AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION STATEMENT 333-46541
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 2750 22-3561164
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
629 GROVE STREET
JERSEY CITY, NEW JERSEY 07310
(201) 217-1990
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MR. MICHAEL R. CUNNINGHAM
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
629 GROVE STREET
JERSEY CITY, NEW JERSEY 07310
(201) 217-1990
(Name, Address Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
----------------
Copies of Communications to:
JEFFREY A. BAUMEL, ESQ. JEFFREY S. LOWENTHAL, ESQ.
LAWRENCE A. GOLDMAN, ESQ. STROOCK & STROOCK & LAVAN LLP
GIBBONS, DEL DEO, DOLAN, 180 MAIDEN LANE
GRIFFINGER & VECCHIONE, P.C. NEW YORK, NEW YORK 10038
ONE RIVERFRONT PLAZA (212) 806-5400
NEWARK, NEW JERSEY 07102
(973) 596-4500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 17, 1998
PROSPECTUS
2,100,000 SHARES
[LOGO] CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
COMMON STOCK
Cunningham Graphics International, Inc. (the "Company" or "CGII") is hereby
offering (the "Offering") 2,100,000 shares of the Company's common stock, no par
value per share (the "Common Stock"). Prior to the Offering, there has been no
public market for the Common Stock. It is anticipated that the initial public
offering price will be between $11.00 and $13.00 per share. Approximately $5.8
million, or 25.7%, of the estimated net proceeds of the Offering will be
received by, or applied for the benefit of, the existing stockholders of the
Company, substantially all of whom are executive officers and/or directors of
the Company. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. It is expected that
approximately 300,000 shares will be offered outside of the United States.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market System under the symbol "CGII." At the request of the Company,
up to 200,000 shares have been reserved for sale in the Offering to certain
individuals, including directors and employees of the Company, members of their
families, and other persons having business relationships with the Company. See
"Underwriting." Following the Offering, affiliates of the Company will continue
to control approximately 56.5% of the outstanding Common Stock, which will
enable them to control all matters requiring a stockholder vote, including the
election of directors.
---------------
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share . $ $ $
Total(3) . $ $ $
</TABLE>
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $800,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 315,000 additional shares of Common Stock at the price to the public
less underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
---------------
The shares of Common Stock are being offered by the Underwriters named
herein, subject to prior sale, when, as and if accepted by it and subject to
certain prior conditions including the right of the Underwriters to reject
orders in whole or in part. It is expected that delivery of such shares will be
made in New York, New York, on or about , 1998.
SCHRODER & CO. INC. PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of securities in any
State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
<PAGE>
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Prospective investors
should consider carefully the information set forth under "Risk Factors."
Immediately prior to the Offering, Cunningham Graphics, Inc. (the "Predecessor")
will be reorganized (the "Reorganization") such that the stockholders of the
Predecessor will contribute all of the outstanding shares of common stock of the
Predecessor to CGII in exchange for shares of Common Stock and promissory notes
(the "Exchange Notes") in the aggregate principal amount of $2.4 million
(assuming an initial public offering price of $12.00 per share). Concurrently
with the Reorganization, CGII will assume the Predecessor's obligations with
respect to undistributed subchapter S corporation taxable income through the
date of the Reorganization, estimated at $2.2 million, and will issue promissory
notes in such amount to evidence such obligations (the "Distribution Notes" and,
together with the Exchange Notes, the "Reorganization Notes"). See "The Company
- -- The Reorganization." In addition, the Company will acquire (the
"Acquisition"), in exchange for consideration consisting of cash and shares of
Common Stock, all of the issued share capital of Roda Limited ("Roda"), an
English corporation. Unless otherwise indicated or the context otherwise
requires, all references herein to the "Company" mean the Predecessor with
respect to periods prior to the Offering or CGII and its subsidiaries (including
Roda) with respect to periods after the Offering. In addition, unless otherwise
indicated, (i) all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and (ii) the exchange rate used for
conversion from Pounds Sterling to United States Dollars is $1.68 (the exchange
rate in effect on March 27, 1998).
THE COMPANY
Cunningham Graphics International, Inc. provides a wide range of graphic
communications services to financial institutions and corporations, focusing on
producing and distributing time-sensitive analytical research and marketing
materials and on providing on-demand printing services. The Company, which
commenced operations in 1989, currently operates in select international markets
through its facilities in the United States and through alliances with Roda
Limited, its strategic partner in the United Kingdom, and with its strategic
partner in Hong Kong. The Company is a major producer of financial research
reports, having produced over 2 billion pages during 1997. The Company provides
services, on a non-exclusive basis, to 13 of 20 leading investment banking firms
in the United States as ranked by Institutional Investor in October 1997 based
on their capabilities in providing research and analysis.
The Company estimates that in 1997 the commercial printing and document
production market accounted for more than $75 billion in revenue in the United
States, based upon information from certain trade associations and other
industry sources. The printing and document management business in the United
States is highly fragmented, with approximately 40,000 companies presently in
operation, only approximately 5% of which are estimated to have annual net sales
in excess of $5 million. The Company believes that the commercial printing and
document production business is similarly fragmented in the United Kingdom and
in certain other markets. The printing and document management industry has
evolved significantly over the last several years, driven in large part by rapid
advances in publishing and electronic information technology. The Company
believes that the growth of the printing and document production industry has
been due to various factors, including (i) the increasing volume, complexity and
variety of documents and printed materials produced by businesses worldwide,
(ii) the increasing demand by businesses for the international dissemination of
time-sensitive information, and (iii) the growing trend of businesses to
outsource their in-house printing operations (e.g., print shops, copy centers
and document management facilities) to document professionals equipped to
provide these services more efficiently and cost-effectively.
Graphic communications services provided by the Company include digital
communications, document management, offset printing, digital printing, data
output, bindery, fulfillment services, mailing services and outsource services.
The Company prints brochures, booklets, confirmations of trade, client
statements and adhesive books to meet the daily, weekly and monthly needs of its
customers. To facilitate the rapid distribution of documents globally, the
Company has designed and implemented the World Research LinkTM, an array of
electronic data communication networks linking each of the Company's facilities
with its strategic operating
3
<PAGE>
partners and major customers. To date, the Company has established extensive
non-exclusive client relationships with leading companies in the financial
services, insurance and publishing industries, providing certain of the printing
and graphic communications needs of Credit Suisse First Boston Corporation,
Deutsche Morgan Grenfell, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill
Lynch & Co., Inc., The Prudential Insurance Company of America, Empire Blue
Cross/Blue Shield, New York Life Insurance Company, and The McGraw-Hill Company,
among others.
The Company has experienced significant growth, with net sales growing from
$17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7
million pro forma for the Acquisition) for the year ended December 31, 1997 and
income from operations growing over the same period from $528,000 to $2.4
million ($3.2 million pro forma for the Acquisition), representing compounded
annual growth rates of 43.6% and 113.2%, respectively. A significant portion of
this growth is attributable to the assimilation of certain in-house printing
operations of Goldman, Sachs & Co. and Empire Blue Cross/Blue Shield. The
Company intends to continue its growth strategy by (i) pursuing acquisitions and
establishing strategic alliances to expand and strengthen the Company's business
reach in target markets worldwide, (ii) pursuing outsourcing opportunities
through the assimilation of in-house printing operations of third-party
businesses, (iii) expanding the scope and volume of services offered, (iv)
actively cross-selling existing or newly-added products or services to its
customers worldwide, and (v) improving the operating efficiency of its existing
operations. Pursuant to its growth strategy, concurrently with the closing of
the Offering, the Company will acquire its London-based strategic partner Roda.
Roda provides printing and document output and management services to financial
services companies, primarily in the United Kingdom and European markets.
The Company's senior officers have extensive experience in the graphic
communications services industry, having been employed by the Company for an
average of approximately 6 years and having an average of approximately 19 years
of industry experience. The Company's Chairman, President and Chief Executive
Officer, Michael R. Cunningham, founded the Company and has been actively
involved in the industry for over 15 years. The Company believes that, based on
the proven track record of its experienced management team and the wide range of
services it provides, it is well-positioned to capitalize on the increasing
outsourcing trend as well as on consolidation opportunities in the industry.
THE OFFERING
Common Stock offered....... 2,100,000 shares
Common Stock to be outstanding
after the Offering........ 4,865,000 shares(1)(2)
Use of proceeds............ Of the total net proceeds from the Offering,
approximately $6.1 million will be used to
fund the cash portion of the purchase price
for Roda, $1.4 million will be used to repay
certain indebtedness of Roda to its
stockholders (the "Roda Seller Debt"), $4.6
million (assuming an initial public offering
price of $12.00 per share) will be used to
repay the Reorganization Notes, representing a
portion of the total consideration in the
Reorganization to stockholders of the
Predecessor and undistributed S corporation
taxable income upon which such stockholders
have already paid taxes, and up to $2.2
million will be used to repay bank
indebtedness, including $1.2 million which was
borrowed in April 1998 to partially fund a
$1.4 million distribution to the stockholders
of the Predecessor (who are current
stockholders of the Company) for the payment
of taxes on account of undistributed S
corporation taxable income. The remaining net
proceeds will be used for working capital and
for general corporate purposes, which may
include capital expenditures, marketing
activities and future strategic acquisitions.
Proposed Nasdaq symbol..... CGII
- ----------
(1) Includes shares of Common Stock to be issued in connection with the
Reorganization and the Acquisition.
(2) Does not include 600,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans, under which options to
purchase 290,300 shares have been granted at an exercise price equal to the
initial public offering price, subject to consummation of the Offering. See
"Management -- Stock Option Plans."
4
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data is qualified in its entirety by the
more detailed information in the financial statements of the Predecessor and the
related notes thereto, the consolidated financial statements of Roda and the
related notes thereto and the pro forma financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996 1997
---------- ---------- ---------- -----------------------------------------
ACTUAL PRO FORMA(1)
-------------------- --------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ........................................ $15,927 $17,327 $23,193 $ 35,744 $ 42,705
Operating expenses:
Costs of production ............................. 12,085 12,860 17,616 26,894 31,187
Selling, general and administrative ............. 3,151 3,441 4,270 5,794 7,212
Depreciation and amortization ................... 448 498 563 694 1,114
------- ------- ------- ------------ ------------
15,684 16,799 22,449 33,382 39,513
------- ------- ------- ------------ ------------
Income from operations ........................... 243 528 744 2,362 3,192
Interest expense ................................ (173) (257) (234) (250) (595)
Other income .................................... -- 2 48 35 121
------- ------- ------- ------------ ------------
Income before income taxes ....................... 70 273 558 2,147 2,718
Provision for income taxes ...................... 7 6 56 129 394
------- ------- ------- ------------ ------------
Net income ....................................... $ 63 $ 267 $ 502 $ 2,018 $ 2,324
======= ======= ======= ============ ============
PRO FORMA DATA (UNAUDITED):
Income before income taxes ....................... $ 2,147 $ 2,718
Pro forma provision for income taxes ............ 880 (2) 1,142 (3)
------------ ------------
Pro forma net income ............................. $ 1,267 $ 1,576
============ ============
Pro forma earnings per share ..................... $ 0.43 $ 0.43
============ ============
Pro forma shares outstanding ..................... 2,978,594 (4) 3,657,552 (5)
============ ============
Pro forma as adjusted net income ................. $ 1,674 (6)
============
Pro forma as adjusted earnings per share ......... $ 0.40
============
Pro forma as adjusted shares outstanding ......... 4,189,469 (7)
============
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(8)
--------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................................... $ 67 $ 8,447
Working capital ......................................................... 728 8,703
Total assets ............................................................ 10,938 33,367
Long-term debt and capitalized lease obligations, net of current portion 1,517 2,179
Stockholders' equity .................................................... 3,151 21,765
</TABLE>
(See footnotes on following page)
5
<PAGE>
(footnotes from previous page)
(1) Gives effect to the Reorganization and the Acquisition as if they each had
occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial
Statements.
(2) Reflects an increase of $751,000 for income taxes computed utilizing an
overall effective tax rate of 41% as if the Company had been a C
corporation since January 1, 1997.
(3) Reflects a pro forma provision for income taxes for the Company and Roda on
a combined basis computed utilizing effective tax rates of 41% for United
States income taxes and 31% for United Kingdom income taxes.
(4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be
issued in the Reorganization, and (iii) 383,333 shares, representing the
number of shares having a value (based upon an assumed initial public
offering price of $12.00 per share) corresponding to the principal amount
of the Reorganization Notes.
(5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739
shares issuable in connection with the Acquisition, and (iii) 509,219
shares, representing the number of shares having a value (based upon an
assumed initial public offering price of $12.00 per share) corresponding to
the $6.1 million liability for cash payable to the Roda stockholders in
connection with the Acquisition.
