SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
VESTCOM INTERNATIONAL, INC.
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(Name of Issuer)
COMMON STOCK, NO PAR VALUE
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(Title of Class of Securities)
92490410-5
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(CUSIP Number)
Morgan Piers ap Peter Stradling Harish K. Chopra
R-Squared Limited TimeTrust, Inc.
P.O. Box 1586 GT 1455 Frazee Road
Cardinal Avenue Suite 420
George Town, Grand Cayman San Diego, California 92108
British West Indies Phone: 619-308-0880
Phone: 345-914-4657
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 16, 1999 and December 22, 1999
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement of Schedule 13G to report
the acquisition which is the subject of the Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d1(g), check
the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
Page 1 of 19
<PAGE>
CUSIP No. 92490410-5 13D
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
R-SQUARED LIMITED
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
NOT APPLICABLE
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
REPUBLIC OF IRELAND
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NUMBER OF 7 SOLE VOTING POWER
SHARES 519,100
BENEFICIALLY ------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH NONE
REPORTING ------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 519,100
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
519,100
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (See Instructions)
[X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.73%
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14 TYPE OF REPORTING PERSON (See Instructions)
CO
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Page 2 of 19
<PAGE>
CUSIP No. 92490410-5 13D
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
TIMETRUST, INC.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
WC, AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
NOT APPLICABLE
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
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NUMBER OF 7 SOLE VOTING POWER
SHARES 180,500
BENEFICIALLY ------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH NONE
REPORTING ------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 180,500
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
180,500
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (See Instructions)
[ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.99%
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14 TYPE OF REPORTING PERSON (See Instructions)
CO
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Page 3 of 19
<PAGE>
CUSIP No. 92490410-5 13D
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
HARISH K. CHOPRA
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
PF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
NOT APPLICABLE
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES OF AMERICA
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NUMBER OF 7 SOLE VOTING POWER
SHARES 10,000
BENEFICIALLY ------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH NONE
REPORTING ------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 10,000
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
NONE
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
10,000
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (See Instructions)
[X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
.11%
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14 TYPE OF REPORTING PERSON (See Instructions)
IN
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Page 4 of 19
<PAGE>
Schedule 13D
R-Squared Limited, a corporation formed under the laws of the
Republic of Ireland ("R-Squared"), TimeTrust, Inc., a California corporation
("TimeTrust") and Harish K. Chopra, an individual ("Chopra" and together with
R-Squared and TimeTrust, collectively the "Reporting Persons") hereby amend the
statement on Schedule 13D, originally filed jointly by R-Squared and TimeTrust
on November 26, 1999 (the "Schedule 13D"), with respect to their beneficial
ownership of Common Stock, no par value, of Vestcom International, Inc.
("Vestcom").
Item 1. Security and Issuer
- ------ -------------------
No change.
Item 2. Identity and Background
- ------ -----------------------
Information Regarding R-Squared Limited:
----------------------------------------
No change.
Information Regarding TimeTrust, Inc.:
-------------------------------------
No change.
Information Regarding Harish K. Chopra:
---------------------------------------
(a) Name: Harish K. Chopra
(b) Residence or Business Address: TimeTrust, Inc., 1455 Frazee
Road, Suite 420, San Diego, California 92108.
(c) Present Principal Occupation: President, Secretary and Director
of TimeTrust (see address in subsection (b) immediately above) which is in the
business of participating in debt and equity investments in private and public
companies both nationally and internationally.
(d) Chopra has not been convicted during the last five years in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) Chopra has not been during the last five years a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding is or has been subject to any civil judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation in respect to such laws.
(f) Citizenship: United States of America.
Page 5 of 19
<PAGE>
Item 3. Source and Amount of Funds or Other Consideration
- ------ -------------------------------------------------
From November 23, 1999 to December 27, 1999, R-Squared directly
purchased approximately 75,800 shares of Common Stock of Vestcom on the open
market for the aggregate purchase price of approximately $266,450.50. An
itemized breakdown of the daily transactions for such time period is more fully
set forth in Item 5 in this amendment to Schedule 13D below. The source of funds
for the payment by R-Squared for such Common Stock was from its working capital.
