Donnelley Financial Solutions, Inc. (Form: 10-Q, Received: 11/05/2019 16:20:37)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-37728

Donnelley Financial Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware		36-4829638
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

35 West Wacker Drive, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip code)

(844) 866-4337

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock (Par Value $0.01)

DFIN

NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☒	Accelerated filer	☐

Non-Accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 1, 2019, 34.3 million shares of common stock were outstanding.

DONNELLEY FINANCIAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

Part I
FINANCIAL INFORMATION		Page
Item 1:	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	3

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	4

	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Equity for the three months ended September 30, 2019 and 2018	7

	Condensed Consolidated Statements of Equity for the nine months ended September 30, 2019 and 2018	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3:	Quantitative and Qualitative Disclosure About Market Risk	49

Item 4:	Controls and Procedures	49

Part II
OTHER INFORMATION		Page
Item 1:	Legal Proceedings	50

Item 1A:	Risk Factors	50

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 4:	Mine Safety Disclosures	50

Item 6:	Exhibits	51

Signatures		54

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2019 and 2018

(in millions, except per share data)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Services net sales	$	130.4		$	138.5		$	419.5		$	485.9
Products net sales		65.5			78.4			264.9			276.8
Total net sales		195.9			216.9			684.4			762.7
Services cost of sales (exclusive of depreciation and amortization)		66.9			75.5			217.9			253.4
Products cost of sales (exclusive of depreciation and amortization)		54.4			57.8			206.3			204.1
Total cost of sales		121.3			133.3			424.2			457.5
Selling, general and administrative expenses (exclusive of depreciation and amortization)		46.2			62.6			159.0			203.8
Restructuring, impairment and other charges-net		2.8			0.8			8.7			4.1
Depreciation and amortization		12.7			11.6			36.8			33.1
Other operating income		(19.2	)		(53.5	)		(16.4	)		(53.5	)
Income from operations		32.1			62.1			72.1			117.7
Interest expense-net		8.6			8.4			26.6			27.2
Investment and other income-net		(0.5	)		(14.0	)		(1.6	)		(15.6	)
Earnings before income taxes		24.0			67.7			47.1			106.1
Income tax expense		9.3			19.7			16.5			31.5
Net earnings	$	14.7		$	48.0		$	30.6		$	74.6

Net earnings per share (Note 10):
Basic net earnings per share		0.43			1.42			0.90			2.21
Diluted net earnings per share		0.43			1.40			0.89			2.19
Weighted average number of common shares outstanding
Basic		34.2		33.9				34.1			33.8
Diluted		34.3			34.2			34.2			34.0

See Notes to Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2019 and 2018

(in millions)

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Net earnings	$	14.7		$	48.0	$	30.6	$	74.6

Other comprehensive income, net of tax:
Translation adjustments		(0.4	)		0.4		2.3		(2.3	)
Adjustment for net periodic pension and other postretirement benefits plan cost		0.3			0.4		1.0		1.4
Other comprehensive (loss) income, net of tax		(0.1	)		0.8		3.3		(0.9	)
Comprehensive income	$	14.6		$	48.8	$	33.9	$	73.7

See Notes to Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Balance Sheets

As of September 30, 2019 and December 31, 2018

(in millions, except per share data)

(UNAUDITED)

	September 30,			December 31,
	2019			2018
ASSETS
Cash and cash equivalents	$	32.1		$	47.3
Receivables, less allowances for doubtful accounts of $9.3 in 2019 (2018 - $7.9)		201.2			172.9
Inventories		13.7			12.1
Prepaid expenses and other current assets		21.0			16.7
Total current assets		268.0			249.0
Property, plant and equipment-net		25.0			32.2
Right-of-use assets		85.7			—
Software-net		53.6			47.8
Goodwill		450.2			450.0
Other intangible assets-net		26.3			37.2
Deferred income taxes		10.8			9.7
Other noncurrent assets		42.7			42.8
Total assets	$	962.3		$	868.7
LIABILITIES
Accounts payable	$	50.6		$	72.4
Accrued liabilities		142.9			126.0
Total current liabilities		193.5			198.4
Long-term debt (Note 13)		364.1			362.7
Deferred compensation liabilities		19.8			19.5
Pension and other postretirement benefits plan liabilities		47.7			51.3
Noncurrent lease liabilities		63.2			—
Other noncurrent liabilities		7.9			10.8
Total liabilities		696.2			642.7
Commitments and Contingencies (Note 14)
EQUITY
Preferred stock, $0.01 par value
Authorized: 1.0 shares; Issued: None		—			—
Common stock, $0.01 par value
Authorized: 65.0 shares;
Issued: 34.5 shares in 2019 (2018 - 34.2 shares)		0.3			0.3
Treasury stock, at cost: 0.2 shares in 2019 (2018 - 0.1 shares)		(3.7	)		(2.4	)
Additional paid-in-capital		224.0			216.5
Retained earnings		124.9			94.3
Accumulated other comprehensive loss		(79.4	)		(82.7	)
Total equity		266.1			226.0
Total liabilities and equity	$	962.3		$	868.7

See Notes to Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2019 and 2018

(in millions)

(UNAUDITED)

	Nine Months Ended
	September 30,
	2019			2018
OPERATING ACTIVITIES
Net earnings	$	30.6		$	74.6
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		36.8			33.1
Provision for doubtful accounts receivable		3.3			4.5
Share-based compensation		7.7			7.2
Deferred income taxes		(1.6	)		6.4
Changes in uncertain tax positions		—			(0.2	)
Net pension plan income		(1.5	)		(2.4	)
Gain on change in fair value of investment		—			(11.8	)
Gain on sale of building		(19.2	)		—
Loss (gain) on disposition		2.8			(53.5	)
Other		23.0			0.6
Changes in operating assets and liabilities - net of acquisitions:
Accounts receivable - net		(31.9	)		(70.8	)
Inventories		(1.6	)		(2.7	)
Prepaid expenses and other current assets		0.9			2.5
Accounts payable		(22.3	)		3.4
Income taxes payable and receivable		(3.2	)		17.2
Accrued liabilities and other		(27.2	)		4.0
Pension and other postretirement benefits plan contributions		(0.8	)		(1.7	)
Net cash (used in) provided by operating activities		(4.2	)		10.4
INVESTING ACTIVITIES
Capital expenditures		(35.1	)		(22.8	)
Proceeds from sale of building		30.6			—
Acquisition of business, net of cash acquired		(2.6	)		—
(Purchase) sale of investment		(2.3	)		3.1
Proceeds from disposition		—			77.1
Net cash (used in) provided by investing activities		(9.4	)		57.4
FINANCING ACTIVITIES
Revolving facility borrowings		413.0			255.0
Payments on revolving facility borrowings		(413.0	)		(255.0	)
Payments on long-term debt		—			(62.5	)
Proceeds from the issuance of common stock		—			1.2
Treasury share repurchases		(1.3	)		(0.8	)
Debt issuance costs		(0.2	)		—
Net cash used in financing activities		(1.5	)		(62.1	)
Effect of exchange rate on cash, cash equivalents and restricted cash		2.2			(1.5	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(12.9	)		4.2
Cash, cash equivalents and restricted cash at beginning of year		47.4			52.0
Cash, cash equivalents and restricted cash at end of period	$	34.5		$	56.2

Supplemental cash flow information
Income taxes paid (net of refunds)	$	23.7		$	7.6
Interest paid	$	19.0		$	19.9

See Notes to Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Equity

For the Three Months Ended September 30, 2019 and 2018

(in millions)

(UNAUDITED)

	Common Stock				Treasury Stock					Additional Paid-in-Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at June 30, 2019		34.5	$	0.3		0.2	$	(3.7	)	$	221.6		$	110.2	$	(79.3	)	$	249.1
Net earnings		—		—		—		—			—			14.7		—			14.7
Other comprehensive loss		—		—		—		—			—			—		(0.1	)		(0.1	)
Share-based compensation		—		—		—		—			2.6			—		—			2.6
Issuance of share-based awards, net of withholdings and other		—		—		—		—			(0.2	)		—		—			(0.2	)
Balance at September 30, 2019		34.5	$	0.3		0.2	$	(3.7	)	$	224.0		$	124.9	$	(79.4	)	$	266.1

	Common Stock				Treasury Stock					Additional Paid-in-Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at June 30, 2018		34.1	$	0.3		0.1	$	(1.7	)	$	212.1		$	36.4	$	(66.3	)	$	180.8
Net earnings		—		—		—		—			—			48.0		—			48.0
Other comprehensive income		—		—		—		—			—			—		0.8			0.8
Share-based compensation		—		—		—		—			2.1			—		—			2.1
Balance at September 30, 2018		34.1	$	0.3		0.1	$	(1.7	)	$	214.2		$	84.4	$	(65.5	)	$	231.7

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Equity

For the Nine Months Ended September 30, 2019 and 2018

(in millions)

(UNAUDITED)

	Common Stock				Treasury Stock					Additional Paid-in-Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at December 31, 2018		34.2	$	0.3		0.1	$	(2.4	)	$	216.5		$	94.3	$	(82.7	)	$	226.0
Net earnings		—		—		—		—			—			30.6		—			30.6
Other comprehensive income		—		—		—		—			—			—		3.3			3.3
Share-based compensation		—		—		—		—			7.7			—		—			7.7
Issuance of share-based awards, net of withholdings and other		0.3		—		0.1		(1.3	)		(0.2	)		—		—			(1.5	)
Balance at September 30, 2019		34.5	$	0.3		0.2	$	(3.7	)	$	224.0		$	124.9	$	(79.4	)	$	266.1

	Common Stock				Treasury Stock					Additional Paid-in-Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at December 31, 2017		33.8	$	0.3		—	$	(0.9	)	$	205.7		$	8.9	$	(64.6	)	$	149.4
Net earnings		—		—		—		—			—			74.6		—			74.6
Other comprehensive loss		—		—		—		—			—			—		(0.9	)		(0.9	)
Adoption of ASU 2014-09		—		—		—		—			—			0.9		—			0.9
Share-based compensation		—		—		—		—			7.2			—		—			7.2
Issuance of share-based awards, net of withholdings and other		0.3		—		0.1		(0.8	)		1.3			—		—			0.5
Balance at September 30, 2018		34.1	$	0.3		0.1	$	(1.7	)	$	214.2		$	84.4	$	(65.5	)	$	231.7

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 1. Overview and Basis of Presentation

Description of Business

Donnelley Financial Solutions, Inc. (“DFIN,” or the “Company”) is a leading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software-as-a-service (“SaaS”), technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve their regulatory and compliance needs. For corporate clients within its capital markets offerings, the Company offers technology-enabled filing solutions that allow U.S. public companies to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations including filing agent services, digital document creation and online content management tools that support their corporate financial transactions and regulatory reporting; solutions to facilitate clients’ communications with their shareholders; and virtual data rooms and other deal management solutions. For the investment markets, including alternative investment and insurance investment companies, the Company provides technology-enabled filing solutions including cloud-based tools for creating and filing high-quality regulatory documents and solutions for investors designed to improve the speed and accuracy of their access to investment information. Throughout a company’s life cycle, the Company serves its clients’ regulatory and compliance needs. The Company’s deep industry and regulatory expertise and a commitment to exceptional service guides our clients to navigate a high-stakes and ever-changing regulatory environment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of DFIN and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial data presented herein should be read in conjunction with the audited consolidated and combined financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 27, 2019. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash at September 30, 2019 and December 31, 2018 reported within the condensed consolidated balance sheets to the total cash, cash equivalents and restricted cash presented in the condensed consolidated statement of cash flows.

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	32.1	$	47.3
Restricted cash - current ^(a)		2.4		0.1
Total cash, cash equivalents and restricted cash	$	34.5	$	47.4

(a)	Included within prepaid expenses and other current assets within the condensed consolidated balance sheets

Note 2. Revenue

Revenue Recognition

The Company manages highly-customized data and materials, such as Exchange Act, Securities Act and Investment Company Act filings with the SEC on behalf of its customers, manages virtual data rooms and performs XBRL and related services. Clients are provided with EDGAR filing services, XBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among others. The Company’s SaaS offerings include the Venue Virtual Data Room (“Venue”), the FundSuiteArc software platform, ActiveDisclosure and data and analytics, among others.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less. Generally, customer payment is due within ten days upon invoicing.

Revenue is recognized upon transfer of control of promised services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The Company’s arrangements with customers often include promises to transfer multiple services or products to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately requires significant judgment. Certain customer arrangements have multiple performance obligations as certain promises are both capable of being distinct and are distinct within the context of the contract. Other customer arrangements have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, and therefore are not distinct.

Revenue for the Company’s services and products is recognized either over time or at a point in time, as outlined below.

Over time

The Company recognizes revenue for certain services over time.

•

The Company’s SaaS solutions, including Venue, the FundSuiteArc software platform, ActiveDisclosure, data and analytics and others, are generally provided on a subscription basis and allow customers access to use the products over the contract period. As a result, revenue for SaaS solutions is recognized ratably over time as the customer receives the benefit throughout the contract period. The timing of invoicing varies, however the customer may be invoiced before the end of the contract period, resulting in a deferred revenue balance.

•

Revenue for warehousing services is recognized ratably over time as the customer receives the benefit throughout the storage period.

Point in time

All remaining revenue arrangements are generally recognized at a point in time and are primarily invoiced upon completion of all services or upon shipment to the customer.

•

Certain of these arrangements include multiple performance obligations and revenue is recognized upon completion of each performance obligation, such as when a document is filed with a regulatory agency and upon completion of printing the related document. For arrangements with multiple performance obligations, the transaction price is allocated to the separate performance obligations. The Company provides customer specific solutions and as such, observable standalone selling price is rarely available. Standalone selling price is more frequently determined using an estimate of the standalone selling price of each distinct service or product, taking into consideration historical selling price by customer for each distinct service or product. These estimates may vary from the final amounts invoiced to the customer and are adjusted upon completion of all performance obligations. Customers may be invoiced subsequent to the recognition of revenue for completed performance obligations, resulting in contract asset balances.

•

Revenue for arrangements which include assisting customers in completing regulatory filings for transactions, such as mergers and acquisitions or other public capital market transactions, is recognized upon completion of all promises, including the services performed and printing of the related document, if applicable.

•

Revenue for arrangements without a regulatory filing generally have a single performance obligation, as the services and products provided are not distinct within the context of the contract, and are recognized upon completion of the services performed or upon completion of printing of the related product.

•

Warehousing, fulfillment services and shipping and handling are each separate performance obligations. As a result, when the Company provides warehousing and future fulfillment services, revenue for the composition services performed and printing of the product is recognized upon completion of the performance obligation(s), as control of the inventory has transferred to the customer and the inventory is being stored at the customer’s request.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Because substantially all of the Company’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale.

The Company records deferred revenue when amounts are invoiced but the revenue recognition criteria are not yet met. Such revenue is recognized when all criteria are subsequently met.

Certain revenues earned by the Company require significant judgment to determine if revenue should be recorded gross, as a principal, or net of related costs, as an agent. Billings for shipping and handling costs as well as certain postage costs, and out-of-pocket expenses are recorded gross. Revenue is not recognized for customer-supplied postage. The Company’s printing operations process paper that may be supplied directly by customers or may be purchased by the Company from third parties and sold to customers. Revenue is not recognized for customer-supplied paper, however revenues for Company-supplied paper are recognized on a gross basis. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to authorities.

Disaggregation of revenue

The following tables disaggregate revenue by reporting unit and timing of revenue recognition for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019
	Point in time		Over time		Total
U.S.
Capital Markets	$	72.0	$	25.1	$	97.1
Investment Markets		65.5		11.1		76.6
Total U.S.		137.5		36.2		173.7
International		14.5		7.7		22.2
Total net sales	$	152.0	$	43.9	$	195.9

	Three Months Ended September 30, 2018
	Point in time		Over time		Total
U.S.
Capital Markets	$	78.1	$	24.4	$	102.5
Investment Markets		70.1		11.7		81.8
Language Solutions		1.2		—		1.2
Total U.S.		149.4		36.1		185.5
International		26.7		4.7		31.4
Total net sales	$	176.1	$	40.8	$	216.9

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

	Nine Months Ended September 30, 2019
	Point in time		Over time		Total
U.S.
Capital Markets	$	259.6	$	75.5	$	335.1
Investment Markets		226.9		37.7		264.6
Total U.S.		486.5		113.2		599.7
International		64.2		20.5		84.7
Total net sales	$	550.7	$	133.7	$	684.4

	Nine Months Ended September 30, 2018
	Point in time		Over time		Total
U.S.
Capital Markets	$	292.1	$	72.5	$	364.6
Investment Markets		224.2		38.6		262.8
Language Solutions		13.7		—		13.7
Total U.S.		530.0		111.1		641.1
International		107.9		13.7		121.6
Total net sales	$	637.9	$	124.8	$	762.7

Contract Balances

Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing has not yet occurred. Contract assets were $5.0 million at September 30, 2019 and $8.7 million at December 31, 2018, respectively. Generally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers. For the nine months ended September 30, 2019, final amounts invoiced to customers exceeded estimates of standalone selling price as of January 1, 2019 for the related arrangements by approximately $1.5 million. Contract assets are included in accounts receivable on the condensed consolidated balance sheet.

Contract liabilities consist of deferred revenue and progress billings which are included in accrued liabilities on the condensed consolidated balance sheet. Changes in contract liabilities for the nine months ended September 30, 2019 and 2018, respectively, were as follows:

Balance at January 1, 2019	$	12.0
Deferral of revenue		37.5
Revenue recognized		(37.3	)
Balance at September 30, 2019	$	12.2

Balance at January 1, 2018	$	14.2
Deferral of revenue		35.4
Revenue recognized		(35.9	)
Disposition		(1.6	)
Balance at September 30, 2018	$	12.1

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 3. Acquisitions and Dispositions

Acquisition

On December 18, 2018, the Company acquired eBrevia, a leading provider of artificial intelligence-based data extraction and contract analytics software solutions. The eBrevia technology provides leading enterprise contract review and analysis solutions, leveraging machine learning to produce faster and more accurate results. eBrevia's software, which extracts and summarizes key legal provisions and other information, can be used in due diligence, contract management, lease abstraction and document drafting. The acquisition enhances the Company’s Venue Deal Solutions offerings to provide clients with secure data aggregation, due diligence, compliance and risk management solutions. The Company previously held a 12.8% investment in eBrevia prior to the acquisition. The purchase price for the remaining equity of eBrevia, which includes the Company’s estimate of contingent consideration, was $23.3 million, net of cash acquired of $0.2 million. $1.8 million of the purchase price, excluding contingent consideration and amounts held in escrow, remains payable as of September 30, 2019. The fair value of the Company’s previously held investment was $3.3 million, resulting in the recognition of a $1.8 million gain, which is reflected in investment and other income in the consolidated statements of operations for the year ended December 31, 2018. The fair value of the previously held investment was determined based on the purchase price paid for the remaining equity less an estimated control premium. The former owners of eBrevia, excluding the Company, may receive additional contingent consideration of up to $3.5 million in cash subject to eBrevia achieving certain financial targets during the twenty-four months post acquisition. As of the acquisition date and September 30, 2019, the Company estimated the fair value of contingent consideration to be $0.8 million using a probability weighting of the potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation will be recognized in the Company’s consolidated statement of operations. The operations of eBrevia are included within the Capital Markets reporting unit in the U.S. segment.

During the three and nine months ended September 30, 2019, the Company recorded $0.1 million of acquisition-related expenses associated with contemplated acquisitions within selling, general and administrative expenses in the condensed consolidated statement of operations. For the three months ended September 30, 2018, there were no acquisition-related expenses and for the nine months ended September 30, 2018, the Company recorded $0.5 million of acquisition-related expenses associated with completed or contemplated acquisitions.

The eBrevia acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill.

There is no tax deductible goodwill related to the eBrevia acquisition.

The purchase price allocation for eBrevia is preliminary as the Company is still in the process of obtaining data to finalize the estimated fair values of certain deferred tax account balances. The final purchase price allocation may differ from what is currently reflected in the consolidated financial statements. Based on the current valuation, the preliminary purchase price allocation for this acquisition is as follows:

Accounts receivable	$	0.3
Other intangible assets		11.4
Software		0.8
Goodwill		12.9
Accounts payable and accrued liabilities		(0.4	)
Deferred taxes-net		(1.7	)
Total purchase price-net of cash acquired		23.3
Less: fair value of the Company's previously held investment in eBrevia		(3.3	)
Less: fair value of contingent consideration		(0.8	)
Less: payable for initial consideration		(1.8	)
Less: amounts held in escrow and liabilities assumed		(2.2	)
Net cash paid	$	15.2

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Disposition

On July 22, 2018, the Company sold its Language Solutions business, which helped companies adapt their business content into different languages for specific countries, markets and regions, for net proceeds of $77.5 million in cash, all of which was received as of December 31, 2018, resulting in a gain of $53.8 million, which was recognized in other operating income in the consolidated statement of operations for the year ended December 31, 2018. During the nine months ended September 30, 2019, the Company recognized a $2.8 million loss in other operating income in the consolidated statement of operations related to the disposition of the Language Solutions business. Language Solutions' operating results were included within the Language Solutions reporting unit within the U.S. segment as well as the International segment.

Note 4. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials, at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019		December 31, 2018
Raw materials and manufacturing supplies	$	3.7	$	4.0
Work in process		10.0		8.1
Total	$	13.7	$	12.1

Note 5. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019			December 31, 2018
Land	$	2.8		$	10.0
Buildings		33.1			36.2
Machinery and equipment		112.1			106.3
		148.0			152.5
Less: Accumulated depreciation		(123.0	)		(120.3	)
Total	$	25.0		$	32.2

On September 27, 2019, the Company entered into a sale-leaseback agreement in which it sold a building and land at fair market value for proceeds of $30.6 million, and entered into an operating lease of the property through September 2029 with the option to terminate after three years. The $19.2 million net gain on the sale of the property is recorded in other operating income, within the U.S. segment, in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019.

Depreciation expense was $2.1 million and $1.6 million for the three months ended September 30, 2019 and 2018, respectively, and $5.4 million and $5.4 million for the nine months ended September 30, 2019 and 2018.

Note 6. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2019 were as follows:

	U.S.		International		Total
Net book value as of December 31, 2018	$	438.5	$	11.5	$	450.0
Purchase accounting adjustments		0.1		—		0.1
Foreign exchange and other adjustments		—		0.1		0.1
Net book value as of September 30, 2019	$	438.6	$	11.6	$	450.2

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

The components of other intangible assets at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019							December 31, 2018
	Gross Carrying Amount							Gross Carrying Amount
			Accumulated Amortization			Net Book Value				Accumulated Amortization			Net Book Value
			Accumulated Amortization			Net Book Value				Accumulated Amortization			Net Book Value
Customer relationships	$	149.1	$	(123.7	)	$	25.4	$	149.3	$	(113.1	)	$	36.2
Trade names		3.9		(3.0	)		0.9		3.9		(2.9	)		1.0
Total other intangible assets	$	153.0	$	(126.7	)	$	26.3	$	153.2	$	(116.0	)	$	37.2

Amortization expense for other intangible assets was $3.6 million and $3.4 million for the three months ended September 30, 2019 and 2018, respectively, and $10.9 million and $10.3 million for the nine months ended September 30, 2019 and 2018, respectively.

The following table outlines the estimated annual amortization expense related to other intangible assets as of September 30, 2019:

For the year ending December 31,	Amount
2019	$	14.6
2020		13.0
2021		0.9
2022		0.9
2023		0.9
2024 and thereafter		6.9
Total	$	37.2

Note 7. Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. On January 1, 2019, the Company adopted the standard and all related amendments, using the optional transition method applied to leases at the adoption date. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.

The Company elected the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedient to not separate lease components from non-lease components for real estate leases. As a result of the adoption of ASU 2016-02, the Company recognized a lease liability of $101.6 million and a right-of-use (“ROU”) asset of $100.8 million for operating leases at January 1, 2019.

The Company has operating leases for certain service centers, office space, warehouses and equipment. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Upon adoption of ASU 2016-02, ROU assets were adjusted for deferred rent, restructuring liabilities, prepaids and favorable/onerous lease balances as of January 1, 2019. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s incremental borrowing rate is used in determining the present value of future payments at the commencement date of the lease, or for the adoption of ASU 2016-02, at January 1, 2019. Balances related to operating leases are included in ROU assets, accrued liabilities and noncurrent lease liabilities on the condensed consolidated balance sheet.

All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Lease terms include the option to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.

The Company has non-cancelable sublease rental arrangements which did not reduce the future maturities of the operating lease liabilities at September 30, 2019 and did not reduce future rental commitments at December 31, 2018.

