any casualty insurable under the Landlord's insurance policy, but are not thereby rendered untenantable in whole or in part, Landlord shall. upon receipt of the insurance proceeds, REPAIR THE same and the minimum rent shall not be abated. If by reason of such occurrence, the premises shall be rendered untenantable only in part, Landlord shall, out of the insurance proceeds cause the damage to be repaired, and the fixed minimum rent, meanwhile, shall be abated proportionately as to the portion of the premises rendered untenantable. If the premises shall be rendered wholly untenantable, If determined by municipal authority, Landlord may, at its election, terminate this lease and the tenancy hereby created, by giving to Tenant within the ninety (90) days following the date of said occurrence, written notice of Landlord's election to do so and in event of such termination, rent shall be adjusted as of such date. Nothing in this Section shall be construed to permit the abatement in whole or in part of the percentage rent, but for the purpose of Paragraph 2.2 hereof, the computation of percentage rent shall be based upon the revised minimum rent as the same may be abated pursuant to this Paragraph 13.1. 13.2 PARTIAL DESTRUCTION OF SHOPPING CENTER In the event that fifty (50) percent or more of the rentable area of the Shopping Center shall be damaged or destroyed by fire or other cause, notwithstanding that the leased premises may be unaffected by such fire or, other cause, Landlord or Tenant may terminate this lease and the tenancy hereby created by giving to Tenant or Landlord five (5) days prior written notice of Landlord's election to do so, which notice shall be given, if at all, within the 90 days following the date of said occurrence, rent shall be adjusted as of the date of said termination. In the event Landlord elects to repair the damage insurable under Landlord's policies, any abatement of rent shall end five (5) days after notice by Landlord to Tenant that the demised premises have been repaired. Unless this lease is terminated by Landlord, Tenant shall, at its cost, repair and re-fixture the interior of the demised premises in a manner and to at lease condition equal to that existing prior to its destruction or casualty, and the proceed of all insurance carried by Tenant on its property and improvements shall be held in trust by Tenant for the purpose of said repair and replacement. In no event shall Landlord be liable for interruption to business of Tenant or for damage to or replacement or repair of Tenant's personal property, including inventory, trade fixtures, floor coverings, furniture and other property removable by Tenant under the provisions of this lease. SECTION 14. OFFSET STATEMENT, ATTORNMENT SUBORDINATION 14.1 OFFSET STATEMENT Within ten (10) days after request therefore by Landlord, or in the event that upon any sale, assignment or hypothecation of the leased premises and/or the land thereunder by Landlord, an offset statement shall be required from Tenant; Tenant agrees to delivery in recordable form, a certificate to any 15 proposed mortgages or purchaser, or to Landlord, certifying if such be the case) that this lease is in full force and effect and that there are no defenses or offsets thereto, or stating those claimed by Tenant. 14.2 ATTORNMENT Tenant shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Landlord covering the leased premises, attorn to the purchaser, upon any such foreclosure or sale, and recognize such purchaser as the Landlord under this lease. 14.3 SUBORDINATION Tenant does subordiante its rights hereunder to the lien of any mortgage or mortgages, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the land and/or buildings of which the leased premises are a part or against any buildings hereafter placed upon the land of which the leased premises are a part, and to all advances made or hereafter to be made upon the security thereof. Landlord agrees to provide tenant with non-disturbance agreements where required by tenant to protect tenants continuing operation in the center. 14.3 ATTORNEY-IN-FACT The Tenant, upon request of any party in interest, shall execute promptly such instruments or certificates to carry out the intent of Sections 14.2 and 14.3 above as shall be requested by the Landlord. If fifteen (15) days after the date of a written request by Landlord to execute such instruments, the Tenant shall not have executed the same, the Landlord may at its option, execute the same as attorney-in-fact for tenant or cancel this lease without incurring any liability on account thereof, and the term hereby granted is expressly limited accordingly. SECTION 15. ASSIGNMENT AND SUBLETTING 15.1 CONSENT REQUIRED Tenant will not, except to a parent or subsidiary corporation or to Marine-Midland, assign mortgage or encumber this lease in whole or in part, nor sublet all or any part of the leased premises, without the prior written consent of Landlord in each instance. The consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. This prohibition against any assigning or subletting shall be construed to include a prohibition against any assignment or subletting by operation of law. If this lease be assigned, or if the leased premises or any part thereof be underlet or occupied by any body other than the Tenant, Landlord may collect from assignee, under tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant shall remain fully liable on this lease and shall not be released from performing any of the term covenants. and conditions of this lease. Any attempt of assignment or sublease without, Landlord's written approval, which consent shall not unreasonable be withheld, as defined in this paragraph shall constitute a breach of this lease by Tenant and Lessor shall have at its option the right to terminate this lease immediately. SECTION 16. WASTE, GOVERNMENT REGULATIONS 16.1 WASTE OR NUISANCE Tenant shall not commit or suffer to be committed any waste upon the leased premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the building in which the leased 16 premises may be located, in the Shopping Center, or who may disturb the quiet enjoyment of any person within five hundred feet of the boundaries of the Shopping Center. 16.2 GOVERNMENTAL REGULATIONS Tenant shall, at Tenant's sole cost and expense, comply with all of the requirement of all county, municipal, state, federal or other applicable governmental authorities, now in force, or which may hereafter be in force, pertaining to the Tenant's use of the said premises, and shall faithfully observe in the use of the premises all municipal and county ordinance and state and federal statutes now in force, or which may hereafter be in force. SECTION 17. EMINENT DOMAIN 17.1 TOTAL CONDEMNATION OF LEASED PREMISES If the whole of the leased premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term of this lease shall cease and terminate as of the date of title vesting in such proceeding and all rental shall be paid up to that date and Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. 17.2 PARTIAL CONDEMNATION OF LEASED PREMISES If a taking of any part of the leased premises shall render the leased premises unsuitable for the business of the Tenant, then the term of this lease shall cease and terminat as of the date of title vesting in such proceeding. Tenant shall have no claim against Landlord for the value of any unexpired term of this lease and rent shall be adjusted to the dat of such termination. In the event of a partial taking or condemnation which is no extensive enough to render the premises unsuitable for the business of Tenant, then, as of the date of title vesting, this lease shall continue in effect, except that the minimum rent shall be reduced in the same proportion that the floor area of the demised premises (including basement, if any) taken bears to the original floor area leased, and Landlord shall, upon receipt of the award in condemnation, make all necessary repairs or alterations to the building in which the leased premises are located so as to constitute the portion of the building not taken a complete architectural unit, without any abatement of rent. But such work shall not exceed the scope of the work to be done by Landlord in originally constructing said building, nor shall Landlord, in any event, be required to spend for such work an amount in excess of the amount received by Landlord as damages for the part of the demised premises so taken. "Amount received by Landlord" shall mean that part of the award in condemnation which is free and clear to Landlord of any collection by mortgagees, for the value of the diminished fee. If more that thirty percent (25%) of the floor area of the Leased Premises in which the demised premises are located shall be taken as aforesaid, Landlord or Tenant may, be written notice to the other, terminate this lease, such termination to be effective as aforesaid. 17.3 TOTAL CONDEMNATION OF PARKING AREA If 75% of the common parking areas in the Shopping Center shall be acquired or condemned as aforesaid, then the term of this lease shall cease and terminate as of the date of title vesting such proceeding unless Landlord shall take immediate steps to provide other parking Facilities substantially equal to the previously existing ratio between the common parking areas and the leased premises, and such substantially equal parking facilities shall be provided by Landlord at its own expense within ninety (90) days from the date of acquisition. -In the event that Landlord shall provide such other substantially equal parking facilities, then this lease shall continue in full force and effect without any reduction or abatement of rent. 17 17.4 PARTIAL CONDEMNATION OF PARKING AREA If any of the parking area in the Shopping Center shall be acquired or condemned as aforesaid, and if, as the result thereof the ratio of square feet of parking area to square feet of the sales area of the entire Shopping Center buildings is reduced to a ratio below two and one-tenth to one, then the term of this lease shall cease and terminate upon the vesting of title in such proceeding, unless the Landlord shall take immediate steps toward increasing the parking ratio to a ratio in excess of two to one, in which event this lease shall be unaffected and remain in full force and effect without any reduction or abatement of rent. In the event of termination of this lease as aforesaid, Tenant shall have no claim against Landlord, not the condemning authority for the value of any unexpired term of this lease and rent shall be adjusted to the date of said termination. 17.5 LANDLORD'S DAMAGES In the event of any condemnation of taking as aforesaid, whether whole or partial, the Tenant shall not be entitled to any part of the award paid for such condemnation and Landlord is to receive the full amount of such award, the Tenant hereby expressly waiving any right or claim to any part thereof. 17.6 TENANT'S DAMAGES Although all damages in the event of any condemnation are to belong to the Landlord whether such damages are awarded as compensation for diminution in value of the leasedhold or to the fee of the leased premises, Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any and all damage to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture, fixtures, leasedhold improvements, and equipment. 17.7 CONDEMNATION OF LESS THAN A FEE In the event of a condemnation of a leasehold interest in all or a portion of the leased premises without the condemnation of the fee simple title also, this lease shall not terminate and such condemnation shall not excuse Tenant in such event shall be entitled to present or pursue against the condemning authority its claim for and to receive all compensation or damages sustained by it by reason of such condemnation, and Landlord's right to recover compensation or damages shall be limited to compensation for damages, if any, to its reversionary interest, it being understood, however, that during such time as Tenant shall be out of possession of the leased premises by reason of such condemnation, the lease shall not be subject to forfeiture for failure to observe and perform those covenants not calling for the payment of money. In the event the condemning authority shall fail to keep the premises in the state of repair required hereunder, or to perform any other covenant not calling for the payment of money. Tenant shall have ninety (90) days after the restoration of possession to it within which to carry out its obligations under such covenant or covenants. During such time as Tenant shall be out of possession of the leased premises by reason of such leasehold condemnation, Tenant shall pay to Landlord, in lieu of the minimum and percentage rents provided for hereunder, and in addition to any other payment required of Tenant hereunder, an annual rent equal to the average annual minimum and percentage rents paid by Tenant for the period from the commencement of the term until the condemning authority shall take possession, or during the preceding three full calendar years, whichever period is shorter. At any time after such condemnation proceedings are commenced Landlord shall have the right, at its option, to require Tenant to assign to Landlord all compensation and damages payable by the condemnor to Tenant, to be held without liability for interest thereon as security for the full performance of Tenant's covenants hereunder, such compensation and damages received pursuant to said assignment to be applied first the payment of rents, and all other sums from tune to time payable by Tenant pursuant to the terms of this lease as such sums, fall due, and the remainder, if any, to be payable to Tenant, which ever shall first occur, it 18 being understood and agreed that such assignment shall not relieve Tenant of any of its obligation under this lease with respect to such rents, and other sums except as the same shall be actually received by Landlord. SECTION 18. DEFAULT OF THE TENANT 18.1 RIGHT TO RE-ENTER In the event of any failure of Tenant to pay any rental due hereunder within ten (10) days after same shall be due, or any failure to perform any other of the terms, conditions or covenants of this lease to be observed or performed by Tenant for more than thirty (30) days after written notice of such default shall have been given to Tenant, or if Tenant or any guarantor of this lease shall become bankrupt of insolvent, or file any debtor proceedings or take or have taken against Tenant or any guarantor makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, or if Tenant shall abandon said premises, or suffer this lease to be taken under any writ or execution, them Landlord, besides other rights or remedies it may have, shall have the immediate right or re-entry any may remove all persons and property from the leased premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of, Tenant, all without service of notice or resort to legal process all of which Tenant expressly waives, and without being deemed guilty. of trespass, or becoming liable for any loss or damage which may be occasioned thereby. The Lessor shall be entitled to hold lessee liable for the difference between the monthly minimum rent which would have been payable during the residue of the original term of this lease continued in force and the net monthly minimum rent for the residue of the term realized by the Lessor by means of reletting the leased premises to other parties. The Lessee agrees that in determining such net monthly minimum rent; there shall be deducted from the gross rent received by reason of such reletting, a reasonable expense incurred by the Lessor in recovering possession of the premises. The Lessee agrees that said reletting may be for the whole of said residue of the leased term or for portions thereof from time to time, and may be of the whole of said premises or of portion thereof form time to time as opportunity may offer and as the Lessor may deem expedient, and in such case the Lessee shall for each period for which monthly minimum rent shall be payable under such reletting, be liable for the difference from time to time, between the proportionate part of the monthly minimum rent as fixed by this lease and the net monthly minimum rent received for such period of letting. The Lessor agrees to use Lessors best endeavors to rent the leased premises for the highest rent that can be obtained therefor. 19 When this lease shall be determined by condition broken, either during the original term of this lease or any renewal or extension thereof, and also when and as soon as the term hereby created or any extension thereof shall have expired, it shall be lawful for any attorney as attorney for Tenant to file an agreement for entering in any competent court an amicable action and judgement in ejection against tenant and all persons claiming under Tenant for recovery by Landlord of possession of the herein demised premised, for which this lease shall be his sufficient warrant, whereupon, if Landlord so desires, a Writ of Execution or of possession may issue forthwith, without any prior writ or proceedings whatsoever, and provided that if for any reason after such action shall have been commenced the same shall be determined and the possession the premises hereby demised remain in or be restored to Tenant, Landlord shall have the right, upon any subsequent default or defaults, or upon the termination of this lease as hereinbefore set forth, to bring one more amicable action or actions hereinbefore set forth in recover possession of the said premises. The right to enter judgment against Tenant and to enforce all of the other provisions of this lease hereinabove provided for may, at the option of any assignee of this lease, be exercised by any assignee of the Landlord's right, title and interest in this lease in his, her or their own name, notwithstanding the fact that any or all assignments of the said right, title and interest may not be executed and/or witnessed in accordance with the Act of Assembly of May 28, 1715, 1 Sm L 99, and all supplements and amendments thereto that have been or may hereafter be passed and Tenant hereby expressly waives the requirement of said Act of Assembly and any and all laws regulating the manner and/or form in which said assignments shall be executed and witnessed. All of the remedies hereinbefore given to Landlord and all rights and remedies given to it by law equity shall be cumulative and concurrent. No determination of this lease or the taking or recovering of the premises shall deprive Landlord of any of its remedies or actions against the Tenants for rent due at the time or which, under the terms hereof, would in the future become due as if there has been no determination, or for the sum due at the time, or which, under the terms hereof, would in the future become due as if there had been no determination, nor shall the bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the premises. 20 NOTICE & OPPORTUNITY Anything to the contrary herein notwithstanding, Landlord may not exercise any default rights unless it shall first have given tenant written notice of default and tenant shall have failed to cure same within ten (10) days after receipt of such notice in the case of non-payment of rent, and within thirty (30) days after receipt of notice in case of other defaults. 18.2 RIGHT TO RELET Should Landlord elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this lease or it may, from time to time without terminating this lease, make such alteration and repairs as may be necessary in order to relet the premises, and relet said premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable; upon each such reletting all rentals received by Landlord for such reletting shall be applied first to the payment of rent due and unpaid hereunder from Tenant to Landlord; second, the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees and of costs of such alterations and repairs; third, to the payment or rent due and unpaid hereunder, and the residue, if any, shall be held by Land lord and applied in payment of future rent as the same may become due and payable hereunder. If such rentals received from such reletting during any month be LESS than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such Deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said premises by Landlord shall be construed as an election on its part to terminate this lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may, at any time thereafter, elect to terminate this lease for such previous breach. Should Landlord, at any time terminate this lease for any breach, in addition to any other remedies at may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the leased premises,* - -reasonable attorney's fees, and including the worth at the time of such termination of the amount of rent and charges equivalent to rent reserved in this lease for the remainder of the stated term, all of which amounts shall be immediately due and payable from Tenant to Landlord. In determining the rent which would be payable by Tenant hereunder, subsequent to default, the annual rent for each year of the unexpired term shall be equal to the average annual minimum percentage and additional rents paid by Tenant from the commencement of the term to the time of default, or during the preceding three full calendar years, whichever period is shorter. 18.3 LEGAL EXPENSES In case suit shall be brought for recovery of possession of the leased premises, for the recovery of rent or any other amount due under the provisions of this lease, or because of the breach of any other covenant herein contained on the part of Tenant to be kept or performed, and a breach shall be established, Tenant shall pay to Landlord all expenses incurred therefore, including a reasonable attorney's fee. 18.4 WAIVER OF JURY TRIAL COUNTERCLAIMS The parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the leased premises, and/or any claim of injury or damage. In the event Landlord commences any proceedings for non-payment of rent, minimum rent, percentage rent or additional rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceedings. This 21 shall not, however, be construed as a waiver of the Tenant right to assert such claims in any separate action or actions brought by the Tenant. The rights and remedies given to Landlord in this lease are distinct, separate and cumulative remedies, and the exercise of any of them shall not be deemed to exclude Landlord's right to exercise any or all of the others. Tenant expressly waives any right of defense which it may have to claim a merger and neither the commencement of any action or proceeding not the settlement thereof or entering of judgement therein shall bar Landlord from bringing subsequent actions or proceedings from time to time. This paragraph shall apply to any renewal or extension of this lease; and if Tenant shall default hereunder prior to the date fixed as the commencement renewal or extension of this lease, Landlord may cancel such renewal or extension agreement by five (5) days written notice to Tenant. 18.5 WAIVER OF RIGHTS TO REDEMPTION Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the leased premises by reason of the violation by Tenant of any of the covenants or conditions of this lease, or otherwise. SECTION 19 HOLDING OVER, SUCCESSORS 19.1 HOLDING OVER Any holding over after the expiration of the term hereof, with the consent of the Landlord, shall be construed to be a tenancy from month to month at the rents herein specified (pro-rated on a monthly basis) and shall otherwise be on the terms and conditions herein specified, so far as applicable. 19.2 SUCCESSORS All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, successors, and assigns of the said parties; and if there shall be more than one tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to be benefit of any assignee of the Tenant unless the assignment to such assignee has been approved by Landlord in writing as provided in Section 15 hereof. SECTION 20. QUIET ENJOYMENT 20.1 QUIET ENJOYMENT Upon payment by the tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the leased premises for the term hereby demised with out hinderance or interruption by Landlord or any other person or persons lawfully or equitable claiming by, through or under the Landlord, subject nevertheless, to the terms and conditions of this lease to any mortgage, ground lease or agreements to which this lease is subordinated. SECTION 21. MISCELLANEOUS 21.1 WAIVER The waiver by Landlord of any breach of any provision rule or regulation, or the failure to exercise any option herein contained shall not be deemed to be a waiver of such provision, rule or regulation or option or any subsequent breach of the same or any other provision, rule or regulation or option herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any proceeding breach by Tenant of any provision, rule or regulation or option of this lease, other than the failure of Tenant to pay the particular rental so accepted regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such 22 rent. No provision, ruled regulation or option of this j e shall be deemed to have been waived by Landlord, unless such waiver be in writing by Landlord. 21.2 ACCORD AND SATISFACTION No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest rent then unpaid, nor shall any endorsement or statement or any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy herein provided. 21.3 ENTIRE AGREEMENT This lease and the Exhibits, and Rider, if any attached hereto and forming a part hereof, set forth all the covenants, promises, agreements, conditions and understanding between Landlord and Tenant concerning the leased premises and there are no covenants promises, agreements, conditions or understandings, either oral or written between them other than are herein set forth. Any prior conversations or writings are merged herein and extinguished. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Landlord or Tenant unless reduced to a writing and signed by them. If any provision contained in a rider or addenda is inconsistent with the printed provision of this lease, the provision contained in said rider addenda shall supersede said printed provision. It is herewith agreed that this lease contains no restrictive covenants or exclusives in favor of Tenant. Should the Tenant at any time during the term of this lease claim rights under a restrictive covenant, exclusive failure of continued occupancy or inducement, whether implied or otherwise, the Tenant herewith specifically waives any such claim with respect to department stores regional or national chains, kiosks in the mall, in addition to other merchants with whom leases had been signed prior to the date of the signing of this lease by both Tenant and Landlord. 21.4 NO PARTNERSHIP Landlord does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or joint adventurer or a member of a joint enterprise with Tenant. The provisions of this lease relating to the percentage rent payable hereunder are included solely for the purpose of providing a method whereby the rent is to be measured and ascertained. 21.5 FORCE MAJEURE In the event that Landlord shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power restrictive governmental laws or regulations, riots, insurrection, war or other reasons of a like nature not the fault of the Landlord, then performance of such act shall be excused for the period of the delay. The provisions of this Section 21.5 shall not operate to excuse Tenant from prompt payment of rent, percentage rent, additional rent or any other payments required by the terms of this lease. 21.6 NOTICES Any notice demand, request or other instrument which may be or are required to be given under this lease shall be delivered in person or sent by United States Certified Mail, postage prepaid and shall be addressed (a) if to Landlord, at the address first hereinabove given or at such other address as Landlord may designate by written notice and (b) if to Tenant, at Real Estate Dept., 1500 Market Street, Phila., PA 19101 or to such other address as Tenant shall designate by written notice. 23 21.7 CAPTIONS AND SECTION NUMBERS The captions, section number, sub-section numbers and index appearing in this lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this lease nor in any way affect this lease. 21.8 TENANT DEFINED The word "Tenant" shall be deemed and taken to mean each and EVERY person or party mentioned as a Tenant herein, be the same one or more; and if there shall be more than one Tenant, any notice required or permitted by the terms of this lease may be given by or to anyone thereof and shall have the same force and effect as if given by or to all thereof. The use of the neuter, singular pronoun to refer to Landlord or Tenant shall be deemed a proper reference even though Landlord or Tenant may be an individual, a partnership, a corporation, or a group of two or more individuals or corporations. The necessary grammatical changes required to make the provisions of this lease apply in the plural sense where there is more than one Landlord or Tenant and to either corporations, associations, partnerships, or individuals, males or females, shall, in all instances be assumed as through in each case fully expressed. 21.10 PARTIALLY INVALIDITY In any term, covenant or condition of this lease or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this lease or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this lease shall be valid and be enforced to the fullest extent permitted by law. 21.11 NO OPTION The submission of this lease for examination does not constitute reservation of or option for the leased premises and this leases becomes effective as a lease only upon execution and delivery thereof by Landlord or Tenant. 21.12 RECORDING Tenant shall not record this lease without the written consent of Landlord, however, upon the request of either party thereto, the other party shall join in the execution of a memorandum or so-called "short form" of this lease for the purposes of recordation. Said memorandum or short form of this lease shall describe the parties, the leased premises and the term of this lease and shall in corporate this lease by reference. 24 IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this lease as of the day and year first above written. PROGRESS INVESTMENT ASSOCIATES, INC. By (SEAL) - -------------------------------- ------------------------------- Attest: Landlord THE FIRST PENNSYLVANIA BANK, N.A. By (SEAL) - -------------------------------- ------------------------------- Attest: Tenant 25 LEASE between ZION INVESTMENT ASSOCIATES, INC., Landlord and THE FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, Tenant ************ Premises: Space in Progress Plaza Shopping Center, Broad & Oxford Street, Philadelphia ************ Dated: ARTICLE PAGE - ------- ---- I Premises and Term 1 II Rent 4 III Taxes 5 IV Utilities 6 V Common Use Areas 7 VI Use of the Leased Premises 10 VII Trade Fixtures, Signs and Office Equipment 12 VIII Alterations and Additions 13 IX Repairs and Maintenance 14 X Insurance and Indemnity 14 XI Fire or Casualty 15 XII Eminent Domain 17 XIII Defaults and Remedies 19 XIV Surrender of Premises 23 XV Offset Statement, Attornment, Subordination 24 XVI Assignment and Subletting 24 XVII Landlord's Right of Entry 25 XVIII Miscellaneous 26 THIS LEASE made as of this 10th day of October, 1967 by and between ZION INVESTMENT ASSOCIATES, INC., a Pennsylvania corporation having an office at the Northwest corner of Broad and Venango Streets, Philadelphia, Pennsylvania (hereinafter called "Landlord") and THE FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, a Pennsylvania banking corporation having an office at Fifteenth and Chestnut Streets, Philadelphia, Pennsylvania (hereinafter called "Tenant"). WITNESSETH: ARTICLE I PREMISES AND TERM Section 1.1. Landlord hereby leases to Tenant and Tenant hereby rents from Landlord for the term, at the rental, and upon the covenants and conditions hereinafter set forth, the land described in Exhibits "A" and "B" attached hereto (hereinafter called "the land") with the building constructed or to be constructed thereon (hereinafter called "the building") and with all rights, easements and privileges pertaining and appurtenant thereto. The land, building and such rights, easements and privileges are hereinafter called "the leased premises." The leased premises are an integral part of a shopping center known as Progress Plaza Shopping Center (hereinafter called "the Shopping Center"). A plan of the Shopping Center is outlined in black on Exhibit "B" annexed hereto, and the land is shown thereon outlined in red. Section 1.2. Landlord covenants, warrants and represents that it has full right and power to execute and perform this lease and to grant the estate leased herein, and Landlord further covenants that Tenant on paying the rent reserved and performing the covenants and agreements hereof shall peaceably and quietly have, hold and enjoy the leased premises during the term. Section 1.3. Landlord will construct the building at Landlord's expense for tenant's occupancy in accordance with the outline specifications attached hereto, marked Exhibit C, and initialled by Landlord and Tenant. Promptly after execution of this lease, the final plans and specifications for the building will be prepared by Landlord at Landlord's expense and, when agreed to, shall be dated and initialled by both Landlord and Tenant and thereafter will constitute part of this lease. Construction of the building will not begin until such final plans and specifications have been so agreed upon. Upon completion of the construction of the building, which shall not be later than December 13, 1968, Landlord will tender to Tenant the possession of the leased premises so that Tenant may complete the fixturing of the building and install its business signs on the building. At the date of such tender of possession and thereafter, the leased premises shall be free of all liens and encumbrances, other than the lien for current non-delinquent taxes and objections G, H, I, J and K appearing on Title Report No. P-101274, dated February 9, 1967 prepared by West Jersey Title and Guaranty Company, and any easements for utility facilities which do not interfere with Tenant's use of the leased premises for banking purposes, and the zoning regulations applicable to the leased premises shall permit the conduct thereon of a branch banking business. Tenant may from time to time enter the leased premises for the purpose of inspection and taking measurements before possession is tendered to it. Landlord's obligation to construct the building and the commencement of the initial term, as specified in Section 1.5 shall be subject to and extended by delays due to the occurrence of any of the events specified in Section 18.4. Landlord will pay the cost of installing Landlord's heating equipment. Tenant will pay the cost of installing Tenant's air conditioning equipment (such installation shall be performed by Landlord). If equipment is installed which provides both heating and air conditioning from a single unit, then the cost of such unit shall be borne 25% by Landlord and 75% by Tenant. All costs to be paid by Tenant shall be paid prior to taking possession. Section 1.4. The term of this lease shall commence on the earlier -2- of the following dates: (a) the first day of the month next succeeding the date which is fifteen (15) days after the date when Landlord tenders to Tenant possession of the leased premises in accordance with the provisions of Section 1.3 hereof or (b) the date on which Tenant opens the building to the general public for business, and such term shall continue for a period of ten (10) years thereafter (which period is hereinafter called "the initial term"). Anything in this lease to the contrary notwithstanding, Tenant's obligation to pay rent shall not begin (whether or not the building is opened to the general public for business) until the Shopping Center's major food market tenant has first opened its building to the public for business on a continuous basis. Section 1.5. Tenant is hereby granted the option to extend this lease for two further terms of five (5) years each commencing upon the expiration of the preceding term. Each such option shall be exercised by Tenant giving written notice to Landlord of its intention to exercise such option not less than one (1) year prior to the expiration. date of the then current term. Section 1.6. Whenever the words "the term" are used hereinafter, they shall mean the initial term of this lease and any extension or renewal thereof. Section 1.7. Should Tenant hold over in possession after the expiration of the term, such holding over shall not be deemed to extend the term or renew this lease, but the tenancy thereafter shall continue from month to month upon the covenants and conditions herein set forth at the rental in effect during the last month of the preceding term, until terminated by either party by at least thirty (30) days' notice. -3- Section 1.8. Landlord will not tender possession to Tenant as provided in this Article until Landlord, at Landlord's expense, shall deliver to Tenant copies of the building and zoning permits under which the construction of the Shopping Center was authorized. Section 1.9. If Tenant should request it, Landlord will provide Tenant with executed "non-disturbance" agreements from all holders of liens embracing the leased premises the effective date of which is prior to the date and time of the recording of a Memorandum of this lease in the Department of Records of the City of Philadelphia. Such "non-disturbance" agreements shall assure Tenant's continued quiet possession in case of foreclosure so long as Tenant pays its rent and is not in default under this lease. Section 1.10. Landlord will construct the Shopping Center substantially as shown on Exhibit B not later than December 31, 1968. Landlord will use its best efforts to have a uniform date on which all businesses in the Shopping Center shall first open to the public for business. ARTICLE II RENT Section 2.1. From the date of this lease until the commencement of the initial term, Tenant shall pay Landlord no rent. Section 2.2. Throughout the term Tenant shall pay Landlord rent at the annual rate of Sixteen Thousand Dollars ($16,000.) payable in twelve (12) equal monthly installments in cash or by Tenant's check, - 4 - in advance, on the first day of each month. Rent for part of a month at the beginning and end of the term shall be pro-rated and paid on or before the first day of the following month. Section 2.3. If Tenant exercises the first renewal option under Section 1.6, rent for such first renewal term shall be Sixteen Thousand Eight Hundred Dollars ($16,800.) per year. If Tenant exercises the second renewal option under Section 1.6, rent for such second renewal term shall be Seventeen Thousand Six Hundred Dollars ($17,600.) per year. Rent for any renewal term shall be paid at the times and in the manner provided in Section 2.2. ARTICLE III TAXES Section 3.1. Landlord will pay in the first instance all real property taxes. Tenant will reimburse Landlord for all such taxes (but not for any penalty or interest for late payment of such taxes) which are attributable to the leased premises and which represent an increase over the amount of such taxes levied during the first year in which, throughout such year, the Shopping Center was first assessed as a completed complex. If the leased premises are not separately assessed, the proportionate share of such increase of such taxes attributable to the leased premises shall be determined by multiplying the amount of such increase of such taxes assessed against the Shopping Center by a fraction the numerator of which shall be the total square feet of floor space in the building rented by Tenant and the denominator of which shall be the total square feet of rentable floor space within all buildings in -5- the Shopping Center. "Increase" means either an increase in the rate of taxation or an increase in assessed valuation, or both. The amount of an increase in assessed valuation due to construction erected in the Shopping Center after the date of this lease shall be added, if such construction is for Tenant's use, to the numerator of the aforesaid fraction. Any demand by Landlord for reimbursement for payment of such excess of such taxes shall be accompanied by full documentation, including a copy of each of the relevant tax bills. ARTICLE IV UTILITIES Section 4.1. During the term of this lease Tenant will pay for all water, gas, electricity, heat, telephone, sewage and all other utility services used by Tenant in the leased premises. If Landlord undertakes to supply any utility service, Landlord shall not be liable to Tenant or any other person within the leased premises for any loss occasioned by impairment, interruption, stoppage or other interference with any such utility service provided such impairment, interruption, stoppage or other interference is beyond Landlord's control. Landlord shall maintain the pipes, lines and conduits of such utility services to (but not in) the leased premises whether or not Landlord actually supplies any of such utility services. If Landlord supplies any utility service to Tenant, Landlord shall not charge Tenant more for such service than Tenant would be obliged to pay if Tenant were to purchase such service directly from the utility company. - 6 - ARTICLE V COMMON USE AREAS Section 5.1. Landlord shall construct upon the Shopping Center site at its own cost access roads, footways and parking lots or facilities as shown on the plan of the Shopping Center attached to and forming part of Exhibit B. Except as provided in Section 5. 