<PAGE>
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 33-27603
--------------------
NORTH AMERICAN INTEGRATED MARKETING, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2942013
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3 Garret Mountain Plaza, Suite 202A 07424
West Paterson, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 523-2500
Securities Registered Pursuant To Section 12(b) Of The Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities Registered Pursuant To Section 12(g) Of The Act:
None
(Title of Class)
----------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X No
--- ---
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<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the 1,060,073 shares of voting stock held
by non-affiliates of the Registrant as of December 31, 1996 (based on the
aggregate market value of the stock computed by reference to the price at which
the stock was sold) was $159,010.
The number of shares of Common Stock of the Registrant outstanding as of
December 31, 1996 was 38,180,091.
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PART I
ITEM 1. BUSINESS.
General
- -------
Prior to January 1, 1989, two privately held companies, North American
Information Systems, Inc. ("NAIS") and North American Target Marketing, Inc.
("NATM") conducted separate and distinct aspects of the now combined current
business of North American Integrated Marketing, Inc. ("NAIM" or the "Company").
NAIS commenced its operations on April 16, 1987, as a direct mail response
agency specializing in database services. NATM commenced its operations on June
2, 1987, as a direct mail response agency specializing in creative services.
To provide its customers with efficient services and products, effective
January 1, 1989, NAIS and NATM were consolidated to form the Company through a
transaction accounted for in a manner similar to a pooling of interests.
Effective June 15, 1989, NAIM purchased 90% of the outstanding common stock of
Opportunistics in a transaction originally accounted for as a purchase. NAIM
then merged into Opportunistics, Inc., which then changed its name to North
American Integrated Marketing, Inc.
Effective October 1, 1996, the Company acquired 82% of Color Graphics,
Inc., a company engaged in printing promotional material for direct mail
distribution. The Company granted to a consultant an option to acquire 10% of
the Color Graphics stock at an exercise price of $1,058.82 per share or $30,000
in the aggregate through September 30, 2001 for his role in consummating this
acquisition.
The Company engages primarily in both database analysis and production
services. Database analysis is labor intensive, with labor and computer time
charges comprising the cost of goods sold. Typically, a client supplies a
computer tape which contains its own file of customer data, detailing such
statistics as the customer, what is normally bought, and how often. The Company
supplements the client's file through the use of a computer service and provides
additional information such as age, income factors and geographic location.
From this additional information a client learns about its customers. Based
upon certain statistical information obtained from a model developed by NAIM,
clients are able to sell new and different products to their existing customers.
The Company also engages in production and creative agency services through
Color Graphics and its Wilmington, Delaware office, respectively. Production
services enable the Company to be a one-stop direct marketing firm. Once a
prospective mail piece has been chosen by a client, the Company either prints
the promotional material at Color Graphics' facilities or
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bids the print work to various printers, purchases the necessary envelopes and
paper to be printed and secures a lettershop capable of completing the project
in a timely fashion.
Operations, Products and Services of the Company
- ------------------------------------------------
The Company provides database and direct-mail advertising services. The
Company offers customers services relating to the development, production and
implementation of direct-mail advertising or marketing projects. The Company
can provide customized services for either a specific component of a customer's
advertising or marketing program, such as direct mail creative design, list
strategy, production of the printed insert or envelope product and packaging and
mailing, or assume responsibility for the entire project, from design and
production of the direct mail marketing materials to the actual mailing of the
finished printed products.
Database Services
The Company analyzes the database of its customers to assist them in
developing effective marketing programs. The Company employs a sophisticated
marketing process commonly referred to as "target marketing" as part of a range
of services for its customers. Using the target marketing process, the Company
can identify the most appropriate group of potential customers for a given
organization through the use of sophisticated computer programs that process a
wide range of various data and select and categorize the potential customers by
various data groupings. Once so identified, the Company can help a customer
design and implement the optimum direct marketing program to reach those
potential customers.
Printing Services
Through its Color Graphics subsidiary, the Company produces direct mail,
high color and high volume printing. The principal raw materials used by Color
Graphics are paper and ink. Paper is purchased directly from major paper
producers, including Union Camp, and indirectly from paper merchants, including
Resource Net International and Clifford Paper. Color Graphics is on allocation
from these paper production and supply companies in light of its continuing
volume of paper purchases. To ensure availability of paper from its principal
paper vendors, Color Graphics purchases between five to ten truckloads of paper
per month at a cost during 1996 of between $100,000 and $200,000 per month.
Color Graphics purchases most of its ink from larger suppliers of ink, including
Flint Ink and Sun Chemical Corporation. Raw materials inventory is maintained
on a just-in-time basis.
Markets and Marketing
- ---------------------
Database Services
The Company's market for its database services is nationwide and is not
confined to any specific sector or type of business. Currently, management has
focused its marketing efforts primarily on financial institutions and the
catalog and package goods sectors. Financial
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institutions, including First USA, Bank of New York (Delaware),Fleet Financial
Services and Marine Midland Bank, accounted for approximately 97% of the
Company's sales revenues in 1996. The loss of any of the foregoing financial
institutions could have a material adverse effect on the Company. The Company
markets its database services primarily through referrals, client
recommendations and industry trade shows.
Printing Services
The market for the Company's printing services through its Color Graphics
subsidiary is nationwide. The Company markets its printing services primarily
through referrals, client recommendations and industry trade shows.
Management believes that the comprehensive, integrated character of its
services and its expertise in target marketing techniques offer customers a
unique and highly effective approach to direct-mail advertising and marketing.
The Company is able to analyze databases provided by clients to provide
effective marketing campaigns, produce the marketing material and analyze the
results of the marketing programs to further refine and increase the
effectiveness of future marketing efforts conducted by mail. Management
believes that its customized services can provide its customers with products
best suited to each customer's needs.
The Company's marketing strategy for both its database analysis and
printing divisions is to increase the awareness of its existing customers of the
broad range of the Company's services, emphasizing the Company's comprehensive,
integrated capabilities. In this way, the Company plans to focus on increasing
its share of the business of existing customers.
Major Customers
- ---------------
Database Services
Major customers of the Company include financial institutions such as First
USA, Bank of New York (Delaware), Marine Midland Bank and Fleet Financial
Services, as well as a number of direct mail marketing businesses. In total,
the Company provided services for approximately 30 customers during 1996 as
compared to 28 customers during 1995 and 37 customers in 1994.
Printing Services
The Company's subsidiary, Color Graphics, prints direct mail promotional
material primarily for banks, credit card solicitors, publishers, sweepstakes
customers, insurance companies and airlines. Color Graphics specializes in
high, multi-color mass mail printing. Four companies accounted for over 82% of
Color Graphics' revenues for the period ended December 31, 1996: Grey Direct
(25%), Capital One (23%), North American Communications (20%) (an affiliate of
the Company, see "Certain Transactions") and Citibank (15%). The loss of any one
of those customers would have a material adverse effect on Color Graphics and
the Company.
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Competition
- -----------
According to data published by Ward's Business Directory of U.S. Private
-----------------------------------------
and Public Companies, there were sixty direct-mail advertising and marketing
- --------------------
service companies which had 1996 annual sales in excess of $5,000,000. Because
the direct-mail advertising and marketing service industry is price sensitive,
the Company believes that its database analysis and printing businesses will
remain susceptible to price competition for the foreseeable future. To date,
Color Graphics competes primarily on the basis of its high quality and large
volume capabilities and to a much lesser extent on the basis of price. The
largest competitors of the Company include such major national publicly trade
companies as ADVO, Inc. (approximately $976 million in 1996 sales) and Rapp
Collins Worldwide (approximately $965 million in 1996 sales).
Number of Employees
- -------------------
The Company employed 23 people in its database analysis business and 79
people in its printing business at Color Graphics for a total of 95 people as of
December 31, 1996.
Forward-Looking Statements
- --------------------------
This report contains forward-looking statements based upon management's
current plans and expectations, related to, among other matters, the proposed
business activities of the Company and estimate of amounts that are not yet
determinable. Such statements involve risks and uncertainties which may cause
actual future activities and results of operations to be materially different
from that suggested in this report, including among others, the loss of one or
more significant customers, the successful integration of Color Graphics into
the Company's operations, risks associated with industry consolidation,
acquisitions and competition.
ITEM 2. PROPERTIES.
Database Services
The Company had its principal office for database analysis services at 999
McBride Avenue, Suite 200A, West Paterson, New Jersey. The Company leased its
office in West Paterson, New Jersey. The West Paterson, New Jersey office
consisted of 5,000 square feet. Effective March 1, 1997, the Company entered
into a new lease for office space at 3 Garret Mountain Plaza, West Paterson, New
Jersey 07424, of approximately 10,000 square feet under a lease which commenced
March 1, 1997 and expires May 1, 2002 with an option to renew for a five year
term.
Printing Services
Color Graphics leases its facility at 101 Commerce Drive, Moorestown, New
Jersey 08057. The facility occupies 64,700 square feet. The lease is being
renegotiated since its
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terminates on April 14, 1998. The Company also leases its office in Wilmington,
Delaware that consists of 800 square feet. That lease expires August 30, 1997.
ITEM 3. LEGAL PROCEEDINGS.
There is no material litigation or other legal proceeding pending against
the Company.
Color Graphics has been notified by the Equal Employment Opportunity
Commission ("EEOC") of a charge of discrimination under Title VII of the Civil
Rights Act of 1964 by an individual employed as a press helper alleging
discrimination in payment and promotion. The complainant seeks an unspecified
amount of compensatory damages. The case is pending before the New Jersey
Department of Law and Public Safety, Division of Civil Rights (Docket No.
EC22RB-30973). The Company intends to vigorously contest these allegations.
Color Graphics also has been named by Mutual Pharmaceutical Company, Inc.
("Mutual") in a letter dated November 17, 1995 as a potentially responsible
party in a Notice of Intent to File a Lawsuit for claims under environmental
laws. Mutual also stated its intention to proceed against other former tenants
of 1120-1170 Orthodox Street, Philadelphia, Pennsylvania. Among the intended
defendants listed by Mutual were Action Arms, Limited and Orthodox Associates
which owned and operated the Geigy Chemical/Action Arms Parcel of the site from
approximately 1978 through 1993 and who owned and operated the Reading Railroad
Parcel of the Site from approximately 1987 through 1993. Also included as
potential defendants were Ciba-Geigy Corp. Color Graphics' involvement arose as
a result of its purchase of PennScan Forms, Inc. which had occupied the building
located on the two acre site from 1975 through 1979. This matter has not
reached the stage where significant liability has been assessed against the
Company. No further actions have been taken by Mutual since its letter dated
November 17, 1995. The Company has evaluated the matter and believes that it
will not give rise to a material charge to earnings or a material amount of
capital expenditures. This assessment is notwithstanding the ability of the
Company to recover on existing insurance policies or from other parties which
the Company believes will be held as joint and several obligors under any such
liabilities. However, future developments could alter these conclusions.
Management does not believe, however, that there is a likelihood of a material
adverse affect on the financial condition of Color Graphics or the Company in
these circumstances.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
1996.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (the "Common Stock") is not regularly traded and
there is no established public trading market for these securities.
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As of December 31, 1996, there were 592 shareholders of the Company's
Common Stock, the only authorized class of stock of the Company.
The Company has not issued any dividends to its shareholders since its
inception. There are no material restrictions that could limit or restrict
management from declaring any such dividends in the future. At the current
time, management has no intention to declare any dividends in the forthcoming
fiscal year.
ITEM 6. SELECTED FINANCIAL DATA
The following data insofar as it relates to the years ended December 31, 1996,
December 31, 1995, December 31, 1994 December 31, 1993 and December 31, 1992,
has been derived from the financial statements, including the balance sheets at
December 31, 1996 and December 31, 1995, and the related statements of
operations and cash flows for the three years ended December 31, 1996, and notes
thereto appearing elsewhere herein. For a more detailed discussion of the
respective periods of the Company's revenues, expenses, assets and liabilities
see Management's Discussion and Analysis- (a) Results of Operations and (b)
Liquidity and Capital Resources.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue $11,208,687 $4,665,599 $2,700,281 $2,577,448 $2,478,768
Costs and expenses 9,452,338 4,502,677 2,328,425 2,206,288 2,318,450
Provision for income taxes 743,140 60,340 158,375 99,455 54,309
----------- ---------- ---------- ---------- ----------
Income from continuing operations 1,013,209 102,582 213,481 271,705 106,009
Income (loss) from discontinued
operations - - (18,131) 47,575 (40,194)
Extraordinary item - tax benefit from
utilization of net operating loss
carryforwards - - - - 6,725
----------- ---------- ---------- ---------- ----------
Net income $ 1,013,209 $ 102,582 $ 195,350 $ 319,280 $ 72,540
=========== ========== ========== ========== ==========
EARNINGS PER SHARE $0.04 $0.01 $0.01 $0.02 $ -
BALANCE SHEET DATA
Total assets - Continuing operations $10,233,808 $2,422,410 $ 997,060 $1,104,079 $ 675,042
Total assets - Discontinued operations - - 126,102 459,131 679,285
Total assets 10,233,808 2,422,410 1,123,162 1,563,210 1,354,327
Total liabilities - Continuing operations 8,775,554 2,177,365 867,670 1,416,649 1,258,242
Total liabilities - Discontinued operations - - 113,029 194,448 463,252
Total liabilities 8,775,554 2,177,365 980,699 1,611,097 1,721,494
Shareholders' equity (deficit) $ 1,458,254 $ 245,045 $ 142,463 $ (47,887) $ (367,167)
</TABLE>
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Previously reported amounts have been restated to segregate the results of
discontinued operations from continuing operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
PERIODS ENDED DECEMBER 31, 1996, DECEMBER 31, 1995 AND DECEMBER 31, 1994
GENERAL
North American Integrated Marketing, Inc. has focused its growth strategy on
acquiring complementary database and direct mail marketing companies. The
Company intends to build a vertically integrated company that provides turnkey
database marketing products and services to direct marketers. These services
will include database management and data warehousing, predictive modeling,
marketing strategy consulting, agency creative, production management, direct
mail production and fulfillment. In October 1996, the Company entered the
printing business with the purchase of 82% of the stock of Color Graphics, Inc..
Due to this acquisition the results of operations for 1996 are not comparable to
prior years. See Note 3 of Notes to Consolidated Financial Statements for
additional information concerning this acquisition. In addition the following
discussion and analysis do not take into consideration the results of operations
of the production services in Pasadena, California, which was closed effective
September 30, 1994. The closing of the division has been accounted for as
discontinued operations and prior year financial statements have been restated
to reflect the closing. Net revenue of the division for 1994 was $1,486,138. See
Note 4 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
(A) RESULTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
---- ---- ----
Database Printing Total Database Database
-------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $7,867,656 $3,341,031 $11,208,687 $4,665,599 $2,700,281
Gross profit $2,725,947 $1,421,112 $ 4,147,059 $1,433,870 $1,518,076
Operating income $1,256,448 $ 555,966 $ 1,812,414 $ 162,922 $ 371,856
</TABLE>
Consolidated net revenues of $11,208,687 in 1996 represent an increase of
$6,543,088 over 1995. Operating income of $1,812,414 represents an increase of
$1,649,492 over 1995. The increase in the net revenues and operating income of
the Company resulted from the continued revenue growth of the database segment
and the acquisition of Color Graphics, Inc. on October 1, 1996.
<PAGE>
Revenues
- --------
Net revenues increased $6,543,089 in 1996 from $4,665,599 to $11,208,688 as
compared to 1995 and increased $1,965,318 in 1995 from $2,700,281 to $4,665,599
as compared to 1994. The net revenue increase during 1996 was primarily
attributable to database and advertising growth resulting from increased sales
to existing customers, including First USA, Bank of New York (Delaware), Fleet
Corporation and Marine Midland and sales to several new clients including
Beneficial Bank and Corestates. The increase in revenue during 1995 resulted
from increased sales to existing customers, including First USA and Bank of New
York (Delaware) and sales to several new clients. Customers in the banking
industry accounted for 97%, 90% and 83% of the Company's database revenues in
1996, 1995 and 1994 respectively. The continued growth to existing customers is
contributed to the modification of marketing strategies in the banking industry,
which appear to be focusing more on the activation and retention of current
customers rather than seeking acquisition of new customers. Management believes
that through our database marketing efforts we provide our customers a more
efficient guide to building a more profitable relationship with their customers.
The acquisition of Color Graphics, Inc., on October 1, 1996, provided a 29%
increase to revenues through direct mail printing services provided to customers
in the credit card industry including Capital One, Citibank, Chase and American
Express.
Cost of Revenue
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The Company's cost of revenue, as a percentage of sales was 63%, 69% and 43% in
1996, 1995 and 1994, respectively. The decrease in cost of revenue for database
during 1995 resulted primarily from increased in-house database production,
which was offset in part by an increase in salary expenses due to additional
staffing. The increase in cost of revenue during 1995 resulted primarily from
costs associated with the growth of advertising and marketing services provided
and the use of outside vendors to fulfill this demand and cost increases,
primarily salaries, resulting from the revenue increase during 1995. The Color
Graphics, Inc. acquisition, cost of revenue as a percentage of sales provided
and overall increase of 11.3% to the prior period comparison.
Selling, General and Administrative Expenses
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Selling, general and administrative expenses increased $691,900 in 1996,
increased $114,369 in 1995 and increased $200,161 in 1994 as compared to prior
periods. The increase in 1996 expenses resulted primarily from: a) increase in
database expenses and supplies related to computer equipment. b) costs
associated with promotion, travel and entertainment to secure new customers. c)
commission expenses relating to growth of the advertising and marketing services
and d) the acquisition of Color Graphics, Inc.. The increase in 1995 expenses
resulted primarily from: (1) the use of professional recruiting services to
fulfill additional staffing requirements. (2) salary increases and (3) costs
related to opening of the Delaware office. The increase in 1994 expenses
resulted from increased consulting and commission expense related to generating
new business. A 43.1% increase in selling general and administrative expenses
for the current period is attributable to the acquisition of Color Graphics,
Inc..
Interest Expense
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Interest expense increased $124,572 in 1996, decreased $13,608 in 1995 and
increased $2,158 in 1994 as compared to prior periods. A significant portion of
the increase in 1996 resulted from the acquisition of Color Graphics, Inc.. The
increase resulted primarily from: a) $1,000,000 loan acquired from a related
party to purchase Color Graphics, Inc. and b.) Color Graphics, Inc.'s borrowings
on both their revolving line of credit and equipment loans. The decrease in
1995 was a direct result of the reduction in the use of the Company's line of
credit. The increase in 1994 was due to increases in the prime rate offset in
part by decreased short term borrowing.
<PAGE>
Depreciation and Amortization
- -----------------------------
Depreciation and amortization increased $247,226 in 1996, $23,967 in 1995,
$27,669 in 1994 as compared to prior periods. The increase resulted primarily
from the purchase of computer equipment and software necessary to fulfill the
demand by database customers and to support additional staffing. The acquisition
of Color Graphics, Inc. accounted for approximately 60% of the increase for
1996. The increase in 1995 and 1994 resulted primarily from the purchase of
Company assets.
Provision for Income Taxes
- --------------------------
Provision for income taxes increased $682,830 in 1996, decreased $98,035 in
1995, and increased $58,920 in 1994. The increase in 1996 was due to the
increase in taxable income. The decrease in 1995 income taxes was due primarily
to a decrease in taxable income. The increase in income taxes in 1994 was due
primarily to an increase in taxable income.
Inflation
- ---------
Inflation and price increases do not materially affect the Company's gross
profit margin as contract prices are adjusted at the same time increases are
implemented by outside vendors.
(b) Liquidity and Capital Resources
-------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working capital (deficit) $ 2,705,915 $ (62,302) $ (100,765)
Cash 1,080,630 520,865 275,738
Cash provided by operating activities 1,425,294 394,318 128,965
Cash used in (provided by) investing activities 289,282 133,600 (70,420)
Cash used in investing activities 576,247 15,591 394,863
</TABLE>
Working capital increased in both 1996 and 1995 over the corresponding prior
year periods due primarily to increased cash flow from operations which resulted
in higher cash levels.
The increase in cash flows from operations in 1996 resulted primarily from
improved profitability and strong cash collections. The increase in cash flows
from operations in 1995 resulted primarily from improved profitability and
extended trade credit provided by a related company which allowed the Company to
avoid any borrowing on its line of credit.
