UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 0-28208
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3864004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28 WEST 23RD STREET
NEW YORK, NY
(Address of principal executive offices)
10010
(Zip Code)
212-929-4111
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's common stock outstanding as of May
9, 1997, was 14,349,683.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except share amounts)
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,540 $ 2,567
Marketable securities at cost ..................... 1,600
Trade accounts receivable
(net of allowances of $456
in 1997 and $472 in 1996) ...................... 31,482 29,584
Due from affiliates ............................... 2,324
Inventory ......................................... 4,454 4,639
Deferred income taxes ............................. 752 705
Prepaid expenses and other current assets ......... 2,495 2,485
------- -------
Total current assets .................... 44,047 41,580
Property, plant, and equipment - net .............. 19,794 20,544
Goodwill .......................................... 7,426 7,121
Deferred income taxes ............................. 1,811 1,644
Other assets ...................................... 1,326 1,258
------- -------
Total assets ............................ $74,404 $72,147
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............. $19,884 $19,630
Applied Printing Note ............................. 1,600
Current portion of long-term debt ................. 144 507
Current portion of obligations
under capital leases ............................ 1,217 1,354
Due to affiliates ................................. 1,926 354
Other current liabilities ......................... 2,076 2,407
------- -------
Total current liabilities ...................... 25,247 25,852
Long-term debt .................................... 6,662 6,005
Obligations under capital leases .................. 1,026 1,265
Other liabilities ................................. 2,988 3,142
------- -------
Total liabilities .............................. 35,923 36,264
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock (no par value, 10,000,000
shares authorized; no shares
issued and outstanding)
Common stock (par value $0.01; 40,000,000
shares authorized; 14,349,683 shares
issued and outstanding) ...................... 143 143
Additional paid-in capital ........................ 25,584 25,584
Retained earnings ................................. 12,754 10,156
------- -------
Total stockholders' equity ..................... 38,481 35,883
------- -------
Total liabilities and stockholders' equity ..... $74,404 $72,147
======= =======
See Notes to Interim Financial Statements
<PAGE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
( In thousands, except per-share amounts)
For the Three Months Ended
March 31,
--------------------------
1997 1996
-------- --------
Revenues ........................................... $ 39,761 $ 30,598
Cost of revenues ................................... 26,821 22,329
-------- --------
Gross profit ....................................... 12,940 8,269
Selling, general, and
administrative expenses ........................ 8,602 7,056
-------- --------
Operating income ................................... 4,338 1,213
Interest expense ................................... (210) (904)
Other income (expense) - net ....................... 131 (163)
-------- --------
Income before provision for
income taxes ................................... 4,259 146
Provision for income taxes ......................... 1,661
-------- --------
Net income ......................................... $ 2,598 $ 146
======== ========
Earnings per common share (pro forma in 1996):
Primary ............................................ $ 0.17 $ 0.01
Fully Diluted ...................................... $ 0.17 $ 0.01
Weighted average number of common shares
(pro forma in 1996):
Primary ............................................ 15,171 9,775
Fully Diluted ...................................... 15,309 9,775
See Notes to Interim Financial Statements
<PAGE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
For the Three Months Ended
March 31,
--------------------------
1997 1996
------- -------
Cash flows from operating activities:
Net income ......................................... $ 2,598 $ 146
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization .................. 1,388 1,347
Deferred taxes ................................. (214)
Other .......................................... (208) 154
Management of Changes in Operating
Assets and Liabilities:
Trade accounts receivable ...................... (1,882) (2,623)
Due from/to affiliates ......................... (752) 4,099
Inventory ...................................... 185 261
Other assets ................................... (95) (300)
Accounts payable and accrued expenses .......... 254 3,561
