-----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, EQ7RghPXQG78eQtkXvHOnU5QaJUZKZmwvwmhA9p7I7rODL2RWKiJFbp2+06Yjmt4 +xElN7T7ksrJRfRmxCR0hg== 0001005150-98-000126.txt : 19980220 0001005150-98-000126.hdr.sgml : 19980220 ACCESSION NUMBER: 0001005150-98-000126 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19980219 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUNNINGHAM GRAPHICS INTERNATIONAL INC CENTRAL INDEX KEY: 0001053949 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 233561164 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-46541 FILM NUMBER: 98545154 BUSINESS ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 BUSINESS PHONE: 2012171990 MAIL ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1998 REGISTRATION STATEMENT 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CUNNINGHAM GRAPHICS INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 2750 22-3561164 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Organization) Classification Code Number) Identification Number)
629 GROVE STREET JERSEY CITY, NEW JERSEY 07310 (201) 217-1990 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) MR. MICHAEL R. CUNNINGHAM CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 629 GROVE STREET JERSEY CITY, NEW JERSEY 07310 (201) 217-1990 (Name, Address Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) ---------------- Copies of Communications to: JEFFREY A. BAUMEL, ESQ. JEFFREY S. LOWENTHAL, ESQ. LAWRENCE A. GOLDMAN, ESQ. STROOCK & STROOCK & LAVAN LLP GIBBONS, DEL DEO, DOLAN, 180 MAIDEN LANE GRIFFINGER & VECCHIONE, P.C. NEW YORK, NEW YORK 10038 ONE RIVERFRONT PLAZA (212) 806-5400 NEWARK, NEW JERSEY 07102 (973) 596-4500
---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------
PROPOSED PROPOSED TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OF TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE(2) REGISTRATION FEE Common Stock, no par value..... 2,415,000 $ 13.00 $31,395,000 $9,262
- -------------------------------------------------------------------------------- (1) Includes 315,000 shares of Common Stock subject to an over-allotment option granted to the Underwriter by the Company. (2) Estimated solely for purposes of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ SUBJECT TO COMPLETION, DATED FEBRUARY 19, 1998 PROSPECTUS 2,100,000 SHARES CUNNINGHAM GRAPHICS INTERNATIONAL, INC. COMMON STOCK Cunningham Graphics International, Inc. (the "Company" or "CGII") is hereby offering (the "Offering") 2,100,000 shares of the Company's common stock, no par value per share (the "Common Stock"). Prior to the Offering, there has been no public market for the Common Stock. It is anticipated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. It is expected that approximately 300,000 shares will be offered outside of the United States. The Company will apply for listing of the Common Stock on the Nasdaq National Market System under the symbol "CGII." At the request of the Company, up to 200,000 shares have been reserved for sale in the Offering to certain individuals, including directors and employees of the Company, members of their families, and other persons having business relationships with the Company. See "Underwriting." ---------------- SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share ....... $ $ $ Total(3) ....... $ $ $
================================================================================ (1) The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ . (3) The Company has granted to the Underwriter a 30-day option to purchase up to 315,000 additional shares of Common Stock at the price to the public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ---------------- The shares of Common Stock are being offered by the Underwriter named herein, subject to prior sale, when, as and if accepted by it and subject to certain prior conditions including the right of the Underwriter to reject orders in whole or in part. It is expected that delivery of such shares will be made in New York, New York, on or about , 1998. SCHRODER & CO. INC. The date of this Prospectus is , 1998. [GRAPHICS TO FOLLOW] ---------------- CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Prospective investors should consider carefully the information set forth under "Risk Factors." Immediately prior to the Offering, Cunningham Graphics, Inc. (the "Predecessor") will be reorganized (the "Reorganization") such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for shares of Common Stock and promissory notes (the "Exchange Notes") in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed subchapter S corporation taxable income through the date of the Reorganization, estimated at $3.6 million, and will issue promissory notes in such amount to evidence such obligations (the "Distribution Notes" and, together with the Exchange Notes, the "Reorganization Notes"). See "The Company - -- The Reorganization." In addition, upon the closing of the Offering, the Company will acquire (the "Acquisition"), in exchange for consideration consisting of cash and shares of Common Stock, all of the issued share capital of Roda Limited ("Roda"), an English corporation. Unless otherwise indicated or the context otherwise requires, all references herein to the "Company" mean the Predecessor alone with respect to periods prior to the Offering or CGII and its subsidiaries (including Roda) with respect to periods after the Offering. In addition, unless otherwise indicated, (i) all information in this Prospectus assumes no exercise of the Underwriter's over-allotment option and (ii) the exchange rate used for conversion from Pounds Sterling to United States Dollars is $1.63 (the exchange rate in effect on February 12, 1998). THE COMPANY Cunningham Graphics International, Inc. provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company, which commenced operations in 1989, currently operates on a global basis through its facilities in the United States and through alliances with Roda Limited, its strategic partner in the United Kingdom, and with its strategic partner in Hong Kong. The Company believes that it is presently among the largest volume producers of financial research reports in the world, having produced over 2 billion pages during 1997. The Company estimates that in 1997 the commercial printing and document production market accounted for more than $80 billion in revenue in the United States and over $10 billion in revenue in the United Kingdom, based upon information from certain trade associations and other industry sources. The printing and document management business in the United States is highly fragmented with approximately 50,000 companies presently in operation, only approximately 20% of which are estimated to have annual net sales in excess of $2 million. The Company believes that the commercial printing and document production business is similarly fragmented in the United Kingdom and in certain other markets. The printing and document management industry has evolved significantly over the last several years, driven in large part by rapid advances in publishing and electronic information technology. The Company believes that the growth of the printing and document production industry has been due to various factors, including (i) the increasing volume, complexity and variety of documents and printed materials produced by businesses worldwide, (ii) the increasing demand by businesses for the global dissemination of time-sensitive information, and (iii) the growing trend of businesses to outsource their in-house printing operations (e.g., print shops, copy centers and document management facilities) to document professionals equipped to provide these services more efficiently and cost-effectively. Graphic communications services provided by the Company include digital communications, document management, offset printing, digital printing, data output, bindery, fulfillment services, mailing services and outsource services. The Company prints brochures, booklets, confirmations of trade, client statements and adhesive books to meet the daily, weekly and monthly needs of its customers. To facilitate the rapid distribution of documents globally, the Company has designed and implemented the World Research Link(TM), 3 an array of electronic data communication networks linking each of the Company's facilities with its strategic operating partners and major customers. To date, the Company has established extensive client relationships with leading companies in the financial services, insurance and publishing industries, including CS First Boston, Inc., Deutsche Morgan Grenfell, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch & Co., Inc., The Prudential Insurance Company of America, Empire Blue Cross/Blue Shield, New York Life Insurance Company, FIND/SVP, Inc. and The McGraw-Hill Company, respectively. The Company has experienced significant growth, with net sales growing from $17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7 million pro forma for the Acquisition) for the year ended December 31, 1997 and income from operations growing over the same period from $528,000 to $2.4 million ($3.2 million pro forma for the Acquisition), representing compounded annual growth rates of 43.6% and 113.2%, respectively. The Company intends to continue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. Pursuant to its growth strategy, concurrently with the closing of the Offering, the Company will acquire its London-based strategic partner Roda. Roda provides printing and document output and management services to financial services companies, primarily in the United Kingdom and European markets. The Company's senior officers have extensive experience in the graphic communications services industry, having been employed by the Company for an average of approximately 6 years and having an average of approximately 19 years of industry experience. The Company's Chairman, President and Chief Executive Officer, Michael R. Cunningham, founded the Company and has been actively involved in the industry for over 15 years. The Company believes that, based on the proven track record of its experienced management team and the wide range of services it provides, it is well-positioned to capitalize on the increasing outsourcing trend as well as on consolidation opportunities in the industry. THE OFFERING Common Stock offered....... 2,100,000 shares Common Stock to be outstand- ing after the Offering.... 4,865,000 shares(1)(2) Use of proceeds.......... Of the total net proceeds from the Offering, approximately $6.1 million will be used to fund the cash portion of the purchase price for Roda, approximately $1.4 million will be used to repay certain indebtedness of Roda to its stockholders (the "Roda Seller Debt"), $6.0 million (assuming an initial public offering price of $12.00 per share) will be used to repay the Reorganization Notes, representing certain indebtedness to existing stockholders of the Company, and up to $1.0 million will be used to repay bank indebtedness. The remaining net proceeds will be used for working capital and for general corporate purposes, which may include capital expenditures, marketing activities and future strategic acquisitions. Proposed Nasdaq symbol..... CGII - ---------- (1) Includes shares of Common Stock to be issued in connection with the Reorganization and the Acquisition. (2) Does not include 600,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options to purchase 230,800 shares have been granted at an exercise price equal to the initial public offering price, subject to consummation of the Offering. See "Management -- Stock Option Plans." 4 SUMMARY FINANCIAL DATA The following summary financial data is qualified in its entirety by the more detailed information in the financial statements of the Predecessor and the related notes thereto, the consolidated financial statements of Roda and the related notes thereto and the pro forma financial information appearing elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------- 1994 1995 1996 1997 ---------- ---------- ---------- ----------------------------------------- ACTUAL PRO FORMA(1) -------------------- -------------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales .................................... $15,927 $17,327 $23,193 $ 35,744 $ 42,705 Operating expenses: Costs of production ......................... 12,085 12,860 17,616 26,894 31,187 Selling, general and administrative ......... 3,151 3,441 4,270 5,794 7,212 Depreciation and amortization ............... 448 498 563 694 1,114 ------- ------- ------- ------------ ------------ 15,684 16,799 22,449 33,382 39,513 ------- ------- ------- ------------ ------------ Income from operations ....................... 243 528 744 2,362 3,192 Interest expense ............................ (173) (257) (234) (250) (595) Other income ................................ -- 2 48 35 121 ------- ------- ------- ------------ ------------ Income before income taxes ................... 70 273 558 2,147 2,718 Provision for income taxes .................. 7 6 56 129 394 ------- ------- ------- ------------ ------------ Net income ................................... $ 63 $ 267 $ 502 $ 2,018 $ 2,324 ======= ======= ======= ============ ============ PRO FORMA DATA (UNAUDITED): Income before income taxes ................... $ 2,147 $ 2,718 Pro forma provision for income taxes ........ 880 (2) 1,142 (3) ------------ ------------ Pro forma net income ......................... $ 1,267 $ 1,576 ============ ============ Pro forma earnings per share ................. $ 0.41 $ 0.42 ============ ============ Pro forma shares outstanding ................. 3,095,261 (4) 3,774,219 (5) ============ ============ Pro forma as adjusted earnings per share ..... $ 0.34 (6) ============ Pro forma as adjusted shares outstanding ..... 4,865,000 (7) ============
AT DECEMBER 31, 1997 --------------------------- PRO FORMA ACTUAL AS ADJUSTED(8) --------- --------------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents ............................................... $ 67 $ 8,447 Working capital ......................................................... 728 8,703 Total assets ............................................................ 10,938 33,367 Long-term debt and capitalized lease obligations, net of current portion 1,517 2,179 Stockholders' equity .................................................... 3,151 21,765
(See footnotes on following page) 5 (footnotes from previous page) (1) Gives effect to the Reorganization and the Acquisition as if they each had occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial Statements. (2) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (3) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 500,000 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the cash liability payable to the Roda stockholders in connection with the Acquisition. (6) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (850,000 pounds) to be repaid through the application of a portion of the net proceeds from the Offering. See "Use of Proceeds." (7) Reflects CGII shares to be outstanding, including (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, (iii) 169,739 shares issuable in connection with the Acquisition and (iv) 2,100,000 shares to be sold in the Offering. See "The Company -- The Reorganization." (8) Gives effect to the following transactions as if they had occurred on December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii) the sale of 2,100,000 shares of Common Stock offered hereby and the use of proceeds therefrom, including: (a) the repayment of the Reorganization Notes, (b) the satisfaction of the liability for the cash payable to the Roda stockholders of $6.1 million (assuming an initial public offering price of $12.00 per share), (c) the repayment of the Roda Seller Debt, and (d) the repayment of long-term debt of $1.0 million to third-parties. See the Unaudited Pro Forma Combined Financial Statements and "Use of Proceeds." 6 RISK FACTORS An investment in the shares of Common Stock being offered by this Prospectus involves a high degree of risk. In addition, this Prospectus contains forward-looking statements which involve risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Background," "Business -- Business Strategy," Business -- Graphic Communications Services," "Business -- Printing Operations," "Business -- Global Network," "Business -- Sales and Marketing," and "Business -- Competition," as well as in this Prospectus generally. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Accordingly, prospective investors should consider carefully the following risk factors, in addition to the other information concerning the Company and its business contained in this Prospectus, before purchasing the shares of Common Stock offered hereby. RELIANCE ON LIMITED NUMBER OF CUSTOMERS The Company's five largest customers accounted for approximately 65% of its net sales for the year ended December 31, 1997. The Company's largest customer, Goldman, Sachs & Co. accounted for approximately 24% of the Company's net sales during 1997. Although the Company has had long-term relationships with its significant customers, the Company's customers generally may terminate their relationships with the Company upon minimal, if any, advance notice and there can be no assurance that these relationships will continue. The termination of the relationships with any one or more significant customers could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there has been a trend toward consolidation in the financial services industry and a merger or acquisition involving any of the Company's principal customers resulting in the termination of such a relationship could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing." DEPENDENCE ON FINANCIAL SERVICES INDUSTRY To date, the Company has focused the marketing of its services primarily on companies within the financial services industry and the Company expects to continue this focus. As a result, the Company's results of operations will be particularly sensitive to fluctuations in the economy or financial markets affecting this industry. Any event adversely affecting the financial services industry could adversely affect the Company. The Company's success in increasing its revenues will also depend, in part, on its ability to attract new business from customers outside the financial services industry. No assurance can be given that the Company will be successful in attracting new customers in different industries. INTEGRATION OF RODA Following the Acquisition, the success of the Company will depend, in part, on the Company's ability to centralize accounting and administrative systems and eliminate unnecessary duplication of functions. Although Roda's business is similar to a portion of the businesses conducted by the Company's Predecessor, Roda operates in a foreign market that is distinct from the Predecessor's market. There are differences in technologies, cultural and business customs, applicable laws, operating and labor matters and currencies that will place substantial strains upon the Company's ability to integrate the business of Roda into its existing business. In addition, management of the Company has no experience in operating facilities that are outside the United States or geographically separated. No assurance can be given that the Company's senior management group will be able to integrate and manage effectively the newly acquired operations of Roda. Roda's printing operations in London have, to date, been conducted independently of the Company, as a separate business. Consequently, there can be no assurance that operating results of the Company will match or exceed the combined individual operating results achieved by the Predecessor and Roda prior to the Acquisition. 7 RISKS RELATED TO THE COMPANY'S EXPANSION STRATEGY The Company intends to seek to expand its operations through the acquisition of additional businesses which provide commercial, digital and time-sensitive printing services and through the expansion of its outsourcing business by assimilating additional customers' document management operations. There can be no assurance that the Company will be able to identify, successfully integrate or profitably manage any such businesses or operations. The proposed expansion may involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, inability to retain key personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, if competition for acquisition candidates or assumed operations were to increase, the cost of acquiring businesses or assuming customers' operations could increase materially. The inability of the Company to implement and manage its expansion strategy successfully may have a material adverse effect on the business and future prospects of the Company. See "Business -- Business Strategy." MANAGEMENT OF GROWTH The Company is continuing to experience significant growth, which has placed, and could continue to place, a strain on the Company's managerial and other resources. From December 1995 through January 1998, the number of the Company's employees increased from 186 to 370 and further increases are anticipated during 1998. The Company's future performance and profitability will depend, in large part, on its ability to manage its growth, particularly with respect to a workforce that is geographically dispersed, while continuing to integrate the operations of additional companies and to expand its current business. In order to manage growth successfully, the Company will be required to continue to improve its operational, financial and other internal systems and the training, motivation and management of its employees. If the Company is unable to manage growth effectively, the Company's business, financial condition and results of operations could be materially adversely affected. NEED FOR ADDITIONAL FINANCING The Company will need additional funds to implement its acquisition and internal growth strategies. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through additional debt or equity financings. Moreover, the Company may seek to use its Common Stock for all or a portion of the consideration to be paid in future acquisitions, the issuance of which may result in dilution to investors in the Offering. The extent to which the Company will be able or willing to use its Common Stock for this purpose will depend on its market value from time to time and the willingness of potential acquisition candidates to accept Common Stock as part of the consideration for the sale of their businesses. If the Company is unable to use its Common Stock to make future acquisitions, the Company may be required to use more of its cash resources, if available, to initiate and maintain its acquisition program. There can be no assurance that the Company will be able to obtain additional financing as needed. As a result, the Company might be unable to implement its acquisition strategy, which would have a material adverse effect on the future prospects of the Company. See "Business -- Business Strategy." The Company has a $2.0 million revolving line of credit from Summit Bank under which $1.8 million was available as of February 1, 1998. The Company intends to use the line of credit for working capital, equipment purchases and other general corporate purposes. The Company's line of credit expires on May 30, 1998. Although the Company intends to seek to renew the line, no assurance can be given that the line of credit will be renewed or that it will be renewed on terms that are acceptable to the Company. In addition, there can be no assurance that this or any future line of credit will be sufficient for the Company's needs or that the Company will be able to obtain other financing on terms that are acceptable to the Company. See "Business -- Business Strategy." 8 RISK OF INTERNATIONAL OPERATIONS On a pro forma basis after giving effect to the Acquisition, sales to customers outside the United States would have accounted for 16% of the Company's net sales in the year ended December 31, 1997, and the Company anticipates that foreign sales will account for a significant portion of net sales in the foreseeable future. Risks inherent in the Company's international business activities include the fluctuation of currency exchange rates, various and changing regulatory requirements, increased sales and marketing expenses, political and economic instability, difficulty in staffing and managing foreign operations, potentially adverse taxes, complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON TECHNOLOGY; RISK OF TECHNOLOGICAL OBSOLESCENCE The success of the Company will be highly dependent on its ability to acquire and utilize competitive computer output and document production technologies that are not readily available on a cost-effective basis to the Company's existing and potential customers, thereby creating the incentive for such customers to outsource various services to the Company. Increasing use of the Internet and other electronic means of delivering information which has traditionally been delivered in paper form could substantially erode the Company's core business of printing financial research reports. There can be no assurance that one or more non-paper-based technologies (whether now existing or developed in the future) will not reduce or supplant the physical delivery of documents as a preferred medium for the Company's customers, which could in turn adversely affect the Company's business. The emergence of services by competitors of the Company incorporating new technologies could render some or all of the Company's services unmarketable or obsolete. There can be no assurance that the Company will be able to obtain the rights to use any such new technologies, that it will be able to implement effectively such new technologies on a cost-effective basis or that new technologies will not render noncompetitive or obsolete the Company's role as a provider of computer output and document management services. In addition, in order to maintain state-of-the-art technologies, the Company will have to make significant capital expenditures, which will require the Company to obtain additional financing. There can be no assurance that the Company will be able to obtain such additional financing. See "Business -- Graphic Communications Services." VARIABILITY OF QUARTERLY RESULTS The Company's quarterly operating results have been and will continue to be subject to variation, depending upon factors such as the mix of business among the Company's services, the cost of materials, labor and technology, particularly in connection with the delivery of business services, the costs associated with initiating new outsourcing contracts, the economic condition of the Company's target markets, seasonal concerns and the costs of acquiring and integrating new businesses. Although most of the Company's long-term contracts for the provision of business services provide for pricing adjustments to reflect the actual costs of materials incurred by the Company, these adjustments typically occur on a quarterly and annual basis and therefore may add to fluctuations in quarterly and annual operating results of the Company. RISK OF BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN SERVICES The Company's business is particularly sensitive to meeting deadlines and performing services for numerous clients on an overnight basis. Certain of the Company's existing operations are performed exclusively at either its Jersey City or Manhattan locations and such operations are dependent on the availability of continuous computer, electrical and telephone service. All of Roda's operations are performed at its single London location. As a result, any disruption of day-to-day operations could have a material adverse effect upon the Company. While the Company has, and intends to develop additional, reciprocal relationships with major printing and document production companies in locations elsewhere in the United States and near London for back-up facilities in the event of emergencies, there can be no assurance that the loss or disruption of any services affecting one or more of the Company's 9 facilities would not disable the Company, at least temporarily. Any interruption in its ability to provide services, however brief, could result in the Company being unable to satisfy the needs of clients and could adversely affect the Company's business and its reputation within the industry. See "Business -- Graphic Communications Services," "-- Printing Operations" and "-- Facilities." BENEFITS TO INSIDERS The Company will use $6.0 million of the net proceeds of the Offering (assuming an initial public offering price of $12.00 per share) to repay the Reorganization Notes, which represent indebtedness incurred in connection with the Reorganization to the stockholders of the Predecessor, Michael R. Cunningham, Gordon Mays, Timothy Mays and trusts for the benefit of their respective children. All three individuals are executive officers of the Company. Mr. Cunningham and Gordon Mays are also directors of the Company. The representations and warranties made by the stockholders of the Predecessor to the Company in connection with the Reorganization are limited generally to their ownership of the equity interests being conveyed and do not cover undisclosed liabilities or other matters relating to the Predecessor's business. Accordingly, the Company will have only limited recourse against the stockholders of the Predecessor. See "The Company -- The Reorganization," "Use of Proceeds" and "Certain Transactions -- The Reorganization." COMPETITION The graphic communications services industry is highly competitive. In each of the lines of business in which the Company provides services, it competes with a variety of companies, many of which have greater financial and other resources than the Company, or are subsidiaries or divisions of larger organizations. In particular, the industry is characterized by a small number of large, dominant organizations. No assurances can be given that the Company will be able to compete effectively against the larger companies in this industry. During recent periods of economic downturn, excess production capacity in the Company's business sectors has resulted in more competitive pricing, reducing the earnings of the Company. In addition, a significant source of competition is the in-house capability of the Company's target customer base. There can be no assurance that these businesses will outsource more of their printing and document management needs or that such businesses will continue to seek such outsourcing services. See "Business -- Competition." FLUCTUATIONS IN THE PRICE AND AVAILABILITY OF SUPPLIES Prices for paper and other raw materials used by the Company may increase from time to time in the future. Any significant increases in the prices of these materials that cannot be passed on to customers could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, increases in the prices of supplies and other materials might cause some of the Company's customers to utilize alternative technologies in their respective businesses that do not involve the use of paper or the mail, such as the Internet. Although the Company purchases raw materials from a varied group of suppliers, it is dependent upon a stable availability of paper and other supplies to continue its operations. Should shortages develop either for any of the Company's suppliers or generally within the industry, the Company would be unable to produce printed materials on a consistent basis and its business would be materially adversely affected. RELIANCE ON SENIOR MANAGEMENT The Company's operations will continue to be dependent on the continued services of its executive officers, including the senior management of Roda and additional senior management personnel which the Company intends to employ. Furthermore, the Company will likely be dependent on the senior management of any companies that may be acquired in the future. The Company has employment agreements with each of its senior executive officers. However, if any of these individuals elect not to continue in their roles with the Company, or if the Company is unable to attract and retain senior management, the Company's business could be adversely affected. The Company maintains key executive life insurance for Michael R. Cunningham, its President and Chief Executive Officer, in the amount of $3.0 million. See "Management." 10 NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE; LABOR DELAYS The Company's performance will depend, to a large extent, on the continued service of key technical employees and its ability to attract, retain and motivate such personnel. Competition for such personnel is intense, particularly for highly skilled and experienced technical personnel who perform the Company's information technology services. Such technical personnel are in great demand and are likely to remain a limited resource for the foreseeable future. There can be no assurance that the Company will be able to attract, retain and motivate such personnel in the future, and the inability to do so could have a material adverse effect upon the Company's business, financial condition and results of operations. In addition, a strike or other labor-related delay or stoppage could have a material adverse effect upon the Company's business, operations and financial condition. ENVIRONMENTAL RISKS; GOVERNMENTAL REGULATIONS The Company's business is subject to a variety of federal, state and local laws, rules and regulations. Its production facilities in the United States are governed by laws and regulations relating to workplace safety and worker health, primarily the Occupational Safety and Health Act ("OSHA") and the regulations promulgated thereunder. Comparable laws and regulations exist in the United Kingdom, in particular, the Health and Safety at Work etc. Act 1974 and the numerous regulations issued under it. The Company believes that it is in substantial compliance with OSHA and its United Kingdom counterparts. The Company is also subject to environmental laws and regulations of the United States, the United Kingdom and the various States in which it operates concerning emissions into the air, discharges into waterways and the generation, handling and disposal of waste materials. The printing business generates substantial quantities of inks, solvents and other waste products requiring disposal. The Company typically recycles waste paper, and contracts for the removal of waste ink and other waste products. The Company believes it is in substantial compliance with all applicable air quality, waste disposal and other environmental-related laws and regulations. However, there can be no assurance that future changes in such laws and regulations will not have a material adverse effect on the Company's operations. CONTROL BY CERTAIN STOCKHOLDERS Following the completion of the Offering, the directors and other executive officers of the Company, and entities affiliated with them, will beneficially own approximately 54.1% of the then outstanding shares of Common Stock (50.9% if the Underwriters' over-allotment option is exercised in full). Accordingly, present management of the Company is likely to continue to exercise substantial control over the Company's affairs. These stockholders, acting together, would be able to elect a sufficient number of directors to control the Company's Board of Directors and would be able to approve or disapprove any matter submitted to a vote of stockholders. In addition, because the Company has adopted a staggered Board of Directors, stockholders will be less able to alter the composition of the Board of Directors. See "Principal Stockholders" and "Description of Capital Stock -- Staggered Board of Directors." ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price for the Common Stock offered hereby will be determined by negotiations between the Company and the Underwriter and may bear no relationship to the price at which the Common Stock will trade after completion of the Offering. See "Underwriting" for factors to be considered in determining such offering price. POTENTIAL EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK Upon the consummation of the Reorganization, the Acquisition and the Offering, 4,865,000 shares of Common Stock will be outstanding. The 2,100,000 shares of Common Stock being sold in the Offering will be freely tradable unless acquired by affiliates of the Company. The remaining shares 11 outstanding may be sold publicly only following their effective registration under the Securities Act, or pursuant to an available exemption (such as provided by Rule 144 following a holding period for previously unregistered shares) from the registration requirements of the Securities Act. Upon the consummation of the Offering, the Company will have outstanding under its stock option plans options to purchase an aggregate of 230,800 shares of Common Stock at the initial public offering price. The Company intends to register the shares issuable upon exercise of options granted under the stock option plans, and, upon such registration, such shares will be eligible for resale in the public market. See "Management -- Stock Option Plans." The Company, the existing stockholders of the Predecessor and the officers and directors of the Company have agreed for a period of 180 days from the consummation of the Offering not to offer, sell or otherwise dispose of any shares of Common Stock (or any securities convertible into or exercisable or exchangeable for Common Stock) or grant any options or warrants to purchase any shares of Common Stock without the prior written consent of Schroder & Co. Inc., except that the Company may grant options pursuant to its stock option plans and may issue privately placed shares of Common Stock in connection with acquisitions and pursuant to the Company's stock option plans. See "Shares Eligible For Future Sale." Sales of a substantial number of shares of Common Stock in the public market could adversely affect the market price of the Common Stock. DILUTION Investors purchasing shares of the Common Stock in the Offering will experience immediate and substantial dilution of $9.76 per share (assuming an initial public offering price of $12.00 per share) in the net tangible book value of their shares. See "Dilution." EFFECT OF CERTAIN CHARTER PROVISIONS The Board of Directors of the Company is empowered to issue common stock and preferred stock without stockholder action. The existence of this "blank-check" common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest or otherwise and may adversely affect the prevailing market price of the Common Stock. The Company currently has no plans to issue any such securities, other than the Common Stock being issued in connection with the Reorganization, the Offering and the Acquisition. See "The Company -- The Reorganization" and "- The Roda Acquisition" and "Description of Capital Stock." In addition, the New Jersey Shareholders Protection Act prohibits certain persons from engaging in business combinations with the Company. See "Description of Capital Stock." POSSIBLE VOLATILITY OF STOCK PRICE The market price of the Common Stock offered hereby could be subject to significant fluctuations in response to various factors and events, including the liquidity of the market for the securities offered hereby, variations in the Company's operating results, new statutes or government regulations. In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of particular companies. Such market fluctuations also may adversely affect the market price of the Common Stock. Accordingly, there can be no assurance that the market price of the Common Stock will not decline below the initial public offering price. DIVIDEND POLICY The Company expects to retain any earnings to finance the operations and expansion of the Company's business. The Company's existing Loan and Security Agreement with Summit Bank may, under certain circumstances, restrict the Company's ability to pay dividends. Moreover, any additional debt financing that the Company arranges in the future is likely to restrict the payment of dividends. Therefore, the payment of any cash dividends on the Common Stock is unlikely in the foreseeable future. See "Dividend Policy." 12 THE COMPANY GENERAL The Predecessor commenced operations in 1989. The Company was incorporated in New Jersey in January 1998 in contemplation of the Offering and to effect the Reorganization. The Company's executive offices are located at 629 Grove Street, Jersey City, New Jersey and its telephone number is (201) 217-1990. THE REORGANIZATION Immediately prior to the Offering, the Predecessor will be reorganized such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for a total of 2,595,260 shares of Common Stock and the Exchange Notes. Upon completion of the Reorganization, CGII will have 2,595,261 shares of Common Stock outstanding. The principal amount of the Exchange Notes will be $2.4 million, assuming an initial public offering price of $12.00 per share. Such principal amount will be subject to adjustment for any change in the initial public offering price from $12.00 per share. Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization, estimated to total $3.6 million, and will issue Distribution Notes in such amount to evidence such obligations. The principal amount of the Exchange Notes was determined by the Company in connection with the Reorganization based on a number of factors, including the value of the enterprise contributed to the Company. The principal amount of the Distribution Notes was determined by the Company based upon the actual amount of undistributed S corporation taxable income as of December 31, 1997 and the anticipated additional undistributed S corporation taxable income during the period January 1, 1998 through the expected date of the Reorganization. The Company intends to repay the Reorganization Notes from the net proceeds of the Offering. The representations and warranties made by the stockholders of the Predecessor to the Company in connection with the Reorganization are limited generally to their ownership of the equity interests being conveyed and do not cover undisclosed liabilities or other matters relating to the Predecessor's business. Accordingly, the Company will have only limited recourse against the stockholders of the Predecessor. See "Risk Factors -- Benefits to Insiders," "Use of Proceeds" and "Certain Transactions -- The Reorganization." THE RODA ACQUISITION Concurrently with the consummation of the Offering, the Company will acquire all of the issued share capital of Roda pursuant to an agreement dated January 16, 1998 (the "Roda Purchase Agreement") for an aggregate consideration of approximately $8.1 million. The $8.1 million consideration will be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will be valued at the initial public offering price, and (ii) a cash payment for the balance of the consideration ($6.1 million, assuming an initial public offering price of $12.00 per share). In addition to the consideration, Roda's outstanding indebtedness will be reflected on the Company's consolidated balance sheet from and after the consummation of the Acquisition. As of December 31, 1997, Roda had approximately $4.3 million of indebtedness outstanding, including the Roda Seller Debt. Under the terms of the Roda Purchase Agreement, the Company has committed to cause Roda to repay the entire $1.4 million (850,000 pounds) of the Roda Seller Debt within 28 days following the closing. The Company intends to repay this indebtedness from the proceeds of the Offering. In order to secure the performance by the selling stockholders of Roda of certain warranties and covenants, $444,800 (275,000 pounds) of the cash portion of the consideration will be held in escrow until one year following the closing. The obligations of the parties under the Roda Purchase Agreement are contingent upon the closing of the Offering. Roda provides printing and document output and management services to financial services companies primarily in the United Kingdom and European markets, and has been a strategic partner in the World Research Link(TM). Upon completion of the Offering, Roda will become a wholly-owned subsidiary of the Company and its day-to-day operations in London will continue to be supervised by its current management team. Peter L. Furlonge, who has been a senior executive officer of Roda since 13 1989, and its chief executive officer since 1995, is continuing in such capacity pursuant to an employment agreement. Two other key employees of Roda will also enter into employment agreements with Roda incidental to the Acquisition. See "Business -- Graphic Communications Services" and "-- Global Network." USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be approximately $22.6 million ($26.2 million if the Underwriter's over-allotment option is exercised in full), assuming an initial public offering price of $12.00 per share. Of this amount, approximately $6.1 million (assuming an initial public offering price of $12.00 per share) will be used to fund the cash portion of the consideration for the acquisition of Roda, and approximately $1.4 million (850,000 pounds) will be used to repay the Roda Seller Debt. See "The Company -- The Roda Acquisition." The Roda Seller Debt, which has no specified maturity date, bears interest at the rate of 10% per annum, payable semi-annually. Pursuant to the Roda Purchase Agreement, the Company has agreed to repay the Roda Seller Debt within 28 days following the closing of the Acquisition. The Company expects to use $6.0 million (assuming an initial public offering price of $12.00 per share) to repay the Reorganization Notes, representing indebtedness to the stockholders of the Predecessor. See "The Company -- The Reorganization." The Reorganization Notes bear no interest and have no specified maturity date. The Company also intends to repay up to $1.0 million of indebtedness to Summit Bank under its term loan. The term loan bears interest at a rate of 8.5% per annum and matures on December 1, 2001. The remaining net proceeds of the Offering, estimated to be approximately $8.1 million, will be used for working capital and general corporate purposes, which may include capital expenditures, marketing activities and strategic acquisitions. The Company currently has no agreement or understanding with respect to any future acquisitions. Pending the use of the net proceeds, the Company will invest the net proceeds in short-term, United States government securities. DIVIDEND POLICY Following the Offering, it will be the policy of the Company's Board of Directors to retain all future earnings to finance the operation and expansion of the Company's business. Accordingly, the Company does not anticipate declaring or paying cash dividends on the Common Stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company's Board of Directors and will depend on, among other things, the Company's earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors. In addition, the Company's existing Loan and Security Agreement with Summit Bank may, under certain circumstances, restrict the Company's ability to pay dividends. Prior to the Reorganization, the Company was an S corporation within the meaning of (section)1361 of the Internal Revenue Code of 1986, as amended (the "Code"), and made distributions to its stockholders in respect of income which was taxable to such stockholders under the applicable provisions of the Code. In connection with the Reorganization, the Company will pay to the stockholders of the Predecessor the amounts of their respective undistributed S corporation taxable income through the anticipated date of the Reorganization by delivery of the Distribution Notes. See "The Company -- The Reorganization." A portion of the net proceeds of the Offering will be used to repay the Distribution Notes. See "Use of Proceeds." 14 CAPITALIZATION The following table sets forth at December 31, 1997, (i) the actual short term debt and consolidated capitalization of the Predecessor and (ii) the pro forma capitalization of the Company as adjusted to give effect to the Reorganization, the Acquisition, and the sale of the Common Stock offered hereby and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds." The capitalization table should be read in connection with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Unaudited Pro Forma Combined Financial Statements, the Company's financial statements and related notes thereto and Roda's consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
AS OF DECEMBER 31, 1997 -------------------------- COMPANY PRO FORMA PREDECESSOR AS ADJUSTED ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Short-term debt, including current portion of long-term debt and capitalized lease obligations ................ $ 885 $ 1,870 ====== ======= Long-term debt and capitalized lease obligations, net of current portion .................................... $1,517 $ 2,179 Stockholders' equity: Preferred stock, no par value, 10,000,000 shares authorized; none issued and outstanding .............. -- -- Common stock, no par value, 30,000,000 shares authorized; and 4,865,000 shares issued and outstanding, pro forma as adjusted(1) ................ 6 21,765 Additional paid-in capital .............................. 734 -- Retained earnings ....................................... 2,411 -- ------ ------- Total stockholders' equity .............................. 3,151 21,765 ------ ------- Total capitalization .................................... $4,668 $23,944 ====== =======
- ---------- (1) Does not include 600,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options to purchase 230,800 shares have been granted at the initial public offering price subject to consummation of the Offering. See "Management -- Stock Option Plans" and "Underwriting." 15 DILUTION The difference between the initial public offering price per share and net tangible book value per share of Common Stock after this Offering constitutes the dilution to investors in this Offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of then outstanding shares of Common Stock. At December 31, 1997, the Predecessor's net tangible book value was $3.2 million, or $1.02 per share of Common Stock. After giving effect to (i) the Reorganization, (ii) the Acquisition, and (iii) the sale of the 2,100,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and the receipt and application of the estimated net proceeds therefrom (less underwriting discounts and commissions and estimated offering expenses), the adjusted pro forma net tangible book value of the Company as of December 31, 1997 would have been $10.9 million or $2.24 per share, representing an immediate increase in pro forma net tangible book value of $1.22 per share to existing stockholders and an immediate dilution of $9.76 per share to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per share basis: Assumed initial public offering price ......................... $ 12.00 -------- Predecessor net tangible book value ......................... $ 1.02 Decrease attributable to the Reorganization ................. (1.96) Decrease attributable to the Acquisition .................... (2.18) Increase attributable to investors in this offering ......... 5.36 ------- Pro forma as adjusted net tangible book value of the Company after the Offering .................................. 2.24 -------- Dilution to new investors ..................................... $ 9.76 ========
The following table summarizes the number of shares of Common Stock issued by the Company, the total consideration paid to the Company, and the average price per share paid by the existing stockholders, the Roda stockholders and the new investors. For purposes of the total consideration and average price per share paid by the existing stockholders, the Company has based such valuation on the aggregate amount of such stockholders' cash equity contributions to the Predecessor without deducting distributions paid to such stockholders.
SHARE PURCHASED TOTAL CONSIDERATION ----------------------- ------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- --------- ------------- --------- -------------- Existing stockholders ......... 2,595,261 53.3% $ 740,000 2.6% $ 0.29 ----------- Roda stockholders ............. 169,739 3.5 2,037,000 7.3 $ 12.00 New investors ................. 2,100,000 43.2 25,200,000 90.1 $ 12.00 --------- ----- ----------- ----- Total ......................... 4,865,000 100.0% $27,977,000 100.0% ========= ===== =========== =====
See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Underwriting." 16 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements are based on the historical financial statements of the Predecessor and Roda. The unaudited pro forma combined balance sheet, to the extent indicated, gives effect to: (i) the Reorganization, (ii) the Acquisition and (iii) the Offering, as if each occurred as of December 31, 1997. The unaudited pro forma combined statement of income gives effect to the Acquisition as if it occurred on January 1, 1997. With the exception of share and per share amounts, the Reorganization and the Offering have no effect on the unaudited pro forma combined statement of income. The unaudited pro forma combined financial statements give effect to the Acquisition under the purchase method of accounting. The Roda financial statements have been adjusted to conform to United States Generally Accepted Accounting Principles and have been converted into Dollars using the average exchange rate of $1.66 to 1.00 pound for the statement of income for the year ended December 31, 1997 and the year end exchange rate of $1.67 to 1.00 pound for the balance sheet as of December 31, 1997. The unaudited pro forma combined statement of income is not necessarily indicative of operating results which would have been achieved had the Acquisition been completed on January 1, 1997 and should not be construed as representative of future operating results. These unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements of the Company and Roda Limited including the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 17 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1997
RODA REORGANIZATION THE (HISTORICAL PREDECESSOR ADJUSTMENTS(1)(2) COMPANY CONVERTED)(3) ------------- ------------------- ----------- --------------- (IN THOUSANDS) CURRENT ASSETS: Cash .............................................................. $ 67 $ -- $ 67 $ 2 Accounts receivable ............................................... 5,673 -- 5,673 1,381 Inventories ....................................................... 940 -- 940 246 Prepaid expenses and other current assets ......................... 78 -- 78 169 Notes and advances receivable -- stockholder/officers ............. 136 -- 136 -- Deferred income taxes ............................................. 47 295 (1) 342 -- ------- ----------- -------- ------ TOTAL CURRENT ASSETS ............................................... 6,941 295 7,236 1,798 Property and equipment, net ....................................... 3,579 -- 3,579 1,442 Goodwill and other assets ......................................... 418 -- 418 3,513 ------- ----------- -------- ------ TOTAL ASSETS ....................................................... $10,938 $ 295 $ 11,233 $6,753 ======= =========== ======== ====== CURRENT LIABILITIES Current portion of long-term debt -- third parties ................ $ 407 $ -- $ 407 $ 780 Revolving line of credit .......................................... 300 -- 300 -- Current portion of obligations under capital lease ................ 178 -- 178 205 Accounts payable .................................................. 3,854 -- 3,854 932 Accrued expenses .................................................. 1,474 -- 1,474 579 Reorganization notes .............................................. -- 6,000 (2) 6,000 -- Cash payable to Roda stockholders ................................. -- -- -- -- ------- ----------- -------- ------ TOTAL CURRENT LIABILITIES .......................................... 6,213 6,000 12,213 2,496 Long-term debt third parties -- net of current portion ............ 1,185 -- 1,185 1,195 Obligations under capital lease -- net of current portion ......... 332 -- 332 467 Notes payable -- related parties .................................. -- -- -- 1,419 Deferred income taxes ............................................. 57 354 (1) 411 165 Other liabilities ................................................. -- -- -- 138 ------- ----------- -------- ------ TOTAL LIABILITIES .................................................. 7,787 6,354 14,141 5,880 TOTAL STOCKHOLDERS' EQUITY ......................................... 3,151 (6,000) (2) (2,908) 873 (59) (1) ------- ----------- -------- ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $10,938 $ 295 $ 11,233 $6,753 ======= =========== ======== ======
COMPANY ACQUISITION COMPANY OFFERING PRO FORMA ADJUSTMENTS(4) PRO FORMA ADJUSTMENTS(5) AS ADJUSTED ---------------- ----------- ------------------ ------------ (IN THOUSANDS) CURRENT ASSETS: Cash .......................................................... $ -- $ 69 $ 22,636 $ 8,447 272 (6,111) (1,419) (6,000) (1,000) Accounts receivable ........................................... -- 7,054 7,054 Inventories ................................................... -- 1,186 -- 1,186 Prepaid expenses and other current assets ..................... -- 247 -- 247 Notes and advances receivable -- stockholder/officers ......... -- 136 -- 136 Deferred income taxes ......................................... -- 342 -- 342 --------- ------- ---------- ------- TOTAL CURRENT ASSETS ........................................... -- 9,034 8,378 17,412 Property and equipment, net ................................... -- 5,021 -- 5,021 Goodwill and other assets ..................................... (100) 11,206 (272) 10,934 (3,513) 10,888 --------- ------- ---------- ------- TOTAL ASSETS ................................................... $ 7,275 $25,261 $ 8,106 $33,367 ========= ======= ========== ======= CURRENT LIABILITIES Current portion of long-term debt -- third parties ............ $ -- $ 1,187 $ -- $ 1,187 Revolving line of credit ...................................... -- 300 -- 300 Current portion of obligations under capital lease ............ -- 383 -- 383 Accounts payable .............................................. -- 4,786 -- 4,786 Accrued expenses .............................................. -- 2,053 -- 2,053 Reorganization notes .......................................... -- 6,000 (6,000) -- Cash payable to Roda stockholders ............................. 6,111 6,111 (6,111) -- --------- ------- ---------- ------- TOTAL CURRENT LIABILITIES ...................................... 6,111 20,820 (12,111) 8,709 Long-term debt third parties -- net of current portion ........ -- 2,380 (1,000) 1,380 Obligations under capital lease -- net of current portion ..... -- 799 -- 799 Notes payable -- related parties .............................. -- 1,419 (1,419) -- Deferred income taxes ......................................... -- 576 -- 576 Other liabilities ............................................. -- 138 -- 138 --------- ------- ---------- ------- TOTAL LIABILITIES .............................................. 6,111 26,132 (14,530) 11,602 TOTAL STOCKHOLDERS' EQUITY ..................................... (873) (871) 22,636 21,765 2,037 --------- ------- ---------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $ 7,275 $25,261 $ 8,106 $33,367 ========= ======= ========== =======
18 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (1) As a result of the conversion from a S corporation to a C corporation the Company will record: (i) a deferred tax asset of $295,000, (ii) a deferred tax liability of $354,000, and (iii) the resulting net decrease in retained earnings of $59,000. (2) Reflects the issuance of the Reorganization Notes consisting of: (i) the $3.6 million Distribution Notes, the amount of which approximates the undistributed S corporation taxable income to the Predecessor stockholders estimated through the anticipated date of the Reorganization, and (ii) the $2.4 million Exchange Notes to be issued in consideration for a portion of the equity of the Predecessor (assuming an initial public offering price of $12.00 per share). (3) Historical balances for Roda at December 31, 1997 have been adjusted to conform to United States Generally Accepted Accounting Principles, including (i) the recognition of goodwill of $3.5 million related to a 1996 management buyout of Roda, (ii) the recording of a deferred tax liability of $165,000 and (iii) the resulting net increase to stockholders' equity of $3.3 million. (4) The aggregate consideration of $8.1 million payable to the Roda stockholders will consist of (i) 169,739 shares of Common Stock and (ii) a cash payment for the balance of the consideration. For presentation purposes, the shares issuable as part of the consideration have been valued at $2.0 million (assuming an initial public offering price of $12.00 per share), resulting in an assumed cash payment of $6.1 million which has been presented as "Cash Payable to Roda Stockholders." This liability will be satisfied with a portion of the net proceeds of the Offering. The purchase of Roda has been accounted for based upon available information regarding the estimated fair value of the assets and liabilities acquired as follows: Purchase price .................. $ 8,148,000 Acquisition costs ............... 100,000 Net liabilities assumed ......... 2,640,000 ----------- Goodwill ........................ $10,888,000 ===========
Roda's stockholders' equity of $873,000 and prior goodwill of $3.5 million have been eliminated in consolidation with the Company. (5) The Offering adjustments assume an initial public offering price of $12.00 per share and give effect to (i) the receipt of the assumed net proceeds of $22.6 million (after deducting underwriting discounts and commissions of $1.8 million and estimated offering expenses of $800,000), (ii) the recognition of a $272,000 portion of the offering expenses previously paid and deferred by the Predecessor at December 31, 1997, (iii) the repayment of the Reorganization Notes, (iv) satisfaction of the liability for cash payable to the Roda stockholders of $6.1 million, (v) the repayment of the $1.4 million (850,000 pounds) Roda Seller Debt and (vi) the repayment of $1.0 million of long-term debt to third parties. 19 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997
RODA PREDECESSOR/ (HISTORICAL ACQUISITION COMPANY COMPANY CONVERTED)(1) ADJUSTMENTS PRO FORMA -------------------- --------------- ----------------- -------------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales ............................................ $ 35,744 $6,961 $ -- $ 42,705 Operating expenses: Costs of production ................................. 26,894 4,293 -- 31,187 Selling, general and administrative ................. 5,794 1,418 -- 7,212 Depreciation and amortization ....................... 694 148 -- 842 Amortization of goodwill ............................ -- 90 (90)(2) 272 272 (2) ------------- ------ --------- ------------- 33,382 5,949 (182) 39,513 ------------- ------ --------- ------------- Income from operations ............................... 2,362 1,012 (182) 3,192 Interest expense .................................... (250) (345) -- (595) Other income ........................................ 35 86 -- 121 ------------- ------ --------- ------------- Income before income taxes and minority interest...... 2,147 753 (182) 2,718 Provision for income taxes .......................... 129 265 -- 394 ------------- ------ --------- ------------- Income before minority interest ...................... 2,018 488 (182) 2,324 Minority interest ................................... -- 106 (106) (3) -- ------------- ------ --------- ------------- Net income ........................................... $ 2,018 $ 382 $ (76) $ 2,324 ============= ====== ========= ============= PRO FORMA DATA (UNAUDITED): Income before income taxes ........................... $ 2,147 $ 2,718 Pro forma provision for income taxes ................ 880 (4) 1,142 (5) ------------- ------------- Pro forma net income ................................. $ 1,267 $ 1,576 ============= ============= Pro forma earnings per share ......................... $ 0.41 $ 0.42 ============= ============= Pro forma shares outstanding ......................... 3,095,261 (6) 3,774,219 (7) ============= ============= Pro forma as adjusted earnings per share ............. $ 0.34 (8) ============= Pro forma as adjusted shares outstanding ............. 4,865,000 (9) =============
20 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (1) Historical balances for Roda at December 31, 1997 have been adjusted to conform to United States Generally Accepted Accounting Principles, including the amortization of goodwill of $90,000 related to a 1996 management buyout of Roda and the recording of deferred taxes of $75,000. (2) Reflects (i) the elimination of Roda's amortization of goodwill of $90,000 related to the 1996 management buyout of Roda and (ii) the Company's recognition of amortization of goodwill of $272,000 resulting from the Acquisition. (3) Reflects the elimination of $106,000 of minority interest in the earnings of Roda. (4) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (5) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis and computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (6) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 500,000 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (7) Reflects (i) the shares described in footnote (6) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the cash liability payable to the Roda stockholders in connection with the Acquisition. (8) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (850,000 pounds) to be repaid through the application of a portion of the net proceeds from the Offering. See "Use of Proceeds." (9) Reflects CGII shares to be outstanding, including (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, (iii) 169,739 shares issuable in connection with the Acquisition and (iv) 2,100,000 shares to be sold in the Offering. See "The Company -- The Reorganization." 21 SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for the Predecessor and selected unaudited pro forma combined financial data for the Company. The selected historical financial data presented below as of and for the three years ended December 31, 1995, 1996 and 1997 are derived from the Predecessor's audited financial statements appearing elsewhere in this Prospectus and should be read in conjunction with those financial statements and the related notes appearing elsewhere in this Prospectus. The selected historical financial data presented below as of and for the years ended December 31, 1993 and 1994 are derived from the unaudited financial statements of the Predecessor for the year ended December 31, 1993 and audited financial statements of the Predecessor for the year ended December 31, 1994. The pro forma data are unaudited. The unaudited financial statements include all adjustments, consisting of only normal recurring accruals, which management considers necessary for a fair presentation of the financial position and the results of operations for these periods. The selected financial data below should be read in conjunction with the Predecessor financial statements and the related notes thereto, the Unaudited Pro Forma Combined Financial Statements and the related notes thereto and the information in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1993 1994 1995 1996 ------------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales ................................ $ 13,959 $15,927 $17,327 $23,193 Operating expenses: Costs of production ..................... 9,637 12,085 12,860 17,616 Selling, general and administrative ..... 3,053 3,151 3,441 4,270 Depreciation and amortization ........... 281 448 498 563 --------- ------- ------- ------- 12,971 15,684 16,799 22,449 --------- ------- ------- ------- Income from operations ................... 988 243 528 744 Interest expense ........................ (99) (173) (257) (234) Other income ............................ 3 -- 2 48 --------- ------- ------- ------- Income before income taxes ............... 892 70 273 558 Provision for income taxes .............. 119 7 6 56 --------- ------- ------- ------- Net income ............................... $ 773 $ 63 $ 267 $ 502 ========= ======= ======= ======= PRO FORMA DATA (UNAUDITED): Income before income taxes ............... Pro forma provision for income taxes..... Pro forma net income ..................... Pro forma earnings per share ............. Pro forma shares outstanding ............. Pro forma as adjusted earnings per share.. Pro forma as adjusted shares outstanding..
YEARS ENDED DECEMBER 31, ------------------------------------------- 1997 ------------------------------------------- ACTUAL PRO FORMA -------------------- -------------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales ................................ $ 35,744 $ 42,705 Operating expenses: Costs of production ..................... 26,894 31,187 Selling, general and administrative ..... 5,794 7,212 Depreciation and amortization ........... 694 1,114 ------------- ------------- 33,382 39,513 ------------- ------------- Income from operations ................... 2,362 3,192 Interest expense ........................ (250) (595) Other income ............................ 35 121 ------------- ------------- Income before income taxes ............... 2,147 2,718 Provision for income taxes .............. 129 394 ------------- ------------- Net income ............................... $ 2,018 $ 2,324 ============= ============= PRO FORMA DATA (UNAUDITED): Income before income taxes ............... $ 2,147 $ 2,718 Pro forma provision for income taxes..... 880 (2) 1,142 (3) ------------- ------------- Pro forma net income ..................... $ 1,267 $ 1,576 ============= ============= Pro forma earnings per share ............. $ 0.41 $ 0.42 ============= ============= Pro forma shares outstanding ............. 3,095,261 (4) 3,774,219 (5) ============= ============= Pro forma as adjusted earnings per share.. $ 0.34 (6) ============= Pro forma as adjusted shares outstanding.. 4,865,000 (7) =============
AT DECEMBER 31, ---------------------------------------------- ------------------------ 1993 1994 1995 1996 1997 ------------- -------- -------- -------- ------------------------ PRO FORMA ACTUAL AS ADJUSTED(8) --------- ------------ (UNAUDITED) (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents ................... $ 71 $ 144 $ 1 $ 543 $ 67 $ 8,447 Working capital ............................. 553 338 32 (867) 728 8,703 Total assets ................................ 3,787 5,680 5,568 9,471 10,938 33,367 Long-term debt and capitalized lease obligations, net of current portion ........ 623 1,414 1,151 1,300 1,517 2,179 Stockholders' equity ........................ 1,742 1,084 830 1,344 3,151 21,765
(See footnotes on following page) 22 (footnotes from previous page) (1) Gives effect to the Reorganization and the Acquisition as if they each had occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial Statements. (2) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (3) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 500,000 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the cash liability payable to the Roda stockholders in connection with the Acquisition. (6) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (850,000 pounds) to be repaid through the application of a portion of the net proceeds from the Offering. See "Use of Proceeds." (7) Reflects CGII shares to be outstanding, including (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, (iii) 169,739 shares issuable in connection with the Acquisition and (iv) 2,100,000 shares to be sold in the Offering. See "The Company -- The Reorganization." (8) Gives effect to the following transactions as if they had occurred on December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii) the sale of 2,100,000 shares of Common Stock offered hereby and the use of proceeds therefrom, including: (a) the repayment of the Reorganization Notes, (b) the satisfaction of the liability for the cash payable to the Roda stockholders of $6.1 million (assuming an initial public offering price of $12.00 per share), (c) the repayment of the Roda Seller Debt, and (d) the repayment of long-term debt of $1.0 million to third-parties. See the Unaudited Pro Forma Combined Financial Statements and "Use of Proceeds." 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company commenced its operations in 1989 when it opened a printing facility in New Jersey to provide overnight printing and delivery of time-sensitive analytical research and marketing reports for its financial institution customers in the New York City metropolitan area. Currently, the Company operates two facilities in the New York City area and has agreed to acquire London-based Roda, giving the Company its first facility outside the United States. To date, the Company has experienced significant growth primarily through the (i) expansion of its existing customer base, (ii) addition of products and services, (iii) assimilation of in-house printing operations, (iv) acquisition of selected assets and (v) establishment of strategic alliances. Immediately prior to the Offering, the Predecessor will be reorganized such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for a total of 2,595,260 shares of Common Stock and Exchange Notes in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization, estimated to total $3.6 million, and will issue Distribution Notes in such amount to evidence such obligations. Concurrently with the consummation of the Offering, the Company will acquire all of the issued share capital of Roda pursuant to the Roda Purchase Agreement for an aggregate consideration of approximately $8.1 million. The $8.1 million consideration will be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will be valued at the initial public offering price, and (ii) a cash payment for the balance of the consideration ($6.1 million, assuming an initial public offering price of $12.00 per share). In addition to the consideration, Roda's outstanding indebtedness will be reflected on the Company's consolidated balance sheet from and after the consummation of the Acquisition. As of December 31, 1997, Roda had $4.3 million of indebtedness outstanding, including the Roda Seller Debt. Under the terms of the Roda Purchase Agreement, the Company has committed to cause Roda to repay the entire $1.4 million (850,000 pounds) of the Roda Seller Debt within 28 days following the closing. The Company intends to repay this indebtedness from the proceeds of the Offering. In order to secure the performance by the selling stockholders of Roda of certain warranties and covenants, $444,800 (275,000 pounds) of the cash portion of the consideration will be held in escrow until one year following the closing. The obligations of the parties under the Roda Purchase Agreement are contingent upon the closing of the Offering. Roda provides printing and document output and management services to financial services companies in the United Kingdom and European markets, and has been a strategic partner in the World Research Link(TM). Following the Offering, Roda will become a wholly-owned subsidiary of the Company and its day-to-day operations in London will continue to be supervised by its current management team. To date, the Predecessor has been taxed as an S corporation. In connection with the Offering, the Company will become subject to federal and additional state income taxes upon the termination of the S corporation status. Concurrently with becoming subject to federal and additional state income taxes, the Company will record additional deferred tax assets of $295,000 and additional deferred tax liabilities of $354,000 and a corresponding net tax expense of $59,000 in its statement of income. These tax items will be reflected as a special charge in the Company's income statement for the quarter in which the Reorganization occurs. The Company's five largest customers, all of which are financial institutions, accounted for approximately 65% of its net sales for the year ended December 31, 1997. After giving effect to the Acquisition, net sales to customers outside the United States would have accounted for 16% of the Company's pro forma net sales in the year ended December 31, 1997, and the Company anticipates that foreign sales will account for a significant portion of net sales in the foreseeable future. As a result, 24 the Company's operations may be subject to the fluctuation of currency exchange rates, various and changing regulatory requirements, increased sales and marketing expenses, political and economic instability, difficulty in staffing and managing foreign operations, potentially adverse taxes, complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. The Company's largest customer, Goldman, Sachs & Co., accounted for approximately 24% of the Company's net sales during 1997. Although the Company has had long-term relationships with its significant customers, the Company's customers may terminate their relationship upon minimal, if any, advance notice and there can be no assurance that these relationships will continue. In addition, given the concentration of customers in the financial services industry, the Company's results of operations will be particularly sensitive to fluctuations in the economy or financial markets affecting this industry. The Company's net sales are derived primarily from providing printing and distribution services for customers in the financial services, insurance and publishing industries, a substantial component of which is the printing and distribution of financial and analytical research and marketing materials for the financial services industry. The Company also derives part of its net sales from providing fulfillment services, including labeling, mailing, inserting, kit assembly and inventory management for its customers. Finally, the Company provides computer and data output services and other document related services for customers. The Company's operating expenses consist of the following: (i) costs of production, (ii) selling, general and administrative expenses and (iii) depreciation and amortization. Costs of production consist primarily of the cost of paper and other production materials, labor, outside services, insurance and other production expenses including repairs and maintenance and rent. Selling, general and administrative expenses consist primarily of management, administrative and marketing expenses, salaries for officers, salaries and commissions paid to sales persons and professional fees. The Company's quarterly operating results have been and will continue to be subject to variation, depending upon factors such as the mix of business among the Company's services, the cost of materials, labor and technology, particularly in connection with the delivery of business services, the costs associated with initiating new outsourcing contracts or opening new offices, the economic condition of the Company's target markets, seasonal concerns and the costs of acquiring and integrating new businesses. RESULTS OF OPERATIONS The following table sets forth certain items from the Company's Statement of Income as a percentage of net sales for the periods indicated:
YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Net sales ............................................. 100.0% 100.0% 100.0% Costs of production .................................. 74.2 76.0 75.3 Selling, general and administrative expenses ......... 19.9 18.4 16.2 Depreciation and amortization ........................ 2.9 2.4 1.9 ----- ----- ----- Income from operations ................................ 3.0 3.2 6.6 Interest expense ..................................... ( 1.5) ( 1.0) ( 0.7) Other income ......................................... 0.0 0.2 0.1 ----- ----- ----- Income before income taxes ............................ 1.5 2.4 6.0 Provision for income tax ............................. 0.0 0.2 0.4 ----- ----- ----- Net income ............................................ 1.5% 2.2% 5.6% ===== ===== =====
Year ended December 31, 1997 compared to year ended December 31, 1996. Net sales. The Company reported net sales of $35.7 million for the year ended December 31, 1997 compared to $23.2 million for the year ended December 31, 1996, an increase of $12.5 million or 54%. The majority of this increase was attributable to an increase in business with existing customers, with 25 the balance attributable to the addition of new customers. In 1997, the Company had four customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 57% of net sales. In 1996, the Company had three customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 42% of net sales. Costs of production. Costs of production were $26.9 million for 1997, as compared to $17.6 million for 1996, an increase of $9.3 million or 53%. Costs of production were approximately 75% of net sales for 1997, as compared to approximately 76% of net sales for 1996. The decrease in costs of production as a percentage of net sales was primarily a result of economies of scale resulting from improved utilization of the Company's existing facilities. Selling, general and administrative expenses. Selling, general and administrative expenses increased to approximately $5.8 million for 1997 from approximately $4.3 million for 1996, an increase of $1.5 million. The increase was attributable to costs associated with the addition of personnel to support future growth. As a percentage of net sales, selling, general and administrative expenses decreased from approximately 18% for 1996 to approximately 16% for 1997, primarily reflecting greater economies of scale as the Company improved the utilization of its existing facilities. Depreciation and amortization. Depreciation and amortization expense was $694,000 for 1997 as compared to $563,000 for 1996, an increase of $131,000 or 23%. The increase in depreciation and amortization expense was attributable to the addition of equipment by the Company during 1997. In connection with the Acquisition, the Company will record goodwill of approximately $10.9 million which will result in additional amortization expense in the future of approximately $272,000 per year. Interest expense. Interest expense was $250,000 for 1997, as compared to $234,000 for 1996, an increase of $16,000 or 7%. Such increase was largely attributable to higher levels of borrowings during 1997. Interest expense reflects interest on notes payable, capital lease obligations and on utilizations of the line of credit with Summit Bank. Other income. Other income included $35,000 for 1997, as compared to $48,000 for 1996, a decrease of $13,000. Other income primarily reflected gains on the sale of certain depreciated equipment. Provision for income taxes. Provision for income taxes was $129,000 for 1997, as compared to $56,000 for 1996. The increase is attributable to higher income generated during the period. As discussed above, upon termination of the Company's S corporation status, the Company will become subject to federal and additional state income taxes. Net income. As a result of the aforementioned, net income increased to $2.0 million for 1997 from $502,000 for 1996, an increase of $1.5 million. As a percentage of net sales, net income increased to 6% in 1997 from 2% in 1996. Year ended December 31, 1996 compared to year ended December 31, 1995. Net sales. The Company had net sales of $23.2 million for the year ended December 31, 1996 compared to $17.3 million for the year ended December 31, 1995, an increase of $5.9 million or 34%. The majority of this increase was attributable to an increase in business with existing customers, with the balance attributable to the addition of new customers. In 1996, the Company had three customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 42% of net sales. In 1995, the Company had two customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 37% of net sales. Costs of production. Costs of production were $17.6 million for 1996, as compared to $12.9 million for 1995, an increase of $4.7 million or 37%. Costs of production were approximately 76% of net sales for 1996, as compared to approximately 74% of net sales for 1995. The decrease in costs of production as a percentage of net sales was primarily a result of economies of scale resulting from improved utilization of the Company's existing facilities. Selling, general and administrative expenses. Selling, general and administrative expenses increased to approximately $4.3 million for 1996 from approximately $3.4 million for 1995, an increase of $900,000 or 26%. The increase was attributable to costs associated with the addition of 26 personnel to support future growth. As a percentage of net sales, selling, general and administrative expenses decreased to approximately 18% for 1996 from approximately 20% for 1995, reflecting economies of scale as the Company increased facilities utilization. Depreciation and amortization. Depreciation and amortization expense was $563,000 for 1996 as compared to $498,000 for 1995, an increase of $65,000 or 13%. The increase in depreciation and amortization expense primarily reflects the addition of equipment by the Company during 1996. Interest expense. Interest expense was $234,000 for 1996 compared to $257,000 for 1995, a decrease of $23,000 or 9%. Other income. Other income included $48,000 for 1996 as compared to $2,000 for 1995. Other income primarily reflected gains on the sale of depreciated equipment. Provision for income taxes. Provision for income taxes was $56,000 for 1996 as compared to $6,000 for 1995. The increase is attributable to higher income generated during the period. Net income. As a result of the aforementioned, net income increased to $502,000 for 1996 from $267,000 for 1995, an increase of $235,000 or 88%. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has financed its operations, including working capital and equipment acquisitions, using bank borrowings, vendor financing, financing lease transactions, as well as from cash flow generated from operating activities, and stockholder debt and equity contributions. As of December 31, 1997, the Company had net working capital of $728,000, as compared to a net working capital deficit at December 31, 1996 of $867,000. Net cash provided by operating activities was $1.5 million, $1.7 million and $594,000 for each of the years ended December 31, 1997, 1996 and 1995, respectively. Net cash used in investing activities was $797,000, $1.6 million and $254,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Net cash used in investing activities was primarily attributable to the acquisition of property and equipment, offset in part by the cash generated from the sale and leaseback of certain equipment for $1.3 million in 1997. Net cash used in financing activities totaled $1.1 million in 1997, as compared to net cash generated from financing activities of $511,000 in 1996. In 1995, net cash used in financing activities totaled $483,000. In 1997, cash was used in financing activities primarily to repay indebtedness to related parties and to fund a dividend to the Company's stockholders. In 1996, cash was provided by financing activities primarily from the net incurrence of additional third-party indebtedness to finance the acquisition of equipment and certain other assets. In 1995, cash was used in financing activities primarily to pay a dividend to the Company's stockholders, as well as to repay certain indebtedness. On December 15, 1997, the Company entered into a new Loan and Security Agreement with Summit Bank (the "Loan and Security Agreement"). The Loan and Security Agreement provides for a $2.0 million revolving line of credit and a $1.0 million three-year term loan facility. The revolving line of credit expires on May 30, 1998. Borrowings under the line of credit and the term loan bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 2.25% (8.5% at December 31, 1997). The debt is collateralized by substantially all of the Company's assets. Among other things, the Loan and Security Agreement restricts the Company's ability to incur additional indebtedness and requires the Company to maintain certain financial ratios. As of December 31, 1997, $300,000 was outstanding under the revolving line of credit and $1.0 million was outstanding under the term loan facility. The Company intends to repay the term loan facility with the proceeds of the Offering. As a result of the Acquisition, the Company will have additional debt outstanding, including borrowings under Roda's existing credit facility with the Bank of Scotland (the "Roda Facility") consisting of a $2.0 million (1.2 pounds million) term loan and a $418,000 (250,000 pounds) revolving line of credit. The line of credit is reviewed by the bank annually for renewal, but is payable on demand. Borrowings under both the term loan and the line of credit bear interest at the bank's base rate plus 2.50% (7.25% as of December 31, 1997). The debt is collateralized by substantially all of Roda's assets. As of December 31, 27 1997, approximately $357,000 (214,000 pounds) was outstanding on the credit facility and $1.6 million (968,000 pounds) was outstanding under the term loan. The term loan is payable in equal monthly installments through October 20, 2001. The Company intends to seek to expand its operations through the acquisition of additional businesses which provide commercial, digital and time-sensitive printing services and through the expansion of its outsourcing business. Such acquisitions could involve the issuance of additional securities of the Company, the payment of cash, including proceeds from the Offering, or the incurrence of debt. No assurances can be made that the Company will have access to necessary financing to pursue its growth strategy. The Company believes that the combination of the proceeds raised from the Offering, together with internally generated funds, will provide sufficient cash to meet the Company's capital and other cash requirements for the next twelve months. Year 2000 Issues In the year 2000, the Company's computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company will be required to modify its purchased software program so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company has been informed that the vendor for the purchased software is expected to release an upgrade to address the Year 2000 issue no later than December 31, 1998, which is prior to any anticipated impact on the Company's operating systems. The cost of the upgrade to the Company is included in its maintenance contract with its vendor and will not have a material impact on the Company's future financial results. The Company has had communications with all of its significant, large customers and suppliers to determine the extent to which the Company's interface systems are vulnerable to any failure by third parties to upgrade their own software. The Company believes that its large customers and suppliers are addressing the issues and will timely adjust their systems. However, if such modifications are not made by the Company or its vendors or customers, or are not completed in a timely manner, the Company's operations could be adversely affected. 28 BUSINESS OVERVIEW The Company provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company, which commenced operations in 1989, operates on a global basis through its facilities in the United States and through alliances with Roda, its strategic partner in the United Kingdom, and with its strategic partner in Hong Kong. The Company believes that it is presently among the largest volume producers of financial research reports in the world, having produced over 2 billion pages during 1997. Graphic communications services provided by the Company include digital communications, document management, offset printing, digital printing, data output, bindery, fulfillment services, mailing services and outsource services. The Company prints brochures, booklets, confirmations of trade, client statements and adhesive books to meet the daily, weekly and monthly needs of its customers. To facilitate the rapid distribution of documents globally, the Company has designed and implemented the World Research Link(TM), an array of electronic data communication networks linking each of the Company's facilities with its strategic operating partners and major customers. To date, the Company has established extensive client relationships with leading companies in the financial services, insurance and publishing industries, including CS First Boston, Inc., Deutsche Morgan Grenfell, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch & Co., Inc., The Prudential Insurance Company of America, Empire Blue Cross/Blue Shield, New York Life Insurance Company, FIND/SVP, Inc. and The McGraw-Hill Company, respectively. The Company has experienced significant growth, with net sales growing from $17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7 million pro forma for the Acquisition) for the year ended December 31, 1997 and income from operations growing over the same period from $528,000 to $2.4 million ($3.2 million pro forma for the Acquisition), representing compounded annual growth rates of 43.6% and 113.2%, respectively. The Company intends to continue to pursue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. As part of its growth strategy, concurrently with the closing of the Offering, the Company will acquire its London-based strategic partner Roda. Roda provides printing and document output and management services to financial services companies, primarily in the United Kingdom and European markets. The Company's senior officers have extensive experience in the graphic communications services industry, having been employed by the Company for an average of approximately 6 years and having an average of approximately 19 years of industry experience. The Company's Chairman, President and Chief Executive Officer, Michael R. Cunningham, founded the Company and has been actively involved in the industry for over 15 years. Furthermore, based on the proven track record of its experienced management team and the wide range of services it provides, the Company is well-positioned to capitalize on the increasing outsourcing trend as well as on consolidation opportunities in the industry. INDUSTRY BACKGROUND The Company estimates that the commercial printing and document production market accounted for more than $80 billion in revenue in the United States and over $10 billion in revenue in the United Kingdom in 1997, based upon information from certain trade associations and other industry sources. The printing and document management business in the United States is highly fragmented with approximately 50,000 companies presently in operation, only approximately 20% of which are estimated to have annual net sales in excess of $2 million. The Company believes that the commercial printing and document production business is similarly fragmented in the United Kingdom and in certain other markets. 29 The printing and document management industry has evolved significantly over the last several years driven in large part by rapid advances in publishing and electronic information technology. The Company believes that the growth of the printing and document production industry has been due to various factors, including (i) the increasing volume, complexity and variety of documents and printed materials produced by businesses worldwide, (ii) the increasing demand by businesses for the global dissemination of time-sensitive information, and (iii) the growing trend of businesses to outsource their in-house printing operations (e.g., print shops, copy centers and document management facilities) to document professionals equipped to provide these services more efficiently and cost-effectively. BUSINESS STRATEGY The Company believes that the fragmented nature of the graphic communications industry and the limited capital resources available to many small, private operators provide the Company with significant opportunities to expand its base of operations. The Company intends to continue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. Pursue Acquisitions and Establish Strategic Alliances The Company will seek to acquire complementary operations throughout the United States, United Kingdom and other international markets which, the Company believes, possess attractive characteristics, including concentrations of prospective customers with significant printing needs, such as financial institutions. The Company will typically target acquisition candidates with (i) annual net sales ranging from $3.0 to $15.0 million; (ii) attractive growth prospects within their respective markets; (iii) complementary technological capabilities; (iv) opportunities for economies of scale and synergies with the Company; (v) solid reputation with established customer relationships; and (vi) an experienced management team. The Company may also seek to make "tuck-in" acquisitions as a means to expand its existing operations, add product lines and services as well as expand its customer base. The Company will also seek to establish additional alliances with strategic partners in targeted geographic markets. This incremental approach to growth enables the Company to expand the scope of its operations without the need for substantial capital investments while mitigating the risks associated with start-up facilities in new markets. In addition, the Company believes that such relationships foster significant cross-selling opportunities across each partners' respective customer bases. The Company believes that such alliances also provide for future acquisition opportunities. Pursuant to this strategy, the Company initially established an alliance with Roda, a United Kingdom-based printing company. As part of its growth strategy, the Company recently entered into an agreement to acquire Roda, thereby solidifying the Company's presence in the United Kingdom and European printing markets. See "The Company -- The Roda Acquisition," "Graphic Communications Services -- Time Sensitive Printing," and "Global Network." Expand Provision of Outsourcing Services To date, the Company has grown, in part, through the assimilation of certain in-house printing operations of third-party businesses, including the print shop and data output center of Goldman, Sachs & Co. and the print shop of Empire Blue Cross/Blue Shield. The Company believes that it is a cost effective and an efficient provider of a wide range of in-house printing services. The Company typically provides outsourcing services by assuming all or part of the document output and distribution responsibilities previously performed by a customer's in-house operations. In some instances, the Company may take over the management of a customer's in-house operations. See "Graphic Communications Services -- Outsourcing Services." 30 Expanding the Scope and Volume of Services Offered The Company intends to continue to expand the scope and volume of services provided to its customers through the addition of complementary products and services. The Company also continually evaluates opportunities to add new equipment to its existing facilities or enhance its current technology in order to satisfy the evolving needs of its customer base. In addition, the Company regularly evaluates opportunities to add capacity to its existing operations to meet any anticipated increase in demand of its larger customers. Capitalize on Cross-Selling Opportunities The Company also intends to actively cross-sell existing and newly-added products or services to its customers worldwide. By leveraging on the wide range of products and services offered through both its own facilities and those of its strategic partners in complementary geographic markets, the Company believes that it can better serve the needs of international customers by offering a "one-stop shopping" approach to satisfying global printing needs. In addition, the Company also believes that it can cultivate new customer relationships as a result of introductions made by its strategic partners whose respective customers may require printing output in the United States or other markets served by the Company. The Company believes that its ability to cross-sell the products and services of its global alliance provides it with a distinct competitive advantage. See "Graphic Communications Services -- Time Sensitive Printing" and "Global Network." Improve Efficiency of its Existing Operations Central to the Company's business strategy is to improve the profitability of its operations by maximizing the efficiency of its existing facilities while actively managing its operating and administrative costs. The Company believes that significant economies of scale may be achieved by leveraging its underutilized daytime production capacity through the increase of non-time-sensitive business. A significant portion of the Company's time-sensitive business is currently processed overnight, resulting in available daytime capacity. The Company also expects to achieve significant economies of scale in conjunction with its acquisition strategy. In this regard, the Company expects to (i) consolidate duplicative functions or facilities of newly-acquired businesses; (ii) leverage its purchasing power with its suppliers and employee benefit providers; and (iii) use its communication network to improve the coordination of production, maximize equipment utilization and enhance delivery. GRAPHIC COMMUNICATIONS SERVICES Time-Sensitive Services The Company's primary business focuses on the production of time-sensitive documents for major financial institutions and corporations. The Company offers a wide range of time-sensitive services including the printing, assembly and dissemination of folders, booklets and adhesive books on a daily, weekly and monthly basis. The Company also prints prospectuses, annual and semi-annual reports for mutual funds customers. The Company believes that it is presently among the largest volume producers of time-sensitive equity and fixed-income financial research reports in the world, having produced over 2 billion pages of time-sensitive equity and fixed income research reports during 1997. Typically, the Company converts electronic data received from its customers on a daily basis into tailored analytical research reports which are printed and delivered to the Company's customers prior to the start of the next business day. The Company's production processes include digital communications, offset and digital printing, multiple binding procedures, branch fulfillment, list maintenance and prompt distribution. The Company's technological capabilities enable it to produce colorful, attractive products, and distinguish research reports produced by the Company from other, ordinarily duplicated documents. In addition, the Company's World Research Link(TM) network enables the Company to print and distribute these documents, in conjunction with its strategic partners, contemporaneously throughout several global locations. See "Global Network." 31 The demand for printed research and other time-sensitive reports has continued to grow despite continuing developments in electronic data transmission, such as the Internet, which provide customers with alternative methods of transmitting time-sensitive information. The Company expects that the demand for time-sensitive printed documents will continue to grow due to (i) the increasing globalization of its customers, particularly financial institutions, (ii) the growth and expansion of global capital markets and (iii) the increasing volume, complexity and variety of document and printed materials. The Company believes that printed research reports not only serve as information tools, but serve as marketing tools as well. As such, the Company believes that customers will continue to demand high quality and colorful research reports as they seek to distinguish themselves in their own competition for clients. Outsourcing Services The Company typically provides outsourcing services by assuming all or part of the document output and distribution responsibilities previously performed by a third party's in-house operations. This service often enables such third party to focus on its core business and to close all or portions of its in-house print shop and/or document management and copy centers and permits the Company to operate and perform all services on a remote basis. Such third party can also achieve significant cost savings on the cost of technology, material and services such as paper and shipping by taking advantage of the bulk purchase arrangements which the Company has with its suppliers. Thereafter, the third party may transmit computer-generated data to one of the Company's production and printing facilities, which then processes, produces and distributes all of the reports, statements and other computer-output documents on an as needed basis. The Company believes that it can operate print shop, document management and copy center functions more efficiently and cost effectively than can a non-graphic communications company. The Company has an established track record of assimilating into its existing operations the assets and workforce of third-party in-house print operations, including its assimilation of the print shop and data output center of Goldman, Sachs & Co. and the print shop of Empire Blue Cross/Blue Shield. In each of the foregoing transactions, the Company acquired selected equipment and inventory on favorable terms and retained a majority of the employees. Data Output Services The Company also provides a variety of data output services, including the production of trade confirmations and brokerage and investment account statements for a major financial institution. In addition, the Company provides certain database management services to its customers, including the ability to output data files of addresses directly onto envelopes or other printed material, insert flyers and other materials into mailings as well as to offer presorting of first class mail with bulk postal drop services. Commercial Printing The Company produces a broad range of commercial printing products that include catalogs, directories, brochures, booklets, folders, newsletters, flyers, sales and marketing kits and manuals. The type of printing varies from simple one color documents to complex multi-color documents on a wide range of paper stocks. The Company's customers for commercial printing products include its financial institution clients, insurance companies, healthcare and pharmaceutical companies and trade associations. The Company also provides "overflow" printing for a number of in-house print operations of investment banking firms. Given the non-time-sensitive nature of many of these projects, the Company typically produces these products during non-critical daytime hours. The Company expects to continue to increase the volume of daytime commercial printing to take advantage of its available non-time-sensitive production capacity. See "Sales and Marketing." PRINTING OPERATIONS The Company provides a broad range of graphic communications services for a wide variety of commercial purposes. These services commence with the intake of data, and continue through the prepress and press processes, binding, and conclude with fulfillment and distribution. The Company 32 continuously reviews its printing equipment needs and evaluates advances in computer hardware, software and peripheral equipment, computer networking and telecommunications systems as they relate to the Company's operations. Telecommunications and Order Entry The Company's capital investment in state-of-the-art telecommunications and customer on-line ordering systems allows the Company to offer its services globally and throughout its customers' organizational network. In lieu of manual delivery of customer data files or artwork, the Company's telecommunications capabilities allow it to receive direct transmission of files, saving both time and expense while increasing quality of the work produced. Customers have many alternatives for sending electronic files to the Company. Using a modem, customers can contact the Company's private and secure electronic bulletin board, log-in and transmit or access data files. For customers with advanced telecommunications requirements, the Company offers ISDN line communication capability. For some of the Company's most significant customers, specialized equipment, such as fractional T1 lines have been installed. Customers having Internet access may use available File Transfer Protocol ("FTP") and World Wide Web applications to send and receive data in a secure manner. Secure router-based connections through proxy servers allow the Company to control traffic and direct files containing the text and graphics of research reports, marketing materials, mailing lists, order entry, job tickets and work orders, globally through the World Research Link(TM). In addition, the Company has developed a customized order entry system. This system links the customer with the Company and can be accessed by customers through desk-top computers, thereby permitting customers to create an order while submitting digital files. Prepress Operations At each of its facilities, the Company operates a prepress department that prepares customer-supplied text, data, artwork and images for document production. Using computerized prepress equipment, the Company processes digital files, scanned images and graphics into "composed electronic files." These electronic files are used with a variety of output options, including digital printing, conventional offset printing or for electronic publishing, such as on the Internet. In addition, the Company can distribute composed electronic files that include text and graphics in various formats through the World Research Link(TM) to other facilities for document production. See "Global Network." The Company believes that enhanced digital printing technology will further facilitate multi-purpose uses by its customers of the same electronic files. Digital printing technology will augment the Company's ability to return to the customer a printed document plus a reformatted document which can then be used on multiple media platforms including the Internet, the customer's intranet, multiple on-line information services and broadcast faxing. Press Operations The Company operates 12 presses in its Jersey City facility, seven of which are web presses and five of which are sheet-fed presses. The Company also operates five presses in its Manhattan facility, two of which are web presses and three of which are sheet-fed presses. In London, Roda operates 10 presses, all of which are sheet-fed presses. The Company's presses vary in size and speed and can produce printed materials that range in page size, type of paper, number of pages and the amount of color required. The Company currently has four digital presses, one located in Jersey City and three in New York City, and intends to add digital press capability in London. Two of the Company's digital presses have in-line binding attachments which allow for the production of finished booklets. These presses are linked directly to the Company's computerized network and are currently being utilized for the production of research reports, personalized health care documents, confirmations of trade, client statements and general print products. The Company has developed the ability to provide digital printing services as a 33 complement to offset printing. For smaller runs, digital printing is more efficient and reliable than printing on traditional presses and often results in a product of higher quality and better resolution. Digital printing involves the integration of a variety of systems that compile data, scan images, and compose data and images. Through high-speed computers, data may be received directly from customers and put directly on the press, eliminating the costly intermediate steps involved in the traditional printing process. Binding Services At each facility, the Company operates a bindery department which provide various finishing services. The Company's finishing services include cutting and folding, saddle stitching, punching, collation and inserting, and at the Jersey City facility, perfect binding and shrink-wrapping. By offering a variety of finishing services, the Company can offer its clients expeditious service as well as a wide range of finishing service options. Fulfillment Services At each facility, the Company also operates a fulfillment department. Many of the documents prepared for customers need to be stored for future distribution, both electronically and physically. The Company's fulfillment department stores materials and assembles orders for distribution upon customer request. Printed components are assembled into kits and are packed individually, or in bulk, for delivery. Upon completion of the order, the fulfillment system relieves the distribution from the customer's inventory and generates an activity report for inventory control. For those customers who require mail distribution, the Company operates a mailing department in each location. Using inkjet and cheshirre labeling machines, electronic mailing lists are addressed on envelopes. Documents are inserted into envelopes, sealed and sorted for mail. Management Information System The Company's personnel utilize a comprehensive and integrated management information system which gathers data from all departments and provides management with job status and historical information. The system is divided into several fully integrated modules consisting of estimating, production, purchasing, inventory and accounting modules. This system gives management the ability to monitor all work orders and department costs against budgets and profit goals. Using this system, management can also track the status of a particular work order as it moves through the production process. The system permits the Company to (i) determine the most efficient and cost-effective means of completing particular work orders, (ii) give customers pricing estimates quickly, (iii) measure pressroom efficiency and waste, (iv) analyze buying patterns, pricing and usage for inventory control purposes and (v) produce customized financial statements, reports and analyses. GLOBAL NETWORK In 1994, the Company, in conjunction with its strategic partners, developed a global network known as the World Research Link(TM) designed to facilitate the expeditious distribution of time-sensitive financial research reports globally, 24 hours a day. Through the use of high speed electronic links among the Company's facilities in the United States and its strategic partners in the United Kingdom and Hong Kong, the Company is able to print research reports concurrently throughout these three principal global financial markets. The Company's strategic partner in the United Kingdom is Roda, a leading research report printer established in 1976. Roda's principal customers include the London branches of numerous major international financial institutions, including CS First Boston, Inc. and Lehman Brothers Inc., as well as other major international institutions, such as J. Henry Schroder & Co. Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO Hoare Govett. Concurrently with the Offering, the Company will acquire all of the capital stock of Roda and will subsequently seek to integrate its operations within the Company. The Company's strategic partner in Hong Kong is Workable Co. Ltd. ("Workable"), a leading research report printer established in 1988. Workable's principal customers include the Hong Kong branches of numerous major international financial institutions, including CS First Boston, Inc., Merrill 34 Lynch & Co., Inc. and Indosuez W.I. Carr Securities Ltd. Workable maintains around-the-clock operations and provides overnight shipments to other principal financial centers throughout Asia. Workable has invested in state-of-the art printing and data communications technology to facilitate the receipt and distribution of electronic data files and Japanese data transmissions. The Company and Workable have implemented a joint marketing plan which provides the Company with potential cross-selling opportunities to Workable's customers who maintain operations in New York and London. The Company intends to continue to expand its World Research Link(TM) through the establishment of additional strategic alliances throughout Europe, South America and Asia. The Company regards its international relationships as cross-selling opportunities and intends to develop additional joint marketing alliances whereby the Company and its strategic partners each expect to derive business from their respective customers' operations in various global markets. SALES AND MARKETING The Company's marketing activities are handled primarily through its own sales force consisting of nine individuals, a few of whom hold management positions. Following the Acquisition, the Company will have two salesmen in London. The Company's sales representatives are generally organized among customer industry groups, such as financial services, healthcare and insurance and by specific printing and document output services, such as research reports and on-demand mutual fund reports and commercial printing. In addition, the Company employs customer service representatives to provide on-going support to existing customers and to oversee the implementation of new customer projects. The Company currently has approximately 350 customers in the United States, including financial institutions, healthcare companies, trade organizations and retail and manufacturing firms. The Company's four largest customers, Goldman, Sachs & Co., The Prudential Insurance Company of America, CS First Boston, Inc. and Merrill Lynch & Co., Inc. accounted for approximately 24%, 13%, 10% and 10% respectively, of the Company's net sales for the year ended December 31, 1997. After giving effect to the Acquisition, the Company's four largest customers, Goldman, Sach & Co., CS First Boston Incorporated, Lehman Brothers Inc., and The Prudential Insurance Company of America, accounted for approximately 20%, 12%, 11% and 11%, respectively, of the Company's net sales on a pro forma basis for the year ended December 31, 1997. In 1997, Roda's largest customers were Lehman Brothers Inc. and CS First Boston, Inc., which accounted for approximately 25% and 22%, respectively, of its sales. Roda's next three largest customers in London were J. Henry Schroder & Co. Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO Hoare Govett. Combined, these five customers accounted for approximately 86% of Roda's sales during 1997. The Company believes that its quality of its work product, timeliness of performance, on-going customer support and its ability to customize services to serve specific client needs have contributed to its record of successful customer retention. The Company encourages its major customers to enter into service contracts specifying certain types of business for a defined period. The Company believes that such contracts enable it to improve its order flow and provides it with a more predictable volume of business. The Company intends to add sales representatives and customer support staff to further increase its customer base in additional markets and to augment its volume of non-financial commercial printing. COMPETITION The commercial printing and document production industry is highly competitive. The Company competes with a variety of companies, many of which possess significantly greater financial and other resources than the Company. In the New York market, the Company competes with Bowne & Co., R.R. Donnelly, Xerox Business Services, Big Flower Press Holdings, Inc. and Merrill Corporation, and numerous smaller operations, in the printing of time-sensitive documents. Roda's major competitor in the London market is Williams Lea Ltd. (a strategic partner of Bowne & Co.). 35 The Company believes that the principal competitive factors in providing printing and document output services include technological expertise, quality and accuracy, turnaround time, fulfillment, price, reliability, security of service, reputation, client industry expertise, capacity and personalized customer support and service. No assurances can be given that the Company will be able to compete effectively against the larger companies in the printing industry. GOVERNMENTAL REGULATION Under various environmental laws, ordinances and regulations in effect in the United States, a current or previous owner or operator of real property may be held liable for the cost of removal or remediation of certain hazardous or toxic substances, including, without limitation, asbestos-containing materials, that could be located on, in or under such property. Such laws and regulations often impose clean-up responsibility and liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances, and liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. Existing laws of a similar nature in the United Kingdom will be replaced and strengthened when new laws for the remediation of contaminated land become effective. These laws will impose clean-up responsibility on a proportionate basis. Primary clean-up responsibility will be imposed on those who caused or knowingly permitted the presence of the hazardous or toxic substances. If no such persons can be found, then the current owner or occupier may have clean-up responsibility. The costs of any required remediation or removal of hazardous or toxic substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations and could exceed the property's value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such substances properly may also adversely affect the owner's ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations in the United States, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In the United Kingdom, laws and regulations require the owner or operator disposing of such substances to ensure disposal at a properly licensed disposal site. Failure to do so is a violation of law. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. As a result, the presence, with or without the Company's knowledge, of hazardous or toxic substances at any property held or operated by the Company, or acquired or operated by the Company in the future, could have an adverse effect on the Company's business, financial condition and results of operations. No assurance can be given that existing environmental audits with respect to any of the Company's properties reveal all environmental liabilities. In addition, the Company's activities are also governed by laws and regulations affecting the health and safety of its employees, including the United States Occupational Safety and Health Act ("OSHA") and the United Kingdom Health and Safety at Work etc. Act 1974 and the numerous regulations issued under it. Among other things, these laws and regulations require the Company to obtain and maintain licenses and permits and carry out risk assessments in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company. Failure to comply with applicable laws, rules or regulations or permitting requirements could subject the Company to civil remedies, including fines and injunctions, as well as possible criminal sanctions, which would have a material adverse effect on the Company. LITIGATION The Company is, from time to time, a party to legal proceedings arising in the normal course of its business. Management believes that none of the legal proceedings currently outstanding will have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company leases approximately 110,000 square feet of office and production space at its principal location in Jersey City, New Jersey under a lease which expires on February 29, 2000. The Company also subleases approximately 25,000 square feet of production space in Manhattan from 36 Goldman, Sachs & Co. under an agreement which expires December 30, 1999. In the Southwark area of London, Roda leases approximately 8,000 square feet of office and production space under an agreement which expires on the date five years subsequent to the closing of the Acquisition and leases nearby warehouse space under a lease which expires September 28, 2000. EMPLOYEES As of December 31, 1997, the Company had approximately 370 employees in the United States, all of which were employed on a full-time basis. As of such date, 255 United States-based employees were members of the United Paperworkers International Union, with which the Company has a memorandum of agreement which expires on June 30, 2000. As of December 31, 1997, Roda had approximately 50 full-time employees, of which approximately 30 were members of the National Graphical Association, a labor union in the United Kingdom. The Company believes that it is in compliance with its labor agreements and that its labor relations are good. 37 MANAGEMENT The following table sets forth certain information concerning each of the Company's directors, executive officers, designees to the Board of Directors who will become directors following the consummation of the Offering and a key employee of Roda:
NAME AGE POSITION WITH THE COMPANY - ----------------------------------- ----- --------------------------------------------- Directors and Executive Officers Michael R. Cunningham ............. 38 Chairman of the Board, President and Chief Executive Officer Gordon Mays ....................... 41 Director and Executive Vice President Timothy Mays ...................... 39 Executive Vice President of Sales; Secretary Robert Needle ..................... 39 Chief Operating Officer Kenneth G. Hay .................... 48 Vice President of Finance Ioannis Lykogiannis ............... 46 Senior Vice President, Operations Peter L. Furlonge ................. 45 Managing Director of Roda James J. Cunningham ............... 40 Director Designees to the Board of Directors Arnold Spinner* ................... 63 Director Designee Norman R. Malo* ................... 47 Director Designee
- ---------- * Upon consummation of the Offering, it is anticipated that Messrs. Spinner and Malo will become directors. Directors and Officers Michael R. Cunningham, the principal founder of the Company, has been the President and Chief Executive Officer of the Company since its inception. He has spent his entire professional career in the printing and document production industry. He also teaches Quality Control at the Center for Graphic Communications Management and Technology of New York University. Mr. Cunningham has a Masters Degree in Graphic Communications, Management and Technology from New York University. Gordon Mays has served as a director and Executive Vice President of the Company since 1991. He is presently responsible for marketing and business development and is also responsible for overseeing the Company's management information services departments, including overseeing cost control measures and governmental compliance. He has spent his entire professional career in the printing and document production industry. From 1977 to 1991, Mr. G. Mays was employed by Latham Process Corporation where he was responsible for production and sales. Timothy Mays has served as Executive Vice President of Sales and Secretary of the Company since 1991. He presently oversees sales to major corporate clients. He has spent his entire professional career in the printing and document production industry. From 1979 to 1991, Mr. T. Mays was employed by Latham Process Corporation where he was engaged in sales. Messrs T. Mays and G. Mays are first-cousins. Robert Needle joined the Company in 1995 and has served as Chief Operating Officer of the Company since February 1998. Mr. Needle has served in various capacities for the Company since 1995, including Co-Chief Operating Officer from January 1997 to February 1998. He is responsible for all operations of the Company. He has spent his entire professional career in the printing and document production industry. From 1988 to 1995, Mr. Needle was employed by Goldman Sachs & Co., first as Art Director of the Graphics Department and then as Manager of Print Operations. Kenneth G. Hay has served as Vice President of Finance of the Company since February 1998. Mr. Hay has served as a principal financial officer of the Company since he joined the Company in 1997. Prior to joining the Company, during the period 1992 through 1996, he was Vice President Finance and Chief Financial Officer of Dana Perfumes Corp. He is licensed as a certified public accountant in the State of New Jersey. 38 Ioannis Lykogiannis has served as Senior Vice President, Operations of the Company since 1995. Mr. Lykogiannis has served in various capacities for the Company since 1991, including Plant Manager from 1991 to 1995. He is responsible for all internal production operations of the Company. From approximately 1984 to 1991, Mr. Lykogiannis was employed by Latham Process Corporation, most recently as a Plant Production Manager. James J. Cunningham has been a Director of the Company since 1989. He has been engaged in the private practice of law in San Diego, California since 1987, and specializes in workers compensation and labor and employment law. Mr. Cunningham is the brother of Michael R. Cunningham, the Chairman of the Board, President and Chief Executive Officer of the Company. Designees to the Board of Directors It is expected that upon the consummation of the Offering, each of the following individuals will become directors of the Company: Arnold Spinner, Ph.D, has been the Director of the Center for Graphic Communications Management and Technology of New York University since 1984. He has held various teaching and administrative positions at New York University since 1965. Norman R. Malo has been President and Chief Operating Officer of National Financial Services Corporation, a subsidiary of Fidelity Investments since November 1997. From 1993 to November 1997, he was a Managing Director in the Trading Services Division of Lehman Brothers Inc. From 1991 to 1993, he was a Director of Corporate Services/Human Resources with Shearson Lehman Brothers. Key Employees Peter L. Furlonge has been an executive officer of Roda since 1989 and its Managing Director since 1995. Prior to his employment by Roda he was a financial officer for various construction companies, including Foster Wheeler in South Africa, where he was a manager of financial accounting. Mr. Furlonge is a Qualified Chartered Secretary in England. Robert M. Zanisnik has served as Senior Vice President of the Company since he joined the Company in 1995. He is responsible for all production and customer service activities of the Company. From 1970 to 1995, Mr. Zanisnik was employed by The Prudential Insurance Company of America, most recently as a Manager of Print Operations. George Leos has served as Vice President, Production of the Company since 1995. Mr. Leos has served in various capacities for the Company since 1992, including Production Supervisor from 1992 to 1995. He is responsible for all scheduling and production planning of the Company. From approximately 1971 to 1992, Mr. Leos was employed by Latham Process Corporation, most recently as a Production/Printing Superintendent. Richard Monica has served as the controller of the Company since 1991. Prior thereto, and since 1987, Mr. Monica served as controller of Kenny Press, Inc., a commercial printer. From 1976 through 1988, he served as an assistant accounting manager at Automatic Switch, a division of Emerson Electric, Inc. Classified Board Effective upon the closing of the Offering, the Company will implement a staggered Board of Directors consisting of three classes, with each class containing, as nearly as practicable, an equal number of directors. Mr. Spinner will be a Class A Director, for a term expiring at the 1999 Annual Meeting of Stockholders, Messrs. Malo and James J. Cunningham will be Class B 39 Directors, for a term expiring at the 2000 Annual Meeting of Stockholders, and Messrs. Gordon Mays and Michael R. Cunningham will be Class C Directors, for a term expiring at the 2001 Annual Meeting of Stockholders. Commencing with the 1999 Annual Meeting of Stockholders, directors of one class will be elected for a three year term. See "Description of Securities -- Staggered Board of Directors." Executive officers serve at the discretion of the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors of the Company has created two committees, the Audit Committee and the Compensation Committee. The members of the committees will be designated following the consummation of the Offering. The Audit Committee periodically reviews the Company's auditing practices and procedures and makes recommendations to management or to the Board of Directors as to any changes to such practices and procedures deemed necessary from time to time to comply with applicable auditing rules, regulations and practices, and recommends independent auditors for the Company to be elected by the stockholders. A majority of the members of the Audit Committee will be outside directors. The Compensation Committee meets periodically to make recommendations to the Board of Directors concerning the compensation and benefits payable to the Company's executive officers and other senior executives and administers the Company's stock option plan for employees. See "Stock Option Plans." SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid or accrued by the Company for services rendered in all capacities for the Chief Executive Officer and the four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") during the fiscal year ended December 31, 1997.