The increase in cash used in investing activities in both 1996 and 1995 resulted
primarily from higher capital expenditures. In addition, in 1996, the Company
acquired Color Graphics, Inc. The Company expects to continue to invest in
capital assets to support its growth.
In 1996, the Company borrowed $1,000,000 from a related party to partially
finance the acquisition of Color Graphics, Inc. In addition the Company received
$500,000 from the sale of a convertible debenture in 1996. The Company used
these proceeds and cash flow from operations to reduce a significant portion of
short term debt acquired from Color Graphics, Inc. In addition, the Company
purchased 1,920,000 shares of its common stock held by two current officers for
$300,000.
At December 31, 1996, the Company had outstanding debt of $4,619,482 primarily
in the form of notes payable.
At December 31, 1996, the amount available under the Company's lines of credit
was approximately $3,033,400.
The Company anticipates that current cash balances as well as anticipated cash
flows from operations will be sufficient to meet its working capital and capital
expenditure needs at least through December 31, 1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
March 31, 1997
To the Board of Directors and
Shareholders of North American
Integrated Marketing, Inc.
We have audited the accompanying consolidated balance sheets of North American
Integrated Marketing, Inc., and subsidiary as of December 31, 1994 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the one year in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of North
American Integrated Marketing, Inc. and subsidiary as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Weuguyn Hughan & Co.
<PAGE>
THOMPSON DUGAN, PC
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
March 20, 1997
To the Board of Directors and
Shareholders of North American
Integrated Marketing, Inc.
We have audited the accompanying consolidated balance sheets of North American
integrated Marketing, Inc., and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of North
American Integrated Marketing, Inc and subsidiary as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Thompson Dugan, PC
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------- ----------- ------------
REVENUES
<S> <C> <C> <C>
Database $ 7,867,656 $ 4,665,599 $ 2,700,281
Printing 3,341,032 - -
----------- ----------- -----------
Total revenues 11,208,688 4,665,599 2,700,281
COST OF REVENUE
Database - related company 4,070,042 1,974,938 205,535
Database - other 1,071,667 1,256,791 976,670
Printing 1,919,920 - -
----------- ----------- -----------
Total cost of revenue 7,061,629 3,231,729 1,182,205
Selling, general and
administrative expense 1,879,539 1,187,639 1,073,270
Interest expense 127,507 2,935 16,543
Depreciation and amortization 327,600 80,374 56,407
----------- ----------- -----------
Total costs and expenses 9,396,275 4,502,677 2,328,425
----------- ----------- -----------
Income from continuing operations before
income taxes and minority interest 1,812,413 162,922 371,856
Provision for income taxes 743,140 60,340 158,375
----------- ----------- -----------
Income from continuing operations before 1,069,273 102,582 213,481
minority interest
Minority interest in income of 56,064 - -
subsidiary ----------- ----------- -----------
Income from continuing operations 1,013,209 102,582 213,481
Loss from discontinued operations - - (18,131)
----------- ----------- -----------
Net income $ 1,013,209 $ 102,582 $ 195,350
=========== =========== ===========
EARNINGS PER SHARE $0.04 $0.01 $0.01
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
USED IN COMPUTING EARNINGS PER SHARE 28,532,949 14,120,073 15,840,007
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,080,630 $ 520,865
Accounts receivable, less allowance
for doubtful accounts of $53,093 in
1996 and $29,093 in 1995 4,236,638 1,553,619
Inventories 466,117 -
Prepaid and other current assets 422,259 33,404
----------- ----------
Total current assets 6,205,644 2,107,888
PROPERTY, PLANT AND EQUIPMENT, Net 3,849,063 230,444
OTHER ASSETS 179,101 84,078
----------- ----------
TOTAL ASSETS $10,233,808 $2,422,410
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 466,593 $ -
Current maturities of long-term debt 275,175 16,928
Accounts payable 764,913 84,894
Accounts payable - related company 371,315 1,893,205
Income taxes payable 703,482 38,503
Accrued expenses and other current 818,776 93,360
liabilities
Deferred revenue 99,475 43,300
----------- ----------
Total current liabilities 3,499,729 2,170,190
LONG-TERM DEBT 2,952,713 7,175
LONG-TERM DEBT - RELATED COMPANY 925,000 -
DEFERRED INCOME TAXES 542,200 -
OTHER LONG-TERM LIABILITIES 284,096 -
MINORITY INTEREST 571,816 -
SHAREHOLDERS' EQUITY
Common stock, $.00001 par value -
authorized, 50,000,000 shares;
issued and outstanding: 40,100,091
shares in 1996 and 16,040,073 shares
in 1995, of which 3,840,000 shares
in 1996 and 1,920,000 shares in
1995 are held as treasury stock 212 160
Paid-in capital 500,003 55
Retained earnings 1,263,039 249,830
----------- ----------
1,763,254 250,045
Less treasury stock, at cost (305,000) (5,000)
----------- ----------
1,458,254 245,045
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $10,233,808 $2,422,410
=========== ==========
</TABLE>
See notes to consolidated financial statements
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------
Retained
Number Paid - in Earnings Treasury
of Shares Amount Capital (Deficit) Stock Total
---------- ------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 16,040,073 160 55 (48,102) - (47,887)
Purchase of treasury stock - - - - (5,000) (5,000)
Net income - - - 195,350 - 195,350
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1994 16,040,073 160 55 147,248 (5,000) 142,463
Net income - - - 102,582 - 102,582
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1995 16,040,073 160 55 249,830 (5,000) 245,045
---------- ------ --------- ---------- ---------- ----------
Purchase of treasury stock (300,000) (300,000)
Common stock issued in exchange for
convertible debenture 24,060,018 241 499,759 - - 500,000
Net income - - - 1,013,209 - 1,013,209
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1996 40,100,091 $401 $499,814 $1,263,039 $(305,000) $1,458,254
========== ====== ========= ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------
Retained
Number Paid - in Earnings Treasury
of Shares Amount Capital (Deficit) Stock Total
---------- ------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 16,040,073 160 55 (48,102) - (47,887)
Purchase of treasury stock - - - - (5,000) (5,000)
Net income - - - 195,350 - 195,350
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1994 16,040,073 160 55 147,248 (5,000) 142,463
Net income - - - 102,582 - 102,582
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1995 16,040,073 160 55 249,830 (5,000) 245,045
---------- ------ --------- ---------- ---------- ----------
Purchase of treasury stock (300,000) (300,000)
Common stock issued in exchange for
convertible debenture 24,060,018 241 499,759 - - 500,000
Net income - - - 1,013,209 - 1,013,209
---------- ------ --------- ---------- ---------- ----------
Balance at December 31, 1996 40,100,091 $401 $499,814 $1,263,039 $(305,000) $1,458,254
========== ====== ========= ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,080,630 $ 520,865
Accounts receivable, less allowance
for doubtful accounts of $53,093 in
1996 and $29,093 in 1995 4,236,638 1,553,619
Inventories 466,117 -
Prepaid and other current assets 422,259 33,404
----------- ----------
Total current assets 6,205,644 2,107,888
PROPERTY, PLANT AND EQUIPMENT, Net 3,849,063 230,444
OTHER ASSETS 179,101 84,078
----------- ----------
TOTAL ASSETS $10,233,808 $2,422,410
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 466,593 $ -
Current maturities of long-term debt 275,175 16,928
Accounts payable 764,913 84,894
Accounts payable - related company 371,315 1,893,205
Income taxes payable 703,482 38,503
Accrued expenses and other current 818,776 93,360
liabilities
Deferred revenue 99,475 43,300
----------- ----------
Total current liabilities 3,499,729 2,170,190
LONG-TERM DEBT 2,952,713 7,175
LONG-TERM DEBT - RELATED COMPANY 925,000 -
DEFERRED INCOME TAXES 542,200 -
OTHER LONG-TERM LIABILITIES 284,096 -
MINORITY INTEREST 571,816 -
SHAREHOLDERS' EQUITY
Common stock, $.00001 par value -
authorized, 50,000,000 shares;
issued and outstanding: 40,100,091
shares in 1996 and 16,040,073 shares
in 1995, of which 3,840,000 shares
in 1996 and 1,920,000 shares in
1995 are held as treasury stock 212 160
Paid-in capital 500,003 55
Retained earnings 1,263,039 249,830
----------- ----------
1,763,254 250,045
Less treasury stock, at cost (305,000) (5,000)
----------- ----------
1,458,254 245,045
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $10,233,808 $2,422,410
=========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,013,209 $ 102,582 $ 195,350
Adjustment for discontinued operations - - 18,131
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 327,600 80,374 56,407
Minority interest 56,064
Deferred taxes 2,760
Loss on sale of assets - 5,599 -
(Increase) decrease in net of effects of acquisition
Accounts receivable, net 551,341 (1,091,285) 4,348
Inventory 67,471
Prepaid and other current assets 23,824 (28,238) (44,939)
Other assets 6,434
Increase (decrease) in:
Accounts payable 267,855 (11,434) (129,814)
Accounts payable - related company (1,521,890) 1,353,751 10,653
Income taxes payable 664,979 2,371 (103,541)
Accrued expenses and other current liabilities (90,528) 12,298 43,586
Deferred revenue 56,175 (31,700) 20,000
----------- ----------- ---------
Net cash provided by operating
activities of continuing operations 1,425,294 394,318 70,181
Cash provided by operating activities
of discontinued operations - - 58,784
----------- ----------- ---------
Cash provided by operating activities 1,425,294 394,318 128,965
Cash flows from investing activities:
Business acquisition, net of cash acquired (35,406)
Purchase of furniture and equipment (253,876) (148,219) (102,100)
Proceeds from the sale of equipment - 1,546 -
Cash provided by (used in) investing
activities - discontinued operations - 13,073 172,520
----------- ----------- ---------
Net cash (used in)provided by investing activities (289,282) (133,600) 70,420
----------- ----------- ---------
Cash flows from financing activities:
Net borrowings under (repayments of) notes payable (1,562,930) - (375,499)
Repayments of long-term debt (73,015) (15,591) (14,364)
Proceeds from issuance of long-term debt - related company 1,000,000 - -
Purchase of treasury stock (300,000) - (5,000)
Sale of debenture 500,000 - -
Increase in minority interest (56,064) - -
Decrease in long term liabilities (84,238) - -
----------- ----------- ---------
Net cash in financing activities (576,247) (15,591) (394,863)
----------- ----------- ---------
Net increase (decrease) in cash 559,765 245,127 (195,478)
Cash at beginning of year 520,865 275,738 471,216
----------- ----------- ---------
Cash at end of year $ 1,080,630 $ 520,865 $ 275,738
=========== =========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
LONG TERM DEBT
Based on the borrowing rates currently available to the Company for loans
similar in terms and average maturities, the stated value of long term debt
approximated market value at December 31, 1996.
REVENUE RECOGNITION
The Company provides database services by preparing marketing reports and direct
marketing mailing lists. Services are provided on a project-by-project basis
under periodic service arrangements that extend up to one year. Revenue and
related costs are recognized on a project-by-project basis in the period in
which the services are provided.
Deferred revenues and deferred costs arise when invoices are rendered or costs
incurred prior to performing services. Deferred costs exclude salaries, which
are expended as incurred.
ADVERTISING COSTS
The Company follows the policy of charging the costs of advertising to expense.
Advertising costs included in selling, general and administrative expenses for
the years ended December 31, 1996, 1995 and 1994 were $75,857, $42,591 and
$85,361, respectively.
INCOME TAXES
The Company uses Statement of Financial Accounting Standards No. 109 "Accounting
For Income Taxes" in reporting deferred income taxes. SFAS No. 109 requires a
company to recognize deferred tax liabilities and assets for the expected future
income tax consequences of events that have been recognized in the company's
financial statement. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the temporary differences are expected to reverse.
STOCK BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), in 1996. Under the
provision of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, " Accounting for Stock
Issued to Employees" (APB 25) and related Interpretations. The Company has
elected to continue using the intrinsic value method to account for the stock-
based compensation plan. Assuming a fair market value of $.05 per share, had the
Company followed SFAS 123 rather than APB25, the reported net income for the
year ended December 31, 1996 would have been approximately $928,200 ($.03 per
share)
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
LONG TERM DEBT
Based on the borrowing rates currently available to the Company for loans
similar in terms and average maturities, the stated value of long term debt
approximated market value at December 31, 1996.
REVENUE RECOGNITION
The Company provides database services by preparing marketing reports and direct
marketing mailing lists. Services are provided on a project-by-project basis
under periodic service arrangements that extend up to one year. Revenue and
related costs are recognized on a project-by-project basis in the period in
which the services are provided.
Deferred revenues and deferred costs arise when invoices are rendered or costs
incurred prior to performing services. Deferred costs exclude salaries, which
are expended as incurred.
ADVERTISING COSTS
The Company follows the policy of charging the costs of advertising to expense.
Advertising costs included in selling, general and administrative expenses for
the years ended December 31, 1996, 1995 and 1994 were $75,857, $42,591 and
$85,361, respectively.
INCOME TAXES
The Company uses Statement of Financial Accounting Standards No. 109 "Accounting
For Income Taxes" in reporting deferred income taxes. SFAS No. 109 requires a
company to recognize deferred tax liabilities and assets for the expected future
income tax consequences of events that have been recognized in the company's
financial statement. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the temporary differences are expected to reverse.
STOCK BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), in 1996. Under the
provision of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, " Accounting for Stock
Issued to Employees" (APB 25) and related Interpretations. The Company has
elected to continue using the intrinsic value method to account for the stock-
based compensation plan. Assuming a fair market value of $.05 per share, had the
Company followed SFAS 123 rather than APB25, the reported net income for the
year ended December 31, 1996 would have been approximately $928,200 ($.03 per
share)
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
EARNINGS PER SHARE
Earnings per share was computed based on the weighted average number of common
shares and common share equivalents outstanding during each period. Common share
equivalents represent the dilutive effect of outstanding stock options.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 3 - ACQUISITIONS
Effective October 1, 1996, pursuant to a Stock Purchase Agreement dated
September 30, 1996, the Company acquired 82% of the outstanding common stock of
Color Graphics, Inc. for a total consideration of $1,909,283. The consideration
consisted of $1,000,000 in cash paid by the Company, $286,000 in cash paid by
Color Graphics, Inc., the assumption of liabilities totaling $250,000 and the
transfer of a life insurance policy valued at $210,806 by Color Graphics, Inc..
In addition, Color Graphics, Inc. assigned an accounts receivable of $464,000
which Color Graphics, Inc. had previously written off. The Company has assigned
a value of $162,477 to this receivable for purchase accounting. The Company
obtained the $1,000,000 from North American Communications, Inc. (NAC), a
related party (see Note 7). In addition, the Company granted to a consultant an
option to acquire 10 percent of the Color Graphics, Inc. stock at an exercise
price of $1,058.82 per share or $30,000 in the aggregate through September 30,
2001 for his role in consummating the acquisition. The acquisition was accounted
for as a purchase and property, plant and equipment was reduced by the excess of
the fair value of the net assets acquired over the cost using the purchase
method of accounting. The operations of Color Graphics, Inc. are included in the
accompanying consolidated financial statement from the date of acquisition.
The pro forma results listed below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at January 1, 1995. The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire period presented.
In addition, they are not intended to be a projection of future results and do
not reflect any efficiencies that might be achieved from the combined operation.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue $27,275,722 $39,436,698
Net income 924,627 1,570,335
Net income per share $ 0.03 $ 0.11
</TABLE>
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - DISCONTINUED OPERATIONS
In September 1994, the Company announced the closing of its production services
division in Pasadena, California. Certain assets and liabilities of the
division with a book value of $ 34,566 and $ 10,092, respectively, were
transferred to a former officer as part of a severance agreement. In addition,
certain assets were sold at book value to North American Communications, Inc.,
a related party, for $7,876. Other assets with a book value of $5,979 were
abandoned.
The loss on the closing of the division has been accounted for as discontinued
operations and prior year financial statements and notes have been restated to
reflect the closing of the production services division. Net revenue of the
creative services division for 1994 was $1,486,138. The loss consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Income from discontinued operations
(net of income taxes of $12,050) $ 23,863
Loss on closing of division (net of
income tax benefit of $21,210) (41,994)
-----------
Loss from discontinued operations $ (18,131)
===========
</TABLE>
NOTE 5 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Paper $ 321,623 $ -
Other raw materials 81,628 -
Work-in-process 62,866 -
----------- -----
$ 466,117 $ -
=========== =====
</TABLE>
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred income taxes $172,000 $23,440
Due from others - income taxes 161,680 -
Refundable state taxes 66,388 -
Other current assets 22,191 9,964
-------- -------
$422,259 $33,404
======== =======
</TABLE>
NOTE 7 - PROPERTY PLANT AND EQUIPMENT
Property plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment $3,561,995 $ -
Office furniture and equipment 105,742 41,090
Transportation equipment 135,737 135,737
Computer equipment and software 432,185 279,417
Leasehold improvements 61,703 -
Construction in progress 63,496 -
---------- ---------
4,360,858 456,244
Accumulated depreciation and (511,795) (225,800)
amortization ---------- ---------
$3,849,063 $ 230,444
========== =========
</TABLE>
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE PAYABLE - RELATED COMPANY
During 1996, the Company borrowed $1,000,000 from NAC to partially finance the
acquisition of Color Graphics, Inc. The unsecured loan was represented by a
promissory note bearing interest at 8%, and payable in monthly installments of
$5,000 plus interest with payment in full due September 30, 2006. Interest
expense related to this note was $26,665 for the year ended December 31, 1996.
At December 31, 1996 the scheduled principal payments on the note are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 65,000
1998 60,000
1999 60,000
2000 60,000
2001 60,000
Thereafter 685,000
--------
$990,000
========
</TABLE>
No borrowings were outstanding with NAC at December 31, 1995.
NET REVENUE
Net revenue includes amounts from NAC as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
--------- ----- -----
<S> <C> <C> <C>
NAC $672,800 $ - $ -
======== ===== =====
</TABLE>
COST OF REVENUE
NAC is one of several suppliers of printing and mailing services and is awarded
contracts by the Company. Goods and services purchased from NAC were as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- --------
NAC $4,070,042 $1,974,938 $205,535
========== ========== ========
</TABLE>
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE PAYABLE - RELATED COMPANY
During 1996, the Company borrowed $1,000,000 from NAC to partially finance the
acquisition of Color Graphics, Inc. The unsecured loan was represented by a
promissory note bearing interest at 8%, and payable in monthly installments of
$5,000 plus interest with payment in full due September 30, 2006. Interest
expense related to this note was $26,665 for the year ended December 31, 1996.
At December 31, 1996 the scheduled principal payments on the note are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 65,000
1998 60,000
1999 60,000
2000 60,000
2001 60,000
Thereafter 685,000
--------
$990,000
========
</TABLE>
No borrowings were outstanding with NAC at December 31, 1995.
NET REVENUE
Net revenue includes amounts from NAC as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
--------- ----- -----
<S> <C> <C> <C>
NAC $672,800 $ - $ -
======== ===== =====
</TABLE>
COST OF REVENUE
NAC is one of several suppliers of printing and mailing services and is awarded
contracts by the Company. Goods and services purchased from NAC were as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- --------
NAC $4,070,042 $1,974,938 $205,535
========== ========== ========
</TABLE>
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - NOTE PAYABLE
At December 31, 1996 and 1995 the Company had available a revolving line of
credit in the maximum aggregate principal amount of $1,000,000 and with interest
payable monthly at the lender's basic rate plus 1 percent (9.25 percent at
December 31, 1996). Borrowings are to be used to provide working capital to fund
inventory purchases and for payment of certain other costs approved by the
lender incidental to the loan. The borrowings under the line of credit are
secured by the Company's receivables, equipment and fixtures. The repayment of
the loan is guaranteed by NAC, an affiliated company. In addition, a
subordination agreement was executed by NAC and the shareholders of the Company.
Borrowings outstanding under the line of credit were $-0-, and $-0- at December
31, 1996 and 1995, respectively.
At December 31, 1996 the Company's subsidiary had a short-term revolving line of
credit with United States National Bank, which expires on April 30, 1997, in the
maximum aggregate principal amount of $2,500,000 and with interest payable
monthly at the lender's rate plus 1% (9.25 percent at December 31, 1996). The
agreement permits borrowing on a percentage of qualified accounts receivable and
inventory as defined in the agreement. The borrowings under the line of credit
are secured by the subsidiary's accounts receivable and equipment and guaranteed
by the Company and NAC, an affiliated company. This debt is cross collateralized
with the term financing described in Note 12.