Other liabilities .............................. (596) 2,233
------- -------
Net cash provided by operating activities .......... 678 8,878
------- -------
Cash flows from investing activities:
Proceeds from the sale of marketable securities 1,600
Property, plant, and equipment expenditures .... (1,769) (1,650)
Proceeds from the sale of fixed assets ......... 291
Net proceeds from insurance claims ............. 243
------- -------
Net cash used in investing activities .............. (169) (1,116)
------- -------
Cash flows from financing activities:
Borrowings under revolving credit line ......... 694
Proceeds from sale/leaseback transactions ...... 1,030
Repayment of Applied Printing Note ............. (1,600)
Repayment of notes and capital lease obligations (660) (600)
Repayment of intercompany borrowings - net ..... (1,650)
Net distributions to Applied Printing .......... (6,178)
------- -------
Net cash used in financing activities .............. (536) (8,428)
------- -------
Net decrease in cash and cash equivalents .......... (27) (666)
Cash and cash equivalents at beginning of period ... 2,567 666
------- -------
Cash and cash equivalents at end of period ......... $ 2,540 $ 0
======= =======
Supplemental Disclosure of Cash Flow Information:
Interest paid ...................................... $ 231 $ 134
Income taxes paid .................................. $ 2,560
See Notes to Interim Financial Statements
<PAGE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Applied
Graphics Technologies, Inc. (the "Company"), which have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles, should be read in conjunction with the notes to
financial statements contained in the Company's 1996 Form 10-K. In the opinion
of the management of the Company, all adjustments (consisting primarily of
normal recurring accruals) necessary for a fair presentation have been included
in the financial statements.
On April 16, 1996 (the "Offering Date"), the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, as amended, relating to
the initial public offering (the "Offering") of the Company's Common Stock, was
declared effective. Upon the offering being declared effective, the Company
acquired substantially all of the assets and certain related liabilities
relating to the prepress, digital imaging services, and related businesses
(collectively, the "Prepress Business") of Applied Printing Technologies, L.P.
("Applied Printing"), an entity beneficially owned by the Chairman of the Board
of Directors of the Company and the Chief Executive Officer of the Company. The
Prepress Business was acquired in exchange for 9,309,900 shares of the Company's
Common Stock and $37,000,000 of additional consideration comprised of (i) the
assumption by the Company of the principal amount of collateralized senior
indebtedness to Applied Printing's primary institutional lender (the
"Institutional Senior Indebtedness") of $21,000,000 and (ii) the issuance of a
promissory note by the Company to Applied Printing (the "Applied Printing Note")
of $16,000,000. The Company received net proceeds of $46,103,000 from the
Offering, of which $21,000,000 was used to repay Institutional Senior
Indebtedness and $16,000,000 was used to invest in short-term investments to
support a standby letter of credit that collateralized the Applied Printing
Note.
The acquisition of the Prepress Business was accounted for in a manner
similar to a pooling of interests. Accordingly, the financial statements of the
Company reflect the combined results of operations of the Prepress Business
through the Offering Date and the results of the Company thereafter. The
statement of operations and the statement of cash flows for the three months
ended March 31, 1996, have been prepared by combining the results of operations
and cash flows of the specific divisions that comprised the Prepress Business.
Prior to the Offering Date, these divisions operated as separate business units
and maintained their own books and records. Through the Offering Date, Applied
Printing managed the cash and financing requirements of all of its divisions
centrally and, as such, the interest expense and related intercompany borrowing
up until that date represents an allocation of Applied Printing's interest
expense and the related debt. Additionally, prior to the Offering Date, Applied
Printing and other related parties had provided certain corporate, general, and
administrative services to the Prepress Business including general management,
treasury, financial reporting, and legal services. Accordingly, the financial
statements prior to the Offering Date include an allocation of expenses for such
services. The results of operations and cash flows for the three months ended
March 31, 1996, may have differed had the Company operated as an independent
entity during that period.
Certain prior-period amounts in the accompanying financial statements have
been reclassified to conform with the 1997 presentation.