The components of lease expense for the three and nine months ended September 30, 2019 were as follows:

	Three months ended			Nine months ended
	September 30, 2019			September 30, 2019
Operating lease expense	$	6.5		$	19.7
Sublease income		(1.4	)		(3.9	)
Net lease expense	$	5.1		$	15.8

Other information related to operating leases as of and for the nine months ended September 30, 2019 were as follows:

Lease Term and Discount Rate	September 30, 2019
Weighted average remaining lease term	4.5 years
Weighted average discount rate		4.6	%

	Nine months ended
Lease Liabilities	September 30, 2019
Cash paid related to lease liabilities	$	20.8
Non-cash disclosure:
Increase in ROU assets due to new lease liabilities	$	9.6
Decrease in ROU assets due to lease modifications and remeasurements		(7.8	)

Maturities of lease liabilities for operating leases as of September 30, 2019 were as follows:

	Amount
2019 ^(a)	$	7.0
2020		25.8
2021		20.6
2022		16.1
2023		10.2
2024 and thereafter		15.6
Total lease payments		95.3
Less: Interest		(9.2	)
Present value of lease liabilities	$	86.1

(a)	Excluding payments for the nine months ended September 30, 2019

As of September 30, 2019
Accrued liabilities	$	22.9
Noncurrent lease liabilities		63.2
Total	$	86.1

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Disclosures related to periods prior to adoption of ASU 2016-02

Future minimum rental commitments under non-cancellable operating leases as of December 31, 2018 were expected to be as follows:

Year ended December 31	Amount
2019	$	26.4
2020		22.6
2021		16.6
2022		10.9
2023		8.7
2024 and thereafter		16.3
Total	$	101.5

Rent expense for facilities in use and equipment was $6.1 million and $18.7 million for the three and nine months ended September 30, 2018, respectively.

Note 8. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges recognized in Results of Operations

For the three months ended September 30, 2019 and 2018, the Company recorded the following net restructuring charges:

Three Months Ended	Employee		Total Restructuring
September 30, 2019	Terminations		Charges		Impairment		Total
U.S.	$	1.6	$	1.6	$	—	$	1.6
International		—		—		—		—
Corporate		0.8		0.8		0.4		1.2
Total	$	2.4	$	2.4	$	0.4	$	2.8

Three Months Ended	Employee		Total Restructuring
September 30, 2018	Terminations		Charges		Total
U.S.	$	0.6	$	0.6	$	0.6
International		0.1		0.1		0.1
Corporate		0.1		0.1		0.1
Total	$	0.8	$	0.8	$	0.8

For the nine months ended September 30, 2019 and 2018, the Company recorded the following net restructuring and other charges:

Nine Months Ended	Employee		Total Restructuring		Other
September 30, 2019	Terminations		Charges		Charges		Impairment		Total
U.S.	$	4.8	$	4.8	$	0.1	$	—	$	4.9
International		1.0		1.0		—		—		1.0
Corporate		2.4		2.4		—		0.4		2.8
Total	$	8.2	$	8.2	$	0.1	$	0.4	$	8.7

Nine Months Ended	Employee		Other Restructuring		Total Restructuring		Other
September 30, 2018	Terminations		Charges		Charges		Charges		Total
U.S.	$	1.1	$	0.7	$	1.8	$	0.1	$	1.9
International		1.9		—		1.9		—		1.9
Corporate		0.3		—		0.3		—		0.3
Total	$	3.3	$	0.7	$	4.0	$	0.1	$	4.1

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

For the three and nine months ended September 30, 2019, the Company recorded net restructuring charges of $2.4 million and $8.2 million, respectively, for employee termination costs for 235 employees, substantially all of whom were terminated as of September 30, 2019. These charges primarily related to the reorganization of certain operations. For the three and nine months ended September 30, 2019, the Company recorded $0.4 million of net impairment charges related to software assets. For the nine months ended September 30, 2019, the Company also incurred $0.1 million for other charges associated with Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

For the three and nine months ended September 30, 2018, the Company recorded net restructuring charges of $0.8 million and $3.3 million, respectively, for employee termination costs for 76 employees, all of whom were terminated as of September 30, 2019. These charges primarily related to the reorganization of certain operations. Additionally, the Company incurred net lease termination and other restructuring cost of $0.7 million and $0.1 million for other charges associated with Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate during the nine months ended September 30, 2018.

Restructuring Reserve

The restructuring reserve as of December 31, 2018 and September 30, 2019, and changes during the nine months ended September 30, 2019, were as follows:


	December 31,		Restructuring					Adoption of			Cash			September 30,
	2018		Charges		Reversals			ASU 2016-02			Paid			2019
Employee terminations	$	0.4	$	8.3	$	(0.1	)	$	—		$	(5.3	)	$	3.3
Lease terminations		1.1		—		—			(1.1	)		—			—
Other		0.2		—		—			—			(0.1	)		0.1
Total	$	1.7	$	8.3	$	(0.1	)	$	(1.1	)	$	(5.4	)	$	3.4

The current portion of restructuring reserves of $3.3 million at September 30, 2019 was included in accrued liabilities, while the long-term portion of $0.1 million was included in other noncurrent liabilities at September 30, 2019.

The Company anticipates that payments associated with the employee terminations reflected in the table above will be substantially completed by December 31, 2019.

The restructuring liabilities classified as “lease terminations” consisted of lease terminations, other facility closing costs and contract termination costs. Upon adoption of ASU 2016-02, the restructuring liabilities as of January 1, 2019 were recorded as a reduction to the related ROU assets recorded on January 1, 2019. Refer to Note 7, Leases, for further information.

Note 9. Retirement Plans

The components of the estimated net pension plan income for DFIN’s pension plans for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Pension expense (income)
Interest cost	$	2.8		$	2.6		$	8.3		$	7.7
Expected return on assets		(3.7	)		(4.0	)		(11.1	)		(12.0	)
Amortization, net		0.4			0.6			1.3			1.9
Net pension income	$	(0.5	)	$	(0.8	)	$	(1.5	)	$	(2.4	)

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 10. Earnings per Share

Basic earnings per share is calculated by dividing net earnings by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock units, performance share units and restricted stock.

The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Net earnings per share:
Basic	$	0.43	$	1.42	$	0.90	$	2.21
Diluted	$	0.43	$	1.40	$	0.89	$	2.19
Numerator:
Net earnings	$	14.7	$	48.0	$	30.6	$	74.6
Denominator:
Weighted average number of common shares outstanding		34.2		33.9		34.1		33.8
Dilutive awards		0.1		0.3		0.1		0.2
Diluted weighted average number of common shares outstanding		34.3		34.2		34.2		34.0
Weighted average number of anti-dilutive share-based awards:
Restricted stock units		0.3		—		0.7		0.3
Stock options		0.8		0.6		0.8		0.6
Total		1.1		0.6		1.5		0.9

Note 11. Comprehensive Income

The components of other comprehensive income and income tax expense allocated to each component for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended								Nine Months Ended
	September 30, 2019								September 30, 2019
	Before Tax			Income Tax		Net of Tax			Before Tax		Income Tax		Net of Tax
	Amount			Expense		Amount			Amount		Expense		Amount
Translation adjustments	$	(0.4	)	$	—	$	(0.4	)	$	2.3	$	—	$	2.3
Adjustment for net periodic pension plan and other postretirement benefits plan cost		0.4			0.1		0.3			1.4		0.4		1.0
Other comprehensive income (loss)	$	—		$	0.1	$	(0.1	)	$	3.7	$	0.4	$	3.3

	Three Months Ended						Nine Months Ended
	September 30, 2018						September 30, 2018
	Before Tax		Income Tax		Net of Tax		Before Tax			Income Tax		Net of Tax
	Amount		Expense		Amount		Amount			Expense		Amount
Translation adjustments	$	0.4	$	—	$	0.4	$	(2.3	)	$	—	$	(2.3	)
Adjustment for net periodic pension plan and other postretirement benefits plan cost		0.6		0.2		0.4		1.9			0.5		1.4
Other comprehensive income (loss)	$	1.0	$	0.2	$	0.8	$	(0.4	)	$	0.5	$	(0.9	)

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Accumulated other comprehensive loss by component as of December 31, 2018 and September 30, 2019 were as follows:

	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2018	$	(66.0	)	$	(16.7	)	$	(82.7	)
Other comprehensive income before reclassifications		0.1			2.3			2.4
Amounts reclassified from accumulated other comprehensive loss		0.9			—			0.9
Net change in accumulated other comprehensive loss		1.0			2.3			3.3
Balance at September 30, 2019	$	(65.0	)	$	(14.4	)	$	(79.4	)

Accumulated other comprehensive loss by component as of December 31, 2017 and September 30, 2018 were as follows:

	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2017	$	(52.9	)	$	(11.7	)	$	(64.6	)
Other comprehensive income before reclassifications		—			(2.3	)		(2.3	)
Amounts reclassified from accumulated other comprehensive loss		1.4			—			1.4
Net change in accumulated other comprehensive loss		1.4			(2.3	)		(0.9	)
Balance at September 30, 2018	$	(51.5	)	$	(14.0	)	$	(65.5	)

Reclassifications from accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended				Nine Months Ended				Classification in the Condensed
	September 30,				September 30,				Consolidated
	2019		2018		2019		2018		Statements of Operations
Amortization of pension and other postretirement benefits plan cost:
Net actuarial loss	$	0.4	$	0.6	$	1.3	$	1.9	_(a)
Reclassifications before tax		0.4		0.6		1.3		1.9
Income tax expense		0.1		0.2		0.4		0.5
Reclassifications, net of tax	$	0.3	$	0.4	$	0.9	$	1.4

(a)	This accumulated other comprehensive loss component is included in the calculation of net periodic pension and other postretirement benefits plan income recognized in investment and other income in the unaudited condensed consolidated statements of operations (see Note 9, Retirement Plans).

Note 12. Segment Information

The Company’s segments are summarized below:

United States

The U.S. segment serves capital market and investment market clients in the U.S. by delivering products and services to help create, manage, and deliver, accurate and timely financial communications to investors and regulators. The Company also provides virtual data rooms to facilitate the deal management requirements of capital markets and mergers and acquisitions transactions, and provides data and analytics services that help professionals uncover intelligence from disclosures contained within public filings made with the SEC. The U.S. segment also includes commercial print. In addition, the U.S. segment included language solutions capabilities, through which the Company translated documents and created content in up to 140 different languages for its clients.*

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

International

The International segment includes the Company’s operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities into or within the United States. In addition, the international segment provided language translation services and shareholder communication services to investment market clients.*

*The Company sold its Language Solutions business on July 22, 2018. Refer to Note 3, Acquisitions and Dispositions, for further information.

Corporate

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, communications and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefit plan expense (income) and allocated costs for share-based compensation, are included in Corporate and not allocated to the operating segments.

Information by Segment

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the consolidated financial statements.

								Income (Loss)			Depreciation
	Total		Intersegment			Net		from			and		Capital
	Sales		Sales			Sales		Operations			Amortization		Expenditures
Three Months Ended September 30, 2019
U.S.	$	175.2	$	(1.5	)	$	173.7	$	39.2		$	10.6	$	7.7
International		23.0		(0.8	)		22.2		(0.9	)		2.0		—
Total operating segments		198.2		(2.3	)		195.9		38.3			12.6		7.7
Corporate		—		—			—		(6.2	)		0.1		1.2
Total operations		198.2		(2.3	)		195.9		32.1			12.7		8.9

								Income (Loss)			Depreciation
	Total		Intersegment			Net		from			and		Capital
	Sales		Sales			Sales		Operations			Amortization		Expenditures
Three Months Ended September 30, 2018
U.S.	$	187.9	$	(2.4	)	$	185.5	$	48.4		$	10.3	$	7.2
International		31.9		(0.5	)		31.4		27.0			1.2		—
Total operating segments		219.8		(2.9	)		216.9		75.4			11.5		7.2
Corporate		—		—			—		(13.3	)		0.1		—
Total operations	$	219.8	$	(2.9	)	$	216.9	$	62.1		$	11.6	$	7.2

								Income (Loss)					Depreciation
	Total		Intersegment			Net		from			Assets of		and		Capital
	Sales		Sales			Sales		Operations			Operations		Amortization		Expenditures
Nine Months Ended September 30, 2019
U.S.	$	605.3	$	(5.6	)	$	599.7	$	100.9		$	748.4	$	31.0	$	33.4
International		86.5		(1.8	)		84.7		(2.6	)		86.9		5.4		0.1
Total operating segments		691.8		(7.4	)		684.4		98.3			835.3		36.4		33.5
Corporate		—		—			—		(26.2	)		127.0		0.4		1.6
Total operations	$	691.8	$	(7.4	)	$	684.4	$	72.1		$	962.3	$	36.8	$	35.1

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

								Income (Loss)					Depreciation
	Total		Intersegment			Net		from			Assets of		and		Capital
	Sales		Sales			Sales		Operations			Operations		Amortization		Expenditures
Nine Months Ended September 30, 2018
U.S.	$	648.7	$	(7.6	)	$	641.1	$	121.7		$	676.4	$	28.7	$	21.6
International		123.1		(1.5	)		121.6		31.1			99.0		4.0		0.9
Total operating segments		771.8		(9.1	)		762.7		152.8			775.4		32.7		22.5
Corporate		—		—			—		(35.1	)		138.0		0.4		0.3
Total operations	$	771.8	$	(9.1	)	$	762.7	$	117.7		$	913.4	$	33.1	$	22.8

Note 13. Debt

The Company’s debt as of September 30, 2019 and December 31, 2018 consisted of the following:

	September 30,			December 31,
	2019			2018
8.25% senior notes due October 15, 2024	$	300.0		$	300.0
Term Loan Credit Facility		71.5			71.3
Unamortized debt issuance costs		(7.4	)		(8.6	)
Total debt		364.1			362.7
Less: current portion		—			—
Long-term debt	$	364.1		$	362.7

The fair value of the senior notes, which was determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, was determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s senior notes was $312.4 million and $298.1 million at September 30, 2019 and December 31, 2018, respectively.

The Company has a Credit Agreement (“the Credit Agreement”) which provides for a $350.0 million senior secured term loan B facility (the “Term Loan Credit Facility”) and a $300.0 million senior secured revolving credit facility (the “Revolving Facility”, and, together with the Term Loan Credit Facility, the “Credit Facilities”). The Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and a maximum Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in the aggregate.

On December 18, 2018, the Company entered into a second amendment to the Credit Agreement which extended the maturity date of the Revolving Facility to December 18, 2023, reduced the interest rate margin percentages and facility fees applicable to the Revolving Facility, increased the allowable annual dividends from $15.0 million to $20.0 million in the aggregate and modified the financial maintenance and negative covenants in the Credit Agreement. As of September 30, 2019, there were no outstanding borrowings under the Revolving Facility.

The weighted average interest rate on borrowings under the Revolving Facility was 5.0% and 5.1% for the nine months ended September 30, 2019 and 2018, respectively.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

The Company’s 8.25% senior unsecured notes due October 15, 2024 (the “Notes”) were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Notes (the “Guarantors”). The Notes are jointly and severally guaranteed, on an unsecured basis, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations under the Credit Facilities. The Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries. The Notes and the related guarantees will be the Company and the Guarantors’, respective, senior unsecured obligations and will rank equally in right of payment to all present and future senior debt, including the obligations under the Company’s Credit Facilities, senior in right of payment to all present and future subordinated debt, and effectively subordinated in right of payment to any of the Company and the Guarantors’ secured debt, to the extent of the value of the assets securing such debt. The indenture governing the Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.

Note 14. Commitments and Contingencies

Litigation

From time to time, the Company’s customers and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

Note 15. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to the former accounting standard. The Company adopted the standard and all related amendments on January 1, 2019 using the optional transition method. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Refer to Note 7, Leases, for further information.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss model with a current expected credit loss (“CECL”) model, which requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted; however the Company will adopt the standard in the first quarter of 2020. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 16. Guarantor Financial Information

As described in Note 13, Debt, on September 30, 2016, the Company issued the Notes. The Guarantors of the Notes, Donnelley Financial, LLC and DFS International Holding, Inc., entered into an agreement pursuant to which each agreed to guarantee the Company’s obligations under the Notes. All guarantees are full and unconditional and joint and several. The Guarantors are 100% directly owned subsidiaries of the Company.

The guarantee of the Notes by a subsidiary guarantor will be automatically released under certain situations, including upon the sale or disposition of such subsidiary guarantor to a person that is not DFIN or a subsidiary guarantor of the Notes, the liquidation or dissolution of such subsidiary guarantor, and if such subsidiary guarantor is released from its guarantee obligations under the Company’s Credit Facilities.

The following tables set forth condensed consolidating statements of income for the three and nine months ended September 30, 2019 and 2018, condensed consolidating statements of financial position as of September 30, 2019 and December 31, 2018, and condensed consolidating statements of cash flows for the nine months ended September 30, 2019 and 2018. The principal consolidating adjustments are to eliminate the investment in subsidiaries and intercompany balances and transactions. For purposes of the tables below, the Company is referred to as “Parent” and the Guarantors are referred to as “Guarantor Subsidiaries.”

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the Three Months Ended September 30, 2019

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
Services net sales	$	—		$	112.8		$	19.3		$	(1.7	)	$	130.4
Products net sales		—			62.4			3.7			(0.6	)		65.5
Total net sales		—			175.2			23.0			(2.3	)		195.9
Services cost of sales (exclusive of depreciation and amortization)		—			55.9			12.4			(1.4	)		66.9
Products cost of sales (exclusive of depreciation and amortization)		—			52.2			3.1			(0.9	)		54.4
Total cost of sales		—			108.1			15.5			(2.3	)		121.3
Selling, general and administrative expenses (exclusive of depreciation and amortization)		—			39.9			6.3			—			46.2
Restructuring, impairment and other charges-net		—			2.8			—			—			2.8
Depreciation and amortization		—			10.7			2.0			—			12.7
Other operating income		—			(19.2	)		—			—			(19.2	)
Income (loss) from operations		—			32.9			(0.8	)		—			32.1
Interest expense (income)-net		8.7			0.1			(0.2	)		—			8.6
Intercompany interest (income) expense-net		(5.7	)		5.7			—			—			—
Investment and other income-net		—			(0.5	)		—			—			(0.5	)
(Loss) earnings before income taxes and equity in net income of subsidiaries		(3.0	)		27.6			(0.6	)		—			24.0
Income tax (benefit) expense		(1.3	)		10.9			(0.3	)		—			9.3
(Loss) earnings before equity in net income of subsidiaries		(1.7	)		16.7			(0.3	)		—			14.7
Equity in net income of subsidiaries		16.4			(0.3	)		—			(16.1	)		—
Net earnings (loss)	$	14.7		$	16.4		$	(0.3	)	$	(16.1	)	$	14.7
Comprehensive income (loss)	$	14.6		$	16.3		$	(0.7	)	$	(15.6	)	$	14.6

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the Nine Months Ended September 30, 2019

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
Services net sales	$	—		$	359.1		$	65.2		$	(4.8	)	$	419.5
Products net sales		—			246.2			21.3			(2.6	)		264.9
Total net sales		—			605.3			86.5			(7.4	)		684.4
Services cost of sales (exclusive of depreciation and amortization)		—			177.4			44.6			(4.1	)		217.9
Products cost of sales (exclusive of depreciation and amortization)		—			193.9			15.7			(3.3	)		206.3
Total cost of sales		—			371.3			60.3			(7.4	)		424.2
Selling, general and administrative expenses (exclusive of depreciation and amortization)		—			137.9			21.1			—			159.0
Restructuring, impairment and other charges-net		—			7.7			1.0			—			8.7
Depreciation and amortization		—			31.4			5.4			—			36.8
Other operating (income) loss		—			(18.0	)		1.6			—			(16.4	)
Income (loss) from operations		—			75.0			(2.9	)		—			72.1
Interest expense (income)-net		27.3			—			(0.7	)		—			26.6
Intercompany interest (income) expense-net		(17.2	)		17.2			—			—			—
Investment and other income-net		—			(1.6	)		—			—			(1.6	)
(Loss) earnings before income taxes and equity in net income of subsidiaries		(10.1	)		59.4			(2.2	)		—			47.1
Income tax (benefit) expense		(3.5	)		20.8			(0.8	)		—			16.5
(Loss) earnings before equity in net income of subsidiaries		(6.6	)		38.6			(1.4	)		—			30.6
Equity in net income of subsidiaries		37.2			(1.4	)		—			(35.8	)		—
Net earnings (loss)	$	30.6		$	37.2		$	(1.4	)	$	(35.8	)	$	30.6
Comprehensive income	$	33.9		$	40.5		$	0.9		$	(41.4	)	$	33.9

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the Three Months Ended September 30, 2018

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
Services net sales	$	—		$	115.6		$	24.9		$	(2.0	)	$	138.5
Products net sales		—			72.3			7.0			(0.9	)		78.4
Total net sales		—			187.9			31.9			(2.9	)		216.9
Services cost of sales (exclusive of depreciation and amortization)		—			60.4			16.9			(1.8	)		75.5
Products cost of sales (exclusive of depreciation and amortization)		—			54.3			4.6			(1.1	)		57.8
Total cost of sales		—			114.7			21.5			(2.9	)		133.3
Selling, general and administrative expenses (exclusive of depreciation and amortization)		—			53.2			9.4			—			62.6
Restructuring, impairment and other charges-net		—			0.7			0.1			—			0.8
Depreciation and amortization		—			10.4			1.2			—			11.6
Other operating income		—			(26.6	)		(26.9	)		—			(53.5	)
Income from operations		—			35.5			26.6			—			62.1
Interest expense (income)-net		8.6			—			(0.2	)		—			8.4
Intercompany interest (income) expense-net		(6.1	)		6.1			—			—			—
Investment and other income-net		—			(12.6	)		(1.4	)		—			(14.0	)
(Loss) earnings before income taxes and equity in net income of subsidiaries		(2.5	)		42.0			28.2			—			67.7
Income tax (benefit) expense		(0.8	)		13.2			7.3			—			19.7
(Loss) earnings before equity in net income of subsidiaries		(1.7	)		28.8			20.9			—			48.0
Equity in net income of subsidiaries		49.7			20.9			—			(70.6	)		—
Net earnings	$	48.0		$	49.7		$	20.9		$	(70.6	)	$	48.0
Comprehensive income	$	48.8		$	50.5		$	21.5		$	(72.0	)	$	48.8

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the Nine Months Ended September 30, 2018

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
Services net sales	$	—		$	397.7		$	94.1		$	(5.9	)	$	485.9
Products net sales		—			251.0			29.0			(3.2	)		276.8
Total net sales		—			648.7			123.1			(9.1	)		762.7
Services cost of sales (exclusive of depreciation and amortization)		—			196.9			61.6			(5.1	)		253.4
Products cost of sales (exclusive of depreciation and amortization)		—			187.2			20.9			(4.0	)		204.1
Total cost of sales		—			384.1			82.5			(9.1	)		457.5
Selling, general and administrative expenses (exclusive of depreciation and amortization)		—			172.9			30.9			—			203.8
Restructuring, impairment and other charges-net		—			2.2			1.9			—			4.1
Depreciation and amortization		—			29.1			4.0			—			33.1
Other operating income		—			(26.6	)		(26.9	)		—			(53.5	)
Income from operations		—			87.0			30.7			—			117.7
Interest expense (income)-net		27.9			(0.3	)		(0.4	)		—			27.2
Intercompany interest (income) expense-net		(19.4	)		19.4			—			—			—
Investment and other income-net		—			(14.2	)		(1.4	)		—			(15.6	)
(Loss) earnings before income taxes and equity in net income of subsidiaries		(8.5	)		82.1			32.5			—			106.1
Income tax (benefit) expense		(2.6	)		25.5			8.6			—			31.5
(Loss) earnings before equity in net income of subsidiaries		(5.9	)		56.6			23.9			—			74.6
Equity in net income of subsidiaries		80.5			23.9			—			(104.4	)		—
Net earnings	$	74.6		$	80.5		$	23.9		$	(104.4	)	$	74.6
Comprehensive income	$	73.7		$	79.6		$	21.7		$	(101.3	)	$	73.7

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Balance Sheet

As of September 30, 2019

	Parent		Guarantor Subsidiaries		Non- guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	17.4	$	2.6	$	12.1	$	—		$	32.1
Receivables, less allowances		—		166.6		34.6		—			201.2
Intercompany receivables		—		121.1		—		(121.1	)		—
Inventories		—		11.1		2.6		—			13.7
Prepaid expenses and other current assets		4.5		13.8		2.7		—			21.0
Total current assets		21.9		315.2		52.0		(121.1	)		268.0
Property, plant and equipment-net		—		23.0		2.0		—			25.0
Right-of-use assets		—		72.2		13.5		—			85.7
Software-net		—		53.6		—		—			53.6
Goodwill		—		438.6		11.6		—			450.2
Other intangible assets-net		—		23.6		2.7		—			26.3
Deferred income taxes		—		10.0		2.5		(1.7	)		10.8
Intercompany long-term note receivable		298.0		—		—		(298.0	)		—
Other noncurrent assets		3.3		35.4		4.0		—			42.7
Investments in consolidated subsidiaries		434.2		53.3		—		(487.5	)		—
Total assets	$	757.4	$	1,024.9	$	88.3	$	(908.3	)	$	962.3
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	—	$	42.5	$	8.1	$	—		$	50.6
Intercompany payables		118.9		—		2.2		(121.1	)		—
Accrued liabilities		5.6		122.8		14.5		—			142.9
Total current liabilities		124.5		165.3		24.8		(121.1	)		193.5
Long-term debt		364.1		—		—		—			364.1
Intercompany long-term note payable		—		298.0		—		(298.0	)		—
Deferred compensation liabilities		—		19.8		—		—			19.8
Pension and other postretirement benefits plan liabilities		—		46.7		1.0		—			47.7
Noncurrent lease liabilities		—		54.8		8.4		—			63.2
Other noncurrent liabilities		2.7		6.1		0.8		(1.7	)		7.9
Total liabilities		491.3		590.7		35.0		(420.8	)		696.2
Total equity		266.1		434.2		53.3		(487.5	)		266.1
Total liabilities and equity	$	757.4	$	1,024.9	$	88.3	$	(908.3	)	$	962.3