3, all automobile parking areas, driveways, entrances and exits thereto, and other common facilities furnished by Landlord in or near the Shopping Center, including employee parking areas, the truck way or ways, loading docks, package pick-up stations, pedestrian sidewalks and ramps, landscaped areas, exterior stairways, first-aid stations, comfort stations and other areas and improvements provided by Landlord for the general use, in common, of tenants, their officers, agents, employees, customers and invitees (sometimes in this lease called "common use areas") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to all facilities and areas mentioned in this Article. Except as provided in Section 5.3, Landlord shall have the right to construct, maintain and operate lighting facilities on all said areas and improvements; to police the same; from time to time to change the area level, location and arrangements of parking areas and other facilities hereinabove referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise), with appropriate provisions for free parking ticket validating by tenants; to close all or any portion of said areas or facilities to such extent as may, in the opinion of Landlord's counsel, be legally sufficient to prevent a -7- dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the parking areas or facilities; to discourage non-customer parking; and to do and perform such other acts in and to said areas and improvements, as in the use of good business judgment, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees and customers. Landlord shall have the full right and authority to employ all personnel and to make all rules and regulations pertaining to and necessary for the, proper operation of the common areas and facilities. Section 5.2. Landlord grants to Tenant, during the term, for the benefit of Tenant, its officers, agents, employees, customers and invitees, the non-exclusive right to use, for their intended purposes, all of the common use areas described in Section 5. 1 as such areas may be constituted from time to time, but if the amount of such areas (other than those specified in Section 5. 3) be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation nor shall diminution of such areas be deemed constructive or actual eviction unless Landlord violates its covenant (and it hereby covenants) not to diminish the parking areas so that they contain less than the total square feet of parking and driveway space shown on Exhibit B hereto. Section 5.3. Anything in this lease to the contrary notwithstanding: (a) No parking charges of any kind shall be enforced against' Tenant or its officers, agents, employees, customers or invitees unless such parking charge shall be accompanied by convenient and simple provisions for free parking ticket validating by Tenant and other tenants of the Shopping Center. -8- (b) Throughout the term, Landlord will ensure that, subject to governmental regulations, Tenant and Tenant's customers will have the benefit of the continuance of exits and entrances (at least 30 FEET WIDE at the curb line) as shown on Exhibit B hereto and from Jefferson Street, Oxford Street and North Broad Street. Section 5.4. In each lease year, as defined in this Article, Tenant will pay to Landlord, in addition to the rentals specified in Article II hereof and in consideration of Landlord's duties under this Article, a proportion of the Shopping Center's operating cost, hereinafter defined, based upon the ratio of the square feet of floor area of the leased premises to the total square feet of all floor area of building space in the Shopping Center, except that for the purpose of this computation each two (2) square feet of basement floor area or second floor area shall be counted as one square foot. Tenant will make a tentative payment under this Section upon presentation of Landlord's statement. Such tentative payment or payments shall be adjusted in accordance with Landlord's audited statement showing the total of the Shopping Center's operating cost, hereinafter defined, and such audited statement shall be presented to Tenant not less frequently than once in each lease year. Section 5.5. For the purpose of this Article the "Shopping Center's operating cost" means the total cost and expense incurred in operating and maintaining (and Landlord shall operate and maintain) the common facilities hereinafter defined, actually used or available for use by Tenant and its officers, employees, agents, servants, customers and other -9- invitees, excluding any items of expense commonly known and designated as carrying charges, but specifically including, without limitation, gardening and landscaping, the cost of public liability and property damage insurance, repairs to common facilities, line painting, lighting, sanitary control, removal of snow and ice, depreciation on machinery and equipment used in such maintenance, and the cost of personnel to implement such services, to direct parking, and to police the common facilities. "Common facilities" means all areas, space, equipment and special services provided by Landlord for the common or joint use and benefit of the occupants of the Shopping Center, their officers, employees, agents, servants, customers and other invitees, including without limitation parking areas, access roads, driveways, retaining walls, landscaped areas, truck serviceways or tunnels, loading docks, pedestrian malls, courts, stairs, ramps and sidewalks, comfort and first-aid stations, washrooms and parcel pick-up stations. Section 5.6. The term "lease year" as used herein shall mean the twelve (12) month period beginning with the commencement of the Tenant's obligation to pay rent as hereinbefore determined in Articles I and II, and each successive twelve (12) month period thereafter during the term of this lease. ARTICLE VI USE OF THE LEASED PREMISES Section 6.1. The leased premises shall be used by Tenant only for the purpose of conducting a banking and trust company business therein or for such other purpose as Landlord may in writing approve (which approval will not be unreasonably withheld) and Tenant will keep the premises open to the public for business in accordance with the rules and regulations of the Philadelphia Clearing House and those authorities having supervisory -10- jurisdiction over the conduct of Tenant's business, except when prevented from doing so by strikes, fire, casualty or other causes beyond Tenant's reasonable control. Section 6.2. Landlord will not during the term of this lease sell or lease or permit to be sold or leased any portion of the Shopping Center or of any premises adjoining the Shopping Center which may hereafter be acquired by Landlord or by any entity under the ownership or control of Landlord or by any joint venture in which Landlord has an interest to anyone for the purpose of conducting thereon a banking or quasi-banking business, including any bank, trust company, credit union, or more than one mutual savings bank or one savings and loan association, but not both. Section 6.3. Tenant shall not be in violation of and will comply at its own expense with all proper requirements of duly constituted public authorities and with the provisions of any law, regulation or ordinance of such authorities and the Board of Fire Underwriters applicable to Tenant or its use of the leased premises, provided, however, that Tenant shall be required by Landlord to make or pay for only those structural alterations to the building which are required by such authorities solely because of the nature of Tenant's business conducted within the building. Section 6.4. At night, Tenant may keep the interior of the building lighted, and Tenant may keep its signs on the exterior of the building fully lighted. Section 6.5. Tenant will comply with the rules and regulations - 11 - specified in Article V, provided such rules and regulations shall be enforced uniformly against all tenants of the Shopping Center. Section 6.6. Tenant will not make any changes to the exterior of the building (other than as provided in Article VII hereof) without Landlord's prior written approval of plans and specifications for such changes. ARTICLE VII TRADE FIXTURES, SIGNS AND OFFICE EQUIPMENT Section 7.1. From time to time during the term and at the end of the term Tenant may install and remove Tenant's trade fixtures and business machines and equipment, including but without limiting the generality of the foregoing, money safes or any other safes, or vaults, vault doors, vault liner, safe deposit boxes, night depository, tellers' counters, night transit, drive-in windows and signs, provided that the leased premises have been designed structurally to accommodate the foregoing items. Section 7.2. Tenant may at its expense place and replace on the exterior of the leased premises a canopy over the main entrance, signs similar to those on its other branch banking establishments, provided they do not conflict with the architect's specifications for the building, but nothing else shall be placed on the exterior of the building without Landlord's prior written approval (which shall not be unreasonably withheld). Tenant may place on the exterior of the leased premises such signs, canopies, or advertising matter or other thing of any kind, but will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the leased - 12 - premises without first obtaining Landlord's written approval and consent. Tenant further agrees to maintain any such sign and canopy and any decoration, lettering, advertising matter or other thing as may be approved in good condition and repair at all times, and all installation and removal shall be executed in a good and workmanlike manner and in compliance with Section 18.1 of this lease. ARTICLE VIII ALTERATIONS AND ADDITIONS Section 8.1. At any time and from time to time during the term, at its own expense Tenant may make any alterations, decorations, additions, improvements or replacements in the building which it deems desirable for the conduct of its banking and trust company business (with drive-in facilities). Any other alterations, decorations, additions, improvements or replacements must first be approved in writing by Landlord (but such approval shall not be withheld unreasonably). Section 8.2. All alterations, decorations, additions and improvements made by Tenant, or made by Landlord on Tenant's behalf by agreement under this lease, shall remain the property of Tenant for the term of the lease, or any extension or renewal thereof. Upon expiration of this lease, or any renewal term thereof, Tenant may (or, if required by Landlord, shall) remove all such alterations, decorations, additions and improvements, and restore the leased premises as provided in Section 14.1 hereof. If Tenant fails to remove (and has not been required by Landlord to remove) such alterations, decorations, additions and improvements and restore the leased premises, then upon the expiration of this lease, or any renewal thereof, and upon the Tenant's removal from the - 13 - premises, all such alterations, decorations, additions and improvements shall become the property of Landlord. Section 8.3. Any repair, alteration, decoration, addition, improvement, restoration or replacement shall be executed in a good and workmanlike manner and in compliance with Section 18.1 of this lease. ARTICLE IX REPAIRS AND MAINTENANCE Section 9.1. Tenant shall at all times keep the building and all partitions, doors, fixtures, equipment and appurtenances thereof (including lighting, plumbing fixtures, plate glass and heating and air-conditioning system in the building) in good order, condition and repair, except for structural portions (including the roof) of the premises, which shall be maintained by Landlord. Landlord shall also be responsible for periodic inspections of the roof for the purpose of clearing clogged or iced drains and removal of debris which might damage the roof. The provisions of this Section shall not apply in the event of fire or other casualty, or condemnation or in any other event or contingency specifically provided, for elsewhere in this lease. ARTICLE X INSURANCE AND INDEMNITY Section 10.1. During the term, Tenant shall maintain fire insurance with extended coverage in the name of Landlord and Tenant, in an amount adequate to cover one hundred percent (100%) of the cost of replacement of the building and its alterations, decorations, additions or improvements. Tenant shall deliver to Landlord certificates of such fire insurance policies which shall contain a clause requiring the insurer to give Landlord 10 days notice of change or cancellation of such policies. - 14 - Section 10.2. During the term, Tenant shall keep in full force and effect, comprehensive general liability insurance against claims for personal injury, death and property damage occurring in the building or on the adjoining sidewalks with limits of not less than $500,000 as to one person not less than $1,000,000 as to any accident, and not less than $50,000 as to property damage. The policies shall name Landlord, any person, firms or corporations designated by Landlord, and Tenant as insured, and shall contain a clause that the insurer will not cancel or change the insurance without first giving Landlord ten days prior written notice. A copy of the policy or a certificate of insurance shall be delivered to Landlord, Section 10.3. If appropriate in Tenant's opinion, Tenant will place all or any insurance it is required to carry by this lease under its blanket policies and will furnish Landlord with evidence of such insurance. Section 10.4. Tenant will indemnify and save Landlord harmless of and from any and all loss, damage, or liability incurred by reason of any injury to persons or damage to property occurring in or on the leased premises or from or by reason of the erection, maintenance or existence of Tenant's signs including the reasonable expense involved in defending litigation, but Tenant will not indemnify Landlord against the consequences of Landlord's own negligence. Section 10.5. Tenant shall give immediate notice to Landlord in case of fire, accidents or observed defects in the leased premises. ARTICLE XI FIRE OR CASUALTY Section 11.1. If the building shall be damaged by fire, the elements, unavoidable accident or other casualty, but is not thereby rendered untenantable in whole or in part, Tenant shall at its own expense cause such damage to be repaired, and the rent shall not be abated. If, by reason of such occurrence, the building shall be rendered untenantable only in part, Tenant shall at its own expense cause the damage to be repaired, and rent meanwhile - 15 - shall be abated proportionately as to the portion of the building rendered untenantable. If the building shall be rendered wholly untenantable by reason of such occurrence, Tenant shall at its own expense cause such damage. to be repaired, and rent meanwhile shall be abated. To fulfill its obligations under this Article, Tenant shall have the proceeds of insurance and need not commence repairs until Landlord has endorsed to Tenant's order the check or checks representing the insurance proceeds. If Landlord shall fail to so endorse such check or checks upon request by Tenant, Tenant's obligation to pay rent shall be abated until Landlord shall so endorse such check or checks. If the damage to the building is greater than fifty percent (50%) and occurs during the second renewal term of this lease, Tenant shall have the right, to be exercised by notice in writing delivered to Landlord within sixty (60) days from and after the occurrence of the damage, to elect not to reconstruct the building, and in such event this lease and the tenancy hereby created shall cease as of the date of this said occurrence, the rent to be adjusted as of such date, and Tenant shall endorse to Landlord all insurance proceeds paid or to be paid on account of such damage. Section 11.2. If fifty per cent (50%) or more of the rentable area of the Shopping Center shall be damaged or destroyed by fire or other cause, notwithstanding that the leased premises may be unaffected by such fire or other cause, Tenant shall have the right, to be exercised by notice in writing delivered to Landlord within sixty (60) days from and after said occurrence, to elect to cancel and terminate this lease. Upon the giving of such notice, the term of this lease shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the leased premises and surrender the same to Landlord as quickly as reasonable arrangements for removal can be made by Tenant. Whether or not Tenant shall have exercised its right under this Section, this lease shall not be terminated if within sixty (60) days from and after said occurrence, Landlord shall notify Tenant in writing that the Shopping Center will be substantially restored within - 16 - six months after the date of such written notice. ARTICLE XII EMINENT DOMAIN Section 12.1. If the whole of the leased premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term shall terminate as of the date title vests in the condemnor and all rentals shall be paid up to that date and Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. Section 12.2. If all or substantially all of the common parking areas in the Shopping Center shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term shall terminate as of the date title vests in the condemnor unless Landlord shall take immediate steps to provide and within a reasonable time does provide other parking facilities substantially equal to the previously existing ratio between the common parking areas and the leased premises, and such substantially equal parking facilities shall be provided by Landlord at its own expense within ninety (90) days from the date of the taking of the property for public or quasi-public use. If Landlord shall so provide such other substantially equal parking facilities, then this lease shall continue in full force and effect. In any event, Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. Section 12.3. If any part of the building or more than fifty per cent (50%) of access to or from North Broad Street or Jefferson Street or any part of the exit to Oxford Avenue or any part of the area or the lanes described in Sections 5.3 (b) and 5.3 (c) hereof, shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, and if such partial taking or condemnation shall render the - 17 - leased premises practicably unsuitable (or unsuitable in the opinion of any governmental authority) for the business of Tenant, then the term shall terminate as of the date of the declaration of taking and Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. In the event of a partial taking or condemnation which is not extensive enough to render the leased premises unsuitable in Tenant's opinion for the business of Tenant, then Landlord shall promptly restore the leased premises to a condition comparable to its condition at the time of such condemnation less the portion lost in the taking, and this lease shall continue in full force and effect. Section 12.4. If any part of the parking area in the Shopping Center shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose and if, as the result of such partial taking the ratio of square feet of parking area to square feet of the building floor area of the entire Shopping Center is reduced to a ratio below that specified in Section 5.3 then the term shall terminate as of the date of the declaration of taking, unless the Landlord shall take immediate steps toward increasing, and does with a reasonable time increase, the parking ratio to that specified in Section 5.3, in which event this lease shall be unaffected and remain in full force and effect. In any event, Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. Section 12.5. In the event of any condemnation or taking as hereinbefore provided, whether whole or partial, the Tenant shall not be entitled to any part of the award, as damages or otherwise, for such condemnation and Landlord is to receive the full amount of such award, the Tenant hereby expressly waiving any right or claim to any part thereof, - 18 - Section 12.6. Although all damages in the event of any condemnation are to belong to the Landlord whether such damages are awarded as compensation for diminution in value of the leasehold or to the fee of the leased premises, and although Tenant hereby expressly waives all claims against the Landlord, Tenant shall have the right to claim and recover from the condemning authority, not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any and all damages to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment. ARTICLE XIII DEFAULTS AND REMEDIES Section 13.1. If Tenant has failed to perform or has violated any of the terms, covenants, conditions or agreements contained in this lease on Tenant's part to be performed, Landlord shall so notify Tenant in writing. Thereupon Tenant shall either (a) correct the matters complained of in such notice within twenty (20) days after receipt of such notice or in the case of rent within ten days after receipt of such notice; or (b) if more than such twenty (20) days are required to correct with reasonable diligence the matters complained of in such notice, commence to correct them within such twenty (20) days and pursue such corrective action with reasonable diligence thereafter. Section 13.2. Each of the following events shall constitute an event of Tenant's default hereunder: (a) the failure or omission of Tenant, after notice of default has been given by Landlord as provided in Section 13.1, to - 19 - take corrective action within the times specified therein; or (b) the taking possession of the business and property of Tenant by the Department of Banking of the Commonwealth of Pennsylvania. Tenant shall be in default under this lease if and only if an event of Tenant's default as provided in this section shall have occurred. Section 13.3. If an event of Tenant's default shall occur at any time, Landlord may, within a reasonable time thereafter, give Tenant a notice of intention to end the term, specifying a day not less than ten days nor more than ninety days after the giving of such notice when the term shall end, and upon the day so specified in such notice the term shall expire and Tenant shall then quit and surrender the leased premises to Landlord, but Tenant shall remain liable as provided in Section 13.7; and Landlord, without prejudice to any other right or remedy of Landlord hereunder or by law, and notwithstanding any waiver of any prior breach of condition or event of Tenant's default hereunder, may re-enter the leased premises either by force or otherwise, or dispossess Tenant or any legal representative of Tenant or other occupant of the leased premises by a summary proceeding or other appropriate suit, action or proceeding or otherwise, and remove their effects and hold the leased premises as if this lease had not been made. Section 13.4. If an event of Tenant's default with respect to the payment of rent shall occur at any time, Tenant empowers any attorney of any Court to appear for Tenant in any and all actions to be brought for any arrears of rent and to sign for Tenant an Agreement for entering in any competent Court an amicable action or actions for the recovery of such arrears of rent; and further, in said suits or in said amicable - 20 - action or actions any attorney is hereby authorized to confess judgment against Tenant for all arrears of rent and for interest and costs including an attorney's commission of 5 per cent; and so on from time to time as often as rent shall be in arrears. Section 13.5. If Tenant fails to perform any of the provisions, covenants, agreements, or conditions of this lease on its PART to be performed, Landlord may, but only after the occurrence of an event of Tenant's default as defined in Section 13.2, perform it or them on behalf of Tenant. The cost of such performance shall be paid to Landlord by Tenant upon prompt demand therefor by Landlord. Section 13.6. Tenant, upon the termination of this lease in accordance with the terms hereof, or in the event of entry of judgment for the recovery of possession of the leased premises in any action or proceeding, or if Landlord shall enter the leased premises by process of law or otherwise, hereby waives any right of redemption provided by any statute, law or decision now or hereafter in force. However, Landlord will not levy or distrain upon or sell any property belonging to any customer of Tenant, or held by Tenant in trust for anyone, for the purpose of enforcing any of Tenant's defaulted obligations under this lease or for the purpose of enforcing collection of any of Tenant's monetary obligations to Landlord hereunder, such rights on the part of Landlord to levy or distrain upon and to sell said property of said third parties being hereby expressly waived by Landlord. Section 13.7. If Landlord shall terminate this lease as provided in Section 13.3, Tenant shall pay to Landlord the rent up to the time of Landlord's termination of this lease (by recovery of possession of the - 21 - leased premises or otherwise) and thereafter, if Landlord re-lets the leased premises at then prevailing market rates, Tenant shall pay to Landlord throughout the balance of the term (as if the term had not been ended by Landlord's termination) all rent less the net avails of such reletting. Section 13.8. If Landlord has failed to perform or has violated any of the terms, covenants, conditions or agreements contained in this lease on Landlord's part to be performed, Tenant shall so notify Landlord in writing thereupon Landlord shall either (a) correct the matters complained of in such notice within twenty (20) days after receipt of such notice or (b) if more than such twenty (20) days are required to correct with reasonable diligence the matters complained of in such notice, commence to correct them within such twenty (20) days and pursue such corrective action with reasonable diligence thereafter. An event of Landlord's default hereunder shall be the failure or omission of Landlord, after notice of default has been given by Tenant as provided in this section, to take corrective action within the times specified therein. Section 13.9. If Landlord fails to perform any of the provisions, covenants, agreements or conditions of this lease on its part to be performed, Tenant may, but only after the occurrence of an event of Landlord's default as defined in Section 13.8, perform it or them on behalf of Landlord. The cost of such performance shall be paid to Tenant by Landlord, but if such cost is not paid within ten (10) days after written demand therefor, Tenant may deduct such cost from the rent reserved hereunder, - 22 - Section 13.10. The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No covenant, term or condition of this lease shall be deemed to have been waived by Landlord, unless such waiver be in writing by Landlord, nor shall there be any accord and satisfaction unless expressed in writing and signed by both Landlord and Tenant. ARTICLE XIV SURRENDER OF PREMISES Section 14.1. At the expiration of the tenancy hereby created, Tenant shall surrender the leased premises in at least as good condition as the leased premises were upon delivery of possession thereto under this lease, reasonable wear and tear and damage by unavoidable casualty excepted, and shall surrender all keys for the leased premises to Landlord at the place then fixed for the payment of rent and shall inform Landlord of all combinations on locks, if any, to be left in the leased premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this lease, but this Article shall not apply in the case of fire or other casualty, or condemnation or other event expressly provided for by other provisions of this lease. - 23 - ARTICLE XV OFFSET STATEMENT, ATTORNMENT, SUBORDINATION Section 15.1. Within ten (10) days after request therefor by Landlord, or if upon any sale, mortgage, assignment or hypothecation of the leased premises by Landlord, an offset statement shall be required from Tenant; Tenant will deliver in recordable form a certificate to any proposed mortgagee or purchaser, or to Landlord, certifying (if such be the case) that this lease is in full force and effect and there are no defenses or offsets thereto, or stating those claimed by Tenant. In addition, said offset statement shall certify the dates to which the net rent and other charges have been paid in advance, if any, and stating whether or not, to the best knowledge of the signer of such statement, Landlord is in default in performance of any covenants, agreements or conditions contained in this lease. Section 15.2. Upon request of Landlord, Tenant will subordinate its rights hereunder to the lien of any future mortgage or mortgages or ground or underlying leases including all mortgages which may hereafter affect such leases, or to the lien resulting from any other method of financing or refinancing, now or hereafter in force against or affecting the land of which the leased premises are a part, and to all advances made or hereafter to be made upon the security thereof, Tenant will deliver upon demand to Landlord, at Landlord's expense, such instrument or instruments as Landlord may reasonably request to effect such subordination, provided, however, that the holders of such mortgages or leases will, as consideration for such subordination, by instrument in writing - 24 - in form for recording, consent to this lease and agree that (i) Tenant shall not be disturbed in its possession of the leased premises or in its use of any of the common use areas for any reason other than one which would entitle Landlord to terminate this lease, and (ii) upon any fore closure of such mortgage the purchaser at the foreclosure sale will become the Landlord under this lease and agree to be bound by all of its terms, provided Tenant attorns to such purchaser, and (iii) if the method of financing requires Tenant to be a subtenant, there shall be no distraint against Tenant's property for any reason so long as Tenant is not in default of its obligations under this lease or its substitute. ARTICLE XVI ASSIGNMENT AND SUBLETTING Section 16.1. Without the written consent of Landlord (which consent shall not be withheld unreasonably), Tenant's interest in this lease shall not be assigned nor shall Tenant sublet the leased premises in whole or in part. Any assignment or sublease pursuant to this section shall not release Tenant from its obligations under this lease. Section 16.2. If there be an assignment of only Landlord's right to receive rent under this lease, Landlord will remain liable for the performance or observance of any agreements or conditions on the part of Landlord to be performed or observed, unless Landlord's assignee shall in writing agree to be bound by all of the terms and conditions of this lease. ARTICLE XVII LANDLORD'S RIGHT OF ENTRY Section 17.1. Landlord reserves the right to enter the leased premises at any reasonable time during banking hours to examine or to - 25 - make such repairs, additions or alterations as it may deem necessary for the safety or preservation thereof, but Landlord assumes no obligation to make repairs to the leased premises other than those expressly provided for in this lease. ARTICLE XVIII MISCELLANEOUS Section 18.1. Neither Landlord nor Tenant shall permit any mechanics' or materialman's lien to be filed at any time against the leased premises or any part thereof in connection with any work done by it or caused to be done by it. If any such lien should be filed, the party which has done or caused to be done the work for which the lien has been filed, shall promptly cause it to be discharged of record by payment, deposit, bond, order of a court, or otherwise. Section 18.2. It is the intention of the parties to create the relationship of Landlord and Tenant and no other relationship whatsoever and nothing herein shall be construed to constitute the parties hereto partners or joint venturers, or to render either party hereto liable for any of the debts or obligations of the other party. Section 18.3. This lease and the Exhibits, and Schedule, if any, attached hereto and forming a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by them. - 26 - Section 18.4. If either party hereto shall be delayed or hindered in or prevented from the performance of any act required by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this lease, then performance of such act shall be excused for the period of the delay and the period of the performance of any such act shall be extended for a period equivalent to the period of such delay. Section 18.5. (a) Any notice by Tenant to Landlord must be served by certified or registered mail, postage prepaid, addressed to Landlord at the address first hereinabove given or at such other address as Landlord may designate by written notice. (b) Any notice by Landlord to Tenant must be served by certified or registered mail, postage prepaid, addressed to Tenant at the address first hereinabove given Attention: Real Estate Division or at such other address as Tenant shall designate by written notice. Section 18.6. The headings in and index to this lease are solely for convenience in locating its various provisions and shall not be considered or referred to in resolving questions of interpretation or construction. Section 18.7. Landlord represents and agrees that Landlord will not record this agreement, but Landlord will execute and deliver such, short form of this agreement as Tenant, in its sole discretion shall request or require from Landlord in order to record the provisions of this agreement which Tenant may deem necessary or desirable to make a matter of record. Landlord will also execute and deliver in recordable - 27 - form an addendum to such short form, which addendum shall state the actual beginning of the basic term of this lease. Section 18.8. Tenant represents that it has dealt with no broker in this transaction other than the broker or brokers representing Landlord. Landlord will pay all brokerage charges connected with the negotiation of this lease. Section 18.9. If any term, covenant, or condition of this lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this lease shall be valid and be enforced to the fullest extent permitted by law. Section 18.10. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective successors and assigns of the said parties. No rights, however, shall inure to the benefit of any assignee of Tenant or Landlord unless the assignment to such assignee has been approved in writing as provided in Article XVI hereof. IN WITNESS WHEREOF the parties have caused this lease to be executed and their respective corporate sear to be hereunto affixed as of the date first above written. (Corporate Seal) ZION INVESTMENT ASSOCIATES, INC. Attest: By: ----------------------------- ----------------------------- Secretary Chairman (Corporate Seal) THE FIRST PENNSYLVANIA BANKING AND TRUST COMPANY Attest: By: ----------------------------- ----------------------------- Assistant Secretary Vice President - 28 - EXHIBIT "A" To the lease made as of the 10th day of October, 1967 by and between ZION INVESTMENT ASSOCIATES, INC. and THE FIRST PENNSYLVANIA BANKING AND TRUST COMPANY. DESCRIPTION OF LEASED PREMISES ALL THAT CERTAIN tract of land, Situate in the 20th Ward of the City of Philadelphia and Commonwealth of Pennsylvania; being Parcel No. 5-A as laid out on a Plan 10 L 3133, made by William S. Erwin, Registered Professional Engineer, Fairless Hills, Pennsylvania on the 6th day of October, 1966; bounded and described as follows, viz: BEGINNING at a corner on the Southerly side of Oxford Street (50.0' wide) and the Easterly side of Broad Street (113' wide); thence along the Southerly side of Oxford Street, South 78 degrees 39 minutes East 393.0' to a corner; thence South 11 degrees 21 minutes West 475. 0' to a corner on the Northerly side of Jefferson Street (50.0' wide); thence along the Northerly side of Jefferson Street North 78 degrees 39 minutes West 393.0' to a corner on the Easterly side of the aforesaid Broad Street; thence along the same North 11 degrees 21 minutes East 475.0' to a corner on the Southerly side of Oxford Street and place of beginning. CONTAINING 4. 2855 Acres of Land. LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease") made as of the 24th day of September, 1999, between FIRST UNION NATIONAL BANK, having an address at The Widener Building, 1 South Penn Square, Philadelphia, PA 19017, herein designated as the Landlord, and UNITED BANK OF PHILADELPHIA, having an address at 714 Market Street, Philadelphia, PA 19105, herein designated as the Tenant; WITNESSETH THAT, the Landlord does hereby lease to the Tenant and the Tenant does hereby rent from the Landlord approximately 5,485 square feet of space on the first floor of the building (the "Building") known as 3945-49 Chestnut Street, Philadelphia, Pennsylvania (the "Premises") for a term of one year and seven days, commencing on September 24, 1999 ("Commencement Date") and ending on March 31, 2000 (the "Term") to be used and occupied only and for no other purpose than as offices for branch bank. Tenant acknowledges and agrees that a portion of the Premises is presently subject to a month to month lease with a third party for the operation of a dry cleaners. Contemporaneously herewith Landlord is assigning all of its right title and interest under such lease to Tenant, and Tenant is assuming the obligations of landlord thereunder. Such lease shall be referred to herein as the "Drycleaner's Lease." (The Building and the land on which it is located are sometime hereinafter referred to as the "Landlord's Real Property"). UPON THE FOLLOWING CONDITIONS AND COVENANTS: 1. Payment of Rent: The Tenant covenants and agrees to pay to the Landlord, as annual rent for and during the Term hereof, the sum of Fifty Four Thousand Eighty-Five Dollars ($54,8500.00) (the "Rent") payable in equal monthly installments, in advance, of Four Thousand Five Hundred Seventy and 83/100 Dollars ($4,570.83), commencing September 24, 1999. The Rent shall be payable without deduction or setoff and without notice or demand. The Rent shall be made payable to the Landlord and mailed to CB Commercial Real Estate Group, Inc., T/A First Union National Bank, Rental Income Account, Department 0991, McLean, Virginia 22109-0991. Because the Commencement Date does not fall on the first day of a calendar month, the Rent for the calendar month in which the Commencement Date occurs shall be prorated on a per diem basis. 2. Additional Rent: All amounts which the Tenant is required to pay pursuant to this Lease, including interest and costs which may be added for nonpayment or late payment and attorney and collection fees, will constitute additional rent ("Additional Rent") and if the Tenant fails to pay such Additional Rent when due, the Landlord will have the right to pay the same and will have all rights, powers and remedies with respect thereto as are provided herein or by law in the case of non-payment of Rent. 3. Repairs and Care: A. The Tenant has examined the Premises and has entered into this Lease without any representation on the part of the Landlord as to the condition thereof. The Tenant takes the Premises AS-IS WHERE-IS. B. The Tenant shall take good care of the Premises and shall, at the Tenant's own cost and expense, make all repairs to the Premises and maintain, repair and replace the systems, including, but not limited to plumbing, electric, heating and air conditioning systems servicing the Premises, and shall maintain the Premises in good condition and state of repair. At the expiration or earlier termination of the Term hereof, the Tenant shall deliver the Premises in good order and condition, wear and tear from reasonable use thereof, and damage by the elements not resulting from the neglect or fault of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the sidewalks, driveways and entrances, but shall keep and maintain the same in a clean condition, free from debris, trash, and refuse. 4. Damage and Repair: In case of the destruction of or any damage to the glass in the Premises, or the destruction of or damage of any kind whatsoever to the Premises, caused by the carelessness, negligence or improper conduct on the part of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors, the Tenant shall repair the said damage or replace or restore any destroyed parts of the Premises, as speedily as possible, at the Tenant's own cost and expense. 5. Alterations and Improvements: A. The Landlord shall have no obligation to make any alterations, additions, or improvements. 