R-Squared did not purchase any of such Common Stock with borrowed funds.
From November 23, 1999 to December 27, 1999, TimeTrust directly
purchased approximately 19,500 shares of Common Stock of Vestcom on the open
market for the aggregate purchase price of approximately $68,250. An itemized
breakdown of the daily transactions for such time period is more fully set forth
in Item 5 in this Schedule 13D below. The source of funds for the payment by
TimeTrust for such Common Stock was from its working capital. TimeTrust did not
purchase any of such Common Stock with borrowed funds.
On December 27, 1999, Chopra directly purchased approximately 10,000
shares of Common Stock of Vestcom on the open market for the aggregate purchase
price of approximately $33,125. The source of funds for the payment by Chopra
for such Common Stock was from his personal funds. Chopra did not purchase any
of such Common Stock with borrowed funds.
Item 4. Purpose of Transaction
- ------ ----------------------
The purchase by the Reporting Persons of the shares of Common Stock
referred to in Item 5 was for investment purposes. The Reporting Persons are
joining together in the filing of this statement since they may be deemed to be
a group within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934 ("Exchange Act").
The Reporting Persons, acting in combination, are seeking the
removal of the current board of directors of Vestcom and their replacement with
a new slate of directors. The Reporting Persons are also seeking changes in the
executive management of Vestcom, including the replacement of the existing Chief
Executive Officer and/or President of Vestcom with Chopra. Additionally, the
Reporting Persons are seeking to reverse the changes made to the By-laws of
Vestcom adopted by the Board of Directors of Vestcom on December 16, 1999 as
referenced in the Form 8-A12G filed with the Securities and Exchange Commission
on December 17, 1999. If negotiations with Vestcom to effect changes in the
Board, executive management and By-laws of the company fail, the Reporting
Persons plan to seek a special meeting of shareholders to vote on such issues.
One or more of the Reporting Persons have requested and received a shareholders
list from Vestcom. The purpose of all such changes is to improve the operating
results of Vestcom through changes in the various methods through which Vestcom
does business. Exhibit A is a form of report which, in the form attached hereto
or in substantially the same form, has been transmitted by one or more of the
Reporting Persons to nine other shareholders in Vestcom. Other than as described
above or in Exhibit A, the Reporting Persons have not formulated any further
specific plan or proposal regarding the possibility of seeking any further
changes in the executive management, Board, By-laws or operations of Vestcom,
and there can be no assurance that any such further plan or proposal will be
developed.
Page 6 of 19
<PAGE>
Subject to all applicable legal requirements and the factors
referred to below, the Reporting Persons presently intend to purchase from time
to time in the open market or privately negotiated transactions additional
shares of Common Stock. In determining whether to purchase additional shares of
Common Stock, the Reporting Persons intend to consider various factors,
including Vestcom's financial condition, business and prospects, other
developments concerning Vestcom, the reaction of Vestcom to the Reporting
Persons' ownership of shares of Common Stock, price levels of Vestcom Common
Stock, other business opportunities available to the Reporting Persons, and
other general economic, monetary and stock market conditions. In addition,
depending upon, among other things, the matters referred to above, the Reporting
Persons may determine to dispose of all or a portion of their shares of the
Common Stock.