<PAGE>
2. ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", was issued in February 1997 and is effective for interim and annual
periods ending after December 15, 1997. This statement, which supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share", establishes
standards for computing and presenting earnings per share and will require the
restatement of all prior-period earnings per share data. The implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure", was issued in February 1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for disclosing information about an entity's capital structure by
superseding and consolidating previously issued accounting standards. The
financial statements of the Company are prepared in accordance with the
requirements of SFAS No. 129.
3. INVENTORY
The components of inventory (in thousands of dollars) were as follows:
March 31, December 31,
1997 1996
------------ ------------
Work-in-process .................................... $ 2,826 $ 2,596
Raw materials ...................................... 1,628 2,043
------- -------
Total .............................................. $ 4,454 $ 4,639
======= =======
4. INCOME TAXES
The Prepress Business was treated as a partnership for Federal and state
income tax purposes prior to the Offering Date and was not subject to tax.
Concurrently with the acquisition, the Company recorded the applicable deferred
tax assets related to the differences between financial statement and tax basis
of the assets and liabilities of the Prepress Business. These deferred tax
assets were entirely offset by a valuation allowance. A provision for income
taxes is included in the Company's Statement of Operations only for the periods
subsequent to the Offering Date. Had the Company been subject to income taxes
prior to the Offering Date, the provision for income taxes, net income, and
earnings per share for the three months ended March 31, 1996, would have been
$29,000, $117,000, and $0.01, respectively. The effective rate of the provision
for income taxes in 1996 was lower than would ordinarily be expected due
primarily to the reversal of both Federal and state deferred tax asset valuation
allowances.
5. EARNINGS PER SHARE
Earnings per share of common stock are computed by dividing net income by
the weighted average of the number of shares of common stock and common stock
equivalents outstanding. For the 1996 period, earnings per share of common stock
represent a pro forma calculation using the number of shares of common stock
issued and issuable to Applied Printing at March 31, 1996.
6. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the three months ended March 31, 1997 and 1996 (in thousands of
dollars), were as follows:
1997 1996
---------- ----------
Affiliate sales .................................... $ 3,176 $ 3,020
Affiliate purchases ................................ $ 1,439 $ 492
Administrative charges ............................. $ 265 $ 1,302
Administrative charges include charges for certain legal and computer
services provided by affiliates and for rent incurred for leases with
affiliates. Administrative charges incurred for the three months ended March 31,
1996, also include $1,232,000 of costs allocated from Applied Printing for
general management, treasury, financial reporting, and legal services. Such
administrative charges are included in selling and administrative expenses in
the Statements of Operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking" statements (within the meaning of the Private Securities
Litigation Reform Act of 1995). Such statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: an inability to obtain additional, or to renew existing,
on-site arrangements; a delay in commencing to provide services under the new
agreement with General Motors; an inability to expand the services provided by
the digital division; an inability to enter into acquisitions; or an inability
to obtain additional credit or financing sources.
On April 16, 1996 (the "Offering Date"), the Company commenced the initial
public offering (the "Offering") of its Common Stock. Concurrent with the
Offering, the Company acquired substantially all of the assets and certain
liabilities relating to the prepress, digital imaging services, and related
businesses of Applied Printing Technologies, L.P. (collectively, the "Prepress
Business"). The acquisition of the Prepress Business has been accounted for in a
manner similar to a pooling of interests. Accordingly, the financial statements
of the Company reflect the combined results of operations of the Prepress
Business through the Offering Date and the results of the Company thereafter.
Results of Operations
Three months ended March 31, 1997, compared with 1996
Revenues in the first quarter of 1997 were $9.2 million or 29.9% higher
than in the comparable period in 1996. This increase was primarily due to $3.7
million of revenues generated from the operations of additional on-site
facilities management contracts during the 1997 period, $1.6 million of revenues
from the SpotLink division whose dub and ship operations were acquired in
December 1996, increased revenues of $0.7 million in the digital imaging
services division from equipment sales, $1.4 million of additional revenue
generated in certain divisions of the traditional prepress business, primarily
at the Carlstadt facility, $0.5 million of revenue from the ad management
business that had not yet commenced operations during the 1996 period, and
receipt of a nonrefundable payment of $2.0 million related to an agreement with
one of the Company's major suppliers. These revenue increases were slightly
offset by a decrease in sales of $0.7 million at the Los Angeles and Burbank
divisions as a result of combining these operations as discussed below.
