<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Applied Graphics Technologies, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statements, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
(3) Filing party:
---------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
LOGO
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 3, 1999
------------------------
To our stockholders:
Notice is hereby given that the 1999 annual meeting of stockholders of
Applied Graphics Technologies, Inc. (the "Company") will be held at the Harmonie
Club, 4 East 60th Street, New York, New York 10022 on Thursday, June 3, 1999, at
10:00 a.m., local time, for the following purposes:
1. to elect nine directors of the Company for terms expiring at the
2000 annual meeting of stockholders;
2. to approve an amendment of the Company's 1998 Incentive
Compensation Plan to increase the number of shares of Common Stock
authorized for issuance thereunder by 3,000,000, to an aggregate of
7,000,000; and
3. to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on April 9, 1999 will
be entitled to notice of, and to vote at, the annual meeting or any adjournment
or postponement thereof. A list of such stockholders will be open for
examination by any stockholder for any purpose germane to the annual meeting at
the annual meeting and during normal business hours, for ten days prior to the
annual meeting, at the offices of the Company, 450 West 33rd Street, New York,
New York 10001.
By Order of the Board of Directors,
[/s/ Martin D. Krall]
MARTIN D. KRALL
Secretary
Dated: April 30, 1999
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED.
<PAGE> 3
LOGO
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 3, 1999
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
PROXY SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Applied Graphics
Technologies, Inc. (the "Company") for use at the 1999 annual meeting of
stockholders to be held at the Harmonie Club, 4 East 60th Street, New York, New
York 10022, on Thursday, June 3, 1999, at 10:00 a.m., local time. The purpose of
the annual meeting and the matters to be acted upon are set forth in the
accompanying notice of annual meeting.
The Company is mailing its annual report for the fiscal year ended December
31, 1998, together with this proxy statement and the enclosed proxy, to
stockholders entitled to vote at the annual meeting. The annual report does not
form any part of the material for the solicitation of proxies.
The Company will pay the cost of all proxy solicitation. In addition to the
solicitation of proxies by use of the mails, officers and other employees of the
Company and its subsidiaries may solicit proxies by personal interview,
telephone, facsimile and telegram. None of these individuals will receive
compensation for such services, which will be performed in addition to their
regular duties. The Company also has made arrangements with brokerage firms,
banks, nominees and other fiduciaries to forward proxy solicitation material for
shares held of record by them to the beneficial owners of such shares. The
Company will reimburse such persons for their reasonable out-of-pocket expenses
in forwarding such material.
This proxy statement and the enclosed proxy are first being mailed to the
Company's stockholders on or about April 30, 1999.
VOTING AND REVOCABILITY OF PROXIES
A proxy for use at the annual meeting and a return envelope are enclosed.
Shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), represented by a properly executed proxy, if such proxy is received in
time and not revoked, will be voted at the annual meeting in accordance with the
instructions indicated in such proxy. If no instructions are indicated, such
shares will be voted "FOR" the election of the nine director nominees named in
the proxy and approval of the amendment of the Company's 1998 Incentive
Compensation Plan to increase the number of shares which may be issued under the
plan. Discretionary authority is provided in the proxy as to any matters not
specifically referred to therein. Management is not aware of any other matters
that are likely to be brought before the annual meeting. If any such matters
properly come before the annual meeting, however, the persons named in the proxy
are fully authorized to vote thereon in accordance with their judgment and
discretion.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the annual meeting by (1) giving written notice of revocation to the
Secretary of the Company, (2) properly submitting to the Company a duly executed
proxy bearing a later date or (3) voting in person at the annual meeting. All
written
<PAGE> 4
notices of revocation or other communications with respect to revocation of
proxies should be addressed to the Company's Corporate Secretary at its
principal executive offices as follows: Applied Graphics Technologies, Inc., 450
West 33rd Street, New York, New York 10001, Attention: Corporate Secretary.
VOTING PROCEDURE
All holders of record of the Common Stock of the Company at the close of
business on April 9, 1999 will be eligible to vote at the annual meeting. Each
holder of Common Stock is entitled to one vote at the annual meeting for each
share held by such stockholder. As of April 9, 1999, there were 22,394,772
shares of Common Stock outstanding.
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to vote will constitute a quorum for the
transaction of business. Votes cast in person or by proxy, abstentions and
broker non-votes (as hereinafter defined) will be tabulated by the inspectors of
election and will be considered in the determination of whether a quorum is
present at the annual meeting. The inspectors of election will treat shares
represented by executed proxies that abstain as shares that are present and
entitled to vote for purposes of determining the approval of such matter. If,
with respect to any shares, a broker or other nominee submits a proxy indicating
that instructions have not been received from the beneficial owners or the
persons entitled to vote and that such broker or other nominee does not have
discretionary authority to vote such shares (a "broker non-vote") on one or more
proposals, those shares will not be treated as present and entitled to vote for
purposes of determining the approval of any such proposal.
SECURITY OWNERSHIP
The information set forth below regarding beneficial ownership of the
Common Stock has been presented in accordance with rules of the Securities and
Exchange Commission (the "Commission") and is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership of Common Stock includes any shares as to which a person has the sole
or shared voting power or investment power and also any shares that a person has
the right to acquire within 60 days from the date set forth below through the
exercise of any stock option or other right ("currently exercisable options").
2
<PAGE> 5
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 10, 1999, information regarding
the beneficial ownership of the Common Stock by (i) each person known to the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director and each nominee to the Board, (iii) each of the executive
officers of the Company named in the Summary Compensation Table under "Executive
Compensation," and (iv) all directors and executive officers of the Company as a
group. Except as indicated, each person identified in the following table has
sole voting and investment power with respect to the shares shown. Percentage
ownership of Common Stock is based on 22,394,772 shares outstanding as of April
10, 1999.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------
<S> <C> <C>
Applied Printing Technologies, L.P.(1)(2).......... 4,985,000 22.3%
Franklin Resources, Inc.(3)........................ 1,498,230 6.7
Putnam Investments, Inc.(4)........................ 1,317,150 5.9
Capital Guardian Trust Company(5).................. 1,119,200 5.0
Mortimer B. Zuckerman(1)........................... -- --
Fred Drasner(1).................................... -- --
Marne Obernauer, Jr.(6)............................ 514,799 2.3
Melvin A. Ettinger(7)(8)........................... 80,000 *
Diane Romano(7).................................... 90,000 *
Louis Salamone, Jr.(7)............................. 50,000 *
Scott A. Brownstein(7)............................. 90,000 *
Georgia L. McCabe(7)............................... 56,000 *
Martin D. Krall(7)................................. 40,000 *
John R. Harris(7).................................. 27,500 *
Edward H. Linde(9)................................. 37,500 *
Howard Stringer(10)................................ 50,000 *
Linda J. Wachner(10)............................... 60,000 *
John Zuccotti...................................... -- *
David R. Parker.................................... 2,000 *
All directors, director nominees and executive
officers as a group (16 persons) (11)............ 6,002,799 26.3%
</TABLE>
- ---------------
* Represents holdings of less than 1%.
(1) Applied Printing Technologies, L.P. ("Applied Printing") is a limited
partnership in which Mr. Drasner, the Company's Chairman, Chief Executive
Officer, Chief Operating Officer and a director, is a minority limited
partner and Mr. Zuckerman, Chairman of the Company's Board, beneficially
owns the remaining limited partnership interests, and Mr. Zuckerman is the
sole stockholder of the corporate general partner and a corporate limited
partner. Messrs. Zuckerman and Drasner comprise the board of directors of
the corporate general partner of Applied Printing. Mr. Zuckerman is the
sole stockholder of the corporate general partner and therefore can change
at any time the members of the board of directors of that entity.
Consequently, Mr. Zuckerman indirectly will be able to exercise substantial
influence over the outcome of all matters submitted to a vote of the
Company's stockholders, including election of the members of the Company's
Board, amendment of the Company's Restated Certificate of Incorporation and
the consummation of a merger, sale of substantially all of the Company's
assets or other significant corporate transactions. The address of Applied
Printing is 77 Moonachie Avenue, Moonachie, New Jersey 07074.
(2) Shares shown are reported on a Schedule 13D dated April 26, 1996, as
amended on September 4, 1997, November 26, 1997, September 1, 1998, October
5, 1998 and November 25, 1998, filed with the Commission. Voting power with
respect to such shares is held by Mr. Zuckerman.
3
<PAGE> 6
(3) Shares shown are reported on a Schedule 13G dated January 22, 1999 filed
with the Commission by Franklin Resources, Inc. ("Franklin Resources"), on
behalf of itself and Charles B. Johnson, Rupert H. Johnson, Jr. and
Franklin Advisers, Inc. Shares shown are owned by one or more open or
closed-end investment companies or other managed accounts advised by direct
or indirect subsidiaries of Franklin Resources. Advisory agreements
relating to these companies or accounts grant the adviser all investment
and voting power over shares held by such companies and accounts. Charles
and Rupert Johnson each hold in excess of 10% of the outstanding common
stock of Franklin Resources. The address of the above persons is 777
Mariners Island Boulevard, San Mateo, California 94404.
(4) Shares shown are reported on a Schedule 13G dated November 6, 1997, as
amended January 16, 1998, September 8, 1998, September 17, 1998, November
6, 1998 and February 8, 1999, filed with the Commission by Putnam
Investments, Inc. ("PI"), One Post Office Square, Boston, Massachusetts
02109, on behalf of itself and Marsh & McLennan Companies, Inc. ("MMC"),
1166 Avenue of the Americas, New York, New York 10036, Putnam Investment
Management, Inc. ("PIM"), One Post Office Square, Boston, Massachusetts
02109, and The Putnam Advisory Company, Inc. ("PAC"), One Post Office
Square, Boston, Massachusetts 02109. PIM and PAC have dispository power
over the shares of Common Stock as investment managers, but each of the
mutual fund's trustees have voting power over the shares held by such fund
and PAC has shared voting power over the shares held by the institutional
clients. MMC and PI disclaim beneficial ownership of the shares of Common
Stock covered by the Schedule 13G.
(5) Shares shown are reported on a Schedule 13G dated February 8, 1999 filed
with the Commission by Capital Guardian Trust Company ("Capital"). Capital
is a bank and is deemed the beneficial owner of the shares reported on the
Schedule 13G through its service as investment manager of certain
institutional accounts. Capital disclaims beneficial ownership of the
shares of Common Stock covered by the Schedule 13G. Capital's address is
11100 Santa Monica Boulevard, Los Angeles, California 90025-3384.
(6) Includes an aggregate of 7,200 shares held by Mr. Obernauer, Jr., as
trustee, for trusts created for the benefit of his two sons, a niece and a
nephew over which Mr. Obernauer, Jr. has sole voting and investment power.
(7) Represents shares of Common Stock issuable upon exercise of currently
exercisable options.
(8) Mr. Ettinger has not served as a director of the Company since May 1998 and
has not served as an officer of the Company since September 1998.
(9) Includes 27,500 shares of Common Stock issuable upon exercise of currently
exercisable options.
(10) Includes 40,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(11) Does not include Mr. Ettinger. Includes 461,000 shares of Common Stock
issuable upon exercise of currently exercisable options.
4
<PAGE> 7
ELECTION OF DIRECTORS
(PROPOSAL 1)
NOMINEES FOR ELECTION AS DIRECTORS
The Restated Certificate of Incorporation and Amended and Restated Bylaws
of the Company provide that the members of the Board are to be elected at the
annual meeting of the stockholders. The number of directors that will constitute
the entire Board as of the annual meeting is nine.
If elected, the director nominees will serve a one-year term to expire at
the 2000 annual meeting of stockholders or until their successors are elected
and qualified or their earlier resignation or removal. The Board has nominated
the following nine persons for election to the Board: Mortimer B. Zuckerman,
Fred Drasner, John R. Harris, Martin D. Krall, Marne Obernauer, Jr., David R.
Parker, Howard Stringer, Linda J. Wachner and John Zuccotti.
Approval of the nominees requires the affirmative vote of a plurality of
the votes cast at the annual meeting. In the event that any nominee should
become unable or unwilling to serve as a director, it is the intention of the
persons named in the proxy to vote for the election of such substitute nominee
for the office of director as the Board may recommend. It is not anticipated
that any nominee will be unable or unwilling to serve as a director.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" THE ELECTION OF THE NOMINEES TO SERVE AS DIRECTORS.
Biographical information concerning each of the director nominees is
presented on the following pages.