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS --------------------------------- SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(POUNDS) - ------------------------------------ ------ ----------- ---------- ---------------------- Michael R. Cunningham, President and Chief Executive Officer 1997 $343,233 $ 0 0 1996 $314,814 $ 0 0 1995 $296,671 $ 0 0 Gordon Mays, Executive Vice President 1997 $161,497 $40,775 0 1996 $148,051 $ 0 0 1995 $130,814 $ 0 0 Timothy Mays, Executive Vice President of Sales 1997 $220,991 $36,638 0 1996 $211,367 $ 0 0 1995 $258,992 $ 0 0 Robert Needle, Chief Operating Officer 1997 $149,616 $25,000 0 1996 $141,475 $15,000 0 1995 $ 95,231 $ 0 0 Ioannis Lykogiannis, Senior Vice President 1997 $111,690 $14,234 0 1996 $101,336 $ 1,500 0 1995 $ 88,933 $ 0 0
Pursuant to their employment agreements, each of Messrs. Cunningham, G. Mays, T. Mays, Needle and Lykogiannis will receive base salaries of $250,000, $175,000, $150,000, $155,000 and $119,000, respectively following the completion of the Offering. See "Employment Agreements." 40 DIRECTORS' COMPENSATION Directors who are employees of the Company do not receive additional compensation for serving as directors. Each director who is not an employee of the Company receives an annual retainer of $6,000 and an additional fee of $1,000 for each day's attendance at a Board of Directors meeting and/or committee meeting or $500 for participation in a telephone conference meeting. Under the Company's Directors' Stock Option Plan, each non-employee Director has been granted an option to acquire 15,000 shares of Common Stock at the initial public offering price and will automatically receive options to acquire 4,000 shares of Common Stock each year, commencing in 1999. See "Stock Option Plans -- The Directors' Stock Option Plan." Directors of the Company are reimbursed for out-of-pocket expenses incurred in their capacity as directors of the Company. OPTION GRANTS IN LAST FISCAL YEAR During the year ended December 31, 1997, there were no stock options granted to the Named Executive Officers. EMPLOYMENT AGREEMENTS Michael R. Cunningham, Gordon Mays, Timothy Mays, Robert M. Zanisnik, Robert Needle and Ioannis Lykogiannis have entered into employment agreements with the Company which are effective upon the consummation of the Offering. Mr. Furlonge will enter into a new employment agreement with the Company which will become effective upon the closing of the Acquisition. The agreement with Mr. Cunningham is for a term of three years. He is employed as President and Chief Executive Officer of the Company with general supervisory authority of the business of the Company and its subsidiaries and is charged with the responsibility of preparing and implementing a strategic plan and seeking out and consummating acquisitions, in accordance with policies set by the Board of Directors. Pursuant to his employment agreement, Mr. Cunningham is paid an annual salary of $250,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. The agreement with Mr. G. Mays is for a term of three years. He is employed as Executive Vice President of the Company with responsibility for marketing, business development and information systems. Pursuant to his employment agreement, Mr. G. Mays is paid an annual salary of $175,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. The agreement with Mr. T. Mays is for a term of three years. He is employed as Executive Vice President of Sales of the Company with responsibility for overseeing major corporate accounts and identifying new customers. Pursuant to his employment agreement, Mr. T. Mays is paid an annual salary of $150,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreement with Mr. Needle is for a term of three years. He is employed as Chief Operating Officer of the Company with responsibility for all manufacturing and customer service operations. Pursuant to his employment agreement, Mr. Needle is paid an annual salary of $155,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreement with Mr. Lykogiannis is for a term of three years. He is employed as a Senior Vice President, Operations of the Company with responsibility for all internal production operations. Pursuant to his employment agreement, Mr. Lykogiannis is paid an annual salary of $119,000 which may be increased from time to time at the discretion of the Board of Directors. 41 The agreement with Mr. Zanisnik is for a term of three years. He is employed as a Senior Vice President of the Company with responsibility for all production and customer service activities. Pursuant to his employment agreement, Mr. Zanisnik is paid an annual salary of $88,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreements with each of Messrs. Cunningham, G. Mays, T. Mays, Zanisnik, Needle and Lykogiannis are automatically extended for additional periods of one year effective on the second anniversary of the commencement date and on each anniversary thereafter (the "Renewal Date") unless the Company gives notice to the contrary at least six months prior to the Renewal Date. Each individual is entitled to a lump sum payment in the amount of one-half times his then annual salary in the event of a termination without cause, and a lump sum payment in the amount of two times his then annual salary in the event of a termination of employment by the employee for "Good Reason" as defined under each of the respective employment agreements. Each individual is also entitled to a comprehensive medical indemnity policy for himself and his family, long-term disability insurance and such other benefits as the Board of Directors shall adopt and approve. Messrs. Cunningham, G. Mays, T. Mays and Needle also receive a car allowance. The agreement between Roda and Mr. Furlonge is for a term of at least 18 months, and continues until terminated by either party upon at least six months' prior notice. Mr. Furlonge is employed as a senior executive of Roda with the job title Managing Director. He is paid an annual salary of $163,000 (100,000 pounds), which is subject to increase each year by an amount at least equal to the percentage increase in a consumer price index over the prior year. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. He is entitled to a lump sum payment in the amount of two times his then annual salary following a "Change in Control" of Roda or the Company, provided that he continues to work for at least six months following the Change of Control (or, if longer, for such period of time following the Change of Control to ensure that he has completed at least 18 months of service under the agreement). If his employment is terminated, except for cause, following a Change in Control, the lump sum payment would be payable immediately. Mr. Furlonge is also entitled to medical insurance for himself and his family, continued participation in Roda's pension plan, life insurance in the amount of four times his annual salary and a car allowance. STOCK OPTION PLANS 1998 Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000 shares of Common Stock for issuance thereunder. The Plan provides for the granting to employees (including employee directors and officers) of options intended to qualify as incentive stock options within the meaning of (section)422 of the Code and for the granting of nonstatutory stock options to employees and consultants. The 1998 Plan is currently administered by the Company's Compensation Committee. The 1998 Plan provides for the granting of both Incentive Stock Options ("ISOs") and nonstatutory stock options (a "NSO") and in connection with such options the granting of stock appreciation rights (an "SAR") or additional stock options, known as progressive stock options, in the event the grantee exercises such stock options by surrendering shares of Common Stock of the Company (a "PSO"). NSOs and SARs may be issued to any key employee or officer of the Company or its subsidiaries, or any other person who is an independent contractor, agent or consultant of the Company or its subsidiaries but not any director of the Company who is not an employee of the Company. ISOs may be issued to key employees and officers of the Company and its subsidiaries, but not to any independent contractor, agent or consultant. The Compensation Committee also determines the times at which options will vest and will become exercisable, their transferability and the dates, not more than ten years 42 after the date of grant, on which options will expire. In the event of a tender offer for more than 25% of the Company's outstanding stock, or a "change in control" (as defined in the 1998 Plan) of the Company, all outstanding options become immediately exercisable. The fair market value of the stock with respect to which ISOs under the 1998 Plan or any other plan of the Company first become exercisable may not exceed $100,000 in any year. The option price of an ISO is to be at least 100% of the fair market value on the date of grant (110% in the case of optionees holding more than ten percent of the combined voting power of all classes of stock of the Company). The 1998 Plan, however, permits the Compensation Committee to grant NSOs at any exercise price consistent with the purposes of the 1998 Plan, whether or not such exercise price is equal to the fair market value of the stock on the date of grant of the NSO. NSOs with an exercise price of less than fair market value on the date of grant would not qualify as performance-based compensation under (section)162(m) of the Code and, therefore, any compensation expense generated by the exercise of such an option would not be deductible by the Company when the Company is considered to be subject to such Section, if the optionee is a "covered employee" who is paid compensation from the Company in an amount in excess of $1,000,000 in the year of exercise. Options may be exercised by the payment of the exercise price in cash, Common Stock or a combination thereof. Subject to compliance with the provisions of applicable governmental regulations, the Compensation Committee may make a loan for the purpose of exercising any option granted under the 1998 Plan to an optionee in an amount not to exceed 100% of the purchase price of the shares acquired upon exercise of the options. The loan must be secured by a pledge of shares of the Company having an aggregate purchase price equal to or greater than the amount of the loan. The 1998 Plan permits the Compensation Committee to grant SARs in connection with any option granted under the 1998 Plan. SARs enable an optionee to surrender an option and to receive a payment in cash or Common Stock, as determined by the Compensation Committee, equal to the difference between the fair market value of the Common Stock on the date of surrender of the related option and the option price. The 1998 Plan also permits the Compensation Committee to grant PSOs in connection with any option granted under the 1998 Plan. PSOs enable an optionee to receive additional stock options in the event the grantee exercises a stock option, in whole or in part, by surrendering shares of Common Stock of the Company. Any PSO granted will be for a number of shares equal to the number of surrendered shares of Common Stock, shall not be exercisable for a minimum of six months from the grant date of the option, shall have an option price per share equal to 100% of the fair market value of a share of stock on the grant date and shall be subject to such other terms and conditions as the Compensation Committee may determine. At the time of the Offering, options covering an aggregate of 170,800 shares of Common Stock will be outstanding under the 1998 Plan including options to purchase 50,000 shares of Common Stock granted to each of Messrs. Needle and Lykogiannis. All of such options will expire ten years after the date of grant, and have an exercise price per share, subject to adjustment, equal to the initial public offering price. Of the above 170,800 options, 130,000 will be fully vested upon the consummation of the Offering and the remaining 40,800 will vest over a period of three years. The Directors' Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and reserved 150,000 shares of Common Stock for insurance thereunder. The individuals eligible to participate in the Directors' Plan are each Director of the Company who is not an employee of the Company or any of its subsidiaries (an "Outside Director"). Under the terms of the Directors' Plan, upon the closing of the Offering, each Outside Director automatically receives an NSO to acquire 15,000 shares of Common Stock at the initial public offering price. Accordingly, at the time of the Offering, options covering an aggregate of 60,000 shares of Common Stock will be outstanding under the Directors' Plan. In addition, beginning in 1999, on the first business day of the month following the month in which 43 the annual meeting of stockholders occurs, each Outside Director shall automatically receive an NSO for the purchase of 4,000 shares of Common Stock at the fair market value of the Common Stock on the date of grant. New Outside Directors shall receive an NSO for the purchase of 15,000 shares of Common Stock upon their initial election as directors. All options granted under the Directors' Plan will be fully vested six months after the date of grant. Options under the Directors' Plan will have a term of ten years and shall not be exercisable until six months following the date of grant. Payment upon exercise may be made only in cash or by check. In the case of a person who ceases to be an Outside Director for reasons other than death, the options shall not be exercisable after the third anniversary of the date such person ceased to be an Outside Director. In the case of death, options that have not expired may not be exercised by executors, administrators, heirs or distributees, after the first anniversary of the date of death. The Board of Directors has the authority to amend, suspend or discontinue the Directors' Plan but the Board of Directors may not, without the approval of stockholders, make any amendment which (i) makes a change in the persons eligible to receive options under the Directors' Plan, (ii) increases the number of shares of the Common Stock which may be issued under the Directors' Plan, (iii) increases the maximum option price, (iv) decreases the option price or (v) changes the number of shares subject to the automatic option. 401(K) PLAN The Predecessor maintains a salary deferral and savings plan for its employees (the "401(k) Plan") which is qualified under Section 401(k) of the Code. Subject to limits set forth in the Code, employees who meet certain age and service requirements may participate in the 401(k) Plan by contributing through payroll deductions. The Company, at its discretion, may elect to contribute to the 401(k) Plan in amounts and at times determined by the Board of Directors. RODA PENSION PLAN Roda maintains a defined contribution pension plan, approved by the United Kingdom's Inland Revenue, in which employees who meet certain age and service requirements may participate. The plan is based upon contributions from both the employer and employees, with Roda's contribution on behalf of each participating employee being set at 5% of basic salary. 44 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to beneficial ownership of the Common Stock, after giving effect to the Reorganization and the Acquisition, both before and after the Offering, by (i) each person known to the Company to be the beneficial owner of 5% or more thereof, (ii) each director and designee who will become a director upon consummation of the Offering, (iii) each of the Named Executive Officers and (iv) all directors and officers as a group. Under the rules of the Securities and Exchange Commission (the "Commission"), a person is deemed to be a "beneficial owner" of a security if he or she has or shares the power to vote or direct the voting of such security or the power to dispose of or direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. Shares of Common Stock subject to options held by the directors and officers that are not exercisable within 60 days of the date hereof are not, in accordance with beneficial ownership rules promulgated by the Commission, deemed outstanding for the purpose of computing such director's or officer's beneficial ownership.
PERCENTAGE OF CLASS BENEFICIALLY OWNED ---------------------- AMOUNT AND NATURE OF BENEFICIAL BEFORE AFTER NAME OF BENEFICIAL OWNER(1) OWNERSHIP OFFERING OFFERING - ----------------------------------------------------------- -------------------- ---------- --------- Michael R. Cunningham ..................................... 2,050,728 (2) 79.0% 42.2% Gordon Mays ............................................... 228,198 (3) 8.8% 4.7% Timothy Mays .............................................. 165,803 (4) 6.4% 3.4% Robert Needle ............................................. 50,000 (5) * 1.0% Ioannis Lykogiannis ....................................... 50,000 (5) * * Arnold Spinner ............................................ 0 * * James J. Cunningham ....................................... 130,898 (6) 5.0% 2.7% Norman R. Malo ............................................ 0 * * All directors and officers as a group (8 persons).......... 2,695,627 (7) 99.2% 54.1%
- ---------- * Less than 1%. (1) Unless otherwise indicated, the address of each such person is c/o Cunningham Graphics International, Inc., 629 Grove St., Jersey City, New Jersey 07310. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated. (2) Excludes 130,898 shares held by a trust for the benefit of Michael R. Cunningham's children. The trustee of such trust, James J. Cunningham, the brother of Mr. M. Cunningham, has the sole right to vote and dispose of such shares. (3) Excludes 9,817 shares held by a trust for the benefit of Gordon Mays' children. The trustee of such trust, William J. Mays, the brother of Mr. G. Mays, has the sole right to vote and dispose of such shares. (4) Excludes 9,817 shares held by a trust for the benefit of Timothy Mays' children. The trustee of such trust, William Edward Shannon, the brother-in-law of Mr. T. Mays, has the sole right to vote and dispose of such shares. (5) Represents shares underlying options which have been granted to the designated person, all of which are exercisable within 60 days of the date of this Prospectus. (6) Includes the 130,898 shares referred to in footnote (2). (7) Includes 120,000 shares subject to options which have been granted to officers and which are exercisable within 60 days of the date of this Prospectus, and excludes the shares referred to in footnotes (3) and (4). 45 CERTAIN TRANSACTIONS CAPITALIZATION PRIOR TO THE REORGANIZATION The Predecessor was initially capitalized in September 1983 through the sale of 100 shares of common stock of the Predecessor, to Michael R. Cunningham, the Company's founder. Mr. Cunningham subsequently made gifts of six shares to a trust created for the benefit of his children. On June 11, 1991, the Predecessor entered into a stock purchase agreement (the "Stock Purchase Agreement") with Timothy Mays and Gordon Mays (collectively, the "Buyers") which entitled the Buyers to purchase from the Predecessor up to 53.85 shares of common stock, of which up to 11.11 shares of common stock of the Predecessor could be purchased by the Buyers on June 12, 1991, and the remaining 42.74 shares of common stock of the Predecessor could be purchased by the Buyers, at certain times after June 12, 1991 but in no event later than December 1, 1996 ("Purchase Option Termination Date"). On June 12, 1991, pursuant to the terms of the Stock Purchase Agreement, Timothy Mays purchased 3.67 shares of common stock of the Predecessor, and Gordon Mays purchased 7.44 shares of common stock of the Predecessor, in consideration for (i) the return by the Buyers to the Company of a promissory note dated April 12, 1991 evidencing indebtedness of the Company to the Buyers in the principal amount of $100,000 and (ii) $200,000 paid by the Buyers to the Company. Pursuant to the terms of the Stock Purchase Agreement, from time to time between June 12, 1991 and the Purchase Option Termination Date, Timothy Mays purchased an additional 4.38 shares of common stock of the Predecessor, and Gordon Mays purchased an additional 3.47 shares of common stock of the Predecessor, in consideration for the retention by the Company of (i) all dividends declared by the Company and payable to the Buyers and (ii) certain "Additional Compensation" due to the Buyers under employment agreements with the Company. Messrs. G. Mays and T. Mays subsequently made gifts of .45 shares of common stock of the Predecessor each to a trust created for the benefit of their respective children. Messrs. Cunningham, G. Mays and T. Mays entered into a shareholders agreement in 1991 providing for certain restrictions upon the disposition of shares and upon the voting of stock, which agreement will be terminated effective upon the consummation of the Reorganization. LOANS FROM INSIDERS From time to time, the Company borrowed funds from Michael R. Cunningham and the trust for the benefit of his children, which are stockholders of the Company. A total of $227,000 of such loans was outstanding as of December 31, 1996, all of which was repaid in 1997. THE REORGANIZATION In connection with the Reorganization, the Company will issue an aggregate of 2,595,260 shares of Common Stock, Exchange Notes in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share) and Distribution Notes in the aggregate principal amount of $3.6 million. The Exchange Notes and the Distribution Notes will be paid from the proceeds of the Offering. See "The Company -- The Reorganization." The number of shares of Common Stock, the principal amounts of the Exchange Notes and the principal amounts of the Distribution Notes, to be received by each stockholder of the Predecessor in the Reorganization, are as follows:
SHARES OF COMMON PRINCIPAL OF PRINCIPAL OF STOCKHOLDER STOCK EXCHANGE NOTES DISTRIBUTION NOTES - ----------------------------------------- ------------------ --------------- ------------------- Michael R. Cunningham ................... 2,050,727 $1,896,432 $2,844,655 Gordon Mays ............................. 228,198 211,030 316,543 Timothy Mays ............................ 165,803 153,330 229,993 James J. Cunningham, Trustee ............ 130,898 121,050 181,573 William J. Mays, Trustee ................ 9,817 9,079 13,618 William Edward Shannon, Trustee ......... 9,817 9,079 13,618 Totals: ................................. 2,595,260 $2,400,000 $3,600,000
46 POLICY OF THE BOARD OF DIRECTORS All ongoing and any future transactions with affiliates of the Company, if any, will be on terms believed by the Company to be no less favorable than are available from unaffiliated third parties and will be approved by a majority of disinterested directors. 47 DESCRIPTION OF CAPITAL STOCK The summary of the terms of the capital stock of the Company set forth below does not purport to be complete and is subject to and qualified in its entirety by reference to the Certificate of Incorporation (the "Certificate of Incorporation") and By-Laws of the Company, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information." GENERAL The Company's Certificate of Incorporation authorizes 30,000,000 shares of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par value. After giving effect to (i) the Reorganization, (ii) the closing of the Acquisition and (iii) the completion of the Offering, the Company will have outstanding 4,865,000 shares of Common Stock and no shares of Preferred Stock. In addition, the Company will have 450,000 shares of Common Stock reserved for issuance under the Company's 1998 Stock Option Plan and 150,000 shares of Common Stock reserved for issuance under the Company's Directors' Stock Option Plan. See "Management -- Stock Option Plans." COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters voted upon by stockholders, and a majority vote is required for all action to be taken by stockholders. Cumulative voting of shares is prohibited. Accordingly, the holders of a majority of the voting power of the shares voting for the election of directors can elect all of the directors if they choose to do so. The Common Stock bears no preemptive rights, and is not subject to redemption, sinking fund or conversion provisions. The shares of Common Stock offered hereby will be, when issued and paid for, fully paid and non-assessable. Holders of Common Stock are entitled to receive dividends if, as and when declared by the Company's Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued (and subject to any dividend restriction contained in any credit facility which the Company may enter into in the future) and distributed pro rata in accordance with the number of shares of Common Stock held by each stockholder. See "Risk Factors -- Dividend Policy." PREFERRED STOCK Shares of Preferred Stock may be issued from time to time by the Board of Directors of the Company, without stockholder approval, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions, as may be fixed by the Board of Directors when designating any such series. The Preferred Stock and the variety of characteristics available for it offers the Company flexibility in financing and acquisition transactions. An issuance of Preferred Stock could dilute the book value or adversely affect the relative voting power of the Common Stock. The issuance of such shares could be used to enable the holder to block an acquisition of the Company. Although the Board of Directors is required when issuing such stock to act based on its judgment as to the best interests of the stockholders of the Company, the Board could act in a manner which would discourage or prevent a transaction some stockholders might believe is in the Company's best interests or in which stockholders could or would receive a premium for their shares of Common Stock over the market price. STATUTORY BUSINESS COMBINATION PROVISIONS The New Jersey Business Corporation Act provides that in determining whether a proposal or offer to acquire a corporation is in the best interest of the Corporation, the Board may, in addition to considering the effects of any action on stockholders, consider any of the following: (a) the effects of the proposed action on the corporation's employees, suppliers, creditors and customers, (b) the effects on the community in which the corporation operates and (c) the long-term as well as short-term interests 48 of the corporation and its stockholders, including the possibility that these interests may best be served by the continued independence of the corporation. The statute further provides that if, based on these factors, the Board determines that any such offer is not in the best interest of the corporation, it may reject the offer. These provisions may make it more difficult for a stockholder to challenge the Board's rejection of, and may facilitate the Board's rejection of, an offer to acquire the Company. The Company will be subject to the New Jersey Shareholders Protection Act (the "Protection Act"), which prohibits certain New Jersey corporations from engaging in business combinations (including mergers, consolidations, significant asset dispositions and certain stock issuances) with any interested stockholder (defined to include, among others, any person that becomes a beneficial owner of 10% or more of the affected corporation's voting power) for five years after such person becomes an interested stockholder, unless the business combination is approved by the Board of Directors prior to the date the stockholder became an interested stockholder. In addition, the Protection Act prohibits any business combination at any time with an interested stockholder other than a transaction that (i) is approved by the Board of Directors prior to the date the interested stockholder became an interested stockholder, or (ii) is approved by the affirmative vote of the holders of two-thirds of the voting stock not beneficially owned by the interested stockholder, or (iii) satisfies certain "fair price" and related criteria. STAGGERED BOARD OF DIRECTORS The Company's Certificate of Incorporation provides for a Board of Directors of not less than three members, with the actual number to be set by resolution of the Board from time to time. In addition, the Certificate of Incorporation provides for the implementation of a staggered Board of Directors effective at the closing of the Offering. Under this provision the Board of Directors will be divided into three classes, Class A, Class B and Class C, with each class containing as nearly as practicable, an even number of Directors. Initially, the Class A Directors will have a term expiring at the 1999 Annual Meeting of Stockholders, the Class B Directors will have a term expiring at the 2000 Annual Meeting of Stockholders and the Class C Directors will have a term expiring at the 2001 Annual Meeting of Stockholders. Commencing with the 1999 Annual Meeting of Stockholders, as each class comes up for election, it will be for a three-year term. An effect of the staggered Board of Directors is to make it more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. LIMITATION OF DIRECTORS' LIABILITIES Pursuant to provisions of the Company's Certificate of Incorporation, directors of the Company are not personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of duty of loyalty, for acts or omissions not in good faith or any transaction in which a director has derived an improper personal benefit. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Continental Stock Transfer & Trust Company. 49 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. Upon consummation of the Offering, the Company will have outstanding 4,865,000 shares of Common Stock, of which the 2,100,000 Shares offered hereby will be freely tradable without restriction or further registration under the Securities Act, except for shares purchased by an "affiliate of the Company" (in general, a person who has a controlling position with regard to the Company), which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. The remaining 2,765,000 shares of Common Stock to be outstanding after the Offering are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, and may only be sold pursuant to an effective registration under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. Such restricted shares of Common Stock will become eligible for sale, under Rule 144, subject to certain volume limitations prescribed by Rule 144. The holders of all of the restricted shares have agreed not to sell any of their securities of the Company for a period of 180 days following the date of this Prospectus, under any circumstances. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated with an affiliate) who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of the issuer's Common Stock or the average weekly trading volume during the four calendar weeks preceding such sale, provided that certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. A person who is not an affiliate, has not been an affiliate within three months prior to sale, and has beneficially owned the restricted shares for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The Company, the directors and officers of the Company (who in the aggregate beneficially own 2,695,627 shares of Common Stock), have agreed with the Underwriter that, for a period of 180 days following the Offering, they will not offer to sell, contract to sell, grant an option to purchase or otherwise dispose (or announce any offer, sale, grant of any option or other distribution) of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock without the prior written consent of Schroder & Co. Inc. (except that the Company may grant options to purchase or award shares of Common Stock under the 1998 Plan and the Directors' Plan and issue privately placed shares in connection with acquisitions). See "Management -- Stock Option Plans" and "Principal Stockholders." As soon as practicable following the consummation of the Offering, the Company intends to file a registration statement under the Securities Act to register shares of Common Stock issuable pursuant to the 1998 Plan and the Directors' Plan. See "Management -- Stock Option Plans." Shares of Common Stock issued pursuant to the 1998 Plan and the Directors' Plan after the effective date of such registration statement will be available for sale in the open market, subject to the lock-up agreement described above, if applicable. 50 UNDERWRITING The Underwriter named below (the "Underwriter") has agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company, and the Company has agreed to sell to the Underwriter, the number of shares of Common Stock set forth opposite its respective name:
UNDERWRITER NUMBER OF SHARES - ------------------------------ ----------------- Schroder & Co. Inc. .......... 2,100,000
The Underwriting Agreement provides that the Underwriter is obligated to purchase all of the shares of Common Stock offered hereby, if any such shares are purchased. The Underwriter has advised the Company that it proposes to offer the shares of Common Stock directly to the public, initially at the offering price set forth on the cover page of this Prospectus; that the Underwriter proposes initially to allow a concession not in excess of $ per share to certain dealers; and that the Underwriter may initially allow a concession not in excess of $ per share to other dealers. After the initial offering of the shares of Common Stock, the public offering price and such concessions may be changed by the Underwriter. The Company has granted an option to the Underwriter, exercisable for 30 days from the date of this Prospectus, to purchase up to 315,000 additional shares of Common Stock, at the public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriter may exercise such option only to cover over-allotments in connection with the sale of the Common Stock offered hereby. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including liabilities under the federal securities laws, or will contribute to payments that the Underwriter may be required to make in respect thereof. The Underwriter may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids in accordance with Regulation M under the Exchange Act. Overallotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum. Syndicate covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Underwriter to reclaim a selling concession from a syndicate member when the securities originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the securities to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on Nasdaq or otherwise and, if commenced, may be discontinued at any time. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price of the Common Stock will be determined by negotiation between the Company and the Underwriter. Among the factors to be considered in determining the initial public offering price, in addition to prevailing market and general economic conditions, are the history of, and prospects for, the industry in which the Company operates, the ability of the Company's management, the Company's past and present operations, the Company's historical results of operations, the Company's earnings prospects, the prices of similar securities of comparable companies, and other relative factors. There can be no assurance, however, that the price at which the Common Stock will sell in the public market after the Offering will not be lower than the price at which it is being sold by the Underwriter. The Company, the directors and officers of the Company (who in the aggregate beneficially own 2,695,627 shares of Common Stock), have agreed with the Underwriter that, for a period of 180 days following the Offering, they will not offer to sell, contract to sell, grant an option to purchase or otherwise dispose (or announce any offer, sale, grant of any option or other distribution) of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock without the prior written consent of Schroder & Co. Inc. (except that the Company may grant options to purchase or award shares of Common Stock under the 1998 Plan and the Directors' Plan and issue privately placed shares in connection with acquisitions). See "Management -- Stock Option Plans" and "Principal Stockholders." 51 At the request of the Company, up to 200,000 shares of Common Stock have been reserved for sale in the Offering to certain individuals, including directors and employees of the Company, members of their families and/or friends, and other persons having business relationships with the Company. The price of such shares to such persons will be the initial public offering price set forth on the cover of this Prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase such reserved shares. Any reserved shares not purchased will be offered by the Underwriter to the general public on the same basis as the other shares offered hereby. LEGAL MATTERS Certain legal matters with respect to the validity of the Common Stock offered hereby will be passed upon for the Company by Gibbons, Del Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New Jersey. Certain legal matters in connection with the Offering will be passed upon for the Underwriter by Stroock & Stroock & Lavan LLP, New York, New York. EXPERTS The predecessor financial statements of Cunningham Graphics International, Inc. for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given the authority of such firm as experts in accounting and auditing. The financial statements of Roda Limited for the year ended December 31, 1997 and for the four months ended December 31, 1996, and of Roda Print Concepts Limited for the ten month period ended October 31, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young, Chartered Accountants, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed a Registration Statement on Form S-1 under the Securities Act with the Commission in Washington, D.C. with respect to the securities offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the securities offered hereby, reference is hereby made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in this Prospectus as to the contents of any agreement or any other document referred to are not necessarily complete, and in each instance, if such agreement or document is filed as an exhibit, reference is made to the copy of such agreement or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected and copied at the principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, New York, New York 10048, and Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 52 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 CONTENTS Report of Independent Auditors .......................................................... F-2 Predecessor Balance Sheets as of December 31, 1996 and 1997 ............................. F-3 Predecessor Statements of Income for the years ended December 31, 1995, 1996 and 1997 ....................................................... F-4 Predecessor Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and 1997 ....................................................... F-5 Predecessor Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 ....................................................... F-6 Notes to Predecessor Financial Statements ............................................... F-7
RODA LIMITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, AND 1997 CONTENTS Report of Independent Auditors .......................................................... F-16 Consolidated Profit and Loss Account for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the Profit and Loss Account of Roda Print Concepts Limited for the ten-month period ended 31 October 1996 .......... F-17 Consolidated Balance Sheets as of December 31, 1996 and 1997 ............................ F-18 Consolidated Statement of Cash Flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the Statement of Cash Flows of Roda Print Concepts Limited for the ten-month period ended 31 October 1996 ........................................................................... F-19 Notes to Financial Statements ........................................................... F-20
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors Cunningham Graphics International, Inc. We have audited the accompanying predecessor balance sheets of Cunningham Graphics International, Inc. as of December 31, 1996 and 1997, and the related predecessor statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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. In our opinion, the predecessor financial statements referred to above present fairly, in all material respects, the financial position of Cunningham Graphics International, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Princeton, New Jersey January 16, 1998 F-2 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA STOCKHOLDERS' EQUITY 1996 1997 1997 -------- ---------- -------------- (UNAUDITED) ASSETS Current assets: Cash .............................................................. $ 543 $ 67 Accounts receivable (net of allowance for doubtful accounts of $28 in 1996 and $50 in 1997) .................................... 4,607 5,673 Inventories ....................................................... 541 940 Prepaid expenses and other current assets ......................... 70 78 Notes and advances receivable -- stockholder/officers ............. 158 136 Deferred income taxes ............................................. -- 47 ------ ------- Total current assets ............................................... 5,919 6,941 Property and equipment -- net ...................................... 3,458 3,579 Other assets ....................................................... 94 418 ------ ------- $9,471 $10,938 ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt, third-party .................... $ 414 $ 407 Revolving line of credit .......................................... 1,350 300 Current portion of notes payable -- related parties ............... 73 -- Current portion of obligations under capital leases ............... 183 178 Accounts payable .................................................. 3,661 3,854 Accrued expenses .................................................. 1,105 1,474 ------ ------- Total current liabilities .......................................... 6,786 6,213 Long-term debt, third-party -- net of current portion .............. 631 1,185 Notes payable -- related parties -- net of current portion ......... 154 -- Obligations under capital leases -- net of current portion ......... 515 332 Deferred income taxes .............................................. 41 57 ------ ------- Total liabilities .................................................. 8,127 7,787 Commitments and contingencies Stockholders' equity: Common stock, no par value; 2,507 shares authorized, 119 shares in 1996 and 1997 issued and outstanding, stated at $50 per share.......................................... 6 6 $ -- Additional paid-in capital ........................................ 734 734 (2,908) Retained earnings ................................................. 604 2,411 -- ------ ------- -------- Total stockholders' equity ......................................... 1,344 3,151 $ (2,908) ------ ------- ========= $9,471 $10,938 ====== =======
See accompanying notes. F-3 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1996 1997 ---------- ---------- ---------- Net sales ..................................... $17,327 $23,193 $35,744 Operating expenses: Costs of production .......................... 12,860 17,616 26,894 Selling, general and administrative .......... 3,441 4,270 5,794 Depreciation and amortization ................ 498 563 694 ------- ------- ------- 16,799 22,449 33,382 Income from operations ........................ 528 744 2,362 Interest expense ............................. (257) (234) (250) Other income ................................. 2 48 35 ------- ------- ------- Income before income taxes .................... 273 558 2,147 Provision for income taxes ................... 6 56 129 ------- ------- ------- Net income .................................... $ 267 $ 502 $ 2,018 ======= ======= ======= PRO FORMA DATA (UNAUDITED) Income before income taxes .......................................... $ 2,147 Pro forma provision for income taxes ............................... 880 --------- Pro forma net income ................................................ $ 1,267 ========= Pro forma earnings per share ........................................ $ 0.41 ========= Pro forma shares outstanding ........................................ 3,095,261 =========
See accompanying notes. F-4 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL -------- -------- --------- ----------- --------- Balance at January 1, 1995 ........... 118 $ 6 $722 $ 356 $1,084 Net income .......................... -- -- -- 267 267 Distributions ....................... -- -- -- (521) (521) --- --- ---- ------ ------ Balance at December 31, 1995 ......... 118 6 722 102 830 Net income .......................... -- -- -- 502 502 Sale of common stock ................ 1 -- 12 -- 12 --- --- ---- ------ ------ Balance at December 31, 1996 ......... 119 6 734 604 1,344 Net income .......................... -- -- -- 2,018 2,018 Distributions ....................... -- -- -- (211) (211) --- --- ---- ------ ------ Balance at December 31, 1997 ......... 119 $ 6 $734 $2,411 $3,151 === === ==== ====== ======
See accompanying notes. F-5 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
1995 1996 1997 ------------ ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 267 $ 502 $ 2,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 498 563 694 Gain on sale of equipment ................................. -- (48) (18) Deferred income taxes ..................................... (1) 32 (31) Changes in operating assets and liabilities: Increase in accounts receivable ......................... (34) (2,161) (1,066) (Increase) decrease in inventories ...................... (436) 509 (399) Increase in prepaid expenses and other current assets (29) (86) (8) Increase in other assets ................................ (9) (45) (324) Increase (decrease) in advance to officers .............. 257 (94) 22 Increase in accounts payable ............................ 219 1,835 193 (Decrease) increase in accrued expenses ................. (138) 664 369 ------- -------- --------- Net cash provided by operating activities .................. 594 1,671 1,450 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the disposition of equipment ................ -- 71 1,349 Acquisition of property and equipment ..................... (254) (1,711) (2,146) ------- -------- --------- Net cash used in investing activities ...................... (254) (1,640) (797) CASH FLOWS FROM FINANCING ACTIVITIES Net principal proceeds (payments) on revolving line of credit .................................................. 306 444 (1,050) Proceeds from long-term borrowings, third-party ........... -- 614 1,023 Principal payments on long-term borrowings, third-party . (200) (302) (476) Principal payments on obligations under capital lease ..... (138) (139) (188) Proceeds from issuance of notes payable -- related parties ................................................. 70 24 -- Principal payments on notes payable -- related parties..... -- (142) (227) Shareholder distribution .................................. (521) -- (211) Proceeds from sale of common stock ........................ -- 12 -- ------- -------- --------- Net cash (used in) provided by financing activities ........ (483) 511 (1,129) ------- -------- --------- Net (decrease) increase in cash ............................ (143) (542) (476) Cash, beginning of year .................................... 144 1 543 ------- -------- --------- Cash, end of year .......................................... $ 1 $ 543 $ 67 ------- -------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA Income taxes paid .......................................... $ 10 $ 40 $ 169 ======= ======== ========= Interest paid .............................................. $ 254 $ 235 $ 251 ======= ======== ========= SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of equipment under capital lease ............... $ 23 $ 422 $ -- ======= ======== =========
See accompanying notes. F-6 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying predecessor financial statements include the operations of Cunningham Graphics, Inc. (the "Company" or the "Predecessor Entity"). As further discussed in Note 14, a reorganization of the Predecessor is planned for 1998. DESCRIPTION OF COMPANY The Company provides a wide range of graphic communication services to financial institutions and corporations in the eastern United States, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less when acquired. The carrying amount reported for cash equivalents approximates fair value. CONCENTRATION OF CREDIT RISK The Company performs periodic credit evaluations of its customers and generally does not require collateral. INVENTORIES Inventories are stated at the lower of cost or market by the specific identification method. Inventory consists of raw materials and work in process. Finished goods are shipped upon completion. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization of assets, including those under capital lease, are computed using the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term. Useful lives range from 3 to 10 years. INCOME TAXES The Company and its stockholders have elected to be taxed as an S Corporation pursuant to the Internal Revenue Code and certain state and local tax regulations. Therefore, no provision has been made in the accompanying financial statements for federal and certain state and local income taxes, since such taxes are the liability of the stockholders. The provision for income taxes principally reflects taxes levied by certain state and local governments. (See Notes 11 and 14). Deferred taxes are computed based on the tax effects in future years of the differences between financial and tax reporting bases of assets and liabilities. Deferred tax assets and liabilities are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. REVENUE RECOGNITION Revenue is recognized upon shipment of products to customers. F-7 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED) USE OF ESTIMATES The presentation of 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. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously required fully diluted earnings per share. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. 2. INVENTORIES Inventories consist of the following:
1996 1997 ------ ------- Raw materials (net of valuation allowance of $200 at December 31, 1996 and $194 at December 31, 1997)......... $477 $805 Work-in-process .......................................... 64 135 ---- ---- $541 $940 ==== ====
3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
1996 1997 ----------- ----------- Machinery and equipment ............................ $ 4,711 $ 4,813 Furniture, fixtures and office equipment ........... 653 974 Leasehold improvements ............................. 261 471 Autos and transportation equipment ................. 214 280 -------- -------- 5,839 6,538 Accumulated depreciation and amortization .......... (2,381) (2,959) -------- -------- $ 3,458 $ 3,579 ======== ========
The gross amount of the leased property included in property and equipment is $1,062 and $1,069, and accumulated amortization is $341 and $386 at December 31, 1996 and 1997, respectively. F-8 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 4. OTHER ASSETS Included in other assets is approximately $342 of costs related to the anticipated initial public offering and the acquisition of Roda Limited (Note 14). 5. ACCRUED EXPENSES Other accrued liabilities consists of the following:
1996 1997 --------- --------- Employee compensation .......... $ 761 $ 689 Other .......................... 344 785 ------ ------ $1,105 $1,474 ====== ======
6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE On December 15, 1997, the Company entered into a new Loan and Security Agreement with a bank (the "Loan and Security Agreement"). The Loan and Security Agreement provides for a $2,000 revolving line of credit and a $1,000 3-year term loan (the "Term Loan"). The revolving line of credit expires on May 30, 1998. Borrowings under both the line of credit and the Term Loan bear interest at the bank's prime rate or at the Company's option LIBOR plus 2.25% (8.5% at December 31, 1997). The debt is collateralized by substantially all of the Company's assets. Among other things, the Loan and Security Agreement restricts the Company's ability to incur additional indebtedness and requires the Company to maintain certain financial ratios. At December 31, 1996, the revolving line of credit represents the amount outstanding under a previous $2,000 revolving line of credit with a bank. Borrowings under this agreement carried interest at the bank's prime rate plus .5% (8.75% at December 31, 1996) and were secured by substantially all of the Company's assets and guaranteed by the principal stockholder of the Company. The Company leases property and equipment under capital leases expiring in various years through 2001. Amortization ($74, $105 and $119 in 1995, 1996 and 1997, respectively) of assets under capital leases is included in depreciation expense. Long-term debt consists of the following (excluding notes payable to related parties, see Note 7):
1996 1997 -------- --------- Term loan, payable with interest only through December 1998 with principal payments beginning January 1999 through December 2001 .......................... $ -- $1,000 Notes payable to finance companies, payable in monthly installments with interest at rates ranging from 7.48% to 11.75%, through various dates from December 1998 to October 1999 (secured by certain equipment with a carrying value of approximately $358)............................................................. 518 262 Non-interest bearing note payable in monthly installments through December 1999 (discounted based on imputed interest rate of 8%) ......................... 449 308 Various capital lease obligations ............................................... 698 510 Other (secured by equipment with a carrying value of $135)....................... 78 22 ------ ------ 1,743 2,102 Less current maturities ......................................................... 597 585 ------ ------ $1,146 $1,517 ====== ======
F-9 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE --(CONTINUED) Maturities of long-term debt and obligations under capital lease (principal and interest) for each of the next five years are as follows:
OBLIGATIONS UNDER LONG-TERM CAPITAL DEBT LEASE ----------- ------------ 1998 ................................................ $407 $236 1999 ................................................ 516 185 2000 ................................................ 333 119 2001 ................................................ 336 84 ---- Total minimum lease payments ........................ 624 Less amount representing interest ................... 114 ---- Present value of net minimum lease payments ......... $510 ====
7. RELATED PARTY TRANSACTIONS Included in notes and advances receivable -- stockholder/officers are notes receivable aggregating $22 at December 31, 1996 and advances of $136 at December 31, 1996 and 1997. The notes bear interest at an annual rate of 8% and were repaid in 1997. Advances receivable represent cash advances with no specific repayment terms. The stockholder intends to repay the advances as a part of the Offering. Notes payable to related parties consists of the following:
1996 1997 ------ ----- Note payable to stockholder/officer, payable in monthly installments with interest at the prime rate (8.5% at December 31, 1996) ........................... $112 $-- Note payable to Cunningham Children Trust, payable in monthly installments with interest at the prime rate (8.5% at December 31, 1996) ........................... 115 -- ---- --- 227 -- Less current portion .................................... 73 -- ---- --- $154 $-- ==== ===
In December 1997, the Company repaid the outstanding balances under these notes payable. F-10 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 8. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office facilities, equipment and automobiles under noncancelable operating leases expiring in various years through 2000. One of the facility leases requires the Company to pay additional rents based on its proportionate share of certain costs of the facility. In March 1997, the Company entered into a sale-leaseback arrangement. Under the arrangement, the Company sold equipment and leased it back for a period of six years. The leaseback has been accounted for as an operating lease. No gain or loss was recorded on the transaction. Upon expiration of the lease, the Company has agreed to acquire the equipment at terms more fully described in the lease agreement. Future minimum rental payments for each of the next five years and in the aggregate under the above lease agreements are as follows: 1998 $1,094 1999 1,085 2000 360 2001 286 2002 237 Thereafter .................. 39 ------ $3,101 ======
Rent expense under all operating leases was $282, $463 and $631 for the years ended December 31, 1995, 1996 and 1997, respectively. 9. CONCENTRATIONS Sales to customers, each comprising 10% or more of the Company's sales (two customers in 1995, three customers in 1996 and four customers in 1997) represented revenues of $6,445, $9,812 and $20,375, respectively. Included in trade accounts receivable are amounts due from these customers of $1,648 and $2,989 as of December 31, 1996 and 1997, respectively. The Company has 370 employees, approximately 69 of whom are members of a union which are covered under a memorandum of agreement which expires on June 30, 2000. 10. STOCKHOLDERS' EQUITY On June 11, 1991, the Company entered into an agreement with two stockholders which entitled the two stockholders to purchase from the Company up to 53.85 shares of its common stock through December 1, 1996. Through the expiration of the agreement and pursuant to the terms of the agreement, the stockholders purchased 18.96 shares (including one share in 1995 for an aggregate consideration of $12). F-11 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 11. INCOME TAXES The provision for state income taxes consists of the following:
1995 1996 1997 --------- ------ ------- Current ................................... $ 8 $24 $ 160 Deferred .................................. (2) 32 (31) ------ --- ----- Total provision for income taxes .......... $ 6 $56 $ 129 ===== === =====
The significant components of the Company's deferred tax liabilities and assets include depreciation, accounts receivable and inventory reserves and accrued expenses. (See Note 14 regarding conversion from S Corporation to C Corporation for tax purposes.) 12. EMPLOYEE BENEFIT PLAN The Company has a defined contribution pension plan pursuant to Section 401(k) of the Internal Revenue Code covering substantially all employees. The Company, at its discretion, may elect to contribute to the plan at amounts and dates determined by the Board of Directors. For the years ended December 31, 1995, 1996 and 1997 the Company made contributions of $24, $-0- and $52, respectively, to the plan. 13. SUBSEQUENT EVENTS Acquisition of Roda On January 16, 1998, the Company and Roda entered into an agreement (the "Roda Purchase Agreement") such that concurrently with the consummation of the Offering, the Company will close the acquisition of all the outstanding capital stock of Roda under the Roda Purchase Agreement for an aggregate purchase price of $8,148. The purchase price will be satisfied by the delivery of 169,739 shares of common stock, which will be valued at the initial public offering price, and a cash payment equal to the balance of the purchase price. Under the terms of the Roda Purchase Agreement, the Company has committed to cause the repayment of 850 pounds (approximately $1,400) of indebtedness to the present Roda stockholders within 28 days following the closing. The Company intends to use a portion of the proceeds of the Offering to repay this indebtedness. In order to secure the performance by the selling stockholders of Roda of certain warranties and covenants, 275 pounds (approximately $459) will be held in escrow until one year following the closing. The acquisition of Roda will be accounted for under the purchase method of accounting. F-12 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) Reorganization and Planned Public Offering The Company intends to proceed with a reorganization and a concurrent initial public offering of the common stock of the reorganized entity. Immediately prior to the initial public offering of shares of common stock of Cunningham Graphics International, Inc. (CGII) (the "Offering"), the Company will be reorganized (the "Reorganization") such that all of the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII, in exchange for a total of 2,595,260 shares of common stock and promissory notes (the "Exchange Notes") in the aggregate principal amount of $2,400 (assuming an initial offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization estimated to total $3,600, and will issue promissory notes in such amount to evidence such obligations (the "Distribution Notes" and, together with the Exchange Notes, the "Reorganization Notes"). The principal amount of the Reorganization Notes was determined by the Company in connection with the Reorganization based on a number of factors, including the value of the enterprise contributed to the Company. The principal amount of the Distribution Notes was determined by the Company based upon the actual amount of undistributed S corporation taxable income as of December 31, 1997 and the anticipated additional undistributed S corporation taxable income during the period January 1, 1998 through the expected date of the Reorganization. The Company intends to pay the Reorganization Notes from the net proceeds of the Offering. 1998 Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000 shares of Common Stock for issuance thereunder. The Plan provides for the granting to employees (including employee directors and officers) of options intended to qualify as incentive stock options within the meaning of (section)422 of the Code and for the granting of nonstatutory stock options to employees and consultants. The Board of Directors has granted options to purchase 170,800 shares of Common Stock under the 1998 Plan subject to consummation of the Offering. The Directors' Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and reserved 150,000 shares of Common Stock for insurance thereunder. The individuals eligible to participate in the Directors' Plan are each Director of the Company who is not an employee of the Company or any of its subsidiaries (an "Outside Director"). The Board of Directors has granted options to purchase 60,000 shares of Common Stock under the Directors' Plan subject to consummation of the Offering. F-13 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED)--(CONTINUED) Pro Forma Adjustments (Unaudited) The following table sets forth the capitalization of the Company at December 31, 1997, and the pro forma capitalization of the Company as of such date after giving effect to the issuance of the Reorganization Notes, to the stockholders and the recording of a net deferred tax liability of approximately $59 in connection with the Company becoming subject to federal and additional state and local income taxes.
ACTUAL PRO FORMA -------- ------------ Common stock ........................ $ 6 $ -- Additional paid-in capital .......... 734 (2,908) Retained earnings ................... 2,411 -- ------ -------- Total stockholders' equity .......... $3,151 $ (2,908) ====== ========
As discussed in Note 1, the Company has elected to be taxed as an S corporation pursuant to the Internal Revenue Code and certain state and local tax regulations. In connection with the Offering made hereby, the Company will become subject to federal and additional state income taxes. Accordingly, in the quarter in which the Offering is completed, the Company will record additional deferred tax assets of $295 and additional deferred tax liabilities of $354 and a corresponding net tax expense of $59 in the statement of income in accordance with the provisions of SFAS No. 109. The pro forma provision for income taxes represents the income tax provisions that would have been reported had the Company been subject to federal and additional state income taxes during the year ended December 31, 1997. The unaudited pro forma net income for the year ended December 31, 1997 reflects an increase of $751 for the year ended December 31, 1997 for income taxes based upon income before income taxes as if the Company had become subject to federal and additional state income taxes on that date. Pro forma deferred income taxes will reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for pro forma financial reporting and the amounts used for income tax purposes. Significant components of the Company's pro forma net deferred tax liability as of December 31, 1997 is as follows:
1997 ---------- Tax over book depreciation ..................... $ (411) Allowance for doubtful accounts ................ 20 Inventory capitalization and reserves .......... 100 Other book accruals ............................ 232 ------ $ (59) ======
The pro forma income tax provision consists of the following:
1997 --------- Current: Federal ...................................... $ 820 State and local .............................. 300 ------ 1,120 Deferred income tax benefit .................. (240) ------ $ 880 ======
F-14 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)-(CONTINUED) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED)--(CONTINUED) A reconciliation setting forth the differences between the pro forma effective tax rate of the Company and the U.S. federal statutory tax rate is as follows:
1997 ---------- Federal statutory rate ...................................... 34.0% State and local taxes, net of federal tax benefits .......... 7.0 ---- Effective tax rate .......................................... 41.0 ====
Pro Forma Earnings Per Share (Unaudited) The Pro Forma shares outstanding of 3,095,261 represent the total equity value for the Common Stock of the Predecessor contributed to the Company in the Reorganization and includes (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization and (iii) 500,000 shares, representing the value of the $6,000 principal amount of the Reorganization Notes (based upon the assumed initial public offering price of $12.00 per share). F-15 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of Roda Limited We have audited the accompanying consolidated balance sheet of Roda Limited as of 31 December 1997 and 1996 and the related consolidated profit and loss account and statement of cash flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the profit and loss account and statement of cash flows of Roda Print Concepts Limited (Predecessor) for the ten-month period ended 31 October 1996. 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 audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances 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 the management, as well as evaluating the overall financial statements presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Roda Limited at 31 December 1997 and 1996 and the consolidated results of its operations and its cash flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the results of operations and cash flows of Roda Print Concepts Limited for the ten-month period ended 31 October 1996, in conformity with accounting principles generally accepted in the United Kingdom which differ in certain respects from those followed in the United States (see Note 25 of Notes to the Financial Statements). /s/ Ernst & Young Chartered Accountants Ernst & Young Chartered Accountants London, England 11 February 1998 F-16 RODA LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
COMPANY PREDECESSOR PERIOD FROM TEN MONTHS INCORPORATION COMPANY YEAR ENDED 31 (29 AUGUST 1996) ENDED 31 OCTOBER TO 31 DECEMBER DECEMBER 1996 1996 1997 NOTES POUNDS POUNDS POUNDS ------- --------------- ------------------ --------------- TURNOVER ............................................ 3 3,058,221 625,525 4,198,219 Cost of sales ....................................... (2,035,263) (399,674) (2,589,186) ---------- -------- ---------- GROSS PROFIT ........................................ 1,022,958 225,851 1,609,033 Administrative expenses ............................. (1,067,421) (149,319) (943,590) ---------- -------- ---------- OPERATING (LOSS)/PROFIT ............................. 4 (44,463) 76,532 665,443 Profit on disposal of tangible fixed assets ......... -- -- 52,076 Interest receivable ................................. 30 13 344 Interest payable .................................... 7 (29,995) (37,699) (208,456) ---------- -------- ---------- (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ......................... (74,428) 38,846 509,407 Taxation ............................................ 8 9,070 (11,355) (169,000) ---------- -------- ---------- (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION .......................... (65,358) 27,491 340,407 Minority interest ................................... -- (18,130) (64,101) ---------- -------- ---------- (LOSS)/PROFIT FOR THE PERIOD ........................ (65,358) 9,361 276,306 DIVIDENDS Preference dividend on non-equity shares of Roda Print Concepts Limited ..................... (45,970) -- -- Ordinary dividend on equity shares of Roda Print Concepts Ltd ....................................... (28,000) -- -- ---------- -------- ---------- RETAINED (LOSS)/PROFIT FOR THE PERIOD ..................................... 17 (139,328) 9,361 276,306 ========== ======== ==========
There were no recognized gains or losses other than those recorded above. A summary of the significant adjustments to the profit/(loss) for the period that would be required if United States generally accepted accounting principles were to be applied instead of those generally accepted in the United Kingdom is set forth in Note 25. The notes to the financial statements are an integral part of the financial statements. F-17 RODA LIMITED CONSOLIDATED BALANCE SHEET
31 DECEMBER 31 DECEMBER 1996 1997 NOTES POUNDS POUNDS ------- --------------- --------------- FIXED ASSETS Tangible assets ........................................ 9 399,465 863,739 CURRENT ASSETS Stocks ................................................. 11 96,220 148,026 Debtors ................................................ 12 799,336 928,254 Cash at bank and in hand ............................... 89,610 522 ------- ------- 985,166 1,076,802 CREDITORS: amounts falling due within one year ......... 13 (1,995,006) (1,493,999) ---------- ---------- NET CURRENT LIABILITIES ................................ (1,009,840) (417,197) ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES .................. (610,375) 446,542 CREDITORS: amounts falling due after more than one year .............................................. 14 (1,147,710) (1,928,321) MINORITY INTEREST ...................................... 21 (100) (100) ---------- ---------- 21 (1,758,185) (1,481,879) ========== ========== CAPITAL AND RESERVES Called up share capital ................................ 16 200,000 200,000 Share premium .......................................... 17 199,998 199,998 Profit and loss account ................................ 17 (2,158,183) (1,881,877) ---------- ---------- (1,758,185) (1,481,879) ========== ==========
A summary of the significant adjustments to capital and reserves that would be required if United States generally accepted accounting principles were to be applied instead of those generally accepted in the United Kingdom is set forth in Note 25. The notes to the financial statements are an integral part of the financial statements. F-18 RODA LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION TEN MONTHS (29 AUGUST 1996) COMPANY YEAR ENDED 31 TO 31 DECEMBER ENDED 31 OCTOBER 1996 1996 DECEMBER 1997 NOTES POUNDS POUNDS POUNDS ------- -------------- ------------------ -------------- RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES Operating (loss)/profit ............................. (44,463) 76,532 665,443 Depreciation charges ................................ 58,889 9,506 88,714 (Increase)/decrease in stocks ....................... (7,170) 8,532 (51,806) (Increase)/decrease in debtors ...................... (75,115) 203,657 (123,515) Increase/(decrease) in creditors .................... 297,438 (173,652) (56,337) ------- -------- -------- Net cash inflow from operating activities ........... 229,579 124,575 522,499 ------- -------- -------- CASH FLOW STATEMENT Net cash inflow from operating activities ........... 229,579 124,575 522,499 Returns on investment and servicing of finance . 22 (75,935) (55,816) (272,213) Taxation ............................................ (46,647) -- (97,865) Capital expenditure ................................. 22 (29,960) (2,436) (36,382) Acquisitions ........................................ 10 -- (1,627,222) -- Equity dividends paid ............................... (28,000) -- -- ------- ---------- -------- 49,037 (1,560,899) 116,039 Management of liquid resources ...................... 22 25,685 -- -- FINANCING ........................................... 22 (183,432) 1,641,546 (410,245) ------- -------- (Decrease)/increase in cash ......................... (108,710) 80,647 (294,206) ======== ========== ======== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash ......................... (108,710) 80,647 (294,206) Cash flow from decrease/(increase) in debt and lease financing .................................... 81,924 (1,241,548) 410,245 Loans and finance leases acquired with subsidiary ......................................... (54,351) (239,912) -- Loan stock issued ................................... (25,685) (50,000) -- New loan ............................................ -- (816,000) -- New finance leases .................................. -- -- (464,530) -------- ---------- -------- Change in net debt .................................. (106,822) (2,266,813) (348,491) Net debt at beginning of period ..................... (328,442) -- (2,266,813) -------- ---------- ---------- Net debt at end of period ........................... 23 (435,264) (2,266,813) (2,615,304) ======== ========== ==========
The significant differences between the statement of cash flows presented above and that required under United States generally accepted accounting principles are described in Note 25. The notes to the financial statements are an integral part of the financial statements. F-19 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION These financial statements comprise the consolidated financial statements of Roda Limited ("the Company") and its subsidiary Roda Print Concepts Limited ("the Predecessor") (together, "the Group") for the period from incorporation, 29 August 1996 to 31 December 1996 and for the year ended 31 December 1997, together with the financial statements of the Predecessor for the 10 months ended 31 October 1996. The Company acquired Roda Print Concepts Limited on 21 October 1996 (the trading results from 21 October 1996 to 31 October 1996 are not considered material). Prior to its acquisition of Roda Print Concepts Limited, Roda Limited did not trade. The acquisition was a management buy-out and the current shareholders of Roda Ltd are not the same as the original shareholders of Roda Print Concepts Limited. 2. ACCOUNTING POLICIES Accounting convention The financial statements are prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards. Goodwill Goodwill on acquisition has been set off directly against reserves. If the subsidiary is subsequently sold or closed, any goodwill arising on acquisition which was written off to reserves will be taken into account in determining the profit or loss on sale or closure. Depreciation Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost less estimated residual value of each asset evenly over its expected useful life, as follows: Leasehold improvements -- over the lease term Plant and machinery -- 10% per annum Fixtures, fittings and equipment -- 10% per annum Motor vehicles -- 20% per annum
Stocks Stocks are stated at the lower of cost and net realizable value. Cost includes all expenses incurred in bringing the products to their present location and condition. Net realisable value is based on estimated selling prices less any further costs to be incurred on disposal. Deferred taxation Deferred taxation is provided on the liability method for all timing differences which are expected to reverse in the future, calculated at the rate at which it is estimated that tax will be payable. Foreign currencies Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or, if appropriate, at the forward contract rate. Pensions The Group contributes to two defined contribution schemes for its directors and employees. The assets of the schemes are held separately from those of the Company in independently administered funds. The pension cost charge represents contributions paid by the Company to the schemes. F-20 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 2. ACCOUNTING POLICIES - (CONTINUED) Leasing commitments Assets held under finance leases, which are leases where substantially all the risks and rewards of the ownership of the asset have passed to the Company, are capitalized in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under the leases are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding. Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term. 3. TURNOVER Turnover, which is stated net of value added tax and represents amounts invoiced to third parties, and pre-tax profits are wholly attributable to the Group's one continuing activity of general printing. An analysis of turnover by geographical market is given below:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ United Kingdom ......................... 2,393,100 336,000 2,972,334 Rest of the European Community ......... 236,969 108,918 531,138 Rest of the world ...................... 428,152 180,607 694,747 --------- ------- --------- 3,058,221 625,525 4,198,219 ========= ======= =========
4. OPERATING (LOSS)/PROFIT This is stated after charging:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Auditors' remuneration--audit fees .................. 6,250 1,250 -- Depreciation of owned fixed assets .................. 46,374 7,005 38,751 Depreciation of assets held under finance leases and hire purchase contracts .................. 12,515 2,501 49,963 Operating lease rentals--land and buildings ......... 30,000 6,000 36,000 ====== ===== ======
F-21 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 5. DIRECTORS' EMOLUMENTS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Emoluments .................... 225,435 23,131 157,063 Pension contributions ......... 224,389 2,666 14,149 ------- ------ ------- 449,824 25,797 171,212 ======= ====== =======
Directors' emoluments, excluding pension contributions, were paid by the subsidiary undertakings and fell within the following ranges:
NO. NO. NO. ----- ----- ---- nil pounds -- 5,000 pounds ............ 3 3 -- 15,000 pounds -- 19,999 pounds ........... -- 1 -- 20,000 pounds -- 24,999 pounds ........... -- -- 2 75,000 pounds -- 79,999 pounds ........... 1 -- -- 105,000 pounds -- 109,999 pounds .......... -- -- 1 120,000 pounds -- 127,999 pounds .......... 1 -- --
The emoluments of the highest paid director, were 107,627 pounds (1996 -- 120,354 pounds, for the pre-acquisition period and 19,131 pounds for the consolidated period) (these were not the same directors). The chairman received no emoluments. 6. STAFF COSTS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Wages and salaries ............ 926,724 190,969 1,300,333 Social security costs ......... 88,627 20,677 126,950 Other pension costs ........... 15,886 1,215 13,495 ------- ------- --------- 1,031,237 212,861 1,440,778 ========= ======= =========
The average weekly number of employees during the period, including the directors, was as follows:
NO. NO. NO. ----- ----- ---- Factory ................. 19 19 37 Administration .......... 12 12 9 Directors ............... 2 2 1 -- -- -- 33 33 47 == == ==
F-22 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 7. INTEREST PAYABLE AND SIMILAR CHARGES
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Interest payable on bank overdraft ................. 23,513 4,055 4,759 Finance leases and hire purchase contracts ......... 5,808 1,001 27,469 Other interest payable ............................. 674 32,643 176,228 ------ ------ ------- 29,995 37,699 208,456 ====== ====== =======
8. TAXATION
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Based on the (loss)/profit for the period: ......... UK corporation tax at 31.5% (1996 -- 33%) .......... 12,505 (11,355) (115,000) Corporation tax underprovided in previous years (3,435) -- (54,000) ------ ------- -------- 9,070 (11,355) (169,000) ====== ======= ========
9. TANGIBLE FIXED ASSETS Company -- year to 31 December 1997
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ------------ COST: At 1 January 1997 ................ 19,438 469,659 152,290 51,690 693,077 Additions ........................ 4,602 535,881 54,079 2,350 596,912 Disposals ........................ -- (90,597) -- -- (90,597) ------ ------- ------- ------ ------- At 31 December 1997 .............. 24,040 914,943 206,369 54,040 1,199,392 ------ ------- ------- ------ --------- DEPRECIATION: At 1 January 1997 ................ 5,102 212,736 67,550 8,224 293,612 Provided during the year ......... 2,754 58,203 17,302 10,455 88,714 Disposals ........................ -- (46,673) -- -- (46,673) ------ ------- ------- ------ --------- At 31 December 1997 .............. 7,856 224,266 84,852 18,679 335,653 ------ ------- ------- ------ --------- Net book value at 31 December 1997 ................ 16,184 690,677 121,517 35,361 863,739 ====== ======= ======= ====== ========= Net book value at 31 December 1996 ................ 14,336 256,923 84,740 43,466 399,465 ====== ======= ======= ====== =========
The net book value of tangible fixed assets includes 617,529 pounds in respect of assets held under finance leases. F-23 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 9. TANGIBLE FIXED ASSETS - (CONTINUED) Company -- period from incorporation (29 August 1996) to 31 December 1996
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ---------- COST: On incorporation ........................ -- -- -- -- -- Arising on acquisition of ............... subsidiary undertakings ................. 14,543 263,440 84,785 43,767 406,535 Additions ............................... -- -- 2,436 -- 2,436 ------ ------- ------ ------ ------- At 31 December 1996 ..................... 14,543 263,440 87,221 43,767 408,971 ------ ------- ------ ------ ------- DEPRECIATION: On incorporation ........................ -- -- -- -- -- Provided during the period .............. 207 6,517 2,481 301 9,506 ------ ------- ------ ------ ------- At 31 December 1996 ..................... 207 6,517 2,481 301 9,506 ------ ------- ------ ------ ------- Net book value at 31 December 1996 ....................... 14,336 256,923 84,740 43,466 399,465 ====== ======= ====== ====== ======= Net book value on incorporation ......... -- -- -- -- -- ====== ======= ====== ====== =======
The net book value of tangible fixed assets includes 152,999 pounds in respect of assets held under finance leases. Predecessor -- ten months to 31 October 1996
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ---------- COST: At 1 January 1996 .................. 19,438 453,159 125,933 7,800 606,330 Additions .......................... -- 16,500 23,921 43,890 84,311 ------ ------- ------- ------ ------- At 31 October 1996 ................. 19,438 469,659 149,854 51,690 690,641 ------ ------- ------- ------ ------- DEPRECIATION: At 1 January 1996 .................. 3,857 167,079 53,469 812 225,217 Provided during the period ......... 1,038 39,140 11,600 7,111 58,889 ------ ------- ------- ------ ------- At 31 October 1996 ................. 4,895 206,219 65,069 7,923 284,106 ------ ------- ------- ------ ------- NET BOOK VALUE: At 31 October 1996 ................. 14,543 263,440 84,785 43,767 406,535 ====== ======= ======= ====== ======= At 31 December 1995 ................ 15,581 286,080 72,464 6,988 381,113 ====== ======= ======= ====== =======
The net book value of tangible fixed assets includes 145,500 pounds in respect of assets held under finance leases. F-24 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 10. ANALYSIS OF THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED
NET BOOK VALUE AND FAIR VALUE POUNDS ------------- Fixed assets ................................ 406,535 Stocks ...................................... 104,752 Debtors ..................................... 1,003,004 Cash ........................................ 23,590 Overdraft ................................... (218,940) Creditors ................................... (948,599) Loans and finance leases .................... (239,914) --------- Net assets .................................. 130,428 Less: Minority interest ..................... (100) Goodwill arising on the acquisition ......... 2,167,544 --------- 2,297,872 ========= DISCHARGED BY: Loan ........................................ 866,000 Cash ........................................ 1,419,872 Retention account ........................... 12,000 --------- 2,297,872 =========
On 21 October 1996 the Company acquired, from the family interests of D Boulton, 100% of the equity issued share capital of Roda Print Concepts Limited, a company incorporated in Great Britain, for a consideration of 2,297,872 pounds. CASH FLOWS RELATING TO THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED:
POUNDS --------------- Net overdraft ....................................................... (195,350) Cost of acquisition of Roda Print Concepts Limited -- cash .......... (1,419,872) Cost of acquisition of Roda Print Concepts Limited -- cash placed in escrow account .................................................. (12,000) ---------- (1,627,222) ==========
11. STOCKS
1996 1997 POUNDS POUNDS -------- ---------- Raw materials .......................... 96,220 133,934 Work in progress ....................... -- 14,092 ------ ------- 96,220 148,026 ====== =======
12. DEBTORS
1996 1997 POUNDS POUNDS --------- ---------- Trade debtors .......................... 766,365 827,353 Other debtors .......................... 16,623 69,399 Prepayments and accrued income ......... 16,348 31,502 ------- ------- 799,336 928,254 ======= =======
F-25 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1996 1997 POUNDS POUNDS ------------ ------------ Bank loans and overdrafts ..................... 261,594 466,712 Obligations under finance leases .............. 33,618 122,798 Trade creditors ............................... 631,304 558,372 Corporation tax ............................... 63,067 134,202 Advance corporation tax ....................... -- 5,403 Other taxes and social security costs ......... 62,316 41,765 Other creditors ............................... 913,502 133,124 Accruals ...................................... 29,605 31,623 ------- ------- 1,995,006 1,493,999 ========= =========
14. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1996 1997 POUNDS POUNDS ------------ ------------ Loans wholly repayable within five years: ......... Bank loans ........................................ 947,369 715,785 Other creditors ................................... 117,975 82,336 Obligations under finance leases .................. 32,366 280,200 Loan notes ........................................ 50,000 850,000 ------- ------- 1,147,710 1,928,321 ========= =========
The bank loans and overdraft are secured on the assets of the Group. Other creditors (notes 13 and 14) include a loan from the directors' pension fund of 130,336 pounds (1996 -- 165,480 pounds) which is unsecured and repayable by monthly instalments until 30 June 2004. The loan notes are part of the management buy-out consideration, secured on the assets of the Group. These are convertible to ordinary shares after a period of 5 years, if unredeemed, at the option of the stockholder. The finance lease liabilities mature as follows:
1996 1997 POUNDS POUNDS ----------- ------------ Within one to two years ................................... 40,011 163,536 Within two to five years .................................. 33,717 321,497 ------ ------- 73,728 485,033 Less: finance charges allocated to future periods ......... (7,744) (82,035) ------ ------- 65,984 402,998 ====== =======
15. PROVISION FOR LIABILITIES AND CHARGES Deferred taxation not provided is as follows:
NOT PROVIDED --------------------------- 1996 1997 POUNDS POUNDS ------------ ------------ Capital allowances in advance of depreciation ......... (54,190) (99,000) ======= =======
F-26 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 16. SHARE CAPITAL
ALLOTTED, CALLED UP AUTHORIZED AND FULLY PAID ------------------------- ------------------ 1996 1997 1996 1997 POUNDS POUNDS POUNDS POUNDS ------------ ------------ --------- -------- 'A' ordinary shares of 50p each .. 100,000 100,000 100,000 100,000 'B' ordinary shares of 50p each .. 900,000 900,000 100,000 100,000 ------- ------- ------- ------- 1,000,000 1,000,000 200,000 200,000 ========= ========= ======= =======
On incorporation, 2 ordinary shares of 1 pound each were issued to the subscribers to the Memorandum and Articles of Association for cash consideration of 2 pounds. On 21 October 1996 the 1 pound shares were each converted to two 50p ordinary 'A' shares, and the authorised share capital was then increased to 1,000,000 pounds (made up of 200,000 ordinary 'A' shares and 1,800,000 ordinary 'B' shares). 200,000 pounds ordinary 'B' shares and an additional 199,996 pounds ordinary 'A' shares were then issued for 1 pound each (i.e. at a premium of 50p per share) for cash as part of the Management Buy-Out Agreement. All shares have equal rights except on sale. 17. RECONCILIATION OF SHAREHOLDER'S FUNDS AND MOVEMENTS IN RESERVES
TOTAL SHARE PROFIT AND SHAREHOLDERS' CAPITAL LOSS ACCOUNT FUNDS POUNDS POUNDS POUNDS --------- -------------- -------------- PREDECESSOR At 1 January 1996 ........... 200 269,556 269,756 Loss for the period ......... -- (139,328) (139,328) --- -------- -------- At 31 October 1996 .......... 200 130,228 130,428 === ======== ========
PROFIT TOTAL SHARE SHARE AND LOSS SHAREHOLDERS' CAPITAL PREMIUM ACCOUNT FUNDS POUNDS POUNDS POUNDS POUNDS --------- --------- --------------- -------------- COMPANY On incorporation ............................ 2 2 Issue of share capital: on acquisition of Roda Print Concepts Limited ................ 199,998 199,998 -- 399,996 Goodwill write off .......................... (2,167,544) (2,167,544) Profit for the period ....................... 9,361 9,361 ---------- ---------- At 31 December 1996 ......................... 200,000 199,998 (2,158,183) (1,758,185) Profit for the year ......................... -- -- 276,306 276,306 ------- ------- ---------- ---------- At 31 December 1997 ......................... 200,000 199,998 (1,881,877) (1,481,879) ======= ======= ========== ==========
18. FINANCIAL COMMITMENTS The Group had annual commitments under non-cancellable operating leases as follows:
LAND AND OTHER BUILDINGS 1996 1997 1996 1997 POUNDS POUNDS POUNDS POUNDS ------- ------- --------- ---------- Operating leases which expire: within one year .................. 3,000 4,281 -- -- within two to five years ......... -- -- 36,000 36,000 ----- ----- ------ ------ 3,000 4,281 36,000 36,000 ===== ===== ====== ======
F-27 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 19. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS The Group has authorised but not contracted for capital expenditure of nil pounds (1996 -- 120,000 pounds). 20. ULTIMATE CONTROLLING ENTITY In the opinion of the directors there is no ultimate controlling entity. 21. MINORITY INTERESTS The non-equity minority interests represents a 100% holding of the preference shares of Roda Print Concepts Limited by a third party. The holders of these shares have no rights against other group companies. 22. NOTES TO THE STATEMENT OF CASH FLOWS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996 TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Interest received .................................... 30 -- 344 Dividends paid on non-equity shares .................. (45,970) -- -- Subsidiary dividend paid ............................. -- (18,130) (64,101) Interest paid ........................................ (24,187) (36,685) (180,987) Interest element of finance lease rental payments (5,808) (1,001) (27,469) ------- ------- -------- Net cash outflow from returns on investments and servicing of finance ........................... (75,935) (55,816) (272,213) ======= ======= ======== CAPITAL EXPENDITURE: Payments to acquire tangible fixed assets ............ (29,960) (2,436) (132,382) Receipts from sales of tangible fixed assets ......... -- -- 96,000 ------- ------- -------- (29,960) (2,436) (36,382) ======= ======= ======== MANAGEMENT OF LIQUID RESOURCES: Sale of short term investment ........................ 25,685 -- -- ------- ------- -------- Net cash inflow ...................................... 25,685 -- -- ------- ------- -------- FINANCING: Capital element of finance lease rental payments (37,736) (8,114) (127,517) Capital repayment of pension fund loan ............... (5,866) (333) (35,149) Capital repayment of bank loan ....................... (38,322) -- (231,579) Loan to Roda Limited ................................. (101,508) -- -- Repayment of loan .................................... -- -- (16,000) New secured loan ..................................... -- 1,200,000 -- New unsecured loan ................................... -- 49,995 -- Share capital issued ................................. -- 399,998 -- -------- --------- -------- Net cash (outflow)/inflow from financing ............. (183,432) 1,641,546 (410,245) ======== ========= ========
F-28 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 23. ANALYSIS OF CHANGES IN NET DEBT
AT AS 1 JANUARY OTHER 31 OCTOBER 1996 CASH FLOWS CHANGES 1996 POUNDS POUNDS POUNDS POUNDS ------------- ------------ ------------ ------------- PREDECESSOR Cash at bank and in hand ......... 26,092 (2,502) 23,590 Bank overdraft ................... (112,732) (106,208) (218,940) -------- -------- -------- (86,640) (108,710) (195,350) Finance leases ................... (57,486) 37,736 (54,351) (74,101) Loans ............................ (210,001) 145,696 (101,508) (165,813) -------- Short term investment ............ 25,685 (25,685) -------- -------- -------- -------- (328,442) (49,037) (155,859) (435,264) ======== ======== ======== ========
AT AS 1 NOVEMBER OTHER 31 DECEMBER 1996 CASH FLOWS ACQUISITION CHANGES 1996 POUNDS POUNDS POUNDS POUNDS POUNDS ------------ --------------- ------------- ------------- --------------- COMPANY Cash at bank and in hand ......... -- 89,610 89,610 Bank overdraft ................... -- (8,963) (8,963) -- ---------- -------- -------- --------- -- 80,647 80,647 Finance leases ................... -- 8,114 (74,099) (65,985) Loans ............................ -- (1,249,662) (165,480) (866,333) (2,281,475) -- ---------- -------- -------- --------- -- (1,160,901) (239,579) (866,333) (2,266,813) == ========== ======== ======== ==========
AT AS 1 JANUARY OTHER 31 OCTOBER 1997 CASH FLOWS CHANGES 1997 POUNDS POUNDS POUNDS POUNDS --------------- ------------ ------------- --------------- COMPANY Cash at bank and in hand ......... 89,610 (89,088) 522 Bank overdraft ................... (8,963) (205,118) (214,081) ------ -------- -------- 80,647 (294,206) (213,559) Finance leases ................... (65,985) 127,517 (464,530) (402,998) Loans ............................ (2,281,475) 282,728 (1,998,747) ---------- -------- -------- ---------- (2,266,813) 116,039 (464,530) (2,615,304) ========== ======== ======== ==========
F-29 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 24. COMPANIES ACT 1985 These financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory accounts for the year ended 31 December 1996 of Roda Print Concepts Ltd, have been delivered to the Registrar of Companies for England and Wales. Statutory accounts for the period from incorporation to 31 December 1997 for Roda Limited and the year ended 31 December 1997 for Roda Print Concepts Ltd. will be delivered to the Registrar. The auditors' reports on these accounts were unqualified. 25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP") which differ in certain respects from United States generally accepted accounting principles ("US GAAP"). The significant differences as they apply to the Group are summarized below. Goodwill Under UK GAAP the goodwill arising on the acquisition of Roda Print Concepts Limited has been charged to reserves. Under US GAAP such goodwill would be capitalised and amortised over its estimated useful life of 40 years. Deferred taxation Under UK GAAP the Group provides for deferred tax using the liability method on all timing differences which are expected to reverse in the future without being replaced, calculated at the rate at which it is anticipated the timing differences will reverse. Under US GAAP deferred taxation is provided using the liability method on all temporary differences. Deferred tax liabilities and assets would be classified as current or non current based on the classification between the book and tax bases of assets and liabilities. The following is a summary of the significant adjustments to profit/(loss) for the period and capital and reserves, which would be required if US GAAP were to be applied instead of UK GAAP:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ INCOME (Loss)/profit for the period as reported in consolidated statement of income ........................................ (65,358) 9,361 276,306 Amortisation of goodwill ..................................... -- (9,031) (54,189) Deferred taxation: Methodology ............................... (66,172) 11,982 (44,810) Prior period tax adjustment .................................. -- (54,000) 54,000 ------- ------- ------- Net (loss)/income as adjusted to accord with US GAAP ......... (131,530) (41,688) 231,307 ======== ======= =======
F-30 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES - (CONTINUED)
31 DECEMBER 31 DECEMBER 1996 1997 --------------- --------------- CAPITAL AND RESERVES Capital and reserves as reported in the consolidated balance sheet ......................................................... (1,758,185) (1,481,879) Goodwill ........................................................ 2,149,481 2,104,324 Deferred taxation: Methodology .................................. (54,190) (99,000) ---------- ---------- Shareholders' equity as adjusted to accord with US GAAP ......... 346,138 523,445 ========== ==========
Cash flows The consolidated statement of cash flows presents substantially the same information as that required under US GAAP. These statements differ, however, with regard to classification of items within the statements and as regards the definition of cash and cash equivalents. Under US GAAP, cash and cash equivalents would not include bank overdrafts and borrowings with initial maturities of less than three months. Under UK GAAP, cash flows are presented separately for operating activities, servicing of finance and returns on investments, taxation, capital expenditure and financial investment, equity dividends paid, management of liquid resources and financing. US GAAP, however, require only three categories of cash flow activity to be reported: operating, investing and financing. Cash flows from taxation and servicing of finance and return on investments shown under UK GAAP would, with the exception of dividends paid, be included as operating activities under US GAAP. The payment of dividends would be included as a financing activity under US GAAP. Under US GAAP, capitalised interest is treated as part of the cost of the asset to which it relates and thus included as part of investing cash flows; under UK GAAP all interest is treated as part of servicing of finance and returns on investments. The categories of cash flow activities under US GAAP can be summarised as follows:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Cash flows from operating activities .............. 106,997 68,759 152,421 Cash outflows on investing activities ............. (29,960) (1,629,658) (36,382) Cash flows from financing activities .............. (79,539) 1,650,509 (205,127) ------- ---------- -------- Increase/(decrease) in cash and cash equivalents . (2,502) 89,610 (89,088) Cash and cash equivalents at beginning of period . 26,092 -- 89,610 ------- ---------- -------- Cash and cash equivalent at end of period ......... 23,590 89,610 522 ======= ========== ========
F-31 ================================================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON ASKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------------------------------- TABLE OF CONTENTS
PAGE ---------- Prospectus Summary .............................. 3 Risk Factors .................................... 7 The Company ..................................... 13 Use of Proceeds ................................. 14 Dividend Policy ................................. 14 Capitalization .................................. 15 Dilution ........................................ 16 Unaudited Pro Forma Combined Financial Statements ................................... 17 Selected Financial Data ......................... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations. 24 Business ........................................ 29 Management ...................................... 38 Principal Stockholders .......................... 45 Certain Transactions ............................ 46 Description of Capital Stock .................... 48 Shares Eligible for Future Sale ................. 50 Underwriting .................................... 51 Legal Matters ................................... 52 Experts ......................................... 52 Additional Information .......................... 52 Index to Financial Statements ................... F-1
---------------------------------------- UNTIL 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ 2,100,000 SHARES CUNNINGHAM GRAPHICS INTERNATIONAL, INC. COMMON STOCK ----------------------------------------------------- PROSPECTUS ----------------------------------------------------- SCHRODER & CO. INC. , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is an estimate of the fees and expenses to be incurred in connection with the issuance and distribution of the shares of Common Stock offered hereby. Securities and Exchange Commission Registration Fee ......... $ 9,262 NASD Filing Fee ............................................. $ 3,640 NASDAQ Listing Fee -- National Market Fee ................... $44,500 Blue Sky Fees and Expenses .................................. $ * ------- Legal Fees and Expenses ..................................... $ * Accounting Fees ............................................. $ * Printing and Engraving Costs ................................ $ * Transfer Agent Fees ......................................... $ * Miscellaneous Expenses ...................................... $ * ======= Total ....................................................... $800,000 ========
- ---------- * To be included by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Certificate of Incorporation contains a provision eliminating or limiting director liability to the Registrant and its stockholders for monetary damages arising from acts or omissions in the director's capacity as director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, (iii) under the New Jersey statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of the Registrant protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, the ability of the Registrant or a stockholder thereof to successfully prosecute an action against a director for breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The Securities and Exchange Commission has taken the position that the provision will have no effect on claims arising under the federal securities laws. In addition, the Registrant's Certificate of Incorporation and Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any director or officer of the Registrant who by reason of the fact that he or she is a director or officer of the Registrant, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director, officer, employee or agent in advance of the final deposition of such proceeding in accordance with the applicable provisions of the New Jersey Business Corporation Act. Each of the officers and directors of the Company is insured against certain liabilities which he or she might incur in his or her capacity as an officer or director pursuant to a Directors and Officers Liability Policy issued by Federal Insurance Company of Warren, New Jersey. The general effect of this policy is that if during the policy period any claim or claims are made against the officers and directors of the Company or any of them individually for a Wrongful Act (as defined in the policy) while acting in their individual or collective capacities as directors or officers, and the Company has indemnified them, the insurer will pay for 100% of any Loss (as defined in the policy). In those instances where the officers and directors are not indemnified by the Company, the insurer will pay on behalf of the officers and directors II-1 of the Company or any of them, their executors, administrators, or assigns, 100% of the Loss. The insurer's combined limit of liability is $1,000,000 during any policy year and $1,000,000 for any single Loss. "Wrongful Act" is defined as any error, misstatement, misleading statement, act, omission, neglect or breach of duty actually or allegedly committed or attempted by the officers or directors of the Company while acting in their individual or collective capacities or in any matter, not excluded by the terms and conditions of the policy, claimed against them by reason of their being directors or officers of the Company. The term "Loss" is defined as any amount which the Company shall be required or permitted by law to pay to such person as indemnity for a claim or claims made against them for "Wrongful Acts," and includes damages, judgments, settlements, costs, charges, and expenses incurred in the defense of actions, suits or proceedings and appeals therefrom, except that the term "Loss" does not include fines or penalties imposed by law or matters which may be deemed uninsurable under the law pursuant to which the policy shall be construed. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Upon formation of the Company, one share of Common Stock was issued to Michael R. Cunningham. Immediately prior to the Offering, the Company is closing the private placement of 2,595,260 shares of Common Stock to the existing stockholders of the Predecessor in connection with the Reorganization. The recipients of these securities are the following:
NAME NUMBER OF SHARES - ------------------------------------------------- ----------------- Michael R. Cunningham .................... 2,050,727 Gordon Mays .............................. 228,198 Timothy Mays ............................. 165,803 James J. Cunningham, Trustee ............. 130,898 William J. Mays, Trustee ................. 9,817 William Edward Shannon, Trustee .......... 9,817
Contemporaneously with the completion of the Offering, the Company is closing the private placement of 169,739 shares of Common Stock to the selling stockholders of Roda as part of the purchase price for the shares of capital stock of Roda. For purposes of the transaction, a share of Common Stock is being valued at the initial public offering price. The recipients of these securities are the following:
NAME NUMBER OF SHARES - -------------------------------------------------- ----------------- Peter L. Furlonge ......................... 128,323 Ralph J. Elman ............................ 624 Stelby Holdings Limited ................... 3,999 Central Investments Limited ............... 17,901 The Naggar Family Pension Scheme .......... 3,999 M. L. Tagliaferri ......................... 508 M.O. Moriarty ............................. 51 Mrs. J. Moriarty .......................... 76 George Harvey ............................. 14,258
The Company relies on Section 4(2) of the Securities Act in making the foregoing private placements. No offer was made to any person other than the existing stockholders of the Predecessor and the selling stockholders of Roda Limited. No underwriters are involved nor will any commissions be paid in connection with the foregoing transactions. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION - ------------- ------------------------------------------------------------------------------------- 1.1* Form of Underwriting Agreement between the Company and Schroder & Co. Inc. 1.2 Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor 2.1* Reorganization Agreement among Stockholders of the Predecessor and CGII 3.1 Certificate of Incorporation 3.2 By-Laws 4.2* Specimen Common Stock Certificate 5.1* Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione 10.1 1998 Stock Option Plan 10.2 Directors' Stock Option Plan 10.3* Employment Agreement between the Company and M.R. Cunningham 10.4* Employment Agreement between the Company and G. Mays 10.5* Employment Agreement between the Company and T. Mays 10.6* Employment Agreement between the Company and R. Needle 10.7* Form of Service Agreement between Roda Limited and P.L. Furlonge 10.9 Loan and Security Agreement dated December 15, 1997 between the Company and Summit Bank, as amended 10.10+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman, Sachs & Co., as amended 10.11 Agreement of Lease dated April 18, 1989 between the Company and Lackawanna Warehouse Corp. of New Jersey, as amended 10.12 Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs & Co. 10.13* Form of Roda Lease 10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd. and Workable Ltd. 14(a) Financial Statement Schedule Report of Independent Auditors on Financial Statement Schedule Schedule II -- Valuation of Qualifying Accounts 21.1 List of all subsidiaries of the Company 23.1* Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 23.3 Consent of Ernst & Young Chartered Accountants 24.1 Power of Attorney (Page II -- 5) 27 Financial Data Schedule 99.1 Consent of Arnold Spinner 99.2 Consent of Norman R. Malo
- ---------- * To be included by amendment + Portions of this Exhibit have been omitted and have been filed separately with the Secretary of the Commission pursuant to Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether II-3 such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be bona fide offering thereof. The undersigned registrant hereby undertakes to provide to the Underwriter, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. II-4 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jersey City, State of New Jersey, on February 19, 1998. CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: /s/ Michael R. Cunningham ------------------------------------------ Michael R. Cunningham President and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby constitutes and appoints Michael R. Cunningham and Gordon Mays, or either of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Commission, any and all amendments and post-effective amendments to this Registration Statement, with exhibits thereto and other documents in connection therewith, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any substitute therefor, may lawfully do or cause to be done by virtue thereof.