Borrowings outstanding under the line of credit were $466,593 at December 31,
1996.
NOTE 11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- --------
<S> <C> <C>
Accrued payroll $ 95,588 $41,877
Accrued vacation 128,186 -
Accrued rent 171,780 -
Customer deposits 117,909 -
Liability related to acquisition 250,000 -
Other 55,313 51,483
-------- -------
$818,776 $93,360
======== =======
</TABLE>
26
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -------
<S> <C> <C>
Note payable to United States National Bank in monthly
installments, including interest at 9.73%, for the first 5 years.
The note payments will then be reset for the next five years
based on interest rates as specified in the agreement (see
Note 9 for collateral guarantees). $3,155,713 $ -
Installment note payable to a bank with interest at 11.66%,
secured by a motor vehicle and payable in monthly installments
of $726, due through May 1997. 3,675 12,341
Installment note payable to bank with interest at 8.25%,
secured by a motor vehicle and payable in monthly installments
of $780, due through May 1997 3,500 11,762
---------- -------
3,162,888 24,103
Less: Current maturities 210,175 16,928
---------- -------
$2,952,713 $ 7,175
========== =======
</TABLE>
At December 31, 1996 the scheduled principal payments on the debt are as
follows:
<TABLE>
<S> <C>
1997 $ 210,175
1998 222,001
1999 244,919
2000 269,488
2001 298,025
Thereafter 1,918,680
----------
$3,163,288
==========
</TABLE>
27
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -------
<S> <C> <C>
Note payable to United States National Bank in monthly
installments, including interest at 9.73%, for the first 5 years.
The note payments will then be reset for the next five years
based on interest rates as specified in the agreement (see
Note 9 for collateral guarantees). $3,155,713 $ -
Installment note payable to a bank with interest at 11.66%,
secured by a motor vehicle and payable in monthly installments
of $726, due through May 1997. 3,675 12,341
Installment note payable to bank with interest at 8.25%,
secured by a motor vehicle and payable in monthly installments
of $780, due through May 1997 3,500 11,762
---------- -------
3,162,888 24,103
Less: Current maturities 210,175 16,928
---------- -------
$2,952,713 $ 7,175
========== =======
</TABLE>
At December 31, 1996 the scheduled principal payments on the debt are as
follows:
<TABLE>
<S> <C>
1997 $ 210,175
1998 222,001
1999 244,919
2000 269,488
2001 298,025
Thereafter 1,918,680
----------
$3,163,288
==========
</TABLE>
27
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15 - SHAREHOLDER'S EQUITY - (Continued)
Stock Option Plan
In March 1996, the Company adopted the Stock Option Plan ("Plan") which provided
for the issuance of non-qualified stock options and incentive stock options as
well as stock appreciation rights (in connection with options) to eligible
employees, officer, consultants and advisors of the Company. Under the terms of
this plan, options to purchase 10,000,000 shares of Common Stock were reserved
for issuance, generally are granted at not less than fair market value, become
excercisable as established by the Board of Directors or the Compensation
Committee, and generally expire ten years from the date of grant. As of December
31, 1996, options to purchase 4,080,000 shares of Common Stock at $.04 per share
were outstanding of which 3,700,000 shares were vested. Options for 5,920,000
shares were available for future grant under the plan at December 31, 1996. To
date, the Company has not issued any stock appreciation rights under this plan.
Restricted Stock Plan
Effective January 1, 1992 the Company adopted a Restricted Stock Plan. The
Restricted Stock Plan authorizes the issuance of 200,000 shares of restricted
stock to certain key employees of the Company over a five-year period. Employees
become vested in shares of restricted stock issued to them for the current
fiscal year if they remained continuously employed by the Company for the entire
fiscal year. If the employee separates from service on or before the last day of
such fiscal year (other than for separations from service due to death,
disability or unjust termination's), all shares of the Company's stock allocated
to that employee for such fiscal year shall be forfeited. Once vested, all
restrictions on the shares issued expire. Restricted shares outstanding for the
plan totaled 40,000 at December 31, 1995, 1994 and 1993.
Treasury Stock
On December 5, 1996 the Board of Directors approved the purchase of 1,920,000
shares of common stock from two current officers of the Company for $300,000.
On September 30, 1994, the Board of Directors approved the purchase of 1,920,000
shares of common stock held by a former officer for $5,000.00.
29
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Current provision:
Federal $577,800 $ 61,200 $126,300
State 168,100 16,250 34,960
-------- -------- --------
Total current 745,900 77,450 161,260
-------- -------- --------
Deferred (benefit) provision:
Federal 600 (15,400) (2,685)
State (3,360) (1,710) (200)
-------- -------- --------
Total deferred (2,760) (17,110) (2,885)
-------- -------- --------
Total $743,140 $ 60,340 $158,375
======== ======== ========
</TABLE>
The federal statutory rate differs from the Company's effective income tax
rate on income from continuing operations as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
Increase (reduction) in the tax rate
resulting from:
State income tax, net of federal
effect 5.9 5.9 6.2
Nondeductible expenses 1.1 4.7 4.0
Accruals - (4.0) -
Other - (3.6) 2.0
---- ---- ----
41.0% 37.0% 42.6%
==== ==== ====
</TABLE>
30
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Current provision:
Federal $577,800 $ 61,200 $126,300
State 168,100 16,250 34,960
-------- -------- --------
Total current 745,900 77,450 161,260
-------- -------- --------
Deferred (benefit) provision:
Federal 600 (15,400) (2,685)
State (3,360) (1,710) (200)
-------- -------- --------
Total deferred (2,760) (17,110) (2,885)
-------- -------- --------
Total $743,140 $ 60,340 $158,375
======== ======== ========
</TABLE>
The federal statutory rate differs from the Company's effective income tax
rate on income from continuing operations as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
Increase (reduction) in the tax rate
resulting from:
State income tax, net of federal
effect 5.9 5.9 6.2
Nondeductible expenses 1.1 4.7 4.0
Accruals - (4.0) -
Other - (3.6) 2.0
---- ---- ----
41.0% 37.0% 42.6%
==== ==== ====
</TABLE>
30
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18 - CONCENTRATION OF CREDIT RISK
At December 31, 1996 and 1995, approximately 46 percent and 99 percent,
respectively, of the Company's accounts receivable balance was due from
customers in the banking industry. During the years ended December 31, 1996,
1995 and 1994 the Company recorded approximately 80 percent, 97 percent and 91
percent of its total net revenue, respectively, from customers in the banking
and credit card industries.
Two individual customers accounted for 10 percent or more of the Company's total
net revenue for the year ended December 31, 1996. Net revenue from these
customers was approximately 26 percent and 13 percent of total net revenue. Two
customers constituted approximately 34 percent and 19 percent of total net
revenue, for the year ended December 31, 1995 and two customers constituted
approximately 30 percent and 17 percent of total net revenue, respectively, for
the year ended December 31, 1994
The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1996, the Company's uninsured cash balances on
deposit, per the bank's records, in excess of insured limits totaled $817,004.
NOTE 19 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------ -------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 119,195 $ 2,935 $ 28,079
=========== ======== ========
Income taxes $ 70,921 $79,507 $258,041
=========== ======== ========
Noncash investing and financing activities
Issuance of common stock in exchange
for convertible debenture $ 500,000 $ - $ -
=========== ======== ========
In connection with the acquisition,
assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired $ 9,783,500 $ - $ -
Less: Cash paid (1,000,000) - -
----------- -------- --------
Liabilities assumed $ 8,783,500 $ - $ -
=========== ======== ========
Discontinued operations
Transfer of assets to former officer $ - $ - $ 34,566
=========== ======== ========
Assumption of note by former officer $ - $ - $ 10,092
=========== ======== ========
</TABLE>
32
<PAGE>
NORTH AMERICAN INTEGRATED MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18 - CONCENTRATION OF CREDIT RISK
At December 31, 1996 and 1995, approximately 46 percent and 99 percent,
respectively, of the Company's accounts receivable balance was due from
customers in the banking industry. During the years ended December 31, 1996,
1995 and 1994 the Company recorded approximately 80 percent, 97 percent and 91
percent of its total net revenue, respectively, from customers in the banking
and credit card industries.
Two individual customers accounted for 10 percent or more of the Company's total
net revenue for the year ended December 31, 1996. Net revenue from these
customers was approximately 26 percent and 13 percent of total net revenue. Two
customers constituted approximately 34 percent and 19 percent of total net
revenue, for the year ended December 31, 1995 and two customers constituted
approximately 30 percent and 17 percent of total net revenue, respectively, for
the year ended December 31, 1994
The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1996, the Company's uninsured cash balances on
deposit, per the bank's records, in excess of insured limits totaled $817,004.
NOTE 19 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------ -------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 119,195 $ 2,935 $ 28,079
=========== ======== ========
Income taxes $ 70,921 $79,507 $258,041
=========== ======== ========
Noncash investing and financing activities
Issuance of common stock in exchange
for convertible debenture $ 500,000 $ - $ -
=========== ======== ========
In connection with the acquisition,
assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired $ 9,783,500 $ - $ -
Less: Cash paid (1,000,000) - -
----------- -------- --------
Liabilities assumed $ 8,783,500 $ - $ -
=========== ======== ========
Discontinued operations
Transfer of assets to former officer $ - $ - $ 34,566
=========== ======== ========
Assumption of note by former officer $ - $ - $ 10,092
=========== ======== ========
</TABLE>
32
<PAGE>
SCHEDULE II
NORTH AMERICAN INTEGRATED MARKETING, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED BALANCE AT
CLASSIFICATION OF PERIOD TO OPERATIONS WRITE OFFS END OF PERIOD
- -------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEAR ENDED:
DECEMBER 31, 1994 $ 7,267 $41,390 ($22,490) $26,167
===== ====== ======= ======
DECEMBER 31, 1995 $26,167 $21,000 ($18,074) $29,093
====== ====== ====== ======
DECEMBER 31, 1996 $29,093 $24,000 $0 $53,093
====== ====== = ======
</TABLE>
-34-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Names, Ages and Positions of the Directors and Executive Officers
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert J. Bzezensky 57 President
Nicholas Robinson 31 Chairman of the Board,
Chief Executive Officer
Steven Gasner 47 Vice President
Robert Paltrow 55 Director, Secretary and Treasurer
Anthony Nardiello 54 President, Color Graphics
</TABLE>
The current members of the Company's Board of Directors are Nicholas
Robinson and Robert Paltrow. Nicholas Robinson serves as Chairman of the Board.
Mr. Robinson is Mr. Paltrow's son-in-law. Directors are elected at the annual
meeting of stockholders and remain in office until their successors are chosen
and qualified. Officers are elected by the Board and serve at the discretion of
the Board.
Business Experience of the Directors and Executive Officers
- -----------------------------------------------------------
Robert J. Bzezensky serves as the President of the Company, a position he
has held since January 1989. Between 1987 and 1989 he served as the President
of NAIS. Mr. Bzezensky's prior employment experience includes service as the
Vice President, Sales and Marketing, with Della Femina Travisano and Partners
Direct Ltd.; a senior consultant with CACI, Inc., a leading marketing
information and systems supplier; the Director of Marketing for R.H. Donnelley;
Vice President of Marketing for Metro Mail Corporation; and Vice President of
Mail Marketing with John Blair Marketing.
Nicholas Robinson serves as the Chief Executive Officer of the Company and
Chairman of the Board, positions he has held since October 1, 1994. Mr.
Robinson previously served as a database consultant for the Systems Integration
Practice of Arthur Andersen.
Steven Gasner is Vice President, Database Marketing, for the Company, a
position he has held since January 1989. Between 1987 and 1989 he has served as
the Vice President of NAIS. Mr. Gasner's prior employment experience includes
service as the Director of Information Management with Citicorp Retail Services
and with American Express; Vice President-Data Base Marketing with the Direct
Marketing Group; and Vice President-Data Base Marketing with Della Femina
Travisanao and Partners Direct Ltd.
Robert Paltrow is the Secretary and Treasurer and a director of the
Company, positions held he has held since January 1989. From 1981 through 1996
Mr. Paltrow served as President
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Names, Ages and Positions of the Directors and Executive Officers
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert J. Bzezensky 57 President
Nicholas Robinson 31 Chairman of the Board,
Chief Executive Officer
Steven Gasner 47 Vice President
Robert Paltrow 55 Director, Secretary and Treasurer
Anthony Nardiello 54 President, Color Graphics
</TABLE>
The current members of the Company's Board of Directors are Nicholas
Robinson and Robert Paltrow. Nicholas Robinson serves as Chairman of the Board.
Mr. Robinson is Mr. Paltrow's son-in-law. Directors are elected at the annual
meeting of stockholders and remain in office until their successors are chosen
and qualified. Officers are elected by the Board and serve at the discretion of
the Board.
Business Experience of the Directors and Executive Officers
- -----------------------------------------------------------
Robert J. Bzezensky serves as the President of the Company, a position he
has held since January 1989. Between 1987 and 1989 he served as the President
of NAIS. Mr. Bzezensky's prior employment experience includes service as the
Vice President, Sales and Marketing, with Della Femina Travisano and Partners
Direct Ltd.; a senior consultant with CACI, Inc., a leading marketing
information and systems supplier; the Director of Marketing for R.H. Donnelley;
Vice President of Marketing for Metro Mail Corporation; and Vice President of
Mail Marketing with John Blair Marketing.
Nicholas Robinson serves as the Chief Executive Officer of the Company and
Chairman of the Board, positions he has held since October 1, 1994. Mr.
Robinson previously served as a database consultant for the Systems Integration
Practice of Arthur Andersen.
Steven Gasner is Vice President, Database Marketing, for the Company, a
position he has held since January 1989. Between 1987 and 1989 he has served as
the Vice President of NAIS. Mr. Gasner's prior employment experience includes
service as the Director of Information Management with Citicorp Retail Services
and with American Express; Vice President-Data Base Marketing with the Direct
Marketing Group; and Vice President-Data Base Marketing with Della Femina
Travisanao and Partners Direct Ltd.
Robert Paltrow is the Secretary and Treasurer and a director of the
Company, positions held he has held since January 1989. From 1981 through 1996
Mr. Paltrow served as President
35
<PAGE>
Table ("Named Executive Officers").
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(l)
- ----------------------------------------------------------------------------------------------------
Percent of Total
Options
Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#)(2) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- -------------- ---------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Nicholas 2,880,000 100% $.04 3/10/2006
Robinson
</TABLE>
________________
(1) The information in these columns illustrates the value that might be
realized upon exercise of the options assuming the specified compound rates
of appreciation of the Company's Common Stock over the term of the options.
The potential realizable value columns are based on the total amount of
options granted. The amounts reflected do not take into account amounts
required to be paid for federal or state income taxes or option provisions
regarding termination of the option following termination of employment or
nontransferability requirements. These amounts were calculated based on
requirements of the Securities and Exchange Commission and do not
necessarily reflect the Company's estimate of future stock price growth.
(2) Of the options granted, 2,500,000 vested and became exercisable on March
11, 1996 and 380,000 shall vest and become exercisable on March 12, 1997.
The following table provides information relating to the value of
unexercised options held by the above-named executive officer at the end of
fiscal 1996. No options were exercised by the Named Executive Officers.
37
<PAGE>
UNEXERCISED STOCK OPTIONS AT FISCAL YEAR END
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
TOTAL NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS (#) OPTIONS AT YEAR END
------------------------------ ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nicholas Robinson 2,500,000 380,000 $25,000(1) $3,800(1)
</TABLE>
________________________
(1) Since the Common Stock is infrequently traded, the fair market value of the
Common Stock underlying the options has been assumed to be $.05 per share
based upon a recent independent valuation of the Common Stock.
Employment Contracts
- --------------------
The Company has entered into an employment contract with Anthony Nardiello,
President of Color Graphics. The agreement is for a five year term ending
September 30, 2001. The contract may be terminated by the Company if Mr.
Nardiello (i) competes with the Company, unless such competition is consented to
by the Company, (ii) commits any material misrepresentation, dishonesty or theft
against the Company, (iii) dies or suffers a disability making him incapable of
performing his essential duties or (iv) commits acts of gross misconduct. Under
the terms of his Employment Contract, Mr. Nardiello receives an annual base
salary of $325,000 and fringe benefits, including a Company automobile, health
and disability insurance. In addition, Mr. Nardiello has the right to require
the Company to purchase his Color Graphics common stock (18% of the outstanding
common stock of Color Graphics) at a price equal to its fair market value as
determined by an independent appraisal, exercisable at any time after the
earlier of October 1, 2001 or his termination of employment for whatever reason.
The Company has a similar right to purchase Mr. Nardiello's stock on the same
terms. In the event of Mr. Nardiello's death, the first $1,000,000 of the
purchase price for his Color Graphics common stock will be paid from the life
insurance policy for Mr. Nardiello paid for by the Company.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Nicholas Robinson, Chief Executive Officer of the Company, and Robert W.
Paltrow, Secretary/Treasurer of the Company, also served on the Company's Board
of Directors and participated in deliberations of the Company's Board of
Directors concerning executive officer compensation. The Company has no formal
compensation committee.
1996 Stock Option Plan
- ----------------------
The Company believes that stock option plans provide long term incentives
to its key employees, directors and consultants and encourage the ownership of
the Company's Common Stock. In March 1996, the Company adopted the Stock Option
Plan ("Plan") which provides for the grant of stock options as well as other
types of stock and incentive awards.
38
<PAGE>
UNEXERCISED STOCK OPTIONS AT FISCAL YEAR END
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
TOTAL NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS (#) OPTIONS AT YEAR END
------------------------------ ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nicholas Robinson 2,500,000 380,000 $25,000(1) $3,800(1)
</TABLE>
________________________
(1) Since the Common Stock is infrequently traded, the fair market value of the
Common Stock underlying the options has been assumed to be $.05 per share
based upon a recent independent valuation of the Common Stock.
Employment Contracts
- --------------------
The Company has entered into an employment contract with Anthony Nardiello,
President of Color Graphics. The agreement is for a five year term ending
September 30, 2001. The contract may be terminated by the Company if Mr.
Nardiello (i) competes with the Company, unless such competition is consented to
by the Company, (ii) commits any material misrepresentation, dishonesty or theft
against the Company, (iii) dies or suffers a disability making him incapable of
performing his essential duties or (iv) commits acts of gross misconduct. Under
the terms of his Employment Contract, Mr. Nardiello receives an annual base
salary of $325,000 and fringe benefits, including a Company automobile, health
and disability insurance. In addition, Mr. Nardiello has the right to require
the Company to purchase his Color Graphics common stock (18% of the outstanding
common stock of Color Graphics) at a price equal to its fair market value as
determined by an independent appraisal, exercisable at any time after the
earlier of October 1, 2001 or his termination of employment for whatever reason.
The Company has a similar right to purchase Mr. Nardiello's stock on the same
terms. In the event of Mr. Nardiello's death, the first $1,000,000 of the
purchase price for his Color Graphics common stock will be paid from the life
insurance policy for Mr. Nardiello paid for by the Company.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Nicholas Robinson, Chief Executive Officer of the Company, and Robert W.
Paltrow, Secretary/Treasurer of the Company, also served on the Company's Board
of Directors and participated in deliberations of the Company's Board of
Directors concerning executive officer compensation. The Company has no formal
compensation committee.
1996 Stock Option Plan
- ----------------------
The Company believes that stock option plans provide long term incentives
to its key employees, directors and consultants and encourage the ownership of
the Company's Common Stock. In March 1996, the Company adopted the Stock Option
Plan ("Plan") which provides for the grant of stock options as well as other
types of stock and incentive awards.
38
<PAGE>
vested, exercisable or payable and the duration of the award. The Board of
Directors or Compensation Committee may provide for the acceleration of the
vesting or exercise period of an award at any time prior to its termination or
upon the occurrence of specified events. With the consent of the affected
participant, the Board of Directors or Compensation Committee has the authority
to cancel and replace awards previously granted with new options for the same or
a different number of shares and having a higher or lower exercise or base
price, and may amend the terms of any outstanding awards to provide for an
exercise or base price that is higher or lower than the current exercise or base
price.
Reservation of Shares. The Company has authorized and reserved 10,000,000
shares of Common Stock for issuance under the Plan. The shares may be unissued
shares or treasury shares. If any shares of Common Stock that are the subject
of an award are not issued or transferred and cease to be issuable or
transferable for any reason, such shares will no longer be charged against such
maximum share limitation and may again be made subject to awards under the
Plan. In the event of certain corporate reorganizations, recapitalizations, or
other specified corporate transactions affecting the Company or the Common
Stock, proportionate adjustments may be made to the number of shares available
for grant and to the number of shares and prices under outstanding awards made
before the event.