NOMINEES FOR ELECTION FOR 1999 TERM
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- --- --------
<S> <C> <C>
Mortimer B. Zuckerman....................................... 61 1996
Fred Drasner................................................ 56 1995
John R. Harris.............................................. 50 1996
Martin D. Krall............................................. 58 1996
Marne Obernauer, Jr......................................... 55 1998
David R. Parker............................................. 55 1998
Howard Stringer............................................. 57 1996
Linda J. Wachner............................................ 53 1996
John Zuccotti............................................... 61 1998
</TABLE>
Mortimer B. Zuckerman, Chairman of the Board of the Company, has been
Chairman of the Board of Directors and a principal stockholder of Boston
Properties, Inc. ("Boston Properties"), a national real estate development and
management company, since 1970. He has been Chairman of U.S. News & World
Report, L.P. ("U.S. News") and Editor-in-Chief of U.S. News & World Report since
1985, Chairman of Daily News, L.P. ("Daily News") and Co-Publisher of the New
York Daily News since 1993, and Chairman of The Atlantic Monthly Company since
1980. Mr. Zuckerman has served as Chairman of Fast Company Media Group, L.L.C.
("Fast Company") and President of FC Holdings, L.L.C., its majority owner, since
January 1999. Mr. Zuckerman also serves as a director of Snyder Communications,
Inc. ("Snyder").
Fred Drasner, Chairman, Chief Executive Officer, Chief Operating Officer
and a director of the Company, has been the Chief Executive Officer of Daily
News and Co-Publisher of the New York Daily News since 1993, the Co-Chairman
since 1998, Chief Executive Officer from 1995 to 1998, and President from 1985
to 1997 of U.S. News, the Chairman and Chief Executive Officer of Applied
Printing since 1988, and the Co-Chairman since 1998 and Vice-Chairman and Chief
Executive Officer from 1986 to 1998 of The Atlantic Monthly Company. Mr. Drasner
has served as Co-Chairman of Fast Company since January 1999.
5
<PAGE> 8
Mr. Drasner was also senior counsel to Shaw Pittman Potts & Trowbridge until his
resignation in April 1996. Mr. Drasner also serves as a director of Snyder.
John R. Harris was a Corporate Vice President at Electronic Data Systems
Corp. ("EDS") from 1997 through March 1999 where he was responsible for
marketing and corporate strategy. From 1989 to 1997, he served as a Vice
President of the Communications Industry Group at EDS where he was responsible
for four business units directed toward wirelines, wireless, media and
interactive services markets. Mr. Harris also serves as a director of CapRock
Communications Corp.
Martin D. Krall, Executive Vice President, Chief Legal Officer, Secretary
and a director of the Company, has been since January 1995 Executive Vice
President and Chief Legal Officer of the Daily News, Applied Printing, The
Atlantic Monthly Company and U.S. News. Mr. Krall has served as Executive Vice
President and Secretary of Fast Company and FC Holdings, L.L.C., its majority
owner, since January 1999. Prior to 1995, Mr. Krall was a partner in the law
firm of Shaw Pittman Potts & Trowbridge where he was a member of the Management
Committee from 1978 to 1994, and Vice Chairman of such Committee from 1991 to
1994. From 1995, Mr. Krall was also senior counsel to Shaw Pittman Potts &
Trowbridge until his resignation in April 1996.
Marne Obernauer, Jr., Vice Chairman, served as Chairman of the Board of
Directors from 1986 and Chief Executive Officer from 1980 of Devon Group, Inc.
("Devon") until Devon's merger with and into a wholly-owned subsidiary of the
Company in May 1998. He has been a director of The Advest Group, Inc. since
January 1998.
David R. Parker has been the Vice Chairman of AmeriServe Food Distribution,
Inc. since May 1998. Previously, Mr. Parker served as Chairman of ProSource,
Inc., a food service distributor, since its formation in 1992. Mr. Parker also
serves on the Board of Directors of Premark International, Inc. and Tupperware
Corporation.
Howard Stringer has been the Chairman and Chief Executive Officer of Sony
Corporation of America since December 1998 and served as its President from 1997
to December 1998. Before joining Sony, Mr. Stringer was Chairman and Chief
Executive Officer of Tele-TV from 1995 to 1997, a joint venture among NYNEX,
Pacific Telesis, and Bell Atlantic, to provide home video delivery through
telephone lines. Before joining Tele-TV, Mr. Stringer was President of
CBS/Broadcast Group from 1988 to 1995 where he oversaw all broadcast operations,
including news, sports, entertainment and network-owned stations.
Linda J. Wachner has been a director, President and Chief Executive Officer
of The Warnaco Group, Inc. since August 1987 and Chairman of the Board since
August 1991. Ms. Wachner has also served as Chairman and Chief Executive Officer
of Authentic Fitness Corporation since May 1990. Ms. Wachner serves as a
director of the New York Stock Exchange, Inc.
John Zuccotti has been Chairman of Brookfield Financial Properties, Inc.
(formerly World Financial Properties) since 1996. Mr. Zuccotti served as
President and Chief Executive Officer of Olympia & York Companies (USA) since
January 1990. He has been a senior counsel at Weil, Gotshal & Manges LLP since
1997. Mr. Zuccotti also serves as a director of eight funds of The Dreyfus
Corporation and as a trustee of Columbia University.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board held eleven meetings during the Company's 1998 fiscal year and
also took action twice by unanimous written consent. During fiscal year 1998,
each director attended at least 75% of the aggregate of the total number of
meetings of the Board held during the period he or she served as a director and
the total number of meetings held by each committee of the Board on which he or
she served (during the period for which he or she served), except for Mr.
Stringer, who attended 62% of all such meetings.
The Board currently has a standing Audit Committee and a standing
Compensation Committee. It does not currently have a standing nominating
committee.
6
<PAGE> 9
The Audit Committee currently consists of Ms. Wachner, Mr. Stringer and
Edward H. Linde. The Audit Committee met once during fiscal year 1998. The Audit
Committee is responsible for recommending to the full Board the selection of the
Company's independent public accountants, reviewing the scope of the plans and
the results of the audit engagement, reviewing the independence of the public
accountants, considering the range of audit and non-audit fees, reviewing the
adequacy of the Company's internal accounting controls and exercising oversight
with respect to the Company's code of conduct and other policies and procedures
regarding adherence with legal requirements.
The Compensation Committee, which met once during fiscal year 1998 and also
took action eight times by unanimous written consent, currently consists of Ms.
Wachner and Messrs. Harris, Stringer, Parker and Zuccotti. The Compensation
Committee is responsible for establishing salaries, bonuses and other
compensation for the Company's officers and administering the Company's stock
option plans.
COMPENSATION OF DIRECTORS
Directors who are not also employees of the Company ("non-employee
directors") receive from the Company $1,000 for each Board or committee meeting
attended and reimbursement of expenses incurred in attending such meetings.
Directors are also eligible to receive options to purchase Common Stock under
the Company's 1998 Incentive Compensation Plan, as amended (the "Incentive
Compensation Plan"). Prior to 1998, directors were eligible to receive options
to purchase Common Stock under the Company's Non-Employee Director Non-Qualified
Stock Option Plan (the "Director Plan") or the 1996 Stock Option Plan (the
"Employee Plan"). The Company has suspended grants under the Director Plan and
the Employee Plan.
Prior to 1998, non-employee directors who were eligible to receive
non-qualified stock options under the Director Plan received grants of options
to purchase 25,000 shares of Common Stock upon commencement of service as a
director. These options vested ratably over a two-year period and had a term of
ten years. Also under this plan, each non-employee director then in office was
automatically granted, on the anniversary date of his or her commencement of
service as a director, a fully-vested, non-qualified option to purchase 5,000
shares of Common Stock at a per share exercise price equal to its fair market
value on such date. Under the Director Plan, Ms. Wachner and Messrs. Stringer,
Harris and Linde each received grants of options to purchase 25,000 shares of
Common Stock in April 1996 at a per share exercise price of $12.00 and received
grants of options to purchase 5,000 shares each in each of April 1997 and 1998
at per share exercise prices of $34.00 and $51.75, respectively.
Prior to 1998, directors who were key employees of the Company were
eligible to receive stock options under the Employee Plan. Options granted under
this plan vested pursuant to a schedule determined by the Compensation
Committee, in its discretion, over a five-year period and had a term of ten
years. Under the Employee Plan, in April 1996, Mr. Krall received a grant of
options to purchase 100,000 shares of Common Stock at an exercise price of
$12.00 per share.
Under the Incentive Compensation Plan, employees, non-employee directors,
certain affiliated persons and independent contractors of the Company may be
granted cash awards, options to purchase Common Stock, stock appreciation
rights, stock awards, stock units, performance shares and performance units.
Options to purchase Common Stock granted under the Incentive Compensation Plan
have a term of ten years and, except for those granted to non-employee
directors, vest over a five-year period pursuant to a vesting schedule
determined by the committee administering the plan or, in lieu thereof, a
vesting schedule specified in the plan. Under this plan, in August 1998, Mr.
Krall received a grant of options to purchase 100,000 shares of Common Stock at
a per share exercise price of $42.00. Each non-employee director is granted
options to purchase 25,000 shares of Common Stock upon commencement of his or
her service as a director that vest ratably over a two-year period. Under this
plan, in May 1998, Messrs. Parker and Zuccotti each received grants of options
to purchase 25,000 shares of Common Stock at a per share exercise price of
$47.75. In addition, each non-employee director then in office is automatically
granted, on the anniversary date of his or her commencement of service as a
director, a fully-vested, non-qualified option to purchase 5,000 shares of
Common Stock at a per share exercise price equal to its fair market value on
such date. In April 1999, Messrs. Harris, Linde and Stringer and Ms. Wachner
each received grants of options to purchase 5,000 shares of Common Stock at an
exercise price of $7.063 per share.
7
<PAGE> 10
In September 1998, all of the options that were granted to directors in
April 1997, April 1998, May 1998 and August 1998 were cancelled and new options
were issued in the same number and at a per share exercise price of $22.50.
Vesting for all such options commenced on September 25, 1998. See "Report of the
Compensation Committee of the Board of Directors of the Company on Executive
Compensation -- Report on Repricing of Options."
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Chief Executive
Officer of the Company and to each of the five other most highly compensated
executive officers (the "Named Executive Officers") for fiscal years 1996, 1997
and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------- ------------
NUMBER OF
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
- --------------------------- ---- ------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fred Drasner, Chairman, 1998 300,000 -- (1) -- --
Chief Executive Officer 1997 300,000 -- (1) -- --
and Chief Operating Officer 1996 -- -- 265,000(2) -- --
Melvin A. Ettinger, Vice 1998 271,984(3) -- 57,745(5) -- 85,069(6)
Chairman and Chief 1997 350,000 -- 75,644(5) -- 4,300(7)
Operating Officer 1996 262,500(4) -- 53,235(5) 200,000 3,870(7)
Diane Romano, President 1998 275,339(8) -- 32,581(10) -- --
1997 250,000 -- 33,381(10) -- --
1996 250,000(9) -- 33,382(10) 225,000 --
Scott A. Brownstein, 1998 259,464(8) -- (1) -- --
Executive Vice President 1997 225,000 -- (1) -- --
and Chief Technology 1996 225,000(9) -- (1) 225,000 --
Officer
Louis Salamone, Jr., Senior 1998 259,401(8) -- (1) 65,000 --
Vice President and Chief 1997 240,000 -- (1) -- --
Financial Officer 1996 140,000(11) -- (1) 125,000 --
Georgia L. McCabe, Senior 1998 233,965(8) -- (1) -- --
Vice President 1997 198,400 -- (1) -- --
1996 198,400(9) -- (1) 140,000 --
</TABLE>
- ---------------
(1) The Named Executive Officer received perquisites or other personal benefits
in the years shown, although the value of these benefits did not exceed in
the aggregate the lesser of $50,000 or 10% of his/her salary and bonus in
such year.
(2) Of such total amount, Mr. Drasner received $25,000 per month from the
Company from May through December 1996, and received $25,000 per month from
January through April 1996 through his partnership interest in Applied
Printing. Of the amounts received through his partnership interest in
Applied Printing, 65% was allocated as compensation for services rendered
to the divisions that became the Company upon the initial public offering
of the Common Stock.
(3) Mr. Ettinger resigned from the Company effective September 11, 1998. The
amount shown represents payments from January to September 11, 1998 based
on an annual salary of $350,000 plus accrued vacation.