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Balance Sheet

As of December 31, 2018

	Parent		Guarantor Subsidiaries		Non- guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	24.9	$	5.0	$	17.4	$	—		$	47.3
Receivables, less allowances		—		141.6		31.3		—			172.9
Intercompany receivables		—		123.6		—		(123.6	)		—
Intercompany short-term note receivable-net		—		—		60.5		(60.5	)		—
Inventories		—		10.4		1.7		—			12.1
Prepaid expenses and other current assets		—		13.5		3.2		—			16.7
Total current assets		24.9		294.1		114.1		(184.1	)		249.0
Property, plant and equipment-net		—		29.3		2.9		—			32.2
Software-net		—		47.8		—		—			47.8
Goodwill		—		438.5		11.5		—			450.0
Other intangible assets-net		—		32.6		4.6		—			37.2
Deferred income taxes		—		37.2		2.4		(29.9	)		9.7
Intercompany long-term note receivable		298.0		—		—		(298.0	)		—
Other noncurrent assets		3.6		35.1		4.1		—			42.8
Investments in consolidated subsidiaries		445.9		106.0		—		(551.9	)		—
Total assets	$	772.4	$	1,020.6	$	139.6	$	(1,063.9	)	$	868.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	—	$	61.0	$	11.4	$	—		$	72.4
Intercompany payables		120.9		—		2.7		(123.6	)		—
Intercompany short-term note payable-net		60.0		0.5		—		(60.5	)		—
Accrued liabilities		0.1		109.2		16.7		—			126.0
Total current liabilities		181.0		170.7		30.8		(184.1	)		198.4
Long-term debt		362.7		—		—		—			362.7
Intercompany long-term note payable		—		298.0		—		(298.0	)		—
Deferred compensation liabilities		—		19.5		—		—			19.5
Pension and other postretirement benefits plan liabilities		—		50.3		1.0		—			51.3
Other noncurrent liabilities		2.7		36.2		1.8		(29.9	)		10.8
Total liabilities		546.4		574.7		33.6		(512.0	)		642.7
Total equity		226.0		445.9		106.0		(551.9	)		226.0
Total liabilities and equity	$	772.4	$	1,020.6	$	139.6	$	(1,063.9	)	$	868.7

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Cash Flows

For the Nine Months Ended September 30, 2019

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	54.5		$	9.2		$	(14.8	)	$	(53.1	)	$	(4.2	)
INVESTING ACTIVITIES
Capital expenditures		—			(35.0	)		(0.1	)		—			(35.1	)
Proceeds from sale of building		—			30.6			—			—			30.6
Acquisition of business, net of cash acquired		—			(2.6	)		—			—			(2.6	)
Purchase of investment		—			(2.3	)		—			—			(2.3	)
Intercompany note receivable, net		—			—			60.5			(60.5	)		—
Net cash (used in) provided by investing activities		—			(9.3	)		60.4			(60.5	)		(9.4	)
FINANCING ACTIVITIES
Revolving facility borrowings		413.0			—			—			—			413.0
Payments on revolving facility borrowings		(413.0	)		—			—			—			(413.0	)
Intercompany note payable, net		(60.5	)		—			—			60.5			—
Dividends paid to Parent		—			—			(53.1	)		53.1			—
Treasury share repurchases		(1.3	)		—			—			—			(1.3	)
Debt issuance costs		(0.2	)		—			—			—			(0.2	)
Net cash used in financing activities		(62.0	)		—			(53.1	)		113.6			(1.5	)
Effect of exchange rate on cash, cash equivalents and restricted cash		—			—			2.2			—			2.2
Net decrease in cash, cash equivalents and restricted cash		(7.5	)		(0.1	)		(5.3	)		—			(12.9	)
Cash, cash equivalents and restricted cash at beginning of year		24.9			5.1			17.4			—			47.4
Cash, cash equivalents and restricted cash at end of period	$	17.4		$	5.0		$	12.1		$	—		$	34.5

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Cash Flows

For the Nine Months Ended September 30, 2018

	Parent			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	59.3		$	(38.0	)	$	(10.9	)	$	—		$	10.4
INVESTING ACTIVITIES
Capital expenditures		—			(21.9	)		(0.9	)		—			(22.8	)
Sale of investment		—			3.1			—			—			3.1
Proceeds from disposition		—			34.5			42.6			—			77.1
Intercompany note receivable, net		—			—			(15.0	)		15.0			—
Net cash provided by investing activities		—			15.7			26.7			15.0			57.4
FINANCING ACTIVITIES
Revolving facility borrowings		255.0			—			—			—			255.0
Payments on revolving facility borrowings		(255.0	)		—			—			—			(255.0	)
Payments on long-term debt		(62.5	)		—			—			—			(62.5	)
Intercompany note payable, net		15.0			—			—			(15.0	)		—
Proceeds from the issuance of common stock		1.2			—			—			—			1.2
Treasury share repurchases		(0.8	)		—			—			—			(0.8	)
Net cash used in financing activities		(47.1	)		—			—			(15.0	)		(62.1	)
Effect of exchange rate on cash and cash equivalents		—			—			(1.5	)		—			(1.5	)
Net increase (decrease) in cash and cash equivalents		12.2			(22.3	)		14.3			—			4.2
Cash and cash equivalents at beginning of year		8.3			27.9			15.8			—			52.0
Cash and cash equivalents at end of period	$	20.5		$	5.6		$	30.1		$	—		$	56.2

Supplemental non-cash disclosure:
Intercompany debt allocation	$	(326.0	)	$	326.0		$	—		$	—		$	—

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

Donnelley Financial Solutions, Inc. (“DFIN,” or the “Company”) is a leading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software-as-a-service (“SaaS”), technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve their regulatory and compliance needs. For corporate clients within its capital markets offerings, the Company offers technology-enabled filing solutions that allow U.S. public companies to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations. The Company’s services include filing agent services, digital document creation and online content management tools that support their corporate financial transactions and regulatory reporting. The Company provides solutions to facilitate clients’ communications with their shareholders; and virtual data rooms and other deal management solutions. For the investment markets, including alternative investment and insurance investment companies, the Company provides technology-enabled filing solutions including cloud-based tools for creating and filing high-quality regulatory documents and solutions for investors designed to improve the speed of access to and accuracy of investment information. Throughout a company’s life cycle, the Company serves its clients’ regulatory and compliance needs. The Company’s deep industry and regulatory expertise and a commitment to exceptional service guides our clients to navigate a high-stakes and ever-changing regulatory environment.

Segments

The Company operates in two business segments:

•

United States. The U.S. segment is comprised of three reporting units: capital markets; investment markets; and language solutions, which was divested in 2018.* The Company services capital market and investment market clients in the U.S. by delivering products and technology-enabled services to help create, manage and deliver financial communications to investors and regulators. The Company provides capital market and investment market clients with communication tools, services and software to allow them to comply with their ongoing regulatory filings. In addition, the U.S. segment provides clients with communications services to create, manage and deliver registration statements, prospectuses, proxies and other communications to regulators and investors. The U.S. segment also includes commercial printing capabilities and language solutions.*

•

International. The International segment includes operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities within the United States. In addition, the International segment provides services to international investment market clients to allow them to comply with applicable SEC regulations, as well as language solutions to international clients.*

*The Company sold its Language Solutions business on July 22, 2018. Refer to Note 3, Acquisitions and Dispositions, to the Unaudited Condensed Consolidated Financial Statements.

The Company reports certain unallocated general and administrative activities and associated expenses within “Corporate”, including, in part, executive, legal, finance, marketing and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension income and share-based compensation, are included in Corporate and are not allocated to the reportable segments.

For the Company’s financial results and the presentation of certain other financial information by segment, see Note 12, Segment Information, to the Unaudited Condensed Consolidated Financial Statements.

Products and Services

The Company separately reports its net sales and related cost of sales for its products and services offerings. The Company’s services offerings consist of document composition, compliance related EDGAR filing services, transaction solutions and the Company’s SaaS solutions, including Venue Virtual Data Room (“Venue”), FundSuiteArc, ActiveDisclosure and EDGAR Online, among others. The Company’s service offerings included language solutions prior to the sale of the Language Solutions business in July 2018. The Company’s product offerings primarily consist of conventional and digital printed products and related shipping costs.

Executive Overview

Third Quarter Overview

Net sales decreased by $21.0 million, or 9.7%, for the third quarter of 2019 compared to the same period in the prior year, including a $0.6 million, or 0.3%, decrease due to changes in foreign exchange rates. Net sales decreased due to lower mutual fund print and print related services and lower capital markets transactions and compliance volumes. In addition, net sales decreased $3.2 million due to the impact of the sale of the Language Solutions business in July 2018. The decrease in net sales was partially offset by growth in SaaS solutions, primarily in FundSuiteArc and ActiveDisclosure, as well as the acquisition of eBrevia.

OUTLOOK

Competition

Technological and regulatory changes, including the electronic distribution of documents, continue to impact the market for our products and services. In addition to the Company’s ongoing innovation in its SaaS solutions, one of the Company’s competitive strengths is that it offers a wide array of communications products, compliance services, a global platform, exceptional sales and service and regulatory domain expertise, which provide differentiated solutions for its clients.

The global risk and compliance industry, in general, is highly competitive and barriers to entry have decreased as a result of technology innovation. Despite some consolidation in recent years, the industry remains highly fragmented in the United States and even more so internationally with many in-country alternative providers. The Company expects competition to increase from existing competitors, as well as new and emerging market entrants. In addition, as the Company expands its product and service offerings, it may face competition from new and existing competitors. The Company competes primarily on product quality and functionality, service levels, subject matter regulatory expertise, security, price and reputation.

The impact of digital technologies has impacted many of the products and markets in which the Company competes, most acutely in the Company’s mutual fund, variable annuity and public company compliance business offerings. While the Company offers a high-touch, service oriented experience, technology changes have provided alternatives to the Company’s clients that allow them to manage more of the financial disclosure process themselves. The Company has invested in its own SaaS solutions, ActiveDisclosure, FundSuiteArc and Venue to serve clients and increase retention and has invested to expand capabilities and address new market sectors. The future impact of technology on the business is difficult to predict and could result in additional expenditures to restructure impacted operations or develop new technologies. In addition, the Company has made targeted acquisitions and investments in its existing business to offer clients innovative services and solutions, including acquisitions of eBrevia and EDGAR Online and investments in AuditBoard, Mediant, Peloton and Gain Compliance that support the Company’s position as a technology service leader in this evolving industry.

The Company’s competitors for SEC filing services for public company compliance clients include full service financial communications providers, technology point solution providers focused on financial communications and general technology providers. The Company’s competitors for SEC filing services for investment markets clients include full service traditional providers, small niche technology providers and local and regional print providers that bid against the Company for printing, mailing and fulfillment services.

Market Volatility/Cyclicality

The Company is subject to market volatility in the United States and world economy, as the success of the transactional offering is largely dependent on the global market for IPOs, secondary offerings, mergers and acquisitions, public and private debt offerings, leveraged buyouts, spinouts and other transactions. A variety of factors impact the global markets, including the regulatory and political environment. Recently, the U.S. IPO market and public debt market were disrupted by the U.S. federal government shutdown that occurred from December 2018 to January 2019. Future government shutdowns could affect volatility of any of these markets. The International segment is particularly susceptible to capital market volatility as most of the International business is capital markets transaction focused. The Company mitigates some of that risk by offering services in higher demand during a down market, like document management tools for the bankruptcy/restructuring process, and also by moving upstream from the filing process with products like Venue, the Company’s data room solution. The Company also attempts to balance this volatility through supporting the quarterly/annual public company reporting process through its EDGAR filing services and ActiveDisclosure product, its investment markets regulatory and shareholder communications offering and continues to expand into adjacent growth businesses like data and analytics, which has recurring revenues and is not as susceptible to market volatility and cycles. The quarterly/annual public company reporting process work also subjects the Company to filing seasonality shortly after the end of each fiscal quarter, with peak periods during the course of the year. The seasonality and associated operational implications include the need to increase staff during peak periods through a combined strategy of hiring additional full-time and temporary personnel, increasing the premium time of existing staff, and outsourcing production for a number of services. Additionally, clients and their financial advisors have begun to increasingly rely on web-based services which allow clients to autonomously file and distribute compliance documents with regulatory agencies, such as the SEC. While the Company believes that its ActiveDisclosure and FundSuiteArc solutions are competitive in this space, competitors are continuing to develop technologies that aim to improve clients’ ability to autonomously produce and file documents to meet their regulatory obligations. The Company continues to remain focused on driving recurring revenue to mitigate market volatility.

Regulatory Impact

The SEC is adopting new rules and forms and amending rules and forms to modernize the reporting and disclosure of information by registered investment companies. These changes are driving significant regulatory changes which impact the Company’s customers within its Investment Markets business. On October 13, 2016, the SEC adopted a new N-PORT filing requirement, which requires certain registered investment companies to report information about their portfolio in XML, a structured data format, on a monthly basis, replacing what was previously a quarterly filing requirement. This rule also includes an annual N-CEN filing in XML, replacing a semi-annual filing requirement. Compliance dates depend on asset size and began as soon as June 1, 2018 for larger funds. The first N-PORT filing deadlines began in April 2019. The Company’s ArcFiling software solution supports both filings. The Company expects an increase in SaaS revenue due to the increase in the frequency of filings for registered investment companies.

On June 5, 2018, the SEC adopted Rule 30e-3 which provides certain registered investment companies with an option to electronically deliver shareholder reports and other materials rather than providing such reports in paper. Investors who prefer to receive reports in paper will continue to receive them in that format. While Rule 30e-3 was effective January 1, 2019, default electronic distribution pursuant to the rule will begin on January 1, 2021 due to a 24-month transition period, during which registered investment companies must notify investors of the upcoming change in transmission format of shareholder reports. The Company expects a decline in the volume of printed annual and semi-annual shareholder reports in 2021 and beyond as a result of Rule 30e-3.

Raw Materials

The primary raw materials used in the Company’s printed products are paper and ink. The paper and ink are sourced from a small set of select suppliers to ensure consistent quality that meets the Company’s performance expectations and provides for continuity of supply. The Company believes that the risk of incurring material losses as a result of a shortage in raw materials is unlikely and that the losses, if any, would not have a materially negative impact on the Company’s business.

Distribution

The Company’s products are distributed to end-users through the U.S or foreign postal services, through retail channels, electronically or by direct shipment to customer facilities.

Significant Accounting Policies and Critical Estimates

The preparation of financial statements in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical estimates are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 27, 2019.

Financial Review

In the financial review that follows, the Company discusses its unaudited condensed consolidated results of operations, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes.

Results of Operations for the Three Months Ended September 30, 2019 as Compared to the Three Months Ended September 30, 2018

The following table shows the results of operations for the three months ended September 30, 2019 and 2018:

	2019			2018			$ Change			% Change
	(in millions, except percentages)
Services net sales	$	130.4		$	138.5		$	(8.1	)		(5.8	%)
Products net sales		65.5			78.4			(12.9	)		(16.5	%)
Net sales		195.9			216.9			(21.0	)		(9.7	%)
Services cost of sales (exclusive of depreciation and amortization)		66.9			75.5			(8.6	)		(11.4	%)
Products cost of sales (exclusive of depreciation and amortization)		54.4			57.8			(3.4	)		(5.9	%)
Cost of sales		121.3			133.3			(12.0	)		(9.0	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		46.2			62.6			(16.4	)		(26.2	%)
Restructuring, impairment and other charges-net		2.8			0.8			2.0			250.0	%
Depreciation and amortization		12.7			11.6			1.1			9.5	%
Other operating income		(19.2	)		(53.5	)		34.3			(64.1	%)
Income from operations	$	32.1		$	62.1		$	(30.0	)		(48.3	%)

Consolidated

Net sales of services for the three months ended September 30, 2019 decreased $8.1 million, or 5.8%, to $130.4 million, versus the three months ended September 30, 2018, including a $0.6 million, or 0.4%, decrease due to changes in foreign exchange rates. Net sales of services decreased $3.2 million due to the July 2018 sale of the Language Solutions business. In addition, net sales of services decreased due to lower mutual fund print related services and capital markets transactions volumes, partially offset by growth in SaaS solutions, primarily in FundSuiteArc and ActiveDisclosure, as well as the acquisition of eBrevia.

Net sales of products for the three months ended September 30, 2019 decreased $12.9 million, or 16.5%, to $65.5 million versus the three months ended September 30, 2018. Net sales of products decreased due to lower capital markets transactions, mutual fund print and capital markets compliance volumes.

Services cost of sales decreased $8.6 million, or 11.4%, to $66.9 million, for the three months ended September 30, 2019, versus the three months ended September 30, 2018. Services cost of sales decreased due to lower volumes in mutual fund print related services and capital markets transactions, the impact from the sale of the Language Solutions business and cost control initiatives. As a percentage of net sales, services cost of sales decreased 3.2% primarily due to favorable mix and cost control initiatives.

Products cost of sales decreased $3.4 million, or 5.9%, to $54.4 million, for the three months ended September 30, 2019, versus the three months ended September 30, 2018. Products cost of sales decreased due to lower capital markets transactions, mutual fund print and capital markets compliance volumes. As a percentage of net sales, products cost of sales increased 9.4%, primarily due to unfavorable mix.

Selling, general and administrative expenses decreased $16.4 million, or 26.2%, to $46.2 million, for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, due to lower disposition related expenses, lower spin-off related transaction expenses, lower incentive compensation expense, the impact from the sale of the Language Solutions business and cost control initiatives. As a percentage of net sales, selling, general, and administrative expenses decreased from 28.9% for the three months September 30, 2018 to 23.6% for the three months ended September 30, 2019, primarily due to lower disposition related expenses, spin-off related transaction expenses, incentive compensation expense and cost control initiatives.

For the three months ended September 30, 2019, the Company recorded net restructuring, impairment and other charges of $2.8 million, as compared to net restructuring, impairment and other charges of $0.8 million for the three months ended September 30, 2018. In 2019, these charges included $2.4 million of employee termination costs for 71 employees and $0.4 million for impairment charges related to software assets. In 2018, these charges included $0.8 million of employee termination costs for 29 employees.

Depreciation and amortization increased $1.1 million, or 9.5%, to $12.7 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Depreciation and amortization included $3.6 million and $3.4 million of amortization of other intangible assets related to customer relationships and a tradename for the three months ended September 30, 2019 and 2018, respectively.

Other operating income for the three months ended September 30, 2019 included a $19.2 million net gain recognized from the sale of a building. The three months ended September 30, 2018 included a $53.5 million net gain recognized on the sale of the Language Solutions business.

Income from operations for the three months ended September 30, 2019 decreased $30.0 million, or 48.3%, to $32.1 million versus the three months ended September 30, 2018, primarily due to the unfavorable impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019.

	2019		2018		$ Change		% Change
	(in millions, except percentages)
Interest expense-net	$	8.6	$	8.4	$	0.2		2.4	%

Net interest expense increased $0.2 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

Net investment and other income for the three months ended September 30, 2019 primarily consisted of net pension plan income. Net investment and other income for the three months ended September 30, 2018 primarily consisted of a $11.8 million gain related to an equity investment and net pension plan income.

	2019			2018			$ Change			% Change
	(in millions, except percentages)
Earnings before income taxes	$	24.0		$	67.7		$	(43.7	)		(64.5	%)
Income tax expense		9.3			19.7			(10.4	)		(52.8	%)
Effective income tax rate		38.8	%		29.1	%

The effective income tax rate was 38.8% for the three months ended September 30, 2019 compared to 29.1% for the three months ended September 30, 2018. The effective income tax rate for the three months ended September 30, 2019 reflects the recognition of a valuation allowance in the International segment during the third quarter of 2019 and clarifications from the U.S. Department of Treasury specific to the 2017 Tax Cuts and Jobs Act (“Tax Act”).

Information by Segment

The following tables summarize net sales, income from operations and certain items impacting comparability within each of the operating segments and Corporate.

U.S.

	Three Months Ended September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	173.7		$	185.5
Income from operations		39.2			48.4
Operating margin		22.6	%		26.1	%
Gain on sale of building		19.2			—
Restructuring, impairment and other charges-net		1.6			0.6
Gain on sale of Language Solutions business		—			26.6
Spin-off related transaction expenses		—			1.6

	Net Sales for the Three Months
	Ended September 30,
Reporting unit	2019		2018		$ Change			% Change
	(in millions, except percentages)
Capital Markets	$	97.1	$	102.5	$	(5.4	)		(5.3	%)
Investment Markets		76.6		81.8		(5.2	)		(6.4	%)
Language Solutions		—		1.2		(1.2	)		(100.0	%)
Total U.S.	$	173.7	$	185.5	$	(11.8	)		(6.4	%)

Net sales for the U.S. segment for the three months ended September 30, 2019 were $173.7 million, a decrease of $11.8 million, or 6.4%, compared to the three months ended September 30, 2018. Net sales decreased due to lower capital markets transaction volumes, lower mutual fund volumes and the sale of the Language Solutions business, partially offset by growth in SaaS solutions, primarily due to ActiveDisclosure and the acquisition of eBrevia. An analysis of net sales by reporting unit follows:

•

Capital Markets: Sales decreased due to lower capital markets transactions, primarily as a result of fewer mergers and acquisitions deals completed, which was only partially offset by an increase in IPO activity and higher volumes in ActiveDisclosure and the acquisition of eBrevia.

•

Investment Markets: Sales decreased primarily due to lower mutual fund print, FundSuiteArc and healthcare volumes.

•

Language Solutions: There were no sales in the three months ended September 30, 2019 due to the sale of the Language Solutions business in July 2018.

U.S. segment income from operations decreased $9.2 million, or 19.0%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to the impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. The decrease in income from operations was also impacted by lower net sales volumes and unfavorable mix, partially offset by cost control initiatives, lower incentive compensation expense and spin-off related transaction expenses.

Operating margins decreased from 26.1% for the three months ended September 30, 2018 to 22.6% for the three months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which impacted margins by 14.3 percentage points, unfavorable mix and higher restructuring, impairment and other charges, partially offset by the net gain recognized from the sale of a building during September 2019 which impacted margins by 11.1 percentage points, lower incentive compensation expense, which favorably impacted margins by 1.0 percentage points and lower spin-off related transaction expenses, which favorably impacted margins by 0.9 percentage points.

International

	Three Months Ended September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	22.2		$	31.4
(Loss) income from operations		(0.9	)		27.0
Operating margin		(4.1	%)		86.0	%
Gain on sale of Language Solutions business		—			26.9
Disposition-related expenses		—			1.2
Restructuring, impairment and other charges-net		—			0.1

Net sales for the International segment for the three months ended September 30, 2019 were $22.2 million, a decrease of $9.2 million, or 29.3%, compared to the three months ended September 30, 2018 including a $0.6 million, or 1.9%, decrease due to changes in foreign exchange rates. Net sales decreased due to lower capital markets transactions and mutual funds volumes, partially offset by higher FundSuiteArc volumes. Net sales also decreased $2.0 million due to the sale of the Language Solutions business.

International segment (loss) income from operations decreased $27.9 million, or 103.3%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Income from operations for the three months ended September 30, 2019 decreased primarily due to the impact from the gain recognized from the sale of the Language Solutions business in 2018, lower capital markets transactions and mutual funds volumes and an increase in information technology expenses allocated to the International segment, offset by lower disposition-related expenses, higher FundSuiteArc volumes and cost control initiatives.

Operating margins decreased from 86.0% for the three months ended September 30, 2018 to negative 4.1% for the three months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which impacted margins by 85.7 percentage points and higher information technology expenses allocated to the International segment, offset by lower disposition-related expenses which favorably impacted margins by 3.8 percentage points.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Three Months Ended September 30,
	2019		2018
	(in millions)
Operating expenses	$	6.2	$	13.3
Share-based compensation expense		2.6		2.1
Restructuring, impairment and other charges-net		1.2		0.1
Acquisition-related expenses		0.1		—
Spin-off related transaction expenses		—		2.1
Disposition-related expenses		—		3.3

Corporate operating expenses for the three months ended September 30, 2019 decreased $7.1 million versus the same period in 2018 primarily due to a decrease in disposition-related expenses, incentive compensation expense and spin-off related transaction expenses, partially offset by higher restructuring, impairment and other charges.