Term and Amendment. The Plan has a term of ten years, subject to earlier
termination or amendment by the Board of Directors. All awards granted under
the Plan prior to its termination remain outstanding until exercised, paid or
terminated in accordance with their terms. The Board of Directors may amend the
Plan at any time, except that shareholder approval is required for certain
amendments to the extent necessary for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934.
401(k) Savings and Retirement Plan
- ----------------------------------
In 1993, the Company adopted the provisions of the amended and restated
North American Integrated Marketing 401 (k) Plan (the "401(k) Plan"), a tax-
qualified plan covering all eligible employees, as defined therein. Each
eligible employee may elect to reduce his or her current compensation by 15%,
subject to the statutory limit (a maximum of $9,500 in 1996) and have the amount
of the reduction contributed to the 401(k) Plan. For fiscal 1996 the Company
had discretion to match employee contributions. Since inception of the 401(k)
Plan in 1993, the Company has made no matching contributions. Effective January
1, 1997, the Company has agreed to match 25% up to the first 6% of compensation
that eligible employees contribute to the 401(k) Plan. In addition, the Company
may also make discretionary contributions, as defined in the 401(k) Plan, each
year on behalf of all eligible participants.
40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of December 31,
1996, with regard to the beneficial ownership of the Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, (ii) by the Named Executive Officers and directors and
key employees of the Company individually and (iii) by the executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares % of Class
of Beneficial Owner Beneficially Owned(1) Outstanding
- ------------------- --------------------- -----------
<S> <C> <C>
First Commercial and Finance Corp. 24,060,018(2) 63%
Establishment
c/o Dr. Danni Rothschild
10 Manesse Street
Zurich 800 Switzerland
Wye Investments, a Limited Partnership 4,320,000(3) 11.3%
c/o Michael Herman, General Partner
North American Communications, Inc.
Route 22 and Route 220, Wye Switches
Duncansville, PA 16635
Aspetong Partners, L.P. 4,320,000(4) 11.3%
c/o Robert W. Paltrow, General Partner
20 Maple Avenue
Armonk, NY 10504
Nicholas Robinson 2,500,000(5) 6.5%
Robert J. Bzezensky 960,000 2.5%
Steven Gasner 960,000 2.5%
999 McBride Avenue, Suite 200A
West Paterson, NJ 07424
All officers & directors as a 37,120,018 82.9%
group (four persons)
</TABLE>
_______________
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, each stockholder has sole voting and
investment power with respect to the Common Stock listed.
41
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of December 31,
1996, with regard to the beneficial ownership of the Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, (ii) by the Named Executive Officers and directors and
key employees of the Company individually and (iii) by the executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares % of Class
of Beneficial Owner Beneficially Owned(1) Outstanding
- ------------------- --------------------- -----------
<S> <C> <C>
First Commercial and Finance Corp. 24,060,018(2) 63%
Establishment
c/o Dr. Danni Rothschild
10 Manesse Street
Zurich 800 Switzerland
Wye Investments, a Limited Partnership 4,320,000(3) 11.3%
c/o Michael Herman, General Partner
North American Communications, Inc.
Route 22 and Route 220, Wye Switches
Duncansville, PA 16635
Aspetong Partners, L.P. 4,320,000(4) 11.3%
c/o Robert W. Paltrow, General Partner
20 Maple Avenue
Armonk, NY 10504
Nicholas Robinson 2,500,000(5) 6.5%
Robert J. Bzezensky 960,000 2.5%
Steven Gasner 960,000 2.5%
999 McBride Avenue, Suite 200A
West Paterson, NJ 07424
All officers & directors as a 37,120,018 82.9%
group (four persons)
</TABLE>
_______________
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, each stockholder has sole voting and
investment power with respect to the Common Stock listed.
41
<PAGE>
(2) First Commercial and Finance Corp., Establishment, pursuant to a May 17,
1996 Convertible Debenture Purchase Agreement with the Company, entered
into a five year irrevocable proxy (effective until September 24, 2001) in
favor of Nicholas Robinson, the Company's Chief Executive Officer, to vote
all its Common Stock in his discretion. Mr. Robinson may be deemed to be
the beneficial owner of these shares.
(3) Represents shares owned directly by Wye Investments, which shares could be
deemed to be beneficially owned by Mr. Herman as General Partner of Wye
Investments. Mr. Herman, as General Partner of Wye Investments, owns
directly only a 1% in Wye Investments.
(4) Represents shares owned directly by Aspetong Partners, L.P. (formerly The
Paltrow Family Limited Partnership) which shares could be deemed to be
beneficially owned by Mr. Paltrow as General Partner of Aspetong Partners,
L.P. Mr. Paltrow, as General Partner of Aspetong Partners, holds directly
only a 1% interest in Aspetong Partners.
(5) Represents shares issuable pursuant to stock options that may be exercised
within 60 days from December 31, 1996. Such shares are not deemed
outstanding for computing the percentage of beneficial ownership of any
other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
North American Communications, Inc. ("NAC"), an affiliate of the Company,
is one of several suppliers of mailing services and is awarded contracts by the
Company. Robert W. Paltrow, a director of the Company, is General Partner of
Aspetong Partners, L.P. which owns 50% of the issued and outstanding stock of
NAC. Mr. Paltrow also is a director of NAC. For fiscal 1996, the Company
purchased from NAC $4,070,042 in mailing services. NAC assigned to the
Company, effective January 1, 1996, its lease to the Wilmington, Delaware
office. In addition, NAC is a guarantor of the Company's $1,000,000 revolving
line of credit with United States National Bank.
During 1996, certain NAC employees performed services for the Company,
primarily involving sales, accounting and bookkeeping. The Company paid salary
expenses for such NAC employees based upon an estimate of time related to those
services which totaled approximately $51,000 for the year ended December 31,
1996.
In December 1996 the Company purchased from Robert Bzezensky, President of
the Company, and Steven Gasner, Vice President of the Company, 960,000 shares of
Common Stock each for $150,000.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following financial statements are files as a part of this report:
Page
----
Report of Independent Public Accountants.......................... 12
Report of Independent Public Accountants.......................... 13
Consolidated Financial Statements:
Balance Sheets as of December 31, 1996 and 1995................. 14
Statements of Operations for the years ended December 31, 1996,
1995 and 1994.............................................. 15
Statements of Shareholders' Equity for the years ended December
31, 1996, 1995 and 1994.................................... 16
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.............................................. 17
Notes to Consolidated Financial Statements...................... 18
(A) 2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of this
report:
Page
----
II Valuation of Qualifying Accounts.............................. 34
All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes
thereto.
<TABLE>
<CAPTION>
(a)(3) Exhibits: Page
-------- ----
<S> <C>
3.1 Certificate of Incorporation and Certificate
of Ownership and Merger have been filed with
the Company's Form 10-K on April 20, 1990 and
are hereby incorporated by reference N/A
3.2 Bylaws of the Corporation already have been
filed with the Company's prior Registration
Statement effective May 18, 1989 and are
hereby incorporated by reference N/A
4.1 Form of Common Stock Certificate (specimen)
has been filed with the Company's Registration
Statement effective May 18, 1989, and is hereby
incorporated by reference N/A
10.1 Office Lease Agreement between Lakeview Savings
Bank and the Company with regard to the
West Paterson, New Jersey office has been filed
with the Company's Form 10-K for the year ended
December 31, 1994 and is hereby incorporated
by reference N/A
10.2 Office Lease Agreement between Garrett Mountain 46
Office Center Associates-I and the Company, with
regard to the West Paterson, New Jersey office.
11.1 Statement regarding the computation of per-share
earnings is included in Note 12 to Financial
Statements on sequentially numbered page __and
is hereby incorporated by reference N/A
21 List of Subsidiaries 78
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
27 Financial Data Schedule (filed herewith) ___
(b) The Company filed the following reports on Form 8-K during the fourth
quarter of 1996: (i) A report dated September 30, 1996 concerning the
acquisition of Color Graphics by the Company and the exercise of the
Company's convertible debenture by First Commercial and Finance Corp.,
Establishment and (ii) a report dated December 18, 1996 concerning the
stock purchase agreements between the Company and Robert Bzezensky and
Steven Gasner.
</TABLE>
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTH AMERICAN INTEGRATED MARKETING, INC.
By: /s/Nicholas Robinson
-------------------------------
Nicholas Robinson March 31, 1997
Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title Date
----- ----
<S> <C> <C>
By: /s/Robert J. Bzezensky President March 31, 1997
-------------------------------
Robert J. Bzezensky
By: /s/Nicholas Robinson Chief Executive Officer, March 31, 1997
---------------------------------
Nicholas Robinson Chairman of the Board
By: /s/ Robert W. Paltrow Director, March 31, 1997
---------------------------------
Robert W. Paltrow Secretary/Treasurer
</TABLE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
Filed herewith is the form of proxy sent to the Company's shareholders
pursuant to its annual meeting in August 1996.
-19-
<PAGE>
SCHEDULE II
NORTH AMERICAN INTEGRATED MARKETING, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED BALANCE AT
CLASSIFICATION OF PERIOD TO OPERATIONS WRITE OFFS END OF PERIOD
- -------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEAR ENDED:
DECEMBER 31, 1994 $ 7,267 $41,390 ($22,490) $26,167
===== ====== ======= ======
DECEMBER 31, 1995 $26,167 $21,000 ($18,074) $29,093
====== ====== ====== ======
DECEMBER 31, 1996 $29,093 $24,000 $0 $53,093
====== ====== = ======
</TABLE>
-34-
<PAGE>
EXHIBIT 10.2
------------
LEASE
BY AND BETWEEN
GARRET MOUNTAIN OFFICE CENTER ASSOCIATES-I, Landlord
-and-
NORTH AMERICAN INTEGRATED MARKETING, INC., Tenant
Dated: February 21, 1997
-----------
46
<PAGE>
INTENTIONALLY LEFT BLANK
47
<PAGE>
Garret Mountain Office Center Associates-I, c/o Mountain Development
Corp., Managing Agent, 3 Garret Mountain Plaza, West Paterson, New Jersey 07424
(hereinafter referred to as "Landlord"), and North American Integrated
Marketing, Inc., a corporation of the State of Delaware, whose address is 999
McBride Avenue, West Paterson, New Jersey 07424 (hereinafter referred to as
"Tenant").
PREAMBLE
BASIC LEASE PROVISIONS AND DEFINITIONS
In addition to other terms elsewhere defined in this Lease, the following terms
whenever used in this Lease should have only the meanings set forth in this
Section, unless such meanings are expressly modified, limited or expanded
elsewhere herein.
(1) Additional Rent: All sums in addition to Term Basic Rent payable
by Tenant to Landlord pursuant to the provisions of this Lease.
(2) Base Period Costs: As to the following:
(A) Base Operating Costs: Those costs incurred during Calendar
Year 1997.
(B) Base Real Estate Taxes: Those Real Estate Taxes assessed
against the Building and Office Building Area during
Calendar Year 1997.
(3) Broker: Cushman and Wakefield of New Jersey, Inc.
(4) Building: The building located at 3 Garret Mountain Plaza, West
Paterson, New Jersey.
(5) Building Holidays: Those shown on Exhibit E.
(6) Commencement Date: March 1, 1997 and shall for purposes hereof
be subject to Sections 26 and 41 hereof.
(7) Demised Premises or Premises: Approximately 9337 gross rentable
square feet on the second floor as shown on Exhibit A hereto,
which includes an allocable share of the Common Facilities as
defined in Subsection 40(B).
(8) Expiration Date: At 11:59 p.m. on the day immediately preceding
the sixty third (63rd) month anniversary of the Commencement
Date.
(9) Exhibits: The following Exhibits attached to this Lease are
incorporated herein and made a part hereof:
Exhibit A Premises
Exhibit B Rules and Regulations
Exhibit C Landlord's Work
Exhibit D Cleaning Services
Exhibit E Building Holidays
(10) Term Basic Rent: Seven Hundred Ninety Three Thousand Six Hundred
Forty Five and 00/100 ($793,645.00) Dollars.
48
<PAGE>
(A) Annual Basic Rent:
One Hundred Forty Nine Thousand Three Hundred Ninety Two and
00/100 ($149,392.00) Dollars during months Four (4)
through Fifteen (15) of the Lease Term;
One Hundred Fifty Four Thousand Sixty and 50/100 ($154,060.50)
Dollars during months Sixteen (16) through Twenty Seven
(27) of the Lease Term;
One Hundred Fifty Eight Thousand Seven Hundred Twenty Nine and
00/100 ($158,729.00) Dollars during months Twenty Eight
(28) through Thirty Nine (39) of the Lease Term;
One Hundred Sixty Three Thousand Three Hundred Ninety Seven and
50/100 ($163,397.50) Dollars during months Forty (40)
through Fifty One (51) of the Lease Term;
One Hundred Sixty Eight Thousand Sixty Six and 00/100
($168,066.00) Dollars during months Fifty Two (52) through
Sixty Three (63) of the Lease Term;
(B) Monthly Basic Rent:
Twelve Thousand Four Hundred Forty Nine and 33/100 ($12,449.3)
Dollars during months Four (4) through Fifteen (15) of the
Lease Term;
Twelve Thousand Eight Hundred Thirty Eight and 38/100
($12,838.38) Dollars during months Sixteen (16) through
Twenty Seven (27) of the Lease Term;
Thirteen Thousand Two Hundred Twenty Seven and 42/100
($13,227.42) Dollars during months Twenty Eight (28)
through Thirty Nine (39) of the Lease Term;
Thirteen Thousand Six Hundred Sixteen and 46/100 ($13,616.46)
Dollars during months Forty (40) through Fifty One (51) of
the Lease Term;
Fourteen Thousand Five and 50/100 ($14,005.50) Dollars during
months Fifty Two (52) through Sixty Three (63) of the
Lease Term;
(11) Tenant's Percentage: 7.5 (%) percent subject to adjustment as
provided for in Subsection 40(A).
(12) Office Building Area: Lot 1, Block 32, on the tax map of the
Borough of West Paterson, Passaic County, New Jersey.
(13) Parking Spaces: Tenant shall be granted the right to park Twenty
Four (24) cars in the Building's unreserved parking areas and
the right to park Eight (8) cars in the Building's assigned
parking areas, which Eight (8) spaces shall be reserved and
assigned by Landlord and at least Five (5) of which (the
reserved spaces) shall be under the covered section of the
Building.
(14) Permitted Uses: Administrative office use and nothing else.
(15) Security Deposit: Thirty Six Thousand Five Hundred and 00/100
($36,500) Dollars, of which, provided Tenant is not in default
of any of the terms and conditions of the Lease, Eleven Thousand
Six Hundred Thirty Six and 29/100 ($11,636.29) Dollars shall be
returned to Tenant as a credit against Rent due for the
thirteenth lease month and further of which, if Tenant is not in
default of any of the terms and conditions of the Lease, an
additional Eleven Thousand Six Hundred Thirty Six and 29/100
($11,636.29) Dollars shall be returned to Tenant as a credit
against Rent due for the twenty fifth lease month leaving a
balance of Thirteen Thousand Two Hundred Twenty Seven and 42/100
($13,227.42) Dollars for the remainder of the Term.
(16) Term: Sixty Three (63) months from the Commencement Date.
(17) Rent Concession: Provided Tenant is not in default of any of the
terms and conditions of this Lease, Tenant shall be permitted
to use and occupy the premises for the first three (3) months of
the Lease Term without the obligation to pay Monthly Basic Rent
to Landlord although Tenant shall be
49
<PAGE>
required to pay all other sums due and owing to Landlord under
this Lease (specifically including electric charges).
(18) Electric Charges: Tenant shall pay to Landlord the sum of Eleven
Thousand Six Hundred Seventy One and 25/100 ($11,671.25) Dollars
per annum in equal monthly installments of Nine Hundred Seventy
Two and 60/100 ($972.60) Dollars on account of electric
consumption in the Premises. Such charges shall be subject to
survey as described herein.
(19) Option to Renew: Tenant shall be granted the one (1) time right
to renew this Lease for an additional term of Five (5) years
upon the same term and conditions as contained in this Lease
except that Basic Rent shall be calculated at the rate of
Nineteen ($19.00) Dollars per rentable square foot in the first
lease year of the renewal term, Twenty ($20.00) Dollars per
rentable square foot per annum during the second lease year of
the renewal term and Twenty One ($21.00) Dollars per rentable
square foot per annum during the third, fourth and fifth lease
years of the renewal term and there shall be no rent concession
to Tenant and no obligation by Landlord to provide any
improvements to the Premises. This Renewal Option is conditioned
upon both of the following (a) Tenant shall exercise its option
to renew by delivering to Landlord written notice of same at
least one year prior to the expiration date of the Lease Term
and (b) provided that Tenant is not in default of any of the
terms and conditions of this Lease.
(20) Right of First Refusal: Provided this Lease is in full force and
effect without default by Tenant, Landlord agrees that prior to
renting the suite currently let to Cytec Industries Inc., more
particularly described on attached Exhibit "F", Landlord will
submit to Tenant a copy of the terms of the proposed lease which
Landlord is willing to accept from the third party (the "Offered
Terms Sheet"). On or before the fifth business day after the
date of such submission, Tenant will have the right (the "First
Refusal Right") to send Landlord notice stating that Tenant
elects to rent the First Refusal Space upon the identical terms
and conditions set forth in the Offered Terms Sheet. Such notice
shall be postmarked within the five day period and sent in
accordance with the provisions of this Lease.
If Tenant duly and timely exercises the First
Refusal Right Landlord and Tenant will promptly enter into a
lease for the First Refusal Space (the "New Lease") based upon
the Terms of the Offered Term Sheet, and where applicable and not
in conflict with the Offered Term Sheet, the terms of this Lease.
If for any reason, Tenant fails to duly and timely exercise the
First Refusal Right, or if Tenant properly exercises it but
thereafter, for any reason, other than Landlord's fault, does not
timely enter into the New Lease, Landlord shall be free to rent
the First Refusal Space to another tenant on the basis set forth
on the Offered Term Sheet and the First Refusal Right and the
Landlord's obligation under this section shall be null and void
and without further force and effect throughout the remainder of
the term of this Lease and any extensions thereof.
Tenant agrees that any default under this Lease
shall be deemed a default under the New Lease.
WITNESSETH:
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Landlord and Tenant agree as follows:
1. DESCRIPTION. Landlord hereby leases to Tenant hereby hires from
Landlord, the Demised Premises as defined in the Preamble (hereinafter called
"Demised Premises" or "Premises") which includes an allocable share of the
Common Facilities, as shown on the plan or plans, initialed by the parties
hereto, marked Exhibit A attached hereto and made part of this Lease in the
Building as defined in the Preamble (hereinafter called the "Building"), which
is situated
50
<PAGE>
on the office Building Area as defined in the Preamble (hereinafter called
"Office Building Area"), together with the right to use in common with other
tenants of the Building, their invitees, customers and employees, those public
areas of the Common Facilities as hereinafter defined.
2. TERM. The Premises are leased for the Term to commence on the
Commencement Date, and to end at 11:59 p.m. on the Expiration Date, all as
defined in the Preamble.
3. BASIC RENT. The Tenant shall pay to Landlord during the Term the
Term Basic Rent as defined in the Preamble (hereinafter called "Term Basic
Rent"), payable in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts. The Term Basic Rent shall accrue at the Annual Basic Rent rate as defined
in the Preamble and shall be payable in advance on the first day of each
calendar month during the Term in monthly installments of Monthly Basic Rent as
defined in the preamble, except that a proportionately lesser sum may be paid
for the first and last months of the Term of this Lease if the Term commences on
a day other than the first day of the month, in accordance with the provisions
of this Lease herein set forth. Landlord acknowledges receipt from Tenant of the
first installment of Monthly Basic Rent by check, subject to collection, for the
first month of the Lease Term. Tenant shall pay Basic Rent, and any Additional
Rent as hereinafter provided, to Landlord at Landlord's above stated address, or
at such other place as Landlord may designate in writing, without demand and
without counterclaim, deduction or set off. As used in this Lease, Basic Rent
shall mean either Term Basic Rent, Annual Basic Rent or Monthly Basic Rent, as
appropriate.