In March 1997, the Company signed a contract to be the primary provider of
digital prepress production services and distribution and warehousing of radio
and television commercials for General Motors. Under this long-term contract,
which initially runs through August 2000 and is renewable for an additional two
years at General Motors' option, the Company will consolidate all activities
relating to the use of General Motors' visual content, including photographic
images and audio and video commercials. The Company expects to begin providing
significant services under this contract in the second half of 1997.
Gross profit increased $4.7 million or 56.5% in the first quarter of 1997
as a result of the additional revenues for the period as discussed above. This
increase was partially offset by the lower gross profit at the Los Angeles and
Burbank divisions of the traditional prepress business resulting from decreased
sales along with expenses incurred and inefficiencies encountered during the
transition period to combine the Burbank facility into the recently completed
Los Angeles facility. The Company expects the combining of these two facilities
to provide greater capacity and more efficient operating results in the future.
The gross profit percentage in the first quarter of 1997 was 32.5% as compared
to 27.0% in the 1996 period.
Selling, general, and administrative expenses in the first quarter of 1997
were $1.5 million higher than in the first quarter of 1996, but as a percent of
revenue decreased to 21.6% in the 1997 period from 23.1% in the 1996 period.
This improvement is primarily due to the increase in revenues discussed above
and increased business from on-site facilities management contracts, which
require less sales support than the traditional prepress business. Such
improvements were partially offset by additional expenses incurred related to
being a publicly-traded company and from expanded business at certain operations
as well as expenses incurred to combine the operations of the Los Angeles and
Burbank divisions.
Interest expense in the first quarter of 1997 was $0.7 million less than in
the 1996 period primarily due to the repayment of debt in April 1996 with the
proceeds from the Offering.
The Prepress Business was treated as a partnership for Federal and state
income tax purposes prior to the Offering Date and was not subject to tax.
Concurrently with the acquisition, the Company recorded the applicable deferred
tax assets related to the differences between financial statement and tax basis
of the assets and liabilities of the Prepress Business. These deferred tax
assets were entirely offset by a valuation allowance. A provision for income
taxes is included in the Company's Statement of Operations only for the periods
subsequent to the Offering Date. Had the Company been subject to income taxes
prior to the Offering Date, the provision for income taxes, net income, and
earnings per share for the three months ended March 31, 1996, would have been
$29,000, $117,000, and $0.01, respectively. The effective rate of the provision
for income taxes in 1996 was lower than would ordinarily be expected due
primarily to the reversal of both Federal and state deferred tax asset valuation
allowances.
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", was issued in February 1997 and is effective for interim and annual
periods ending after December 15, 1997. This statement, which supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share", establishes
standards for computing and presenting earnings per share and will require the
restatement of all prior-period earnings per share data. The implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure", was issued in February 1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for disclosing information about an entity's capital structure by
superseding and consolidating previously issued accounting standards. The
financial statements of the Company are prepared in accordance with the
requirements of SFAS No. 129.
Financial Condition
During the first quarter of 1997, the Company repaid the remaining $1.6
million of the Applied Printing Note with the proceeds from the sale of
marketable securities. In March 1997, the Company entered into a sale and
leaseback arrangement that generated proceeds of $1.0 million. Such arrangement
did not result in any gain or loss. In May 1997, the Company renegotiated the
terms under its revolving line of credit. The revised line of credit is a $25
million variable-rate facility with a term that runs through May 2000. Under the
revised facility, interest on funds borrowed is either prime less 0.75% or LIBOR
plus 1.50%. As of March 31,1997, $6.3 million was borrowed under this line of
credit.