2 B. The Tenant shall make no alterations, additions or improvements; and no climate regulating, air conditioning, cooling, heating or sprinkler systems, television or radio antennas, heavy equipment, apparatus and fixtures, shall be installed in or attached to the Premises, without the prior written consent of the Landlord. C. If the Landlord shall give its prior written consent, the Tenant may make alterations, installations, additions or improvements, subject to all provisions of this Section. Such alterations, installations, additions or improvements shall be non-structural and shall not affect utility services or plumbing and electrical lines in or to the interior of the Premises. Such alterations, installations, additions or improvements shall be performed by using contractors or mechanics first approved in writing by the Landlord. (i) All fixtures, all electrical items and all panelling, partitions, railings and like installations, installed in the Premises at any time, either by the Tenant or by the Landlord in the Tenant's behalf, shall become the property of the Landlord and shall remain upon and be surrendered with the Premises unless the Landlord, by notice to the Tenant no later than thirty (30) days prior to the date fixed as the expiration or earlier termination of this Lease, elects to have them removed by the Tenant, in which event, the same shall be removed from the Premises by the Tenant forthwith. Nothing in this Section shall be construed to prevent the Tenant's removal of trade fixtures, but upon removal of any such trade fixtures from the Premises, or upon removal of other installations as may be required or permitted by the Landlord, pursuant to the immediately preceding sentence or otherwise required or permitted by the Landlord, the Tenant shall immediately and at its expense, repair and restore the Premises in a good and workmanlike manner to the condition existing prior to installation, and shall repair any damage to the Premises resulting from such removal. (ii) All property permitted or required to be removed by the Tenant at the expiration or earlier termination of the Term of this Lease after the Tenant's removal shall be deemed abandoned and may, at the election of the Landlord, either be retained as the Landlord's property or may be removed from the Premises by the Landlord at the Tenant's sole cost and expense, which right of the Landlord shall survive the expiration or earlier termination of the Term of this Lease. (iii) The following conditions shall apply with respect to all alterations and construction that may be undertaken by the Tenant hereunder, upon the prior written consent of the Landlord: 3 (a) No alteration or construction shall be undertaken until the Tenant shall have procured and paid for, so far as the same may be required from time to time, all permits and authorizations of any federal, state, county or municipal government or departments or subdivisions of any of them having jurisdiction. The Landlord shall join in the application for such permits or authorizations as necessary. The Tenant shall provide the Landlord with copies of such permits/authorizations prior to the commencement of such work. (b) Any alteration or construction shall be made promptly (unavoidable delays excepted) and in good and workmanlike manner, and in compliance with all applicable permits, authorizations, building and zoning laws, and in compliance with all other applicable laws, ordinances, orders, rules, regulations and requirement of all federal, state, county, and municipal governments, departments, commissions, boards and offices ("Governmental Authorities"), and any national or local Insurance Rating Bureau, or any other body hereafter exercising functions similar to those of any of the foregoing. (c) The cost of any such alteration or construction shall be paid promptly so that the Premises shall be free at all times of liens for labor and materials supplied or claimed to have been supplied to the Premises and free from any encumbrances, chattel mortgages, conditional bills of sale or security interests. At all times during the conduct of any work in connection therewith, all contractors, materialmen, and suppliers shall execute and deliver to the Tenant releases of any rights under construction lien or similar statutes. Such releases shall be in proper statutory form and shall be delivered to the Landlord upon request of the Landlord. In the event costs are not paid, such that construction liens or other encumbrances shall be placed upon the Premises, the Landlord may, but shall not be obligated, to make such payments as shall discharge such liens or other encumbrances in which event such payments made by the Landlord shall be added to and become payable as Additional Rent, with the installment of Rent next due or within thirty (30) days of demand thereof, whichever occurs sooner. (d) To the end that there shall be no labor dispute which would interfere with the construction or operation of any of the Premises, the Tenant agrees to engage the services of only such contractors and subcontractors (for any work which the Tenant does, whether or not such work is permitted or required pursuant to the Lease) as will work in harmony and without causing any labor dispute with each other, with the Landlord's contractors and subcontractors and all others working in or upon the Premises, or any of them, and the Tenant shall 4 employ and shall require its contractors and subcontractors to employ only such labor as will work in harmony and without causing any labor dispute with all other labor then working in the Premises. Furthermore, only those contractors and subcontractors as have been duly licensed by the authority having jurisdiction over the appropriate profession and which have been approved in writing by the Landlord may perform any work for the Tenant in or upon the Premises. The Landlord's consent to the Tenant's contractors shall not be unreasonably withheld. (e) Adequate insurance in accordance with the requirements of sub-section 9 C shall be procured by the Tenant and/or its contractors before the commencement of any alteration or construction. 6. Signs: The Tenant shall not place nor allow to be placed any signs of any kind whatsoever, upon, in or about the Premises or any part thereof, except of a design and structure and in or at such places as may be indicated and consented to by the Landlord in writing prior to such placement. In case the Landlord or the Landlord's agents, employees or representatives shall deem it necessary to remove any such signs in order to paint or make any repairs, alterations or improvements in or upon said Premises or any part thereof, they may be so removed, but shall be replaced at the Landlord's expense when the said repairs, alterations or improvements shall have been completed. Any signs permitted by the Landlord shall at all times conform with all municipal ordinances or other laws and regulations applicable thereto. 7. Utilities: The Tenant shall pay when due the costs of all utilities directly to the utility company supplying the same. Without limiting the generality of the foregoing, Tenant shall be solely responsible for all refuse disposal, water and sewer charges, gas, electricity, heat, and any other utilities used by the Tenant which are or may be assessed or imposed upon the Premises or which are or may be charged to the Landlord by the suppliers thereof during the Term hereof, and if not paid, such charges shall be added to and become payable as Additional Rent, with the installment of Rent next due or within thirty (30) days of demand thereof, whichever occurs sooner. The Tenant shall be responsible for all telephone and cable charges to the Premises. The Tenant shall provide and pay for janitorial service to the Premises. 8. Compliance with Laws: The Tenant shall obtain any and all local, state, and federal governmental or regulatory approvals/permits, at its sole cost and expense, prior to any work being performed in the Premises and to its occupancy of the Premises. In addition, the Tenant shall promptly comply with all laws, ordinances, rules, 5 regulations, requirements and directives of Governmental Authorities applicable to and affecting the Premises and the Tenant's use and occupancy thereof, and for the correction, prevention and abatement of nuisances, violations or other grievances in, upon or connected with the Premises, during the Term hereof; and shall promptly comply with all orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the said Premises and its contents, for the prevention of fire or other casualty, damage or injury, at the Tenant's sole cost and expense. The Tenant shall be responsible for the obtaining of a Certificate of Occupancy as to its use of the Premises. The Tenant shall not place a load upon any floor of the Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. The Landlord reserves the right to prescribe the weight and position of business machines and mechanical equipment, which installations shall be placed and maintained by the Tenant, at the Tenant's sole cost and expense, in settings sufficient, in the Landlord's judgment, to absorb and prevent vibration, noise and annoyance. 9. Insurance: 6 A. The Tenant shall, at its sole cost and expense, the following insurance coverage during the Term: (i) all-risk insurance, or its equivalent, insuring the Tenant's interest in its improvements to the Premises and any and all furniture, equipment, supplies, contents and other property owned or leased by it and contained therein, such insurance coverage to be in an amount equal to the full insurable value of such improvements and property, as such may increase from time to time; (ii) worker's compensation insurance as required by applicable law, and (iii) insurance on the building and other improvements on the Landlord's Real Property against loss or damage by fire or other casualty with endorsements providing what is commonly known as all risk tire and extended coverage (but not including flood or earthquake coverage), vandalism and malicious mischief insurance, in an amount equal to the full replacement cost thereof (which policy shall name Landlord as loss payee and additional insured). The Tenant shall also procure and maintain throughout the Term a policy or policies of insurance, insuring the Tenant, the Landlord, and any other person designated by the Landlord, against any and all liability or claims of liability for injury to or death of a person or persons, for damage to property occasioned by or arising out of any construction work being done on the Premises, or arising out of, occasioned by, or resulting from the condition, use, or occupancy of the Premises, or other portions of the Building or property, such policy to have a combined single limit of not less than One Million Dollars ($1,000,000) for any bodily injury or property damage occurring as a result of or in conjunction with the above. B. All said insurance policies shall be carried with companies licensed to do business in the Commonwealth of Pennsylvania reasonably satisfactory to the Landlord and shall be noncancellable except after ten (10) days' prior written notice to the Landlord. Duly executed certificates of such insurance shall be delivered to the Landlord prior to the Commencement Date and at least thirty (30) days prior to the expiration of each respective policy term. Each insurance policy will contain a provision requiring thirty (30) days' prior written notice to the Landlord and any named insured if the policy is canceled or not renewed. C. Throughout the making of any alterations or improvements (if permitted by the Landlord under Section 5 and other than mere decorations) by the Tenant, its agent, contractors, or employees, the Tenant, at its sole cost and expense, shall carry or cause to be carried (i) worker's compensation insurance in statutory limits, covering all persons employed in connection with such alternations or improvements, (ii) all-risk property insurance, 7 completed value form, covering all physical loss (including any loss of or damage to supplies, machinery, and equipment) in connection with the making of such alterations or improvements, and (iii) comprehensive liability insurance, with completed operations endorsement, covering any occurrence in or about the Premises, Building, or property in connection with such improvements, which comprehensive liability insurance policy shall have a combined single limit of not less than One Million Dollars ($1,000,000). The Tenant shall furnish the Landlord with satisfactory evidence that such insurance is in effect before the commencement of its improvements and, on request, at reasonable intervals thereafter. Duly executed certificates of such insurance shall be delivered to the Landlord prior to the commencement of any such alterations or improvements. Each policy shall name the Landlord and any other person designated by the Landlord as an additional insured and shall contain a provision requiring ten (10) days' prior written notice to the Landlord and any named insured if the policy is canceled or not renewed. 10. Assignment: Except for the Drycleaner's Lease, the Tenant shall not assign, mortgage or hypothecate this Lease, nor sublet or sublease the Premises or any part thereof at any time during the Term of this Lease. 11. Restriction of Use: The Tenant shall not occupy or use the Premises or any part thereof, nor permit or suffer the same to be occupied or used for any purposes other than as herein limited, nor for any purpose deemed unlawful, disreputable, or extra hazardous, on account of fire or other casualty. 12. Subordination: This Lease shall not be a lien against the Premises in respect to any mortgages that may hereafter be placed upon said Premises. The recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien to this Lease, irrespective of the date of recording and the Tenant agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to further effect the subordination of this Lease to any such mortgage or mortgages. A refusal by the Tenant to execute such instruments shall entitle the Landlord to the option of terminating this Lease, and the Term hereof is hereby expressly limited accordingly. 13. Condemnation and Eminent Domain: If the Landlord's Real Property, or any portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the 8 taking or condemnation therefor, of if in lieu of any formal condemnation proceedings or actions, the Landlord shall grant an option to purchase and/or shall sell and convey the said Premises or any portion thereof, to any governmental or other public authority, agency, body or public utility, seeking to take the Premises and the Landlord's Real Property or any portion thereof, then this Lease, at the option of the Landlord, shall terminate, and the Term hereof shall end as of such date as the Landlord shall fix by notice in writing; and the Tenant shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages or paid as the result of such condemnation proceedings or paid as the purchase price for such option, sale or conveyance in lieu of formal condemnation proceedings; and all rights of the Tenant to damages, if any, are hereby assigned to the Landlord. The Tenant agrees to execute and deliver any instruments, at the expense of the Landlord, as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the Landlord's Real Property and the Premises or any portion thereof. The Tenant covenants and agrees to vacate the said Premises, remove all the Tenant's personal property therefrom and deliver up peaceable possession thereof to the Landlord or to such other party designated by the Landlord in the aforementioned notice. Anything hereinabove to the contrary notwithstanding, it is understood that, without affecting the Landlord's award as above referred to, the Tenant may make such independent claim as the law may allow with respect to the Tenant's moving expenses, relocation expenses, and actual direct losses to tangible personal property. 14. Fire and Other Casualty: In case of fire or other casualty, the Tenant shall give immediate notice to the Landlord and shall assign to Landlord the casualty insurance proceeds described in Section 9(A) above. If the Premises shall be partially damaged by fire, the elements or other casualty, provided that the Landlord receives the proceeds of insurance described in Section 9(A) above, the Landlord shall repair the same as speedily as practicable, but the Tenant's obligation to pay the Rent hereunder shall not cease. If, in the sole and exclusive opinion of the Landlord, the Premises have been so extensively and substantially damaged as to render them untenantable, then the Rent shall cease until such time as the Premises shall be made tenantable by the Landlord. However, if, in the sole and exclusive opinion of the Landlord, the Premises have been totally destroyed or so extensively and substantially damaged as to require practically a rebuilding thereof, then the Rent shall be paid up to the time of such destruction 9 and then and from thenceforth this Lease shall terminate, Landlord shall be entitled to. receive all proceeds of insurance pertaining to the casualty and neither party shall have any further liability or obligation hereunder. In no event however, shall the provisions of this Section become effective or be applicable if the tire or other casualty and damage shall be the result of the carelessness, negligence or improper conduct of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors. In such case, the Tenant's liability for the payment of the Rent and the performance of all the covenants, conditions and terms hereof on the Tenant's part to be performed shall continue and the Tenant shall be liable to the Landlord for the damage and loss suffered by the Landlord. If the Tenant shall have been insured against any of the risks herein covered, then the proceeds of such insurance shall be paid over to the Landlord to the extent of the Landlord's costs and expenses to make the repairs hereunder, and such insurance carriers shall have no recourse against the Landlord for reimbursement. 15. Reimbursement of the Landlord: If the Tenant shall fail or refuse to comply with and/or perform any conditions and covenants of this Lease, the Landlord may, if the Landlord so elects, carry out and perform such conditions and covenants, at the cost and expense of the Tenant, and the cost and expense of so doing shall be payable on demand or, at the option of the Landlord, shall be considered Additional Rent payable with the next installment of Rent due immediately thereafter, but in no case later than one month after such demand, whichever occurs sooner. This remedy shall be in addition to such other remedies as the Landlord may have hereunder by reason of the breach by the Tenant of any of the covenants and conditions contained in this Lease. 16. Inspection and Repair: The Tenant agrees that the Landlord and its agents, employees and representatives shall have the right to enter into and upon the Premises or any part thereof, at all reasonable hours, for the purpose of examining the same or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. This clause shall not be deemed or construed to be a covenant by or obligation of the Landlord to make such inspection or repairs. In the event that the Landlord undertakes repairs to the Premises, there shall be no allowance to the Tenant for diminution of rental value and no liability on the part of the Landlord by reason of inconvenience, annoyance or injury to the Tenant's business arising -from the Landlord's making repairs. 17. Right to Exhibit: The Tenant agrees to permit the Landlord and its agents, employees and representatives to show the Premises to persons wishing to rent or purchase the same, and the Tenant agrees that on 1O and after sixty (60) days next preceding the expiration of the Term hereof, the Landlord and its agents, employees and representatives shall have the right to place notices on the front of the Premises or any part thereof, offering the Premises for rent or for sale. 18. Inability to Obtain Insurance; Increase of Insurance Rates: A. If, for any reason, it shall be impossible for the Landlord to obtain fire and other hazard insurance on the Landlord's Real Property, in an amount and in the form and through insurance companies acceptable to the Landlord, the Landlord may, if the Landlord so elects at any time thereafter, terminate this Lease and the Term hereof, upon giving to the Tenant fifteen (15) days' prior written notice of the Landlord's intention so to do, and upon the giving of such notice, this Lease and the Term hereof shall terminate. B. If by reason of the use to which the Premises are put by the Tenant or the character of or the manner in which the Tenant's business is carried on, the insurance rates for fire and other hazards shall be increased, the Tenant shall upon demand, pay to the Landlord, as Additional Rent, the amounts by which the premiums for such insurance are increased. Such payment shall be paid with the next installment of Rent but in no case later than one month after such demand, whichever occurs sooner. 19. Removal of the Tenant's Property: Any equipment, fixtures, goods or other property of the Tenant remaining in the Premises upon the termination of this Lease, or upon any quitting, vacating or abandonment of the Premises by the Tenant, or upon the Tenant's eviction, shall be considered as abandoned and the Landlord shall have the right, without any notice to the Tenant, to sell or otherwise dispose of the same, at the Tenant's sole cost and expense, and the Landlord shall not be accountable to the Tenant for any part of the proceeds of such sale, if any. 20. Tenant's Default: The occurrence of any one or more of the following events will constitute a default hereunder: A. Tenant fails to pay Rent and/or Additional Rent due hereunder on any day upon which the same is to be paid, and such default continues for ten (10) days after the due date thereof. B. Tenant voluntarily assigns this Lease or subleases the Premises, or any part thereof. 11 C. Tenant makes an assignment for the benefit of creditors, files a petition in bankruptcy or for reorganization or for an arrangement pursuant to the Bankruptcy Act of the United States, or shall be adjudicated a bankrupt, or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of the Tenant as a bankrupt pursuant to the Bankruptcy Act of the United States or any similar federal or state law is tiled and such petition or answer shall not be discharged or denied within sixty (60) calendar days after the date of filing thereof. D. A receiver, trustee or liquidator of the Tenant or of all or substantially all the property of the Tenant or of its interest in the Premises shall be appointed in any proceeding brought by the Tenant, or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against the Tenant and such receiver, trustee or liquidator shall not be discharged within sixty (60) calendar days after such appointment. E. The Premises shall have been abandoned or deserted, vacated or vacant, or left unoccupied for fifteen (15) consecutive calendar days. F. This Lease or the estate of the Tenant hereunder shall pass to another by virtue of any court proceedings, writ of execution, levy, sale, or by operation of law. G. The occurrence of any other event which is defined as a default elsewhere in this Lease, together with the passage of the applicable grace period, if any, without cure. H. Tenant fails to observe or perform any of the other covenants, conditions or provisions of this Lease to be observed or performed by the Tenant, or the Tenant shall do or permit any thing to be done, whether by action or inaction, contrary to any of the Tenant's obligations hereunder, and the Tenant fails to cure such default within fifteen (15) days after notice thereof in writing to the Tenant or if such default cannot be reasonably cured within fifteen (15) days, unless the Tenant begins such cure within fifteen (15) days and diligently pursues such cure to completion within thirty (30) days after said notice; provided, however, that if the Tenant shall default in the performance of any such covenant, condition or provision of this Lease two (2) or more times in any twelve (12) month period, and notwithstanding that such defaults have been cured by the Tenant, any further similar default shall be deemed a default without the ability for cure. 21. Remedies: 12 A. Upon the occurrence of any one or more such events of default set forth in Section 20, the Landlord, in addition to any other remedies herein contained or as may be permitted by law, may (i) cancel and terminate this Lease upon written notice to the Tenant (whereupon the Term shall terminate and expire, and the Tenant shall then quit and surrender the Premises to the Landlord, but the Tenant shall remain liable as hereinafter provided) and/or (ii) at any time thereafter, re-enter and resume possession of the Premises as if this Lease had not been made, the Tenant hereby waiving the service of any notice of intention to re-enter or to institute legal proceedings to that end. B. If this Lease shall be terminated or if the Landlord shall be entitled to re-enter the Premises and dispossess or remove the Tenant under the provisions of this Section (either or both of which events are hereinafter referred to as a "Termination"), the Landlord or the Landlord's agents or servants may immediately or at any time thereafter re-enter the Premises and remove therefrom the Tenant, its agents, employees, servants, licensees, and any subtenants and other persons, firms or corporations, and all or any of its or their property therefrom, either by summary dispossess proceedings or by any suitable action or proceeding at law or by peaceable re-entry or otherwise, without being liable to prosecution or damages therefor, and may repossess and enjoy the Premises, including all additions, alterations and improvements thereto. C. In case of Termination, the Rent and all other charges required to be paid by the Tenant hereunder shall thereupon become due and shall be paid by the Tenant up to the time of the Termination, and the Tenant shall also pay to the Landlord all reasonable expenses which the Landlord may then or thereafter incur as a result of or arising out of a Termination, including, but not limited to court costs, attorneys' fees, brokerage commissions, and costs of terminating the tenancy of the Tenant, re-entering, dispossessing or otherwise removing the Tenant, and restoring the Premises to good order and condition, and, from time to time, altering and otherwise preparing the same for re-letting. Upon a Termination, the Landlord may, at any time and from time to time, re-let the Premises, in whole or in part, either in its own name or as the Tenant's agent, for a term or terms which, at the Landlord's option, may be for the remainder of the then current Term, or for any longer or shorter period, without being obligated to "mitigate" the Tenant's damages. 13 D. In addition to the payments required by sub-section B, the Tenant shall be obligated to, and shall, pay to the Landlord upon demand and at the Landlord's option: (i) liquidated damages in an amount which, at the time of Termination, is equal to the excess, if any, of the then present amount of the installments of Rent reserved hereunder, for the period which would otherwise have constituted the unexpired portion of the then current Term, over the then present rental value of the Premises for such unexpired portion of the then current Term; or (ii) damages (payable in monthly installments, in advance, on the first day of each calendar month following the Termination, and continuing until the date originally fixed herein for the expiration of the Term) in amounts equal to the excess, if any, of the sums of the aggregate expenses paid by the Landlord during the month immediately preceding such calendar month for all such items as, by the terms of this Lease, are required to be paid by the Tenant, plus an amount equal to the installment of Rent which would have been payable by the Tenant hereunder in respect to such calendar month, had this Lease not been terminated, over the sum of rents, if any, collected by or accruing to the Landlord in respect to such calendar month pursuant to a re-letting or to any holding over by any subtenants of the Tenant. E. The Landlord shall in no event be liable for failure to re-let the Premises or in the event that the Premises are re-let, for failure to collect rent due under such re-letting; and in no event shall the Tenant be entitled to receive any excess of rent over the sums payable by the Tenant to the Landlord hereunder but such excess shall be credited to the unpaid Rent due hereunder, and to the expenses of re-letting as provided herein. F. Suit or suits for the recovery of damages hereunder, or for any installments of Rent and/or Additional Rent, may be brought by the Landlord from time to time at its election, and nothing herein contained shall be deemed to require the Landlord to postpone suit until the date when the Term would have expired if it had not been terminated under the provisions of this Lease, or under any provision of law, or had the Landlord not re-entered into or upon the Premises. G. Anything herein to the contrary notwithstanding, the Landlord shall have the option to accelerate all future installments of Rent and/or Additional Rent due and to hold the Tenant responsible, in advance, for the aggregate "damages" (as described in this Section) to be suffered by the Landlord during the remainder of the 14 then current Term or renewal Term, as well as damages covering any renewal Term the option for which shall have been exercised by the Tenant. H. The Landlord, at its option, in addition to any and all remedies available to it, shall have the right to charge a fee for payment of Rent and/or Additional Rent received later than the fifth (5th) day of the month in which said Rent and/or Additional Rent was due, which fee shall be ten percent (10%) of the amount of such overdue Rent and/or Additional Rent. 1. The Tenant hereby waives all rights of redemption to which the Tenant or any person claiming under the Tenant might be entitled, after an abandonment of the Premises, or after a surrender and acceptance of the Premises and the Tenant's leasehold estate, or after a dispossession of the Tenant from the Premises, or after a termination of this Lease, or after a judgment against the Tenant in an action in ejectment, or after the issuance of a final order or warrant of dispossess in a summary proceeding, or in any other proceeding or action authorized by any rule of law or statute now or hereafter in force or effect. 22. Limitation of Liability of the Landlord: The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or of the electrical, gas, power, conveyor, refrigeration, sprinkler, air conditioning or heating systems, elevators or hoisting equipment; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct on the part of the Tenant or any other tenant of the Landlord or of any agent, employee, guest, licensee, invitee, subtenant, assignee or successor of the Landlord, the Tenant or any other tenant of the Landlord; or attributable to any interference with, interruption of or failure, beyond the control of the Landlord, of any services to be furnished or supplied by the Landlord. 23. Non-Waiver by the Landlord: The various rights, remedies, options and elections of the Landlord, expressed herein, are cumulative, and the failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this Lease or to exercise any election or option or to resort or have recourse to any remedy herein conferred or the acceptance by the Landlord of any installment of Rent and/or Additional Rent after any breach by the Tenant, in any one or more instances, shall not be deemed to be a waiver or a relinquishment for 15 the future by the Landlord of any such conditions and covenants, options, elections or remedies, but the same shall continue in full force and effect. 24. Non-Performance by the Landlord: This Lease and the obligation of the Tenant to pay the Rent and Additional Rent hereunder and to comply with the covenants and conditions hereof, shall not be affected, curtailed, impaired or excused because of the Landlord's inability to supply any service or material called for herein, by reason of (i) any rule, order, regulation or preemption by any Governmental Authority or (ii) any delay which may arise by reason of negotiations for the adjustment of any tire or other casualty loss, (iii) strikes or other labor trouble, or (iv) any cause beyond the control of the Landlord. 25. Validity of Lease: The provisions of this Lease shall be deemed to be severable. If any provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other provision herein, but such other provisions shall remain in full force and effect. 26. Notices: All notices required under the terms of this Lease shall be given and shall be complete by mailing such notices by certified or registered mail, return receipt requested, as follows: to the Landlord c/o: First Union National Bank The Widener Building, 14th Floor 1 South Penn Square Philadelphia, PA 19107 ATTN: Corporate Real Estate Depart.PA4118 to the Tenant at: United Bank of Philadelphia P.O. Box 54212 Philadelphia, PA 19105-4212 ATTN: Dr. Emma C. Chappell or such other address as may be designated in writing, which notice of change of address shall be given in the same manner. 27. Quiet Enjoyment: The Landlord covenants and represents that the Landlord has the right and authority to enter into, execute and deliver this Lease; and does further covenant that the Tenant on paying the Rent and the Additional Rent and performing the conditions and covenants herein contained, shall and may peaceably and 16 quietly have, hold and enjoy the Premises for the duration of the Term, subject to early termination thereof in accordance with the provisions hereof. 28. Entire Agreement: This Lease contains the entire agreement between the parties. No representative, agent or employee of the Landlord has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the Terms hereof. No additions, changes or modifications, renewals or extensions hereof shall be binding unless reduced to writing and signed by the Landlord and the Tenant. 29. Real Estate and Use and Occupancy Tenant shall pay to the Landlord, as Additional Rent hereunder, upon the Landlord's demand any use and occupancy tax which may be due to the City of Philadelphia as a result of Tenant's use and occupancy of the Leased Premises. In addition, Tenant shall pay to the Landlord, as Additional Rent hereunder, upon Landlord's demand, all real estate taxes and assessments, general and special, water taxes and all other impositions, ordinary and extraordinary of every kind and nature whatsoever, which during the Term may be levied or assessed against the Landlord's Real Property (including the land and improvements). Tenant shall not be required to pay any inheritance, estate, succession, transfer, gross receipts, franchise, corporation, net income or profit tax or capital levy imposed upon Landlord. All such taxes and assessments which shall become payable during each of the calendar, fiscal, tax or assessment years within the Term, as applicable, shall be ratably adjusted on a per diem basis between Landlord and Tenant in accordance with the respective portions of such calendar, fiscal, tax or assessment year which fall within the Term. 30. Broker: The Landlord and the Tenant represent and warrant to the other that they have not dealt with any broker, finder or similar agent in connection with the transaction contemplated by this Lease, and that they have not taken any action which would result in any broker's, finder's, or other fee or commission being due or payable to any other party in connection with the transaction contemplated hereby. Each of the Landlord and the Tenant shall indemnify and hold harmless the other against any and all liability, loss, cost and expense (including reasonable attorney's fees) resulting from a breach of said representation and warranty of the indemnifying party. The provisions of this Section 30 shall survive the termination of this Lease. 17 31. Construction Liens: If any construction or other liens shall be created or filed against the Premises or the Landlord's Real Property by reason of labor performed or materials furnished for the Tenant in the erection, construction, completion, alteration, repair or addition to any building or improvement, the Tenant shall upon demand, at the Tenant's own cost and expense, cause such lien or liens to be satisfied and discharged of record together with any Notices or Lien Claims that may have been filed. Failure so to do, shall entitle the Landlord to resort to such remedies as are provided herein in the case of any default of this Lease, in addition to such as are permitted by law. 32. Waiver of Subrogation Rights: The Tenant waives all rights of recovery against the Landlord or the Landlord's agents, employees or other representatives, for any loss, damages or injury of any nature whatsoever to property or persons for which the Tenant is insured. The Tenant shall obtain from the Tenant's insurance carriers and shall deliver to the Landlord, waivers of the subrogation rights under the respective policies. 33. Security Deposit: INTENTIONALLY OMITTED. 34. Option to Renew: If the Tenant is not in default either at the time notice of renewal is due or at the commencement date of the renewal Term, the Tenant shall have the option to renew or extend the Term of the Lease from the date upon which it would otherwise expire for three (3) additional periods of six (6) months each (each, a "Renewal Term"). The Tenant shall give the Landlord written notice of its intention to renew this Lease at least ninety (90) days prior to the expiration of the then current Term or Renewal Term, as applicable. Each Renewal Term shall be on the same terms and conditions as stated in this Lease, except that Rent shall be an amount equal to $82,275.00 per year, payable in equal monthly installments of $6,856.25 each. The word "Term" as used in this Lease shall include the above-mentioned Renewal Term(s). 35. Equal Opportunity: The Landlord does not discriminate against any employee or applicant for employment because of race, creed, color, age, sex, national origin, marital status, liability for service in the armed forces, disability due to veteran status, status as veteran of the Vietnam era, or the handicapped, but it will comply with all the requirements of the Equal Opportunity Clause set forth in Executive Order 11246, as amended, and its 18 implementing instruction as well as the Rehabilitation Act of 1973 and the Vietnam Era Veterans' Readjustment Assistance Act of 1974, which is incorporated herein by reference. 36. Holding Over: In the event that the Tenant shall remain in the Premises after the expiration of the Term of this Lease without having executed a new written lease with the Landlord, such holding over shall not constitute a renewal or extension of this Lease. In such event, the Landlord may, at his option, elect to treat the Tenant as one who has not vacated at the end of the Term, and thereupon be entitled to all the remedies against the Tenant provided by law in that situation, or the Landlord may, at its option, elect to construe such holding over as a tenancy from month-to-month, subject to all the terms and conditions of this Lease, except as to duration thereof, and in that event the Tenant shall pay monthly Rent in advance at the rate of 150% of the Rent provided herein as effective during the last month of the expired Term, together with Additional Rent, if applicable. 37. Conformation with Laws & Regulations: The Landlord may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statutes or regulations were set forth herein at length. 38. Indemnification of Landlord: The Tenant agrees to indemnify and save the Landlord harmless from and against all liability, and all loss, cost and expense, including reasonable attorneys' fees and costs, arising out of the occupancy, operation, maintenance, management and control of the Premises by the Tenant or in connection with (a) any injury or damage whatsoever caused to or by any person, including the Tenant, its employees, contractors or agents, or to property, including the Tenant's property, arising out of any occurrence on the Premises, (b) any breach of this Lease by the Tenant, or (c) any act or omission of the Tenant or of any person on the Premises, occurring in, on, or about the Premises. 39. No Waste: The Tenant covenants not to do or suffer any waste or damage, or injury to the Premises or to the fixtures and equipment therein. 