4. USE AND OCCUPANCY. Tenant shall use and occupy Premises for the
Permitted Use as defined in the Preamble and for no other purpose.
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL. Tenant covenants to
commit no act of waste and to take good care of the Premises and the fixtures
and appurtenances thereon, and shall, in the use and occupancy of the Premises
comply with all laws, orders and regulations of the federal, state and municipal
governments or any of their departments affecting the Premises and with any and
all environmental requirements resulting from the Tenant's use of the Premises;
this covenant to survive the expiration or sooner termination of the Lease.
Landlord shall, at Tenant's expense, make all necessary repairs to the Premises.
Landlord shall make all necessary repairs to the Common Facilities, to include
the structural portions of the Building and to the Building systems (including
the heating, ventilating and air conditioning, electrical and plumbing lines)
unless said systems service only the Premises, and to the parking areas, if any,
except where the repair has been made necessary by misuse or neglect by Tenant
or Tenant's agents, servants, visitors or licensees, in which event Landlord
shall nevertheless make the repair but Tenant shall pay to Landlord, as
Additional Rent, immediately upon demand, the cost therefor. All improvements
made by Tenant to the Premises, which are so attached to the Premises that they
cannot be removed without material injury to the Premises, shall become the
property of Landlord upon installation, whether paid for in whole or in part by
Tenant shall be and remain a part of the Premises and the property of Landlord.
Not later than the last day of the Term, Tenant shall, at Tenant's expense,
remove all Tenant's personal property and those improvements made by Tenant
which have not become the property of Landlord, including trade fixtures,
cabinetwork, movable paneling, partitions and the like and repair all injury
done by or in connection with the installation or removal of said property and
improvements; and surrender the Premises in as good condition as they were at
the beginning of the Term, reasonable wear and damage by fire, the elements
casualty, or other cause not due to the misuse or neglect by Tenant, Tenant's
agents, servants, visitors or licenses excepted. All other property of Tenant
remaining on the Premises after the last day of the Term of this Lease shall be
conclusively deemed abandoned and may be removed by Landlord, and Tenant shall
reimburse Landlord for the cost of such removal. Landlord may have any such
property stored at Tenant's risk and expense.
Tenant acknowledges the existence of environmental laws, rules and
regulations, including but no limited to the provisions of ISRA, as hereinafter
defined. Tenant shall comply with any and all such laws, rules and regulations.
Tenant represents to Landlord that Tenant's Standard Industrial Classification
(SIC) Number as designated in the Standard Industrial Classification Manual
prepared by the Office of Management and Budget in the Executive Office of the
President of the United States will not subject the Premises to ISRA
applicability. Any change by Tenant
51
<PAGE>
to an operation with an SIC Number subject to ISRA shall require Landlord's
written consent. Any such proposed change shall be sent in writing to Landlord
sixty (60) days prior to the proposed change. Landlord, at its sole option, may
deny consent.
Tenant hereby agrees to execute such documents as Landlord reasonably
deems necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Tenant shall bear all costs and expenses incurred
by Landlord associated with any required ISRA compliance resulting from Tenant's
use of the Demised Premises including but not limited to state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority. The foregoing
undertaking shall survive the termination or sooner expiration of the Lease and
surrender of the Demised Premises and shall also survive sale, or lease or
assignment of the Demised Premises by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from any violation of ISRA occasioned by Tenant's use of
the Demised Premises. The Tenant shall immediately provide the Landlord with
copies of all correspondence, reports, notices, orders, findings, declarations
and other materials pertinent to the Tenant's compliance and the requirements of
the New Jersey Department of Environmental Protection and Energy ("NJDEPE")
under ISRA as they are issued or received by the Tenant.
Tenant agrees not to generate, store, manufacture, refine, transport,
treat, dispose of, or otherwise permit to the present on or about the Premises,
any Hazardous Substances. As used herein, Hazardous Substances shall be defined
as any "hazardous chemical," "hazardous substance" or similar term as defined in
the Comprehensive Environmental Responsibility Compensation and Liability Act,
as amended (42 U.S.C. 9601, et seq.), the New Jersey Environmental Cleanup
------
Responsibility Act, as amended, N.J.S.A. 13:1K-6 et seq. and/or the Industrial
------
Site Recovery Act ("ISRA"), the New Jersey Spill Compensation and Control Act,
as amended, N.J.S.A. 58:10-23.11b, et seq., ant rules or regulations promulgated
------
thereunder, or in any other applicable federal, state or local law, rule or
regulation dealing with environmental protection. It is understood and agreed
that the provisions contained in this Section shall be applicable
notwithstanding the fact that any substance shall not be deemed to be a
Hazardous Substance at the time of its use by the Tenant but shall thereafter be
deemed to be a Hazardous Substance.
In the event Tenant fails to comply with ISRA as stated in this Section
or any other governmental law as of the termination or sooner expiration of the
lease and as a consequence thereof Landlord is unable to rent the Demised
Premises, then the Landlord shall treat the Tenant as one who has not removed at
the end of its Term, and thereupon be entitle to all remedies against the Tenant
provided by law in that situation including a monthly rental of two hundred
(200%) percent of the Monthly Basic Rent for the last month of the Term of this
Lease or any renewal term, payable in advance on the first day of each month,
until such time as Tenant provides Landlord with a negative declaration or
confirmation that any required clean-up has been successfully completed.
Tenant agrees to indemnify and hold harmless the Landlord and each
mortgagee of the Premises from and against any and all liabilities, damages,
claims, losses, judgments, causes of action, costs and expenses (including the
reasonable fees and expenses of counsel) which may be incurred by the Landlord
or any such mortgagee or threatened against the Landlord or such mortgagee,
relating to or arising out of any breach by Tenant of the undertakings set forth
in this Section, said indemnity to survive the Lease expiration or sooner
termination.
6. ALTERATIONS ADDITIONS OR IMPROVEMENTS. Tenant shall not, without
first obtaining the written consent of Landlord, make any alterations, additions
or improvements in, to or about the Premises.
7. ASSIGNMENT AND SUBLEASE. Tenant may not mortgage, pledge,
hypothecate, assign, transfer, sublet or otherwise deal with this Lease or the
Premises in any manner except as specifically provided for in this Section 7:
(A) In the event that Tenant desires to sublease the whole or
any portion of the Premises or assign the within Lease to any other
party, the terms and conditions of such sublease or assignment shall be
communicated to Landlord in writing not less than thirty (30) days
prior to the effective date
52
<PAGE>
of any such sublease or assignment, and, prior to such effective date,
Landlord shall have the option, exercisable in writing to Tenant, to
recapture the within Lease so that such prospective subtenant or
assignee shall then become the sole Tenant of Landlord hereunder, or
alternatively to recapture said space, and the within Tenant shall be
fully released from any and all obligations hereunder.
(B) In the event that Landlord elects not to recapture the Lease
as hereinabove provided, Tenant may nevertheless assign this lease or
sublet the whole or any portion of the Premises, subject to Landlord's
prior written consent, which consent shall not be unreasonably
withheld, and subject to the consent of any mortgagee, trust deed
holder or ground Landlord, on the he basis of the following terms and
conditions.
(1) The Tenant shall provide to Landlord the name and
address of the assignee or Subtenant and complete audited financial
statement of the proposed subtenant or assignee. Such subtenant and
assignee shall be of a financial condition and character acceptable to
Landlord.
(2) The assignee shall assume, by written instrument,
all of the obligations of this Lease, and a copy of such assumption
agreement shall be furnished to Landlord within ten (10) days of its
execution. Any sublease shall expressly acknowledge that said
Subtenant's rights against the Landlord shall be no greater than those
of the Tenant.
(3) The Tenant and each assignee shall be and remain
liable for the observance of all the covenants and provisions of this
Lease, including, but not limited to, the payment of Term Basic Rent
and Additional Rent reserved herein, as and when required to be paid,
through the entire Term of this Lease, as the same may be renewed,
extended or otherwise modified.
(4) The Tenant and any assignee shall promptly pay to
Landlord any consideration received for any assignment or all of the
Rent (Basic and Additional), as and when received, in excess of the
Term Basic Rent and Additional Rent required to be paid by Tenant for
the period affected by said assignment or sublease for the area sublet,
computed on the basis of an average square foot rent for the gross
square footage Tenant has leased.
(5) In any event, the acceptance by Landlord of any
Rent (Basic and Additional) from the assignee or from any of the
subtenants or the failure of Landlord to insist upon a strict
performance of any of the terms, conditions and covenants herein shall
not release Tenant herein, nor any assignee assuming this Lease, from
any and all of the obligations herein during and for the entire Term of
this Lease.
(6) Landlord shall require a Five Hundred and 00/100
($500.00) Dollar payment to cover its handling charges for each request
for consent to any sublet or assignment prior to its consideration of
the same.
(7) Tenant shall have no claim, and hereby waives the
right to any claim, against Landlord for money damages by reason of any
refusal, withholding or delaying by Landlord of any consent, and in
such event, Tenant's only remedies therefor shall be an action for
specific performance, injunction or declaratory judgment to enforce any
such requirement.
(C) sublet or assignment to an affiliated company, shall not be
subject to the provisions of Subsections 7(A), 7(B)(4) or 7(B)(6)
hereof and shall not require Landlord's prior written consent, but all
other provisions of this Section shall apply.
(D) In the event that any or all of Tenant's interest in the
Premises and/or this Lease is transferred by operation of law to any
trustee, receiver, or other representative or agent of Tenant, or to
Tenant as a debtor in possession, and subsequently any or all of
Tenant's interest in the Premises
53
<PAGE>
and/or this Lease is offered or to be offered by Tenant or any trustee,
receiver, or other representative or agent of Tenant as to its estate
or property (such person, firm or entity being hereinafter referred to
as the "Grantor"), for assignment, conveyance, lease, or other
disposition to a person, firm or entity other than Landlord (each such
transaction being hereinafter referred to as a "Disposition"), it is
agreed that Landlord has and shall have a right of first refusal to
purchase, take, or otherwise acquire, the same upon the same terms and
conditions as the Grantor thereof shall accept upon such Disposition or
such other person, firm, or entity; and as to each such Disposition the
Grantor shall give written notice to Landlord in reasonable detail of
all of the terms and conditions of such Disposition within twenty (20)
days next following its determination to accept the same but prior to
accepting the same, and Grantor shall not make the Disposition until
and unless Landlord has failed or refused to accept such right of first
refusal as to the Disposition, as set forth herein.
Landlord shall have sixty (60) days next following its
receipt of the written notice as to such Disposition in which to
exercise the option to acquire Tenant's interest by such Disposition,
and the exercise of the option by Landlord shall be effected by notice
to that effect sent to the Grantor; but nothing herein shall require
Landlord to accept a particular Disposition or any Disposition, nor
does the rejection of any one such offer of first refusal constitute a
waiver or release of the obligation of the Grantor to submit other
offers hereunder to Landlord. In the event Landlord accepts such offer
of first refusal, the transaction shall be consummated pursuant to the
terms and conditions of the Disposition described in the notice to
Landlord. In the event Landlord rejects such offer of first refusal,
Grantor may consummate the Disposition with such other person, firm, or
entity; but any decrease in price in the terms of payment for such
Disposition shall constitute a new transaction requiring a further
option of first refusal to be given to Landlord hereunder.
(E) Without limiting any of the provisions of Sections 11 and
12, if pursuant to the Federal Bankruptcy Code (herein the "Code"), or
any similar law hereafter enacted having the same general purpose,
Landlord declines the right provided it in Subsection 7(D) hereof and
Tenant is permitted to assign this Lease notwithstanding the
restrictions contained in this Lease, adequate assurance of future
performance by an assignee expressly permitted under such Code shall be
deemed to mean the deposit of cash security in an amount equal to one
(1) year's Annual Basic Rent and Additional Rent for the next
succeeding twelve (12) months (which Additional Rent shall be
reasonably estimated by Landlord), which deposit shall be held by
Landlord for the balance of the Term, without interest, as security for
the full performance of all of Tenant's obligations under this Lease,
to be held and applied in the manner specified for security in
Section 15.
(F) Except as specifically set forth above, no portion of the
Demised Premises or of Tenant's interest in this Lease may be acquired
by any other person or entity, whether by assignment, mortgage,
sublease, transfer, operation of law or act of the Tenant, nor shall
Tenant pledge its interest in this Lease or in any security deposit
required hereunder.
(G) If Tenant is a corporation and if at any time during the
Lease Term the persons owning a majority of its "voting stock" at the
time of the execution of this Lease should cease to own a majority of
such voting stock except as the result of transfers by bequest or
inheritance), Tenant covenants to notify Landlord of any such transfer
and such transfer shall be deemed an assignment of this Lease. In the
event of such transfer, Landlord may either (a) not unreasonably
withhold its consent thereto or (b) terminate this Lease by notice to
Tenant to be effective ninety (90) days after service. This Section
shall not apply whenever Tenant is a corporation, the outstanding stock
of which is listed on a recognized stock exchange, trades by the
interdealer quotation system or on an OTC basis. For the purposes of
this Section 7(G), stock ownership shall be determined in a accordance
with the principles set forth in Section 544 of the Internal Revenue
Code of 1986, as amended, to and including the date of this Lease, and
the term "voting stock" shall refer to shares of stock regularly
entitled to vote for the election of directors of the corporation.
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8. COMPLIANCE WITH RULES AND REGULATIONS. Tenant shall observe and
comply with the rules and regulations hereinafter set forth in Exhibit B
attached hereto and made a part hereof and with such further reasonable rules
and regulations as Landlord may prescribe, on written notice to Tenant, for the
safety, care and cleanliness of the Building and the comfort, quiet and
convenience of other occupants of the Building.
9. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is
damaged by fire or any other cause to such extent that the cost of restoration,
as reasonably estimated by Landlord, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (exclusive of foundations) just
prior to the occurrence of the damage or if any damage to the Premises costing
more than Fifty Thousand and 00/100 $50,000.00 Dollars occurs within the last
twelve (12) months of the Term, then Landlord may, no later than the sixtieth
(60th) day following the damage, give Tenant a notice of election to terminate
this Lease, or, if the cost of restoration will equal or exceed fifty (50%)
percent of such replacement value and if the Premises shall not be reasonably
usable for the purpose for which they are leased hereunder, then Tenant may, no
later than the sixtieth (60th) day following the damage, give Landlord a notice
of election to terminate this Lease. In either said event of election, this
Lease shall be deemed to terminate on the thirtieth (30th) day after the giving
of said notice, and Tenant shall surrender possession of the Premises within a
reasonable time thereafter; and the Term Basic Rent and any Additional Rent
shall be apportioned as of the date of said surrender, and any Term Basic Rent
or any Additional Rent paid for any period beyond the latter of the thirtieth
(30th) day after said notice or the date Tenant surrenders possession shall be
repaid to Tenant. If the cost of restoration shall not entitle Landlord to
terminate this Lease or if, despite the cost, Landlord does not elect to
terminate this Lease pursuant to any right contained herein or if Landlord shall
have no such right, Landlord shall restore the Building and the Premises with
reasonable promptness, subject to force Majeure, as hereinafter defined and
subject to the availability and adequacy of the insurance proceeds and Tenant
shall have no right to terminate this Lease, except as specifically set forth
above. Landlord need not restore fixtures and improvements owned by Tenant.
In any case in which use of the Premises is affected by
any damage to the Building, there shall be either an abatement or an equitable
reduction in Term Basic Rent and an equitable reduction in the Base Period Costs
as established in Section 22 depending on the period for which and the extent to
which the Premises are not reasonably usable for the purpose for which they are
leased hereunder. The words "restoration" and "restore" as used in this Section
shall include repairs. If the damage results from the fault of Tenant, or
Tenant's agents, servants, visitors or licensees, Tenant shall not be entitled
to any abatement or reduction in Term Basic Rent, except to the extent of any
rent insurance received by Landlord.
Except as provided in Section 5 hereof, notwithstanding
the provisions of this Section of the Lease or any other provision of the Lease,
in the event of any loss or damage to the Building, the Premises and/or any
contents (herein "property damage"), each party waives all claims against the
other for any such loss or damage and each party shall look only to any
insurance which it has obtained to protect against such loss (or in the case of
Tenant, waives all claims against any tenant of the Building that has similarly
waived claims against such Tenant) and each party shall obtain, for each policy
of such insurance, provisions waiving any claims against the other party (and
against any other tenant(s) in the Building that has waived subrogation against
the Tenant) for loss or damage within the scope of such insurance.
10. EMINENT DOMAIN. If Tenant's use of the Premises is materially
affected due to the taking by eminent domain of (a) the Premises or any part
thereof or any estate therein; or (b) any other part of the Building; then, in
either event, this lease shall terminate on the date when title vests pursuant
to such taking. The Term Basic Rent, and any Additional Rent, shall be
apportioned as of said termination date and any Term Basic Rent or Additional
Rent paid for any period beyond said date shall be repaid to Tenant. In the
event of a partial taking which does not effect a termination of this Lease but
does deprive Tenant of the use of a portion of the Demised Premises, there shall
either be an abatement or an equitable reduction of the Term Basic Rent, and an
equitable adjustment reducing the Base Period Costs as hereinafter defined
depending on the period for which and the extent to which the Premises so taken
are not reasonably usable for the purpose for which they are leased hereunder.
Tenant shall not be entitled to any part of the award for such taking or any
payment in lieu thereof, but Tenant may file a separate claim for any taking of
fixtures
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and improvements owned by Tenant which have not become
Landlord's property, and for moving expenses, provided the same shall in no way
affect or diminish Landlord's award.
11. INSOLVENCY OF TENANT. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Tenant, or (b) a
general assignment by Tenant for the benefit of creditors, or (c) any action
taken or suffered by Tenant under any insolvency or bankruptcy act, shall
constitute a default of this Lease by Tenant, and Landlord may terminate this
Lease forthwith and upon notice of such termination Tenant's right to possession
of the Demised Premises shall cease, and Tenant shall then quit and surrender
the Premises to Landlord nut Tenant shall remain liable as hereinafter provided
in Section 13 hereof.
12. LANDLORD'S REMEDIES ON DEFAULT. If Tenant defaults in the payment
of Term Basic Rent, or any Additional Rent, or defaults pursuant to Subsection
29(A)(5) hereof or defaults in the in the performance of any of the other
covenants and conditions hereof or permits the Premises to become deserted,
abandoned or vacated, Landlord may give Tenant notice of such default, and if
Tenant does not cure any Term Basic Rent or Additional Rent default within five
(5) days of the giving of such notice or the default pursuant to Subsection
29(A)(5) within forty-eight (48) hours of the giving of such other default is of
such nature that it cannot be completely cured within such period, if Tenant
does not commence such curing within fifteen (15) days after giving of such
notice (or if such other default is of such nature that it cannot be completely
cured within such period, if Tenant does not commence such curing within such
fifteen (15) days thereafter proceed with reasonable diligence and in good faith
to cure such default), then Landlord may terminate this Lease on not less than
ten (10) day's notice to Tenant, and on the date specified in said notice,
Tenant's right to possession of the Demised Premises shall cease, and Tenant
shall then quit and surrender the Premises to Landlord, but Tenant shall remain
liable as hereinafter provided. If this Lease shall have been so terminated by
Landlord pursuant to Sections 11 or 12 hereof, Landlord may at any time
thereafter resume possession of the Premises by any lawful means and remove
Tenant or other occupants and their effects.
13. DEFICIENCY. In any case where Landlord has recovered possession
of the Premises by reason of Tenant's default, Landlord may, at Landlord's
option, occupy the Premises or cause the Premises to be redecorated, altered,
divided, consolidated with other adjoining premises, or otherwise changed or
prepared for reletting, and may relet the Premises or any part thereof as agent
of Tenant or otherwise, for a term or terms to expire prior to, at the same time
as, or subsequent to, the original expiration date of this Lease, at Landlord's
option, and receive the Term Basic Rent or Additional Rent therefor. Term Basic
Rent and Additional Rent so received shall be applied first to the payment of
such expenses as Landlord may have incurred in connection with the recovery of
possession, redecorating, altering, dividing, consolidating with other adjoining
premises, or otherwise changing or preparing for reletting, and the reletting,
including brokerage and reasonable attorney's fees, and then to the payment of
damages in amounts equal to the Term Basic Rent and Additional Rent hereunder
and to the costs and expenses of performance of the other covenants of Tenant as
herein provided. Tenant agrees, in any such case, whether or not Landlord has
relet, to pay to Landlord damages equal to the Term Basic Rent and Additional
Rent and other sums herein agreed to be paid by Tenant, as and when due, less
the net proceeds of the reletting, if any, as ascertained from time to time, as
of the due date, and the same shall be payable by Tenant on the several rent
days above specified, Tenant shall not be entitled to any surplus accruing as a
result of any such reletting, nor shall any surplus be applied to offset the
damages referred to in the preceding sentence. In reletting the Premises as
aforesaid, Landlord may grant rent concessions, and Tenant shall not be credited
therewith. No such reletting shall constitute a surrender and acceptance or be
deemed evidence thereof. If Landlord elects, pursuant hereto, actually to occupy
and use the Premises or any part thereof during any part of the balance of the
Term as originally fixed or since extended, there shall be allowed against
Tenant's obligation for Term Basic Rent or Additional Rent or damages herein
defined, during the period of Landlord's occupancy, the reasonable value of such
occupancy, not to exceed in any event the Term Basic Rent and Additional Rent
herein reserved and such occupancy shall not be construed as a release of
Tenant's liability hereunder.