Cash flows from operating activities during the first quarter of 1997
decreased by $8.2 million dollars as compared to the comparable period in 1996
due primarily to the improved financial condition of the Company enabling it to
accelerate payments to vendors and affiliates. During the first quarter of 1997,
the Company invested $1.8 million in equipment and repaid $0.7 million of debt
and lease obligations with the proceeds from a sale and leaseback transaction,
additional borrowings under its line of credit, and cash provided by operating
activities.
At March 31, 1997, capital commitments amounted to approximately $11.0
million, essentially all of which is for investment in production equipment,
including a $6.5 million capital investment the Company expects to make through
1998 in connection with the General Motors contract. The Company intends to
finance a substantial portion of these expenditures under operating leases or
sale and leaseback arrangements.
The Company believes that the cash flow from operations, its revolving
credit facility, and its potential ability to obtain funding from other
financing sources will be sufficient to fund its cash needs for the foreseeable
future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
<PAGE>
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation (Incorporated by reference to
Exhibit No. 3.1 forming part of the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended).
3.2 Amended and Restated By-Laws of Applied Graphics Technologies,
Inc. (Incorporated by reference to Exhibit No. 3.2 forming part
of Amendment No. 3 to the Registrant's Registration Statement on
Form S-1 (File No. 333-00478) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4 Specimen Stock Certificate (Incorporated by reference to Exhibit
No. 4 forming part of Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-00478) filed
with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
10.2 Applied Graphics Technologies, Inc. 1996 Stock Option Plan
(Incorporated by reference to Exhibit No. 10.2 forming part of
Amendment No. 3 to the Registrant's Registration Statement on
Form S-1 (File No. 333-00478) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
10.3 Applied Graphics Technologies, Inc. Non-Employee Directors
Nonqualified Stock Option Plan (Incorporated by reference to
Exhibit No. 10.3 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
10.4* Loan and Purchase Agreement, dated January 8, 1992, as amended
(Incorporated by reference to Exhibit No. 10.4 forming part of
Amendment No. 3 to the Registrant's Registration Statement on
Form S-1 (File No. 333-00478) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
10.4(a)* Second Amendment to Loan and Purchase Agreement dated April 19,
1996 (Incorporated by reference to Exhibit No. 10.1 forming part
of the Registrant's Report on Form 10-Q/A (File No. 0-28208)
filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, for the quarterly
period ended March 31, 1996).
10.5 Agreement, dated May 1, 1979, between WAMM Associates and
Publisher Phototype International, L.P., as amended (Incorporated
by reference to Exhibit No. 10.5 forming part of Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
<PAGE>
10.6(a) Employment Agreement, effective as of April 1, 1996, between the
Company and Diane Romano (Incorporated by reference to Exhibit
No. 10.6 forming part of Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-00478) filed
with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
10.6(b) Employment Agreement, effective as of April 1, 1996, between the
Company and Georgia L. McCabe (Incorporated by reference to
Exhibit No. 10.6 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
10.6(c) Employment Agreement, effective as of March 13, 1996, between the
Company and Melvin A. Ettinger (Incorporated by reference to
Exhibit No. 10.6 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
10.6(d) Employment Agreement, effective as of April 1, 1996, between the
Company and Scott A. Brownstein (Incorporated by reference to
Exhibit No. 10.6 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
10.6(e) Employment Agreement, effective as of June 1, 1996, between the
Company and Louis Salamone, Jr.
10.7 Form of Registration Rights Agreement (Incorporated by reference
to Exhibit No. 10.7 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
27 Financial Data Schedule (EDGAR filing only).
- ------------------------------------
* Confidential portions omitted and supplied separately to the Securities
and Exchange Commission.
(b) The Registrant did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Melvin A. Ettinger
Date: May 15, 1997
-----------------------------
Melvin A. Ettinger
Vice Chairman, Chief Operating Officer
and Director
(Duly authorized officer)
/s/ Louis Salamone, Jr.