40. Nature of the Landlord's Liability: If the Landlord shall breach any of the provisions hereof, the Landlord's liability shall in no event exceed the Landlord's interest in the Landlord's Real Property as of the date of the Landlord's breach; and the Tenant expressly agrees that any judgment or award which it may obtain against the 19 Landlord shall be recoverable and satisfied solely out of the right, title and interest of the Landlord in and to the Landlord's Real Property and that the Tenant shall have no rights against the Landlord, or rights of lien or levy against any other property of the Landlord, nor shall any other property or assets of the Landlord be subject to levy, execution or other enforcement proceedings for the collection of any such sums or satisfaction of any such judgment or award. 41. Remedies Cumulative: The specified remedies to which the Landlord or the Tenant may resort under the terms of this Lease are not intended to be exclusive of any other remedies or means of redress to which the Landlord or the Tenant may be lawfully entitled in case of any breach or threatened breach of any provision of this Lease. In the event of any breach or threatened breach by the Tenant or any persons claiming through or under the Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, the Landlord shall be entitled to enjoin such breach or threatened breach (if entitled to do so at law or in equity or by statute or otherwise) and shall have the right to invoke any right and remedy allowed by law or in equity or by statute or otherwise as if re-entry, summary proceedings or other specific remedies were not provided for in this Lease. 42. Force Majeure: The period of time during which either party hereto is prevented from performing any act required to be performed under this Lease by reason of tire, catastrophe, labor difficulties, strikes, lockouts, civil commotion, acts of God or of the public enemy, governmental prohibitions or pre-emptions, embargoes, inability to obtain materials or labor by reason of governmental regulations or prohibitions, or other events beyond the reasonable control of the Landlord or the Tenant, as the case may be, shall be added to the time for performance of such act, and neither party shall be liable to the other or in default under this Lease as the result thereof. The provisions of this Section shall not apply to or in any manner extend or defer the time for any obligations to make payment of monies required of either party hereunder. 43. Governing Law: The interpretation and validity of this Lease shall be governed by the substantive law of Pennsylvania. 44. Waiver of Jury Trial: It is mutually agreed by and between the Landlord and the Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other as to any matters whatsoever arising out of or in any way 20 connected with this Lease, the relationship of the Landlord and the Tenant, the Tenant's use or occupancy of the Premises, and any emergency statutory or any other statutory remedy. 45. No Option: For the convenience of the Tenant, this Lease may be submitted to the Tenant prior to its execution by or on behalf of the Landlord, but such submission shall not constitute an offer or an option and this Lease shall not bind the Landlord in any manner whatsoever unless and until this Lease shall have been signed and delivered on behalf of the Landlord. 46. Performance of the Tenant's Obligations: Except as otherwise specifically provided for herein, if the Tenant shall be in default hereunder, the Landlord may cure such default on behalf of the Tenant, in which event the Tenant shall reimburse the Landlord for all sums paid to effect such cure, together with interest at the rate of three percent (3%) per annum in excess of the Landlord's prime rate of interest and reasonable attorneys' fees. In order to collect such reimbursement, the Landlord shall have all the remedies available under this Lease for a default in the payment of Rent. 47. The Tenant's Access to Premises: The Tenant shall have access to the Premises on a 24 hour per day, 7 day per week basis. 48. "Landlord": The term "Landlord" as used in this Lease means only the holder, for the time being, of the Landlord's interest under this Lease so that in the event of any transfer of title to the Premises, the Landlord shall be and hereby is entirely freed and relieved of all obligations of the Landlord hereunder accruing after such transfer, and it shall be deemed without further agreement between the parties that such grantee, transferee or assignee has assumed and agreed to observe and perform all obligations of the Landlord hereunder arising during the period it is the holder of the Landlord's interest hereunder. 49. Tenant's Certificate: The Tenant agrees at any time and from time to time, within ten (10) days after a request by the Landlord, to execute, acknowledge and deliver a statement certifying (a) as to the date which shall be deemed to be the Commencement Date hereunder (b) that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), (c) the date to which the Rent has been paid, and (d) whether or not to the best knowledge of the Tenant (i) the Landlord is in default in performing any term, covenant, agreement, provision, condition or limitation 21 contained in this Lease and, if in default, specifying each such default, (ii) either party is holding any funds under this Lease in which the other has an interest (and, if so, specifying the party holding such funds and the nature and amount thereof, and (iii) there is any amount then due and payable to the Tenant by the Landlord, it being intended that such statement delivered pursuant to this Section may be relied upon by the Landlord, any mortgagee, and by any prospective purchaser of the Landlord's Real Property. 50. Attornment: The Tenant agrees that in the event of a sale, transfer or assignment of the Landlord's interest in the Landlord's Real Property to attorn to and to recognize such transferee or purchaser as the Landlord under this Lease. The foregoing provisions of this Section shall be self-operative and no further instrument shall be required to give effect to said provisions. The Tenant, however, agrees, at the request of the party to which it has attorned, to execute, acknowledge and deliver without charge, from time to time, instruments acknowledging such attornment. 51. End of Term: On the last day of the Term or the earlier termination of the Term, the Tenant shall peaceably and quietly leave, surrender and deliver the Premises to the Landlord, broom clean, together with (a) all alterations, changes, additions and improvements, which may have been made upon the Premises, except as otherwise provided in this Lease, and (b) except for the personal property of the Tenant, all fixtures and articles of personal property of any kind or nature which the Tenant may have installed or affixed on, in, or to the Premises for use in connection with the operation and maintenance of the Premises (whether or not said property be deemed to be fixtures), all of the foregoing to be surrendered in good, substantial and sufficient repair, order and condition, reasonable use, wear and tear, and damage by tire or other casualty excepted, and free of occupants and subtenants. The Tenant's obligations to observe or perform this covenant shall survive the expiration or earlier termination of this Lease. If the last day of the Term hereof, or of any Renewal Term, falls on a Sunday or legal holiday, this Lease shall expire at noon on the preceding Saturday or business day, respectively. 52. References and Successors: In all references herein to any parties, persons, entities or corporations the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of the within instrument may require. All the terms, covenants and conditions herein contained 22 shall be for and shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assigns. 53. Option to Purchase the Landlord's Real Property. a. Grant of Option. Landlord hereby grants Tenant the option to purchase the Landlord's Real Property at any time during the Term of this Lease (as the same may be extended). Notwithstanding anything to the contrary contained herein, the option created by this Section 53 shall automatically terminate upon the termination or sooner expiration of the Term of this Lease (as the same may be extended). b. Exercise of Option. Tenant may exercise Tenant's right to purchase the Landlord's Real Property by giving Landlord notice ("Tenant's Option Notice") not less than sixty (60) days prior to the end of the Term (as the same may be extended). Tenant's right to exercise the option to purchase the Landlord's Real Property is conditioned upon there being no default by Tenant under this Lease at the time of such exercise or at the time of settlement on Tenant's purchase of the Landlord's Real Property. c. Terms and Conditions of Sale and Purchase. The terms and conditions of the sale of the Landlord's Real Property by Landlord to Tenant, and the agreement to purchase, under this Section are as follows: i. If Tenant exercises the option to purchase on or before September 24, 2000 (i.e., during the initial Term or first Renewal Term), the purchase price (the "Purchase Price") for the Landlord's Real Property shall be equal to the Landlord's book value of such property at the time of settlement. If Tenant exercises the option to purchase during the second or third Renewal Terms, the Purchase Price shall be equal to the greater of (A) the Landlord's book value of the property at the time of settlement or (B) the Fair Market Value of the property (as defined below). The Purchase Price shall be paid by Tenant to 23 Landlord by immediately available United States funds wired to an account designated by Landlord, payable at settlement. ii. Closing shall be completed within forty-five (45) days after Tenant delivers the Tenant's Option Notice (or within forty-five days after Landlord determine the Purchase Price in accordance with paragraph (v) below)). iii. Title to the Landlord's Real Property shall be good and marketable and such as will be insurable by a title insurance company licensed to do business in the Commonwealth of Pennsylvania at regular rates without exception; and iv. Real estate taxes, water and sewer rents and other income and charges shall be apportioned as of the date of settlement. Real estate transfer taxes shall be divided equally between the parties. v. If Tenant exercises the option to purchase during the second or third renewal periods, Tenant's Option Notice shall set forth Tenant's opinion as to the fair market value of the Landlord's Real Property. If Landlord and Tenant cannot agree on the fair market value of the Landlord's Real Property within fifteen (15) days after receipt of such notice, Tenant shall appoint an MAI appraiser by written notice delivered to Landlord. Within ten (10) days after appointment, such appraiser shall make, at Tenant's cost, an independent appraisal of the fair market value for the highest and best use of the Landlord's Real Property ("Fair Market Value") and shall submit a report, within thirty (30) days after appointment, to Landlord and Tenant ("Tenant's Appraisal"). If Landlord disagrees with the Fair Market Value set forth in Tenant's Appraisal, Landlord may, at its own cost and within no more than thirty (30) days after receiving the Tenant's Appraisal, have an appraiser of its choice prepare an appraisal setting forth the Fair Market Value ("Landlord's Appraisal"), with such appraiser using the same criteria as the Tenant's appraiser. If the Fair Market Value set forth in the Landlord's Appraisal and Tenant's Appraisal diverge by no more than twenty percent (20%), the 24 Fair Market Value shall be the average of the Fair Market Value set forth in the two appraisals. If the Fair Market Value set forth in the two appraisals diverges by more than twenty percent 20%, Landlord's appraiser and Tenant's appraiser shall select a third appraiser (who shall be an MAI or equal), and such third appraiser shall, within thirty (30) days after being appointed and using the same criteria used by the other appraisers, determine the Fair Market Value, and such third appraiser's determination shall be the Fair Market Value and shall be binding on the parties. Landlord and Tenant shall share equally the costs of such third appraisal. 25 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, or caused these presents to be signed by their proper corporate officers and their proper corporate seal to be hereto affixed, the day and year first above written. LANDLORD: First Union National Bank By: /s/ Dan G. Griffith ----------------------- Dan G. Griffith, Vice President TENANT: UNITED BANK OF PHILADELPHIA By: /s/ Emma C. Chappell ------------------------- Dr. Emma C. Chappell Chairman, President & CEO 26 EX-10.2 3 EXHIBIT 10.2 LEASE AGREEMENT Exhibit 10.2 OFFICE LEASE BETWEEN ECC PROPERTIES, LLC, Landlord and UNITED BANK OF PHILADELPHIA, Tenant PREMISES: Building Situated at 300 North 3rd Street Philadelphia, PA 19106 06/11/99 OFFICE LEASE THIS OFFICE LEASE (the "Lease") is made as of July 1, 1999 by and between ECC PROPERTIES, LLC, a Pennsylvania limited partnership ("Landlord") and UNTIED BANK OF PHILADELPHIA ("Tenant"), Landlord and Tenant having the following notice addresses on the date of this lease. Landlord: ECC Properties, LLC 300 North 3rd Street Philadelphia, PA 19106 Tenant: United Bank of Philadelphia 300 North 3rd Street Philadelphia, PA 19106 1. FUNDAMENTAL LEASE PROVISIONS. Certain Fundamental Lease Provisions are presented in this Section l and represent the agreement of the parties hereto, subject to the further definition and elaboration in the. respective referenced Sections and elsewhere in the Lease: A. Building: 300 North 3rd Street Philadelphia, PA 19103 (See Section 2) B. Floor(s) or Portion (s) Thereof Leased: A portion of 300 North 3 (See Section 2) C. Square Footage of Premises: 25,000 rentable squ(See Section 2) D. Use: General Office (See Section 2) E. Term: (1) Commences: July 1, 1999 (See Section 3) (2) Expires: 10 Years after commencement date, subject to Section 3. F. Minimum Rent: -1- Fixed Minimum Rent During Original Term and Option Term During the Original Term of ten (10) years the Fixed Minimum Rent not including electricity and cleaning shall be as follows: For the Period: To the last day of Rental Per From the first day of the month Square Foot of the month in which occurs: immediately preceding: Rentable Area: - -------------------------- ---------------------- -------------- The commencement Date The First Anniversary $ 12.75* (pro-rated to exclude the of the Commencement Date period prior to the Commencement Date) The First Anniversary of The Second Anniversary $ 13.10* the Commencement Date of the Commencement Date The Second Anniversary of The Third Anniversary $13.40* the Commencement Date of the Commencement Date The Third Anniversary of The Fourth Anniversary $13.70* the Commencement Date of the Commencement Date The Fourth Anniversary of The Fifth Anniversary $14.00* the Commencement Date of the Commencement Date The Fifth Anniversary of The Sixth Anniversary $14.30* . the Commencement Date of the Commencement Date The Sixth Anniversary of The Seventh Anniversary $14.60* the Commencement Date of the Commencement Date The Seventh Anniversary of The Eighth Anniversary $14.90* The Commencement Date of the Commencement Date The Eighth Anniversary of The Ninth Anniversary $15.20* The Commencement Date of the Commencement Date The Ninth Anniversary of The Tenth Anniversary $15.50* The Commencement Date of the Commencement Date * Tenant at its sole cost and expense pays for electricity and janitorial. In addition, to be added to the monthly Fixed Minimum Rent Amount is the product of each outdoor Parking Space allotted to Tenant times .350.00. -2- G. Place of Rent: United Bank of Philadelphia 300 North 3rd Street Philadelphia, PA 19105 H. Payments: ECC Properties, LLC 300 North 3d Street Philadelphia, PA 19106 (See Section 4.D) I. Security Deposit: $53,125.00 J. Base Year 12 Month Period Commencing (See Section 4.H) Operation & on the First Date of Tenants Maintenance Actual Occupancy of the Premises Charge (See Section 6.B) K. Tenant's OMC Percentage One Hundred Percent (100%) (See Section 6.B) L. Base Year Taxes 1999 (See Section 6.B) M. Tenant's Tax Percentage: One Hundred Percent (100%) N. Tenant Plans Submission Date: N/A (See Exhibit "D) 0. Attachments The following documents are attached hereto, and such documents, as well as all drawings and documents prepared pursuant thereto, shall be deemed to be a part hereof. References appearing in this Section 1 are to designate some of the other places in this Lease where additional provisions applicable to the particular Fundamental Lease Provisions appear. Each reference in this Lease to any of the Fundamental Lease Provisions shall be construed to incorporate all of the terms provided for under such provisions, and provisions shall be read in conjunction with all other provisions of this Lease applicable thereto. If there is any conflict between any of the Fundamental Lease Provisions set forth in this Section and any other provisions of this Lease, the latter shall control. The listing in this Section 1 of monetary charges payable by Tenant shall not be construed to be an exhaustive list of all monetary amounts payable by Tenant under this Lease. -3- 2. PREMISES: USE. Landlord; for and in consideration of the rent (hereinafter defined in subsection 40) to be paid and the covenants and agreements to be performed by Tenant does hereby demise and lease unto Tenant, and Tenant hereby leases and takes from Landlord for the Term, at the rent and upon the terms and conditions hereinafter set forth that space (the "Premises"), situated on the floor(s) of the Building and consisting of the square footage identified and otherwise set forth in subsections 1.A., 1.B. and 1.C. together with the right, in common with other occupants of the Building, to use the lobbies, hallways and other common area facilities. The Premises also shall include all indoor parking spaces in the building. The Premises shall be used for the purpose specified in subsection 1.D. and no other purpose without the prior written consent of Landlord. For the purpose of this Lease, the terms "square footage" or "square feet" shall mean the square footage of the Premises as measured form the exterior face of exterior walls and the exterior face of corridor walls, and the center line of any walls Tenant shares with other tenants or occupants of the Building, plus the product of the square footage of the Premises multiplied by Tenant's proportionate share of the "common areas" (as defined in subsection 303.) of the Building. Landlord and Tenant agree that the square footage of the Premises set forth in subsection 1.C. is approximately accurate and shall be used for the purpose of making all computations under this Lease except as otherwise stated. 3. TERM. A. Duration. The duration of this Lease and Tenant's obligation Lien to pay rent hereunder shall commence upon the earlier of (1) July 1, 1999; (2) three (3) days after the date when the Premises are "substantially completed" (as hereinafter defined or (3) the date when Tenant shall take possession and occupy the Premises, whichever of said dates shall occur first ("commencement date"). Said term shall continue from the commencement date for the period specified subsection I.E. (2) plus, the partial month, if any, if the term begins other than on the first day of any month, so that the term shall expire on the 1st day of the Month in which the above period ends, unless sooner, terminated as hereinafter provided or extended by the parties (the "Term"). B. Substantial Completion. The term "substantial completion" as used in this Lease shall be construed to mean the state of completion of the "Landlord's Work" (as defined in Section 7), as shall enable Tenant to reasonably and conveniently use and occupy the Premises for the conduct of its ordinary business, even though the installation of minor details, decorations and Mechanical adjustments by Landlord and, any improvements to be performed by Tenant, remain to be completed Landlord shall endeavor to give Tenant notice at least seven (7) days in advance of the date Landlord expects the Premises to be substantially completed. Upon the commencement date, it shall be presumed that all -4- work theretofore performed by, or on behalf of Landlord was satisfactorily performed in accordance with, and meeting, the requirements of this Lease, except for those items for which Tenant notified Landlord, within thirty (30) days after the commencement date, are not satisfactorily completed ("Punch List Items"). Landlord agrees to promptly and thereafter. diligently pursue the correction of all such Pinch List Items. C. Delays. Notwithstanding anything to the contrary contained in this Lease, if substantial completion does nor occur in accordance with Landlord's projected schedule by reason of any of the following, rent shall commence to accrue as if the delay had not occurred. Accordingly, on the commencement date, in addition to the Minimum Rent due pursuant to Section 4, Tenant shall pay to Landlord 1/365 of the Minimum Rent (as defined in Section 4 hereof) and additional rent multiplied by the aggregate number of days of such delay caused by (1) changes in the Landlord's Work (defined in Section 7) which are requested by Tenant after Landlord's approval of the Final Plans (as that term is defined in Section 7 hereof); or (2) the unavailability of materials or labor required for installations or Work in the Premises not encompassed within Landlord's Work, provided that Tenant shall be notified of Landlord's estimate of the anticipated delay as promptly as reasonably possible after discovery thereof by Landlord and shall be given an opportunity either to specify alternative materials or requirements or to revert to Landlord's Work; or (3) Tenant's specification of alternative materials or requirements, or Tenant's determination to revert to Landlord's Work pursuant to Subsection C(2) above; or (4) any failure by Tenant, without regard to any grace period applicable thereto, to furnish any required plan, information, approval or consent within a period of time specified by Landlord or if no time period is specified, then within five (5) business days; or (5) the performance or non performance of any work or activity in the Premises by Tenant or any of its employers, agents or contractors; or (6) Tenant's failure to pay any Required Excess Funds (defined in Section 7) within five (5) business days after receipt of Landlord's request therefor; - 5 - D. Memorandum. When the commencement date has been established, Landlord and Tenant shall execute and deliver an instrument in the form substantially as set forth in Exhibit "G" attached hereto, within the (10) days following the date the commencement date is established. E. Possession. Intentionally Omitted. F. Holdover Tenant. If Tenant shall be in possession of the Premises is the end of the of the Term, with the written consent of Landlord the tenancy under this Lease shall become one from month to month upon the terms and conditions contained in this Lease and such tenancy shall be terminable by either party on thirty (30) days' notice to the other party. Tenant hereby agrees that if it fails to surrender the Premises at the end of the Term, or any renewal thereof, to Landlord without the express consent of Landlord, Tenant (i) will be liable to Landlord for any and all damages which Landlord shall suffer by reason thereof, (ii) will indemnify Landlord against all claims and demands made by any succeeding tenants against Landlord, founded upon delay by Landlord in delivering possession of the Premises to such succeeding tenant, and (iii) shall pay to Landlord, a Rent equal to three (3) times the Rent payable by Tenant to Landlord during the last Lease Year of the term. G. Surrender. The Lease shall terminate and Tenant shall deliver up and surrender possession of the Premises on the last day of the Term hereof, and Tenant waives the right to any notice of termination or notice to quit. Tenant covenants that upon the expiration or sooner termination of this Lease, Tenant shall deliver up and surrender possession of the Premises in the same condition in which Tenant has agreed to keep the same during the continuance of the Lease and in accordance with the terms hereof, normal wear and tear excepted. 4. Rent. A. Minimum Rent. The Tenant shall pay to Landlord as annual minimum rent ("Minimum Rent") the sum set forth in subsection 1.F. payable in advance an the first business day of each calendar month in equal monthly installments in the sum specified in subsection 1.F. beginning on the commencement date and continuing thereafter until the expiration of said Term. B. Intentionally Omitted C. Partial Month. If the Tenant commences on a day other than the first day of a calendar month, Tenant shall pay to Landlord on or before the commencement date a pro rata portion of the Minimum Rent to be based on the number of days remaining in such partial month after the commencement date. -6- D. Payments. All payments of additional rent and any others sums due to Landlord hereunder shall be due without demand, notice, set-offs deduction ox counterclaim at the office set forth in subsection 1.G. or at such other place as Landlord may from time to time direct. All checks shall be made payable to the person specified in subsection 1.H. or such other person as Landlord may direct all sums due to Landlord under this Lease whether or not stated to be Minimum Rent or additional rent are herein collectively called "rent". E. Acceptance of Payments. If Landlord, at any time or times, shall accept rent after the same shall become due and payable, such acceptance shall not excuse any such delay upon subsequent occasions, or constitute, or be construed as, a waiver of any of Landlord's right or remedies hereunder. F. Additional Rent. Whenever under the terms of this Lease any sum is required to be paid by Tenant in addition to the Minimum Rent herein reserved, such additional sum so to be paid shall be deemed additional rent and if not designated as "additional rent", then such sum shall nevertheless at the option of the Landlord if not paid when due, be deemed "additional rent" which shall be collectible with any installment of Minimum Rent thereafter falling due hereunder. Nothing hereunder contained shall be deemed to suspend or delay the payment of any sum at the time the same became due and payable hereunder or limit any other right or remedy of Landlord. Minimum Rent and additional rent are sometimes collectively referred to as "rent." G. Late Change. In the event that any sum due to Landlord under the provisions of this Lease shall not be paid within seven days after due, Tenant shall, upon demand, pay as additional rent a late charge to Landlord of $.05 for each dollar so overdue to defray Landlord's administrative expenses in collecting and processing that sum. H. Security Deposit. Upon the execution of this Lease, Landlord acknowledges receipt from Tenant of the a sum set forth in subsection 1.I. to be held as collateral security for the payment of any payable by Tenant under this Lease, and for the faithful performance of all other covenants and agreements of Tenant hereunder. The amount of such deposit, without interest, shall be repaid to Tenant after the termination of this Lease and any extension thereof, provided Tenant shall have made all payments of all sums due Landlord and performed all covenants and agreements hereunder. Upon any event of default by Tenant hereunder, all or part of such deposits may, at Landlord's option, be applied on account of the resulting deficiency and Tenant shall immediately restore such deposit to its original sum. - 7 - 5. DEFINITIONS; OPERATION AND MAINTENANCE CHARGE; TAXES. In this Lease, the following terms shall have the meanings hereinafter provided: A. "Operations and Maintenance Charge Sum" ("OMC Sum") shall mean all sums incurred by Landlord (even if not yet payable) in connection with the operational and maintenance of the Building to. be reasonable, appropriate and in the best interests of the Building including, without limitation, sums incurred for the following items: storm drainage, water (domestic and fire protection) and sewer, electric, steam, gas, telephone and other utility services and systems; heating, ventilating, air conditioning, plumbing, electrical, fire detection and suppression, life safety, security protection, illumination, vertical transportation, and other Building services and systems; salaries, wages, benefits and other compensation to or for personnel engaged in the cleaning, care, management or other operation and maintenance of the Building and payments and other charges for taxes, contributions, assessments, worker's compensation, unemployment compensation, health, accident and life insurances and other impositions or charges related thereto; outfitting and otherwise providing building service personnel; service, repair, replacement and other maintenance to or of. the Building floors, doors, walls, ceilings, roofs, windows, skylights and other elements systems and amenities; charges for utilities or utility services; rentals for provision of Building services; snow, ice, trash and garbage removal and pest control; identification and directional signs and other traffic control items; parking, loading and unloading areas and other common areas, facilities or equipment; fire and other casualty, liability, plate glass, theft, worker's compensation, pressure vessel and rent insurances; depreciation of machinery and other equipment for Building services and interior and exterior common area finishes and amenities; janitorial services, cleaning the property including maintenance of windows and other glass surfaces, Building facade, sidewalks, parking, loading and unloading areas; sales, use & excise taxes and fees; management fees and charges, costs required by the application or enforcement of federal, state and local statutes, codes, regulations and rulings; modifications of the HVAC and other Building systems by which Landlord provides Building services; the fair rental value of any office space in the Building used as an office for the on-site property manager, legal fees and other fees of consultants, engineers and other design professionals, appraisers, accountants and auditors; gazebos, fountains, sculptures, art features, fencing, screening and similar items located within or outside the Building, interior and exterior planting, replanting and replacing flowers, shrubbery, plants trees and other landscaping, awnings and other Building amenities; fees, licenses, permits and charges by governmental and quasi-governmental bodies or agencies; supplies, tools, reserve, parts, postage, deliveries, business machines and office equipment; all other sums necessarily and reasonably incurred by Landlord in the proper operational and maintenance of a first-class Building EXCLUDING, HOWEVER, depreciation (other than as above specified), the cost of any utilities which are directly metered or submetered to tenants of the Building, the cost of any repair or replacement required of Landlord pursuant to the reconstruction obligations of Subsection 13.A, the expenses incurred in leasing or procuring new. tenants; legal expenses in enforcing the terms of any lease, interest or amortization payments on any mortgage or mortgages, capital improvements specifically for a tenant within such tenant's space (other than as specified below). Additionally, if Landlord shall purchase any item of capital equipment or make any capital expenditure as - 8 - described above, then the costs for same shall be amortized on a straight line basis beginning in the year of installation and continuing for the useful life thereof, but not more than (10) years, or such shorter time as may be hereinafter provided, with a per annum interest factor equal to Two Hundred (200) basis points above the "Prime Rate" announced by PNC Bank, Philadelphia, Pennsylvania, for the date any such item is placed in a service. The amount of amortization for such costs shall be included in OMC Sum for each year to which the amortization relates. If Landlord shall lease such item of capital equipment, then the rental or other operating costs paid pursuant to such lease shall be included in the OMC Sum for each year in which they are incurred. Notwithstanding the foregoing, as an alternate cost recovery method, if Landlord shall effectuate savings in labor or energy-related costs as. a result of the installation of new devices or equipment, then Landlord may elect to include up to the full amount of any such savings in each year (beginning with the year in which the equipment is placed in service) as an operating expense until Landlord has recovered thereby the cost of installation of said devices or equipment and interest thereon as above provided, even if. the result of such application will result in the amortization of such costs over a period shorter than the useful life of such installation. Landlord shall notify Tenant in writing if Landlord elects to apply such savings to the cost. of such equipment and shall include a statement of the amount of such savings in the OMC statement for each applicable year. B. "Taxes" (or "Tax") shall mean all real property taxes and personal property taxes, charges and assessments which are levied, assessed upon or imposed "by any governmental authority or by any special service district or its equivalent during any calendar year of the Term and any extensions thereof with respect to the Building and any improvements, figures and equipment and all other property of Landlord, real or personal, located in the Building together with the reasonable costs and expenses (including attorney's fees, expenses and court costs) of contesting by appropriate proceedings the amount or validity of any of the aforementioned taxes or assessments. In addition, Taxes shall include, without limitation, any capital levy or other tax on the gross rents or gross receipts, or any such tax, assessment, levy or charge imposed upon the act of entering into this Lease or any other lease of space in the Building (including, but not limited to any realty transfer tax) or - 9 - on the use and occupancy of said Building or any part. the .of with respect to the Property, or a federal, state, county, municipal or other local income, franchise, business privilege, profit, excise or similar tax, assessment, levy or charge measured by or based, in whole or in part, upon any such gross rents or gross receipts. If at any time during the Term the present system of taxation of property shall be changed or supplemented so that in lieu of or in addition to the tax on property there shall be assessed on Landlord or the Property any tai of any nature which is imposed in whole or in part; in addition to or in substitution for or in lieu of any tax which would otherwise constitute a Tax, such shall be deemed to be included within the terms Taxes, but only to the extent that the same would be payable if the Property were the only property of Landlord. C. "Tenant's OMC Percentage" is that percentage specified in Subsection 1.K. D. "Tenant's OMC" means the OMC Sum for a calendar year included within the Term and any extension thereof, less the OMC Sum for the Base Year specified in subsection 1.J., multiplied by Tenant's OMC Percentage. E. "Tenant's Tax Percentage" is that percentage specified in subsection 1.M. F. "Tenant's Tax Charge" means the Taxes for a calendar year included within the Term or any extensions thereof, less the Taxes for the Base Year specified in subsection 1.L., multiplied by Tenant's Tax Percentage. G. "Tax Year" shall mean each calendar year, or such other period of twelve (12) months, which may be duly adopted as the fiscal year for payment of Taxes by the governmental unit in which the Building is located. 6. TENANT'S OMC AND TENANT'S Tax CHARGE. A. Annual Adjustment. During each calendar year or portion thereof included in the Term and any extension thereof, Tenant shall pay Landlord as additional rent Tenant's OMC and Tenant's Tax Charge. B. Procedures. (1) During December of each calendar year, or as soon. thereafter as practicable, Landlord shall give Tenant written notice of its estimate of the amounts of Tenant's OMC payable for the ensuing calendar year. On or before the first day of each month during each calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of the - 10 - amounts estimated as aforesaid, provided that if such notice. is nor given in December, Tenant shall continue to pay on the basis of one hundred five percent (105%) of the then applicable sums of Tenant's OMC until the month after such notice is given. If at any time or times it appears to Landlord that the sums payable under subsection 6.A. above for the current calendar year will vary from its estimate by more than five percent (5%), Landlord shall, by notice to Tenant, revise its estimate for such year, and subsequent payments bar Tenant for such year shall be based upon such revised estimate. (2) If Taxes for any Tag Year occurring during the term of this Lease shall be greater than the Base Year Taxes, Tenant shall pay to Landlord as additional rent, an amount equal to Tenant's Tax Charge with respect to said Tax Year. If less than a full twelve (12) month period of a Tax Year is included within the term of this Lease, Tenant's Tax Charge shall be prorated on a per diem basis for such partial Tax Year Tenant's Tax Charge for each Tax Year shall be paid as follows: (a) After receipt of a bill for Taxes, Landlord shall furnish Tenant a statement detailing the amount of the bill and the Base Year Taxes. Within fifteen (15) days following the receipt of such statement, Tenant shall pay to Landlord the amount, if any, by which the Tenant's Tax Charge for such Tax Year exceeds the total amount, if any, of payments made pursuant to subsections (b) and (c) below on account of the Tenant's Tax Charge. Tenant's obligations hereunder shall survive the expiration of the Term or termination of the Lease. (b) Notwithstanding the foregoing subsection (a), if at any time after execution of this Lease, Landlord receives a bill for Taxes in excess of the Base Year Taxes or a notice of any governmental action which could effect an increase in Taxes over the Base Year Taxes including, but not limited to, notice of any increase in assessment or of a forthcoming increase in the real estate tax rate, or that the Building is not entitled to the benefit of any tax abatement program pursuant to which Landlord has previously determined Tenant's Tax Charge or that the validity of any tax abatement program applicable to the Building has been challenged by appropriate legal proceedings, Landlord may notify Tenant that Landlord elects to receive payment in installments in advance as an estimate on account of Tenant's Tax Charge or to increase installments presently being paid by Tenant if Tenant is required to make monthly payments pursuant to subsection (c) below. Landlord's notice shall be in writing and shall specify the amount due, or estimated to become due, and the amount of each installment or increased installment to be paid by Tenant. Payments in the amount of the installment (or increase in installment) set forth in Landlord's notice shall be due monthly as additional rent concurrently with. payments of minimum rent beginning with such first payment due after the date of Landlord's notice, and shall continue on the - 11 - first day of each month until and including the month in which Tenant makes payment in full of Tenant's Tax Charge. (c) After payment of the full amount of Tenant's Tax Charge (less any payments made pursuant to subsection (b) above or this subsection (c) on account of the Tax Charge) for any Tax Year, Tenant shall continue to pay one-twelfth (1/12) of the Tenant's Tax Charge monthly, together with payments of Minimum Rent as an estimate and on account of the Tenant's Tax Charge for the following Tax Year, which payments shall continue until receipt by Tenant of a statement which revises the amount of Tenant's Tax Charge or receipt of a notice from Landlord pursuant to subsection (b) above increasing the amount of monthly estimated payments. (3) Within ninety (90) days after the close of each calendar year or as soon after such ninety (90) day period as practicable, Landlord shall deliver to Tenant a statement of the adjustments to be made pursuant to subsection 6.A. If on the basis of such statement Tenant owes sums less than the payments for such calendar year previously made by Tenant on account of Tenant's Tax Charge or Tenant's OMC, Landlord shall credit such excess to Tenant. If on the basis of such statement Tenant owes sums more than the. estimated payments for such calendar year previously made by Tenant, on account of Tenant's Tax Charge or Tenant's OMC, Tenant shall pay the deficiency to Landlord within fifteen (15) days after delivery of the statement. Tenant's obligations hereunder shall survive the expiration of the Term or the termination of the Lease. (4) In determining Tenant's OMC payable pursuant to subsection 6.A. for any calendar year during the Term: (a) if less than ninety-five percent (95%) of the Building rentable area shall have been occupied by tenants and fully used by them, at any time during the year, the OMC Sum shall be deemed to be an amount equal to the OMC Sum which would normally be expected to be incurred had such occupancy been ninety-five percent (95%) and had such full utilization been made during the entire period; and, (b) if Landlord is not furnishing any particular work or service (and such work or service is by agreement to be furnished by a tenant and the cost of which if furnished by Landlord would constitute an item within the OMC Sum) then the OMC Sum shall be deemed to be increased by the sum for the items which would reasonably have been incurred during such period by Landlord if Landlord had at its own expense furnished such work or service to such tenant. - 12 - (5) Notwithstanding anything contained in this Lease to the contrary, in calculating the OMC Sum and/or Taxes, Landlord, in its sole discretion, may make allocations of certain items between the office building portion of the Building of Which the Premises is a part and, if applicable, the retail portion, which calculations need not be based on relative size or use: C. USE AND 0CCUPANCY TAX: SPECIAL SERVICES DISTRICT ASSESSMENT. Tenant shall pay to Landlord, on demand, any use and occupancy tax (or its equivalent) and/or special services district assessment, or any similar taxes or assessments, imposed on the Premises. Landlord shall have the same rights and remedies for the non-payment of such items that it has upon Tenant's failure to pay hereunder. Landlord. agrees to pay the sums collected by it to the appropriate governmental authorities in a timely manner, and will pay any penalties or interest occasioned by Landlord's delay in remitting such sums. . 