Alternatively, in any case where Landlord has recovered
possession of the Premises by reason of Tenant's default, Landlord may at
Landlord's option, and at any time thereafter, and without notice or other
action by Landlord, and without prejudice to any other rights or remedies it
might have hereunder or at law or equity, become entitled to recover from
Tenant, as damages for such breach, in addition to such other sums herein agreed
to be paid by
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Tenant, to the date of re-entry, expiration and/or dispossess, an amount equal
to the difference between the Term Basic Rent and Additional Rent reserved in
this Lease from the date of such default to the date of expiration of the Term
demised, as the same may have been extended or renewed, and the then fair and
reasonable rental value of the Premises for the same period. Said damages shall
become due and payable to Landlord immediately upon such breach of this Lease
and without regard to whether this Lease be terminated or not, and computation
of such damages, the difference between any installments of rent (basic and
additional) thereafter becoming due and the fair and reasonable rental value of
the Premises for the period for which such installment was payable shall be
discounted to the date of such default at the rate of not more than four (4%)
percent per annum.
Tenant hereby waives all right of redemption to which
Tenant or any person under Tenant might be entitled by any law now or hereafter
in force. In addition, in the event of a default which results in the Landlord
recovering possession of the Demised Premises, Landlord shall be under no duty
to mitigate Tenant's damages as provided for in this Section 13.
Landlord's remedies hereunder are in addition to any remedy
allowed by law.
Tenant agrees to pay, as Additional Rent, all attorney's
fees and other expenses incurred by the Landlord in enforcing any of the
obligations under this Lease, this covenant to survive the expiration or sooner
termination of this Lease.
14. SUBORDINATION OF LEASE. This Lease and any option contained
herein shall, at Landlord's option, or at the option of any holder of any
underlying lease or holder of any first mortgage or first trust deed, be subject
and subordinate to any such underlying leases and to any such first mortgage or
first trust deed which may now or hereafter affect the real property of which
the Premises form a part, and also to all renewals, modifications,
consolidations and replacements of said underlying leases and said first
mortgage or first trust deed. Although no instrument or act on the part of
Tenant shall be necessary to effectuate such subordination, Tenant will
nevertheless, execute and deliver such further instruments confirming such
subordination of this Lease as may be desired by the holders of said first
mortgage or first trust deed or by and of the Landlords under such underlying
leases. Tenant hereby appoints Landlord attorney-in-fact, irrevocably, to
execute and deliver any such instrument for Tenant. If any underlying lease to
which this Lease is subject terminates, Tenant shall, on timely request, attorn
to the owner of the reversion.
15. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the
signing of this Lease the Security Deposit as defined in the Preamble for the
full and faithful performance of Tenant's obligations under this Lease,
including without limitation, the surrender of possession of the Premises to
Landlord as herein provided. If Landlord applies any part of said deposit to
cure any default of Tenant, Tenant shall on demand deposit with Landlord the
amount so applied so that Landlord shall have the full deposit on hand at all
times during the Term of this Lease. In the event of a bona fide sale, subject
to this Lease, Landlord shall have the right to transfer the security to the
vendee and Landlord shall be considered released by Tenant from all liability
for the return of such security; and Tenant agrees to look solely to the new
Landlord for the return of the said security, and it is agreed that this shall
apply to every transfer or assignment made of the security to a new Landlord.
The Security Deposit, plus any interest accrued thereupon, (less any portions
thereof used applied or retained by Landlord in accordance with the provisions
of this Section 15), shall be returned to Tenant provided Tenant has fully and
faithfully complied with this Lease throughout its Term in accordance with the
provisions of this Lease. Tenant covenants that it will not assign or encumber
or attempt to assign or encumber the Security Deposit and Landlord shall not be
bound by any such assignment, encumbrance or attempt thereof.
In the event of the insolvency of Tenant, or in the event
of the entry of a judgment in bankruptcy in any court against Tenant which is
not discharged within thirty (30) days after entry, or in the event a petition
is filed by or against Tenant under any chapter of the bankruptcy laws of the
State of New Jersey or the United States of America, then in such event,
Landlord may require the Tenant to deposit additional security in the amount
specified in Section 7(E) to adequately assure Tenant's performance of all of
its obligations under this Lease including all payments
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subsequently accruing. Failure to Tenant to deposit the security required by
this Section with ten (10) days after Landlord's written demand shall constitute
a material breach of this Lease by Tenant.
16. RIGHT TO CURE TENANT'S BREACH. If Tenant breaches any covenant or
condition of this Lease, Landlord may, on reasonable notice Tenant (except that
no notice need be given in case of emergency), cure such breach at the expense
of Tenant and the reasonable amount of all expenses, including reasonable
attorneys' fees, incurred by Landlord in so doing (whether paid by Landlord or
not) shall be deemed Additional Rent payable on demand.
17. MECHANIC'S LIENS. Tenant shall not do any act, or make any
contract, which may create or be the foundation for any lien or other
encumbrance upon any interest of Landlord or any ground or underlying Landlord
in any portion of the Premises. If, because of any act or omission (or alleged
act or omission) of Tenant, any Notice of Intention, mechanic's or other lien,
charge, or order for the payment of money or other encumbrance shall be filed
against Landlord and/or any ground or underlying Landlord and/or any portion of
the Premises (whether or not such lien, charge, order, or encumbrance is valid
or enforceable as such), Tenant shall, at its own cost and expense, cause same
to be discharged of record or bonded within fifteen (15) days after the filing
thereof; and Tenant shall indemnify and save harmless Landlord and all ground
and underlying Landlord(s) against and from all costs, liabilities, suits,
penalties, claims, and demands, including reasonable counsel fees, resulting
therefrom. If Tenant fails to comply with the foregoing provisions, Landlord
shall have the option of discharging or bonding any such lien, charge, order, or
encumbrance, and Tenant agrees to reimburse Landlord for all costs, expenses and
other sums of money in connection therewith (as additional rental) with interest
at the maximum rate permitted by law promptly upon demand. All materialmen,
contractors, artisans, mechanics, laborers, and any other persons now or
hereafter contracting with Tenant of any contractor or subcontractor of Tenant
for the furnishing of any labor services, materials, supplies, or equipment with
respect to any portion of the Premises, at any time from the date hereof until
the end of the Lease Term, and hereby charged with notice that they look
exclusively to Tenant to obtain payment for same.
18. RIGHT TO INSPECT AND REPAIR. Landlord may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this Lease) at any reasonable time on reasonable notice to Tenant (except that
no notice need be given in case of emergency) for the purpose of inspection or
the making of such repairs, replacement or additions, in, to, on and about the
Premises or the Building, as Landlord deems necessary or desirable. Tenant shall
have no claims or cause of action against Landlord by reason thereof.
19. SERVICES TO BE PROVIDED BY LANDLORD. Subject to intervening
laws, ordinances, regulations and executive orders, while Tenant is not in
default under any of the provisions of this Lease, Landlord agrees to furnish,
except on holidays as set forth on Exhibit E attached hereto and made a part
hereof:
(A) The cleaning services, as set forth on Exhibit D
attached hereto and made a part hereof, and subject to the conditions
therein stated. Except as set forth on Exhibit D, Tenant shall pay
the cost of all other cleaning services required by Tenant.
(B) Heating, ventilating and air conditioning (herein
"HVAC"), as appropriate for the season together with Common
Facilities lighting and electric energy all during "Building Hours,"
as hereinafter defined.
(C) Cold and hot water for drinking and lavatory purposes.
(D) Elevator service during Building Hours (if the Building
contains an elevator or elevators for the use of the occupants
thereof).
(E) Restroom supplies and exterior window cleaning when
reasonably required.
20. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of
any service maintained in
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the Building or at the Office Building Area, if caused by Force Majeure, as
hereinafter defined, shall not entitle Tenant to any claim against Landlord or
to any abatement of Term Basic Rent or Additional Rent, and shall not constitute
a constructive or partial eviction, unless Landlord fails to take measures as
may be reasonable under the circumstances to restore the service or if any such
service shall be interrupted for more than thirty (30) days, subject to Force
Majeure. If Landlord fails to take such measures as may be reasonable under the
circumstances to restore the curtailed service, Tenant's remedies shall be
limited to an equitable abatement of Term Basic Rent and Additional Rent for the
duration of the curtailment beyond said reasonable period, to the extend such
Premises are not reasonably usable by Tenant or to a claim of constructive
eviction. If the Premises are rendered untenantable in whole or in part, for a
period of ten (10) consecutive business days, by the making of repairs,
replacements or additions, other than those made with Tenant's consent or caused
by misuse or neglect by Tenant, or Tenant's agents, servants, visitors or
licensees, there shall be a proportionate abatement of Term Basic Rent and
Additional Rent from and after said tenth (10th) consecutive business day and
continuing for the period of such untenantability. In no event shall Tenant be
entitled to claim a constructive eviction from the Premises unless Tenant shall
first have notified Landlord in writing of the condition or conditions giving
rise thereto, and, if the complaints be justified, unless Landlord shall have
failed, within a reasonable time after receipt of such notice, to remedy, or
commence and proceed with due diligence to remedy, such condition or conditions,
all subject to Force Majeure, as hereinafter defined. The remedies provided for
in this Section 20 shall be Tenant's sole remedies for any interruption of
service or use as described above.
21. ELECTRICITY. During the course of this Lease, from time to time,
however not more than once per year, Tenant's consumption of electricity shall
be computed by an independent electrical engineer or consultant retained by
Landlord, after surveying Tenant's electrical equipment (including lights) and
the use thereof. Until such time as such survey is performed, if at all, or
until Tenant decides to purchase electricity directly from the utility company,
if at all, Tenant shall pay Landlord, beginning on the Commencement Date, for
the electricity consumed in the Premises at the rate described in the preamble.
Upon completion of the survey, Landlord and Tenant shall promptly and
retroactively adjust this amount, depending upon the results of such survey. In
the event that the electric rates charged to Landlord are increased, the
Electricity Charge shall be increased as determined by the applicable public
utility rate schedule in effect after such increase, as applied to Tenant's
consumption as set forth herein. Tenant shall immediately notify Landlord of any
additional equipment placed within the Premises, or change in use, which would
in any manner increase Tenant's use of electricity. Landlord shall then conduct
a new survey, at Tenant's expense, to ascertain the amount of the increased
usage. Tenant, solely at its own expense, may arrange for a second survey of its
electric usage. In the event that Owner and Tenant do not agree on the results
of said second survey, the matter shall be submitted to an independent
electrical engineer or consultant chosen by the engineers who conducted the
initial survey (arranged by Landlord) and the second survey (arranged by
Tenant), whose determination shall be final. The cost of such third survey shall
be shared equally by Landlord and Tenant. Tenant covenants and agrees that at
all times its use of electrical current shall not exceed the capacity of
existing feeders to the building or the risers, conduits, or wiring installed in
the building, and Tenant shall 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. Landlord shall
not be liable in any way to Tenant for any failure or defect in the supply or
character of electric service furnished to the Premises by reason of any
requirement, act or omission of the utility company servicing the building or
for any other reason, unless such failure in electric service is caused by the
negligent or intentional act or omission of Owner or any of its employees
agents, servants or contractors. Electrical energy consumed by Tenant in the
Premises may be separately metered and purchased by Tenant directly from the
utility company supplying electricity to the building, at Tenant's option and
cost, subject to Landlord's consent regarding the performance of any
improvements required to effectuate such separate metering.
22. ADDITIONAL RENT. It is expressly agreed that Tenant will pay in
addition to the Term Basic Rent, provided in Section 3 above, an additional
rental to cover Tenant's Percentage, as defined in the Preamble, of the
increased cost to Landlord, for each of the categories enumerated herein, over
the Base Period Costs, as defined in the Preamble, for each of said categories.
(A) Operating Cost Escalation. If during the Lease Term the
Operating Costs incurred for the Building in which the Demised
Premises are located and Office Building Area for
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any Lease Year or proportionate part thereof if the Lease Term
expires prior to the expiration of a Lease Year (herein the
"Comparison Period") shall be greater than the Base Operating Costs
(adjusted proportionately if the Comparison Period is less than a
Lease Year), then Tenant shall pay to Landlord as Additional Rent
Tenant's Percentage, as hereinafter defined, of all such excess
Operating Costs. Operating Costs shall include, by way of
illustration and not of limitation: electric, gas, including fuel
surcharges or adjustments with respect thereto, water sewer, and
other utilities and heating, ventilating and air conditioning costs
for the Building to include all leased and leasable areas (not
separately billed or separately metered within the Building) and
Common Facilities electricity, lighting, water, sewer and other
utilities for the Building and Office Building Area (herein "Utility
and Energy Costs"); personal property taxes; management fees; labor,
including all wages and salaries; social security taxes, and other
taxes which may be levied against Landlord upon such wages and
salaries; supplies; repairs and maintenance; maintenance and service
contracts; painting; wall and window washing; laundry and towel
service; tools and equipment (which are not required to be
capitalized for federal income tax purposes); fire, rent liability
and other insurance; trash removal; lawn care; snow removal; sums
levied, assessed, imposed or required to be paid to any governmental
authority on account of the parking of motor vehicles, including all
sums required to be paid pursuant to transportation controls imposed
by the Environmental Protection Agency under the Clean Air Act of
1970, or otherwise required to be paid by any governmental authority
with respect to the parking, use, or transportation of motor
vehicles, or reduction or control of motor vehicle traffic, or motor
vehicle pollution; and all other items properly constituting direct
operating costs according to standard accounting practices
(hereinafter collectively referred to as the "Operating Costs"), but
not including depreciation of Building or equipment; interest; income
or excess profits taxes; costs of maintaining Landlord's corporate
existence; franchise taxes; and expenditures required to be
capitalized for federal income tax purposes, unless aid expenditures
are for the purpose of reducing Operating Costs within the Building
and Office Building Area or are required under any governmental law,
ordinance or regulation, in which event the costs thereof shall be
included. As used in this Subsection 22(A), the Base Period Costs for
Operating Costs shall be as defined in the Preamble.
(B) Tax Escalation. If during the Lease Term the Real
Estate Taxes for the Building and Office Building Area at which the
Demised Premises are located for any Comparison Period shall be
greater than the Base Real Estate Taxes (adjusted proportionately if
the Comparison Period is less than a Lease Year), then Tenant shall
pay to Landlord as Additional Rent, Tenant's Percentage, as
hereinafter defined, of all such excess Real Estate Taxes.
As used in this Subsection 22(B), the words and terms
which follow mean and include the following:
(i) The Base Period Costs for "Real Estate Taxes"
shall be as defined in the Preamble.
(ii) "Real Estate Taxes" shall mean the property
taxes and assessments imposed upon the Building and Office Building
Area, or upon the but not limited to, real estate, city, county,
village, school and transit taxes, or taxes, assessments or charges
levied, imposed, or assessed against the Building and Office Building
Area by any other taxing authority, whether general or specific,
ordinary or extraordinary, foreseen or unforeseen. If due to a future
change in the method of taxation, any franchise, income or profit tax
shall be levied against Landlord in substitution for, or in lieu of,
or in addition to, any tax which would otherwise constitute a Real
Estate Tax, such franchise, income or profit tax shall be deemed to
be a Real Estate Tax for the purpose hereof; conversely, any
additional real estate tax hereafter imposed in substitution for, or
in lieu of, any franchise, income or profit tax (which is not in
substitution for, or in lieu of, or in addition to, a Real Estate Tax
as hereinbefore provided for, or in lieu of, or in addition to, a
Real
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Estate Tax as hereinbefore provided) shall not be deemed a Real
Estate Tax for the purposes hereof. Notwithstanding anything
contained herein to the contrary, Tenant shall assume and pay to
Landlord in full at the time of paying the Term Basic Rent any
excise, sales, use, gross receipts or other taxes (other than a net
income or excess profits tax) which may be imposed on or measured by
such Term Basic Rent or Additional Rent or may be imposed on Landlord
or on account of the letting or which Landlord may be required to pay
or collect under any law now in effect or hereafter enacted.
(C) Lease Year. As used in this Lease, Lease Year shall
mean the twelve (12) month period commencing on the Commencement Date
and each twelve (12) month period thereafter. Once the base costs are
established, in the event any lease period is less than twelve (12)
months, then the Base Period Costs for the categories listed above
shall be adjusted to equal the proportion that said period bears to
twelve (12) months, and Tenant shall pay to Landlord as Additional
Rent for such period, an amount equal to Tenant's Percentage, as
hereinafter defined, of the excess for said period over the adjusted
base with respect to each of the aforesaid categories.
Notwithstanding anything contained herein to the contrary, once the
base costs are established, Landlord reserves the right to
calendarize billing and payment in order to establish operating
consistency.
(D) Payment. At any time, and from time to time, after the
establishment of the Base Period Costs for each of the categories
referred to above, Landlord shall advise Tenant in writing of
Tenant's Percentage with respect to each of the categories as
estimated for the current Lease Year [and for each succeeding Lease
Year or proportionate part thereof if the last period prior to the
Lease's termination is less than twelve (12) months] as then known to
Landlord, and thereafter, Tenant shall pay as Additional Rent,
Tenant's Percentage, as hereinafter defined, of the excess of these
costs over the Base Period Costs for the then current period affected
by such advise (as the same may be periodically revised by Landlord
as additional costs are incurred) in equal installments of Monthly
Basic Rent on the first day of each month, such new rates being
applied to any months for which the Monthly Basic Rent shall .have
already been paid which are affected by the Operating Cost Escalation
and/or Tax Escalation Costs above referred to, as well as the
unexpired months of the current period, the adjustment for the then
expired months to be made at the payment of the next succeeding
installment of Monthly Basic Rent, all subject to final adjustment at
the expiration of each Lease Year as defined in Subsection 22(C)
hereof [or proportionate part thereof, if the last period prior to
the Lease's termination is less than twelve (12) months]. However, at
Landlord's option, Landlord shall be reimbursed by Tenant monthly
during the first Lease Year of the Lease Term for additional
Operating Cost Escalations resulting from an increase in the monthly
rate over the Base Utility Rate.
(E) Books and Records. For the protection of Tenant,
Landlord shall maintain books of account which shall be open to
Tenant and its representatives at all reasonable times so that Tenant
can determine that such Operating and Tax Costs have, in fact, been
paid or incurred. Any disagreement with respect to any one or more of
said charges if not satisfactorily settled between Landlord and
Tenant shall be referred by either party to an independent certified
public accountant to be mutually agreed upon, and if such an
accountant cannot be agreed upon, the American Arbitration
Association may be asked by either party to select an arbitrator,
whose decision on the dispute will be final and binding upon both
parties, the loser of which arbitration shall be obligated to pay (or
reimburse as the case may be) the reasonable legal fees of the
winner. Pending resolution of said dispute, Tenant shall pay to
Landlord the sum so billed by Landlord subject to its ultimate
resolution as aforesaid.
(F) Right of Review. Once Landlord shall have finally
determined said Operating, or Tax Costs at the expiration of a Lease
Year, than as to the item so established, Tenant shall only be
entitled to dispute said charge as finally established for a period
of six (6) months after such charge is finally established, and
Tenant specifically waive any right to dispute any such charge at the
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expiration of said six (6) month period.