(4) Mr. Ettinger received compensation from April to December 1996 based on
annual salary of $350,000.
(5) The amount shown represents reimbursements for a leased automobile,
automobile insurance and a driver.
(6) The amount shown represents $80,769 received by Mr. Ettinger as severance
payments and $4,300 for life insurance premiums paid on a policy in Mr.
Ettinger's name.
(7) The amount shown represents life insurance premiums paid on a policy in Mr.
Ettinger's name.
9
<PAGE> 12
(8) On April 28, 1998, Ms. Romano, Mr. Brownstein and Ms. McCabe received
increases in base salary from $250,000, $225,000 and $198,400,
respectively, to $298,000, $275,000 and $250,000, respectively. On June 3,
1998, Mr. Salamone received an increase in base salary from $240,000 to
$290,000.
(9) Such amount includes payments from Applied Printing from January through
April 1996 for services to the divisions of Applied Printing that became
the Company upon the initial public offering of the Common Stock.
(10) The amount shown represents payment by the Company of apartment rent for a
residence in New York City maintained partially for the Company's benefit
and the reimbursement for a leased automobile and automobile insurance.
(11) Mr. Salamone served as a consultant to the Company from April 1996 to June
1996 when he commenced his full-time position as Chief Financial Officer.
He received compensation from June to December 1996 based on an annual
salary of $240,000.
STOCK OPTION GRANTS IN FISCAL YEAR 1998
No stock options were granted during fiscal year 1998 to Named Executive
Officers other than Louis Salamone, Jr. The following table sets forth
information concerning the stock options granted during 1998 to Mr. Salamone,
Jr.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATE OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------ -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION 5% 10%
NAME GRANTED IN 1998 ($/SH) DATE ($) ($)
- ---- ---------- ---------- -------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Louis Salamone, Jr................ 65,000(1) 2.9%(2) 22.50 9/25/08 0 $697,685
</TABLE>
- ---------------
(1) Represents options received in exchange for an equivalent number of options
granted in August 1998 at an exercise price of $42.00 per share. See "Report
of the Compensation Committee of the Board of Directors of the Company on
Executive Compensation -- Report on Repricing of Options."
(2) Based on total grants of options to purchase 2,212,500 shares of Common
Stock, which excludes grants of options to purchase 2,250,500 shares of
Common Stock that were cancelled and reissued during 1998.
10
<PAGE> 13
No Named Executive Officer exercised stock options in fiscal year 1998. The
following table sets forth information concerning the number and value of
unexercised stock options granted to Named Executive Officers at December 31,
1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
1998 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- --------------------------- ---------------------------
<S> <C> <C>
Fred Drasner.................................. --/-- --/--
Melvin A. Ettinger............................ 80,000/80,000 360,000/360,000
Diane Romano.................................. 90,000/90,000 405,000/405,000
Scott A. Brownstein........................... 90,000/90,000 405,000/405,000
Louis Salamone, Jr............................ 50,000/115,000 225,000/225,000
Georgia L. McCabe............................. 56,000/56,000 252,000/252,000
</TABLE>
The following table sets forth information concerning the repricing by the
Company of stock options held by Louis Salamone, Jr. during fiscal year 1998. No
other stock options held by Named Executive Officers were repriced during fiscal
year 1998.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET EXERCISE ORIGINAL
UNDERLYING PRICE OF PRICE AT OPTION TERM
OPTIONS STOCK AT TIME OF NEW REMAINING
REPRICED TIME OF REPRICING OR EXERCISE AT DATE OF
OR AMENDED REPRICING AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
- ---- ------- ---------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Louis Salamone, Jr.......... 9/25/98 65,000 12.81 42.00 22.50 9.88 years
Senior Vice President and
Chief Financial Officer
</TABLE>
EXECUTIVE EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of Ms. Romano,
Mr. Salamone, Mr. Brownstein and Ms. McCabe. Each agreement will expire in
mid-2000, contains a noncompete provision applicable during the term (and any
extensions thereof). Each agreement also contains a nonsolicitation provision
applicable during the term (and any extensions thereof) and for one year after
termination of employment with the Company. The agreements provide for salary
per year of $298,000, $290,000, $275,000 and $250,000, respectively, and that
the named employee is eligible to receive a discretionary bonus and options to
purchase shares of Common Stock.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS OF THE COMPANY
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee reviews the performance and compensation levels
for executive officers and sets salary and bonus levels and option grants under
the Company's incentive plans. The objectives of the Compensation Committee are
to correlate executive compensation with the Company's business objectives
11
<PAGE> 14
and performance, and to enable the Company to attract, retain and reward
executive officers who contribute to the long term success of the Company.
BASE SALARY
Base salaries of the executive officers are established by evaluating the
requirements of the position and the contribution of the executive with respect
to Company performance and the executive's responsibilities. In determining
executive officer salaries, the Compensation Committee generally sets base
salaries at or below competitive levels, with total potential compensation
(including bonuses and stock options) targeted at or above competitive levels.
The Compensation Committee relies on, among other things, recommendations from
the Chief Executive Officer in making such determinations.
The base salary received by Mr. Drasner, the Company's Chief Executive
Officer, in 1998 was $300,000. Mr. Drasner's compensation was determined prior
to the Company's initial public offering and the formation of the Compensation
Committee. For this reason, the Compensation Committee did not determine the
amount of compensation received by Mr. Drasner in 1996. The Compensation
Committee, however, did review Mr. Drasner's compensation in February 1997 and
determined that such compensation would remain at $300,000. In connection with
Mr. Drasner's assumption of additional responsibilities as Chief Operating
Officer of the Company in October 1998, the Compensation Committee determined
that it would review Mr. Drasner's compensation for 1999 and thereafter, and
would retain an independent consultant to advise the Committee with respect to
the appropriate level of compensation for Mr. Drasner based on, among other
things, compensation levels of chief executive and chief operating officers at
comparable size companies.
Since the Company's initial public offering, Mr. Krall, the Company's
Executive Vice President, Chief Legal Officer and Secretary, has not received
any compensation from the Company; all this compensation was received from an
affiliate of the Company that employs Mr. Krall. Given the substantial amount of
time Mr. Krall is expected to devote to Company matters in 1999, this affiliate
has asked that a portion of Mr. Krall's compensation be reimbursed to the
affiliate by the Company. The Compensation Committee intends to review during
1999 the appropriate level of reimbursement to be paid to the affiliate for 1999
and thereafter.
ANNUAL CASH BONUSES
The Company may pay annual cash bonuses to its executive officers based on
such factors as the Compensation Committee may consider relevant in any given
year. No cash bonuses were awarded in 1998.
LONG-TERM INCENTIVES
The Compensation Committee believes that equity ownership provides
significant motivation to executive officers to maximize value for the Company's
stockholders and, therefore, periodically grants stock options under the
Company's incentive plans. The Compensation Committee determines the size and
frequency of option grants for executive officers after consideration of
recommendations of the Chief Executive Officer. Such recommendations are based
upon the relative position and responsibilities of each executive officer,
previous and expected contributions of each executive officer to the Company and
previous option grants to such executive officers. Stock options granted to
executive officers are generally nonqualified stock options with exercise prices
that equal the fair market value of the Company's Common Stock on the date of
grant and vest in increments over a five-year period.
Each of the Named Executive Officers received option grants in 1996. In
September 1998, the Compensation Committee awarded Mr. Krall and Mr. Salamone,
Jr. options to purchase 100,000 and 65,000 shares of Common Stock, respectively,
at an exercise price of $22.50. See "Board of Directors and Committees of the
Board -- Compensation of Directors" and "-- Report on Repricing of Options." Mr.
Drasner is eligible to receive stock options under the terms of the Company's
incentive plans; however, the Compensation Committee has not granted stock
options to Mr. Drasner given his substantial interest in the Company through his
limited partnership interest in Applied Printing.
12
<PAGE> 15
SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
sets a limit of $1 million on the amount of compensation paid to executive
employees (other than enumerated categories of compensation, including
performance-based compensation) that may be deducted by a publicly-held company.
The Committee's policy is to seek to qualify executive compensation for
deductibility to the extent that such policy is consistent with the Company's
overall objectives and executive compensation policy. Compensation attributable
to stock options granted under the Company's stock incentive plans currently is
excluded from the $1 million limit as "qualified performance-based compensation"
under the rules contained in applicable Treasury regulations. None of the
Company's executive officers received compensation in 1998 in excess of the
limits imposed under Section 162(m). The Compensation Committee intends to
continue to qualify compensation attributable to stock options as "qualified
performance-based compensation" within the meaning of Section 162(m).
REPORT ON REPRICING OF OPTIONS
In September 1998, the Compensation Committee considered the options held
by the Company's employees, including executive officers, and directors and the
fact that a broad decline in the price of the Common Stock of the Company had
resulted in a substantial number of stock options granted pursuant to the
Company's option plans having exercise prices above the recent trading prices of
the Company's Common Stock (the "Underwater Options").
The Compensation Committee reviewed the impact of the decline in the market
price of the Company's Common Stock on the incentive afforded by the Underwater
Options and determined that such options were significantly less likely to serve
their purposes of retaining and motivating employees whose contributions are
important to the Company's future success. The Compensation Committee also
determined that unless adjustment was made, longer term employees holding
Underwater Options would perceive a substantial inequity in comparison to more
recently hired employees granted options with lower exercise prices, and the
morale of such longer term employees would suffer as a consequence. The
Compensation Committee believed that the future success of the Company would
depend in large part on its ability to retain and motivate its highly skilled
employees for whom competition in the marketplace is intense, and the loss of
such employees could have a significant adverse impact on the Company's
business. The Compensation Committee believed that providing equity incentives
to employees of the Company to further increase the Company's performance and
the value of the Company for its stockholders was both important and cost
effective.
Considering these factors, the Compensation Committee determined that it
was in the best interests of the Company and its stockholders to restore the
incentives for optionholders holding Underwater Options to remain with the
Company by canceling substantially all of the Underwater Options and issuing new
options pursuant to the Incentive Compensation Plan with a lower exercise price
in exchange for the cancellation of the Underwater Options. The Committee also
determined that, in exchange for the lower exercise price, the vesting schedule
for the new options should commence on the date the new options were granted and
that all prior vesting on the Underwater Options would be forfeited. Options for
a total of 2,250,500 shares with exercise prices ranging from $34.00 to $55.75
per share were exchanged for the new options for an equal number of shares at an
exercise price of $22.50 per share. The closing price of the Common Stock on the
date the replacement options were issued was $12 13/16. The vesting schedule for
all replacement options commenced on September 25, 1998.
COMPENSATION COMMITTEE:
David R. Parker, Chairman
John R. Harris
Howard Stringer
Linda J. Wachner
John Zuccotti
13
<PAGE> 16
APPROVAL OF AMENDMENT OF THE INCENTIVE COMPENSATION PLAN
TO INCREASE THE TOTAL NUMBER OF SHARES
THAT MAY BE ISSUED UNDER THE PLAN
(PROPOSAL 2)
The Company maintains the Incentive Compensation Plan pursuant to which
cash awards, stock options, stock appreciation rights, stock awards, stock
units, performance shares and performance units may be granted to certain
employees, non-employee directors, independent contractors and certain
affiliated persons who have been designated by the Board to be eligible under
the plan. The number of shares of Common Stock reserved for issuance under the
Incentive Compensation Plan is currently 4,000,000. As of April 10, 1999, stock
options to purchase 2,311,500 shares of Common Stock were outstanding under this
plan. Unless sooner terminated by the Board, the Incentive Compensation Plan
terminates in May 2008.
The Board has approved, subject to stockholder approval, amending the
Incentive Compensation Plan to increase the aggregate number of shares of Common
Stock that may be issued under the Incentive Compensation Plan from 4,000,000
shares to 7,000,000 shares. The purpose of the Incentive Compensation Plan is to
offer eligible participants additional incentive and encouragement to put forth
maximum effort toward the growth, profitability and success of the Company and
its subsidiaries through providing incentives to such persons or entities
through cash payments and/or the ownership and performance of the Common Stock.
The Board believes that the proposed increase is essential to permit the Company
to provide long-term, equity-based incentives to eligible participants.
Approval of the amendment of the Incentive Compensation Plan requires the
affirmative vote of the holders of a majority of the votes cast at the meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" THE AMENDMENT OF THE COMPANY'S INCENTIVE COMPENSATION PLAN TO INCREASE THE
TOTAL NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN.