Results of Operations for the Nine Months Ended September 30, 2019 as Compared to the Nine Months Ended September 30, 2018

The following table shows the results of operations for the nine months ended September 30, 2019 and 2018:

	2019			2018			$ Change			% Change
	(in millions, except percentages)
Services net sales	$	419.5		$	485.9		$	(66.4	)		(13.7	%)
Products net sales		264.9			276.8			(11.9	)		(4.3	%)
Net sales		684.4			762.7			(78.3	)		(10.3	%)
Services cost of sales (exclusive of depreciation and amortization)		217.9			253.4			(35.5	)		(14.0	%)
Products cost of sales (exclusive of depreciation and amortization)		206.3			204.1			2.2			1.1	%
Cost of sales		424.2			457.5			(33.3	)		(7.3	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		159.0			203.8			(44.8	)		(22.0	%)
Restructuring, impairment and other charges-net		8.7			4.1			4.6			112.2	%
Depreciation and amortization		36.8			33.1			3.7			11.2	%
Other operating income		(16.4	)		(53.5	)		37.1			(69.3	%)
Income from operations	$	72.1		$	117.7		$	(45.6	)		(38.7	%)

Consolidated

Net sales of services for the nine months ended September 30, 2019 decreased $66.4 million, or 13.7%, to $419.5 million, versus the nine months ended September 30, 2018, including a $2.1 million, or 0.4%, decrease due to changes in foreign exchange rates. Net sales of services decreased $41.8 million due to the sale of the Language Solutions business. In addition, net sales of services decreased due to lower volumes in capital markets transactions, mutual fund print-related services and capital markets compliance, partially offset by growth in SaaS solutions, primarily in ActiveDisclosure and FundSuiteArc as well as the acquisition of eBrevia.

Net sales of products for the nine months ended September 30, 2019 decreased $11.9 million, or 4.3%, to $264.9 million versus the nine months ended September 30, 2018, including a $0.7 million, or 0.3%, decrease due to changes in foreign exchange rates. Net sales of products decreased due to lower volumes in capital markets transactions, commercial print volumes, partially offset by higher mutual fund print volumes.

Services cost of sales for the nine months ended September 30, 2019 decreased $35.5 million, or 14.0%, to $217.9 million, compared to the nine months ended September 30, 2018, primarily due to the impact from the sale of the Language Solutions business. In addition, services cost of sales decreased due to lower capital markets transactions, mutual fund print-related services and capital markets compliance volumes and cost control initiatives. As a percentage of net sales, services cost of sales decreased 0.3% primarily due to favorable mix.

Products cost of sales increased $2.2 million, or 1.1%, to $206.3 million, for the nine months ended September 30, 2019, versus the nine months ended September 30, 2018. Products cost of sales increased due to higher mutual fund print volumes, partially offset by lower capital markets transactions and commercial print volumes. As a percentage of net sales, products cost of sales increased 4.2% primarily due to unfavorable mix.

Selling, general and administrative expenses decreased $44.8 million, or 22.0%, to $159.0 million, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to lower spin-off related transaction expenses, lower selling expenses, the impact from the sale of the Language Solutions business, lower incentive compensation expense and cost control initiatives, partially offset by higher restructuring, impairment and other charges and investor-related expenses. As a percentage of net sales, selling, general, and administrative expenses decreased from 26.7% for the nine months ended September 30, 2018 to 23.2% for the nine months ended September 30, 2019 primarily due to lower spin-off related transaction expenses and cost control initiatives.

For the nine months ended September 30, 2019, the Company recorded net restructuring, impairment and other charges of $8.7 million, as compared to $4.1 million for the nine months ended September 30, 2018. In 2019, these charges included $8.2 million of employee termination costs for 235 employees, $0.4 million of net impairment charges related to software assets and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate. In 2018, these charges included $3.3 million of employee termination costs for 76 employees, $0.7 million of lease termination and other restructuring costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

Depreciation and amortization increased $3.7 million, or 11.2%, to $36.8 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due the investment in digital printers during the first quarter of 2019. Depreciation and amortization included $10.9 million and $10.3 million of amortization of other intangible assets related to customer relationships and a tradename for the nine months ended September 30, 2019 and 2018, respectively.

Other operating income for the nine months ended September 30, 2019 included a $19.2 million net gain recognized from the sale of a building, partially offset by a $2.8 million loss recognized for the prior year disposition of the Language Solutions business. Other operating income for the nine months ended September 30, 2018 included a $53.5 million net gain recognized on the sale of the Language Solutions business.

Income from operations for the nine months ended September 30, 2019 decreased $45.6 million, or 38.7%, to $72.1 million versus the nine months ended September 30, 2018, primarily due to the unfavorable impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. The decrease in income from operations was also due to lower capital markets transactions and compliance volumes, partially offset by an increase in mutual fund print volumes, lower spin-off related transaction expenses and growth in our SaaS offerings.

	2019		2018		$ Change			% Change
	(in millions, except percentages)
Interest expense-net	$	26.6	$	27.2	$	(0.6	)		(2.2	%)

Net interest expense decreased $0.6 million for the nine months ended September 30, 2019 versus the same period in 2018, due to a decrease in average outstanding debt.

Net investment and other income for the nine months ended September 30, 2019 primarily consisted of net pension plan income. Net investment and other income for the nine months ended September 30, 2018 primarily consisted of a $11.8 million gain related to an equity investment and net pension plan income.

	2019			2018			$ Change			% Change
	(in millions, except percentages)
Earnings before income taxes	$	47.1		$	106.1		$	(59.0	)		(55.6	%)
Income tax expense		16.5			31.5			(15.0	)		(47.6	%)
Effective income tax rate		35.0	%		29.7	%

The effective income tax rate was 35.0% for the nine months ended September 30, 2019 compared to 29.7% for the nine months ended September 30, 2018. The effective income tax rate for the nine months ended September 30, 2019 reflects the recognition of a valuation allowance in the International segment during the third quarter of 2019 and clarifications from the U.S. Department of Treasury specific to the Tax Act.

Information by Segment

The following tables summarize net sales, income from operations and certain items impacting comparability within each of the operating segments and Corporate.

U.S.

	Nine Months Ended September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	599.7		$	641.1
Income from operations		100.9			121.7
Operating margin		16.8	%		19.0	%
Gain on sale of building		19.2			—
Restructuring, impairment and other charges-net		4.9			1.9
(Loss) gain on sale of Language Solutions business		(1.2	)		26.6
Spin-off related transaction expenses		—			15.6

	Net Sales for the Nine Months
	Ended September 30,
Reporting unit	2019		2018		$ Change			% Change
	(in millions, except percentages)
Capital Markets	$	335.1	$	364.6	$	(29.5	)		(8.1	%)
Investment Markets		264.6		262.8		1.8			0.7	%
Language Solutions		—		13.7		(13.7	)		(100.0	%)
Total U.S.	$	599.7	$	641.1	$	(41.4	)		(6.5	%)

Net sales for the U.S. segment for the nine months ended September 30, 2019 were $599.7 million, a decrease of $41.4 million, or 6.5%, compared to the nine months ended September 30, 2018. Net sales decreased due to lower capital markets transaction volumes, the sale of the Language Solutions business and lower volumes in capital markets compliance and commercial print, partially offset by higher mutual fund print volumes and growth in SaaS solutions, primarily ActiveDisclosure and the acquisition of eBrevia. An analysis of net sales by reporting unit follows:

•

Capital Markets: Sales decreased due to lower capital markets transactions and compliance volumes, partially offset by higher volumes in ActiveDisclosure and the acquisition of eBrevia.

•

Investment Markets: Sales increased due to higher mutual fund print volumes, partially driven by a special proxy project. The increase in sales was partially offset by lower commercial print volumes and lower FundSuiteArc volumes.

•

Language Solutions: There were no sales in the nine months ended September 30, 2019 due to the sale of the Language Solutions business in July 2018.

U.S. segment income from operations decreased $20.8 million, or 17.1%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily due to the impact of the prior year gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. Income from operations was also unfavorably impacted by lower net sales volumes, unfavorable mix and higher restructuring, impairment and other charges, partially offset by lower spin-off related transaction expenses, cost control initiatives and lower incentive compensation expense.

Operating margins decreased from 19.0% for the nine months ended September 30, 2018 to 16.8% for the nine months ended September 30, 2019 of which 4.4 percentage points was due to the impact of the prior year gain on sale of the Language Solutions business and 0.5 percentage points was due to higher restructuring, impairment and other charges. Operating margins were favorably impacted by the net gain on the sale of a building which impacted margins by 3.2 percentage points, lower spin-off related transaction expenses which impacted margins by 2.4 percentage points and cost control initiatives.

International

	Nine Months Ended September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	84.7		$	121.6
(Loss) income from operations		(2.6	)		31.1
Operating margin		(3.1	%)		25.6	%
(Loss) gain on sale of Language Solutions business		(1.6	)		26.9
Restructuring, impairment and other charges-net		1.0			1.9
Disposition-related expenses		—			1.2

Net sales for the International segment for the nine months ended September 30, 2019 were $84.7 million, a decrease of $36.9 million, or 30.3%, compared to the nine months ended September 30, 2018 including a $2.8 million, or 2.3%, decrease due to changes in foreign exchange rates. Net sales decreased $28.1 million due to the sale of the Language Solutions business. Net sales also decreased due to lower capital markets transactions and mutual fund volumes, partially offset by higher FundSuiteArc volumes.

International segment (loss) income from operations decreased $33.7 million, or 108.4%, compared to the nine months ended September 30, 2018, primarily due to the impact from the gain recognized from the sale of the Language Solutions business in 2018, lower capital markets transaction and mutual fund volumes, an increase in information technology expenses allocated to the International segment and the impact of the loss recognized related to the 2018 sale of the Language Solutions business, partially offset by higher FundSuiteArc volumes.

Operating margins decreased from 25.6% for the nine months ended September 30, 2018 to negative 3.1% for the nine months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which unfavorably impacted margins by 24.0 percentage points, unfavorable mix and higher information technology expenses allocated to the International segment, partially offset by cost control initiatives.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Nine Months Ended September 30,
	2019		2018
	(in millions)
Operating expenses	$	26.2	$	35.1
Share-based compensation expense		7.7		7.2
Restructuring, impairment and other charges-net		2.8		0.3
Investor-related expenses		1.5		—
Spin-off related transaction expenses		0.4		4.3
Acquisition-related expenses		0.1		0.5
Disposition-related expenses		—		5.3

Corporate operating expenses for the nine months ended September 30, 2019 decreased $8.9 million versus the same period in 2018 due to lower spin-off related transaction expenses and disposition-related expenses, partially offset by an increase in restructuring, impairment and other charges and investor-related expenses.

Non-GAAP Measures

The Company believes that certain Non-GAAP measures, such as Non-GAAP adjusted EBITDA, provide useful information about the Company’s operating results and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Non-GAAP adjusted EBITDA allows investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Non-GAAP adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization methods, historic cost and age of assets, restructuring, impairment and other charges, acquisition-related expenses and gain or loss on certain equity investments and asset sales, the Company believes that Non-GAAP adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

Non-GAAP adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis of the Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

In addition to the factors listed above, the following items are excluded from Non-GAAP adjusted EBITDA:

•

Share-based compensation expense. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expenses. Depending upon the size, timing and the terms of grants, non-cash compensation expense may vary but will recur in future periods.

•

Investor-related expenses. Expenses incurred related to non-routine investor matters, which include third-party advisory and consulting fees and legal fees.

•

Spin-off related transaction expenses. The Company has incurred expenses related to the Separation from R.R. Donnelley & Sons Company (“RRD”) (the “Separation”) to operate as a standalone publicly traded company. These expenses include third-party consulting fees, information technology expenses, employee retention payments, legal fees and other costs related to the Separation, including system implementation expenses related to transitioning from transition service agreements with RRD and LSC Communications, Inc. Management does not believe that these expenses are reflective of ongoing operating results.

•

Disposition-related expenses. Expenses incurred related to the disposition of the Language Solutions business. These expenses primarily include legal fees, third-party advisory and consulting fees and other costs related to the disposition.

A reconciliation of GAAP net earnings to Non-GAAP adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018 for these adjustments is presented in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in millions)
Net earnings	$	14.7		$	48.0		$	30.6		$	74.6
Net gain on sale of building		(19.2	)		—			(19.2	)		—
Restructuring, impairment and other charges—net		2.8			0.8			8.7			4.1
Share-based compensation expense		2.6			2.1			7.7			7.2
Net (gain) loss on sale of Language Solutions business		—			(53.5	)		2.8			(53.5	)
Investor-related expenses		—			—			1.5			—
Spin-off related transaction expenses		—			3.7			0.4			19.9
Acquisition-related expenses		0.1			—			0.1			0.5
Gain on equity investment		—			(11.8	)		—			(11.8	)
Disposition-related expenses		—			4.5			—			6.5
Depreciation and amortization		12.7			11.6			36.8			33.1
Interest expense—net		8.6			8.4			26.6			27.2
Investment and other income—net		(0.5	)		(2.2	)		(1.6	)		(3.8	)
Income tax expense		9.3			19.7			16.5			31.5
Non-GAAP adjusted EBITDA	$	31.1		$	31.3		$	110.9		$	135.5

Net gain on sale of building. Included a pre-tax net gain of $19.2 million related to the sale of a building for the three and nine months ended September 30, 2019.

2019 Restructuring, impairment and other charges—net. The three months ended September 30, 2019 included $2.4 million for employee termination costs and $0.4 million of net impairment charges related to software assets. The nine months ended September 30, 2019 included $8.2 million for employee termination costs, $0.4 million of net impairment charges related to software assets and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

2018 Restructuring, impairment and other charges—net. The three months ended September 30, 2018 included $0.8 million for employee termination costs. The nine months ended September 30, 2018 included $3.3 million for employee termination costs, $0.7 million of lease termination costs and other restructuring costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

Share-based compensation expense. Included pre-tax charges of $2.6 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively, and $7.7 million and $7.2 million for the nine months ended September 30, 2019 and 2018, respectively.

Net (gain) loss on sale of Language Solutions business. Included pre-tax charges of $2.8 million for the nine months ended September 30, 2019 related to the July 2018 disposition of the Language Solutions business. Included pre-tax gain of $53.5 million for the three and nine months ended September 30, 2018.

Investor-related expenses. Included pre-tax charges of $1.5 million related to non-routine investor matters for the nine months ended September 30, 2019. These expenses include third-party advisory and consulting fees and legal fees.

Spin-off related transaction expenses. Included pre-tax charges of $0.4 million for the nine months ended September 30, 2019, primarily related to third-party consulting fees. The three and nine months ended September 30, 2018 included pre-tax charges of $3.7 million and $19.9 million, respectively, related to third-party consulting fees, information technology expenses, legal fees and other costs related to the Separation.

Acquisition-related expenses. Included pre-tax charges of $0.1 million for the three and nine months ended September 30, 2019 and $0.5 million for the nine months ended September 30, 2018 primarily related to legal expenses associated with contemplated acquisitions.

Gain on equity investment. Included a pre-tax gain of $11.8 million for the three and nine months ended September 30, 2018.

Disposition-related expenses. Included pre-tax charges of $4.5 million and $6.5 million related to the disposition of the Language Solutions business, primarily related to legal fees, third party advisory and consulting fees and other costs for the three and nine months ended September 30, 2018, respectively.

Liquidity and Capital Resources

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Cash on hand, operating cash flows and the Company’s $300.0 million senior secured revolving credit facility (the “Revolving Facility”) are the primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s debt obligations, capital expenditures necessary to support productivity improvement and growth, acquisitions and completion of restructuring programs.

The following describes the Company’s cash flows for the nine months ended September 30, 2019 and 2018.

Cash Flows (Used in) Provided by Operating Activities

Operating cash inflows are largely attributable to sales of the Company’s services and products. Operating cash outflows are largely attributable to recurring expenditures for labor, rent, raw materials and other operating activities.

Net cash used in operating activities was $4.2 million for the nine months ended September 30, 2019 compared to $10.4 million net cash provided by operating activities for the nine months ended September 30, 2018. The change in net cash (used in) provided by operating activities reflected timing differences in payments related to taxes and the timing of customer and supplier payments.

Cash Flows (Used in) Provided by Investing Activities

Net cash used in investing activities was $9.4 million for the nine months ended September 30, 2019 compared to net cash provided by investing activities of $57.4 million for the nine months ended September 30, 2018. Capital expenditures were $35.1 million during the nine months ended September 30, 2019, an increase of $12.3 million as compared to the nine months ended September 30, 2018. The increase in capital expenditures was primarily driven by an investment in digital printers and additional investments in software development during the nine months ended September 30, 2019. The Company expects that capital expenditures for 2019 will be approximately $45.0 million, compared to $37.1 million in 2018. For the nine months ended September 30, 2019, cash used in investing activities included $30.6 million of proceeds from the sale of a building, offset by $2.3 million for the purchase of an investment in Gain Compliance. For the nine months ended September 30, 2018, cash provided by investing activities included $77.1 million net proceeds from the sale of Language Solutions.

Cash Flows Used in Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2019 was $1.5 million compared to net cash used in financing activities of $62.1 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company received $413.0 million of proceeds from revolving facility borrowings, offset by $413.0 million of payments on revolving facility borrowings. During the nine months ended September 30, 2018, the Company received $255.0 million of proceeds from revolving facility borrowings, offset by $255.0 million of payments on revolving facility borrowings and $62.5 million of payments on long-term debt.

Liquidity

Cash and cash equivalents of $32.1 million at September 30, 2019 included $20.0 million in the U.S. and $12.1 million at international locations. As a result of the transition tax incurred pursuant to the Tax Act, the Company now has the ability to repatriate any previously taxed foreign cash associated with the foreign earnings subject to the U.S. parent with minimal tax consequences. The Company maintains its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S. with the exception of the previously taxed foreign cash already subject to U.S. tax. The Company repatriated excess cash at its foreign subsidiaries to the U.S. during the nine months ended September 30, 2019 and does not plan to make additional cash repatriations during the fourth quarter of 2019. The Company recorded deferred taxes attributable to the book-over-tax outside basis differences in its foreign subsidiaries for the excess cash repatriated as of September 30, 2019.

The Company’s debt maturity schedule as of September 30, 2019 is shown in the table below:

	Debt Maturity Schedule
	Total		2019		2020		2021		2022		2023		Thereafter
Notes ^(a)	$	300.0	$	—	$	—	$	—	$	—	$	—	$	300.0
Borrowings under the Term Loan Credit Facility ^(b)		72.5		—		—		—		—		72.5		—
Total	$	372.5	$	—	$	—	$	—	$	—	$	72.5	$	300.0

(a)	Excludes unamortized debt issuance costs of $4.2 million which do not represent contractual commitments with a fixed amount or maturity date.

(b)	Excludes unamortized debt issuance costs of $3.2 million and a discount of $1.0 million which do not represent contractual commitments with a fixed amount or maturity date.

The Credit Agreement contains a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications.

The indenture governing the Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.

As of September 30, 2019, there were no outstanding borrowings under the Revolving Facility. Based on the Company’s results of operations for the twelve months ended September 30, 2019 and existing debt, the Company would have had the ability to utilize an incremental $155.4 million of the $300.0 million Revolving Facility and not have been in violation of the terms of the agreement. The current availability under the Revolving Facility and net available liquidity as of September 30, 2019 is shown in the table below:

	September 30, 2019
Availability	(in millions)
Revolving Facility	$	300.0
Availability reduction from covenants		144.6
	$	155.4
Usage
Borrowings under the Revolving Facility		—
Impact on availability related to outstanding letters of credit		—
	$	—

Current availability at September 30, 2019	$	155.4
Cash		32.1
Net Available Liquidity	$	187.5

The Company was in compliance with its debt covenants as of September 30, 2019, and expects to remain in compliance based on management’s estimates of operating and financial results for 2019 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s products and services could impact the Company’s ability to remain in compliance with its debt covenants in future periods. As of September 30, 2019, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

The failure of a financial institution supporting the Revolving Facility would reduce the size of the Company’s committed facility unless a replacement institution was added. As of September 30, 2019, the Revolving Facility is supported by sixteen U.S. and international financial institutions.

As of September 30, 2019, the Company had $3.4 million in outstanding letters of credit and bank guarantees, of which none reduced the availability under the Revolving Facility.

Acquisitions

During the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company paid $2.6 million and $12.5 million, net of cash acquired, respectively, for the acquisition of eBrevia. $1.8 million of the purchase price, excluding contingent consideration, was payable as of September 30, 2019 and is expected to be paid during 2019. $1.9 million of the purchase price related to amounts held in escrow was payable as of September 30, 2019 and is expected to be paid during 2020.

Risk Management

The Company is exposed to interest rate risk on its variable debt. At September 30, 2019, the Company’s exposure to rate fluctuations on variable-interest borrowings was $72.5 million.

The Company assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows. A hypothetical 10% change in yield would change the fair values of fixed-rate debt at September 30, 2019 by approximately $9.1 million, or 3.0%.

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. The Company does not use derivative financial instruments for trading or speculative purposes.

OTHER INFORMATION

Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note 14, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.

New Accounting Pronouncements and Pending Accounting Standards

Recently issued accounting standards and their estimated effect on the Company’s consolidated financial statements are described in Note 15, New Accounting Pronouncements, to the Unaudited Condensed Consolidated Financial Statements.

CAUTIONARY STATEMENT

The Company has made forward-looking statements in this Quarterly Report on Form 10-Q within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company.

These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify our forward-looking statements.

Forward-looking statements are not guarantees of performance. The following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q, could cause our actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:

•

the volatility of the global economy and financial markets, and its impact on transactional volume;

•

failure to offer high quality customer support and services;

•

the retention of existing, and continued attraction of additional, clients and key employees;

•

the growth of new technologies with which we may be able to adequately compete;

•

our inability to maintain client referrals;

•

vulnerability to adverse events as a result of becoming a stand-alone company following the Separation from RRD, including the inability to obtain as favorable of terms from third-party vendors;

•

the competitive market for our products and industry fragmentation affecting our prices;

•

the ability to gain client acceptance of our new products and technologies;

•

delay in market acceptance of our products and services due to undetected errors or failures found in our products and services;

•

failure to maintain the confidentiality, integrity and availability of our systems, software and solutions;

•

failure to properly use and protect client and employee information and data;

•

the effect of a material breach of security or other performance issues of any of our or our vendors’ systems;

•

factors that affect client demand, including changes in economic conditions, national or international regulations and clients’ budgetary constraints;

•

our ability to access debt and the capital markets due to adverse credit market conditions;

•

the effect of increasing costs of providing healthcare and other benefits to our employees;

•

changes in the availability or costs of key materials (such as ink and paper) or in prices received for the sale of by-products;

•

failure to protect our proprietary technology;

•

failure to successfully integrate acquired businesses into our business;

•

availability to maintain our brands and reputation;

•

the retention of existing, and continued attraction of, key employees, including management;

•

the effects of operating in international markets, including fluctuations in currency exchange rates;

•

the effect of economic and political conditions on a regional, national or international basis;

•

lack of market for our common stock;

•

lack of history as an operating company and costs associated with being an independent company; and

•

failure to achieve certain intended benefits of the Separation.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of the Quarterly Report on Form 10-Q should consider these forward looking statements only as the Company’s current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report on Form 10-Q to reflect any new events or any change in conditions or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to Item 2 of Part I under “Risk Management.” There have been no significant changes to the Company’s market risk since December 31, 2018. For a discussion of exposure to market risk, refer to Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 27, 2019.

Item 4. Controls and Procedures

(a)	Disclosure controls and procedures.

Management, together with the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934) as of September 30, 2019. Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2019.