NAME TITLE DATE - -------------------------------- ------------------------------ ----------------- /s/ Michael R. Cunningham Chairman of the Board, February 19, 1998 ----------------------------- President, Chief Executive Michael R. Cunningham Officer and Director (Principal Executive Officer) /s/ Kenneth G. Hay Principal Financial and February 19, 1998 ----------------------------- Accounting Officer Kenneth G. Hay /s/ James J. Cunningham Director February 19, 1998 ----------------------------- James J. Cunningham /s/ Gordon Mays Director February 19, 1998 ----------------------------- Gordon Mays
II-5 REPORT OF INDEPENDENT AUDITORS Board of Directors Cunningham Graphics International, Inc. We have audited the predecessor financial statements of Cunningham Graphics International, Inc. as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated January 16, 1998 (included elsewhere in this Registration Statement). Our audits also included the Financial Statement Schedule listed in Item 14(a) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the Financial Statement Schedule referred to above, when considered in relation to the basic Financial Statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Princeton, New Jersey January 16, 1998 S-1 ITEM 14(A) FINANCIAL STATEMENT SCHEDULE CUNNINGHAM GRAPHICS INTERNATIONAL, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS -- PREDECESSOR COMPANY (IN THOUSANDS)
CHARGED TO BEGINNING COST AND ENDING DESCRIPTION BALANCE EXPENSE WRITE-OFFS BALANCE - --------------------------------------------- ----------- ----------- ------------ -------- Year ended December 31, 1997: Allowances for accounts receivable ......... $28 $31 $ 9 $50 Year ended December 31, 1996: Allowances for accounts receivable ......... 30 -- 2 28 Year ended December 31, 1995: Allowances for accounts receivable ......... 30 -- -- 30
CHARGED TO BEGINNING COST AND ENDING DESCRIPTION BALANCE EXPENSE WRITE-OFFS BALANCE - ------------------------------------- ----------- ----------- ------------ -------- Year ended December 31, 1997: Allowances for inventories ......... $200 $86 $92 $194 Year ended December 31, 1996: Allowances for inventories ......... 200 82 82 200 Year ended December 31, 1995: Allowances for inventories ......... 200 200
All other schedules are omitted because they are not applicable, not required, or because the required information is included in the financial statements or notes thereto. S-2 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ------------- ------------------------------------------------------------------------------------- ----- 1.1* Form of Underwriting Agreement between the Company and Schroder & Co. Inc. 1.2 Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor 2.1* Reorganization Agreement among Stockholders of the Predecessor and CGII 3.1 Certificate of Incorporation 3.2 By-Laws 4.2* Specimen Common Stock Certificate 5.1* Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione 10.1 1998 Stock Option Plan 10.2 Directors' Stock Option Plan 10.3* Employment Agreement between the Company and M.R. Cunningham 10.4* Employment Agreement between the Company and G. Mays 10.5* Employment Agreement between the Company and T. Mays 10.6* Employment Agreement between the Company and R. Needle 10.7* Form of Service Agreement between Roda Limited and P.L. Furlonge 10.9 Loan and Security Agreement dated December 15, 1997 between the Company and Summit Bank, as amended 10.10+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman, Sachs & Co., as amended 10.11 Agreement of Lease dated April 18, 1989 between the Company and Lackawanna Warehouse Corp. of New Jersey, as amended 10.12 Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs & Co. 10.13* Form of Roda Lease 10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd. and Workable Ltd. 14(a) Financial Statement Schedule Report of Independent Auditors on Financial Statement Schedule Schedule II -- Valuation of Qualifying Accounts 21.1 List of all subsidiaries of the Company 23.1* Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 23.3 Consent of Ernst & Young, Chartered Accountants 24.1 Power of Attorney (Page II -- 5) 27 Financial Data Schedule 99.1 Consent of Arnold Spinner 99.2 Consent of Laurent X. de Marval 99.3 Consent of Norman R. Malo
- ---------- * To be included by amendment + Portions of this Exhibit have been omitted and have been filed separately with the Secretary of the Commission pursuant to Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act. EX-1.2 2 AGREEMENT OF SALE AND PURCHASE CONFORMED COPY DATED 16th January 1998 (1) P.L. FURLONGE and OTHERS (2) CUNNINGHAM GRAPHICS INC AGREEMENT FOR THE SALE AND PURCHASE OF THE ENTIRE ISSUED SHARE CAPITAL OF RODA LIMITED CAMERON McKENNA Mitre House, 160 Aldersgate Street London EC1A 4DD T +44(0)171-367 3000 F +44(0)171-367 2000 CDE Box 724 (50177353.06) THIS AGREEMENT is made the 16th day of January 1998 BETWEEN:- (1) THE SEVERAL PERSONS whose respective names and addresses are set out in column (1) of schedule 1 (the "Vendors"); (2) CUNNINGHAM GRAPHICS INC, a corporation organised under the laws of the State of New Jersey, USA (the "Purchaser"). WHEREAS:- (A) Roda Limited (the "Company"), a company registered in England with number 3243754, has at the date of this Agreement an authorised share capital of (pound)1,000,000 divided into 200,000 A Ordinary Shares of (pound)0.50 each and 1,800,000 B Ordinary Shares of (pound)0.50 each of which 200,000 of the said A Ordinary Shares and 200,000 of the said B Ordinary Shares are issued and fully paid or credited as fully paid and are owned by the Vendors in the proportions shown opposite their respective names in column (2) of schedule 1. (B) The Vendors have agreed to sell the Shares to the Purchaser and the Purchaser has agreed to purchase the Shares in reliance upon the representations, warranties and undertakings in this Agreement, for the consideration and otherwise upon and subject to the terms and conditions of this Agreement. WHEREBY IT IS AGREED as follows:- 1. Definitions and Interpretation 1.1 In this Agreement the following words and expressions have the meanings set opposite them: "Accounts" the audited balance sheet as at the Balance Sheet Date and the audited profit and loss account for the last two accounting reference periods ended on the Balance Sheet Date of the Subsidiary and the notes, reports, statements and other documents which are or would be required by law to be annexed to the Accounts of the company concerned and to be laid before such company in general meeting for such Financial Year, a copy of each of which has been initialled by or on behalf of each of the parties for the purpose of identification; "Accounting Standards" statements of standard accounting practice (including financial reporting standards) issued pursuant to section 256, CA 85 by the ASB; "Affiliate" in relation to any body corporate, any Holding Company or subsidiary of such body corporate or any subsidiary of a Holding Company of such body corporate; -1- "Agreed Extracts" as defined in clause 7.9; "Agreement" this Agreement including its recitals and the schedules hereto but not the Deed of Tax Covenant; "A Ordinary Shares" the 200,000 issued A Ordinary Shares of(pound)0.50 each in the capital of the Company; "ASB" Accounting Standards Board Limited (no. 2526824) or such other body prescribed by the Secretary of State from time to time pursuant to section 256, CA 85; "Balance Sheet Date" 31 December 1996; "B Ordinary Shares" the 200,000 issued B Ordinary Shares of(pound)0.50 each in the capital of the Company; "Business" collectively the businesses of the Company and the Subsidiary at the date hereof; "Business Day" a weekday (other than a Saturday) when banks are open for business in London; "CA 85" Companies Act 1985; "CAA" Capital Allowances Act 1990; "Claim" any claim by the Purchaser in connection with the Vendors' Warranties or the Vendors in connection with the Purchaser's Warranties (as the case may be); "Companies Acts" as defined in section 744, CA 85 together with the Companies Act 1989; "Competent Authority" means any person or legal entity (including any government or government agency) having regulatory authority and/or any court of law or tribunal, or any local or national agency, authority, department, inspectorate, minister, ministry, official or public or statutory person (whether autonomous or not) of, or the government of, the United Kingdom or the European Community; "Completion" completion of the sale and purchase of the Shares pursuant to this Agreement; "Conditions" the conditions referred to in clause 2.1; "Confidential Information" all information received or obtained as a result of entering into or performing, or supplied by or on behalf of a party in the negotiations leading to, this Agreement and the Deed of Tax Covenant and which relates to:- (i) the Company and the Subsidiary; -2- (ii) the Business; (iii) the provisions of this Agreement and the Deed of Tax Covenant; (iv) the negotiations relating to this Agreement and the Deed of Tax Covenant; (v) the subject matter of this Agreement and the Deed of Tax Covenant; or (vi) the Purchaser and its Affiliates. "Connected Person" a person connected with any of the Vendors or the Directors (or any former director of the Company or any of the Subsidiaries) within the meaning of section 839, TA 88; "Consideration Shares" the 169,739 shares of common stock, no par value of the Purchaser to be issued at Completion in accordance with clause 4 as part of the consideration for the Shares. "Copyright" copyright, design rights, topography rights and database rights whether or not the same are registered or unregistered (including any applications for registration of any such thing) and rights under licences and consents in relation to any such thing) and any similar or analogous rights to any of the foregoing whether arising or granted under the law of England or of any other jurisdiction; "Deed of Tax Covenant" the deed in the agreed terms containing certain taxation covenants and indemnities between the Vendors, the Company, each of the Subsidiaries and the Purchaser; "Directors" the directors of the Company and the Subsidiaries named in schedule 2; "Disclosed" fairly disclosed by the Disclosure Documents or by the general disclosures specifically referred to in the Disclosure Letter and "Disclosure" shall be construed accordingly; "Disclosure Documents" the Disclosure Letter, the documents on the property disclosure list referred to therein and the two identical bundles of documents collated by or on behalf of the Vendors the outside covers of each of which have been signed for identification by or on behalf of the Vendors and the Purchaser; "Disclosure Letter" the letter described as such of even date herewith addressed by the Vendors to the Purchaser; -3- "Encumbrance" any interest or equity of any person (including any right to acquire, option or right of pre-emption) or any mortgage, charge, pledge, lien, assignment, hypothecation, security interest, title retention or any other security agreement or arrangement; "Environment" any and all organisms (including without limitation man and his senses), ecological systems, property and the following media: air (including without limitation, the air within buildings and the air within other natural or man-made structures made whether above or below ground); water (including without limitation, water under or within land or in drains or sewers and coastal and inland waters); and land (including without limitation, land under water); "Environmental Agreements" any and all leases or licences or other agreements which are binding upon the Company or any of the Subsidiaries but only to the extent that they relate, either wholly or in part, to the protection of the Environment, and/or the prevention of Harm or Damage; "Environmental Laws" any and all laws including European Community or European Union regulations, directives and decisions; statutes and subordinate legislation; regulations, orders, ordinances, Permits, codes of practice, circulars, guidance notes and the like; common law, local laws and byelaws; judgments, notices, orders, directions, instructions or awards of any Competent Authority applicable to the Property and/or conduct of the Business and which have as a purpose or effect the protection of the Environment, and/or prevention of Harm or Damage and/or the provision of remedies in respect of Harm or Damage; "Environmental Liability" liability (including liability in respect of Remedial Action) on the part of the Company or any of the Subsidiaries and/or any of their directors or officers or shareholders under Environmental Laws; "EPCA" the Employment Protection (Consolidation) Act 1978; "Escrow Agreement" the escrow agreement to be made between the Vendors, the Purchaser, Mundays and Cameron McKenna in the agreed terms; "Event" any payment, transaction, act, omission or occurrence of whatever nature whether or not the Company or the Purchaser is a party thereto and including:- (a) the execution of this Agreement and completion of the sale of the Shares to the Purchaser; and -4- (b) the death of any person being a Vendor or connected with a Vendor; and references to an Event occurring on or before Completion shall include an Event deemed, pursuant to any Taxation Statute, to occur or be treated or regarded as occurring on or before Completion; "FA" Finance Act; "Filing Date" each date on which a registration statement or an amendment thereto is filed by the Purchaser with the SEC, and including the date on which the registration statement is declared effective by the SEC and the date of Completion; "Financial Year" a Financial Year within the meaning ascribed to such expression by section 223, CA 85; "GAAP" Accounting Standards, the legal principles set out in schedules 4 and 4A to CA 85, rulings and abstracts of the urgent issues task force of the ASB and guidelines, conventions, rules and procedures of accounting practice in the United Kingdom which are regarded as permissible by the ASB; "Group" together the Company and the Subsidiary; "Harm or Damage" harm or damage to or other interference with the Environment; "Hazardous Matter" any and all matter (whether alone or in combination with other matter) which may or is liable to cause Harm or Damage; "Holding Company" a Holding Company within the meaning ascribed to such expression by sections 736 and 736A, CA 85; "Intellectual Property" Patent Rights, Know How, Copyright, Trade Marks, Software and IP Materials; "Intellectual Property Agreements" agreements or arrangements relating to Intellectual Property owned, used or exploited by the Company or any of the Subsidiaries; "IP Materials" all documents, records, tapes, discs, diskettes and any other materials whatsoever containing Copyright works, Know How or Software; "ITA" the Inheritance Tax Act 1984; "Know How" trade secrets and confidential business information including customer lists and pricing policy; sales targets, sales statistics, market share statistics, marketing surveys and reports; marketing research; unpatented technical and other information including -5- inventions, discoveries, processes and procedures, ideas, concepts, formulae, specifications, procedures for experiments and tests and results of experimentation and testing; information comprised in Software; together with all common law or statutory rights protecting the same including by any action for breach of confidence and any similar or analogous rights to any of the foregoing whether arising or granted under the law of England or any other jurisdiction; "Loan Notes" the (pound)850,000 nominal convertible secured loan notes issued by the Company as constituted by a deed dated 21st October 1996; "Losses" actions, proceedings, losses, damages, liabilities, claims, costs and expenses including fines, penalties, clean-up costs, legal and other professional fees; "Management Accounts" the management accounts of the Company as at, and for the nine month period ended on, 30 September 1997, a copy of which has been signed for identification purposes on behalf of the Vendors and the Purchaser; "Nasdaq" the Nasdaq National Market System or the Nasdaq Small Cap Market in the United States; "Offer Price" the price per share, at which shares of common stock of the Purchaser are sold by the Company pursuant to the Public Offering; "Patent Rights" patent applications or patents, author certificates, inventor certificates, utility certificates, improvement patents and models and certificates of addition including any divisions, renewals, continuations, refilings, confirmations-in-part, substitutions, registrations, confirmations, additions, extensions or reissues thereof and any similar or analogous rights to any of the foregoing whether arising or granted under the law of England or any other jurisdiction; "Permits" any and all licences, consents, permits, authorisations or the like, made or issued pursuant to or under, or required by, Environmental Laws in relation to the carrying on of the Business at the Property; "Preference Shares" the 'A' preference shares of (pound)1 each and the 'B' preference shares of (pound)1 each in the capital of the Subsidiary; "Proceedings" any proceeding, suit or action arising out of or in connection with this Agreement; "Properties" the properties of which short particulars are set out in schedule 3 and the expression "Property" shall mean, -6- where the context so admits, any one or more of such properties and any part or parts thereof; "Public Offering" the proposed initial public offering by the Purchaser of shares of its common stock in the United States "Purchaser's Group" the Purchaser and its Affiliates; "Purchaser's Solicitors" Cameron McKenna of Mitre House, 160 Aldersgate Street, London EC1A 4DD; "Purchaser's Warranties" the warranties set out in clause 8 and schedule 6; "Remedial Action" (i) preventing, limiting, removing, remedying, cleaning-up, abating, containing or ameliorating the presence or effect of any Hazardous Matter in the Environment (including without limitation the Environment at the Property and/or at the Further Property) or (ii) carrying out investigative work and obtaining legal and other professional advice as is reasonably required in relation to (i); "RTPA" Restrictive Trade Practices Act 1976; "Service Agreements" the service agreements to be entered into by each of Peter Furlonge, Colin Kirven, John Ablett and Marie Ridgeon and the Company in the agreed terms; "Service Document" a writ, summons, order, judgment or other process issued out of the courts of England and Wales in connection with any Proceedings; "SEC" the US Securities and Exchange Commission; "Shares" together the A Ordinary Shares and the B Ordinary Shares; "Software" any and all computer programs in both source and object code form, including all modules, routines and sub-routines thereof and all source and other preparatory materials, relating thereto including user requirements, functional specifications and programming specifications, ideas, principles, programming languages, algorithms, flow charts, logic, logic diagrams, orthographic representations, file structures, coding sheets, coding and including any manuals or other documentation relating thereto and computer generated works; "SSAP" a statement of standard accounting practice or financial reporting standard in force at the date hereof as issued by the Institute of Chartered Accountants in England and Wales and adopted by the ASB as an Accounting Standard; "Stock Exchange" the London Stock Exchange Limited; -7- "subsidiary" a subsidiary within the meaning ascribed to such expression by sections 736 and 736A, CA 85; "Subsidiary" the subsidiary of the Company named in part 2 of schedule 4; "TA 88" the Income and Corporation Taxes Act 1988; Taxation" (a) all forms of taxation including and without any limitation any charge, tax, duty, levy, impost, withholding or related liability wherever chargeable imposed for support of national, state, federal, municipal or local government and whether of the UK or any other jurisdiction; and (b) any penalty, fine, surcharge, interest, charges or costs payable in connection with any taxation within (a) above; "Taxation Authority" the Inland Revenue, Customs & Excise, Department of Social Security and any other, governmental, or other authority whatsoever competent to impose any Taxation whether in the United Kingdom or elsewhere; "Taxation Statute" any directive, statute, enactment, law or regulation wheresoever enacted or issued, coming into force or entered into providing for or imposing any Taxation and shall include orders, regulations, instruments, bye-laws or other subordinate legislation made under the relevant statute or statutory provision and any directive, statute, enactment, law, order, regulation or provision which amends, extends, consolidates or replaces the same or which has been amended, extended, consolidated or replaced by the same; "Tax Warranties" the warranties set out in part 2 of schedule 5; "TCGA" the Taxation of Chargeable Gains Act 1992; "TMA" the Taxes Management Act 1970; "Trade Marks" trade or service mark applications or registered trade or service marks, registered protected designations of origin, registered protected geographic origins, refilings, renewals or reissues thereof, unregistered trade or service marks, get up and company names in each case with any and all associated goodwill and all rights or forms of protection of a similar or analogous nature including rights which protect goodwill whether arising or granted under the law of England or of any other jurisdiction; "Trade Union" as defined in section 1, TULRCA; -8- "TULRCA" the Trade Union and Labour Relations (Consolidation) Act 1992; "TUPE" the Transfer of Undertakings (Protection of Employment) Regulations 1981; "VAT" value added tax; "VATA" the Value Added Tax Act 1983; "Vendor's Accountants" Rothman Pantall of Bank House, 1-7 Sutton Court Road, Sutton, Surrey; "Vendors' Solicitors" Mundays of Crown House, Church Road, Claygate, Esher, Surrey KT10 0LP; "Vendors' Warranties" the warranties set out in clause 7 and schedule 5; "in the agreed terms" in the form agreed between the Vendors' Solicitors and the Purchaser's Solicitors and signed for the purposes of identification by or on behalf of each party. 1.2 Unless the context otherwise requires words denoting the singular shall include the plural and vice versa, references to any gender shall include all other genders and references to persons shall include bodies corporate, unincorporated associations and partnerships in each case whether or not having a separate legal personality. References to the word "include" or "including" are to be construed without limitation. 1.3 References to recitals, schedules and clauses are to recitals and schedules to and clauses of this Agreement, unless otherwise specified and references within a schedule to paragraphs are to paragraphs of that schedule unless otherwise specified. 1.4 References in this Agreement to any statute, statutory provision or EC Directive include a reference to that statute, statutory provision or EC Directive as amended, extended, consolidated or replaced from time to time (whether before or after the date of this Agreement) and include any order, regulation, instrument or other subordinate legislation made under the relevant statute, statutory provision or EC Directive. 1.5 References to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include that which most approximates in that jurisdiction to the English legal term. 1.6 Any reference to "writing" or "written" includes faxes and any non-transitory form of visible reproduction of words. 1.7 References to the Vendors are to each of them severally. 1.8 In schedule 5, (save for paragraph 4.1), references to the Company shall be deemed to include a corresponding reference to the Subsidiary to the intent that (save as aforesaid) the Vendors' Warranties are given in respect of the Subsidiary as well as the Company. 1.9 References to times of the day are to London time and references to a day are to a period of 24 hours running from midnight to midnight. -9- 2. Condition 2.1 Subject to clause 2.3, this Agreement is subject to and conditional upon:- 2.1.1 the closing of the Public Offering; 2.1.2 either: (a) the grant of a lease of the property situate at 29-33 Choumert Grove, London, SE15, 4RB to a company to be formed by the Vendors and the grant of an underlease for a term of five years from Completion to the Company; or (b) the grant to the Company of a lease of the said property for a term of five years from the date of Completion, and such underlease or lease as referred to in sub-clauses (a) and (b) of this clause 2.1.2 shall be in the agreed terms (subject to such variations as shall be agreed by the parties hereto), provided that if an underlease is granted to the Company the Company shall be under no obligation to the superior landlord of the said property to observe and perform obligations any more onerous then those contained in the underlease and shall not be required to enter into any direct covenants with the superior landlord and the Vendors hereby undertake (if such an underlease is to be granted) to obtain by Completion the unqualified consent and licence of the superior landlord to the grant of such underlease and each of the parties hereto shall use all reasonable endeavours to obtain by Completion an order of the relevant County Court authorising the exclusion of the provisions of sections 24 to 28 inclusive of the Landlord and Tenant Act 1954 in relation to the said lease or underlease; 2.1.3 each of the persons referred to in schedule 10 providing certificates in the form requested by schedule 10 and a director of the Company providing the certificates required on each Filing Date pursuant to clause 7.9 (with the certificate to be provided on the date of Completion to be in the same form as the certificate provided on the date on which the Purchaser's registration statement has declared effective); 2.1.4 the Preference Shares having been acquired by the Company for a nominal sum and all dividends Disclosed as payable in respect of such shares having been paid; 2.1.5 the termination of service agreements or consultancy agreements with Peter Furlonge, Ralph Elman and George Harvey without any payment of compensation other than payments in accordance with the terms of such agreements as Disclosed, and each such person having confirmed that they have no outstanding claims against the Company; 2.1.6 the repayment to David Boulton (together with all accrued interest thereon) of all amounts outstanding on the loan notes issued to him by the Company in October 1996; 2.1.7 the production to the Purchaser of evidence reasonably satisfactory to the Purchaser that the matters identified in the report of BPIF dated 8 January 1998 have been corrected at a cost to the Group not exceeding (pound)5,000. 2.2 If the conditions in clause 2.1 have not been fulfilled or waived by 30 April 1998 (or by such later date as may be agreed in writing between the Vendors and the Purchaser): 2.2.1 this Agreement (except for clauses 1, 2, 16 and 21) shall thereupon become null and void; and -10- 2.2.2 none of the parties shall have any rights against any other party hereunder except in respect of any antecedent breach of any of the provisions of this agreement listed in clause 2.3. 2.3 Notwithstanding clause 2.1, clauses 2, 3, 4.4, 5.1, 5.7, 6, 7, 8, 9, 10, 12, 15, 16, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 and 29 inclusive shall come into force on the execution and exchange of this agreement and the remainder of this agreement shall come into force on the fulfilment and/or waiver of all conditions stated in clause 2.1, provided that the Vendor shall have no liability in respect of the Vendor's Warranties, and the Purchaser shall have no liability in respect of the Purchaser's Warranties, if Completion does not occur. 2.4 The Vendors shall procure that, in fulfilling the conditions set out in clauses 2.1.2, 2.1.4, 2.1.5, 2.1.6 and 2.1.7, the Company and the Subsidiary shall incur no cost, expense or liability save as expressly envisaged therein, any cost, expense or liability not so envisaged (including any liability to the landlord of 29-33 Choumert Grove, London SE15 in respect of the period prior to Completion save for rent and other normal outgoings payable in accordance with the terms of the draft lease disclosed to the Vendor and payments in respect of dilapidations not exceeding (pound)12,300) being an "Unanticipated Liability". The Vendors shall use all reasonable endeavours (without incurring undue expense) to procure that each of such conditions is satisfied. 3. Sale and purchase 3.1 Subject to the terms of this Agreement, each of the Vendors shall severally sell with full title guarantee, that number of Shares set opposite his name in column (2) of schedule 1 and the Purchaser shall purchase such shares together with all rights attaching thereto as at Completion. 3.2 The Purchaser shall be entitled to receive all dividends and distributions declared, paid or made by the Company with effect from Completion. 3.3 The Purchaser shall not be obliged to complete the purchase of any of the Shares unless the purchase of all the Shares is completed simultaneously. 4. Consideration 4.1 The consideration for the sale of the Shares shall be the sum of USD8,147,500 (Eight million one hundred and forty six thousand five hundred US dollars) to be satisfied: 4.1.1 by the issue to the Vendors of the Consideration Shares (credited as fully paid); and 4.1.2 as to the balance of the consideration (being the sum of USD8,147,500 less an amount equal to the Offer Price multiplied by the number of Consideration Shares), by a payment in cash to the Vendors. 4.2 The total consideration receivable by each Vendor, and the number of Consideration Shares to be issued pursuant to clause 4.1.1 to each Vendor, shall be as set opposite their respective names in columns 3 and 4 of schedule 1. The cash sum payable to each Vendor pursuant to clause 4.1.2 shall be his total consideration as set out in column 3 of schedule 1 less the value, at the Offer Price, of the Consideration Shares to be issued to him as set out in column 4 of schedule 1. -11- 4.3 Any payment made by the Vendors in respect of a breach of any of the Vendors' Warranties or payment under the Deed of Tax Covenant or otherwise under clause 11 shall be and shall be deemed to be pro tanto a reduction in the price paid for the Shares under this Agreement. 4.4 Each of the Vendors hereby waives all rights of pre-emption or other rights over any of the Shares conferred on him either by the articles of association of the Company or in any other way. 5. Completion 5.1 Subject as provided in clause 5.4, Completion shall take place at the offices of the Purchaser's Solicitors (or as otherwise agreed between the parties) immediately following fulfilment of the Conditions or at such other place and/or on such other date as may be agreed in writing between the Purchaser and the Vendors time being of the essence. 5.2 At Completion:- 5.2.1 the Vendors shall deliver to the Purchaser each of the documents listed in part 1 of schedule 7; 5.2.2 the Vendors shall procure that all necessary steps are taken properly to effect the matters listed in part 2 of schedule 7 by resolutions of the Board of Directors of the Company and the Subsidiary and shall deliver to the Purchaser duly signed written resolutions or Board Minutes as appropriate. 5.3 Subject to the Vendors complying with their obligations under clause 5.2 the Purchaser shall at Completion:- 5.3.1 pay the cash element of the consideration for the Shares (being the sum payable pursuant to clause 4.1.2) (less the amounts to be deducted and paid pursuant to clause 11.1) by way of electronic transfer for same day value to such account as may be notified to the Purchaser by the Vendors at least 3 business days prior to Completion, and payment to such account shall be an effective discharge of the Purchaser's obligation to pay such sum and the Purchaser shall not be concerned to see to the application or be answerable for the loss or misapplication of such sums; 5.3.2 deliver to the Vendors a counterpart Deed of Tax Covenant duly executed by the Purchaser; 5.3.3 deliver to Peter Furlonge, Colin Kirven, John Ablett and Marie Ridgeon a counterpart Service Agreement duly executed by the Company; 5.3.4 cause a board meeting or a meeting of a duly authorised committee of the Purchaser to be held at which the Consideration Shares shall be issued to the relevant Vendors, or to such persons as the Vendors shall direct, in accordance with clause 4, credited as fully paid up, and the Vendors entered in the register of members as the holders thereof and the Purchaser shall cause to be delivered to the Vendors' Solicitors definitive certificates in respect of the Consideration Shares. -12- 5.4 If in any respect material to the Purchaser the provisions of clause 5.2 and schedule 7 are not complied with on the date of Completion applicable under clause 5.1, the Purchaser shall not be obliged to complete this Agreement and may:- 5.4.1 defer Completion to a date not more than twenty-eight days after the date set by clause 5.1 (and so that the provisions of this clause 5.4 shall apply to Completion as so deferred); or 5.4.2 proceed to Completion so far as practicable and without prejudice to its rights under this Agreement; or 5.4.3 rescind this Agreement without prejudice to its rights and remedies under this Agreement; or 5.4.4 waive all or any of the requirements contained in clause 5.2 at its discretion. 5.5 If on or prior to Completion the Purchaser becomes aware that either the revenues or the post-tax profits (having added back any provision for taxation relating to the payment of (pound)200,000 to Mr Boulton's pension scheme in October 1996) of the Company for the five month period from 1 October 1997 to 28 February 1998 (inclusive) are at least 17.5% less than the amount projected for revenues or (as the case may be) post-tax profits for such five month period (as contained in the Projections in the agreed terms), the Purchaser shall not be obliged to complete this Agreement and may rescind this Agreement. 5.6 The Vendors shall indemnify the Purchaser and keep the Purchaser indemnified against any Losses it may suffer or incur as a result of any document delivered to it pursuant to this clause 5 or schedule 7 being unauthorised, invalid or for any other reason ineffective for its purpose. 5.7 The Purchaser shall give to the Vendors as much advance notice of the date on which the Public Offering is expected to close as is practicable. A pre-closing meeting shall be held on such date (not being earlier than 7 days prior to the expected closing date) as the Purchaser may request by not less than 2 business days' notice in order to demonstrate to the reasonable satisfaction of the Purchaser that the Conditions (other than the condition relating to the Public Offering) and the obligations at Completion of the Vendors have been or will at Completion be fulfilled. 6. Conduct of Business pending Completion 6.1 Each of the Vendors hereby undertakes to the Purchaser that in the period prior to Completion:- 6.1.1 the Business will be carried on as a going concern in the normal course; 6.1.2 no physical assets of the Company or of the Subsidiary shall be removed from any of the Properties save in the ordinary course of normal day to day trading; 6.1.3 they will use their best endeavours to maintain the trade and trade connections of the Group; 6.1.4 all debts which the Company or the Subsidiary incurs in the normal course of the business will be settled within the usual periods of credit normally taken by the Company; -13- 6.1.5 it shall promptly give to the Purchaser full details of any material changes in the Business, financial position and/or assets of the Group; 6.1.6 the Company and the Subsidiary shall maintain in force policies of insurance with limits of indemnity at least equal to, and otherwise on terms no less favourable than, those policies of insurance currently maintained by the Company and the Subsidiary; 6.1.7 neither the Company nor the Subsidiary shall:- (a) enter into, modify or agree to terminate any contract, lease or long term commitment (other than in the ordinary course of business or as envisaged by the Company's existing budget) which involves expenditure in money or money's worth in excess of (pound)25,000 on any such individual contract, lease or long-term commitment; (b) incur any capital expenditure (other than expenditure envisaged by the Company's existing budget) in excess of (pound)25,000 on any individual item; (c) appoint or employ any new employees at an annual salary or rate of remuneration in excess of (pound)50,000 or appoint any new consultants whatsoever or revise any existing arrangements with consultants already appointed by the Company; (d) alter materially, or agree to alter materially, the terms and conditions of employment (including benefits) of any of its employees, and no Vendor shall induce or endeavour to induce any of such employees to terminate their employment prior to Completion; (e) dispose of any material assets used or required for the operation of the Business (otherwise than in the ordinary course of business) or enter into any other transaction otherwise than in the ordinary course of business; (f) create any Encumbrance over its assets or undertaking nor, otherwise than in the ordinary course of the Business, give any guarantees or indemnities in respect of any third party; (g) institute, settle or agree to settle any legal proceedings relating to the Business, save for debt collection in the ordinary course of business; (h) pay any fee or other amount to any Vendor, save for salary, related benefits and other payments made in accordance with existing contractual agreements which have been Disclosed; (i) incur any liabilities to any Vendor and no Vendor shall incur any liabilities to the Company or the Subsidiary, other than liabilities incurred in the ordinary course of trading pursuant to existing contractual agreements which have been Disclosed; provided that the Vendors and the Group shall be entitled to do any of the things specified in this clause 6.1 with the prior written consent of the Purchaser such consent not to be unreasonably withheld or delayed and provided further that if within 14 days of being required to give its written consent in respect of any matters specified in clauses 6.1.7(a) and 6.1.7(b) the -14- Purchaser does not notify the Vendors in writing of its disagreement to such matters, the Purchaser shall be deemed to have consented to the Vendors undertaking such matters. 6.2 The Vendors shall:- 6.2.1 procure that in the period prior to Completion the Company and the Subsidiary shall provide the Purchaser and its representatives with full access to all records of the Business (and to such other information and records as the Purchaser may reasonably require in connection with the Public Offering); and 6.2.2 procure the Vendor's solicitors and the Vendor's Accountants to co-operate with the Purchaser and to provide such information to the Purchaser as may be reasonably requested it being acknowledged that the Purchaser will be required by the rules of the SEC to incorporate information regarding the Company, the Subsidiary and the Business in any registration statement(s) or prospectus(es) filed or published in connection with the Public Offering. Any costs incurred by the Company in connection with clause 6.2.2 shall be disregarded for all purposes related to the Vendors' Warranties and for purposes of the calculations for clause 5.5. 6.3 Each Vendor shall provide the Purchaser with such information as it may reasonably require from such Vendor to satisfy legal or regulatory requirements for inclusion in any such registration statement(s) or prospectus(es) to be filed or published by the Purchaser. 6.4 The Vendors shall appoint, with effect from such date as may be specified by the Purchaser until Completion or earlier termination of this Agreement, such person as may be nominated by the Purchaser to act as an additional accountant of the Company (the "Financial Accountant"). The Purchaser shall procure that the Financial Accountant shall remain the employee of the Purchaser during such period, and all reasonable costs incurred by the Company in connection with the employment of the Financial Accountant shall be met in full by the Purchaser. 6.5 The Vendors shall procure that the Group shall use all reasonable endeavours to correct the issues referred to in clause 2.1.7 as soon as practicable after the date hereof. 7. Vendors' Warranties 7.1 In consideration of the Purchaser agreeing to purchase the Shares on the terms contained in this Agreement each of the Vendors hereby severally:- 7.1.1 in relation to the Company and the Subsidiary warrants, represents and undertakes to the Purchaser (contracting for itself and as trustee for any successor in title to the Shares) in the terms set out in schedule 5; 7.1.2 undertakes so far as he is able that (save only as may be necessary to give effect to this Agreement) he shall not, and shall procure (as far as they can) that the Company and the Subsidiary shall not, prior to Completion, do any act or thing or omit to do any act or thing the commission or omission of which would constitute a breach of any of the Vendors' Warranties if they were given at Completion or which would make any of the Vendors' Warranties untrue or inaccurate or misleading if they were so given on the -15- basis that a reference to the actual time of Completion were substituted for any express or implied reference to the time of this Agreement, provided that no Vendor shall be required to prevent any Director of the Company or the Subsidiary from performing properly his obligations as a Director of such company; 7.1.3 further undertakes to the Purchaser that upon his becoming aware prior to Completion of the impending or threatened occurrence or non-occurrence of any matter event or circumstance (including any omission to act) which would or might reasonably be expected to cause or constitute a breach (or which would have caused or constituted a breach had such event occurred or been know to any of them prior to the date of this Agreement) of any of the Vendors' Warranties or which would or might make any of the Vendors' Warranties inaccurate or misleading or which would or might give rise to a claim under the Deed of Tax Covenant (whether or not then executed) he will promptly given written notice of such event to the Purchaser and if so requested by the Purchaser use his reasonable endeavours promptly to prevent or remedy the same if:- (a) the event in question could not reasonably have been avoided or prevented by the Vendors or any of them; and (b) the occurrence of the event in question was duly notified in accordance with the foregoing provisions of this clause 7.1.3. 7.1.4 warrants, represents and undertakes to the Purchaser (contracting for itself and as trustee for any successor in title to the Shares) that as at each Filing Date, the factual or historical information relating to the Company and the Subsidiary as set out in the Agreed Extracts will be accurate in all material respects and will not omit to state any material fact necessary in order to make any of such information not misleading. 7.2 Where any of the Vendors' Warranties are made or given "so far as the Vendors are aware", the knowledge, information and belief of each of the Vendors and the knowledge, information and belief of any one of the Vendors shall be imputed to the remaining Vendors. 7.3 None of the Vendors' Warranties or the Deed of Tax Covenant shall be deemed in any way modified or discharged by reason of any investigation or inquiry made or to be made by or on behalf of the Purchaser, and no information relating to the Company or to the Subsidiary of which the Purchaser has knowledge (actual or constructive) other than by reason of its being Disclosed shall prejudice any claim which the Purchaser shall be entitled to bring or shall operate to reduce any amount recoverable by the Purchaser under this Agreement. The benefit conferred upon the Purchaser by the foregoing provisions of this clause shall be deemed to be also conferred upon the Company and upon the Subsidiary. 7.4 Any information supplied by or on behalf of the Company or on behalf of the Subsidiary (or by any officer, employee or agent of any of them) to the Vendors or their advisers in connection with the Vendors' Warranties, the Deed of Tax Covenant or the information Disclosed in the Disclosure Documents shall not constitute a warranty, representation or guarantee as to the accuracy of such information in favour of the Vendors and the Vendors hereby undertake to the Purchaser to waive any and all claims which they might otherwise have against the Company or the Subsidiary or against any officer, employee or agent of any of them in respect of such claims but so -16- that this shall not preclude any Vendor from claiming against any other Vendor under any right of contribution or indemnity to which he may be entitled. 7.5 Each of the Vendors' Warranties set out in the separate paragraphs of schedule 5 shall be separate and independent and save as expressly otherwise provided shall not be limited by reference to any other such Warranty. 7.6 The Purchaser has entered into this Agreement upon the basis of and in reliance upon the Vendors' Warranties and the same together with any provision of this Agreement or the Deed of Tax Covenant when executed which shall not have been fully performed at Completion shall remain in force notwithstanding that Completion shall have taken place. 7.7 If it is found on or prior to Completion that any of the Vendors' Warranties as given pursuant to clause 7.1.1 (but subject to paragraph 2.1 of schedule 8) are in any material respect untrue, misleading, incorrect or unfulfilled or if the Purchaser becomes aware of any material matter or thing which is inconsistent with the same (each, a "Material Claim") or that the Vendors are in material breach of any other term of this Agreement which is material in the context of this sale (including without limitation the provisions of clause 6.1), the Purchaser shall be entitled by notice in writing to the Vendors to rescind this Agreement at any time prior to Completion but failure by the Purchaser to exercise this right shall not constitute a waiver of any such Material Claim or any other rights of the Purchaser arising by reason of any breach of any Vendors' Warranty provided that if the amount of such Material Claim or Claims exceeds (pound)500,000, the Vendors shall be entitled by notice in writing to the Purchaser to rescind this Agreement. 7.8 If it is found on or prior to Completion that any of the Vendors' Warranties, if given on the basis set out in clause 7.1.2, would be in any material respect untrue, misleading, incorrect or unfulfilled or if the Purchaser becomes aware of any material matter or thing which would be inconsistent with the same if given on such basis, and that such matter or thing does not constitute a Material Claim (a "Subsequent Claim"), the Purchaser shall be entitled by notice in writing to the Vendors to rescind this Agreement at any time prior to Completion provided that failure by the Purchaser to exercise this right shall constitute a waiver of any other rights of the Purchaser arising by reason of any such Subsequent Claim. 7.9 For the purposes of clause 7.1.4: (a) the Purchaser undertakes to provide the directors of the Company (on behalf of the Vendors) with an appropriate opportunity to review in draft form those sections of any registration statement (or any amendment thereto) which contain information relating to the Company and the Subsidiary, and to make such amendments to those sections as such directors may reasonably require; (b) the Vendors undertake to provide comments on such draft sections promptly after receipt thereof; (c) for purposes of identification, a director of the Company shall on each Filing Date deliver a certificate in the agreed terms attaching such sections (incorporating any such amendments) and confirming their accuracy, and such sections shall constitute the "Agreed Extracts". -17- 8. Purchaser's Warranties and Undertakings 8.1 As an inducement for the Vendors to enter into this Agreement, the Purchaser represents, warrants to and undertakes to the Vendors in the terms set out in schedule 6. 8.2 If it is found on or prior to Completion that any of the Purchaser's Warranties are in any material respect untrue, misleading, incorrect or unfulfilled or if the Vendors become aware of any material matter or thing which is inconsistent with the same or that the Purchaser is in material breach of any other term of this Agreement which is material in the context of this sale, the Vendors shall be entitled collectively by notice in writing to the Purchaser to rescind this Agreement at any time prior to Completion but failure to exercise this right shall not constitute a waiver of the Vendors rights in respect thereof or any other rights of the Vendors arising by reason of any breach of any Purchaser's Warranty, provided that if the amount of the Vendor's claim in respect of such matters exceeds (pound)500,000, the Purchaser shall be entitled by notice in writing to rescind this Agreement. 8.3 If it is found on or prior to Completion that any of the Purchaser's Warranties, if given as at Completion, would be in any material respect untrue, misleading, incorrect or unfulfilled or if the Vendors become aware of any material matter or thing which would be inconsistent with the same if given on such basis and that such matter or thing does not fall within Clause 8.2, the Vendors shall be entitled by notice in writing to the Purchaser to rescind this Agreement at any time prior to Completion provided that failure by the Vendors to exercise this right shall constitute a waiver of any other rights of the Vendors arising by reason of any such matter. 8.4 If any claim is made against any of the Vendors under s.135 Finance Act 1994 or any subsequent amending legislation or otherwise the Purchaser shall indemnify and keep indemnified the Vendors against any costs claims demands taxation penalties fines or otherwise in relation to such claim. 8.5 As at the date hereof the Purchaser (for itself and its advisors) hereby confirms that, after review of the Disclosure Documents, it is not actually aware of any breach of any of the Vendors' Warranties or of grounds to make a claim under the Vendors' Warranties. 9. Limitation of Vendors' Liability 9.1 The liability of the Vendors:- 9.1.1 in respect of any claim under the Vendors' Warranties save for the Tax Warranties shall be limited as provided in parts 1 and 2 of schedule 8; and 9.1.2 in respect of any claim under the Tax Warranties shall be limited as provided in parts 1 and 3 of schedule 8. 9.2 Notwithstanding any other provisions of this Agreement, the provisions of this clause 9 and schedule 8 (other than paragraph 3.1 of schedule 8) shall not apply to any claim made against the Vendors in the case of any knowing misstatement, knowing omission, fraud or dishonesty by or on behalf of all or any of the Vendors provided that each Vendor shall be solely responsible for his own fraudulent, dishonest acts or omissions or knowing misstatements or omissions. -18- 9.3 The rights of the Purchaser in respect of a breach of any of the Vendors' Warranties shall not be affected by Completion. 10. Limitation of Purchaser's Liability 10.1 The liability of the Purchaser in respect of any claim under the Purchaser's Warranties shall be limited as provided in schedule 9; 10.2 Notwithstanding any other provision of this Agreement, the provisions of this clause 10 and schedule 9 shall not apply to any claim made against the Purchaser in the case of any fraud, dishonesty, knowing misstatement or knowing omission by or on behalf of the Purchaser. 10.3 The rights of the Vendors in respect of a breach of any of the Purchaser's Warranties shall not be affected by Completion. 11. Retention 11.1 Each Vendor undertakes to the Purchaser that the amount specified against their name in column 6 of schedule 1, being part of the consideration which he receives pursuant to clause 4, shall be placed in a deposit account especially established for the purposes of this clause 11.1 in the joint names of the Purchaser's Solicitors and the Vendor's Solicitors (the "Retention Account"). The Purchaser shall accordingly deduct from the consideration otherwise payable by it at Completion such amount in US dollars as is necessary at then current exchange rates to make such payment into such Account, and shall deposit it accordingly . The sum so deposited shall not be withdrawn from the Retention Account or used for any other purpose until the expiry of the first anniversary of this Agreement. Upon the first anniversary of this Agreement, each of the Vendors shall be entitled to receive their Agreed Proportion of the monies in the Retention Account unless any Retention Claims have been made by the Purchaser prior to that date in which event an amount not exceeding the amount of any such Retention Claims shall be retained in the Retention Account until such Retention Claims are agreed or adjudged (whether by determination by the Court or agreement by the parties). As and when the amount of any such Retention Claim is finally agreed or adjudged, the relevant amount shall be paid to the Purchaser. The balance of the moneys held in the Retention Account shall be released to the Vendors in the Agreed Proportions to the extent that the same are not required in relation to outstanding Retention Claims. Any interest accruing or monies in the Retention Account shall be apportioned in the same manner as the principal to which it relates and shall be paid to the relevant Vendor and/or Purchaser at the time at which it receives such principal sum from the Retention Account. 11.2 For purposes of this Clause 11: 11.2.1 the "Agreed Proportion" of any Vendor is the proportion which his initial deposit into the Retention Account bears to the aggregate of all moneys so deposited; and 11.2.2 a "Retention Claim" means any Claim, any claim under the Deed of Tax Covenant or any claim under the covenant in clause 11.3 below. 11.3 Each Vendor covenants to pay to the Purchaser on demand an amount equal to its Agreed Proportion of: -19- (a) any liability on the part of the Company or the Subsidiary in respect of dilapidations in respect of the Railway Arch, 3 Bermondsey Trading Estate to the extent that such liability exceeds (pound)1,000; (b) any Unanticipated Liability (as defined in clause 2.4 above); (c) any liability on the part of the Company or the Subsidiary arising out of: (i) the discharge (at any time prior to Completion) of waste water into surface water or foul water sewage systems to the extent that such discharge has been made otherwise than in compliance with applicable Environmental Laws; (ii) any failure on the part of the Company (at any time prior to Completion) to comply with the Control of Substances Hazardous to Health Regulations 1994; (d) any liability on the part of the Company or the Subsidiary to Dawnay Day Corporate Finance Limited incurred since 31st December 1996 and up to Completion; (e) any liability which has been or may be incurred by the Company in connection with the occupation by Redex of the Company's premises at Unit 9, Print Village; and any reference in this clause 11.3 to a liability shall extend to any liability, loss or expense (including reasonable legal expenses) provided that such liability shall be reduced by the amount of any tax credit arising to the Company or the Subsidiary by reason of such liability. 11.4 At Completion, each of the Vendors and the Purchaser shall enter into the Escrow Agreement, and use reasonable endeavours to require their respective solicitors also to enter into it. 12. Protection of goodwill 12.1 As further consideration for the Purchaser agreeing to purchase the Shares on the terms contained in this Agreement and with the intent of assuring to the Purchaser the full benefit and value of the goodwill and connections of the Group each of Peter Furlonge and George Harvey hereby undertakes (binding himself and each of his Affiliates) to the Purchaser (contracting for itself and on behalf of the Company and of each of the Subsidiaries and for any successor in title to the Shares or to part or all of the Business) that (except as directors or employees of the Purchaser, the Company or of any of the Subsidiaries or with the written consent of the Purchaser) neither he nor his Affiliates shall whether on their own behalf or with or on behalf of any person and whether directly or indirectly by any or person or business controlled by him or any Connected Person:- 12.1.1 for a period of three years from Completion carry on or be employed, engaged, concerned, interested or in any way assist within the United Kingdom in any business which may in any way be in competition with the Business provided that nothing in this clause 12.1.1 shall prevent such Vendors nor any of their Affiliates or Connected Persons from holding for investment purposes only any units of an authorised unit trust and/or not more than three per cent of any class of the issued share or loan capital of -20- any company quoted on a recognised investment exchange (as defined in the Financial Services Act 1986); 12.1.2 for a period of three years from Completion canvass, solicit or approach or cause to be canvassed, solicited or approached (in relation to a business which may in any way compete with the Business) the custom of any person who at any time during the twelve months preceding Completion shall have been a client or customer of the Company or of any of the Subsidiaries; 12.1.3 for a period of three years from Completion interfere or seek to interfere or take such steps as may interfere with supplies to the Company and/or any of the Subsidiaries from any suppliers who have been supplying goods or services to the Company or to any of the Subsidiaries for use in connection with the Business at any time during the period of twelve months prior to the date of Completion; 12.1.4 for a period of three years from Completion offer employment to or employ or offer to conclude any contract of services with employees of the Company or of any of the Subsidiaries or procure or facilitate the making of such an offer by any person, firm or company or entice or endeavour to entice any employees of the Company or of any of the Subsidiaries to terminate their employment with the Company or any of the Subsidiaries; 12.1.5 at any time after Completion use as a trade or business name or mark or carry on a business under a title containing the word(s) "Roda" or any other word(s) colourably resembling the same; or 12.1.6 at any time after Completion disclose to any person whatsoever or use to the detriment of the Company or any Subsidiary or otherwise make use of, or through any failure to exercise all due care and diligence cause any unauthorised use of, any Confidential Information including Know How relating or belonging to the Company or to any of the Subsidiaries or in respect of which the Company or any of the Subsidiaries is bound by an obligation of confidence to a third party save as required by the Stock Exchange or by law or by any court of competent jurisdiction provided that such restriction shall not extend to any confidential or secret information which may come into the public domain otherwise than through the default of the Vendor. Each undertaking contained in this clause 12.1 shall be read and construed independently of the other undertakings herein as an entirely separate and severable undertaking. 12.2 In respect of Peter Furlonge, the restricted periods contained in clauses 12.1.1 to 12.1.4 shall be substituted by the following restricted periods:- 12.2.1 in the event that Peter Furlonge's employment under his Service Agreement (as amended from time to time) is terminated by reason of the Company serving notice on Peter Furlonge (otherwise than a notice to terminate in circumstances entitling the Company to terminate summarily), the restricted period shall be three years from Completion, and 12.2.2 in all other circumstances, the restricted period shall be five years from Completion. -21- 12.3 Notwithstanding the provisions of clause 12.2, Peter Furlonge shall, if he has ceased to be an employee of the Company in the circumstances set out in clause 12.2.1 and a period of at least two years has elapsed from Completion be entitled to seek the written consent of the Purchaser to carry on or be employed, engaged, concerned, interested or in any way assist within the United Kingdom in any business which may in any way be in competition with the Business and such consent shall not be unreasonably withheld or delayed. 12.4 As further consideration for the Purchaser agreeing to purchase the Shares on the terms contained in this Agreement and with the intent of assuring to the Purchaser the full benefit and value of the goodwill and connections of the Group Ralph Elman hereby undertakes to the Purchaser (contracting for itself and on behalf of the Company and of each of the Subsidiaries and for any successor in title to the Shares or to part or all of the Business) that he will not directly or indirectly: 12.4.1 for the period of twelve months after Completion hold any interest in any business which is or shall be wholly or partly in competition with the Business; 12.4.2 for the period of twelve months after Completion seek or accept in any capacity whatsoever orders for products or services similar to those provided by the Company or the Subsidiary at any time during the period of twelve months prior to such termination: or 12.4.3 for the period of twelve months after Completion solicit or seek to entice away from the Company or the Subsidiary any person who is at the date of termination employed by the Company or the Subsidiary as a Director, Manager or Sales Person; 12.4.4 at any time after Completion disclose to any person whatsoever or use to the detriment of the Company or any Subsidiary or otherwise make use of, or through any failure to exercise all due care and diligence cause any unauthorised use of, any Confidential Information including Know How relating or belonging to the Company or to any of the Subsidiaries or in respect of which the Company or any of the Subsidiaries is bound by an obligation of confidence to a third party save as required by the Stock Exchange or by law or by any court of competent jurisdiction provided that such restriction shall not extend to any confidential or secret information which may come into the public domain otherwise than through the default of the Vendor. Each undertaking contained in this clause 12.4 shall be read and construed independently of the other undertakings herein as an entirely separate and severable undertaking. 12.5 As further consideration for the Purchaser agreeing to purchase the Shares on the terms contained in this Agreement and with the intent of assuring to the Purchaser the full benefit and value of the goodwill and connections of the Group each of the Vendors (other than Peter Furlonge, George Harvey and Ralph Elman) hereby undertakes (binding himself and each of his Affiliates who is a director of the Company) to the Purchaser (contracting for itself and on behalf of the Company and of each of the Subsidiaries and for any successor in title to the Shares or to part or all of the Business) that (except as directors or employees of the Purchaser, the Company or of any of the Subsidiaries or with the written consent of the Purchaser) neither he nor such Affiliates (if any) shall:- -22- 12.5.1 for a period of three years from Completion become a director of, or undertake any other direct personal involvement in the management of, any business in the United Kingdom which is in competition with the Business; 12.5.2 for a period of three years from Completion canvass, solicit or approach or cause to be canvassed, solicited or approached (in relation to a business which may in any way compete with the Business) the custom of any person who at any time during the twelve months preceding Completion shall have been a client or customer of the Company or of any of the Subsidiaries; 12.5.3 for a period of three years from Completion interfere or seek to interfere or take such steps as may interfere with supplies to the Company and/or any of the Subsidiaries from any suppliers who have been supplying goods or services to the Company or to any of the Subsidiaries for use in connection with the Business at any time during the period of twelve months prior to the date of Completion; 12.5.4 for a period of three years from Completion offer employment to or employ or offer to conclude any contract of services with employees of the Company or of any of the Subsidiaries or procure or facilitate the making of such an offer by any person, firm or company or entice or endeavour to entice any employees of the Company or of any of the Subsidiaries to terminate their employment with the Company or any of the Subsidiaries; 12.5.5 at any time after Completion use as a trade or business name or mark or carry on a business under a title containing the word(s) "Roda" or any other word(s) colourably resembling the same; or 12.5.6 at any time after Completion disclose to any person whatsoever or use to the detriment of the Company or any Subsidiary or otherwise make use of, or through any failure to exercise all due care and diligence cause any unauthorised use of, any Confidential Information including Know How relating or belonging to the Company or to any of the Subsidiaries or in respect of which the Company or any of the Subsidiaries is bound by an obligation of confidence to a third party save as required by the Stock Exchange or by law or by any court of competent jurisdiction provided that such restriction shall not extend to any confidential or secret information which may come into the public domain otherwise than through the default of the Vendor. Each undertaking contained in this clause 12.5 shall be read and construed independently of the other undertakings herein as an entirely separate and severable undertaking. 12.6 Whilst the undertakings in this clause 12 are considered by the parties to be reasonable in all the circumstances, if any one or more should for any reason be held to be invalid but would have been held to be valid if part of the wording thereof was deleted or the period thereof reduced or the range of activities or area covered thereby reduced in scope, the said undertakings shall apply with such modifications as may be necessary to make them valid and effective. 13. Loan Notes 13.1 Each of the Vendors hereby undertakes to the Purchaser (to the extent such Vendor holds Loan Notes) that it shall not in the period prior to Completion nor in the period -23- following Completion as specified in Clause 13.2 transfer, convert or redeem its Loan Notes (whether in whole or part); and agrees to waive (and to the extent received, to repay) any sums paid or payable by way of default interest in respect of interest on the Loan Notes not paid on the due date. 13.2 The Purchaser agrees that it shall procure that within 28 days from the date of Completion the Company shall redeem at par (together with accrued interest) all the Loan Notes held by the Vendors as set opposite their respective names in column 5 of schedule 1. 14. Power of Attorney Each of the Vendors hereby, with effect from Completion, irrevocably and unconditionally appoint the Purchaser or any director of the Purchaser as the Purchaser shall direct as the attorney of such Vendor with full powers of substitution in such Vendor's name and on behalf of such Vendor (and to the complete exclusion of any rights such Vendor may have in such regard) lawfully to exercise all voting and other rights and receive all benefits and entitlements which at any time after Completion attach to the Shares of which such Vendor is the registered holder and to transfer and deal with such Shares and such rights, benefits and entitlements and execute such documents under hand or under seal and do such acts and things in connection with the foregoing as the Purchaser shall from time to time fit in all respects as if the Purchaser were the absolute legal and beneficial owner thereof, provided that such power of attorney shall terminate upon registration of the shares in the name of the Purchaser or its nominee and the Purchaser shall use all reasonable endeavours to effect such registration promptly after Completion. 15. RTPA 15.1 If there is any provision of this Agreement, or of any agreement or arrangement of which this agreement forms part, which causes or would cause this Agreement or that agreement or arrangement to be subject to registration under the RTPA, then that provision shall not take effect until the day after particulars of this Agreement or of that agreement or arrangement (as the case may be) have been furnished to the Director General of Fair Trading pursuant to section 24, RTPA. 15.2 The Purchaser undertakes to furnish such particulars as are referred to in clause 15.1 as soon as is reasonably practicable after the date of this Agreement and within the time limits specified in the RTPA. 16. Announcements 16.1 No press conference, announcement or other communication concerning Confidential Information or the transactions referred to in this Agreement, or in connection with the Purchaser or otherwise relating to the financial condition or trading or financial prospects of the Purchaser, shall be made or despatched by the Vendors or their agents, employees or advisers to any third party without the prior written consent of the Purchaser save as may be required by any:- 16.1.1 law; 16.1.2 existing contractual arrangements; or -24- 16.1.3 the Stock Exchange or the Panel on Takeovers and Mergers or any other applicable regulatory authority within England or any other jurisdiction to which the Vendors or the Purchaser (as the case may be) are subject where such requirement has the force of law provided such communication shall be made only after consultation with the other party. The Purchaser hereby consents to notification of the sale of the Company to the employees, suppliers and customers of the Business in the agreed terms 16.2 The restrictions contained in this clause shall continue to apply after Completion without limit in time. 16.3 Without prejudice to the provisions of clause 6.2, the Purchaser and each of the Vendors undertake to provide all such information known to him or it or which on reasonable enquiry ought to be known to him or as may reasonably be required by the Vendors or the Purchaser for the purpose of complying with the requirements of law or of any applicable regulatory authority to which either party is subject where such requirement has the force of law. 17. Implied covenants for title and further assurance 17.1 The Law of Property (Miscellaneous Provisions) Act 1994 ("LPMPA") applies to all dispositions of property made under or pursuant to this Agreement. 17.2 In addition to clause 17.1, the Vendors shall, from time to time on being required to do so by the Purchaser, now or at any time in the future, do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form satisfactory to the Purchaser as the Purchaser may reasonably consider necessary for giving full effect to this Agreement and securing to the Purchaser the full benefit of the rights, powers and remedies conferred upon the Purchaser in this Agreement at the cost and expense of the Vendors. 18. Assignment No party may assign the benefit of this Agreement whether absolutely or by way of security except in the case of an assignment of all or part to an Affiliate of the Purchaser and provided and so long as it remains an Affiliate (failing which the benefit of this Agreement shall no longer be available to such assignee nor to any assignor) save that a party may assign such benefit absolutely or by way of security to a person other than an Affiliate of the Purchaser with the prior consent in writing of the other such consent not to be unreasonably withheld or delayed and any purported assignment in contravention of this clause shall be ineffective. Without prejudice to the generality of the foregoing, if a new company is established as the holding company of the Purchaser with the intention that the Public Offering be undertaken by such new company in place of the Purchaser, the Purchaser shall be entitled to assign the benefit and the burden of this Agreement to such new company whereupon such company shall thenceforth be treated for all purposes as the Purchaser hereunder, subject to (i) such new company executing a deed of adherence undertaking to be bound by this Agreement in place of the assignor; and (ii) a copy of such deed together with evidence of the establishment of such new company being given to the Vendors. -25- 19. Remedies cumulative: entire agreement 19.1 The rights, powers and remedies provided in this Agreement or expressly referred to herein are cumulative and do not exclude any rights, powers or remedies provided by law or by any other document other than this Agreement. 19.2 This Agreement together with any documents referred to herein constitutes the whole and only agreement between the parties relating to and supersedes and extinguishes any prior drafts, previous agreements, undertakings, representations, warranties and arrangements of any nature whatsoever, whether or not in writing between the parties, in connection with the subject matter hereof. In particular, except for paragraph 1.2 of the Vendors' Warranties, any warranties or representations relating to or connected with any forecasts or projections provided to the Purchaser by the Vendors of the Group are expressly withdrawn and shall have no effect. 19.3 Each of the parties acknowledges that in entering into this Agreement on the terms set out in this Agreement it has not relied on or been induced to enter into this Agreement by any representation, warranty, undertaking, promise or assurance made or given by any other party or any other person, whether or not in writing, at any time prior to the execution of this Agreement other than those expressly set out in this Agreement or the Deed of Tax Covenant. 20. Waiver, variation and release 20.1 Save as expressly provided herein, no omission to exercise or delay in exercising on the part of any party to this Agreement any right, power or remedy provided by law or under this Agreement shall constitute a waiver of such right, power or remedy or any other right, power or remedy or impair such right, power or remedy. No single or partial exercise of any such right, power or remedy shall preclude or impair any other or further exercise thereof or the exercise of any other right, power or remedy provided by law or under this Agreement. 20.2 Any waiver of any right, power or remedy under this Agreement must be in writing and may be given subject to any conditions thought fit by the grantor. Unless otherwise expressly stated any waiver shall be effective only in the instance and only for the purpose for which it is given. 20.3 No variation to this Agreement shall be of any effect unless it is agreed in writing and signed by or on behalf of each party. 20.4 Any liability to the Purchaser under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by the Purchaser in its absolute discretion as regards any of the Vendors under such liability without in any way prejudicing or affecting its rights against any other or others of the Vendors under the same or like liability. 21. Costs and expense Each party shall pay its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this Agreement and other agreements forming part of the transaction. For the avoidance of doubt, the Company shall pay all fees of Mundays properly payable by the Company in respect of work undertaken for the Company (excluding work in respect of the matters referred to in Clause 2.1.2 other than the negotiation of the terms of the 5 year lease). -26- 22. Payments All payments to be made under this Agreement shall be made in full without any set-off or counterclaim and free from any deduction or withholding save as may be required by law in which event such deduction or withholding will not exceed the minimum amount which it is required by law to deduct or withhold and in cases where the payee does not receive a credit for such deduction the payer will simultaneously pay to the payee such additional amounts as will result in the receipt by the payee of a net amount equal to the full amount which would otherwise have been receivable had no such deduction or withholding been required. 23. Notices 23.1 Any communication to be given in connection with the matters contemplated by this Agreement shall except where expressly provided otherwise be in writing and shall either be delivered by hand or sent by first class pre-paid post. Delivery by courier shall be regarded as delivery by hand. 23.2 Such communication shall be sent to the address of the relevant party referred to in this Agreement or to such other address as may previously have been communicated to the other party in accordance with this clause. Each communication shall be marked for the attention of the relevant person. 23.3 A communication shall be deemed to have been served:- 23.3.1 if delivered by hand at the address referred to in clause 23.2, at the time of delivery; 23.3.2 if sent by first class pre-paid post to the address referred to in clause 23.2, at the expiration of two clear days after the time of posting. If a communication would otherwise be deemed to have been delivered outside of normal business hours (being 9:30 a.m. to 5:30 p.m. on a Business Day) in the time zone of the territory of the recipient under the preceding provisions of this clause, it shall be deemed to have been delivered at the opening of business on the next Business Day. 23.4 In proving service of the communication, it shall be sufficient to show that delivery by hand was made or that the envelope containing the communication was properly addressed and posted as a first class pre-paid letter. 23.5 A party may notify the other parties to this Agreement of a change to its name, relevant person, or address for the purposes of 23.2 PROVIDED THAT such notification shall only be effective on:- 23.5.1 the date specified in the notification as the date on which the change is to take place; or 23.5.2 if no date is specified or the date specified is less than five clear Business Days after the date on which notice is deemed to have been served, the date falling five clear Business Days after notice of any such change is deemed to have been given. -27- 23.6 For the avoidance of doubt, the parties agree that the provisions of this clause shall not apply in relation to the service of Service Documents, but that any notice given in the manner provided by clause 28 shall be deemed to be notice to all of the Vendors. 23.7 Any notice to be given by the Vendors shall be sufficiently given on behalf of them all by at least (but no less than) a majority by numbers thereof and the rights of the Vendors shall be sufficiently exercised or waived on behalf of them if exercised or waived by at least (but no less than) a majority by numbers thereof. 24. Time of the essence Time shall be of the essence of this Agreement as regards any time, date or period mentioned herein. If any such time, date or period (or variation of any of them) is varied in accordance with the provisions of this Agreement, such varied time, date or period shall be of the essence. 25. Counterparts 25.1 This Agreement may be executed in any number of counterparts and by the parties on different counterparts. 25.2 Each counterpart shall constitute an original of this Agreement but all the counterparts shall together constitute one and the same Agreement. 26. Agreement to continue in full force and effect This Agreement shall, to the extent that it remains to be performed, continue in full force and effect notwithstanding Completion. 27. Confidentiality 27.1 Each of the Vendors hereby undertakes with the Purchaser that it shall both during and after the term of this Agreement preserve the confidentiality of, and not directly or indirectly reveal, report, publish, disclose or transfer or use for its own or any other purposes Confidential Information except:- 27.1.1 in the circumstances set out in 27.2 below; or 27.1.2 to the extent otherwise expressly required or permitted by this Agreement; or 27.1.3 with the prior consent in writing of the party to whose affairs such Confidential Information relates. 27.2 The circumstances referred to in clause 27.1.1 above are:- 27.2.1 where the Confidential Information, before it is furnished to the Vendor, is in the public domain; or 27.2.2 where the Confidential Information, after it is furnished to the Vendor enters the public domain otherwise than as a result of (i) a breach by the Vendor of its obligations in this clause 27 or (ii) a breach by the person who disclosed that Confidential Information of his confidentiality obligation and the Vendor is aware of such breach; or -28- 27.2.3 if and to the extent the Vendor makes disclosure of the Confidential Information to any person: (a) in compliance with any requirement of law; or (b) in response to a requirement of the Stock Exchange or the Panel on Take-overs and Mergers or any other applicable regulatory authority to which the Vendor is subject where such requirement has the force of law; or (c) in order to obtain tax or other clearances or consents from the Inland Revenue or other relevant taxing or regulatory authorities; or 27.2.4 to the employees, directors, agents, consultants and professional advisers of the Vendor, in each case on the basis that such disclosee is made fully aware of the obligation of confidence and that such Vendor is responsible for such disclosee's compliance with such obligation; PROVIDED THAT any such information disclosable pursuant to paragraphs (a), (b) or (c) shall be disclosed to the extent permitted by law and only after consultation with the other party. 27.3 The restrictions contained in this clause shall continue to apply after the Completion without limit in time. 28. Agent for service 28.1 Each Vendor irrevocably agrees that any Service Document may be sufficiently and effectively served on it in connection with Proceedings in England and Wales by service on the Vendors' Solicitors, if no replacement agent has been appointed and notified to the Purchaser pursuant to clause 28.4. or on the replacement agent if one has been appointed and notified to the Purchaser. 28.2 Any Service Document served pursuant to this clause shall be marked for the attention of:- 28.2.1 the Vendors' Solicitors at their address specified in this Agreement or such other address within England and Wales as may be notified to the Purchaser by the Vendors; or 28.2.2 such other person as is appointed as agent for service pursuant to clause 28.4 at the address notified pursuant to clause 28.4. 28.3 Any document addressed in accordance with clause 28.2 shall be deemed to have been duly served if:- 28.3.1 left at the specified address, when it is left; or 28.3.2 sent by first class post, two clear Business Days after the date of posting. 28.4 If the agent referred to in clause 28.1 (or any replacement agent appointed pursuant to this clause 28.4) at any time ceases for any reason to act as such, the applicable Vendor shall appoint a replacement agent to accept service having an address for service in England and Wales and shall notify the Purchaser of the name and address of the -29- replacement agent; failing such appointment and notification, the Purchaser shall be entitled by notice to the Vendor to appoint such a replacement agent to act on the Vendor's behalf. 28.5 A copy of any Service Document served on an agent pursuant to this clause shall be sent by post to the Vendor at its address for the time being for the service of notices and other communications under clause 23, but no failure or delay in so doing shall prejudice the effectiveness of service of the Service Document in accordance with the provisions of clause 28.1. 29. Governing law and jurisdiction 29.1 This Agreement shall be governed by and construed in accordance with English law. 29.2 The parties to this Agreement irrevocably agree that the courts of England shall have jurisdiction to settle any dispute which may arise out of or in connection with this Agreement and that accordingly any Proceedings may be brought in such courts. 29.3 For the avoidance of doubt, the Vendors expressly and specifically agree and accept the terms of this clause and sign below in recognition of this fact. AS WITNESS the hands of the parties or their duly authorised representatives on the date first appearing at the head of this Agreement. -30-
Schedule 1 The Vendors (1) (2) (3) (4) (5) (6) Name and Number of Total Number of Par Value of Retention Address Shares held Consideration Consideration Loan Notes Account (USD) Shares held ((pound)) ((pound)) 'A' Ordinary 'B' Ordinary P L Furlonge 180,000 -- 3,910,800 128,323 -- 132,000 Castle Farm Mountfield East Sussex TW32 5JV R J Elman -- 952 87,292 624 4,048 2946 1 Bickenhall Mansions Bickenhall Street London W1H 3LF Stelby Holdings Limited -- 30,000 559,896 3,999 127,500 18,898 P.O. Box 641 1 Seaton Place St. Helier Jersey
-31- Central Investments Limited -- 134,286 2,506,208 17,901 570,714 84,591 La Motte Chambers La Motte Street St. Helier Jersey The Naggar Family Pension -- 30,000 559,896 3,999 127,500 18,898 Scheme c/o 15 Grosvenor Gardens London SW1W 0BD M L Tagliaferri -- 3,810 71,107 508 16,190 2,400 4 Motcomb Street London SW1 M D Moriarty ) -- 382 7,130 51 4,048 241 Mrs J Moriarty ) 570 10,638 76 -- 359 both of 11 Carleton Gardens Brecknock Road London N19 5AQ G Harvey 20,000 ___--__ 434,533 14,258 -- 14,667 George Harvey & Associates Limited Mountford House Britton Street London EC1M 5NY TOTAL 200,000 200,000 8,147,500 169,739 850,000 275,000
-32- Schedule 2 Directors of the Company and the Subsidiaries --------------------------------------------- Company ------- Names of Directors ------------------ P.L. Furlonge G. Harvey G.A. Naggar R.J. Elman Roda Print Concepts Limited --------------------------- Names of Directors ------------------ P.L. Furlonge G. Harvey G.A. Naggar R.J. Elman -33- Schedule 3 The Properties Part 1 Freeholds None Part 2 Leases 1. Property: Unit 9 Print Village Industrial Estate, Peckham Date of Lease: 24 October 1997 Parties to Lease: (1) Peckham Management Ltd (2) Roda Print Concepts Ltd Existing Use: Storage Rent: (pound)15,000 p.a. 2. Property: 29-33 Choumert Grove, Peckham Date of Lease: not yet completed Parties to Lease: (1) Mr. R P. Gould, Mr. D. Boulton and Fairmont Trustee Services Ltd (2) Roda Print Concepts Ltd Existing Use: Printing Works Rent: (pound)36,000 p.a. Inferior Lease: 28 October 1960 to The London Electricity Board for 37 years from 21 June 1960 3. Property: Railway Arch 3 Bermondsey Trading Estate, London SE16 Date of Lease: 26 January 1990 Parties to Lease: (1) London & Brighton Estates Ltd (2) Roda Financial Print Ltd -34- (3) Mr. D. Boulton and Mr. R. P. Gould Existing Use: Storage Rent: Not applicable (lease expired) Part 3 Other None -35- Schedule 4 Part 1 The Company Full Name : Roda Limited Company No: : 03243754 Registered Office: : 29/33 Choumert Grove, London SE15 4RB Secretary : Marie Ridgeon Auditors : Ernst & Young Tax District and Reference : Waterloo 2 District Ref: 019 80190 27930
Part 2 The Subsidiaries Full Name : Roda Print Concepts Limited Company No: : 0237 3618 Registered Office: : 29/33 Choumert Grove, London, SE15 4RB Secretary : Marie Ridgeon Auditors : Ernst & Young Authorised Share Capital : Issued Share Capital and (pound)20,000 divided into: 10,000 A ordinary shares of (pound)1 each 9,946 B ordinary shares of (pound)1 each 27 A preference shares of (pound)1 each 27 B preference shares of (pound)1 each Shareholders : Roda Limited 100 A ordinary shares 46 B ordinary shares Roger Gould 14 A preference shares 14 B preference shares Jennifer Gould 13 A preference shares 13 B preference shares Tax District and Reference : Waterloo 2 District Ref: 623 17924 07625
-36- Schedule 5 The Vendors' Warranties Part 1 1. Preliminary 1.1 The facts set out in the recitals and the schedules and all information contained in the Disclosure Documents are true and accurate in all material respects and not misleading and all information which has been given in writing to the Purchaser or its representatives or professional advisers by the Vendors or by any Director, officer or other official of the Company or by their respective professional advisers or other agents in the course of the negotiations leading to this Agreement was when given and is now true and accurate in all material respects and not misleading. 1.2 The forecasts for 1998 in the agreed terms were prepared in good faith and on the basis of assumptions which were considered with due care by Peter Furlonge and Ralph Elman at the time the forecasts were made, and which have been fully disclosed to the Purchaser. 1.3 So far as the Vendors are aware, having made due and careful enquiry, there is no fact or matter which has not been disclosed which renders any such information untrue, inaccurate or misleading or the disclosure of which might reasonably affect the willingness of a willing purchaser to purchase the Shares on the terms of this Agreement. 1.4 Each Vendor and Covenantor (as defined in the Deed of Tax Covenant) on his own behalf only confirms that he has full power to enter into and perform this Agreement and the Deed of Tax Covenant respectively and this Agreement and the Deed of Tax Covenant constitute binding obligations on him in accordance with their terms. 2. The Company 2.1 The particulars of the Company and the Subsidiary set out in the recitals and schedule 4 are true and complete. 2.2 The copy of the memorandum and articles of association of the Company which is comprised in the Disclosure Documents is true and complete in all respects and has embodied in it or annexed to it a copy of every such resolution and agreement as is referred to in section 380(4), CA 85 and the Company has at all times carried on its business and affairs in all respects in accordance with its memorandum and articles of association and all such resolutions and agreements. 2.3 So far as the Vendors are aware, having made due and careful enquiry, the Company has complied with the provisions of the Companies Acts and all returns, particulars, resolutions and other documents required to be filed with or delivered to the Registrar of Companies or to any other authority whatsoever by the Company have been correctly and properly prepared and so filed or delivered. 2.4 The Shares constitute the whole of the issued share capital of the Company. Each Vendor (for himself only) confirms that there is no Encumbrance or any form of agreement (including conversion rights and rights of pre-emption) on, over or affecting -37- his Shares or any unissued shares, debentures or other securities of the Company and there is no agreement or commitment to give or create any of the foregoing. No claim has been made by any person to be entitled to any of the foregoing and no person has the right (exercisable now or in the future and whether contingent or not) to call for the issue of any share or loan capital of the Company under any of the foregoing. The shares of the Subsidiary are held and owned as shown in part 2 of schedule 4 free from all encumbrances. 2.5 The Company has not at any time:- 2.5.1 repaid, redeemed or purchased (or agreed to repay, redeem or purchase) any of its shares, or otherwise reduced (or agreed to reduce) its issued share capital or any class of it or capitalised (or agreed to capitalise) in the form of shares, debentures or other securities or in paying up any amounts unpaid on any shares, debentures or other securities, any profits or reserves of any class or description or passed (or agreed to pass) any resolution to do so; or 2.5.2 directly or indirectly provided any financial assistance for the purpose of the acquisition of shares in the Company or any holding company of the Company or for the purpose of reducing or discharging any liability incurred in such an acquisition whether pursuant to sections 155 and 156, CA 85 or otherwise. 2.6 The Company has not stopped payment and is not insolvent nor unable to pay its debts according to section 123, Insolvency Act 1986. No order has been made or petition presented or resolution passed for the winding up of the Company and no distress, execution or other process has been levied on any of its assets. No administrative or other receiver has been appointed by any person over the business or assets of the Company or any part thereof, nor has any order been made or petition presented for the appointment of an administrator in respect of the Company. 2.7 No order has been made or petition presented or resolution passed for the winding up of the Company and no distress, execution or other process has been levied on any of its assets. 2.8 Insofar as the Loan Notes have been issued, the same are owned by and registered in the name of the Vendors as indicated in column (5) of schedule 1. 3. Connected Business 3.1 The Company:- 3.1.1 is not and has not agreed to become the holder or other owner of any class of any shares, debentures or other securities of any other company (whether incorporated in the United Kingdom or elsewhere) other than the Subsidiary; 3.1.2 has not agreed to become a subsidiary of any other company or under the control of any group of companies or consortium; 3.1.3 is not and has not agreed to become a member of any partnership, joint venture, consortium or other unincorporated association other than a recognised trade association or agreement or arrangement for sharing commissions or other income; -38- 3.1.4 has no branch, place of business or substantial assets outside England and Wales or any permanent establishment (as that expression is defined in any relevant Order in Council made pursuant to section 788, Taxes Act) in any country outside the United Kingdom. 4. Accounts 4.1 The Accounts:- 4.1.1 were prepared in accordance with the requirements of all relevant statutes, with good accounting principles and practices generally accepted at the date hereof in the United Kingdom (including the Accounting Standards) for companies carrying on a similar business to the Business and on a basis consistent with preceding accounting periods of the Subsidiary and are true and fair in all material respects; 4.1.2 disclose a true and fair view of the assets, liabilities and state of affairs of the Subsidiary at the Balance Sheet Date and of its profits for the financial year ended on such date; 4.1.3 contain full provision or reserve for bad and doubtful debts and for depreciation on fixed assets, which provision or reserve was when made and is now adequate; 4.1.4 contain proper and adequate reserves or provision for all Taxation, including deferred taxation as defined in SSAP 15 (sufficient provision being made in a deferred taxation account for any corporation tax on chargeable gains and balancing charges that would arise on the sale of all fixed assets at the values attributed to them in the Accounts); 4.1.5 disclose, note or provide for all liabilities of the Subsidiary which were known, actual or contingent (including contingent liabilities to customers and contingent liabilities for Taxation); 4.1.6 reflect all the fixed and loose plant and machinery, equipment, furniture, fittings and vehicles used by the relevant company at the Balance Sheet Date and (apart from depreciation in the ordinary course of business) their aggregate value is not less than at the Balance Sheet Date and none has been acquired for any consideration in excess of its net realisable value at the date of such acquisition or otherwise than by way of a bargain at arm's length. 4.2 The basis of valuation for work-in-progress of the Company has remained in all material respects consistent with that adopted for the purpose of the audited accounts of the Subsidiary in respect of the beginning and end of each of the accounting periods of each such company for the last three financial years. 4.3 The Management Accounts: 4.3.1 have been prepared with due care and on a basis consistent with the accounting principles and practice used in the preparation of the Accounts; 4.3.2 fairly reflect the assets and liabilities of the Company at, and its profits for the nine month period ended on, 30 September 1997. -39- 4.4 The profits of the Company for the two years ended on the Balance Sheet Date as shown by the Accounts, the Management Accounts and by the audited accounts for previous periods delivered to the Purchaser and the trend of profits shown by them have not (except as Disclosed in them) been affected to a material extent by inconsistencies of accounting practices, by the inclusion of non-recurring items of income or expenditure, by transactions entered into otherwise than on normal commercial terms or by any other factors rendering such profits for all or any of such periods exceptionally high or low. 4.5 All accounts, books, ledgers, financial and other necessary records of whatsoever kind of the Company (including all invoices and other records required for VAT purposes) have been fully, properly and accurately maintained, are in the possession of the Company and contain true and accurate records of all matters including those required to be entered in them by the Companies Acts and no notice or allegation that any of the same is incorrect or should be rectified has been received. 5. Post-Balance Sheet Date events 5.1 Since the Balance Sheet Date, the Company:- 5.1.1 has carried on its business in the ordinary and usual course and nothing has been done which would be likely to prejudice the interests of the Purchaser as a prospective purchaser of the Shares; 5.1.2 has not experienced any deterioration in its financial position or turnover or suffered any material diminution of its assets by the wrongful act of any person and the Company has not had its business or profitability adversely affected by the loss of any important customer or source of supply or by any abnormal factor not affecting similar businesses to a like extent and there are no facts which are likely to give rise to any such effects; 5.1.3 has not acquired or disposed of or agreed to acquire or dispose of any assets or assumed or incurred or agreed to assume or incur any liabilities (actual or contingent) otherwise than in the ordinary course of business; 5.1.4 has not declared, made or paid any dividend, bonus or other distribution of capital or income (whether a qualifying distribution or otherwise), and (excluding fluctuations in overdrawn current accounts with bankers) no loan or loan capital of the Company has been repaid in whole or in part or has become due or is liable to be declared due by reason of either service of a notice or lapse of time or otherwise howsoever; 5.1.5 has not made any change to the remuneration, terms of employment, emoluments or pension benefits of any present or former director, officer or employee of the Company who on the Balance Sheet Date was entitled to remuneration in excess of (pound)50,000 per annum, has not appointed or employed any additional director, officer or employee entitled as aforesaid and has not appointed any new consultant or revised the existing arrangements of any consultants already appointed by the Company; 5.1.6 has received payment in full of all debts owing to the Company shown in the Accounts (subject to any provision for bad and doubtful debts made in the Accounts), has not released any debts in whole or in part and has not written off debts; -40- 5.1.7 has not entered into contracts involving capital expenditure in an amount exceeding (pound)25,000 in the aggregate; 5.1.8 has not become aware that any event has occurred which would entitle any third party to terminate any contract or any benefit enjoyed by it or call in any money before the normal due date therefor; 5.1.9 has paid its creditors within the times agreed with such creditors and does not have any debts outstanding which are overdue for payment by more than four weeks; 5.1.10 has not borrowed or raised any money or taken any financial facility (except such short term borrowings from bankers as are within the amount of any overdraft facility which was available to the Company at the Balance Sheet Date) or since the Balance Sheet Date renegotiated or received any notice from any banker that such banker wishes to renegotiate any overdraft facility available to the Company at the Balance Sheet Date; 5.1.11 has not made any change to its accounting reference date and no accounting period of the Company has ended since the Balance Sheet Date; 5.1.12 has not made a payment or incurred an obligation to make a payment which will not be deductible in computing trading profits for the purposes of corporation tax or as a management expense of the Company. 6. Transactions with the Vendors, Directors and Connected Persons 6.1 There is not outstanding:- 6.1.1 any indebtedness or other liability (actual or contingent) owing by the Company to any Vendor or Director or any Connected Person or owing to the Company by any Vendor, or Director or any Connected Person; or 6.1.2 any guarantee or security for any such indebtedness or liability as aforesaid. 6.2 There is not outstanding, and there has not at any time during the last six years been outstanding, any agreement, arrangement or understanding (whether legally enforceable or not) to which the Company is a party and in which any Vendor, Director or former director of the Company or any Connected Person is or has been interested whether directly or indirectly. 6.3 The Company is not a party to nor has its profits or financial position during the last six years been affected by any agreement or arrangement which is not entirely of an arm's length nature. 6.4 No Connected Person of any Vendor, Director or former director of the Company is entitled to or has claimed entitlement to any remuneration, compensation or other benefit from the Company. 7. Finance 7.1 Particulars of all money borrowed by the Company have been Disclosed. The total amount borrowed by the Company from any source does not exceed any limitation on its borrowing contained in the articles of association of the Company or in any -41- debenture or loan stock trust deed or instrument or any other document executed by the Company and the amount borrowed by the Company from each of its bankers does not exceed the overdraft facility agreed with such banker. The Company has no outstanding loan capital other than the Loan Notes. 7.2 All debts owing to the Company are collectable in the ordinary course of business and each such debt will realise in full its face value within three months of its due date for payment. The debts owing to the Subsidiary shown in the Accounts (subject to any provision for bad or doubtful debts made in the Accounts) were paid in full on their due dates. 7.3 Particulars of the balances on all the Company's bank accounts as at a date not more than three days before the date of this Agreement have been Disclosed and the Company has no other bank accounts. Since the date of such particulars there have been no payments out of any such bank accounts except for routine payments which have been Disclosed. 7.4 All unpresented cheques drawn by the Company have been Disclosed and there are no such unpresented cheques drawn otherwise than in the normal course of business. 7.5 Having regard to its existing banking and other facilities, so far as the Vendors are aware, the Company has sufficient working capital for the purpose of continuing to carry on its business in its present form and for the purposes of executing, carrying out and fulfilling in accordance with their terms all orders, projects and contractual obligations which have been placed with or undertaken by the Company. 7.6 The Vendors have Disclosed full details and true and correct copies of all documents relating to all debentures, acceptance lines, overdrafts, loans or other financial facilities outstanding or available to the Company and all Encumbrances to which any asset of the Company is subject. Neither the Vendors nor the Company has done anything whereby the continuance of any such facility or Encumbrance in full force and effect might be affected or prejudiced. 7.7 No grants have been made to the Company in the last six years. 7.8 The Company is not responsible for the indebtedness of any other person and no person other than the Company or a Subsidiary has given any guarantee of or security for any overdraft, loan or loan facility granted to the Company or any Subsidiary. 8. Property 8.1 The Properties comprise all the land and premises owned, controlled, used or occupied at any time by the Company and/or the Subsidiary and all the rights or interests vested in the Company and/or the Subsidiary relating to any land and premises at the date hereof and the particulars set out in schedule 3 are true and accurate and not misleading. 8.2 The Company has not:- 8.2.1 surrendered any lease, licence or tenancy to the landlord without first satisfying itself that the landlord had good title to accept such surrender and without receiving from the landlord an absolute release from all liability arising under such lease, licence or tenancy; -42- 8.2.2 assigned, or otherwise disposed of, any lease, licence or tenancy without receiving a full and effective indemnity from the assignee or transferee in respect of its liability under such lease, licence or tenancy; 8.2.3 been a guarantor of a tenant's liability under any lease, licence or tenancy; 8.2.4 assigned or otherwise disposed of any leasehold property in such a way that it retains any other residual liability in respect thereof. 8.3 The Subsidiary has a good title to each of the Properties and has Legal and Beneficial Title to the same. 8.4 The Company has in its possession or unconditionally held to its order all the leases relating to each of the Properties, and there are no material ancillary documents and papers. 8.5 The Properties, the title deeds and documentation relating thereto, and all fixtures and fittings and plant, equipment and other chattels on the Properties, are not to the Vendors' knowledge having made all due searches and enquiries subject to any Encumbrance or overriding interest (as defined in section 70, Land Registration Act 1925) nor is there any person in possession or occupation of or who has or claims any right of any kind in respect of any of the Properties adversely to the estate, interest, right or title therein of the Subsidiary ; 8.6 So far as the Vendors are aware having made all due searches and enquiries there are no rights, interests, covenants, restrictions, reservations, licences or easements nor any disputes or outstanding notices (whether given by a landlord, a local authority or any other person) nor (without prejudice to the generality of the foregoing) any other matters or things which adversely affect the value of the Subsidiary's interest in any of the Properties or the proper use and enjoyment of any of the Properties for the purpose of the business now being carried on at the Properties by the Company and/or the Subsidiary. 8.7 There has been no dealing with any of the Properties otherwise than at arm's length and in particular no dealing at an under-value which may give rise to a claim for improper stamping or setting aside. 8.8 None of the Properties is subject to the payment of any outgoings other than the usual rates and taxes and all sums due to date in respect thereof have been paid. 8.9 No proposal relating to the rateable value of any of the Properties has been determined by the Valuation and Community Charge Tribunal or Land Tribunal and there is no subsisting proposal to challenge the rateable value of any of the Properties. 8.10 Each of the Properties:- 8.10.1 enjoys access and egress over roads and footpaths which have been adopted by the appropriate highway authority and are maintainable at the public expense; 8.10.2 drains foul sewage and surface water to public sewers, is served by water, electricity, gas and telephone utilities; and 8.10.3 so far as the Vendors are aware having made all due searches and enquiries has the benefit of all other easements and rights necessary for its proper use and enjoyment for the purposes of the business now being carried on at the -43- Properties by the Company and such easements and rights are held on terms which do not entitle any person to terminate or curtail the same. 8.11 Where the Company or any predecessor in title has sold off or has agreed to sell off land adjoining or near to any of the Properties there were or will be excepted and reserved to the Company all necessary and appropriate easements and other rights for the benefit of the Properties. 8.12 The Company has not entered into any commitment (whether legally binding or not) and the Company is not party to any subsisting agreement with any person or company whereby a fee (including but not limited to an abort fee) will be paid to such person or company in respect of the management, use, development, letting or sale of any of the Properties. 8.13 There are no unpaid charges for the construction or adoption of any road or sewer or other service serving the Property. 8.14 In relation to each of the Properties its existing use is set out in Part I of schedule 3 ("Existing Use"). 8.15 To the Vendors' knowledge having made all due searches and enquiries there are no lawfully enforceable restrictions or prohibitions which restrict or prohibit the Existing Use of any of the Properties. 8.16 The Existing Use of each of the Properties is believed by the Vendors (having made all due searches and enquiries) to be the permitted use under the Town and Country Planning legislation (which term includes the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990 and the Planning (Consequential Provisions) Act 1990) and not to be a temporary or personal use. 8.17 Any development (as defined by section 5.5 Town and Country Planning Act 1990) carried out in relation to each of the Properties has been lawful and all necessary consents and permissions have been obtained for such development. 8.18 The consents and permissions referred to in paragraph 8.17 are valid, subsisting and are also either unconditional or subject only to conditions which have been satisfied so that nothing further remains to be done thereunder. 