Set forth below is a summary of the material provisions of the Incentive
Compensation Plan to the extent not described above.
The Incentive Compensation Plan is currently administered by the Board's
Compensation Committee, although it may be administered by the Board or by
another committee or subcommittee of the Board appointed by the Board. Employees
of the Company and its subsidiaries, non-employee directors of the Company,
certain affiliated persons who have been designated as such by the Board and
certain independent contractors who render services to the Company or its
subsidiaries are eligible participants under the Incentive Compensation Plan. In
April 1999, the Board amended the plan to reduce from 4,000,000 to 1,000,000 the
number of shares of Common Stock that may be granted to any single participant
during the life of the plan. The maximum dollar amount that may be paid to a
single participant with respect to all awards granted to such participant
measured in cash during the life of the plan is $30,000,000.
The Incentive Compensation Plan calls for appropriate adjustments to be
made to the number of shares of Common Stock subject to the plan in the event of
a merger, consolidation, reorganization, recapitalization, stock dividend or
other similar changes to the Company's capital structure.
Stock Options. The Compensation Committee may grant stock options to
eligible participants and, in its sole discretion, determine the participants
who will receive such grants of options, the number of shares of Common Stock
underlying each stock option and the exercise price of each stock option. The
Compensation Committee may grant incentive stock options or non-qualified stock
options under the plan. The exercise price of stock options may not be lower
than the fair market value of the Common Stock on the date of grant, except in
the case of non-qualified stock options regarding which the Compensation
Committee, in its sole discretion and due to special circumstances, determines
otherwise on the date of grant. Stock options vest on a schedule determined by
the Compensation Committee, or, in lieu thereof, on a five-year schedule in
which the options vest 20%, 25%, 30%, 35% and 100% on the first five
anniversaries of the date of grant. Each non-employee director is granted
options to purchase 25,000 shares of Common Stock upon commencement of his
14
<PAGE> 17
or her service as a director that vest ratably over a two-year period and also
receives an automatic grant, on each anniversary date of his or her commencement
of service as a director, fully-vested, non-qualified options to purchase 5,000
shares of Common Stock at a per share exercise price equal to the fair market
value on such date.
Other Awards. The Compensation Committee may grant cash awards, stock
appreciation rights, stock awards, stock units, performance shares and
performance units to eligible participants. All such awards are subject to such
terms and conditions established by the Compensation Committee, in its sole
discretion, including the vesting date and criteria for vesting of such award,
the performance goals, if any, to which the grant is subject and the right of
the Company to reacquire for no consideration, or require the participant to
repay, the award upon termination of the participant's employment within
specified periods.
In the event of a change of control of the Company, the Compensation
Committee may, in its sole discretion, take such actions as it deems appropriate
with respect to outstanding awards, including acceleration of vesting or payout
of such awards, termination of such outstanding awards (after payment to holders
of an amount equal to the value of such award on the date of the change in
control or, with respect to shares of Common Stock subject to a stock option or
stock appreciation right, an amount equal to the excess of the fair market value
of such shares of Common Stock immediately prior to the change in control over
the exercise price of such stock option or stock appreciation right) or
providing for assumption of such awards by the entity that acquires control of
the Company.
Upon the termination of the employment of a participant for reasons other
than cause, non-vested portions of awards will be immediately forfeited and all
vested portions of awards will be exercisable for a period of 12 months (in
cases of termination because of death or disability) or 90 days (in cases of
termination for other reasons) or such time as the grant would otherwise expire.
All awards to employees terminated for cause will be immediately forfeited.
The Board may amend, suspend or terminate the Incentive Compensation Plan
at any time, provided that such action does not reduce the amount of any
outstanding award or change the terms and conditions of any outstanding award
without the participant's consent. However, approval by the Company's
stockholders is required for amendments that increase the total number of shares
which may be issued under the plan, increase the maximum number of shares or
maximum dollar amount of awards that may be paid to any individual under the
plan or modify the requirements as to eligibility for awards under the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION AND CERTAIN TRANSACTIONS
Mortimer B. Zuckerman, Chairman of the Board of Directors, served on the
Compensation Committee prior to his resignation from such committee effective
December 17, 1998. Mr. Zuckerman beneficially owns the shares of the Company's
Common Stock owned by Applied Printing, beneficially owns a majority of U.S.
News and Daily News and is a greater than 10% beneficial owner of common stock
of Boston Properties and Snyder and serves as Chairman of the Board of Directors
and as a director of those companies, respectively. Additionally, Mr. Drasner is
a minority limited partner of Applied Printing, U.S. News and Daily News and is
a director and a beneficial owner of common stock of Snyder. The following is a
description of certain transactions between the Company and Applied Printing,
U.S. News, Daily News, Boston Properties and Snyder, respectively.
CONTENT MANAGEMENT AND DIGITAL IMAGING SERVICES FOR AFFILIATES
The Company provides a variety of services for affiliates. It provides
content management services to U.S. News under an agreement that expires
December 31, 2000 and is renewable annually thereafter by mutual agreement of
the parties. In addition, the Company provides content management services to a
New York Daily News periodical, digital archiving services to the New York Daily
News, and certain advertising make-up and related graphic services for Daily
News' publications, all under agreements which are renewable annually by mutual
agreement of the parties. The Company also performs additional services for U.S.
News,
15
<PAGE> 18
Daily News and Applied Printing on a per project basis. The Company's 1998
revenues included approximately $6,730,000, $8,876,000 and $6,489,000 for
services performed for each of U.S. News, Daily News and Applied Printing,
respectively. The Company believes that the terms under which it provides these
services to U.S. News, Daily News and Applied Printing are no less favorable to
the Company than those under which it provides these services to similar
unaffiliated entities.
In September 1998, Agile Enterprise, Inc., a wholly-owned subsidiary of the
Company, entered into an agreement to license certain software to U.S. News. The
Company's 1998 revenues include $1,510,000 recognized under this agreement. The
Company believes that the terms of this agreement are no less favorable to the
Company than those under which Agile licenses such software to unaffiliated
businesses.
SHARED SERVICES AGREEMENTS
The Company entered into shared services agreements in 1996 with U.S. News
and Daily News, under which both U.S. News and Daily News provide services to
the Company. Under these agreements, which were for one year terms and are
renewable annually, the Company was required to pay the stated amounts
regardless of actual use of the services and was required to pay additional
amounts for any non-routine services and fees, costs or expenses of third
parties. During 1998, the Company incurred charges of approximately $193,000
from U.S. News for certain legal services and data processing services and
approximately $315,000 from Daily News for certain legal services, specifically
related to employment and labor issues and for management information services.
These agreements were modified as of January 1, 1999. For 1999 and
thereafter, upon mutual agreement of the parties, the Company will pay a
percentage of the costs associated with U.S. News and Daily News employees who
provide services to the Company based on the percentage of each such employees'
total time that is devoted to Company-related matters. The Company believes that
this allocation of expenses for the covered services is fair and is less than
the cost of obtaining these services from unaffiliated parties or the cost of
providing all of these services internally.
In addition, during 1998 the Company jointly implemented new financial
systems with Daily News and U.S. News The software vendor costs incurred for
this project have been divided among the Company and its affiliates on the basis
of either specific identification or an allocation of common charges based on an
estimate of the number of end users. The Company incurred charges of $3,810,000
during 1998 related to the software vendor for this project. The Company also
received certain merger and acquisition services from Daily News personnel in
1998 for which the Company was charged $251,000.
OTHER TRANSACTIONS
The Company subleases approximately 11,500 square feet of space at the
headquarters of U.S. News in Washington, D.C. from U.S. News. Such space is used
primarily to perform content management services for U.S. News. The amounts
incurred by the Company for the sublease in fiscal year 1998 totaled
approximately $306,000, and correspond to the amounts U.S. News is required to
pay for space under the prime lease.
The Company subleased from Applied Printing, for a term of two years which
expired in April 1998, that portion of the space it used at the Applied Printing
facility in New York City at a fixed annual payment, which included charges for
occupancy-related and telecommunications services (without escalation or payment
of any other charges). The Company incurred occupancy charges of approximately
$106,000 during 1998 with respect to this space. The Company believes that the
terms of this lease arrangement were fair and comparable to the amount it would
have paid to unaffiliated third parties for comparable space.
In 1998, Boston Properties provided $1,949,000 of construction services to
the Company related to office space occupied by the Company in New York City.
The Company believes that the terms of this arrangement were fair and comparable
to the amount it would have paid to unaffiliated third parties for such
services.
Applied Printing provides printing services to the Company on a per project
basis. In 1998, the Company incurred charges of approximately $5,972,000 for
such services.
16
<PAGE> 19
In connection with the May 1998 merger of Devon with and into a wholly
owned subsidiary of the Company, Marne Obernauer, Jr. received 507,599 shares of
Common Stock and $25,379,970 in cash in exchange for his interests in Devon. At
the time of the merger, such shares of Common Stock were worth approximately
$24,238,000. In addition, Mr. Obernauer, Jr. received, as trustee, 7,200 shares
of Common Stock and $360,000 in cash for the interests held by trusts created
for the benefit of his two sons, a niece and a nephew over which Mr. Obernauer,
Jr. has sole voting and investment power. At the time of the merger, such shares
of Common Stock were worth approximately $344,000. The compensation received by
Mr. Obernauer, Jr. and the trusts over which he has voting and investment power
did not differ, on a pro rata basis, from the compensation received by other
shareholders of Devon for their interests. Mr. Obernauer, Jr. was elected to the
Board at the Company's 1998 annual meeting.
VENDOR AGREEMENT
The Company is a major purchaser of certain types of products. Because of
the dollar amount of the products it purchases, the Company has been in a
position to enter into arrangements with vendors pursuant to which the vendors
pay rebates and, in some instances, prepay to the Company a rebate based upon a
specified dollar volume of products purchased by the Company over a given time
period. The Company is entitled to retain the prepaid amount in full if it
purchases the stated volume, and would be obligated to repay all or a portion of
the amount depending on the difference between the stated volume and the volume
actually purchased. In 1995, the Company received prepaid rebates aggregating
approximately $2.7 million, which has been and will be earned based on purchases
made and to be made from 1996 through 2000. The Company expects approximately
$767,000 of rebates earned in 1998 to be applied to its obligation related to
prepaid rebates. The agreement was extended by the parties, effective July 1,
1998, through December 31, 2001. Minimum purchase obligations have been
satisfied to date, and the Company expects, through its normal purchasing
requirements, to purchase the amounts necessary to earn rebates with respect to
the period through 2001 in excess of the amount to be deducted by the vendor.
In connection with this agreement, the vendor's affiliate loaned $15
million to Mr. Zuckerman. The loan, which matured on December 31, 1998, bore
interest at the lender's commercial paper rate and was repaid in full in January
1999. The Company believes that the terms for its purchases of the products
covered by this agreement are no less favorable to the Company than those that
could be obtained from another vendor.
ARRANGEMENTS WITH SNYDER COMMUNICATIONS, INC.
In 1998, the Company received payments of approximately $2 million from
Snyder for services provided in 1997 in connection with licensing agreements
related to the Company's Digital Portrait Studio System, and received payments
of approximately $500,000 from Snyder for certain equipment associated with use
of the licensed software.