Other than as indicated above, the Reporting Persons do not have any
present plans or proposals which relate to or would result in any of the
following (although the Reporting Persons reserve the right to develop such
plans or proposals): (i) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving Vestcom, or any of its
subsidiaries; (ii) a sale or transfer of a material amount of assets of Vestcom
or any of its subsidiaries; (iii) any material change in the present
capitalization or dividend policy of Vestcom; (iv) any other material change in
Vestcom's business or corporate structure; (v) any other material changes in
Vestcom's charter or bylaws or other actions which may impede the acquisition of
the control of Vestcom by any persons; (vi) causing a class of securities of
Vestcom to be delisted from a national securities exchange or to cease to be
authorized to be quoted on an inter-dealer quotation system of a registered
national securities association; (vii) a class of equity securities of Vestcom
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Exchange Act; or (viii) any actions similar to any of those enumerated
above.
Item 5. Interest in Securities of the Issuer
- ------ ------------------------------------
(a) R-Squared is the direct beneficial owner of 519,100 shares of
Common Stock, representing approximately 5.73% of the outstanding Common Stock
of Vestcom (based on the number of shares of Common Stock outstanding on
September 30, 1999). In addition, by virtue of its position as an 85.7%
shareholder in TimeTrust, R-Squared may be deemed to be an indirect beneficial
owner of 180,500 shares of Common Stock owned by TimeTrust, representing
approximately 1.99% of the outstanding Common Stock of Vestcom. Therefore,
R-Squared may be deemed to be the beneficial owner of 699,600 shares of Common
Stock of Vestcom representing approximately 7.72% of the outstanding Common
Stock of Vestcom. Chopra is the direct beneficial owner of approximately 10,000
shares of Common Stock, representing approximately .11% of the outstanding
Common Stock of Vestcom.
(b) R-Squared has the sole power to vote or to direct the vote and
the sole power to dispose of, or to direct the disposition of, the 519,100
shares of Common Stock directly owned by it. TimeTrust has the sole power to
vote or to direct the vote and the sole power to dispose of, or to direct the
disposition of, the 180,500 shares of Common Stock directly owned by it. Chopra
has the sole power to vote or to direct the vote and the sole power to dispose
of, or to direct the disposition of, the 10,000 shares of Common Stock directly
owned by him.
Page 7 of 19
<PAGE>
(c) From November 23, 1999, R-Squared has effected the following
purchases and sales of Vestcom Common Stock on the open market:
(1) On December 22, 1999, R-Squared purchased 1,000 shares
of Vestcom Common Stock at $3.625 per share.
(2) On December 16, 1999, R-Squared purchased 13,700
shares of Vestcom Common Stock at $3.75 per share.
(3) On December 15, 1999, R-Squared purchased 4,300 shares
of Vestcom Common Stock at $3.75 per share.
(4) On December 9, 1999, R-Squared purchased 5,200 shares
of Vestcom Common Stock at $3.50 per share.
(5) On December 8, 1999, R-Squared purchased 8,700 shares
of Vestcom Common Stock at $3.48 per share.
(6) On December 7, 1999, R-Squared purchased 2,500 shares
of Vestcom Common Stock at $3.25 per share.
(7) On December 2, 1999, R-Squared purchased 6,500 shares
of Vestcom Common Stock at $3.524 per share.
(8) On December 1, 1999, R-Squared purchased 9,900 shares
of Vestcom Common Stock at $3.375 per share.
(9) On November 29, 1999, R-Squared purchased 25,000
shares of Vestcom Common Stock at $3.50 per share.
(10) On November 23, 1999, R-Squared sold 1,000 shares of
Vestcom Common Stock at $3.219 per share.
From November 23, 1999, TimeTrust has effected the following
purchases of Vestcom Stock on the open market:
(11) On December 14, 1999, TimeTrust purchased 3,000
shares of Vestcom Common Stock at $3.625 per share.
(12) On December 1, 1999, TimeTrust purchased 15,500
shares of Vestcom Common Stock at $3.50 per share.
(13) On November 24, 1999, TimeTrust purchased 1,000
shares of Vestcom Common Stock at $3.125 per share.
Additionally, on December 27, 1999, Chopra purchased 10,000 shares
of Vestcom Common Stock at $3.3125 per share.