8.19 The Company is not aware of any resolution, proposal, order or act made or contemplated for the compulsory acquisition of any of the Properties by the local or any other authority nor any outstanding order, notice or other requirement of any such authority that affects the Existing Use of any of the Properties or involves expenditure in compliance with it nor any other circumstances which may result in any such order or notice being made or served or which may otherwise affect any of the Properties. 8.20 No compensation has been received consequent upon a refusal of any planning permission affecting any of the Properties or the imposition of any restrictions in any such planning permission and no such planning permission is suspended. 8.21 None of the buildings or other structures or erections on any of the Properties have been listed under section 1, Planning (Listed Buildings and Conservation Areas) Act 1990 ("PLBCA") nor so far as the Vendors are aware having made all due searches and enquiries has the relevant local authority authorised the service of any building preservation notice under section 3, PLBCA or any repairs notice under section 48, PLBCA in respect of any of the Properties or any building structure or erection -44- thereon nor so far as the Vendors are aware having made all due searches and enquiries has the relevant local authority made or resolved to make any noise abatement zone order under section 63, Control of Pollution Act 1974 for any of the areas in which any of the Properties are included. 8.22 To the Vendors' knowledge having made all due searches and enquiries, none of the Properties is within an area of archaeological importance nor is any building or erection on any of the Properties a scheduled monument within the meaning set out in the Ancient Monuments and Archaeological Areas Act 1979. 8.23 Where any of the Properties is leasehold, particulars of each lease vested in the Subsidiary are set out in Part 2 of schedule 3 and in relation to each such lease:- 8.23.1 the Vendors believe that having regard to the title to the relevant property the landlord and all superior landlords had good title to grant the lease and any superior leases respectively; 8.23.2 the Vendors believe that having regard to the title to the relevant property any consent necessary for the grant of the lease has been obtained; 8.23.3 no rent reviews are or should be currently under negotiation or the subject of a reference to an expert or arbitrator or the Courts; 8.23.4 the receipt for the payment of rent which fell due immediately prior to the date hereof is unqualified; 8.23.5 no notices of any material breaches of any covenants or conditions contained in the lease have been given or received on the part of either the landlord or the Subsidiary and the landlord has not refused to accept rent or made any complaint of breach of covenant; 8.23.6 no material alterations, improvements or additions have been made to the Property to which the lease relates since the grant of the lease or in respect of all such material alterations, improvements or additions made all necessary consents and approvals have first been obtained; 8.23.7 sections 24 to 28, Landlord and Tenant Act 1954 have not been excluded; 8.23.8 no surety has been released either expressly or by implication; 8.23.9 VAT is not chargeable on the rent or any other payment to be made under the lease and no election has been made by the landlord to waive exemption from VAT in respect of the lease. 8.24 The Company holds each of the Properties subject to any inferior leases referred to in paragraph 8.25 but is otherwise in actual occupation of each of the Properties and no other person is or will be entitled to occupy or use any part of any of the Properties. 8.25 Particulars of each lease, underlease or licence deriving immediately or otherwise out of the interest of the Company are set out in Part 2 of schedule 3 (each such lease, underlease or licence being referred to as an "Inferior Lease"):- 8.26 No part of any of the Properties which are the subject of an inferior lease and intended for occupation is vacant. -45- 8.27 The Company is not aware (having made all due searches and enquiries) of any material breach or allegation of material breach of the requirements of:- the Shops Act 1950 and 1965 the Clean Air Act 1993 the Construction (Design and Management) Regulations 1995 the Radioactive Substances Act 1960 the Factories Act 1961 the Offices Shops and Railway Premises Act 1963 the Fire Precautions Act 1971 the Health and Safety at Work etc Act 1974 the Control of Pollution Act 1974 the Food and Environmental Protection Act 1985 the Planning (Hazardous Substances) Act 1990 the Environmental Protection Act 1990 the Water Resources Act 1991 the Water Industry Act 1991 or the Public Health Acts or other legislation concerning health, safety or environmental matters or any regulations, orders, notices or directions made under any of such legislation which in any such case affect any of the Properties or any property in the vicinity thereof or anything due thereon. 8.28 Where required a fire certificate has been issued in respect of each of the Properties and, so far as the Vendors are aware (having made due enquiry of appropriate employees of the Group), each of the Properties complies in all respects with current fire regulations and the current requirements of the insurers of the Properties. 8.29 So far as the Vendors are aware, there are no latent or patent defects in the buildings and structures on or comprising Unit 9 Print Village and in the construction of the buildings and its structures on or comprising Unit 9 Print Village or any alterations thereto none of the following materials were used:- 8.29.1 high alumina cement in structural elements; 8.29.2 wood wool slabs in permanent formwork to concrete or in structural elements; 8.29.3 calcium chloride in admixtures for use in reinforced concrete; 8.29.4 asbestos or asbestos containing products as defined in the Asbestos Regulations 1969 and 1987; 8.29.5 naturally occurring aggregates for use in reinforced concrete which do not comply with British Standard Specification 882: 1983 and naturally occurring aggregates for use in concrete which do not comply with the provisions of British Standard Specification 8110: 1985; 8.29.6 urea formaldehyde foam or materials which may release formaldehyde in quantities which may be hazardous with reference to the limits set from time to time by the Health and Safety Executive; 8.29.7 materials which are generally comprised of mineral fibres either man-made or naturally occurring which have a diameter of 3 microns or less or which -46- contain fibre not sealed or otherwise stabilised to ensure that fibre migration is prevented; or 8.29.8 any other materials not in accordance with good design standards and good building practice at the time of construction of any such buildings. 9. Environmental 9.1 The information contained in the environmental review of the Subsidiary which has been Disclosed is accurate and not misleading. 9.2 All Permits which have been disclosed to the Purchaser are in full force and effect and their terms and conditions have been complied with. 9.3 So far as the Vendors are aware, the Company has not during its occupation of the Properties or of any other properties occupied by it acted in material breach of Environmental Law and so far as the Vendors are aware no work, repairs, remedy, construction, or capital expenditure is required under any Environmental Law or in order to carry on lawfully the Business at the Property. 9.4 So far as the Vendors are aware, having made due enquiry of relevant employees of the Company, the Company has not received any notice claim or other communication alleging any actual or potential Environmental Liability. 10. Other assets 10.1 The Company has legal and beneficial title to all assets of the Company which are included in the Accounts or the Management Accounts or have otherwise been represented as being the property of the Company or which were at the Balance Sheet Date used or held for the purposes of its business and (except for assets disposed of or realised by the Company in the ordinary course of business) the Company retains such title to all such assets free from any Encumbrance, hire or hire purchase agreement or leasing agreement or agreement for payment on deferred terms and all such assets are in the possession and control of the Company and are sited within the United Kingdom. 10.2 The Company has legal and beneficial title to all assets which have been acquired by the Company since the Balance Sheet Date and the same are in the possession and control of the Company and none is the subject of any Encumbrance nor has the Company created or agreed to create any Encumbrance or entered into any factoring arrangement, hire-purchase, conditional sale or credit sale agreement which has not been disclosed and in respect of any such Encumbrance, arrangement or agreement so disclosed there has been no default by the Company in the performance or observance of any of the provisions thereof. 10.3 The plant and machinery (including fixed plant and machinery) and all vehicles and office and other equipment shown in the Accounts or acquired since the Balance Sheet Date or otherwise used in connection with the Business which have not been disposed of in the ordinary course of business:- 10.3.1 are in good repair and condition and are regularly maintained, fully serviceable and in satisfactory working order; and -47- 10.3.2 are each capable of doing the work for which they were designed and/or purchased and will each be so capable (subject to fair wear and tear) during the period of time over which the value of such assets will be written down to nil in the accounts of the Company. 11. Insurance 11.1 All the assets of the Company which are of an insurable nature are and have at all material times been fully insured to their full replacement value with a well established and reputable insurer against fire and all other risks normally insured against by companies carrying on similar businesses or owning property of a similar nature to those of the Company and the Company is and has at all material times been adequately covered against all legal liability and risks normally insured against by such companies (including liability to employees or third parties for personal injury or loss or damage to property, product liability and loss of profit). 11.2 Particulars of all policies of insurance of the Company now in force have been disclosed and such particulars are true and correct and all premiums due on such policies have been duly paid and all such policies are valid and in force. So far as the Vendors are aware there are no circumstances which might lead to any liability under such insurance being avoided by the insurers or the premiums being increased. There is no claim outstanding under any such policies and there are no circumstances likely to give rise to a claim. 12. Litigation 12.1 The Company is not now engaged in any litigation or arbitration proceedings and there are no lawsuits or arbitration proceedings threatened by or against the Company or any person for whose acts or defaults the Company may be vicariously liable. 12.2 There is no matter or fact in existence known to the Vendors having made due and careful enquiry of the directors of and senior management of the Company which might give rise to any legal proceedings or arbitration involving the Company including any which might form the basis of any criminal prosecution against the Company. 12.3 The Company has not been notified of any injunction order or judgment given by any court or governmental agency which is still in force and has not given any undertaking to any court or to any third party arising out of any legal proceedings. 13. Licences 13.1 The Company has all necessary licences (including statutory licences), permits, consents and authorities (public and private) for the proper and effective carrying on of the Business and in the manner in which the Business is now carried on and all such licences, permits, consents and authorities are valid and subsisting and the Vendors know of no reason why any of them should be suspended, cancelled or revoked whether in connection with the sale to the Purchaser or otherwise. 13.2 The Company has registered or applied to register all registrable personal data held by it and all due and requisite fees in respect of the Company's registrations under the Data Protection Act 1984 have been paid. The details contained in such registrations or applications to register are correct, proper and suitable for the purpose(s) for which the Company holds or uses the personal data which are the subject of such -48- registrations or applications to register, and the contents of all such registrations or applications to register have been made available to the Purchaser. All personal data held by the Company has been held in accordance with the data protection principles and there has been no unauthorised disclosure of personal data held by the Company. There are no outstanding enforcement, deregistration or transfer prohibition notices or any other nature of notice under the Data Protection Act 1984 currently outstanding against the Company, nor is there any outstanding appeal against such notices nor is the Company aware of any circumstances which may give rise to the giving of any such notices to the Company. There are no unsatisfied requests to the Company made by data subjects in respect of personal data held by the Company, nor any outstanding applications for rectification or erasure of personal data. There are no outstanding claims for compensation for inaccuracy, loss or unauthorised disclosure of personal data nor is any personal data held by the Company inaccurate nor has the Company lost or made any unauthorised disclosure of any such data. Without prejudice to the specific provisions above, the Company and its employees have complied in all respects with the requirements of the Data Protection Act 1984. 14. Trading 14.1 There are in force no powers of attorney given by the Company other than to the holder of an encumbrance solely to facilitate its enforcement nor any other authority (express, implied or ostensible) given by the Company to any person to enter into any contract or commitment or do anything on its behalf other than any authority of employees to enter into routine trading contracts in the normal course of their duties. 14.2 The acquisition of the Shares by the Purchaser or compliance with the terms of this Agreement will not:- 14.2.1 so far as the Vendors are aware cause the Company to lose the benefit of any right or privilege it presently enjoys or cause any person who normally does business with the Company not to continue to do so on the same basis as previously; 14.2.2 relieve any person of any obligation to the Company (whether contractual or otherwise) or legally entitle any person to determine any such obligation or any right or benefit enjoyed by the Company or to exercise any right whether under an agreement with or otherwise in respect of the Company; 14.2.3 conflict with or result in the breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which the Company is now a party or any loan to or mortgage created by the Company or of its memorandum or articles of association; 14.2.4 result in any present or future indebtedness of the Company becoming due and payable or capable of being declared due and payable prior to its stated maturity; 14.2.5 so far as the Vendors are aware cause any director, officer or senior employee of the Company to leave employment; 14.2.6 conflict with, violate or result in a breach of any law, regulation, order, decree or writ applicable to the Company, or entitle any person to receive from the Company any finder's fee, brokerage or other commission; -49- and so far as the Vendors are aware the attitude or actions of clients, customers and suppliers with regard to the Company will not be prejudicially affected thereby. 14.3 The Company is not and has not been party to or directly or indirectly concerned in any agreement, arrangement, understanding or practice (whether or not legally binding) or in the pursuit of any course of conduct which is:- 14.3.1 registrable under the RTPA or capable of giving rise to an investigation by the Director-General of Fair Trading or a reference to the Monopolies and Mergers Commission; 14.3.2 in contravention or breach of The Treaty of Rome 1957, the Fair Trading Act 1973, the RTPA, the Competition Act 1980, or any regulations, orders, notices or directions made thereunder; or 14.3.3 is otherwise registrable, unenforceable or void or renders the Company or any of its officers liable to administrative, civil or criminal proceedings under any anti-trust, trade regulation or similar legislation in any jurisdiction where the Company carries on business. 14.4 The Company is not and has not been a party to any agreement, arrangement, understanding or practice restricting the freedom of the Company to provide and take goods and services by such means and from and to such persons and into or from such place as it may from time to time think fit. 14.5 All title deeds and agreements to which the Company is a party and all other documents owned by, or which ought to be in the possession of, or held unconditionally to the order, of the Company are in the possession of the Company. 14.6 The Company does not have any of its records, systems, controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process whether computerised or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Company. 14.7 The Company does not use on its letterhead, books or vehicles or otherwise carry on the Business under any name other than its corporate name or a shortened version thereof. 14.8 Neither the Company nor any officer has been prosecuted for any criminal, illegal or unlawful act connected with the Company. 15. Contracts 15.1 There are no long term contracts (i.e. contracts not terminable by the Company without penalty on six months' notice or less) or onerous or unusual or abnormal contracts (i.e. contracts for capital commitments or contracts differing from those necessitated by the ordinary course of business) binding upon the Company, nor is the Company a party to any contract which contains any onerous or other provision material for disclosure to an intending purchaser of the Shares. 15.2 All contracts to which the Company is a party as are material have been disclosed and the Company is not a party to or subject to any agreement, transaction, obligation, commitment, understanding, arrangement or liability which:- -50- 15.2.1 is incapable of complete performance in accordance with its terms within six months after the date on which it was entered into or undertaken; 15.2.2 is likely to result in a loss to the Company on completion of performance; 15.2.3 cannot readily be fulfilled or performed by the Company on time and without undue or unusual expenditure of money and effort; 15.2.4 is a contract for the supply of goods or services (other than contracts for the supply of electricity or normal office services) in excess of (pound)25,000 per individual contract; 15.2.5 requires the Company to pay any commission, finder's fee, royalty or the like; or 15.2.6 is in any way otherwise than in the ordinary and proper course of the Company's business. 15.3 The terms of all contracts of the Company have been complied with by the Company and by the other parties to the contracts in all respects and there are no circumstances likely to give rise to a default by the Company or (so far as the Vendors' are aware) by the other parties under any such contract. 15.4 The Company has no knowledge of the invalidity of or grounds for rescission, avoidance or repudiation of any agreement or other transaction to which the Company is a party and has received no notice of any intention to terminate, repudiate or disclaim any such agreement or other transaction. 15.5 The Company is not a party to any subsisting agency or distributorship agreement. 16. Employees 16.1 The particulars shown in the schedule of employees comprised in the disclosure Documents are true and complete and show in respect of each Director, officer and employee of the Company his date of birth, the date on which he commenced continuous employment with the Company for the purposes of the EPCA and all remuneration payable and other benefits provided or which the Company is bound to provide (whether now or in the future) to each such person and include full particulars of all remuneration arrangements (particularly profit sharing, incentive and bonus arrangements to which the Company is a party whether binding or not) and each director, officer and employee of the Company is listed therein. 16.2 There is no contract of service in force between the Company and any of its directors, officers or employees which is not terminable by the Company without compensation (other than any compensation payable under Parts V and VI, EPCA) on one month's notice given at any time or otherwise in accordance with section 49, EPCA. There are no consultancy or management services agreements in existence between the Company and any other person, firm or company. 16.3 There are no amounts owing to present or former directors, officers or employees of the Company other than not more than one month's arrears of remuneration accrued or due or for reimbursement of business expenses incurred within a period of three months preceding the date hereof and no moneys or benefits other than in respect of remuneration or emoluments of employment are payable to or for the benefit of any -51- present or former director, officer or employee of the Company, nor any dependant of any present or former director, officer or employee of the Company. 16.4 Save to the extent (if any) to which provision or allowance has been made in the Accounts:- 16.4.1 no liability has been incurred or is anticipated by the Company for breach of any contract of employment or for services or for severance payments or for redundancy payments or protective awards or for compensation for unfair dismissal or for failure to comply with any order for the reinstatement or re-engagement of any employee or for sex or race discrimination or for any other liability accruing from the termination or variation of any contract of employment or for services; 16.4.2 the Company has not made or agreed to make any payment to or provided or agreed to provide any benefit for any present or former director, officer or employee of the Company. 16.5 The Company has in relation to each of its employees (and so far as relevant to each of its former employees) complied with:- 16.5.1 all obligations imposed on it by all relevant statutes, regulations and codes of conduct and practice affecting its employment of any persons and all relevant orders and awards made thereunder and has maintained current, adequate and suitable records regarding the service, terms and conditions of employment of each of its employees; and 16.5.2 all collective agreements, recognition agreements and customs and practices for the time being affecting its employees or their conditions of service. 16.6 No present director, officer or employee of the Company has given or received notice terminating his employment except as expressly contemplated under this Agreement and Completion of this Agreement will not entitle any employee to terminate his employment and/or trigger any entitlement to a severance payment or liquidated damages. 16.7 The Company has complied with all recommendations made by the Advisory Conciliation and Arbitration Service and with all awards and declarations made by the Central Arbitration Committee in respect of its employees. 16.8 The Company does not have in existence nor is it proposing to introduce, and none of its directors, officers or employees participate in (whether or not established by the Company), any employee share trust, share incentive scheme, share option scheme or profit sharing scheme for the benefit of all or any of its present or former directors, officers or employees or any of such persons dependants or any scheme whereunder any present or former director, officer or employee of the Company is entitled to a commission or remuneration of any other sort calculated by reference to the whole or part of the turnover, profits or sales of the Company or any other person, firm or company including (without limitation) any profit related pay scheme established under Chapter III, Part V, Taxes Act. 16.9 The Company has not been a party to any relevant transfer as defined in TUPE nor has the Company failed to comply with any duty to inform and consult any Trade Union under the said regulations within the period of one year preceding the date of this Agreement. -52- 16.10 The Company is not a party to any agreement or arrangement with or commitment to any trade unions or staff association nor are any of its employees members of any trades union or staff association. 17. Pension Schemes 17.1 Other than the Roda Print Concepts Limited Pension Plan (the "Pension Scheme"), the company is not nor has been a party to any agreement or arrangement for the provision of pensions, allowances, lump sums or other like benefits on retirement, death or long term ill health for the benefit of any current or former employee of the Company (or the dependants of such persons) nor has the Company provided or promised to provide any ex-gratia pensions, lump sums or like benefits for any current or former employee of the Company or their dependants. In particular, there is no obligation to pay contributions to any personal pension scheme in respect of any employee. 17.2 Full particulars of the Pension Scheme have been disclosed, such particulars being true, complete and not misleading in any way. The particulars include a copy of the trust deed and rules, booklets and any subsequent announcements to scheme members, details of members including contributions payable by members and employer, details of current investments, latest scheme accounts and schedule of contributions complying with Section 87 of the Pensions Act 1995. 17.3 All contributions to the Pension Scheme which are due have been paid by the due date for payment. In respect of any employee who is covered for lump sum death benefits, those benefits are fully insured with an insurance company of good repute on normal terms and all premiums payable have been paid. 17.4 The Pension Scheme is approved by the Board of Inland Revenue for the purposes of Chapter 1 of Part XIV of the Taxes Act and has at all times and in all respects complied with the provisions of all relevant statutes, regulations and requirements. 17.5 The Pension Scheme is a money purchase scheme within the meaning of Section 181 of the Pension Schemes Act 1993. 17.6 There are no claims or actions in progress or pending, nor any reason for such claims or actions, in respect of any pension arrangement. There are no unresolved disputes under the Pension Scheme's internal dispute resolution procedure. 18. Intellectual Property 18.1 The Disclosure Documents contain particulars of all Intellectual Property owned, used or exploited by the Company. The Company is the sole beneficial owner of such Intellectual Property. 18.2 The Disclosure Documents contain particulars of all Intellectual Property Agreements and all Intellectual Property Agreements are valid and binding and none has been the subject of any breach or default by any party or of any event which with notice or lapse of time or both would constitute a default. 18.3 The Company has not infringed and does not infringe any Intellectual Property of a third party as a result of the Company's use or exploitation of the Intellectual Property owned, used or exploited by the Company nor will such use or exploitation give rise to any such dispute claims or proceedings against the Company. -53- 18.4 There are and have not been any disputes, claims or proceedings threatened or in existence in any court of tribunal in respect of any of the Intellectual Property as such owned, used or exploited by the Company or in respect of any use or exploitation of the Intellectual Property owned, used or exploited by the Company. There has been and is no current or anticipated infringement by any third party of any of the Intellectual Property owned, used or exploited by the Company. 19. Legislation The Company is not aware, having made enquiries of its directors and employees, that it is in material breach of, or that it has received notice of breach of, or of any allegation of breach of, the requirements of any legislation which is applicable to it. -54- Part 2 20. Taxation 20.1 General 20.1.1 Notices and returns All notices, returns, computations and registrations of the Company for the purposes of Taxation have been made punctually on a proper basis and are correct and none of them is, or is likely to be, the subject of any dispute with any Taxation Authority. 20.1.2 Payment of Tax due All Taxation which the Company is liable to pay prior to Completion has been or will be so paid prior to Completion. 20.1.3 Penalties or interest on Tax The Company has not within the period of six years ending on the date of this Agreement paid or since the Balance Sheet Date become liable to pay any penalty, fine, surcharge or interest charged by virtue of the provisions of the TMA or any other Taxation Statute. 20.1.4 Compliance with PAYE, national insurance contribution and Tax collection obligations (a) All income tax deductible and payable under the PAYE system and/or any other Taxation Statute has, so far as is required to be deducted, been deducted from all payments made or treated as made by the Company and all amounts due to be paid to the Inland Revenue prior to the date of this Agreement have been so paid, including all Tax chargeable on benefits provided for directors, employees or former employees of the Company or any persons required to be treated as such. (b) All deductions and payments required to be made under any Taxation Statute in respect of national insurance and social security contributions (including employer's contributions) have been so made. (c) All payments by the Company to any person which ought to have been made under deduction of Tax have been so made and the Company (if required by law to do so) has accounted to the Inland Revenue for the Tax so deducted. (d) Proper records have been maintained in respect of all such deductions and payments and all applicable regulations have been complied with. (e) The Disclosure Documents contain details so far as they affect the Company of all current dispensations agreed with the Inland Revenue in relation to PAYE and all notifications given by the Inland Revenue under section 166, TA 88. -55- 20.1.5 Investigations The Company has not been subject to any visit, audit, investigation, discovery or access order by any Taxation Authority and that there are no circumstances existing which make it likely that a visit, audit, investigation, discovery or access order will be made. 20.1.6 No liability under section 23, TA 88 The Company has not received a notice from the Collector of Taxes under the provisions of section 23, TA 88 which has not been complied with. 20.1.7 Tax provision Full provision or reserve has been made in the Accounts for all Taxation assessed or liable to be assessed on the Company or for which it is accountable in respect of income, profits or gains earned, accrued or received or deemed to be earned, accrued or received on or before the Balance Sheet Date, including distributions made down to such date or provided for in the Accounts. 20.1.8 Concessions and arrangements The amount of Taxation chargeable on the Company during any accounting period ending on or within the six years before the Balance Sheet Date has not depended on any concessions, agreements or other formal or informal arrangements with any Taxation Authority. 20.1.9 Anti-avoidance provisions The Company has not entered into or been a party to any scheme or arrangement of which the main purpose, or one of the main purposes, was the avoidance of or the reduction in liability to Taxation. 20.1.10 Section 765, TA 88 The Company has not without the prior consent of the Treasury carried out or agreed to carry out any transaction under section 765, TA 88 which would be unlawful in the absence of such consent and has, where relevant, complied with the requirements of section 765A(2), TA 88 (supply of information on movement of capital within the EU) and any regulations made or notice given thereunder. 20.1.11 Transactions requiring clearance or consent All particulars furnished to any Taxation Authority in connection with an application for clearance or consent by the Company or on its behalf or affecting the Company has been made and obtained on the basis of full and accurate disclosure to the relevant Taxation Authority of all relevant material facts and considerations; and any transaction for which clearance or consent was obtained, has been carried into effect only in accordance with the terms of the relevant clearance or consent. -56- 20.1.12 Calculation of taxation liability The Company has sufficient records relating to past events to permit accurate calculation of the Taxation liability or relief which would arise upon a disposal or realisation on completion of each asset owned by the Company at the Balance Sheet Date or acquired by the Company since that date but before Completion. 20.1.13 Claims and disclaimers The Company has duly submitted all claims and disclaimers the making of which has been assumed for the purposes of the Accounts. 20.1.14 Outstanding claims, elections and appeals The Disclosure Documents contain full particulars of all matters relating to Taxation in respect of which the Company is or at Completion will be entitled: (a) to make any claim, (including a supplementary claim) disclaimer or election for relief under any Taxation Statute; (b) to appeal against any assessment or determination relating to Taxation; (c) to apply for a postponement of Taxation. 20.2 Corporation tax, including corporation tax on chargeable gains 20.2.1 Base values and acquisition costs If each of the capital assets of the Company was disposed of on the date hereof for a consideration equal to the book value of that asset in, or adopted for the purposes of, the Accounts or, in the case of assets acquired since the Balance Sheet Date, equal to the consideration given upon its acquisition, no liability to corporation tax on chargeable gains or balancing charges under the CAA would arise and for the purpose of determining the liability to corporation tax on chargeable gains there shall be disregarded any relief and allowances available to the Company other than amounts falling to be deducted under section 38, TCGA. 20.2.2 Capital allowances All expenditure which the Company has incurred or may incur under any subsisting commitment on the provision of machinery, plant or buildings has qualified or will qualify (if not deductible as a trading expense for trade carried on by the Company) for writing-down allowances or industrial building allowances (as the case may be) under the CAA and where appropriate notices have been given to the Inland Revenue under section 118, Finance Act 1994. -57- 20.2.3 Leased assets The Company has not made any claim for capital allowances in respect of any asset which is leased to or from or hired to or from the Company and no election affecting the Company has been made or agreed to be under sections 53 or 55, CAA in respect of such assets. 20.2.4 Short life assets The Company has not made any election under section 37, CAA nor is it taken to have made such an election under section 37(8)(c), CAA. 20.2.5 Industrial buildings None of the assets of the Company expenditure on which has qualified for a capital allowance under Part I, CAA has at any time been used otherwise than as an industrial building or structure. 20.2.6 Distributions (a) No distribution within the meaning of sections 209, 210 and 211, TA 88 has been made by the Company after 5th April, 1965 except dividends shown in its audited accounts and the Company is not bound to make any such distribution. (b) No elections have been made pursuant to Section 246A, TA 88 in respect of any dividends. 20.2.7 Repayments of share capital The Company has not any time after 6th April, 1965 repaid, redeemed or repurchased or agreed to repay, redeem or repurchase or granted an option under which it may become liable to purchase any shares of any class of its issued share capital nor has the Company after that date capitalised or agreed to capitalise in the form of shares or debentures any profits or reserves of any class or description or otherwise issued or agreed to issue any share capital other than for the receipt of new consideration (within the meaning of Part VI, TA 88) or passed or agreed to pass any resolution to do so. 20.2.8 Demergers The Company has not been engaged in nor been a party to any of the transactions set out in sections 213 to 218 inclusive, TA 88 nor has it made or received a chargeable payment as defined in section 218(1), TA 88. 20.2.9 Issues of securities No securities (within the meaning of section 254(1), TA 88) issued by the Company and remaining in issue at the date of this Agreement were issued in such circumstances that the interest payable on than falls to be treated as a distribution under either sections 209(2)(d), 209(2)(da) or 209(2)(e), TA 88. -58- 20.2.10 Capital Distributions The Company has not received any capital distribution to which the provisions of section 189, TCGA could apply. 20.2.11 Land sold and leased back The Company has not entered into any transaction to which the provisions of section 779 or 780, TA 88 have been or could be applied. 20.2.12 Foreign loan interest The Company has not since 31st March, 1982 received any foreign loan interest in respect of which double taxation relief will or may be restricted under section 798, TA 88. 20.2.13 Non-deductible payments No rents, interest, annual payments or other sums of an income nature paid or payable by the Company or which the Company is under an existing obligation to pay in the future are or may be wholly or partially disallowable as deductions, management expenses or charges in computing profits for the purposes of corporation tax by reason of the provisions of sections 74, 79, 125, 338, 339, 779 to 784 inclusive, 787 or 788, TA 88 or any other statutory provision or otherwise. 20.2.14 Rent payable to connected persons No rent is or has been payable by the Company to which the provisions of sections 33A and 33B, TA 88 will apply or have applied. 20.2.15 No unremittable income or gains No claim has been made by the Company under sections 584 or 585, TA 88 or under section 279, TCGA. 20.2.16 Payments to directors, officers or employees The Company has not made or agreed to make any payment to or provided or agreed to provide any benefit for any Director or former director, officer or employee of the Company, whether as compensation for loss of office, termination of employment or otherwise, which is not allowable as a deduction in calculating the profits of the Company for Taxation purposes whether up to or after the Balance Sheet Date. 20.2.17 Disallowance of trading losses and advance corporation tax carry forward No change of ownership of the Company has taken place in circumstances such that section 768 (change in ownership of company: disallowance of trading losses) or section 245, TA 88 (change in ownership of company: calculation and treatment of advance corporation tax) has or may be applied to deny relief for a loss or losses incurred by the Company and within the period of three years ending with the date of this Agreement there has been no major change in the nature or conduct of any trade or business (as defined in section 768 and section 245, TA 88) carried on by the Company. -59- 20.2.18 Transfer pricing The Company is not a party to any transaction or arrangement under which it may be required to pay for any asset or any services or facilities of any kind an amount which is in excess of the market value of that asset or those services or facilities nor will the Company receive any payment for an asset or any services or facilities of any kind that it has supplied or provided or is liable to supply or provide which is less than the market value of that asset or those services or facilities. 20.2.19 Transactions not at arm's length The Company has not disposed of or acquired any asset in circumstances falling within section 17, TCGA nor given or agreed to give any consideration to which section 128(1)(2), TCGA could apply. 20.2.20 Transactions between connected persons No allowable loss has accrued to the Company to which section 18(3), TCGA will apply. 20.2.21 Chargeable debts The Company is not owed a debt, other than a debt on a security, on the disposal or satisfaction of which a liability to corporation tax on chargeable gains will arise by reason of section 251, TCGA. 20.2.22 Relief for loans to traders and qualifying corporate bonds No claim for relief has been allowed to the Company pursuant to sections 253 and 254, TCGA in respect of any loan and no chargeable gain has or is likely to arise pursuant to section 253 (5), (6), (7) or (8) or section 254 (9) or (10), TCGA. 20.2.23 Chargeable policies The Company has not acquired benefits under any policy of assurance otherwise than as the original holder of legal and beneficial title. 20.2.24 Transfer of overseas trade The Company has not transferred a trade carried on by it outside the United Kingdom through a branch or agency to a company not resident in the United Kingdom in such circumstances that a chargeable gain may be deemed to arise at a date after such transfer under section 140, TCGA. 20.2.25 Depreciatory transactions (a) No allowable loss which might accrue on the disposal by the Company of any share in or security of any company is likely to be reduced by virtue of the provisions of sections 176 and 177, TCGA. (b) The Company has not been a party to any scheme or arrangement whereby the value of an asset has been materially reduced as set out in sections 30-34, TCGA. -60- 20.2.26 Restriction of straight-line growth No asset owned by the Company is subject to a deemed disposal and re-acquisition under schedule 2, TCGA so as to restrict the extent to which the gain or loss over the period of ownership may be apportioned by reference to straight-line growth. 20.2.27 Other claims made by the Company The Company has made no claim under any of the following:- (a) section 280, TCGA (tax on chargeable gains payable by instalments); (b) section 24(2), TCGA (assets of negligible value); or (c) section 242(2), TCGA (small part disposals of land). (d) section 139, Finance Act 1993 (deferral of unrealised exchange gains). 20.2.28 Gifts The Company has not received any assets by way of gift as mentioned in section 282, TCGA and the Company has not held, and does not hold, shares in a company to which section 125, TCGA could apply. 20.2.29 Non-resident companies (a) There has not accrued or arisen any income, profit or gain in respect of which the Company may be liable to corporation tax by virtue of the provisions of section 13, TCGA or Chapter IV of Part XVII, TA 88. (b) The Company has not been served with a notice in respect of the unpaid corporation tax liability of any company pursuant to section 191, TCGA. 20.2.30 Controlled foreign companies No notice of the making of a direction under section 747, TA 88 has been received by the Company and no circumstances exist which would entitle the Inland Revenue to make such a direction or to apportion any profits of a controlled foreign company to the Company pursuant to section 752, TA 88. 20.2.31 Charges on non-residents The Company has not been a party to any transaction or arrangement whereby it is or may hereafter become liable for Taxation under or by virtue of Part VIII, TMA. 20.2.32 Profit related pay No scheme registered under Chapter III of Part V, TA 88 applies to the Company or any of its employees and no application for registration of a scheme so applying has been made. 20.2.33 Payment from pension funds -61- The Company has not received a payment out of funds held for the purposes of an exempt approved scheme in respect of which an amount is recoverable by the Inland Revenue under section 601, TA 88. 20.2.34 Claims and elections (a) The Disclosure Documents contain full particulars of all claims and elections made (or assumed to be made) under sections 23, 152-162 or 165, 175, 247, 248, TCGA insofar as they could affect the chargeable gain or allowable loss which would arise in the event of a disposal by the Company of any of its assets, and indicates which assets (if any) so affected would not on a disposal give rise to relief under Schedule 4, TCGA. (b) The Disclosure Documents contain full particulars of elections made under (i) Regulation 10 of The Exchange Gains and Losses (Alternative Method of Calculating of Gain or Loss) Regulations 1994 and whether or not such elections have been varied (ii) Regulation 10 of the Local Currency Elections Regulations 1994 and such election is still valid. 20.3 Corporation tax - groups of companies 20.3.1 Group relief The Disclosure Documents contain full particulars of all arrangements and agreements relating to group relief (as defined by section 402, TA 88 ) to which the Company is or has been a party and:- (a) all claims by the Company for group relief were when made and are now valid and have been or will be allowed by way of relief from corporation tax; (b) the Company has not made nor is liable to make any payment under any arrangement or agreement save in consideration for the surrender of group relief allowable to the Company by way of relief from corporation tax; and (c) the Company has received all payments due to it under any arrangement or agreement for any surrender of group relief made by it and the payments are not liable to be refunded in whole or in part. 20.3.2 Surrender of advance corporation tax The Disclosure Documents contain full particulars of all arrangements and agreements to which the Company is or has been a party relating to the surrender of advance corporation tax made or received by the Company under section 240, TA 88 and:- (a) the Company has not paid nor is liable to pay for the benefit of any advance corporation tax which is or may become incapable of set-off against the Company's liability to corporation tax; and -62- (b) the Company has received all payments due to it under any arrangement or agreement for any surrender of advance corporation tax made by it and the payments are not liable to be refunded in whole or in part. 20.3.3 Acquisitions from group members No tax has been or may be assessed on the Company pursuant to section 190, TCGA in respect of any chargeable gain accrued prior to the date of this Agreement and the Company has not at any time within the period of six years ending with the date of this Agreement transferred any asset other than trading stock including without limitation any transfer by way of share exchange within section 135, TCGA to any company which at the time of disposal was a member of the same group as defined in section 170, TCGA. 20.3.4 Leaving the group The execution or completion of this Agreement or any other event since the Balance Sheet Date will not result in any chargeable asset being deemed to have been disposed of and re-acquired by the Company for Taxation purposes pursuant to section 178 or 179, TCGA or as a result of any other Event since the Balance Sheet Date. 20.3.5 Group income The Disclosure Documents contain full particulars of all elections made by the Company under section 247, TA 88 and all such elections are now in force and the Company has not paid any dividend without advance corporation tax or made any payment without deduction of income tax in the circumstances specified in section 247(6), TA 88 and no assessment has been made on the Company in respect of advance corporation tax which ought to have been paid or income tax which ought to have been deducted. 20.3.6 Capital losses The Company has no capital losses the set-off of which are or may be restricted by Section 177A, TCGA. 20.4 Close companies 20.4.1 Close company status The Company has not at any time during the six years ended at the Balance Sheet Date been a close company within the meaning of sections 414 and 415, TA 88. 20.4.2 Close investment-holding company status The Company has not in any accounting period beginning after 31st March, 1989 been a close investment-holding company as defined in section 13A, TA 88. -63- 20.4.3 Distributions No distribution within section 418, TA 88 has ever been made by the Company. 20.4.4 Loans to participators Any loans or advances made or agreed to be made by the Company within sections 419 and 420 or 422, TA 88 have been disclosed and the Company has not released or written off or agreed to release or write off the whole or any part of any such loans or advances. 20.5 Inheritance tax 20.5.1 No transfers of value and associated operations The Company has made no transfers of value within sections 94 and 202, ITA nor has the Company received a transfer of value such that liability might arise under section 199, ITA nor has the Company been party to associated operations in relation to a transfer of value as defined by section 268, ITA. 20.5.2 Inland Revenue charge There is no unsatisfied liability to inheritance tax attached to or attributable to the Shares or any asset of the Company and none of them are subject to an Inland Revenue charge as mentioned in section 237 and 238, ITA. 20.5.3 Power of sale, mortgage or charge No asset owned by the Company nor the Shares are liable to be subject to any sale, mortgage or charge by virtue of section 212, ITA. 20.6 VAT 20.6.1 Returns and payments (a) The Company is a taxable person duly registered for the purposes of VAT. (b) The Company has complied with all statutory provisions, rules, regulations, orders and directions in respect of VAT, has promptly submitted accurate returns, and the Company maintains full and accurate VAT records, has never been subject to any interest, forfeiture, surcharge or penalty nor been given any notice under sections 59 or 64, VATA nor been given a warning within section 76(2), VATA nor has the Company been required to give security under paragraph 4 of Schedule 11, VATA. (c) VAT has been duly paid or provision has been made in the Accounts for all amounts of VAT for which the Company is liable. 20.6.2 Taxable supplies and input tax credit All supplies made by the Company are taxable supplies and the Company has not been and will not be denied full credit for all input tax by reason of the -64- operation of sections 25 and 26, VATA and regulations made thereunder or for any other reasons and no VAT paid by the Company is not input tax as defined in section 24, VATA and regulations made thereunder. 20.6.3 VAT groups The Company is not and has not been for VAT purposes a member of any group of companies other than the Group and no act or transaction has been effected in consequence whereof the Company is or may be held liable for any VAT arising from supplies made by another company. 20.6.4 Transactions between connected persons The Company has not been or agreed to be party to any transaction or arrangement in relation to which a direction has been or could be made under paragraph 1 of Schedule 6, VATA or to which paragraph 2(3A) of Schedule 10, VATA applies. 20.6.5 Charge to VAT as agent or representative The Company is not and has not agreed to become liable for VAT by virtue of section 47 and 48, VATA. 20.6.6 VAT and Properties The Company or its relevant associate for the purposes of paragraph 3(7) of Schedule 10, VATA has exercised the election to waive exemption from VAT (pursuant to paragraph 2 of schedule 10, VATA) only in respect of those Properties listed (as having been the subject of such an election) in the Disclosure Documents and neither the Company nor its relevant associate has any intention or obligation to exercise such an election in respect of any other of the Properties. 20.6.7 Capital goods scheme The Company does not own and has not at any time within the period of ten years preceding the date hereof owned any assets which are capital items subject to the Capital Goods Scheme under Part XV of the VAT Regulations 1995. 20.6.8 Bad debt relief The Company has not made any claim for bad debt relief under section 36, VATA and details of any claim it could make have been disclosed. 20.6.9 Self billing The Company has not entered into any self billing arrangement in respect of supplies made by any other person nor has it at any time agreed to allow any such person to make out VAT invoices in respect of supplies made by the Company. 20.7 Stamp duty 20.7.1 Stamp duty -65- All stampable documents wheresoever executed (other than those which have ceased to have any legal effect) to which the Company is a party have been duly stamped. Since the Balance Sheet Date there have been and are no circumstances or transactions to which the Company is or has been a party such that a liability to stamp duty or any penalty in respect of such duty will arise on the Company. 20.7.2 Stamp duty reserve tax Since the Balance Sheet Date the Company has not incurred any liability to or been accountable for any stamp duty reserve tax and there has been no agreement within section 87(1), Finance Act 1986 which could lead to the Company incurring such a liability or becoming so accountable. -66- Schedule 6 The Purchaser's Warranties 1. The balance sheet of the Purchaser and its subsidiaries as at 30 September 1997 and the profit and loss account of the Purchaser for the nine months ending on such date give a true and fair view of its assets, liabilities, reserves and profits as at such date and give a true and fair view of the state of affairs of the Purchaser as at such date there has been no material adverse change in the Purchaser's financial position since that date; 2. The Purchaser will at Completion have all necessary power and authority to allot and issue the Consideration Shares in the manner proposed without any sanction or consent by the shareholders of the Purchaser or any class thereof and there will at Completion be no consents for the allotment and issue of the Consideration Shares which have not been unconditionally obtained; 3. The Purchaser has full power and has obtained all applicable governmental, statutory, regulatory, or other consents, licences, waivers or exemptions required to empower it to enter into and to perform its obligations under this Agreement and the other documents to be executed by it as contemplated herein and each such document shall upon execution and delivery be valid and binding upon the Purchaser; -67- Schedule 7 Completion Part 1 1. Vendors' obligations On Completion, the Vendors shall deliver to the Purchaser:- 1.1 a resolution in writing signed by all of the holders of the Loan Notes in the agreed terms (the "Stockholders' Resolution); 1.2 a copy of the minutes of a meeting of the directors of each of the Vendors that is a body corporate authorising the execution by that Vendor of this Agreement, the Deed of Tax Covenant and the Stockholders' Resolution (such copy minutes being certified as correct by the secretary of that Vendor); 1.3 certificates from each of the banks at which the Company and the Subsidiary maintains an account of the amount standing to the credit or debit of all such accounts as at the close of business on the last Business Day prior to Completion; 1.4 the cash book balances of the Company and the Subsidiary as at Completion with statements reconciling such cash book balances and the relevant cheque books with the balances on the bank accounts of the Company and each of the Subsidiaries as shown by the certificates referred to in paragraph 1.3; 1.5 the cheque books relating to all the bank accounts of the Company and the Subsidiary together with confirmation that no cheques have been written by the Company or the Subsidiary since preparation of the statements referred to in paragraph 1.4; 1.6 evidence in the agreed terms that all debts and accounts between any member of the Group (of the one part) and the Vendors and any Connected Person or Affiliate of any of the Vendors (of the other part) have been fully paid and settled; 1.7 the Deed of Tax Covenant duly executed under seal by the Vendors and the Service Agreements duly executed by Peter Furlonge, Colin Kirven, John Ablett and Marie Ridgeon; 1.8 a signed copy (appropriate for filing at the Companies Registry) of a special resolution to adopt new articles of association of the Company in such form as the Purchaser may require together with a copy (appropriate for filing) of such articles; 1.9 transfers of the Shares duly executed by the registered holders thereof in favour of the Purchaser or its nominee(s) together with the relevant share certificates in the names of such registered holders; 1.10 such waivers, consents or other documents (including any power of attorney under which any document required to be delivered under Part 1 of this schedule has been executed) in the agreed terms to enable the Purchaser and its nominee(s) to be registered as the holders of the Shares; -68- 1.11 certificates in respect of all issued shares in the capital of the Subsidiary and duly executed transfers of all shares in the Subsidiary held by any nominee for the Company in favour of such persons as the Purchaser shall direct; 1.12 irrevocable powers of attorney in the agreed terms executed by each of the holders of the Shares in favour of the Purchaser or its nominee(s) to enable the beneficiary (pending registration of the transfers of the Shares) to exercise all voting and other rights attaching to the Shares and to appoint proxies for this purpose; 1.13 the statutory registers and minute books (properly written up to the time immediately prior to Completion), the common seal, the certificate of incorporation and (if applicable) any certificate of incorporation on change of name of the Company and the Subsidiary; 1.14 the documents of title to the Properties; 1.15 the written resignations in the agreed terms of all the Directors (except Peter Furlonge) of the Company and the Subsidiary from their respective offices such resignations to take effect from Completion; 1.16 unless the auditors are Ernst & Young, the written resignation of the auditors of the Company and the Subsidiary in the agreed terms to take effect from Completion containing the statements referred to in section 394(1), CA 85 that they consider there are no such circumstances as are mentioned in that section and confirming that they have deposited or shall deposit that statement in accordance with section 394(2), CA 85 at the respective registered offices of the Company and each of the Subsidiaries; 1.17 a deed of waiver in a form reasonably acceptable to the Purchaser under which Peter Furlonge waives payment of an amount of salary equal to the bonuses payable to John Ablett and Colin Kirven in connection with the sale of the Company, duly executed by Peter Furlonge. -69- Part 2 On Completion, the Vendors shall cause board resolutions of the Company and of the Subsidiary to be passed so that: 1. in the case of the Company only, the said transfers of the Shares shall be passed for registration and registered (subject to the same being duly stamped which shall be at the cost of the Purchaser); 2. in the case of the Company only, the Service Agreements shall be approved and entered into; 3. the resignations referred to in paragraphs 1.15 of Part 1 shall be tendered and accepted so as to take effect after the passing of the resolutions; 4. persons nominated by the Purchaser (in the case of directors subject to any maximum number imposed by the relevant articles of association) shall be appointed additional directors and appointed secretaries; 5. all existing instructions and authorities to bankers shall be revoked and shall be replaced with alternative instructions, mandates and authorities in such form as the Purchaser may require; 6. the registered office shall be changed to such place in England as the Purchaser may require; 7. Messrs. Ernst & Young shall be appointed auditors if not already so appointed; -70- Schedule 8 Limitation of Vendors' liability Part 1 General limitations 1. Notwithstanding the provisions of clause 7 the Vendors shall not be liable in respect of a breach of any of the Vendors' Warranties if and to the extent that the loss occasioned thereby has been recovered under the Deed of Tax Covenant. 2. The Vendors shall not be liable under the Vendors' Warranties:- 2.1 to the extent that the facts which might result in a Claim or possible Claim were fairly disclosed in the Disclosure Documents. 2.2 to the extent that the subject of the Claim is allowed or provided for or reserved in the Accounts or has been included in calculating creditors or deducted in calculating debtors in the Accounts and (in the case of creditors or debtors) is identified in the records of the Company or to the extent such matter was specifically referred to in the notes to the Accounts; 2.3 to the extent that a Claim arises or is increased:- 2.3.1 wholly or partly from an act or omission occurring at the request of or with the written consent of the Purchaser or (on or after the date hereof) the Company or any of their directors, other officers, employees or agents or by a change in the accounting principles, bases, policies and methods adopted by the Company from those used in the Accounts (save insofar as the change is required to comply with the Warranties on the assumption that they applied to the Company or its accounts in the relevant period); 2.3.2 as a result of any increase in rates of taxation since the Balance Sheet Date; 2.3.3 wholly or partly as a result of the passing or coming into force of or any change in any enactment, law, regulation, directive, requirement or any practice of any government, government department or agency or regulatory body (including but not limited to extra-statutory concessions of the Inland Revenue) after the date hereof whether or not having retrospective effect; 2.4 to the extent that the amount of a Claim is recovered under a policy of insurance validly in force at the date hereof. 3.1 The liability of each of the Vendors in respect of any Claim or any claim under the Tax Deed (each, a "Relevant Claim") is several and limited to his proportionate part of the Claim, save where such Relevant Claim constitutes a claim against a single Vendor in respect of a Vendor's Warranty which is given for each Vendor separately. "Proportionate part" means the proportion of the Claim which is the same as the proportion which the Consideration shown in Column 3 of Schedule 1 received by each Vendor bears to the total of such Consideration received by all the Vendors. -71- 3.2 The liability of each Vendor in respect of Relevant Claims shall be limited to the aggregate of: (a) the cash paid to such Vendor at Completion pursuant to clause 4.1.2; and (b) the lower of the value at the relevant time of the Consideration Shares then held by such Vendor and their value at the Offer Price (and, to the extent any Consideration Shares have been sold since Completion by such Vendor, the cash proceeds realised from such sale). 3.3 No liability on the part of any Vendor in respect of any Relevant Claim (other than a claim under clause 2.5 of the Deed of Tax Covenant) shall arise unless and until the amount shall arise unless and until the amount of such Relevant Claim when aggregated with the amount of any other such Relevant Claim made against the Vendors under this Agreement exceeds (pound)50,000 in which event all of such Relevant Claim or Claims shall be recoverable, provided that this limitation shall not affect any claim in respect of the Pension Tax Liability. Part 2 Limitations under the Warranties (other than Tax Warranties) 3.4 The liability of each Vendor in respect of claims shall cease two years after the date hereof, except in respect of matters which have been the subject of a bona fide written claim which is made before such date by or on behalf of the Purchaser to the Vendors giving details of the claim including the Purchaser's bona fide estimate of the amount thereof. Any such Claim shall (it has not previously been satisfied, settled or withdrawn) be deemed to have been withdrawn unless legal proceedings in respect of its have been commenced by both being issued and served within 6 months of such notification to the Vendors. Part 3 Limitations under the Tax Warranties 4. The liability of the Vendors in respect of any Claim shall cease six years after the date hereof, except in respect of matters which have been the subject of a bona fide written claim which is made before the relevant date by or on behalf of the Purchaser to the Vendors giving sufficient details of all material aspects of the claim including the Purchaser's bona fide estimate of the amount thereof. Any such claim shall (if not previously been satisfied, settled or withdrawn) be deemed to have been withdrawn unless legal proceedings in respect of it have been commenced by both being issued and served within 6 months of such notification to the Vendors. Part 4 Special Limitations 5. In assessing the amount recoverable by the Purchaser for any Claim under the Warranties there shall be taken in account: -72- 5.1 any benefit accruing to the Purchaser or the Company as a consequence of such breach; and 5.2 the amount of any provision made in the Accounts to the extent that payment or discharge of such matter or liability was taken into account in those Accounts. 6. To the extent that any breach of Warranty is capable of remedy, the Vendors shall not be liable under the Vendors' Warranties unless the Vendors are given written notice of such breach of warranty and such breach of warranty is not remedied within 30 days following the date of receipt of such notice. 7. If after the Vendors have paid any sum in respect of a Claim the Purchaser or the Company becomes entitled or has a claim to recover any sum from any person in respect of the subject matter of that Claim, the Purchaser shall, upon receipt of such sums from such person, pay to the Vendors a sum equal to the lesser of the amount recovered by the Purchaser or the Company (less any tax, where applicable) from such person and the amount paid by the Vendors in respect of such Claim. 8. The amount of any liability arising in respect of any Claim for breach of any of the Warranties or under the Deed of Tax Covenant shall be discharged by reduction of the consideration for the Shares. 9. If any matter or circumstance which gives rise to a Claim comes to the attention of the Purchaser, the Purchaser shall take all steps that the Vendors reasonably request to avoid, dispute, resist, compromise or defend any matter which may otherwise result in a Claim subject to the Vendors indemnifying the Purchaser to its reasonable satisfaction against any costs or liabilities incurred and providing security reasonably satisfactory to it in respect of such Indemnity. 10. It is acknowledged by the Purchaser that any Claim may entitle the Company to make a claim under the acquisition agreement dated 21 October 1996. Accordingly, if any matter or circumstance which may give rise to a Claim comes to the attention of the Purchaser, it shall as soon as reasonably practicable give written notice to the Vendors setting out the particulars known to the Purchaser and shall make or procure to be made available to the Vendors and their duly authorised agents on reasonable notice during normal business hours all relevant books of account records and correspondence for the purpose of enabling the Vendors to ascertain or extract any information relevant to such Claim. 11. The Vendors shall be entitled in order to mitigate any claim for breach of any of the Warranties to institute or continue any proceedings against or negotiations with any third party and to have the conduct of the same at its own expense but in the name of the Company subject to the Company being indemnified against all reasonable costs and disbursements of and in relation to any legal proceedings which may be instituted in respect thereof and the Purchaser shall not and it shall procure that the Company shall not accept, pay or compromise any claim which may give rise to a Claim in respect of the Warranties or under the Deed of Tax Covenant without giving the Vendors an adequate opportunity to resist such claim pursuant hereto. -73- Schedule 9 Limitation of Purchaser's Liability 1. The Purchaser's shall not be liable under the Purchaser's Warranties:- 1.1 to the extent that the facts which might result in a Claim or possible Claim were fully, fairly and accurately disclosed; 1.2 to the extent that the subject of the Claim is allowed or provided for or reserved in the audited accounts of the Purchaser or has been included in calculating creditors or deducted in calculating debtors in the audited accounts of the Purchaser and (in the case of creditors or debtors) is identified in the records of the Company or to the extent such matter was specifically referred to in the notes to the audited accounts of the Purchaser; 1.3 to the extent that a Claim arises or is increased:- 1.3.1 wholly or partly from an act or omission occurring at the request of or with the written consent of any Vendor or (on or after the date hereof) the Company or any of their directors, other officers, employees or agents; 1.3.2 wholly or partly from an act or omission compelled by law; 1.3.3 as a result of any increase in rates of taxation since the balance sheet date of the Purchaser being 30 September 1997; 1.3.4 wholly or partly as a result of the passing or coming into force of or any change in any enactment, law, regulation, directive, requirement or any practice of any government, government department or agency or regulatory body (including but not limited to extra-statutory concessions of the Inland Revenue) after the date hereof whether or not having retrospective effect. 2. The liability of the Purchaser in respect of any Claim:- 2.1 shall not arise unless and until the amount of such Claim when aggregated with the amount of any other such Claim made against the Purchaser under this Agreement exceeds (pound)50,000 in which event all of such Claim or Claims shall be recoverable hereunder; 2.2 shall not (when aggregated with the amount of all other Claims) exceed the value at the Offer Price of the Consideration Shares; and 2.3 shall cease fourteen days after the publication of the first audited statutory accounts of the Purchaser following Completion, except in respect of matters which have been the subject of a bona fide written claim which is made before the relevant date by or on behalf of the Vendor to the Purchaser giving sufficient details of all material aspects of the claim including the Vendors' bona fide estimate of the amount thereof. Any such claim shall (it has not previously been satisfied, settled or withdrawn) be deemed to have been withdrawn unless legal proceedings in respect of its have been commenced by both being issued and served within 6 months of such notification to the Purchaser. -74- Schedule 10 1. Each Vendor receiving Consideration Shares shall deliver a certificate dated the date of Completion containing the following representations and warranties, namely that: 1.1 he understands that the Purchaser is relying upon the following statements in determining whether the Purchaser may issue shares to the Vendor under applicable securities laws of the United States; 1.2 he understands that neither the offer nor the sale of the Consideration Shares is being registered under the Securities Act of 1933, as amended (the "Securities Act"), and that the Consideration Shares are being offered and sold in reliance on an exemption from the registration requirements under the Securities Act for a transaction not involving any public offering; 1.3 he has been afforded the opportunity to ask questions of and receive answers from, directors and executive officers of the Purchaser concerning the Purchaser and the terms and conditions of the offering of the Consideration Shares; 1.4 the Consideration Shares are being acquired by the Vendor for the Vendor's own account for investment and not for distribution or resale within the meaning of the Securities Act other than in compliance therewith or in accordance with an exemption therefrom; 1.5 he acknowledges that the Purchaser and its officers and agents have made no representations or warranties, whether orally or in writing, or express or implied, as to the financial condition, assets, operations, business, prospects or condition of the Purchaser, other than the certificate of the Purchaser to be delivered pursuant to paragraph 4 below with respect to the prospectus (the "Prospectus") which forms part of the Purchaser's registration statement on Form S-1, No. 333- ____, filed with the Securities and Exchange Commission (the "SEC"), as the same has been declared effective by the SEC. 2. Each Vendor receiving Consideration Shares shall execute and deliver an undertaking dated the date of Completion in favour of the underwriters of the Consideration Shares in the agreed terms. 3. The Purchaser shall deliver to the Vendors a certificate dated the date of Completion containing a representation and warranty that the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that representation or warranty is made as to information contained in or omitted from the Prospectus in relation to the Company and/or the Subsidiary. SIGNED by P.L. FURLONGE ) P. Furlonge SIGNED by R.J. ELMAN ) R. Elman -75- SIGNED by ) Richard Prosser for and on behalf of STELBY ) HOLDINGS LIMITED ) SIGNED by ) E. Le Poidevin for and on behalf of CENTRAL ) Director INVESTMENTS LIMITED ) SIGNED by ) David Floyd for and on behalf of THE NAGGAR ) as attorney for G.A. Naggar FAMILY PENSION SCHEME ) Nigel Sloam SIGNED by M.L. TAGLIAFERRI ) Mark Tagliaferri SIGNED by M.D. MORIARTY ) By his attorney David Floyd SIGNED by J. MORIARTY ) By her attorney David Floyd SIGNED by G. HARVEY ) W.G.B. Harvey SIGNED by ) Michael R. Cunningham for and on behalf of CUNNINGHAM ) GRAPHICS INC. ) -76- EX-3.1 3 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC. Pursuant to the provisions of N.J.S.A. 14A:2-7, the undersigned corporation hereby executes the following Certificate of Incorporation: ARTICLE FIRST The name of the corporation is Cunningham Graphics International, Inc. (the "Corporation"). ARTICLE SECOND The purpose of the Corporation is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act. ARTICLE THIRD The aggregate number of shares which the Corporation is authorized to issue is forty million (40,000,000) shares, of which thirty million (30,000,000) shares shall be Common Stock, without par value, and of which ten million (10,000,000) shares shall be Preferred Stock, without par value. The following is a statement of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation: I. Undesignated Preferred Stock Subject to the limitations prescribed by law, the Board of Directors of the Corporation shall have the authority to cause the issuance of one or more series of Preferred Stock and with respect to each such series, to fix by resolution or resolutions providing for the issuance of such series, the number of shares of such series, the voting powers, full or limited, if any, of the shares of such series and the designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof. The Board of Directors shall have all powers and rights with respect to the Preferred Stock which are not inconsistent with any limitations prescribed by law or this Article THIRD, including, but not limited to, the determination or fixing of the following: (i) The designation and number of shares of such series. (ii) The dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock, and whether such dividends shall be cumulative or noncumulative. (iii) Whether the shares of such series shall be subject to redemption by the Corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption. (iv) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series. (v) Whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange. (vi) The extent, if any, to which the holders of the shares of such series shall be entitled to vote with respect to the election of directors or otherwise. (vii) The restrictions, if any, on the issue or reissue of any additional Preferred Stock. (viii) Notwithstanding any other provision of this Article THIRD, the rights of the holders of the shares of such series upon the dissolution of, or upon the distribution of assets of, the Corporation. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock, the holders of Preferred Stock shall have no voting power with respect to any matter whatsoever. II. Common Stock The Common Stock shall rank junior to the Preferred Stock with respect to payment of dividends and distribution on liquidation, dissolution or winding up of the Corporation. Except as required by law or as otherwise provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock, all voting rights shall be vested in the holders of the Common Stock. At each meeting of stockholders of the Corporation, each holder of Common Stock shall be entitled to one vote for each share on each matter to come before the meeting. 2 ARTICLE FOURTH The address of the Corporation's initial registered office is 629 Grove Street, Jersey City, New Jersey 07310 and the name of the Corporation's initial registered agent at such address is Michael R. Cunningham. ARTICLE FIFTH A. The business affairs of the Corporation shall be managed by or under the direction of the Board of Directors consisting of not less than three directors with the actual number to be fixed from time to time by a vote of the majority of the directors then in office (such number is hereafter, "the authorized number"). B. The current total number of directors is three. The names and addresses of the current directors are as follows: Name Address - ---- ------- Michael R. Cunningham c/o Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 Gordon Mays c/o Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 James J. Cunningham c/o Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 C. Effective upon the closing of an initial public offering of the Corporation's Common Stock (the "Effective Date"), the Board of Directors shall be divided into three classes: Class A, Class B and Class C. The number of directors in each class (each of which classes shall have not less than one director) shall consist as nearly as may be possible, of one-third of the authorized number of directors. D. Class A directors shall be serve until the first annual meeting of stockholders following the Effective Date, Class B directors shall serve until the second annual meeting of stockholders following the Effective Date and Class C directors shall serve until the third annual meeting of stockholders following the Effective Date. At each succeeding annual meeting of stockholders, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. Notwithstanding the foregoing, in the event that, as a result of any change in the authorized number of directors, the number of directors in any class would differ from the 3 number allocated to that class immediately prior to such change, the following rules shall apply: (1) Each director shall nevertheless continue as a director of the class of which he is a member until the earlier of the expiration of his current term or his earlier death, resignation or removal; (2) At each subsequent election of directors, if the number of directors in the class whose term of office then expires is less than the number then allocated to that class, the number of directors then elected for membership in that class shall not be greater than the number of directors in that class whose term of office then expires, unless and to the extent that the aggregate number of directors then elected plus the number of directors in all classes then duly continuing in office does not exceed the then authorized number of directors of the Corporation; (3) At each subsequent election of directors, if the number of directors in the class whose term of office then expires exceeds the number then allocated to that class, the Board of Directors shall designate one or more of the directorships then being elected as directorships of another class or classes in which the number of directors then serving is less than the number then allocated to such other class or classes; (4) In the event of the death, resignation or removal of any director who is a member of a class in which the number of directors serving immediately preceding the creation of such vacancy exceeds the number then allocated to that class, the Board of Directors shall designate the vacancy thus created as a vacancy in another class in which the number of directors then serving is less than the number then allocated to such other class; (5) In the event of any increase in the authorized number of directors, the new directorships resulting from such increase shall be apportioned by the Board of Directors to such class or classes as shall, so far as possible, bring the composition of each of the classes into conformity with the provisions of Paragraph B of this Article FIFTH, as such provisions apply to the number of directors authorized immediately following such increase; and (6) Designations of directorships or vacancies into other classes and apportionments of newly created directorships to classes by the Board of Directors under clauses (3), (4) and (5) of this Paragraph D shall, so far as possible, be effected so that the class whose term of office is due to expire next following such designation or apportionment shall contain the full number of directors then allocated to such class. E. Notwithstanding the provisions of this Article FIFTH, each director shall serve until his successor is elected and qualified or until his death, resignation or removal. No director may be removed at any time prior to his death or resignation or the expiration of his term of office without the affirmative vote of the holders of two-thirds (2/3rds) of 4 the outstanding shares of the Common Stock of the Corporation entitled to vote and voting separately as a class. F. Elections of directors need not be by ballot unless the by-laws of the Corporation so provide. ARTICLE SIXTH The name and address of the incorporator is as follows: Name Address - ---- ------- Christopher M. Bartoli, Esq. c/o Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C. One Riverfront Plaza Newark, New Jersey 07102 ARTICLE SEVENTH The Corporation shall have perpetual duration. ARTICLE EIGHTH A director or officer of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, except that a director or officer shall not be relieved of any liability under this provision for any breach of duty based upon an act or omission (a) in breach of such person's duty of loyalty to the Corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such person of an improper personal benefit. Neither the amendment or repeal of this Article EIGHTH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article EIGHTH shall eliminate or reduce the protection afforded by this Article EIGHTH to a director or officer of the Corporation in respect to any matter which occurred, or any cause of action, suit or claim which but for this Article EIGHTH would have arisen, prior to such amendment, repeal or adoption. ARTICLE NINETH A. The Corporation shall indemnify, to the fullest extent from time to time permitted by law, any person made, or threatened to be made, a party to, or a witness or other participant in, any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative, legislative, investigative, or of any other kind, by reason of the fact that such person is or was a corporate agent of the Corporation or any subsidiary of the Corporation or serves or served any other enterprise 5 at the request of the Corporation (including specifically, but not limited to, service as a fiduciary with respect to any employee benefit plan) against expenses (including attorneys' fees), judgments, fines, penalties, excise taxes, and amounts paid in settlement (including amounts paid pursuant to judgments or settlements in derivative actions), actually and reasonably incurred by such person in connection with such action, suit, or proceeding, or any appeal therein. The rights provided by this Article NINETH to any person shall inure to the benefit of such person's legal representative. Neither amendment or repeal of this Article NINETH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article NINETH, shall deprive any person of rights hereunder arising out of any matter which occurred prior to such amendment, repeal or adoption. No indemnification pursuant to this Article shall be required with respect to any settlement or other nonadjudicated disposition of any threatened or pending action or proceeding unless the Corporation has given its prior consent to such settlement or other disposition. B. As used in this Article "corporate agent" means any person who is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger and any person who is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the Corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent. C. The Corporation shall have the authority to purchase and maintain insurance covering its corporate agents against expenses and liabilities incurred in connection with any action or proceeding in which such persons are a participant because of their service to the Corporation, any subsidiary of the Corporation or any other enterprise at the request of the Corporation. D. To the full extent from time to time permitted by law, expenses incurred by a person in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action upon receipt of an undertaking by or on behalf of such person to repay such amount to the extent the expenses so advanced exceed the indemnification to which it is ultimately determined that he is entitled. 6 IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation as of this 12th day of January, 1998. ------------------------------- Christopher M. Bartoli, Esq., Incorporator 7 EX-3.2 4 BY-LAWS OF CUNNINGHAM GRAPHICS INT., INC. BY-LAWS OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC. (as of January __, 1998) ARTICLE I OFFICES 1.1. Registered Office. The registered office shall be established and maintained at 629 Grove Street, Jersey City, New Jersey 07310, or at any other location within the State of New Jersey as the President of the Corporation shall designate from time to time. 1.2. Other Offices. The Corporation may have other offices, either within or without the State of New Jersey, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II STOCKHOLDERS 2.1. Place of Stockholders' Meetings. All meetings of the stockholders of the Corporation shall be held at such place or places, within or outside the State of New Jersey as may be fixed by the Board of Directors from time to time or as shall be specified in the respective notices thereof. 2.2. Date and Hour of Annual Meetings of Stockholders. Subject to change by resolution of the Board of Directors, the annual meeting of the stockholders of the Corporation shall be held each year on the first day of May, unless said date is a legal holiday, in which case the meeting shall be held on the next business day thereafter which is not a legal holiday. The meeting may be held at such time and such place within or without the State of New Jersey as shall be fixed by the Board of Directors and stated in the notice of the meeting. 2.3. Purposes of Annual Meetings. At each annual meeting, the stockholders shall elect the members of the Board of Directors for the succeeding year. At any such annual meeting any further proper business may be transacted. 2.4. Special Meetings of Stockholders. Special meetings of the stockholders or of any class or series thereof entitled to vote may be called by the Chief Executive Officer, the President or by the Board of Directors, or at the request in writing by stockholders of record owning a majority of the issued and outstanding shares of Common Stock of the Corporation. 2.5. Notice of Meetings of Stockholders. Except as otherwise expressly required or permitted by law, not less than ten days nor more than sixty days before the date of every stockholders' meeting the Secretary shall give to each stockholder of record entitled to vote at such meeting, written notice, (i) delivered by hand, (ii) sent by telecopier, provided that a copy is mailed by registered or certified mail, return receipt requested, postage prepaid, (iii) sent by Express Mail, Federal Express or other express delivery service, receipt requested, (iv) sent by telegram or (v) mailed by first-class registered or certified mail, return receipt requested, postage prepaid, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice, if mailed, shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address for notices to such stockholder as it appears on the records of the Corporation. 2.6. Quorum of Stockholders. (a) Unless otherwise provided by the Certificate of Incorporation or by law, at any meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum. -2- (b) At any meeting of the stockholders at which a quorum shall be present, a majority of those present in person or by proxy may adjourn the meeting from time to time without notice other than announcement at the meeting. In the absence of a quorum, the officer presiding thereat shall have power to adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting, other than announcement at the meeting, shall not be required to be given, except as provided in paragraph (d) below and except where expressly required by law. (c) At any adjourned session at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof, unless a new record date is fixed by the Board of Directors. (d) If an adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.7. Chairman and Secretary of Meeting. The Chairman of the Board (if there be one), or in his absence, the Chief Executive Officer or President, or in his or their absence, a Vice President, shall preside at meetings of the stockholders. The Secretary or, in his absence, an Assistant Secretary, shall act as secretary of the meeting, or if neither is present, then the presiding officer may appoint a person to act as secretary of the meeting. 2.8. Voting by Stockholders. Except as may be otherwise provided by the Certificate of Incorporation or these by-laws, at every meeting of the stockholders each stockholder shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation -3- on the record date for the meeting. All elections and questions shall be decided by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote at the meeting. 2.9. Proxies. Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy. Every proxy shall be in writing, subscribed by the stockholder or his duly authorized attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged. Unless a proxy is irrevocable as provided in subsection 14A:5-19(3) of the New Jersey Business Corporation Act, a proxy shall be revocable at will. 2.10. Inspectors. The Board of Directors may at any time appoint one or more persons to serve as Inspectors of Election at the next succeeding annual meeting of stockholders or at any meeting or meetings and the Board of Directors may at any time fill any vacancy in the office of Inspector. If the Board of Directors fails to appoint Inspectors, or if any Inspector appointed be absent or refuse to act, or if his office becomes vacant and be not filled by the Board of Directors, the Chairman of any meeting of the stockholders may appoint one or more temporary Inspectors for such meeting. All proxies shall be filed with the Inspectors of Election at the meeting before being voted upon. 2.11. List of Stockholders. (a) At least ten days before every meeting of stockholders the Secretary shall prepare and make a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. (b) During ordinary business hours, for a period of at least ten days prior to the meeting, such list shall be open to examination by any stockholder for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall -4- be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. (c) The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and it may be inspected by any stockholder who is present. (d) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section 2.11 or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. 2.12. Action By Consent Without Meeting. Unless otherwise provided by the Certificate of Incorporation and subject to any limitations prescribed by the provisions of Section 14A:5-6 of the New Jersey Business Corporation Act and upon compliance with said provisions, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS 3.1. Powers of Directors. The property, business and affairs of the Corporation shall be managed by its Board of Directors which may exercise all the powers of the Corporation -5- except such as are by the law of the State of New Jersey or the Certificate of Incorporation or these by-laws required to be exercised or done by the stockholders. 3.2. Number, Method of Election, Terms of Office of Directors, Qualification. (a) The number of directors shall be such as the Board of Directors may by resolution direct consistent with the provisions of the Certificate of Incorporation of the Corporation. Directors need not be stockholders. Each director shall hold office for the term for which he is appointed or elected and until his successor shall have been elected and shall qualify, or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Directors need not be elected by ballot, except upon demand of any stockholder. The Chairman of the Board, if one be elected, shall be chosen from among the directors. (b) Any stockholder desiring to nominate a person as a Director of the Corporation shall cause the proposed nomination to be received at the Corporation's principal executive offices (i) no later than February 1, 1998, in the case of a person to be proposed as a nominee for election at the 1998 annual meeting of stockholders and (ii) no later than 120 days in advance of the anniversary of the date of the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting, in the case of a person to be proposed as a nominee for election at the 1999 annual meeting of stockholders and thereafter. Any Director nominee proposal, as a condition for consideration by the Board of Directors, shall be accompanied by (i) a statement signed by the proposed nominee that he consents to be nominated and agrees to serve if elected as a Director and (ii) biographical information about the proposed nominee that would be required to be disclosed by the Corporation in filings made with the United States Securities and Exchange Commission in accordance with the rules and -6- regulations under the Securities Exchange Act of 1934, as amended, whether or not the Corporation is subject to such reporting requirements. 3.3. Vacancies on Board of Directors; Removal. (a) Any vacancy in the Board of Directors caused by death, resignation, removal (whether or not by cause), disqualification, an increase in the number of directors or any other cause may be filled by the majority vote of the remaining directors of the Corporation at the next annual meeting, any regular meeting or any special meeting called for that purpose. Each director so elected shall hold office for the unexpired term or for such lesser term as may be designated and until his successor shall be duly elected and qualified, or until his death or until he shall resign or shall have been removed in the manner herein provided. In case all the directors shall die or resign or be removed or disqualified, any stockholder having voting powers may call a special meeting of the stockholders, upon notice given as herein provided for meetings of the stockholders, at which directors may be elected for the unexpired term. (b) Removal. Any director may be removed with or without cause at any time by the affirmative vote of stockholders holding of record in the aggregate at least a majority of the outstanding shares of stock of the Corporation, given at a special meeting of the stockholders called for that purpose. 3.4. Meetings of the Board of Directors. (a) The Board of Directors may hold their meetings, both regular and special, either within or outside the State of New Jersey. (b) Regular meetings of the Board of Directors may be held at such time and place (within or without the State of New Jersey) as shall from time to time be determined by resolution of the Board of Directors. No notice of such regular meetings shall be required. If the -7- date designated for any regular meeting be a legal holiday, then the meeting shall be held on the next day which is not a legal holiday. (c) The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders for the election of officers and the transaction of such other business as may come before it. If such meeting is held at the place of the stockholders' meeting, no notice thereof shall be required. (d) Special meetings of the Board of Directors shall be held whenever called by direction of the President or at the written request of any one director. (e) The Secretary shall give notice to each director of any special meeting of the Board of Directors by mailing the same at least five days before the meeting or by telegraphing, telexing, or delivering the same not later than the day before the meeting. Unless required by law, such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Any and all business may be transacted at any meeting of the Board of Directors. No notice of any adjourned meeting need be given. No notice to or waiver by any director shall be required with respect to any meeting at which the director is present. 3.5. Quorum and Action. Unless provided otherwise by law or the Certificate of Incorporation, a majority of the whole board shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. The vote of a majority of the directors present at any meeting at which a quorum is present shall be necessary to constitute the act of the Board of Directors, unless the New Jersey Business Corporation Act requires a greater proportion. -8- 3.6. Presiding Officer and Secretary of Meeting. The Chairman of the Board (if there be one), or in his absence, the Chief Executive Officer or President, or, in his or their absence, any Vice President, or, in their absence a member of the Board of Directors selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in his absence the presiding officer may appoint a secretary of the meeting. 3.7. Action by Consent Without Meeting. Any action required or permitted to be taken at any meeting of Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Board or committee. 3.8. Action by Telephonic Conference. Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. 3.9. Committees. (a) The Board of Directors may, by resolution or resolutions passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. -9- (b) Any such committee, to the extent provided in the resolution or resolutions of the Board of Directors, or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power of authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, amending the by-laws of the Corporation, or any authority the delegation of which is prohibited by Section 14A: 6-9 of the New Jersey Business Corporation Act; and unless the resolution, these by-laws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. 3.10. Compensation of Directors. Directors shall receive such reasonable compensation for their service on the Board of Directors or any committees thereof, whether in the form of salary or a fixed fee for attendance at meetings, or both, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any Director from serving in any other capacity and receiving compensation therefor. ARTICLE IV OFFICERS 4.1. Officers, Title, Elections, Terms. (a) The elected officers of the Corporation shall include a President, a Treasurer and a Secretary, and may include a Chairman of the Board (or one or more Co-Chairmen of the Board), a Chief Executive Officer, a Vice Chairman of the -10- Board, a Chief Operating Officer, a Chief Financial Officer, one or more Vice Presidents (or one or more Executive Vice Presidents or Senior Vice Presidents), one or more Assistant Secretaries and one or more Assistant Treasurers who shall be elected by the Board of Directors at its annual meeting following the annual meeting of the stockholders, to serve at the pleasure of the Board or otherwise as shall be specified by the Board at the time of such election and until their successors are elected and qualify. (b) The Board of Directors may elect or appoint at any time, and from time to time, additional officers or agents with such duties as it may deem necessary or desirable. Such additional officers shall serve at the pleasure of the Board or otherwise as shall be specified by the Board at the time of such election or appointment. Two or more offices may be held by the same person. (c) Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors. (d) Any officer may resign his office at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the Corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. (e) The salaries and other compensation of all officers of the Corporation shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director. 4.2. Removal of Elected Officers. Any elected officer may be removed at any time, either with or without cause, by resolution adopted at any regular or special meeting of the Board of Directors by a majority of the directors then in office. -11- 4.3. Duties. (a) Chief Executive Officer. The Board of Directors may designate a Chief Executive Officer. In the absence of such designation, the Chairman of the Board (or, if more than one, the Co-Chairmen of the Board in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. (b) Chief Operating Officer. The Board of Directors may designate a Chief Operating Officer. The Chief Operating Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer. (c) Chief Financial Officer. The Board of Directors may designate a Chief Financial Officer. The Chief Financial Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer. (d) Chairman of the Board. The Board of Directors may designate a Chairman of the Board (or one or more Co-Chairmen of the Board). The Chairman of the Board shall preside over the meetings of the Board of Directors and of the stockholders at which he shall be present. If there be more than one, the Co-Chairmen designated by the Board will perform such duties. The Chairman of the Board shall perform such other duties as may be assigned to him or them by the Board of Directors. (e) President. The President or Chief Executive Officer, as the case may be, shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall supervise and control all the business and affairs of the Corporation. In the absence of a designation of a Chief Operating Officer by the Board of Directors, the President -12- shall be a Chief Operating Officer. In the absence of the Chairman (or any Co-Chairmen) of the Board of Directors and the Chief Executive Officer, he shall, when present, preside at all meetings of the stockholders and of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect (unless any such order or resolution shall provide otherwise), and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. (f) Vice President. Each Vice President, if any, shall have such powers and perform such duties as the Board of Directors may determine or as may be assigned to him by the President. In the absence of the President or in the event of his death, or inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and when so acting, shall have all the powers and be subject to all the restrictions upon the President. The Board of Directors may designate one or more Vice Presidents as Executive Vice President or as Vice President or Executive Vice President for particular areas of responsibility. (g) Treasurer. The Treasurer shall (1) have charge and custody of and be responsible for all funds and securities of the Corporation; (2) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever; (3) deposit all such moneys in the name of the Corporation in such banks, trust companies, or other depositories as shall be selected by resolution of the Board of Directors; and (4) in general perform all duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. He shall, if required by the Board of -13- Directors, give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. (h) Secretary. The Secretary shall (1) keep the minutes of the meetings of the stockholders, the Board of Directors, the Executive Committee (if designated), and all other committees, if any, of which a secretary shall not have been appointed, in one or more books provided for that purpose; (2) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; (3) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal, is duly authorized; (4) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (5) have general charge of stock transfer books of the Corporation; and (6) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. (i) Assistant Secretaries and Assistant Treasurers. At the request of the Secretary or in his absence or disability, one or more Assistant Secretaries designated by him or by the Board of Directors shall have all the powers of the Secretary for such period as he or it may designate or until he or it revokes such designation. At the request of the Treasurer or in his absence or disability, one or more Assistant Treasurers designated by him or by the Board of Directors shall have all the powers of the Treasurer for such period as he or it may designate or until he or it revokes such designation. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. -14- ARTICLE V CAPITAL STOCK 5.1. Stock Certificates. (a) Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares owned by him. (b) If such certificate is countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles, and, if permitted by law, any other signature may be a facsimile. (c) In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. (d) Certificates of stock shall be issued in such form not inconsistent with the Certificate of Incorporation as shall be approved by the Board of Directors. They shall be numbered and registered in the order in which they are issued. They shall set forth thereon the statements prescribed by Section 14A:7-11, and, where applicable, by Sections 14A:5-21 and 14A:12-5, of the New Jersey Business Corporation Act. (e) All certificates surrendered to the Corporation shall be canceled with the date of cancellation, and shall be retained by the Secretary, together with the powers of attorney to transfer and the assignments of the shares represented by such certificates, for such period of time as shall be prescribed from time to time by resolution of the Board of Directors. -15- 5.2. Record Ownership. A record of the name and address of the holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation's books. The Corporation shall be entitled to treat the holder of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by law. 5.3. Transfer of Record Ownership. Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or his attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and transferee request the Corporation to do so. 5.4. Lost, Stolen or Destroyed Certificates. Certificates representing shares of the stock of the Corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed in such manner and on such terms and conditions as the Board of Directors from time to time may authorize. 5.5. Transfer Agent; Registrar; Rules Respecting Certificates. The Corporation may maintain one or more transfer offices or agencies where stock of the Corporation shall be transferable. The Corporation may also maintain one or more registry offices where such stock shall be registered. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates. -16- 5.6. Fixing Record Date for Determination of Stockholders of Record. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of the stockholders or any adjournment thereof, or the stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or to express consent to corporate action in writing without a meeting, or in order to make a determination of the stockholders for the purpose of any other lawful action. Such record date in any case shall be not more than sixty days nor less than ten days before the date of a meeting of the stockholders, nor more than sixty days prior to any other action requiring such determination of the stockholders. A determination of stockholders of record entitled to notice or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 5.7. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Board of Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation. -17- ARTICLE VI MISCELLANEOUS 6.1. Signatories. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. 6.2. Seal. The seal of the Corporation shall be in such form and shall have such content as the Board of Directors shall from time to time determine. 6.3. Notice and Waiver of Notice. Whenever any notice of the time, place or purpose of any meeting of the stockholders, directors or a committee is required to be given under the law of the State of New Jersey, the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the holding thereof, or actual attendance at the meeting in person or, in the case of any stockholder, by his attorney-in-fact, shall be deemed equivalent to the giving of such notice to such persons. 