(6) Reflects the elimination of interest expense of $142,000 ($98,000 net of
taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS
850,000) to be repaid through the application of a portion of the net
proceeds from the Offering as if such repayment had occurred on January 1,
1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds."
(7) Reflects (i) the shares described in footnote (5) above and (ii) 531,917 of
the additional shares to be sold in the Offering, representing the portion
of the shares being sold in the Offering in order to generate sufficient
proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda
Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company
assumed to have been outstanding on December 31, 1997 and (c) pay
underwriting discounts and expenses of the entire Offering. See the
Unaudited Pro Forma Combined Financial Statements, "The Company -- The
Reorganization" and "Use of Proceeds."
(8) Gives effect to the following transactions as if they had occurred on
December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii)
the sale of 2,100,000 shares of Common Stock offered hereby and the use of
the net proceeds therefrom, including: (a) the repayment of the
Reorganization Notes, (b) the satisfaction of the liability for the cash
payable to the Roda stockholders of $6.1 million (assuming an initial
public offering price of $12.00 per share), (c) the repayment of the Roda
Seller Debt, and (d) the repayment of $2.4 million of bank indebtedness
assumed to have been outstanding on that date. See the Unaudited Pro Forma
Combined Financial Statements and "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock being offered by this
Prospectus involves a high degree of risk. In addition, this Prospectus contains
forward-looking statements which involve risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Industry Background," "Business -- Business Strategy," Business -- Graphic
Communications Services," "Business -- Printing Operations," "Business --
International Network," "Business -- Sales and Marketing," and "Business --
Competition," as well as in this Prospectus generally. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. Accordingly,
prospective investors should consider carefully the following risk factors, in
addition to the other information concerning the Company and its business
contained in this Prospectus, before purchasing the shares of Common Stock
offered hereby.
RELIANCE ON LIMITED NUMBER OF CUSTOMERS
The Company's five largest customers accounted for approximately 65% of its
net sales for the year ended December 31, 1997. The Company's largest customer,
Goldman, Sachs & Co., has contracted with the Company for the Company to provide
certain print-related products and services through December 30, 1999. Goldman,
Sachs & Co. accounted for approximately 24% of the Company's net sales during
1997. Although the Company has had long-term relationships with Goldman, Sachs &
Co. and its other significant customers, the Company's customers generally may
terminate their relationships with the Company upon minimal, if any, advance
notice and there can be no assurance that these relationships will continue. The
termination of the relationships with any one or more significant customers
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there has been a trend toward
consolidation in the financial services industry and a merger or acquisition
involving any of the Company's principal customers resulting in the termination
of such a relationship could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."
DEPENDENCE ON FINANCIAL SERVICES INDUSTRY
To date, the Company has focused the marketing of its services primarily on
companies within the financial services industry and the Company expects to
continue this focus. As a result, the Company's results of operations will be
particularly sensitive to fluctuations in the economy or financial markets
affecting this industry. Any event adversely affecting the financial services
industry could adversely affect the Company. The Company's success in increasing
its revenues will also depend, in part, on its ability to attract new business
from customers outside the financial services industry. No assurance can be
given that the Company will be successful in attracting new customers in
different industries.
INTEGRATION OF RODA
Following the Acquisition, the success of the Company will depend, in part,
on the Company's ability to centralize accounting and administrative systems and
eliminate unnecessary duplication of functions. Although Roda's business is
similar to a portion of the businesses conducted by the Company's Predecessor,
Roda operates in a foreign market that is distinct from the Predecessor's
market. There are differences in technologies, cultural and business customs,
applicable laws, operating and labor matters and currencies that will place
substantial strains upon the Company's ability to integrate the business of Roda
into its existing business. In addition, management of the Company has no
experience in operating facilities that are outside the United States or
geographically separated. No assurance can be given that the Company's senior
management group will be able to integrate and manage effectively the newly
acquired operations of Roda. Roda's printing operations in London have, to date,
been
7
<PAGE>
conducted independently of the Company, as a separate business. Consequently,
there can be no assurance that operating results of the Company will match or
exceed the combined individual operating results achieved by the Predecessor and
Roda prior to the Acquisition.
RISKS RELATED TO THE COMPANY'S EXPANSION STRATEGY
The Company intends to seek to expand its operations through the
acquisition of additional businesses which provide commercial, digital and
time-sensitive printing services and through the expansion of its outsourcing
business by assimilating additional customers' document management operations.
There can be no assurance that the Company will be able to identify,
successfully integrate or profitably manage any such businesses or operations.
The proposed expansion may involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, inability to retain key personnel, risks associated with
unanticipated events and the financial statement effect of potential impairment
of acquired intangible assets, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, if competition for acquisition candidates or assumed operations were
to increase, the cost of acquiring businesses or assuming customers' operations
could increase materially. The inability of the Company to implement and manage
its expansion strategy successfully may have a material adverse effect on the
business and future prospects of the Company. See "Business -- Business
Strategy."
MANAGEMENT OF GROWTH
The Company is continuing to experience significant growth, which has
placed, and could continue to place, a strain on the Company's managerial and
other resources. From December 1995 through January 1998, the number of the
Company's employees increased from 186 to 370 and further increases are
anticipated during 1998. The Company's future performance and profitability will
depend, in large part, on its ability to manage its growth, particularly with
respect to a workforce that is geographically dispersed, while continuing to
integrate the operations of additional companies and to expand its current
business. In order to manage growth successfully, the Company will be required
to continue to improve its operational, financial and other internal systems and
the training, motivation and management of its employees. If the Company is
unable to manage growth effectively, the Company's business, financial condition
and results of operations could be materially adversely affected.
NEED FOR ADDITIONAL FINANCING
The Company will need additional funds to implement its acquisition and
internal growth strategies. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through additional debt or equity financings. Moreover, the Company may
seek to use its Common Stock for all or a portion of the consideration to be
paid in future acquisitions, the issuance of which may result in dilution to
investors in the Offering. The extent to which the Company will be able or
willing to use its Common Stock for this purpose will depend on its market value
from time to time and the willingness of potential acquisition candidates to
accept Common Stock as part of the consideration for the sale of their
businesses. If the Company is unable to use its Common Stock to make future
acquisitions, the Company may be required to use more of its cash resources, if
available, to initiate and maintain its acquisition program. There can be no
assurance that the Company will be able to obtain additional financing as
needed. As a result, the Company might be unable to implement its acquisition
strategy, which would have a material adverse effect on the future prospects of
the Company. See "Business -- Business Strategy."
The Company has a $2.0 million revolving line of credit from Summit Bank
under which $1.2 million was outstanding as of April 16, 1998. The Company
intends to use the line of credit for working capital, equipment purchases and
other general corporate purposes. The Company's line of credit expires on May
30, 1998. Although the Company intends to seek to renew
8
<PAGE>
and, if possible, increase the line, no assurance can be given that the line of
credit will be renewed or increased or that it will be renewed or increased on
terms that are acceptable to the Company. In addition, there can be no assurance
that this or any future line of credit will be sufficient for the Company's
needs or that the Company will be able to obtain other financing on terms that
are acceptable to the Company. See "Business -- Business Strategy."
RISK OF INTERNATIONAL OPERATIONS
On a pro forma basis after giving effect to the Acquisition, sales to
customers outside the United States would have accounted for 16% of the
Company's net sales in the year ended December 31, 1997, and the Company
anticipates that foreign sales will account for a significant portion of net
sales in the foreseeable future. Risks inherent in the Company's international
business activities include the fluctuation of currency exchange rates, various
and changing regulatory requirements, increased sales and marketing expenses,
political and economic instability, difficulty in staffing and managing foreign
operations, potentially adverse taxes, complex foreign laws and treaties and the
possibility of difficulty in accounts receivable collections. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON TECHNOLOGY; RISK OF TECHNOLOGICAL OBSOLESCENCE
The success of the Company will be highly dependent on its ability to
acquire and utilize competitive computer output and document production
technologies that are not readily available on a cost-effective basis to the
Company's existing and potential customers, thereby creating the incentive for
such customers to outsource various services to the Company. Increasing use of
the Internet and other electronic means of delivering information which has
traditionally been delivered in paper form could substantially erode the
Company's core business of printing financial research reports. There can be no
assurance that one or more non-paper-based technologies (whether now existing or
developed in the future) will not reduce or supplant the physical delivery of
documents as a preferred medium for the Company's customers, which could in turn
adversely affect the Company's business. The emergence of services by
competitors of the Company incorporating new technologies could render some or
all of the Company's services unmarketable or obsolete. There can be no
assurance that the Company will be able to obtain the rights to use any such new
technologies, that it will be able to implement effectively such new
technologies on a cost-effective basis or that new technologies will not render
noncompetitive or obsolete the Company's role as a provider of computer output
and document management services. In addition, in order to maintain
state-of-the-art technologies, the Company will have to make significant capital
expenditures, which will require the Company to obtain additional financing.
There can be no assurance that the Company will be able to obtain such
additional financing. See "Business -- Graphic Communications Services."
VARIABILITY OF QUARTERLY RESULTS
The Company's quarterly operating results have been and will continue to be
subject to variation, depending upon factors such as the mix of business among
the Company's services, the cost of materials, labor and technology,
particularly in connection with the delivery of business services, the costs
associated with initiating new outsourcing contracts, the economic condition of
the Company's target markets, seasonal concerns and the costs of acquiring and
integrating new businesses. For example, while the Company has experienced a
steady growth in net sales, the percentage in growth of net sales has varied
from quarter to quarter during the years ended December 31, 1996 and December
31, 1997. The percentage in growth of net sales over the previous quarter was
19.5%, 9.4%, 19.9% and 13.8% for the four quarters of 1996; and 22.7%, (1.9%),
1.0% and 16.1% for the four quarters of 1997. Although most of the Company's
long-term contracts for the provision of business services provide for pricing
adjustments to reflect the actual costs of materials incurred by the Company,
these adjustments typically occur on a quarterly and annual basis and therefore
may add to fluctuations in quarterly and annual operating results of the
Company.
9
<PAGE>
RISK OF BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN
SERVICES
The Company's business is particularly sensitive to meeting deadlines and
performing services for numerous clients on an overnight basis. Certain of the
Company's existing operations are performed exclusively at either its Jersey
City or Manhattan locations and such operations are dependent on the
availability of continuous computer, electrical and telephone service. All of
Roda's operations are performed at its single London location. As a result, any
disruption of day-to-day operations could have a material adverse effect upon
the Company. While the Company has, and intends to develop additional,
reciprocal relationships with major printing and document production companies
in locations elsewhere in the United States and near London for back-up
facilities in the event of emergencies, there can be no assurance that the loss
or disruption of any services affecting one or more of the Company's facilities
would not disable the Company, at least temporarily. Any interruption in its
ability to provide services, however brief, could result in the Company being
unable to satisfy the needs of clients and could adversely affect the Company's
business and its reputation within the industry. See "Business -- Graphic
Communications Services," "-- Printing Operations" and "-- Facilities."
BENEFITS TO INSIDERS
The Company will use $4.6 million of the net proceeds of the Offering
(assuming an initial public offering price of $12.00 per share) to repay the
Reorganization Notes, which represent a portion of the total consideration in
the Reorganization to the stockholders of the Predecessor, Michael R.
Cunningham, Gordon Mays, Timothy Mays and trusts for the benefit of their
respective children, and undistributed S corporation taxable income upon which
such stockholders have already paid taxes. All three individuals are executive
officers of the Company. Mr. Cunningham and Gordon Mays are also directors of
the Company. In addition, the Company will use up to $1.2 million of the net
proceeds of the Offering to repay borrowings under the Company's revolving line
of credit incurred in April 1998 to partially fund a $1.4 million distribution
to stockholders of the Predecessor for the payment of taxes on account of
undistributed S corporation taxable income. The contractual representations and
warranties made by the stockholders of the Predecessor to the Company in the
Reorganization Agreement executed in connection with the Reorganization are
limited generally to their ownership of the equity interests being conveyed and
do not cover undisclosed liabilities or other matters relating to the
Predecessor's business. Accordingly, the Company will have only limited recourse
against the stockholders of the Predecessor. However, the limited scope of these
contractual representations and warranties contained in the Reorganization
Agreement does not affect or otherwise reduce the responsibilities or
liabilities to investors in this Offering, under the United States securities
laws, of the officers and directors of the Company who have signed the
Registration Statement of which this Prospectus is a part. See "The Company --
The Reorganization," "Use of Proceeds" and "Certain Transactions -- The
Reorganization."
COMPETITION
The graphic communications services industry is highly competitive. In each
of the lines of business in which the Company provides services, it competes
with a variety of companies, many of which have greater financial and other
resources than the Company, or are subsidiaries or divisions of larger
organizations. In particular, the industry is characterized by a small number of
large, dominant organizations. No assurances can be given that the Company will
be able to compete effectively against the larger companies in this industry.