Page 8 of 19
<PAGE>
Item 6. Contracts, Arrangements, Understandings or Relationships with
- ------ -------------------------------------------------------------
Respect to Securities of the Issuer.
------------------------------------
None of the Reporting Persons (or other persons listed in Item 2 of
the Schedule 13D) have entered into any contracts, arrangements, understandings
or relationships (legal or otherwise) with such persons and any person with
respect to any securities of Vestcom, including but not limited to transfer or
voting of any of the securities, finder's fees, joint ventures, loan or option
arrangements, put or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies, naming the persons with whom such
contracts, arrangements, understandings or relationships have been entered into.
Item 7. Material to be Filed as Exhibits
- ------ --------------------------------
Exhibit A - Communication transmitted by one or more
Reporting Persons to nine other shareholders in Vestcom.
Page 9 of 19
<PAGE>
Signatures
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Date: December 29, 1999
R-SQUARED LIMITED
By: /s/ Morgan Piers ap Peter Stradling
___________________________________
Name: Morgan Piers ap Peter Stradling
Title: Director
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Date: December 29, 1999
TIMETRUST, INC.
By: /s/ Harish K. Chopra
___________________________
Name: Harish K. Chopra
Title: President
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Date: December 29, 1999
By: /s/ Harish K. Chopra
___________________________
Name: Harish K. Chopra
Page 10 of 19
<PAGE>
JOINT FILING AGREEMENT
In accordance with Rule 13D-1(f) under the Securities Exchange Act
of 1934, as amended, the persons named below agree to the joint filing on behalf
of each of them of a statement on Schedule 13D (including amendments thereto)
with respect to the common stock, no par value, of Vestcom International, Inc.
and further agree that this Joint Filing Agreement be included as an Exhibit to
such joint filings. In evidence thereof, the undersigned, being duly authorized,
hereby execute this Agreement this 29th day of December, 1999.
R-SQUARED LIMITED
By: /s/ Morgan Piers ap Peter Stradling
___________________________________
Name: Morgan Piers ap Peter Stradling
Title: Director
TIMETRUST, INC.
By: /s/ Harish K. Chopra
___________________________
Name: Harish K. Chopra
Title: President
By: /s/ Harish K. Chopra
___________________________
Name: Harish K. Chopra
Page 11 of 19
<PAGE>
EXHIBIT A
Confidential Vestcom International, Inc. [Date]
(Nasdaq: VESC)
Report on Vestcom International, Inc.
Vestcom International, Inc. has been mismanaged and the company's performance
has suffered. The responsibility of Vestcom's poor performance must lie with the
top management. This report was prepared using information available from the
SEC, NASDAQ, other government resources, as well as our interviews with present
and past management of Vestcom.
This report is divided into two major sections. The first section illustrates
the company's factual financial data and qualitative data. The second section of
the report details my plan and my commitment. This section also explains why I
am drawn to Vestcom and how I view the under capitalized strengths of the
company.
Section I
Financial Data
- --------------
The performance of the company clearly reveals itself in the Consolidated
Statements of Operations included in the Quarterly Reports published by Vestcom.
A review of these reports demonstrates a steadily declining operating income
trend which peaked at $2,428,600 in Q4 1998 and resulted in quarterly operating
income amounts of $2,269,100, $643,100* and -$988,000* in the fiscal quarters Q1
1999, Q2 1999 and Q3 1999, respectively. A closer look at the elements that
resulted in this operating performance will clearly demonstrate what happened.