(b)	Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2019 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of certain litigation involving the Company, see Note 14, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 27, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2019 - July 31, 2019	—	$	—	—	$	—
August 1, 2019 - August 31, 2019	2,830		12.09	—	$	—
September 1, 2019 - September 30, 2019	—	—		—	$	—
Total	2,830	$	12.09	—

(a)	Shares withheld for tax liabilities upon vesting of equity awards

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 6. Exhibits

3.1			Amended and Restated Certificate of Incorporation of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

3.2			Amended and Restated By-laws of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.1			Indenture, dated as of September 30, 2016, among Donnelley Financial Solutions, Inc., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

10.1			Credit Agreement, dated as of September 30, 2016, among Donnelley Financial Solutions, Inc., as Borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.2			Amendment No. 1 to Credit Agreement, dated as of October 2, 2017, among Donnelley Financial Solutions, Inc., as Borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2017, filed on November 2, 2017)

10.3			Amendment No. 2 to Credit Agreement, dated as of December 18, 2018, by and among Donnelley Financial Solutions, Inc., the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 18, 2018, filed on December 18, 2018)

10.4			2016 Donnelley Financial Solutions, Inc. Performance Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.5			Amended and Restated Donnelley Financial Solutions, Inc. 2016 Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 18, 2017, filed on May 23, 2017)*

10.6			Amendment to the Donnelley Financial Solutions, Inc. Amended and Restated 2016 Performance Incentive Plan dated May 20, 2019 (incorporated herein by reference to Appendix A of the Company’s definitive proxy statement on Schedule 14A (file No. 001-37728) filed April 22, 2019)*

10.7			Amendment to Amended and Restated Donnelley Financial Solutions, Inc. 2016 Performance Incentive Plan dated June 27, 2019 (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 10-Q dated June 30, 2019, filed on August 1, 2019)*

10.8			Donnelley Financial Solutions, Inc. Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K dated December 31, 2017, filed on February 28, 2018)*

10.9			Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors (incorporated by reference to Exhibit 10.1 to R.R Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 6, 2008)*

10.10			Donnelley Financial Solutions, Inc. Nonqualified Deferred Compensation Plan, dated as of September 22, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.11			Donnelley Financial Unfunded Supplemental Pension Plan effective October 1, 2016 (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.12			Donnelley Financial Solutions, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.13			Letter Agreement to Employment Agreement, dated as of April 20, 2018, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 10, 2018, filed on April 16, 2018)*

10.14			Amended and Restated Employment Agreement, dated as of July 13, 2017, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 13, 2017, filed on July 14, 2017)*

10.15			Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Thomas F. Juhase (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.16			Waiver of Severance Benefits, dated as of June 1, 2017, by and between Thomas F. Juhase and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.17			Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and David A. Gardella (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.18			Waiver of Severance Benefits, dated as of June 1, 2017, by and between David A. Gardella and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.19			Assignment of Severance Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Jennifer B. Reiners (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.20			Waiver of Severance Benefits, dated as of June 1, 2017, by and between Jennifer B. Reiners and the Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.21			Donnelley Financial Solutions Annual Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 2, 2018, filed on March 13, 2018)*

10.22			Form of Founders Award (Restricted Stock) Agreement (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.23			Form of Performance Restricted Stock Award Agreement (for 2017) (incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.24			Form of Amendment to Performance Restricted Stock Award Agreement (for 2017) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.25			Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated December 31, 2017, filed on February 28, 2018)*

10.26			Form of Performance Share Unit Award Agreement (for 2017) (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.27			Form of Performance Share Unit Award Agreement (for 2019) (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2018, filed on May 2, 2019)*

10.28			Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.29			Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.30			Agreement regarding title and retention bonus for Thomas Juhase dated March 21, 2016 converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.31			Form of Director Restricted Stock Unit Award (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.32			Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.21 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.33			Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.25 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on February 27, 2008)*

10.34			Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.35			Form of Amendment to Director Restricted Stock Unit Awards converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.22 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.36			Form of Amendment to Director Restricted Stock Unit Awards dated May 21, 2009 converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 5, 2009)*

10.37			Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2016, filed on November 9, 2016)

10.38			Agreement, dated February 17, 2019, by and among the Company, Simcoe Capital Management, LLC and, solely for purposes of Section 2(g) thereof, Jeffrey Jacobowitz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 17, 2019, filed on February 19, 2019)

10.39			Amended and Restated Agreement of Sale and Purchase, dated as of September 6, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (filed herewith)

10.40			First Amendment to Amended and Restated Agreement of Sale and Purchase, dated as of September 25, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (filed herewith)

10.41			Second Amendment to Amended and Restated Agreement of Sale and Purchase, dated as of September 26, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (filed herewith)

14.1			Code of Ethics for the Chief Executive Officer and Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)

31.1			Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

31.2			Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

32.1			Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

32.2			Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

101.INS			Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, has been formatted in Inline XBRL.

*	Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DONNELLEY FINANCIAL SOLUTIONS, INC.

	By:		/s/ DAVID A. GARDELLA
			David A. Gardella
			Executive Vice President and Chief Financial Officer

Date: November 5, 2019

Exhibit 10.39

AMENDED AND RESTATED

AGREEMENT OF SALE AND PURCHASE

between

DONNELLEY FINANCIAL, LLC,
a Delaware limited liability company

“Seller”

and

SECA-NJ LLC,
a Delaware limited liability company

“Buyer”

with Escrow Instructions for

CHICAGO TITLE INSURANCE COMPANY

as Escrow Agent

Table of Contents

AND

List of exhibits and SCHEDULES

Page

ARTICLE 1

CERTAIN DEFINITIONS1

Section 1.1

Definitions1

Section 1.2

Rules of Construction5

ARTICLE 2

AGREEMENT OF PURCHASE AND SALE; PURCHASE PRICE5

Section 2.1

Agreement of Purchase and Sale5

Section 2.2

Purchase Price5

Section 2.3

Deposit5

Section 2.4

Independent Consideration6

Section 2.5

Indivisible Economic Package6

Section 2.6

Assumption of Obligations6

ARTICLE 3

BUYER’S DUE DILIGENCE/CONDITION OF THE PROPERTY6

Section 3.1

Buyer’s Inspections and Due Diligence6

Section 3.2

Delivery Period7

Section 3.3

Site Visits7

Section 3.4

Buyer’s Due Diligence Indemnity8

Section 3.5

Confidentiality8

Section 3.6

Due Diligence Period9

ARTICLE 4

TITLE AND SURVEY9

Section 4.1

Title to Real Property9

Section 4.2

Section 4.3

Title Insurance11

ARTICLE 5

REMEDIES AND DEPOSIT INSTRUCTIONS11

Section 5.1

Permitted Termination; Seller Default11

Section 5.2

BUYER DEFAULT; LIQUIDATED DAMAGES12

Section 5.3

Deposit Instructions12

Section 5.4

Designation of Reporting Person13

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF SELLER14

Section 6.1

Representations and Warranties of Seller14

Section 6.2

Limited Liability15


	-i-

Table of Contents

(continued)

Page

Section 6.3

Seller’s Knowledge16

Section 6.4

Liability of Representations and Warranties16

Section 6.5

Amendment to Schedule16

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF BUYER16

Section 7.1

Buyer’s Representations and Warranties16

Section 7.2

No Plan Assets18

Section 7.3

Buyer’s Independent Investigation18

Section 7.4

Buyer’s Release of Seller21

Section 7.5

Discharge22

ARTICLE 8

[RESERVED]22

ARTICLE 9

CLOSING AND CONDITIONS23

Section 9.1

Escrow Instructions23

Section 9.2

Closing23

Section 9.3

Seller’s Closing Documents and Other Items23

Section 9.4

Buyer’s Closing Documents and Other Items24

Section 9.5

Prorations and Closing Costs24

Section 9.6

Brokers26

Section 9.7

Expenses26

Section 9.8

Conditions Precedent26

ARTICLE 10

MISCELLANEOUS27

Section 10.1

Amendment and Modification27

Section 10.2

Recordation27

Section 10.3

Anti-Terrorism Law27

Section 10.4

Risk of Loss and Insurance Proceeds27

Section 10.5

Notices28

Section 10.6

Assignment29

Section 10.7

Governing Law29

Section 10.8

Counterparts; Signatures29

Section 10.9

Entire Agreement30

Section 10.10

Severability30


	-ii-

Table of Contents

(continued)

Page

Section 10.11

Attorney Fees30

Section 10.12

Payment of Fees and Expenses30

Section 10.13

Confidential Information30

Section 10.14

No Joint Venture31

Section 10.15

Waiver of Jury Trial31

Section 10.16

Limited Liability32

Section 10.17

Time of Essence32

Section 10.18

No Waiver32

Section 10.19

Exculpation32

Section 10.20

Maximum Aggregate Liability32

Section 10.21

Maintenance of the Property32

Section 10.22

Local Provisions33

Section 10.23

Amendment and Restatement.34

Exhibit “A”Description of Land

Exhibit “B”Excluded Personal Property

Exhibit “C”List of Service and Other Contracts

Exhibit “D”Form of Deed

Exhibit “E”Form of Assignment and Assumption of Intangible Personal Property

Exhibit “F”Buyer’s Due Diligence Checklist


	-iii-

AMENDED AND RESTATED AGREEMENT OF SALE AND PURCHASE

THIS AMENDED AND RESTATED AGREEMENT OF SALE AND PURCHASE (this “Agreement”), dated as of September 6, 2019, is between DONNELLEY FINANCIAL, LLC, a Delaware limited liability company (“Seller”), and SECA-NJ, LLC, a Delaware limited liability company (“Buyer”).

ARTICLE 1

CERTAIN DEFINITIONS

Section 1.1Definitions. The parties hereby agree that the following terms shall have the meanings hereinafter set forth, such definitions to be applicable equally to the singular and plural forms, and to the masculine and feminine forms, of such terms:

1.1.1“Additional Deposit” shall have the meaning ascribed in Section 2.3.

1.1.2“Affiliate” shall mean the any person or entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Buyer or Seller, as the case may be. For the purposes of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have the meanings correlative to the foregoing.

1.1.3“Agreement” shall mean this Agreement, as the same may be amended, modified, or supplemented from time to time in writing by the parties hereto.

1.1.4“Anti-Money Laundering and Anti-Terrorism Laws” shall have the meaning ascribed in subsection 7.1(h).

1.1.5“Applicable Law” shall mean all statutes, laws, common law, rules, regulations, ordinances, codes or other legal requirements of any Governmental Entity, board of fire underwriters and similar quasi-governmental agencies or entities, and any judgment, injunction, order, directive, decree or other judicial or regulatory requirement of any Governmental Entity of competent jurisdiction affecting or relating to the Person or property in question.

1.1.6“Assignment and Assumption of Intangible Personal Property” shall have the meaning ascribed in Section 9.3.2.

1.1.7“Broker” shall mean CBRE.

1.1.8“Broker’s Commission” shall have the meaning ascribed in Section 9.6.

1.1.9“Closing” shall have the meaning ascribed in Section 9.2.

1.1.10“Closing Date” shall mean, TIME BEING OF THE ESSENCE, the date on which the Closing shall occur, but in no event later than the date set forth in Section 9.2.

1.1.11“Closing Statement” shall have the meaning ascribed in Section 9.5.1(a).

1.1.12“Contracts” shall mean the service contracts and other contracts described in Exhibit “C” and all other service contracts entered into by Seller after the Effective Date.

1.1.13“Deed” shall have the meaning ascribed in Section 9.3.1.

1.1.14“Deposit” shall have the meaning ascribed in Section 2.3.

1.1.15“Disclosure Items” shall have the meaning ascribed in Section 6.1.

1.1.16“Due Diligence” shall mean the review contemplated by Section 3.1 and related provisions of this Agreement.

1.1.17“Due Diligence Items” shall have the meaning ascribed in Section 3.2(a).

1.1.18“Due Diligence Period” shall have the meaning ascribed in Section 3.1.

1.1.19“Effective Date” shall mean September 6, 2019.

1.1.20“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.1.21“Escrow Agent” shall mean Chicago Title Insurance Company, having its office at 10 South LaSalle Street, Suite 3100, Chicago, Illinois 60603, Attention: Beata Lewis.

1.1.22“Executive Order” shall have the meaning ascribed in subsection 7.1(h).

1.1.23“Excluded Property Records” shall have the meaning ascribed in Section 3.2.

1.1.24“Fixtures” shall mean the fixtures which are located at and affixed to any of the Improvements as of the Closing Date.

1.1.25“Government List” shall have the meaning ascribed in Section 10.3.

1.1.26“Governmental Entity” means the various governmental and quasi-governmental bodies or agencies having jurisdiction over Seller, the Real Property or any portion thereof.

1.1.27“Hazardous Materials” means (A) those substances included within the definitions of any one or more of the terms “hazardous substances,” “toxic pollutants”, “hazardous materials”, “toxic substances”, and “hazardous waste” in the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (as amended), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 1801 et seq., the Resource Conservation and Recovery Act of 1976 as amended, 42 U.S.C. Section 6901 et seq., Section 311 of the Clean Water Act, 15 U.S.C. § 2601 et seq., 33 U.S.C. § 1251 et seq., 42 U.S.C. 7401 et seq. and the regulations and publications issued under any such laws, (B) petroleum, radon gas, lead based paint, asbestos or asbestos containing material and polychlorinated biphenyls and (C) mold

or water conditions which may exist at the Real Property or other matters governed by any applicable federal, state or local law or statute.

1.1.28“Improvements” shall mean the buildings, improvements, and structures located on the Land, including, without limitation, all buildings and structures presently located on the Land, all apparatus, equipment and appliances used in connection with the operation or occupancy of the Land, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal, or other services on the Land, and along with all on-site parking.

1.1.29“Independent Consideration” shall have the meaning ascribed in Section 2.4.

1.1.30“Initial Deposit” shall have the meaning ascribed in Section 2.3.

1.1.31“Intangible Personal Property” shall mean any intangible personal property now or hereafter owned (prior to the Closing Date) by Seller and used in the ownership, maintenance, development, and use or operation of the Real Property, Improvements and Personal Property, including, without limitation, any and all guaranties, warranties, indemnities, development rights, signage rights, plans, specifications, trade names, domain names, websites and software, together with the Licenses and Permits, but expressly excluding any trade names, domain names, websites, software and any and all other intangible personal property used by Seller exclusively in connection with the operation of Seller’s business.

1.1.32“IRS” shall mean the Internal Revenue Service.

1.1.33“IRS Reporting Requirements” shall have the meaning ascribed in Section 5.4.

1.1.34“Land” shall mean that certain parcel of land and rights, privileges and easements appurtenant thereto more particularly described on Exhibit “A” including, without limitation, all of Seller’s right, title and interest in and to (i) all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto, servicing such land, or used in connection with the beneficial use and enjoyment of such land and (ii) all minerals, oil, gas and other hydrocarbon substances on and under such land, as well as all air rights, water, water rights, riparian rights and water stock relating to the land.

1.1.35“Lease” shall have the meaning ascribed in Section 3.6.

1.1.36“Licensee Parties” shall mean those authorized agents, contractors, consultants and representatives of Buyer who shall inspect, investigate, test or evaluate the Property on behalf of Buyer in accordance with this Agreement.

1.1.37“Licenses and Permits” shall mean, collectively, to the extent assignable, all licenses, permits, approvals, certificates of occupancy, dedications, subdivision maps and entitlements now or hereafter issued, approved or granted by any Governmental Entity, the rights to which are intended to run with the Real Property, together with all renewals and modifications thereof.

1.1.38“Liens” shall have the meaning ascribed in Section 4.2.

1.1.39“Operating Expenses” shall mean operating expenses, including utilities, insurance and other charges.

1.1.40“Permitted Exceptions” shall mean and include all of the following: (i) applicable zoning and building ordinances and land use regulations; (ii) such state of facts as disclosed in the Survey, (iii) the lien of taxes and assessments not yet due and payable; (iv) any exclusions from coverage set forth in the jacket of any Owner’s Policy of Title Insurance or any standard printed exceptions; (v) any exceptions caused by Buyer, its agents, representatives or employees; (vi) such other exceptions as the Title Company shall commit to insure over, without any additional cost to Buyer, whether such insurance is made available in consideration of payment, bonding, indemnity of Seller or otherwise; and (vii) any matters deemed to constitute Permitted Exceptions under Section 4.2 hereof.

1.1.41“Permitted Outside Parties” shall have the meaning ascribed in Section 3.5.

1.1.42“Person” shall mean a natural person, partnership, limited partnership, limited liability company, corporation, trust, estate, association, unincorporated association or other entity.

1.1.43“Personal Property” shall mean all of the right, title, and interest of Seller in and to the tangible personal property, which is located at and used exclusively in connection with any of the Real Property as of the Closing Date, but specifically excluding any computer software which either is licensed to Seller, or Seller deems proprietary. Personal Property shall not include any equipment used solely in connection with Seller’s business operations or any appraisals, budgets, strategic plans for the Real Property, internal analyses, marketing information, submissions relating to Seller’s obtaining of corporate authorization, attorney and accountant work product, attorney-client privileged documents, or other information in the possession or control of Seller which Seller deems proprietary.

1.1.44“Property” shall mean the Real Property, the Personal Property (which is not scheduled in Exhibit B), and the Intangible Personal Property.

1.1.45“Proration Items” shall have the meaning ascribed in Section 9.5.1(a).

1.1.46“Proration Time” shall have the meaning ascribed in Section 9.5.1(a).

1.1.47“Purchase Price” shall have the meaning ascribed in Section 2.2.

1.1.48“Real Property” shall mean the Land, the Improvements, and the Fixtures.

1.1.49“Reporting Person” shall have the meaning ascribed in Section 5.4.

1.1.50“Survey” shall have the meaning ascribed in Section 4.1.

1.1.51“Title Commitment” shall have the meaning ascribed in Section 4.1.

1.1.52“Title Company” shall mean Chicago Title Insurance Company, having its office at 10 South LaSalle Street, Suite 3100, Chicago, Illinois 60603, Attention: Lucas Kmiec.

1.1.53“Title Documents” shall have the meaning ascribed in Section 4.1.

1.1.54“Title Objections” shall have the meaning ascribed in Section 4.2.

1.1.55“Title Policy” shall have the meaning ascribed in Section 4.3.

Section 1.2Rules of Construction. Article and Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. All references to “Article” or “Sections” without reference to a document other than this Agreement, are intended to designate articles and sections of this Agreement, and the words “herein,” “hereof,” “hereunder,” and other words of similar import refer to this Agreement as a whole and not to any particular Article or Section, unless specifically designated otherwise. The use of the term “including” shall mean in all cases “including but not limited to,” unless specifically designated otherwise. No rules of construction against the drafter of this Agreement shall apply in any interpretation or enforcement of this Agreement, any documents or certificates executed pursuant hereto, or any provisions of any of the foregoing.

ARTICLE 2

AGREEMENT OF PURCHASE AND SALE; PURCHASE PRICE

Section 2.1Agreement of Purchase and Sale. Seller agrees to sell, transfer, assign and convey to Buyer, and Buyer agrees to purchase, accept and assume, subject to the terms and conditions stated herein, all of Seller’s right, title and interest in and to the Property, except Seller shall retain the Personal Property set forth in Exhibit B, the Contracts and any intangible personal property used by Seller in connection with the operation of Seller’s business following the Closing in connection with its occupancy under the Lease (as defined herein).

Section 2.2Purchase Price. Buyer shall pay Seller the purchase price of Thirty-One Million and NO/100 Dollars ($31,000,000.00) (“Purchase Price”) at Closing. The Purchase Price and such other funds as may be necessary to pay Buyer’s expenses hereunder, subject to closing adjustments, shall be deposited with the Escrow Agent on or before the Closing Date in accordance with this Agreement and paid to Seller upon satisfaction of all conditions precedent to the Closing as described herein.

Section 2.3Deposit. Within three (3) business days after this Agreement is executed by Buyer and Seller, Buyer shall deposit via wire transfer the sum of Five Hundred Thousand and NO/100 Dollars ($500,000.00) in immediately available funds as a deposit (the “Initial Deposit”) with Escrow Agent whose address is as indicated in Section 10.5. If Buyer does not elect to terminate this Agreement pursuant to Section 3.6 below, Buyer shall deposit an additional Five Hundred Thousand and NO/100 Dollars ($500,000.00) (the “Additional Deposit”; the Initial Deposit and the Additional Deposit, together with interest earned thereon, collectively, the “Deposit”) in immediately available funds with Escrow Agent on the date that is two (2) business days after the last day of the Due Diligence Period. The Deposit shall be non-refundable except as provided in Sections 3.6, 4.2, 5.1 and 10.4, or as otherwise expressly set forth in this Agreement,

and shall be held and delivered by Escrow Agent in accordance with the provisions of Article 5. Interest earned on the Deposit shall be considered part of the Deposit and shall be deemed to have been earned by, and constitute income of, Buyer. Except as otherwise expressly set forth herein, the Deposit shall be applied against the Purchase Price on the Closing Date.

Section 2.4Independent Consideration. Contemporaneously with the execution and delivery of this Agreement, Buyer has paid to Seller as further consideration for this Agreement, in cash, the sum of One Hundred Dollars ($100.00) (the “Independent Consideration”), in addition to the Deposit and the Purchase Price and independent of any other consideration provided hereunder, which Independent Consideration is fully earned by Seller and is non-refundable under any circumstances. In addition, Seller acknowledges that (a) in performing its investigation of the Property, Buyer will incur expenses, and such expenses also constitute good, valuable and sufficient consideration for this Agreement, and (b) Buyer would not have entered into this Agreement without having the opportunity to perform such investigations and without having the right to terminate this Agreement in accordance with the provisions hereof. Accordingly, in addition to the $100 referenced above, separate consideration exists to support Seller’s obligations hereunder notwithstanding Buyer’s right to terminate this Agreement as provided herein.

Section 2.5Indivisible Economic Package. Buyer has no right to purchase, and Seller has no obligation to sell, less than all of the Real Property, it being the express agreement and understanding of Buyer and Seller that, as a material inducement to Seller and Buyer to enter into this Agreement, Buyer has agreed to purchase, and Seller has agreed to sell, all of the Real Property, subject to and in accordance with the terms and conditions hereof.

Section 2.6Assumption of Obligations. As additional consideration for the purchase and sale of the Real Property, at Closing Buyer will, subject to Section 7.3.2: (a) assume and perform all obligations relating to the physical and environmental condition of the Real Property regardless of whether such obligations arise before, on or after the Closing Date; and (b) assume and agree to discharge, perform and comply with each and every liability, duty, covenant, debt or obligation of Seller of any of its Affiliates resulting from, arising out of, or in any way related to any Licenses and Permits and arising on or after the Closing Date. The provisions of this Section 2.6 shall survive the Closing without limitation.

ARTICLE 3

BUYER’S DUE DILIGENCE/CONDITION OF THE PROPERTY

Section 3.1Buyer’s Inspections and Due Diligence. Buyer acknowledges that commencing on the Effective Date and continuing for a period which will expire at 5:00 p.m. Pacific Time on September 25, 2019 (the “Due Diligence Period”), Buyer shall conduct its examinations, inspections, testing, studies and investigations (collectively, the “Due Diligence”) of the Property, and review information regarding the Property and such documents applicable to the Property, as Seller delivers or makes available, as set forth in Section 3.2 below. Except for any limitations as may be imposed by Section 3.3 below, Buyer may conduct such due diligence activities, inspections, and studies of the Property as it deems necessary or appropriate, and examine and investigate to its full satisfaction all facts, circumstances, and matters relating to the Property (including the physical condition and use, availability and adequacy of utilities, access,

zoning, compliance with applicable laws, engineering and structural matters), title and survey matters, and any other matters it deems necessary or appropriate for purposes of consummating this transaction. The Due Diligence shall be at Buyer’s sole cost and expense.

Section 3.2Delivery Period.

(a)On or before one (1) business day after the Effective Date, Seller shall deliver to Buyer, or make available to Buyer for inspection at the Property, the following: (i) copies of all Contracts; and (ii) copies of any of the following items pertaining to the Property to the extent they exist and are in Seller’s possession: (x) Phase I report in connection with the Property, and any lists of Personal Property owned by Seller and located on the Real Property, (y) a copy of Seller’s existing policies of title insurance, and (z) such other documents or materials pertaining to the Property as Buyer has scheduled in Exhibit F, or may reasonably request in connection with its Due Diligence inspections (provided, that, Seller shall have forty-eight (48) hours to respond to any such request), and which are not considered Excluded Property Records (collectively, the “Due Diligence Items”).

(b)All documents, materials, and information furnished to or made available to Buyer pursuant to this Section 3.2 are being furnished or made available to Buyer for information purposes only and without any representation or warranty by Seller with respect thereto, express or implied, except as may otherwise be expressly set forth in Section 6.1 below and as limited by the provisions of Article 6, and all such documents, materials, and information are expressly understood by Buyer to be subject to the confidentiality provisions of Section 3.5 below.

Notwithstanding any terms to the contrary in this Agreement, (a) Seller shall not be obligated or otherwise required to furnish or make available to Buyer any of the following (collectively, “Excluded Property Records”): (i) any appraisals or other economic evaluations of, or projections with respect to, all or any portion of the Property, including, without limitation, any budgets, prepared by or on behalf of Seller or any Affiliate of Seller, and (ii) any documents, materials or information which are subject to attorney/client, work product or similar privilege, which constitute attorney communications with respect to the purchase of the Property by Seller, or which are subject to a confidentiality agreement; (b) Due Diligence Items shall not include any Excluded Property Records; and (c) Seller shall have no obligation or liability of any kind to Buyer as a result of Seller not furnishing or making available to Buyer the Excluded Property Records.