(G) Occupancy Adjustment. If, with respect to Operating
Cost Escalation, as established in Subsection 22(A) hereof, the
Building is not ninety (90%) percent occupied during the
establishment of the respective Base periods then the Base costs
incurred with respect to said Operating Cost shall be adjusted during
any such period within the Base period so as to reflect ninety (90%)
percent occupancy. Similarly, if, during any Lease Year or
proportionate part thereof subsequent to the Base Period the Building
is less than ninety (90%) percent occupied then the actual costs
incurred for Operating Cost shall be increased during any such period
to reflect ninety (90%) percent occupancy so that at all times after
the Base Period the Operating Cost shall be actual costs, but in the
event less than ninety (90%) percent of the Building is occupied
during all or part of the Lease Year involved, the Operating Cost
shall not be less than that which would have been incurred had ninety
(90%) percent of the Building been occupied. The aforesaid adjustment
shall only be made with respect to those items that are in fact
affected by variations in occupancy levels. To the extent any
Operating Cost is separately billed or metered or paid for directly
by any Building tenant, to include but not be limited to Tenant, or
for which Landlord receives reimbursements, said space be considered
vacant space for purposes of the aforesaid adjustment.
23. TENANT'S ESTOPPEL.
(A) Tenant shall from time to time, within ten (10) days of
Landlord's written request, execute acknowledge and deliver to
Landlord a written statement certifying that the Lease is unmodified
and in full force and effect, or that the Lease is in full force and
effect as modified and listing the instruments of modification; the
dates to which the Monthly Basic Rent and Additional Rent and charges
have been paid; and, to the best of Tenant's knowledge, whether or
not Landlord is in default hereunder, and if so, specifying the
nature of the default and nay such other reasonable information as
Landlord may request. It is intended that any such statement
delivered pursuant to this Section may be relied on by a prospective
purchaser of Landlord's interest or mortgagee of Landlord's interest
or assignee of any mortgage of Landlord's interest.
(B) Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant that: (i) this Lease is in full
force and effect and not modified except as Landlord may represent;
(ii) not more than one month's Monthly Basic Rent payment has been
paid in advance; (iii) there are no such defaults; and, (iv) notices
to Tenant shall be sent to Tenant's mailing address as set forth in
this Lease. Notwithstanding the presumptions of this Section, Tenant
shall not be relieved of its obligation to deliver said statement.
24. HOLDOVER TENANCY. If Tenant holds possession of the Premises
after the Term of this Lease, Tenant shall become a tenant from month to month
under the provisions herein provided, but at a Monthly Basic Rent as provided
for pursuant to N.J.S.A. 2A:42-6 and without the requirement for demand or
notice by Landlord to Tenant demanding delivery of possession of said Premises
(but Additional Rent shall continue as provided in this Lease), which sum shall
be payable in advance on the first day of each month, and such tenancy shall
continue until terminated by Landlord, or until Tenant shall have given to
Landlord, at least sixty (60) days prior to the intended date of termination, a
written notice of intent to terminate such tenancy, which termination date must
be as of the end of a calendar month. The time limitations described in this
Section 24 shall not be subject to extension for Force Majeure.
25. RIGHT TO SHOW PREMISES. Landlord may show the Premises to
prospective purchasers and mortgagees; and, during the twelve (12) months prior
to termination of this Lease, to prospective tenants, during Building Hours or
reasonable notice to Tenant.
26. LANDLORD'S WORK - TENANT'S DRAWINGS.
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(A) Landlord agrees that, at Landlord's expense, prior to
the commencement of the Term of this Lease, it will do substantially
all of the work in the Premises in accordance with Exhibit C attached
hereto and made a part hereof. All of said Exhibit C work, whether
paid for in whole or in part by Tenant, is and shall remain the
Landlord's property.
(B) Lease Commencement shall occur and the Commencement
Date is defined as that date when Landlord has done substantially all
of the work to be done by Landlord in accordance with Exhibit C
unless Landlord has been precluded from completing said work because
of the prior occupancy by Tenant, which in any event shall be
conditioned upon Landlord prior written approval. The delivery of a
Certificate of Occupancy (temporary or permanent) by Landlord (if
required pursuant to local law) shall be prima facie evidence that
Landlord has done substantially all of the work.
27. INTENTIONALLY OMITTED.
28. LATE CHARGES. Anything in this Lease to the contrary
notwithstanding, at Landlord's option, Tenant shall pay a "Late Charge" of five
(5%) percent of any installment of Monthly Basic Rent or Additional Rent paid
more than five (5) days after the due date thereof for each monthly period of
portion thereof that the same remains unpaid, such Late Charge to cover the
extra expense involved in handling delinquent payments.
29. INSURANCE.
(A) Tenant's Insurance.
(1) Tenant covenants and represents, said
representation being specifically designed to induce
Landlord to execute this Lease, that during the entire Term
hereof, at its sole cost and expense. Tenant shall obtain,
maintain and keep in full force and effect the following
insurance:
(a) "All Risk" property insurance against
fire, theft, vandalism, malicious mischief, sprinkler
leakage and such additional perils as are now, or hereafter
may be, included in a standard extended coverage
endorsement from time to time in general use in the State
of New Jersey upon property of every description and kind
owned by Tenant and or under Tenant's care, custody or
control located in the Building or within the Office
Building Area or for which Tenant is legally liable or
installed by or on behalf of Tenant, including by way of
example and not by way of limitation, furniture, fixtures,
fittings, installations and any other personal property
(but excluding the work done by Landlord in connection with
Exhibit C which is owned by Landlord) in an amount equal to
the full replacement cost thereof.
(b) Comprehensive General Liability
Insurance coverage to include personal injury, bodily
injury, broad form property damage, operations hazard,
owner's protective coverage, blanket contractual liability,
products and completed operations liability naming Landlord
and Landlord's managing agent as additional insureds in an
amount per occurrence of not less than Two Million and
00/100 ($2,000,000.00) Dollars combined single limit bodily
injury and property damage.
(c) Business interruption insurance in such
amounts as will reimburse Tenant for direct or indirect
loss of earnings attributable to all perils commonly
insured against by prudent tenants or assumed by Tenant
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pursuant to this Lease or attributable to prevention or
denial of access to the Premises, Building of Office
Building Area as a result of such perils.
(d) Workers' Compensation insurance in form
and amount as required by law.
(e) Any other form or forms of insurance or
any increase in the limits of any of the aforesaid
enumerated coverages or other forms of insurance as
Landlord or the mortgagees or round Landlords (if any) of
Landlord may reasonably require from time to time if in the
reasonable opinion of Landlord or said mortgagees or ground
Landlords said coverage and/or limits become inadequate or
less than that commonly maintained by prudent tenants in
similar buildings in the area by tenants making similar
uses.
(2) All insurance policies required pursuant to
this Subsection 29(A) shall be taken out with insurers rated A+XV by
A.M. Best Company, Oldwick, New Jersey who are licensed to do
business in the State of New Jersey and shall be in form satisfactory
from time to time to Landlord. A policy or certificate evidencing
such insurance together with a paid bill shall be delivered to
Landlord not less than fifteen (15) days prior to the commencement of
the Term hereof. Such insurance policy or certificate will
unequivocally provide an undertaking by the insurers to notify
Landlord and the mortgagees or ground Landlords (if any) of Landlord
in writing not less than thirty (30) days prior to any material
change, reduction in coverage, cancellation, or other termination
thereof. Should a certificate of insurance initially be provided, a
policy shall be furnished by Tenant within thirty (30) days of the
Term's commencement. The aforesaid insurance shall be written with a
deductible not to exceed Five Thousand and 00/100 ($5,000) Dollars.
(3) In the event of damage to or destruction of
the Building and/or Premises entitling Landlord or Tenant to
terminate this Lease pursuant to Section 9 hereof, and if this Lease
be so terminated, Tenant will immediately pay to Landlord all of its
insurance proceeds, if any, relating to the leasehold improvements
and alterations (but not Tenant's trade fixtures, equipment,
furniture or other personal property of Tenant in the Premises) which
have become Landlord's property on installation or would have become
Landlord's property at the Term's expiration or sooner termination.
If the termination of the Lease, at Landlord's election, is due to
damage to the Building, and if the Premises have not been so damaged,
Tenant will deliver to Landlord, in accordance with the provisions of
this Lease, the improvements and alterations to the Premises which
have become on installation or would have become at the Term's
expiration, Landlord's property.
(4) Tenant agrees that it will not keep or use or
offer for sale (if sales of goods is a permitted use pursuant to
Section 4 hereof) in or upon the Premises or within the Building or
Office Building Area any article which may be prohibited by an
insurance policy in force from time to time covering the Building or
Office Building Area. In the event Tenant's occupancy or conduct of
business in or on the Premises or Building or Office Building Area,
whether or not Landlord has consented to the same, results in any
increase in premiums for insurance carried from time to time by
Landlord with respect to the Building or Office Building Area, Tenant
shall pay such increase in premiums as Additional Rent within ten
(10) days after being billed therefor by Landlord. In determining
whether increased premiums are a result of Tenant's use and occupancy
a schedule issued by the organization computing the insurance rate on
the Building or Office Building Area showing the components of such
rate shall be conclusive evidence of the items and charges making up
such rate. Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or
hereafter in effect relating to the Building, Office Building Area or
Premises.
(5) If any insurance policy carried by Landlord
or Tenant shall be canceled
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or cancellation shall be threatened or the coverage thereunder
reduced or threatened to be reduced in any way by reason of the use
or occupation of the Premises, Office Building Area or Building or
any part thereof by Tenant or any assignee or Subtenant of Tenant or
anyone permitted by Tenant to be upon the Premises, and if Tenant
fails to remedy the conditions giving rise to said cancellation or
threatened cancellation or reduction in coverage on or before the
earlier of (I) forty-eight (48) hours after notice thereof from
Landlord, or (ii) prior to said cancellation or reduction becoming
effective, Tenant shall be in default hereunder and Landlord shall
have all of the remedies available to Landlord pursuant to this
Lease.
(B) Landlord's Insurance. Landlord covenants and agrees
that throughout the Term it will insure the Building (excluding any
property with respect to which Tenant is obligated to insure pursuant
to Subsection 29(A)(1)(a) above) against damage by fire and standard
extended coverage perils and public liability insurance in such
reasonable amounts with such reasonable deductibles as required by
any mortgagee or ground Landlord (if any), or if none, as would be
carried by a prudent owner of a similar building in the area. In
addition, Landlord shall maintain and keep in force and effect during
the Term, rental income insurance insuring Landlord against abatement
or loss of Term Basic Rent, including items of Additional Rent, in
case of fire or other casualty similarly insured against, in an
amount at least equal to the Term Basic Rent and Additional Rent
during, at the minimum, one Calendar Year hereunder, Landlord may,
but shall not be obligated to take out and carry any other forms of
insurance as it or the mortgagee or ground Landlord (if any) of
Landlord may require or reasonably determine available. All insurance
carried by Landlord on the Building or Office Building Area shall be
included as an Operating Expense pursuant to Subsection 22(A).
Notwithstanding its inclusion as an Operating Expense or any
contribution by Tenant to the cost of insurance premiums by Tenant as
provided herein, Tenant acknowledges that it has no right to receive
any proceeds from any such insurance policies carried by Landlord.
Tenant further acknowledges that the exculpatory provisions of this
Lease as set forth in Section 35 and the provisions of Subsection
29(A) as to Tenant's insurance are designed to insure adequate
coverage as to Tenant's property and business without regard to fault
and to avoid Landlord obtaining similar coverage for said loss for
its negligence or that of its agents, servants or employees which
could result in additional costs includable as part of Operating
Tenant's furniture or furnishings, or on any fixtures, equipment,
appurtenances or improvements (other than those enumerated in Exhibit
C which belong to Landlord) of Tenant under this Lease and Landlord
shall not, except as to the aforesaid Exhibit C items owned by
Landlord, be obligated to repair any damage thereto or replace the
same.
(C) Waiver of Subrogation. Any all risk policy or similar
casualty insurance, which either party obtains in connection with the
Premises, Building or Office Building Area shall include a clause or
endorsement denying the insurer any rights of subrogation against the
other party (i.e. Landlord or Tenant) for all perils covered by said
policy. Should such waiver not be available then the policy for which
the waiver is not available must name the other party as an
additional named insured affording it the same coverage as that
provided the party obtaining said coverage.
30. NO OTHER REPRESENTATIONS. No representations or promises shall
be binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
31. QUIET ENJOYMENT. Landlord covenants that if, and so long as,
Tenant pays the Term Basic Rent, and any Additional Rent as herein provided, and
performs the covenants hereof, Landlord shall do nothing to affect Tenant's
right to peaceably and quietly have, hold and enjoy the Premiss for the Term
herein mentioned, subject to the provisions of this Lease and to any mortgage or
deed of trust to which this Lease shall be subordinate.
32. INDEMNITY. Tenant shall indemnify and save harmless Landlord
and its agents against and from (a)
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any and all claims (i) arising from (x) the conduct or management by Tenant, its
subtenants, licensees, its or their employees, agents, contractors or invitees
on the Demised Premises or of any business therein, or (y) any work or thing
whatsoever done, or any condition created (other than by Landlord for Landlord's
or Tenant's account) in or about the Demised Premises during the Term of this
Lease or during the period of time, if any, prior to Commencement Date that
Tenant may have been given access to the Demised Premises, or (ii) arising from
any negligent or otherwise wrongful act or omission of Tenant or any of its
subtenants or licensees or its or their employees, agents, contractors or
invitees, and (b) all reasonable costs, expenses and liabilities incurred in or
in connection with each such claim or action or proceeding brought thereon. In
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant, upon notice from Landlord, shall resists and defend such action
or proceeding. The provisions of this Section 32 shall survive the expiration or
earlier termination of this Lease.
33. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease
shall apply to, bind and inure to the benefit of Landlord and Tenant and their
respective heirs, successors, legal representatives and assigns. It is
understood that the term "Landlord" as used in this Lease means only the owner,
a mortgagee in possession or a term Tenant of the Building, so that in the event
of any sale of the Building or of any lease thereof or if a mortgagee shall take
possession of the Premises, Landlord named herein shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder accruing thereafter, and it shall be deemed without further agreement
that the purchaser, the term Tenant of the Building, or the mortgagee in
possession has assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder.
34. PARKING SPACES. Tenant's occupancy of the Demised Premises shall
include the use of those assigned parking spaces as enumerated in the Preamble.
Tenant shall, upon request, promptly furnish to Landlord the license numbers of
the cars operated by Tenant and its subtenants, licensees, invitees,
concessionaires, officers and employees. If any vehicle of Tenant, or of any
subtenant, licensee, concessionaire, or of their respective officers, agents or
employees, is parked in any part of the Common Facilities other than the
employee parking area(s) designated therefor by Landlord, Tenant shall pay to
Landlord such reasonable penalty as may be fixed by Landlord from time to time.
All amounts due under the provisions of this Section shall be deemed to be
Additional Rent. Nothing contained herein shall be deemed to impose any
obligation on Landlord to police the parking area.
35. LANDLORD'S EXCULPATION. Landlord shall not be liable to Tenant
for any loss suffered by Tenant under any circumstances, including, but not
limited to (i) that arising from the negligence of Landlord (excluding gross
negligence), its agents, servants, invitees, contractors or subcontractors, or
from defects, errors or omissions in the construction or design of the Premises
and/or the Building and Office Building Area including the structural and
nonstructural portions thereof; or (ii) loss of a injury to Tenant or to
Tenant's property or that for which Tenant is legally liable from any cause
whatsoever, including but not limited to theft or burglary; or (iii) that which
results from or is incidental to the furnishing of or failure to furnish or the
interruption in connection with the furnishing of any service which Landlord is
obligated to furnish pursuant to this Lease; or (iv) that which results from any
inspection, repair, alteration or addition or the failure thereof undertaken or
failed to be undertaken by Landlord; or (v) any interruption to Tenant's
business, however occurring.
The aforesaid exculpatory Section is to induce the Landlord,
in its judgment, to avoid or minimize covering risks which are better quantified
and covered by Tenant either through insurance (or self-insurance or
combinations thereof if specifically permitted pursuant to this Lease), thereby
permitting potential cost savings in connection with the Operating Expenses
borne by Tenant pursuant to Section 22.
36. RULES OF CONSTRUCTION/APPLICABLE LAW. Any table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. This Lease shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Lease to be drafted. If any words or phrases in this
Lease shall have been stricken out or otherwise eliminated, whether or not any
other words or phrases have been added, this Lease shall be construed as if the
words or phrases so stricken out or otherwise eliminated were never included in
this Lease and no implication or inference shall be drawn from the fact that
said words or phrases were so stricken out or otherwise eliminated. Each
covenant, agreement, obligation or other
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provision of this Lease on Tenant's part to be performed, shall be deemed and
construed as a separate and independent covenant of Tenant, not dependent on any
other provision of this Lease. All terms and words used in this Lease, not
dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require. This Lease shall be governed and construed in accordance with the laws
of the State of New Jersey (excluding New Jersey conflict of laws) and by the
State courts of New Jersey. If any of the provisions of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the reminder of this Lease, or the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
37. BROKER. Tenant represents and warrants to Landlord that the
Broker, as defined in the Preamble, is the sole broker with whom Tenant has
negotiated in bringing about this Lease, and Tenant agrees to indemnify and hold
Landlord and it mortgagee(s) harmless from any and all claims of other brokers
and expenses in connection therewith arising out of or in connection with the
negotiation of or the entering into this Lease by Landlord and Tenant. In no
event shall Landlord's mortgagee(s) have any obligation to any broker involved
in this transaction. Landlord shall be responsible for making the commission
payment to the Broker, as defined in the Preamble, in accordance with a separate
agreement by and between Landlord and Broker.
38. PERSONAL LIABILITY. Notwithstanding anything to the contrary
provided in this Lease, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Lease by Landlord, that
there shall be absolutely no personal liability on the part of Landlord, its
constituent members (to include but not be limited to officers, directors,
partners and trustees), their respective successors, assigns or any mortgagee in
possession (for the purposes of this Section, collectively referred to as
"Landlord"), with respect to any of the terms, covenants and conditions of this
Lease, and that Tenant shall look solely to the equity of Landlord in the
Building for the satisfaction of each and every remedy of Tenant in the event of
any breach by Landlord of any of the terms, covenants and conditions of this
Lease to be performed by Landlord, such exculpation of liability to be absolute
and without any exceptions whatsoever. A deficit capital account of limitation
of liability shall be noted in any judgment secured against Landlord and in the
judgment index.
39. NO OPTION. The submission of this Lease Agreement for examination
does not constitute a reservation of or option for the Premises, and this Lease
Agreement becomes effective as a Lease Agreement only upon execution and
delivery thereof by Landlord and Tenant.
40. DEFINITIONS.
(A) Tenant's Percentage. The parties agree that Tenant's
Percentage, as defined in the Preamble, reflects and will be
continually adjusted to reflect the sum arrived at by dividing the
gross square feet of the area rented to Tenant (including an
allocable share of all Common Facilities) as set forth in Section 1
[the numerator], plus any additional gross square footage leased from
time to time pursuant to this Lease, by the total number of gross
square feet of the entire Building (or additional buildings that may
be constructed within the Office Building Area) [the denominator],
measured outside wall to outside wall but excluding therefrom any
storage areas. Landlord shall have the right to make changes or
revisions in the Common Facilities of the Building so as to provide
additional leasing area. Landlord shall also have the right to
construct additional buildings in this Office Building Area for such
purposes as Landlord may deem appropriate and subdivide the lands for
that purpose if necessary, and upon so doing, the Office Building
Area shall become the subdivided lot on which the Building in which
the Demised Premises is located. If any service provided for in
Subsection 22(A) or any utility provided for in Subsection 22(B) is
separately billed or separately metered within the Building, then the
square footage so billed or metered shall be deemed vacant and if
applicable subject to the Occupancy Adjustment set forth in
Subsection 22(H). Tenant understands that as a result of changes in
the layout of the Common Facilities from time to
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time occurring due to, by way of example and not by way of
limitation, the rearrangement of corridors, the aggregate of all
Building tenant proportionate shares may be equal to, less than or
greater than one hundred (100%) percent.
(B) Common Facilities. Common Facilities shall include, by
way of example and not by way of limitation, the non-assigned parking
areas; lobby; elevator(s); fire stairs; public hallways; public
lavatories; all other general Building facilities that service all
Building tenants; air conditioning rooms; fan rooms; janitors'
closets; electrical closets; telephone closets; elevator shafts and
machine rooms; flues; stacks; pipe shafts; and vertical ducts with
their enclosing walls. Tenant's use of those Common Facilities not
open to all tenants is subject to Landlord's consent which may be
denied for any reason. Landlord may at any time close temporarily any
Common Facilities to make repairs or changes therein or to effect
construction, repairs or changes within the Building or Office
Building Area, or to discourage non-tenant parking or to prevent the
dedication of the same, and may do such other acts in and to the
Common Facilities as in its judgment may be desirable to improve the
convenience thereof but shall always in connection therewith endeavor
to minimize any inconvenience to Landlord.