During recent periods of economic downturn, excess production capacity in the
Company's business sectors has resulted in more competitive pricing, reducing
the earnings of the Company. In addition, a significant source of competition is
the in-house capability of the Company's target customer base. There can be no
assurance that these businesses will outsource more of their printing and
document management needs or that such businesses will continue to seek such
outsourcing services. See "Business -- Competition."
FLUCTUATIONS IN THE PRICE AND AVAILABILITY OF SUPPLIES
Prices for paper and other raw materials used by the Company may increase
from time to time in the future. Any significant increases in the prices of
these materials that cannot be passed on to customers could have a material
adverse effect on the Company's business, financial condition and
10
<PAGE>
results of operations. In addition, increases in the prices of supplies and
other materials might cause some of the Company's customers to utilize
alternative technologies in their respective businesses that do not involve the
use of paper or the mail, such as the Internet. Although the Company purchases
raw materials from a varied group of suppliers, it is dependent upon a stable
availability of paper and other supplies to continue its operations. Should
shortages develop either for any of the Company's suppliers or generally within
the industry, the Company would be unable to produce printed materials on a
consistent basis and its business would be materially adversely affected.
RELIANCE ON SENIOR MANAGEMENT
The Company's operations will continue to be dependent on the continued
services of its executive officers, including the senior management of Roda and
additional senior management personnel which the Company intends to employ.
Furthermore, the Company will likely be dependent on the senior management of
any companies that may be acquired in the future. The Company has employment
agreements with each of its senior executive officers. However, if any of these
individuals elect not to continue in their roles with the Company, or if the
Company is unable to attract and retain senior management, the Company's
business could be adversely affected. The Company maintains key executive life
insurance for Michael R. Cunningham, its President and Chief Executive Officer,
in the amount of $3.0 million. See "Management."
NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE;
LABOR DELAYS
The Company's performance will depend, to a large extent, on the continued
service of key technical employees and its ability to attract, retain and
motivate such personnel. Competition for such personnel is intense, particularly
for highly skilled and experienced technical personnel who perform the Company's
information technology services. Such technical personnel are in great demand
and are likely to remain a limited resource for the foreseeable future. There
can be no assurance that the Company will be able to attract, retain and
motivate such personnel in the future, and the inability to do so could have a
material adverse effect upon the Company's business, financial condition and
results of operations. In addition, a strike or other labor-related delay or
stoppage could have a material adverse effect upon the Company's business,
operations and financial condition.
ENVIRONMENTAL RISKS; GOVERNMENTAL REGULATIONS
The Company's business is subject to a variety of federal, state and local
laws, rules and regulations. Its production facilities in the United States are
governed by laws and regulations relating to workplace safety and worker health,
primarily the Occupational Safety and Health Act ("OSHA") and the regulations
promulgated thereunder. Comparable laws and regulations exist in the United
Kingdom, in particular, the Health and Safety at Work etc. Act 1974 and the
numerous regulations issued under it. The Company believes that it is in
substantial compliance with OSHA and its United Kingdom counterparts.
The Company is also subject to environmental laws and regulations of the
United States, the United Kingdom and the various States in which it operates
concerning emissions into the air, discharges into waterways and the generation,
handling and disposal of waste materials. The printing business generates
substantial quantities of inks, solvents and other waste products requiring
disposal. The Company typically recycles waste paper, and contracts for the
removal of waste ink and other waste products. The Company believes it is in
substantial compliance with all applicable air quality, waste disposal and other
environmental-related laws and regulations. However, there can be no assurance
that future changes in such laws and regulations will not have a material
adverse effect on the Company's operations.
CONTROL BY CERTAIN STOCKHOLDERS
Following the completion of the Offering, the directors and other executive
officers of the Company, and entities affiliated with them, will beneficially
own approximately 56.5% of the then outstanding shares of Common Stock (53.2% if
the Underwriters' over-allotment option is exercised in full).
11
<PAGE>
Accordingly, present management of the Company is likely to continue to exercise
substantial control over the Company's affairs. These stockholders, acting
together, would be able to elect a sufficient number of directors to control the
Company's Board of Directors and would be able to approve or disapprove any
matter submitted to a vote of stockholders. In addition, because the Company has
adopted a staggered Board of Directors, stockholders will be less able to alter
the composition of the Board of Directors. See "Principal Stockholders" and
"Description of Capital Stock -- Staggered Board of Directors."
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price for the Common Stock offered
hereby will be determined by negotiations between the Company and the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after completion of the Offering. See "Underwriting" for factors to
be considered in determining such offering price.
POTENTIAL EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon the consummation of the Reorganization, the Acquisition and the
Offering, 4,865,000 shares of Common Stock will be outstanding. The 2,100,000
shares of Common Stock being sold in the Offering will be freely tradable unless
acquired by affiliates of the Company. The remaining shares outstanding may be
sold publicly only following their effective registration under the Securities
Act, or pursuant to an available exemption (such as provided by Rule 144
following a holding period for previously unregistered shares) from the
registration requirements of the Securities Act. Upon the consummation of the
Offering, the Company will have outstanding under its stock option plans options
to purchase an aggregate of 290,300 shares of Common Stock at the initial public
offering price. The Company intends to register the shares issuable upon
exercise of options granted under the stock option plans, and, upon such
registration, such shares will be eligible for resale in the public market. See
"Management -- Stock Option Plans." The Company, the stockholders of the
Predecessor and the officers and directors of the Company have agreed for a
period of 180 days from the consummation of the Offering not to offer, sell or
otherwise dispose of any shares of Common Stock (or any securities convertible
into or exercisable or exchangeable for Common Stock) or grant any options or
warrants to purchase any shares of Common Stock without the prior written
consent of Schroder & Co. Inc. on behalf of the Underwriters, except that the
Company may grant options pursuant to its stock option plans and may issue
privately placed shares of Common Stock in connection with acquisitions and
pursuant to the Company's stock option plans. See "Shares Eligible For Future
Sale." Sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock.
DILUTION
Investors purchasing shares of the Common Stock in the Offering will
experience immediate and substantial dilution of $9.76 per share (assuming an
initial public offering price of $12.00 per share) in the net tangible book
value of their shares. See "Dilution."
EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue common stock
and preferred stock without stockholder action. The existence of this
"blank-check" common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise and may adversely affect the
prevailing market price of the Common Stock. The Company currently has no plans
to issue any such securities, other than the Common Stock being issued in
connection with the Reorganization, the Offering and the Acquisition. See "The
Company -- The Reorganization" and "- The Roda Acquisition" and "Description of
Capital Stock." In addition, the New Jersey Shareholders Protection Act
prohibits certain persons from engaging in business combinations with the
Company. See "Description of Capital Stock."
12
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock offered hereby could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the market for the securities offered hereby, variations in the
Company's operating results, new statutes or government regulations. In
addition, the stock market in recent years has experienced broad price and
volume fluctuations that often have been unrelated to the operating performance
of particular companies. Such market fluctuations also may adversely affect the
market price of the Common Stock. Accordingly, there can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.
DIVIDEND POLICY
The Company expects to retain any earnings to finance the operations and
expansion of the Company's business. The Company's existing Loan and Security
Agreement with Summit Bank may, under certain circumstances, restrict the
Company's ability to pay dividends. Moreover, any additional debt financing that
the Company arranges in the future is likely to restrict the payment of
dividends. Therefore, the payment of any cash dividends on the Common Stock is
unlikely in the foreseeable future. See "Dividend Policy."
13
<PAGE>
THE COMPANY
GENERAL
The Predecessor commenced operations in 1989. The Company was incorporated
in New Jersey in January 1998 in contemplation of the Offering and to effect the
Reorganization. The Company's executive offices are located at 629 Grove Street,
Jersey City, New Jersey 07310 and its telephone number is (201) 217-1990.
THE REORGANIZATION
Immediately prior to the Offering, the Predecessor will be reorganized such
that the stockholders of the Predecessor will contribute all of the outstanding
shares of common stock of the Predecessor to CGII in exchange for a total of
2,595,260 shares of Common Stock and the Exchange Notes. Upon completion of the
Reorganization, CGII will have 2,595,261 shares of Common Stock outstanding. The
principal amount of the Exchange Notes will be $2.4 million, assuming an initial
public offering price of $12.00 per share and will be subject to adjustment for
any change in the initial public offering price. Concurrently with the
Reorganization, CGII will assume the Predecessor's obligations with respect to
undistributed S corporation taxable income through the date of the
Reorganization, estimated to total $2.2 million, and will issue Distribution
Notes in such amount to evidence such obligations. The principal amount of the
Exchange Notes was determined by the Company in connection with the
Reorganization based on a number of factors, including the value of the
enterprise contributed to the Company. The principal amount of the Distribution
Notes was determined by the Company based upon the actual amount of
undistributed S corporation taxable income as of December 31, 1997 and the
anticipated additional undistributed S corporation taxable income during the
period January 1, 1998 through the expected date of the Reorganization. The
Company intends to repay the Reorganization Notes from the net proceeds of the
Offering. The representations and warranties made by the stockholders of the
Predecessor to the Company in connection with the Reorganization are limited
generally to their ownership of the equity interests being conveyed and do not
cover undisclosed liabilities or other matters relating to the Predecessor's
business. Accordingly, the Company will have only limited recourse against the
stockholders of the Predecessor. See "Risk Factors -- Benefits to Insiders,"
"Use of Proceeds" and "Certain Transactions -- The Reorganization."
THE RODA ACQUISITION
The Company will acquire 100% of the share capital of Roda in two stages.
Concurrently with the consummation of the Offering, the Company will acquire all
of the issued ordinary share capital of Roda pursuant to an agreement dated
January 16, 1998, as amended (the "Roda Purchase Agreement") for an aggregate
consideration of approximately $6.3 million. The $6.3 million consideration will
be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will
be valued at the initial public offering price, and (ii) a cash payment for the
balance of the consideration ($4.3 million, assuming an initial public offering
price of $12.00 per share). In addition, upon consummation of the Offering, the
Company will deliver into escrow $1.8 million, representing the total redemption
price of all of the issued preference share capital of Roda. The Company has the
right to redeem, and intends to redeem, such preference shares on June 30, 1998.
The Company may be required by the holders of the preference shares to redeem
such shares prior to June 30, 1998. The amount in escrow will be used to pay the
redemption price upon such redemption.
In addition to the consideration for the ordinary and preference share
capital, Roda's outstanding indebtedness will be reflected on the Company's
consolidated balance sheet from and after the consummation of the Acquisition.
As of December 31, 1997, Roda had approximately $4.3 million of indebtedness
outstanding, including the Roda Seller Debt. Under the terms of the Roda
Purchase Agreement, the Company has committed to cause Roda to repay the entire
$1.4 million (POUNDS 850,000) of the Roda Seller Debt within 28 days following
the closing. The Company intends to repay the Roda Seller Debt from the proceeds
of the Offering. In order to secure the performance by the selling
14
<PAGE>
stockholders of Roda of certain warranties and covenants, $462,000 (POUNDS
275,000) of the cash portion of the consideration will be held in escrow until
one year following the closing. The obligations of the parties under the Roda
Purchase Agreement are contingent upon the closing of the Offering.
Roda provides printing and document output and management services to
financial services companies primarily in the United Kingdom and European
markets, and has been a strategic partner in the World Research Link(TM). Upon
completion of the Offering and the Acquisition, Roda will become a wholly-owned
subsidiary of the Company and its day-to-day operations in London will continue
to be supervised by its current management team. Peter L. Furlonge, who has been
a senior executive officer of Roda since 1989, and its chief executive officer
since 1995, is continuing in such capacity pursuant to an employment agreement.
Two other key employees of Roda will also enter into employment agreements with
Roda incidental to the Acquisition. See "Business -- Graphic Communications
Services" and "-- International Network."
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $22.6 million ($26.2 million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$12.00 per share. Of this amount, approximately $6.1 million (assuming an
initial public offering price of $12.00 per share) will be used to fund the cash
portion of the consideration for the acquisition of Roda, and approximately $1.4
million (POUNDS 850,000) will be used to repay the Roda Seller Debt. See "The
Company -- The Roda Acquisition." The Roda Seller Debt, which has no specified
maturity date, bears interest at the rate of 10% per annum, payable
semi-annually. Pursuant to the Roda Purchase Agreement, the Company has agreed
to cause Roda to repay the Roda Seller Debt within 28 days following the closing
of the Acquisition. In addition, the Company expects to use $4.6 million
(assuming an initial public offering price of $12.00 per share) to repay the
Reorganization Notes, representing a portion of the consideration in the
Reorganization to the stockholders of the Predecessor and undistributed S
corporation taxable income upon which they have already paid taxes. See "The
Company -- The Reorganization." The Reorganization Notes bear no interest and
have no specified maturity date. The Company also intends to repay up to $1.0
million of indebtedness to Summit Bank under its term loan and all outstanding
borrowings under its revolving line of credit with Summit Bank, expected to
total $1.2 million as of the consummation of the Offering. The Predecessor
borrowed $1.2 million under the line of credit in April 1998 in order to
partially fund a $1.4 million distribution to stockholders of the Predecessor to
enable them to pay taxes due on April 15, 1998 on account of undistributed S
corporation taxable income. The term loan bears interest at a rate of 8.5% per
annum and matures on December 1, 2001. The revolving line of credit bears
interest at a floating rate equal to the prime rate and matures on May 30, 1998.