Section 3.3Site Visits. Buyer and its Licensee Parties shall have reasonable access to the Real Property during normal business hours on at least one (1) business day prior notice to Seller. Such notice shall describe the scope of the Due Diligence Buyer intends to conduct during Buyer’s access to the Real Property. In all events Seller shall have the right to have a representative present during any visits to or inspections of any Real Property by Buyer or any Licensee Parties. Buyer will conduct its Due Diligence so as to minimize any interference with the operations and occupancy of the Property. Buyer will not enter the Real Property or contact any Governmental Entity without Seller’s prior written consent, which consent shall not be unreasonably withheld or delayed; provided, however, Buyer may make standard inquiries of Governmental Entities in connection with its Due Diligence so long as the inquiries remain subject to Section 3.5 and Section 10.13 in all respects. In the event Buyer desires to conduct any physically intrusive Due Diligence,

such as sampling of soils, other media, building materials, or the like, Buyer will identify in writing exactly what procedures Buyer desires to perform and request Seller’s express written consent; provided, however, such express consent shall not be required for a Phase I investigation of the Real Property, provided, however, that such Phase I shall not include any physically intrusive testing of the Real Property. Seller may withhold or condition consent to any physically intrusive Due Diligence in Seller’s sole and absolute discretion. Upon receipt of Seller’s written consent, Buyer and all Licensee Parties shall, in performing such Due Diligence, comply with the agreed upon procedures and with any and all laws, ordinances, rules, and regulations applicable to the Property and will not engage in any activities which would violate any permit, license, or environmental law or regulation. Buyer will, or shall cause any Licensee Parties to: (a) maintain (i) commercial general liability insurance, including broad form property damage, with limits of not less than Two Million and 00/100 Dollars ($2,000,000.00) per occurrence and $2,000,000.00 in the aggregate, and (ii) umbrella excess liability insurance excess of the underlying commercial general liability insurance with limits not less than Three Million and 00/100 Dollars ($3,000,000.00) each occurrence and aggregate, in form and substance adequate to insure against all liability of Buyer and/or Buyer’s Licensee Parties, arising out of any entry or inspections of the Property pursuant to the provisions hereof, and Buyer shall provide Seller with evidence of such insurance coverage before any such entry, including evidence that Seller is an additional insured on the commercial general liability policy; (b) promptly pay when due the costs of all entry and inspections and examinations done with regard to the Property; and (c) restore the Real Property and Improvements to the condition in which the same were found before any such entry upon the Real Property and inspection or examination was undertaken.

Section 3.4Buyer’s Due Diligence Indemnity. Buyer shall defend, indemnify, and hold Seller harmless from and against all losses, costs, damages, claims, and liabilities (whether arising out of injury or death to persons or damage to the Property or otherwise) including, but not limited to, costs of remediation, restoration and other similar activities, mechanic’s and materialmen’s liens and attorneys’ fees, arising out of or in connection with Buyer’s Due Diligence, Buyer’s breach of its obligations under Section 3.5 or Buyer’s or any Licensee Parties’ entry upon the Real Property, except to the extent any of the same are caused by the negligence or willful misconduct of Seller, Seller’s partners, shareholders or members, as applicable. Notwithstanding the foregoing, the indemnification obligations in this Section 3.4 shall not include any losses, costs, damages, claims or liabilities arising out of the discovery of a pre-existing condition with respect to the Real Property. The provisions of this Section 3.4 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement, provided that Seller must give notice of any claim it may have against Buyer under such indemnity within one (1) year of such termination or the Closing, as applicable.

Section 3.5Confidentiality. Buyer agrees that any information obtained by Buyer or its attorneys, partners, consultants, accountants, lenders or investors (collectively, the “Permitted Outside Parties”) in the conduct of its Due Diligence shall be treated as confidential pursuant to Section 10.13 of this Agreement and shall be used only to evaluate the acquisition of the Real Property from Seller. Buyer further agrees that within its organization, or as to the Permitted Outside Parties, the Due Diligence Items will be disclosed and exhibited only to those persons within Buyer’s organization or to those Permitted Outside Parties who are responsible for determining the feasibility of Buyer’s acquisition of the Real Property. Buyer agrees not to divulge the contents of such Due Diligence Items or any other information except in strict accordance with

Sections 3.5 and 10.13 of this Agreement. In permitting Buyer and the Permitted Outside Parties to review the Due Diligence Items and other information to assist Buyer, Seller has not waived any privilege or claim of confidentiality with respect thereto, and no third party benefits or relationships of any kind, either express or implied, have been offered, intended or created by Seller. The provisions of this Section 3.5 shall survive Closing without limitation.

Section 3.6Due Diligence Period. Buyer may, by giving Seller and Escrow Agent written notice on or before the end of the Due Diligence Period, terminate its obligations hereunder without further liability except as described in this Section 3.6 and in Sections 3.4, 3.5, 9.6, 10.13 and 10.19. If Buyer determines to proceed with the purchase of the Real Property, then Buyer shall, before the end of the Due Diligence Period, notify Seller and Escrow Agent in writing that Buyer has approved all of the matters described in Section 3.1 and 3.2. If before the end of the Due Diligence Period, Buyer fails to give Seller such written notice, then Buyer shall be deemed to have elected to terminate this Agreement. Buyer shall have no additional time after the expiration of the Due Diligence Period to conduct further examinations, inspections, testing, studies or investigations of any nature whatsoever regarding the Property. If Buyer elects to terminate its obligations hereunder as described above, Buyer shall provide to Seller copies of all third-party reports and studies (excluding any appraisals, economic evaluations, projections, or confidential materials) relating to the Property in its possession, without any representation or warranty or the right to rely thereon; provided, however Seller reimburses Buyer for its actual out-of-pocket costs therefor. During the Due Diligence Period Buyer and Seller shall negotiate in good faith a commercially standard lease between Buyer, as landlord, and Seller, as Tenant, including the following terms and otherwise in form reasonably acceptable to Seller and Buyer: (a) a lease term of ten (10) years; (b) base rent equal to $11.50/SF per year on a triple-net (NNN) basis with two and one half percent (2.5%) annual increases; and (c) a tenant right to terminate the lease at the end of year three (3) upon payment of a termination fee in an amount equal to the base rent for months 37, 38 and 39 of the term (the “Lease”). If, on or before the end of the Due Diligence Period, Seller and Buyer have not approved a final form of Lease and executed an amendment to this Agreement attaching such form of Lease as an exhibit, then upon expiration of the Due Diligence Period, this Agreement and both Seller’s and Buyer’s obligations hereunder shall, without further action by the parties, automatically terminate without further liability except as described in this Section 3.6 and in Sections 3.4, 3.5, 9.6, 10.13 and 10.19, and the Deposit shall be returned to Buyer.

ARTICLE 4

TITLE AND SURVEY

Section 4.1Title to Real Property. Seller shall make available to Buyer on the Effective Date (a) a preliminary title report or, if available, a commitment to issue an owner’s policy of title insurance with respect to the Real Property issued by the Title Company (the “Title Commitment”), (b) copies of all recorded documents referred to on Schedule B of the Title Commitment as exceptions to coverage available to the Title Company (the “Title Documents”), and (c) a current as-built ALTA survey (the “Survey”).

Section 4.2

(a)Certain Exceptions to Title. Buyer shall have the right to object in writing to any title matters that are not Permitted Exceptions which are disclosed in the Title Commitment or Survey (herein collectively called “Liens”) within seven (7) days after the Effective Date. Unless Buyer shall timely object to the Liens, all such Liens shall be deemed to constitute additional Permitted Exceptions. Any exceptions which are timely objected to by Buyer shall be herein collectively called the “Title Objections.” Seller may elect (but shall not be obligated) to remove or cause to be removed, or insured over, at Buyer’s expense, any Title Objections, and shall be entitled to a reasonable adjournment of the Closing (not to exceed thirty (30) days) for the purpose of such removal, which removal will be deemed effected by the issuance of title insurance eliminating or insuring against the effect of the Title Objections. Seller shall notify Buyer in writing within two (2) days after receipt of Buyer’s notice of Title Objections whether Seller elects to remove the same. If Seller is unable to remove or endorse over any Title Objections prior to the Closing, or if Seller elects not to remove one or more Title Objections, Buyer may elect, as its sole and exclusive remedy therefore, to either (i) terminate this Agreement by giving written notice to Seller and Escrow Agent on or before the end of the Due Diligence Period, in which event the Deposit shall be paid to Buyer and, thereafter, the parties shall have no further rights or obligations hereunder except for those obligations which expressly survive the termination of this Agreement as set forth in Sections 3.4, 3.5, 9.6, 10.13 and 10.19, or (ii) waive such Title Objections, in which event such Title Objections shall be deemed additional “Permitted Exceptions” and the Closing shall occur as herein provided without any reduction of or credit against the Purchase Price. If before the end of the Due Diligence Period, Buyer fails to give Seller and Escrow Agent such written notice, then Buyer shall be deemed to have elected to waive such Title Objections and its right to terminate this Agreement pursuant to this Section. Notwithstanding the foregoing or anything to the contrary in this Agreement, Seller shall be obligated at Closing to cause (x) the release of any monetary liens and encumbrances affecting the Property, including the liens of any financing obtained by Seller which is secured by the Real Property, other than non-delinquent taxes and assessments, and (y) the release or other cure acceptable to Buyer and Title Company (e.g. without limitation escrowing proceeds) to remove a lien of that certain civil judgment from the Superior Court of New Jersey against RR Donnelley Financial Inc. and Donnelley Financial Services having judgment number DJ-155922-2017 (the “Judgment”) from the Title Policy (as defined below), in each case regardless of whether or not Buyer shall provide written notice of its objection to the same.

(b)Pre-Closing “Gap” Title Defects. Whether or not Buyer shall have furnished to Seller any notice of Title Objections pursuant to the foregoing provisions of this Agreement, Buyer may notify Seller in writing of any objections to title first raised by the Title Company between (a) the end of the Due Diligence Period, and (b) the date of Closing so long as Buyer provides such written notice within three (3) business days of Buyer’s knowledge of such title matter, and in no event shall Buyer have the right to object to any title matters approved or caused by Buyer. With respect to any objections to title set forth in such notice, Seller shall have the same option to cure and Buyer shall have the same option to accept title subject to such matters or to terminate this Agreement as those which apply to any notice of objections made by Buyer before the end of the Due Diligence Period. If Seller elects to attempt to cure any such matters, the date for Closing shall be extended at Seller’s option by a reasonable additional time to effect such a cure, but in no event shall the extension exceed thirty (30) days after the date for Closing set forth herein.

Section 4.3Title Insurance. At Closing, the Title Company shall issue to Buyer or be irrevocably committed to issue to Buyer an ALTA owner’s form title policy, in the amount of the Purchase Price, insuring that fee simple title to the Real Property is vested in Buyer, or such other person or entity designated by Buyer, subject only to the Permitted Exceptions, and otherwise in the form of a proforma owner’s title policy approved by Buyer during the Due Diligence Period, including such endorsements (or modifications) to the Title Policy as Buyer may require and included in such proforma owner’s title policy (the “Title Policy”), subject only to payment of the premium therefor and subject, further, to Buyer delivering to Title Company an ALTA survey of the Real Property and Improvements, a zoning report with respect to the Property and any other deliverables as may be reasonably required by the Title Company, each in form and substance reasonably required by Title Company to issue any Buyer requested endorsements set forth in Buyer’s objection letter delivered under Section 4.2(a). Buyer shall deliver a copy of its proforma owner’s title policy to Seller on or prior to the expiration of the Due Diligence Period. It shall constitute a condition precedent to Buyer’s obligation to purchase the Property that, at Closing, Title Company shall be irrevocably committed to issue to Buyer the Title Policy, subject only to the payment of the premium therefor.

ARTICLE 5

REMEDIES AND DEPOSIT INSTRUCTIONS

Section 5.1Permitted Termination; Seller Default. If the sale of the Real Property is not consummated due to the permitted termination of this Agreement by Buyer as herein expressly provided or the failure of a condition precedent to Buyer’s obligation to close as set forth in Section 9.8, the Deposit shall be returned to Buyer and Buyer will have no liability hereunder except as set forth in Sections 3.4, 3.5, 9.6, 10.13 and 10.19. If the sale of the Real Property is not consummated due to Seller’s default hereunder, Buyer shall be entitled, as its sole and exclusive remedy, either (a) to terminate this Agreement by delivery of notice of termination to Seller, whereupon (I) Buyer shall receive a return of the Deposit and (II) only if the remedy of specific performance is unavailable to the Buyer, Seller shall reimburse Buyer for any and all out of pocket costs actually incurred by Buyer in connection with the negotiation, execution and performance of its Due Diligence under this Agreement, including, without limitation, reasonable attorneys’ fees and expenses, in an amount not to exceed $100,000, and, upon such return and reimbursement neither party shall have any further rights or obligations hereunder, or (b) to continue this Agreement pending Buyer’s action for specific performance of this Agreement. Buyer expressly waives its rights to seek any damages in the event of Seller’s default hereunder. Buyer shall be deemed to have elected to terminate this Agreement and receive back the Deposit if Buyer fails to file suit for specific performance against Seller in a court prescribed by Section 10.7 hereof, on or before one hundred twenty (120) days following the date upon which Closing was to have occurred. Buyer agrees that its failure to timely commence such an action for specific performance within such one hundred twenty (120) day period shall be deemed a waiver by it of its right to commence an action for specific performance as well as a waiver by it of any right it may have to file or record a notice of lis pendens or notice of pendency of action or similar notice against any portion of the Real Property.

Section 5.2BUYER DEFAULT; LIQUIDATED DAMAGES. IF THE SALE IS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER, THEN SELLER SHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES, WHICH RETENTION SHALL OPERATE TO TERMINATE THIS AGREEMENT AND RELEASE BUYER FROM ANY AND ALL LIABILITY HEREUNDER, EXCEPT AS PROVIDED IN SECTIONS 3.4, 3.5, 9.6, 10.13 and 10.19. THE PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER’S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER’S SURVIVING OBLIGATIONS UNDER SECTIONS 3.4, 3.5, 9.6, 10.13 and 10.19.

Initials:

Seller __________Buyer __________

Section 5.3Deposit Instructions. The Escrow Agent joins herein below to evidence its agreement to hold such funds in accordance with the terms and conditions of this Agreement. Further, the following provisions shall control with respect to the rights, duties and liabilities of the Escrow Agent.

5.3.1The Escrow Agent acts hereunder as a depository only and is not responsible or liable in any manner whatsoever for the (i) sufficiency, correctness, genuineness or validity of any written instrument, notice or evidence of a party’s receipt of any instruction or notice which is received by the Escrow Agent, or (ii) identity or authority of any person executing such instruction notice or evidence.

5.3.2The Escrow Agent shall have no responsibility hereunder except for the performance by it in good faith of the acts to be performed by it hereunder, and the Escrow Agent shall have no liability except for its own willful misconduct or gross negligence.

5.3.3The Escrow Agent shall be reimbursed on an equal basis by Buyer and Seller for any reasonable expenses incurred by the Escrow Agent arising from a dispute with respect to the amount held in escrow, including the cost of any legal expenses and court costs incurred by the Escrow Agent, should the Escrow Agent deem it necessary to retain an attorney with respect to the disposition of the amount held in escrow.

5.3.4In the event of a dispute between the parties hereto with respect to the disposition of the amount held in escrow, the Escrow Agent shall be entitled, at its own discretion, to deliver such amount to an appropriate court of law pending resolution of the dispute.

5.3.5The Escrow Agent shall invest the amount in escrow in accounts which are federally insured or which invest solely in government securities and shall be applied in accordance with the terms of this Agreement. Interest earned thereon shall be added to the funds deposited by Buyer.

5.3.6The Title Company shall hold and dispose of the Deposit in accordance with the terms of this Agreement, or in accordance with any instruction or instructions which shall be signed jointly by both Seller and Buyer, or in accordance with separate instructions of like tenor signed by Seller and Buyer. Once the Title Company has received its completed and signed directions to invest and form W-9, Seller and Buyer hereby instruct and authorize the Title Company to deposit the Deposit in an interest bearing account. Without limitation on the foregoing, if the Title Company shall receive an instruction (hereinafter the “Instruction”) with respect to the Deposit, or any part thereof, from Seller but not from Buyer, or from Buyer but not from Seller (the party giving the Instruction being hereinafter referred to as the “Instructing Party” and the party which shall not have given the Instruction being hereinafter referred to as the “Non-Instructing Party”), the Title Company shall promptly transmit a copy of the Instruction received from the Instructing Party to the Non-Instructing Party. The Instruction shall specify in detail the pertinent provisions of this Agreement that govern the Instructing Party’s instruction as to the Deposit, and if a default under this Agreement is alleged, the Instructing Party shall specify in detail the nature of such default. The Title Company shall act in accordance with the Instruction unless within three (3) business days from receipt by the Title Company of the Instruction the Non-Instructing Party shall notify the Title Company in writing that the Title Company is not to comply with the Instruction and specifying in detail the reasons for not complying with the Instruction, and if a default under this Agreement is alleged. If the Non-Instructing Party shall advise the Title Company not to comply with the Instruction and specifies in detail the reason for such noncompliance as aforesaid, the Title Company shall not act in accordance with the Instruction, but may thereafter either act in accordance with: (x) a new Instruction signed jointly by Seller and Buyer, or (y) a certified copy of a final court order from a court of competent jurisdiction ordering the disposition of the Deposit.

Section 5.4Designation of Reporting Person. For the purpose of complying with any information reporting requirements or other rules and regulations of the IRS that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement, including, but not limited to, any requirements set forth in proposed Income Tax Regulation Section 1.6045-4 and any final or successor version thereof (collectively, the “IRS Reporting Requirements”), the Seller and the Buyer hereby designate and appoint the Escrow Agent to act as the “Reporting Person” (as that term is defined in the IRS Reporting Requirements) to be responsible for complying with any IRS Reporting Requirements. The Escrow Agent hereby acknowledges and accepts such designation and appointment and agrees to fully comply with any IRS Reporting Requirements that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement. Without limiting the responsibility and obligations of the Escrow Agent as the Reporting Person, the Seller and the Buyer hereby agree to comply with any provisions of the IRS Reporting Requirements that are not identified therein as the responsibility of the Reporting Person, including, but not limited to, the requirement that the Seller and the Buyer each retain an original counterpart of this Agreement for at least four years following the calendar year of the Closing.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF SELLER

Section 6.1Representations and Warranties of Seller. Subject to the provisions of Sections 6.2 and 7.5, Seller makes the following representations and warranties with respect to the Real Property:

(a)Status. Seller is a limited liability company duly formed and validly existing and in good standing under the laws of the State of Delaware.

(b)Authority. The execution and delivery of this Agreement and the performance of Seller’s obligations hereunder have been or will be duly authorized by all necessary action on the part of Seller, and this Agreement constitutes the legal, valid and binding obligation of Seller, subject to equitable principles and principles governing creditors’ rights generally.

(c)Non‑Contravention. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) violate any judgment, order, injunction, decree, regulation or ruling of any court or Governmental Entity or (ii) conflict with, result in a breach of, or constitute a default under the organizational documents of Seller, any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other material agreement or instrument to which Seller is a party or by which Seller may be bound.

(d)Suits and Proceedings. There are no legal actions, suits or similar proceedings pending, or, to Seller’s knowledge, threatened in writing against Seller or the Real Property which (i) are not adequately covered by existing insurance and (ii) if adversely determined, would adversely affect the value of the Real Property, the continued operations thereof, or Seller’s ability to consummate the transactions contemplated hereby.

(e)Non‑Foreign Entity. Seller is not a “foreign person” or “foreign corporation” as those terms are defined in the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

(f)Consents. No consent, waiver, approval or authorization is required from any person or entity (that has not already been obtained) in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby.

(g)Condemnation. Seller has not received (i) any written condemnation notice from a Governmental Entity with respect to all or part of the Real Property, (ii) any written notice from a Governmental Entity with respect to any environmental, zoning or other land-use regulation proceedings, either instituted or pending, which would detrimentally affect the use, operation or value of the Real Property, nor (iii) has Seller received notice of any special assessment proceedings affecting the Real Property (other than as set forth in the Title Commitment).

(h)Bankruptcy. Seller has not (i) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceedings, to hold, administer and/or liquidate all or substantially all of its property, or (iii) made an assignment for the benefit of creditors.

(i)No Violation of Laws. Seller has received no written notice that the Property and the current use and operation thereof violate any applicable federal, state or municipal law, statute, code, ordinance, rule or regulation, except with respect to such violations as have been fully cured prior to the date hereof.

(j)No Other Leases at Closing. At Closing, the Lease will be the only lease, license or other agreement granting to any party any right to occupy all or any portion of the Property.

(k)Anti-Money Laundering and Anti-Terrorism Laws

(i)Neither Seller nor, to Seller’s knowledge, its direct or indirect owners, principals, employees or affiliates, is in violation of, has been charged with or is under indictment for the violation of, or has pled guilty to or been found guilty of the violation of, any Anti-Money Laundering and Anti-Terrorism Laws (as defined below).

(ii)None of Seller or, to Seller’s knowledge, its direct or indirect owners, principals, employees or affiliates, is (A) acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by the Office of Foreign Assets Control of U.S. Department of Treasury (“OFAC”), the U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time, (B) currently identified on any Government List (as defined below), (C) a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, or (D) an Embargoed Person (as defined below). To Seller’s actual knowledge, none of the funds or other assets of Seller constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person. The term “Embargoed Person” means any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §1701 et seq., the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder.

Section 6.2Limited Liability. Seller’s representations and warranties set forth in Section 6.1 above shall survive Closing for a period of six (6) months. Buyer will not have any right to bring any action against Seller as a result of any untruth or inaccuracy of such representations and warranties, or any such breach, unless and until the aggregate amount of all liability and losses arising out of any such untruth or inaccuracy, or any such breach, exceeds $50,000, and then only to the extent of such excess. In addition, in no event will Seller’s liability

for all such breaches exceed, in the aggregate, $1,500,000. Seller shall have no liability with respect to any of Seller’s representations, warranties and covenants herein if, prior to the Closing, Buyer has actual knowledge of any breach of a representation, warranty or covenant of Seller herein, and Buyer nevertheless consummates the transaction contemplated by this Agreement. Sections 3.4, 3.5, 9.6, 10.13 and 10.19 will survive Closing without limitation unless a specified period is otherwise provided in this Agreement. All other representations, warranties, covenants and agreements made or undertaken by Seller under this Agreement, unless otherwise specifically provided herein, will not survive the Closing Date but will be merged into the Deed and other closing documents delivered at the Closing.

Section 6.3Seller’s Knowledge. For purposes of this Agreement and any document delivered at Closing, whenever the phrase “to Seller’s knowledge,” or the “knowledge” of Seller or words of similar import are used, they shall be deemed to refer to facts within the actual knowledge only of Jons S. Besch, and no others, at the times indicated only, without duty of inquiry whatsoever. Seller represents and warrants to Buyer that Jons S. Besch is an individual who is knowledgeable about the Property and operation thereof and is a person within Seller responsible for the day-to-day operation of the Property.

Section 6.4Liability of Representations and Warranties. Buyer acknowledges that the individuals named above are named solely for the purpose of defining and narrowing the scope of Seller’s knowledge and not for the purpose of imposing any liability on or creating any duties running from such individuals to Buyer. Buyer covenants that it will bring no action of any kind against such individuals related to or arising out of these representations and warranties.

Section 6.5Amendment to Schedule. Notwithstanding anything to the contrary in this Agreement, the Seller shall have the right to amend in writing existing and disclose in writing additional Due Diligence Items from time to time prior to the Closing to reflect changes since the date of this Agreement by providing a written copy of such amendment or supplement to the Buyer; provided, however, that any amendment or supplement to the schedules to this Agreement shall have effect only for the purposes of limiting the defense and indemnification obligations of the Seller for the inaccuracy or untruth of the representation or warranty qualified by such amendment or supplement to the Due Diligence. In connection with any such amended or supplemental disclosure made after the expiration of the Due Diligence Period, Buyer shall be entitled to terminate the Agreement if any such amended or supplemental disclosure causes a material adverse effect with respect to the Property or Seller’s ability to consummate the transactions set forth herein by giving written notice to Seller of such termination within one (1) business day after such disclosure is received by Buyer (and the Closing Date shall be automatically extended to give Buyer sufficient time to provide such notice, if necessary), upon which termination the Deposit shall be returned to Buyer and the parties shall have no further obligations under this Agreement except any obligations that expressly survive termination hereof.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF BUYER

Section 7.1Buyer’s Representations and Warranties. Buyer represents and warrants to Seller the following:

(a)Status. Buyer is a limited liability company duly organized and validly existing under the laws of the State of Delaware.

(b)Authority. The execution and delivery of this Agreement and the performance of Buyer’s obligations hereunder have been or will be duly authorized by all necessary action on the part of Buyer and this Agreement constitutes the legal, valid and binding obligation of Buyer, subject to equitable principles and principles governing creditors’ rights generally.

(c)Non‑Contravention. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate any judgment, order, injunction, decree, regulation or ruling of any court or Governmental Entity or conflict with, result in a breach of, or constitute a default under the organizational documents of Buyer, any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other material agreement or instrument to which Buyer is a party or by which it is bound.