Date: May 15, 1997
-----------------------------
Louis Salamone, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Exhibit 10.6(e)
EMPLOYMENT AGREEMENT
This Agreement, dated April 16, 1996, is entered into by and between
Applied Graphics Technologies, Inc., a Delaware corporation ("AGT"), and Louis
Salamone, Jr., (hereinafter referred to as "Salamone" or the "Employee") an
individual residing at 221 Woods End, Basking Ridge, New Jersey 07920. In
consideration of the mutual covenants set forth herein, the parties agree as
follows:
1. Employment Term. Subject to the further terms and conditions of this
Agreement, AGT employs Employee as Senior Vice President and Chief Financial
Officer for the period beginning on the Commencement Date and ending on the day
before the second anniversary of the Commencement Date (the "Term"); provided
that no later than six months before the expiration of the Term, AGT shall
notify Employee as to whether AGT intends to extend Employee's employment for
one additional year beyond the Term. The Commencement Date shall be a mutually
agreed upon date between May 1, 1996 and June 1, 1996.
2. Employee will generally attend meetings of the Board of the Directors
and will attend meetings of Board Committees, as appropriate.
3. Compensation.
(a) AGT will pay Employee a salary at the rate of $240,000 per annum.
(b) With respect to each of AGT's fiscal years, Employee shall be
eligible for a cash bonus in an amount, if any, to be determined
in the sole discretion of AGT.
(c) The salary and bonus referred to in subparagraphs (a) - (b) above
represent all of Employee's cash compensation, and accordingly,
Employee shall not be entitled to any overtime, weekend or
holiday compensation.
(d) Employee shall receive those insurance, retirement and other
benefits generally provided to AGT's other senior executives of
similar rank and tenure.
(e) Employee shall be reimbursed for all reasonable travel and
entertainment expenses incurred in the furtherance of AGT's
business, upon submission by Employee of reasonable
documentation.
4. Duties. During the term of this Agreement, Employee agrees to fulfill
the duties of Chief Financial Officer of AGT. Employee shall report to the Chief
Operating Officer of AGT, and shall devote all of his business efforts to the
performance of his duties as Chief Financial Officer, and shall do so to the
best of his abilities.
5. Leaves. Employee shall be entitled to a four (4) week vacation during
each year of the Term, and such other leaves, if any, as may be provided
generally to AGT's other senior executives.
6. Termination.
(a) This Agreement shall terminate prior to the expiration hereof in
the event of Employee's death, permanent disability, or discharge
for cause. "Cause" shall mean (i) the conviction of or pleas of
guilty or nolo-contender to any felony or business-related
misdemeanor; (ii) the reasonable determination by AGT's Board of
Directors or Chief Executive Officer that Employee has engaged in
an act of personal dishonesty in any way relating to or affecting
the performance of his duties for AGT, its parents, subsidiaries
or affiliates; (iii) a breach of fiduciary duty; (iv) the
intentional failure to perform assigned duties; (v) gross
negligence in the performance of duties; (vi) a material breach
of any of the provisions of this Agreement; or (vii) the
commission of any other action with the intent to harm or injure
AGT, its parents, subsidiaries or affiliates. In the event that
AGT terminates Employee for cause, Employee shall be entitled to
compensation earned up to the date of termination, but no other
compensation, and AGT reserves the right to seek appropriate
relief for whatever damage may have resulted from that "cause".
"Permanent disability" shall mean a physical or mental illness,
disability or disfigurement which renders Employee incapable of
performing his normal services hereunder for a continuous period
of 8 weeks, or an aggregate of 16 weeks during any 52 week
period. In the event Employee is disabled for less than such 8 or
16 weeks, respectively, Employee shall nonetheless be entitled to
full compensation during such period. In the event of Employee's
permanent disability or death, Employee shall be entitled to full
compensation until the effective date of his termination, but no
other compensation.