As a result of the use of a portion of the proceeds of this Offering to repay
borrowings under the revolving line of credit and to repay the Reorganization
Notes, a total of $5.8 million, or 25.7%, of the estimated net proceeds of the
Offering will be received by, or applied for the benefit of, existing
stockholders of the Company. The remaining net proceeds of the Offering,
estimated to be approximately $8.1 million, will be used for working capital and
general corporate purposes, which may include capital expenditures, marketing
activities and strategic acquisitions. The Company currently has no agreement or
understanding with respect to any future acquisitions. Pending the use of the
net proceeds, the Company will invest the net proceeds in short-term, United
States government securities.
DIVIDEND POLICY
Following the Offering, it will be the policy of the Company's Board of
Directors to retain all future earnings to finance the operation and expansion
of the Company's business. Accordingly, the Company does not anticipate
declaring or paying cash dividends on the Common Stock in the foreseeable
future. The payment of cash dividends in the future will be at the sole
discretion of the Company's Board of Directors and will depend on, among other
things, the Company's earnings, operations, capital
15
<PAGE>
requirements, financial condition, restrictions in then existing financing
agreements, and other factors deemed relevant by the Board of Directors. In
addition, the Company's existing Loan and Security Agreement with Summit Bank
may, under certain circumstances, restrict the Company's ability to pay
dividends.
Prior to the Reorganization, the Predecessor has been an S corporation
within the meaning of (section)1361 of the Internal Revenue Code of 1986, as
amended (the "Code"), making distributions to its stockholders in respect of
income which was taxable to such stockholders under the applicable provisions of
the Code. In connection with the Reorganization, the Company will pay to the
stockholders of the Predecessor the amounts of their respective undistributed S
corporation taxable income through the anticipated date of the Reorganization by
delivery of the Distribution Notes. See "The Company -- The Reorganization." A
portion of the net proceeds of the Offering will be used to repay the
Distribution Notes. See "Use of Proceeds."
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<PAGE>
CAPITALIZATION
The following table sets forth at December 31, 1997, (i) the actual short
term debt and consolidated capitalization of the Predecessor and (ii) the pro
forma short-term debt and consolidated capitalization of the Company as adjusted
to give effect to the Reorganization, the Acquisition, and the sale of the
Common Stock offered hereby and the application of the estimated net proceeds
therefrom as set forth under "Use of Proceeds." The capitalization table should
be read in connection with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Unaudited Pro Forma Combined Financial Statements, the Company's financial
statements and related notes thereto and Roda's consolidated financial
statements and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------
COMPANY
PRO FORMA
PREDECESSOR AS ADJUSTED
------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt, including current portion of long-term debt and
capitalized lease obligations ................................. $ 885 $ 1,870
====== =======
Long-term debt and capitalized lease obligations, net of current
portion ....................................................... $1,517 $ 2,179
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares authorized;
none issued and outstanding ................................. -- --
Common stock, no par value, 30,000,000 shares authorized;
and 4,865,000 shares issued and outstanding, pro forma as
adjusted(1) ................................................. 6 21,765
Additional paid-in capital ..................................... 734 --
Retained earnings .............................................. 2,411 --
------ -------
Total stockholders' equity ..................................... 3,151 21,765
------ -------
Total capitalization ........................................... $4,668 $23,944
====== =======
</TABLE>
- ----------
(1) Does not include 600,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans, under which options to
purchase 290,300 shares have been granted at the initial public offering
price subject to consummation of the Offering. See "Management -- Stock
Option Plans" and "Underwriting."
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<PAGE>
DILUTION
The difference between the initial public offering price per share and net
tangible book value per share of Common Stock after this Offering constitutes
the dilution to investors in this Offering. Net tangible book value per share is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of then outstanding shares
of Common Stock. At December 31, 1997, the Predecessor's net tangible book value
was $3.2 million, or $1.06 per share of Common Stock. After giving effect to (i)
the Reorganization, (ii) the Acquisition, and (iii) the sale of the 2,100,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and the receipt and application of the estimated net
proceeds therefrom (less underwriting discounts and commissions and estimated
offering expenses), the adjusted pro forma net tangible book value of the
Company as of December 31, 1997 would have been $10.9 million or $2.24 per
share, representing an immediate increase in pro forma net tangible book value
of $1.22 per share to existing stockholders and an immediate dilution of $9.76
per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ............................ $ 12.00
--------
Predecessor net tangible book value ............................. $ 1.06
Decrease attributable to the Reorganization ..................... (2.03)
Decrease attributable to the Acquisition ........................ (2.24)
Increase attributable to investors in this offering ............. 5.45
-------
Pro forma as adjusted net tangible book value of the Company after
the Offering .................................................... 2.24
--------
Dilution to new investors ........................................ $ 9.76
========
</TABLE>
The following table summarizes the number of shares of Common Stock issued
by the Company, the total consideration paid to the Company, and the average
price per share paid by the existing stockholders, the Roda stockholders and the
new investors. For purposes of the total consideration and average price per
share paid by the existing stockholders, the Company has based such valuation on
the aggregate amount of such stockholders' cash equity contributions to the
Predecessor without deducting distributions paid to such stockholders.
<TABLE>
<CAPTION>
SHARE PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 2,595,261 53.3% $ 740,000 2.6% $ 0.29
Roda stockholders ............. 169,739 3.5 2,037,000 7.3 $ 12.00
New investors ................. 2,100,000 43.2 25,200,000 90.1 $ 12.00
--------- ----- ----------- -----
Total ......................... 4,865,000 100.0% $27,977,000 100.0%
========= ===== =========== =====
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Underwriting."
18
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are based
on the historical financial statements of the Predecessor and Roda. The
unaudited pro forma combined balance sheet, to the extent indicated, gives
effect to: (i) the Reorganization, (ii) the Acquisition and (iii) the Offering,
as if each occurred as of December 31, 1997. The unaudited pro forma combined
statement of income gives effect to the Acquisition as if it occurred on January
1, 1997. With the exeception of share and per share amounts, the Reorganization
and the Offering have no effect on the unaudited pro forma combined statement of
income.
The unaudited pro forma combined financial statements give effect to the
Acquisition under the purchase method of accounting. The Roda financial
statements have been adjusted to conform to United States Generally Accepted
Accounting Principles and have been converted into Dollars using the average
exchange rate of $1.66 to POUNDS 1.00 for the statement of income for the year
ended December 31, 1997 and the year end exchange rate of $1.67 to POUNDS 1.00
for the balance sheet as of December 31, 1997.
The unaudited pro forma combined statement of income is not necessarily
indicative of operating results which would have been achieved had the
Acquisition been completed on January 1, 1997 and should not be construed as
representative of future operating results. These unaudited pro forma combined
financial statements should be read in conjunction with the historical financial
statements of the Company and Roda Limited including the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
REORGANIZATION
PREDECESSOR ADJUSTMENTS(1)(2)
------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................... $ 67 $ --
Accounts receivable ................................................ 5,673 --
Inventories ........................................................ 940 --
Prepaid expenses and other current assets .......................... 78 --
Notes and advances receivable -- stockholder/officers .............. 136 --
Deferred income taxes .............................................. 47 295 (1)
------- -----------
TOTAL CURRENT ASSETS ................................................ 6,941 295
Property and equipment, net ....................................... 3,579 --
Goodwill and other assets ......................................... 418 --
------- -----------
TOTAL ASSETS ........................................................ $10,938 $ 295
======= ===========
CURRENT LIABILITIES
Current portion of long-term debt -- third parties ................. $ 407 $ --
Revolving line of credit ........................................... 300 1,400 (2)
Current portion of obligations under capital lease ................. 178 --
Accounts payable ................................................... 3,854 --
Accrued expenses ................................................... 1,474 --
Reorganization notes ............................................... -- 4,600 (2)
Cash payable to Roda stockholders .................................. -- --
------- -----------
TOTAL CURRENT LIABILITIES ........................................... 6,213 6,000
Long-term debt third parties -- net of current portion ............ 1,185 --
Obligations under capital lease -- net of current portion ......... 332 --
Notes payable -- related parties .................................. -- --
Deferred income taxes ............................................. 57 354 (1)
Other liabilities ................................................. -- --
------- -----------
TOTAL LIABILITIES ................................................... 7,787 6,354
STOCKHOLDERS' EQUITY
Common stock ....................................................... 6 (2,914) (2)
Additional Paid-in capital ......................................... 734 (734) (2)
Retained Earnings .................................................. 2,411 (59) (1)
(2,352) (2)
------- -----------
TOTAL STOCKHOLDERS' EQUITY .......................................... 3,151 (6,059)
------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $10,938 $ 295
======= ===========
<CAPTION>
RODA
THE (HISTORICAL ACQUISITION COMPANY
COMPANY CONVERTED)(3) ADJUSTMENTS(4) PRO FORMA
----------- --------------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash ............................................................... $ 67 $ 2 $ -- $ 69
Accounts receivable ................................................ 5,673 1,381 -- 7,054
Inventories ........................................................ 940 246 -- 1,186
Prepaid expenses and other current assets .......................... 78 169 -- 247
Notes and advances receivable -- stockholder/officers .............. 136 -- -- 136
Deferred income taxes .............................................. 342 -- -- 342
-------- ------ --------- -------
TOTAL CURRENT ASSETS ................................................ 7,236 1,798 -- 9,034
Property and equipment, net ....................................... 3,579 1,442 -- 5,021
Goodwill and other assets ......................................... 418 3,513 (100) 11,206
(3,513)
10,888
-------- ------ --------- -------
TOTAL ASSETS ........................................................ $ 11,233 $6,753 $ 7,275 $25,261
======== ====== ========= =======
CURRENT LIABILITIES
Current portion of long-term debt -- third parties ................. $ 407 $ 780 $ -- $ 1,187
Revolving line of credit ........................................... 1,700 -- -- 1,700
Current portion of obligations under capital lease ................. 178 205 -- 383
Accounts payable ................................................... 3,854 932 -- 4,786
Accrued expenses ................................................... 1,474 579 -- 2,053
Reorganization notes ............................................... 4,600 -- -- 4,600
Cash payable to Roda stockholders .................................. -- -- 6,111 6,111
-------- ------ --------- -------
TOTAL CURRENT LIABILITIES ........................................... 12,213 2,496 6,111 20,820
Long-term debt third parties -- net of current portion ............ 1,185 1,195 -- 2,380
Obligations under capital lease -- net of current portion ......... 332 467 -- 799
Notes payable -- related parties .................................. -- 1,419 -- 1,419
Deferred income taxes ............................................. 411 165 -- 576
Other liabilities ................................................. -- 138 -- 138
-------- ------ --------- -------
TOTAL LIABILITIES ................................................... 14,141 5,880 6,111 26,132
STOCKHOLDERS' EQUITY
Common stock ....................................................... (2,908) 334 (334) (871)
2,037
Additional Paid-in capital ......................................... -- 334 (334) --
Retained Earnings .................................................. -- 205 (205)
TOTAL STOCKHOLDERS' EQUITY .......................................... (2,908) 873 1,164 (871)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 11,233 $6,753 $ 7,275 $25,261
======== ====== ========= =======
<CAPTION>
COMPANY
OFFERING PRO FORMA
ADJUSTMENTS(5) AS ADJUSTED
---------------- ------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................... $ 22,636 $ 8,447
272
(6,111)
(1,419)
(4,600)
(1,000)
(1,400)
Accounts receivable ................................................ 7,054
Inventories ........................................................ -- 1,186
Prepaid expenses and other current assets .......................... -- 247
Notes and advances receivable -- stockholder/officers .............. -- 136
Deferred income taxes .............................................. -- 342
---------- -------
TOTAL CURRENT ASSETS ................................................ 8,378 17,412
Property and equipment, net ....................................... -- 5,021
Goodwill and other assets ......................................... (272) 10,934
TOTAL ASSETS ........................................................ $ 8,106 $33,367
========== =======
CURRENT LIABILITIES
Current portion of long-term debt -- third parties ................. $ -- $ 1,187
Revolving line of credit ........................................... (1,400) 300
Current portion of obligations under capital lease ................. -- 383
Accounts payable ................................................... -- 4,786
Accrued expenses ................................................... -- 2,053
Reorganization notes ............................................... (4,600) --
Cash payable to Roda stockholders .................................. (6,111) --
---------- -------
TOTAL CURRENT LIABILITIES ........................................... (12,111) 8,709
Long-term debt third parties -- net of current portion ............ (1,000) 1,380
Obligations under capital lease -- net of current portion ......... -- 799
Notes payable -- related parties .................................. (1,419) --
Deferred income taxes ............................................. -- 576
Other liabilities ................................................. -- 138
---------- -------
TOTAL LIABILITIES ................................................... (14,530) 11,602
STOCKHOLDERS' EQUITY
Common stock ....................................................... 22,636 21,765
Additional Paid-in capital ......................................... --
Retained Earnings ..................................................