6.4. Amendment of By-Laws. (a) By Board of Directors. The by-laws of the Corporation may be altered, amended or repealed or new by-laws may be made or adopted by the Board of Directors at any regular or special meeting of the Board. (b) By Stockholders. The by-laws of the Corporation may also be altered, amended or repealed or new by-laws may be made or adopted by the vote of a majority in interest of the stockholders represented and entitled to vote, at any meeting at which a quorum is present; provided, however, that Sections 6.4(a) and 3.2(b) of these by-laws may only be altered, amended or repealed, if by action of the stockholders, by the affirmative vote of the holders of 66.67% of the outstanding shares entitled to vote thereon. -18- 6.5. Indemnity. The Corporation shall indemnify its directors and officers to the fullest extent allowed by law. 6.6. Fiscal Year. The fiscal year of the Corporation shall end on such date of each year as shall be determined by the Board of Directors. -19- EX-10.2 5 DIRECTORS' STOCK OPTION PLAN CUNNINGHAM GRAPHICS INTERNATIONAL, INC. DIRECTORS' STOCK OPTION PLAN 1. PURPOSE The purpose of the Cunningham Graphics International, Inc. Directors' Stock Option Plan (the "Plan") is to promote the success of Cunningham Graphics International, Inc. (the "Company") by providing a method whereby members of the Board of Directors of the Company who are not Employees of the Company or its Subsidiaries may be encouraged to invest in the Common Stock of the Company in order to promote long term shareholder value, and increase their personal interest in the continued success and progress of the Company. 2. DEFINITIONS Except where the context otherwise requires, as used herein: 2.1 "Board of Directors" shall mean the Board of Directors of the Company. 2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any Treasury regulations promulgated thereunder. 2.3 "Common Stock" shall mean the common stock, no par value, of the Company. 2.4 "Director" shall mean a member of the Board of Directors. 2.5 "Employee" shall mean an individual who is on the active salaried payroll of the Company or any of its Subsidiaries at the time a Nonstatutory Stock Option is granted under the Plan. 2.6 "Fair Market Value" of the Common Stock means, for all purposes of the Plan unless otherwise provided (i) the mean between the high and low sales prices of the Common Stock as reported on the National Market System or Small Cap Market of the National Association of Securities Dealers, Inc., Automated Quotation System, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (ii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau Incorporated or such other source as the Board of Directors shall determine, or (iii) if the Common Stock is listed or admitted for trading on any national securities exchange, the mean between the high and low sales price, or the closing bid price if no sale occurred, of the Common Stock on the principal securities exchange on which the Common Stock is listed. In the event that the method for determining the Fair Market Value of the Common Stock provided for above shall either be not applicable or not be practical, in the opinion of the Board of Directors, then the Fair Market Value shall be determined by such other reasonable method as the Board of Directors shall, in its discretion, select and apply. 2.7 "Nonstatutory Stock Option" shall mean an option to purchase Common Stock granted under Section 5(b) of the Plan that by its terms does not qualify as an "incentive stock option" under Section 422 of the Code. 2.8 "Optionee" shall mean a person to whom a Nonstatutory Stock Option has been granted under the Plan. 2.9 "Outside Director" shall mean each Director who is not an Employee. 2.10 "Subsidiary" shall mean any subsidiary corporation as defined in Section 424(f) of the Code. 3. ADMINISTRATION (a) The Board of Directors of the Company shall administer the Plan. The Board of Directors shall have full power and authority to grant Nonstatutory Stock Options pursuant to the provisions of the Plan, to interpret the provisions of the Plan and any agreements reflecting Nonstatutory Stock Options issued under the Plan, and to supervise the administration of the Plan, including the adoption of the rules and regulations for the administration of the Plan. The Board of Directors may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their number or the Secretary or any other officer of the Company to execute and deliver documents on behalf of the Board of Directors. (b) All decisions of the Board of Directors pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company, shareholders, employees and Optionees. (c) No member of the Board of Directors shall be liable for anything done or omitted to be done by him or any other member of the Board of Directors in connection with the Plan, except for his own willful misconduct or as expressly provided by statute. 4. SHARES SUBJECT TO THE PLAN (a) The shares of Common Stock to be delivered upon exercise of Nonstatutory Stock Options granted under the Plan may be made available from the authorized but unissued shares of the Company or treasury shares or from shares reacquired by the Company, including shares purchased in the open market. (b) Subject to adjustments made pursuant to the provisions of Section 4(c), the aggregate number of shares to be delivered upon the exercise of all Nonstatutory Stock Options which may be granted under the Plan shall not exceed 150,000 shares of Common Stock. (c) In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of all or part of its assets, any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, the number or kind of shares that may be issued under the Plan pursuant to Section 4(b) above, the number or kind of shares subject to, and the Nonstatutory Stock Option price per share under, all outstanding Nonstatutory Stock Options shall be automatically adjusted so that the proportionate interest of the Optionee shall be maintained as before the occurrence of such event; such adjustment in outstanding Nonstatutory Stock Options shall be made without change in the total Nonstatutory Stock Option exercise price applicable to the unexercised portion of such Nonstatutory Stock Options and with a corresponding adjustment in the Nonstatutory Stock Option exercise price per share, and such adjustment shall be conclusive and binding for all purposes of the Plan. (d) If a Nonstatutory Stock Option granted under the Plan shall expire or terminate for any reason, the shares subject to, but not delivered under, such Nonstatutory Stock Option shall be -2- available for other Nonstatutory Stock Options to the same member or other members of the Board of Directors. 5. ELIGIBILITY AND EXTENT OF PARTICIPATION (a) Only Outside Directors shall be eligible to receive Nonstatutory Stock Options under the Plan. (b) Each individual who is an Outside Director at the time of the closing of the Company's initial public offering of Common Stock and, thereafter, each individual who becomes an Outside Director shall receive a Nonstatutory Stock Option for 15,000 shares of Commmon Stock. In addition, each year on the first business day of the month following the month in which the annual meeting of shareholders occurs, commencing in 1999, each Outside Director shall automatically receive a Nonstatutory Stock Option for 4,000 shares of Common Stock. (c) The Nonstatutory Stock Option shall not be transferable by the Optionee otherwise than by will or the laws of descent and distribution, or pursuant to a "qualified domestic relations order" as defined by the Code and shall be exercisable during his lifetime only by him. (d) The Nonstatutory Stock Option shall not be exercisable: (i) before the expiration of six months from the date it is granted and after the expiration of ten years from the date it is granted, and may be exercised at any time during such period; (ii) unless payment in full is made in United States dollars by cash or check; (iii)in the case of a person who ceases to be an Outside Director for reasons other than death while holding a Nonstatutory Stock Option that has not expired and has not been fully exercised, after the third anniversary of the date he ceased to be a member (but in no event after the Nonstatutory Stock Option has expired under the provisions of Section 5(d)(i) above); and (iv) in the case of the executors, administrators, heirs or distributees, as the case may be, of a person who dies holding a Nonstatutory Stock Option that has not expired and has not been fully exercised, after the first anniversary of the date of death (but in no event after the Nonstatutory Stock Option has expired under the provisions of Section 5(d)(i) above). (e) It shall be a condition to the obligation of the Company to issue shares of Common Stock upon exercise of a Nonstatutory Stock Option, that the holder (or any beneficiary or person entitled to exercise such Nonstatutory Stock Option pursuant to the Plan) pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, or local income or other taxes. If the amount requested is not paid, the Company may refuse to issue shares of Common Stock. 6. OPTION AGREEMENTS Each Nonstatutory Stock Option under the Plan shall be evidenced by an option agreement which shall be executed by the Optionee and, on behalf of the Company, by an officer of the Company and shall contain such provisions consistent with the Plan as may be approved by the Board of Directors and may be supplemented and amended from time to time as approved by the Board of Directors. -3- 7. OPTION PRICE The price at which shares of Common Stock may be purchased upon exercise of a particular Nonstatutory Stock Option shall be 100 percent of the Fair Market Value of such shares at the time such Nonstatutory Stock Option is granted, but in no event less than the par value thereof (if any). In the case of the options granted to persons who are or who become Outside Directors at the time of the initial public offering of the Common Stock, the exercise price shall be the initial public offering price. 8. TRANSFERABILITY OF NONSTATUTORY STOCK OPTIONS A Nonstatutory Stock Option granted under the Plan may not be transferred except by will or the laws of descent and distribution. During the lifetime of an Optionee, a Nonstatutory Stock Option may be exercised only by the Optionee, or by a duly appointed legal guardian in the event of the legal disability of the Optionee. Except as specifically provided in the Plan, no person shall have any right to assign, transfer, alienate, pledge, encumber or subject to lien the benefits to which such person is entitled thereunder, and benefits under the Plan shall not be subject to adverse legal process of any kind. No prohibited assignment, transfer, alienation, pledge or encumbrance of benefits or subjection of benefits to lien or adverse legal process of any kind will be recognized by the Board of Directors and in such case the Board of Directors may terminate the right of such person to such benefits and direct that they be held or applied for the benefit of such person, his spouse, children or other dependents in such manner and in such proportion as the Board of Directors deems advisable. If a person to whom benefits are due shall be or become incompetent, either physically or mentally, in the judgment of the Board of Directors, the Board of Directors shall have the right to determine to whom such benefits shall be paid for the benefit of such person. 9. DELIVERY OF SHARES No shares shall be delivered pursuant to any exercise of a Nonstatutory Stock Option until the requirements of such laws and regulations as may be deemed by the Board of Directors to be applicable thereto are satisfied. 10. AMENDMENTS, SUSPENSION OR DISCONTINUANCE The Board of Directors may amend, suspend, or discontinue the Plan, but except as permitted by Section 4(c), may not, without the prior approval of the shareholders of the Company, make any amendment which operates (a) to make any material change in the persons eligible to receive Nonstatutory Stock Options under the Plan, (b) to increase the total number of shares which may be delivered under the Plan except as provided in Section 4(c), (c) to extend the maximum option period or the period during which Nonstatutory Stock Options may be granted under the Plan, (d) to decrease the option price, or (e) increase the number of shares subject to an option granted to a director each year hereunder. Except with the consent of an Optionee, no amendment, suspension or termination of the Plan shall impair the right of any recipient of any Nonstatutory Stock Options granted under the Plan. 11. TERM OF THE PLAN (a) This Plan shall be effective as of the date of its approval by both the Board of Directors and shareholders of the Company. -4- (b) No Nonstatutory Stock Option shall be granted under the Plan after December 31, 2007. Unless otherwise expressly provided in the Plan or in an applicable option agreement, any Nonstatutory Stock Option granted hereunder may, and the authority of the Board of Directors to amend, alter, adjust, suspend, discontinue, or terminate any such Nonstatutory Stock Option shall, continue after December 31, 2007. 12. MISCELLANEOUS (a) All expenses and costs in connection with the operation of the Plan shall be borne by the Company. (b) Proceeds from the sale of shares pursuant to Nonstatutory Stock Options granted under this Plan shall constitute general funds of the Company. (c) Upon any distribution of shares of Common Stock pursuant to any provision of the Plan, the distributee may be required to represent in writing that he is acquiring such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. The certificates for shares delivered under the Plan may include any legend which the Board of Directors or counsel for the Company deems appropriate to reflect any restrictions on transfers. (d) Except as expressly provided for in the Plan, no member of the Board of Directors or other person shall have any claim or right to be granted a Nonstatutory Stock Option under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any member of the Board of Directors any right to be retained in the service of the Company. -5- EX-10.7 6 SERVICE AGREEMENT Dated 1998 ---------------------------------------- (1) RODA LIMITED - AND - (2) PETER LIONEL FURLONGE ======================================== SERVICE AGREEMENT ======================================== THIS AGREEMENT dated 1998 is made BETWEEN:- (A) The Company: RODA LIMITED, a company registered in England & Wales under number [ ]; and (B) You: PETER LIONEL FURLONGE of Castle Farm, Mountfield, East Sussex, TN32 5JU. 1. Employment 1.1 Your employment under this Agreement will commence on ___________ 1997 (the "Commencement Date") and will continue until terminated by either party giving to the other not less than six months' prior notice to expire on or at any time after the date which is eighteen months after the Commencement Date 1.2 Your period of continuous employment with the Group commenced on 1st March 1986. 1.3 You are employed as a senior executive of the Company and will perform such duties as may be reasonably assigned to you from time to time by or with the authority of the Board. At the Commencement Date, your job title is Managing Director. 1.4 You will (without further remuneration), if and for as long as the Company requires, during this Agreement: 1.4.1 carry out duties for the benefit of or on behalf of any Group Company; and/or 1.4.2 hold any office and/or other appointment in or on behalf of the Group; 1.5 You will, at all times during the period of this Agreement: 1.5.1 devote the whole of your time, attention and ability during your hours of work (as set out in Clause 1.6) to the duties of your employment; 1.5.2 faithfully and diligently perform your duties and exercise only such powers as are consistent with them; 1.5.3 obey all and any lawful and reasonable directions of the Board 1.5.4 act only in accordance with the Memorandum and Articles of Association of the Company or, where acting pursuant to Clause 1.4, of the relevant Group Company; 1.5.5 use your best endeavours to promote the interests of the Group; and 1.5.6 keep the Board promptly and fully informed (in writing if so requested) of your conduct of the business or affairs of the Group and provide such explanations as they may require. 1.6 Your hours of work are the normal hours of business of the Company together with such additional hours as may be necessary for you to perform your duties properly. 1.7 Your normal place of work is the Company's office at 29-33 Choumert Grove, London, SE15 4RB and/or such other place of business of the Group as the Board may reasonably require from time to time. You will, if and for as long as required by the Company, make visits in the ordinary course of your duties to such places anywhere in the world as it may specify save that you will not be required to make visits outside the United Kingdom for periods in excess of 7 nights in any one calendar month except with your agreement. 2. Pay 2.1 During your employment, the Company will pay you a salary at the rate of (pound)100,000 each year (or such higher rate as may be awarded to you pursuant to Clause 2.2) which will accrue from day to day and be payable in equal monthly instalments in arrears on or about the last working day of each month (the "Salary"). The Salary is inclusive of all and any fees receivable by you as the holder of offices or appointments within the Group or on behalf of the Company or any Group Company. 2.2 On or about 30th January in each year (starting in January 1999), your Salary will be reviewed by the Board and the rate of Salary then payable will be increased by the Company with effect from that date by not less than the percentage increase in the figure for that month published in the All-Items Index of Retail Prices (or any Index which is substituted instead by that date) over the figure published for the previous January. 2.3 Subject to and in accordance with rules of the bonus or incentive compensation plan of the Company or Cunningham Graphics, Inc. ("CGI") for the time being in force, you will be eligible to receive a bonus each year, payable within 90 days after the end of the relevant fiscal year of the Company, of such amount, if any, as the Compensation Committee of CGI determines in its absolute discretion to be an appropriate bonus for the Managing Director of the Company, having regard to your and the Company's achievement of performance goals set annually in advance by the Compensation Committee in consultation with you. 2.4 In the event that any person (or group of persons acting in concert) acquires shares conferring more than 75% of the votes in the Company or any holding company of the Company (except in the case of an acquisition of shares by a subsidiary of the Company's ultimate holding company), (a "Change of Control"), you will be entitled to be paid (net of any withholding's or deductions required by law) a sum equal to twice your then annual salary pursuant to clauses 2.1 and 2.2, on condition that such sum shall be payable only: 2.4.1 upon your completing 18 months' service under this agreement (or, if later, upon your completing 6 months' service under this agreement following the Change of Control); or 2.4.2 if earlier, upon the Company terminating your employment pursuant to clause 1.1. 3. Fringe Benefits 3.1 You are entitled to be and remain a member of the Company's pension scheme (the "Scheme") subject to the terms of its Deed and Rules from time to time. The Company is entitled at any time to terminate the Scheme or your membership of it subject to procuring membership for you of another pension scheme (the "New Scheme") providing you with benefits which are not, in aggregate, less favourable than the benefits provided to you under the Scheme and subject to procuring that you are fully credited in the New Scheme for your past pensionable service under the Scheme. -2- 3.2 The Company will, subject to Inland Revenue limits for the time being, contribute (in monthly instalments in arrears) to the Scheme for each year of your employment an amount equal to 7 1/2% of your Salary at the rate then payable (or, if less, 7 1/2% of (pound)80,000). 3.3 The Company will provide you with life assurance cover of four times your Salary payable in the event of your death in service. 3.4 You, your spouse and your children (if any) who are less than 18 years old are entitled to participate in any permanent health and medical expenses insurance schemes maintained by the Company from time to time for the benefit of its senior executives, subject always to the rules of such schemes, including without limitation, each of you, your spouse and children undertaking a medical for the purposes of such insurance schemes. 3.5 The Company will pay you a (non-pensionable) car allowance of (pound)12,000 per annum payable in equal monthly instalments at the same time and in the same manner as your Salary instalments. You agree to provide a suitable (having regard to the image of the Company and to your status within the Company) car for use on Company business and to ensure that it is appropriately maintained, repaired, cleaned, taxed and insured for such use. 3.6 You must comply with all Group regulations relating to Company cars, notify the Company immediately of any accident involving your car while being used on Company business and of any charge brought against you for a motoring offence. 4. Expenses 4.1 The Company will reimburse you with your reasonable travelling, telephone, hotel, entertainment and other business expenses incurred in the course of your duties provided that you comply with Group regulations from time to time in this respect and provide the Company with receipts or other proof of payment as the Company may reasonably require. 4.2 You must make available for business use your home telephone . The Company will reimburse you with the cost of bills for your home telephone provided you use any supplier or system designated by the Company and provided you disclose to the Company any overseas telephone calls not for the purposes of the business, in respect of which the Company reserves the right not to reimburse you. 5. Holiday 5.1 In addition to public holidays, you are entitled to 25 working days' holiday without loss of pay in each holiday year (which runs from January to December) to be taken at such time or times as may be authorised in advance by the Board. You may not, except with prior permission from the Board, carry forward any unused part of your holiday entitlement to a subsequent holiday year. 5.2 In the first holiday year and in the holiday year in which you leave, your entitlement to holiday will be calculated at the rate of 2.08 working days' holiday for each complete calendar month of your employment by the Company during that holiday year. Unless you are dismissed pursuant to Clause 8.2, you will be entitled on termination to pay in lieu of any unused holiday entitlement. If you have taken holiday in excess of your accrued entitlement, you will be required to repay any excess Salary you have received for such holiday. The basis for payment and repayment is 1/260th of your Salary for each day. -3- 6. Incapacity 6.1 If you are absent from work because of illness, mental disorder or injury ("Incapacity"), you must report that fact immediately to the Company Secretary and, after seven continuous days' absence, provide medical practitioners' certificate(s) of your Incapacity and its cause for Statutory Sick Pay purposes covering the whole period of your absence. For Statutory Sick Pay purposes, your qualifying days are your normal working days. 6.2 If you are absent from work due to Incapacity and have complied with the provisions of Clause 6.1, you will continue to be paid your Salary for up to 90 working days' absence in any period of 12 consecutive months and, thereafter, such part of your Salary, if any, as the Board, in its absolute discretion, determines from time to time provided that any such payment will not be less than and will be deemed to include all and any Statutory Sick Pay to which you are entitled and any Social Security Sickness Benefit or other state benefits recoverable by you (whether or not recovered) may be deducted from such payment. If your absence exceeds 30 consecutive days, the Company will be entitled to appoint a temporary replacement to cover your absence. 6.3 You will, whenever requested by the Board, submit to examination by a medical practitioner selected and paid for by the Company. You hereby authorise such medical practitioner to disclose to and discuss with the Board any matters which, in his opinion, might hinder or prevent you (if during a period of Incapacity) from returning to work for any period or (in other circumstances) from properly performing your duties at any time. 7. Confidentiality and Integrity 7.1 During your employment under this Agreement, you will not:- 7.1.1 directly or indirectly receive or obtain any discount, rebate, commission or other inducement (whether in cash or in kind) which is not authorised by regulations or guidelines from time to time governing dealings by executives on behalf of the Company, or, if you do, you will account immediately to the Company for the amount so received. 7.1.2 directly or indirectly disclose or make use of any Confidential Information for any purpose other than a legitimate purpose of the Company; 7.1.3 (except in the proper course of your duties under this Agreement) remove from Company premises or copy or allow others to copy the contents of any document, computer disk, tape or other tangible item which contains any Confidential Information or which belongs to the Company; 7.1.4 at any time make any untrue or misleading statement relating to the Group. 8. Termination of agreement 8.1 This Agreement will automatically terminate: 8.1.1 when you reach your 65th birthday; or 8.1.2 if you are prohibited by law from being a director; 8.2 The Company will be entitled, by giving notice, to terminate this Agreement with immediate effect if you: -4- 8.2.1 commit any act of gross misconduct or repeat or continue any other breach of your obligations under this Agreement; or 8.2.2 engage in any conduct which, in the reasonable opinion of the Board, is likely to cause your continued employment to be detrimental to the interests of the Group and fail, within 60 days of receiving written notice from the Company, to cure the matter; or 8.2.3 are convicted of any criminal offence which is punishable with 6 months or more imprisonment (save for any motoring offence for which you are not sentenced to a term of immediate or suspended imprisonment); or 8.2.4 commit any act of dishonesty, whether or not relating to your employment; or 8.2.5 become bankrupt or make any arrangement or composition with your creditors generally; or 8.2.6 resign or vacate your office as a director of the Company or any Group Company; or 8.2.7 are, in the reasonable opinion of the Board, incompetent in the performance of your duties having failed within 60 days of written notice from the Company, to remedy the position. 8.3 The Company will be entitled to terminate this Agreement notwithstanding Clause 6.2 or your entitlement at that time to sick pay or benefits under the Company's permanent health insurance scheme, by notice which is not less than your then entitlement to statutory minimum notice plus a week given at any time when you have been absent from work due to Incapacity for a period or periods aggregating 60 days in the preceding 12 months provided that the Company will withdraw any such notice if, before it expires, you resume your duties full time and provide medical evidence satisfactory to the Board that you are fully recovered and that no recurrence of your Incapacity can reasonably be anticipated. 8.4 On serving or receiving notice to terminate this Agreement or at any time thereafter during the currency of such notice the Company is, at its discretion, entitled to pay you your Salary (at the rate then payable under Clause 2.1 hereof) together with monetary compensation for loss of all fringe benefits and reimbursement of expenses in lieu of notice. 8.5 At any time after notice (including summary notice) to terminate this Agreement has been served or received by the Company, the Company may:- 8.5.1 require you to resign (without any claim for compensation) from any offices and/or appointments which you hold as a director, nominee or representative of the Company or any Group Company; and/or 8.5.2 require you to transfer, without payment, to the Company (or as the Company may direct) any qualifying shares or nominee shareholdings provided to you by or held by you in or on behalf of any Group Company; and/or 8.5.3 require you to return to the Company on request any documents, computer disks and tapes and other tangible items in your possession or under your control which belong to the Company or which contain or refer to any Confidential Information; and/or -5- 8.5.4 require you to delete all Confidential Information from any computer disks, tapes or other re-usable material in your possession or under your control and destroy all other documents and tangible items in your possession or under your control which contain or refer to any Confidential Information; and/or 8.5.5 suspend you from the performance of all or any of your duties under this Agreement provided that the period of any such suspension may not exceed 6 months; and/or 8.5.6 appoint a replacement to hold the same or similar job title as you and/or to carry out all or any of your duties instead of you; and/or 8.5.7 exclude you from all or any premises of the Group; and/or 8.5.8 require you not, without the prior consent of the Board, to engage in any contact (whether or not at your own instance) with any customer, supplier, employee, director, officer or agent of any company in the Group which touches and concerns any of the business affairs of the Group. 8.6 If you fail to comply with Clauses 8.5.1 and/or 8.5.2 within seven days of being so required, the Company is hereby irrevocably authorised to appoint some person in your name and on your behalf to sign any document or do any thing necessary or requisite to effect such resignation(s) and/or transfer(s) (without prejudice to any claims which you may have against the Company arising out of this Agreement or its termination). 9. Intellectual Property 9.1 In relation to each and every improvement, invention or discovery which relates either directly or indirectly to the business of the Company which you (jointly or alone) make at any time during your employment, you will:- 9.1.1 promptly disclose full details, including any drawings and models, of it to enable the Company to determine whether or not, applying the provisions of s.39 of the Patents Act 1977, it is the property of the Company (a "Company Invention"); 9.1.2 hold any Company Invention in trust for the Company and, at its request and expense, do all things necessary or desirable to enable the Company or its nominee to exploit the Company Invention for commercial purposes and to secure patent or other appropriate forms of protection for it anywhere the world. Decisions as to the patenting and exploitation of any Company Invention are at the sole discretion of the Company; 9.2 In relation to each and every copyright work or design which relates either directly or indirectly to the business of the Company (a "Company Work") which you (jointly or alone) originate, conceive, write or make at any time during the period your employment:- 9.2.1 you will promptly disclose such Company Work to the Company. Company Works made wholly outside your normal working hours which are wholly unconnected with your employment are excluded from the ambit of Clause 9.2; 9.2.2 you hereby assign to the Company by way of future assignment all copyright, design right and other proprietary rights (if any) throughout the world in such Company Work; -6- 9.2.3 you hereby irrevocably and unconditionally waive in favour of the Company any and all moral rights conferred on you by Chapter W of Part I of the Copyright Designs and Patents Act 1988 in relation to any such Company Works; 9.2.4 you acknowledge that, for the purposes of the proviso to Section 2(1) of the Registered Designs Act 1949 (as amended by the Copyright Designs and Patents Act 1988), the covenants on the part of you and the Company will be treated as good consideration and, for the purposes of that Act, the Company will be the proprietor of any design which forms part of the Company Works. 9.3 You agree that (at the request and expense of the Company) you will do all things necessary or desirable to substantiate the rights of the Company to each and every Company Invention or Company Work and that you will permit the Company (whom you hereby irrevocably appoint as your attorney for this purpose) to execute documents, to use your name and to do all things which may be necessary or desirable for the Company to obtain for itself or its nominee the full benefit of each and every Company Invention or Company Work. A certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority hereby conferred will be conclusive evidence to that effect so far as any third party is concerned. 10. Restrictive Covenants 10.1 For the period of 12 months after the termination of your employment under this Agreement, you will not directly or indirectly:- 10.1.1 be engaged or concerned or interested in any business carried on within the Restricted Area wholly or partly in competition with any Restricted Business (save for the holding as a passive investor only of not more than 5% of the issued ordinary shares of any company of a class which are listed or traded on the London Stock Exchange, any other recognised stock exchange or NASDAQ). 10.1.2 seek or accept, in any capacity whatsoever, any business, orders or custom which is wholly or partly in competition with any Restricted Business from any Customer. 10.1.3 induce or attempt to persuade any Employee to leave employment or engagement by the Company or any Group Company or offer employment or engagement to any Employee. 10.2 You will not at any time after the termination of your employment under this Agreement, directly or indirectly:- 10.2.1 induce or seek to induce, by any means involving the disclosure or use of Confidential Information, any Customer to cease dealing with the Company or any Group Company or to restrict or vary the terms upon which it deals with the Company or any Group Company; 10.2.2 disclose or make use of any Confidential Information; or 10.2.3 represent yourself or permit yourself to be held out as having any connection with or interest in the Company or any Group Company. -7- 10.3 Each restriction in Clause 10 (whether drafted separately or together with another) is independent and severable from the other restrictions and enforceable accordingly. If any restriction is unenforceable for any reason but would be enforceable if part of the wording were deleted, it will apply with such deletions as may be necessary to make it 10.4 The Company may transfer or assign its rights under this Clause 10 to its successors in title. You may not transfer or assign any rights or obligations under this Clause 10. 11. Interpretation 11.1 The headings to the clauses are for convenience only and shall not affect the construction or interpretation of this Agreement. 11.2 Any reference in this Agreement to any Act or delegated legislation shall include any statutory modification or re-enactment of it or of the provision referred to. 11.3 In this Agreement: "Board" means the board of directors of the Company and includes any committee of such board duly authorised to act on its behalf. "Confidential Information" means all and any information (whether or not recorded in documentary form or on computer disk or tape) of the Company, any Group Company or any of its or their customers, suppliers or agents which the Company or the relevant Group Company regards as confidential or in respect of which it owes an obligation of confidentiality to a third party which is not part of your own stock in trade and which is not readily ascertainable to persons not connected with the Company either at all or without a significant expenditure of labour, skill or money. "Customer" means any person with whom you or anyone working under your supervision or control deals personally who, at the termination of your employment, is negotiating with the Company or any Group Company for Restricted Business or with whom the Company or any Group Company has conducted any Restricted Business at any time during the final two years of your employment with the Group. "Employee" means any person who is and was, at any time during the period of two years prior to the termination of your employment, employed or engaged by the Company or any Group Company in a senior management, senior technical or senior sales position and who, by reason of such position, possesses any Confidential Information or is likely to be able to solicit the custom of any Customer or to induce any Customer to cease dealing with the Company or any Group Company, were he to accept employment or engagement in a business which is similar to or in competition with any Restricted Business. "Group Company" means any group undertaking (as defined in section 259(5) of the Companies Act 1985) or associated undertaking (as defined in Schedule 4A of the Companies Act 1985) of the Company or any joint venture to which the Company or any such group undertaking is a party. "Group" means the Company and each Group Company. "Restricted Area" means England, Scotland, Wales and Northern Ireland and any other country in which the Company or any Group Company carries on or intends to carry on any Restricted Business as at the termination of your employment. -8- "Restricted Business" means time-sensitive financial printing and all or any other commercial activities carried on or to be carried on by the Company or any Group Company in which you worked or about which you knew Confidential Information to a material extent at any time during the final two years of your employment with the Group. 12. General 12.1 You are not subject to any particular disciplinary rules or procedures but should conduct yourself in a thoroughly professional manner at all times. In order to investigate a complaint of breach of contract or misconduct against you, the Company is entitled to suspend you on full pay for so long as the Board considers appropriate in all the circumstances to carry out a disciplinary investigation and/or hearing. 12.2 If you have a grievance relating to your employment (other than one relating to a disciplinary decision), you should refer that grievance to the Board whose decision will be final and binding on you. 12.3 This Agreement is in substitution for any representations and warranties made by or on behalf of the Company and any previous contracts of employment or for services between you and the Company or any Group Company (which are deemed to have been terminated by mutual consent). 12.4 The termination of this Agreement will not affect such of the provisions of this Agreement as are expressed to operate or to have effect after termination and will be without prejudice to any accrued rights or remedies of the parties. 12.5 The validity, construction and performance of this Agreement is governed by English law. 12.6 All disputes, claims or proceedings between the parties relating to the validity, construction or performance of this Agreement are subject to the exclusive jurisdiction of the High Court of Justice in England and Wales (the "High Court") to which the parties irrevocably submit. Each party irrevocably consents to the award or grant of any relief in any such proceedings before the High Court and either party is entitled to take proceedings in any other jurisdiction to enforce a judgment or order of the High Court. 12.7 Any notice to be given by a party under this Agreement must be in writing in the English language and must be delivered by hand or sent by first class post or equivalent postal service, telex, facsimile transmission or other means of telecommunication in permanent written form (provided that the addressee has his or its own facilities for receiving such transmissions) to the last known postal address or appropriate telecommunication number of the other party. Where notice is given by any of the prescribed means, it is deemed to be received when, in the ordinary court of that means of transmission, it would be received by the addressee. To prove the giving of a notice, it is sufficient to show that it has been despatched. A notice has effect from the sooner of its actual or deemed receipt by the addressee. -9- IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS DOCUMENT AS A DEED ON THE DATE FIRST BEFORE WRITTEN:- ________________________________________________________________________________ Executed by ___________________________ (Director) ) ____________ and ___________________ (Director/secretary) ) for and on behalf of RODA LIMITED ) ____________ ________________________________________________________________________________ ________________________________________________________________________________ Executed by PETER LIONEL FURLONGE ) ____________ in the presence of: _____________ ) ________________________________________________________________________________ -10- EX-10.9 7 LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT, dated December 15, 1997, by and between SUMMIT BANK, having an office at 210 Main Street, Hackensack, New Jersey, hereinafter called "Bank", and CUNNINGHAM GRAPHICS, INC., with its principal place of business at 629 Grove Street, Jersey City, New Jersey, hereinafter called "Borrower". This Loan and Security Agreement ("Agreement") specifies the terms of a Line of Credit in fluctuating amounts not to exceed the sum of Two Million and 00/100 ($2,000,000.00) Dollars, and a Term Loan in the amount of One Million and 00/100 ($1,000,000.00) Dollars, and further specifies the terms by which said loans are to be secured by certain property and assets, real and personal, tangible and intangible, of Borrower. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the parties hereto agree as follows: I DEFINITIONS 1.1 "ACCOUNT" or "ACCOUNTS RECEIVABLE" means, in addition to the definition of account as contained in the Uniform Commercial Code, the right of the Borrower to receive payment for goods sold or leased or for services rendered which are not evidenced by an instrument or chattel paper, whether or not it has been earned by performance. 1.2 "ADVANCE" or "ADVANCES" shall mean loans, Standby Letters of Credit and Letters of Credit, at any time made by Bank under the Agreement. 1.3 "AFFILIATE" means any Person which, directly or indirectly, owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten (10%) percent of the outstanding capital stock, having ordinary voting power to elect a majority of the board of directors (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) of Borrower or any Subsidiary or is controlled by or is under common control with Borrower, any stockholders of Borrower or any Subsidiary. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. 1.4 "BASE RATE" means the rate of interest established by Bank from time to time as its base rate, but which may not necessarily be the rate actually charged by Bank to its most credit worthy customers. 1.5 "BORROWER" means CUNNINGHAM GRAPHICS, INC. 1.6 "CHATTEL PAPER" means, in addition to the definition of chattel paper as contained in the Uniform Commercial Code, a writing or writings which evidence both a money obligation and a security interest in, or a lease of, specific Goods. When a transaction is evidenced both by such a security agreement or a lease and by an Instrument or series of Instruments, the group of writings taken together constitutes Chattel Paper. 1.7 "COLLATERAL" means all of those present or future assets, real or personal, of Borrower in which a security interest in or lien on is granted to Bank hereunder or contemplated hereby, or under any other present or future agreement by Borrower in favor of Bank as more particularly set forth in Article III hereof. 1.8 "DEBT" shall mean the indebtedness of Borrower inclusive of all items which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet as at the date indebtedness is determined. 1.9 "DEFAULT" means an event of the nature specified in Article VII hereof and which upon the occurrence of same would constitute an Event of Default. - 2 - 1.10 "DOCUMENT(S)" shall have the meaning set forth in the Uniform Commercial Code for such term. 1.11 "EQUIPMENT" means, in addition to the definition of equipment contained in the Uniform Commercial Code, machinery and equipment of every kind, nature and description, as well as trucks, vehicles of every nature and description, including but not limited to trailers and the like, handling and delivery equipment, cranes and hoisting equipment, fixtures, office machines and furniture, whether affixed to realty or not. 1.12 "ERISA" means the Employee Retirement Income Securities Act of 1986 as amended from time to time. 1.13 "EVENT OF DEFAULT" means an event of the nature specified in Article VII hereof. 1.14 "GAAP" means generally accepted accounting principles, as consistently applied. 1.15 "GENERAL INTANGIBLES" means all rights of the Borrower as defined in the Uniform Commercial Code including but not limited to all rights to property, choses in action and other rights of Borrower not otherwise specifically included elsewhere in this Agreement, further including but not limited to all present and future trademarks, trade names, service marks, copyrights and patents, and all rights under license agreements for the use of same. 1.16 "GOODS" means, in addition to the definition of goods as contained in the Uniform Commercial Code, all articles of tangible personal property, sold, supplied, leased or otherwise disposed of, represented by an Account. 1.17 "INVENTORY" means, in addition to the definition of inventory as contained in the Uniform Commercial Code, all Goods held by the Borrower for resale or lease or furnished or to be furnished under contracts of service, and shall include raw materials, goods and work in process and finished goods, and all goods returned by or reclaimed from customers. - 3 - 1.18 "INSTRUMENT" means, in addition to the definition of instrument as contained in the Uniform Commercial Code, a negotiable instrument or a security, or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of the type which is, in the ordinary course of business, transferred by delivery with any necessary endorsement or assignment. 1.19 "LIABILITY" or "LIABILITIES" shall mean any Advances made by Bank prior to, on and after the date of this Agreement to, or on the account of Borrower, and any and all interest, commissions, obligations, liabilities, indebtedness, charges and expenses direct or indirect, primary, secondary, contingent, joint or several which are due or to become due or that may hereafter be contracted or acquired by the Borrower to the Bank, no matter how or when arising and whether under any present or future agreement or instrument between Borrower and Bank, or otherwise, and the amount due upon any notes or other obligations given to, or received by, Bank or on account of any of the foregoing and the performance and fulfillment by Borrower of all the terms, conditions, promises, covenants and provisions contained in the Loan Documents, or in any future agreement or instrument between Borrower and Bank. 1.20 "LINE OF CREDIT" shall mean the Line of Credit as more particularly set forth in Paragraph 2.1 hereof. 1.21 "LINE OF CREDIT NOTE" shall mean the note evidencing the Line of Credit, a copy of which is annexed hereto as Exhibit 1.21. 1.22 "LOAN DOCUMENTS" means this Agreement, all notes, mortgages or other documents executed and delivered by Borrower or any Obligor hereunder, and any amendments, renewals, modifications or supplements thereto, or substitutions therefor. 1.23 "OBLIGOR" means the Borrower and Guarantor hereunder, including all individuals executing this Agreement as parties hereto, all sureties and guarantors and, if any debt due to Bank hereunder is evidenced by a note or other instrument, the makers and endorser thereof. - 4 - 1.24 "PERMITTED ENCUMBRANCES" shall mean (i) liens for taxes, assessments or governmental charges or levies on property of the Borrower if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being diligently contested in good faith and by appropriate proceedings and against which Borrower has established adequate reserves, (ii) liens imposed by law, such as carriers, warehousemen and mechanics liens, liens incurred in connection with construction or other similar liens arising in the ordinary course of business provided same are not at the time due and payable, (iii) liens arising out of pledge or deposits under workmen's compensation law, unemployment insurances, old age pension or other social security or retirement benefit or similar legislation, (iv) liens arising from judgments or awards with respect to which the Borrower shall be diligently and in good faith prosecuting an appeal or proceedings for review and shall have secured a stay of execution pending such appeal or review, (v) liens in favor of Bank and (vi) purchase money security interests in equipment. 1.25 "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.26 "PLAN" means an employee benefit plan or other plan maintained for employees of Borrower and covered by Title IV of ERISA. 1.27 "REPORTABLE EVENT" has the meaning assigned to such term in Title IV of ERISA, or regulations issued thereunder other than a Reportable Event not subject to the provision for a thirty (30) day notice to the Pension Benefit Guaranty Corporation under such regulations. - 5 - 1.28 "SENIOR DEBT" shall mean (a) the indebtedness of Borrower other than Subordinated Debt or (b) the indebtedness of Borrower. The term indebtedness shall mean all items, which, in accordance GAAP would be included in determining total liabilities as shown on the liability side of the balance sheet as at the date indebtedness is determined. 1.29 "SUBSIDIARY" means any corporation of which more than fifty (50%) percent of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by Borrower or one or more of its Subsidiaries. 1.30 "TANGIBLE NET WORTH" shall mean shareholders' equity less (i) intangible assets and (ii) indebtedness owing to the Borrower from any shareholder, employee, Subsidiary or other Affiliate. Shareholders' equity and intangible assets shall be determined in accordance with GAAP. 1.31 "TERM LOAN" means the term loan granted to Borrower as more particularly described in Paragraph 2.2 hereof. 1.32 "TERM LOAN NOTE" shall mean the note evidencing the Term Loan, a copy of which is annexed hereto as Exhibit 1.32. 1.33 "UCC" means the Uniform Commercial Code as adopted and in effect under the laws of the State of New Jersey. 1.34 "RULES OF INTERPRETATION" (a) Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified in the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. - 6 - (b) All other undefined terms contained in this Agreement shall, unless the context indicated otherwise, have the meanings provided for by the UCC to the extent the same are used and defined herein. (c) The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented and not to any particular section, subsection or clause contained in this Agreement. (d) Each reference to a Section, Schedule or Exhibit is to a Section, Schedule or Exhibit, respectively, of or to this Agreement, unless otherwise specified or the context otherwise requires. (e) Wherever from the context it appears appropriate each term stated in either the singular or plural shall include the singular or plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. II LOANS 2.1 LINE OF CREDIT The Bank hereby grants to Borrower under this Agreement subject to the terms and conditions hereafter set forth a Line of Credit not to exceed the aggregate outstanding principal sum of Two Million and 00/100 ($2,000,000.00) Dollars. Provided that no Default nor Event of Default exists, the Bank will, under this Paragraph 2.1 from time to time through May 30, 1998, or such later date as the Bank agrees to in writing, loan to Borrower no later than two (2) business days after Borrower's request, sums not to exceed the aggregate outstanding amount of Two Million and 00/100 ($2,000,000.00) Dollars, which sums shall be repayable in full together with all interest due thereon on the expiration date of this Line of Credit. The Borrower shall, beginning on the first day of the first month hereafter and on the - 7 - same date of each month thereafter, pay the Bank interest, computed on the basis of a 360 day year on the unpaid daily balance of loans under this Paragraph 2.1 at the Bank's Base Rate of interest or at the Libor Rate plus two hundred twenty-five (225) basis points as more particularly set forth in Paragraph 2.2 hereof. The loans under said Line of Credit shall be evidenced by a Master Advance Note in substantially the form annexed hereto as Exhibit "2.1". 2.2 INTEREST For all loans set forth in Paragraphs 2.1 hereof, in the event that Borrower chooses the Bank's Base Rate, interest shall be paid based upon the Bank's Base Rate. In the event there should be a change in the Bank's Base Rate which would result in a change in the rate of interest on any loan, then, in that event, the rate of interest on any loan shall be changed accordingly as of the date of the change in the Bank's Base Rate, without notice to the Borrower. If the rate of interest is calculated on the basis of the Bank's Base Rate, then Borrower shall give not less than three (3) business days prior written notice to the Bank in order to have the rate changed for a rate based upon the Libor Rate and shall be effective on the specific date set forth in the notice. If the Libor Rate is utilized it must be selected for a period of thirty (30), sixty (60) or ninety (90) days. If the Borrower elects to go back to a rate based upon the Base Rate, the Borrower shall give not less than one (1) business day prior written notice to the Bank before the expiration of the selected thirty (30), sixty (60) or ninety (90) day period. If any loan is prepaid during any period when the Libor Rate is in effect, the Borrower, at the Bank's discretion, shall pay such additional sums as shall be necessary in order to enable the Bank to receive a rate of interest that would equal the rate of interest which would have been earned until termination of the declared period of time chosen for the Libor Rate. In the event that Eurodollar loans cannot be legally made by the Bank or cannot be obtained, then the interest rate shall be based upon the Base Rate. - 8 - 2.2 TERM LOAN The Bank will, under this Agreement and approximately simultaneously with the execution hereof, loan to the Borrower the sum of One Million and 00/100 ($1,000,000.00) Dollars, repayable in thirty-six (36) consecutive monthly installments of Twenty-Seven Thousand Seven Hundred Seventy-Seven and 77/100 ($27,777.77) Dollars each, commencing on January 1, 1999 and a final payment of Twenty-Seven Thousand Seven Hundred Seventy-Eight and 05/100 ($27,778.05) Dollars and all interest due thereon, due and payable on December 1, 2001. From the date hereof until January 1, 1999, the Borrower shall pay interest only, computed on the basis of a 360 day year at the Bank's Base Rate of interest or at the Libor Rate plus two hundred twenty-five (225) basis points. Commencing on February 1, 1999, the Borrower shall, concurrently with the payments of principal, pay the Bank monthly interest commencing on January 1, 1999, computed on the basis of a 360 day year, for the actual number of days elapsed, on the unpaid balance at the time of each monthly payment, at the Bank's Base Rate or the three year Treasury Bill Index (as published in the Wall Street Journal on the Tuesday immediately preceding the draw down on the Term Loan) plus 225 basis points. In the event there should be a change in the Bank's Base Rate which would result in a change in the rate of interest on this loan, then, in that event, the rate of interest on this loan shall be changed accordingly as of the date of the change in the Bank's Base Rate, without notice to the Borrower. Bank shall have the right in its sole discretion to charge said payments of principal and/or interest to any checking account of Borrower or to apply any proceeds received by it against payment of same. Borrower authorizes Bank to make such charge. Said loan shall be evidenced by a Term Note in substantially the form annexed hereto as Exhibit "2.3". 2.3 EXCESS LOANS In the event the Bank shall advance an amount in excess of the aggregate amount of all loans set forth in this Agreement or if the Borrower should directly or indirectly become indebted to the Bank in an amount which, together with all - 9 - Advances made pursuant to this Agreement, is in excess of the aggregate amount set forth in this Agreement, such Advances or such indebtedness shall nevertheless be covered by the terms of this Agreement. III COLLATERAL 3.1 CROSS COLLATERAL All of the Collateral heretofore, herein or hereafter given or assigned to Bank hereunder shall secure payment of all Liabilities, as defined herein, of the Borrower to Bank. 3.2 ACCOUNTS RECEIVABLE Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of the Borrower's Accounts, as defined herein, presently owned by Borrower or hereafter arising. 3.3 EQUIPMENT Borrower hereby creates in favor of Bank and hereby grants to Bank, a security interest in all of the Borrower's Equipment, as defined herein, whether presently owned by Borrower or hereafter acquired, and wherever located. 3.4 INVENTORY Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of the Borrower's Inventory, as defined herein, whether presently owned by Borrower or hereafter acquired and wherever located. 3.5 GENERAL INTANGIBLES Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of Borrower's General Intangibles, as herein defined, whether presently owned by Borrower or hereafter acquired. 3.6 DEPOSIT ACCOUNTS Borrower hereby creates in favor of Bank, hereby assigns to Bank and hereby grants to Bank a security interest in the balance of every deposit account, now or hereafter existing, of the Borrower with Bank, and all money, Instruments, securities, documents, Chattel Paper, credits, claims and other property of Borrower now or hereafter in the possession or custody of Bank or any of its agents. - 10 - 3.7 CHATTEL PAPER Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of the Borrower's Chattel Paper, as defined herein, whether presently owned by Borrower or hereafter left in the possession of Bank for any purpose, further including but not limited to, for collection. 3.8 INSTRUMENTS Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of the Borrower's Instruments, as defined herein, whether presently owned by Borrower or hereafter acquired, including but not limited to all such Instruments now or hereafter left in the possession of Bank for any purpose, further including but not limited to, for collection. 3.9 DOCUMENTS Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of Borrower's Documents, as defined herein, whether presently owned by Borrower or hereafter acquired, including but not limited to all such Documents now or hereafter left in the possession of Bank for any purpose. 3.10 PROCEEDS Borrower hereby creates in favor of Bank and hereby grants to Bank a security interest in all of the products and proceeds of all of the foregoing Collateral (including all proceeds of insurance policies covering the Collateral); as well as all accessions, additions, substitutions, replacements and increments thereto. 3.11 RECORDS Borrower hereby creates in favor of bank and hereby grants to Bank a security interest in all books and records, including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records of Borrower pertaining to any of the foregoing. 3.12 CONTINUING PERFECTION Borrower will perform any and all steps requested by Bank to create and maintain in Bank's favor the lien positions called for hereunder and a security interest in the Collateral or pledges of Collateral, including, without limitation, the execution, delivery, filing and recording of financing statements and continuation statements, supplemental security agreements, notes and any other documents necessary, in the opinion - 11 - of Bank, to protect its interest in the Collateral. Bank and its designated officer are hereby appointed Borrower's attorney-in-fact to do all acts and things which Bank may deem necessary to perfect and to continue the perfected security interests and liens provided for in this Agreement, including, but not limited to, executing financing statements on behalf of the Borrower. IV CONDITIONS TO FUNDING OF THE AGREEMENT The obligation of the Bank to make Advances provided for under this Agreement shall be subject to the satisfaction of or waiver by Bank, prior or concurrently therewith of each of the following conditions precedent: 4.1 EXECUTION OF LOAN DOCUMENTS All of the Loan Documents shall have been duly authorized, executed and delivered by the parties hereto and shall be in full force and effect on and of the date of execution of the Agreement. 4.2 REPRESENTATIONS AND WARRANTIES Each of the representations and warranties made by or on behalf of the Borrower to the Bank in this Agreement or in the Loan Documents shall be true and correct in all material respects on and of the date of the execution of this Agreement. 4.3 CERTIFIED COPIES OF CHARTER DOCUMENTS The Bank shall have received from Borrower, certified by a duly authorized officer to be true and complete on and of the date of the execution of the Loan Documents, a copy of the certificate of incorporation of the Borrower in effect as of the date of the closing of the Loan Documents and a copy of the by-laws of the Borrower in effect on such date. 4.4 PROOF OF CORPORATE ACTION The Bank shall have received from the Borrower an original Corporate Resolution and Incumbency Certificate authorizing the officers of Borrower to enter into this Agreement. - 12 - 4.5 COLLATERAL As a result of the perfection of the Security Interest contemplated in Article II hereof, Bank shall have obtained a first perfected security interest in the Collateral. 4.6 PAYMENT OF FEES Borrower shall have paid to Bank all fees assessed by Bank in the approval process and closing of this Agreement, plus all costs of Bank for attorneys fees and/or expenses incurred by Bank in the closing of this Agreement. V CONDITIONS TO MAKING EACH SUBSEQUENT EXTENSION OF CREDIT The obligations of the Bank to make additional Advances of credit to the Borrower subsequent to the date of the execution of the Loan Documents shall be subject to the satisfaction or waiver by the Bank, prior thereto or concurrently therewith, of each of the following conditions precedent: 5.1 APPLICATION AND COMPLIANCE The request for a takedown under any loan facility provided for in this Agreement shall have been made in compliance with the terms of this Agreement. 5.2 REPRESENTATIONS AND WARRANTIES Each of the representations and warranties made by or on behalf of the Borrower to the Bank in the Loan Documents shall have been true and correct in all material respects when made, shall, for the purposes of this Agreement, be deemed to be repeated on and as of the date of each takedown and shall be true and correct in all material respects on and as of each such date. 5.3 PERFORMANCE The Borrower shall have duly and properly performed, complied with and observed each of the covenants, agreements, and obligations contained in this Agreement, and shall have duly and properly performed, complied with and observed in all material respects its covenants, agreements, and obligations in all other articles of this Agreement and the Loan Documents to which it is a party or by which it is bound. No event shall have occurred which constitutes an Event of Default or which with notice or the passage of time, or both, would constitute an Event of Default under the Agreement or any of the Loan Documents. - 13 - VI REPRESENTATIONS, COVENANTS AND WARRANTIES To induce Bank to enter into this Agreement and to make Advances hereunder, Borrower represents, covenants and warrants to Bank that: 6.1 GOOD STANDING Exhibit "A" sets forth: (a) the jurisdiction of incorporation of Borrower and in which it is in good standing; (b) all other jurisdictions in which Borrower is authorized to transact business; (c) any prior changes in the structure of Borrower, such as mergers, consolidations and the like; (d) any prior name changes of Borrower; (e) all trade names or trade styles under which Borrower conducts business or issue invoices. 6.2 CORPORATE AUTHORITY Borrower has the corporate power to execute, deliver and carry out this Agreement and all other Loan Documents and its Board of Directors has duly authorized and approved the terms of the Agreement described herein and the taking of any and all action contemplated herein by Borrower, and this Agreement and all other Loan Documents executed and delivered by Borrower to Bank constitute the valid and binding obligations of Borrower, enforceable in accordance with their terms. 6.3 COMPLIANCE WITH LAW The execution of this Agreement, or any other Loan Documents and the performance by Borrower of its obligations hereunder and thereunder, does not, at the date of execution hereof, violate any existing law or regulation or any writ or decree of any court or governmental agency or the charter or by-laws of Borrower or any agreement or undertaking to which it is a party or by which it is bound. 6.4 NO LITIGATION There are no judgments against Borrower as of the date of this Agreement and no material litigation or administrative proceeding before any governmental body is presently - 14 - pending now, or to the knowledge of Borrower, threatened, against Borrower or any of its property except as previously disclosed to Bank in writing. 6.5 NO FINANCIAL CHANGE There has been no substantial and material adverse change in the condition of Borrower, financial or otherwise, since the last financial statements and reports furnished by Borrower to Bank and the information contained in said statements and reports is true and correctly reflects the financial condition of Borrower as of the dates of the statements and reports. 6.6 TAX COMPLIANCE Borrower has filed, or caused to be filed, all tax returns required to be filed and has paid all taxes shown to be due and payable on said return or on any assessment made against it including but not limited to income taxes, sales taxes, payroll and withholding taxes. 6.7 GOOD TITLE On the date of the Agreement Borrower has good and marketable title to all of its properties and assets, real, personal and mixed, and none of said properties or assets is subject to any mortgage, pledge, lien, security interest, encumbrance, charge or title retention or other security agreement or arrangement of any character whatsoever except for Permitted Encumbrances. Borrower shall notify Bank in writing of the granting of any purchase money security interest in equipment. 6.8 PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE, INVENTORY AND EQUIPMENT (A) Borrower represents that its chief executive office, and the office where it keeps its records concerning its Accounts, and all locations of its Inventory and Equipment, and all other business locations of Borrower are presently at the locations set forth on Exhibit "A". Borrower will notify Bank in writing prior to any change in location of or addition to the places referred to in this paragraph. (B) Except as set forth on Exhibit "A", within four (4) months prior to the date of this Agreement, none of Borrower's assets have been moved from any jurisdiction or other locations than the present locations of assets set forth on Exhibit - 15 - "A" under item 7.8 (A)(v). (C) Borrower represents and covenants that as of the date hereof, and at all times hereafter while any of the Liabilities are outstanding, that no Inventory is now, except as set forth on Exhibit "A", and shall not at any time or times hereafter be stored with a bailee, warehouseman or similar party without Bank's prior written consent and, if Bank gives such consent, Borrower will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Bank, in form and substance acceptable to Bank, warehouse receipts therefor in Bank's name. (D) As of the date of this Agreement, Borrower does not, and will not while any of the Liabilities are outstanding, hold any Goods belonging to third parties or in which other parties have an interest, including any Goods sold on a bill and hold basis, except as set forth on Exhibit "A". (E) Borrower does not presently and will not while any of the Liabilities are outstanding, purchase or otherwise hold Goods on a consignment basis except as set forth on Exhibit "A". (F) Except as set forth on Exhibit "A" none of Borrower's Inventory is, and while any of the Liabilities are outstanding none of said Inventory will be, of a nature that contains any labels, trademarks, trade names, or other identifying characteristics which are the properties of third parties, and the use of which by Borrower is in violation of the rights of such third parties or under license, royalty or similar agreements with any third parties. (G) Except as set forth on Exhibit "A" no persons hold any Inventory of the Borrower. Borrower will not allow any Inventory to be so held in the future without the prior written consent of Bank. (H) Except as set forth on Exhibit "A", Borrower has not purchased any Inventory or equipment except in the ordinary course of business for value and from persons customarily in the business of selling such Inventory or Equipment. Except upon prior written notice to Bank, Borrower will not in the future purchase any Inventory or Equipment except - 16 - in the ordinary course of business from Persons customarily in the business of selling such Inventory or Equipment. (I) Except as set forth on Exhibit "A", Borrower does not hold any Instrument or Chattel Paper connected with any Account. 6.9 COLLATERAL REQUIREMENTS The Borrower will (A) not, without prior written consent of Bank, give a security interest in Accounts or Inventory or Equipment or General Intangibles or Chattel Paper or Instruments or any other assets to anyone other than Bank except for Permitted Encumbrances; (B) keep its Inventory, Accounts, Chattel Paper, Instruments, General Intangibles and Equipment and other assets free from all security interests, liens, encumbrances and taxes, except those provided for herein and except for Permitted Encumbrances; (C) collect its Accounts and sell its Inventory, only in the ordinary course of business for value to buyers in the ordinary course of business; (D) following a Default, and subsequent to receipt of written notice by Bank, Borrower will not sell or transfer any of its Inventory; (E) keep accurate and complete records of its Accounts and Inventory; (F) pay and discharge when due all taxes, levies and other charges on its property; (G) not, without prior written consent of Bank, remove the Collateral from its present location, except for the removal of Inventory in the ordinary course of business; (H) not sell or transfer any Inventory to any Affiliate or Subsidiary; (I) not sell or transfer any of its Equipment without the prior written consent of Bank. 6.10 REPORTING REQUIREMENTS Borrower agrees to deliver financial information and documents as follows: (a) within ninety (90) days of the close of each fiscal year it will furnish Bank with annual audited financial statements prepared by an independent certified public accountant satisfactory to Bank. - 17 - (b) within ninety (90) days of the close of each fiscal quarter it will furnish Bank with internally prepared quarterly financial statements prepared on a review basis by an independent certified public accountant satisfactory to Bank. Borrower shall cause its President to execute and deliver to Bank a Statement Attestation Form verifying the accuracy of the financial statements. (c) within fifteen (15) days of the close of each calendar quarter, Borrower shall supply Bank with Accounts Receivable agings and listings as of the last business day of the previous quarter. (d) within fifteen (15) days of the close of each calendar quarter, Borrower shall supply Bank with an inventory report covering all locations, as of the last business day of the previous quarter. (e) within fifteen (15) days of the close of each calendar quarter, Borrower shall supply Bank with an accounts payable aging, as of the last business day of the previous quarter. (f) Borrower shall permit Bank to conduct audits of the books and records of the Borrower at Bank's discretion during normal business hours. 6.11 INSURANCE Borrower agrees to keep all of the tangible Collateral assigned hereunder insured, at its own cost and expense, for the benefit of Bank, and in such amounts, in such companies, and against such risks as may be acceptable to the Bank, and deliver the policies evidencing such insurance to the Bank. All policies of insurance on the Collateral shall be in form and with insurers recognized as adequate by prudent business persons and all such policies shall be in such amounts as may be satisfactory to Bank prior to closing. Borrower shall deliver to Bank the original (or certified copy) of each policy of insurance and evidence of payment of all premiums therefor. Such policies of insurance shall contain an endorsement, in form and substance satisfactory to Bank, showing loss payee/ additional insured to Bank. Such endorsement or an independent instrument furnished to Bank, shall provide that the insurance companies will give Bank at least thirty (30) days - 18 - prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other person shall affect the right of Bank to recover under such policy or policies of insurance in case of loss or damage. Borrower hereby directs all insurers under such policies of insurance to pay all proceeds payable thereunder directly to Bank. Borrower irrevocably makes, constitutes and appoints Bank (and all officers, employees or agents designated by Bank) as Borrower's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance (provided that until an Event of Default exists, Bank shall consult with Borrower prior to finally making, settling or adjusting claims under such policies of insurance), endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. In the event Borrower, at any time or times hereafter, shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then Bank, without waiving or releasing any obligation or default by Borrower hereunder, may (but shall be under no obligation to do so) at any time or times thereafter obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Bank deems advisable. All sums so disbursed by Bank, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall by payable, on demand, by Borrower to Bank and shall be additional Liabilities hereunder secured by the Collateral. 6.12 PAYMENT OF EXPENSES Borrower shall pay any and all expenses, including reasonable counsel fees and disbursements, filing and recording fees, and all other charges and expenses which may be required in connection with the loans and advances made under this Agreement. - 19 - 6.13 LIFE INSURANCE Borrower agrees to maintain a life insurance policy on the life of MICHAEL R. CUNNINGHAM in the amount of Five Hundred Thousand and 00/100 ($500,000.00) Dollars. Borrower is to keep said policy in full force and effect, and pay all premiums as they fall due. 6.14 LIMITATION ON INDEBTEDNESS Borrower will not, without the prior written consent of Bank, borrow from anyone other than Bank, or assume, guarantee or endorse any debt or obligation of any person, firm or corporation, except for the endorsement of instruments for deposit. 6.15 DISCHARGE OF TAXES AND LIENS Bank may, at its option, discharge any taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance of the Collateral and Borrower will reimburse Bank on demand for any payment made or any expense incurred by Bank pursuant to the foregoing authority, with interest at the highest rate provided for in this Agreement. 6.17 GOOD WORKING CONDITION Borrower shall maintain all of its property in good working condition. 6.18 MAINTAIN CORPORATE EXISTENCE (A) Borrower shall maintain in good standing its corporate existence and will not, without the prior written consent of Bank, dissolve nor liquidate, nor merge nor consolidate with nor acquire nor affiliate itself with any other business entity nor form any subsidiary. (B) Borrower will not change its name without furnishing to Bank at least ten (10) days prior written notice thereof. (C) Borrower will notify Bank in writing prior to utilizing any trade name not set forth on Exhibit "A". 6.19 DIVIDENDS Borrower shall not, without the prior written consent of Bank, pay or declare any cash or property dividends, nor otherwise make a distribution of capital, nor redeem, retire or repurchase any stock of Borrower except for dividends to pay taxes on Borrower's income under an S corporation status. - 20 - 6.20 LOANS AND ADVANCES Borrower shall not, without prior written consent of Bank, make any loans or advances to any third parties in excess of Seventy-Five Thousand and 00/100 ($75,000.00) Dollars. 6.21 PROTECTION OF COLLATERAL Borrower shall comply with any and all laws, legislation, rules and regulations in effect as of the date hereof and subsequent hereto, including but not limited to all state and federal laws, legislation, rules and regulations relating to the environment, employee pension and benefit funds, the payment of taxes, assessments, and other governmental charges, zoning, and the use, occupancy, transfer or encumbrancing of the Collateral. Borrower agrees to comply with all reasonable conditions required by Bank designed to protect Bank and the Collateral from the effect of the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.), the Environmental Cleanup Responsibility Act as amended by the Industrial Site Recovery Act (N.J.S.A. 13:IK-6 et seq.), the Employee Retirement Income Security Act (Public Law 94-306, as amended), and such other laws, legislation, rules and regulations as are in, or may come into, effect and apply to the Borrower, the Bank, the transactions contemplated hereby or the Collateral or any occupants or users thereof, whether as lessees, tenants, licensees or otherwise. Borrower agrees to pay any costs required with any of the above conditions. 6.22 INSPECTION Bank (by any of its officers, employees and agents) shall have the right, at any time or times during Borrower's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts from such records) and the premises upon which any of the Collateral is located, to discuss Borrower's affairs and finances with any person and to verify in any manner the Bank deems advisable, the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. - 21 - 6.33 ERISA (A) Borrower represents that no Reportable Event or failure of compliance with the Internal Revenue Code of 1986, as amended, has occurred and is continuing with respect to any Plan; (B) Borrower will comply with the provisions of ERISA and the Internal Revenue Code of 1986, as amended, with respect to each Plan. 6.34 MAINTENANCE OF ACCOUNTS During the length of this Agreement, Borrower shall maintain all of its business and operating accounts at Bank. 6.35 TANGIBLE NET WORTH Borrower shall, as of December 31, 1997, have attained a Tangible Net Worth of at least Two Million Three Hundred Thousand and 00/100 ($2,300,000.00) Dollars. 6.36 DEBT TO WORTH RATIOS Borrower shall during the length of this Agreement maintain a ratio of Senior Debt to Tangible Net Worth not to exceed 3.25 to 1.0. VII EVENTS OF DEFAULT The occurrence of any of the following shall constitute an Event of Default: 7.1 NON-PERFORMANCE Failure on the part of any Obligor to perform any term, covenant or condition contained in any Loan Document or any other agreement now existing or hereafter entered into with Bank, or in any document executed in connection with any agreements, including, but not limited to, the payment of any Liability when due. 7.2 MISREPRESENTATION Any representation, covenant or warranty made by any Obligor in this Agreement, or any Loan Document, or in connection with any instrument of guaranty or security furnished to Bank shall have proved to have been inaccurate in any substantial or material respect as of the date or dates with respect to which it is deemed to have been made. - 22 - 7.3 OTHER SECURITY INTEREST Borrower shall have caused or permitted a security interest, perfected or otherwise, other than the security interest specifically provided for or permitted hereunder, to be created in any Collateral provided for hereby, or shall have failed to take any action requested by Bank to perfect or protect the security interest provided for herein or Borrower shall not have notified Bank of any changes to applicable law affecting either the Bank's security interest in the Collateral or its priority to same. 7.4 INSOLVENCY Any Obligor shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator of all or a substantial part of its assets; a custodian shall have been appointed with or without consent of any Obligor; any Obligor is generally not paying its debts as they become due; has made a general assignment for the benefit of creditors; has been adjudicated insolvent; or has filed a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding; or taken corporate action for the purpose of effecting any of the foregoing; or an order, judgement or decree shall have been entered, without the application, approval or consent of any Obligor by any court of competent jurisdiction approving a petition seeking reorganization of any Obligor, or appointing a receiver, trustee, custodian or liquidator of any Obligor, or a substantial part of its assets and such order, judgment or degree shall have continued unstayed and in effect for any period of forty-five (45) consecutive days; or a petition in bankruptcy shall have been filed against any Obligor and shall not have been dismissed for a period of thirty (30) consecutive days, or if an Order for Relief has been entered under the Bankruptcy Code, or if any Obligor shall have suspended the transaction of its usual business. 7.5 DEATH The death of MICHAEL R. CUNNINGHAM - 23 - 7.6 CHANGE IN MANAGEMENT A substantial change in the present management of Borrower which shall mean the departure of MICHAEL R. CUNNINGHAM from control over the day to day operations of Borrower. 7.7 JUDGMENT OR LIEN Entry of a judgment, issuance of any garnishment, attachment or distraint, the filing of any lien or of any governmental attachment against any property of the Borrower which entry, issuance, attachment or filing shall have continued unstayed and in effect for a period of thirty (30) consecutive days. 7.8 NONCOMPLIANCE WITH LEASES OR LAWS Failure of Borrower to comply with the terms and conditions of any lease covering the premises where the Collateral is located and any orders, ordinances, laws or statutes of any city, state or other governmental department having jurisdiction with respect to such premises or the conduct of business thereon. 7.9 IMPAIRMENT OF RESPONSIBILITY Occurrence of any event which, in the opinion of Bank, impairs the business condition, financial or otherwise, of any Obligor. 7.10 ADVERSE CHANGE The determination by Bank that a material adverse change has occurred in the financial condition of any Obligor. 7.11 MISREPRESENTATION OF FACT The determination by Bank that a material misrepresentation of fact has been made by any Obligor in any writing supplementary or ancillary hereto. 7.12 TRANSFER OF OWNERSHIP The sale or transfer, without the prior written consent of Bank, of any of the capital stock of Borrower or without the prior written consent of Bank, the issuance of any additional capital stock of Borrower. 7.13 ERISA If (A) any Reportable Event occurs and shall be continuing for thirty (30) days, or (B) any Plan shall be terminated, or (C) the Plan administrator of any Plan shall file with the Pension Benefit Guaranty Corporation ("PBG C") a notice of intention to terminate such Plan, or (D) the PBG C shall institute proceedings to terminate any Plan or appoint a trustee to administer any Plan, and, if in any of the cases set forth in (A) - 24 - through (D) above, the Bank reasonably determines in good faith that any Plan will be terminated and that the amount of the unfunded guaranteed benefits (within the meaning of Title IV of ERISA) resulting upon termination of such Plan would have a material adverse effect on the financial condition and properties or operation of Borrower if a lien against the assets of Borrower were to result under ERISA. VIII CONSEQUENCE OF EVENT OF DEFAULT In case any Event of Default shall have occurred, then and in every such Event of Default, Bank may take any or all of the following actions, at the same time or at different times: 8.1 ACCELERATION Declare all Advances, sums and Liabilities owing Bank from Borrower under this Agreement or any other agreement or loan between Bank and Borrower to be forthwith due and payable, whereupon all such sums shall forthwith become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Borrower. 8.2 POSSESSION Proceed with or without judicial process to take possession of all or any part of the Collateral provided for herein not already in the possession of Bank and the Borrower agrees that upon receipt of notice of Bank's intention to take possession of all or any part of said Collateral, the Borrower will do everything reasonably necessary to assemble the Collateral and make same available to Bank at a place to be designated by Bank. Borrower hereby waives any and all rights it may have, by statute, constitution or otherwise to notice or a hearing to determine the probable cause of Bank to obtain possession, by Court proceedings or otherwise, of the Collateral provided for in this or in any other agreement with Bank. - 25 - 8.3 METHODS OF SALE So long as Bank acts in a commercially reasonable manner, the Bank may assign, transfer and deliver at any time or from time to time the whole or any portion of the Collateral or any rights or interest therein in accordance with the Uniform Commercial Code, and without limiting the scope of Bank's rights thereunder, Bank may sell the Collateral at public or private sale, or in any other manner, at such price or prices as Bank may deem best, and either for cash or credit, or for future delivery, at the option of Bank, in bulk or in parcels and with or without having the Collateral at the sale or other disposition. Bank shall have the right to be the purchaser at any public sale. Bank shall have the right to conduct such sales on Borrower's premises or elsewhere and shall have the right to use Borrower's premises without charge for such sales for such time or times as the Bank may see fit. Bank is hereby granted license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and franchise agreements shall inure to Bank's benefit. Borrower agrees that a reasonable means of disposition of Accounts shall be for Bank to hold and liquidate any and all Accounts. In the event of a sale of the Collateral, or any other disposition thereof, Bank shall apply all proceeds first to all costs and expenses of disposition, including attorneys' fees, and then to the Liabilities of Borrower to Bank. 8.4 RETENTION OF COLLATERAL Elect to retain the Collateral or any part thereof in satisfaction of any or all Liabilities due from Borrower to Bank upon notice of such proposed election to Borrower and any other party as may be required by the Uniform Commercial Code. - 26 - 8.5 SET-OFF Bank or its affiliates immediately, and without notice or other action to set-off against any of the Obligor's Liabilities to Bank any sum owed by Bank in any capacity to any Obligor whether due or not, and Bank shall be deemed to have exercised such right of set-off and to have made a charge against any such sum immediately upon the occurrence of such Event of Default, even though the actual book entries may be made at some time subsequent thereto. 8.6 ATTORNEYS' FEES AND EXPENSES Add to the Liabilities of Borrower, Bank's reasonable expenses to obtain or enforce payment of any Liabilities hereunder and the enforcement or liquidation of any debt hereunder shall include reasonable attorneys' fees plus other legal expenses incurred by Bank. 8.7 INCREASE IN INTEREST Increase the rate of interest under any Liabilities to a rate of three (3%) percent in excess of the interest rates otherwise provided for in this Agreement. Unless otherwise agreed by Bank, this increase in interest rates shall be retroactive to the date of the first occurrence of an Event of Default. 8.8 OTHER REMEDIES Exercise any other remedies under the Uniform Commercial Code or other applicable law, or any other Loan Document. IX MISCELLANEOUS 9.1 NO WAIVER Borrower agrees that no delay on the part of Bank in exercising any power or right hereunder or any other Loan Document shall operate as a waiver of any such power or right, preclude other or further exercise thereof, or the exercise of any other power or right. No waiver whatsoever shall be valid unless in writing signed by Bank and then only to the extent set forth therein. - 27 - 9.2 WAIVER OF NOTICE Borrower waives presentment, dishonor and notice of dishonor, protest and notice of protest of all commercial papers at any time held by Bank on which the Borrower is any way liable. 9.3 ONE INSTRUMENT The provisions of this Agreement shall be in addition to those of any notes or other evidence of Liability held by Bank relating to this particular transaction, all of which shall be construed as one instrument. 9.4 LAW OF NEW JERSEY This Agreement and the rights of the parties hereto shall be governed by the laws of the State of New Jersey. 9.5 JURISDICTION Borrower hereby irrevocably consents to the nonexclusive jurisdiction of the Courts of the State of New Jersey or any Federal Court in such State in connection with any action or proceeding arising out of or related to this Agreement or any other Loan Document. In any such litigation, Borrower waives personal service of any summons, complaint or other process and agrees that service of any summons, complaint or other process may be made by certified or registered mail to it, at the address provided herein. BORROWER WAIVES TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 9.6 SUCCESSORS OR ASSIGNS This Agreement and all other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors and assigns. 9.7 RIGHTS CUMULATIVE The rights and remedies herein expressed or in any other Loan Document to be vested in or conferred upon Bank shall be cumulative and shall be in addition to and not in substitution for or in derogation of the rights and remedies conferred upon secured creditors by the Uniform Commercial Code or any other applicable law. 9.8 NOTIFICATION OF DISPOSITION OF COLLATERAL Any notification of a sale or other disposition of the Collateral or of any other action by Bank required to be given by Bank to the Borrower will be sufficient if given personally or mailed to Borrower, by certified mail, at its chief executive office set - 28 - forth on Exhibit "A" not less than five (5) days prior to the day on which such sales or other disposition will be made, and such notification shall be deemed reasonable notice. 9.9 ADDRESS OF NOTICE Any written notice required to be given hereunder shall be sufficient if mailed to Borrower at the addresses set forth on the face page of this Agreement and to the Bank c/o Rick Debel- V.P. 250 Moore Street, Hackensack, New Jersey 9.10 TITLES The titles and headings indicated herein are inserted for convenience only and shall not be considered a part of this Agreement or in any way limit the construction or interpretation of this Agreement. 9.11 DISCLOSURE Bank is hereby authorized to disclose any financial or other information it may have about Borrower to any present or future participant, any regulatory body or agency having jurisdiction over Bank, or to any Person. 9.12 CAPITAL ADEQUACY If after the date of this Agreement, Bank shall determine that the adoption of any applicable law, rule or regulation regarding capital requirements for banks, or bank holding companies, or any change therein, or any change in the interpretation or administration thereof by governmental authority, central bank or comparable agency charged with the interpretation, or administration thereof, or compliance by the Bank with any request or directive of such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on the Bank's capital to a level below that which Bank could have achieved (taking into consideration Bank's policies with respect to capital adequacy immediately before such adoption, change or compliance and assuming that each Bank's capital was fully utilized prior to such adoption, change or compliance) but for such adoption, change or compliance as a consequence of its commitment to make or the making or maintenance of the Advances referenced herein, by an amount deemed by the Bank to be material, Borrower shall pay to the Bank as an additional fee from time to time, on demand, such amount as the bank shall have reasonably determined to be necessary to compensate it for such - 29 - reduction, with interest on each such amount from the date demanded until paid in full at the highest rate provided for with respect to the Advances referenced herein. Any amount not paid upon demand shall be added to and become part of the Liabilities. The determination by the Bank of such amount, if done on the basis of any reasonable averaging and attribution methods, shall, in the absence of manifest error be conclusive. At the Borrower's request, the Bank shall demonstrate the basis of any such determination. Failure on the part of the Bank to demand compensation for such increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of the Bank's right to demand compensation with respect to such period or any other period. 9.13 INDEMNIFICATION Each of the Obligors agree to pay, reimburse, indemnify and hold harmless, the Bank, its directors, officers, employees, agents and representatives from and against any and all actions, costs, damages, disbursements, expenses (including attorneys fees) judgments, liabilities, losses, obligations, penalties and suits of any kind or nature whatsoever with respect to: (a) the development, negotiation, preparation, execution, enforcement, amendment or modification of any of the Loan Documents; (b) the exercise of any right or remedy granted in any of the Loan Documents, the collection or enforcement of any of the Liabilities and the proof or allowability of any claim arising out of any of the Loan Documents, whether in any bankruptcy or receivership proceeding or otherwise; (c) any claim of third parties and the prosecution or defense thereof, arising out of or in any way connected with any of the Loan Documents; and (d) any and all recording fees and taxes, and any and all liabilities with respect thereto or resulting from any delay in paying stamp and other taxes, if any, which may be payable or determined to be payable in connection with the Loan Documents. - 30 - Notwithstanding the foregoing, Bank shall not be entitled to any indemnification with respect to either its own gross negligence or willful misconduct. 9.14 NO THIRD PARTY BENEFICIARY Nothing contained in this Agreement or in the conduct of any party hereto shall be deemed to vest in any third party any rights or privileges pertaining to or under this Agreement. 9.15 COUNTERPARTS This Agreement or any of the Loan Documents associated herewith may be signed in counterparts and shall constitute an original copy thereof. 9.16 TERM This Agreement shall with respect to Paragraph 2.2 hereof have a term through May 30, 1998. Notwithstanding the foregoing, and in absence of an Event of Default, Bank may at any time terminate this Agreement upon ninety (90) days prior written notice at any time. The Advances provided for in Paragraph 2.1 hereof shall be due and payable in full upon expiration of the term as set forth herein. Notwithstanding the giving of any notice of termination, the rights of Bank hereunder and the obligations of Borrower hereunder, including but not limited to the grant of security interests in the Collateral as set forth in Article III hereof, shall remain in full force and effect until all of the Liabilities of Borrower to Bank are paid in full. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their proper and duly authorized officers as of the day and year first above written. SUMMIT BANK BY: ------------------------------- RICK DEBEL-V.P. - 31 - CUNNINGHAM GRAPHICS, INC. BY: /s/ Michael R. Cunningham ------------------------------- MICHAEL R. CUNNINGHAM-PRES. ATTEST: /s/ Timothy Mays ---------------------------- TIMOTHY MAYS-Secretary EXHIBIT "A" REPRESENTATIONS OF BORROWER 7.1 (A) Jurisdiction of incorporation of Borrower and in which it is in good standing: New Jersey (B) Jurisdiction(s) Borrower is authorized to transact business: New Jersey (C) Prior changes in structure (mergers, consolidations, etc.): (D) Prior changes in name of Borrower: - 32 - (E) Trade names used by Borrower or under which it issues invoices: 7.8 (A) (i) Borrower's chief executive office: 629 Grove Street, Jersey City, New Jersey (ii) Change in location of foregoing within past four (4) months: (iii) Location of Books and Records: 629 Grove Street, Jersey City, New Jersey (iv) Change in location of foregoing within past four (4) months: (v) Present location(s) of Inventory and Equipment: 629 Grove Street, Jersey City, New Jersey (B) Location from which assets have been moved or other location of assets within past four (4) months: (C) (i) Name and address of warehouses, bailees or similar parties where any Inventory of Borrower is located: - 33 - Exhibit "A" continued: (ii) if any: warehouse receipts are/are not issued: (iii) If warehouse receipts issued: they are negotiable/non-negotiable: (D) Goods held by Borrower in which other parties have any interests, including Goods sold on a bill and hold basis: (E) Goods held by Borrower on a consignment basis: (F) Inventory with trademarks, trade names, and the like which are the property of others. (G) Names and addresses of persons holding Goods belonging to Borrower and location of Goods: (H) Purchases of Inventory or Equipment not in the ordinary course of business or from persons not customarily in the business of selling such Goods: - 34 - Exhibit "A" continued: (I) Instruments or Chattel Paper held by Borrower relating to Accounts: - 35 - EX-10.10 8 PRINTING SERVICES AGREEMENT PRINTING SERVICES AGREEMENT This Agreement ("Agreement") is made as of July 12, 1996 between Cunningham Graphics, Inc., ("Cunningham") a New Jersey corporation, with its principal place of business at 629 Grove Street, Jersey City, New Jersey, 07306, and Goldman, Sachs & Co. ("Goldman Sachs") a New York limited partnership with its principal place of business at 85 Broad Street, New York, New York 10004. WHEREAS, Goldman Sachs wishes to appoint Cunningham to supply the services described herein and further listed in Schedule A, and any other services added thereto by agreement between the parties (the "Services"); and WHEREAS, Cunningham is willing and able to supply the Services on the terms and conditions set out below. NOW THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS 1.1 In this Agreement, the following words and expressions shall have the meanings set out below: 1.1.1 "Affiliates" shall mean all entities which are controlling, controlled by or under common control with Goldman, Sachs & Co., wheresoever in the world located. 1.1.2 "Commencement Date" shall mean July 15, 1996. 1.1.3 "Confidential Information" (a) shall mean, with respect to Goldman Sachs information, any trade secrets or other proprietary, confidential or non-public information of Goldman Sachs or its clients or third parties to whom Goldman Sachs owes a duty of confidentiality and any other information which Cunningham knows or ought reasonably to know to be proprietary or confidential; in addition to the foregoing, all materials provided to Cunningham by any means for copying or fulfillment services shall be deemed Confidential Information; and (b) shall mean, with respect to Cunningham information, the terms of this Agreement and all non-public information regarding Cunningham's business and which Cunningham has marked as 1 confidential. 1.1.4 "Confirms or Client Statements" shall mean those documents printed by Cunningham which include account and trade information for clients of Goldman Sachs, which information is transmitted to Cunningham via connections to Goldman Sachs' mainframe computers. 1.1.5 "Material Breach" shall mean, with respect to Cunningham, documented material inconsistences in performance, including failure to meet the Service Criteria, as well as material failure to comply with any material term of this Agreement; and shall mean, with respect to Goldman Sachs, material failure to comply with any material term of this Agreement. 1.1.6 "Minimum Commitments" shall mean the level of printing services obtained from Cunningham as further described in Schedule A. 1.1.7 "Operating Hours" shall mean the hours specified in Schedule A. 1.1.8 "Personnel" shall mean those individuals assigned by Cunningham to perform Services related to Confirms or Client Statements at the Print Shop, as further described in Schedule B. 1.1.9 "Print Shop" shall mean a section of the 8th floor, 111 8th Avenue, New York, N.Y. as detailed in the Sublease. 1.1.10 "Service Credits" shall mean the adjustments made to the fees otherwise due to Cunningham in the amounts stated and upon the occurrence of the events described in Schedule A. 1.1.11 "Service Criteria" shall mean the detailed specifications included in Schedule A. 1.1.12 "Sales Agreement" shall mean the Asset Sales Agreement executed by the parties contemporaneously with this Agreement, and addressing the sale of certain materials by Goldman Sachs to Cunningham. 1.1.13 "Sublease" shall mean the Agreement of Sublease executed by the parties contemporaneosously with this Agreement, relating to the Print Shop. 2 1.1.14 "Term" shall mean the period from and including the Commencement Date to and including and will continue thereafter on a year to year basis; provided, that Cunningham shall have given Goldman Sachs a minimum of 90 days notice of impending renewal together with the proposed charges for the renewal period and Goldman Sachs shall have 60 days from receipt of such notice to give Cunningham notice of termination. Section 2. TERMS OF AGREEMENT 2.1 Goldman Sachs hereby appoints Cunningham, with effect from the Commencement Date, to supply the Services to Goldman Sachs, and Cunningham hereby accepts such appointment on the terms and conditions set forth below. 2.2 The terms and conditions set forth below are the sole terms on which Goldman Sachs shall purchase the Services from Cunningham and shall operate and prevail to the entire exclusion of any terms set out on any documentation used or presented by Cunningham or otherwise existing. No other express terms, written or oral, shall be incorporated into the Agreement. 2.3 No alterations to any of the requirements indicated in Schedule A shall be made except by agreement in writing between the parties and provided that in the event that any alteration involves either an increase or a decrease in the level of Services required by Goldman Sachs, Cunningham and Goldman Sachs shall agree on any corresponding change in the pricing information contained in Schedule D. Section 3. CUNNINGHAM'S OBLIGATIONS 3.1 Cunningham shall from the Commencement Date and throughout the Term provide the Services in accordance with this Agreement and the Service Criteria. 3.2 Cunningham shall perform the Services at the location and with the resources of its choosing. Notwithstanding the foregoing, in the absence of written approval to the contrary by Goldman Sachs, Confirms or Client Statements may only be printed at the Print Shop, and Cunningham shall not use the Print Shop for purposes of printing similar materials of any other party without the express written approval of Goldman Sachs. 3.3 Cunningham shall be responsible for providing any and all supplies required to perform the Services, with the exception of those listed in Schedule C. 3.4 Cunningham shall insure the necessary level of staffing to provide the Services in accordance with the Service Criteria. Confidential treatment requested-portions filed separately with the Commission. 3 3.5 Cunningham shall conduct a background check of all Personnel at its own expense, and shall ensure that all Personnel have appropriate backgrounds. The background check shall include an interview, check of identification papers, and telephone calls to the individual's last residence and last place of employment to verify same. Such verification may be established by "Equifax" or another equivalent security firm acceptable to Goldman Sachs. 3.6 Cunningham shall obtain Goldman Sachs' prior approval before assigning any individual to perform the Services assigned to the Personnel. Thereafter, Cunningham shall act promptly to replace any of the Personnel deemed by Goldman Sachs to be unsuitable for any reason. A list of the Personnel shall be attached hereto as Schedule B, and revisions to the list as may be required to keep it current shall be provided by Cunningham. Section 4. GOLDMAN SACHS' OBLIGATIONS 4.1 Goldman Sachs shall provide Cunningham with material to be printed, fulfilled, or otherwise produced in a timely manner. Such material shall be delivered in hard copy, electronic format, on disk, or as otherwise agreed by the parties. Goldman Sachs shall also provide the paper to be used for printing of Confirms or Client Statements. 4.2 Goldman Sachs shall, at its election and in addition to the check conducted by Cunningham, conduct a background check of the Personnel, including a court inquiry credit check and fingerprinting, drug screen or other checking or testing in connection with the performance of Services under this Agreement. Cunningham agrees to indemnify Goldman Sachs, its partners, employees and agents against all liability, damage, loss, claims, demands and actions arising from such checking or testing and the use and reporting of the results thereof. 4.3 Goldman Sachs shall provide the telecommunications services described in Schedule C which shall enable electronic communications between Goldman Sachs and Cunningham. 4.4 Goldman Sachs shall provide the printing supplies specified in Schedule C. Section 5. CHARGES The Services shall be provided by Cunningham to Goldman Sachs at the prices set forth in Schedule D, and, except as provided therein, such prices shall be fixed for the Term. Section 6. PAYMENT 6.1 Cunningham will submit weekly invoices in arrears 4 throughout the Term in accordance with the prices contained in Schedule D, and in the format required by Goldman Sachs, the first such invoice to be issued in respect of the calendar month which includes the Commencement Date. All non-disputed monies shall be paid within ten (10) days of receipt of the relevant invoice. The parties will use their best efforts to resolve any disputed invoices within thirty (30) days. Goldman Sachs shall pre-pay postage as invoiced by Cunningham. 6.2 Any sales, retailer's, occupation, service occupation, value added, use or other similar tax imposed on the transactions contemplated by this Agreement, excluding taxes based on the net income of Cunningham, will be paid by Goldman Sachs. A charge for any such taxes will be included on Cunningham's invoices. Cunningham shall cooperate with Goldman Sachs' lawful efforts to minimize its sales tax liability. 6.3 Goldman Sachs shall off-set against payment owed to Cunningham the amounts owed to Goldman Sachs by Cunningham in relation to the Sales Agreement and the Sublease, as well as the amount due Goldman Sachs from Cunningham as a result of the Service Credits. The amount of the monthly off-set shall be , with regard to the Sales Agreement. The amount of the monthly off-set with regard to the Sublease is for base rent, porter wage and sprinkler, and for monthly utility fees, inclusive of electric, steam and water. Notwithstanding the foregoing, these off-sets may be adjusted to reflect the fees owed in relation to the Sale Agreement and the Sublease, the terms of which govern the parties' obligation thereunder. 6.4 Payment obligations of Goldman Sachs shall also be reduced by the amount of Service Credits owed by Cunningham as described in Schedule A. Section 7. INSURANCE AND INDEMNITIES 7.1 During the Term of this Agreement, Cunningham and Goldman Sachs each will carry and maintain the following insurance coverage (a) with respect to their respective employees: (i) Workers Compensation Insurance as prescribed by the law of the state or other jurisdiction in which work is to be performed, (ii) Employers Liability Insurance with limits of at least $500,000 per occurrence; and (b) Comprehensive General Liability Insurance, including contractual liability, and Comprehensive Automobile Liability Insurance, if the use of motor vehicles is required, each with combined single limits of at least $1,000,000 per occurrence for bodily injury and property damage, and each of Cunningham and Goldman Sachs will also carry fire, sprinkler leakage and extended coverage insurance, subject to the usual exclusions, limitations and conditions of such policies on all of its property located on the other party's Confidential treatment requested- portions filed separately with the Commission. 5 premises. Each such policy will include provisions generally considered standard for the type of insurance involved, including the loss payable and waiver of subrogation clauses and deductible amounts. Each of Cunningham and Goldman Sachs agree to waive rights of subrogation in advance of the loss against each other. 7.2 Each party will, upon request, furnish the other with a certificate of insurance showing coverage in such amounts with a minimum thirty (30) days notification clause to the other in the event the policies are to be cancelled, renewed or changed. Failure to comply with this Section 7.2 shall be deemed a Material Breach. 7.3 Cunningham agrees to defend, indemnify and hold Goldman Sachs harmless from and against any and all liabilities, damages, costs, losses and expenses, including court costs and reasonable attorneys' fees (collectively "Losses"), which arise out of: (a) the acts or omissions during the Term of this Agreement of Cunningham's employees, resulting in injury or death to persons (including invitees) or damage to or theft of property of Goldman Sachs, and property of third parties located on the premises of Goldman Sachs; and (b) the performance of the Services. 