(d)Consents. No consent, waiver, approval or authorization is required from any person or entity (that has not already been obtained) in connection with the execution and delivery of this Agreement by Buyer or the performance by Buyer of the transactions contemplated hereby.

(e)Bankruptcy. Buyer has not (i) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its property, or (iii) made an assignment for the benefit of creditors.

(f)Litigation. There are no actions, claims or proceedings pending against Buyer or any of its assets or properties at law or in equity, before or by any Governmental Authority, or by any other Person, which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby.

(g)Anti-Money Laundering and Anti-Terrorism Laws

(i)Neither Buyer nor, to Buyer’s knowledge, its direct or indirect owners, principals, employees or affiliates, is in violation of, has been charged with or is under indictment for the violation of, or has pled guilty to or been found guilty of the violation of, any Applicable Laws relating to terrorism, money laundering, drug-trafficking or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Action of 2001, Public Law 107-56, as amended, and Executive Order No. 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) (the “Executive Order”) (collectively, the “Anti-Money Laundering and Anti-Terrorism Laws”).

(ii)None of Buyer or, to Buyer’s knowledge, its direct or indirect owners, principals, employees or affiliates, is acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by OFAC, the U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time.

(iii)Neither Buyer, nor any person controlling or controlled by Buyer, is a country, territory, individual or entity named on a “Government List” (as hereinafter defined), and the monies used in connection with this Agreement and amounts committed with respect thereto, were not and are not derived from any activities that contravene any of the Anti-Money Laundering and Anti-Terrorism Laws or any other applicable anti-money laundering or anti-bribery Applicable Laws and regulations (including funds being derived from any person, entity, country or territory on a Government List or engaged in any unlawful activity defined under Title 18 of the United States Code, Section 1956(c)(7)).

(iv)Buyer is not engaging in the transactions contemplated hereunder, directly or indirectly, in violation of any Applicable Laws relating to drug trafficking, money laundering or predicate crimes to money laundering or drug trafficking. None of the funds of Buyer have been or will be derived from any unlawful activity with the result that the investment of direct or indirect equity owners in Buyer is prohibited by Applicable Laws or that the transactions contemplated hereunder or this Agreement is or will be in violation of Applicable Laws. Buyer has implemented and will continue to implement procedures, and has consistently and will continue to consistently apply those procedures, to ensure the foregoing representations and warranties remain true and correct at all times prior to and at the Closing.

Section 7.2No Plan Assets. Buyer does not hold “plan assets” as such term is defined by Section 3(42) of ERISA.

Section 7.3Buyer’s Independent Investigation.

7.3.1Buyer has been given, or will be given before the end of the Due Diligence Period, a full opportunity to inspect and investigate each and every aspect of the Real Property, either independently or through agents of Buyer’s choosing, including, without limitation:

(a)All matters relating to title, together with all governmental and other legal requirements such as taxes, assessments, zoning, use permit requirements, and building codes;

(b)The physical condition and aspects of the Real Property, including, without limitation, the interior, the exterior, the square footage within the improvements on the Real Property, the structure, the paving, the utilities, and all other physical and functional aspects of the Real Property, including, without limitation, an examination of a Phase I environmental report in connection with the Real Property, which shall be performed or arranged by Buyer at Buyer’s sole expense;

(c)Any easements and/or access rights affecting the Real Property;

(d)The Contracts, the Licenses and Permits, and any other documents or agreements affecting the Real Property that will remain binding on Buyer after Closing; and

(e)All other matters affecting the Real Property or delivered to Buyer by Seller in accordance with Article 3 of this Agreement.

7.3.2THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT HAS BEEN NEGOTIATED BETWEEN SELLER AND BUYER, THIS AGREEMENT REFLECTS THE MUTUAL AGREEMENT OF SELLER AND BUYER, AND BUYER HAS CONDUCTED ITS OWN INDEPENDENT EXAMINATION OF THE PROPERTY. OTHER THAN THE MATTERS REPRESENTED IN SECTION 6.1 HEREOF AS SUCH MAY BE LIMITED BY SECTION 6.2 HEREOF, BUYER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER OR ANY OF SELLER’S AGENTS OR REPRESENTATIVES, AND BUYER HEREBY ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS HAVE BEEN MADE. SELLER SPECIFICALLY DISCLAIMS, AND NEITHER IT NOR ANY OTHER PERSON IS MAKING, ANY REPRESENTATION, WARRANTY OR ASSURANCE WHATSOEVER TO BUYER AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EITHER EXPRESS OR IMPLIED, ARE MADE BY SELLER OR RELIED UPON BY BUYER WITH RESPECT TO THE STATUS OF TITLE TO OR THE MAINTENANCE, REPAIR, CONDITION, DESIGN OR MARKETABILITY OF THE PROPERTY, OR ANY PORTION THEREOF, INCLUDING BUT NOT LIMITED TO (a) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, (e) ANY CLAIM BY BUYER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, WITH RESPECT TO THE IMPROVEMENTS OR THE PERSONAL PROPERTY, (f) THE FINANCIAL CONDITION OR PROSPECTS OF THE PROPERTY AND (g) THE COMPLIANCE OR LACK THEREOF OF THE REAL PROPERTY OR THE IMPROVEMENTS WITH GOVERNMENTAL REGULATIONS, AND BUYER HEREBY WAIVES ANY RIGHT TO MAKE ANY CLAIM BASED ON ANY OF THE FOREGOING, IT BEING THE EXPRESS INTENTION OF SELLER AND BUYER THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE REAL PROPERTY WILL BE CONVEYED AND TRANSFERRED TO BUYER IN ITS PRESENT CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS”, WITH ALL FAULTS. ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROPERTY IS SOLELY FOR BUYER’S CONVENIENCE AND WAS OR WILL BE OBTAINED FROM A VARIETY OF SOURCES. SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO (AND EXPRESSLY DISCLAIMS ALL) REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE CLOSING DOCUMENTS. SELLER SHALL NOT BE LIABLE FOR ANY MISTAKES, OMISSIONS, MISREPRESENTATION OR ANY FAILURE TO INVESTIGATE THE PROPERTY NOR SHALL SELLER BE BOUND IN

ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, APPRAISAL, ENVIRONMENTAL ASSESSMENT REPORTS OR OTHER INFORMATION PERTAINING TO THE PROPERTY OR THE OPERATION THEREOF, FURNISHED BY SELLER, ITS REPRESENTATIVES OR ANY OTHER PERSON OR ENTITY ACTING ON SELLER’S BEHALF EXCEPT, IN EACH CASE, AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY OF THE CLOSING DOCUMENTS.

Buyer represents that it is a knowledgeable, experienced and sophisticated buyer of real estate, and that it is relying solely on its own expertise and that of Buyer’s consultants in purchasing the Real Property. Buyer acknowledges and agrees that it will have the opportunity to conduct such inspections, investigations and other independent examinations of the Property and related matters during the Due Diligence Period and will rely upon same and not upon any statements of Seller or of any officer, director, employee, agent or attorney of Seller. Buyer acknowledges that all information obtained by or provided to Buyer will be obtained from a variety of sources and Seller will not be deemed to have represented or warranted the completeness, truth or accuracy of any of the Due Diligence Items or other such information heretofore or hereafter furnished to Buyer, except as expressly set forth in this Agreement or in any closing documents delivered by Seller at Closing. Upon Closing, Buyer will assume the risk that adverse matters, including, but not limited to, adverse physical and environmental conditions (including any environmental conditions at, under or migrating from the Real Property), may not have been revealed by Buyer’s inspections and investigations. Nevertheless, Buyer, upon Closing, shall be deemed to have waived and released Seller from and against any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including attorneys’ fees and court costs) of any and every kind or character, known or unknown, which Buyer might have asserted or alleged against Seller at any time by reason of or arising out of the Property. BUYER WAIVES AND RELEASES ALL COST RECOVERY AND CONTRIBUTION AND OTHER CLAIMS AGAINST SELLER RELATING TO THE PROPERTY ARISING UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT 42 U.S.C. 9601 ET SEQ. (“CERCLA”) AND OTHER LAWS AND COMMON LAW RELATING TO PROTECTION OF THE ENVIRONMENT OR HEALTH AND SAFETY OR TO POLLUTION). THE PROVISIONS OF THIS SECTION SHALL SURVIVE CLOSING. Buyer acknowledges and agrees that upon Closing, Seller will sell and convey to Buyer, and Buyer will accept the Real Property, “AS IS, WHERE IS,” with all faults. Except as expressly set forth in this Agreement or in any closing documents delivered by Seller at Closing, Buyer further acknowledges and agrees that there are no oral agreements, warranties or representations, collateral to or affecting the Property, by Seller, any agent of Seller or any third party. Seller is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property furnished by any real estate broker, agent, employee, servant or other person, unless the same are specifically set forth or referred to herein. Buyer acknowledges that the Purchase Price reflects the “as is, where is” nature of this sale and any faults, liabilities, defects or other adverse matters that may be associated with the Real Property.

BUYER, WITH BUYER’S COUNSEL, HAS FULLY REVIEWED THE DISCLAIMERS, RELEASES AND WAIVERS SET FORTH IN THIS AGREEMENT,

AND UNDERSTANDS THE SIGNIFICANCE AND EFFECT THEREOF. BUYER ACKNOWLEDGES AND AGREES THAT THE DISCLAIMERS AND OTHER AGREEMENTS SET FORTH HEREIN ARE AN INTEGRAL PART OF THIS AGREEMENT, AND THAT SELLER WOULD NOT HAVE AGREED TO SELL THE REAL PROPERTY TO BUYER FOR THE PURCHASE PRICE WITHOUT THE DISCLAIMER AND OTHER AGREEMENTS SET FORTH IN THIS AGREEMENT. THE TERMS AND CONDITIONS OF THIS SUBSECTION 7.3.2 WILL EXPRESSLY SURVIVE THE CLOSING, WILL NOT MERGE WITH THE PROVISIONS OF ANY CLOSING DOCUMENTS.

The waivers and releases set forth in this Section include claims of which Buyer is presently unaware or which Buyer does not presently suspect to exist which, if known by Buyer, would materially affect Buyer’s waiver or release set forth above.

In this connection, Buyer hereby agrees and acknowledges that factual matters now unknown to it may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses and other claims and liabilities which are presently unknown, unanticipated and unsuspected, and Buyer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that Buyer nevertheless hereby intends to release, discharge and acquit Seller from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses and other claims and liabilities.

Buyer has initialed this Section to further indicate its awareness and acceptance of each and every provision hereof.

INITIALS:

Buyer _______

Notwithstanding anything to the contrary set forth in this Agreement, this Section 7.3.2 is not intended and shall not be construed as affecting or impairing any rights or remedies that Buyer may have against Seller with respect to (i) a breach of any of Seller’s representations or warranties contained in this Agreement, (ii) any of the obligations of Seller under this Agreement that survive the Closing as set forth in Sections 9.5.1, 9.6, 10.2, 10.13, 10.15, 10.22(a) and 10.22(b), or (iii) any acts constituting fraud by Seller as determined in a non-appealable judgement by a court of competent jurisdiction, nor is this Section 7.3.2 intended or to be construed as releasing or discharging or waiving Seller’s obligations to comply with Section 10.22 and with the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et sq. and the regulations and guidance with respect thereto promulgated by the New Jersey Department of Environmental Protection, as same may be amended from time to time (collectively “ISRA”).

Section 7.4Buyer’s Release of Seller.

7.4.1Seller Released From Liability. Except as expressly set forth in this Agreement or in any closing documents delivered by Seller at Closing, Seller is hereby released from all responsibility and liability to Buyer regarding the condition (including its physical condition and its compliance with applicable laws, and the presence in the soil, air, structures and

surface and subsurface waters, of Hazardous Materials or substances that have been or may in the future be determined to be toxic, hazardous, undesirable or subject to regulation and that may need to be specially treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations or guidelines), valuation, salability or utility of the Property, or its suitability for any purpose whatsoever.

7.4.2Buyer’s Waiver of Objections. Buyer acknowledges that it has inspected the Real Property, observed its physical characteristics and existing conditions and had the opportunity to conduct such investigation and study on and of said Property and adjacent areas as it deemed necessary, and subject to Seller’s responsibility for any breach of the warranties and representations contained in this Agreement or in any closing documents delivered by Seller at Closing, hereby waives any and all objections to or complaints (including but not limited to actions based on federal, state or common law and any private right of action under CERCLA, RCRA or any other state and federal law to which the Real Property is or may be subject) regarding physical characteristics and existing conditions, including without limitation structural and geologic conditions, subsurface soil and water conditions and solid and hazardous waste and Hazardous Materials on, under, adjacent to or otherwise affecting the Real Property. Except as expressly set forth in this Agreement or in any closing documents delivered by Seller at Closing, Buyer further hereby assumes the risk of changes in applicable laws and regulations relating to past, present and future environmental conditions on the Real Property, and the risk that adverse physical characteristics and conditions, including without limitation the presence of Hazardous Materials or other contaminants, may not be revealed by its investigation.

7.4.3Survival. The foregoing waivers and releases by Buyer shall survive either (a) the Closing and the recordation of the Deed, and shall not be deemed merged into the Deed upon its recordation, or (b) any termination of this Agreement.

Section 7.5Discharge. Notwithstanding any other provisions contained herein, or in any document or instrument delivered in connection with the transfer contemplated hereby, to the contrary (including, without limitation, any language providing for survival of certain provisions hereof or thereof), Buyer hereby acknowledges and agrees that (a) prior to Closing, Buyer’s sole recourse in the event of a breach by Seller shall be as set forth in Section 5.1 hereof, and (b) Seller shall, upon consummation of Closing, be deemed to have satisfied and fulfilled all of Seller’s covenants, indemnities, and obligations contained in this Agreement and the documents delivered pursuant hereto which are required to be satisfied and fulfilled prior to Closing, and Seller shall have no further liability to Buyer or otherwise with respect to this Agreement, the transfers contemplated hereby, or any documents delivered pursuant hereto, except to the extent of any obligation or liability Seller may have under (i) Section 6.1 as to which Seller’s liability, if any, shall be limited as provided in Section 6.2, and (ii) Sections 9.5.1, 9.6, 10.2, 10.13, 10.15, and 10.22.

ARTICLE 8

[RESERVED]

ARTICLE 9

CLOSING AND CONDITIONS

Section 9.1Escrow Instructions. Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Title Company, and this Agreement shall serve as escrow instructions to the Title Company as the escrow holder for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control.

Section 9.2Closing. The closing hereunder (“Closing”) shall be held and delivery of all items to be made at the Closing under the terms of this Agreement shall be made through escrow at Escrow Agent’s office on or before September 30, 2019 TIME BEING OF THE ESSENCE (the “Closing Date”). Buyer shall deposit in escrow with the Escrow Agent the Purchase Price (subject to adjustments described in Section 9.5) on or prior to the Closing Date, together with all other costs and amounts to be paid by Buyer at the Closing pursuant to the terms of this Agreement, by Federal Reserve wire transfer of immediately available funds to an account to be designated by the Escrow Agent. On the Closing Date, (a) provided all of the conditions precedent to Buyer’s obligation to close have been met or waived by Buyer, Buyer will instruct the Escrow Agent to (i) pay to Seller by Federal Reserve wire transfer of immediately available funds to an account designated by Seller, the Purchase Price (subject to adjustments described in Section 9.5), less any costs or other amounts to be paid by Seller at Closing pursuant to the terms of this Agreement, and (ii) pay all appropriate payees the other costs and amounts to be paid by Buyer at Closing pursuant to the terms of this Agreement and (b) provided all of the conditions precedent to Seller’s obligation to close have been met or waived by Seller, Seller will direct the Escrow Agent to (i) submit the Deed for recording and (ii) pay to the appropriate payees out of the proceeds of Closing payable to Seller, all costs and amounts to be paid by Seller at Closing pursuant to the terms of this Agreement. It shall constitute a condition precedent to Seller’s obligations to consummate the Closing hereunder that all of the material representations, warranties, covenants, and agreements of Buyer contained herein shall be true and correct and/or shall have been performed, as the case may be, in all material respects.

Section 9.3Seller’s Closing Documents and Other Items. At or before Closing, Seller shall deposit into escrow the following items:

9.3.1A duly executed and acknowledged Bargain and Sale Deed With Covenants Against Grantor’s Acts for the Real Property in the form attached hereto as Exhibit “D” (the “Deed”);

9.3.2Two (2) duly executed counterparts of an Assignment and Assumption of Intangible Personal Property in the form attached hereto as Exhibit “E” (the “Assignment and Assumption of Intangible Personal Property”);

9.3.3An affidavit pursuant to Section 1445(b)(2) of the Code, and on which Buyer is entitled to rely, that the transferor of the Real Property is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code;

9.3.4Seller shall deliver to Buyer a set of keys to the Real Property on the Closing Date. Location of any of the items referred to in this subsection at the Real Property on the Closing Date shall be deemed to be delivery to Buyer;

9.3.5Such other documents as may be reasonably required by the Title Company or as may be agreed upon by Seller and Buyer to consummate the purchase of the Real Property as contemplated by this Agreement, including, without limitation, any additional documents required by the applicable state, county, city or municipality to consummate the purchase of the Real Property as contemplated by this Agreement;

9.3.6Two (2) duly executed counterparts of the Lease;

9.3.7Two (2) duly executed counterparts of the Closing Statement;

9.3.8A duly executed New Jersey Seller Residency Certification/Exemption (form GIT/REP-3) and Affidavit of Consideration for use by Seller (form RTF-1); and

9.3.9A duly executed owner’s affidavit reasonably acceptable to Title Company addressing matters as may be reasonably requested by Title Company in order to issue the Title Policy.

Section 9.4Buyer’s Closing Documents and Other Items. At or before Closing, Buyer shall deposit into escrow the following items:

9.4.1The balance of the Purchase Price and such additional funds as are necessary to close this transaction;

9.4.2Two (2) duly executed counterparts of the Assignment and Assumption of Intangible Personal Property;

9.4.3Two (2) duly executed counterparts of the Lease;

9.4.4Such other documents as may be reasonably required by the Title Company or as may be agreed upon by Seller and Buyer to consummate the purchase of the Real Property as contemplated by this Agreement, including, without limitation, any additional documents required by the applicable state, county, city or municipality to consummate the purchase of the Real Property as contemplated by this Agreement; and

9.4.5Two (2) duly executed counterparts of the Closing Statement.

Section 9.5Prorations and Closing Costs.

9.5.1

(a)Seller and Buyer agree to adjust, as of 11:59 p.m. on the day immediately preceding the Closing Date (the “Proration Time”), the following (collectively, the “Proration Items”): real estate and personal property taxes and assessments (subject to the terms of 9.5.1(b) below), utility bills (except as hereinafter provided), and Operating Expenses payable by the owner of the Real Property. Seller will be charged and credited for the amounts of all of the Proration Items relating to the period up to and including the Proration Time, and Buyer will be charged and credited for all of the Proration Items relating to the period after the Proration Time. Such preliminary estimated Closing prorations shall be set forth on a preliminary closing statement to be prepared by Seller and submitted to Buyer for Buyer’s approval prior to the Closing Date (the “Closing Statement”). The Closing Statement, once agreed upon, shall be signed by Buyer and Seller and delivered to the Escrow Agent for purposes of making the preliminary proration adjustment at Closing subject to the final cash settlement provided for below. The preliminary proration shall be paid at Closing by Buyer to Seller (if the preliminary prorations result in a net credit to Seller) or by Seller to Buyer (if the preliminary prorations result in a net credit to Buyer) by increasing or reducing the cash to be delivered by Buyer in payment of the Purchase Price at the Closing. If the actual amounts of the Proration Items are not known as of the Proration Time, the prorations will be made at Closing on the basis of the best evidence then available (and, in the case of ad valorem real estate and personal property taxes, the last available tax bill); thereafter, when actual figures are received (not to exceed 9 months after closing), re-prorations will be made on the basis of the actual figures, and a final cash settlement will be made between Seller and Buyer. No prorations will be made in relation to insurance premiums, and Seller’s insurance policies will not be assigned to Buyer. Final readings and final billings for utilities will be made if possible as of the Proration Time, in which event no proration will be made at Closing with respect to utility bills. Seller will be entitled to all deposits presently in effect with the utility providers, and Buyer will be obligated to make its own arrangements for deposits with the utility providers. The provisions of this Section 9.5.1(a) will survive the Closing for twelve (12) months.

(b)All ad valorem real estate taxes with respect to the Real Property (to the extent not prorated in (a) above) not delinquent as of Closing shall be prorated as of the Proration Time on a cash basis for the calendar year in which the Closing occurs, regardless of the year for which such taxes are assessed, and Buyer will pay all increases in such taxes due to the change in ownership or use of the Real Property contemplated by this Agreement, and the same will not be prorated. Notwithstanding the foregoing, if any such taxes are payable directly by Seller pursuant to the Lease, then such amounts shall not be prorated.

(c)Buyer shall receive a credit against the Purchase Price at Closing for all payments due or owing under any Contracts for periods prior to the Closing Date, which amounts shall be prorated as of the Proration Time. If Seller has paid any amounts under any Contracts for periods after the Proration Time, Buyer shall pay such amounts to Seller at Closing in addition to the Purchase Price. Notwithstanding the foregoing, if any of the Contracts will be held by Seller pursuant to the Lease, then amounts with respect to such Contracts shall not be prorated.

(d)Seller shall pay (i) all charges and premiums payable with respect to the Title Policy (excluding the cost of any endorsements to the Title Policy but including the cost of any title examination fees) that is allocable to standard coverage, (ii) one-half (1/2) of all escrow

charges, (iii) the recording fees in connection with recording the Deed, (iv) all documentary or other state, county or local transfer taxes payable in connection with the sale contemplated herein, (v) all costs related to the release of any monetary liens and encumbrances affecting the Property, other than non-delinquent taxes and assessments, and the Judgment, including, all recording fees in connection therewith, and (vi) any additional costs and charges customarily charged to sellers in accordance with common escrow practices in the county in which the Real Property is located, other than those costs and charges specifically required to be paid by Buyer hereunder. Buyer shall pay (w) the portion of the premium for the Title Policy that is allocable to extended coverage and the cost of any endorsements to the Title Policy requested by Buyer or Buyer’s lender, if any, (x) the cost of the Survey, (y) one-half (1/2) of all escrow charges, and (z) any additional costs and charges customarily charged to buyers in accordance with common escrow practices in the county in which the Real Property is located (including without limitation the New Jersey “mansion tax”), other than those costs and charges specifically required to be paid by Seller hereunder.

Section 9.6Brokers. Buyer hereby represents and warrants to Seller that it did not employ or use any broker or finder to arrange or bring about this transaction, and that there are no claims or rights for brokerage commissions or finder’s fees in connection with the transactions contemplated by this Agreement, other than the commission (“Broker’s Commission”) required to be paid by Seller to Broker pursuant to a separate agreement between Seller and Broker. Seller represents and warrants that Seller has not employed any broker with respect to this transaction, other than Broker, and Seller shall only pay the Broker’s Commission. If any person brings a claim for a commission or finder’s fee based upon any contact, dealings, or communication with Buyer, then Buyer shall defend Seller from such claim, and shall indemnify Seller and hold Seller harmless from any and all costs, damages, claims, liabilities, or expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Seller with respect to the claim. The provisions of this Section 9.6 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement.

Section 9.7Expenses. Except as provided in Sections 9.5 and 9.6, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, in the case of Buyer, all third-party engineering and environmental review costs and all other Due Diligence costs.

Section 9.8Conditions Precedent.

The following shall be conditions precedent to Buyer’s obligation to close:

(a)Each of the conditions precedent set forth in Section 4.3 and Section 10.22(a) have been satisfied in full.

(b)All of Seller’s representations and warranties contained in or made pursuant to this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date.

(c)Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement set forth in Section 4.2, Article 9, Section 10.4 and Section 10.21.

The conditions precedent contained in this Section are intended solely for the benefit of Buyer. If any of the conditions precedent is not satisfied, Buyer shall have the right in its sole discretion either to waive in writing the condition precedent and proceed with the purchase of the Property or terminate this Agreement. If Buyer shall not have approved or waived in writing all of the conditions precedent on or prior to the Closing Date, then this Agreement shall automatically terminate. In the event of the termination of this Agreement pursuant to the provisions of this Section, then the Deposit shall be returned to Buyer.

ARTICLE 10

MISCELLANEOUS

Section 10.1Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified, or supplemented only by a written agreement signed by Buyer and Seller.

Section 10.2Recordation. Neither this Agreement nor any memorandum or notice of this Agreement may be recorded by any party hereto without the prior written consent of the other party hereto. The Buyer also agrees not to file any lis pendens or other instrument against the Real Property in connection herewith other than in connection with a claim for specific performance under Section 5.1. In furtherance of the foregoing, the Buyer (i) acknowledges that the filing of a lis pendens or other evidence of the Buyer’s rights or the existence of this Agreement against or encumbering the Real Property could cause significant monetary and other damages to the Seller, and (ii) hereby indemnifies the Seller from and against any and all liabilities, damages, losses, costs or expenses (including without limitation reasonable attorneys’ fees and expenses) arising out of a breach of this Section 10.2. The provisions of this Section 10.2 shall survive the Closing or any termination of this Agreement.