17
<PAGE> 20
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph and table show the cumulative total stockholder return
on the Common Stock compared to the Nasdaq Composite Stock Index and a
self-constructed peer group index for the periods between April 17, 1996 (the
date the Common Stock began trading on Nasdaq National Market) and December 31,
1998 (the last trading day in fiscal year 1998). The peer group index is
composed of American Greetings Corporation (Class A), Cunningham Graphics
International, Inc., Gibson Greetings, Inc., Master Graphics, Inc., Schawk, Inc.
and Unidigital Inc., all of which are public companies with significant
operations in the prepress or publishing industries. The total stockholder
return on each company included in the peer group index has been weighted
according to such company's capitalization at the beginning of each period. The
graph assumes $100 was invested on April 17, 1996 in (1) the Common Stock, (2)
the Nasdaq Composite Stock Index and (3) the peer group index, and assumes
reinvestment of dividends.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
APPLIED GRAPHICS
TECHNOLOGIES, INC. PEER GROUP NASDAQ COMPOSITE INDEX
------------------ ---------- ----------------------
<S> <C> <C> <C>
4/17/96 100 100 100
6/28/96 110.7 88 105.7
9/30/96 111.2 103.8 109.5
12/31/96 217.8 108.3 115.2
03/31/97 264.8 119.7 109
6/30/97 287.2 137.4 128.7
9/30/97 420.6 142.6 150.4
12/31/97 388.1 147.2 140.1
3/31/98 250.8 170.8 183
6/30/98 342.1 190.7 169
9/30/98 93.5 152.2 151.1
12/31/98 123.4 152.8 185.6
</TABLE>
The Nasdaq Composite Stock Index has been selected as a broad equity market
index. The peer group identified above was selected because the Company believes
that such group represents companies whose primary activities are in the
prepress or publishing industries. The Company performs certain other services
such as digital image archiving, broadcast media distribution services, and
provides on-site facilities management services that the peer group may not
perform. The Company believes, however, that since approximately 77% of its 1998
revenues were from content management services and approximately 14% were from
publishing services, the peer group selected provides a meaningful basis for
comparison. American Greetings Corporation (Class A), Cunningham Graphics
International, Inc., Gibson Greetings, Inc. and Master Graphics, Inc. were added
to the peer group for the year ended December 31, 1998. CKS Group, Inc. was
removed from the peer group for the year ended December 31, 1998 due to its
acquisition in December 1998 by USWeb Corporation, whose principal business,
provision of Internet-related professional services and marketing
communications, is not sufficiently similar to the Company's to warrant
inclusion in the peer group. Devon was removed from the peer group for the year
ended December 31, 1998 due to Devon's merger with and into a wholly-owned
subsidiary of the Company in May 1998.
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<PAGE> 21
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP will serve as independent accountants of the Company
for the fiscal year ending December 31, 1999. Audit services performed for the
Company during fiscal year ended December 31, 1998 included examination of the
Company's financial statements. Deloitte & Touche LLP has informed the Company
that it has no material direct or indirect interest in the Company.
Deloitte & Touche LLP has acted as the Company's independent accountants
since 1996. Representatives of Deloitte & Touche LLP are expected to be present
at the annual meeting and will be afforded the opportunity to make a statement
if they so desire and to respond to appropriate questions.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers and persons who own more
than 10% of a registered class of the Company's equity securities to file with
the Commission and the Nasdaq Stock Market initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. In addition, under Section 16(a), trusts for which a reporting
person is a trustee and a beneficiary (or for which a member of his immediate
family is a beneficiary) may have a separate reporting obligation with regard to
ownership of the Common Stock and other equity securities of the Company. Such
reporting persons are required by rules of the Commission to furnish the Company
with copies of all Section 16(a) reports (specifically, Forms 3, 4 and 5) they
file. Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for the last fiscal year, the Company believes
that, other than noted below, all of its officers, directors, and greater than
ten percent beneficial owners complied with all filing requirements applicable
to them with respect to transactions during fiscal 1998. Jonathan Swindle,
Senior Vice President, Administration, and David E. Aderhold, Senior Vice
President, Operations, did not timely file Forms 3.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Pursuant to rules of the Commission, in order for stockholder proposals to
be included in the Company's proxy statement and proxy for the 2000 annual
meeting of stockholders, such proposals must be received by the Secretary of the
Company at the Company's principal office in New York City no later than
December 31, 1999.
Any stockholder proposal not included in the proxy materials disseminated
by the management of the Company for the Company's 2000 annual meeting in
accordance with Rule 14a-8 under the Exchange Act will be considered untimely
for the purposes of Rules 14a-4 and 14a-5 under the Exchange Act if notice of
the proposal is received after March 16, 2000. Management proxies will be
authorized to exercise discretionary voting authority with respect to any
stockholder proposal not included in such proxy materials for the Company's
annual meeting unless (a) the Company receives notice of such proposal by the
date set forth above and (b) the conditions set forth in Rule
14a-4(c)(2)(i)-(iii) under the Exchange Act are met.
By Order of the Board of Directors,
[/s/ Martin D. Krall]
MARTIN D. KRALL
Secretary
Dated: April 30, 1999
STOCKHOLDERS ARE REMINDED TO SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED.
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<PAGE> 22
APPLIED GRAPHICS TECHNOLOGIES, INC.
1998 INCENTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED
(AS PROPOSED TO BE AMENDED IN CONNECTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 1999)
1.0 DEFINITIONS
The following terms shall have the following meanings unless the context
indicates otherwise:
1.1 "Affiliated Person" shall mean an employee of an entity other than the
Company whose activities may benefit the Company and who has been designated by
the Board to be eligible to participate in the Plan.
1.2 "Award" shall mean either a Stock Option, an SAR, a Stock Award, a
Stock Unit, a Performance Share, a Performance Unit, or a Cash Award.
1.3 "Award Agreement" shall mean a written agreement between the Company
and the Participant that establishes the terms, conditions, restrictions and/or
limitations applicable to an Award in addition to those established by the Plan
and by the Committee's exercise of its administrative powers.
1.4 "Board" shall mean the Board of Directors of the Company.
1.5 "Cash Award" shall mean the grant by the Committee to a Participant of
an Award of cash as described in Section 11 below.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.7 "Committee" shall mean (i) the Board or (ii) a committee or
subcommittee of the Board appointed by the Board from among its members. The
Committee may be the Board's Compensation Committee. Unless the Board determines
otherwise, the Committee shall be comprised solely of not less than two members
who each shall qualify as (x) a "Non-Employee Director" within the meaning of
Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act and (y) an
"outside director" within the meaning of Section 162(m) of the Code and the
Treasury Regulations thereunder.
1.8 "Common Stock" shall mean the common stock, $.01 par value per share,
of the Company.
1.9 "Company" shall mean Applied Graphics Technologies, Inc., a Delaware
corporation.
1.10 "Dividend Equivalent Right" shall mean the right to receive an amount
equal to the amount of any dividend paid with respect to a share of Common Stock
multiplied by the number of hypothetical shares of Common Stock underlying a
Stock Unit or a Performance Unit, and which shall be payable in cash, in Common
Stock, in the form of additional Stock Units or Performance Units (as the case
may be), or a combination of all of the foregoing.
1.11 "Effective Date" shall mean the date on which the Plan is approved by
the Company's stockholders.
1.12 "Employee" shall mean an employee of the Company or any Subsidiary as
described in Treasury Regulation Section 1.421-7(h).
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, including applicable regulations thereunder.
1.14 "Fair Market Value of the Common Stock" shall mean:
(a) if the Common Stock is readily tradeable on a national securities
exchange or other market system, the closing price of the Common Stock on
the date of calculation (or on the last preceding trading date if Common
Stock was not traded on such date), or
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<PAGE> 23
(b) if the Common Stock is not readily tradeable on a national
securities exchange or other market system:
(i) the book value of a share of Common Stock as of the last day of
the last completed fiscal quarter preceding the date of calculation; or
(ii) any other value as otherwise determined in good faith by the
Board.
1.15 "Independent Contractor" shall mean a person or an entity that
renders services to the Company, but -- if a person -- is not an Employee or a
Nonemployee Director.
1.16 "ISO" shall mean an "incentive stock option" as such term is used in
Code Section 422.
1.17 "Nonemployee Director" shall mean a member of the Board who is not an
Employee.
1.18 "Nonqualified Stock Option" shall mean a Stock Option that does not
qualify as an ISO.
1.19 "Participant" shall mean any Employee, Nonemployee Director,
Affiliated Person or Independent Contractor to whom an Award has been granted by
the Committee under the Plan.
1.20 "Performance-Based Award" shall mean an Award subject to the
achievement of certain performance goal or goals as described in Section 12
below.
1.21 "Performance Share" shall mean the grant by the Committee to a
Participant of an Award as described in Section 10.1 below.
1.22 "Performance Unit" shall mean the grant by the Committee to a
Participant of an Award as described in Section 10.2 below.
1.23 "Plan" shall mean the Applied Graphics Technologies, Inc. 1998
Incentive Compensation Plan.
1.24 "SAR" shall mean the grant by the Committee to a Participant of a
stock appreciation right as described in Section 8 below.
1.25 "Stock Award" shall mean the grant by the Committee to a Participant
of an Award of Common Stock under Section 9.1 below.
1.26 "Stock Option" shall mean the grant by the Committee to a Participant
of an option to purchase Common Stock under Section 7 below.
1.27 "Stock Unit" shall mean the grant by the Committee to a Participant
of an Award as described in Section 9.2 below.
1.28 "Subsidiary" shall mean a corporation of which the Company directly
or indirectly owns more than 50 percent of the Voting Stock or any other
business entity in which the Company directly or indirectly has an ownership
interest of more than 50 percent.
1.29 "Treasury Regulations" shall mean the regulations promulgated under
the Code by the United States Department of the Treasury, as amended from time
to time.
1.30 "Vest" shall mean:
(a) with respect to Stock Options and SARs, when the Stock Option or
SAR (or a portion of such Stock Option or SAR) first becomes exercisable
and remains exercisable subject to the terms and conditions of such Stock
Option or SAR; or
(b) with respect to Awards other than Stock Options and SARs, when the
Participant has:
(i) an unrestricted right, title and interest to receive the
compensation (whether payable in cash, Common Stock, or a combination of
both) attributable to an Award (or a portion of such Award) or to
otherwise enjoy the benefits underlying such Award; and
(ii) a right to transfer an Award subject to no Company-imposed
restrictions or limitations other than those restrictions and/or
limitations imposed by Section 14 below.
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<PAGE> 24
1.31 "Vesting Date" shall mean the date or dates on which an Award Vests.
1.32 "Voting Stock" shall mean the capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2.0 PURPOSE AND TERM OF PLAN
2.1 Purpose. The purpose of the Plan is to provide motivation to certain
Employees, Nonemployee Directors, Affiliated Persons and Independent Contractors
to put forth maximum efforts toward the growth, profitability, and success of
the Company and Subsidiaries by providing incentives to such Employees,
Nonemployee Directors, Affiliated Persons and Independent Contractors either
through cash payments and/ or through the ownership and performance of the
Common Stock. In addition, the Plan is intended to provide incentives which will
attract and retain highly qualified individuals as Employees and Nonemployee
Directors and to assist in aligning the interests of such Employees and
Nonemployee Directors with those of its stockholders.
2.2 Term. The Plan shall be effective as of the Effective Date. The Plan
shall terminate on the 10th anniversary of the Effective Date (unless sooner
terminated by the Board).
3.0 ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. All Employees of the Company, all
Nonemployee Directors, Affiliated Persons and Independent Contractors shall be
eligible to participate in the Plan and to receive Awards. Participants shall
consist of such Employees, Nonemployee Directors, Affiliated Persons and
Independent Contractors as the Committee in its sole discretion designates to
receive Awards under the Plan. Designation of a Participant in any year shall
not require the Committee to designate such person or entity to receive an Award
in any other year or, once designated, to receive the same type or amount of
Award as granted to the Participant in any other year. The Committee shall
consider such factors as it deems pertinent in selecting Participants and in
determining the type and amount of their respective Awards.
4.0 ADMINISTRATION
4.1 Responsibility. The Committee shall have the responsibility, in its
sole discretion, to control, operate, manage and administer the Plan in
accordance with its terms.
4.2 Award Agreement. Each Award granted under the Plan shall be evidenced
by an Award Agreement which shall be signed by the Committee and the
Participant; provided, however, that in the event of any conflict between a
provision of the Plan and any provision of an Award Agreement, the provision of
the Plan shall prevail.
4.3 Authority of the Committee. The Committee shall have all the
discretionary authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan, including but not
limited to the following:
(a) to determine eligibility for participation in the Plan;
(b) to determine eligibility for and the type and size of an Award
granted under the Plan;
(c) to supply any omission, correct any defect, or reconcile any
inconsistency in the Plan in such manner and to such extent as it shall
deem appropriate in its sole discretion to carry the same into effect;
(d) to issue administrative guidelines as an aid to administer the
Plan and make changes in such guidelines as it from time to time deems
proper;
(e) to make rules for carrying out and administering the Plan and make
changes in such rules as it from time to time deems proper;
(f) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions, and limitations;
3
<PAGE> 25
(g) to accelerate the Vesting of any Award when such action or actions
would be in the best interest of the Company;
(h) to grant Awards in replacement of Awards previously granted under
this Plan or any other executive compensation plan of the Company; and
(i) to take any and all other actions it deems necessary or advisable
for the proper operation or administration of the Plan.