7. IMPROVEMENT OF THE PREMISES A. LANDLORD'S CONSTRUCTION OBLIGATIONS Landlord hereby agrees to perform certain construction work in order to prepare the Premises for the initial occupancy by Tenant (Landlord's Work"). The nature and extent of such Landlord's Work shall be set forth at the direction of Tenant. (collectively, the "Final Plans") cc be approved by Landlord anal attached to the Lease as Exhibit "B", subsequent to the date hereof B. COSTS OF PLANS/LANDLORD'S WORK. Landlord agrees to pay the costs of completing the Landlord's Work in accordance with the Final Plans and the cost of the preparation, modification and revision of all plans and specifications for the Premises including the Nickel Plan, Final Plans, electrical, mechanical, lighting and space design plans; provided that in no event shall the Landlord expend more than $8.00 PRSF. If Landlord reasonably estimates that the costs of completing the Landlord's Work, and the plans and specifications listed above, exceed $200,000.00, (Landlord will provide tenant with an additional improvement allowance as follows: $2.00 PRSF after year one (1), $2.00 PRSF after year three (3) and $2.00 PRSF after year six (6)) Tenant shall pay Landlord any such Required Excess Funds within five (5) business days after receipt of a demand therefor or a bills) or statement(s) from Landlord. Landlord shall have the right not to start performance of Landlord's Work until such Funds have been received by Landlord. Failure of Landlord to exercise such right shall not be deemed a waiver thereof and if Landlord elects to start Landlord's Work prior to receipt of the Required Excess Funds, Landlord may cease such work at any time. -13- (2) Contractors/Subcontractors. (a) Tenant shall, at its expense (but subject to the Improvement Allowance) contract directly with a general contractor to perform the Tenant's Work, subject to the restrictions set forth in Subsection (2) below. (b) With respect to Tenant's contractors, it is agreed that: (i) All work shall be performed by responsible contractors and subcontractors approved in advance by Landlord, who shall not, in Landlord's reasonable opinion, prejudice Landlord's relationship with Landlord's contractors or subcontractors or the relationship between such contractors and their subcontractors or employees, or disturb harmonious labor relations. Each of Tenant's contractors shall furnish in advance and maintain in effect worker's compensation insurance in accordance with statutory requirements and comprehensive public liability insurance and motor vehicle liability insurance (naming Landlord, Manager and Landlord's contractors and subcontractors as insureds) with limits satisfactory to Landlord, and each shall, prior to the commencement of any work, file waivers of mechanic's liens for the work to be performed or items to be supplied by any of Tenant's contractors, subcontractors or materialmen. (ii) All work shall be performed in such manner and at such time so as to avoid interference with any work being done by Landlord or its contractors or subcontractors in the Premises or at tile Property generally. (iii) Tenant and its contractors and subcontractors shall be solely responsible for the transportation, safekeeping and storage of materials and equipment USED in the performance of its work, for the removal of waste and debris resulting therefrom and for any damage caused by them to any installations or work performed by Landlord or its contractors and subcontractors and/or the Premises or Building. (iv) Tenant's contractors and subcontractors shall be subject to the schedules and general administrative supervision of Landlord and/or its contractors of Landlord and its contractors, but Landlord shall not be responsible for any aspect of the work performed by Tenant's contractors or subcontractors or for the coordination of work of Landlord or its contractors with Tenant's contractors. (v) It is agreed that Landlord shall have no relationship (contractual or otherwise), directly or indirectly with any of Tenant's contractors or subcontractors. -14- C. ADDITIONAL CONSTRUCTION PROVISIONS. (1) All Tenant's Work shall be performed in a good and workmanlike manner and in accordance with all laws, statutes and ordinances. Tenant shall be solely responsible for the obtaining and continued applicability of required permits and licenses. (2) All Tenant's Work shall be subject to the following additional conditions and requirements: (a) In performing the Tenant's Work, Tenant is not and shall not act as the agent of Landlord, but Tenant is causing such work to be done for Tenant's own use in the Premises. All Tenant's Work, and any other alterations and improvements to the Premises made by Tenant shall be and become a part of the Building and shall not be removed by Tenant at its expiration of the Term, or any renewal or extension, if this lease or at any other time, unless Landlord so desires. (b) All electrical work, which is to be performed, is to be inspected and approved by the Middle Department Association of Fire Underwriters, and a certificate evidencing such approval is to be sent by them to Landlord's office. If for any reason said electrical work creates an increased electrical load of any type, or any part of the Building's electrical distribution system, it shall be Tenant's responsibility, at Tenant's sole cost and expense, to correct such overload. (c) The Tenant's Work is to be organized by Tenant's contractors and shall conform with all of the rules and regulations of the Building in its overall operation in respect to the use of elevators, delivery or material and other matters, and in this regard, arrangements are to be made with the Building superintendent. (d) Tenant shall, prior to any work by it, obtain waivers of the right to file liens from all contractors, subcontractors, materialmen and others, which waivers shall be properly recorded in order to make the same fully effective as against all such persons and Tenant shall, upon request of Landlord, promptly furnish Landlord with satisfactory evidence of the waiver of mechanics' liens and claims. Tenant shall deliver to Landlord one (1) original executed counterpart of each waiver of lien prior to the commencement of any work and the delivery of items to be supplied for Tenant's Work. Tenant shall, within ten (10) days of filing, remove, or cause to be removed, any liens which may nevertheless be filed against the Property; and to defend, indemnify anal save harmless Landlord from any loss in connection with the filing of such liens or the claims of materialmen. -15- (e) In performing any construction work (including the Tenant's Work), Tenant shall not affect or weaken the structure of the Building nor alter same. (f) Plans and specifications approved by Landlord (including the Final Plans) are subject to Building requirements, and shall be in compliance wish the electrical, mechanical and construction needs established by Building standards. All change orders must be approved by Landlord. (g) Landlord assumes no responsibility for workmanship, materials or equipment in connection with work performed by or at the direction of Tenant. (h) Tenant shall cause all construction warranty's it obtains from its contractor or any subcontractor to be assignable to Landlord, upon demand by Landlord. (3) Tenant shall defend, indemnify and save harmless the Landlord of and from any damage, loss, Liability, cost and expense arising from any claim for injury to person and/or damage to property alleged to result from or in the course of the contraction of Tenant's Work and any other alterations and improvements except for such damages, loss, liability, cost and expense arising from the negligence or intentional acts of Landlord, its agents or employees. If for any reason the actions of Tenant's contractors shall in any way hinder the normal operation of said Building, then the Landlord shall have the right to request that said actions case until such time that the Building's normal operation shall not be hindered. Notwithstanding THE foregoing, a such stoppage is not caused by Tenant's negligence or willful misconduct, the commencement date shall be extended for one (1) day for each day Landlord has caused Tenant to cease working, provided that the cessation of the Tenant's Work has caused a material, adverse effect on Tenant's timely completion of the Tenant's Work. D. ACCESS BY TENANT. Subject to the restrictions set forth in this Section 7, (including Without limitation those relating to insurance requirements) Landlord shall afford Tenant and its employees, agents and contractors access to the Premises prior to the commencement date, at reasonable times and at Tenant's sole risk and expense, for purposes of performing the Tenant's Work. Tenant acknowledges that during the aforesaid period of access, all of the terms and conditions of this Lease (but for Tenant's obligations to pay rent and additional rent) shall be in full force and effect, as if the commencement date has occurred. E. ALTERATIONS. Tenant shall not make any alterations, additions, decorations or other improvements to the Premises or install any fixtures or equipment thereto (collectively - 16 - "Alterations"), .without the Landlord's prior written approval. All Alterations to the premises shall be performed at tenant's sole cost and expense by Landlord or, at Landlord's option, by Tenant in accordance with drawings and specifications prepared at Tenant's sole cost and expense, so long as Tenant is not in default hereunder, Tenant shall have the right but, except as stated in the succeeding sentence, not the obligation to remove any of said Alterations which constitute trade fixtures during and at the expiration of the Term and any extension thereof, provided that Tenant repairs. any damage caused by said removal. Landlord, by notice to Tenant in writing at least one (1) month prior to the expiration of the Term and any extension thereof, may request that Tenant. remove any of said Alterations, and, if Landlord makes said request, Tenant shall remove on or before the date on which the Term ends such Alterations as are stated in such request and repair any damage caused by such removal. In the event that Landlord requests such removal and Tenant fails to remove same or to repair any damage caused thereby, Tenant agrees to reimburse and pay Landlord for the reasonable cost of removing same including, without limitation, reasonable charges for overhead and damage. All of the Alterations remaining on the Premises after the date on which the Term ends, or at such sooner termination date, shall become the property of Landlord. In doing any work of installation, removal, alteration or relocation, Tenant shall not harm the Premises or the Building and shall repair all damage or injury that may occur to the Premises or the Building in connection with such work and shall otherwise comply with Exhibit "E" attached hereto. Tenant agrees in doing any such work in or about the Premises to engage only such labor as will not conflict with or cause strikes or other labor disturbances among the Building service employees any contractors employed by Tenant for such work shall comply with: the requirements of Exhibit "E" ("Landlord's Requirements") annexed hereto and hereby made a part hereof and shall further be approved by Landlord in writing before the commencement of such work, but Landlord shall not unreasonably withhold its approval or consent. In all events all such contractors shall be required to employ only union labor in the performance of such work, carry worker's compensation insurance, public liability insurance and property damage insurance in amounts, form and content and with companies satisfactory to Landlord. Prior to the commencement by Tenant of any work as set forth in this subsection 7.D., Tenant must obtain, at its sole cost and expense, all necessary permits, authorizations, licenses and other approvals required by the various governmental authorities. Upon completion of any Such work, Tenant shall reimburse Landlord for the cost of coordination and final inspection of the work: F. LIENS. No work performed by Tenant pursuant to this Lease, whether in the nature of erection, construction, alteration or repair, shall be deemed to be for the immediate - 17 - use and benefit of Landlord so that no mechanic's or other lien shall be allowed against the estate of Landlord by reason of any consent given by Landlord to Tenant to improve the Premises. Tenant shall place such contractual provisions as Landlord may request in all contracts and subcontracts for Tenant's improvements assuring Landlord that no mechanic's liens will be asserted against Landlord's interest in the Premises or the property of which the .Premises are a part. Prior to commencing any new construction, renovations, alterations, or any other work in the Premises, Tenant shall cause his general contractor to execute and file in the Prothonotary's Office for the County in which the Building is located a waiver of the right to file mechanics' liens against the Premises and the Building in a form approved by Landlord. Tenant shall provide Landlord with copies of all filed mechanics' lien waivers before the commencement of any work in the Premises will be authorized by Landlord. Landlord shall have the right to post and keep posted in the Premises notices of non-responsibility, or such other notices as Landlord may deem to be proper for the protection of Landlord's interest in the Premises. Tenant shall pay promptly all persons furnishing labor or materials with respect to any work performed by Tenant or its contractors on or about the Premises. If any petition to establish a mechanic's lien, actual mechanic's lien or any other comparable lien shall at any time be filed against the Premises or the property of which the Premises are a part by reason of work, labor, services, or materials performed or furnished, or alleged to have been performed or furnished, to Tenant or to anyone holding the Premises through or under Tenant, Tenant shall forthwith (and in all events prior to foreclosure and so as not to in any manner affect the financing or sale of Landlord's Buildings or any construction loans or draws therefor) cause the same to be discharged of record or bonded to the satisfaction of Landlord. If Tenant shall fail to cause such lien forthwith to be so discharged or bonded within ten (10) days (or such shorter period as may be required to prevent enforcement or foreclosure of the lien or so as not to affect the sale or financing of Landlord's Buildings or construction draws therefor) after notice of the filing thereof, then, in addition to any other right or remedy of Landlord, Landlord may bond or discharge the same by paying the amount claimed to be due. In the event that any proceeding is commenced against Landlord on any such lien, whether or not same has been bonded by Tenant, Tenant shall, at Landlord's election, either defend Landlord in such action anal pay all costs of such defense or indemnify and hold Landlord harmless for all costs, including attorney's fees, incurred by Landlord in defending any such action. Any amount so paid by Landlord, including reasonable attorneys' fees incurred by Landlord either in defending against such lien or action or in procuring the bonding or discharge of such lien, together with interest thereon at the Default Rate, shall be due, and payable by Tenant to Landlord as Additional Rental. 8. BUILDING SERVICES. Landlord shall provide, within its standards for each item, the following services and facilities ("Building Services"): -18- A. HVAC. Heating, ventilation, and as conditioning ("HVAC"), Monday to Friday from 8:00 A.M. to 6:00 P.M. and Saturdays from 8:00 A.M. to 1:00 P.M. (excluding, however, all federal, state and municipal holidays). Tenant shall pay for all electric bills with respect to the Premises during the Teas and agrees to cooperate folly with Landlord and any governmental agency regulating availability of HVAC systems and shall abide by all tile regulations and which Landlord or such government regulating same may reasonably prescribe for the proper functioning and protection of the HVAC systems. Such regulations and requirements include a prohibition against the use of the Premises or equipment or fixtures which would generate beat from loads in excess of four (4) watts per usable square foot of total connected load without the prior consent of Landlord, which consent may be withheld unless Tenant reimburses Landlord for all costs and expenses relating to tile installation and supply of supplemental HVAC and electrical systems; B. ELECTRICITY. INTENTIONALLY OMITTED C. ANCILLARY MAINTENANCE: (1) Maintenance of service of the public toilet rooms in the Building; (2) Maintenance of Building standard door hardware installed in the erases by Landlord; (3) Maintenance of door coverings in the common area; (4) Cleaning of outside and inside exterior window panes; and (5) Cleaning and maintenance of common areas of the Building, D. ELEVATOR. Elevator service during the Building's business days and coots, and service via at least one (1) car at all other times. E. INTENTIONALLY OMITTED F. WATER. If included within the scope of Landlord's Work, hot and cold water for lavatory purposes. If such word is riot included Within Landlord's Work, and if Tenant otherwise requires a domestic water line within the Premises, Tenant shall pay the costs hereof and consumption as shown on a meter to be installed and maintained at Tenant's sole cost and expense to measure such consumption. G. METERS. INTENTIONALLY OMITTED -19- H. ELEVATORS. Elevator service during the Building's business days and hours, and service via at least one (1) car at all other times. I. WATER. If included within. the scope of Landlord's Work, hot and cold water for lavatory purposes. If such work is not included within Landlord's Work, and if Tenant otherwise requires a domestic water line within the Premises, Tenant shall pay the cost thereof and consumption as shown on a meter to be installed and maintained at Tenant's sole cost and expense to measure such consumption. 9. LIMITATION REGARDING SERVICES. Landlord does not warrant that the Building Services specified in Section 8 hereof shall be free from any slow-down, interruption or stoppage pursuant to voluntary agreement by and between Landlord and governmental bodies and regulatory agencies, or caused by the maintenance, repair, substitution, renewal, replacement or improvements or any of the equipment involved in the furnishing of any such Building Services, or caused by changes of services, alterations, strikes, lockouts, labor controversies, fuel shortages, accidents, acts of God or the elements or any other cause whatsoever. Specifically, no such slow-down shall be construed as an eviction, actual or constructive, of Tenant, nor shall same cause any abatement of rent payable hereunder or in any manner or for any purpose relieve Tenant from any of its obligations hereunder. In no event shall Landlord be liable for damage to persons or property or be in default hereunder as a result of such slow-down, interruption or stoppage. 10. CARE OF PREMISES. A. LANDLORD MAINTENANCE. Landlord shall make, at its sole cost and expense (except to the extent included in the OMC Sum), all repairs necessary to maintain the plumbing, HVAC and electrical systems, windows, floors and all other Building Standard items which constitute a part of the Premises and are installed or furnished by Landlord. Landlord shall not be obligated for any of such repairs until the expiration of a reasonable period of time after written notice from Tenant that such repair is needed. In no event shall Landlord be obligated under this Section to repair Tenant's personal property or any damage caused by any act, omission, accident or negligence of the Tenant or its invitees or subtenants. Landlord shall not be liable by reason of any damage or injury to or interference with Tenant's business arising from any repairs, alterations, additions, improvements or other work, in accordance with this Lease in or to the Premises or the Building or to any appurtenances or equipment there. In making such repair Landlord shall use reasonable efforts not to interfere with the conduct of Tenant's business. There shall be no abatement of Minimum Rent or additional rent because of such repairs or alterations, additions, improvements or other work, except as provided in Section 13 hereof. - 2O - B. TENANT MAINTENANCE. Except for repairs which Landlord is obligated to make under subsection 10.A. and Landlord's obligations under section 8, Tenant shall perform all work, at Tenant's sole cost and expense, necessary to maintain the Premises and shall keep the Premises and the fixtures therein in good, dean, neat and orderly condition. All such work shall be in quality at least equal to the original work and installations. If the Tenant refuses or neglects to do such work, or fails to diligently prosecute the same to completion after written notice to Tenant of the need therefor, Landlord may do such work at the sole cost and expense of Tenant and such cost and expense shall be collectible as additional rent. 11. NEGATIVE COVENANTS OF TENANT. Tenant agrees that it will not do or suffer to be done any act, matter or thing objectionable to the fire and casualty insurance companies whereby the fire and casualty insurance and other insurance now in force or hereafter to be placed on the Premises or the Building (or any portions thereof) shall become void or suspended, or whereby the same shall be rated as a more hazardous risk than at the commencement date. In case of a breach of this covenant, in addition to all other remedies of Landlord hereunder, Tenant agrees to pay to Landlord as additional rent any and all increases in premiums on insurance carried by Landlord on the Premises or the Building (or any portions thereof) so caused by Tenant. Tenant shall not commit or allow to be committed any waste upon the Premises or any public or private nuisance or other act or thing which disturbs the quiet enjoyment of any other occupant of the Building. Tenant shall not without the prior written consent of Landlord install any equipment, machinery or fixtures which Will overload the Building or any portion thereof or which will cause any substantial noise, vibration or fumes. If any of Tenant's office machines and equipment should create noise, vibration, fumes or otherwise disturb the quiet enjoyment of any other occupant in the Building, Tenant shall provide adequate insulation or take such other action as may be necessary to eliminate the disturbance. In addition, Tenant shall not use the plumbing, facilities for any other purpose than that for which they are constructed and will not permit any foreign substance of any kind to be thrown therein and the expense of repairing any breakage, stoppage, seepage or damage, whether occurring on or off the Premises resulting from a violation of this provision by Tenant or Tenant's employees, agents or invitees shall be borne by Tenant; Tenant shall not place or maintain any merchandise, trash, refuse or other articles in any vestibule or entry of the Premises, on the footwalks or corridors adjacent thereto or elsewhere on the exterior of the Premises or use or permit the use of any objectionable advertising medium such as, without limitation, loudspeakers, phonographs, public address systems, sound amplifiers, reception of radio or television broadcasts within the Building, which is in any manner audible or visible outside of the Premises; permit undue accumulations of or burn garbage, trash, rubbish or other refuse within or without the - 21 - Premises; cause or permit objectionable odors in Landlord's opinion to emanate or to be dispelled front the Premises; solicit business in any Common Area; distribute handbills or other advertising matter in any Common Area; receive or ship articles of any kind outside the designated loading areas for the Premises; place or suffer to be placed on the exterior of the Premises, or in the interior of the Premises if visible from the exterior of the. Premises, any signage relating to any bankruptcy or liquidation-type sale, notwithstanding any court order permitting such sale and Tenant further agrees that any signage which may be allowed by Court Order shall nevertheless comply with the signage requirements of this Lease anal Schedules and Exhibits thereto, and shall in no event exceed 20" x 24". Furthermore, Tenant shall not use or permit the use of any portion of the Premises for any unlawful purpose or for any activity of a type which is not generally considered appropriate for office/professional buildings conducted in accordance with good and generally accepted standards of operation; place a load upon any floor which exceeds the floor load which the floor was designed to carry; operate its heating or air-conditioning in such a manner as to drain heat or air-conditioning from the Common Area or from the premises of any other tenant or occupant of the Building; nor shall it prepare or store any food or food items on the Premises except as otherwise permitted by Landlord in writing. 12. SUBLETTING AND ASSIGNING. A. GENERAL RESTRICTION. Except as expressly permitted pursuant to this Section 127 Tenant shall not, without the prior written consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof. Any of the for going acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. The Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law without the written consent of Landlord. B. CONSENT. If; at any time or from time during the Term and any extensions thereof, Tenant desires to sublet all or any part of the Premises, or assign this Lease, Tenant shall give written notice to Landlord thereof. Landlord's renewal of any such request shall be subject to the following: - 22 - (1) the consent of Landlord, it being understood and agreed by the parties hereto that it will not be unreasonable for Landlord to withhold. consent if the reputation; financial responsibility, or business of a proposed assignee or subtenant is unsatisfactory to Landlord, or if Landlord deems such business to act be consistent with, the other occupants in the Building, or if the intended use by the proposed assignee or subtenant conflicts with any commitment made by Landlord to any others cccupant in the Building; (2) Intentionally Omitted (3) no sublease or assignment shall be valid and no subtenant or shall take possession of the space subleased or assigned until. an, executed counterpart of agreement of sublease or assignment has been delivered t0. and approved by Landlord; (4) no subtenant or assignee shall have a right further to sublet or assign nor exercise any of the Tenant's Lights set forth in Section 12 hereof; and (5) Intentionally Omitted (6) such assignee shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally. With Tenant for all payments and for the due performance of all terms, covenants conditions and provisions container) in this Lose and no such assignment shall be binding upon Landlord unless the assignee shall deliver to Landlord an agreement acceptable to Landlord containing a covenant of assumption by the assignee (7) Tenant's payment to Landlord, on demand, of Landlord's reasonable costs, including attorney's fees, in responding to any requests by Tenant for Landlord to consent to any assignment or subletting. - 23 - (8) if Landlord consents to any assignment or subletting as provided herein, Tenant shall pay to Landlord: (i) Landlord's administrative costs, overhead and counsel fees in connection with such assignment or subletting; and (ii) any additional costs and expenses by Landlord in connection with such assignment or subletting, including but not limited to the cost of any and all plan and design reviews. C. FUTURE COMPLIANCE. Regardless of Landlord's consent, no subletting or assignment shall release Tenant of Tenant's obligation or alter the liability Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any wee of Tenant or any successsor of Tenant in the performance of any of the terms Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor Landlord may consent to subsequent assignment or subletting or my execute amendments or modifications to this Lease With assignees of Tenant without notifying Tenant or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this Lease, except as set forth above D. OTHER ASSIGNMENTS OR SUBLETTINGS. (1) If Tenant is a corporation, any dissolution, liquidation, merger, consolidation or other reorganization of such corporation or any transfer or a controlling percentage of the corporate stock of Tenant (whether in a single transaction or cumulatively) shall constitute an assignment of this Lease for all purposes of this Section 12. (2) If Tenant, is, a partnership and if, at any time, during the Term or any extension thereof the person or persons who, at the time of the execution of this Lease, own the partners' interest cease to own the partners' interest (except as a result of transfers by bequest or inheritance), such cessation of partnership shall constitute as assignment of this assignment Lease for all purposes of this Section 12. -24- 13. FIRE OR OTHER CASUALTY. A. Landlord's Obligation to Repair and Reconstruct. If the Premises shall be damaged by fire, the elements, accident or other casualty, including damages or casualties of war (any of such causes being referred to herein as a "Casualty", but the Premises shall not thereby rendered wholly or partially untenantable, Landlord shall promptly cause such damage to be repaired and there shall be no abatement of Rental. If, as a result of Casualty, the Premises shall be rendered wholly or partially untenantable, then subject to the provisions of Section 13.B., Landlord shall cause such damage to be repaired and all Rent (other than any Additional Rent due to Landlord by reason of Tenant's failure to perform any of its obligations hereunder) shall be abated proportionately as to the portion of the Premises rendered untenantable during the period of such untenantablity. All such repairs shall be made at the expense of Landlord. Landlord shall not be liable for interruption to Tenant's business or for damage to or replacement or repair of Tenant's personal property (including, without limitation, inventory, trade fixtures, floor coverings, furniture and other property removable by Tenant under the provisions of this Lease) or to any leasehold improvements installed in the Premises by or on behalf of Tenant, all of which damage, replacement or repair shall be undertaken and completed by Tenant promptly. Tenant acknowledges notice that (1) Landlord shall not obtain insurance of any kind on Tenants furniture, furnishings; equipment or fixtures, alterations, improvements and additions, (2) it is Tenant's obligation to obtain such insurance at Tenant's sole cost and expense and restore or repair all of such items, and (3) Landlord shall not be obligated to repair any damage thereto, replace the same or otherwise do any work thereto except as set forth in this subsection 13.A. with respect to those improvements insured with the Leasehold Improvement Insurance. B. Reconstruction. If, in the sole opinion of the Landlord, (1) the Premises are rendered substantially untenantable by reason of such fire other casualty, or (2) twenty percent (20%) or more of the Premises is damaged by said fire or other casualty and less than six (6) months would remain of the Term or any extension thereof upon completion of the required repairs thereto, Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within thirty (30) days from and after such occurrence, to elect not to repair the Premises and, in such event, this Lease, the Term and the tenancy hereby created shall cease as of the date of such occurrence, the rent to be adjusted as of such date, and Tenant shall have forty-five (45) days after the date of Landlord's written notice to Tenant to vacate the Premises. C. Substantial Damage. If the Building, in sole opinion of the Landlord, shall be substantially damaged by fire or other casualty (regardless of whether or not the Premises were damaged by such occurrence), Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within sixty (60) days from and after such occurrence, to terminate this Lease and, in such event, this Lease, the Term and the tenancy hereby created shall cease as of the date of such termination unless terminated as of the date of such occurrence in accordance with subsection 13.B. hereof, the rent to be adjusted as of the dated of such termination, and tenant shall have forty-five (45) days after the date of Landlord's written notice to Tenant to vacate the Premises. - 25 - D. CONTRIBUTION. Anything in this Section 13 to the, contrary notwithstanding, if the damage resulted from or was contributed directly or indirectly by the fault, neglect or other conduct of Tenant or its subtenants or invitees, there shall be no abatement of rent except and to the extent Landlord received proceeds from Landlord's rental income insurance policy, if any, to compensate Landlord for loss of rent. 14. LIABILITY A. DAMAGE IN GENERAL. Excluding willful acts, Landlord, Owner, Mortgagee, Manager and their respective agents, servants, and employees shall not be liable for, and Tenant hereby releases and relieves Landlord, Manager and their respective agents, servants, and employees from, all liability in connection with any and all loss of life, personal and bodily injury, damage to or loss of property, consequential damages, loss or interruption of business occurring to Tenant, subtenants, invitees or any other person in or about or, arising out of the Premises from, without limitation, (1) any fire, other casualty, accident, occurrence or condition in or upon the Premises or the Building, (2) any defect in or failure of: (a) plumbing, sprinkler, electrical; HVAC systems, or any other equipment or systems of the Premises or the Building, and. (b) the vertical transportation, stairways, railings or walkways of the Building; (3) any steam; fuel; oil, water, rain or snow that may leak into, issue or flow from any put of the Premises or the Building from the drains, pipes or plumbing, sewer or other installation of same, or from any other place or quarter; (4) the breaking or disrepair of any installations, equipment and other systems; (5) the falling of any fixture or well or ceiling materials; (6) broken glass; (7) latent or parent defects; (8) the exercise of any rights by Landlord or Manager under the terms and conditions of this Lease; (9) any acts or omissions of the other tenants or occupants of the. Building or of nearby buildings; (10) any acts or omissions of other persons; (11) theft Act of God, public enemy, injunction, riot, strike, insurrection, war, court order, or any order of any governmental authorities having jurisdiction over the Premises. B. INDEMNITY. Tenant shall defend, indemnify and hold harmless Landlord, Owner, Mortgagee, Manager and their respective agents, and employees from and against all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including reasonable attorneys' fees, which may be imposed upon. or incurred by or asserted by reason of any of the following which shall occur during the Term, or during any period of time prior to the commencement date When Tenant may have been Given access to or possession of all or any portion of the Premises: (1) any work or act done in, on or about tire Premises or any part thereof, unless such work or act is done or performed by Landlord or its agents or employers; (2) any negligence or other wrongful act or omission on the part of Tenant or any of its agents; contractors, subcontractors, servants, employees, subtenants, licensees or invitees; - 26 - (3) Tenant's use and occupancy of the premises and/or any accident, injury or damage to any person or property occurring in, on or about the Premises or any part thereof unless caused by Landlord, its employees or agent; and (4) any failure on the put of Tenant to perform or comply with any of the covenants, agreements, terms, provisions, conditions or limitations contained in this Lease on its part to be performed or complied with. The aforesaid indemnity obligations of Tenant shall survive the expiration of the Term or the termination of the Lease. 15. INSURANCE. A. INSURANCE REQUIREMENTS. During the Term and any extension thereof, Tenant shall obtain and maintain and promptly pay all premiums for the following types of insurance in the amounts specified and in the form heretofore provided for: (1) PUBLIC LIABILITY AND PROPERTY DAMAGE. General Public Liability Insurance covering the Premises and Tenant's use thereof against claims for bodily or personal injury or death, and property damage occurring upon, in or about the Premises, such insurance to afford protection to the limit of not less than $3,000,000.00 combined single limit in respect of injury or death to any number of persons arising out of any one occurrence. The insurance coverage required under this Section shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in Section 14. The general aggregate limits under the General Public Liability Insurance policy or policies must apply separately to the Premises and to Tenant's use thereof. Accordingly, if Tenant obtains General Public Liability Insurance hereunder in the Commercial General Liability form of policies, or its equivalent as determined by Landlord, Tenant shall also obtain Insurance Services Office ("ISO") Endorsement CG25-04-11-85, Amendment Aggregate Limit of Insurance (Per Location) or its equivalent as determined by Landlord (the "Endorsement"). The policy of insurance. evidencing the Commercial General Liability form of policies and the Endorsement shall specify therein that the limits of such policies apply separately to the Premises. (2) TENANT LEASEHOLD IMPROVEMENTS AND PROPERTY. Insurance covering: (a) all of the items of leasehold improvements purchased with the Required Excess Funds (such insurance is hereinafter referred to as the "Leasehold Improvement Insurance"); (b) all other Tenant's leasehold improvements performed by, or at the direction of Tenant including heating; ventilating and air conditioning equipment and other alterations and additions made - 27 - by Tenant pursuant to this Lease; and (c) trade fixtures, merchandise and personal property from time, to time in, on or upon the Premises. All such insurance coverage such be in amounts not less than one hundred percent (100%) of the full replacement cost from time to time during: the Term, providing protection against perils included within the standard state form of fire and extended coverage insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief. The policy required by subsection (a) above shall name Landlord as loss. Payee. All other policy proceeds from insurance coverage carried by Tenant pursuant to (b) and (c) above shall be held in trust by Tenant's insurance company for the repair, reconstruction and restoration or replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 13. (3) WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY. Workers' Compensation and Employer's Liability insurance affording statutory coverage and containing statutory limits with the Employer's Liability portion thereof to have minimum limits of $1,000,000.00. B. ADDITIONAL REQUIREMENTS. All policies of insurance provided for in this Section 15 shall be issued in form acceptable to Landlord by insurance companies with a financial size of not less than A VIII as rated in the most current available "Best's Insurance Reports," and qualified to do business in the state in which Landlord's Building is located. Each and every such policy: (1) Except for Worker's Compensation and Employer's Liability insurance, shall be issued in the name of Tenant with Landlord, Manager and Landlord's mortgagee, if requested, as additional insureds and any other parties in interest from time to time designated in writing by notice from Landlord to Tenant; (2) shall be for the mutual and joint benefit and protection of Landlord and Tenant and any such other parties in interest; (3) shall (or a copy thereof) be delivered to each of Landlord and any such other parties in interest within ten (10) days after delivery of possession of the Premises to Tenant and thereafter within thirty (30) days prior to the expiration of each such policy, and, as often as any such policy shall expire or, terminate. Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent; (4) shall contain a provision that the insurer will give to Landlord and such other parties in interest at least thirty (30) days notice in writing in advance of any material -28- change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance; and (5) shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry. C. BLANKET INSURANCE. Any insurance. provided for in this Section may be maintained by means of a policy or policies of blanket insurance, covering additional items or locations or insureds, provided, however, that: (1) Landlord and any other parties in interest from time to time designated by Landlord to Tenant shall be named as an additional insured thereunder as its interest may appear (2) the coverage afforded Landlord and any such other parties in interest will not be reduced or diminished by reason of the use of such blanket policy of insurance; (3) any such policy or policies except any covering the risks referred to in subsection 15.A.(1) shall specify therein (or Tenant shall furnish Landlord with a written statement from the insurers under such policy specifying) the amount of the total insurance allocated to the Tenant's improvements and property more specifically detailed in subsection 15.A.(2) and shall specifically name the Building of which the Premises is a part; and (4) the requirements set forth in this Section are otherwise satisfied D. INSPECTION OF POLICIES. Tenant agrees to permit Landlord at all reasonable times to inspect the policies of insurance of Tenant with respect to the Premises for which policies or copies thereof are not delivered to Landlord. E. WAIVER. Tenant and Landlord, respectively, hereby release each other from any and all liability or responsibility to the other for all claims or anyone claiming by, through or under it or them by way of subrogation or otherwise for any loss or damage to property covered by insurance, whether or not such insurance is maintained by the other party or a party self-insures perils covered thereby. Each party shall request that its insurance carrier affirmatively endorse its policies of insurance so that such waiver of subrogation is added to such policies. F. INCREASE OF INSURANCE. Notwithstanding the requirements as set forth above, Tenant's insurance obligations hereunder shall be subject to additional and/or different types - 29 - of insurance, including a change in the character and/or amount of insurance required hereunder, at any time, and from time to time, during the Term. if Landlord, in the exercise of its reasonable judgment, shall deem same necessary. Within twenty (20) days after demand therefor by Landlord, Tenant shall furnish Landlord With evidence that it has complied with such demand. G. SELF INSURANCE. Notwithstanding anything to the contrary contained herein, Tenant may, subject to the conditions of this Section, self-insure with respect to Tenant's leasehold improvements, trade fixtures, equipment, merchandise, furnishings, and personal property. It is understood and agreed that Tenant's right of election to self-insure shall be exercisable only during such time as Tenant's net worth equals or exceeds Twenty Million Dollars ($20,000,000.00). Tenant shall certify said net worth annually and at such other times as Landlord may reasonably require. Landlord will be so assured by Tenant's self-insurance so long as tenant's net worth does not fall below the amount set forth above. Tenant may not self-insure with respect to liability insurance. 16. EVENT DOMAIN. A. TOTAL OR PARTIAL TAKING. If the whole of the Premises shall be condemned or taken either permanently or temporarily for any public or quasi-public use or purpose, under any statute or by right of eminent domain, or by private purchase in lieu thereof, then, in such event, the Term shall cease and terminate from the date when possession is taken thereunder pursuant to such proceeding or purchase. The rent shall be adjusted as of the time of such termination and any rent paid for the period thereafter shall be refunded If a portion only of the Premises or a portion of the Building containing same shall so be taken (even though the Premises may not have been affected by the taking of some other portion of the Building containing same), Landlord may elect to terminate, this Lease from the date when possession is taken thereunder pursuant to such proceeding or purchase or Landlord may elect to repair and restore Landlord's Work, at its own expense, in the portion not taken and thereafter the rent shall be reduced proportionate to the portion of the Premises taken. B. AWARD. In the event of any total or partial taking of the Premises or the Building, Landlord shall be entitled to receive the entire award in any such proceeding and Tenant hereby assigns any and all right, title and interest or Tenant now or hereafter arising in or to any such award or any part thereof and hereby waives all rights against Landlord and the condemning authority, except that Tenant, shall have the right to claim and prove in a completely separate proceeding and to receive any award which may be made to Tenant, if any, specifically for damages for loss of good will, movable trade fixtures, equipment and - 30 - moving expenses, provided that such award in no way diminishes or adversely affects Landlord's award. C. UNSAFE CONDITIONS. If the Premises or the Building are declared unsafe by any duly constituted authority having the power to make such determination, or are the subject of a violation notice or notices requiring work, Landlord, at its option, may do the required :work or may terminate this Lease and in the latter event; Tenant shall immediately surrender the Premises to Landlord. whereupon this Lease shall. terminate and the rent shall be apportioned as of the date of such termination. 17. DEFAULT AND REMEDIES A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute a material breach of the Lease by Tenant and an Event of Default: (1) failure of Tenant to take possession of the Premises within fifteen (15) days after written notice to Tenant that the same are substantially completed; (2) the vacation, desertion or other abandonment of the Premises by Tenant; or Tenant's removal or manifestation of an intention to remove its property from the Premises; (3) a failure by Tenant to pay, when due, any installment of rent hereunder or any such other sum herein required to be paid by Tenant (including without limitation the Required Excess Funds) where such failure continues for seven (7) days after written notice thereof to Tenant. (4) a failure by tenant to observe and perform any other provision or covenant of this Lease to be observed or performed by Tenant, where such failure continues for twenty (20) days after written notice thereof to Tenant provided, however, that if the nature of the default is such that the same cannot reasonably be cured within such twenty (20) day - 31 - period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion; and, (5) the filing of a petition by or against Tenant for adjudication as a bankrupt or insolvent or for its reorganization or for the appointment pursuant to any local, state or federal bankruptcy or. insolvency law of a receiver or trustee of Tenant's property; or, an assignment by Tenant for the benefit of creditors; or, the taking possession of the property of Tenant by any local, state or federal governmental officer or agency or court-appointed official for the dissolution or liquidation of Tenant or for the operating, either temporary or permanent, of Tenant's business, provided, however, that if any such action is, commenced against Tenant the same shall not constitute a default if Tenant causes the same to be dismissed or discharged within sixty (60) days after the filing of same. (6) the failure to comply with the provisions of Section 23 of this Lease. (7) the failure to comply with the provisions of Section 12 of this Lease. (8) any other act defined in this Lease as an Event of Default. -32- B. REMEDIES OF LANDLORD. (1) Upon the occurrence of any Event of Default set forth in. subsection 17.A. or elsewhere in the Lease Landlord, at its option, may take all or any of the following actions: (a) Landlord may cure for the account of Tenant any such default of Tenant and immediately recover as additional rent any reasonable expenditures made and the amount of any obligations incurred in connection therewith, plus per annum interest equal to four (4) point(s) above the prime rate of PNC Bank, Philadelphia, Pennsylvania (as the same may exist from time to time) ("Prime Rate") from the date of any such expenditure; or (b) Landlord shall be entitled to terminate this Lease and recover as a calculation of its lost profits, all Minimum Rent, additional rent and other rent which has accrued prior to the date of said default and which is due for the balance of the Term and declare the same to be immediately due and payable. It is agreed that in determining the amount of any future payments due Landlord of Tenant's OMC and Tenant's Tax Charge, Landlord may make such determination based upon the sum thereof for the fill year immediately prior to the event of default. The sum set forth above as aforesaid shall be discounted to present value at the then Prime Rate (the "Lost Profit Sum"). Contemporaneously with the demand for such Lost Profit Sum, this Lease shall be deemed terminated and Tenant shall immediately quit and surrender to Landlord the Premises in accordance with (d) below. Tenant's liability for the payment of the Lost Profit Sum shall survive the termination of the Lease; or (c) Accelerate the whole or any part of the rent for the entire unexpired balance of the Term, as well as all other charges, payments, costs and expenses herein agreed to be paid by Tenant, and any rent or other charges, payments, costs and expenses if so accelerated shall, in addition to any and all installments of rent already due and payable and in arrears, and any other charge or payment herein reserved, included or agreed to be treated or collected as rent and any other charge; expense or cost herein agreed to be paid by Tenant which may be due and payable and in arrears, be deemed due and payable as if, by the terms and provisions of this Lease, such accelerated rent and other charges, - 33 - payments, costs and expenses were on that date payable in advance. Such sum is hereinafter referred to as the "Accelerated Rent". For such purposes, to determine all items of the additional rent component of the Accelerated Rent, Landlord may make a determination based upon such sums for the full year immediately prior to the event of default, or otherwise in Landlord's reasonable judgement. (d) Landlord, at its option, may serve notice upon Tenant that this Lease and the then unexpired Term hereof shall cease and expire and become absolutely void on the date specified in such notice, to be no less than five (5) days after the date of such notice, without any right on the part of the Tenant thereafter to save the forfeiture by payment of any sum due or by the performance of any term, provision, covenant, agreement or condition broken; and, thereupon and at the expiration of the time limit in such notice, this Lease and the Term hereof granted; as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and become void in the same manner and with the. same force and effect (except as to Tenant's liability) as if the date fixed in such notice were the date herein stated for expiration of the Term. Thereupon, Tenant shall immediately quit and surrender to Landlord the Premises by summary proceedings, detainer, ejectment or otherwise and remove itself and all other occupants thereof and, at Landlord's option, any property thereon without being liable to indictment, prosecution or damages therefor. No such expiration or termination of this Lease shall relieve Tenant of this liability and obligations under this Lease, whether or not the Premises shall be relet, all of which shall survive such expiration or termination; or (e) Landlord may, at any time after the occurrence of any event of default, whether or not the Lease has been terminated as aforesaid, re-enter and repossess the Premises and any part thereof with or without process of law, provided no undue force shall be used, and shall have the option, but not the obligation either in its own name, as agent for Tenant if this Lease has not been terminated or for its own behalf if this Lease has been terminated, to relet all or any part of the Premises; provided that Landlord shall not be required to accept any tenant proposed by Tenant or observe any instruction given by Tenant about such reletting. The failure of Landlord to relet the Premises or any part or parts thereof shall not release or affect Tenant's liability hereunder, nor shall Landlord be liable for failure to relet, or in the event of reletting, for failure to collect the rent thereof, and in no event shall Tenant be entitled to receive any excess of net rents collected over sums payable by Tenant to Landlord hereunder. No such re-entry or taking possession of the Premises shall be construed as an election on the Landlord's part to terminate this Lease unless a written notice of such election by Landlord is given to Tenant. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for any previous breach and default. For the purpose of such reletting, - 34 - Landlord may decorate or make repairs, changes, alterations or additions in or to the Premises to the extent deemed by Landlord desirable or convenient, and the cost of such decoration, repairs, changes, alterations or additions shall be charged to and payable by tenant as additional rent hereunder, as well as any reasonable brokerage and legal fees expended by Landlord; and any sums collected by Landlord from any new tenant obtained on account of the Tenant shall be credited against the balance of the rent due hereunder as aforesaid. Tenant shall pay to Landlord monthly; on the days when the rent would have been payable under this Lease, the amount due hereunder less the amount obtained by Landlord from such new tenant, if any. (2) All inventory, equipment, machinery, trade fixtures, contents of registers and other personal property of any kind or nature whatsoever at. any time or from time to time within the Premises; whether owned by Tenant or others (collectively the "Subject Property") is and shall be throughout the Term as well as thereafter subject to the lien of Landlord and distraint for any and all Rent not paid when due, and Tenant hereby grants to Landlord such lien on the Subject Property and the right and remedy of distraint thereof together with the right and remedy of "Self-Help" (hereinafter defined). Such lien of Landlord shall be conclusively presumed to have been perfected and distraint of the Subject Property to have occurred by and on the date of a written notice given to Tenant pursuant to any provision of Section 17 hereof or a written notice given to Tenant of the occurrence of an Event of Default (whichever written notice is first given). The term "Self Help" means and shall be any action or other conduct by Landlord, any agent of or anyone else acting for Landlord by which Tenant is deprived of possession or control over the Subject Property and includes, without limitation, the changing of locks of the Premises, denying Tenant entry to the Premises, terminating or otherwise ceasing utility services to the Premises (Including, without limitation, electricity, gas and/or water), entering the Premises, removing any, some or all of the Subject Property therefrom and/or storing the same, all at Tenant's sole cost and expense, proceeding with or without writ or process, assistance or involvement of constables or other officers and selling at private or other sale, by auction or otherwise, the Subject Property. Tenant hereby irrevocably authorizes and empowers Landlord and any agent of and/or anyone else acting for Landlord to exercise the right and remedy of Self-Help, Tenant agreeing that the exercise thereof is absolutely privileged and shall not constitute a breach or default of this Lease by Landlord or grounds for damages or other relief in favor of Tenant or any one directly or indirectly claiming by, through or under Tenant and Tenant shall defend, protect, indemnify and hold harmless Landlord, all agents of and anyone else acting for Landlord, therefrom. (3) Landlord shall have the right of injunction (including, without limitation, specific performance) in the event of an Event of Default or threat thereof, or - 35 - other default or breach or threat thereof by Tenant of any of the agreements, conditions, covenants or terms hereof to restrain the same and the right to invoke any remedy allowed by law or in equity, whether or not other remedies, indemnity or reimbursements are herein provided. The rights and remedies given to Landlord in this Lease or at law or in equity are distinct, separate and cumulative remedies, and no one of them, whether or not exercised by Landlord, shall be deemed to be in exclusion of any other. (4) Tenant expressly waives the benefits of all laws, now or hereafter in force, exempting any of Tenant's property on the Premises or elsewhere from distraint, levy or sale in any legal proceedings taken by Landlord to enforce any rights under this Lease. Tenant further waives the right of inquisition on any real estate that may be levied upon to collect any amount which may become due under the terms and conditions of this Lease, and does hereby voluntarily condemn the same and authorize the Prothonotary to enter a Writ of Execution or other process upon Tenant's voluntary condemnation, and further agrees. that said real estate may be sold on a Writ of Execution or other process. If proceedings shall be commenced by Landlord to recover possession under the Acts of Assembly, either at the end of the Term or any extension thereof or .on sooner termination thereof, or for non-payment of rent or any other reason. Tenant specifically waives the right to the three (3) months notice and/or the fifteen (15) or thirty (30) days notice required by the Landlord and Tenant Act, April 6, 1951, P.L. 69, and agrees that five (5) days notice shall be sufficient in either or any such case. The right to enter judgment against Tenant and to enforce all of the other provisions of this Lease hereinabove provided for may be exercised by any assignee of Landlord's right, title and interest in this Lease, in such assignee's own name, notwithstanding the fact that any or all assignments of said right, title and interest may not be executed and/or witnessed is accordance with the Act of Assembly and any and all laws regulating the manner and/or form in which such assignments shall be executed and witnessed. (5) CONFESSION OF JUDGEMENT -- RENT. INTENTIONALLY OMITTED. - 36 - (6) CONFESSION OF JUDGEMENT - POSSESSION. Tenant covenants and agrees that if there is an Event of Default or this Lease is terminated or the Tenn or any extensions or renewals thereof is terminated or the Term or any extensions or renewals thereof is terminated or expires, then, Landlord may, without limitation, cause judgements in ejectment for possession of the Premises to be entered against Tenant and, for those purposes, Tenant hereby grants the following warrant of attorney: (i) Tenant hereby irrevocably authorizes and empowers any prothonotary, clerk of court, attorney of any court of records and/or Landlord (as well as some one acting for Landlord) in any and all actions commenced for recovery of possession of the Premises to appear for Tenant and confess or otherwise enter judgement in ejectment for possession of the Premises against Tenant and all persons claiming directly or indirectly by, through or under Tenant, and thereupon a writ of possession may forewith issue and be served, without any prior notice, writ or proceeding whatsoever; (ii) if, for any reason after the foregoing action or actions shall have been commenced, it shall be determined that possession of the Premises should remain in or be restored by Tenant, Landlord shall have the right to commence one or more further actions as hereinbefore set forth to recover possession of the Premises including, without limitation, appearing for Tenant and confessing or otherwise entering judgement for possession of the Premises as hereinbefore set forth. THE UNDERSIGNED TENANT ACKNOWLEDGES THAT IT FULLY UNDERSTANDS THE CONFESSIONS OF JUDGEMENT CONTAINED IN THE PRECEDING PARAGRAPH HEREOF AND - 37 - (7) In any action or proceeding described in Section 17B(6), or in connection therewith, if a copy of this Lease is therein verified by Landlord or someone acting for Landlord to be a true and correct copy of this Lease (and such copy shall be conclusively presumed to be true and correct by virtue of such verification), then it shall not be necessary to file the original of this Lease, any statute, rule of court of law, custom or practice: to the contrary notwithstanding. Tenant hereby releases to Landlord, anyone acting for Landlord and all attorneys who may appear for Tenant all errors in procedure regarding the entry of judgment or judgments by confession or otherwise by virtue of the warrants of attorney contained in this Lease, and all liability therefor. The right to enter judgment or judgments by confession or otherwise by virtue of the warrants of attorney contained in this Lease and to enforce all of the other provisions of this Lease may be exercised by any assignee of Landlord's right, title and interest in this Lease in such assignee's own name, any statute, rule of court of law, custom or practice to the contrary notwithstanding. (8) Tenant, for itself and on behalf of any and all persons claiming through or under it (including creditors of all kinds, does hereby waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law, to redeem the premises or to have a continuance of this Lease for the Term, as it may, have been extended, after having been dispossessed or ejected therefrom by process of law or under the terms of this Lease or after the termination of this Lease as herein provided. (9) Neither this Lease nor any rights or privileges shall be an asset of Tenant in any bankruptcy, insolvency or reorganization proceeding. If Landlord shall not be permitted to terminate this Lease because of the provisions of the United States Bankruptcy Code, Tenant or any trustee for it shall, within fifteen (15) days upon request by Landlord to the Bankruptcy Court, assume or reject this Lease unless all defaults hereunder shall have been cured, Landlord shall have been compensated for any monetary loss resulting from such default and Landlord shall be provided with reasonably adequate assurance of full and timely performance of all provisions, terms and conditions of this Lease on the part of Tenant to be performed. - 38 - (10) The failure or delay on the part of either parry to enforce or exercise at any time any of the provisions, rights or remedies in the Lease shall in no way be construed to be a waiver thereof; nor in any way to affect the validity of this Lease or any act hereof, or the right of the party to thereafter enforce each arid every such provisions, right or remedy. No waiver or any breach or default of this Lease shall be held to be a waiver of any other or subsequent breach or default. The receipt by Landlord of rent at a time when the rent is, in default under this Lease shall not be construed as a waiver of such default. The receipt by Landlord of a lesser amount than the rent due shall not be construed to be other than a payment on account of the rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of the rent due or to pursue my other remedies provided in this Lease. No act or thing. done by Landlord or Landlord's agents or employees during the Term and any extension thereof shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. 18. SUBORDINATION. A. GENERALLY. This Lease is, and. shall always be, subject and subordinate at all times to the lien of any mortgagees and/or ground rents and/or other encumbrances now or hereafter placed on the Premises or the Building without the necessity of any further instrument or act on the part of the Tenant to effectuate such subordination, but the Tenant covenants and agrees to execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage or mortgages and/or ground rent and/or other encumbrances as shall be desired by any mortgagee or proposed mortgagee or by any person. Tenant hereby appoints the Landlord attorney-in-fact of Tenant irrevocably to execute and deliver any such instrument for and in the name of Tenant. B. RIGHTS OF MoRTGAGEE. In the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a period of time, to cancel or otherwise terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right: (1) Until it has given written notice of such act or omission to the holder of each such mortgage or ground Lease whose name and address shall previously have been furnished to Tenant in writing; and (2) Until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy). -39- C. TENANT'S ATTORNMENT. In the event, of any foreclosure of, or the exercise of a power of sale under, any mortgage or deed of trust referred to in this Section or in the. event of the termination of any ground lease pursuant to which Landlord is the lessee, Tenant, upon the purchaser or lessor's request, shall attorn to and recognize the purchaser or Landlord's lessor as Landlord under this Lease. Tenant agrees that, upon the request of Landlord or any lessor, mortgagee or trustee, Tenant shall execute and deliver any instruments which may be required for the purposes of carrying out the intention of this Section 18. D. NON-DISTURBANCE. Landlord agrees promptly to cause any existing or subsequent mortgagee to execute a non-disturbance agreement in a form acceptable to Tenant. 19. INTENTIONALLY OMITTED. 20. DELAY IN POSSESSION. In the event that the Premises are not ready for Tenant's occupancy at the time herein fixed for the beginning of the Term because of any alterations or construction now or hereafter being performed either to the Premises or to the Building of which the Premises form a part (unless such alterations are being done by Tenant or Tenant's contractor, or unless the delay in completing such alterations was caused by Tenant in which case there shall be no suspension or proration of rent or other sums), or because of the non-completion of the Building of which the Premises form a part, or because Landlord being itself a tenant of the same Premises has not received possession thereof from its landlord for any reason whatsoever, or because of the failure or refusal of the occupant of the Premises who is or may be in possession immediately before the beginning of the Term hereof vacate and surrender up the same, or because of any of any restrictions, limitations or delays caused by government regulations or governmental agencies, this Lease and the Term hereof shall not be affected thereby, nor shall Tenant be entitled to make any claim for or receive any damages whatsoever from Landlord, and the Term hereof shall nevertheless end on the date herein originally fixed, but no rent herein provided to be paid by Tenant shall become due until the Premises are substantially completed, and until that time the rent shall be suspended and pro-rated. Notwithstanding anything to the contrary contained in the Lease, if Landlord is not able to deliver possession of the Premises to Tenant (for any reason other than a reason caused by Tenant) by September 30, 1999, this Lease shall be deemed null and void and of no further effect, Landlord shall return to Tenant the Security Deposit and Landlord and Tenant shall each there upon release one another from any and all obligations under this Lease. A. BUILDING NAME. To name the Building and to change the name or street addresses of the Building. - 40 - B. EXTERIOR SIGNS. To install and maintain a sign or signs on the exterior of the Building. C. REDECORATION. DURING THE LAST SIX (6) MONTHS OF the Term, if during or prior to that time Tenant has vacated or otherwise abandons the Premises, to decorate, remodel, repair; alter or otherwise prepare the Premises for reoccupancy, without affecting Tenant's obligation to pay rent for the Premises, provided that Landlord does not interfere with Tenant's use or occupancy of the Building. D. PASS KEYS. To constantly have pass keys to the Premises. E. ADJOINING AREAS. To have the use of and reasonable access through the Premises for the purposes of operation, maintenance, decoration and repair of all walls, windows and doors bounding the Premises (including exterior walls of the Building, core corridor walls and doors and any core corridor entrance) except the inside surfaces thereof. Any terraces or roofs adjacent to the Premises used for shafts, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other facilities are reserved to Landlord. F. ACCESS TO PREMISES. Landlord, Manager and their respective employees and agents shall have the right to enter the Premises at all reasonable times during normal business hours and at anytime in case of an emergency for the purpose of examining or inspecting the same, showing the same to prospective purchasers, mortgagees or tenants of the Building and making such alterations, repairs, improvements or additions or doing other work to the Premises or to the Building as Landlord may deem necessary or desirable if representatives of Tenant shall not be present to open and permit entry into the Premises at any time when such entry is necessary or permitted hereunder, Landlord and Manager may enter by means of a master key or card (or forcibly in the event of an emergency) without liability to Tenant and without such entry constituting an eviction of Tenant or termination of this Lease. 22. SPRINKLER SYSTEM LIFE SAFETY SYSTEM. If there now is or shall be installed in the Building a "sprinkler system" or "life safety system" and if such systems or any of them appliances shall be damaged or injured or not in proper working order by Tenant or its agents, servants, employees, invitees, licenses or visitors, Tenant shall forthwith notify Landlord of such damage or injury, following which Landlord shall cause the damage or injury to be repaired, at the sole cost and expense of Tenant. Any revisions to said system, including but not limited to, revisions made at the request or recommendation of the Board of Fire Underwriters or Fire Insurance Exchange or any governmental bureau, department or official and/or any changes, modification, alterations or addition of sprinkler heads or other equipment required as a result of Tenant's business, or the location of partitions, trade fixtures, or other contents in the Premises, or for any other reason attributable to Tenant, or if any such changes, modification, alterations, - 41 - or addition of sprinkler heads or other equipment required as a result of Tenant's business, or the location of partitions, trade fixtures, or other contents. in the Premises, or for any other reason attributable to Tenant orgy any such changes modification, alterations, additional sprinkler heads or other equipment, becomes necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system or life safety system under the fire insurance rate as fixed by said exchange, or by any fire insurance company, shall, at Tenant's sole cost and expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. 23. TENANT'S ENVIRONMENTAL REPRESENTATIONS. WARRANTIES AND COVENANTS. A. REPRESENTATIONS. WARRANTIES AND COVENANTS. Tenant represents, warrants and covenants that (1) the Premises will not be used for any dangerous, noxious or offensive trade or business and that it will not cause or maintain a nuisance there, (2) it will not bring, generate, treat, store, use of dispose of Hazardous Substances at the Premises, (3) it shall at all times comply with all Environmental Laws (as hereinafter defined) and shall cause the Premises to comply with all Environmental Laws, and (4) Tenant will keep the Premises free of any lien imposed pursuant to any Environmental Laws. B. DEFINITION OF PREMISES. Premises for purposes of this Article shall mean the Building and the Property including parking areas. C. REPORTING REQUIREMENTS. Tenant warrants that it will promptly deliver to Landlord, (1) copies of any documents received from the United States Environmental Protection Agency and/or any state, county or municipal environmental or health agency concerning Tenant's operations upon tine Premises; (2) copies of any documents submitted by Tenant to the United States Environmental Protection Agency and/or any state, county or municipal environmental or health agency concerning its operations on the Premises, including but not limited to copies of permits, licenses, annual filings, registration forms and, (3) upon the request of Landlord, Tenant shall provide Landlord with evidence of compliance of Environmental Laws. D. TERMINATION. CANCELLATION. SURRENDER. At the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord free of any and all Hazardous Substances and in compliance with all Environmental Laws and to the complete satisfaction of Landlord. Landlord may require, at Tenant's sole expense at the end of the term, a cleansite certification, environmental audit or site assessment. E. LANDLORD'S RIGHT OF ACCESS AND INSPECTION. - 42 - (1) Landlord shall have the right, but nor the obligation, at all times during the tern of this Lease to (a) inspect the Premises, (b) conduct tests and investigations and take samples to determine whether Tenant is in compliance with, the provisions of this Article, and (c) request lists of all, Hazardous Substances used, stored or located on the Premises; the cost of all such inspections, tests and investigations to be borne by Tenant. (2) Tenant will cooperate with Landlord and allow Landlord and Landlord's representatives access to any and all parts of the Premises and to the records of Tenant with the respect to the Premises for environmental inspection purposes at any time. In connection therewith, Tenant hereby agrees that Landlord or Landlord's representatives may perform any testing upon or of the Premises that Landlord deems reasonably necessary for the evaluation of environmental risks, costs or procedures, including soils or other sampling or coring. (F) Violations - Environmental Defaults. (1) Tenant shall give to Landlord immediate verbal and follow-up written notice of any actual or threatened spills, releases or discharges of Hazardous Substances on the Premises; caused by the acts or omissions of Tenant or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors. Tenant covenants to promptly investigate, clean up and otherwise remediate any spill, release or discharge of Hazardous Substances caused by the acts or omissions of Tenant or its agents, employees, representatives, invites, licensees, subtenants, customers or contractors at Tenant's sole cast and expense; such investigation, clean up and remediation to be performed in accordance with all Environmental Laws and to the satisfaction of Landlord and after Tenant has obtained Landlord's written consent, which shall not be unreasonably withheld. Tenant shall return she Premises to the condition existing prior to the introduction of any such Hazardous Substances. (2) In the event of (i) a violation of an Environmental Law, (ii) a release, spill or discharge of a Hazardous Substance on or from the Premises, (iii) the discovery of an environmental condition requiring response, which violation; release, or condition is attributable to the acts or omissions of Tenant, its agents, employees, representatives, invitees, licensees, subtenants, customers, or contractors, or (iv) an emergency environmental - 43 - condition (together "Environmental Defaults"), Landlord shall have the right, but not the obligation, to immediately enter tile Premises, to supervise and approve any actions taken by Tenant to address the violation, release or environmental condition; and in the event Tenant fails to immediately address such violation, release or environmental condition, or if the Landlord deems it necessary, then Landlord may perform, at Tenant's expense, any lawful actions necessary to address the violation, release or environmental condition. (3) Landlord has the right but not the obligation to cure any Environmental Defaults, has the right to suspend some or all of the operations of the Tenant until it has determined to its sole satisfaction that appropriate measures have been taken, and has the right to terminate the Lease upon the occurrence of an Environmental Default. (G) ADDITIONAL RENT. Any expenses which the Landlord incurs, which are to be at Tenant's expense pursuant to this Article, will be considered Additional Rent under this Lease and shall be paid by Tenant on demand by Landlord. (H) ASSIGNMENT AND SUBLETTING. Notwithstanding anything to the contrary in this Lease, the Landlord may condition its approval of any assignment or subletting by Tenant to an assignee or subtenant that in the sole judgment of the Landlord does not create any additional environmental exposure. (I) INDEMNIFICATION. Tenant shall indemnify, defend (with counsel approved by Landlord hold Landlord and Landlord's affiliates, shareholders, directors, officers, employees and agents harmless from and against any and all claims, judgments, damages (including consequential damages), penalties, fines, liabilities, losses, suits, administrative proceedings, costs and expenses of any kind or nature, known or unknown, contingent or otherwise, which arise out of or in any way are related to the acts or omissions of Tenant, its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors during or after the term of this Lease (including, but not limited to, attorneys, consultant, laboratory and expert fees, and including without limitation, diminution in the value of the Building or Property, damages for the loss or restriction on use of rentable or useable space or of any amenity of the Building or Property and damages arising from any adverse impact on marketing of space in the Building), arising from or related to the use, presence, transportation, storage, disposal, spill, release or discharge by Tenant of Hazardous Substances on or about the Premises. (j) DEFINITIONS. - 44 - (1) "Hazardous Substance" means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental. Laws or any applicable laws or regulations as a "hazardous substance," "hazardous material," "hazardous waste," "infectious waste," "toxic substance," "toxic pollutant" or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources and (c) petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear or by-product material), and medical waste. (2) "Environmental Laws" collectively means and. includes all present and future laws and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits, and other requirements or guidelines of governmental authorities applicable to the Premises and relating to the environment and environmental conditions or to any Hazardous Substance (including, without limitation, CERCLA, 42 U.S.C. ss.9601, et. seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.6901, et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.180, et. seq., the Federal Water Pollution Control Act, 33 U.S.C. ss.1251, et. seq., the Clean Air Act, 42 U.S.C. ss.741, et. seq., the Toxic Substances Control Act, 15 U.S.C. ss.526-2629, the Safe Drinking Water Act, 42 U.S.C. 300(f)-3000), the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. ss.1101, et. seq., and any so-called "Super Fund" or "Super Lien" law; any law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental. Protection Agency and any similar state and local laws and regulations, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety). (K) SURVIVAL. The provisions of this Article shall survive the expiration or earlier termination of this Lease. 