(b) AGT shall be entitled to terminate this Agreement at any time
without any reason or cause whatsoever. However, in the event AGT
exercises its rights under this Paragraph 6(b), (i) any unvested
stock options which have been granted to Employee shall
immediately vest and be subject to exercise within 90 days and
(ii) AGT shall continue to pay Employee's salary and benefits
under Paragraph 3(a) for the remainder of the term set forth in
Paragraph 1; provided however that Employee shall make a good
faith effort to find other employment and any amounts due under
this clause (ii) shall be offset by any compensation earned or
received by Employee from other persons or entities with respect
to any services performed by him during the remainder of said
term.
(c) Amounts payable to Employee pursuant to this Section 6 shall be
paid in accordance with AGT's usual payroll practices.
7. Noncompetition, Nonsolicitation and Confidentiality. As a material
inducement to AGT to employ him, Employee agrees to execute the Noncompetition,
Nonsolicitation and Confidentiality Agreement attached hereto as Exhibit A, the
terms of which are incorporated herein by reference.
8. Absence of Restrictions. Employee represents and warrants that he is not
a party to any agreement or contract pursuant to which there is any restriction
or limitation upon him entering into this Agreement or performing the duties
called for by this Agreement.
9. In consideration of Employee's agreement to begin employment on the
Commencement Date, Salamone shall be granted options to purchase 125,000 shares
of AGT's common stock at the price at which such shares are sold to the public
pursuant to AGT's Registration Statement dated January 19, 1996.
(a) Such options shall vest at the rate of 20% per year, such vesting
to occur at the end of each 365 day period after the grant of the
options.
(b) The options will be subject to such other terms and conditions as
are established by the Compensation Committee of the Board of
Directors.
10. Notices. All notices, consents and other communications required or
permitted to be given hereunder shall be in writing and delivered personally or
sent by certified or registered mail, postage prepaid, as follows:
(a) if to Employee, to: Louis Salamone, Jr., 221 Woods End, Basking
Ridge, New Jersey 07920.
(b) if to AGT, to: Fred Drasner, 450 West 33rd Street, New York, NY
10001, with a copy to Martin D. Krall at the same address.
Any notice so given shall be deemed received when delivered personally, or,
if mailed, three days after it is deposited, postage prepaid, by certified mail,
in the United States mail. Either party may change the address to which notices
are to be sent by giving written notice of such change of address to the other
party in the manner herein provided for giving notice.
10. General.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
(b) The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and understanding
of the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings
between the parties hereto.
(d) AGT may assign its rights and obligations under this Agreement to
any successor thereto or to any corporation or other entity
controlled, or under common control with AGT or any of its
Partners. This Agreement is personal to Employee, and neither
this Agreement or any of Employee's rights or obligations
hereunder may be assigned, pledged or encumbered by him, without
the prior written approval of AGT.
(e) This Agreement may be amended, modified, superseded or canceled,
and the terms or covenants hereof may be waived, only by a
written instrument executed by both parties hereto, or, in the
case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later
time to enforce the same. No waiver by either party of the breach
of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of
any such breach or a waiver of the breach of any other term or
covenant in this Agreement.
(f) In the event that any one or more of the provisions of this
Agreement shall be determined to be invalid or unenforceable in
any respect, the validity and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or
impaired thereby.
(g) Except as otherwise provided in Exhibit A, any and all disputes
between the parties hereto concerning any alleged breach or
interpretation of this contract or arising out of Employee's
employment shall be submitted solely to binding arbitration in
accordance with the procedures and rules of the American
Arbitration Association applicable at the time of the dispute for
a final, non-appealable, binding decision. The parties hereby
waive any and all right to proceed in any court or administrative
agency; however, should any dispute hereunder be adjudicated by a
court, the parties hereto waive any right each may have to a jury
trial. In a proceeding of any sort, each party shall bear its own
costs and attorneys' fees, unless an intentional breach is
claimed, and in such event, if the moving party does not
substantially prevail, such party shall pay the other party's
legal fees, and if such party does prevail, the other party shall
pay the prevailing party's fees.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
shown above. Applied Graphics Technologies, Inc.
By: __________________________
---------------------------
Louis Salamone, Jr.
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