4.4 Action by the Committee. The Committee may act only by a majority of
its members. Any determination of the Committee may be made, without a meeting,
by a writing or writings signed by all of the members of the Committee. In
addition, the Committee may authorize any one or more of its members to execute
and deliver documents on behalf of the Committee.
4.5 Delegation of Authority. The Committee may delegate to one or more of
its members, or to one or more agents, such administrative duties as it may deem
advisable; provided, however, that any such delegation shall be in writing. In
addition, the Committee, or any person to whom it has delegated duties under
this Section 4.5, may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the Plan. The
Committee may employ such legal or other counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion or computation received from any such counsel, consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel, consultant
or agent shall be paid by the Company, or the Subsidiary whose employees have
benefitted from the Plan, as determined by the Committee.
4.6 Determinations and Interpretations by the Committee. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Participants and their heirs, successors, and legal
representatives.
4.7 Liability. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act hereunder,
except in circumstances involving his or her bad faith, gross negligence or
willful misconduct, or for any act or failure to act hereunder by any other
member or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated.
4.8 Indemnification. The Company shall indemnify members of the Committee
and any agent of the Committee who is an employee of the Company, against any
and all liabilities or expenses to which they may be subjected by reason of any
act or failure to act with respect to their duties on behalf of the Plan, except
in circumstances involving such person's bad faith, gross negligence or willful
misconduct.
5.0 SHARES SUBJECT TO PLAN
5.1 Available Shares. The aggregate number of shares of Common Stock
which shall be available for grants of Awards under the Plan during its term
shall be 7,000,000, which shall include the number of shares of Common Stock
available for grants as of the Effective Date under the Company's Revised 1996
Stock Option Plan (the "1996 Plan"). On or about the Effective Date, the Board
shall amend the 1996 Plan so that no further grants shall be made under the 1996
Plan and all available shares under the 1996 Plan as of the Effective Date shall
be transferred to the Plan. Shares of Common Stock available for issuance under
the Plan may be either authorized but unissued shares, shares of issued stock
held in the Company's treasury, or both, at the discretion of the Company, and
subject to any adjustments made in accordance with Section 5.2 below. Any shares
of Common Stock underlying Awards which terminate by expiration, forfeiture,
cancellation or otherwise without the issuance of such shares shall again be
available for grants of Awards under the Plan.
5.2 Adjustment to Shares. If there is any change in the Common Stock of
the Company, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, reverse stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares, dividend in kind or other like change
in capital structure or distribution (other than normal cash dividends) to
stockholders of the Company, an adjustment shall be made to each outstanding
Award so that each such Award shall thereafter be with respect to or
4
<PAGE> 26
exercisable for such securities, cash and/or other property as would have been
received in respect of the Common Stock subject to such Award had such Award
been paid, distributed or exercised in full immediately prior to such change or
distribution. Such adjustment shall be made successively each time any such
change shall occur. In addition, in the event of any such change or
distribution, in order to prevent dilution or enlargement of Participants'
rights under the Plan, the Committee shall have the authority to adjust, in an
equitable manner, the number and kind of shares that may be issued under the
Plan, the number and kind of shares subject to outstanding Awards, the exercise
price applicable to outstanding Stock Options and SARs, and the Fair Market
Value of the Common Stock and other value determinations applicable to
outstanding Awards. Appropriate adjustments may also be made by the Committee in
the terms of any Awards granted under the Plan to reflect such changes or
distributions and to modify any other terms of outstanding Awards on an
equitable basis, including modifications of performance goals and changes in the
length of performance periods; provided, however, that with respect to
Performance-Based Awards, such modifications and/or changes do not disqualify
compensation attributable to such Awards as "performance-based compensation"
under Code Section 162(m). In addition, the Committee is authorized to make
adjustments to the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events affecting the Company or the
financial statements of the Company, or in response to changes in applicable
laws, regulations, or accounting principles; provided, however, that with
respect to Performance-Based Awards, such modifications and/or changes do not
disqualify compensation attributable to such Awards as "performance-based
compensation" under Code Section 162(m). Notwithstanding anything contained in
the Plan, any adjustment with respect to an ISO due to a change or distribution
described in this Section 5.2 shall comply with the rules of Code Section
424(a), and in no event shall any adjustment be made which would render any ISO
granted hereunder other than an incentive stock option for purposes of Code
Section 422.
6.0 MAXIMUM INDIVIDUAL AWARDS
6.1 Maximum Aggregate Number of Shares Underlying Stock-Based Awards
Granted Under the Plan to Any Single Participant. The maximum aggregate number
of shares of Common Stock underlying all Awards measured in shares of Common
Stock (whether payable in cash, Common Stock, or a combination of both) that may
be granted to any single Participant during the life of the Plan shall be
1,000,000 shares, subject to adjustment as provided in Section 5.2 above. For
purposes of the preceding sentence, such Awards that are cancelled or repriced
shall continue to be counted in determining such maximum aggregate number of
shares of Common Stock that may be granted to any single Participant during the
life of the Plan.
6.2 Maximum Dollar Amount Underlying Cash-Based Awards Granted Under the
Plan to Any Single Participant. The maximum dollar amount that may be paid to
any single Participant with respect to all Awards granted to such Participant
measured in cash (whether payable in cash, Common Stock, or a combination of
both) during the life of the Plan shall be $30,000,000.
7.0 STOCK OPTIONS
7.1 In General. The Committee may, in its sole discretion, grant Stock
Options to Employees, Nonemployee Directors, Affiliated Persons and/or
Independent Contractors. The Committee shall, in its sole discretion, determine
the Employees, the Nonemployee Directors, Affiliated Persons and Independent
Contractors who will receive Stock Options and the number of shares of Common
Stock underlying each Stock Option. With respect to Employees who become
Participants, the Committee may grant such Participants ISOs or Nonqualified
Stock Options or a combination of both. With respect to Nonemployee Directors,
Affiliated Persons and Independent Contractors who become Participants, the
Committee may grant such Participants only Nonqualified Stock Options. Each
Stock Option shall be subject to such terms and conditions consistent with the
Plan as the Committee may impose from time to time. In addition, each Stock
Option shall be subject to the terms and conditions set forth in Sections 7.2
through 7.8 below.
7.2 Exercise Price. The Committee shall specify the exercise price of
each Stock Option in the Award Agreement; provided, however, that (i) the
exercise price of any ISO shall not be less than 100 percent of the Fair Market
Value of the Common Stock on the date of grant, and (ii) the exercise price of
any Nonqualified Stock Option shall not be less than 100 percent of the Fair
Market Value of the Common Stock on the date of
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<PAGE> 27
grant unless the Committee -- in its sole discretion and due to special
circumstances -- determines otherwise on the date of grant.
7.3 Term of Stock Option. The Committee shall specify the term of each
Stock Option in the Award Agreement; provided, however, that:
(a) no ISO shall be exercised after the 10th anniversary of the date
of grant of such ISO; and
(b) no Nonqualified Stock Option shall be exercised after the 10th
anniversary of the date of grant of such Nonqualified Stock Option, unless
the Committee, in its sole discretion, provides otherwise.
Each Stock Option shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall, in its sole discretion, set
forth in the Award Agreement on the date of grant.
7.4 Vesting Date. The Committee shall specify the Vesting Date with
respect to each Stock Option in the Award Agreement. The Committee may grant
Stock Options that are Vested, either in whole or in part, on the date of grant.
If the Committee fails to specify a Vesting Date in the Award Agreement, such
Stock Option shall become exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE
ANNIVERSARY OF DATE OF GRANT PERCENT THAT VESTS
---------------------------- ------------------
<S> <C>
Less than 1 year............................................ 0%
On the first anniversary date............................... 20%
On the second anniversary date.............................. 25%
On the third anniversary date............................... 30%
On the fourth anniversary date.............................. 35%
On the fifth anniversary date............................... 100%
</TABLE>
The Vesting of a Stock Option may also be subject to such other terms and
conditions as shall be determined by the Committee, including, without
limitation, accelerating the Vesting (i) based on individual performance or (ii)
if certain performance goals are achieved.
7.5 Exercise of Stock Options. The Stock Option exercise price may be
paid in cash or, in the sole discretion of the Committee, by the delivery of
shares of Common Stock owned by the Participant for a period of greater than six
months, by the withholding of shares of Common Stock for which a Stock Option is
exercisable, or by a combination of these methods. In the sole discretion of the
Committee, payment may also be made by delivering a properly executed exercise
notice to the Company together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the exercise price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. The
Committee may prescribe any other method of paying the exercise price that it
determines to be consistent with applicable law and the purpose of the Plan,
including, without limitation, in lieu of the exercise of a Stock Option by
delivery of shares of Common Stock then owned by a Participant, providing the
Company with a notarized statement attesting to the number of shares owned by
the Participant, where upon verification by the Company, the Company would issue
to the Participant only the number of incremental shares to which the
Participant is entitled upon exercise of the Stock Option. In determining which
methods a Participant may utilize to pay the exercise price, the Committee may
consider such factors as it determines are appropriate; provided, however, that
with respect to ISOs, all such discretionary determinations by the Committee
shall be made at the time of grant and specified in the Award Agreement.
7.6 Restrictions Relating to ISOs. In addition to being subject to the
terms and conditions of this Section 7, ISOs shall comply with all other
requirements under Code Section 422. Accordingly, ISOs may be granted only to
Participants who are employees (as described in Treasury Regulation Section
1.421-7(h)) of the Company or of any "Parent Corporation" (as defined in Code
Section 424(e)) or of any "Subsidiary Corporation" (as defined in Code Section
424(f)) on the date of grant. The aggregate market value (determined as of the
time the ISO is granted) of the Common Stock with respect to which ISOs (under
all option plans of the Company and of any Parent Corporation and of any
Subsidiary Corporation) are
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<PAGE> 28
exercisable for the first time by a Participant during any calendar year shall
not exceed $100,000. For purposes of the preceding sentence, (i) ISOs shall be
taken into account in the order in which they are granted and (ii) ISOs granted
before 1987 shall not be taken into account. ISOs shall not be transferable by
the Participant otherwise than by will or the laws of descent and distribution
and shall be exercisable, during the Participant's lifetime, only by such
Participant. The Committee shall not grant ISOs to any Employee who, at the time
the ISO is granted, owns stock possessing (after the application of the
attribution rules of Code Section 424(d)) more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any Parent
Corporation or of any Subsidiary Corporation unless the exercise price of the
ISO is fixed at not less than 110 percent of the Fair Market Value of the Common
Stock on the date of grant and the exercise of such ISO is prohibited by its
terms after the 5th anniversary of the ISO's date of grant. In addition, no ISO
shall be issued to a Participant in tandem with a Nonqualified Stock Option
issued to such Participant in accordance with Treasury Regulation Section
14a.422A-1, Q/A-39.
7.7 Additional Terms and Conditions. The Committee may, by way of the
Award Agreements or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any Stock Option, provided they are
not inconsistent with the Plan, including, without limitation, the requirement
that the Participant not engage in competition with the Company.
7.8 Conversion Stock Options. The Committee may, in its sole discretion,
grant a Stock Option to any holder of an option (an "Original Option") to
purchase shares of the stock of any corporation:
(i) the stock or assets of which were acquired, directly or
indirectly, by the Company or any Subsidiary; or
(ii) which was merged with and into the Company or a Subsidiary;
so that the Original Option is "converted" into a Stock Option (a "Conversion
Stock Option"); provided, however, that such Conversion Stock Option as of the
date of its grant (the "Conversion Stock Option Grant Date") shall have the same
economic value as the Original Option as of the Conversion Stock Option Grant
Date. In addition, unless the Committee in its sole discretion determines
otherwise, a Conversion Stock Option which is converting an Original Option
intended to qualify as an ISO shall have the same terms and conditions as
applicable to the Original Option in accordance with Code Section 424 and the
Treasury Regulations thereunder so that the conversion (x) is treated as the
issuance or assumption of a stock option under Code Section 424(a) and (y) is
not treated as a modification, extension or renewal of a stock option under Code
Section 424(h).
7.9 Grants to Non-Employee Directors. Upon being elected a Director, each
Non-Employee Director shall be granted a Non-Qualified Stock Option to purchase
25,000 (twenty-five thousand) shares of Common Stock, which Stock Option shall
be 50% (fifty percent) Vested on the first anniversary date of the date of grant
of such Stock Option and shall be 100% (one hundred percent) Vested on the
second anniversary date of the date of grant of such Stock Option. In addition,
on each anniversary date of the Non-Employee Director's commencement of service
as a Director, the Non-Employee Director will be granted a Non-Qualified Stock
Option to purchase 5,000 (five thousand) shares of Common Stock, provided that
he or she continues to serve as a Director on such date, which Stock Option
shall immediately vest on the respective date of such grant.