24. SUBSTITUTE PREMISES. INTENTIONALLY OMITTED. - 45 - 25. ESTOPPEL STATEMENT. Tenant shall, at my time and from time to time within ten (10) days after written request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing duly executed by Tenant (a) certifying that this Lease is in full force and effect without modification or amendment (or, if there have been any modifications and amendments, the nature thereof), (b) certifying the dates to which annual Minimum Rent and additional rent have been paid, and (c) either certifying that no default exists under this Lease or specifying each such default, it being the intention and agreement of Landlord and Tenant that if Tenant shall fail to respond within the aforesaid ten (10) day period, Tenant shall be deemed to have given such statement as above provided, that this Lease is in full force and effect, that no default in Landlord's performance remains uncured, that the security deposit, if any, is as stated in this Lease and that not more than one (1) month's rent has been paid in advance. 26. QUIET ENJOYMENT. Upon payment by Tenant of rent and upon the observance and performance by Tenant of all the terms, covenants, conditions, provisions and agreements of this Lease on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term of this Lease without hindrance or interpretation by Landlord or by any person or persons lawfully claiming or holding by, through or under Landlord, subject, nevertheless, to the terms, covenants, conditions and provisions of this Lease, to all other agreements, conditions, restrictions and encumbrances of record and to all mortgages, installment sale agreements and underlying leases of record to which this Lease is, or shall became subject and subordinate. 27. BROKERS. Landlord and Tenant each warrants to the other that each has not dealt and negotiated with any broker for this Lease. The Landlord and Tenant (for good and valuable consideration) each shall indemnify and hold the other harmless from and against any and all claims, suits, proceedings, damages, obligations, liabilities, counsel fees, costs, losses, expenses, orders and judgments imposed upon, incurred by or asserted against it by reason of the falsity or error of the aforesaid warranty. - 46 - 28. LANDLORD STATUS. Landlord's obligations hereunder shall. be binding upon Landlord only for a period of time that Landlord is in ownership of the Building and, upon termination of that ownership, Tenant, except as to any obligations which have then matured shall look solely to Landlord's successor in interest in the Building for the satisfaction of each and every obligation of Landlord hereunder. 29. NOTICES. Any notice, request, demand approval or consent given or required to be given under this Lease shall be in writing and shall be given by United States registered or certified mail, return receipt requested, or by a nationally recognized overnight delivery service, with all delivery and postage charges prepaid, and shall be deemed to have been given on the day such notice is actually received or refused, or if unclaimed, on the third day following the day an which the same shall have been sent by a nationally recognized overnight delivery service or deposited with the United States Post Office. Any such communication if intended for Landlord, Shall be addressed to Landlord at Landlord's Notice Address, with copies forwarded to the parses designated on the first page of this Lease; except that payment of Rent shall be delivered to the address designated on the Rent invoice prepared by Landlord, or if no address is so designated, then to Landlord's management office during normal business hour; or such other address as shall be designated by Landlord in writing, or if intended for Tenant, to Tenant at the Tenant Notice Address identified on the first page of this Lease Either party may, at any tune, change its Notice Address for the above purposes by sending a notice to the other party stating the change and setting forth the new address; provided, that in all instances) the Notice Address must be within the continental United States. 30. MISCELLANEOUS PROVISIONS. - 47 - A. FORCE MAIEURE. Anything in this Lease to the contrary notwithstanding, provided such cause is not due to the willful act or gross neglect of Landlord or Tenant, neither shall be deemed in default with respect to the performance of any of the terms, covenants and conditions (specifically excepting Tenant's obligations to pay all items of Rent and Additional Rent pursuant to the terms of this Lease) of this Lease if the same shall be due to any strike, lock-out, civil commotion, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, through Act of God or other cause beyond their control. B. COMMON AREAS. All parking areas, walkways, vertical transportation, stairs, driveways, alleys, public corridors and fire escapes, and other areas, facilities and improvements as may be provided by Landlord from time to time for the general use in common of Tenant and other tenants, which may be extended to their employees, agents, invitees and licensees, shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to all such areas, facilities and improvements, and to change the location of or otherwise alter or modify any or ail of the aforementioned common areas, facilities, and improvements so long as Landlord continues to provide adequate passageways to the Premises. C. RULES AND REGULATIONS. Tenant, its agents, contractors, employees, servants, assignees and sublessees, licensees and invitees shall observe and comply with the Rules and Regulations annexed hereto as Exhibit "F" and made a part hereof. All such Rules and Regulations shall apply to Tenant, its agents, contractors, employees, servants, approved assignees and sublessees, licensees; invitees and subtenants. D. CORPORATE AUTHORITY. If Tenant is a corporation, each individual executing this Lease on behalf of that corporation represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of the corporation in accordance with the duly adopted resolution of the Board of Directors of the corporation, and that this Lease is binding upon the corporation in accordance with its terms. Tenant further certifies that it is authorized to do business in the Commonwealth of Pennsylvania, that all corporate and franchise tapes are paid to date, that all corporate filings are current and that any fictitious name used by Tenant has been properly filed with the Corporations Bureau. -48- E. NO RECORDATION. This Lease shall not be filed of record; however, upon request of Landlord, a memorandums of the Lease in compliance with law shall be executed by Landlord and Tenant and recorded, with recordation costs paid by Landlord. F. SUCCESSORS. The respective rights and obligations provided in this Lease shall bind and shall inure to the benefit of the parties hereto, their legal representatives, heirs, successors and assigns, provided, however, that no rights shall inure to the benefit of any successors of Tenant unless Landlord's written consent for. the transfer to such successor has first been obtained as provided in Section 12, which written consent shall not be unreasonably withheld. G. GOVERNING LAW. This Lease shall be construed, governed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. H. SEVERABILITY; SEPARATE COVENANTS. If any provisions of this Lease or portions thereof shall be held to be invalid, void or unenforceable, the remaining provisions of this Lease or portions thereof shall in no way be affected or impaired and such remaining provisions or portions thereof shall remain in full force and effect. Furthermore, each covenant, agreement, obligation and other provision contained in this Lease is, and shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, and not dependent on any other provision of this Lease unless expressly so provided. I. CAPTIONS. Any heading preceding the text of the several Sections and Subsections hereof are inserted solely for the convenience of reference and shall not constitute a part of this Lease, nor shall they affect its meaning, construction or effect. J. CERTAIN DEFINITIONS. As used in this Lease, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be substituted for the singular, and the singular for the plural where appropriate; and words of any gender shall mean and include any other gender. The parcel of land on which the Building is located is hereinafter referred to as the "Land". For purposes of this Lease, the terns "Building" includes the Land and other improvements on which the Building is constructed and "Property" shall mean "the Land and Building" or "either the Land or the Building". K. EXECUTION. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises nor confer any rights or impose any obligations upon either party until the execution thereof by Landlord and the delivery of an executed original copy thereof to Tenant. -49- L. WAIVER OF LURE TRIAL. It is mutually agreed that Landlord and Tenant hereby waive trial by jury, in any action, proceeding or counterclaim brought by either of the parties hereto against the other as to any matters arising out of or in any way connected with this Lease. M. FINANCIAL STATEMENTS. INTENTIONALLY OMITTED. N. ENTIRE AGREEMENT. This Lease (including the Exhibits and any Riders hereto) contains all the agreements, conditions, understandings, representations and Warranties made between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations and proposals (either written or oral. This Lease may not be modified or terminated orally or in any manner other than by an agreement in writing signed by both parties hereto or their respective successors in interest. The submission of this Lease by Landlord; its attorneys or agents, for examination or execution by Tenant, does not constitute a reservation of (or option for) the Premises in favor of Tenant and Tenant shall have no right or interest in the Premises and Landlord shall have no liability hereunder, unless and until this Lease is executed and delivered by Landlord. O. CONFLICTS. If there is any conflict between or among the provisions of this Lease, the provisions of the Exhibits described in Section 1.0 hereof or the provisions of any Rider attached hereto, the provisions of the Rider shall supersede the provisions of said documents and this Lease and the provisions of said documents, as amended from time to time, shall supersede the provisions or this Lease. P. NO ACCORD AND SATISFACTION. The acceptance. by Landlord of any sums from Tenant (Whether as Rent or otherwise) in amounts which are less than the amounts due and payable by Tenant hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction of any dispute between Landlord and Tenant regarding sums due and payable by Tenant hereunder, unless Landlord specifically deems it as such in writing. Q. TIME OF ESSENCE. Time is of the essence in each and every instance hereunder with respect to the covenants, undertakings and conditions to be performed hereunder by Tenant. R. PERFORMANCE OF LANDLORD'S OBLIGATION BY MORTGAGEE. Tenant shall accept performance of any of Landlord's obligations hereunder by any Mortgage of Landlord. -50- S. JOINT AND SEVERAL LIABILITY. If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereof) shall sign this Lease for Tenant, the liability of each such individual, corporation, partnership or other business association to pay Rent and perform all other obligations hereunder shall be deemed to be joint and several and all notices, payments and agreements given or made by, with or to any one of such individuals, corporations, partnerships or other business associations shall be deemed to have been given or made by, with or to all of them. In like manner, if Tenant shall be a partnership or other business association, the members of which are, by virtue of statute or federal law, subject to personal liability, the liability of each such member shall be joint and several. T. NO MODIFICATION. This writing is intended by the parses as a final expression of their agreement and as a complete and, exclusive statement of the terms thereof, all negotiations, considerations and presentations between the parties having been, incorporated herein. No course of prior dealings between the parties or their officers, employees, agents or affiliates shall be relevant admissible to supplement, explain, or vary any of the terms of this Lease. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease. No representations, understandings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth herein. This Lease can be modified only by a writing signed; by the party against whom the modification is enforceable. 31. COMPLIANCE WITH LAWS AND THE AMERICANS WITH DISABILITIES ACT. Landlord, at its sole cost and expense, agrees to comply with all applicable federal, state and local laws, rules, regulations, guidelines, judgments and orders which now or in the future enact requirements as to the use and occupancy of the Premises, including the requirements imposed by the Americans with Disabilities Act ("Act") which imposes requirements relating to the design and use of the Premises. The Act requires, among other things, that the Premises be designed to remove architectural barriers so that the Premises will be readily accessible to people with disabilities, on the same basis as the Premises are accessible to those without such disabilities. All such plans shall be approved by Landlord prior to the commencement of any work in the Premises in accordance herewith. 32. OPTION TO RENEW. Tenant shall have the right to extend the term of this Lease for a five (5) year lease term (The "Renewal Term"), upon the following conditions: A. Tenant is not in default under this Lease, either at the time any notice hereunder is given, or at the time the Renewal Term is to commence; -51- B. Landlord has made a good faith determination that Tenant remains creditworthy; C. Tenant has not previously assigned the Lease or sublet any part or all of the Premises; D. Tenant has delivered to Landlord written notice of its intention to exercise this option, not less than one hundred and eighty (180) days prior to the end of the Lease Term; E. All lease terms for the Renewal Term shall be the same as in the Lease, except that the Annual Base Rental and Landlord concessions, if any, for the Renewal Term shall be negotiated in good faith between the parties, and there shall be no further option to renew the Lease Term; and F. If Landlord and Tenant fail to agree as to all terms and sign an Amendment to the Lease extending the Lease. -52- IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed by their duly authorized representatives the day and year first above written. Witnesses: LANDLORD: ECC Properties, LLC By: /s/ Emma C. Chappell - -------------------------------- ------------------------------------- Title: President - -------------------------------- ------------------------------------- Tenant: United Bank of Philadelphia By: /s/ James F. Bodine - -------------------------------- ------------------------------------- Title: Vice Chairman, Bd. of Director - -------------------------------- ------------------------------------- Title: ------------------------------------- (Corporate Seal) -53- SCHEDULE OF EXHIBITS EXHIBIT CONTENTS - ------- -------- "A" Intentionally Omitted "B" Final Plans "C" Intentionally Omitted "D" Intentionally Omitted "E" Intentionally Omitted "F" Rules and Regulations "G" Confirmation of Lease Term Exhibit "B" [To be attached subsequent to the date hereof] Exhibit "F" RULES AND REGULATIONS DEFINITIONS 1. Wherever in these Rules and Regulations the word "Tenant" is used, it shall be taken to apply to and in include the Tenant and his agents, employees, invitees, licensees, subtenants and contractors, and is to be deemed of such number and gender as the circumstances require. The word "room" is to be taken to include the space covered by Lease. The word "Landlord" shall be taken to include the employees and agents of Landlord. CONSTRUCTION 2. The streets, parking areas, sidewalks, entrances, lobbies, halls, passages, elevators, stairways and other common area provided by Landlord shall not be obstructed by Tenant, or used for any other purpose than for ingress and egress. Washrooms 3. Toilet rooms, water-closets and other water apparatus shall not be used for any purpose the than those for which they were constructed. INSURANCE REGULATIONS 4. Tenant shall not do anything in the. rooms, or bring or keep anything therein, which will in any way increase or tend to increase the risk of fire or the rate of fire insurance, or which will conflict with the regulations of the Fire department or the fire laws, or with any insurance policy on the Building or any part thereof, or with any law, ordinance, rule or regulation affecting the occupancy and use of the rooms, now existing or hereafter enacted or promulgated by any public authority or by the Board of Fire Underwriters. GENERAL PROHIBITIONS 5. In order to insure proper use and, care of the Premises Tenant shall not: a) Keep animals or birds in the Premises. b) Use rooms as sleeping quarters. F-1 c) Allow any sign, advertisement or notice to be fixed to the Building, inside or outside, without Landlord's prior written consent. Signs on any interior glass doors will be painted only by the person designated by Landlord, the cost of the painting to be paid by Tenant. d) Make or permit noises or disturbances of any kind, including singing or using any musical instrument, radio or television at levels objectionable to adjoining tenants or Landlord, or otherwise do anything to disturb other tenants or tend to injure the reputation of the Building. e) Mark or defile elevators, water-closets, toilet rooms, walls, windows, doors or any other part of the Building. f) Place anything on the outside of the Building, including roof setbacks, window ledges and other projections; or drop anything from the windows, stairways, or parapets; or place trash or other matter in the halls, stairways, elevators or light wells of the Building. g) Cover or obstruct any window, skylight, door or transom that admits light. h) Except for hanging usual wall decorations and pictures, not fasten any article, drill holes, drive nails or screws into the walls, floors, woodwork, or partitions; nor shall the same be painted, papered or a covered or in any way marked or broken without prior written consent of Landlord. i) Operate any machinery other than small office equipment. j) Interfere with the heating or cooling apparatus. k) Allow anyone but Landlord's employees or contractors to clean rooms. 1) Leave rooms without locking doors, stopping all office machines, and extinguishing all lights. m) Install any shades, blinds, or awnings. n) Use any electric heating device. o) Install call boxes, or any kind of wire in or on the Building. F-2 p) Manufacture any commodity, or prepare or dispense any foods or , beverages, tobacco, drugs, flowers, or other commodities or articles. q) Secure duplicate keys for rooms or toilets, except from Landlord. r) Use desk chairs on carpeted areas without protective chair pads. s) Place any weights in any portion of the Building beyond the safe carrying capacity of the structure. t) Enter any mechanical or electrical areas, telephone closets, loading areas, roof or building storage areas. u) Place door mats in public corridors. PUBLICITY 6. Tenant shall not use the name of the Building in any way in connection with its business except as the address thereof. Landlord shall also have the right to prohibit any advertising by Tenant, which, in its opinion, tends to impair the reputation of the Building or its desirability as a building for offices; and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. MOVEMENT OF EQUIPMENT 7. Landlord reserves the right to designate the time when and the method whereby freight, small office equipment, furniture, safes and other like articles may be brought into, moved or removed from the Building or rooms, and to designate the location for temporary disposition of such items. In no event shall any of the foregoing items be taken from Tenant's space for the purpose of removing same from the Building without the prior written consent of Landlord. If Tenant requires use of the freight elevators, and/or loading facilities for moving any of the foregoing items, at least two (2) weeks prior to the date of Tenant's proposed move, Tenant shall deliver to Landlord a written request to use such facilities on such date. Landlord will promptly advise Tenant whether such date is satisfactory. If for any reason such date is unsatisfactory to Landlord, Tenant shall not be permuted to utilize such facilities on such date but rather shall alter its timetable to utilize the same on a date satisfactory to Landlord. F-3 REGULATIONS CHANGES 8. Landlord shall have the right to make such other and further reasonable rules and regulations as in the judgment of Landlord, may from time to time be needful for the safety, appearance, care and cleanliness of the Building and for the preservation of good order therein. Landlord shall not be responsible to Tenant for any violation of rules and regulations by other tenants. PUBLIC ENTRANCE 9. Landlord reserves the right to exclude the general public from the Building upon such days and at such hours as in Landlord's judgment will be for the best interest of the Building and its tenants. Person entering the Building after 6:00 P.M. on business days and at all times on weekends and holidays must sign the register maintained for that purpose. F-4 EXHIBIT "G" CONFIRMATION OF LEASE TERM THIS IS AN Agreement dated as of the __________________ day of ________ , 19___ by and between ______________ ("Landlord") and ______________________ , a ______________ ("Tenant"). WITNESSETH: WHEREAS, by a lease dated as of ________________ , 199__ between the parties hereto (the "Lease") Landlord leased to Tenant and Tenant leased and took from Landlord, certain premises at ________________________ for the term and upon the terms and conditions more specifically set forth therein (the "Premises"); WHEREAS, the Lease provides that as defined in the Lease when the actual Commencement Date has been determined, the parties shall execute a confirmation of the Commencement Date and Term of the Lease. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: A. The Tenant is now in possession of the Premises. B. The Commencement Date of the Lease is ____________, 199__ and the Termination Date of the initial term of the Lease shall be ______________. Tenant acknowledges that the Premises are accepted by Tenant as having been constructed in accordance with the terms of the Lease. Nothing in this Agreement is intended to change or modify the rights of the parties under the Lease and all other terms and conditions of said Lease are hereby reaffirmed as being in full force and effect. EX-10.3 4 EXHIBIT 10.3 LEASE AGREEMENT (BANK & PHILA. UCDC) Exhibit 10.3 Lease United Bank of Philadelphia to Philadelphia United Community Development Corporation Premises Mezzanine level 300 N. 3rd St. Rent, $13.75 per square foot 2500 sq.ft. Commence August 15, 1999 Expires August 15, 2004 John C. Clark Co. Phila. This Agreement, made the 15th day of August, one thousand nine hundred and ninety-nine (1999), by and between United Bank of Philadelphia (hereinafter called Lessor), of the one part, and Philadelphia United Community Development Corporation (hereinafter called Lessee), of the other part. WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that certain premises comprising the mezzinine level of 300 North 3rd Street, in the County of Philadelphia, State of Pennsylvania, to be used and occupied as an office and training facility and for no other purpose, for the term of five years beginning the 15th day of August one thousand nine hundred and ninety-nine (1999), at a rental rate of #13.75 per square foot, payable in equal monthly installments on the first business day of each month. 2500 sq. ft., 5 year term at $13.75 per square foot, with escalation at $.50 per sq. ft. per year, plus cleaning and electric. If Lessor is unable to give Lessee possession of the demised premises, as herein provided, by reason of the holding over of a previous occupant, or by reason of any cause beyond the control of the Lessor, the Lessor shall not be liable in damages to the Lessee therefor, and during the period that the Lessor is unable to give possession, all rights and remedies of both parties hereunder shall be suspended. (a) Lessee agrees to pay as rent in addition to the minimum rental herein reserved any and all sums Which may become due by reason of the failure of Lessee to comply with all the covenants of this lease and pay any and all damages costs and expenses which the Lessor may suffer or incur by reason of any default of the Lessee or failure on his part to comply with the covenants of this lease, and each of them, and also any and all damages of the demised premises caused by any act or neglect of the Lessee. (b) Lessee further agrees to pay as rent in addition to the minimum rental herein reserved all taxes assessed or imposed upon the demised premises and/or the building of which the demised premises is a part during the term of this lease, in excess of and over and above those assessed or imposed at the time of making this lease. The amount due hereunder on account of such taxes shall be apportioned for that part of the first and last calendar years entered by the term hereof. The same shall be paid by Lessee to Lessor on or before the first day of July of each and every year. (c) Lessee further agrees to pay to Lessor as additional rent all increase or increases in fire insurance premiums upon the demised premises and/or the building of which the demised premises is a part, due to an increase in the rate of fire insurance in excess of the rate on the demised premises as the time of making this lease, if said increase is caused by any act or neglect of the Lessee or the nature of the Lessee's business. (d) Lessee further agrees to pay as additional rent, if there is a metered water connection to the said premises, all charges for water consumed upon the demised premises in excess of the yearly minimum meter charge and all charges for repairs to the said meter or meters on the premises, whether such repairs are made necessary by ordinary wear and tear, freezing. hot water, accident or other causes, immediately when the came become due. (e) Lessee further agrees to pay as additional rent, if there is a metered water connection to said premises, all sewer rental or charges for use of covers, sewage system, and sewage treatment works servicing the demised premises in excess of the yearly minimum of such sewer charges, immediately when the same become due. All rents shall be payable without prior notice or demand at the office of Lessor ______________________________ or at such other place as Lessor may from time to time designate by notice in writing. Lessee covenants and agrees that he will without demand (a) Pay the rent and all other charges herein reserved as rent on the days and times and at the place that the same are made payable, without fail, and if Lessor shall at any time or times accept said rent or rent charges after the same shall have become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute or be construed as a waiver of any of Lessor's rights. Lessee agrees that any charge or payment herein reserved, included or agreed to be treated or collected as rent and/or any other charges or taxes, expenses or costs herein agreed to be paid by the Lessee may be proceeded for and recovered by the Lessor by distraint or other process in the same manner as rent due and in arrears. (b) Keep the demised premises clean and free from all ashes, dirt and other refuse matter; replace all glass windows, doors, etc., broken; keep all waste and drain pipes open; repair all damage to plumbing and to the premises in general; keep the same in good order and repair as they now are, reasonable wear and tear and damage by accidental fire or other casualty not occurring through negligence of Lessee or those employed by or acting for Lessee alone excepted. The Lessee agrees to surrender the demised premises in the same condition in which Lessee has herein agreed to keep the same during the continuance of this case. (c) Comply wish any requirements of any of the constituted public authorities. and with the terms of any State or Federal statute or local ordinance or regulation applicable to Lessee or his use of the demised premises. and save Lessor harmless from penalties, fines, costs or damages resulting from failure to do so. (d) Use every reasonable precaution against fire. (e) Comply with rules and regulations of Lessor promulgated as hereinafter provided. (f) Peaceably deliver up and surrender possession of the demised premises to the Lessor at the expiration or sooner termination of this lease, promptly delivering to Lessor at his office all keys for the demised premises, (g) Give to Lessor prompt written notice of any accident, fire, or damage occurring on or to the demised premises. (h) Lessee shall be responsible for the condition of the pavement, curb, cellar doors, awnings and other erections in the pavement during the term of this lease; shall keep the pavement free from snow and ice; and shall be and hereby agrees that Lessee is solely liable for any accidents, due or alleged to be due to their defective condition, or to any accumulations of snow and ice. (i) The Lessee area that if, with the permission in writing of Lessor, Lessee shall vacate or decide at any time during the term of this lease. or any renewal thereof, to scale the herein demised premises prior to the expiration of this lease, or any renewal hereof. Lessee will not cause or allow any other agent to represent Lessee in any sub-letting or reletting of the demised premises other than an agent approved by the Lessor __________________________________________ and that should Lessee do so or attempt to do so, the Lessor __________________________________________ may remove any signs that may be placed on or above the demised premises by such other agent without any liability to Lessor or to said agent, the Lessee assuming all responsibility for such action. Lessee covenants and agrees that he will do none of the following things without the consent in writing of Lessor first had and obtained: (a) Occupy the demised premises in any other manner or for any other purpose than as above set forth. (b) Assign, mortgage or pledge this lease or under-let or sublease the demised premises, or any part thereof, or permit any other person, firm or corporation to occupy the demised premises. or any part thereof: nor shall any assignee or sub-lessee assign, mortgage or pledge this least or such sub-Iease, without an additional written consent by the Lessor, and without such consent no such assignment, mortgage or pledge shall be valid. If the Lessee becomes embarrassed or insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Lessee or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed, or if the real or personal property of the Lessee shall be sold or levied upon by any Sheriff, Marshall or Constable, the same shall be a violation of this covenant. (c) Place or allow to be placed any stand, booth, sign or showcase upon the doorsteps, vestibules or outside walls or pavements of said premises, or paint, place, erect or cause to be painted, placed or erected any sign, projection or device on or in any part of the premises. Lessee shall remove any sign, projection or device pointed, placed or erected, if permission has been granted arid restore the walls, etc., to their former conditions at or prior to the expiration of this lease. In case of the breach of this covenant (in addition to all other remedies given to Lessor in case of breach of any conditions or covenants of this lease) Lessor shall have the privilege of removing said stand, booth, sign, show case, projection or device. and restoring said walls, etc., to their former condition, and Lessee, at Lessor's option, shall be liable to Lessor for any and all expenses so incurred by Lessor. (d) Make any alterations, improvements, or additions to the demised premises. All alterations, improvements, additions or fixtures, whether installed before or after the execution of this lease, shall remain upon the premises at the expiration or sooner determination of this lease and become the property of Lessor, unless Lessor shall, prior to the determination of this lease have given written notice to Lessee to remove the same. In which event Lessee will remove such alterations. improvements and additions and restore the premises to the same good order and condition in which they now are. Should Lessee fail to so do, Lessor may do so, collecting, at Lessor's option, the cost and expense thereof from Lessee as additional rent. (e) Use or operate any machinery that in Lessor's opinion, is harmful to the building or disturbing to other tenants occupying other parts thereof. (f) Place any weights in any portion of the demised premises beyond the sale carrying capacity of the structure. (g) Do or suffer to be done, any act, matter or thing objectionable to the fire insurance companies whereby the fire insurance or any tether insurance now in force or hereafter to be placed on the demised premises, or any part thereof, or on the building of which the demised premise may be a part, shall become void or suspended, or whereby the same shall be fated as a mat hazardous risk then at the date of execution alibis last, or employ any person or persons objectionable to the fire insurance companies or carry or have any benzine or explosive matter of any kind in and about the demised premises: In case of a breach of this covenant (in addition to all other remedies given to Lessor in case of the breech of any of the conditions or covenants of this lease) Lessee agrees to pay to Lessee a additional rent any and all increase or increases of premiums on insurance carried by Lessor on the demised premises, or any part thereof. or on the building of which the demised premises may be a part, caused in any way by the occupancy of Lessee. (h) Remove, attempt to remove or manifest an intention to remove Lessee's goods or property from or out of the demised premises otherwise than in the ordinary and usual course of business, without having first paid and satisfied Lessor for all rent which may become doe during the entire term of this lease. (i) Vacate or dessert said premises during the term of this lease, or permit the same to be empty and unoccupied. Lessee covenants and agrees that Lessor shall have the right to do the following things and matters in and about the demised premises: (a) At all reasonable times by himself or his duly authorized agents to go upon and inspect the demised premises and every pail thereof, and/or at his option to make repairs, alterations and additions to the demised premises or the building of which the demised premises is a part. (b) At any time or times and (ram time to time to make such rules and regulations as in his judgment may from time to time be necessary for the safety, care and cleanliness of the premises, and for the preservation of good order therein. Such rules and regulations shall, when noticed thereof a given to Lessee, form a part of this lease. (c) To display a "For Sale" sign at any time, and also, after notice from either party of intention to determine this lease, or at any time within three months prior to the expiration of this lease, a "For Rent" sign, or both "For Rent" and "For Us" signs: and all of said sins shall be placed upon such part of the premises as Lessor may elect and may contain such matter as Lessor shall require. Prospective purchasers or tenants authorized by Lessor may inspect the premise, at reasonable hours at any time. (d) The Lessor may discontinue all facilities furnished and services rendered, or any of them, by Lessor, not expressly covenanted for herein, it being understood that they constitute no part of the consideration for this lease. (a) Lessee agrees to be responsible for and to relieve and hereby relieves the Lessor from all liability by reason of any injury or damage to any person or property in the demised premises, whether belonging to the Lessee or any other person, caused by any fire, breakage or leakage in any part or portion of the demised premises, or any part or portion of the building of which the demised premises is a part, or from water, rain or snow that may leak into, issue or flow from any part of the said premises, or of the building of which the demised premises is a part, or from the drains, pipes, or plumbing work of the same, or from any place or quarter, whether such breakage, leakage, injury or damage be caused by or result from the negligence of Lessor or his servants or agents or any person or persons whatsoever. (b) Lessee also agrees to be responsible for and to relieve and hereby relieves Lessor from ail liability by reason of any damage or injury to any person or thing which may arise from or be due to the use, misuse or abuse of all or any of the elevators, hatches, openings, stairways, hallways, of any kind whatsoever, which may exist or hereafter be erected or constructed on the said premises, or from any kind of injury which may arise from any other cause whatsoever on the said premises or the building of which the demised premises is a part, whether such damage, injury, use, misuse or abuse be caused by or result from the negligence of Lessor, his servants or agents or any other person or persons whatsoever. (a) In the event that the demised premises is totally destroyed or so damaged by fire or other casually not occurring through fault or negligence of the Lessee or those employed by or acting for him, that the same cannot be repaired or restored within a reasonable time, this lease shall absolutely cease and determine, and the rent shall abate for the balance of the term. (b) If the damage caused as above be only partial and such that the premises can be restored to their then condition within a reasonable time, the Lessor may, at his option, restore the same with reasonable promptness, reserving the right to enter upon the demised premises for that purpose. The Lessor also reserves the right to inter upon the demised premises whenever necessary to repair damage caused by fire or other casualty to the building of which the demised premises is a part, even though the effect of such entry be to render the demised premises of a part thereof untenantable. In either event the rent shall be apportioned and suspended during the time the Lessor is in possession, taking into account the proportion of the demised premises rendered untenantable and chi duration of the Lessor's possession. If a dispute arises as to the amount of rent due under this clause, Lessee agrees to pay the full amount claimed by Lessor. Lessee shall, however, have the right to proceed by law to recover the excess payment, if any. (c) Lessor shall make such election to repair the premises or terminate this lease by giving notice thereof to Lessee at the leased premises within thirty days from the day Lessor received notice that the demised premises had been destroyed or damaged by fire or other casualty. (d) Lessor shall not be liable for any damage, compensation or claim by reason of inconvenience or annoyance arising from the necessity of repairing any portion of the building the interruption in the use of the premises, or the termination of this lease by reason of the destruction of the premises. (e) The Lessor his let the demised premises in their present condition and without any representations on' the part of the Lessor, his officers, employees. servants and/or agents. It is understood and agreed that Lessor is under no duty to make repairs of alterations at the time of letting or at any time thereafter. (f) It is understood and agreed that the Lessor hereof does not warrant or undertake that the Lessee shall be able to obtain a permit under any Zoning Ordinance or Regulation for such use as Lessee intends to make of the said premises, and nothing in this lease contained shell obligate the Lessor to assist Lessee in obtaining said permits: the Lessee further agrees that in the event a permit cannot be obtained by Lessee under any Zoning Ordinance or Regulation, this lease shall not terminate without Lessor's consent. And the Lessee shall use the premises only in a manner permitted under such Zoning Ordinance or Regulation. (a) No contract entered into or that may be subsequently entered into by Lessor with Lessee. relative to any alterations. additions, improvements or repairs, not the failure of Lessor to make such alterations, additions, improvements or repairs as required by any such contract, nor the making by Lessor or his agents or contractors of such alterations, additions, improvements or repairs shall in any way affect the payment of the rent or said other charges al the time specified in this lease. (b) It is hereby expressly agreed and understood that the said _____________________________ is acting a agent only and shall not in any event be held liable to the owner or to Lesser (or the fulfillment or non-fulfillment of any of the terms or conditions of this lease, or for any action or proceedings that may he taken