*(excluding restructuring charge)
Vestcom Closing Stock Value Per Share (By Month)
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Close
-----
Nov-99 $ 3.375
Oct-99 3.00
Sep-99 2.625
Aug-99 3.3125
Jul-99 4.00
Jun-99 3.50
May-99 5.875
Apr-99 6.00
Mar-99 4.875
Feb-99 5.625
Jan-99 6.625
Dec-98 9.00
Nov-98 7.375
Oct-98 7.50
Sep-98 9.25
Aug-98 6.0625
Jul-98 10.375
Jun-98 9.25
May-98 9.8125
Apr-98 11.25
Mar-98 10.4375
Feb-98 10.00
Jan-98 6.50
Dec-97 22.375
Nov-97 20.25
Oct-97 18.125
Sep-97 19.125
Aug-97 13.00 (open)
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1
Page 12 of 19
<PAGE>
Looking at a number of important aspects of this company, our primary
perspective is from the shareholder's point of view. Vestcom's stock performance
has been terrible. The per share price has ranged from an IPO price of $13 per
share to a high of $22 5/8 per share to its present value of $3 3/32 per share.
This stock has almost no following, and the daily trade volume is minimal.
Examining the company's poor financial performance, the four major areas of
scrutiny are:
1. Revenue Growth
2. Cost of Revenue
3. Selling, General, and Administration Expense
4. Interest Expense
Revenue Growth
(In $1,000's)
- --------------------------------------------------------------------------------
Q4 1998 Q1 1999 Q2 1999 Q3 1999
--------- --------- --------- ---------
Revenues $30,311.3 $31,923.0 $31,393.5 $31,786.4
- --------------------------------------------------------------------------------
We can clearly see that revenues have been basically flat for the last year. The
minor increase between Q4 1998 and Q1 1999 was the effect of the last
acquisition. Contrary to what Mr. Keating has been saying repeatedly, revenue
growth is not occurring. These statements only add to Mr. Keating's lack of
credibility with stockholders and the investment community. Further, if one
looked back at the revenues of the original seven founding companies prior to
the IPO, they were experiencing an annual compounded revenue growth rate of
approximately 12%. It appears that the present top management has managed those
companies into an effective annual revenue growth rate of 0%.
Cost of Revenue
(In $1,000's)
- --------------------------------------------------------------------------------
Q4 1998 Q1 1999 Q2 1999 Q3 1999
--------- --------- --------- ---------
Cost of Revenues 19,014.4 20,473.0 21,120.0 22,393.6
- --------------------------------------------------------------------------------
While sales were basically flat, cost of revenues have increased significantly
each quarter over the past four quarters to an incredible 70.5% in Q3 1999. If
one compares the cost of revenues for the seven founding companies, including
the public company overhead, the cost of revenues (in December 1997) was 61.5%.
If the 9% increase in cost of revenues (70.5% - 61.5%) can be avoided, the
company will add approximately $11,300,000 to operating income ($125.4 M x 9%)
over the next year. Imagine how useful this cash could be right now. If we
simply retained these funds it would add $.77 to earnings per share, which would
produce approximately an additional $15.40 to the market value of each share.
2
Page 13 of 19
<PAGE>
SGA Expenses
(In $1,000's)
- --------------------------------------------------------------------------------
Q4 1998 Q1 1999 Q2 1999 Q3 1999
--------- --------- --------- ---------
SGA 8,868.3 9,180.9 9,630.4 10,381.7
- --------------------------------------------------------------------------------
During this same four-quarter period of little or no sales growth, selling,
general and administrative expenses continuously grew each quarter from 29.3% in
Q4 1998 to 32.7% in Q3 1999. It is interesting to note that since December 1997,
SGA as a percent of sales (29.5%) was fairly consistent even though revenues
were growing. Apparently, the top management saw fit to significantly add to the
overhead during the same period that sales growth was stagnating. If the company
could have maintained SGA expenses at 29.5%, it would have added approximately
$4,000,000 to operating income, and following the same logic used above, added
$2,400,000 to the bottom line and $5.35 to the market value per share.