7.4 Goldman Sachs agrees to defend, indemnify and hold Cunningham harmless from and against any and all Losses to the extent arising out of: (a) the acts or omissions during the Term of this Agreement of Goldman Sachs' employees, resulting in injury or death to persons (including invitees) or damage to or theft of property of Cunningham, and property of third parties located on the premises of Cunningham; and (b) the content of material reproduced or otherwise handled by Cunningham at the request of and in accordance with the instructions of Goldman Sachs or its employees, including libel, defamation, invasion of privacy, copyright, trademark or other proprietary rights infringement or unfair competition. 7.5 Cunningham and Goldman Sachs agree to notify the other promptly of any claims or demands for which the other party may be responsible hereunder. Section 8. CONFIDENTIALITY 8.1 Except as provided in Section 8.2 below, neither party shall use, divulge, communicate or allow to be divulged to any person, without the other party's prior written consent, any Confidential Information which such party may in the performance of this Agreement, and in whatever capacity, have received or obtained. 8.2 Each party shall limit the use of and access to the Confidential Information to those of its employees, servants or agents whose use thereof or access thereto is necessary to effect 6 the performance of its obligations under this Agreement. 8.3 Each party shall use all reasonable endeavors to protect the confidentiality of the Confidential Information and to assist the other party in identifying and preventing any unauthorized use or disclosure of any of that Confidential Information. 8.4 Without limitation of the foregoing, each party shall advise the other immediately in the event that it learns or has reason to believe that any person who has had access to the Confidential Information has violated or intends to violate the terms of this Agreement or any related non-disclosure agreement and such party will co-operate with the other in seeking injunctive or other equitable relief in the name of the other party or itself against any such person. 8.5 Upon the termination of this Agreement (or earlier if requested by either party) each party shall at its own cost return to the other all copies of documents, papers or other material which may contain or be derived from the Confidential Information (excluding for purposes of this Section 8.5, this Agreement) which are in its possession or control, together, if requested by such party, with a certificate signed by such party in form and substance satisfactory to the other party, to the effect that all the Confidential Information has been returned. 8.6 Confidential Information shall not include information which is: 8.6.1 in or becomes part of the public domain other than by disclosure by Cunningham or Goldman Sachs, as appropriate, in violation of this Agreement; 8.6.2 demonstrably known to Cunningham or Goldman Sachs, as appropriate, previously, without a duty of confidentiality; 8.6.3 independently developed by Cunningham or Goldman Sachs, as appropriate, outside of this Agreement; 8.6.4 rightfully obtained by Cunningham or Goldman Sachs, as appropriate, from third parties without a duty of confidentiality; or 8.6.5 which is required to be disclosed by law, statute or regulation. 8.7 Cunningham hereby irrevocably assigns to Goldman Sachs, its successors and assigns, and Goldman Sachs shall have, exclusive ownership rights, including, without limitation, all patent, copyright and trade secret rights, with respect to any 7 work including, but not limited to, any invention, discoveries, concepts, ideas or information conceived by Cunningham in the course of rendering Services to Goldman Sachs in response to a specific assignment of work, and all documents, data and other information of any kind including, incorporating, based upon or derived from the foregoing, including reports and notes prepared by Cunningham, customized work produced by Cunningham in the course of performing the Services, and such works shall be Confidential Information. Cunningham will cooperate fully with Goldman Sachs to establish, protect or confirm Goldman Sachs' exclusive rights in such work or to enable it to transfer legal title together with any patents that may be issued. A certificate evidencing compliance with this provision shall, if requested, be provided to Goldman Sachs. 8.8 Cunningham will procure that the Personnel will enter into the Non-Disclosure agreement in the form attached as Schedule E. 8.9 Cunningham shall undertake the establishment and maintenance of security procedures to assure that any Confidential Information in its possession shall not be improperly disclosed. Such procedures shall be subject to review by Goldman Sachs upon request. 8.10 It is understood and agreed that in the event of a breach of this Section 8, damages may not be an adequate remedy and each Cunningham and Goldman Sachs, as appropriate, shall be entitled to injunctive relief to restrain any such breach, threatened or actual. Section 9. NO PROMOTION 9.1 Cunningham agrees that it will not, without the prior written consent of Goldman Sachs in each instance, 9.1.1 use in advertising, publicity, or otherwise the name of Goldman Sachs, or any Affiliate or any partner or employee of Goldman Sachs, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned by Goldman Sachs or its affiliates; or 9.1.2 publish alone or in conjunction with any other person any article, photograph or other illustration relating to Goldman Sachs or to the Offices or any part thereof; or 9.1.3 represent, directly or indirectly, that any product or any service provided by Cunningham has been approved or endorsed by Goldman Sachs. This 8 provision shall survive termination of the Agreement. Section 10. WARRANTIES 10.1 Cunningham represents and warrants that: 10.1.1 it will perform the Services in accordance with the terms and conditions contained herein, including, without limitation, in accordance with the Service Criteria; 10.1.2 it will perform the obligations undertaken by Cunningham under this Agreement in accordance with applicable laws and regulations; 10.1.3 it will perform the Services in a timely, diligent and professional manner, by appropriately skilled and qualified personnel, having due regard to Goldman Sachs' business operations; 10.1.4 it has all necessary rights, authorizations and/or licenses to provide the Services to Goldman Sachs under this Agreement; 10.1.5 it is generally aware of the provisions of the copyright laws and in connection therewith it shall, as soon as is reasonably practicable, alert the Goldman Sachs Legal Department where it suspects that any requests, for the copying or production of works may result in copyright infringement and shall obtain the permission of appropriate Goldman Sachs management personnel prior to making any copies or productions of such works. 10.1.6 is shall insure that the Services related to Client Statements and Confirms are only provided by the Personnel. 10.2 EXCEPT AS SET FORTH IN SECTION 10.1 ABOVE, Cunningham MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Section 11. FORCE MAJEURE 11.1 Neither party will be in breach of this Agreement by reason of any delay in the performance or non-performance on its part of its obligations hereunder (and shall not be liable for any costs or damage caused thereby) where the same is occasioned by any circumstance whatsoever beyond its reasonable control. 9 11.2 If either party claims that any delay or non-performance is occasioned by such circumstance as is described in Clause 11.1 that party shall:- 11.2.1 as soon as practicable give notice to the other of the occurrence of the circumstance, such notice to include as much information as possible; 11.2.2 consult with the other as to the effects of such delay or non-performance and the best way of mitigating such effects; and 11.2.3 proceed with diligence and at its own expense to take such steps as would be taken by a reasonable and prudent person to end the delay or non-performance as soon as possible. 11.3 If any such circumstance as is described in Clause 11.1 prevents either party from performing all of its obligations hereunder for a period in excess of thirty (30) days, either party may terminate this Agreement by notice in writing. Section 12. TERM, TERMINATION AND PERFORMANCE REVIEW 12.1 Subject to Sections 11 above and this Section 12, this Agreement shall commence on the Commencement Date and shall continue in force for the Term. 12.2 Without prejudice to any other rights or remedies which it may have, either party shall be entitled to terminate this Agreement forthwith by notice if: 12.2.1 the other party shall be in Material Breach of any provision of this Agreement on its part to be observed or performed and either such Material Breach is incapable of remedy or the Material Breach shall continue for thirty (30) days after notice specifying the Material Breach and requiring the same to be remedied has been given to such party by the party not in Material Breach; or 12.2.2 if a party shall be in Material Breach, whether or not such Material Breach has been cured, if such Material Breach has occurred within thirty (30) days of any other Material Breach or if there has been more than two (2) Material Breaches in any six (6) month period; or 12.2.3 if Cunningham has availed itself of, or been subjected to by any third party, a proceeding in bankruptcy in which Cunningham is the named 10 debtor, an assignment by Cunningham for the benefit of its creditors, the appointment of a receiver for Cunningham, or any other proceeding involving insolvency or the protection of, or from, creditors, and appointment of a receiver for Cunningham, or any other proceeding involving insolvency or the protection of, or from creditors, and same has not been discharged or terminated without any prejudice to Cunningham's rights or interests under this Agreement within sixty (60) days; 12.3 Failure to meet the Minimum Commitment shall be considered a Material Breach of this Agreement. 12.4 Goldman Sachs reserves the right to conduct a performance review three (3) months after the Commencement Date, and regularly at the discretion of Goldman Sachs thereafter, recommending improvements as necessary. Non-compliance with any clearly documented recommended improvements with respect to performance and compliance issues will entitle Goldman Sachs to terminate this Agreement pursuant to Section 12.2.1. 12.5 Notwithstanding the foregoing, Goldman Sachs reserves the right to terminate this Agreement on ninety (90) days notice, without cause. In the event of such termination, Goldman Sachs' liability shall be limited to the following: 12.5.1 If the termination occurs within the first 12 months following the Commencement Date, Goldman Sachs shall pay Cunningham as compensation for costs incurred in preparing the Print Shop for use by Cunningham, moving expenses, and other miscellaneous costs incurred; if the termination occurs after the twelfth month following the Commencement Date, Goldman Sachs shall pay Cunningham an amount equal to for each month remaining in the term, measured from the date the termination becomes effective until . 12.5.2 The remedies available to Cunningham arising in relation to a termination as described in this Section 12.5 shall be limited to those specified in section 12.5.1. Goldman Sachs shall have no further liability for any damages arising from such termination, whether direct, indirect, consequential or otherwise. Damages arising from such termination in respect to the Sales Agreement and the Sublease are addressed in each of those agreements. 12.6 In the event the landlord of the premises on which the Print Shop is located denies the request to sublet the Print Shop Confidential treatment requested-portions filed separately with the Commission. 11 premises to Cunningham, either party may elect to terminate this Agreement within 30 days of receipt of notice of such denial. The exercise of such right by either party shall not be considered either a material breach or a termination without cause, but shall instead have the same impact as though this Agreement had been completed at the end of the Term, and the rights and obligations of the parties shall be defined accordingly. Section 13. CONSEQUENCES OF TERMINATION 13.1 Following service of a notice pursuant to Section 11, or 12 terminating this Agreement, each party shall continue to abide by the terms and conditions of this Agreement and comply fully with its obligations hereunder and it shall not in any way hinder or interrupt the performance of this Agreement during any period between the date of service of a termination notice pursuant to Section 11 or 12 and the date of actual termination. 13.2 On termination of this Agreement for whatever reason: 13.2.1 Cunningham shall be entitled to render an invoice in respect of any Services performed since the date of the last invoice issued; and 13.2.2 Goldman Sachs will make payment in settlement of such invoice in accordance with Section 6 subject to offset to reflect any liability of Cunningham. 13.3 Termination shall be without prejudice to any rights or remedies either party may have against the other in respect of any antecedent breach of the terms of this Agreement; PROVIDED THAT, in no event shall Goldman Sachs be liable for any claim for loss of profit or loss of contract in respect of any unexpired residue of the Term. Section 14. INSPECTION OF BOOKS 14.1 Cunningham shall keep detailed accounts and records of all activities carried out, and all costs and expenses incurred, in the performance of its obligations under this Agreement and will on request, and subject to the restrictions on Confidential Information set forth in Section 8, allow inspection of such accounts and records as may be required in connection with activities related to and costs and expenses incurred under this Agreement by Goldman Sachs or its authorized representative, upon reasonable notice. If any such inspection reveals that any invoice or payment shall not have been rendered or made in accordance with the terms of this Agreement, or that any statement rendered or payment made by Cunningham is inaccurate, then Cunningham shall pay the reasonable cost of such inspection without prejudice to any other remedies or claims of Goldman 12 Sachs. 14.2 Goldman Sachs shall keep detailed accounts and records of those activities related to the Minimum Commitments described herein, and will on request, and subject to the restrictions on Confidential Information set forth in Section 8, allow inspection of such accounts and records as may be required in connection with such activities. If any such inspection reveals that the Minimum Commitments level has not been maintined, then Goldman Sachs shall pay the reasonable cost of such inspection without prejudice to any other remedies or claims of Cunningham. Section 15. INDEPENDENT CONTRACTOR 15.1 Cunningham is, and shall at all time be, an independent contractor hereunder and not an agent of Goldman Sachs; and neither any thing contained in this Agreement nor any actions taken by or arrangements entered into between the parties to this Agreement in accordance with the provisions hereof shall be construed as or deemed to create as to such parties any partnership or joint venture. It is further agreed that Cunningham shall not have authority to commit Goldman Sachs contractually or otherwise to any obligations whatsoever to third parties. 15.2 The individuals supplied by Cunningham to provide the Services described herein, including the Personnel, are not Goldman Sachs employees or agents, and Cunningham assumes full responsibility for their acts. Cunninham shall be solely responsible for the payment of compensation of such persons, each of whom shall be informed that they are not entitled to the provision of any Goldman Sachs employment benefits. Goldman Sachs shall not be responsible for payment of workman's compensation insurance, disability benefits, unemployment insurance, or for withholding any payment or employment taxes for such persons, but such responsibilty shall be solely that of Cunningham. Section 16. NOTICES Any notice required or permitted to be given under this Agreement shall be given in writing and shall be effective from the date sent by registered or certified mail, by hand, facsimile or overnight courier to the addresses set forth on the first page of this Agreement with a copy sent to the General Counsel of Goldman Sachs, also at the address appearing above. Notice to Cunningham shall be sent in duplicate to Robert Margulies, Margulies, Wind, Herrington & Knopf 15 Exchange Place, Suite 510, Jersey City, New Jersey 07302-3912. Section 17. LIMITATION OF LIABILITY 13 NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT WILL CUNNINGHAM OR GOLDMAN SACHS BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST BUSINESS OR PROFITS. DIRECT DAMAGES SUFFERED BY THE AFFILIATES SHALL NOT BE CONSIDERED CONSEQUENTIAL DAMAGES BUT ARE DIRECT DAMAGES FOR PURPOSES OF THIS PROVISION. Section 18. MICROFICHE SERVICES 18.1 Cunningham has agreed to provide Goldman Sachs with the right to use a portion of the Print Shop for purposes of operating certain equipment (the "Microfiche Equipment"), currently located at that site, subject to the terms of a separate agreement. 18.2 The Microfiche Equipment will not be operated by Cunningham, but will be operated, maintained and supported by Goldman Sachs. Goldman Sachs shall be responsible for obtaining any licenses, permits, or other approvals required to operate the Microfiche Equipment. 18.3 Cunningham shall perform the Services and otherwise use the Print Shop in such a way as to avoid any interruption or interference with Goldman Sachs' use of the Microfiche Equipment. Section 19. USE OF SUBCONTRACTORS Cunningham may delegate or subcontract its responsibilities under this Agreement without the express written consent of Goldman Sachs, provided, however, that it may not subcontract or otherwise cause to be performed by third parties, any printing or fulfillment services related to Confirms or Client Statements. Such approval shall not release Cunningham from responsibility for the work of its subcontractors. Without limitation, Cunningham shall assume liability for any delay, default, or breach caused by its subcontractors, and failure of such subcontractors to comply with the terms of this Agreement, including those terms addressing confidentiality. Section 20. ACKNOWLEDGEMENT AS TO AFFILIATES Cunningham and Goldman Sachs hereby specifically acknowledge and agree that it is their intention i) that all of the products and/or Services contemplated by this Agreement be made available to the Affiliates, ii) that the Affiliates be entitled to enforce this Agreement, and iii) that the Affiliates be third party beneficiaries of this Agreement. Section 21. GENERAL 21.1 This Agreement and the attached Schedules supersede all 14 prior agreements and understanding between the parties for performance of the Services, and constitute the complete agreement and understanding between the parties unless modified in a writing, signed by both parties. 21.2 This Agreement is not assignable in whole or in part by either party without the prior written consent of the other party, which consent shall not be unreasonably withheld, and any attempt to make such assignment shall be void. Notwithstanding the foregoing, (i) Goldman Sachs may assign this Agreement to any entity which controls, is controlled by or under common control with Goldman Sachs or (ii) to any entity which succeeds to all or substantially all of Goldman Sachs' assets or business. 21.3 If any provision of this Agreement (or any portion thereof) is determined to be invalid or unenforceable the remaining provisions of this Agreement shall not be affected thereby and shall be binding upon Goldman Sachs and Cunningham and shall be enforceable as though said invalid or unenforceable provision (or portion thereto) were not contained in this Agreement. 21.4 The failure by either Goldman Sachs or Cunningham to insist upon strict performance of any of the provisions contained in this Agreement shall in no way constitute a waiver of its rights as set forth in this Agreement, at law or in equity, or a waiver of any other provisions or subsequent default by the other party in the performance or compliance with any of the terms and conditions set forth in this Agreement. 21.5 The following Sections shall survive termination of this Agreement: 4.2, 7, 8, 9, 13, 14, 16, 17, 20, and 21.7. 21.6 The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to Sections or Schedules shall, unless otherwise provided, refer to Sections hereof or Schedule attached hereto, all of which are incorporated herein by this reference. 21.7 This Agreement is deemed entered into in New York, New York and shall be governed and construed in all respects by the laws of the State of New York without giving effect to principles of conflict of laws. The parties consent to personal jurisdiction of and venue in the state and federal courts within that county. IN WITNESS WHEREOF, the parties hereto, each acting under due and proper authority, have executed this Agreement as of the date written above. 15 CUNNINGHAM GRAPHICS, INC. GOLDMAN, SACHS & CO. on behalf of itself and the Affiliates By: /s/ Michael R. Cunningham By: --------------------------- ------------------------------- Name: Michael R. Cunningham Name: -------------------------- ----------------------------- Title: Pres Title: ------------------------- ---------------------------- 16 Schedule A I. Description Of Services: The Services shall include the items listed below: A. Offset printing services including non-heat set web printing and multi-color sheet fed printing related to the production of research reports and miscellaneous printing. B. On Demand network printing services related to the production of documents with short run lengths. C. Mainframe printing and fulfillment services related to the production of Goldman Sachs Daily and Monthly Client Statements, in a timely manner to satisfy the Schedules described herein. D. Dedicated Customer Service Representatives to facilitate Goldman Sachs user requests for assistance through different phases of the document production process including: job estimating and scheduling and quality assurance. E. Labeling and addressing capabilities for distribution of documents to destinations worldwide as designated by Goldman Sachs. F. General fulfillment services including automated and manual inserting, folding, saddle stitching, perfect binding and in-line glue binding, three hole punching, shrink wrapping and package assembly. G. Comprehensive job tracking systems with direct, read-only accessibility by key Goldman Sachs users. Systems will have the capacity to extract and print out various metrics and production reports (specified in Schedule A, Section II.D.), on a regular and ad hoc basis. H. Quality assurance programs designed to monitor the production process and easily and quickly confirm compliance with customer specifications, service requirements, performance standards, and the Service Criteria set by Goldman Sachs. I. Ongoing user study programs and reporting systems. J. Pick-up and delivery service at designated times specified by Goldman Sachs between 85 Broad Street, 1 NY Plaza, and the Print Shop and Cunningham's 17 other locations. K. At the request of Goldman Sachs, Cunningham will attend review meetings to monitor and review performance by Cunningham of the Services. L. To deal with obligation to meet mail stream deadlines consistent with established pick-up times of Goldman Sachs selected mail stream service providers. II. Service Criteria: Cunningham shall meet the following Service Criteria in its performance of the Services: A. Operating Hours for the Print Shop: Monday - Saturday 24 hours (Monday 5:00 am - Saturday 8:00 am) All other hours scheduled as needed to satisfy the requirments contained herein. (During the production process of Monthly Client Statements, designated statement teams will work in consecutive shifts until statements are completed. In the event that statement production must occur over a weekend or holiday, Cunningham is required to provide hours of operation beyond those stated above at no additional cost to Goldman Sachs in order to prepare materials for pick-up by 8:00 am on the next business day). B. Turnaround Time:* 1. Web Printing: Saddle Stitched Books: - - Priority Plus Within (1) - - Priority Within - - Standard Within Perfect Bound Books: - - Priority Plus Within - - Priority Within - - Standard Within *Turnaround Times for reports are from point of receipt of files and include pre-press preparations, printing and binding. Inserting, labeling (if required) and preparations for delivery, all of which must be completed within the times specified, or as needed to meet overnight delivery in the United States and Europe and two day delivery for Asia and Australia. - ------------- (1) Up to 32 pages of text, self covered. Confidential treatment requested-portions filed separately with the Commission. 18 To the extent specified completion times would result in job completion prior to the earliest scheduled delivery for the next day's delivery of finished reports, the completion time will be extended to the first regularly scheduled delivery time, unless Goldman Sachs specifically requests earlier delivery. Cunningham is not responsible for delays due to third party courier services or otherwise covered by the Agreement's Force Majeure provisions. The following reports occur weekly with pre-existing delivery schedules:
Report Day To Print Day Clients Must Receive* Asian Weekly Analyst Japan Research Viewpoint Weekly Analyst US Research Viewpoint Japan Economics Analyst UK Weekly Analyst US Economics Analyst Fixed Income Weekly Mortgage Weekly
The following reports occur biweekly and on the same day with pre-existing delivery schedules:
Report Day To Print Day Clients Must Receive* Latin America Viewpoint Asia Viewpoint Emerging Debt Markets
The following reports occur monthly with pre-existing delivery schedules:
Report Day To Print Day Clients Must Receive* Int'l Economics Analyst UK Economics Analyst Monthly Fund Update(MFU) Bank Fund Update(BFU) TCU
* To US. Domestic Locations 2. Mainframe Printing: The following documents occur daily with pre existing delivery schedules: Confidential treatment requested-portions filed separately with the Commission. 19
Document Schedule GS&Co. and GSI Confirms of Trade Printing begins late pm each business day Monday - Friday; inserted, metered and ready for pick-up by appropriate delivery services by Chicagos, Futures, Micros and Prime Printed after GS&Co. and GSI Confirms and inserted Broker Statements
The following documents occur biweekly with pre existing delivery schedules:
Document Schedule T&E's To be agreed upon by the parties
The following documents occur monthly with pre existing delivery schedules:
Document Schedule Month End Client Statements Printed, inserted, labeled (if required), metered and made ready for pick-up by appropriate delivery services within of receipt of GS "check-out" Chicagos, Futures, Micros, Prime Brokers, Dividend Checks, and PCS Statements Printed, inserted, labeled (if required), metered and made ready for pick-up by appropriate delivery services following Client Statements
The following documents occur quarterly with pre existing delivery schedules:
Document Schedule J. Arons To be agreed upon by the parties
The following documents occur annually with pre existing delivery schedules:
Document Schedule 1099's and 1040's To be agreed upon by the parties
3. Sheetfed Printing: Document Schedule Krome Kote Covers Within (Quantities up to 200, 1 - 4 colors, single side) Invitations Within (Quantities up to 200, 1 - 4 colors, single side and standard GS&Co. return address envelopes) Confidential treatment requested-portions filed separately with the Commission. 20 All other sheetfed printing services will be provided as needed on an individual basis. 4. Miscellaneous Printing: Document Schedule Tip-Ons/FYI Cards (Quantities up to 500, 1 color, single sided) Buck Slip Note pads (Quantities of 40 pads/order, 1 color, single sided) NCR Forms (2-5 parts) (Quantities of 500 to 2500. 1 color, one side.) 5. Delivery Services Regular delivery service by truck or van is required between Goldman Sachs locations (85 Broad Street and One New York Plaza) and Cunningham premises (111 Eighth Avenue and Jersey City, NJ). The following schedule is to be maintained each business day, Monday - Friday (Saturday upon request at an additional charge in an amount no greater than the cost incurred by Cunningham in relation to such services), at a minimum: Arrives at 85 Broad St/1 NY Plaza: Departs 85 Broad St/1 NY Plaza: 9:30 am 11:30 am 2:30 pm 4:30 pm 6:30 pm Supplemental pick - ups and deliveries will be made available upon request. D. Comprehensive Job Tracking System Cunningham is required to provide a management information system (MIS) with data collection, job tracking, management reporting and inventory functions. Within 60 days of the Commencement Date, Goldman Sachs user requirements, invoice formats and management reporting procedures will be agreed upon by Goldman Sachs and Cunningham. Cunningham must provide Goldman Sachs with various management reports which are specified below. All reports are to be submitted to the Goldman Sachs Contract Administrator and/or Goldman Sachs designated user interface by the specific time and day mutually agreed upon by Goldman Sachs and Cunningham. All reports must be available in a PC-readable electronic format. Additionally, Cunningham is to provide read only access to its MIS system, updated every quarter hour during regular business hours and periodically thereafter, for the purpose of key Goldman Sachs users viewing projects in various stages of the production process. For billing purposes, Goldman Sachs may require the integration of the vendor's management information system with Goldman Sachs' Accounts Payable System and will specify data items to be captured as well as data formats and network protocols. 1. Reports to be Submitted to the Goldman Sachs Contract Administrator and or Purchasing Confidential treatment requested-portions filed separately with the Commission. 21 Department: Late/Error Job Report - Daily This report details those jobs that were delivered outside of the user's specifications, a brief description as to why the lateness or error occurred and Cunningham's recommendations or actions to prevent further occurrences. This report is submitted to the Contract Administrator. Goldman Sachs Supplied Inventory Report - Monthly This report lists the Goldman Sachs consumables and supplies held in stock by Cunningham and a list of all Goldman Sachs purchase order requests submitted during the period. The report is printed on or about the first of every month and submitted to the Goldman Sachs Purchasing department. Chargeback Report - Weekly This report details all production expenses generated off of pre-set pricing grids as stated in Schedule C. This report is contingent to the billing invoice for the same period and provides greater detail for chargebacks to the user departments based on actual production. This report is submitted weekly to the Contract Administrator and Purchasing department for auditing purposes. Summary Chargeback Report - Monthly This report is a summary of the weekly Chargeback Reports and is submitted to the Contract Administrator and Purchasing department along with the month-end invoice. The Internal Mailing List Activity Report - As Needed This report details all lists that are currently archived and have been active within the last year, the number of times each list had been utilized and date of last update. Access to this report is restricted to the Contract Administrator, Department Heads and Administrators and is printed at their request. 2. Reports to be Submitted to Key User Groups: Active Job Report - AM and PM Daily Lists all active jobs, their priority and status in the production cycle. The list is generated twice each business day: at the start of first shift (@ 8:00 am), and at the start of second shift (@ 4:00 pm). The lists are made available to the key users by the stated times via direct access. Late/Error Job Report - Daily This report details those jobs that were delivered outside of the user's specifications, a brief description as to why the lateness or error occurred and the vendor's recommendations or actions to prevent further occurrences. This report is specific to key user department/division and is submitted to the designated contact within that area. Various Production and Cost Reports - As Needed Detail to Come E. Quality Assurance Programs and Document Specifications Web Printing The following is a list of report titles and corresponding colors designated for use on report covers, (samples attached). 22 Title Bar Ink Color * Bell Grey 430 Commodity Research Pantone Purple Convertible Research Green 326 Corporate Bond Research Orange 021 Credit Department Research Red 193 Economic Research Green 356 Emerging Debt Markets Research Green 356 Energy Futures And Options Custom Red Equity Derivatives Red 485 Fixed Income Research Custom Red FT- Actuaries World Indices Green 326 Fund Group Black Fund Group Purple 260 Fund Group Blue 300 Insurance Research Group Red 200 INTL Equities Strategies Gold 871 INV Mgmt Resource Group Brown 159 Investment Research Process Blue Mortgage Securities Research Custom Red Municipal Market Research Custom Red Portfolio Strategy Process Blue Quantitative Strategy Yellow 108 Real Estate Research Red 193 Research Brief Process Blue Strategy Brief Process Blue Goldman Sachs reserves the right to change the color of printed items, as may be specified in writing, and to the extent such changes are made, Cunningham shall modify the related printing accordingly. * All colors for use with uncoated paper stocks unless specifically instructed to print on coated stocks. F. Minimum Commitment levels For the period commencing as of the Commencement Date and continuing to and including , Goldman Sachs shall meet the following Minimum Commitments with respect to the printing of United States Equity and Fixed Income Research reports (the "Reports"), to the extent such printing is not performed by entities which are Affiliates of Goldman Sachs: (i) (ii) The volume of printing shall be based on the number of Reports printed and not on the actual page volume of the Report. Confidential treatment requested-portions filed separately with the Commission. 23 III. Service Credits A. In the event that printing services are not completed as scheduled, Cunningham shall provide for the delivery of the printed materials by means capable of reaching the intended recipients in accordance with the schedule that would have been met had the printing been completed on time. If such arrangement cannot be made, Cunningham shall provide Goldman Sachs with a refund of percent of the cost of the printing and fulfillment services performed by Cunningham in relation to that portion of the assignment that was not delivered on time. B. Cunningham shall reprint any materials that do not meet required specifications for printed materials at no additional cost to Goldman Sachs. If the delivery of the printed materials is delayed due to problems with the quality of the printed material, Cunningham shall provide Goldman Sachs with a refund of percent of the cost of the printing and fulfillment services performed by Cunningham in relation to the delayed delivery. C. If an assignment for the performance of printing services is deemed unfit for distribution by Goldman Sachs due to deficiencies in the Services provided by Cunningham, there shall be no fee owed to Cunningham for the related Services. Additionally, Goldman Sachs shall be entitled to a credit equal to percent of the value of such Services. D. Cunningham shall keep a record of the Service Credits accumulated during the Term. The Service Credits shall be off-set against the invoices submitted to Goldman Sachs on a monthly basis. Confidential treatment requested-portions filed separately with the Commission. 24 Schedule B The Personnel shall include the following: Name Date of Birth 25 Schedule C Goldman Sachs Obligations Provide adequate supply of paper and related envelopes, for support of Confirms or Client Statements. Provide telecommunications links to interface with Goldman Sachs from both the Print Shop and a second location designated by Cunningham. 26 Schedule D PRICING In addition to the pricing proposal materials included with Cunningham's proposal dated January 8, 1996, pricing for the Services shall be as follows: Price increases may not exceed to reflect increased costs to Cunningham for expenses other than paper. As relates to , the only available increase relates to the . Volume Discounts Based on the information in the RFP dated October 1995 we estimate the annual research report web impressions to be approximately impressions. This includes all the current work that is being out-sourced. We propose the following on an annual basis during the life of the contract: The discounts for the period of time from the Commencement Date to the end of the first calendar year of the Term shall be applied on a pro rata basis. The stated discounts are not cumulative but apply to that volume of printing beyond the stated threshold. Paper Pricing for 1st six months then above average weighted cost for prior for every thereafter during the life of the contract. Confidential treatment requested-portions filed separately with the Commission. 27 Schedule E NON-DISCLOSURE AGREEMENT I. Non-Disclosure In connection with services now or in the future performed by the undersigned for Goldman, Sachs & Co. or for any subsidiary or affiliate of Goldman, Sachs & Co. (collectively called "Goldman Sachs"), the undersigned may have access to non-public information or materials describing or relating to Goldman Sachs or its clients, or third parties to whom Goldman Sachs has a duty of confidentiality, including materials describing or relating to the business affairs, policies or procedures of Goldman Sachs or its clients or such third parties; formulas; strategies; methods; processes; computer materials including source or object codes, data files, computer listings, computer programs, and other computer materials (regardless of the medium in which they are stored); or other information ("Confidential Information"). With respect to such Confidential Information, the undersigned acknowledges and agrees as follows: 1. The undersigned will hold Confidential Information in strict confidence and will not, nor will it permit any agent, servant or employee to, copy, reproduce, sell, assign, license, market, transfer or otherwise dispose of, give or disclose Confidential Information to any person, firm or corporation including any partner or employee of Goldman Sachs who does not have a need to know the Confidential Information. 2. Upon the termination of the services to be performed by the undersigned (or earlier if requested by Goldman Sachs), the undersigned shall return to Goldman Sachs all copies of documents, papers or other material relating to Goldman Sachs or obtained or developed in the course of performing services for Goldman Sachs, or containing or derived from Confidential Information which are in the undersigned's possession, together, if requested by Goldman Sachs, with a certificate signed by the undersigned, in form and substance satisfactory to Goldman Sachs, to the effect that all such Confidential Information has been returned. II. Non-Promotion The undersigned agrees that the undersigned will not, without the prior written consent of Goldman Sachs in each instance: (a) use in advertising, publicity or otherwise the name of Goldman Sachs or any trade name, trademark, trade device, servicemark, symbol or any abbreviation, contraction or simulation thereof owned by Goldman Sachs; or (b) represent, directly or indirectly, that any product or any service provided by the undersigned has been approved or endorsed by Goldman Sachs. 28 III. Non-Employment The undersigned affirms that the undersigned is not an employee of Goldman Sachs for any purpose and that the undersigned is not entitled to exercise any rights, or seek any benefit, accruing to the regular employees of Goldman Sachs by virtue of the services rendered by the undersigned to Goldman Sachs or otherwise. The undersigned agrees to provide any assistance necessary to Goldman Sachs in investigating any illegal or fraudulent activities, security breaches or similar situations. IV. Background Check and Testing The undersigned agrees that in connection with performing the services contemplated by this Agreement, he or she may be subject to a background check, including employers, education, credit, criminal public record, drug screen or other checking or testing, and the undersigned consents to the foregoing. The undersigned hereby releases Goldman Sachs, its employees and agents from any and all liability or claims arising from such checking and testing and the use and reporting of the results thereof except for those arising due to the negligence of Goldman Sachs. The obligations created by this Agreement shall survive the termination of the services of the undersigned. The undersigned acknowledges that any violation, breach or other failure on the undersigned's part to strictly comply with this Agreement could materially adversely affect Goldman Sachs and its business, thus giving rise to suit for monetary damages and/or injunctive relief for such violation, breach or other failure. /s/ Michael R. Cunningham ----------------------------------- (Signature) Michael R. Cunningham ----------------------------------- (Print Name) ----------------------------------- (Date) 29 ADDENDUM NO. 1
Reference is made to the Printing Services Agreement dated as of July 12, 1996 (the "Agreement") between CUNNINGHAM GRAPHICS, INC. ("Cunningham") and GOLDMAN, SACHS & CO. ("Goldman Sachs"), to which this Addendum No. 1 is attached and of which it is made a part, which Agreement is hereby amended and supplemented as follows: 1. Defined Terms. All terms defined in the Agreement, except as otherwise defined herein, shall have the same meanings where used herein. 2. Charges. The Agreement is amended to reflect the following charges: 8 1/2" x 11" per side on 20# white DP or equivalent stock uncollated corner stitched saddle stitch tape bind 9 x 12 insertion charges and the additional insert charges for Goldman Sachs Research Print Jobs (excluding per bound books). /M All other Goldman Sachs jobs to be inserted into 9 x 12 envelopes /M 3. General. (a) The Agreement together with the Exhibits and this Addendum replaces and supersedes all other agreements, written or oral with respect to its subject matter. (b) Except as expressly amended and supplemented hereby, the Agreement remains in full force and effect. (c) In the event of any conflict between the terms of this Addendum and the terms of the Agreement, the terms of this Addendum shall prevail.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum No. 1 to be signed as of ______________________________________________, 1996 CUNNINGHAM GRAPHICS, INC. GOLDMAN, SACHS & CO. By: /s/ Michael R. Cunningham By: __________________________________ __________________________________ President ______________________________________ _____________________________________ Name and Title Name and Title Confidential treatment requested-portions filed separately with the Commission. EX-10.11 9 LEASE AGREEMENT Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 Mr. Michael Cunningham, President Cunningham Graphics, Inc. 629 Grove Street Jersey City, N.J. 07310 RE: Lease dated April 18, 1989 and all related amendments, between Lackawanna Warehouse Corporation of New Jersey, Lessor and Cunningham Graphics, Inc., lessee for approximately 94,443 square feet of space located as follows: (41,993 square feet on the seventh floor; 11,750 square feet on the fifth floor and 40,700 square feet on the third floor). In addition they will be leasing 22,000 square feet parking area. - -------------------------------------------------------------------------------- Gentlemen: By your signature in the space provided below, the above captioned lease shall be amended as follows: 1. LEASE TERMINATION DATE: Lease shall be renewed for a period of three (3) years to commence on March 1, 1997 and to terminate on February 29, 2000. 2. RENTAL FOR RENEWAL PERIOD: March 1, 1997 to February 29, 2000 shall be $3.50 per square foot, for building space, therefore annual rental to be THREE HUNDRED THIRTY THOUSAND FIVE HUNDRED FIFTY DOLLARS AND FIFTY CENTS ($330,550.50) payable at a monthly rate of TWENTY SEVEN THOUSAND FIVE HUNDRED FORTY FIVE DOLLARS AND EIGHTY SEVEN CENTS ($27,545.87) in advance on the first day of each and every month. 3. PARKING AREA: Rental for 22,000 square feet of parking area shall be at the annual rate of NINE THOUSAND DOLLARS AND NO CENTS ($9,000.00) payable at the monthly rate of SEVEN HUNDRED FIFTY DOLLARS AND NO CENTS ($750.00) in advance on the first day of each and every month. Parking Area is rented with gate, "AS IS", tenant is responsible for cleaning and maintaining area. 4. SIGNAGE: Frontal signage (not to exceed 6' x 10') and parking signage, to be installed at Tenant's own cost, subject to landlord's prior approval of location and specifications. 5. FREIGHT ELEVATOR DOORS: Freight elevators # 13 and 15, 1st floor doors only brought up to par prior to renewal 6. FOSTER CARROLL SPACE: 5,875 square feet on the third floor shall be leased to Cunningham Graphics, Inc., providing Foster Carroll, the current tenant, gives its consent. 7. 1ST OPTION ON ADDITIONAL SPACE: First option on any vacant space, on 3rd, 5th and 7th floors, at market rate rental to be taken "AS IS". 8. CLAUSE #53: Escalation tax shall be amended to base tax year of 1997 and 9.4% of any and all increases in real estate taxes. 9. CREDIT: Tenant shall be given a one-time credit of TEN THOUSAND DOLLARS AND NO CENTS ($10,000.00) against the first month's rent, March 1997. 10. SECURITY/PRE-PAID RENT: The amount of $23,220.16 shall be transferred over to lease renewal. The parties hereto agree to be bound by the same terms, conditions, provisions, rules and regulations embodied at length in said lease dated April 18, 1989, except as specifically modified herein. The said lease and addendum shall form a part of as though included fully at length herein and forms a part hereof by reference thereto, except as specifically mentioned in the renewal agreement. LANDLORD: TENANT: LACKAWANNA WAREHOUSE CORPORATION CUNNINGHAM GRAPHICS OF NEW JERSEY BY: /s/ Louisa Little BY: /s/ Michael Cunningham ----------------------------- ----------------------------- Louisa Little, Agent Michael Cunningham, President DATE: 10/15/96 DATE: 10/8/96 Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 April 17, 1997 Cunningham Graphics, Inc. 629 Grove Street Jersey City, N.J. 07310 RE: Lease Dated: 1/9/97 Leased Area: 2nd Floor Square Footage: 12,200 SF By your signature in the space provided below this lease shall be amended as follows: 1. Term of lease will begin June 1, 1997 and terminate on February 29, 2000. (Present month to month lease dated 1/9/97 is, as of June 1, 1997, a two year, nine (9) month lease). 2. Rental shall be at the monthly rate of $4.25 per annum per square foot which equals to the annual rate of FIFTY ONE THOUSAND EIGHT HUNDRED FIFTY DOLLARS AND NO CENTS ($51,850.00) payable at the monthly rate of FOUR THOUSAND THREE HUNDRED TWENTY DOLLARS AND EIGHTY THREE CENTS ($4,320,83) payable in advance of the first day of each and every month. 3. Clause 53: Escalation tax shall have a base year of 1997 and a rate of 1.2% of any and all increases in real estate taxes. 4. Tenant is given approval to drill a hole approximately 16" between the 2nd and 3rd floors, to install scrap paper removal system, any alterations must be repaired at end of lease. 5. Tenant is given permission to install and have access to the overhang off the 3rd floor as to install air conditioning and heating unit for new office space on the third floor. 6. Landlord will provide an independent 200 AMP service so you will be billed directly by the utility company. 7. Landlord will connect existing gas service to tenant's meter so you will be billed directly by the utility company. 8. Upon signing this lease, tenant will deposit with landlord check in the amount of EIGHT THOUSAND SIX HUNDRED FORTY ONE DOLLARS AND SIXTY SIX CENTS ($8,641.66) which will represent pre-paid rent for the final two months of this lease. All terms and conditions of "the lease" dated January 9, 1997, shall remain the same except as herein provided for the coverage of said space. AGREED & ACCEPTED AGREED & ACCEPTED LANDLORD: TENANT: Lackawanna Warehouse Corp. of New Jersey Cunningham Graphics, Inc. By: /s/ Louisa Little By: /s/ Robert Needle - -------------------------- -------------------------- Louisa Little, Agent Robert Needle Co-Chief Operating Officer [SECOND FLOOR DIAGRAM] Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 o Cunningham Graphics, Inc. Please refer to o 629 Grove Street Date 2/18/93 INVOICE No. LT 2/68 o Jersey City, N.J. 07310 when remitting - --------------------------------------------------------------------------------
TAX ESCALATION FOR PERIOD 1/1/92 - 12/31/92 AMOUNT TOTAL - ------------------------------------------- ------ ----- 1/1/92 - 2/28/92: Final two months of term 1992 REAL ESTATE TAXES PAID $ 953,493.68 1988 REAL ESTATE TAX BASE YEAR 477,152.73 ------------- 476,340.95 Difference as per clause #53 4.2% (PRO-RATE) 20,006.32 ------------- div. 12/times two mos. occup. 3,334.38 $3,334.38 $3,334.38 RENEWAL: 3/1/92 - 12/31/92 1992 REAL ESTATE TAXES PAID $ 953,493.68 1991 TAX BASE YEAR 899,923.87 ------------ DIFFERENCE 53,569.81 AS PER CLAUSE # 53 4.2% ------------- 2,249.93 (PRO-RATE) ------------- div. 12 x 10 mos. occupancy = 1,874.90 1,874.90 1,874.90 --------- -------- TOTAL DUE: 1992 $5,209.28 $5,209.28
MAILING COPY -------------------------------------------- STANDARD FORM OF LOFT LEASE The Real Estate Board of New York, Inc. (C)Copyright 1982. All Rights Reserved. Reproduction in whole or in part prohibited. -------------------------------------------- Agreement of Lease, made as of this 18th day of April 1989, between Lackawanna Warehouse Corp. of New Jersey, A New Jersey Corporation having it's office located at 629 Grove Street, Jersey City, New Jersey 07310 party of the first part, hereinafter referred to as OWNER, and Cunningham Graphics, Inc, 629 Grove Street Jersey City, N.J. 07310 party of the second part, hereinafter referred to as TENANT, Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner approximately 12,900 square feet of space located on the 7th floor as shown in red on the attached floor plan in the building known as 629 Grove Street, in the City of Jersey City, State of New Jersey, for the term of TWO (2) YEARS & TEN (10) MONTHS (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of May nineteen hundred and eighty-nine, and to end on the 28th day of February nineteen hundred and ninety-two both dates inclusive, at an annual rental rate of FORTY-ONE THOUSAND NINE-HUNDRED AND TWENTY-FIVE DOLLARS ($41,925.00) payable at the monthly rate of THREE-THOUSAND FOUR-HUNDRED NINETY-THREE DOLLARS AND SEVENTY-FIVE CENTS ($3,493.75) in advance on the first day of each and every month which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first ____ monthly installment(s) on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with Owner or with Owner's predecessor in interest, Owner may at Owner's option and without notice to Tenant add the amount of such arrears to any monthly installment of rent payable hereunder and the same shall be payable to Owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby convenant as follows: Occupancy: 1. Tenant shall pay the rent as above and as hereinafter provided. Use: 2. Tenant shall use and occupy demised premises for printing and related matter provided such use is in accordance with the Certificate of Occupany for the building, if any, and for no other purpose. The landlord states that tenants use of the premises is in conformance with the Certificate of Occupancy. Alterations: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant at Tenant's expense, may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises using contractors or mechanics first approved by Owner. Tenant shall, at its expense, before making any alterations, additions, installations or improvements obtain all permits, approval and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner. Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within thirty days after notice thereof, at Tenant's expense, by filing the bond required by law or otherwise. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner on Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises, unless Repairs: 4. Owner shall maintain and repair the exterior of and the public portions of the building and make all repairs to the heating and plumbing systems not caused by Tenant's neglect or misconduct. Tenant shall, throughout the term of this lease, take good care of the demised premises including the bathrooms and lavatory facilities (if the demised premises encompass the entire floor of the building) and the windows and window frames and, the fixtures and appurtenances therein and at Tenant's sole cost and expense promptly make all repairs thereto and to the building, whether structural or non-structural in nature, caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's servants, employees, invitees, or licensees, and whether or not arising from such Tenant conduct or omission, when required by other provisions of this lease, including Article 6. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten days notice, to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Owner at the expense of Tenant, and the expenses thereof incurred by Owner shall be collectible, as additional rent, after rendition of a bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant shall give Owner prompt notice of any defective condition in any plumbing, heating system or electrical lines located in the demised premises and following such notice, Owner shall remedy the condition with due diligence, but at the expense of Tenant, if repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty with regard to which Article 9 hereof shall apply. Window Cleaning: 5. [PARAGRAPH DELETED] Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or the Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof, or, with respect to the building, if arising out of Tenant's use or manner of use of the demised premises or the building (including the use permitted under the lease). Except as provided in Article 30 hereof, nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire of other policies of insurance at any time carried by or for the benefit of Owner. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization and other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the insurance rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. If by reason of failure to comply with the foregoing the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" or rate for the building or demised premises issued by a body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designated to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and prevent vibration, noise and annoyance. Subordination: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument or subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall execute promptly any certificate that Owner may request. Property--Loss, Damage, Reimbursement, Indemnity: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence or willful misconduct of Owner, its agents, servants or employees; Owner or its agents shall not be liable for any damage caused by other tenants or persons in, upon or about said building or caused by operations in connection of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Owner's own acts, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable or access is denied by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner, subject to Owner's or tenant right to elect not to restore the same as herein after provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner or tenant shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant, given within 90 days after such fire or casualty, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Owner's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extend that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and to the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefiting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. Eminent Domain: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Assignment, Mortgage, Etc.: 11. [PARAGRAPH DELETED] Electric Current: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing leeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. Access to Premises: 13. Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, upon reasonable notice to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to any portion of the building or which Owner may elect to perform in the premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein provided, wherever possible, they are within walls or otherwise concealed. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours upon reasonable notice for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period, place upon the premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. In the event of an emergency, if Tenant is not present to open and permit an entry into the premises, Owner or Owner's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected, Upon Tenant's consent if during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom, Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations hereunder. Vault, Vault Space, Area: 14. No Vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant, if used by Tenant, whether or not specifically leased hereunder. Occupancy: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant shall be responsible for and shall procure and maintain such license or permit. Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Default: 17. (1) If Tenant defaults beyond any applicable grace periods in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted "or if this lease be rejected under ss. 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if Tenant shall make default with respect to any other lease between Owner and Tenant; or if Tenant shall have failed, after five (5) days written notice, to redeposit with Owner any portion of the security deposited hereunder which Owner has applied to the payment of any rent and additional rent due and payable hereunder or failed to move into or take possession of the premises within fifteen (15) days after the commencement of the term of this lease, of which fact Owner shall be the sole judge; then in any one or more of such events, upon Owner serving a written fifteen (15) days notice upon Tenant specifying the nature of said default and upon the expiration of said five (5) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said 15-day period and if Tenant shall not have diligently commenced during such default within such five (5) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written three (3) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said three (3) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid: or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required: then and in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceeding or otherwise, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Owner may cancel and terminate such renewal or extension agreement by written notice. Remedies of Owner and Waiver of Redemption: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent, and additional rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's convenants herein contained, any deficiency between the rent hereby reserved and or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option make such alterations, repairs, replacements, and / or decorations in the demised premises as Owner, in Owner's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and / or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws. Fees and Expenses: 19. If Tenant shall default beyond any applicable grace periods in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorney's fees, in instituting, prosecuting or defending any action or proceedings, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within five (5) days of rendition of any bill or statement to Tenant therefor. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. Building Alterations & Management: 20. Owner shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or designation by which the building may be known. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenant making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of owner's imposition of any controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. NO REPRESENTATIONS BY OWNER: 21. Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the demised premises or the building except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" on the date possession is tendered and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. End of Term: 22. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property from the demised premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be legal holiday in which case it shall expire at noon on the preceding business day. Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants, and conditions , on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject nevertheless, to the terms and conditions of this lease including, but not limited to, Article 34 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. Failure to Give Possession: 24. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or if Owner has not completed any work required to be performed by Owner, or for any other reason, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession or complete any work required) until after Owner shall have given Tenant notice that the premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease. Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. No Waiver: 25. The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. All checks tendered to Owner as and for the rent of the demised premises shall be deemed payments for the account of Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to operate as an attornment to Owner by the payor of such rent or as a consent by Owner to an assignment or subletting by Tenant of the demised premises to such payor, or as a modification of the provisions of this lease. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and 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 (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding. Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Owner is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever beyond Owner's sole control including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. Bills and Notices: 28. Except as otherwise in this lease provided, a bill, statement, notice or communication which Owner may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered it, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant or left at any of the aforesaid premises addressed to Tenant, and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Owner must be served by registered or certified mail addressed to Owner at the address first hereinabove given or at such address as Owner shall designate by written notice. Water Charges: 29. If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the sole judge) Owner may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost of the meter and the cost of the installation, thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense in default of which Owner may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered, and on default in making such payment Owner may pay such charges and collect the same from Tenant, as additional rent. Tenant covenants and agrees to pay, as additional rent, the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the demised premises or the realty of which they are part pursuant to law, order or regulation made or issued in connection with the use, consumption, maintenance or supply of water, water system or sewage or sewage connection or system. Independently of and in addition to any of the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may sue for and collect any monies to be paid by Tenant or paid by Owner for any of the reasons or purposes hereinabove set forth. Sprinklers: 30. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government recommend or require the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expense, promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. Tenant shall pay to Owner as additional rent the sum of $________________________, on the first day of each month during the term of this lease as Tenant's portion of the contract price for sprinkler supervisory service. Elevators, Heat, Cleaning: 31. As long as Tenant is not in default under any of the convenants of this lease Owner shall: (a) provide necessary passenger elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is provided, same shall be provided only on regular business days Monday through Friday inclusive, and on those days only between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat, water and other services supplied by Owner to the demised premises, when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (d) clean the public halls and public portions of the building which are used in common by all tenants. Tenant shall, at Tenant's expense, keep the demised premises, including the windows, clean and in order, to the satisfaction of Owner, and for that purpose shall employ the person or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Owner to Tenant at such time as Owner may elect and shall be due and payable hereunder, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Owner. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgment of Owner, are necessary for the proper operation of the building. Owner reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgment of Owner desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall have been completed. If the building of which the demised premises are a part supplies manually operated elevator service, Owner may proceed with alterations necessary to substitute automatic control elevator service upon ten (10) day written notice to Tenant without in any way affecting the obligations of Tenant hereunder, provided that the same shall be done with the minimum amount of inconvenience to Tenant, and Owner pursues with due diligence the completion of the alterations. Security: 32. [PARAGRAPH DELETED] Captions: 33. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. Definitions: 34. The term "Owner" as used in this lease means only the owner of the fee or of the leasehold of the building, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "rent" includes the annual rental rate whether so-expressed or expressed in monthly installments, and "additional rent." "Additional rent" means all sums which shall be due to new Owner from Tenant under this lease, in addition to the annual rental rate. The term "business days" as used in this lease, shall exclude Saturdays (except such portion thereof as is covered by specific hours in Article 31 hereof), Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. Adjacent Excavation--Shoring: 35. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. Rules and Regulations: 36. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations annexed hereto and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within ten (10) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Glass: 37. Owner shall replace, at the expense of the Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Owner may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of Owner. Bill for the premiums therefor shall be rendered by Owner to Tenant at such times as Owner may elect, and shall be due from, and payable by, Tenant, when rendered, and the amount thereof shall be deemed to be, and be paid, as additional rent. Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and / or to any other person, firm or corporation specified by Owner, a statement certifying that this Lease is unmodified in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not here exists any default by Owner under this Lease, and, if so, specifying each such default. Directory Board Listing: 39. If, at the request of and as accommodation to Tenant, Owner shall place upon the directory board in the lobby of the building, one or more names of persons other than Tenant, such directory board listing shall not be construed as the consent by Owner to an assignment or subletting by Tenant to such person or persons. Successors and Assigns: 40. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. Addendum to lease clause #41 to 66 Witness for Owner: LACKAWANNA WAREHOUSE CORP. OF NJ /s/ [illegible] BY: /s/ Frank Ryan, V.P. [L.S.] - -------------------------------- ------------------------------------------- Frank Ryan, Vice President (date) Witness for Tenant: CUNNINGHAM GRAPHICS, INC. /s/ [illegible] BY:/s/ Michael Cunningham, Pres. 5/5/89 [L.S.] - -------------------------------- --------------------------------------- ( ) (date) ACKNOWLEDGMENTS CORPORATE TENANT STATE OF NEW YORK, ss: County of ____________________ On this ___ day of _______________ , 19__, before me personaly came ____________________ to me known, who being by me duly sworn, did depose and say that he resides in ______________________________ that he is the _______________________ of __________________________ the corporation described in and which executed the foregoing instrument, as TENANT: that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. INDIVIDUAL TENANT STATE OF NEW YORK, ss: County of ____________________ On this day of ____, _____________ 19__, before me personally came ____________________ to me known and known to me to be the individual described in and who, as TENANT, executed the foregoing instrument and acknowledged to me that _________________ he executed the same. IMPORTANT--PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 36 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress or egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Owner. There shall not be used in any space, or in the public hall of the building, either by any Tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and sideguards. If said premises are situated on the ground floor of the building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in front of said premises clean and free from ice, snow, dirt and rubbish. 2. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited therein, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose clerks, agents, employees or visitors, shall have caused it. 3. No carpet, rug or other article shall be hung or shaken out of any window of the building; and no Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substances into any of the corridors or halls, elevators, or out of the doors or windows or stairways of the building and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Owner or other occupants of the buildings by reason of noise, odors, and or vibrations, or interfere in any way, with other Tenants or those having business therein, nor shall any animals or birds be kept in or about the building. Smoking or carrying lighted cigars or cigarettes in the elevators of the building is prohibited. 4. No awnings or other projections shall be attached to the outside walls of the building without the prior written consent of Owner. 5. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the demised premises or the building or on the inside of the demised premises if the same is visible from the outside of the premises without the prior written consent of Owner, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violation of the foregoing by any Tenant, Owner may remove same without any liability and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Interior sign on doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Owner at the expense of such Tenant, and shall be of a size, color and style acceptable to Owner. 6. No Tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 7. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or mechanism thereof. Each Tenant must, upon the termination of his Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant, and in the event of the loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof. 8. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Owner. Owner reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations of the lease of which these Rules and Regulations are a part. 9. No Tenant shall obtain for use upon the demised premises ice, drinking water, towel and other similar services, or accept barbering or bootblacking services in the demised premises, except from persons authorized by Owner, and at hours under regulations fixed by Owner. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall cooperate to prevent the same. 10. Owner reserves the right to exclude from the building between the hours of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at all hours on Sundays and legal holidays all persons who do not present a pass to the building signed by Owner. Owner will furnish passes to persons for whom any Tenant requests same in writing. Each Tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Owner for all acts of such persons. Notwithstanding the foregoing, Owner shall not be required to allow Tenant or any person to enter or remain in the building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. 11. Owner shall have the right to prohibit any advertising by any Tenant which in Owner's opinion, tends to impair the reputation of the building or its desirability as a loft building, and upon written notice from Owner, Tenant shall refrain from or discontinue such advertising. 12. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any inflammable, combustible or explosive fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the demised premises. 13. Tenant shall not use the demised premises in a manner which disturbs or interferes with other Tenants in the beneficial use of their premises. Address Premises ================================================================================ TO ================================================================================ [SEAL] STANDARD FORM OF [SEAL] LOFT LEASE The Real Estate Board of New York, Inc. (C)Copyright 1982. All rights Reserved. Reproduction in whole or in part prohibited. ================================================================================ Dated 19 Rent per Year Rent per Month Term From To Drawn by ____________________________________ Checked by _____________________ Entered by___________________________________ Approved by ____________________ ================================================================================ Addendum to lease dated April 18th, 1989, between, Lackawanna Warehouse Corp. of NJ; as Landlord and, Cunningham Graphics, Inc.; as tenant - -------------------------------------------------------------------------------- 41. It is understood and agreed that in the event of a conflict between the printed form and the attached rider, then, in that event, the language of the rider shall prevail as to the intent of the parties. 42. The tenant has examined and agrees to accept the demised premises in their existing condition and state of repair, and understands that there is to be no work performed by the landlord. 43. It is understood and agreed that at the termination of this lease, the tenant may remove any and all installation improvements made to the premises by them provided that the tenant repairs any damage caused by said removal. 44. The landlord herein represents that the floor load of the demised premises is 250 pounds per square foot, and the tenant herein agrees that it shall not exceed said floor load. 45. The tenant hereby agrees not to interpose any counterclaim or set-off of whatever nature or description, in any action or summary proceeding, by the landlord against the tenant, for non-payment of rent, damages or deficiency whether such action or summary proceeding be brought under this lease or any renewal, extension, holdover or modification thereof. Nothing herein contained however, shall be construed as a waiver of the tenant's right to commence a separate action on a bona fide claim against the landlord. 46. This lease may not be changed orally. 47. The tenant covenants and agrees to provide the landlord within ten (10) day's from the commencement date hereof and for the duration of the term of this lease, with a comprehensive policy of general liability insurance in which the owner/owners agent, Lackawanna Warehouse Corp. of NJ are the named additional insureds, for any and all claims arising during the term of this lease for damage or injuries to goods, wares, merchandise and property and/or for any personal injury or loss of life in, upon or about the demised premises; protecting the owner/owners agent, Lackawanna Warehouse Corp. of NJ and the tenant against any liability whatsoever occasioned by accidents on or about the demised premises, entrance lobbies, elevators and stairway's or any appurtenances thereto. Such policy is to be written by a good and solvent insurance company satisfactory to landlord in the amount of $500,000.00-----in respect to any one person,------------------ in the amount of $1,000,000.00---in respect to any one accident and------------- in the amount of $1,000,000.00---in respect to property damages. Such insurance may be carried under a blanket policy covering the demised premises and other locations of tenant, if any. Tenant agrees to deliver to landlord either a duplicate original of the aforesaid policy or a certificate evidencing such insurance provided said certificate contains an endorsement that such insurance may not be cancelled except upon ten (10) days notice to landlord together with evidence of payment for the policy. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder entitling landlord to exercise any or all of the remedies as provided in this lease in the event of tenant's default. 48. Anything herein to the contrary notwithstanding, this lease may not be assigned or sub-leased without the landlord's prior written approval, which approval shall not be unreasonable withheld or delayed, provided proposed sub-lessee is in the same type of business for similar type of business as stated in the use and occupancy clause of this lease. Provided that any use of the premises by affiliates, parent company, or subsidiaries of tenant shall not be considered an assignment or sub-lease hereunder. 49. It is understood and agreed that where any reference is made to the City of New York or the State of New York same shall be deemed to mean the City of Jersey City or the State of New Jersey. 50. Tenant shall secure written approval from landlord for any flush wall plaques the tenant shall desire to install. Landlord shall not unreasonably withhold it's permission to install such flush wall plaques in and around the subject premises and loading docks and landlord will insert the name of tenant on the building directory. Addendum to lease dated April 18, 1989, between, Lackawanna Warehouse Corp. of NJ; as Landlord, and, Cunningham Graphics, Inc.; as Tenant - -------------------------------------------------------------------------------- 51. "Tenant shall, at Tenant's own expense, comply with the Environmental Cleanup responsibility Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder ("ECRA"). Tenant shall, at Tenant's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Bureau of Industrial Site Evaluation (the "Bureau") of the New Jersey Department of Enviornmental protection ("NJDEP"). Tenant's obligations under this paragraph shall arise if there is any closing, terminating or transferring of operations of an industrial extablishment at the premises pursuant to ECRA. At no expense to Landlord, Tenant shall promptly provide all information requested by Landlord for preparation of non-applicability affidavits and shall promptly sign such affidavits when requested by landlord. Tenant shall indemnify, defend and save harmless Landlord from all fines, suits, procedures, claims and actions of any kind arising out of or in any way connected with any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this lease if such spills and discharges were caused by Tenant or resulted from Tenant's operation; and from all fines, suits, procedures, claims and actions of any kind arising out of Tenant's failure to provide all information, make all submissions and take all actions required by the ECRA Bureau or any other division of NJDEP. Tenant's duties hereunder shall be limited to the Tenant's use and/or operation of and at the premises." 52. Tenant will have access to the building, the passenger elevator, and freight elevator #16 twenty-four hours a day, seven (7) day's a week. 54. It is agreed and understood that in addition to the rental as set forth on the face of this lease, the tenant shall pay as an additional rental 1.2% [notation unclear] of any and all increases in real estate taxes (including assessments for publis betterments) covering the land and the building of which the premises are a part, known as BLOCK #292.A. Said increase shall be the amount charged by the City of Jersey City above the charge for the tax year ending December 31, 1988. Payment of such additional rental shall be made as billed by the landlord for each year of the term of the lease. And, such billing must be rendered no later than (90) day's after payment by landlord for each year of the term of this lease. 54. It is understood and agreed that the tenant shall pay for all utilities consumed by him in the leased premises, such as electricity, gas, fuel for heating and water and sewer, but not water & sewer used in bathrooms for sanitary; with such utilities being monitored by tenant's own meter. The tenant may, if he so elects, and at his own cost and expense, install air-conditioning provided that such installation complies with all rules and regulations of all governmental bodies having jurisdiction thereof. 55. It is understood and agreed that the basic rent will be paid by the first of the month to the landlord without notice. Landlord shall be entitled to a late charge of three percent (3%) of the monthly rental if rent remains unpaid after the tenth (10th) day of any month and provided landlord has given tenant at least (5) days written notice thereof and tenant has failed to cure same within such period. In the event that tenant's late payment of non-payment of rent causes landlord to issue six such notices during the term of this lease, then upon issuance of a (7th) seventh notice, the tenant will have deemed to have irrevocably defaulted under the term of this lease. The landlord shall have the absolute right, at his option to terminate this lease and regain possession of the demised premises, by giving written notice to tenant to vacate premises within twenty (20) days from date of notice. 56. It is further understood and agreed that if the tenant is in default in payment of the basic rent for more than thirty (30) days, the landlord shall have the absolute right at its option to terminate this lease and the landlord may re-enter and regain possession of the demised premises provided the five (5) day notice set forth in paragraph #55 has been given and such default has not been cured within such period, and further provide that landlord has given written notice to tenant to vacate premises within twenty (20) days from date of notice, notice to be issued not less than thirty (30) days after basic rent is due. 57. Landlord shall be responsible for providing normal maintenance on the gas fired heating system providing however, that any repair necessitated by tenant's negligence or misuse of the demised premises shall be the sole responsibility of the tenant. 58. The tenant shall be solely responsible for the cleaning, maintenance and repair to bathrooms and any other sanitary facilities within the demised premises. Addendum to lease dated April 18, 1989, between, Lackawanna Warehouse Corp. of NJ; as Landlord, and, Cunningham Graphics, Inc.; as tenant - -------------------------------------------------------------------------------- 59. It is understood and agreed that the "within lease" is contingent on the execution of agreement dated April 18, 1989 between Lackawanna Warehouse Corp. of New Jersey; Landlord and Gibson Graphics, Inc., tenant; and to the performance of said agreement to vacate said premises under the terms and conditions therein. 60. Tenant agrees to accept said space "AS IS" and any work to be performed to suit tenant's needs will be the sole responsibility of tenant at his own cost and expense. 61. PREPAID RENT: Tenant agrees to deposit with landlord a check in the amount of SIX-THOUSAND NINE-HUNDRED EIGHTY-SEVEN DOLLARS AND FIFTY-CENTS ($6,987.50) on or before September 1, 1989 which will represent prepaid rent for the final two months of lease. 62. "Lessor hereby indemnifies and shall protect and hold Lessee harmless, from and against all fines, penalties, damages, costs, losses, claims and liabilities (including all foreseeable and unforseeable consequential damages, the cost of any remedial, removal, response, abatement, clean-up, investigative and monitoring costs and expenses, and reasonable attorneys' fees and disbursements) directly or indirectly and in whole or in part, arising out of or attributable to environmental conditions beneath, above or on the surface of the Demised Premises (regardless of the source thereof) whether existing before or arising after the commencement date of this lease, except to the extent arising out of or in connection with the Lessee's use of the Demised Premises. 63. RENEWAL OPTION: Exercised. Tenant has the option to renew this lease for an additional five year period, March 1, 1992 through February 28, 1997 by giving landlord six (6) months prior written notice. Rental for period of March 1, 1992 through February 28, 1997 will be determined by the rate being charged by the landlord for comparable space, non-ground level, six months prior to the termination date of February 28, 1992. 64. Both Tenant and Landlord represent to each other that there is no Real Estate Broker involved in this lease. 65. Tenant will have for his use #16 freight elevator which he will share with another floor. Landlord will bill tenant his proportionate share of the Full Elevator Maintenance Contract policy and annual city registration and inspections. 66. The landlord agrees that Gibson Graphics, Inc., shall pay all basic rent due herein for the first four months of the term of this lease, and failure of Gibson Graphics, Inc., to make the rent payment shall not constitute a default by tenant under the terms of this lease. - ------------- * Rider to be added if necessary. TYPICAL FLOOR [FLOOR PLAN] (Graphic Omitted) Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 January 16, 1995 A. Under lease dated April 18, 1989 and all related amendments, LACKAWANNA WAREHOUSE CORP. OF N.J. AS Landlord and CUNNINGHAM GRAPHICS, INC. as Tenant entered into a lease of premises at 629 Grove St., Jersey City, N.J. 07310. B. The parties are desirous of amending said lease in the respects hereinafter provided. NOW, THEREFORE, the parties mutually agree: FIRST: Effective January 16, 1995 (the "Possession Date"), 11,750 Sq. Ft., the space designated as the East End of the 5th floor, (the "Additional Space"), shall be added to the Demised Premises rented under the Lease, for a term commencing April 1, 1995, and expiring conterminously with the "Lease" (February 28, 1997). SECOND: The base rent for the Additional Space for the term shall be Forty One Thousand One Hundred Twenty Five Dollars ($41,125.00) per annum ($3,427.08/mo.). THIRD: In addition to the base rent, the Tenant shall pay the proportionate share of real estate taxes attributable to the Additional Space in excess of the real estate taxes attributable to such space for the tax year July 1, 1994 through June 30, 1995, upon the same terms and conditions as are set forth in Paragraph 53 of the Lease, except that the "proportionate share" for the added space shall be one point two percent (1.2%) (the "Real Estate Tax Escalation"). FOURTH: Except as herein modified the lease, the term thereof and all provisions and conditions thereof, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this lease this 22nd day of Feb. 1995. AGREED AND ACCEPTED TO: Sincerely yours, CUNNINGHAM GRAPHICS, INC. LACKAWANNA WAREHOUSE CORP. OF N.J. /s/ Michael Cunningham, Pres. /s/ Louisa Little - ------------------------------ ---------------------------------- Michael Cunningham, Pres. As Agent Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 October 1, 1993 Cunningham Graphics, Inc. 629 Grove Street Jersey City, N.J. 07310 Re: Amendment of lease dated April 18, 1989 between Lackawanna Warehouse Corp. of New Jersey, lessor and Cunningham Graphics, Inc., lessee Gentlemen: By your signature in the space provided below, the lease shall be amended as follows: 1. By increasing the square footage upward by 28,200 square feet of space located on the third floor, in the building known as 629 Grove Street, Jersey City, New Jersey, to bring the aggregate total of square footage leased from 47,868 to 76,068 square feet as follows: Floor Square Feet ------ ----------- 3 5,875 3 28,200 ("new area") 7 41,993 ------ ------ Total 76,068 2. Additional Rent. Effective October 1, 1993 to February 28, 1997, rent for the additional space added by this agreement shall be NINETY EIGHT THOUSAND SEVEN HUNDRED DOLLARS ($98,700.00) per annum, such rent shall be payable monthly in advance at the rate of EIGHT THOUSAND TWO HUNDRED TWENTY FIVE DOLLARS ($8,225.00), with the result that the aggregate monthly rent for the demised premises shall be TWENTY TWO THOUSAND SEVEN HUNDRED EIGHTY ONE DOLLARS AND FIFTY FOUR CENTS ($22,781.54). 3. Tenant to take space "as is" and any and all work to be performed shall be at the tenants own cost and expense. 4. Freight Elevator. Tenant shall have for his exclusive use #13 freight elevator which it will operate and maintain at its own cost and expense, including annual city and state registration fees. Tenant will observe and keep in force a full elevator service contract with a qualified elevator maintenance company. (Note: Tenants use of #13 elevator, as added by this agreement, shall not be misconstrued with tenants existing use of #16, #15 freight elevators). continued: Landlord copy: 1 of 2 Cunningham Graphics, Inc. -2- October 1, 1993 (amendment to lease dated April 18, 1989) 5. Clause #53. Percentage in clause #53 shall be increased by 2.8%, effective January 1, 1994. New area (2.8%) shall have a tax base year of 1994. 6. Landlord represents that there is a 200 amp. 3 phase 4 wire elecric service presently installed so that tenant will be billed by the utility company, gas service is also metered so that tenant will be billed directly by the utility company. All other terms and conditions of "the lease", dated April 18, 1989, shall remain the same for the coverage of said space. Very truly yours, AGREED & ACCEPTED: LANDLORD: TENANT: LACKAWANNA WAREHOUSE CORP. OF NJ CUNNINGHAM GRAPHICS, INC. By: /s/ Louisa Little By: /s/ Michael Cunningham ----------------------------------- ------------------------------- As Agent Michael Cunningham, President Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 February 9, 1993 Mr. Michael Cunningham, President 629 Grove Street Jersey City, N.J. 07310 Re: Amendment of lease dated April 18, 1989 between Lackawanna Warehouse Corp. of New Jersey, Lessor and Cunningham Graphics, Inc., lessee Dear Mr. Cunningham: By your signature in the space provided below, the lease shall be amended as follows: 1. By increasing the square footage upward by 5,875 square feet of space located on the third floor, (which represents an equal portion of the 11,750 square foot area) to bring the aggregate total of square footage leased from 41,993 square feet to 47,868 square feet as follows: Floor Square feet ------- ----------- 3 5,875 "new area" 7 41,993 ------- ----------- Total 47,868 2. Additional Rent. Effective March 1, 1993 to February 28, 1997. Rent for the additional space added by this agreement shall be TWENTY-THOUSAND FIVE-HUNDRED SIXTY-TWO-DOLLARS AND FIFTY-CENTS ($20,562.50) per annum, such rent shall be payable monthly in advance at the rate of ONE-THOUSAND SEVEN-HUNDRED THIRTEEN-DOLLARS AND FIFTY-FOUR-CENTS ($1,713.54), with the result that the aggregate monthly rent for the demised premises (as amended hereby) shall be FOURTEEN-THOUSAND FIVE-HUNDRED FIFTY-SIX DOLLARS AND FIFTY-FOUR-CENTS ($14,556.54). 3. Clause #53. Percentage in clause #53 shall be increased by .5875%, effective March 1, 1993. New area .5875% shall have a tax base year of 1993. 4. Freight Elevator. Tenant shall have for his use #16 freight elevator which he will share with another tenant, presently located on the 5th floor. Landlord will bill Cunningham his proportionate share of the Full Elevator Service Contract, Annual City, State registration and inspection fees. continued, Mr. Michael Cunningham, President -2- Letter of Agreement CUNNINGHAM GRAPHICS, INC. February 9, 1993 5. It is understood and agreed that the "within agreement" is contingent on the execution and performance of the lease dated, February 9, 1993 between Lackawanna Warehouse Corp. of NJ, lessor and Foster-Carroll Graphics, Inc., lessee. It is further acknowledged that a separate agreement dated February 9, 1993 has been created to acknowledge the intention of all parties involved with this letter of agreement., for the coverage of said space. All other terms and conditions of lease dated April 18, 1989 shall remain the same, except as herein provided., for the coverage of said space. Very truly yours, AGREED & ACCEPTED: LACKAWANNA WAREHOUSE CORP. CUNNINGHAM GRAPHICS, INC. OF NEW JERSEY: LANDLORD By:/s/ Lawrence Lang By: /s/ Michael Cunningham --------------------- ---------------------------------- Lawrence Lang, Agent Michael Cunningham, President dc Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 February 18, 1992 Revised Mr. Michael Cunningham, President Cunningham Graphics, Inc. 629 Grove Street Jersey City, N.J. 07310 Re: Lease dated April 18, 1989 ` Renewal Option---Clause #63 Leased Area------: 7th Floor Square Footage---: 41,993 Dear Mr. Cunningham: By your signature in the space provided below, the lease shall be amended as follows: 1. Amended Rent. Rental for the renewal period of March 1, 1992 through February 28, 1997 shall be One-Hundred Fifty-Four Thousand One-Hundred-Fourteen Dollars ($154,114.00) payable at the monthly rate of TWELVE-THOUSAND EIGHT-HUNDRED FORTY-THREE DOLLARS ($12,843.00) in advance on the first day of each and every month. 2. Amendment to Clause #53. Effective March 1, 1992, the Tax Year Ending, December 31, 1988 shall be amended to Tax Year Ending, December 31, 1991. All other terms and conditions for the coverage of said space shall remain the same for the option renewal period, as provided in the lease dated April, 1989. Very truly yours, LACKAWANNA WAREHOUSE CORP. AGREED & ACCEPTED: OF NEW JERSEY: LANDLORD CUNNINGHAM GRAPHICS, INC.: TENANT By: /s/ Frank Ryan By: /s/ Michael Cunningham - ---------------------------------- ------------------------------------- Frank Ryan, Vice President Michael Cunningham, President *****LANDLORD OFFICE COPY****** Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 November 30, 1991 Cunningham Graphics, Inc. 629 Grove Street Jersey City, N.J. 07310 Re: Amendment to lease date April 18, 1989 between Lackawanna Warehouse Corp. of New Jersey; Lessor and Cunningham Graphics, Inc.; Lessee Gentlemen: By your signature in the space provided below, we agree to amend the above lease as follows: 1. Reduction of Square Footage Leased. Reduce the total square footage leased by 875 square feet, as cross hatched on the attached floor plan. (Area outside of #12 elevator). 2. New Rental. Rental to be reduced from ONE HUNDRED THIRTY NINE THOUSAND THREE HUNDRED TWENTY ONE DOLLARS ($139,321.00) PER ANNUM TO ONE HUNDRED THIRTY SIX THOUSAND FOUR HUNDRED SEVENTY SEVEN DOLLARS AND TWENTY FIVE CENTS ($136,477.25) payable at the monthly rate of ELEVEN THOUSAND THREE HUNDRED SEVENTY THREE DOLLARS AND TEN CENTS ($11,373.10), in advance on the first day of each and every month. 3. Commencement. Effective December 1, 1991 through February 28, 1992. All other terms and conditions to remain the same. Very truly yours, LACKAWANNA WAREHOUSE CORP. Agreed & Accepted: OF NEW JERSEY; Landlord CUNNINGHAM GRAPHICS, INC. Tenant By: /s/ Frank Ryan By: /s/ Michael Cunningham - ---------------------------------- ------------------------------------- Frank Ryan, Vice President Michael Cunningham, President TYPICAL FLOOR [FLOOR PLAN] (Graphic Omitted) Office Copy Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 July 30, 1990 Mr. Michael Cunningham CUNNINGHAM GRAPHICS, INC. 629 Grove Street Jersey City, N.J. 07310 Re: Lease dated April 18, 1989 between Lackawanna Warehouse Corp. of NJ, Landlord; and Cunningham Graphics, Inc., Tenant - -------------------------------------------------------------------------------- Gentlemen: Please accept this letter as our agreement to amend the above lease as follows: 1. Increase leased area by 29,968 square feet of space on the seventh floor as shown in red on the attached plan, changing the total square feet leased from 12,900 to 42,868 sq. ft., which includes 300 sq. ft. of common area. 2. Rental figure to change from FORTY-ONE THOUSAND NINE-HUNDRED AND TWENTY-FIVE-DOLLARS ($41,925.00) per annum to ONE-HUNDRED THIRTY-NINE-THOUSAND THREE-HUNDRED AND TWENTY-ONE-DOLLARS ($139,321.00) per annum payable at the monthly rate of ELEVEN-THOUSAND SIX-HUNDRED TEN-DOLLARS AND EIGHT-CENTS ($11,610.08) in advance on the first day of each and every month. 3. Percentage in clause #53 of addendum to lease dated April 18, 1989 to be changed from 1.2% to 4.2%. 4. Term of this agreement to commence August 1, 1990 and terminate on February 28, 1992, all other terms and conditions of lease dated April 18, 1989 to remain the same. 5. Cunningham Graphics, Inc., agrees to increase prepaid rent deposit (clause #61 of addendum) to an amount of $23,220.16, which will represent prepaid rent for the final two months of this lease. Landlord represents that he currently has on account for Cunningham Graphics, Inc., $6,987.50, and understands that the balance due of $16,232.66 will become due and payable upon execution of this agreement. continued, Mr. Michael Cunningham Cunningham Graphics, Inc. -2- July 30, 1990 6. Cunningham Graphics, Inc., will now have for their use, #15 Freight Elevator, and will assume and keep in full effect, the present Full Elevator Maintenance Contract on said elevator, at tenants own cost and expense, including annual registration and inspection fees. Tenant will no longer have the use of #16 Freight Elevator, or responsibility for the costs of maintaining #16 Elevator. 7. This agreement will become effective upon Landlord (Lackawanna Warehouse Corp. of NJ) getting possession of the 29,968 square feet of space from Gibson Graphics, Inc., Trustees. 8. Cunningham Graphics, Inc., acknowledges that he has examined the 29,968 sq. ft. of space and accepts the area "AS IS" and understands there is no work to be performed by the landlord. All other terms and conditions of lease dated April 18, 1989 to remain in effect. Kindly indicate your acceptance and understanding of this agreement by signing in the space provided below and it shall be deemed a binding agreement between us. Very truly yours, LACKAWANNA WAREHOUSE CORP. AGREED & ACCEPTED: OF NEW JERSEY CUNNINGHAM GRAPHICS, INC. By: /s/ Frank Ryan By: /s/ Michael Cunningham - ---------------------------------- ------------------------------------- Frank Ryan, Vice President Michael Cunningham, President FR:dc CHECK #2525 dated 8/1/90 -- in the amount of $16,232.66 rec'd from Cunningham Graphics, Inc. to be held on account for Prepaid Rent for final two months of lease dated 4/18/98, clause #61 as required by Agreement dated 7/30/90 -- Item #5 -- Paid upon execution of same. AS OF AUGUST 1, 1990 TOTAL HELD ON ACCOUNT BY LANDLORD FOR ABOVE LEASE: $23,220.16, no interest [COPY OF THREE-PART CHECK] Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 February 18, 1992 Revised Mr. M. Cunningham, President CUNNINGHAM GRAPHICS, INC. 629 Grove Street Jersey City, NJ 07310 Re: Lease dated April 18, 1989 Renewal Option---Clause #63 Leased Area------: 7th Floor Square Footage---: 41,993 Dear Mr. Cunningham: By your signature in the space provided below, the lease shall be amended as follows: 1. Amended Rent. Rental for the renewal period of March 1, 1992 through February 28, 1997 shall be One-Hundred Fifty-Four Thousand One-Hundred-Fourteen Dollars ($154,114.00) payable at the monthly rate of TWELVE-THOUSAND EIGHT-HUNDRED FORTY-THREE DOLLARS ($12,843.00) in advance on the first day of each and every month. 2. Amendment to Clause #53. Effective March 1, 1992, the Tax Year Ending, December 31, 1988 shall be amended to Tax Year Ending, December 31, 1991. All other terms and conditions for the coverage of said space shall remain the same for the option renewal period, as provided in the lease dated April, 1989. Very truly yours, LACKAWANNA WAREHOUSE CORP. AGREED & ACCEPTED: OF NEW JERSEY: LANDLORD CUNNINGHAM GRAPHICS, INC.: TENANT By: /s/ Frank Ryan By: /s/ Michael Cunningham --------------------------------- --------------------------------- Frank Ryan, Vice President Michael Cunningham, President ****LANDLORD OFFICE COPY**** Lackawanna Warehouse Corporation of New Jersey 629 GROVE STREET o JERSEY CITY, NEW JERSEY 07310 N.J. (201) 653-3360-1 o (212) 732-2345 August 1, 1990 Michael Cunningham Cunningham Graphics, Inc. 629 Grove Street Jersey City, NJ 07310 Re: Prepaid Rent held on account -- Clause #61 of Lease Dated April 18, 1989 Dear Mr. Cunningham: Accept this letter as our confirmation that as of August 1, 1990 the Lanlord holds an amount on account of Cunningham Graphics, Inc. $23,220.16 paid by Cunningham Graphics, Inc. as follows: Date Deposit Received Check No. Amount --------------------- --------- ------ May 8, 1989 1671 $6,987.50 August 1, 1990 2525 16,232.66 --------- Total Held per clause #61 $23,220.16 Very truly, Lackawanna Warehouse Corp. Of New Jersey /s/ Donna Caple - ---------------------- Donna Caple, Secretary EX-10.12 10 AGREEMENT OF SUBLEASE AGREEMENT OF SUBLEASE between GOLDMAN, SACHS & CO., Sublandlord and CUNNINGHAM GRAPHICS, INC, Subtenant Premises: A portion of 111 8th Avenue New York, New York 1. Sublease of Initial Premises; Right to Sublease Retained Premises .......................................... 1 2. Term; Permitted Use ................................................... 3 3. Rents ................................................................. 4 4. Condition of the Premises ............................................. 6 5. Subordination to and Incorporation of the Lease ....................... 6 6. Hazardous Substances .................................................. 9 7. Covenant of Quiet Enjoyment ........................................... 12 8. Security Deposit ...................................................... 12 9. Roof Top Equipment .................................................... 12 10. Alterations; Removal at End of Term ................................... 12 11. Indemnity ............................................................. 13 12. Notices ............................................................... 13 13. Miscellaneous ......................................................... 14 i AGREEMENT OF SUBLEASE (this "Sublease"), made as of the 15th day of July, 1996, between GOLDMAN, SACHS & CO., a New York limited partnership having an office address at 85 Broad Street, New York, New York 10004 ("Sublandlord"), and CUNNINGHAM GRAPHICS, INC., a New Jersey corporation having an office address at 629 Grove Street, Jersey City, New Jersey 07306 ("Subtenant"). WITNESSETH: WHEREAS P.A. Building Company is the landlord and Sublandlord is the tenant under that certain lease dated September 14, 1989 as supplemented by three letter agreements dated September 14, 1989 (as so supplemented and as hereafter amended, the "Overlease") demising Rooms 815-825 (the "Overlease Premises") of the building known as 111 8th Avenue, New York, New York (the "Building"); WHEREAS Sublandlord desires (i) initially to sublease to Subtenant all of the Overlease Premises other than the Retained Premises (as hereinafter defined) (all of the Overlease Premises other than the Retained Premises being herein called the "Initial Premises"), and (ii) to have the option to sublease to Subtenant the portion of the Overlease Premises designated Retained Premises on Exhibit A hereto (the "Retained Premises"); WHEREAS Subtenant desires to enter into a sublease on the terms described above; NOW, THEREFORE, in consideration of the mutual covenants herein contained, it is mutually agreed as follows: 1. Sublease of Initial Premises; Right to Sublease Retained Premises 1.1 As used in this Sublease, the term "Premises" shall initially mean the Initial Premises; provided, however, that if Sublandlord shall exercise the Put (as defined in Section 1.3 below), then the term "Premises" shall thereafter mean the Overlease Premises. Sublandlord hereby subleases to Subtenant, and Subtenant hereby hires from Sublandlord, the Premises upon and subject to the terms and conditions hereinafter set forth. 1.2 As used herein the term "Subtenant's Proportionate Share" shall mean ninety percent; provided, however, that if Sublandlord shall exercise the Put, then the term "Subtenant's Proportionate Share" shall thereafter mean one hundred percent. 1.3 Sublandlord shall have the option (the "Put"), exercisable by notice to Subtenant given at any time, to lease to Subtenant the Retained Premises. If Sublandlord shall exercise such option the date of such notice shall be deemed to be the "Put Date." 1.4 Unless and until Sublandlord shall exercise the Put the following provisions of this Section 1.4 shall apply. (a) Sublandlord shall have the right, in common with Subtenant, to use the portion of the Initial Premises designated as Common Space on Exhibit A hereto (the "Common Space"), and all equipment and facilities now installed or located therein; none of such equipment or facilities shall be removed from the Common Space; and Subtenant shall repair and maintain such equipment and facilities in good working order and condition. The Common Space is a part of the Initial Premises. (b) Sublandlord shall have the right to enter and pass through the Initial Premises in order to access the Retained Premises and the Common Space; Sublandlord shall be entitled to use all entrances to the Initial Premises; Sublandlord (and each of its employees working at the Retained Premises) shall be entitled to retain keys to all entrances to the Initial Premises, and Subtenant shall not change the locks on or add any new or additional lock to any such entrance unless Subtenant furnishes Sublandlord (and each of its employees working at the Retained Premises) with keys thereto; and no barriers shall be erected which would prevent or hinder Sublandlord from exercising any of its rights under Section 1.4. (c) Subtenant shall not enter the Retained Premises, except as required to service any of Subtenant's equipment which passes through the ceiling of the Retained Premises and then only with Sublandlord's prior written approval and subject to such rules and requirements as Sublandlord may impose; provided, however, that (i) such consent shall not be unreasonably withheld, and (ii) no such consent shall be required in case of an emergency. (d) Subject to the performance by Overlandlord (as hereinafter defined) of its obligations to furnish electricity, Subtenant shall cause the Overlease Premises to be illuminated and furnished with HVAC, in accordance with Sublandlord's past practices, at all times other that the 47 hour period each week beginning 8 am Saturday and ending 7 am Monday (the "Excluded Period"); and Subtenant shall maintain and repair all equipment and facilities providing the services referred to in this Section 1.4(d) and not required by the Overlease to be maintained and repaired by Overlandlord at its expense. If during all or any portion of the Excluded Period Sublandlord shall desire the Overlease Premises to be illuminated, Sublandlord shall have the right to turn-on (and turn-off) the lights of the Overlease Premises. If during all or any portion of the Excluded Period Sublandlord shall desire the Overlease Premises to be furnished with HVAC, Sublandlord shall have the right to turn-on and operate (and turn-off) the HVAC equipment of the Overlease Premises. If Sublandlord so turns on such HVAC equipment then Sublandlord shall reimburse Subtenant for the additional utility costs incurred by reason of the operation of such equipment (as reasonably estimated by Sublandlord) from the time it is turned on by Sublandlord until it is 2 turned off, or the Excluded Period shall end, or Subtenant shall indicate that it too desires HVAC to be furnished to Premises, whichever shall first occur. (e) Subtenant shall not hinder or impede the provision by Overlandlord to the Retained Premises of the Common Space of electricity, heat, cleaning or any other building service. (f) Subtenant shall be entitled to a credit against the rent otherwise payable under this Sublease in the amount of $1600 per month for each month in the period commencing on the Commencement Date and ending on the Put Date, prorated for any partial month. All of Sublandlord's rights under this Section 1.4 are reserved for and may be exercised by Sublandlord or any of its agents, employees, or contractors authorized by Sublandlord to do so. 1.5 Sublandlord shall indemnify, defend and save harmless Subtenant from and against any claim asserted against Subtenant arising out the negligence or intentional misconduct of Sublandlord or its shareholders, officers, directors, employees, partners, agents, or visitors in or about the Retained Premises after the date hereof and prior to the Put Date. If any such claim is asserted against Subtenant it shall promptly notify Sublandlord who shall have the right to resist the same with counsel chosen by it, subject to Subtenant's approval not to be unreasonably withheld. Sublandlord's liability under this Section 1.5 with respect to negligence or intentional misconduct occurring after the date hereof and prior to the Put Date shall survive the Put Date and the expiration or termination of this Sublease. 