TOTAL STOCKHOLDERS' EQUITY .......................................... 22,636 21,765
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 8,106 $33,367
========== =======
</TABLE>
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) As a result of the conversion from a S corporation to a C corporation the
Company will record: (i) a deferred tax asset of $295,000, (ii) a deferred
tax liability of $354,000, and (iii) the resulting net decrease in retained
earnings of $59,000.
(2) Reflects the issuance of the Reorganization Notes, consisting of: (i) the
$2.2 million Distribution Notes, the amount of which approximates the
undistributed S corporation taxable income to the Predecessor stockholders
estimated through the anticipated date of the Reorganization, and (ii) the
$2.4 million Exchange Notes to be issued as part of the consideration for
the equity of the Predecessor (assuming an initial public offering price of
$12.00 per share). Assumes that the Company borrowed $1.4 million on
December 31, 1997 under the Predecessor's existing revolving line of credit
to fund distributions to shareholders of the Predecessor for taxes due on
April 15, 1998 attributable to undistributed S corporation income.
(3) Historical balances for Roda at December 31, 1997 have been adjusted to
conform to United States Generally Accepted Accounting Principles,
including (i) the recognition of goodwill of $3.5 million related to a 1996
management buyout of Roda, (ii) the recording of a deferred tax liability
of $165,000 and (iii) the resulting net increase to stockholders' equity of
$3.3 million.
(4) The aggregate consideration of $8.1 million payable to the Roda
stockholders will consist of (i) 169,739 shares of Common Stock and (ii) a
cash payment for the balance of the consideration. For presentation
purposes, the shares issuable as part of the consideration have been valued
at $2.0 million (assuming an initial public offering price of $12.00 per
share), resulting in an assumed cash payment of $6.1 million which has been
presented as "Cash Payable to Roda Stockholders." This liability will be
satisfied with a portion of the net proceeds of the Offering.
The purchase of Roda has been accounted for based upon available
information regarding the estimated fair value of the assets and
liabilities acquired as follows:
Purchase price .................. $ 8,148,000
Acquisition costs ............... 100,000
Net liabilities assumed ......... 2,640,000
-----------
Goodwill ........................ $10,888,000
===========
Roda's stockholders' equity of $873,000 and prior goodwill of $3.5 million
have been eliminated in consolidation with the Company.
(5) The Offering adjustments assume an initial public offering price of $12.00
per share and give effect to (i) the receipt of the assumed net proceeds of
$22.6 million (after deducting underwriting discounts and commissions of
$1.8 million and estimated offering expenses of $800,000), (ii) the
recognition of a $272,000 portion of the offering expenses previously paid
and deferred by the Predecessor at December 31, 1997, (iii) the repayment
of the Reorganization Notes, (iv) satisfaction of the liability for cash
payable to the Roda stockholders of $6.1 million, (v) the repayment of the
$1.4 million (POUNDS 850,000) Roda Seller Debt and (vi) the repayment of
$2.4 million of bank indebtedness of the Company, consisting of a $1.0
million term loan and $1.4 million assumed to have been borrowed under the
revolving line of credit on December 31, 1997.
21
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
RODA
PREDECESSOR/ (HISTORICAL ACQUISITION COMPANY
COMPANY CONVERTED)(1) ADJUSTMENTS PRO FORMA
-------------------- --------------- ----------------- --------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales ............................................ $ 35,744 $ 6,961 $ -- $ 42,705
Operating expenses:
Costs of production ................................. 26,894 4,293 -- 31,187
Selling, general and administrative ................. 5,794 1,418 -- 7,212
Depreciation and amortization ....................... 694 148 -- 842
Amortization of goodwill ............................ -- 90 (90)(2) 272
272 (2)
---------
33,382 5,949 (182) 39,513
------------- -------- --------- -------------
Income from operations ............................... 2,362 1,012 (182) 3,192
Interest expense .................................... (250) (345) -- (595)
Other income ........................................ 35 86 -- 121
------------- -------- --------- -------------
Income before income taxes and minority interest. 2,147 753 (182) 2,718
Provision for income taxes .......................... 129 265 -- 394
------------- -------- --------- -------------
Income before minority interest ...................... 2,018 488 (182) 2,324
Minority interest ................................... -- 106 (106) (3) --
------------- -------- --------- -------------
Net income ........................................... $ 2,018 $ 382 $ (76) $ 2,324
============= ======== ========= =============
PRO FORMA DATA (UNAUDITED):
Income before income taxes ........................... $ 2,147 $ 2,718
Pro forma provision for income taxes ................ 880 (4)
------------- -------------
1,142 (5)
-------------
Pro forma net income ................................. $ 1,267 $ 1,576
============= =============
Pro forma earnings per share ......................... $ 0.43 $ 0.43
============= =============
Pro forma shares outstanding ......................... 2,978,594 (6)
============= =============
3,657,552 (7)
=============
Pro forma as adjusted net income ..................... $ 1,674 (8)
=============
Pro forma as adjusted earnings per share ............. $ 0.40
=============
Pro forma as adjusted shares outstanding ............. 4,189,469 (9)
=============
</TABLE>
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(1) Historical balances for Roda at December 31, 1997 have been adjusted to
conform to United States Generally Accepted Accounting Principles,
including the amortization of goodwill of $90,000 related to a 1996
management buyout of Roda and the recording of deferred taxes of $75,000.
(2) Reflects (i) the elimination of Roda's amortization of goodwill of $90,000
related to the 1996 management buyout of Roda and (ii) the Company's
recognition of amortization of goodwill of $272,000 resulting from the
Acquisition.
(3) Reflects the elimination of $106,000 of minority interest in the earnings
of Roda.
(4) Reflects an increase of $751,000 for income taxes computed utilizing an
overall effective tax rate of 41% as if the Company had been a C
corporation since January 1, 1997.
(5) Reflects a pro forma provision for income taxes for the Company and Roda on
a combined basis and computed utilizing effective tax rates of 41% for
United States income taxes and 31% for United Kingdom income taxes.
(6) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be
issued in the Reorganization, and (iii) 383,333 shares, representing the
number of shares having a value (based upon an assumed initial public
offering price of $12.00 per share) corresponding to the principal amount
of the Reorganization Notes.
(7) Reflects (i) the shares described in footnote (6) above, (ii) 169,739
shares issuable in connection with the Acquisition, and (iii) 509,219
shares, representing the number of shares having a value (based upon an
assumed initial public offering price of $12.00 per share) corresponding to
the $6.1 million liability for cash payable to the Roda stockholders in
connection with the Acquisition.
(8) Reflects the elimination of interest expense of $142,000 ($98,000 net of
taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS
850,000) to be repaid through the application of a portion of the net
proceeds from the Offering as if such repayment had occurred on January 1,
1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds."
(9) Reflects (i) the shares described in footnote (7) above and (ii) 531,917 of
the additional shares to be sold in the Offering, representing the portion
of the shares being sold in the Offering in order to generate sufficient
proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda
Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company
assumed to have been outstanding on December 31, 1997 and (c) pay
underwriting discounts and expenses of the entire Offering. See the
Unaudited Pro Forma Combined Financial Statements, "The Company -- The
Reorganization" and "Use of Proceeds."
23
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Predecessor and selected unaudited pro forma combined financial data for the
Company. The selected historical financial data presented below as of and for
the three years ended December 31, 1995, 1996 and 1997 are derived from the
Predecessor's audited financial statements appearing elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
the related notes appearing elsewhere in this Prospectus. The selected
historical financial data presented below as of and for the years ended December
31, 1993 and 1994 are derived from the unaudited financial statements of the
Predecessor for the year ended December 31, 1993 and audited financial
statements of the Predecessor for the year ended December 31, 1994. The pro
forma data are unaudited. The unaudited financial statements include all
adjustments, consisting of only normal recurring accruals, which management
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. The selected financial data below
should be read in conjunction with the Predecessor financial statements and the
related notes thereto, the Unaudited Pro Forma Combined Financial Statements and
the related notes thereto and the information in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ----------- ----------- ----------- -----------------------------------------
ACTUAL PRO FORMA(1)
(UNAUDITED) -------------------- --------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ......................... $ 13,959 $ 15,927 $ 17,327 $ 23,193 $ 35,744 $ 42,705
Operating expenses:
Costs of production .............. 9,637 12,085 12,860 17,616 26,894 31,187
Selling, general and
administrative .................. 3,053 3,151 3,441 4,270 5,794 7,212
Depreciation and amortization..... 281 448 498 563 694 1,114
-------- -------- -------- -------- ------------ ------------
12,971 15,684 16,799 22,449 33,382 39,513
-------- -------- -------- -------- ------------ ------------
Income from operations ............ 988 243 528 744 2,362 3,192
Interest expense ................. (99) (173) (257) (234) (250) (595)
Other income ..................... 3 -- 2 48 35 121
-------- -------- -------- -------- ------------ ------------
Income before income taxes ........ 892 70 273 558 2,147 2,718
Provision for income taxes ....... 119 7 6 56 129 394
-------- -------- -------- -------- ------------ ------------
Net income ........................ $ 773 $ 63 $ 267 $ 502 $ 2,018 $ 2,324
======== ======== ======== ======== ============ ============
PRO FORMA DATA (UNAUDITED):
Income before income taxes ........ $ 2,147 $ 2,718
Pro forma provision for income
taxes ........................... 880 (2) 1,142 (3)
------------ ------------
Pro forma net income .............. $ 1,267 $ 1,576
============ ============
Pro forma earnings per share ...... $ 0.43 $ 0.43
============ ============
Pro forma shares outstanding ...... 2,978,594 (4) 3,657,552 (5)
============ ============
Pro forma as adjusted net income. $ 1,674 (6)
============
Pro forma as adjusted earnings
per share ........................ $ 0.40
============
Pro forma as adjusted shares
outstanding ...................... 4,189,469 (7)
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- -------- -------- -------- -------------------------
PRO FORMA
ACTUAL AS ADJUSTED(8)
(UNAUDITED) --------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ....................... $ 71 $ 144 $ 1 $ 543 $ 67 $ 8,447
Working capital ................................. 553 338 32 (867) 728 8,703
Total assets .................................... 3,787 5,680 5,568 9,471 10,938 33,367
Long-term debt and capitalized lease obligations,
net of current portion ......................... 623 1,414 1,151 1,300 1,517 2,179
Stockholders' equity ............................ 1,742 1,084 830 1,344 3,151 21,765
</TABLE>
(See footnotes on following page)
24
<PAGE>
(footnotes from previous page)
(1) Gives effect to the Reorganization and the Acquisition as if they each had
occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial
Statements.
(2) Reflects an increase of $751,000 for income taxes computed utilizing an
overall effective tax rate of 41% as if the Company had been a C
corporation since January 1, 1997.
(3) Reflects a pro forma provision for income taxes for the Company and Roda on
a combined basis computed utilizing effective tax rates of 41% for United
States income taxes and 31% for United Kingdom income taxes.
(4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be
issued in the Reorganization, and (iii) 383,333 shares, representing the
number of shares having a value (based upon an assumed initial public
offering price of $12.00 per share) corresponding to the principal amount
of the Reorganization Notes.
(5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739
shares issuable in connection with the Acquisition, and (iii) 509,219
shares, representing the number of shares having a value (based upon an
assumed initial public offering price of $12.00 per share) corresponding to
the $6.1 million liability for cash payable to the Roda stockholders in
connection with the Acquisition.
(6) Reflects the elimination of interest expense of $142,000 ($98,000 net of
taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS
850,000) to be repaid through the application of a portion of the net
proceeds from the Offering as if such repayment had occurred on January 1,
1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds."