8.0 SARS
8.1 In General. The Committee may, in its sole discretion, grant SARs to
Employees, Nonemployee Directors, Affiliated Persons, and/or Independent
Contractors. An SAR is a right to receive a payment in cash, Common Stock or a
combination of both, in an amount equal to the excess of:
(x) the Fair Market Value of the Common Stock, or other specified
valuation, of a specified number of shares of Common Stock on the date the
SAR is exercised; over
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<PAGE> 29
(y) the Fair Market Value of the Common Stock, or other specified
valuation (which shall be no less than the Fair Market Value of the Common
Stock), of such shares of Common Stock on the date the SAR is granted, all
as determined by the Committee;
provided, however, that if a SAR is granted retroactively in tandem with or in
substitution for a Stock Option, the designated Fair Market Value of the Common
Stock in the Award Agreement may be the Fair Market Value of the Common Stock on
the date such Stock Option was granted. Each SAR shall be subject to such terms
and conditions, including, but not limited to, a provision that automatically
converts a SAR into a Stock Option on a conversion date specified at the time of
grant, as the Committee shall impose from time to time in its sole discretion
and subject to the terms of the Plan.
9.0 STOCK AWARDS AND STOCK UNITS
9.1 Stock Awards. The Committee may, in its sole discretion, grant Stock
Awards to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Stock Award shall consist of shares
of Common Stock which shall be subject to such terms and conditions as the
Committee, in its sole discretion, determines appropriate -- including, without
limitation, restrictions on the sale or other disposition of such shares, the
Vesting Date with respect to such shares, and the right of the Company to
reacquire such shares for no consideration upon termination of the Participant's
employment within specified periods. The Committee may require the Participant
to deliver a duly signed stock power, endorsed in blank, relating to the Common
Stock covered by such Stock Award and/or that the stock certificates evidencing
such shares be held in custody or bear restrictive legends until the
restrictions thereon shall have lapsed. With respect to the shares of Common
Stock subject to a Stock Award granted to a Participant, such Participant shall
have all of the rights of a holder of shares of Common Stock, including the
right to receive dividends and to vote the shares, unless the Committee
determines otherwise on the date of grant.
9.2 Stock Units. The Committee may, in its sole discretion, grant Stock
Units to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Stock Unit is a hypothetical share
of Common Stock represented by a notional account established and maintained (or
caused to be established or maintained) by the Company for such Participant who
receives a grant of Stock Units. Stock Units shall be subject to such terms and
conditions as the Committee, in its sole discretion, determines appropriate --
including, without limitation, determinations of the Vesting Date with respect
to such Stock Units and the criteria for the Vesting of such Stock Units. A
Stock Unit granted by the Committee shall provide for payment in shares of
Common Stock at such time or times as the Award Agreement shall specify. The
Committee shall determine whether a Participant who has been granted a Stock
Unit shall also be entitled to a Dividend Equivalent Right.
9.3 Payout of Stock Units. Subject to a Participant's election to defer
in accordance with Section 17.3 below, upon the Vesting of a Stock Unit, the
shares of Common Stock representing the Stock Unit shall be distributed to the
Participant, unless the Committee, in its sole discretion, provides for the
payment of the Stock Unit in cash (or partly in cash and partly in shares of
Common Stock) equal to the value of the shares of Common Stock which would
otherwise be distributed to the Participant.
10.0 PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1 Performance Shares. The Committee may, in its sole discretion, grant
Performance Shares to Employees, Nonemployee Directors, Affiliated Persons,
and/or Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Performance Share shall consist of a
share or shares of Common Stock which shall be subject to such terms and
conditions as the Committee, in its sole discretion, determines
appropriate -- including, without limitation, determining the performance goal
or goals which, depending on the extent to which such goals are met, will
determine the number and/or value of the Performance Shares that will be paid
out or distributed to the Participant who has been granted Performance Shares.
Performance goals may be based on, without limitation, Company-wide,
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divisional and/or individual performance, as the Committee, in its sole
discretion, may determine, and may be based on the performance measures listed
in Section 12.3 below.
10.2 Performance Units. The Committee may, in its sole discretion, grant
Performance Units to Employees, Nonemployee Directors, Affiliated Persons,
and/or Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Performance Unit is a hypothetical
share or shares of Common Stock represented by a notional account which shall be
established and maintained (or caused to be established or maintained) by the
Company for such Participant who receives a grant of Performance Units.
Performance Units shall be subject to such terms and conditions as the
Committee, in its sole discretion, determines appropriate -- including, without
limitation, determining the performance goal or goals which, depending on the
extent to which such goals are met, will determine the number and/or value of
the Performance Units that will be accrued with respect to the Participant who
has been granted Performance Units. Performance goals may be based on, without
limitation, Company-wide, divisional and/or individual performance, as the
Committee, in its sole discretion, may determine, and may be based on the
performance measures listed in Section 12.3 below.
10.3 Adjustment of Performance Goals. With respect to those Performance
Shares or Performance Units that are not intended to qualify as
Performance-Based Awards (as described in Section 12 below), the Committee shall
have the authority at any time to make adjustments to performance goals for any
outstanding Performance Shares or Performance Units which the Committee deems
necessary or desirable unless at the time of establishment of the performance
goals the Committee shall have precluded its authority to make such adjustments.
10.4 Payout of Performance Shares or Performance Units. Subject to a
Participant's election to defer in accordance with Section 17.3 below, upon the
Vesting of a Performance Share or a Performance Unit, the Performance Share or
the Performance Unit shall be distributed to the Participant in shares of Common
Stock, unless the Committee, in its sole discretion, provides for the payment of
the Performance Share or a Performance Unit in cash (or partly in cash and
partly in shares of Common Stock) equal to the value of the shares of Common
Stock which would otherwise be distributed to the Participant.
11.0 CASH AWARDS
11.1 In General. The Committee may, in its sole discretion, grant Cash
Awards to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Cash Award shall be subject to such
terms and conditions as the Committee, in its sole discretion, determines
appropriate -- including, without limitation, determining the Vesting Date with
respect to such Cash Award, the criteria for the Vesting of such Cash Award, and
the right of the Company to require the Participant to repay the Cash Award
(with or without interest) upon termination of the Participant's employment
within specified periods.
12.0 PERFORMANCE-BASED AWARDS
12.1 In General. The Committee, in its sole discretion, may designate and
design Awards granted under the Plan as Performance-Based Awards (as defined
below) if it determines that compensation attributable to such Awards might not
otherwise be tax deductible by the Company due to the deduction limitation
imposed by Code Section 162(m). Accordingly, an Award granted under the Plan may
be granted in such a manner that the compensation attributable to such Award is
intended by the Committee to qualify as "performance-based compensation" (as
such term is used in Code Section 162(m) and the Treasury Regulations
thereunder) and thus be exempt from the deduction limitation imposed by Code
Section 162(m) ("Performance-Based Awards").
12.2 Qualification of Performance-Based Awards. Awards shall qualify as
Performance-Based Awards under the Plan only if:
(a) at the time of grant the Committee is comprised solely of two or
more "outside directors" (as such term is used in Code Section 162(m) and
the Treasury Regulations thereunder);
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(b) with respect to either the granting or Vesting of an Award (other
than (i) a Nonqualified Stock Option or (ii) an SAR, which are granted with
an exercise price at or above the Fair Market Value of the Common Stock on
the date of grant), such Award is subject to the achievement of a
performance goal or goals based on one or more of the performance measures
specified in Section 12.3 below;
(c) the Committee establishes in writing (i) the objective
performance-based goals applicable to a given performance period and (ii)
the individual employees or class of employees to which such
performance-based goals apply no later than 90 days after the commencement
of such performance period (but in no event after 25 percent of such
performance period has elapsed);
(d) no compensation attributable to a Performance-Based Award will be
paid to or otherwise received by a Participant until the Committee
certifies in writing that the performance goal or goals (and any other
material terms) applicable to such performance period have been satisfied;
and
(e) after the establishment of a performance goal, the Committee shall
not revise such performance goal (unless such revision will not disqualify
compensation attributable to the Award as "performance-based compensation"
under Code Section 162(m)) or increase the amount of compensation payable
with respect to such Award upon the attainment of such performance goal.
12.3 Performance Measures. The Committee may use the following
performance measures (either individually or in any combination) to set
performance goals with respect to Awards intended to qualify as
Performance-Based Awards: net sales; pre-tax income before allocation of
corporate overhead and bonus; budget; cash flow; earnings per share; net income;
division, group or corporate financial goals; return on stockholders' equity;
return on assets; attainment of strategic and operational initiatives;
appreciation in and/or maintenance of the price of the Common Stock or any other
publicly-traded securities of the Company; market share; gross profits; earnings
before interest and taxes; earnings before interest, taxes, depreciation and
amortization; economic value-added models; comparisons with various stock market
indices; increase in number of customers; and/or reductions in costs.
12.4 Shareholder Reapproval. As required by Treasury Regulation Section
1.162-27(e)(vi), the material terms of performance goals as described in this
Section 12 shall be disclosed to and reapproved by the Company's stockholders no
later than the first stockholder meeting that occurs in the 5th year following
the year in which the Company stockholders previously approved such performance
goals.
13.0 CHANGE IN CONTROL
13.1 Accelerated Vesting or Payout. Notwithstanding any other provision
of this Plan to the contrary, if there is a change in control of the Company,
the Committee, in its sole discretion, may take such actions as it deems
appropriate with respect to outstanding awards, including, without limitation,
accelerating the Vesting Date and/or payout of such Awards; provided, however,
that such action shall not conflict with any provision contained in an Award
Agreement unless such provision is amended in accordance with Section 16.3
below.
13.2 Cashout. The Committee, in its sole discretion, may determine that,
upon the occurrence of a change in control of the Company, all or a portion of
certain outstanding Awards shall terminate within a specified number of days
after notice to the holders, and each such holder shall receive an amount equal
to the value of such Award on the date of the change in control, and with
respect to each share of Common Stock subject to a Stock Option or SAR, an
amount equal to the excess of the Fair Market Value of such shares of Common
Stock immediately prior to the occurrence of such change in control over the
exercise price per share of such Stock Option or SAR. Such amount shall be
payable in cash, in one or more kinds of property (including the property, if
any, payable in the transaction) or in a combination thereof, as the Committee,
in its sole discretion, shall determine.
13.3 Assumption or Substitution of Awards. Notwithstanding anything
contained in the Plan to the contrary, the Committee may, in its sole
discretion, provide that an Award may be assumed by any entity which acquires
control of the Company or may be substituted by a similar award under such
entity's compensation plans.
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14.0 TERMINATION OF EMPLOYMENT IF PARTICIPANT IS AN EMPLOYEE
14.1 Termination of Employment Due to Death or Disability. Subject to any
written agreement between the Company and a Participant, if a Participant's
employment is terminated due to death or disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the Participant's death or the date of the termination of his or
her employment, as the case may be, shall immediately be forfeited by such
Participant as of such date; and
(b) all Vested portions of Stock Options and SARs held by the
Participant on the date of the Participant's death or the date of the
termination of his or her employment, as the case may be, shall remain
exercisable until the earlier of:
(i) the end of the 12-month period following the date of the
Participant's death or the date of the termination of his or her
employment, as the case may be; or
(ii) the date the Stock Option or SAR would otherwise expire.
14.2 Termination of Employment for Cause. Subject to any written
agreement between the Company and a Participant, if a Participant's employment
is terminated by the Company for cause, all Awards held by a Participant on the
date of the termination of his or her employment for cause, whether Vested or
non-Vested, shall immediately be forfeited by such Participant as of such date.
14.3 Other Terminations of Employment. Subject to any written agreement
between the Company and a Participant, if a Participant's employment is
terminated for any reason other than for cause or other than due to death or
disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the termination of his or her employment shall immediately be
forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and/or SARs held by the
Participant on the date of the termination of his or her employment shall
remain exercisable until the earlier of:
(i) the end of the 90-day period following the date of the
termination of the Participant's employment; or
(ii) the date the Stock Option or SAR would otherwise expire.