2. Term: Permitted Use. 2.1 The term of this Sublease shall commence on the date on which Overlandlord shall consent hereto (such date being herein called the "Commencement Date"), and shall end on December 30, 1999 (the "Expiration Date") or on such earlier date upon which such term shall expire or be terminated pursuant to any of the conditions or covenants of this Sublease or pursuant to law. 2.2 Sublandlord and Subtenant are also entering into a Printing Services Agreement of even date (the "Printing Service Agreement"). Section 12.5 of the Printing Services Agreement permits Sublandlord to terminate the Printing Services Agreement without cause, by giving notice of such termination to Subtenant (the day on which such notice is given being herein called the "PSA Termination Without Cause Notice Date"). If, pursuant to Section 12.5 of the Printing Services Agreement, Sublandlord shall terminate the Printing Services Agreement Without cause then Subtenant shall have the right, by notice given to and received by Sublandlord no later than the 30th day after the PSA Termination Without Cause Notice Date (time being of the essence), to terminate this Sublease as of the 60th day after the PSA Termination Without Cause Notice Date. If Subtenant timely shall terminate this Sublease pursuant to the preceding 3 sentence then this Sublease shall terminate on and as of the 60th day after the PSA Termination Without Cause Notice Date with the same force and effect as if such 60th day were the day originally provided herein for the expiration hereof. 2.3 Subtenant shall use the Premises only for general offices and printing, subject to and in accordance with all applicable provisions of the Overlease. 3. Rents. 3.1 Subtenant shall pay to Sublandlord, as fixed rent, Subtenant's Proportionate Share of the fixed rent payable by Sublandlord under the Overlease, payable in equal monthly installments on the Commencement Date and on the first day of each month thereafter; provided, however, that (a) if the Commencement Date is other than the first day of a month the fixed rent for the period from the Commencement Date through the end of the month in which the Commencement Date shall occur shall be computed on a pro-rata basis and shall be due on the Commencement Date, and (b) if the Put Date is other than the first day of a month the increase in fixed rent for the period from the Put Date through the end of the month in which the Put Date shall occur shall be computed on a pro-rata basis and shall be due on the Put Date. 3.2 In addition to the fixed rent, commencing on the Commencement Date and continuing for the entire term of this Sublease, Subtenant shall reimburse Sublandlord, as additional rent, for all amounts payable by Sublandlord under the Overlease; provided, however, that (a) Subtenant shall not be obligated so to reimburse Sublandlord with respect to amounts accrued, due and owing as of the Commencement Date, and (b) Subtenant's obligations under this Section 3.2 with respect to amounts payable under Articles 39 and 40 of the Overlease (porter wage and real estate taxes) shall be limited to Subtenant's Proportionate Share of such amounts. Subtenant's payments under this Section 3.2 shall be due on the dates on which Sublandlord's payments under the Overlease are due to the landlord under the Overlease (the "Overlandlord"); provided, however, that (a) except for continuing equal monthly payments under Articles 39 and 40 of the Overlease no payment shall be due under this Section 3.2 until five days after Sublandlord shall have furnished Subtenant with notice thereof, together with copies of all related notices, bills and supporting documentation issued by Overlandlord, and (b) Subtenant's liability under this Section 3.2 in respect of amounts payable under 4 (i) the second sentence of Article 38(a) of the Overlease (electricity), (ii) Articles 39 and 40 of the Overlease (porter wage and real estate taxes), (iii) the fourth sentence of Article 71 of the Overlease (water), and (iv) the third sentence of Article 74(a) of the Overlease (steam) shall be apportioned and adjusted as of the Commencement Date, i.e. (x) if Sublandlord shall have heretofore been required to make any payment under any of the provisions listed above wholly or partially in respect of any period after the Commencement Date, then Subtenant shall promptly reimburse Sublandlord for so much of such payment as shall be applicable to any period after the Commencement Date (or, in the case of payments under Article 39 or 40 of the Overlease, for Subtenant's Proportionate Share of so much thereof), and (y) if Sublandlord shall hereafter be required to make any payment under any of the provisions listed above wholly or partially in respect of any period prior to the Commencement Date, then subtenant's liability in respect thereof under this Section 3.2 shall be limited to so much of such payment, if any, as shall be applicable to any period after the Commencement Date (or, in the case of payments under Article 39 or 40 of the Overlease, to Subtenant's Proportionate Share of so much thereof). 3.3 Miscellaneous (a) As used herein the term "additional rent" shall refer to all sums of money which shall become due from and payable by Subtenant to Sublandlord hereunder (whether as reimbursement or otherwise), other than fixed rent, and the term "rents" shall refer to fixed rent and additional rent. All rents shall be payable in lawful money of the United States at such place and to such person as Sublandlord shall from time to time designate. (b) Subtenant shall promptly pay all rents as and when the same shall become due and payable without set-off, offset or deduction of any kind whatsoever and, in the event of Subtenant's failure to pay any additional rent when due, Sublandlord shall have all of the rights and remedies provided for herein or at law or in equity in the case of non-payment of fixed rent. (c) Sublandlord's failure during the term of this Sublease to prepare and deliver any statements or bills required or permitted to be delivered to Subtenant hereunder, or Sublandlord's failure to make a demand under this Sublease, shall not in any way be deemed to be a waiver of, or cause Sublandlord to forfeit or surrender, its rights to collect any rents which may have become due pursuant to this Sublease during the term hereof. Subtenant's liability for rents accruing during the term of this Sublease shall survive the expiration or sooner termination of this Sublease. 5 4. Condition of the Premises. Subtenant represents that it has examined (or waived examination of) the Initial Premises and the Retained Premises. Sublandlord has not made and does not make any representations or warranties as to the physical condition of the Initial Premises or the Retained Premises (including any latent defects), the uses to which the same may be put, or any other matter or thing affecting or relating thereto. Subtenant agrees to accept the Initial Premises and the Retained Premises in their respective "as is" condition as of the date hereof, as the same may be affected by reasonable wear and tear and fire or other casualty after the date hereof, and Sublandlord shall have no obligation whatsoever to alter, improve, decorate or otherwise prepare the Initial Premises or the Retained Premises for Subtenant's occupancy. 5. Subordination to and Incorporation of the Lease. 5.1 This Sublease is subordinate to the Overlease, and to all leases, mortgages and other instruments, documents, rights and encumbrances to which the Overlease is now or shall hereafter be subordinate. This provision shall be self-operative but Subtenant shall within ten (10) days of Sublandlord's request execute any instrument requested by Sublandlord or Overlandlord to evidence or confirm the same. Sublandlord represents that a true and complete copy of the Overlease as in effect on the date hereof is attached hereto as Exhibit D. Sublandlord shall not voluntarily surrender the Overlease (unless the Overlandlord agrees to recognize and continue this Sublease in full force and effect as a direct lease without change in terms) or amend the same in a manner adverse to Subtenant (unless and to extent Sublandlord is required by Article 45 of the Overlease to do so); provided, however, that whenever Sublandlord shall have any right to terminate the Overlease pursuant to any provision therein contained Sublandlord may exercise the same or refrain from exercising the same, as Sublandlord shall elect. If the Overlease shall terminate for any reason then this Sublease and the term hereof shall also terminate without liability on Sublandlord's part on account thereof; provided, however, that if such termination of the Overlease shall have arisen out of (a) any default by Sublandlord as tenant thereunder not arising out of any default by Subtenant as subtenant hereunder, or (b) a voluntary surrender by Sublandlord in violation of the preceding sentence, then such termination shall be deemed to be a violation of Section 6 hereof and Sublandlord shall be liable to Subtenant to the extent provided by applicable law on account thereof. This Sublease is subject to all of the terms, covenants and conditions of the Overlease. 5.2 Except as otherwise expressly provided in, or otherwise inconsistent with, this Sublease, and except to the extent not applicable to the Premises, the provisions of the Overlease listed below (the "Incorporated Provision") are hereby incorporated into this Sublease by 6 reference with the same force and effect as if set forth at length herein, except that, unless the context requires otherwise: (i) references in such provisions to "Landlord" or to "Tenant" shall be deemed to refer to Sublandlord or to Subtenant, as the case may be, (ii) references in such provisions to "this Lease" shall be deemed to refer to this Sublease, (iii) references in such provisions to other Incorporated Provisions shall be deemed to refer to such Incorporated Provisions as incorporated herein, (iv) references in such provisions to leases, mortgages, instruments, documents, rights or encumbrances to which the Lease is subordinate shall be deemed to refer to leases, mortgages, instruments, documents, rights and encumbrances to which the Overlease is subordinate, (v) references in such provisions to subleases, sublettings or subtenants shall be deemed to refer to undersubleases, undersublettings or undersubtenants, (vi) whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant is required to furnish insurance, indemnification or other similar protection to or for Sublandlord, or to name Sublandlord on any insurance, or to take any act as designated or directed by Sublandlord or to the satisfaction of Sublandlord, Subtenant shall be required to furnish such insurance, indemnification or other similar protection to or for Overlandlord and Sublandlord, or to name Overlandlord and Sublandlord, or to take such act as designated or directed by Overlandlord or Sublandlord or to the satisfaction of Overlandlord and Sublandlord, (vii) whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant is required to obtain the consent or approval of Sublandlord to or with respect to any act, omission or thing (e.g. to any undersublease, assignment or alteration), Subtenant shall be required to obtain the consent or approval of Overlandlord and Sublandlord to or with respect to such act, omission or thing, (viii) whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant grants any release, waiver or similar thing to Sublandlord, Subtenant shall be deemed to have granted such release, waiver or similar thing to Overlandlord and Sublandlord, (ix) whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant grants Sublandlord (or Sublandlord reserves) any 7 right to enter, access or use the Premises, or any right to exhibit the Premises, or any right to perform maintenance therein or thereto or make repairs, alterations, improvements or additions therein or thereto, or any right to perform any other act therein or thereto, Subtenant shall be deemed to have granted such right to Overlandlord and Sublandlord (or such right shall be deemed to have been reserved by Overlandlord and Sublandlord), (x) whenever any of the Incorporated Provisions as incorporated herein afford Subtenant the right by legal action, arbitration, or other proceeding to challenge, question or dispute any determination or other action by Sublandlord, Subtenant shall be deemed to have waived such right so long as the such determination or other action by Sublandlord is consistent with the corresponding determination or other action by Overlandlord, and (xi) time periods provided for in the Incorporated Provisions as incorporated herein shall be deemed shortened of lengthened, as the case may be, as necessary as determined by Sublandlord, so that actions or omissions relating thereto may be coordinated with the corresponding actions or omissions under the Overlease or performed within the time required by the Overlease. The incorporated Provisions of the Overlease are all of the provisions thereof except for (i) the opening paragraph thereof (i.e. the portion of the first page of the printed form prior to Article 1 thereof), Article 1, Article 2, insert 1 to Article 7, insert 1 to Article 9, Article 17 (which is hereby replaced with Article 17 as set forth on Exhibit B hereto), insert 1 to Article 20, Article 27, Article 39, Article 40, Article 41(i), the insert at the end of the second paragraph of Article 61, Article 63, Article 72, Article 75, and Article 75A, and (ii) the letter agreement dated September 14, 1989 regarding certain work to be performed by Overlandlord and the letter agreement dated September 14, 1989 regarding the commencement of the term of the Overlease. 5.3 Notwithstanding anything to the contrary contained in this Sublease (including any of the Incorporated Provisions as herein incorporated), Sublandlord shall not be deemed to have made any representation or warranty made by Overlandlord in any of the Incorporated Provisions, and Sublandlord shall not be obligated (a) to provide any of the services that Overlandlord has agreed in the Overlease to provide or is required by law to provide, or (b) to make any of the repairs or restorations that Overlandlord has agreed in the Overlease to make or is required by law to make, or (c) to comply with any laws or requirements of public authorities with which Overlandlord has agreed in the Overlease to comply, or 8 (d) to take or to refrain from taking any other action that Overlandlord has agreed in the Overlease to take or to refrain from taking or is required by law to take or to refrain from taking (including, in either case, any obligations with respect to giving consents, approvals, etc.), or (e) to perform any obligation that Overlandlord has agreed in the Overlease to perform, and Sublandlord shall have no liability to Subtenant on account of any failure of Overlandlord (or Sublandlord) to provide, make, comply with, take, refrain from taking, or perform any of the foregoing, nor shall such failure constitute an eviction of Subtenant or entitle Subtenant to any abatement of rents hereunder. 5.4 Whenever Subtenant desires to do any act or thing which requires the consent or approval of Sublandlord under any of the Incorporated Provisions as incorporated herein: (a) Subtenant shall not do such act or thing without first having obtained the consent or approval of Overlandlord and Sublandlord; (b) Sublandlord's right to withhold consent or approval shall be independent of Overlandlord's right; provided, however, that if, in any instance, Overlandlord shall (i) be required by the Overlease not to unreasonably withhold consent or approval, and (ii) shall have granted consent or approval, then Sublandlord shall not unreasonably withhold consent or approval; and (c) without limiting Sublandlord's right to withhold consent or approval in any instance and notwithstanding any Incorporated Provision or provision of law requiring Sublandlord to act reasonably, Sublandlord shall be entitled, without liability to Subtenant on account thereof, to withhold consent or approval whenever and for so long as Overlandlord shall withhold its consent or approval, regardless of whether or not Overlandlord is entitled to withhold such consent or approval and regardless of whether Overlandlord may have liability to Sublandlord or Subtenant on account thereof; and (d) Subtenant shall not request Overlandlord's consent or approval directly; unless Sublandlord shall have determined to withhold its consent or approval, the provisions of Section 5.3 above shall be applicable to the obtaining of Overlandlord's consent or approval; neither Sublandlord's forwarding Subtenant's request to Overlandlord nor Sublandlord's other efforts to obtain Overlandlord's consent or approval shall constitute Sublandlord's consent or approval, and the same shall be without prejudice to Sublandlord' right to withhold consent or approval; provided, however, that, notwithstanding the foregoing provisions of this Section 5.4 or any of the Incorporated Provisions as incorporated herein, Sublandlord shall have the right to withhold 9 consent to any assignment of this Sublease or to any undersublease of all or any portion of the Premises in its sole discretion. 5.5. If and to the extent that the Overlandlord shall (i) fail to provide cleaning, electricity, water, steam or heat to the Premises as and to the extent required by the Overlease, (ii) fail to maintain or make repairs or replacements in or to the Premises or the Building as and to the extent required by the Overlease, or (iii) fail to grant any consent or approval as and to the extent required by the Overlease, Sublandlord shall, upon Subtenant's request, use reasonable efforts, at Subtenant's expense, to (x) compel Overlandlord to do so, or (y) recover damages on account of Overlandlord's failure to do so, including within such reasonable efforts the commencement and prosecution, at Subtenant's expense, of an action at law or in equity. Subtenant shall pay, defend, indemnify and hold harmless Sublandlord from and against any and all loss, cost, claim, damage or expense, including attorneys fees, incurred by Sublandlord under or in connection with any such efforts and/or any such action, proceeding, or arbitration pursuant to the preceding sentence. Prior to taking or continuing to take any action under this Section 5.5, Sublandlord, from time to time, may require Subtenant to increase the amount of the security deposit under Section 8 by such amount as Sublandlord shall determine in order to secure the faithful performance by Subtenant of its obligations under this Section 5.5. 5.6 Notwithstanding any other provision of this Sublease, Subtenant shall, with respect to the Premises and/or its use and occupancy thereof and/or its acts or omissions and/or those of its agents, employees or contractors in or about the Premises, (i) observe and perform all of the terms, covenants and conditions of the Overlease to be performed and observed by Sublandlord as tenant thereunder, and (ii) not do, or suffer or permit to be done, any act or thing which would violate or could give rise to any breach, default or violation of any of such terms, covenants or conditions. 5.7 Notwithstanding any other provision of this Sublease, Subtenant shall perform all of its obligations hereunder at such times, by such dates or within such periods as shall be required to avoid any default under the Overlease from continuing beyond the period for notice and grace provided for in Article 17 of the Overlease; provided, however, that in no event shall this Section 5.7 extend the time, date or period by or within which Subtenant is required to perform; 6. Hazardous Substances Subtenant a) shall not cause, suffer or permit the presence, storage, handling or use of any hazardous substance in, on or about the Premises or in the vicinity of the 10 Premises, other than reasonable quantities of such hazardous substances as are commonly used by persons engaged in the business of financial printing; b) shall cause all hazardous substances referred to above to be used, handled and stored in accordance with the best practices and procedures of the printing industry, to be kept securely sealed and stored except when in use, and to be promptly and regularly disposed of in accordance with all applicable laws (as hereinafter defined); c) shall not cause, suffer or permit the presence, storage, handling or use of any hazardous substances in, on or about the Premises or in the vicinity of the Premises in any manner or way contrary to or violative of any presently-existing or hereafter-adopted federal, state or local laws, regulations or guidelines ("laws"); and d) shall not cause, suffer or permit the escape, disposal or release of any hazardous substances in, on or about the vicinity of the Premises, or into the regular Building refuse, or into any of the water or waste lines of the Premises or the Building; provided, however, that Subtenant shall not be responsible under this Section 6 for any release of hazardous substances in, on or about the Premises caused by the actions after the date hereof and prior to the Put Date of Sublandlord or any of its agents or employees provided that (i) such hazardous substances were permitted by clause (a) above, and (ii) Subtenant shall have caused such hazardous substances to be used, handled and stored in accordance with clauses (b) and (c) above. "Hazardous substances" are (i) any "hazardous wastes" as defined by the Resource, Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended, and regulations promulgated thereunder; (ii) any "hazardous, toxic or dangerous waste, substance or material" defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended, and regulations promulgated thereunder; and (iii) any hazardous, toxic or dangerous chemical, biological or other waste, substance or material as defined in any so-called "superfund" or "superlien" law or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning such waste, substance or material, including, without limiting the generality of the foregoing, asbestos, radon, urea formaldehyde, polychlorinated biphenyls, and petroleum products including gasoline, fuel oil, crude oil and various constituents of such products. Sublandlord represents to Subtenant that, to the best of Sublandlord's knowledge, Sublandlord has not heretofore spilled or otherwise released in the Overlease Premises any material amounts of hazardous substances in violation of any applicable law, other than any such 11 spills or releases which, to the best of Sublandlord's knowledge, have been remedied to the extent required by applicable law. 7. Covenant of Quiet Enjoyment. Sublandlord covenants and agrees with Subtenant that upon Subtenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions on Subtenant's part to be observed and performed, Subtenant may peaceably and quietly enjoy the Premises, subject nevertheless to the terms and conditions of this Sublease, including but not limited to Section 5.1 and the Incorporated Provisions, and to the Overlease and the other leases, mortgages and other rights and encumbrances referred to in Section 5.1. 8. Security Deposit. As security for the faithful performance of its obligations hereunder, Subtenant has deposited with Sublandlord the sum of $40,000. Sublandlord shall deposit the aforesaid security deposit in a separate account and any interest earned thereon, less any fee charged by the depositary, shall be paid to Subtenant. Upon any failure by Subtenant timely to perform any of its obligations hereunder, Sublandlord may apply all or any portion of the sum deposited to the obligation which Sublandlord has failed timely to perform, or any other obligations of Subtenant under this Sublease. In case of any such application, Subtenant shall, immediately upon demand of Sublandlord, deposit additional funds with Sublandlord to restore the sum on deposit to the amount required by the first sentence of this Section 8 (or as the same may have been increased pursuant to Section 5.5 or 10.1). After the termination of this Sublease, if Subtenant shall have duly and faithfully performed each and every one of its obligations hereunder, Sublandlord shall return the sum on deposit to Subtenant, with interest as aforesaid. Sublandlord's right of application with respect to amounts deposited pursuant to Section 5.5 or 10.1 shall not be limited to the obligations with respect to which such deposit was made. 9. Roof Top Equipment. Sublandlord has heretofore placed or installed certain equipment on one of the set-back roofs of the Building pursuant to Article 73 of the Overlease. Throughout the term of this Sublease, Subtenant shall operate, maintain and repair such equipment, and perform and discharge all of the obligations of Sublandlord with respect thereto or with respect to the set-back roof on which the space is placed or installed. Such set-back roof is not a portion of the Premises, but its usage by Subtenant shall be governed by the terms of this Sublease as if it were a portion of the Premises. 10. Alterations: Removal at End of Term. 10.1 Subtenant shall not commence or prosecute any alterations, installation, addition or improvements in, to or upon the Premises unless, in addition to having complied with all other provisions of this Sublease and the Incorporated Provisions as incorporated herein, Subtenant shall have furnished to Sublandlord (a) a fixed price general contract covering the same, (b) payment and performance bonds in favor of Sublandlord guaranteeing lien free completion of the work in form, amount and issued by a surety satisfactory to Sublandlord in its reasonable judgement, and (c) an increase in the security deposit under Section 8 in an amount equal to the cost, as 12 estimated by Sublandlord, of such removal or restoration as Subtenant may be required by Section 10.2 to perform with respect to such alterations, installation, addition or improvements. 10.2 Subtenant specifically agrees to perform all removal and restorations obligations under the Overlease, including any thereof with respect to any alterations, installation, additions and improvements installed by, or any equipment, fixtures or property owned or placed or installed by, Sublandlord. 10.3 Sublandlord represents to Subtenant that Sublandlord has not received any written notice from Overlandlord asserting that Sublandlord has made any alterations, installations, additions or improvements in, to or upon the Overlease Premises in violation of the Overlease or damaged the Overlease Premises in violation of the Overlease, other than any such notices relative to violations which, to the best of Sublandlord's knowledge, it has cured. 11. Indemnity Subtenant shall indemnify, defend and save harmless Sublandlord and its shareholders, officers, directors, employees, partners and agents (the "Indemnified Persons") from and against any loss, cost, damage, claim or expense (including amounts payable under the Overlease) arising out of or related to or alleged to arise out of or to relate to (i) any act, omission, or negligence of Subtenant or its shareholders, officers, directors, employees, partners, agents, contractors, subcontractors, guests, invitees or visitors in or about the Premises, the Retained Premises or the Building, (ii) any breach or default by Subtenant under this Sublease or any failure by Subtenant timely to observe and perform any of the terms and provisions of this Sublease, including the Incorporated Provisions as incorporated herein, (iii) any hazardous substance in, on or about the Premises or in the vicinity thereof, (iv) any accident, injury, or damage, howsoever and by whomsoever caused, to any person or property, occurring within the Premises on or after the Commencement Date or any earlier date upon which Subtenant is permitted to enter the Premises, or (v) any accident, injury or damage to any person or property resulting from any alterations, installation, or improvements made or performed by Subtenant; including any action or proceeding brought upon any such claim and any liability, loss, cost or expense resulting from such claim, action or proceeding, including reasonable attorneys fees incurred by any of the Indemnified Persons in connection therewith. Subtenant's liability under this Section 11 shall survive the expiration or termination of this Sublease. 12. Notices. Any notice, statement, demand, consent, approval, advice or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Sublease or pursuant to any applicable law or requirement of public authority (collectively, "Notice") shall be in writing and shall be deemed to have been properly given, rendered or made only if sent by personal delivery, receipted by the party to whom addressed, or by registered or certified mail, return receipt requested, posted in a United States post office station or depositary in the continental United States, addressed (a) to Subtenant (i) prior to the Commencement Date, at its address first above written, Attention: President, or (ii) on or after the Commencement Date, at the Premises, Attention: President, or 13 (b) to Sublandlord, 85 Broad Street, New York, New York 10004 Attention: General Services with a copy to Sublandlord, 85 Broad Street, New York, New York 10004, Attention: General Counsel. Either party may, by Notice actually received, designate (i) a different address in the United States for Notices intended for it, and (ii) require the other party to provide a copy of any Notices to any other person at any other address in the United States. Any Notice served upon or given to one of the two entities constituting Sublandlord shall be deemed to have been served upon or given to both such entities. 13. Miscellaneous. 13.1 Sublandlord's Liability. The liability of Sublandlord under this Sublease shall be limited to Sublandlord's leasehold estate in the Overlease Premises. Moreover, in case of any transfer of such leasehold estate the transferor shall be deemed released from all liability with respect to the performance of all of the obligations of Sublandlord thereafter to be performed, and liability with respect to the performance of such obligations shall be deemed to be assumed by the transferee, subject to the provisions of this Section 13.1. 13.2 Remedies for Withholding of Consent Sublandlord shall have no liability to Subtenant on account of any failure or refusal by Overlandlord to grant any approval or consent. Moreover, Sublandlord shall have no liability to Subtenant on account of any failure or refusal by Sublandlord to grant any approval or consent. In any instance in which Sublandlord is required by any provision of this Sublease (including any of the Incorporated Provisions as incorporated herein) or applicable law to not unreasonably withhold consent or approval, Subtenant's sole remedy shall be an action for specific performance or injunction requiring Sublandlord to grant such consent or approval, all other remedies which would otherwise be available being hereby waived by Subtenant. In any such action, the winning party shall be entitled to reimbursement of its legal fees from the losing party. 13.3 Broker, Agent or Finder. Subtenant represents and warrants to Sublandlord that Subtenant has dealt with no broker, agent or finder in connection with this Sublease other than Kelly, Legan & Gerard (the "Recognized Broker"). Subtenant hereby agrees to pay any fee or commission due to the Recognized Broker and to indemnify Sublandlord against any claim for commission or other compensation in connection with this Sublease made against Sublandlord by the Recognized Broker or by any other broker, agent or finder with whom Subtenant has dealt, including attorneys fees incurred by Sublandlord in the defense of any such claim. 13.4 Entire Agreement, etc. This Sublease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Sublease. Any agreement hereafter made shall be ineffective to change, modify or discharge this Sublease in whole or in part unless such agreement is in writing and signed by the parties hereto. No provision of this Sublease shall be deemed to have been waived by Sublandlord or Subtenant unless such waiver Sublease shall be deemed to have been waived by Sublandlord or Subtenant unless such waiver be in writing and signed by Sublandlord or Subtenant, as the case may be. The covenants and 14 agreement contained in this Sublease shall bind and inure to the benefit of Sublandlord and Subtenant and their respective permitted successors and assigns. 13.5 Invalidity of Provisions In the event that any provision of this Sublease shall be held to be invalid or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Sublease shall be unaffected thereby. 13.6 No Offer The submission of this document by Sublandlord to Subtenant shall not constitute an offer by Sublandlord and Sublandlord shall not be bound in any way unless and until this Sublease is executed and delivered by both parties. 13.7 Benefit of Non-Subordination and/or Non-Disturbance If, upon any foreclosure of any mortgage or any termination of any ground or underlying lease, the Overlease shall continue in effect or Sublandlord shall not be disturbed, this Sublease shall remain in effect between Sublandlord or Subtenant. 13.8 Overlandlord's Consent and Approval This Sublease is subject to the execution and delivery by Overlandlord of an instrument in the form of Exhibit C hereto (or another instrument satisfactory to the parties) providing for Overlandlord's consent hereto. Sublandlord shall request such an instrument, but shall not be obligated to make any payment or incur any obligation to obtain the same. If such an instrument is not received within 30 days of the full execution and delivery hereof, either party by notice to the other given prior the receipt of such an instrument, may cancel this Lease whereupon the Subtenant's security deposit shall be returned. 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement of Sublease as of the day and year first above written. SUBLANDLORD: GOLDMAN, SACHS & CO. By: --------------------------------- SUBTENANT: CUNNINGHAM GRAPHICS, INC. By: /s/ ILLEGIBLE --------------------------------- 16 Exhibit A Drawing of the Overlease Premises [FLOOR PLAN] [GRAPHIC OMITTED] Exhibit B Replacement for Article 17 of the Overlease as incorporated herein Default: 17.(1) If Subtenant defaults in fulfilling any of the covenants of this lease including the covenants for the payment of rent or additional rent; or if the demised premises become vacant or deserted; or if the demised premises are damaged by reason of negligence or intentional misconduct of Subtenant or any of its shareholders, officers, directors, employees, partners, agents, contractors, subcontractors, guests, invitees or visitors; or if any execution or attachment shall be issued against Subtenant or any of Subtenant's property whereupon the demised premises shall be taken or occupied by someone other than Subtenant; or if this lease be rejected under Section 365 of Title 11 of the U.S. Code (Bankruptcy Code); or if Subtenant shall fail to move into or take possession of the premises within fifteen (15) days after the commencement of the term of this lease: then, in any one or more of such events, upon Sublandlord serving a written ten (10) days notice upon Subtenant specifying the nature of said default and upon the expiration of said ten (10) days, if Subtenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said ten (10) day period, and if Subtenant shall not have diligently commenced curing such default within such ten (10) day period, and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default [it being agreed that in the case of any failure to pay rent or additional rent (i) the aforesaid period shall be five (5) days rather than ten (10) days, and (ii) such five (5) day period shall not be subject to extension pursuant to the foregoing provision of Section 17(1)], then Sublandlord may serve a written three (3) day notice of cancellation of this lease upon Subtenant, and upon the expiration of said three (3) days, this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Subtenant shall then quit and surrender the demised premises to Sublandlord but Subtenant shall remain liable as hereunder provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid; or if Subtenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required, then and in any of such events Sublandlord may without notice, re-enter the demised premises either by force or otherwise, and dispossess Subtenant by summary proceedings or otherwise, and the legal representative of Subtenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Subtenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. Exhibit C Form of Overlandlord's Consent CONSENT TO SUBLEASE By this consent (this "Consent") dated as of July ___, 1996, P.A. BUILDING COMPANY, a New York partnership, having an office c/o Sylvan Lawrence Company, Inc., 100 William Street, New York, New York 10038 (the "Landlord"), landlord under a certain agreement of lease (the "Lease") dated September 14, 1989 between Landlord and GOLDMAN, SACHS & CO., a New York limited partnership (the "Tenant"), having an address at 85 Broad Street, New York, New York 10004 covering premises (the "Demised Premises") known as Rooms 815-825 located in the building (the "Building") known as 111 Eighth Avenue, New York, New York, hereby conditionally consents to the subletting of a portion (the "Space") of the Demised Premises (substantially as shown on the plan attached hereto as Exhibit "A") under the agreement of sublease (the "Sublease") dated July 15, 1996 between Tenant and CUNNINGHAM GRAPHICS, INC. (the "Subtenant"), having an address at 629 Grove Street, Jersey City, New Jersey 07306 for a term expiring on before December 30, 1999 expressly subject to the following terms and conditions: 1. Neither the giving of this Consent nor anything contained in the Sublease shall (a) modify the lease, (b) increase the obligations or diminish the rights of Landlord under the Lease, (c) diminish the obligations or increase the rights of Tenant under the Lease, (d) in any way be construed as giving Subtenant any greater rights under the Sublease than Tenant way be construed as giving Subtenant any greater rights under the Sublease than Tenant would be entitled to under the Lease, or (e) bind Landlord to any of the terms or conditions of the Sublease, it being the express intention of Landlord by executing this Consent to approve only the named Subtenant and the initial term of the Sublease. Tenant and Subtenant agree that the demised Premises and/or the Space shall not be used for any purpose which is not specifically permitted under the Lease. Anything contained in the Sublease which is inconsistent with the terms and conditions of the Lease or this Content shall be deemed of no force or effect, and the terms and conditions of the Lease and this Consent shall prevail. 2. Except as provided in Section 8 below, the giving of this Consent shall not serve to waive, and is given subject to, the requirement of obtaining Landlord's consent, which Landlord's consent Landlord may withhold in each instance in Landlord's sole discretion and judgment (expect as otherwise specifically provided for in the Lease), to (a) any further subletting of all or a portion of either the Demised Premises or the Space, or (b) any assignment of the Lease, or (c) any renewal, extension, or assignment of the Sublease, or (d) any sub-letting of all or a portion of either the Demised Premises or the Space. 3. The giving of this Consent shall not be deemed or serve to release the named Tenant under the Lease or any successor-in-interest to the named Tenant from any liability or obligation which such Tenant or any successor-in-interest may have. 4. In the event Landlord collects any basic rent and/or additional rent due under the Lease directly from Subtenant for any reason whatsoever, Subtenant shall be deemed to to make such payment of basic rent and/or additional rent solely as agent of and on behalf of Tenant, and Landlord shall credit any such sums collected to the account of Tenant, and the collection of such basic rent and/or additional rent shall not be deemed to be an acceptance of Subtenant as a tenant under the Lease nor shall it be deemed to release Tenant from any and all of the terms, covenants and conditions under the Lease. 5. Landlord makes no representations whatsoever nor takes any responsibility regarding the provisions contained in the Sublease. The giving of this Consent shall not be (a) construed as granting Subtenant any rights under the Lease or (b) deemed to be a consent by Landlord to the terms and provisions of the Sublease. Nothing contained in this Consent shall be deemed to bestow upon or grant to Subtenant third party beneficiary rights under the Lease. It is expressly acknowledged, accepted and agreed that (a) this Consent is for the express purpose of permitting the Sublease pursuant to the terms contained in this Consent and (b) Subtenant has no privity of contract with nor enforceable rights against Landlord. 6. The granting of this consent by Landlord is subject to Tenant's being free from any default under the terms and provisions of the Lease as of the date of the granting of this Consent and as of the commencement date of the Sublease. 7. It is expressly understood and agreed that submission by Landlord of this consent for review shall confer no rights nor impose any obligations on any party unless and until Landlord, Tenant and Subtenant shall have executed this consent and duplicate originals of this Consent shall have been delivered to the respective parties to this Consent. 8. The Sublease contains an option, on the part of Tenant as sublandlord thereunder, to sublease the balance of the Demised Premises to Subtenant; such option is exercisable at any time during the term of the Sublease. No further consent shall be required upon the exercise of said option, and this Consent shall be fully applicable thereto. Upon the exercise of said option, the term "Space" as used herein shall mean the entire Demised Premises. 2 P.A. BUILDING COMPANY (Landlord) By: Sylvan Lawrence Company, Inc., Agent By: ------------------------------------------- Title ACKNOWLEDGED, ACCEPTED AND AGREED TO: GOLDMAN, SACHS & CO. (Tenant) BY: ----------------------------------------- Title CUNNINGHAM GRAPHICS, INC. (Subtenant) BY: /s/ ILLEGIBLE Pres ----------------------------------------- Title 3 ACKNOWLEDGEMENTS PARTNERSHIP TENANT STATE OF NEW YORK ) )ss: COUNTY OF NEW YORK ) On this _____ day of __________, 1996 before me personally came ___________ _______________________________________________, to me known, who, being duly sworn, did depose and say that he/she is a member of the partnership GOLDMAN, SACHS & CO., the partnership described in and which executed the above instrument; that he/she executed said instrument on behalf of said partnership, and that he/she had authority to so execute said instrument as the act and deed of said partnership. ------------------------------------- CORPORATION (WITH CORPORATE SEAL) STATE OF NEW JERSEY ) )ss: COUNTY OF HUDSON ) On this 17 day of July , 1996 before me personally came ____________ _____________________________________________, to me known, who, being duly sworn, did depose and say that he/she resides at ____________________________; that he/she is the _________________________ of CUNNINGHAM GRAPHICS, INC., the corporation described in and which executed the above instrument; that he/she executed said instrument on behalf of said corporation; that the seal affixed to said instrument is such corporate seal; that said seal was so affixed by order of the Board of Directors of said corporation, and he/she signed his/her name to said instrument by order of the Board of Directors of said corporation. /s/ ILLEGIBLE ------------------------------------- /s/ Carmen A. Ocello CARMEN A. OCELLO NOTARY PUBLIC OF NEW JERSEY My Commission Expires May 16, 1998 4 Exhibit D The Overlease 5 ================================================================================ Modified FORM OF LOFT LEASE The Real Estate Board of New York, Inc. ================================================================================ Agreement of Lease, made as of this 14 day of September 1989, between P.A. BUILDING COMPANY, a New York partnership, having an office c/o Sylvan Lawrence Company, Inc., 100 Williams Street, New York, New York 10038 party of the first part, hereinafter referred to as LANDLORD, and GOLDMAN SACHS & CO., a NEW YORK LIMITED PARTNERSHIP, HAVING AN OFFICE AT 85 BROAD STREET, NEW YORK, NEW YORK 10004 party of the second part, hereinafter referred to as TENANT Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord Rooms 815-825 (Substantially as indicated on the Plan attached as Exhibit "A") in the building known as 111 8th Avenue (sometimes hereinafter called the "Building") in the Borough of Manhattan, City of New York, for the terms of ten (10) years, Four (4) Months (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of September nineteen hundred and eighty-nine, and to end on the 31st day of December nineteen hundred and ninety-nine both dates inclusive, at an annual rental rate of TWO HUNDRED FIFTY EIGHT THOUSAND FIVE HUNDRED FORTY DOLLARS ($258,540) PER ANNUM FROM 9/1/89 TO AND INCLUDING 8/31/94; TWO HUNDRED EIGHTY THOUSAND AND EIGHTY FIVE DOLLARS ($280,085) PER ANNUM FROM 9/1/94 TO AND INCLUDING 12/31/99 which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Landlord or such other place as Landlord may designate, without any set off or deduction whatsoever except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successor and assigns, hereby covenant as follows: 1. RENT Tenant shall pay the rent as above and as hereinafter provided. 2. OCCUPANCY Tenant shall use and occupy demised premises in connection with Tenant's financial services business for general offices and printing and for no other purpose. 3. ALTERATIONS: Tenant shall make no changes in or to the demised premises of any nature without Landlord's prior written consent. Subject to the prior written consent of Landlord (REF 1) and to the provisions of this article, Tenant at Tenant's expense may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines (REF 1A) in or to the interior of the demised premises by using contractors or mechanics first (REF 1B) approved by Landlord. All fixtures and all paneling partitions, railings and like installations, installed in the premises at any time either by Tenant or by Landlord in Tenant's behalf (REF 2) shall, upon installation, become the property of Landlord and shall remain upon and be surrendered with the demised premises unless Landlord, by notice to Tenant no later than (REF 3) days prior to the date fixed as the termination of this lease, elects to relinquish Landlord's right thereto and to have them removed by Tenant, in which event, the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this article shall be construed to give Landlord title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Landlord. Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Landlord, either be retained as Landlord's property or may be removed from the premises by Landlord at Tenant's expense. Tenant shall before making any alterations, additions, installations, or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such merchants, approvals and certificates to Landlord; and (REF 3A) (Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, several liability personal and property damage insurance, as Landlord may (REF 4) require. (REF 5) 4. REPAIRS: Landlord shall maintain and repair the public portions of the building, both exterior and interior. (REF 1) Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein and at Tenant's sole cost and expense, make all non-structural repairs thereto as and when needed to preserve them in good working order and condition, reasonable wear and tear, obsolesence and damage from the elements, fire or other casualty, excepted. Notwithstanding the foregoing, all damage or injury to the demised premises or to any other part of the building, or to the structures, equipment and appurtenances, whether requiring structural or non-structural repairs, caused by or resulting from carelessness, omission, neglect or improper conduct of Tenant. Tenant's servants, employees, invitees or licensees, shall be repaired promptly by Tenant at its sole cost and expense, to the satisfaction of Landlord reasonably exercised. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails after (REF 2) to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Landlord at the expense of Tenant and the (REF 3) expenses thereof incurred by Landlord shall be collectible as additional rent after rendition of bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall at Tenant's expense, cause the same to be exterminated from time to time to the satisfaction of Landlord. Tenant shall give Landlord prompt notice of any defective condition in an plumbing, heating system or electrical lines located in, servicing or passing through the demised premises and following such notice, Landlord shall remedy the condition with due diligence but at the expense of Tenant if repairs are necessitated by damage or injury attributed to Tenant, Tenant's servants, agents, employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a declaration of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or other making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. The provision of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty which are dealt with in Article 9 hereto. 5. WINDOW CLEANING: Tenant will not clean nor require any windows in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. 6. REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations, all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to it PLEASE INITIAL /s/ ILLEGIBLE and all orders, rules and regulations of the New York Board of Fire Underwriters or any similar body which shall impose any violation, order or duty upon Landlord or Tenant with respect to the demised premises whether or not arising out of Tenant's use or manner of use thereof, or with respect to the building if arising out of Tenant's use or manner of use of the premises or the building (including the use permitted under the lease). Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant may, after securing Landlord to Landlord's satisfaction against all damages, interest, penalties and expenses, including, but not limited to, reasonable attorneys' fees, by cash deposit or by surety bond in an amount and in a company satisfactory to Landlord, contest and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Landlord to prosecution for a criminal offense or constitute a default under any lease or mortgage under which Landlord may be obligated, or cause the demised premises or any part thereof to be condemned or vacated. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Landlord with respect to the demised premises or the building of which the demised premises form a part, or which shall or might subject Landlord to any liability or responsibility to any person or for property damage, nor shall Tenant keep anything in the demised premises except as now or hereafter permitted by the Fire Department Board of Fire Underwriters, Fire Insurance Rating Organization or other authority having jurisdiction, and then only in such manner and such quantity so as to not increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that (REF 1) in effect. Tenant shall pay all costs, expenses, fines, penalties or damages, which may be imposed upon Landlord by reason of Tenant's failure to comply with the provisions of this article and if by reason of such failure the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Landlord as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant, and shall make such reimbursement upon the first day of the month following such outlay by Landlord. In any action or proceeding wherein Landlord and Tenant are parties a schedule or "make-up" of rate for the building or demised premises issued by the New York Fire Insurance Exchange, or other body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate then applicable to said premises. (REF 2) Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's judgment, to absorb and prevent vibration, noise and annoyance. 7. SUBORDINATION: This lease is subject and subordinate to all ground or underlying leases and all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying leasee or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. (REF 1) 8. PROPERTY - LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Landlord, its agents, servants or employees; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Landlord's own acts, Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky matter, or fixtures into or out of the building without Landlord's prior written consent (REF 1) if such safe, machinery, equipment, bulky matter or fixtures requires special handling, all work in connection therewith shall comply with the Administration Code of the City of New York and all other laws and regulations applicable thereto and shall be done during such hours as Landlord may designate. Tenant shall indemnify and save harmless Landlord against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Landlord shall not be reimbursed by insurance, including reasonable attorneys fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any subtenant, and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon written notice from Landlord, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Landlord in writing, such approval not to be unreasonably withheld. 9. DESTRUCTION, FIRE AND OTHER CASUALTY: (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Landlord and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Landlord and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Landlord, subject to Landlord's right to elect not to restore the same as hereinafter provided. (d) (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then, in any of such events, Landlord may elect to terminate this lease by written notice to Tenant given within 90 days after such fire or casualty specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Landlord shall serve a termination notice as provided for herein, Landlord shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Landlord's control. After any such casualty, Tenant shall cooperate with Landlord's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. (REF 1) Tenant's liability for rent shall resume five (5) days after written notice from Landlord that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance, and also, provided that such a policy can be obtained without additional premiums. Tenant acknowledges that Landlord will not carry insurance on Tenant's furniture and/or furnishing or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Landlord will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. 10. EMINENT DOMAIN: If the whole or any part of the demised premise shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. 11. ASSIGNMENT, MORTGAGE, ETC.: Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage, or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance. (REF 1) If this lease be assigned or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the 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 herein contained. The consent by Landlord to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. 12. ELECTRIC CURRENT+: Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at any times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Landlord's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Landlord liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. 13. ACCESS TO PREMISES: Landlord or Landlord's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Landlord may deem necessary and reasonably desirable to the demised premises or to any other portion of the building or which Landlord may elect to perform following Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under the lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Landlord use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein. Landlord may, during the progress of any work in the demised premises, take any necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abate- - ----------------- + Rider to be added if necessary. PLEASE INITIAL /s/ ILLEGIBLE ment of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the terms hereof Landlord shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building and during the last six months of the term for the purpose of showing the same to prospective tenants and may during said six months period, place upon the premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the premises, Landlord or Landlord's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property and such entry shall not render Landlord or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations hereunder. Landlord shall have the right at any time, without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the building and to change the name, number or designation by which the building may be known. (REF 1) 14. VAULT, VAULT SPACE, AREA: No Vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding Landlord makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, 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 revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant. 15. OCCUPANCY: Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Landlord's work, if any. In any event, Landlord makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations whether or not of record. 16. BANKRUPTCY: (a) If at the date fixed as the commencement of the term of this lease or if at any time during the term hereby demised there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any state, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, and within 60 days thereof, Tenant fails to secure a dismissal thereof, or if Tenant makes an assignment for the benefit of creditors or petition for or enter into an arrangement, this lease, at the option of Landlord, exercised within a reasonable time after notice of the happening of any one or more of such events, may be cancelled and terminated by written notice to the Tenant (but if any of such events occur prior to the commencement date, this lease shall be ipso facto cancelled and terminated) and whether such cancellation and termination occur prior to or during the term, neither Tenant nor any person claiming through or under Tenant by virtue of any statute or of any order of any court, shall be entitled to possession or to remain in possession of the premises demised but shall forthwith quit and surrender the premises, and Landlord, in addition to the other rights and remedies Landlord has by virtue of any other provision herein or elsewhere in this lease contained or by virtue of any statute or rule of law, may retain as liquidated damages, any rent, security deposit or moneys received by him from Tenant or others in behalf of Tenant. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any instalment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such instalment was payable shall be discounted to the date of termination at the rate of four per cent (4%) per annum. If such premises or any part thereof be re-let by the Landlord for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such re-letting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. 17. DEFAULT: (1) If Tenant defaults in fulfilling any of the covenants of this lease, including the covenants for the payment of rent or additional rent, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant or if Tenant shall make default with respect to any other lease between Landlord and Tenant, then, in any one or more of such events, upon Landlord serving a written (REF 1) days notice upon Tenant specifying the nature of said default and upon the expiration of said (REF 1) days, if Tenant shall have failed to comply with or remedy such a default, or if the said default or omission complained of shall be of nature that the same cannot be completely cured or remedied with said (REF 1) day period, and if Tenant shall not have diligently commenced curing such default within such day period, and has not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, then Landlord may serve a written three (3) days notice of cancellation of this lease upon Tenant, and upon the expiration of said three (3) days, this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Landlord but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given and the term shall expire as aforesaid: Landlord may, without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant or demised premises and remove their effects and hold the premises if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Landlord may cancel and terminate such renewal or extension agreement by written notice. (REF 2) 18. REMEDIES OF LANDLORD AND WAIVER OF REDEMPTION: In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such expenses as Landlord may incur for legal expenses, attorneys' fees, brokerage, and/or putting the demised premises in good order, or for preparing the same for re-rental; (b) Landlord may re-let the premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Landlord to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Landlord may incur in connection with re-letting, such as legal expenses, attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, in putting the demised premises in good order or preparing the same for re-rental may, at Landlord's option, make such alterations, repairs, replacements, and/or decorations of the demised premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, or the making of such alterations, repairs, replacements, and/or decorations, shall not operate or be construed to release Tenant from liability hereunder, aforesaid Landlord shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Landlord hereunder. In the event of a breach or threatened breach the Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at labor or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy shall not preclude Landlord from any other remedy, in law or in equity. 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 demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this lease, or otherwise. 19. FEES AND EXPENSES: If tenant shall default in the observance or performance of any term or covenant on tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, landlord may immediately or at any time thereafter and without notice perform the obligation of tenant thereunder, and if landlord, in connection therewith or in connection with any default by tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorneys' fees, in instituting, prosecuting or defending any action or proceeding, such sums so paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by tenant to landlord within five (5) days of rendition of any bill or statement to tenant therefor, and tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable to landlord as damages. 20. NO REPRESENTATIONS BY LANDLORD: Neither Landlord nor Landlord's agents have made any representations or promises with respect to the physical condition of the building, the land upon which is erected or the demised premises, the rents, leases, ex- PLEASE INITIAL /s/ ILLEGIBLE penses of operation or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition, and agrees to take the same "as is" and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. (REF 1) All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Landlord and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 21. END OF TERM: Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Landlord the demised premises, broom clean, in good order and condition, ordinary wear excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire noon on the preceding business day. 22. QUIET ENJOYMENT: Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 33 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. 23. FAILURE TO GIVE POSSESSION: If Landlord is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of the possession of any tenant, undertenant or occupants, or if the premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or for any other reason, Landlord shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for the inability to obtain possession) until after Landlord shall have given Tenant written notice that the premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. 24. NO WAIVER: The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations set forth or hereafter adopted by Landlord, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. 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 stipulated rent, nor shall any endorsement or statement of 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 in this lease provided. No act or thing done by Landlord or Landlord's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. 25. WAIVER OF TRIAL BY JURY: It is mutually agreed by and between Landlord and 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 (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Landlord commences any summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding. 26. INABILITY TO PERFORM: This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. 27. BILLS AND NOTICES: Except as otherwise in this lease provided, a bill, statement, notice or communication which Landlord may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing. (REF 1) Any notice by Tenant to Landlord must be served by registered or certified mail addressed to Landlord at the address first hereinabove given or at such other address as Landlord shall designate by written notice. 29. SPRINKLERS: Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government require or recommend the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, Tenant shall, at Tenant's expense promptly make such sprinkler system installations, changes, modification, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. Tenant shall pay to Landlord as additional rent the (++) sum of $200.00 on the first day of each month during the term of this lease, as Tenant's portion of the contract price for sprinkler supervisory services. 30. ELEVATORS, HEAT, CLEANING: As long as Tenant is not in default under any of the covenants of this lease Landlord shall: (a) provide necessary elevator facilities on business days *from 8 a.m. to 6 p.m. (b) furnish heat to the demised premises, where and as required by law, on business days *from 8 a.m. to 6 p.m.** (c) at Landlord's expense cause to be kept clean the public halls and public portions of the building, which are used in common by all tenants; (REF 1A) Tenant shall at Tenant's expense, keep the demised premises clean and in order, to the satisfaction of Landlord, and for that purpose shall employ the person or persons, or corporation approved by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Landlord to Tenant at such time as Landlord may elect and shall be due and payable when rendered, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Landlord. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgment of Landlord, are necessary for the proper operation of the building. Landlord reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall - ---------- (++) Space to be filled in or deleted. * (i.e., Mondays through Fridays, Federal, State, City and Building union holidays excepted) ** and freight elevator service on business days from 8 a.m. to 7 p.m. PLEASE INITIAL /s/ ILLEGIBLE have been completed and Landlord shall have no responsibility or liability for failure to supply heat, elevator, plumbing and electric service, during said period or when prevented from so doing by strikes, accidents or by any cause beyond Landlord's control, or by laws, orders or regulations of any Federal, State or Municipal Authority, or failure of coal, oil or other suitable fuel supply, or inability by exercise of reasonable diligence to obtain coal, oil or other suitable fuel. If the building of which the demised premises are a part supplies manually operated elevator service, Landlord may proceed with alterations necessary to substitute automatic control elevator service upon ten (10) days written notice to Tenant without in any way affecting the obligations of Tenant hereunder, provided that the same shall be done with the minimum amount of inconvenience to Tenant, and Landlord pursues with due diligence the completion of the alterations. If Tenant, requires or uses (REF 1) elevator facilities for more extended hours or on Saturdays, Sundays or on Federal, State, City and Building union holidays, Landlord (REF 2) furnish the same at Tenant's expense (REF 3) Landlord shall have no responsibility or liability for (REF 4) to supply the services described herein. (REF 5) 32. CAPTIONS: The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. 33. DEFINITIONS: The term "Landlord" as used in this lease means only the owner, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed an construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lease of the building, or of the land and building, that the purchaser or the leasee of the building, or of the land and building, that the purchaser or the leasee of the building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease shall exclude Saturdays (except such portion thereof as is covered by specific hours in Article 30 hereof), Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. 34. ADJACENT EXCAVATION SHORING: If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing, such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. 35. RULES AND REGULATIONS: Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations and such other and further reasonable Rules and Regulations as Landlord or Landlord's agents may from time to time adopt. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Landlord or Landlord's agent, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulations upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Landlord within ten (10) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. (REF 1) 36. GLASS: Landlord shall replace, at the expense of Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Landlord may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of Landlord. Bills for the premiums therefor, shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rent. 37. SUCCESSORS AND ASSIGNS: The covenants conditions and agreements contained in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. RIDERS CONTAINING ARTICLES "38" THROUGH "77" INCLUSIVE ARE ANNEXED HERETO AND MADE A PART HEREOF. In Witness Whereof, Landlord and Tenant have respectively signed and sealed this lease as of the day and year first above written. P.A. Building Company By: Sylvan Lawrence Company, Inc., Agent Witness for Landlord: ____________________________________ By: /s/ ILLEGIBLE [L.S.] - -------------------------------- -------------------------------- Title Witness for Tenant: GOLDMAN SACHS & COMPANY [L.S.] /s/ Lynn Holly Fodor By: /s/ David A. George - -------------------------------- -------------------------------- ________________________________ FEDERAL I.D. #______________________ Address of Whitness LYNN HOLLY FODOR Notary Public, State of New York No. 43-01FO4876815 Qualified in Richmond County Certificate Filed in New York County Commission Expires November 10, 1990 *equal per annum to the lesser of (i) 105% of Landlord's (REF 1) or (ii) 100% of Landlord's (REF 1) plus $6,463.50 and sales taxes. (REF 2) **Landlord's 38. ELECTRICITY (a) Tenant agrees to purchase from Landlord or from a meter company designated by Landlord, all electric current consumed, used or to be used in the demised premises. Tenant shall pay the Landlord for any given bill period for such electric current at the rate. The amount to be paid by Tenant for current consumed shall be determined by meter or meters on the premises or installed by Landlord at ** sole cost and expense and billed according to each meter. Bills for current consumed by Tenant and for Tenant's proportionate share of common halls and common lavatories on the floor containing the demised premises which Tenant hereby agrees to pay, shall be rendered by Landlord, or the meter company, to Tenant at such time as Landlord may elect, and shall be deemed to be, and be paid as additional rent within (REF 3) days' rendition of any such bill. Landlord shall have the right, in the event of any non-payment by the Tenant of any such bills within said (REF 3) days' period after rendition of any such bill to discontinue and cut off the use of electric current to Tenant without further notice, without releasing Tenant from any liability under this lease, and without Landlord or the said meter company incurring any liability for any damage caused by such discontinuance of service. Tenant's proportionate share (REF 4) of the current consumed in the common halls and common lavatories on the floor containing the demised premises shall be fixed by apportioning the total current consumed in such halls and lavatories on the floor containing the demised premises, it being understood that if Tenant occupies the entire floor, Tenant shall pay for all the current consumed in all the halls and lavatories on the said floor. Tenant further agrees, on demand by Landlord or the meter company, (REF 5) to deposit with Landlord or with the meter company designated by Landlord a cash deposit sufficient in Landlord's reasonable opinion to secure payment of the electric consumed by Tenant in the demised premises. No current shall be furnished until the equipment of Tenant has been approved (REF 6)by the proper public authorities, the New York Board of Fire Underwriters and the New York Fire Insurance Exchange or similar organization having jurisdiction, and no changes shall be made in such equipment without the consent of (REF 7) Landlord. Tenant shall make no changes and/or additions to the electrical equipment, wiring and/or appliances in the demised premises, without the written consent of Landlord (REF 7) first had and obtained. Rigid conduit only will be allowed by Landlord for exposed work. If, in Landlord's sole opinion, Tenant's installation overloads any riser or risers, and/or switch or switches, in the building of which the demised premises are a part, Tenant will, at Tenant's sole cost and expense, promptly provide and install in conformity with law and all applicable provisions of this lease (including, but not limited to, Articles 3 and 6 hereof) an additional riser or risers, and/or any or all switch or switches, that may be necessary; but no riser or risers, and/or switch or switches may be installed without Tenant first obtaining the prior written consent of Landlord. Any tax now in effect or hereinafter imposed upon Landlord's receipts from the sale or resale of electrical energy to Tenant by any Municipal, State or Federal agency shall be passed on to Tenant and included in the bill of and paid by Tenant to Landlord or meter company designated by Landlord. In the event that the "submetering" of electric current in the building containing the demised premises is hereafter prohibited by any law hereinafter enacted, or by any order or ruling of the Public Service Commission of the State of New York, or by any judicial decision of any appropriate court, or if for any other reason Landlord, in its sole and arbitrary decision, elects to terminate the practice of submetering the (REF 8), Tenant will, at the request of Landlord, apply within (REF 9) days to the appropriate public service corporation servicing the building containing the demised premises for electric service, and comply with all rules and regulations of such Public Service Corporation pertinent thereto and Landlord and/or the meter company therefore designated by Landlord shall be relieved of any further obligation to furnish electric current to Tenant pursuant to this paragraph. (REF 10) The Landlord may, however, if it so elects, furnish unmetered electric current to Tenant, and Tenant shall pay therefor (and for electric current consumed in the common halls and common lavatories all to the extent as hereinbefore provided) to Landlord or Landlord's designated agent on the first day of the month next following such furnishing of unmetered current, and monthly thereafter during the term of this lease, so long as unmetered electric current is furnished to the Tenant, a sum equal to one-twelfth of the bills paid by the Tenant for electric current consumed in the demised premises for the twelve month period immediately preceding the month in which the furnishing of unmetered electric current to the Tenant is commenced by the Landlord, and/or as estimated from time to time by the Landlord's utility consultant, as herein provided, and automatically on the first day of the month following such furnishing of unmetered current, the annual rent payable by Tenant shall be deemed and be increased by an amount equal to twelve (12) times such monthly sum (subject to future increases in the event that there is any increase in any of the electric rate schedules;) it being understood that Tenant will not install or use any electrically operated equipment, machinery or appliances which were not in use in the demised premises during the said prior twelve month period, nor shall Tenant make any changes in the wiring in the demised premises without the written consent of Landlord first obtained. (REF 11) In the event (REF 12) any additional electrically operated equipment is installed in the demised premises by Tenant, or if Tenant shall increase its hours of operation, or if the rate or charges by the utility company supplying electric current to Landlord are increased after the date thereof, then and in any of such events the rent shall be increased accordingly on account of such additional electric current consumed by such newly installed electrically operated equipment and/or increase in Tenant's hours of operation, and/or account of such increased rates or charges to Landlord for electricity supplied by the utility company. The amount of such rent increase shall be determined solely by Landlord's utility consultant. Tenant shall pay the amount of such rent increase or increases retroactively to the date of the installation of all newly installed electrically operated equipment and/or to the date when the increased rate or charges to Landlord from the utility company becomes effective and/or to the date of any increase in Tenant's hours of operation, as the case may be, such amount to be paid promptly upon billing therefore by Landlord. (REF 13) In the event permission is granted to Tenant by the landlord for direct service from the utility company, (REF 14) sole cost and expense in compliance with all law (REF 14a) furnish and install all risers, service wiring, switches meter equipment and meters that may be necessary for such installation, and (REF 14) cost and expense (REF 14a) maintain and keep in good repair all such riser, risers, wiring and/or switch or switches, meter equipment and/or meter or meters. (c) Anything to the contrary notwithstanding, if at any time the Landlord elects to sell electricity from any source whatsoever to the Tenant, then, in such event, Tenant agrees to (REF 15) discontinue the purchase of electric service within 10 days from the Public Service Company servicing the part of the city where the building is located, or from any other source and to sign any release, or necessary papers required by said utility company for the discontinuance of electric service, and Tenant agrees to purchase from Landlord or from a meter company designated by Landlord, all electric current consumed in the demised premises at the rate and upon the same terms and conditions set forth in the first paragraph of this clause, and to comply otherwise in all respects with the terms and covenants of all applicable provisions of this Article. (REF 16) (d) Wherever reference is made in this Article to rate(s) or charge(s) (of the public utility supplying electricity to the Building) or to increases in such rates or charges, the words rates or charges shall be deemed to include without limitation, any and all (including any new or additional): (i) kilowatt hours of energy charge; (ii) kilowatts of demand charge; (iii) fuel adjustment charge; (iv) transfer adjustment charge; (v) utility tax; (vi) sales tax; (vii) any time of day rate changes or other methods of billing as may be instituted by the utility company; and (viii) any and all other charges and taxes required to be paid by Landlord to the utility company. (e) In no event shall the additional rent charge made to Tenant pursuant to this article for electricity supplied to the demised premises be less than Landlord's actual cost therefor. (REF 17) PLEASE INITIAL /s/ ILLEGIBLE 39. OPERATING EXPENSE ESCALATION INDEX The basic annual rent reserved in the within lease shall be adjusted from time to time in the manner provided by the within Article, as follows: (a) The term "Wage Rate" and the term "Base Wage Rate," as used in this Article are hereby respectively defined, as follows: "Wage Rate shall mean the minimum regular hourly wage rate plus all other sums required to be paid to or for the benefit of (REF 1) engaged in the general maintenance and operation of Class A office building (whether or not porters are employed in the Building and irrespective of whether or not the Building is a Class A office building) pursuant to a collective bargaining agreement between the Realty Advisory Board on Labor Relations, Inc. (or any successor thereto) and Local 32B of the Building Service Employees International Union AFL-CIO (or any successor thereto). The Wage Rate shall include but not be limited to sums paid for pensions, welfare fund, vacations, bonuses, social security, unemployment, disability benefits, health, life, accident and other types of insurance or benefits. The Wage Rate is intended to be a substitute comparative index of increased economic costs and is not intended to reflect the actual costs of wages and other expenses for the Building. If any such agreement is not entered into, or such parties or their successors shall cease to bargain collectively or if the Class A category, as defined by said union agreement, is eliminated and not replaced by a corresponding designation then the Wage Rate shall be the minimum regular hourly wage rate and other sums as aforesaid payable to or for the benefit of porters engaged in the maintenance and operation of the Building and payable by either Landlord or the contractor furnishing such services, but not in excess of (or in the event there are no such porters engaged in the maintenance and operation of the Building, then such Wage Rate shall be) the generally accepted hourly minimum rate of wages and other sums as aforesaid payable to or for the benefit of porters engaged in the general maintenance and operation of the first class office buildings in the Borough of Manhattan, City of New York. The term "Base Wage Rate" shall mean the Wage Rate aforesaid in effect (REF 2) on December 31, 1990. (b) If the Wage Rate shall be changed at any time after (REF 3) and shall be greater than the Base Wage Rate, then, effective from the date of such (REF 3A) the Wage Rate, the basic annual rent payable under this Lease shall be increased (REF 4) by an amount equal to the product of the number of percentage points (including any fraction of a percentage point) by which the Wage Rate shall exceed (REF 5) the Base Wage Rate, multiplied by the factor .005, multiplied by the basic annual rent in effect immediately prior to such increase (REF 6) in the Wage Rate. (REF 7) As an illustration of the foregoing: assuming that the Wage Rate was increased by 4.5% over the Base Wage Rate and assuming (for purposes of this illustration) that the basic annual rent in effect immediately prior to the date of such increase was $1,000.00 per annum, then such basic annual rent would be increased, effective as of the date of such increase in the Wage Rate, by an amount computed as follows: 4.5 X .005 = .0225 x $1,000.00 = $22.50 (c) Landlord shall notify Tenant whether or not an adjustment in the basic annual rent pursuant to this article is due and, if so, the amount thereof and the details of the computation thereof. The statement thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant as to the Operating Expense Escalation for the periods represented thereby unless Tenant within twenty (20) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. Such adjustment to basic annual rent shall commence as of the effective date of such (REF 8) in the Wage Rate, and all monthly installments of such shall reflect one-twelfth of the annual amount of such adjustment until a new adjustment becomes effective pursuant to the terms of this Article. In the event notification of such (REF 8) is given to Tenant subsequent to the effective date of such (REF 8) Tenant shall pay to Landlord the amount of any such monthly increases (within (REF 8A) days after being billed therefor) which would have been payable prior to such billing. If notification and billing had occurred prior to the effective date of such increase adjustment to basic annual rent. (REF 9) Any such adjustment for less than a year or for less than a month shall be prorated and in the event any change in the Wage Rate shall be made retroactive, (REF 10) Tenant shall pay Landlord the amount of such retroactive adjustment within (REF 11) days after being billed therefor. 40. REAL ESTATE TAX ESCALATION In addition to the basic annual rent hereinbefore reserved, Tenant covenants and agrees to pay to landlord as additional rent, sums computed in accordance with the following provisions: (a) "Taxes" shall mean all real estate taxes, assessments, governmental levies, county taxes or any other governmental charge, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature whatsoever, which are or may be assessed or imposed upon the building in which the demised premises are located, the land underlying same and the sidewalks, plazas, streets and alleys in front of or adjacent thereto, including any tax, excise or fee measured by or payable with respect to any rent or mortgage and levied against Landlord and/or the land and/or building and/or against the holder of any mortgage affecting said land or building (REF 1) under the laws of the United States, the State of New York or any political subdivision thereof or by the City of New York, as a substitute or addition in whole or in part for taxes presently or hereafter imposed on the land and building or resulting from or due to any change in the method of taxation provided that any such substitute tax on rent shall be considered as if the rent were the only income of Landlord but excluding (REF 2) any income, franchise, corporate, estate, inheritance, succession, capital stock or transfer tax levied on Landlord or the holder of any such mortgage. (b) "Tax Year" shall mean every twelve-month consecutive period commencing (REF 3) each July 1 during the term of this Lease. (c) "Tenant's Proportionate Share" shall be deemed to be .94%. (d) "Basic Tax" shall mean the real estate taxes imposed on the Building containing the demised premises and on the land on which the Building is located for the fiscal year July 1, 1989 to June 30, 1990. If the Basic Tax shall subsequently be adjusted, corrected or reduced, whether as the result of protest, by means of agreement or as the result of legal proceedings, the Basic Tax for the purpose of computing any additional rent payable pursuant to this Article shall be the Basic Tax as so adjusted, corrected or reduced. Until the Basic Tax is so adjusted, corrected or reduced, if ever, Tenant shall pay additional rent hereunder based upon unadjusted, uncorrected or unreduced Basic Tax and upon such adjustment, correction or reduction occurring, and additional rent paid by Tenant prior to the date of such occurrence shall be recomputed and Tenant shall pay to Landlord any additional rent found due by such recomputation within ten (10) days after being billed thereof (which bill shall set forth in reasonable detail the pertinent date causing and comprising such recomputation). The statement thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant as to the Real Estate Tax Escalation for the periods represented thereby unless Tenant within twenty (20) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. (e) If the Taxes for any Tax Year shall be greater than the Basic Tax, then Tenant shall pay to Landlord as additional rent an amount equal to Tenant's Proportionate Share of the increase over the Basic Tax. If the commencement date of this Lease shall occur during any Tax Year, or if the term of this Lease shall expire or be terminated during any Tax Year, such amount shall be pro-rated. Landlord shall bill Tenant for any additional rent payable by Tenant pursuant to this Article, such bill to set forth in reasonable detail the computation of additional rent hereunder which shall be payable by the Tenant to the Landlord in installments in the same manner that such Taxes are payable by the Landlord to the City of New York pursuant to law, commencing with July 1, 1990. (f) If the Taxes for any Tax Year for which Tenant shall have paid additional rent pursuant to this Article shall be adjusted, corrected or reduced whether as the result of protest of any tentative assessment, or by means of agreement, or as the result of legal proceedings, the additional rent becoming due in said Tax Year pursuant to this Article shall be determined on the basis of said corrected, adjusted or reduced Taxes. If Tenant shall have paid any additional rent pursuant to this Article for such Tax Year prior to any said adjustment, Landlord shall credit or refund to Tenant any excess amount thus paid as reflected by said adjusted Taxes, less Tenant's pro rata share of any cost, expense or fees (including experts' and attorneys' fees) incurred by Landlord in obtaining said tax adjustment. If said tax adjustment shall occur prior to Tenant's payment of any said Taxes due hereunder as additional rent, Tenant shall pay, as further additional rent, a proportionate share of any cost, expenses or fees (including experts' and attorneys' fees) incurred by Landlord in obtaining said tax adjustment. Any payments, credits or refunds due hereunder for any period of less than a full Tax Year at the commencement or end of the term of this Lease, or because of any change in the area of the demised premises shall be equitably prorated to reflect such event. (g) If the fiscal tax year or the method of tax payment shall hereafter be changed, appropriate adjustment of the foregoing provisions shall be made accordingly to reflect any such changes. (h) Tenant shall pay to Landlord any occupancy tax, rent tax and any other tax of similar nature or intent now in effect or hereafter enacted (REF 4) if the taxing authority shall enact law making same payable by Landlord in the first instance. Such tax shall be paid to Landlord as additional rent upon demand. PLEASE INITIAL: |_| |_| Landlord Tenant 9/87 41. ASSIGNMENT, SUBLETTING, MORTGAGING (a) Tenant will not by operation of law or otherwise, assign, mortgage or encumber this Lease, nor sublet or permit the demised premises or any part thereof to be used by others, without Landlord's prior express written consent in each instance. The consent by Landlord to any assignment or subletting shall not in any manner be construed to relieve Tenant from obtaining Landlord's express written consent to any other or further assignment or subletting nor shall any such consent by Landlord serve to relieve or release Tenant from its obligations to fully and faithfully observe and perform all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed. (b) If Tenant shall desire to assign or to sublet all or any portion of the demised premises, Tenant shall give notice thereof to Landlord and in said notice shall set forth. (REF 1) After receipt of such notice from Tenant, Landlord shall have the following options to be exercised within (REF 1A) days from the receipt of Tenant's notice. (i) In the event Tenant's notice is of Tenant's desire to make an assignment or a subletting of all or substantially all of the demised premises Landlord shall have the option to cancel and terminate this Lease which option shall be exercised (REF 1B) within the aforesaid (REF 1A) day period and (REF 1C) the term of this Lease shall cease and expire with the same force and effect as if such date were originally provided herein as the expiration of the term hereof. (ii) In the event Tenant's notice is of Tenant's desire to make a subletting for less than all or substantially all of the demised premises, Landlord shall have the option, to be exercised within said (REF 1A) day period, of canceling and terminating this Lease only as to such portion of the demised premises. (REF 1D) In the event Landlord exercises its option under this subparagraph (ii) the rent and all other charges payable hereunder shall be equitably adjusted and apportioned. (REF 2) If Landlord shall not exercise its foregoing option within the time set forth (REF 3) its consent to any such proposed assignment or subletting shall not be unreasonably withheld or unduly delayed, provided, however, that Landlord may withhold consent thereto if in the exercise of its sole judgment it determines that: (i) The financial condition and general reputation of the proposed assignee or subtenant are not consistent with the extent of the obligation undertaken by the proposed assignment or sublease. (ii) The proposed use of the demised premises is not appropriate for the Building or in keeping with the character of the existing tenancies or permitted by Tenant's Lease. (REF 3A) (iii) The nature of the occupancy of the proposed assignee or subtenant will cause an excessive density of employees or traffic or make excessive demands on the Building's services or facilities or in any other way lessen the character of the Building. (iv) The Tenant proposes to assign or sublet to one who at the time is a tenant or occupant of premises in the Building of which the demised premises are a part (or to a subsidiary or related entity of such a tenant or occupant) or to one with whom Landlord or its agent are actively negotiating for space in the Building. (v) The Tenant has advertised that Tenant is willing to assign or sublet all or a portion of the demised premises at a rental rate less than the rental rate Landlord is then asking for other space in the Building or less then market rental rate. In the event Landlord should withhold or delay its consent to any proposed assignment or sublease, the sole remedy of Tenant shall be to institute action for specific performance if Tenant believes that such withholding or delaying of consent was unreasonable and Tenant hereby expressly waives any claim for monetary damages by reason of such withholding or delaying of consent by Landlord. (d) Further, and as a condition of Landlord's consent to any assignment or subletting: 1. Tenant at the time of requesting Landlord's consent shall not be in default in the payment of any rent, additional rent, or other sums or charges provided to be paid by Tenant hereunder and further that Tenant is not then in material default otherwise under this Lease; 2. That each assignee of this Lease shall assume in writing all of the terms, covenants and conditions of this Lease on the part of Tenant hereunder to be performed and observed. 3. That an original or duplicate original of the instrument of assignment and assumption or the sublease agreement shall be delivered to Landlord within five (5) days following the making thereof; and 4. That any instrument of sublease shall specifically state that each sublease is subject to all of the terms, covenants and conditions of this Lease. If Tenant shall duly comply with all of the foregoing then, as aforesaid, Landlord shall not unreasonably withhold or unduly delay its consent to such assignment or subletting, provided further, however, and on condition that at the time or requesting Landlord's consent Tenant shall pay to Sylvan Lawrence Company, Inc. the sum of $250 as a processing fee for each assignment and/or subletting. (e) It is agreed that if Landlord shall not exercise any of its foregoing options and shall consent to such assignment or subletting, and Tenant shall thereupon assign this Lease or sublet all or any portion of the demised premises, then and in that event Tenant shall pay to Landlord, as additional rent, (i) in the event of an assignment, 50% of the amount of monies, if any, which the assignee has agreed to and does pay to Tenant in consideration of the making of such assignment less however all out of pocket costs actually incurred by Tenant in connection with the making of such assignment, including but not limited to any (REF 4) brokerage fees, advertising and alteration costs: and (ii) in the event of a subletting, 50% of (x) the amount, if any, by which the fixed basic rent and additional rent payable by the sublessee to Tenant shall exceed the fixed basic rent plus additional rent allocable to that part of the demised premises affected by such sublease pursuant to the provisions of this Lease, plus (y)the amounts, if any, payable by such sublessee to Tenant pursuant to any side agreement as consideration (partial or otherwise) for Tenant making such subletting. (REF 5) Such additional rent payments shall be made monthly within (REF 6) days after receipt of the same by Tenant or within (REF 6) days after Tenant is credited with the same by the assignee or sublessee. (REF 7) At the time of submitting the proposed assignment or sublease to Landlord, Tenant shall certify to Landlord in writing whether or not the assignee or sublessee has agreed to pay any monies to Tenant in consideration of the making of the assignment or sublease other than as specified and set forth in such instruments, and if so Tenant shall certify the amounts and time of payment thereof in reasonable detail. (f) If this Lease shall be assigned, or if the demised premises or any part thereof be sublet or occupied by any person or persons other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant or occupant and apply the net amount collected (which may be treated by Landlord as rent or as use and occupancy) to the rent herein reserved but no such assignment, subletting, occupancy or collection of rent shall be deemed a waiver of the covenants in this Article, nor shall it be deemed acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the full performance by Tenant of all the terms, conditions and covenants of this Lease. (g) Each permitted assignee or transferee shall assume and be deemed to have assumed this lease and shall be and remain liable jointly and severally with Tenant for the payment of the rent, additional rent and adjustment of rent, and for the due performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the term of this Lease and any PLEASE INITIAL: |_| Landlord |_| Tenant 41. ASSIGNMENT, SUBLETTING, MORTGAGING (continued) renewals and modifications hereof. No assignment shall be binding on Landlord unless, as hereinbefore provided, such assignee or Tenant shall deliver to Landlord a duplicate original of the instrument of assignment which contains a covenant of assumption by the assignee of all of the obligations aforesaid and shall obtain from Landlord the aforesaid written consent prior thereto. Any assignment, sublease or agreement permitting the use and occupancy of the premises to which Landlord shall not have expressly consented in writing shall be deemed null and void and of no force and effect. (h) Any sale, transfer or assignment of a majority of the issued and outstanding stock of a corporate tenant shall be deemed an assignment of this lease. (REF 8) (i) Notwithstanding anything to the contrary contained in this Article, Tenant, without (REF 9), shall have the right to assign this Lease to any (REF 10) (REF 11) to enter into a sublease of all or part of the demised premises to any such (REF 12) subject however to Tenant's compliance with all of the provisions of subparagraph (d) hereof, upon which occurring (REF 13) such assignment or subletting and provided further (REF 14) that any such assignee or sublessee shall continue to use the demised premises for the purposes set forth in Article 2 only, for the remainder of the term of this Lease. (REF 15) (j) Notwithstanding anything to the contrary contained in this Article, Tenant's right to assign this lease or sublet all or a portion of the demised premises, and the enforceability against Landlord of Landlord's consent to any such assignment or subletting, shall be subject to Tenant's delivering to Landlord, simultaneously with the execution of any such assignment or sublease, (REF 16) a release of liens against the Building (REF 17) executed by any broker(s) (i) with whom Tenant shall have worked in connection with any such assignment or sublease or (ii) who are or who claim to be, in whole or in part, responsible for any such assignment or sublease (REF 18). Tenant further agrees to promptly effect and timely pay for all costs of the removal of any broker's liens which are placed on the Building at any time in connection with any such assignment or subletting (or promptly make reimbursement to Landlord in the event Landlord chooses to directly effect such removal). The provisions contained in this subparagraph (j) shall survive the expiration or sooner termination of this Lease. Tenant's failure to comply with the provisions contained in this subparagraph (j) shall be deemed to be a material default under this Lease, entitling Landlord to all of the remedies provided for under this Lease for default, including but not limited to Landlord's right to terminate this Lease in the event thereof. PLEASE INITIAL: |_| Landlord |_| Tenant 10/83 42. INSURANCE Tenant, throughout the term hereof, shall maintain in full force and effect for the benefit of and naming Landlord, Landlord's agent and Tenant as parties insured therein (REF 1) general public liability insurance, including without limitation, umbrella liability coverage against claims for personal injury, death or damage to property occurring in, on, or about the demised premises, with limits of not less than $1,000,000 for personal injury or death of one person and $3,000,000 arising out of one occurrence, and $100,000 for property damage or such other insurance as Landlord may reasonably require. The insurance required hereunder shall be issued by an insurance company licensed to do business in the State of New York prior to any entry by Tenant into the demised premises, and thereafter, not less than ten (10) days prior to the expiration of any expiring policy Tenant shall furnish renewals thereof, together with proof of payment of the premiums therefor. If such insurance is carried under a blanket policy, Tenant may deliver a certificate in lieu of the original policy. Each policy or renewal shall contain a provision for notice to Landlord at least ten (10) days prior to the cancellation thereof. Tenant shall indemnify Landlord against and save Landlord harmless to the extent of $3,000,000 which may be provided by umbrella policy, for any one occurrence from any liability or claim by or in behalf of any person, firm, governmental authority, for injury, death, or damage arising from the use by Tenant of the demised premises, or from any work or thing whatsoever done or omitted to be done by Tenant, its agents, contractors, servants, employees, licensees, invitees, or customers, and from any breach or default by Tenant under any of the terms or provisions of this Lease. If any action or proceeding shall be brought against Landlord in connection with any such claims, Tenant shall defend such action or proceeding, at Tenant's expense, by counsel reasonably satisfactory to Landlord. Tenant's insurance carrier's counsel shall be deemed satisfactory. 43. ADDITIONAL RENT All costs, charges and expenses which Tenant assumes, agrees or is obligated to pay pursuant to this Lease shall be deemed additional rent, and in the event of non-payment, Landlord shall have all of the rights and remedies with respect thereto as is herein provided for the case of non-payment of rent. 44. MERCHANDISE, REFUSE, ETC. Tenant shall at no time leave any merchandise, supplies, materials or refuse in the hallways or other common portions of the Building or in any other area of the Building other than the demised premises. Tenant covenants that all garbage and refuse shall be kept in proper containers, securely covered, until removed from the Building so as to prevent the escape of objectionable fumes and odors and the spread of vermin, and Tenant further covenants that no refuse and/or garbage shall be (REF 1) on the sidewalks adjacent to the Building. 45. ATTORNMENT Tenant agrees that neither the cancellation nor termination of any ground or underlying lease to which this Lease is now or may hereafter become subject or subordinate, nor any foreclosure of a mortgage affecting said premises, nor the institution of any suit, action, summary or other proceeding against the Landlord herein or any successor landlord, or any foreclosure proceedings brought by the holder of any such mortgage to recover possession of such property, shall by operation of law or otherwise result in cancellation or termination of this Lease or the obligations of the Tenant hereunder, and upon the request of any such Landlord, successor landlord, or the holder of such mortgage. Tenant covenants and agrees to attorn to the Landlord or to any successor to the Landlord's interest in the demised premises, or to such holder of such mortgage or to the purchaser of the mortgaged premises in foreclosure. If in connection with obtaining financing for the Building, a bank, insurance company or other lending institution shall request reasonable modification in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not adversely affect the leasehold interest hereby created. (REF 1) 46. WAIVER OF SUBROGATION Landlord and Tenant respectively, hereby waive the right to recover from each other any damage or loss occasioned by hazards compensated by insurance (excluding liability insurance), regardless of whether said damage or loss resulted from the negligence of either party, their officers, employees, agents or otherwise and said parties do hereby waive the right to subrogate any insurance carrier or other party to their respective rights of recovery against each other in any event. 47. MERCHANICS LIENS Notwithstanding anything to the contrary contained in this Lease, Tenant hereunder for itself, its successors and designees, warrant and guarantee to Landlord named in the within Lease, its successors and assigns, that if any mechanic's lien shall be filed against the building of which the demised premises forms a part, for work claimed to have been done for, or materials furnished to Tenant, the same shall be discharged by Tenant, by either payment or by bond, at the sole cost of Tenant within twenty (20) days following (REF 1) of such mechanic's lien. In the event such mechanic's lien is not discharged timely as aforesaid, Landlord, on (10) days prior notice to Tenant, may discharge same for the account of and at the expense of Tenant and Tenant shall promptly reimburse Landlord as additional rent for all costs, disbursements, fees and expenses, including without limitation, reasonable legal fees incurred in connection with so discharging said mechanic's lien. 48. AIR CONDITIONING PERMITS Anything contained herein to the contrary notwithstanding, it is expressly agreed that Tenant shall pay the cost of any and all permits required by any branch or department of the borough, county, city, state or federal government in connection with any air conditioning presently or hereinafter installed in the demised premises by either Landlord or Tenant. 