Interest Expenses
- --------------------------------------------------------------------------------
Q4 1998 Q1 1999 Q2 1999 Q3 1999
--------- --------- --------- ---------
Interest Expenses $250,000* $367,022 $459,748 $773,000
- --------------------------------------------------------------------------------
* Estimated
The top management has burdened the company with a huge debt obligation at a
time when interest rates have reached their highest level in years, and seem to
be heading higher. At the current level of expenditure ($773,000 in Q3 1999) the
company will be paying approximately $3,100,000 per year. We must deal with this
heavy burden of debt before interest rates rise and cause a more severe cash
problem.
The table below depicts the Quarterly Statements of Operations for the company
for the past four quarters:
(In $1,000's)
- --------------------------------------------------------------------------------
Q4 1998 Q1 1999 Q2 1999 Q3 1999
--------- --------- --------- ---------
Revenues $30,311.3 $31,923.0 $31,393.5 $31,786.4
Cost of Revenues 19,014.4 20,473.0 21,120.0 22,393.6
--------- --------- --------- ---------
Gross Profit 11,296.9 11,450.0 10,273.5 9,392.8
SGA 8,868.3 9,180.9 9,630.4 10,381.7
--------- --------- --------- ---------
Operating Income $2,428.6 $2,269.1 $643.1* -$988.9*
- --------------------------------------------------------------------------------
* Income from operations before restructuring charges of $3,987,880 in Q2 1999
and $1,930,144 in Q3 1999.
3
Page 14 of 19
<PAGE>
Qualitative Data
- ----------------
The following statements are indicative of the poor performance of the company
under the control of top management. I have had discussions with numerous senior
managers, both previously employed as well as currently employed at Vestcom. The
accuracy of these statements is verified by the consistency of the comments made
to me by the senior managers.
Inability to execute strategy: The present top management is not capable of
improving the shareholder value of Vestcom. The original strategy is still sound
and the industry is viable with opportunity for growth in the foreseeable
future. Top management, however, has been unable to execute that strategy and
grow the company. In review of the most recent 10Q, it is apparent the company
is not turning around and instead seems to be spiraling downward.
Poor communication/Micromanagement: Instead of properly communicating decisions
and then delegating responsibility and authority to localized management, top
management insists on being involved with most decisions that should be made at
the local management level. Within the company there is a strong feeling of
alienation between local and top management as a result of poor communication
and micromanagement.
Poor decisions regarding facilities: There has been an excessive amount of money
spent on infrastructure. Many senior managers believe they will not be
profitable because of the burden of corporate overhead, which includes new
larger facilities which are currently underutilized. These infrastructure
decisions are being made without any real focus on sales or marketing.
Human Resources: The "revolving door" perception of new hires is the result of
ineffective hiring practices. In addition, there is a strong feeling that there
is a poor sales compensation program. It is also believed that much of the
talent that came with the founding companies has been eliminated.
Poor Strategy: The strategic decisions made by top management can have massive
impact on any company and its performance. Poor strategic decisions in Vestcom
cost the company over $18,000,000 a year. This amount is comprised of the impact
from $11.3M from cost of revenue, $4M from SGA, and $3.1M from interest.
Poor Leadership: There is a strong sentiment in the company that top management:
Lacks clear cut strategic vision;
Lacks the ability to communicate the vision and achieve buy-in;
Lacks the ability to motivate management to implement the vision.
Management thinks they know best, even though they don't. There is a strong
feeling that management is good at losing key talent that came with the founding
companies.
Section II
Let's be clear about this. I am presenting a way to transform Vestcom from the
under-performing company I see today into a star performer. This report was
prepared without the benefit of hard data other than what could be gleaned from
public record. Before any action is taken we would take the time to visit with
all the regional managers, validate my ideas, develop a new plan, and/or refine
the company's existing plan, and only then execute it.
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My Plan
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Local empowerment: The original concept of Vestcom International, Inc. "...to
operate on a decentralized basis with each acquired company's local management
continuing to exercise responsibility for customer relationships and day-to-day
operating decisions" is still a valid business model. Somewhere in the company's
short history this model was invalidated and the company began to centralize
decision making by consolidating operations in larger regional facilities. Too
many decisions are required to be processed through the corporate headquarters
in West Caldwell, N.J. We intend to go back to empowering local management to
take responsibility for marketing, customer service and operations in their
local areas.