(7) Reflects (i) the shares described in footnote (5) above and (ii) 531,917 of
the additional shares to be sold in the Offering, representing the portion
of the shares being sold in the Offering in order to generate sufficient
proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda
Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company
assumed to have been outstanding on December 31, 1997 and (c) pay
underwriting discounts and expenses of the entire Offering. See the
Unaudited Pro Forma Combined Financial Statements, "The Company -- The
Reorganization" and "Use of Proceeds."
(8) Gives effect to the following transactions as if they had occurred on
December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii)
the sale of 2,100,000 shares of Common Stock offered hereby and the use of
the net proceeds therefrom, including: (a) the repayment of the
Reorganization Notes, (b) the satisfaction of the liability for the cash
payable to the Roda stockholders of $6.1 million (assuming an initial
public offering price of $12.00 per share), (c) the repayment of the Roda
Seller Debt, and (d) the repayment of $2.4 million of bank indebtedness
assumed to have been outstanding on that date. See the Unaudited Pro Forma
Combined Financial Statements and "Use of Proceeds."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides a wide range of graphic communications services to
financial institutions and corporations, focusing on producing and distributing
time-sensitive analytical research and marketing materials and on providing
on-demand printing services. The Company commenced its operations in 1989 when
it opened a printing facility in New Jersey to provide overnight printing and
delivery of time-sensitive analytical research and marketing reports for its
financial institution customers in the New York City metropolitan area.
Currently, the Company operates two facilities in the New York City area and has
agreed to acquire London-based Roda, giving the Company its first facility
outside the United States. To date, the Company has experienced significant
growth primarily through the (i) expansion of its existing customer base, (ii)
addition of products and services, (iii) assimilation of in-house printing
operations, (iv) acquisition of selected assets and (v) establishment of
strategic alliances.
Immediately prior to the Offering, the Predecessor will be reorganized such
that the stockholders of the Predecessor will contribute all of the outstanding
shares of common stock of the Predecessor to CGII in exchange for a total of
2,595,260 shares of Common Stock and Exchange Notes in the aggregate principal
amount of $2.4 million (assuming an initial public offering price of $12.00 per
share). Concurrently with the Reorganization, CGII will assume the Predecessor's
obligations with respect to undistributed S corporation taxable income through
the date of the Reorganization, estimated to total $2.2 million, and will issue
Distribution Notes in such amount to evidence such obligations. In April 1998,
the Predecessor borrowed $1.2 million under its revolving line of credit to
partially fund a $1.4 million distribution to its stockholders for the payment
of taxes on account of undistributed S corporation taxable income.
The Company will acquire 100% of the share capital of Roda in two stages.
Concurrently with the consummation of the Offering, the Company will acquire all
of the issued ordinary share capital of Roda pursuant to an agreement dated
January 16, 1998, as amended (the "Roda Purchase Agreement") for an aggregate
consideration of approximately $6.3 million. The $6.3 million consideration will
be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will
be valued at the initial public offering price, and (ii) a cash payment for the
balance of the consideration ($4.3 million, assuming an initial public offering
price of $12.00 per share). In addition, upon consummation of the Offering, the
Company will deliver into escrow $1.8 million, representing the total redemption
price of all of the issued preference share capital of Roda. The Company has the
right to redeem, and intends to redeem, such preference shares on June 30, 1998.
The Company may be required by the holders of the preference shares to redeem
such shares prior to June 30, 1998. The amount in escrow will be used to pay the
redemption price upon such redemption.
In addition to the consideration for the ordinary and preference share
capital, Roda's outstanding indebtedness will be reflected on the Company's
consolidated balance sheet from and after the consummation of the Acquisition.
As of December 31, 1997, Roda had $4.3 million of indebtedness outstanding,
including the Roda Seller Debt. Under the terms of the Roda Purchase Agreement,
the Company has committed to cause Roda to repay the entire $1.4 million (POUNDS
850,000) of the Roda Seller Debt within 28 days following the closing. The
Company intends to repay the Roda Seller Debt from the proceeds of the Offering.
In order to secure the performance by the selling stockholders of Roda of
certain warranties and covenants, $462,000 (POUNDS 275,000) of the cash portion
of the consideration will be held in escrow until one year following the
closing. The obligations of the parties under the Roda Purchase Agreement are
contingent upon the closing of the Offering. Roda provides printing and document
output and management services to financial services companies in the United
Kingdom and European markets, and has been a strategic partner in the World
Research Link(TM). Following the Offering and the completion of the Acquisition,
Roda will become a wholly-owned subsidiary of the Company and its day-to-day
operations in London will continue to be supervised by its current management
team.
To date, the Predecessor has been taxed as an S corporation. In connection
with the Offering, the Company will become subject to federal and additional
state income taxes upon the termination of the S corporation status.
Concurrently with becoming subject to federal and additional state income taxes,
the
26
<PAGE>
Company will record additional deferred tax assets of $295,000 and additional
deferred tax liabilities of $354,000 and a corresponding net tax expense of
$59,000 in its statement of income. These tax items will be reflected as a
special charge in the Company's income statement for the quarter in which the
Reorganization occurs.
The Company's five largest customers, all of which are financial
institutions, accounted for approximately 65% of its net sales for the year
ended December 31, 1997. After giving effect to the Acquisition, net sales to
customers outside the United States would have accounted for 16% of the
Company's pro forma net sales in the year ended December 31, 1997, and the
Company anticipates that foreign sales will account for a significant portion of
net sales in the foreseeable future. As a result, the Company's operations may
be subject to the fluctuation of currency exchange rates, various and changing
regulatory requirements, increased sales and marketing expenses, political and
economic instability, difficulty in staffing and managing foreign operations,
potentially adverse taxes, complex foreign laws and treaties and the possibility
of difficulty in accounts receivable collections.
The Company's largest customer, Goldman, Sachs & Co., accounted for
approximately 24% of the Company's net sales during 1997. Although the Company
has had long-term relationships with its significant customers, the Company's
customers may terminate their relationship upon minimal, if any, advance notice
and there can be no assurance that these relationships will continue. In
addition, given the concentration of customers in the financial services
industry, the Company's results of operations will be particularly sensitive to
fluctuations in the economy or financial markets affecting this industry.
The Company's net sales are derived primarily from providing printing and
distribution services for customers in the financial services, insurance and
publishing industries, a substantial component of which is the printing and
distribution of financial and analytical research and marketing materials for
the financial services industry. The Company also derives part of its net sales
from providing fulfillment services, including labeling, mailing, inserting, kit
assembly and inventory management for its customers. Finally, the Company
provides computer and data output services and other document related services
for customers.
The Company's operating expenses consist of the following: (i) costs of
production, (ii) selling, general and administrative expenses and (iii)
depreciation and amortization. Costs of production consist primarily of the cost
of paper and other production materials, labor, outside services, insurance and
other production expenses including repairs and maintenance and rent. Selling,
general and administrative expenses consist primarily of management,
administrative and marketing expenses, salaries for officers, salaries and
commissions paid to sales persons and professional fees.
The Company's quarterly operating results have been and will continue to be
subject to variation, depending upon factors such as the mix of business among
the Company's services, the cost of materials, labor and technology,
particularly in connection with the delivery of business services, the costs
associated with initiating new outsourcing contracts or opening new offices, the
economic condition of the Company's target markets, seasonal concerns and the
costs of acquiring and integrating new businesses.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's Statement
of Income as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................................. 100.0% 100.0% 100.0%
Costs of production .................................. 74.2 76.0 75.3
Selling, general and administrative expenses ......... 19.9 18.4 16.2
Depreciation and amortization ........................ 2.9 2.4 1.9
----- ----- -----
Income from operations ................................ 3.0 3.2 6.6
Interest expense ..................................... ( 1.5) ( 1.0) ( 0.7)
Other income ......................................... 0.0 0.2 0.1
----- ----- -----
Income before income taxes ............................ 1.5 2.4 6.0
Provision for income tax ............................. 0.0 0.2 0.4
----- ----- -----
Net income ............................................ 1.5% 2.2% 5.6%
===== ===== =====
</TABLE>
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Year ended December 31, 1997 compared to year ended December 31, 1996.
Net sales. The Company reported net sales of $35.7 million for the year
ended December 31, 1997 compared to $23.2 million for the year ended December
31, 1996, an increase of $12.5 million or 54%. The majority of this increase was
attributable to an increase in business with existing customers, with the
balance attributable to the addition of new customers. In 1997, the Company had
four customers each of whom represented in excess of 10% of net sales, and
together represented an aggregate of 57% of net sales. In 1996, the Company had
three customers each of whom represented in excess of 10% of net sales, and
together represented an aggregate of 42% of net sales.
Costs of production. Costs of production were $26.9 million for 1997, as
compared to $17.6 million for 1996, an increase of $9.3 million or 53%. Costs of
production were approximately 75% of net sales for 1997, as compared to
approximately 76% of net sales for 1996. The decrease in costs of production as
a percentage of net sales was primarily a result of economies of scale resulting
from improved utilization of the Company's existing facilities.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $5.8 million for 1997 from
approximately $4.3 million for 1996, an increase of $1.5 million. The increase
was attributable to costs associated with the addition of personnel to support
future growth. As a percentage of net sales, selling, general and administrative
expenses decreased from approximately 18% for 1996 to approximately 16% for
1997, primarily reflecting greater economies of scale as the Company improved
the utilization of its existing facilities.
Depreciation and amortization. Depreciation and amortization expense was
$694,000 for 1997 as compared to $563,000 for 1996, an increase of $131,000 or
23%. The increase in depreciation and amortization expense was attributable to
the addition of equipment by the Company during 1997. In connection with the
Acquisition, the Company will record goodwill of approximately $10.9 million
which will result in additional amortization expense in the future of
approximately $272,000 per year.
Interest expense. Interest expense was $250,000 for 1997, as compared to
$234,000 for 1996, an increase of $16,000 or 7%. Such increase was largely
attributable to higher levels of borrowings during 1997. Interest expense
reflects interest on notes payable, capital lease obligations and on
utilizations of the line of credit with Summit Bank.
Other income. Other income included $35,000 for 1997, as compared to
$48,000 for 1996, a decrease of $13,000. Other income primarily reflected gains
on the sale of certain depreciated equipment.
Provision for income taxes. Provision for income taxes was $129,000 for
1997, as compared to $56,000 for 1996. The increase is attributable to higher
income generated during the period. As discussed above, upon termination of the
Company's S corporation status, the Company will become subject to federal and
additional state income taxes.
Net income. As a result of the aforementioned, net income increased to $2.0
million for 1997 from $502,000 for 1996, an increase of $1.5 million. As a
percentage of net sales, net income increased to 6% in 1997 from 2% in 1996.
Year ended December 31, 1996 compared to year ended December 31, 1995.
Net sales. The Company had net sales of $23.2 million for the year ended
December 31, 1996 compared to $17.3 million for the year ended December 31,
1995, an increase of $5.9 million or 34%. The majority of this increase was
attributable to an increase in business with existing customers, with the
balance attributable to the addition of new customers. In 1996, the Company had
three customers each of whom represented in excess of 10% of net sales, and
together represented an aggregate of 42% of net sales. In 1995, the Company had
two customers each of whom represented in excess of 10% of net sales, and
together represented an aggregate of 37% of net sales.
Costs of production. Costs of production were $17.6 million for 1996, as
compared to $12.9 million for 1995, an increase of $4.7 million or 37%. Costs of
production were approximately 76% of net sales for 1996, as compared to
approximately 74% of net sales for 1995. The decrease in costs of production as
a percentage of net sales was primarily a result of economies of scale resulting
from improved utilization of the Company's existing facilities.
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<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $4.3 million for 1996 from
approximately $3.4 million for 1995, an increase of $900,000 or 26%. The
increase was attributable to costs associated with the addition of personnel to
support future growth. As a percentage of net sales, selling, general and
administrative expenses decreased to approximately 18% for 1996 from
approximately 20% for 1995, reflecting economies of scale as the Company
increased facilities utilization.
Depreciation and amortization. Depreciation and amortization expense was
$563,000 for 1996 as compared to $498,000 for 1995, an increase of $65,000 or
13%. The increase in depreciation and amortization expense primarily reflects
the addition of equipment by the Company during 1996.
Interest expense. Interest expense was $234,000 for 1996 compared to
$257,000 for 1995, a decrease of $23,000 or 9%.
Other income. Other income included $48,000 for 1996 as compared to $2,000
for 1995. Other income primarily reflected gains on the sale of depreciated
equipment.
Provision for income taxes. Provision for income taxes was $56,000 for 1996
as compared to $6,000 for 1995. The increase is attributable to higher income
generated during the period.