by the owner against Lessee, or by Lessee against the owner. (c) It is hereby covenanted and agreed. Any law, usage or custom to the contrary notwithstanding, that Lessor shall have the right as all times to enforce the covenants and provisions of this lease in strict accordance with the terms hereof, notwithstanding any conduct or custom on the pert of the Lessor in refraining from so doing at any time of times: and. further, that the failure of Lessor at any time or times to enforce his rights under said covenants and provisions strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to the specific terms. provisions and covenants of this lease or as having in any way or manner modified the same. (d) This lease is granted upon the express condition that Lessee and/or the occupants of the premises herein leased, shall not conduct themselves in a manner which the Lessor in his sole opinion may deem improper or objectionable. and that if al any time during the term of this least-or any extension or continuation thereof, Lessee or any occupier of the said premises shall have conducted himself, herself or themselves in a manner which Lessor in his sole opinion deems improper or objectionable. Lessee shall be taken to have broken the covenants and conditions of this lease, and Lessor will be entitled to all of the rights and remedies granted and reserved herein for the Lessee's failure to observe any of the covenants and conditions of this lease. (e) In the event of the failure of Lessee promptly to perform the covenants of Section 8(b) hereof. Lessor may go upon the demised premises and perform such covenants, the cost thereof, at the sole option of Lessor, to be charged to Lessee as additional arid delinquent rent. If the Lessee (a) Does not pay in full when due any and all installments of rent and/or any other charge or payment herein reserved, included, or agreed to be treated or collected as rent and/or any other charge, expense, or cost herein agreed to be paid by the Lessee; or (b) Violates or fails to perform or otherwise breaks any covenant or agreement herein contained; or (c) Vacates the demised premises or removes or attempts to remove or manifests an intention to remove any goods or property therefrom otherwise than in the ordinary and usual course of business without having first paid and satisfied the Lessor in full for all rent and other charges then due or that may thereafter become due until the expiration of the then current term, above mentioned; or (d) Becomes embarrassed or insolvent. or makes an assignment for the benefit of creditors, or if a petition in bankruptcy it filed by or against the Lessee, or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed. or if proceedings for reorganization or for composition with creditors under any State or Federal law be instituted by or against Lessee, or if the real or personal property of the Lessee shall be told or levied upon by any Sheriff, Marshall or Constable: _____________________ then and in any or either of said events, there shall be deemed to be a breach of this lease, and thereupon ipso facto and without entry or other action by Lessor: (1) The rent for the entire unexpired balance of the term of this lease, as well as all other charges, payments, costs and expenses herein agreed to be paid by the Lessee, or al the option of Lessor any part thereof, and also all costs and officers' commissions including watchmen's wages and further including the five percent chargeable by Act of Assembly to the Lessor, shall, in addition to any and all installments of rent already due and payable and in arrears and/or any other charge or payment herein reserved, included or agreed to be treated or collected a rent, and/or any other charge. expense or cost herein agreed to be paid by the Lessee which may be due and payable and in arrears, be taken to be due and payable and in arrears as if by the terms and provisions of this lease. the whole balance of unpaid rent and other charges, payments, taxes, costs and expenses were on that date payable in advance: and if this lease or Any part thereof is assigned, or if the premises or any part thereof is sub-let, Lessee hereby irrevocably constitutes and appoints Lessor Lessee's agent to collect the rents due by such assignee or sub-lessee and apply the same to the rent due hereunder without in any way affecting Lessee's obligation to pay any unpaid balance of tent due hereunder: (2) This lease and the term hereby ere aced shall determine and become absolutely void without any right on the put of the Lessee to save the forfeiture by payment of any sum due or by other performance of any condition. term or covenant broken: whereupon. Lessor shall be entitled to recover damages for such breach in an amount equal to the amount of rent reserved for the balance of the term of this lease, less the fair rental value of the said demised premises, for the residue or said term. In the event of any default a above set forth in Section 14, the Lessor, or anyone acting on Lessor's behalf, at Lessor's option: (a) may without notice or demand enter the demised premixes, breaking open locked doors if necessary to effect entrance. without liability to action for prosecution or damages for such entry or for the manner thereof, for the purpose of distraining or levying and for any other purposes, and take possession of and sell all goods and chattels at auction. on three days' notice saved in person on the Lessee or left on the premises, and pay the said Lame out of the proceeds, and event if the rent be not due and unpaid, should the Lessee at any time remove or attempt to remove goods and chattels from the premises without leaving enough thereon to meet the next periodical payment. Lessee authorizes the Lessor to follow for a period of ninety days after such removal, take possession of and sell at auction, upon like notice, sufficient of such goods to meet the proportion of rent accrued at the time of such removal; and the Lessee hereby releases and discharges the Lessor, and his agents, from all claims, actions, suits, damages, and penalties, for or by reason or on account of any entry, distraint, levy, appraisement or sale; and/or (b) may enter the premises. and without demand proceed by distress and sale of the goods there found to levy the rent and/or other charges herein payable as rent, and all costs and officers' commissions, including watchmen's wages and sums chargeable to Lessor, and further Including a sum equal to 5% of the amount of the levy as commissions to the constable or other person making the levy, shall be paid by the Lessee. and In such ease all costs, officers' commission and other charges shall immediately attach and become pan of the claim of Lessor for rent, and any tender of rent without said costs, commission and charges made after the issue of a warrant of distress shall not be sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives In favor of Lesser the benefit of all laws now made or which may hereafter be made regarding any limitation a to the goods upon which, or the time within which. distress is to be made after removal of goods, and further relieves the Lessor of the obligations of proving or identifying such goods. it being the purpose and intent of this provision that all goods of Lessee, whether upon the demised premises or not, shall be liable to distress for rent. Lessee waives in favor of Lessor all rights under the Act or Assembly or April 6. 1931. P. L. 69. and all supplements and amendments thereto that have been or may hereafter be passed. and authorizes the sale of any goods distrained for rent at any time after five days from said distraint without any appraisement and/or condemnation thereof. (c) The Lessee further waives the right to issue a Writ of Replevin under the Pennsylvania Risks of Civil Procedure, No. 1071 &c. and Laws of the Commonwealth of Pennsylvania, or under any other law previously enacted and now in force, or which may be hereafter enacted, for the recovery or any articles, household goods, furniture, etc., seized under a distress for rent of levy upon an execution for rent, damages or otherwise; all waivers hereinbefore mentioned are hereby extended to apply to any such action; and/or (d) may lease said premises or any part or parts thereof to such person or persons a may in Lessor's discretion seem best and the Lessee shall be liable for any loss of rent for the balance of the then current term. If rent and/or any charges hereby reserved as rent shall remain unpaid on any day when the tame ought to be paid. Lessee hereby empowers any Prothonotary, Clerk of Court or attorney of any Court of Record to appear for Lessee in any and all actions which may be brought for rent and/or the charges, payments, costs and expenses reserved as rent, or agreed to be paid by the Lessee and/or to sign for Lessee an agreement for entering in any competent Court an amicable action or actions for the recovery of rent or other charges, payments, cost and expenses, and in said suits or in said amicable ac. lion or actions to confess judgment against Lessee for ail or any part of the rent specified in this lease and then unpaid including. at Lessor's option, the rent for the entire unexpired balance of the term of this lease, and/or other charges, payments, costs and expense reserved a rent or agreed to be paid by the Lessee, and for interest and costs together with any attorney's commission or 5%. Such authority shall not be exhausted by one exercise thereof, but judgment may be confessed as aforesaid from time to time as often as any of said rent and/or other charges, payments, costs end expenses. reserved a rent shall fall due or be in arrears, and such powers may be exercised as well after the expiration of the original term and/or during any extension or renewal of this lease. When this lease shall be determined by condition broken, either during the original term of this lease or any renewal or extension thereof, and also when and as soon as the term hereby created or any extension thereof shall have expired, it shall be lawful for any attorney as attorney for Lessee to file an agreement for entering in any competent Court an amicable action and judgment in ejectment against Lessee and all persons claiming under Lessee for the recovery by Lessor of possession of the herein demised premises. for which this lease shall be his sufficient warrant, whereupon, if Lessor so desires, a writ of Execution or of Possession may issue forthwith, without any prior writ or proceedings whatsoever, and provided that it for any reason after such action shall have been commenced the tame shall be determined and the possession of the premises hereby demised remain to or be restored to Lessee, Lessor shat have the right upon any subsequent default or defaults, or upon the termination of this lease as hereinbefore set forth, to bring one or more amicable action or actions as hereinbefore set forth to recover possession of the said premises. In any amicable action of ejectment and/or for rent in arrests, Lessor shall first cause to be filed in such action an affidavit made by him or someone acting for him setting forth the facts necessary to authorize the entry of judgment. of which facts such affidavit shall be conclusive evidence and if a true copy or this lease (and of the truth of the copy such affidavit shall be sufficient evidence) be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of Court, custom or practice to the contrary notwithstanding. Lessee expressly agrees that any judgment, order or decree entered against him by or in any Court or Magistrate by virtue of the powers of attorney contained in this lease, or otherwise, shall be final, and that he will not take an appeal, certiorari, writ of error, exception or objection to the same, or file a motion or rule to strike off or open or to stay execution or the same, and releases to Lessor and to any and all attorneys who may appear for Lessee all error: in the said proceedings, and all liability therefor. Lessee expressly waives the benefits or all laws, now or hereafter in force, exempting any goods on the demised premises, or elsewhere from distraint, levy or sale in any legal proceedings taken by the Lessor to enforce any rights under this lease. Lessee further waives the right of inquisition on any real estate that may be levied upon to collect any amount which may become due under the terms and condition, of this lease, and does hereby voluntarily condemn the same and authorizes the Prothonotary or Clerk of Court to issue a writ of Execution or other process upon Lessee's voluntary condemnation, and further agrees that the said real estate may be sold on a Writ of Execution or other process. If proceeding: shall be commenced by Lessor to recover possession under the Acts of Assembly, either at the end of the term or sooner termination of this lease, or for nonpayment of rent or any other reason Lessee specifically waives the right to the three months' notice and/or the fifteen or thirty days' notice required by the Act of April 6, 1971. P. L. 69, and agrees that five days' notice shall be sufficient in either of any other case. The right to enter judgment against Lessee and to enforce all of the other provisions of this lease hereinabove provided for may, et the option of and assignee or this team, be exercised by any assignee of the Lessor's right, title and interest in this lease in his, her or their own name, notwithstanding the fact that any or all assignments or the said right, title and interest may not be executed and/or witnessed In accordance with the Act of Assembly of May 23 1713.1 Sm. L. 90, and all supplements and amendments thereto that have been or may hereafter be passed and Lessee hereby expressly waives the requirements of said Act of Assembly and any and all laws regulating the manna and/or form in which such assignments shall be executed and witnessed All of the remedies hereinbefore given to Lessor and all rights and remedies given to him by law and equity shall be cumulative and concurrent. No determination of this lease or the taking or recovering of the premises shall deprive Lessor or any of his remedies or actions against the Lessee for rent du al the time or which, under the terms hereof. would in the future become due as if there has been no determination, or (or any and all sums due at the tins or which, under the terms hereof, would in the future become due a if there had been no determination, nor shall the bringing of any action for t rent of breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the premises. In the event that the premises demised or any part thereof is taken or condemned for a public or quasi-public use, this lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor, and rent shall abate in proportion to the square feet of leased space taken or condemned or shall cease if the entire premises be so taken. In either event the Lessee waives all claims against the Lessor by reason of the complete or partial taking of the demised premises, and it is agreed that the Lessee shall not be entitled to any notice whatsoever of the partial or complete termination or this lease by reason of the aforesaid. This Agreement of Lease and all its terms, covenants and provisions are and each of them is subject sad subordinate to any lease or other arrangement or right to possession, under which the Lessor is in control or the demised premises, to the rights of the owner or owner's of the demised premises and of the land or buildings or which the demised premises are a part, to all rights of the Lessor's landlord and to any and all mortgages and other encumbrance: now or hereafter placed upon the demised premises or upon the land and/or the buildings containing the same: and Lessee expressly agrees that if Lessor' tenancy, control, or right to possession shall terminate either by expiration, forfeiture or otherwise, then this lease shall thereupon immediately terminate and the Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any and all claims for damages or otherwise by reason or such termination as aforesaid. It is hereby mutually agreed that either party hereto may terminate this lease at the end of said term by giving to the other party written notice therof at least ninety-days are prior thereto, but in default of such notice, this lease shall continue upon the same terms find condition in force immediately prior to the expiration of the term hereof as are herein contained for a further period of one year and so on from year to year unless of until terminated by either party hereto, giving the written notice for removal previous to expiration of the then current term; PROVIDED, however, that should this lease be continued for a further period under the terms hereinabove mentioned, any allowances given Lessee on the rent during the original term shall not extend beyond such original term, and further provided, however, that if Lessor shall have given such written notice prior to the expiration of any term hereby created, of his intention to change the terms and conditions of this lease, and Lessee shall not within 10 days from such notice notify Lessor of Lessee's intention to vacate the demised premises at the end of the then current term, Lessee shall be considered a Lessee under the terms and conditions mentioned in such notice for a further term as above provided, or for such further term as may be stated in such notice. In the event that Lessee shall give notice, as stipulated in this lease, of intention to vacate the demised premises at the end of the present term, or any renewal or extension thereof, and shall fail or refuse so to vacate the same on the date designated by such notice, then it is expressly agreed that Lessor shall have the option either (a) to disregard the notice so given as having no effect, in which case all the terms and conditions of this lease shall continue thereafter with full force precisely as if such notice had not been given, or (b) Lessor may, at any time within thirty days after the present term or any renewal or extension thereof, as aforesaid, give the said Lessee ten days' written notice of his intention to terminate the said lease; whereupon the Lessee expressly agrees to vacate said premises at the expiration of the said period of ten days specified in said notice. All powers granted to Lessor by this lease may be exercised and all obligations imposed upon Lessee by this lease shall be performed by Lessee as well during any extension of the original term of this lease a during the original term itself. All notices required to be given by Lessor to Laser shall be sufficiently given by leaving the same upon the demised premises. but notices given by Lessee to Lessor must be given by registered mail, and as against Lessor the only admissible evidence that notice has been given by Lessee shall be a registry return receipt signed by Lessor or his agent. It is expressly understood and agreed by and between the parties hereto that this lease and the riders attached hereto and forming a part hereof set forth all the promises, agreements, conditions and understandings between Lessor or his as Agents and Lessee relative to the demised premises, and that there are no promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. It is further understood and agreed that, except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Lessor or Lessee unless reduced to writing and signed by them. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several and respective heirs, executors, administrators, successors and assigns of said parties and if there shall be more than one Lessee. they shall all be bound jointly and severally by the terms. covenants and agreements herein. and the word "Lessee" shall be deemed and taken to mean each and every person or party mentioned u a Lessee herein, be the same one or more: and if there shall be more than one Lessee. any notice required or permitted by the terms of this lease may be given by or to any one thereof, and shall have the same force and effect as if given by or to all thereof. The words "his" and "him" wherever stated herein shall be deemed to refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be singular or plural and irrespective of fender. No rights, however, shall inure to the benefit of any assignee of Lessee unless the assignment to such assignee has been approved by Lessor in writing as aforesaid. Lessee shall, upon execution hereof deposit with Lessor as security for the performance of all the terms, covenants, and conditions of this lease, the sum of one Month's rent. This deposit is to be retained by Lessor until the expiration of this least and shall be returnable to Lessee provided that (1) premises have been vacated; (2) Lessor shall have inspected the premises after such vacation; and (3) Lessee shall have complied with all the terms, covenants and conditions of this lease, in which event the deposit to paid hereunder shall be returned to Lessee: otherwise, said sum deposited hereunder or any part thereof may be retained by Lessor at his option, as liquidated damages, or may be applied by Lessor against any actual loss, damage or injury chargeable to Lessee hereunder or otherwise. if Lessor determines that such loss, damage or injury exceeds said sum deposited, Lessor's determination of the amount, if any, to be returned to Lessee shall be final. It is understood that the said deposit is not to be considered as the last rental due under the lease. Any headings preceding the text of the several paragraphs and subparagraphs hereof are inserted solely for convenience of reference and shall nor constitute a pats of this (case, nor shall they affect its meaning, construction or effect. IN WITNESS WHEREOF, the parties hereto have executed these presents the day and year first above written, and intend to be legally bound thereby. SEALED AND DELIVERED IN THE PRESENCE OF: PHILADELPHIA UNITED CDC UNITED BANK OF PHILADELPHIA (AGENT) By: /s/ Tracey Carter By: /s/ Brenda M. Hudson-Nelson Tracey Carter, President Brenda M. Hudson-Nelson Vice President [ seal ] FOR VALUE RECEIVED ___________________________________ hereby assign, transfer and set over unto ___________________________________ Executors, Administrators, Successors and Assigns, all ______ right, title and interest in the within _____________ and all benefit and advantage to be derived therefrom. Witness ________ hand and seal this ________________ day of _____________________ A.D. 19____ SEALED AND DELIVERED IN PRESENCE OF EX-10.4 5 EXHIBIT 10.4 WRITTEN AGREEMENT Exhibit 10.4 UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. Written Agreement by and among ) ) UNITED BANCSHARES, INC. ) Philadelphia, Pennsylvania ) ) UNITED BANK OF PHILADELPHIA ) Philadelphia, Pennsylvania ) Docket Nos. 00-002-WA/RB-HC ) 00-002-WA/RB-SM and ) ) FEDERAL RESERVE BANK ) OF PHILADELPHIA ) Philadelphia, Pennsylvania ) WHEREAS, in recognition of their common goal to restore and maintain the financial soundness of United Bancshares, Inc., Philadelphia, Pennsylvania ("Bancshares"), a registered bank holding company, and its subsidiary bank, the United Bank of Philadelphia, Philadelphia, Pennsylvania (the "Bank"), a state chartered bank that is a member of the Federal Reserve System, Bancshares, the Bank, and the Federal Reserve Bank of Philadelphia (the "Reserve Bank") have mutually agreed to enter into this Written Agreement (the "Agreement"); and WHEREAS, on February 22, 2000, the boards of directors of Bancshares and the Bank, at duly constituted meetings, adopted resolutions authorizing and directing Emma C. Chappell, to enter into this Agreement on behalf of Bancshares and the Bank, and consented to compliance with each and every applicable provision of this Agreement by Bancshares and the Bank and their institution-affiliated parties. NOW, THEREFORE, Bancshares, the Bank and the Reserve Bank agree as follows: MANAGEMENT REVIEW 1. (a) Within 90 days of this Agreement, the Bank's board of directors shall conduct a review of the functions and performance of the Bank's officers and shall forward to the Reserve Bank a written report that includes findings, conclusions, and a description of specific actions that the board of directors proposes to take to strengthen the Bank's management and its oversight by the board of directors. The review shall focus on an assessment of the duties performed by each officer, reporting lines of authority, and the ability of each officer to perform capably his or her assigned duties. The primary purpose of this review shall be to aid in the development of a management structure that is suitable to the Bank's needs and is adequately staffed by qualified and trained personnel, who are able to devote full-time, on-site service to the Bank. At a minimum, the qualifications of management shall be assessed for its ability to (i) restore and maintain all aspects of the Bank to a safe and sound condition, and (ii) comply with the requirements of this Agreement. (b) Within 30 days of this Agreement, the Bank's board of directors shall develop a written plan providing for orderly management succession and submit the plan to the Reserve Bank. (c) During the term of this Agreement, or as otherwise required by law, Bancshares and the Bank shall comply with the provisions of section 32 of the Federal Deposit Insurance Act, as amended (the "FDI Act") (12 U.S.C. 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. Part 225, Subpart H), with respect to the appointment of any new directors or the hiring or promotion of any senior executive officers as defined in Regulation O of the Board of Governors (12 C.F.R. Part 215). BOARDS OF DIRECTORS' OVERSIGHT 2. (a) Within 90 days of this Agreement, and semi-annually thereafter, the Bank's board of directors shall review management's adherence to the Bank's written policies and procedures and shall prepare written findings and conclusions of this review along with written descriptions of any management or operational changes that are made as a result of the review. These written findings shall be included in the minutes of the board of directors. (b) The boards of directors of Bancshares and Bank shall maintain adequate and complete minutes of all board meetings, approve such minutes, and retain them for supervisory review. CAPITAL ADEQUACY 3. (a) Within 60 days of this Agreement, Bancshares and the Bank shall submit to the Reserve Bank an acceptable joint written plan to achieve and maintain sufficient capital at the Bank. The plan shall, at a minimum, address and consider: (i) the Bank's current and future capital requirements, including compliance with the Capital Adequacy Guidelines of the Board of Governors (12 C.F.R. Part 208, App. A and B); (ii) any planned growth in the Bank's assets; (iii) the Bank's level of concentrations of credit; (iv) the volume of the Bank's adversely 2 classified assets; (v) the Bank's anticipated level of retained earnings; and (vi) the source and timing of additional funds to fulfill the future capital needs of the Bank. (b) Notwithstanding the provisions of paragraph 3(a) hereof, the Bank shall: (i) from June 30, 2000 through December 30, 2000 maintain its tier 1 leverage ratio at a level of no less than 6.50 percent; and (ii) at all times thereafter during the term of this Agreement, maintain its tier 1 leverage ratio at a level of no less than 7 percent. OPERATIONS AND EXPENSES REVIEW 4. (a) Within 30 days of this Agreement, the Bank's board of directors shall engage an outside consultant to conduct an independent review of the Bank's operations and expenses, and to prepare a written report of findings and recommendations to the Bank's board of directors. The scope of the outside consultant's review shall be set forth in an engagement letter, acceptable to the Reserve Bank and submitted within 20 days of this Agreement. The primary purpose of this review is to identify the means by which the Bank can improve its operating performance, with particular attention to achieving reductions in the Bank's overhead and operating costs. At a minimum, the review shall focus on the Bank's overhead expenses, including occupancy, personnel, and travel expenses, the costs associated with raising capital, and data processing and loan servicing costs. The review of occupancy expenses shall include a review of the costs and comparable market rates for premises leased by the Bank. A copy of the consultant's written report shall be forwarded to the Reserve Bank. (b) Within 30 days of the Bank's board of directors' receipt of the consultant's written report of findings and recommendations required by paragraph 4(a) hereof, the Bank's board of directors shall submit a written plan to the Reserve Bank describing specific actions that the board of directors proposes to take in order to reduce overhead expenses. The plan shall fully address the consultant's findings and recommendations. LOAN POLICIES AND PROCEDURES 5. Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank acceptable amended written loan policies and procedures that shall, at a minimum, address, consider, and include the following: (a) underwriting standards for loans; (b) the monitoring and reporting of past due loans; and (c) controlling and monitoring concentrations of credits, including (i) establishing concentrations of credit limits for acceptable industries and types of loans; and (ii) managing the risk associated with asset concentrations. 3 ALLOWANCE FOR LOAN AND LEASE LOSSES 6. (a) Within 10 days of this Agreement, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "loss" in the report of the examination of the Bank that closed on December 16, 1999 (the "Report of Examination"), which have not been previously collected in full or charged off. Thereafter, the Bank shall, within 30 days from the receipt of any federal or state report of examination, charge-off all assets classified "loss", unless otherwise approved in writing by the Reserve Bank. (b) The Bank shall maintain, through charges to current operating income, an adequate allowance for loan and lease losses. The adequacy of the allowance for loan and lease losses shall be determined in light of the volume of criticized loans, the current level of past due and nonperforming loans, past loan loss experience, evaluation of the potential for loan losses in the Bank's portfolio, current economic conditions, examiner's other criticisms as contained in the Bank's most recent report of examination, and the requirements of the Interagency Policy Statement on the Allowance for Loan and Lease Losses, dated December 22, 1993. The Bank shall conduct, at a minimum, a quarterly assessment of its allowance for loan and lease losses and shall maintain a written record, for supervisory review, indicating the methodology used in determining the amount of the allowance needed. INTERNAL CONTROLS 7. (a) Within 45 days of this Agreement, the Bank shall bring current all reconcilements of its general and subsidiary ledger accounts. (b) Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank acceptable written policies, programs, and procedures designed to strengthen its internal controls and to maintain the accuracy of the Bank's books and records, which shall, at a minimum, address, consider, and include the following: (i) reconcilements of general and subsidiary ledger accounts, and timely resolution of open items; (ii) extending, approving, monitoring, and reporting of overdrafts and advances on uncollected funds; (iii) use of and access to official checks; (iv) account descriptions for all balance sheet and income statement items; (v) processing of loan payoffs; and (vi) cashing checks drawn on dual-signature accounts. 4 (c) Within 60 days of this Agreement, the Bank shall review its accounting procedures for conformance with current industry standards and practices. A written summary of the review and its conclusions shall be retained for future supervisory review. ELECTRONIC FUNDS TRANSFER 8. Within 45 days of this Agreement, the Bank shall submit to the Reserve Bank acceptable written policies and procedures designed to strengthen the electronic funds transfer function, which shall address, consider and include the following: (a) the segregation of duties; (b) an independent settlement process to ensure the authenticity of the transfers processed; and (c) a secure environment for electronic funds transfer codes and equipment, including access restrictions. AUDIT 9. (a) The Bank's Audit Committee shall consist solely of outside directors. For the purposes of this Agreement, the term outside director shall be defined as a director who is not an officer or employee of the Bank. (b) The Bank's Audit Committee shall: (i) meet at least once every month; (ii) maintain full and complete minutes of its actions; (iii) report, in writing, to the full board of directors each month; (iv) address, in a timely manner, any weaknesses identified by the Bank's internal and external auditors; and (v) recommend to the full board of directors the scope of outside audits. (c) The Bank shall revise its written audit policies and procedures to require that the Bank's internal auditors report directly to the Bank's Audit Committee on a monthly basis, and that the Bank's external auditors report directly to the Bank's Audit Committee. (d) Within 10 days of receipt of its external audit report for fiscal year-end 1999, the Bank shall provide the Reserve Bank with the audit report and management letter. Within 45 days of the receipt of the audit report and management letter, the Bank shall provide the Reserve Bank with its written plan, including acceptable time frames, to correct any deficiencies noted in the audit report or management letter. STRATEGIC PLAN AND BUDGET 10. (a) Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank a written strategic plan and budget concerning the Bank's proposed business activities for 2000. This plan shall, at a minimum, provide for or describe: (i) the responsibilities of the Bank's board of directors regarding the definition, approval, implementation and monitoring of the strategic plan and budget, and the procedures designed to ensure that the board of directors fulfills such responsibilities; (ii) management, lending, and operational objectives, given the condition of the Bank as reflected in the Report of Examination and subsequent reports; (iii) an earnings improvement plan, with emphasis on overhead expenses; (iv) the operating assumptions that form the bases for major projected income and expense components, and the sources and 5 uses of new funds; (v) financial performance objectives, including plans for asset growth, earnings, liquidity, and capital supported by detailed quarterly and annual pro forma financial statements, including projected budgets, balance sheets and income statements; and (vi) the establishment of a monthly review process to monitor the actual income and expenses of the Bank in comparison to budgetary projections. (b) A strategic plan and budget for each calendar year subsequent to 2000 shall be submitted to the Reserve Bank at least one month prior to the beginning of that calendar year. DIVIDENDS 11. Bancshares and the Bank shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Board of Governors' Division of Banking Supervision and Regulation. Requests for approval shall be received at least 30 days prior to the proposed date for declaration of dividends and shall contain, but not be limited to, information on consolidated earnings for the most recent annual period and the last quarter. DEBT 12. Bancshares shall not, directly or indirectly, incur any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment and an analysis of the cash flow resources available to meet such debt repayment. COMPLIANCE WITH LAWS AND REGULATIONS 13. (a) The Bank shall take the necessary steps, consistent with sound banking practices, to correct all violations of law and regulation set forth in the Report of Examination. (b) The Bank shall immediately initiate an affirmative compliance program in order to ensure compliance with the provisions of all applicable laws, rules, and regulations. Pursuant thereto, the management of the Bank shall familiarize itself with the applicable provisions of the Federal Reserve Act and the regulations promulgated thereunder, and the laws of the Commonwealth of Pennsylvania. COMPLIANCE WITH AGREEMENT 14. (a) The Bank's Audit Committee shall monitor and coordinate the Bank's compliance with the provisions of this Agreement. (b) Within 45 days of this Agreement, and, thereafter, within 30 days after the end of each quarter following the date of this Agreement, the Bank's Audit Committee shall submit a written progress report to the Bank's board of directors setting forth in detail the actions taken to comply with each provision of this Agreement and the results of those actions. 6 (c) Within 15 days after its receipt from the Bank's Audit Committee, the Bank's board of directors shall forward a copy of the report described in paragraph 14(b) hereof, with any additional comments made by the board of directors, to the Reserve Bank. The Bank's board of directors shall certify in writing to the Reserve Bank that each director has reviewed each quarterly progress report required by this paragraph. Such reports may be discontinued when the Reserve Bank, in writing, releases the Bank from making further reports. APPROVAL OF PLANS, POLICIES, PROCEDURES, PROGRAMS, AND ENGAGEMENT 15. (a) The plans, policies, procedures, programs, and engagement letter required by paragraphs 3(a), 4(a), 5, 7(b), and 8 hereof shall be submitted to the Reserve Bank for review and approval. Acceptable plans, policies, procedures, and programs and an acceptable engagement letter shall be submitted to the Reserve Bank within the time periods set forth in this Agreement. Where applicable, Bancshares and the Bank shall adopt all approved plans, policies, procedures, and programs and the approved engagement letter within 10 days of approval by the Reserve Bank and then shall fully comply with them. During the term of this Agreement, Bancshares and the Bank shall not amend or rescind the approved plans, policies, procedures, and programs and the approved engagement letter without the prior written approval of the Reserve Bank. (b) The Bank's board of directors shall review all plans, policies, procedures and programs annually. COMMUNICATIONS 16. All communications regarding this Agreement shall be sent to: (a) Michael E. Collins Senior Vice President Supervision, Regulation, and Credit Federal Reserve Bank of Philadelphia 10 Independence Mall Philadelphia, Pennsylvania 19106 (b) Emma Chappell Chairman of the Board, President and CEO United Bank of Philadelphia 300 North Third Street Philadelphia, Pennsylvania 19108-1101 7 MISCELLANEOUS 17. Notwithstanding any provision of this Agreement to the contrary, the Reserve Bank may, in its discretion, grant written extensions of time, to Bancshares and the Bank to comply with any provision of this Agreement. 18. The provisions of this Agreement shall be binding upon Bancshares and the Bank and all of their institution-affiliated parties, in their capacities as such, and their successors and assigns. 19. Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated or suspended by the Reserve Bank. 20. The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors or any other federal or state agency from taking any other action affecting Bancshares or the Bank or any of their current or former institution-affiliated parties and their successors and assigns. 21. This Agreement is a "written agreement" for the purposes of section 8 of the FDI Act (12 U.S.C. 1818). IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 23rd day of February, 2000. United Bancshares, Inc. Federal Reserve Bank of Philadelphia By: /s/ Emma C. Chappell By: /s/ Michael E. Collins ---------------------------- ---------------------------- United Bank of Philadelphia By: /s/ Emma C. Chappell ---------------------------- 8 The undersigned directors of Bancshares and the Bank individually acknowledge reading the foregoing Agreement and approve of the consent thereto by Bancshares and the Bank. /s/ James F. Bodine /s/ Marionette Y. Frazier - ---------------------- --------------------------- James F. Bodine Marionette Y. Frazier /s/ S. Amos Brackeen /s/ William C. Green - ---------------------- --------------------------- S. Amos Brackeen William C. Green /s/ Emma C. Chappell /s/ Angela M. Huggins - ---------------------- --------------------------- Emma C. Chappell Angela M. Huggins /s/ Kemel G. Dawkins /s/ William B. Moore - ---------------------- --------------------------- Kemel G. Dawkins William B. Moore /s/ L. Armstead Edwards /s/ Ernest L. Wright - ------------------------ --------------------------- L. Armstead Edwards Ernest L. Wright 9 EX-27 6 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1999 DEC-31-1999 9,397 366 7,158 0 19,127 32,305 31,471 61,011 (1,567) 137,249 124,766 0 3,456 0 0 1 10 9,016 137,249 5,590 1,813 705 8,108 2,704 140 5,264 1,007 0 7,714 (1,230) 0 0 0 (1,230) (1.24) (1.24) 7.16 2,026 4,204 0 0 679 1,007 266 1,567 1,567 0 0
-----END PRIVACY-ENHANCED MESSAGE-----