National Sales Strategy and follow-through: On the other hand, for Vestcom to
reach its highest potential it must aspire to be a diversified provider of
critical document services to large nationally based customers. A strategy must
be in place to offer our national customers responsive, high quality service
that is coordinated on a national scale. A corporate team will be established to
service national accounts with the authority to coordinate performance, delivery
and customer service from our decentralized operating divisions.
Corporate Centralization: Essentially, Vestcom is a locally based business with
strong personal ties, developed over the years, between our local management and
our customers. However, there are certain functions that should be centralized
to take advantage of economies of scale, control and top management scrutiny.
Activities such as purchasing, finance and research and development should be
centralized, most likely in or near the corporate headquarters. National sales
done on a vertical market basis may prove to be a valuable component to success.
Street Knowledge: Stockholder value is not solely based on earnings but also on
management's credibility with the investment community to execute their plan.
For the company stock to succeed, it is imperative that:
1. Management must be successful;
2. Analysts must follow the stock; and
3. Top management feed information to the public continuously and timely so
the company will garner its fair share of the Wall Street spotlight.
Technology: It is clear that the first priority of new management is to stop the
erosion of vital cash flow and our valued management talent. Once this is
accomplished, we would aggressively advance the company's current state of
technology, which appears to us to be seriously lacking. My strong belief is
that the business of Vestcom would benefit enormously from using the Internet
and especially from a concept we have been developing that would take advantage
of Vestcom's strong position in critical document management and open up a new
line of service to end-users or retail customers. This Internet concept would be
developed on a priority basis once the current crisis has been overcome.
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Why Vestcom
- -----------
Before I discuss Vestcom as a company, let me share my thoughts with you on the
future of the statement rendering business. I am very committed to and excited
about the Internet application of the statement rendering business. Unlike the
current EBPP application that is well on its way to development, most statement
rendering companies, including Vestcom, are leaving much on the table as they
think about how rendering fits into EBPP. Presently, consumers are notified by
email that a statement is available. They are required to go to the EBPP web
site to access their statements for review and payment. Consumers will not
accept this inconvenience. They will demand that their statements go to a
centralized site, like their current mailbox. Requiring consumers to go to
multiple billing sites is not going to be an option.
Someone will, and sooner rather than later, offer an Internet statement
rendering solution that allows consumers to receive their statements in one
location. The companies that are rendering paper statements already will have
the advantage of capturing these Internet customers because they are providing a
paper solution for this problem. They are in a perfect position to be the
ultimate Internet solution provider to these same customers. However, they must
understand this strategy and be aggressive in pursuing it. If one is able to get
there first, and control a very large paper statement rendering business, then
the potential rewards are enormous.
Vestcom is a choice company. Most of its business is repetitive. Compared to its
competitors, it is clean in that it is more purely a statement rendering
business. Vestcom has an excellent customer list. It has recently added new
printing equipment (even though a very poor near term strategic decision).
Vestcom's financial problems are not beyond repair, because they are the result
of bad decisions by current top management, which can be corrected. Once back on
track, Vestcom provides a great vehicle to grow in mass, and be a leader in a
revolutionary methodology for rendering statement images using the Internet.
Vestcom is a choice company in growing shareholder value, because it is beaten
up so badly. If the mistakes that are being made stop, then the stock price has
no place to go but up. There is considerable growth potential in the current
customer base. The original strategy is a good one; cross selling, moving the
services up closer to the data.
I am betting on Vestcom.
My Commitment to the Shareholders
- ---------------------------------
Leadership: My commitment is to success. I believe very solidly in my ability to
know what makes people strong and effective. One of my strengths is motivating
others. I am a hands-on manager who trusts people and allows them to do their
best. I have a very keen need to do the best for our customers and everyone
inside the company will understand that need.