(C) Force Majeure. Force Majeure shall mean and include
those situations beyond either party's control, including by way of
example and not by way of limitation, acts of God; accidents;
repairs; strikes; shortages of labor, supplies or materials;
inclement weather; or, where applicable, the passage of time while
waiting for an adjustment of insurance proceeds. Any time limits
required to be met by either party hereunder, whether specifically
made subject to Force Majeure or not, except those related to the
payment of Term Basic Rent or Additional Rent and except as to the
time periods set forth in Section 24, shall, unless specifically
stated to the contrary elsewhere in this Lease, be automatically
extended by the number of days by which any performance called for is
delayed due to Force Majeure.
(D) Building Hours. As used in this Lease, the Building
Hours shall be Monday through Friday, 8:00 a.m. to 6:00 p.m., and
Saturdays from 8:00 a.m. to 2:00 p.m., excluding those holidays as
set forth on Exhibit E attached hereto and made a part hereof, except
that Common Facilities lighting in the Building and Office Building
Area shall be maintained for such additional hours as, in Landlord's
sole judgment, is necessary or desirable to insure proper operation
of the Building and Office Building Area.
(E) Additional Rent. As used in this Lease, Additional Rent
shall mean all sums in addition to Term Basic Rent payable by Tenant
to Landlord pursuant to the provisions of this Lease.
41. LEASE COMMENCEMENT. Notwithstanding anything contained herein to
the contrary, if Landlord, for any reason whatsoever, including Landlord's
negligence, cannot deliver possession of the Premises as provided for the
Subsection 26(A) to Tenant at the commencement of the agreed Term as set forth
in Section 2, this Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom, but in that rent,
the Lease Term shall be for the full term as specified above to commence from
and after the date Landlord shall have delivered possession of the Premises to
Tenant or from the date Landlord would have delivered possession of the Premises
to Tenant but for Tenant's failure to timely supply to Landlord such drawings
and/or information required by Exhibit C or for any other reason attributable to
Tenant (herein the "Commencement Date") and to terminate midnight of the day
immediately preceding the Term anniversary of the Commencement Date, and if
requested by Landlord, Landlord and Tenant shall, by a writing signed by the
parties, ratify and confirm said commencement and termination dates. Nothing
contained herein shall be deemed to modify the commencement of the Lease Term as
set forth in the Preamble and Tenant's obligations hereunder if Landlord is
unable to deliver the Demised Premises on the Commencement Date by reason of
Tenant's failure to comply with the requirements of Subsection 26(B).
42. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been
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duly given only if delivered personally or sent by registered mail, certified
mail in a postpaid envelope, by facsimile or by overnight mail addressed, if to
Tenant, at the above described Building; if to Landlord, at Landlord's address
as set forth above; or, to either at such other address as Tenant or Landlord,
respectively, may designate in writing. Notice shall be deemed to have been duly
given if delivered personally, on delivery thereof, and if mailed, upon the
tenth (10th) day after the mailing thereof.
43. ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord amount than the Monthly Basic Rent and additional charges payable
hereunder shall be deemed to be other than a payment on account of the earliest
stipulated Monthly Basic Rent and Additional Rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment for Basic
Rent or Additional 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 Basic Rent and Additional Rent or pursue any other remedy
provided herein or by law.
44. EFFECT OF WAIVERS. No failure by Landlord to insist upon the
strict performance of any covenant, agreement, term or condition of this Lease,
or to exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial Monthly Basic Rent during the continuance of any
such breach, shall constitute a waiver of any such covenant, term or condition.
No consent or waiver, express or implied, by Landlord to or of any breach of any
covenant, condition or duty of Tenant shall be construed as a consent or waiver
to or of any other breach of the same or any other covenant, condition or duty,
unless in writing signed by Landlord.
45. LEASE CONDITION. This Lease is expressly conditioned upon
Landlord receiving the consent and approval of Landlord's mortgage to its terms
and provisions not later than thirty (30) days after its execution and delivery
by both parties. Should said consent not be received within the aforesaid time
period. Landlord may, at Landlord's sole option, cancel this Lease and return
any Term Basic Rent and/or Security Deposit to Tenant, which Tenant has
deposited with Landlord upon execution of this Lease, and thereafter the parties
shall have no further obligations to each other with respect to this Lease.
46. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE. Tenant agrees to
give any mortgagees and/or trust deed holders, by registered mail, a copy of any
notice of default served upon Landlord, provided that, prior to such notice,
Tenant has been notified in writing (by way of notice of assignment of rents and
leases or otherwise) of the address of such mortgagees and/or trust deed
holders. Tenant further agrees that, if Landlord shall have failed to cure such
default within the time provided for in this Lease, then the mortgagees and/or
trust deed holders shall have an additional thirty (30) days within which to
cure such default, or if such default cannot be cured within that time, then
such additional time as may be necessary, if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.
47. LANDLORD'S RESERVED RIGHTS. Landlord and Tenant acknowledge that
the Premises are in a Building which is not open to the general public. Access
to the Building is restricted to Landlord, Tenant, their agents, employees and
to their invited visitors. In the event of a labor dispute including a strike,
picketing, informational or associational activities directed at Tenant or any
other tenant, Landlord reserves the right unilaterally to alter Tenant's ingress
and egress to the Building or make any other change in operating conditions to
restrict pedestrian, vehicular or delivery ingress and egress to a particular
location. Additionally, Landlord reserves unto itself all rights not granted
Tenant, including by way of example and not by way of limitation, the right to
change the name by which the Building is commonly known.
48. CORPORATE AUTHORITY. If Tenant is a corporation. Tenant
represents and warrants that this Lease and the undersigned's execution of this
Lease has been duly authorized and approved by the corporation's Board of
Directors. The undersigned officers and representatives of the corporation
executing this Lease on behalf of the corporation represent and warrant that
they are officers of the corporation with authority to execute this Lease on
behalf of the corporation, and within fifteen (15) days of execution hereof,
Tenant will provide Landlord with a
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corporate resolution confirming the aforesaid.
49. GOVERNMENT REQUIREMENTS. In the event of the imposition of
federal, state, or local governmental control, rules, regulations, or restricted
on the use or consumption of energy or other utilities or with respect to any
other aspect of this Lease during the Term, both Landlord, and Tenant shall be
bound thereby. In the event of a difference in interpretation of any
governmental control, rule regulation or restriction between Landlord and
Tenant, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance, including the right of entry into the Premises
to effect compliance.
50. RELOCATION. Landlord hereby reserves the right at any time during
the Term of this Lease, however, not more than one time during the Term of this
Lease, at its sole cost and expense and on at least sixty (60) days' prior
written notice, to relocate Tenant to other space within the Building, or to
relocate Tenant to other space within the building located at 3 Garret Mountain
Plaza, West Paterson, New Jersey, of comparable size and decor. In the event of
any such relocation, Landlord will pay all expenses of preparing and decorating
the new premises so that they will be substantially similar to the Premises from
which Tenant is moving and Landlord will also pay the expense of moving Tenant's
furniture and equipment to the relocated premises. In such event, this Lease and
each and all of the terms, covenants and conditions hereof shall remain in full
force and effect and thereupon be deemed applicable to such new space except
that the description of the Premises shall be revised and, if applicable,
Tenant's Percentage shall likewise be revised.
52. AFTER-HOURS USE. Tenant shall be entitled to make use of the
Building's central HVAC service beyond the Building Hours, at Tenant's sole cost
and expense, provided Tenant shall notify the Landlord during business hours at
least twenty-four (24) hours prior to such desired overtime use. It is
understood and agreed that Tenant shall pay the sum of sixty ($60.00) dollars
per hour on part thereof, plus such additional percentage increase of the
aforesaid hourly sum computed by measuring the percentage increase of the rate
in effect (including fuel surcharges or adjustments) during the month for which
such overtime use is requested against the Base Utility Rate, as defined in
Preamble Paragraph (2)(A).
In no event shall the Tenant pay less than the sum of
thirty ($30.00) dollars per hour or part thereof for such overtime use .
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
GARRET MOUNTAIN OFFICE CENTER
ASSOCIATES-I, Landlord
by: Mountain Development Corp.
Managing Agent
by: [SIGNATURE APPEARS HERE]
------------------------------
its authorized representative
NORTH AMERICAN INTEGRATED MARKETING,
INC., Tenant
by: [SIGNATURE APPEARS HERE]
------------------------------
its authorized representative
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EXHIBIT A
DEMIRED PREMISES
[FLOOR PLAN APPEARS HERE]
71
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EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, lobby, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
tenant or used for any purpose other than ingress and egress to and from the
Demised Premises and Tenant shall not permit any of its employees, agents or
invitees to congregate in any of said areas. No door mat of any kind whatsoever
shall be placed or left in any public hall or outside any entry door of the
Demised Premises.
2. No awnings or other projection shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Demised
Premises, without the prior written consent of Landlord. Such curtains, blinds,
shades or screens must be of a quality, type, design and color, and attached in
the manner, approved by Landlord.
3. No sign, insignia, advertisements, object, notice or other
lettering shall be exhibited, inscribed, painted or affixed by any tenant on any
part of the outside or inside of the Demised Premises or the Building without
the prior written consent of Landlord, which shall not be unreasonably withheld.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred in
such removal to the tenant or tenants, violating this rule. Interior signs and
lettering on doors and the directory shall, if and when approved by Landlord, 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.
4. The sashes, sash doors, skylights, windows and doors that reflect
or admit light and air into the halls, passageways or other public places in the
building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the window sills.
5. No showcases or other articles shall be put in front of or
affixed to any part of the exteriors of the Building, nor placed in the halls,
corridors or vestibules.
6. The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were designated or
constructed, and no sweepings, rubbish, rags, acids or other substances shall be
thrown or deposited therein. All damages resulting from any misuses of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors or licensees shall have caused the same.
7. No tenant shall, in any way deface any part of the Demised
Premises or the Building unless the prior consent of Landlord has been granted,
which consent shall not be unreasonably withheld. 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 builders deadening felt shall be first
affixed to the floor, by a paste or other materials, soluble in water, the use
of cement and other similar adhesive material being expressly prohibited.
8. No bicycles, vehicles, animals, fish or birds of any kind shall
be brought into or kept in or about the premises.
9. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or television which, in the judgement of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted in the Demised
Premises by Tenant which would impair or interfere with the use or enjoyment by
any other tenant of any others space in the Building. No tenant shall throw
anything out of the doors, windows or skylights or down the passageways.
10. Tenant, its servants, employees, agents, visitors or licensees,
hall at no time bring or keep upon the Demised Premises any explosive fluid,
chemical or substance, no any inflammable or combustible objects or
72
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materials except the minimal amounts of flammable or combustible materials found
in normal office equipment.
11. Additional locks or bolts of any kind which shall not be operable
by the Grand Master Key for the building shall not be placed upon any of the
doors or windows by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said Grand Master
Key. Each tenant shall, upon the termination of its tenancy, turn over to
Landlord all keys of offices and toilet rooms, either furnished to, or otherwise
procured by, such tenant and in the event of the loss of any keys furnished by
Landlord, such tenant shall pay to landlord the cost thereof.
12. All removals from the Demised Premises or the Building, or the
moving or carrying in or out of the Demised Premises or the Building of any
safes, freight, furniture, packages, boxes, crates or any other object or matter
of any description must take place during such hours and using such elevators as
Landlord or its agent may determine from time to time. All deliveries of any
nature whatsoever to the Building or the Demised Premises must be made only
through Building entrances specified for such deliveries by Landlord. Landlord
reserves the right to inspect all objects and matter to be brought into the
Building and to exclude from the building all objects and matter which violate
any of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord may require any person leaving the Building
with any package or other object or matter, to submit a pass, listing such
package or object or matter, from the tenant from whose premises the package or
other object or matter is being removed, but the establishment and enforcement
of such requirement shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from the premises of
such tenant. Landlord shall, in no way, be liable to Tenant for damages or loss
arising from the admission, exclusion or ejection of any person to or from the
Demised Premises or the Building under the provisions of this Rule 12 or Rule 16
hereof.
13. Tenant shall not occupy or permit any portion of the Demised
Premises to be occupied as an office for a public stenographer or public typist,
or for the possession, storage, manufacture, or sale of beer, wine or liquor,
narcotic, dope, tobacco in any form, or as a barber, beauty or manicure Shop, or
as an employment bureau. Tenant shall not engage or pay any employees on the
Demised Premises, except those actually working for Tenant on the Demised
Premises or any party thereof, or permit the Demised Premises or any part
thereof to be used, for manufacturing, or for sale at auction of merchandise,
goods or property of any kind.
14. Tenant shall not obtain, purchase or accept for use in the
Demised Premises ice, drinking water, food, beverage, towel, barbering, boot
blacking, cleaning, floor polishing or other similar services from any persons
not authorized by Landlord in writing to furnish such services, provided always
that the charges for such services by persons authorized by Landlord are not
excessive. Such services shall be furnished only at such hours, in such places
within the Demised Premises, and under such regulations as may be fixed by
Landlord. Tenant shall not purchase or contract for waxing, rug shampooing,
Venetian blind washing, furniture polishing, lamp servicing, cleaning of
electric fixtures, removal of garbage or towel service in the Demised Premises
except from contractors, companies or persons approved by the Landlord.
15. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which in Landlord's judgment tends to impair the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, such tenant shall refrain from or discontinue
such advertising or identifying sign.
16. Landlord reserves the right to exclude from the Building during
hours other than Regular Business Hours (as defined in the foregoing Lease) all
persons who do not present a pass to the Building signed by landlord. All
persons entering and/or leaving the Building during hours other than Regular
Business Hours may be required to sign a register. Landlord will furnish passes
to persons for whom any tenant request same in writing. Each tenant shall be
responsible for all persons for whom such tenant requests such pass and shall be
liable to Landlord for all acts or omissions of such persons.
17. Tenant, before closing and leaving the Demised Premises at any
time, shall see that all lights are turned out. All entrance doors in the
Demised Premises shall be left locked by Tenant when the Demised Premises are
not in use. Entrance doors shall not be left open at any time.
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18. Tenant shall, at Tenant's expense, provide artificial light and
electrical energy for the employees of Landlord and/or Landlord's contractors
while doing janitor service or other cleaning in the Demised Premises and while
making repairs or alterations in the Demised Premises.
19. The Demised Premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
20. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work to do anything outside of their regular duties, unless under
special instructions from Landlord.
21. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
22. There shall not be used in any space, or in any lobbies,
corridors, public halls or other public areas of the Building, either by any
Tenant or by jobbers or any others, in the moving or delivery ore receipt of
safes, freight, furniture, packages, boxes, crates, paper, office material, or
any other object or thing, any hand trucks except those equipped with rubber
tires, side guards, and such other safeguards as Landlord shall require. No move
or delivery of any object or thing of whatever nature, other than light-weight
objects hand-carried by not more than one person, shall be made without at least
24 hours' prior written notice by Tenant to Landlord and without Tenant, prior
to any such move or delivery, laying (without affixation or attachment to any
part of the floor of floor covering) adequate masonite or plywood sheets
covering all lobby, corridor, public hall and other public area floors of the
Building (whether carpeted or terrazzo) over which such move or delivery shall
take place.
23. Tenant shall not cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the Demised
Premises which would annoy other tenants or create a public or private nuisance.
No cooking shall be done in the Demised Premises except as is expressly
permitted in the foregoing Lease.
24. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by lowering and closing venetian blinds
and/or drapes and curtains when the sun's ray fall directly on the windows of
the Demised Premises. Tenant shall not permit, to the best of its ability, the
heating, air conditioning and ventilation system to become blocked by Tenant's
curtains, drapes or other installations.
25. Landlord reserves the right to rescind, alter or waive any rule
or regulation at any time prescribed for the Building when, in its judgment, it
deems it necessary or desirable for the reputation, safety, care of appearance
of the Building, or the preservation of good order therein, or the operation or
maintenance of the Building or the equipment thereof, or the comfort of tenants
or others in the Building. No recision, alteration or waiver of any rule or
regulation in favor of one tenant shall operate as a recision, alteration or
waiver in favor of any other tenant.
26. Tenant shall not permit its personnel, agents or visitors to
litter any public areas of the Building or the land or improvements on the land
on which the Building is located (including, without limitation, the walkways
and parking areas located thereon), and Tenant shall be responsible to, and
shall pay Landlord for the cost of removal of such litter within 10 days of
notice thereof by Landlord.
27. Landlord shall not unreasonably withhold from Tenant any approval
provided for in the Rules and Regulations.
EXHIBIT C
LANDLORD'S WORK
Landlord shall remove those certain partitions and construct new partitions
according to the attached plan (see below).
Landlord shall install a plenum air-conditioning unit to serve Tenant's computer
room.
Landlord shall install additional dedicated electrical outlets in Tenant's
computer room.
Landlord shall paint the premises and install new carpet where needed (if at
all) based upon demolition.
[FLOOR PLAN APPEARS HERE]
74
<PAGE>
EXHIBIT D
CLEANING SERVICES
-----------------
SPECIFICATIONS FOR THREE GARRET MOUNTAIN PLAZA, WEST PATERSON, NEW JERSEY
NIGHTLY Five (5) nights per week, Monday through Friday, excluding holidays.
- -------
Empty and damp wipe all ashtrays.
Empty and dust wipe all waste receptacles.
Place waste in bags furnished by cleaner and leave in designated
area.
Remove recycled waste to designated area.
Empty, clean, and refill smoking urns as needed.
Dust all areas within hand high reach, including window sills, wall
ledges, chairs, desks, tables, baseboards, file cabinets, radiators,
pictures, and all manner of office furniture.
Sweep with treated cloths all composition tile flooring.
Vacuum all carpeted areas, spot clean carpet - public areas.
Sweep and wash stone floor of the entrance lobby.
Vacuum or wash walk-off mats as necessary.
Remove finger marks where possible from painted walls, partitions,
and doors.
Clean interior surfaces of elevator cabs and wash and wax composition
tile flooring, or vacuum and spot clean carpet.
Wash clean all water fountains and coolers, emptying waste water as
necessary.
LAVATORIES
- ----------
Wash and dry all bowls, seats, urinals, washbasins, and mirrors.
Wash and dry all metal work.
Empty paper towel and sanitary napkin disposal receptacles and remove
to designated area.
Damp wipe exterior of waste cans and dispensing units and insert
plastic liners.
Sweep and wash floors.
Dust all sills, partitions, and ledges.
Insert toilet tissue, toweling, seat covers, and soap dispensers.
Materials to be furnished by Ogden Allied.
LAVATORIES FREQUENCY
---------- ---------
Wash booth partitions. Weekly
Wash tile walls. Monthly
75
<PAGE>
Wash interior of waste cans and
sanitary disposal containers. Monthly
HIGH DUSTING
------------
High dust all walls, ledges, pictures,
thermostats and registers not reached
in normal nightly cleaning. Quarterly
VENETIAN BLINDS
---------------
Dust all Venetian blinds. Semi-Annually
STAIRWAYS
---------
Police stairways. 4 x's Week
Wash all stairways. Weekly
Sweep stairways. Monthly
ELEVATORS & ESCALATORS
----------------------
Clean elevator saddles. Daily
DAY SERVICES
------------
Police all public areas and toilets. Daily
Refill toilet room dispensers. Daily
Wash entrances doors. Daily
Wash glass side panels. Weekly
76
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EXHIBIT E
BUILDING HOLIDAYS
-----------------
Holidays
--------
President's Birthday
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Day after Thanksgiving
Christmas Day
New Years Day
EXHIBIT F
CYTEC INDUSTRIES INC. SPACE
---------------------------
[FLOOR PLAN APPEARS HERE]
77
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Name Jurisdiction of Incorporation
- ---- -------------------------------
Color Graphics, Inc. New Jersey
78
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
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<RECEIVABLES> 4,289,731 1,582,712
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<OTHER-EXPENSES> 1,879,539 1,187,639
<LOSS-PROVISION> 24,000 53,564
<INTEREST-EXPENSE> 127,507 2,935
<INCOME-PRETAX> 1,812,413 162,922
<INCOME-TAX> 743,140 60,340
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