Net income. As a result of the aforementioned, net income increased to
$502,000 for 1996 from $267,000 for 1995, an increase of $235,000 or 88%.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations, including working capital
and equipment acquisitions, using bank borrowings, vendor financing, financing
lease transactions, as well as from cash flow generated from operating
activities, and stockholder debt and equity contributions. As of December 31,
1997, the Company had net working capital of $728,000, as compared to a net
working capital deficit at December 31, 1996 of $867,000. Net cash provided by
operating activities was $1.5 million, $1.7 million and $594,000 for each of the
years ended December 31, 1997, 1996 and 1995, respectively. Net cash used in
investing activities was $797,000, $1.6 million and $254,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Net cash used in investing
activities was primarily attributable to the acquisition of property and
equipment, offset in part by the cash generated from the sale and leaseback of
certain equipment for $1.3 million in 1997. Net cash used in financing
activities totaled $1.1 million in 1997, as compared to net cash generated from
financing activities of $511,000 in 1996. In 1995, net cash used in financing
activities totaled $483,000. In 1997, cash was used in financing activities
primarily to repay indebtedness to related parties and to fund a dividend to the
Company's stockholders. In 1996, cash was provided by financing activities
primarily from the net incurrence of additional third-party indebtedness to
finance the acquisition of equipment and certain other assets. In 1995, cash was
used in financing activities primarily to pay a dividend to the Company's
stockholders, as well as to repay certain indebtedness.
On December 15, 1997, the Company entered into a new Loan and Security
Agreement with Summit Bank (the "Loan and Security Agreement"). The Loan and
Security Agreement provides for a $2.0 million revolving line of credit and a
$1.0 million three-year term loan facility. The revolving line of credit expires
on May 30, 1998. Borrowings under the line of credit and the term loan bear
interest at the bank's prime rate or, at the Company's option, LIBOR plus 2.25%
(8.5% at December 31, 1997). The debt is collateralized by substantially all of
the Company's assets. Among other things, the Loan and Security Agreement
restricts the Company's ability to incur additional indebtedness and requires
the Company to maintain certain financial ratios. As of December 31, 1997,
$300,000 was outstanding under the revolving line of credit and $1.0 million was
outstanding under the term loan facility. The Company intends to repay the term
loan facility with the proceeds of the Offering. As of December 31, 1997, the
Company had no commitments for capital expenditures.
As a result of the Acquisition, the Company will have additional debt
outstanding, including borrowings under Roda's existing credit facility with the
Bank of Scotland (the "Roda Facility") consisting of a $2.0 million (POUNDS 1.2
million) term loan and a $418,000 (POUNDS 250,000) revolving line of credit. The
line of credit is reviewed by the bank annually for renewal, but is payable on
demand. Borrowings under both
29
<PAGE>
the term loan and the line of credit bear interest at the bank's base rate plus
2.50% (9.75% as of December 31, 1997). The debt is collateralized by
substantially all of Roda's assets. As of December 31, 1997, approximately
$357,000 (POUNDS 214,000) was outstanding on the credit facility and $1.6
million (POUNDS 968,000) was outstanding under the term loan. The term loan is
payable in equal monthly installments through October 20, 2001.
The Company intends to seek to expand its operations through the
acquisition of additional businesses which provide commercial, digital and
time-sensitive printing services and through the expansion of its outsourcing
business. Such acquisitions could involve the issuance of additional securities
of the Company, the payment of cash, including proceeds from the Offering, or
the incurrence of debt. No assurances can be made that the Company will have
access to necessary financing to pursue its growth strategy. The Company
believes that the combination of the proceeds raised from the Offering, together
with internally generated funds, will provide sufficient cash to meet the
Company's capital and other cash requirements for the next twelve months.
YEAR 2000 ISSUES
In the year 2000, the Company's computer programs that have date sensitive
software may recognize a date using "00" as the year 1900 rather than 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The Company will be required to modify its purchased software program so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company has been informed that the vendor for the
purchased software is expected to release an upgrade to address the Year 2000
issue no later than December 31, 1998, which is prior to any anticipated impact
on the Company's operating systems. The cost of the upgrade to the Company is
included in its maintenance contract with its vendor and will not have a
material impact on the Company's future financial results.
The Company has had communications with all of its significant, large
customers and suppliers to determine the extent to which the Company's interface
systems are vulnerable to any failure by third parties to upgrade their own
software. The Company believes that its large customers and suppliers are
addressing the issues and will timely adjust their systems. However, if such
modifications are not made by the Company or its vendors or customers, or are
not completed in a timely manner, the Company's operations could be adversely
affected.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at December 31, 1997, include the following
Statements of Financial Accounting Standards ("SFAS"):
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income (all changes in equity during a
period except those resulting from investments by and distributions to owners)
and its components in the financial statements. This new standard, which will be
effective for the Company for the year ending December 31, 1998, is currently
anticipated to only impact the Company's financial statements related to the
reporting of translation gains and losses for the proposed acquisition of Roda.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the year ending
December 31, 1998, establishes standards for reporting information about
operating segments in the annual financial statements, selected information
about operating segments in interim financial reports and disclosures about
products and services, geographic areas and major customers. This new standard
will require the Company to report financial information on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments, which may result in more detailed information in the
notes to the Company's financial statements than is currently required and
provided. The Company has not yet determined the effects, if any, of
implementing SFAS No. 131 on its reporting of financial information.
30
<PAGE>
BUSINESS
OVERVIEW
The Company provides a wide range of graphic communications services to
financial institutions and corporations, focusing on producing and distributing
time-sensitive analytical research and marketing materials and on providing
on-demand printing services. The Company, which commenced operations in 1989,
operates in select international markets through its facilities in the United
States and through alliances with Roda, its strategic partner in the United
Kingdom, and with its strategic partner in Hong Kong. The Company is a major
producer of financial research reports, having produced over 2 billion pages
during 1997. The Company provides services, on a non-exclusive basis, to 13 of
the top 20 leading investment banking firms in the United States as ranked by
Institutional Investor in October 1997 based on their capabilities in providing
research and analysis.
Graphic communications services provided by the Company include digital
communications, document management, offset printing, digital printing, data
output, bindery, fulfillment services, mailing services and outsource services.
The Company prints brochures, booklets, confirmations of trade, client
statements and adhesive books to meet the daily, weekly and monthly needs of its
customers. To facilitate the rapid distribution of documents globally, the
Company has designed and implemented the World Research Link(TM), an array of
electronic data communication networks linking each of the Company's facilities
with its strategic operating partners and major customers. To date, the Company
has established extensive non-exclusive client relationships with leading
companies in the financial services, insurance and publishing industries,
providing certain of the printing and graphic communication needs of Credit
Suisse First Boston Corporation, Deutsche Morgan Grenfell, Goldman, Sachs & Co.,
Lehman Brothers Inc., Merrill Lynch & Co., Inc., The Prudential Insurance
Company of America, Empire Blue Cross/Blue Shield, New York Life Insurance
Company, and The McGraw-Hill Company, among others.
The Company has experienced significant growth, with net sales growing from
$17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7
million pro forma for the Acquisition) for the year ended December 31, 1997 and
income from operations growing over the same period from $528,000 to $2.4
million ($3.2 million pro forma for the Acquisition), representing compounded
annual growth rates of 43.6% and 113.2%, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation." A
significant portion of this growth is attributable to the assimilation of
certain in-house printing operations of Goldman, Sachs & Co. and Empire Blue
Cross/Blue Shield. See "Graphic Communications Services -- Outsourcing
Services." The Company intends to continue to pursue its growth strategy by (i)
pursuing acquisitions and establishing strategic alliances to expand and
strengthen the Company's business reach in target markets worldwide, (ii)
pursuing outsourcing opportunities through the assimilation of in-house printing
operations of third-party businesses, (iii) expanding the scope and volume of
services offered, (iv) actively cross-selling existing or newly-added products
or services to its customers worldwide, and (v) improving the operating
efficiency of its existing operations. As part of its growth strategy,
concurrently with the closing of the Offering, the Company will acquire its
London-based strategic partner Roda. Roda provides printing and document output
and management services to financial services companies, primarily in the United
Kingdom and European markets.
The Company's senior officers have extensive experience in the graphic
communications services industry, having been employed by the Company for an
average of approximately 6 years and having an average of approximately 19 years
of industry experience. The Company's Chairman, President and Chief Executive
Officer, Michael R. Cunningham, founded the Company and has been actively
involved in the industry for over 15 years. Furthermore, based on the proven
track record of its experienced management team and the wide range of services
it provides, the Company is well-positioned to capitalize on the increasing
outsourcing trend as well as on consolidation opportunities in the industry.
INDUSTRY BACKGROUND
The Company estimates that in 1997 the commercial printing and document
production market accounted for more than $75 billion in revenue in the United
States, based upon information from certain trade associations and other
industry sources. The printing and document management business in the
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United States is highly fragmented, with approximately 40,000 companies
presently in operation, only approximately 5% of which are estimated to have
annual net sales in excess of $5 million. The Company believes that the
commercial printing and document production business is similarly fragmented in
the United Kingdom and in certain other markets.
The printing and document management industry has evolved significantly
over the last several years driven in large part by rapid advances in publishing
and electronic information technology. The Company believes that the growth of
the printing and document production industry has been due to various factors,
including (i) the increasing volume, complexity and variety of documents and
printed materials produced by businesses worldwide, (ii) the increasing demand
by businesses for the international dissemination of time-sensitive information,
and (iii) the growing trend of businesses to outsource their in-house printing
operations (e.g., print shops, copy centers and document management facilities)
to document professionals equipped to provide these services more efficiently
and cost-effectively.
BUSINESS STRATEGY
The Company believes that the fragmented nature of the graphic
communications industry and the limited capital resources available to many
small, private operators provide the Company with significant opportunities to
expand its base of operations. The Company intends to continue its growth
strategy by (i) pursuing acquisitions and establishing strategic alliances to
expand and strengthen the Company's business reach in target markets worldwide,
(ii) pursuing outsourcing opportunities through the assimilation of in-house
printing operations of third-party businesses, (iii) expanding the scope and
volume of services offered, (iv) actively cross-selling existing or newly-added
products or services to its customers worldwide, and (v) improving the operating
efficiency of its existing operations.
Pursue Acquisitions and Establish Strategic Alliances
The Company will seek to acquire complementary operations throughout the
United States, United Kingdom and other international markets which, the Company
believes, possess attractive characteristics, including concentrations of
prospective customers with significant printing needs, such as financial
institutions. The Company will typically target acquisition candidates with (i)
annual net sales ranging from $3.0 to $15.0 million; (ii) attractive growth
prospects within their respective markets; (iii) complementary technological
capabilities; (iv) opportunities for economies of scale and synergies with the
Company; (v) solid reputation with established customer relationships; and (vi)
an experienced management team. The Company may also seek to make "tuck-in"
acquisitions as a means to expand its existing operations, add product lines and
services as well as expand its customer base.
The Company will also seek to establish additional alliances with strategic
partners in targeted geographic markets. This incremental approach to growth
enables the Company to expand the scope of its operations without the need for
substantial capital investments while mitigating the risks associated with
start-up facilities in new markets. In addition, the Company believes that such
relationships foster significant cross-selling opportunities across each
partners' respective customer bases. The Company believes that such alliances
also provide for future acquisition opportunities. Pursuant to this strategy,
the Company initially established an alliance with Roda, a United Kingdom-based
printing company. As part of its growth strategy, the Company recently entered
into an agreement to acquire Roda, thereby solidifying the Company's presence in
the United Kingdom and European printing markets. See "The Company -- The Roda
Acquisition," "Graphic Communications Services -- Time Sensitive Printing," and
"International Network."
Expand Provision of Outsourcing Services
To date, the Company has grown, in part, through the assimilation of
certain in-house printing operations of third-party businesses, including the
print shop and data output center of Goldman, Sachs & Co. and the print shop of
Empire Blue Cross/Blue Shield. The Company believes that it is a cost effective
and an efficient provider of a wide range of in-house printing services. The
Company typically
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<PAGE>
provides outsourcing services by assuming all or part of the document output and
distribution responsibilities previously performed by a customer's in-house
operations. In some instances, the Company may take over the management of a
customer's in-house operations. See "Graphic Communications Services --
Outsourcing Services."
Expand the Scope and Volume of Services Offered
The Company intends to continue to expand the scope and volume of services
provided to its customers through the addition of complementary products and
services. The Company also continually evaluates opportunities to add new
equipment to its existing facilities or enhance its current technology in order
to satisfy the evolving needs of its customer base. In addition, the Company
regularly evaluates opportunities to add capacity to its existing operations to
meet any anticipated increase in demand of its larger customers.