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By default, I demand of myself and others to use intellect first, instead of
throwing cash at problems. I manage cash flow and spending very closely. I
believe in taking the necessary pain in hiring the right people, giving them all
the tools to succeed, defining their goals very clearly, and then letting them
run on their own to take the necessary action to manage their responsibilities.
It is the only way to build an effective and reliable management team. If there
are problems, I do not delay implementing the necessary fixes.
For a summary of my professional experience see Attachment A.
Cash: I can supply upfront cash to the company. This cash infusion could be
inserted directly into the company through a new stock issue or some sort of
convertible debt vehicle. Though an additional reserve of cash will not alone
solve the current problems of Vestcom, it can facilitate in the containment
process and most of all give us time to solve problems before matters
deteriorate further.
Affiliations: I have affiliations with other large public companies, which can
be used as client resources. Presently, I serve as Chairman of the Board of an
important subsidiary of First American Financial Corporation and have direct
personal relationships with top executives within the paper-intense title
insurance industry.
Shareholders: My commitment to you is to change how all shareholders perceive
Vestcom. We can divide the shareholders in three groups:
Group I. Inside shareholders, excluding Joel Cartun, hold about 32.5%
of the shares. From this presentation I hope it is clear how
this group evaluates the top management and the performance of
the stock.
Group II. The institutional investors hold about 43.3% of the shares.
Based on my conversations, it is clear that they are very
unhappy with the performance of the company and the stock
price.
Group III. The remaining shareholders, the retail group, hold the
remaining shares. Some of their opinions are clear from the
most recent public message board postings on Yahoo.
We have taken a substantial stock position in Vestcom and presently are the
fourth largest shareholder. I believe this speaks volumes to our commitment
since we are aligning our future financial profit with the shareholders of
Vestcom. The effort it will take to turn around the performance of Vestcom is
substantial and not without significant risk. Under the current management the
risk is increasing as time passes.
As shareholders, we have substantial wealth tied up in Vestcom. My experience
tells me we can turn this company around.
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Attachment A
Harish K. Chopra
Professional Experience
Mr. Chopra's 23-year business career began with satellite image research and
development at NASA's Jet Propulsion Laboratory. He has held senior management
and technical management positions with Digital Equipment Corporation,
Volt-Delta Resources, and 3M Corporation. Mr. Chopra received a Bachelor of
Science Degree in Computer Science from California State University, Los
Angeles.
Mr. Chopra's successful experience as President/CEO extends through numerous
types and sizes of companies. Two companies he founded and managed have been
sold. Recently he sold DataTree Corporation to First American Financial Corp., a
public company on the NYSE with revenues exceeding $3 billion a year. Currently,
he serves as Chairman of the Board of DataTree.
Similar to Vestcom International, Inc., DataTree provides business critical
documents, but in an electronic image format. DataTree also has international
operations along with many regional operations throughout the United States.
These operational centers use expensive imaging equipment that operates 24 hours
a day seven days a week. Unlike Vestcom, Data Tree's local management is
empowered to make decisions in their respective areas without the unnecessary
influence of executive management. DataTree has centralized decision-making in
national sales, technology, and finance. DataTree's 10-year financial history
shows a progression of yearly performance in which each year has exceeded the
previous year both in top line revenue and bottom line earnings. DataTree is a
success story.
Mr. Chopra's extensive experience includes the workout management of
Smith/Norris Corporation, a software company. In this situation, he was asked to
participate as a CEO in order to maximize shareholder value.
Other experiences include his involvement as a venture capitalist. He typically
invests through a syndicate with other major venture firms. Mr. Chopra's
investments encompass diverse areas such as software, imaging, leisure-movies
and manufacturing. The leisure-movie company, Mr. Chopra as Executive Producer,
will show the feature film "Eastside" in December 1999 and another company is
now preparing for its Initial Public Offering.
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