Section 10.3Anti-Terrorism Law. Each party shall take any actions that may be required to comply with the terms of the USA Patriot Act of 2001, as amended, any regulations promulgated under the foregoing law, the Executive Order, the other Anti-Money Laundering and Anti-Terrorism Laws, or any other Applicable Laws, regulations or executive orders designed to combat terrorism, drug-trafficking or money laundering, if applicable, to this Agreement. Each party represents and warrants to the other party that it is not an entity named on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Department of Treasury (the “Government List”), as last updated prior to the date of this Agreement.

Section 10.4Risk of Loss and Insurance Proceeds.

10.4.1Minor Loss. Buyer shall be bound to purchase the Real Property for the full Purchase Price as required by the terms hereof, without regard to the occurrence or effect of any damage to the Real Property or destruction of any improvements thereon or condemnation of any portion of the Real Property, provided that: (a) the cost to repair any such damage or destruction, or the diminution in the value of the remaining Real Property as a result of a partial condemnation, equals One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) or less, and (b) upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a

result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Real Property or in collecting such insurance proceeds or condemnation awards. If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended prior to the Closing to repair or restore the Real Property or to collect any such proceeds or awards.

10.4.2Major Loss. If the amount of the damage or destruction or condemnation as specified above exceeds One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00), then Buyer may at its option, to be exercised by written notice to Seller within ten (10) business days of Seller’s notice of the occurrence of the damage or destruction or the commencement of condemnation proceedings, terminate this Agreement. Buyer’s failure to elect to terminate this Agreement within said ten business day period shall be deemed an election by Buyer to terminate the Agreement. If Buyer elects or is deemed to have elected to terminate this Agreement within such ten (10) business day period, the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder except as provided in Sections 3.4, 3.5, 9.6, 10.13 and 10.19. If Buyer elects to proceed with the purchase, then upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Real Property or in collecting such insurance proceeds or condemnation awards. If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended prior to the Closing to repair or restore the Real Property or to collect any such proceeds or awards.

Section 10.5Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the following address:

If to Seller:

Donnelley Financial, LLC
35 W. Wacker Drive, 35th Floor
Chicago, Illinois 60601
Attention: Michael Bontempi
E-mail: michael.x.bontempi@dfinsolutions.com

with Copies to:

Donnelley Financial, LLC
35 W. Wacker Drive, 35th Floor
Chicago, Illinois 60601
Attention: General Counsel
E-mail: jennifer.reiners@dfinsolutions.com

Jones Day
77 W. Wacker Drive, Suite 3500
Chicago, Illinois 60601
Attention: Kyle M. Baltes, Esq.
E-mail: kbaltes@jonesday.com

If to Buyer:

SECA-NJ, LLC
3347 Michelson Drive, Suite 200
Irvine, California 92612
Attention: Mr. Steven R. Layton

with Copies to:

Seyfarth Shaw LLP
601 South Figueroa Street, Suite 3300
Los Angeles, California 90017
Attention: Richard C. Mendelson, Esq.
E-mail: rmendelson@seyfarth.com

If to Escrow Agent:

Chicago Title Insurance Company
10 South LaSalle Street, Suite 3100
Chicago, Illinois 60603
Attention: Beata Lewis
E-mail: Beata.Lewis@ctt.com

Any such notices may be sent by (a) certified mail, return receipt requested, in which case notice shall be deemed delivered two (2) business days after deposit, postage prepaid in the U.S. mail, (b) a nationally recognized overnight courier, in which case notice shall be deemed delivered one (1) business day after deposit with such courier, or (c) e-mail transmission, in which case notice shall be deemed delivered upon transmission if such transmission occurs before 5:00 p.m. Pacific Time on a business day, otherwise such notice shall be deemed delivered on the next business day following transmission. The above addresses may be changed by written notice to the other party; provided that no notice of a change of address shall be effective until actual receipt of such notice. All notices may be given either by a party or by such party’s attorneys.

Section 10.6Assignment. Buyer and Seller shall not have the right to assign this Agreement, without the prior written consent of the other party. Notwithstanding the foregoing, Buyer may assign its interests herein to an Affiliate upon written notice to Seller. This Agreement will be binding upon and inure to the benefit of Seller and Buyer and their respective successors and permitted assigns, and no other party will be conferred any rights by virtue of this Agreement or be entitled to enforce any of the provisions hereof. Whenever a reference is made in this Agreement to Seller or Buyer, such reference will include the successors and permitted assigns of such party under this Agreement.

Section 10.7Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE WHERE THE REAL PROPERTY IS LOCATED, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.

Section 10.8Counterparts; Signatures. This Agreement may be executed in two or more fully or partially executed counterparts, each of which will be deemed an original binding the signer thereof against the other signing parties, but all counterparts together will constitute one and the same instrument. Faxed or pdf/scanned emailed signatures shall be valid as originals.

Section 10.9Entire Agreement. This Agreement and any other document to be furnished pursuant to the provisions hereof embody the entire agreement and understanding of the parties hereto as to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants, or undertakings other than those expressly set forth or referred to in such documents. This Agreement and such documents supersede all prior agreements and understandings among the parties with respect to the subject matter hereof.

Section 10.10Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement, or affecting the validity or enforceability of any of the terms or provisions of this Agreement.

Section 10.11Attorney Fees. If any action is brought by any party to this Agreement to enforce or interpret its terms or provisions, the prevailing party will be entitled to reasonable attorney fees and costs incurred in connection with such action prior to and at trial and on any appeal therefrom.

Section 10.12Payment of Fees and Expenses. Each party to this Agreement will be responsible for, and will pay, all of its own fees and expenses, including those of its counsel and accountants, incurred in the negotiation, preparation, and consummation of this Agreement and the transaction contemplated hereunder.

Section 10.13Confidential Information. The parties acknowledge that the transaction described herein is of a confidential nature and shall not be disclosed except to Permitted Outside Parties or as required by law. Prior to Closing, no party shall make any public disclosure of the specific terms of this Agreement, except as required by law (including SEC regulations and NYSE requirements). In connection with the negotiation of this Agreement and the preparation for the consummation of the transactions contemplated hereby, each party acknowledges that it will have access to confidential information relating to the other party. Each party shall treat such information as confidential, preserve the confidentiality thereof, and not duplicate or use such information, except to Permitted Outside Parties in connection with the transactions contemplated hereby. In the event of the termination of this Agreement for any reason whatsoever, Buyer shall return to Seller, all documents, work papers, engineering and environmental studies and reports and all other materials (including all copies thereof obtained from Seller in connection with the transactions contemplated hereby), and each party shall use its best efforts, including instructing its employees and others who have had access to such information, to keep confidential and not to use any such information. Except as required by applicable law, neither party shall issue any press release or make any statement to the media, without the other party’s consent, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained in this Agreement, the confidentiality obligations of this Section 10.13 and Section 3.5 above shall not apply to any information that the recipient can prove (a) at the time of disclosure is in the public domain or becomes available to the public without breach of this Agreement by such recipient, (b) is lawfully obtained from a source that, to the best of recipient’s knowledge, is not under an obligation of confidentiality to the disclosing party, (c) is lawfully in the recipient’s possession in written or other recorded form prior to the time of disclosure, (d) is disclosed on a non-confidential basis to a third party by, or with the permission of, the disclosing party, or (e) is developed by, or

on behalf of, the recipient by individuals who have not received or without the use of any confidential information. Except as otherwise required by law or court order, if the recipient is compelled to disclose (a) any confidential information of the disclosing party, (b) the fact that confidential information of the disclosing party has been made available by either disclosing party or that discussions or negotiations between the parties are taking place, or (c) any of the terms of any existing or proposed relationship, subject to then applicable law, the recipient shall provide the disclosing party with prompt written notice of such request so that the disclosing party may seek a protective order or other appropriate remedy, or waive compliance with the provisions of this Agreement. If a protective order or other remedy is not obtained, or compliance with the provisions of this Agreement is waived, the receiving party required to disclose the information shall furnish only that portion of confidential information that in its reasonable judgment is legally required, and that it will use its best efforts, at the expense of the disclosing party seeking the protective order or other remedy, to obtain reliable assurance that confidential treatment will be accorded to that portion of confidential information that is being disclosed. The provisions of this Section 10.13 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement. The terms of the confidentiality provisions of this Agreement supersede any previously executed document with respect to confidentiality between the parties, including without limitation that certain Mutual Non-Disclosure and Non-Solicitation Agreement/Vendor Disclosure Agreement, dated as of August 27, 2019, by and between Seller and Buyer.

Section 10.14No Joint Venture. Nothing set forth in this Agreement shall be construed to create a joint venture between Buyer and Seller.

Section 10.15Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (EACH, AN “ACTION”) (A) ARISING OUT OF THIS AGREEMENT, INCLUDING ANY PRESENT OR FUTURE AMENDMENT THEREOF OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT (AS HEREAFTER AMENDED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SUCH ACTION IS NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND REGARDLESS OF WHICH PARTY ASSERTS SUCH ACTION; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY. EACH PARTY TO THIS AGREEMENT HEREBY AGREES THAT THE PROVISIONS CONTAINED HEREIN HAVE BEEN FAIRLY NEGOTIATED ON AN ARMS LENGTH BASIS, WITH BOTH SIDES AGREEING TO THE SAME KNOWINGLY AND BEING AFFORDED THE OPPORTUNITY TO HAVE THEIR RESPECTIVE LEGAL COUNSEL CONSENT TO THE MATTERS CONTAINED HEREIN. ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SELLER AND BUYER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY AND THE AGREEMENTS CONTAINED HEREIN REGARDING THE APPLICATION OF JUDICIAL REFERENCE IN THE EVENT OF THE

INVALIDITY OF SUCH JURY TRIAL WAIVER. THE PROVISIONS OF THIS SECTION 10.15 SHALL SURVIVE THE CLOSING OR THE TERMINATION OF THIS AGREEMENT.

Section 10.16Limited Liability. Neither the members, managers, employees or agents of Seller, nor the shareholders, officers, directors, employees or agents of any of them shall be liable under this Agreement and all parties hereto shall look solely to the assets of Seller for the payment of any claim or the performance of any obligation by Seller.

Section 10.17Time of Essence. Time is of the essence of this Agreement.

Section 10.18No Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, nor shall a waiver in any instance constitute a waiver in any subsequent instance. No waiver shall be binding unless executed in writing by the party making the waiver.

Section 10.19Exculpation. Notwithstanding anything to the contrary contained herein, the Seller’s shareholders, partners, members, the partners or members of such partners, the shareholders of such partners, members, and the trustees, officers, directors, employees, agents and security holders of the Seller and the partners or members of the Seller assume no personal liability for any obligations entered into on behalf of the Seller and its individual assets shall not be subject to any claims of any person relating to such obligations. The foregoing shall govern any direct and indirect obligations of the Seller under this Agreement. The provisions of this Section 10.19 shall survive the Closing and any termination of this Agreement.

Section 10.20Maximum Aggregate Liability. Notwithstanding any provision to the contrary contained in this Agreement or the Closing documents described in Sections 9.3 and 9.4, the maximum aggregate liability of the Seller, and the maximum aggregate amount which may be awarded to and collected by Buyer, in connection with the purchase and sale of the Real Property under this Agreement and under all Closing documents including, without limitation, in connection with the breach of any of Seller’s warranties for which a claim is timely made by Buyer, which, as set forth more fully in Section 6.2, is subject to a materiality threshold, and Seller’s aggregate liability shall not exceed the Seller’s Liability Cap; provided, however, that this Section 10.20, the materiality threshold and the Seller’s Liability Cap shall not apply to Seller’s obligations under Section 9.5 (Prorations and Closing Costs). As used herein, “Seller’s Liability Cap” means $1,500,000. The provisions of this Section shall survive the Closing (and not be merged therein) or any earlier termination of this Agreement.

Section 10.21Maintenance of the Property. Between the Effective Date and the Closing, Seller shall (i) maintain the Property in good order, condition and repair, reasonable wear and tear excepted, and (ii) make all repairs, maintenance and replacements of the Improvements and otherwise operate the Property in the same manner as before the Effective Date, as if Seller were retaining the Property. Through the Closing Date, Seller shall maintain or cause to be maintained, at Seller’s sole cost and expense, a policy or policies of insurance as was in effect prior to the Effective Date, and after the Closing Date the Seller’s and Buyer’s insurance obligations and requirements will be as set forth in the Lease.

Section 10.22Local Provisions.

(a)ISRA Provisions.

(i)Seller shall take all necessary actions to comply with the laws, rules and regulations pertaining to ISRA and site remediation, including the New Jersey Department of Environmental Protection’s (“NJDEP”) Technical Requirements for Site Remediation, N.J.A.C. 7:26E, and the New Jersey Site Remediation Reform Act, as it may be amended from time to time (“SRRA”), that are triggered by the consummation of the transactions contemplated by this Agreement, including the following actions:

(ii)In the event ISRA compliance is required, as a condition to Closing, Seller shall make the necessary filings with NJDEP and deliver to Buyer evidence of Sellers’ compliance with ISRA to allow the Closing to proceed. Seller’s evidence of ISRA compliance for Closing shall be in the form of (A) a Remediation Certification and an established Remediation Funding Source in the form of a Remediation Trust Fund, (B) a de minimis quantity exemption (“DQE”) approved by NJDEP, (C) a Remediation in Progress Waiver approved by NJDEP, or (D) an Unrestricted Use Response Action Outcome (“RAO”) issued by a Licensed Site Remediation Professional licensed by the State of New Jersey in accordance with SRRA (an “LSRP”) (collectively items (A) through (D) are referred to as “ISRA Clearance”). Seller shall provide drafts of all reports or other documents prepared by the LSRP for Buyer’s review not less than one (1) business days prior to submission, and Seller shall request that its LSRP review and consider in good faith Buyer’s comments provided to the LSRP prior to submittal, and incorporate them as appropriate in the LSRP’s sole but reasonable discretion.

(iii)In the event Seller is required to provide the ISRA Clearance to Buyer, Seller shall cause its LSRP to issue a reliance letter to Buyer, in a form reasonably acceptable to Buyer, allowing Buyer, its successors and/or assigns, and any lender making a loan secured by the Property, to rely on all documents submitted to NJDEP by the LSRP in connection with the ISRA Clearance for the Property. The receipt of the ISRA Clearance shall be a condition precedent to Buyer’s obligation to proceed with Closing.

(iv)In the event Buyer does not receive the ISRA Clearance on or prior to Closing, Seller shall have the right to extend the Closing by up to thirty (30) days. In the event Buyer does not receive the ISRA Clearance on or prior to the Closing Date, as same may be extended as permitted by this Agreement, Buyer shall have the right, in its sole discretion, to terminate this Agreement upon written notice to Seller, in which event the Deposit shall be returned to Buyer. In the event of such termination, the Escrow Agent shall refund the Deposit to Buyer, and neither party shall have any further rights or liabilities hereunder except as expressly set forth herein .

(v)Notwithstanding that Buyer receives the ISRA Clearance on or prior to Closing, Seller shall remain liable for fully completing compliance with ISRA, and Seller shall defend, indemnify, and hold Buyer harmless from and against all losses, costs, damages, claims, and liabilities, including attorneys’ fees, arising out of or in connection with Seller’s failure to comply with ISRA with respect to the Property and this Section 10.22(a).

Capitalized terms used herein that are not defined herein shall have the same meanings as in ISRA. Sellers’ obligations to comply with ISRA and this Section 10.22(a) shall survive the Closing

(b)Bulk Sales Law. The Buyer shall comply with N.J.S.A. 54:50-38, and to that end, the Buyer shall complete and execute Form C-9600 and shall do so promptly upon the Effective Date. If it so chooses, the Seller shall complete, execute and deliver to the Buyer a Form TTD (Asset Transfer Tax Declaration) and shall do so promptly upon the Effective Date. The Buyer and the Seller shall cooperate and coordinate in good faith in connection with the completion and filing of such forms in accordance with this Section 10.22(b) ); provided, however, Seller shall provide to Buyer the necessary information no later than September 10, 2019 in order for Buyer to submit From C-9600. The Buyer shall, at least ten (10) business days prior to the Closing Date, simultaneously deliver the completed Form C 9600 and the Form TTD, to the extent the Seller has delivered such form to the Buyer, along with a copy of this Agreement, executed, and any other required documents, to the State of New Jersey Department of the Treasury, Division of Taxation (the “Division”). If a clearance letter from the Division stating the Buyer will not assume any obligation of the Seller and no escrow is required is not issued prior to the Closing, the payment to the Seller of the balance of the Purchase Price at Closing shall be reduced by any amount which the Division may inform the Buyer must be withheld therefrom (the “NJ Escrow”). The NJ Escrow shall be held by a third-party escrow agent (pursuant to an escrow agreement in form and substance to be mutually agreed upon by the escrow agent, the Buyer and the Seller prior to the date of Closing, with all escrow fees to be paid by the Seller) until the Division provides a clearance letter to the Buyer stating the Buyer will not assume any obligation of the Seller and the NJ Escrow is no longer required. The escrow agent shall hold and release the NJ Escrow in accordance with direction from the Division, including direction to the Buyer that it may pay all or a portion of the amount withheld to the Seller, with such amount to be paid to the Seller within five (5) business days, or that the Division requires payment of all or a portion of the amount withheld for any taxes owed to the State of New Jersey by the Seller. If the Division informs the Buyer that the NJ Escrow is insufficient to pay the taxes owed to the State of New Jersey, the (i) Buyer shall notify Seller of such deficiency within two (2) business days of receiving such notice from the Division, and (ii) within five (5) business days of receiving such notice from the Buyer, the Seller shall pay the Division any such deficiency. The Seller hereby agrees to indemnify, defend and hold Buyer harmless from any and all claims arising from any tax liability accruing against Buyer under N.J.S.A. 54:50-38 and any interest and penalties thereon; provided, however, any interest and penalties assessed by the Division resulting solely from Buyer’s failure to deliver timely notice to the Seller of any deficiency shall be borne solely by the Buyer. The provisions of this Section 10.22(b) shall survive the Closing.

Section 10.23Amendment and Restatement. This Agreement amends and restates in its entirety that certain Agreement of Sale and Purchase, dated as of September 6, 2019, by and among Seller, Escrow Agent and Buyer’s Affiliate.

[Remainder of page intentionally left blank; next page is signature page]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

SELLER:DONNELLEY FINANCIAL, LLC,
a Delaware limited liability company

By: /s/ Jons Besch

Name: Jons S. Besch

Title: Executive Vice President of Operations

BUYER:

SECA-NJ, LLC,
a Delaware limited liability company

By: /s/ Perry Schonfeld

Name: Perry Schonfeld

Title: Authorized Signatory

ESCROW AGENT:

The Escrow Agent is executing this Agreement to evidence its agreement to hold the Deposit and act as escrow agent in accordance with the terms and conditions of this Agreement.

CHICAGO TITLE INSURANCE COMPANY

By: /s/ Beata Lewis
Name: Beata Lewis
Title: Escrow Officer, AVP

Exhibit 10.40

FIRST AMENDMENT TO

AMENDED AND RESTATED

AGREEMENT OF SALE AND PURCHASE

THIS FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF SALE AND PURCHASE (this “Amendment”) is entered into effective as of September 25, 2019, by and between DONNELLEY FINANCIAL, LLC, a Delaware limited liability company (“Seller”), and SECA-NJ LLC, a Delaware limited liability company (“Buyer”).

RECITALS:

WHEREAS, Buyer and Seller entered into that certain Amended and Restated Agreement of Sale and Purchase dated as of September 6, 2019 (the “Agreement”), with respect to certain real property and the improvements situated thereon located in 215 Secaucus, New Jersey, as more particularly described in the Agreement (the “Property”); and

WHEREAS, Seller and Buyer desire to amend the Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual covenants of Seller and Buyer and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, Seller and Buyer hereby agree as follows:

1.Incorporation of Recitals; Capitalized Terms. The Recitals set forth above are hereby incorporated herein to the same extent as if fully set forth herein. All capitalized terms stated herein shall have the same meanings as ascribed to them in the Agreement unless otherwise defined.

2.Closing Date. The definition of “Due Diligence Period” as set forth in Section 3.1 of the Agreement is hereby amended to replace the words “September 25, 2019” with “September 26, 2019.” The parties hereby acknowledge and agree that the foregoing extension of the Due Diligence Period shall be solely to finish negotiations with respect to the Lease, which Lease approval shall be in Buyer’s sole and absolute discretion (the “Lease Approval”), and for no other reason, it being understood that all Due Diligence matters are to Buyer’s satisfaction other than those considered open by the parties with respect to the Lease negotiations. Upon finalizing Lease negotiations the parties will execute a second amendment to the Agreement which shall attach as an exhibit the final form of Lease and memorialize any other terms agreed upon by the parties in connection with such negotiation which may include, without limitation, a reduction to the Purchase Price.

3.Notice to Proceed. Pursuant to Section 3.6 of the Purchase Agreement, this Amendment is intended to constitute Buyer’s written approval of the due diligence relating to the Property, except with respect to the Lease Approval described in Paragraph 2 above.

4.Ratification of Agreement. Except as modified by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and confirmed by Seller and Buyer and shall remain in full force and effect.

5.Counterparts; Electronic Signatures. This Amendment may be executed in any number of counterparts, any or all of which may contain the signatures of less than all of the parties, and all of which shall be construed together as a single instrument. To facilitate execution of this Amendment, the parties may execute and exchange by email pdf counterparts of the signature pages, which shall constitute originals for all purposes under this Amendment.

[Signature page follows]

Exhibit 10.40

IN WITNESS WHEREOF, Buyer and Seller have executed this Amendment as of the date first above written.

SELLER:

DONNELLEY FINANCIAL, LLC,
a Delaware limited liability company

By: /s/ Jons Besch____________________

Name: Jons S. Besch

Title: Executive Vice President of Operations

BUYER:

SECA-NJ, LLC,
a Delaware limited liability company

By: /s/ Steven Layton__________________

Name: Steven R. Layton

Title: Authorized Signatory

Exhibit 10.41

SECOND AMENDMENT TO

AMENDED AND RESTATED

AGREEMENT OF SALE AND PURCHASE

THIS SECOND AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF SALE AND PURCHASE (this “Amendment”) is entered into effective as of September 26, 2019, by and between DONNELLEY FINANCIAL, LLC, a Delaware limited liability company (“Seller”), and SECA-NJ LLC, a Delaware limited liability company (“Buyer”).

RECITALS:

WHEREAS, Buyer and Seller entered into that certain Amended and Restated Agreement of Sale and Purchase dated as of September 6, 2019 (the “Original Agreement”), as amended by that certain First Amendment to Amended and Restated Agreement of Sale and Purchase dated as of September 25, 2019 (the “First Amendment”, and together with the Original Agreement, the “Agreement”), with respect to certain real property and the improvements situated thereon located in 215 Secaucus, New Jersey, as more particularly described in the Agreement (the “Property”); and

WHEREAS, Seller and Buyer desire to amend the Agreement as provided herein.

2.Purchase Price. The definition of “Purchase Price” as set forth in Section 2.2 of the Agreement is hereby amended to replace the words and numbers of “Thirty-One Million and NO/100 Dollars ($31,000,000.00)” with “Thirty Million Seven Hundred Thousand and NO/100 Dollars ($30,700,000.00)”.

3.Final Lease. Pursuant to Section 3.6 of the Agreement, the parties hereby agree to add an “Exhibit “G” Final Lease” to the Agreement, and such Exhibit shall be deemed to include the final Lease attached hereto as Exhibit A.

[Signature page follows]

Exhibit 10.41

IN WITNESS WHEREOF, Buyer and Seller have executed this Amendment as of the date first above written.

SELLER:

DONNELLEY FINANCIAL, LLC,
a Delaware limited liability company

By: /s/ Jons Besch___________________

Name: Jons S. Besch

Title: Executive Vice President of Operations

BUYER:

SECA-NJ LLC,
a Delaware limited liability company

By: /s/ Steven Layton
Name: Steven Layton
Title: Authorized Signatory

Exhibit 10.41

Exhibit A

Final Lease Attached

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Daniel N. Leib, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Donnelley Financial Solutions, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2019

/s/ DANIEL N. LEIB

Daniel N. Leib

President and Chief Executive Officer

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, David A. Gardella, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Donnelley Financial Solutions, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2019

/s/ DAVID A. GARDELLA

David A. Gardella

Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Donnelley Financial Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel N. Leib, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 5, 2019

/s/ DANIEL N. LEIB

Daniel N. Leib

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Donnelley Financial Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Gardella, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 5, 2019

/s/ DAVID A. GARDELLA

David A. Gardella

Executive Vice President and Chief Financial Officer