14.4 Committee Discretion. Notwithstanding anything contained in the Plan
to the contrary, the Committee may, in its sole discretion and at anytime,
provide that:
(a) any or all non-Vested portions of Stock Options and/or SARs held
by the Participant on the date of the Participant's death and/or the date
of the termination of his or her employment shall immediately become
exercisable as of such date and, except with respect to ISOs, shall remain
exercisable until a date that occurs on or prior to the date the Stock
Option or SAR is scheduled to expire;
(b) any or all Vested portions of Nonqualified Stock Options and/or
SARs held by the Participant on the date of the Participant's death and/or
the date of the termination of his or her employment shall remain
exercisable until a date that occurs on or prior to the date the Stock
Option or SAR is scheduled to expire; and/or
(c) any or all non-Vested portions of Stock Awards, Stock Units,
Performance Shares, Performance Units, and/or Cash Awards held by the
Participant on the date of the Participant's death and/or the date of the
termination of his or her employment shall immediately Vest or shall become
Vested on a date that occurs on or prior to the date the Award is scheduled
to vest.
14.5 ISOs. Notwithstanding anything contained in the Plan to the
contrary, (i) the provisions contained in this Section 14 shall be applied to an
ISO only if the application of such provision maintains the treatment of such
ISO as an ISO and (ii) the exercise period of an ISO in the event of a
termination of the
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Participant's employment due to disability provided in Section 14.1 above shall
be applied only if the Participant is "permanently and totally disabled" (as
such term is defined in Code Section 22(e)(3)).
15.0 TAXES
15.1 Withholding Taxes. With respect to Employees, the Company, or the
applicable Subsidiary, may require a Participant who has become vested in his or
her Stock Award, Stock Unit, Performance Share or Performance Unit granted
hereunder, or who exercises a Stock Option or SAR granted hereunder to reimburse
the corporation which employs such Participant for any taxes required by any
governmental regulatory authority to be withheld or otherwise deducted and paid
by such corporation or entity in respect of the issuance or disposition of such
shares or the payment of any amounts. In lieu thereof, the corporation or entity
which employs such Participant shall have the right to withhold the amount of
such taxes from any other sums due or to become due from such corporation or
entity to the Participant upon such terms and conditions as the Committee shall
prescribe. The corporation or entity that employs such Participant may, in its
discretion, hold the stock certificate to which such Participant is entitled
upon the vesting of a Stock Award, Stock Unit, Performance Share or Performance
Unit or the exercise of a Stock Option or SAR as security for the payment of
such withholding tax liability, until cash sufficient to pay that liability has
been accumulated.
15.2 Use of Common Stock to Satisfy Withholding Obligation. With respect
to Employees, at any time that the Company, Subsidiary or other entity that
employs such Participant becomes subject to a withholding obligation under
applicable law with respect to the vesting of a Stock Award, Stock Unit,
Performance Share or Performance Unit or the exercise of a Nonqualified Stock
Option (the "Tax Date"), except as set forth below, a holder of such Award may
elect to satisfy, in whole or in part, the holder's related personal tax
liabilities (an "Election") by (i) directing the Company, Subsidiary or other
entity that employs such Participant to withhold from shares issuable in the
related vesting or exercise either a specified number of shares or shares of
Common Stock having a specified value (in each case not in excess of the related
personal tax liabilities), (ii) tendering shares of Common Stock previously
issued pursuant to the exercise of a Stock Option or other shares of the Common
Stock owned by the holder, or (iii) combining any or all of the foregoing
Elections in any fashion. An Election shall be irrevocable. The withheld shares
and other shares of Common Stock tendered in payment shall be valued at their
Fair Market Value of the Common Stock on the Tax Date. The Committee may
disapprove of any Election, suspend or terminate the right to make Elections or
provide that the right to make Elections shall not apply to particular shares or
exercises. The Committee may impose any additional conditions or restrictions on
the right to make an Election as it shall deem appropriate, including conditions
or restrictions with respect to Section 16 of the Exchange Act.
15.3 No Guarantee of Tax Consequences. No person connected with the Plan
in any capacity, including, but not limited to, the Company and any Subsidiary
and their directors, officers, agents and employees makes any representation,
commitment, or guarantee that any tax treatment, including, but not limited to,
federal, state and local income, estate and gift tax treatment, will be
applicable with respect to amounts deferred under the Plan, or paid to or for
the benefit of a Participant under the Plan, or that such tax treatment will
apply to or be available to a Participant on account of participation in the
Plan.
16.0 AMENDMENT AND TERMINATION
16.1 Termination of Plan. The Board may suspend or terminate the Plan at
any time with or without prior notice; provided, however, that no action
authorized by this Section 16.1 shall reduce the amount of any outstanding Award
or change the terms and conditions thereof without the Participant's consent.
16.2 Amendment of Plan. The Board may amend the Plan at any time with or
without prior notice; provided, however, that no action authorized by this
Section 16.2 shall reduce the amount of any outstanding
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Award or change the terms and conditions thereof without the Participant's
consent. No amendment of the Plan shall, without the approval of the
stockholders of the Company:
(a) increase the total number of shares which may be issued under the
Plan;
(b) increase the maximum number of shares with respect to all Awards
measured in Common Stock that may be granted to any individual under the
Plan;
(c) increase the maximum dollar amount with respect to all Awards
measured in cash that may be paid to any individual under the Plan; or
(d) modify the requirements as to eligibility for Awards under the
Plan.
In addition, the Plan shall not be amended without the approval of such
amendment by the Company's stockholders if such amendment (i) is required under
the rules and regulations of the stock exchange or national market system on
which the Common Stock is listed or (ii) will disqualify any ISO granted
hereunder.
16.3 Amendment or Cancellation of Award Agreements. The Committee may
amend or modify any Award Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an interest
therein. In addition, by mutual agreement between the Committee and a
Participant or such other persons as may then have an interest therein, Awards
may be granted to an Employee, Nonemployee Director, Affiliated Person or
Independent Contractor in substitution and exchange for, and in cancellation of,
any Awards previously granted to such Employee, Nonemployee Director, Affiliated
Person or Independent Contractor under the Plan, or any award previously granted
to such Employee, Nonemployee Director, Affiliated Person or Independent
Contractor under any other present or future plan of the Company or any present
or future plan of an entity which (i) is purchased by the Company, (ii)
purchases the Company, or (iii) merges into or with the Company.
17.0 MISCELLANEOUS
17.1 Other Provisions. Awards granted under the Plan may also be subject
to such other provisions (whether or not applicable to the Award granted to any
other Participant) as the Committee determines on the date of grant to be
appropriate, including, without limitation, for the installment purchase of
Common Stock under Stock Options, to assist the Participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale or
other disposition of, Common Stock acquired under any Stock Option, for the
acceleration of Vesting of Awards in the event of a change in control of the
Company, for the payment of the value of Awards to Participants in the event of
a change in control of the Company, or to comply with federal and state
securities laws, or understandings or conditions as to the Participant's
employment in addition to those specifically provided for under the Plan.
17.2 Transferability. Each Award granted under the Plan to a Participant
shall not be transferable otherwise than by will or the laws of descent and
distribution, and Stock Options and SARs shall be exercisable, during the
Participant's lifetime, only by the Participant. In the event of the death of a
Participant, each Stock Option or SAR theretofore granted to him or her shall be
exercisable during such period after his or her death as the Committee shall, in
its sole discretion, set forth in the Award Agreement on the date of grant and
then only by the executor or administrator of the estate of the deceased
Participant or the person or persons to whom the deceased Participant's rights
under the Stock Option or SAR shall pass by will or the laws of descent and
distribution. Notwithstanding the foregoing, the Committee, in its sole
discretion and on a case-by-case basis, may permit the transferability of a
Nonqualified Stock Option by a Participant, including, but not limited to,
members of the Participant's immediate family or trusts or family partnerships
or other similar entities for the benefit of such persons, and all such
transfers shall be subject to such terms, conditions, restrictions and/or
limitations, if any, as the Committee may establish and include in the Award
Agreement.
17.3 Election to Defer Compensation Attributable to Award. The Committee
may, in its sole discretion, allow a Participant to elect to defer the receipt
of any compensation attributable to an Award under
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guidelines and procedures to be established by the Committee after taking into
account the advice of the Company's tax counsel.
17.4 Listing of Shares and Related Matters. If at any time the Committee
shall determine that the listing, registration or qualification of the shares of
Common Stock subject to any Award on any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of, or in connection with,
the granting of an Award or the issuance of shares of Common Stock thereunder,
such Award may not be exercised, distributed or paid out, as the case may be, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
17.5 No Right, Title, or Interest in Company Assets. Participants shall
have no right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations under the Plan. Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant, beneficiary, legal
representative or any other person. To the extent that any person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as expressly
set forth in the Plan. The Plan is not intended to be subject to the Employee
Retirement Income Security Act of 1974, as amended.
17.6 No Right to Continued Employment or Service or to Grants. The
Participant's rights, if any, to continue to serve the Company as a director,
officer, employee, independent contractor or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a Participant under the Plan,
and the Company or the applicable Subsidiary reserves the right to terminate the
employment of any Employee or the services of any Independent Contractor or
director at any time. The adoption of the Plan shall not be deemed to give any
Employee, Nonemployee Director, Affiliated Person or Independent Contractor or
any other individual any right to be selected as a Participant or to be granted
an Award.
17.7 Awards Subject to Foreign Laws. The Committee may grant Awards to
individual Participants who are subject to the tax laws of nations other than
the United States, and such Awards may have terms and conditions as determined
by the Committee as necessary to comply with applicable foreign laws. The
Committee may take any action which it deems advisable to obtain approval of
such Awards by the appropriate foreign governmental entity; provided, however,
that no such Awards may be granted pursuant to this Section 17.7 and no action
may be taken which would result in a violation of the Exchange Act or any other
applicable law.
17.8 Governing Law. The Plan, all Awards granted hereunder, and all
actions taken in connection herewith shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflict of laws, except as superseded by applicable federal law.
17.9 Other Benefits. No Award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement plan of the
Company or any Subsidiary nor affect any benefits or compensation under any
other benefit or compensation plan of the Company or any Subsidiary now or
subsequently in effect.
17.10 No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, Common Stock, Stock Options, or other property shall be
issued or paid in lieu of fractional shares or whether such fractional shares or
any rights thereto shall be forfeited or otherwise eliminated.
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<PAGE> 37
APPLIED GRAPHICS TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 3, 1999.
The undersigned hereby appoints Fred Drasner, Martin D. Krall and Louis
Salamone, Jr., and each of them, attorneys and proxies, with power of
substitution and revocation, to vote, as designated below, all shares of
Common Stock that the undersigned is entitled to vote, with all powers that
the undersigned would possess if personally present at the Annual Meeting
(including all adjournments thereof) of Stockholders of Applied Graphics
Technologies, Inc. to be held on Thursday June 3, 1999, at 10:00 a.m. local
time at the Harmonie Club, 4 East 60th Street, New York, New York 10022.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED HEREON. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH NOMINEE FOR DIRECTOR NAMED
ON THE REVERSE SIDE AND FOR THE OTHER MATTERS DESCRIBED ON THE REVERSE SIDE.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
(Continued and to be dated and signed on the reverse side.)
<PAGE> 38
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH PROPOSAL
PROPOSAL 1: ELECTION OF ALL DIRECTORS
FOR all nominees listed below / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
EXCEPTIONS* / /
Nominees: Fred Drasner, John R. Harris, Martin D. Krall, Marne Obernauer, Jr.,
David R. Parker, Howard Stringer, Linda J. Wachner, John Zuccotti and
Mortimer B. Zuckerman
(Instructions: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions ________________________________________________________________
PROPOSAL 2: APPROVAL OF AMENDMENT OF THE APPLIED GRAPHICS TECHNOLOGIES, INC.
1998 INCENTIVE COMPENSATION PLAN, AS AMENDED, TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK AUTHORIZED FOR ISSUANCE THEREUNDER BY 3,000,000 TO AN AGGREGATE
OF 7,000,000.
FOR / / AGAINST / / ABSTAIN / /
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Change of Address and/or
Comments Mark Here / /
Noted: Please sign as name appears hereon. Joint owners EACH must sign. When
signing as attorney, trustee, executor, administrator or guardian, please give
your FULL title. If a corporation, please provide the full name of the
corporation and the signature of the authorized officer signing on its behalf.
If a partnership, please sign in partnership name by an authorized person.
Date: ________________________________________________________________
(Signature) X: _______________________________________________________
(Signature) X: _______________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. /X/