49. LIMITATION OF LANDLORD'S LIABILITY If Landlord or any successor-in-interest of Landlord be an individual, joint venture, tenancy-in-common, co-partnership, unincorporated association, or other unincorporated aggregate of individuals, then, anything elsewhere in this Lease to the contrary notwithstanding, Tenant shall look solely to the estate and property of such unincorporated Landlord in the land and Building and, where expressly so provided in this Lease, to offset against the rents payable under this Lease, for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of such unincorporated Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies. 50. ESTOPPEL CERTIFICATE Tenant agrees, at any time, and from time to time, upon not less than (REF 1) days prior written notice from Landlord, to execute, acknowledge, and deliver to Landlord, a statement in writing addressed to Landlord certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modification), stating the dates to which rent, additional rent, and other charges have been paid, and stating whether or not (REF 2) there exists any default by Landlord or Tenant in the performance of any covenant, agreement, term, provision or condition contained in this Lease, and, if so, specifying the nature of each such default and stating such other information as Landlord may (REF 3) require (REF 4) it being intended that any such statement delivered pursuant hereto may be relied upon by Landlord, and by any mortgagee or prospective mortgagee under any mortgage affecting the Building or the Building and the land, and by any landlord under a ground or underlying lease affecting the land or Building or both and by any purchaser, prospective purchaser, net lessee or prospective net lessee of the Building. Time shall be deemed of the essence with regard to Tenant's material obligations set forth in this Article and Tenant's failure to timely fulfill the requirements contained in this Article shall be deemed a material default under the Lease giving rise to all of Landlord's rights, including but not limited to Landlord's right to terminate the Lease, and in addition Tenant shall be liable for all damages (including but not limited to consequential damages which may be substantial) sustained by Landlord due, in whole or in part, to Tenant's failure to timely provide Landlord with the above-described estoppel certificate. PLEASE INITIAL: |_| |_| Landlord Tenant 7/88 51. LATE PAYMENTS If Tenant shall fail to pay any installment of basic annual rent or additional rent when first due hereunder (irrespective of any grace period as may be applicable thereto) and such failure to pay shall continue for more than (REF 1) days after such payment was first due, (REF 2) then interest at the maximum legal interest rate that then may be charged to parties of the same legal capacity as Tenant shall accrue from and after the date on which any such sum was first due and payable hereunder and such interest shall be deemed to accrue as additional rent hereunder and shall be paid to Landlord (REF 3) demand made from time to time, but in any event no later than the time of payment of the delinquent sum. 52. HOLDOVER If Tenant shall hold possession of the demised premises after the expiration of the term of this Lease or the prior termination of this Lease, and the Lease is not renewed or a new lease is not entered into between the parties, the parties hereby agree that Tenant's occupancy of the demised premises after the expiration of the term or prior termination of this Lease shall be deemed that of a (REF 1A) commencing on the first day after the expiration of the term or prior termination of this Lease. Notwithstanding the fact that Tenant shall be deemed to be a (REF 1A), after the expiration of the term or prior termination of this Lease, Tenant shall continue to be fully responsible for the faithful performance by Tenant of all of the terms set forth in this Lease, except Tenant shall pay on the first day of each month after the expiration or sooner termination of this Lease for use and occupancy of the demised premises an amount equal to the higher of (i) an amount equal to (REF 1) times the sum of (a) the monthly installment of basic annual rent payable by Tenant during the last year of the original term of this Lease (i.e., the year immediately prior to the holdover period) and (b) all monthly installments of additional rent payable by Tenant pursuant to the terms of this Lease that would have been billable monthly by Landlord had the term of the Lease not expired; or (ii) an amount equal to the then market rental value of the demised premises. Tenant shall occupy the demised premises during the holdover period in its "as is" condition as of the expiration of the term or prior termination of this Lease and Landlord shall not be required to perform any work, furnish any materials or make any repairs within the demised premises during the holdover period. Nothing contained in this lease shall be construed as a consent by Landlord to the possession by Tenant of the demised premises beyond the expiration of the term or prior termination of this Lease, and Landlord, upon said expiration of the term or prior termination of this Lease shall be entitled to the benefits of all legal remedies that may now be in force or may hereafter be enacted relating to immediate repossession of the demised premises by Landlord and in addition Landlord shall be entitled to recover any and all damages, direct and/or consequential, sustained by Landlord (including but not limited to special damages) as a result of Tenant's holdover, which recovery of damages shall be distinguished from and not be offset by any payment made by Tenant for the use and occupancy of the demised premises. 53. NO EMPLOYMENT AGENCY, MESSENGER SERVICE, RETAIL OR RESIDENTIAL USE OF DEMISED PREMISES It is an express condition of this Lease that the demised premises be used for commercial purposes only in accordance with the provisions herein contained. In no event may the demised premises be used for Employment Agency, Messenger Service, Retail or Residential purposes and Tenant covenants and agrees to use the demised premises only for the commercial purposes specified in Article 2 hereof. Accordingly, it is expressly agreed that any violation by Tenant of its agreements, representations and obligations pursuant to this Article shall constitute a material default by Tenant under the terms of this Lease entitling Landlord to exercise any and all rights granted Landlord pursuant to Articles 17 and 18 of this Lease, including without limitation, the right to terminate this Lease and recover possession of the demised premises by reason of Tenant's default. 54. WAIVER OF COUNTERCLAIM Tenant shall and hereby does waive its right and agrees not to interpose any counterclaim or offset of whatever nature or description in any proceeding or action which may be instituted by Landlord against Tenant to recover possession of the demised premises, for the collection of rent, additional rent, other charges, or for damages, or in connection with any matters or claims, whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant's use or occupancy of said premises. This clause, as well as the "waiver of jury trial" provision of this Lease, shall survive the termination or any cancellation of this Lease, or the term hereof (nothing, however, contained in this clause shall preclude Tenant from instituting a separate action against Landlord with respect to any claim that Tenant may have against Landlord or from moving to consolidate such action with any action or proceeding which may have been instituted by Landlord; it being understood, however, that Landlord may oppose any motion of consolidation.) 55. ATTORNEY'S FEES In case it shall be necessary for Landlord to institute any action or proceeding against Tenant for the non-payment of rent (REF 1) Landlord shall be successful in such action or proceeding, Tenant shall be obligated to pay to Landlord reasonable attorneys' fees, costs and disbursements incurred for the institution and prosecution of any such action (REF 2) proceeding. PLEASE INITIAL: |_| |_| Landlord Tenant 2/86 57. SUPERVISION OF TENANT'S INVITEES, EMPLOYEES, ETC. Tenant acknowledges and agrees that the Building of which the demised premises forms a part is a first-class loft building. Tenant further acknowledges that as an inducement to Landlord to enter into this Lease with Tenant, Tenant has and does represent, covenant and agree that Tenant will take all necessary measures and institute all procedures as may be found necessary to insure that Tenant's clients, invitees, and personnel do not loiter or congregate in the public area of the Building (including but not limited to the corridors, elevators, lobbies, lavatories, etc.) and that such clients, invitees and personnel will at all times conduct themselves in a proper business-like manner when passing through such public areas of the Building for purposes of access and egress to and from the demised premises. Accordingly, it is expressly agreed that any violation by Tenant of its agreements, representations and obligations pursuant to this article shall constitute a material default by Tenant under the terms of this Lease entitling Landlord to exercise any and all rights granted Landlord pursuant to Articles 17 and 18 of this Lease including without limitation the right to terminate this Lease and recover possession of the demised premises by reason of Tenant's default. PLEASE INITIAL: |_| |_| Landlord Tenant 9/86 59. COMPLIANCE WITH LAWS INCLUDING BUT NOT LIMITED TO LOCAL LAW NOS. 5/73, 10/80, 10/81, 16/84 AND 76/85 Tenant acknowledges and agrees that it shall be Tenant's responsibility and obligation to comply with all requirements and controls imposed by Local Laws 5/73, 10/80, 10/81, 16/84 and 76/85 of the City of New York, as well as with any and all other now or hereafter existing laws, rules and regulations, as the same now or hereafter exist or hereafter may be amended, of the City of New York or of any governmental or quasi-governmental agency or department having jurisdiction over the Building, with respect to the demised premises or (REF 1) any portion of the Building, including but not limited to the partitioning, layout, exit signs, telephone communications, fire extinguishers, sprinklers, pressurization, HVAC systems, electrical systems, wiring, public address systems, conduits, emergency lighting, all systems -- mechanical or otherwise, elevators, exterior of the Building, toilets and all public areas. (REF 2) Tenant further acknowledges and agrees that if Landlord shall perform Tenant's installation or alteration work for Tenant pursuant to any work letter agreement or pursuant to Tenant's request, Landlord's sole responsibility with respect thereto shall be limited to the workmanlike manner of such installation or alteration and Tenant shall be responsible for the legality of any such installation or alteration, i.e., the drawing of plans in compliance with law and the obtaining of all permits relating thereto, including but not limited to all necessary approvals and signoffs, and compliance, by work or otherwise, with all laws, requirements and controls in accordance with this Article. Any modification(s) of any such installation or alteration made within the demised premises or alteration of the Building required as a result of such installation or alteration shall be solely the responsibility of Tenant, at Tenant's sole cost and expense, and Landlord shall have no obligation or duty with respect thereto. With respect to any work to be performed under this Article, Landlord shall have the option to perform such work on Tenant's behalf at Tenant's sole cost and expense subject to Article 61 hereof, and with respect to work to be performed to any portion of the Building other than the demised premises the actual expenditure on Tenant's behalf shall be deemed to be the total cost expended to complete said work multiplied by Tenant's Proportionate Share defined in the Real Estate Tax Escalation provision of this Lease (in the event this Lease does not provide for a Tenant's Proportionate Share, in lieu thereof the multiplier shall be the percentage of the rentable square feet in the Building which are located in the demised premises) subject to Article 61 hereof. 60. CESSATION OF SERVICES AFTER TERMINATION OF LEASE Tenant expressly covenants and agrees that if Tenant shall default in the payment of rent or additional rent hereunder or otherwise materially default under this Lease and Landlord shall in accordance with the applicable provisions of this Lease elect to terminate this Lease on account of any such default, whether such termination be affected by notice given to Tenant pursuant to Article 17 hereof or whether Landlord elects, in its sole discretion, to terminate the Lease by instituting appropriate legal action against Tenant or if Tenant shall vacate the demised premises, Landlord from and after the date of termination of this Lease or the date of Tenant's vacating the demised premises shall have the right to cease furnishing any services, including without limitation the cessation of the furnishing of electric current to the demised premises if Landlord is required to furnish electricity pursuant to another provision of this Lease, without said cessation of the furnishing of any such services constituting an actual or constructive, partial or total, eviction and Landlord shall be entitled to recover from Tenant use and occupancy for any period that Tenant shall holdover in the demised premises subsequent to any above-described termination of this Lease in an amount equal to the full basic annual rent and additional rent payable by Tenant hereunder pursuant to the holdover provisions of this Lease, or in the case of Tenant's having vacated the demised premises, Tenant shall be required to pay full rent and additional rent hereunder as provided in this Lease, irrespective of the fact that Landlord may have ceased furnishing any services to the demised premises. 61. LANDLORD'S OVERHEAD, SUPERVISION AND APPROVAL CHARGES Whenever Landlord or its agent shall install a water meter pursuant to Article 28 hereof, or shall perform work or furnish services at Tenant's request or on behalf of Tenant (REF 1) which are not otherwise specifically billable to Tenant as additional rent pursuant to any other Lease provision or separate agreement or shall perform work which Tenant should have performed but failed to perform prior to the expiration of any applicable grace period with respect thereto, or any contractor or vendor performs constitution or furnishes labor, material or services or alteration work on behalf of Tenant (REF 2) in addition to all other charges as may be required to be paid by Tenant as elsewhere provided in this Lease, Tenant shall pay to Sylvan Lawrence Company, Inc. ("SLC") upon rendition of SLC's bill therefor, an amount equal to 21% (REF 2A) of the amount actually expended by Landlord and/or Tenant in connection with the performance of such work or installation of such meter, (representing a charge of 10% of such cost for SLC's overhead and thereafter 10% for supervision). In addition, if pursuant to this Lease or any work letter or other agreement entered into between Landlord and Tenant, Tenant shall submit to Landlord's agent, SLC, plans or specification for approval, Tenant shall pay to SLC upon being billed therefor the sum of $500.00 (REF 3). Said sum shall be payable irrespective of whether or not approval of such plans and specifications is granted or such plans and specifications are returned to Tenant with objections thereto.* If any plan or specification submitted to SLC shall, in SLC's sole opinion, require the expert opinion of an architect, engineer or other professional service in order for SLC to determine whether or not to approve or withhold consent thereto, SLC may retain an architect, engineer or other professional service for such purpose and Tenant agrees to pay to SLC an amount equal to the reasonable fee of such architect, engineer or other professional service actually paid by SLC for reviewing such plan or specification. PLEASE INITIAL: |_| |_| Landlord Tenant *The terms of this second paragraph of this Article 61 shall not apply during the first six (6) months of this Lease. 9/87 63. BROKER Tenant covenants and represents that it has dealt with no broker in connection with the within Lease transaction or the demised premises other than of Sylvan Lawrence Company, Inc. and Gronich & Company and Tenant agrees to hold Landlord harmless from any claims for commission or other fees made by any other broker claiming to have dealt with Tenant in connection with this Lease transaction or the demised premises. Tenant shall have no obligation to make payment to aforesaid broker(s) on account of such commission or fees unless Tenant by separate agreement has undertaken to do so. 64. RIDER PORTIONS PREVAIL The rider portions of this Lease shall be read in conjunction with the printed standard form of lease annexed hereto. If there should be any inconsistency or ambiguity between the terms of the rider portions of this Lease and the standard form of lease, then the rider portions of this Lease shall prevail. 65. NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW Tenant expressly acknowledges and agrees that Landlord and its agents have not made and are not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representation promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement which may be made between the parties concurrently with the execution and delivery of this Lease and expressly refers to this Lease. This Lease shall be governed in all respects by the laws of the State of New York. 67. PROVISIONS SEVERABLE If any term of provision 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 or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 68. EXECUTION AND DELIVERY OF LEASE Submission by Landlord of the within Lease for review and execution by Tenant shall confer no rights nor impose any obligations on either party unless and until both Landlord and Tenant shall have executed this Lease and duplicated originals thereof shall have been delivered to the respective parties hereto. 69. UNCOLLECTABLE CHECKS It is hereby understood and agreed by Tenant that in the event Landlord receives a check from Tenant for the payment of basic annual rent, additional rent and/or any other charge(s) due under this Lease, and such check is uncollectable by Landlord due to insufficient funds in Tenant's account or for any other reason, Tenant shall pay the Sylvan Lawrence Company, Inc. ("SLC") a service charge in the sum of $100, for Landlord's expense in processing such uncollectable check, as additional rent under this Lease together with Tenant's next monthly rent installment due under this Lease. It is further understood and agreed that in the event Landlord accepts Tenant's checks in payment of any basic annual rent or additional rent due under this Lease, Tenant's checks must be drawn on a member bank of the New York Clearing House Association. The provisions of this Article shall not be deemed to limit Landlord from enforcing any other rights Landlord may have under this Lease in the event of Landlord's receipt of any such uncollectable check and SLC's right herein to collect a service charge, as provided above, shall be in addition to all other rights of Landlord contained in this Lease. PLEASE INITIAL: |_| |_| Landlord Tenant 9/86 70. EFFECT OF GOVERNMENTAL LIMITATION ON RENTS AND OTHER CHARGES If any law, decision, order, rule or regulation (collectively called "Limiting Law") of any governmental authority shall have the effect of limiting for any period of time the amount of basic annual rent and/or additional rent or other amounts payable by Tenant to any amount less than the amount required by this Lease, then: following provisions shall apply: (a) Throughout the period of limitation, Tenant shall remain liable for the maximum amount of basic annual rent and/or additional rent and other amounts which are legally payable; and (b) When the period of limitation ends, or if the Limiting Law is repealed, or following any order or ruling that substantially restrains or prohibits enforcement of the Limiting Law, Tenant shall pay to Landlord, (REF 1) demand (to the extent that payment of such amounts is not prohibited by law), all amounts that would have been due from Tenant to Landlord during the period of limitation but which were not paid because of the Limiting Law; and thereafter, Tenant shall pay to Landlord basic annual rent and/or additional rent and all other amounts due pursuant to this Lease, all calculated as though there had been no intervening period of limitation. PLEASE INITIAL 71. SUPPLEMENT TO ARTICLE 28 -- WATER METER (REF 1) Tenant shall pay, as additional rent, for all hot and cold water consumed in the demised premises. To the foregoing end, (REF 2) shall promptly install a water meter for (REF 3) hot and cold water (REF 3A) in the demised premises and Tenant shall keep said (REF 4) and (REF 4A) equipment in good order and repair throughout the term of this Lease. Tenant shall pay for said water consumed as shown on said (REF 4), together with appropriate sewer tax charges thereon, (REF 5) when bills are rendered by Landlord, as items of (REF 6) rent. More specifically, Tenant (REF 7) shall pay Landlord an amount equal to 107.5% of Landlord's cost to purchase and provide said water including all taxes (REF 7A). (REF 8) PLEASE INITIAL 72. LIABILITY FOR ASBESTOS It is hereby understood and agreed that Landlord prior to the commencement date of this Lease shall remove from the demised premises only any asbestos-containing material (as defined in federal, state and local regulations), located in the demised premises (REF 1) in accordance with current applicable Federal, state and local laws and regulations by employing a contractor licensed under federal, state and local laws and regulations to remove asbestos-containing material, which removal shall be performed in accordance with the current Federal, state and New York City requirements for the removal of asbestos-containing materials from premises such as the demised premises. Upon the completion of the removal of asbestos-containing material from the demised premises as described above, Landlord shall provide copies of the following items (the "Documents") as evidence of removal of the asbestos-containing material as defined by present New York City statute: (1) Copy of the testing laboratory report indicating removal of asbestos-containing materials from the demised premises in accordance with the above described manner; (2) Copy of the shipping manifest indicating that the asbestos-containing material had been removed from the demised premises and deposited in an approved landfill as currently required by the above described governmental authorities; (3) Copies of the asbestos abatement contractors bill for the services rendered in removing the asbestos-containing material from the demised premises. (4) Copy of a written report by a licensed Asbestos Inspector certifying that the demised premises are free of any friable Asbestos containing material. (REF 2) 73. EQUIPMENT ON ROOF Tenant shall have the right, subject to Landlord's (REF 1A) approval of specifications and methods of work, to place air-cooled air conditioning equipment (the "Equipment") (but no other item) on (REF 1) the set-back roof directly outside Tenant's demised premises in a location (REF 2). Tenant must maintain said area and Equipment in good condition, including but not limited to all repairs and replacements, at Tenant's sole cost and expense, to Landlord's specifications (REF 2A). Tenant shall be responsible for all damage to the Building (REF 3) caused by the Equipment (REF 3A) placing the Equipment on the set-back roof or removing the Equipment from the set-back roof. (REF 4) PLEASE INITIAL 74. STEAM CONNECTION (a) Tenant shall have the right, in compliance with all applicable rules and regulations of law, as well as with the applicable provisions of Articles 3, 6 and (REF 1) of this lease, and at Tenant's sole cost and expense, to make a connection to the existing constant pressure steam riser within the demised premises, at such point as Landlord shall reasonably approve, and to install such steam piping and any other equipment as may be required in connection therewith. (REF 2) a steam submeter which shall measure Tenant's consumption of steam. Tenant shall pay to Landlord as additional rent hereunder "Landlord's Charges" for steam consumed by Tenant as measured by such submeter(s) which charges shall be computed by: (i) dividing the gross cost of steam used for the entire Building (including all taxes and charges) for each particular month of the term hereof as billed to Landlord by the Consolidated Edison Company of New York by the total M/LBS (thousand pounds) of steam used by the entire Building as indicated on said bill with the quotient thus obtained being the actual cost to the Building per thousand pounds of steam (the "Quotient"); (ii) multiplying the Quotient by 115% to obtain the agreed upon rate (the "Rate") applicable to Tenant's consumption of steam (i.e. M/LBS - each thousand pounds) as measured by Tenant's submeter for the same monthly period ("Tenant's Monthly Consumption") covered by the particular Consolidated Edison Company bill for which the computation is being made to arrive at the Quotient; (iii) multiplying the Tenant's Monthly Consumption by the rate with the resulting product being the Landlord's Charges for steam furnished to Tenant during the particular month for which the computation is made. (b) Landlord agrees to furnish Tenant at the time of billing Tenant for steam charges pursuant to the provisions of this Article with a copy of the particular Consolidated Edison Company steam bill utilized in computing the charge to Tenant. (c) If for any reason any meter fails to record the consumption of steam the consumption during the period the meter is out of service will be considered to be the same as consumption for a like period either immediately before or immediately after the interruption, as reasonably selected by the Landlord, taking into account the season of the year. (d) The landlord shall not be charged with any liability by the Tenant or become liable to it for any injury or damage to the Tenant or to its property arising out of or in connection with any delay, interruption, failure or partial failure in supplying of steam hereunder, or out of or in connection with any variation in the characteristics of the steam furnished except as resulting from the negligence of the Landlord. (e) Landlord shall be afforded access from time to time throughout the term of this Lease as and when Landlord may desire, so long as Tenant's business is not unreasonably interfered with, for the purposes of reading said submeter and billing Tenant in accordance therewith. All additional rent payable pursuant to this Article shall be paid by Tenant within (REF 3) days after submission of a bill for steam consumed by Tenant together with a copy of the pertinent Consolidated Edison monthly steam bill. (f) In the event that the Tenant desires that the furnishing of the steam hereunder shall be discontinued, the Tenant shall so inform the Landlord by written notice not less than thirty (30) days before the date upon which the Tenant desires such discontinuance to take effect. Such notice shall state the day and hour which the supply of steam is to be discontinued and Tenant shall arrange and pay for the capping-off of such steam connection. If the Tenant fails to give Landlord such notice and cap-off said steam connection, the Landlord will continue to bill the Tenant for all charges accruing in accordance with the provisions of the preceding paragraphs of this Article. (g) In no event shall the additional rent charge made to Tenant pursuant to this Article for sub-metered steam supplied to the demised premises be less than Landlord's actual cost therefor. (h) Tenant shall maintain, in good order and condition, at Tenant's sole cost and expense, (Ref. 4). PLEASE INITIAL 75. FIRST REFUSAL OPTION (a) On condition that this Lease at the times hereinafter mentioned is then in effect and Tenant is not in default in the payment of rent, additional rent or any other sums or charges provided to be paid by Tenant hereunder and that Tenant is not otherwise in default under the terms of this Lease beyond any applicable grace period, Landlord agrees with respect to space ("Contiguous Space") on the eight floor of the Building contiguous to the demised premises covered by this Lease that Tenant shall be afforded a "First Refusal Option" described in (b) below with respect to leasing such Contiguous Space provided the Contiguous Space shall become vacant and untenanted during the term of this Lease. (b) In the event Landlord shall receive during the term of this Lease [except the final two (2) years of the term of this Lease during which period said First Refusal Option shall not be in effect] a bonafide offer acceptable to Landlord from a third party, including but not limited to an existing tenant, to lease the Contiguous Space, Landlord will notify Tenant of such offer including the basic annual rental rate, additional rent, the term, the security and the other material terms of the offer (hereinafter collectively referred to as the "Option Terms"), and Tenant shall have the option exercisable within, but in no event later than, (REF 1) days after the giving of such notice by Landlord to Tenant to elect by notice (as to the giving of such notice, time shall be deemed of the essence) given to Landlord within said five (5) business day period to lease the Contiguous Space upon the Option Terms set forth in Landlord's notice to Tenant, and otherwise upon the applicable terms and conditions as contained in this Lease as amended hereby except Landlord shall not be required to perform any work or furnish any materials to prepare the Contiguous Space for Tenant's occupancy. In the event the Option Terms cover space in addition to the Contiguous Space, Tenant's First Refusal Option shall cover such other space in addition to the Contiguous Space and Tenant's right to exercise said First Refusal Option is subject to Tenant's leasing the entirety of the Contiguous Space and such other space on all Option Terms. Landlord and Tenant shall execute a new lease to cover Tenant's exercise of the First Refusal Option, but such execution of a new lease is not necessary to bind Landlord and Tenant. 75A. LIMITATION ON TENANT'S LIABILITY. (REF 1) PLEASE INITIAL 76. TENANT'S WORK Anything to the contrary contained in this Lease notwithstanding, Tenant acknowledges and warrants that no representation has been or is made by Landlord that the demised premises may be used for the purposes set forth in Article 2 of this Lease pursuant to the existing certificate of occupancy, if any, or laws, rules or regulations, and delivery of possession of the demised premises to Tenant shall not be subject to compliance with or existence of any certificate of occupancy, laws, rules or regulations. Tenant, at Tenant's sole cost and expense, agrees to do all that is necessary, in a manner satisfactory to Landlord, to conform the existing certificate of occupancy, if any, or to obtain a new certificate of occupancy, if necessary, so that the demised premises may be legally used for the purposes set forth in Article 2 of this Lease and Tenant agrees not to use the demised premises at any time for any purposes (whether set forth in Article 3 or otherwise) which do not comply with the certificate of occupancy for the Building or relevant laws, rules or regulations. (Landlord, at Landlord's election, may perform all that is necessary to so conform the existing certificate of occupancy, if any, or obtain a new certificate of occupancy for the aforesaid reasons, if necessary, or to cause compliance with relevant laws, rules and regulations, at Tenant's sole cost and expense, which expense shall be promptly paid by Tenant to Landlord as additional rent under this Lease when billed). All of the work, alterations, installations, etc., to be performed by Tenant herein referred to as "Tenant's Work"). To the foregoing end, Tenant shall be permitted to perform Tenant's Work subject, however, to the following terms and conditions: (i) That all such Tenant's Work shall comply with all applicable provisions of this Lease, including, but not limited to, Articles 3 and 6 hereof, and all applicable governmental rules and regulations and the rules and regulations of any Board of Fire Underwriters or similar agency having jurisdiction; (ii) That Tenant shall first submit to Landlord for its approval plans and specifications covering said Tenant's Work. Landlord agrees not to unreasonably withhold or delay its consent to such plans and specifications and to any subsequent changes therein; (REF 1) (iii) That Tenant and its contractors shall employ only labor in the performance of such Tenant's Work, which shall be compatible with the other labor in the Building; Tenant agrees to employ only first class workmanlike contractors and labor as approved by Landlord (REF 1A); (iv) That Tenant and any contractor or contractors employed by the Tenant to render services and furnish labor to the demised premises, shall be covered by Worker's Compensation Insurance and a certificate thereof shall be furnished to the Landlord before commencement of any work by any contractor, subcontractor, their agents, servants or employees; (v) That promptly following the completion of all of said Tenant's Work, and as soon as reasonably feasible, the Tenant shall obtain and furnish to Landlord all appropriate certifications from all authorities having jurisdiction to the effect that all such Tenant's work has been performed and completed in accordance with the filed plans, if any, and with all laws, rules, regulations and orders of said authorities having jurisdiction; (vi) That Tenant, at its expense, shall procure each and every permit, license, franchise, or other authorization required for the performance of such Tenant's Work. (vii) That Tenant shall furnish to Landlord a list of all Tenant's contractors, subcontractors, material suppliers and laborers (collectively referred to as "Tenant's Personnel"). Tenant shall be responsible for Tenant's Personnel furnishing to Landlord a final release of lien (REF 1B) final payment by Tenant to Tenant's Personnel for any labor performed or materials furnished. (viii) In the event a proposed alteration or improvement is estimated to cost in excess of (REF 2) Tenant agrees that Tenant shall either: (b) issue to Landlord a hold harmless and indemnification relative to such proposed work; or (c) issue the guaranty of Tenant hereunder, which guaranty shall place the entire burden of payment for such alteration on (REF 2A) as well as hold Landlord harmless from and against any and all claims directly arising out of the work to be done in the demised premises. (ix) Anything to the contrary contained in this Article 76 and Article 3 of this Lease notwithstanding, Landlord shall not unreasonably withhold or delay Landlord's consent to Tenant's making (REF 2B) alterations, additions, installation, improvements, repairs or removals to or from the demised premises provided the same do not (REF 3) any building system(s). PLEASE INITIAL 77. RELOCATION (a) Notwithstanding anything to the contrary contained in this Lease, Landlord, upon not less than (REF 1) days prior written notice to Tenant, shall have the right to substitute, other space (REF 1A) in the Building of which the demised premises forms a part as of the Effective Date (REF 1B) as the demised premises hereunder in lieu of the space then constituting the demised premises hereunder immediately prior to the giving of such notice (the "Prior Space"). (REF 1C) (b) Substitute Space shall (REF 2) the Prior Space and, further, Landlord shall reimburse Tenant for the cost of transferring its telephone service to the Substitute Space. (c) Automatically on the Effective Date, the Substitute Space shall constitute the demised premises hereunder and all of the terms of this Lease shall apply thereto, and the Prior Space shall automatically be deleted from the coverage of this Lease and the term of the Lease insofar as the Prior Space only is concerned shall be deemed to have ceased and expired with the same force and effect as if the Effective Date were originally provided in the Lease as the expiration date thereof (but the Lease shall continue in full force and effect for the full term thereof with respect to the Substitute Space). (d) Tenant covenants and agrees to quit and surrender vacant full possession of the Prior Space to Landlord on the Effective Date free and clear of any leases, tenancies and rights of occupancy of anyone claiming by or through Tenant. In the event Tenant shall fail to refuse to surrender such vacant full possession of the Prior Space to Landlord on or before the Effective Date (for any reason other than Landlord's failure to furnish moving labor to Tenant), then and in such event Tenant shall pay to Landlord for each day or fraction thereof that Tenant shall fail to surrender such vacant full possession of the Prior Space to Landlord (in addition to all rent and additional rent provided to be paid under this Lease which is applicable from and after the Effective Date to the Substitute Space) an agreed-upon sum equal to three times the quotient obtained by dividing (i) the sum of the monthly installment of basic annual rent then payable under this Lease plus one-twelfth of all additional rent then payable under this Lease; by (ii) 30; (the "Daily Rate" for the Prior Space). Such Daily Rate for the Prior Space is in the nature of liquidated damages to Landlord for Tenant's failure to surrender such vacant full possession of the Prior Space to Landlord on or before the Effective Date. The foregoing provision for payment by Tenant for the Daily Rate for the Prior Space shall be without prejudice to Landlord's instituting Summary or such other proceedings as Landlord may desire in order to obtain as promptly as possible vacant full possession of the Prior Space. (REF 3) PLEASE INITIAL: |_| |_| Landlord Tenant 5/85 Lease Between P.A. Building Company and Goldman, Sachs & Co. The language set forth in this Footnote Insert is to be incorporated into and made a part of this Lease. Each Footnote corresponds to the identical Footnote number set forth in the designated Article in the body of this Lease. Article 3. 1. which consent shall not be unreasonably withheld or delayed 1A. in Landlord's reasonable opinion of any portion of the Building other than the demised premises, all which must be performed 1B. reasonably 2. (except Landlord's work performed under the letter agreement between Landlord and Tenant of even date herewith shall not be subject to the terms of this sentence as such work shall become the property of Landlord and be surrendered with the demised premises without being subject to Landlord's option set forth below in this sentence), 3. forty-five 3A. Landlord, upon request by Tenant, shall cooperate, at no cost and expense to Landlord, with Tenant's efforts to obtain any of the aforesaid permits approvals and certificates and Landlord shall promptly execute and deliver to Tenant any consents, certificates or documents required in connection therewith, provided (i) Landlord has no reasonable objection to the item (the "Item") requested of Landlord or the information to be contained in the Item, (ii) the Item is complete and accurate, and (iii) Tenant has the right under this Lease to proceed with the action relating to the Item. 4. reasonably 5. See Article 47 of this Lease. Article 4. 1. , including the structure of the Building, the common areas of the Building and the electrical, plumbing and other mechanical systems of the Building (except Tenant shall be responsible for maintaining the portion of the roof more particularly discussed in Article 73 of this Lease). 2. thirty days notice (except Tenant shall be required to act immediately in the case of an emergency) 3. reasonable Article 6. 1. which would otherwise be 2. Landlord represents that the floor load capacity of the demised premises is at least 200 pounds live load. (Landlord makes no representation regarding the floor load capacity of the roof set-back described in Article 73 of this Lease.) Article 7. 1. Notwithstanding the foregoing provisions of this Article 7, this Lease shall not be subordinate to any such mortgage or lease unless the mortgagee or lessor shall deliver to Tenant an PLEASE INITIAL agreement providing that so long as Tenant is not in default beyond any applicable notice and grace period Tenant's possession shall not be disturbed and Tenant's rights shall not be affected by any foreclosure of such mortgage or termination of such lease and that upon such foreclosure or termination, this Lease shall continue as a direct lease between the purchaser in foreclosure or such lessor, as landlord, and Tenant, as tenant. Landlord represents that it is the owner in fee of the Building and the underlying land and that as of the date hereof (i) there are no existing ground or underlying leases affecting the Building or the underlying land or any part of either, and (ii) there are no existing mortgages that affect the Building or the underlying land or any part of either. Anything to the contrary contained in this Footnote 1 to Article 7 notwithstanding, the terms of this Footnote 1 shall only apply to Goldman, Sachs & Co. and not to any successor or assign of Goldman, Sachs & Co. or any other party or entity. Article 8. 1. , which consent shall not be unreasonably withheld or delayed. Landlord represents that Tenant shall be permitted, subject to the terms of this Article 8, to bring heavy machinery into the Building during normal business hours provided such moving does not adversely affect the Building's general operation or materially and adversely affect other tenants of the Building. Article 9. 1. Anything to the contrary contained in this Article 9 notwithstanding, in the event the demised premises shall be damaged by fire or other casualty and Landlord has not substantially completed the repair of such damage by the earlier of a date which will be (i) six months after the date on which the Landlord has adjusted the insurance loss (which Landlord agrees to try to accomplish with reasonable diligence after the occurrence of the fire or casualty) or (ii) one year after the date of the subject fire or other casualty, then Tenant, by notice given to Landlord within thirty (30) days after the expiration of said subject period, may elect to terminate this Lease as of a date not more than ten (10) days after the giving of such notice (the "Termination Date"). If Tenant shall duly give such notice, then the term of this Lease shall cease and expire on the Termination Date with the same force and effect as if such date were originally provided herein as the expiration date of the term hereof. (However, Tenant shall be entitled to any and all abatements afforded to Tenant pursuant to Article 9 hereof from the date of the fire or other casualty.) Article 11. 1. , subject, however, to the provisions of Article 41 of this Lease. Article 13. 1. All of Landlord's aforesaid rights of entry (except for its right of entry in cases of emergency) shall be exercised by Landlord only after reasonable notice to Tenant. Whenever present in the demised premises, Landlord (or its agents) shall use reasonable efforts to safeguard Tenant's property therein and to minimize interference with the conduct of Tenant's business (subject to the constraints of any state of emergency). If Tenant so requests in writing within three (3) days of Landlord's notice to Tenant, and provided it is reasonably practical and possible to comply with Tenant's request, Landlord shall do all work required to be done in the demised premises after business hours, provided that Tenant, when making such request, agrees to pay the resulting overtime premium (if any) and any other costs relating to such after hours work (if any). PLEASE INITIAL -2- Article 17. 1. twenty (20) [except with regard to the payment of rent and additional rent for which the notice period shall be ten (10) business days (but this 10 business day period shall be reduced to a 5 day period in the event 3 times during any 12 month period Landlord has previously given Tenant notice for non-payment of rent or additional rent)] 2. Whenever in this lease reference is made to a "default" by Tenant hereunder, such reference shall be deemed to refer to a default by Tenant beyond the applicable notice and cure period provided for in this Article 17. Article 20. 1. and defects in Landlord's work provided for in a letter agreement between Landlord and Tenant of even date to this Lease and any uncompleted portions thereof. Article 27. 1. served by registered or certified mail, return receipt requested, to: Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Attention: General Services or to such other address as Tenant shall have specified by notice. Article 30. 1A. (d) allow Tenant access to the demised premises twenty four hours a day, seven days a week, three hundred sixty five days a year with one passenger elevator available at all times (subject to elevator unavailability due to force majuere). 1. freight 2. shall, in Landlord's discretion, which discretion shall be consistently applied to Tenant as generally applied to other tenants of the Building, 3. subject to Tenant's requesting the subject service in writing delivered to Landlord during normal business hours no later than 10 a.m. of the day on which the service is to be used, except for weekend or holiday service the written request must be received by Landlord on the last previous business day during normal business hours and not less than twenty-four hours prior to the time when the use of the service is to commence. 4. Landlord's inability 5. Landlord agrees not to discriminate against Tenant by charging Tenant a greater sum than is generally charged tenants for overtime freight elevator service, but Landlord shall have the right to charge any other tenant a lower sum (or no sum) than is generally charged tenants for freight overtime service. Article 35. 1. In the event of any conflict or inconsistency between the provisions of the Rules and Regulations and the other provisions of this Lease, the other provisions of this Lease shall govern. PLEASE INITIAL -3- Article 38. 1. Average Cost 2. Landlord shall bill Tenant monthly for electric current at 105% of Landlord's Average Cost. At the end of a Lease year if payments for such billing shall be greater than $6,463.50 above Landlord's Average Cost for the subject Lease year, such excess above $6,463.50 above Landlord's Average Cost shall be credited to the Tenant's next monthly bill. Landlord's Average Cost for any period shall mean an amount computed by multiplying the kilowatt hours consumed in the demised premises during said period as measured by the submeter, by the average cost per kilowatt hour for all electricity purchased by Landlord for use within the Building for use for common areas, service areas and tenantable areas, which average cost shall be equal to the quotient of Landlord's total electric bill for the Consolidated Edison billing cycle month in question divided by the total number of kilowatt hours consumed by the Building for said billing cycle month for use for common areas, service areas and tenantable areas. Landlord's Average Cost will include any surcharge which Landlord is charged for Landlord's purchase of electric current (even if such charge is not reflected in Landlord's electric bill). Landlord shall arrange (or cause the meter company to arrange) to be billed by Con Ed exclusive of sales tax with respect to the portion of electricity purchased by Landlord (or the meter company) and resold. Landlord shall bill Tenant for sales tax on the amount paid by Tenant to Landlord for electricity pursuant to clause (i) or (ii) above, and Tenant shall pay such sales tax to Landlord and Landlord shall remit the same to the appropriate tax authority. 3. twenty (20) 4. (as reasonably determined by Landlord) 5. provided Tenant has first failed to pay its bill for additional rent relating to electric current within twenty (20) days' rendition of the subject bill, 6. , as applicable, 7. , which consent shall not be unreasonably withheld or delayed, 8. Building, 9. thirty (30) 10. In the event Landlord chooses to cease supplying electric current by submetering to the Building, Landlord shall at its expense and before ceasing to supply electric current to the demised premises install all risers, feeders, switches, meters and other equipment necessary for Tenant to become a direct customer of the utility company; but if such submetering is discontinued due to law, judicial decision or governmental or quasi-governmental order, then such cost and expenses shall be borne by Tenant solely with respect to the demised premises. 11. , which consent shall not be unreasonably withheld or delayed, 12. that during any period while Landlord is supplying unmetered electric current pursuant to the preceding paragraph 13. Anything to the contrary contained in this paragraph notwithstanding, if Tenant disagrees with any of the estimates or determinations regarding the supply of unmetered electric current, Tenant may hire its own electric consultant to determine the correct amount of Tenant's electric charge. If, within twenty (20) days of Tenant's submission to Landlord of a copy of such determination, Landlord and Tenant have not agreed upon PLEASE INITIAL -4- Tenant's electric charge, Tenant and Landlord shall within a new twenty (20) day period choose a third electric consultant whose determination (working in conjunction with Tenant and Landlord's electric consultants) shall be final. [In the event Landlord and Tenant fail to choose the third electric consultant within the twenty (20) day period designated above for their choice of a third electric consultant, the President of the Real Estate Board of New York, Inc. shall designate the third electric consultant]. In the event such final determination determines that Landlord had been overcharging Tenant by more than 15%, Landlord shall pay for the cost of the third electric consultant and the charge for electric current shall be modified to provide for such correction; however, if the final determination determines that any overcharge by Landlord of Tenant was 15% incorrect or less, Tenant shall pay for the cost of the third electric consultant and the charge for electric current will not be modified. Pending the outcome of the determination, Tenant shall pay in accordance with the estimate or determination of Landlord's consultant, but in the event the determination results in a change in the amount Tenant is to be billed by Landlord for electric current, the change in the charge for electric current shall be applied retroactively to the date of the determination by the third electric consultant. 14. Landlord at Tenant's 14A. shall 15. send the appropriate notices so as to commence to 16. Any damages caused to the electric system due to the change provided for under this clause (c) shall be the responsibility of Landlord. 17. (f) In the event Tenant is at any time provided electric current by any method other than submetering, including but not limited to Landlord's survey method or direct supply from the utility company, Tenant shall pay Landlord as additional rent on a monthly basis a sum equal to five percent (5%) of Tenant's cost per month for electric current. [However, if at the end of any Lease year Tenant has paid Landlord a total sum under this clause (f) greater than $6,463.50 for said Lease year, Landlord shall credit the excess to Tenant's next monthly bill under this clause (f)]. Article 39. 1. an individual hypothetical porter deemed to be continuously employed throughout the term of this Lease as a porter at a Class A office building, and deemed to have been so employed for one year as of the date of this Lease, 2. immediately prior to any change (increase or decrease), if any, for the period after 3. December 31, 1990 3A. change in 4. or decreased 5. or be less than 6. or decrease 7. Anything to the contrary contained in this clause (b) notwithstanding, in no event shall the basic annual rent be adjusted downward in accordance with the calculations under this Article 39 below the amount provided for in the opening sentence of this Lease. As of the effective date of the subject increase in basic annual rent, the last adjustment for basic annual rent computed under this Article 39 shall be recomputed to provide for PLEASE INITIAL -5- the increase in basic annual rent to occur (i) on 9/1/94 set forth on page 1 of this Lease or (ii) in the event of a modification of this Lease providing for an increase in the basic annual rent (for additional space or otherwise). 8. change 8A. fifteen (15) 9. However, in the event of a decrease, Landlord, with the above stated notice, shall, at Landlord's option, refund or credit Tenant the amount of any such monthly decrease from the effective date of the Wage Rate decrease. 10. and Landlord shall promptly refund or credit, at Landlord's option, to Tenant the amount of such retroactive adjustment, or in the event of an increase. 11. Fifteen (15) Article 40. 1. succeeding to the position of owner of the land and Building 2. penalties for late payment in respect of Taxes, 3. July 1, 1990 and ending June 30, 1991 and each succeeding twelve month period commencing, 4. Relating to Tenant's occupancy or tenancy (or Tenant shall pay Tenant's proportionate share of any such tax affecting the Building generally), Article 41 1. (i) whether Tenant desires to assign the Lease or sublet all or a portion of the demised premises, and (ii) in the case of a proposed sublease, the portion of the demised premises that Tenant desires to sublet. 1A. ninety (90) 1B. by Landlord's written notice to Tenant sent 1C. Landlord's written notice to Tenant shall set forth and determine the date on which the subject termination of this Lease shall occur which date shall be no earlier than thirty (30) days after the date of Landlord's written notice to Tenant and no later than ninety (90) days after the date of Landlord's written notice to Tenant and on the subject date of termination of this Lease. 1D. Landlord's written notice to Tenant shall set forth and determine the date on which the subject termination of this Lease (only as to such portion of the demised premises) shall occur which date shall be no earlier than thirty (30) days after the date of Landlord's written notice to Tenant and no later than ninety (90) days after the date of Landlord's written notice to Tenant and on the subject date of termination of this Lease. 2. and Landlord, at Tenant's sole cost and expense, shall promptly after the termination date physically separate the portion of the demised premises with respect to which the Lease was terminated, such work to be done in accordance with all legal requirements and Landlord's insurance requirements. 3. then said Landlord's option shall not be exercisable by Landlord for a period of six months from the end of the aforesaid ninety (90) day period and Tenant, within such six month period, shall be free to find a prospective assignee with respect to this Lease or one or more prospective subtenants with respect to the PLEASE INITIAL -6- portion of the demised premises proposed by it to be sublet (subject to all the other terms and conditions of this Article 41), and at the end of such first six month period and each succeeding six month period (described below) if Tenant continues to desire to sublet or assign Tenant must (i) notify Landlord in writing before the end of the then current six month period of such Tenant's continued desire to sublet or assign and (ii) offer Landlord for a fifteen day period immediately subsequent to the subject six month period the options initially offered to Landlord in the aforesaid ninety (90) day period and if Landlord does not exercise its foregoing option a new six month period as described above shall occur within which Tenant may assign or sublease (subject to all the other terms and conditions of this Article 41), and Landlord agrees that 3A. Tenant acknowledges that a certain use which presently exists in the Building may not be appropriate for the Building at the time of the intended assignment or sublease presented by Tenant to Landlord. Use for a government agency or a use which is open to the public or for retail sales, shall be deemed to be inappropriate for the Building. No use shall be permitted which results in the production of odors, waste or noise (other than office odors, waste and noise) or the use of chemicals (other than office type use of chemicals). Tenant acknowledges that the type of use of the demised premises and choice of occupants of the demised premises are of paramount importance to Landlord. Landlord acknowledges that the use to be permitted in the demised premises in the event of an assignment of this Lease or in the event of a sublease of the demised premises (for that portion of the demised premises affected by the subject sublease) shall not be required to be the same as the use set forth in Article 2 of this Lease provided any such new use of the demised premises is in accordance with the requirements of this Article 41. 4. reasonable, customary and necessary legal fees, 5. ,less reasonable and necessary out-of-pocket costs actually incurred by Tenant in connection with such subletting, including but not limited to any reasonable, customary and necessary legal fees, brokerage fees, advertising and alteration costs. 6. fifteen (15) 7. In the calculation of the amount Landlord is to be paid under this clause (e) , Tenant's reasonable, customary and necessary out-of-pocket costs (as enumerated above) actually incurred in connection with the subject assignment or subletting shall be included in said calculation as and when actually paid out by Tenant. 8. This clause (h) shall not apply to Goldman, Sachs & Co. or a successor thereto (the term "successor" is defined below). 9. obtaining Landlord's consent, 10. successor or affiliate (the term "affiliate" is defined below) 11. Footnote 11 is purposefully omitted. 12. successor or affiliate 13. ("which" being the entering into an assignment or sublease) tenant shall give Landlord prior or simultaneous written notice of 14. ,anything to the contrary contained above in this Article 41 notwithstanding, PLEASE INITIAL -7- 15. The term "affiliate" shall mean an entity controlled by, controlling, or under common control with Tenant; the term control for such purposes shall mean ownership of 50% or more of the equity interest in any such entity. The term "successor" shall mean (i) any successor to Tenant by merger, consolidation or other operation of law or (ii) any entity to which all or substantially all of the assets of Tenant are transferred; provided however that no such entity shall be considered a successor unless subsequent to the merger, consolidation or asset transfer in question said successor has a net worth certified by a certified public accountant of not less than $100 million as determined in accordance with generally accepted accounting principles (excluding good will). 16. Either (1) 17. with respect to such assignment or sublease 18. or (2) an agreement by Tenant to indemnify Landlord against any claims and all costs including but not limited to reasonable legal fees made by any brokers with respect to such assignment or sublease. Article 42. 1. commercial Article 44. 1. placed by Tenant, its partners, employees and/or invitees Article 45. 1. or any of Tenant's rights under this Lease. Tenant agrees to execute an attornment agreement to memorialize the terms of this Article 45 within twenty (20) days of Landlord's written request for each subject attornment agreement. Landlord's obligations under Footnote 1 to Article 7 of this Lease are subject to Tenant's fulfilling its obligations under this Article 45. Article 47. 1. notice of Tenant's actual knowledge Article 50. 1. twenty (20) 2. Footnote 2 is purposefully omitted. 3. reasonably 4. relating to this Lease and/or Tenant's tenancy or occupancy; Article 51 1. fifteen (15) [except this fifteen (15) day period shall permanently be reduced to a ten (10) day period in the event three (3) times during any twelve (12) month period such a failure to pay within fifteen (15) days shall occur] 2. interest at the prime rate of The Chase Manhattan Bank, N.A. plus one percent may be charged to Tenant upon the sum due, and if such failure should continue for thirty days (30) after such payment was first due, PLEASE INITIAL -8- 3. promptly after Article 52. 1A. holdover 1. two and one-half (2 1/2) Article 55. 1. or additional rent 2. or Article 59. 1. ,if it relates to Tenant's use or manner of use of the demised premises, 2. Anything to the contrary contained in the immediately preceding sentence notwithstanding, Tenant shall not be responsible under this Article 59 for (i) structural alterations or (ii) changes to or work performed on the mechanical or electrical systems of the Building to the point of the connection of Tenant's lines and risers to such systems, unless such alteration, change or work is required due to Tenant's manner of use of the demised premises. Article 61. 1. under the terms of this Lease 2. for work which affects the structure of the Building or is directly performed on the Building's systems, 2A. (except with regard to Landlord's performance of work on behalf of Tenant under Articles 59 of this Lease the percentage shall be 15% and not 21%) 3. provided the reasonable estimate of the cost of the subject job totals $5,000.00 or more. Article 70. 1. within thirty (30) days after Article 71. 1. (1) Tenant shall have the right to connect to and draw from the Building's hot and cold water systems. (2) Landlord shall perform the necessary work at Tenant's cost and expense. (3) Landlord shall maintain (except maintenance required due to Tenant's acts of negligence, misuse, commission or omission for which Tenant shall be responsible and which maintenance Landlord shall perform at Tenant's cost and expenses) the Building's water risers which lead to the pipes connecting into the demised premises and the waste lines which leave from the demised premises (but Landlord shall not maintain the connecting pipes, valves and taps into the demised premises which Tenant shall be responsible to maintain). 2. Landlord at Tenant's expense 3. each of Tenant's 3A. connections 4. meters PLEASE INITIAL -9- 4A. related 5. within fifteen (15) days of 6. additional 7. for any period during the term of this Lease or Tenant's occupancy 7A. and fees including but not limited to any surcharges. 8. Tenant acknowledges that Tenant's right to obtain hot water is limited by and subject to the then present condition of hot water as then available in the Building when and if hot water is at any given time provided to tenants of the Building by Landlord in Landlord's sole discretion. Tenant shall have the right to install a hot water heater in the demised premises subject to the terms of Article 76 of this Lease. Article 72. 1. including the demising walls 2. Landlord's obligations under this Article 72 shall survive until the termination of this Lease with respect to asbestos-containing material existing in the demised premises which existed in the demised premises prior to Tenant's occupation thereof. Article 73. 1A. reasonable 1. the portion of 2. identified on Exhibit "A" to this Lease as A.C. Locations on Roof 815-817 S. 2A. Tenant shall promptly notify Landlord in writing of any repairs to the portion of the set-back roof covered by this Article 73 which are required and Landlord shall have the right to choose to perform any such repair at Tenant's cost and expense. 3. (structural or non-structural) or the Building's occupants 3A. and the maintenance of the Equipment, 4. The terms of this Article 73 shall be deemed to be a license granted by Landlord to Tenant which shall be irrevocable during the term of this Lease provided Tenant complies with the terms of this Article 73. The set-back roof which is the subject of this Article 73 is not a portion of the demised premises, but its usage by Tenant shall be governed by the terms of this Lease as if it were a portion of the demised premises. Article 74. 1. 76 2. Landlord, at Tenant's expense, shall install 3. fifteen (15) 4. the tap connecting into the steam riser, the piping from the steam riser to the demised premises and the steam submeter. Landlord, at Tenant's sole cost and expense, shall connect the demised premises to the riser providing constant 24 hour steam. Subsequent to the initial connection to the 24 hours steamline made on Tenant's behalf as described in the immediately preceding sentence, in the event Landlord, in Landlord's sole judgement, PLEASE INITIAL -10- elects to switch to a different steam pressure line with regard to providing steam pressure to the demised premises, Landlord, at Landlord's cost, shall switch Tenant's steam connection to the then active steam pressure line (this switch will be performed by Landlord, at Tenant's cost, in the event the switch is required by law, judicial decision, governmental or quasi-governmental order, utility company action or decision). Landlord shall maintain the Building's steam system including risers but not including any piping or connections or taps the purpose of which are to connect individual premises to the Building's steam system. Article 75. 1. seven (7) Article 75A 1. The following Article is to be added as Article 75A: Limitation on Tenant's Liability. Landlord acknowledges that the Tenant named herein is a partnership and Landlord agrees that, in all events, Landlord's recourse against Tenant under this Lease shall be limited solely to the partnership assets of Tenant and, accordingly, in no event shall Landlord make any claim against or seek to impose any liability upon any partner of Tenant. Article 76. 1. Footnote 1 is purposefully omitted. 1A. which approval shall not be unreasonably withheld; 1B. within thirty days of 2. Ten thousand dollars ($10,000), 2A. Tenant, 2B. non-structural 3. Materially or adversely affect Article 77. 1. ninety (90) 1A. (the "Substitute Space") 1B. (defined below) 1C. The Effective Date shall be the later of (i) the date ninety (90) days subsequent to the date of Landlord's notice ("Landlord's Initial Notice") to Tenant informing Tenant that Landlord intends to substitute the Substitute Space for the Prior Space or (ii) either (a) in the case where Tenant elects to perform Tenant's Moving Work (defined below) the date thirty (30) days after Landlord has substantially completed preparing the Substitute Space for Tenant's occupancy in accordance with the terms of this Article 77 of which date of substantial completion Landlord shall have given tenant not less than ten (10) days notice, or (b) in the case where Tenant elects to have Landlord perform Tenant's Moving Work, the date on which Landlord has substantially completed Tenant's Moving Work. PLEASE INITIAL -11- 2. have no less total usuable area than 3. (e) Anything to the contrary contained in this Article 77 notwithstanding, in addition to Landlord's obligation set forth above in this Article 77 Landlord shall, at Landlord's cost and expense, perform the following: 1) Landlord shall build-out the Substitute Space to be substantially equivalent to the Prior Space as it exists at the time of the relocation. In this respect Landlord shall provide space which is newly decorated, layed out and partitioned in the same manner as the Prior Space. 2) The Substitute Space shall be substantially in the same shape as the Prior Space; the length (east/west) shall be the same plus or minus ten percent (10%), and the width (north/south) shall be a minimum of the width of the Prior Space on the Commencement Date of this Lease. 3) Landlord shall provide Tenant space on a roof functionally equivalent (with respect to the Equipment) to the space on the set-back roof designated as A.C. Locations on Roof 815-817 S on Exhibit "A" of this Lease or functionally equivalent (with respect to the Equipment) additional floor area for which Tenant shall receive an irrevocable license equivalent to the irrevocable license covering such subject roof space described in Article 73 of this Lease. 4) Landlord shall furnish Tenant with plans and specifications for the subject relocation including drawings, mechanicals, and scheduling information. f) Anything to the contrary contained in this Article 77 notwithstanding, Tenant within ten (10) days after receipt of Landlord's Initial Notice, may elect to (i) perform Tenant's Moving Work at Landlord's sole reasonable cost and expense, or (ii) have Landlord perform Tenant's Moving Work at Landlord's sole expense. Tenant's Moving Work shall mean the moving of Tenant's complete operation from the Prior Space to the Substitute Space, including the moving and reinstallation of all Tenant's furniture and equipment including the Equipment (as defined in Article 73) to the appropriate roof space or additional floor area. If Tenant elects to have Landlord perform Tenant's Moving Work, then: 1) At Tenant's request, Landlord shall perform the subject relocation in a continuous fashion (on consecutive eight hour days); Tenant may further request that the subject relocation be made in phases (which are reasonable) which phase schedule must be reasonably acceptable to Tenant and Landlord. 2) At Tenant's request, the subject relocation will be made over a week-end through to 7 a.m. Tuesday [plus additional day(s) to correspond to any holiday during the relocation]. If Tenant elects to perform Tenant's Moving Work itself, then: 1) Tenant, from and after the date of the Landlord's buildout of the Substitute Space being substantially completed, shall have the right to perform Tenant's Moving Work. Landlord shall provide Tenant for the period of such performance priority use of the Building's freight elevators to facilitate Tenant's Moving Work and otherwise cooperate with Tenant's efforts in connection therewith. 2) Tenant, after Tenant's Moving Work is complete, shall furnish Landlord with a statement including but not limited to cancelled checks and receipts setting forth and verifying Tenant's reasonable expenses which shall have been actually, PLEASE INITIAL -12- directly and solely incurred in connection with Tenant's Moving Work, and within thirty (30) days after the receipt of such statement, Landlord shall pay Tenant the amount set forth thereon or give Tenant written notice of Landlord's objections to Tenant's statement. 3) If Tenant has not completed Tenant's Moving Work by the Effective Date, then Landlord may give Tenant a notice informing Tenant that if Tenant's Moving Work is not completed (10) days after the date of such notice, Landlord will have the right at any time thereafter to prosecute Tenant's Moving Work at Tenant's sole cost and expense. g) All of Landlord's obligations set forth in this Article 77 are subject to Tenant's providing Landlord with Tenant's full cooperation including but not limited to Tenant's providing personnel to assist Landlord. h) Landlord's build-out of the Substitute Space shall be considered "substantially completed" when such work is completed other than insubstantial details of mechanical and decorative adjustment that won't interfere with Tenant's business operations ("Punch List Items"). Landlord shall cure all Punch List Items within thirty (30) days of Tenant's notice to Landlord setting forth actual Punch List Items. PLEASE INITIAL -13- ADDITIONAL RULES AND REGULATIONS 111 EIGHTH AVENUE The Rules and Regulations are established to safeguard the interest of the Tenant, the Landlord, and others, lawfully engaged in and about the Demised Premises and the Building. Such Rules and Regulations are to be observed and enforced at all times in accordance with the provisions of the within Lease. 1. Trucks using the Tenant Shipping Platforms on the ground floor of the building, and the upper Floor Truck Lobbies will load and discharge at the place or places thereat and therein as indicated by the duly authorized representative of Landlord in charge of such operation. 2. Elevators for Freight Handling Service will be operated during usual business hours of usual business days, unless special arrangement is made with Landlord for operation at other times. 3. The use of the private right of way and the truck elevators will be subject to and under the sole direction and control of the duly authorized representative of the Landlord in charge of such operation. When in the interest of continuity of service and/or in the interest of the common service, Tenant's freight departing from or arriving at the building by truck may at the direction of Landlord be handled over and through Tenant's Shipping Platforms on the ground floor and the freight elevators. Landlord reserves the right to direct such handling in lieu of truck elevator service, provided the exercise of such right by Landlord to direct such alternate handling of freight is not unreasonably employed. 4. In the interest of preserving the continuity of freight elevator service, freight will not be floored upon the freight elevator, but will at all times be handled and moved upon suitable vehicles of the indoor industrial wheeler type permitting such freight to be economically and expeditiously wheeled on and off the freight elevators. Freight which cannot be handled upon such equipment will be handled in such other manner as may be approved by Landlord. 5. Tenant Shipping Platform located on first or ground floor of the Building are designed to accomplish the immediate transfer and/or movements of merchandise between the freight elevators and trucks. The use of such facility by Tenant, its agents, servants, employees, representatives and/or contractors will be confined to such purpose, under the reasonable direction and control of the duly authorized representative of Landlord in charge of such operation. No storage or holding of merchandise on such Tenant Shipping Platforms awaiting the arrival of trucks, or awaiting transfer by Tenant from such Tenant Shipping Platforms to the demised premises will be permitted. No automobiles of Tenant, its employees, servants, licensees, contractors, customers, visitors or agents may enter on or be stored in any portion of the building, except in areas designed by Landlord and provided Tenant pays for such parking at rates designated by Landlord, its agents or parking lessees. Any violation of this rule or disregard of directions issued by Landlord will give the Landlord the right to handle, transfer, remove and/or store such freight in or to other premises in the building. When such handling, transfer, removal and/or storage is performed by Landlord, and when it shall be deemed necessary by Landlord to preserve the continuity of common service provided by this facility, any and all expense will be for the account of Tenant and at his expense. Landlord will not be responsible for any loss or damage which the merchandise may suffer by such handling, removing and/or storing unless resulting from negligence on the part of Landlord, its agents, servants and/or employees. 6. Agents, servants, employees of Tenant will in no case, and under no condition, be permitted to operate any freight, passenger or truck elevator. 7. The Building is equipped with scuppers for carrying off water which may result from sprinkler operation or other causes. Tenant shall not, under any circumstances, deposit or permit to be deposited sweepings, and/or any other rubbish in the said scuppers, and Tenant will keep the scuppers within the demised premises at all times free of any and all rubbish, sweepings, and/or other obstructions of any nature whatsoever. 8. Tenant shall not, under any circumstances, permit the collection of sweepings and/or any other rubbish in the expansion joints of the Building, or in any other portions of the Building outside of the demised premises. All such sweeping and/or rubbish so contained within the demised premises shall be removed daily by Tenant in such manner as Landlord shall direct. Tenant will keep the said expansion joints free of any and all rubbish, sweepings and/or any other obstruction of any nature whatsoever. Tenant will not place machinery and/or equipment in such a position that the said machinery and/or equipment straddles an expansion joint, or erect a partition which intersects an expansion joint, unless one end of such machinery, equipment and/or partition is free to permit the expansion and/or contraction of the Building. PLEASE INITIAL [____] [____] LANDLORD TENANT [Exhibit A - Floor Plan] (Graphic Omitted) ACKNOWLEDGEMENTS AGENT FOR LANDLORD STATE OF NEW YORK ) COUNTY OF NEW YORK ) On this day of September, 1989, before me personally came ______________ , who executed the foregoing instrument and who, being duly sworn by me, did depose and say that he is the ____________ of Sylvan Lawrence Company, Inc., the corporation which executed the foregoing instrument as agent-for P.A. BUILDING COMPANY that he knows the seal of said corporation; that the seal affixed to said instrument is such coporate seal; that it was so affixed by order of the Board of Directors of said coporation; and that he signed his name thereto by like order. INDIVIDUAL TENANT ) STATE OF NEW YORK ) ss.1 County of On this 6 day of September, 1989 before me personally came DAVID A GEORGE, to me known, who being by me duly sworn, did depose and say that he resides in ________________________ that he is the PARTNER of GOLDMAN SACHS & CO. described in and which executed the foregoing instrument as TENANT. /s/ Lynn Holly Fodor -------------------- INDIVIDUAL TENANT LYNN HOLLY FODOR STATE OF NEW YORK ) Notary Public, State of New York County of ) No. 43-01FO4876815 Qualified in Richmond County Commission Expires November 10, 1990 On this day personally came to me known and known to me to be the individual described in and who, as TENANT, executed the foregoing instrument and acknowledged to me that he executed the same. ----------------------- IMPORTANT -- PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 35. 1. The sidewalk, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress to and egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Landlord. There shall not be used in any space, or in the public hall of the building, either by any Tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and sideguards. If said premises are situate on the ground floor of the building Tenant thereof shall further, at Tenant's expense, keep the sidewalks and curb in front of said premises clean and free from ice, snow, dirt and rubbish. 2. The water and wash closets and plumbing fixtures shall not be used for any purpose other than those for which they were designed or constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited therein, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who, or whose clerks, agents, employees or visitors, shall have caused it. 3. No carpet, rug or other article shall be hung or shaken out of any window of the building and no Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substances into any of the corridors or halls, elevators, or out of the doors or windows or stairways of the building, and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors and/or vibrations..or interfere in any way, with other Tenants or those having business therein, nor shall any animals or birds be kept in or about the building. Smoking or carrying lighted cigars or cigarettes in the elevators of the building is prohibited. 4. No awnings or other projections shall be attached to the outside walls of the building without the prior written consent of Landlord. 5. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the demised premises or the building or on the inside of the demised premises if the same is visible from the outside of premises without the prior written consent of the Landlord, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violations of the foregoing by any Tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Interior signs on doors and directory tablet, shall be inscribed, painted or affixed for each Tenant by Landlord at the expense of such Tenant, and shall be of a size, color and style acceptable to Landlord. 6. No tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum, or other similar floor covering so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used an interlining of builder's deadening felt shall be first affixed to the floor by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 7. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or mechanism thereof. Each tenant must, upon the termination of his Tenancy, restore to Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant, and in the event of the loss of any keys, so furnished, such Tenant shall pay to Landlord the cost thereof. 8. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only as the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Landlord. Landlord reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations or the lease of which these Rules and Regulations are a part. 9. No Tenant shall obtain for use upon these demised premises ice, drinking water, towel and other similar services, or accept barbering or bootblacking services in the demised premises, except from persons authorized by Landlord, and at hours and under regulations fixed by Landlord. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall co-operate to prevent the same. 10. Landlord reserves the right to exclude from the building between the hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons who do not present a pass to the building signed by Landlord. Landlord will furnish names to persons from whom any Tenant requests name in writing. Each Tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Landlord for all acts of such persons. 11. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's 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. 12. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any inflammable, combustible or explosive fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the demised premises. [_] [_] PLEASE INITIAL Address: 111 Eighth Avenue Premises: Room 815 - 825 P.A. Building Company TO GOLDMAN SACHS, & CO. ================================================================================ [SEAL] MODIFIED FORM OF [SEAL] LOFT LEASE The Real Estate Board of New York, Inc. (C)Copyright 1973. All Rights Reserved. Reproduction in whole or in part prohibited. ================================================================================ Dated September 14 1989 Rent per Year $258,540 9/1/89 - 8/31/94 $280,085 9/1/94 - 12/31/99 Rent Per Month Term Ten (10) Years, Four (4) Months From September 1, 1989 To December 31, 1999 Drawn by _____TDG:______ Checked by ____________ Entered by _____________ Approved by ____________ ================================================================================ The Office of the Undersigned 100 William Street New York, NY 10038 (212) 344-0044 September 14, 1989 Goldman Sachs & Co. 85 Broad Street New York, New York 10004 Re: Room 815-825, 111 8th Avenue, New York, NY Gentlemen: You, as Tenant, and the undersigned, P.A BUILDING COMPANY, as Landlord have entered into a certain agreement of lease of even date herewith covering the subject demised premises, in consideration of which the undersigned agrees, at its sole cost and expense (except as otherwise provided for hereinbelow), to initially perform the following work in and to the above-mentioned demised premises: 1. Make available the capacity for Tenant to consume a total of 1500 Amps of 208 Volt 3 Phase electric current to pull box or boxes located in premises (assuming voltage drop of no more than 2.5%, unless caused by Con Edison or any other reason beyond Landlord's control). Tenant shall pay Landlord $75,000 simultaneously with the Tenant's execution of the Lease and $70,000 simultaneously with Landlord's making available the capacity for Tenant to consume such 1500 amps regarding this number 1. 2. Demolish all interior non-load bearing walls and remove all obsolete and extraneous equipment, piping, etc. as per Tenant's subject demolition plan (as approved by Landlord as of the date hereof) delivering demised premises in broom clean condition. 3. At Tenant's request, Landlord will, at Tenant's cost and expense, provide and install window louvres in accordance with Landlord's specifications sized by Tenant. PLEASE INITIAL [____] [____] 4. Landlord shall tap into an existing steam riser (work to include but not be limited to installation of valve and meter) in order to provide Tenant with steam per Tenant's specifications, all at Tenant's cost. In the event Tenant requests to use a waste drain line within the demised premises and Landlord requires Tenant to use a waste drain line outside of the demised premises (at Landlord's choice and not due to Tenant's needs), Landlord will pay the additional plumbing charge resulting directly from Landlord so requiring Tenant to use a waste drain line outside of the demised premises. Tenant shall maintain such connection to the waste drain line outside of the demised premises in good order and condition at Tenant's sole cost and expense. During the initial installation of the demised premises only, there shall be (i) no extra charges for non-exclusive freight elevator service for Tenant or its contractors during normal business hours and (ii) no charges to Tenant for Landlord's overhead and supervision costs regarding general conditions at the demised premises but such charges shall be in effect for special needs such as sprinkler shut-downs, outside engineering services, work required by Landlord or circumstances to be undertaken after normal business hours and the like. It is understood and agreed that the demised premises have been leased to you and you accept the same in their "as is" condition in all other respects. Landlord's work described in this letter shall be done in compliance with law; Landlord shall promptly prosecute the same subject to Tenant's not hindering or delaying said work. This letter agreement shall be deemed to be an amendment to the Lease. For the purposes of the Lease, this letter shall be referred to as the "Work Letter". Very truly yours, P.A. BUILDING COMPANY BY: SYLVAN LAWRENCE COMPANY, INC. AGENT AGREED TO AND ACCEPTED: GOLDMAN SACHS & CO. By /s/ [illegible] ------------------------------------ Title By /s/ David A. Geoge - ------------------------------------- Partner Title PLEASE INITIAL [____] [____] The Office of the Undersigned 100 William Street New York, NY 10038 (212) 344-0044 September 14, 1989 Goldman Sachs & Co. 85 Broad Street New York, New York 10004 Re: Room 815-825 111 8th Avenue New York, New York Gentlemen: The undersigned, P. A. BUILDING COMPANY (the "Landlord"), as Landlord, and Goldman Sachs & Co. (the "Tenant"), as Tenant, have entered into a certain agreement of lease (the "Lease") of even date herewith covering the above-mentioned demised premises. This letter agreement shall be deemed to be an amendment to the Lease. Anything to the contrary contained in that letter agreement amendment to the Lease of even date which defines the term Commencement Date notwithstanding, this letter agreement amendment to the Lease serves to officially confirm that the Commencement Date (of the term of the Lease) does officially occur on the date of this letter agreement amendment to the Lease. Anything to the contrary contained in the Lease notwithstanding, this letter agreement amendment to the Lease serves to amend the Footnote Insert to the Lease as follows: 1. The second line of Footnote 3A to Article 3 of the Lease shall be amended to add the words "or potential for liability" between the words "expense" and "to" so that said second line shall read "...no cost and expense or potential for liability to Landlord, with Tenant's efforts to obtain...". 2. The following language shall be added to the end of Footnote 1 to Article 7 of the Lease: "Anything to the contrary contained in this Footnote 1 to Article 7 notwithstanding, the effectiveness of the first sentence of this Footnote 1 to Article 7 is subject to Tenant's execution of any documents reasonably requested by the subject lender or lessor in conjunction with the granting of non-disturbance protection for the benefit of Tenant." PLEASE INITIAL [____] [____] Sylvan Lawrence Company, Inc. 3. The following language shall be added to the end of Footnote 1 to Article 41 of the Lease: "The Tenant's notice to Landlord describing the portion of the demised premises that Tenant desires to sublet must be accompanied by a floor plan delineating the space Tenant desires to sublet." Anything to the contrary contained in Article 41 of the Lease notwithstanding, in the event Tenant notifies Landlord that Tenant desires to (i) sublet all or substantially all of the demised premises or (ii) sublet less than all or substantially all of the demised premises, Landlord shall have the right to cancel and terminate the Lease (by Landlord's written notice to Tenant more particularly described in Article 41) with regard to all of the space that Tenant shall have described in Tenant's above-mentioned notice to Landlord, or, in Landlord's sole discretion, Landlord shall have the right to cancel and terminate the Lease with respect to less than the entire space described in Tenant's above-mentioned notice (which space shall be chosen and delineated by Landlord subject to the proviso set forth immediately below), provided that Landlord may only cancel and terminate the Lease with respect to less than the entire space described in Tenant's above-mentioned notice if the space remaining as the demised premises under the Lease after such cancellation and termination shall (i) include access to the public portion of the floor of the Building (by corridor or otherwise) and (ii) be large enough independently to be what is reasonably deemed to be rentable space. Tenant agrees that all waste discharged from the demised premises shall meet all relevant Environmental Protection Agency's (or any governmental or quasi-governmental successor thereto) acceptability standards as may presently or hereafter exist. The Lease cannot be modified or amended except in writing executed by both Landlord and Tenant. The provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant and their respective permitted successors and assigns. Very truly yours, AGREED TO AND ACCEPTED: P. A. BUILDING COMPANY By Sylvan Lawrence Company, Inc., Agent GOLDMAN SACHS & CO. By /s/ [illegible] ------------------------------------ Title By /s/ David A. Geoge - ------------------------------------- Partner Title The Office of the Undersigned 100 William Street New York, NY 10038 (212) 344-0044 September 14, 1989 Goldman Sachs & Co. 85 Broad Street New York, New York 10004 Re: Room 815 - 825, 111 8th Avenue, New York, NY Gentlemen: The undersigned, P. A. BUILDING COMPANY ("The Landlord"), as Landlord, and you ("Tenant"), as Tenant, have entered into a certain agreement of lease (the "Lease") of even date herewith covering the above-mentioned demised premises for a term intended to commence on September 1, 1989 in accordance with the terms of the Lease. Anything to the contrary contained in the Lease notwithstanding, the commencement date (the "Commencement Date") of the term of the Lease shall be the date as determined below under the terms of this letter agreement amendment to the Lease. Landlord and Tenant agree that the Lease shall commence on the Commencement Date which Commencement Date shall occur upon each of the following conditions having been satisfied: (i) Landlord shall have completed all of the work set forth in item number 2 of the Work Letter (said Work Letter being another letter agreement amendment to the Lease of even date herewith); and (ii) Landlord shall have delivered to Tenant a Certification ACP-5 for the demised premises. Notwithstanding the fact that Commencement Date may be a date other than September 1, 1989 (in accordance with the terms of this letter agreement amendment), the expiration date of the Lease shall remain December 31, 1999 and the term of the Lease may be less than ten (10) years, four (4) months to the extent the Lease commences on a date after September 1, 1989. If the Commencement Date does not occur by the date sixty (60) days after the date of the Lease, then Tenant, at any time thereafter prior to the Commencement Date occuring, may, at Tenant's option, cancel the Lease by written notice given to Landlord. PLEASE INITIAL [____] [____] In consideration of Tenant so entering into the Lease, the Landlord hereby agrees that Tenant may enter into possession of the demised premises on the Commencement Date of the Lease, subject, however, to all of the terms, covenants and conditions of the Lease, and provide Tenant is not then in default (as defined in the Lease) under any terms and provisions of the Lease, Landlord agrees to waive the installments of basic annual rent becoming due under the Lease from the Commencement Date for a period through and including December 31, 1989 (to the extent of $708.33 per day). It is understood that no waiver is intended with respect to any increases to the basic annual rent on account of electricity, operating expense escalation or real estate tax escalation nor with respect to any additional rent or other charges which may be due or payable under the Lease. In accordance with the terms of the immediately preceding paragraph of this letter agreement amendment, the payment of basic annual rent under the Lease is intended to commence on January 1, 1990. However, (1) to the extent the Commencement Date does not occur (in accordance with the terms of this letter Lease agreement amendment) by the date five (5) business days after the date of the Lease (the Lease shall be dated on the date of full execution and delivery of the Lease), then each day within the period commencing on the day immediately after the above mentioned five (5) business day period and ending on the day the Commencement Date occurs, all days inclusive, shall be deemed to be a "Landlord Late Day"; and (2) if Landlord does not complete the work set forth in item number (1) of the Work Letter by the later of (a) the date which is twenty-five (25) days after the Commencement Date, or (b) the date thirty (30) days after the date of the Lease, then each day in the period commencing on the day immediately after such twenty five (25) day period or thirty (30) day period (as the case may be) and ending on the day Landlord completes the work set forth in item number (1) of the Work Letter, all days inclusive, shall be deemed to be a "Landlord Late Day". For each Landlord Late Day the waiver period for the payment of basic annual rent under the Lease shall be continued for one day from January 1, 1990 [so that if there are a total of three (3) Landlord Late Days, the date for commencement of payment of basic annual rent shall be January 4, 1990]. The provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant under the Lease and their respective heirs, successors and permitted assigns. PLEASE INITIAL [____] [____] This letter agreement shall be deemed to be an amendment to the Lease. Very truly yours, AGREED TO AND ACCEPTED: P. A. BUILDING COMPANY By Sylvan Lawrence Company, Inc., Agent GOLDMAN SACHS & CO. By /s/ [illegible] ------------------------------------ Title By /s/ David A. Geoge - ------------------------------------- Partner Title CONSENT TO SUBLEASE By this consent (this "Consent") dated as of July______, 1996, P.A. BUILDING COMPANY, a New York partnership, having an office c/o Sylvan Lawrence Company, Inc., 100 William Street, New York, New York 10038 (the "Landlord"), landlord under a certain agreement of lease (the "Lease") dated September 14, 1989 between Landlord and GOLDMAN, SACHS & CO., a New York limited partnership (the "Tenant"), having an address at 85 Broad Street, New York, New York 10004 covering premises (the "Demised Premises") known as Rooms 815-825 located in the building (the "Building") known as 111 Eighth Avenue, New York, New York, hereby conditionally consents to the subletting of a portion (the "Space") of the Demised Premises (i.e. all of the Demised Premises other than the portion thereof designated Retained Premises on the plan attached hereto as Exhibit "A") under the agreement of sublease (the "Sublease") dated as of July 15, 1996 between Tenant and CUNNINGHAM GRAPHICS, INC. (the "Subtenant"), having an address at 629 Grove Street, Jersey City, New Jersey 07306 for a term expiring on before December 30, 1999 expressly subject to the following terms and conditions: 1. Neither the giving of this Consent nor anything contained in the Sublease shall (a) modify the Lease, (b) increase the obligations or diminish the rights of Landlord under the Lease, (c) diminish the obligations or increase the rights of Tenant under the Lease, (d) in any way be construed as giving Subtenant any greater rights under the Sublease than Tenant would be entitled to under the Lease, or (e) bind Landlord to any of the terms or conditions of the Sublease, it being the express intention of Landlord by executing this Consent to approve only the named Subtenant and the initial term of the Sublease. Tenant and Subtenant agree that the Demised Premises and/or the Space shall not be used for any purpose which is not specifically permitted under the Lease. Anything contained in the Sublease which is inconsistent with the terms and conditions of the Lease or this Consent shall be deemed of no force or effect, and the terms and conditions of the Lease and this Consent shall prevail. 2. Except as provided in Section 8 below, the giving of this Consent shall not serve to waive, and is given subject to, the requirement of obtaining Landlord's consent, which Landlord's consent Landlord may withhold in each instance in Landlord's sole discretion and judgment (except as otherwise specifically provided for in the Lease and except that Landlord shall not unreasonably withhold its consent to any modification of the Sublease), to (a) any further subletting of all or a portion of either the Demised Premises or the Space, or (b) any assignment of the Lease, or (c) any modification, renewal, extension, or assignment of the Sublease, or (d) any sub-letting of all or a portion of either the Demised Premises or the Space. 3. The giving of this Consent shall not be deemed or serve 1 to release the named Tenant under the Lease or any successor-in-interest to the named Tenant from any liability or obligation which such Tenant or any successor-in-interest may have. 4. In the event Landlord collects any basic rent and/or additional rent due under the Lease directly from Subtenant for any reason whatsoever, Subtenant shall be deemed to make such payment of basic rent and/or additional rent solely as agent of and on behalf of Tenant, and Landlord shall credit any such sums collected to the account of Tenant, and the collection of such basic rent and/or additional rent shall not be deemed to be an acceptance of Subtenant as a tenant under the Lease nor shall it be deemed to release Tenant from any or all of the terms, covenants and conditions under the Lease. 5. Landlord makes no representations whatsoever nor takes any responsibility regarding the provisions contained in the Sublease. The giving of this Consent shall not be (a) construed as granting Subtenant any rights under the Lease or (b) deemed to be a consent by Landlord to the terms and provisions of the Sublease. Nothing contained in this Consent shall be deemed to bestow upon or grant to Subtenant third party beneficiary rights under the Lease. It is expressly acknowledged, accepted and agreed that (a) his Consent is for the express purpose of permitting the Sublease pursuant to the terms contained in this Consent and (b) Subtenant has no privity of contract with nor enforceable rights against Landlord. 6. The granting of this consent by Landlord is subject to Tenant's being free from any default under the terms and provisions of the Lease as of the date of the granting of this Consent and as of the commencement date of the Sublease. 7. It is expressly understood and agreed that submission by Landlord of this consent for review shall confer no rights nor impose any obligations on any party unless and until Landlord, Tenant and Subtenant shall have executed this Consent and duplicate originals of this Consent shall have been delivered to the respective parties to this Consent. 8. The Sublease contains an option, on the part of Tenant as sublandlord thereunder, to sublease the balance of the Demised Premises to Subtenant; such option is exercisable at any time during the term of the Sublease. No further consent shall be required upon the exercise of said option, and this Consent shall be fully applicable thereto. Upon the exercise of said option, the term "Space" as used herein shall mean the entire Demised Premises. Tenant shall give Landlord prompt written notice of the exercise of said option. 2 P.A. BUILDING COMPANY (Landlord) By: Sylvan Lawrence Company, Inc., Agent By: ------------------------------------ Title ACKNOWLEDGED, ACCEPTED AND AGREED TO: GOLDMAN, SACHS & CO. (Tenant) By: --------------------------------------- Title CUNNINGHAM GRAPHICS, INC. (Subtenant) By:/s/ Michael Cunningham - -------------------------------------------- Title 3 ACKNOWLEDGEMENTS PARTNERSHIP TENANT STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On this _______ day of ___________, 1996 before me personally came ___________________________________________________, to me known, who, being duly sworn, did depose and say that he/she is a member of the partnership GOLDMAN, SACHS & CO., the partnership described in and which executed the above instrument; that he/she executed said instrument on behalf of said partnership, and that he/she had authority to so execute said instrument as the act and deed of said partnership. ------------------------------------ CORPORATION (WITH CORPORATE SEAL) STATE OF NEW YORK ) /s/ CARMEN A. OCELLO ) ss: CARMEN A. OCELLO COUNTY OF NEW YORK ) NOTARY PUBLIC OF NEW JERSEY My Commission Expires May 16, 1998 On this 23 day of July, 1996 before me personally came _______________________________ , to me known, who, being duly sworn, did depose and say that he/she resides at ________________________ ; that he/she is the _______________________________ of CUNNINGHAM GRAPHICS, INC., the corporation described in and which executed the above instrument; that he/she executed said instrument on behalf of said corporation; that the seal affixed to said instrument is such corporate seal; that said seal was so affixed by order of the Board of Directors of said corporation, and he/she signed his/her name to said instrument by order of the Board of Directors of said corporation. /s/ Michael Cunningham ------------------------------------ 4 [FLOOR PLAN -- Exhibit A] (Graphic Omitted)
CERTIFICATE OF INSURANCE 07/15/96 Cunhglpr ============================================================================================================================== Producer This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, Genatt Associates, Inc. extend or alter the coverage afforded by the policies below. 3333 New Hyde Park Road ---------------------------------------------------------------------------------------------------- New Hyde Park, NY 11042 COMPANIES AFFORDING COVERAGE - ------------------------- Company Letter A Graphic Arts Mutual Inc. Co. Insured Company Letter B Company Letter C Cunningham Graphics, Inc. Company Letter D 629 Grove Street Company Letter E Jersey City, NJ 07310 ============================================================================================================================== COVERAGES This is to certify that policies of insurance listed below have been issued to the insured named above for the policy period indicated, notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the TERMS, CLAUSES, EXCLUSIONS, LIMITS AND CONDITIONS OF SUCH POLICIES. - ------------------------------------------------------------------------------------------------------------------------------ Co Type of Insurance Policy Number Policy Eff Policy Exp. Limits Ltr Date Date - ------------------------------------------------------------------------------------------------------------------------------ A GENERAL LIABILITY CPP1769154 6/30/96 6/30/97 General Aggregate $ 2,000,000 (x) Commercial G.L. Prod-Comp/Ops Agg $ 1,000,000 ( ) Claims (x) Occ. Personal & Adv. Injury $ 1,000,000 ( ) Owners, Cont. Prot. Each Occurrence $ 1,000,000 ( ) Broad Form Vendors Fire Damage (any one fire) $ 50,000 ( ) Medical Expense (one Per) $ 5,000 AUTOMOBILE LIABILITY ( ) Any Auto CSL $ ( ) All Owned Autos Bodily Injury ( ) Scheduled Autos (per person) $ ( ) Hired Autos Bodily Injury ( ) Non-owned Autos (per accident) $ ( ) Garage Liability Property Damage $ A EXCESS LIABILITY CULP1789795 6/30/96 6/30/97 Each Occurrence Aggregate (x) Umbrella $10,000,000 $10,000,000 ( ) Other Than Umbrella Statutory WORKER'S COMPENSATION $ (Each Accident) And $ (Disease-Policy Limit) EMPLOYERS LIABILITY $ (Disease-Each Employee) ============================================================================================================================== DESCRIPTION OF OPERATIONS: Certificate Holder is included as Additional Insured Sublandlord as respects Location: 111 8th Avenue, New York, New York. ============================================================================================================================== Certificate Holder: Should any of the above described policies be cancelled before the expiration Goldman Sachs & Co., date thereof, the issuing company will endeavor to mail 30 days written a New York Limited Partnership, notice to the certificate holder named to the left, but failure to mail such 85 Broad Street notice shall impose no obligation or liability of any kind upon the company, its agents or representatives. --------------------------------------------------------------------------------------- New York NY 10004 Authorized Representative: /s/ Leslie R. Geudtt ==============================================================================================================================
CERTIFICATE OF INSURANCE 07/15/96 Cunhglpr ============================================================================================================================== Producer This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, Genatt Associates, Inc. extend or alter the coverage afforded by the policies below. 3333 New Hyde Park Road ---------------------------------------------------------------------------------------------------- New Hyde Park, NY 11042 COMPANIES AFFORDING COVERAGE - ------------------------- Company Letter A Graphic Arts Mutual Inc. Co. Insured Company Letter B Company Letter C Cunningham Graphics, Inc. Company Letter D 629 Grove Street Company Letter E Jersey City, NJ 07310 ============================================================================================================================== COVERAGES This is to certify that policies of insurance listed below have been issued to the insured named above for the policy period indicated, notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the TERMS, CLAUSES, EXCLUSIONS, LIMITS AND CONDITIONS OF SUCH POLICIES. - ------------------------------------------------------------------------------------------------------------------------------ Co Type of Insurance Policy Number Policy Eff Policy Exp. Limits Ltr Date Date - ------------------------------------------------------------------------------------------------------------------------------ A GENERAL LIABILITY CPP1769154 6/30/96 6/30/97 General Aggregate $ 2,000,000 (x) Commercial G.L. Prod-Comp/Ops Agg $ 1,000,000 ( ) Claims (x) Occ. Personal & Adv. Injury $ 1,000,000 ( ) Owners, Cont. Prot. Each Occurrence $ 1,000,000 ( ) Broad Form Vendors Fire Damage (any one fire) $ 50,000 ( ) Medical Expense (one Per) $ 5,000 AUTOMOBILE LIABILITY ( ) Any Auto CSL $ ( ) All Owned Autos Bodily Injury ( ) Scheduled Autos (per person) $ ( ) Hired Autos Bodily Injury ( ) Non-owned Autos (per accident) $ ( ) Garage Liability Property Damage $ A EXCESS LIABILITY CULP1789795 6/30/96 6/30/97 Each Occurrence Aggregate (x) Umbrella $10,000,000 $10,000,000 ( ) Other Than Umbrella Statutory WORKER'S COMPENSATION $ (Each Accident) And $ (Disease-Policy Limit) EMPLOYERS LIABILITY $ (Disease-Each Employee) ============================================================================================================================== DESCRIPTION OF OPERATIONS: Certificate Holder is included as Additional Insured Landlord as respects Location: 111 8th Avenue, New York, New York. ============================================================================================================================== Certificate Holder: Should any of the above described policies be cancelled before the expiration P.A. Building Company, date thereof, the issuing company will endeavor to mail 30 days written a New York Partnership, notice to the certificate holder named to the left, but failure to mail such c/c Sylvan Lawrence Company, Inc. notice shall impose no obligation or liability of any kind upon the company, 100 Williams Street its agents or representatives. --------------------------------------------------------------------------------------- New York NY 10038 Authorized Representative: /s/ Leslie R. Geudtt ==============================================================================================================================
EX-21.1 11 LIST OF ALL SUBSIDIARIES OF THE COMPANY Exhibit 21.1 ------------ List of all subsidiaries of the Company --------------------------------------- Effective upon completion of the Reorganization of the Company described in the Registration Statement to which this Item is an Exhibit, Cunningham Graphics, Inc., a New Jersey corporation, will be a wholly-owned subsidiary of the Registrant. Effective upon the closing of the Acquisition described in the Registration Statement to which this Item is an Exhibit, Roda Limited, a corporation organized under the laws of England, will be a wholly-owned subsidiary of the Registrant. Roda Print Concepts Limited, a corporation organized under the laws of England, is a wholly-owned subsidiary of Roda Limited. EX-23.2 12 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated January 16, 1998, in the Registration Statement (Form S-1 No. 333-000) and related Prospectus of Cunningham Graphics International, Inc. for the registration of 2,415,000 shares of its common stock. Princeton, New Jersey February 19, 1998 /s/Ernst & Young LLP EX-23.3 13 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-1) and related Prospectus of Cunningham Graphics International, Inc. for the registration of 2,415,000 shares of its common stock and to the inclusion therein of our report dated 11 February 1998 with respect to the consolidated financial statements of Roda Limited and the financial statements of Roda Print Concepts Limited (Predecessor). /s/ ERNST & YOUNG Chartered Accountants London, England 19 February 1998 EX-27 14 FDS -- FORM S-1
5 This Schedule contains summary financial information extracted from the Registrant's predecessor financial statements for each of the three years in the period ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 1 US DOLLARS 12-MOS DEC-31-1997 JAN-01-1998 DEC-31-1997 1 67,000 0 5,673,000 0 940,000 6,941,000 3,579,000 0 10,938,000 6,213,000 0 0 0 6,000 3,145,000 10,938,000 35,744,000 35,744,000 26,894,000 33,382,000 0 0 250,000 2,147,000 129,000 2,018,000 0 0 0 2,018,000 0 0
EX-99.1 15 EXHIBIT 99.1 To: Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 The undersigned hereby consents to being identified in the Registration Statement on Form S-1 to be filed by Cunningham Graphics International, Inc. ("CGII") with the Securities and Exchange Commission as a person designated to be a director of CGII following the effective date of the Registration Statement. /s/ Arnold Spinner ------------------ Arnold Spinner EX-99.2 16 EXHIBIT 99.2 To: Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 The undersigned hereby consents to being identified in the Registration Statement on Form S-1 to be filed by Cunningham Graphics International, Inc. ("CGII") with the Securities and Exchange Commission as a person designated to be a director of CGII following the effective date of the Registration Statement. /s/ Norman R. Malo ------------------------ Norman R. Malo -----END PRIVACY-ENHANCED MESSAGE-----