Capitalize on Cross-Selling Opportunities
The Company also intends to actively cross-sell existing and newly-added
products or services to its customers worldwide. By leveraging on the wide range
of products and services offered through both its own facilities and those of
its strategic partners in complementary geographic markets, the Company believes
that it can better serve the needs of international customers by offering a
"one-stop shopping" approach to satisfying international printing needs. In
addition, the Company also believes that it can cultivate new customer
relationships as a result of introductions made by its strategic partners whose
respective customers may require printing output in the United States or other
markets served by the Company. The Company believes that its ability to
cross-sell the products and services of its international alliance provides it
with a distinct competitive advantage. See "Graphic Communications Services --
Time Sensitive Printing" and "International Network."
Improve Efficiency of its Existing Operations
Central to the Company's business strategy is to improve the profitability
of its operations by maximizing the efficiency of its existing facilities while
actively managing its operating and administrative costs. The Company believes
that significant economies of scale may be achieved by leveraging its
underutilized daytime production capacity through the increase of
non-time-sensitive business. A significant portion of the Company's
time-sensitive business is currently processed overnight, resulting in available
daytime capacity. The Company also expects to achieve significant economies of
scale in conjunction with its acquisition strategy. In this regard, the Company
expects to (i) consolidate duplicative functions or facilities of newly-acquired
businesses; (ii) leverage its purchasing power with its suppliers and employee
benefit providers; and (iii) use its communication network to improve the
coordination of production, maximize equipment utilization and enhance delivery.
GRAPHIC COMMUNICATIONS SERVICES
Time-Sensitive Services
The Company's primary business focuses on the production of time-sensitive
documents for major financial institutions and corporations. The Company offers
a wide range of time-sensitive services including the printing, assembly and
dissemination of folders, booklets and adhesive books on a daily, weekly and
monthly basis. The Company also prints prospectuses, annual and semi-annual
reports for mutual funds customers.
Typically, the Company converts electronic data received from its customers
on a daily basis into tailored analytical research reports which are printed and
delivered to the Company's customers prior to the start of the next business
day. The Company's production processes include digital communications, offset
and digital printing, multiple binding procedures, branch fulfillment, list
maintenance and prompt distribution. The Company's technological capabilities
enable it to produce colorful, attractive products.
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In addition, the Company's World Research Link(TM) network enables the Company
to print and distribute these documents, in conjunction with its strategic
partners, contemporaneously throughout several international locations. See
"International Network."
The demand for printed research and other time-sensitive reports has
continued to grow despite continuing developments in electronic data
transmission, such as the Internet, which provide customers with alternative
methods of transmitting time-sensitive information. The Company expects that the
demand for time-sensitive printed documents will continue to grow due to (i) the
increasing globalization of its customers, particularly financial institutions,
(ii) the growth and expansion of international capital markets and (iii) the
increasing volume, complexity and variety of document and printed materials. The
Company believes that printed research reports not only serve as information
tools, but serve as marketing tools as well. As such, the Company believes that
customers will continue to demand high quality and colorful research reports as
they seek to distinguish themselves in their own competition for clients.
Outsourcing Services
The Company typically provides outsourcing services by assuming all or part
of the document output and distribution responsibilities previously performed by
a third party's in-house operations. This service often enables such third party
to focus on its core business and to close all or portions of its in-house print
shop and/or document management and copy centers and permits the Company to
operate and perform all services on a remote basis. Such third party can also
achieve significant cost savings on the cost of technology, material and
services such as paper and shipping by taking advantage of the bulk purchase
arrangements which the Company has with its suppliers. Thereafter, the third
party may transmit computer-generated data to one of the Company's production
and printing facilities, which then processes, produces and distributes all of
the reports, statements and other computer-output documents on an as needed
basis. The Company believes that it can operate print shop, document management
and copy center functions more efficiently and cost effectively than can a
non-graphic communications company.
The Company has an established track record of assimilating into its
existing operations the assets and workforce of third-party in-house print
operations, including its assimilation of the print shop and data output center
of Goldman, Sachs & Co. and the print shop of Empire Blue Cross/Blue Shield. In
each of the foregoing transactions, the Company acquired selected equipment and
inventory on favorable terms and retained a majority of the employees. Sales to
these customers accounted for 57% and 82% of the total sales growth,
post-assimilation, in the years ended December 31, 1996 and December 31, 1997,
respectively, and accounted for 18.2% and 28.8%, respectively, of the total net
sales in those two years. Because the Company was previously providing services
to the two customers, it is possible that a portion of this sales growth might
have occurred in the absence of the assimilation of these operations.
Data Output Services
The Company also provides a variety of data output services, including the
production of trade confirmations and brokerage and investment account
statements for a major financial institution. In addition, the Company provides
certain database management services to its customers, including the ability to
output data files of addresses directly onto envelopes or other printed
material, insert flyers and other materials into mailings as well as to offer
presorting of first class mail with bulk postal drop services.
Commercial Printing
The Company produces a broad range of commercial printing products that
include catalogs, directories, brochures, booklets, folders, newsletters,
flyers, sales and marketing kits and manuals. The type of printing varies from
simple one color documents to complex multi-color documents on a wide range of
paper stocks. The Company's customers for commercial printing products include
its financial
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institution clients, insurance companies, healthcare and pharmaceutical
companies and trade associations. The Company also provides "overflow" printing
for a number of in-house print operations of investment banking firms. Given the
non-time-sensitive nature of many of these projects, the Company typically
produces these products during non-critical daytime hours. The Company expects
to continue to increase the volume of daytime commercial printing to take
advantage of its available non-time-sensitive production capacity. See "Sales
and Marketing."
PRINTING OPERATIONS
The Company provides a broad range of graphic communications services for a
wide variety of commercial purposes. These services commence with the intake of
data, and continue through the prepress and press processes, binding, and
conclude with fulfillment and distribution. The Company continuously reviews its
printing equipment needs and evaluates advances in computer hardware, software
and peripheral equipment, computer networking and telecommunications systems as
they relate to the Company's operations.
Telecommunications and Order Entry
The Company's capital investment in state-of-the-art telecommunications and
customer on-line ordering systems allows the Company to offer its services
internationally and throughout its customers' organizational network. In lieu of
manual delivery of customer data files or artwork, the Company's
telecommunications capabilities allow it to receive direct transmission of
files, saving both time and expense while increasing quality of the work
produced.
Customers have many alternatives for sending electronic files to the
Company. Using a modem, customers can contact the Company's private and secure
electronic bulletin board, log-in and transmit or access data files. For
customers with advanced telecommunications requirements, the Company offers ISDN
line communication capability. For some of the Company's most significant
customers, specialized equipment, such as fractional T1 lines have been
installed. Customers having Internet access may use available File Transfer
Protocol ("FTP") and World Wide Web applications to send and receive data in a
secure manner. Secure router-based connections through proxy servers allow the
Company to control traffic and direct files containing the text and graphics of
research reports, marketing materials, mailing lists, order entry, job tickets
and work orders, internationally through the World Research Link(TM). In
addition, the Company has developed a customized order entry system. This system
links the customer with the Company and can be accessed by customers through
desk-top computers, thereby permitting customers to create an order while
submitting digital files.
Prepress Operations
At each of its facilities, the Company operates a prepress department that
prepares customer-supplied text, data, artwork and images for document
production. Using computerized prepress equipment, the Company processes digital
files, scanned images and graphics into "composed electronic files." These
electronic files are used with a variety of output options, including digital
printing, conventional offset printing or for electronic publishing, such as on
the Internet. In addition, the Company can distribute composed electronic files
that include text and graphics in various formats through the World Research
Link(TM) to other facilities for document production. See "International
Network."
The Company believes that enhanced digital printing technology will further
facilitate multi-purpose uses by its customers of the same electronic files.
Digital printing technology will augment the Company's ability to return to the
customer a printed document plus a reformatted document which can then be used
on multiple media platforms including the Internet, the customer's intranet,
multiple on-line information services and broadcast faxing.
Press Operations
The Company operates 12 presses in its Jersey City facility, seven of which
are web presses and five of which are sheet-fed presses. The Company also
operates five presses in its Manhattan facility,
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two of which are web presses and three of which are sheet-fed presses. In
London, Roda operates 10 presses, all of which are sheet-fed presses. The
Company's presses vary in size and speed and can produce printed materials that
range in page size, type of paper, number of pages and the amount of color
required.
The Company currently has four digital presses, one located in Jersey City
and three in New York City, and intends to add digital press capability in
London. Two of the Company's digital presses have in-line binding attachments
which allow for the production of finished booklets. These presses are linked
directly to the Company's computerized network and are currently being utilized
for the production of research reports, personalized health care documents,
confirmations of trade, client statements and general print products. The
Company has developed the ability to provide digital printing services as a
complement to offset printing. For smaller runs, digital printing is more
efficient and reliable than printing on traditional presses and often results in
a product of higher quality and better resolution. Digital printing involves the
integration of a variety of systems that compile data, scan images, and compose
data and images. Through high-speed computers, data may be received directly
from customers and put directly on the press, eliminating the costly
intermediate steps involved in the traditional printing process.
Binding Services
At each facility, the Company operates a bindery department which provide
various finishing services. The Company's finishing services include cutting and
folding, saddle stitching, punching, collation and inserting, and at the Jersey
City facility, perfect binding and shrink-wrapping. By offering a variety of
finishing services, the Company can offer its clients expeditious service as
well as a wide range of finishing service options.
Fulfillment Services
At each facility, the Company also operates a fulfillment department. Many
of the documents prepared for customers need to be stored for future
distribution, both electronically and physically. The Company's fulfillment
department stores materials and assembles orders for distribution upon customer
request. Printed components are assembled into kits and are packed individually,
or in bulk, for delivery. Upon completion of the order, the fulfillment system
relieves the distribution from the customer's inventory and generates an
activity report for inventory control. For those customers who require mail
distribution, the Company operates a mailing department in each location. Using
inkjet and cheshirre labeling machines, electronic mailing lists are addressed
on envelopes. Documents are inserted into envelopes, sealed and sorted for mail.
Management Information System
The Company's personnel utilize a comprehensive and integrated management
information system which gathers data from all departments and provides
management with job status and historical information. The system is divided
into several fully integrated modules consisting of estimating, production,
purchasing, inventory and accounting modules. This system gives management the
ability to monitor all work orders and department costs against budgets and
profit goals. Using this system, management can also track the status of a
particular work order as it moves through the production process. The system
permits the Company to (i) determine the most efficient and cost-effective means
of completing particular work orders, (ii) give customers pricing estimates
quickly, (iii) measure pressroom efficiency and waste, (iv) analyze buying
patterns, pricing and usage for inventory control purposes and (v) produce
customized financial statements, reports and analyses.
INTERNATIONAL NETWORK
In 1994, the Company, in conjunction with its strategic partners, developed
an international network known as the World Research Link(TM) designed to
facilitate the expeditious distribution of time-sensitive financial research
reports throughout select international financial markets, 24 hours a day.
Through the use of high speed electronic links among the Company's facilities in
the United States and its strategic partners in the United Kingdom and Hong
Kong, the Company is able to print research reports concurrently throughout
these three principal international financial markets.
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The Company's strategic partner in the United Kingdom is Roda, a leading
research report printer established in 1976. Roda's principal customers include
the London branches of numerous major international financial institutions,
including Credit Suisse First Boston Corporation and Lehman Brothers Inc., as
well as other major international institutions, such as J. Henry Schroder & Co.
Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO Hoare Govett.
Concurrently with the Offering, the Company will acquire Roda and will
subsequently seek to integrate its operations within the Company.
The Company's strategic partner in Hong Kong is Workable Co. Ltd.
("Workable"), a leading research report printer established in 1988. Workable's
principal customers include the Hong Kong branches of numerous major
international financial institutions, including Credit Suisse First Boston
Corporation, Merrill Lynch & Co., Inc. and Indosuez W.I. Carr Securities Ltd.
Workable maintains around-the-clock operations and provides overnight shipments
to other principal financial centers throughout Asia. Workable has invested in
state-of-the art printing and data communications technology to facilitate the
receipt and distribution of electronic data files and Japanese data
transmissions. The Company and Workable have implemented a joint marketing plan
which provides the Company with potential cross-selling opportunities to
Workable's customers who maintain operations in New York and London.
The Company intends to continue to expand its World Research Link(TM)
through the establishment of additional strategic alliances throughout Europe,
South America and Asia. The Company regards its international relationships as
cross-selling opportunities and intends to develop additional joint marketing
alliances whereby the Company and its strategic partners each expect to derive
business from their respective customers' operations in various international
markets.
SALES AND MARKETING
The Company's marketing activities are handled primarily through its own
sales force consisting of nine individuals, a few of whom hold management
positions. Following the Acquisition, the Company will have two salesmen in
London. The Company's sales representatives are generally organized among
customer industry groups, such as financial services, healthcare and insurance
and by specific printing and document output services, such as research reports
and on-demand mutual fund reports and commercial printing. In addition, the
Company employs customer service representatives to provide on-going support to
existing customers and to oversee the implementation of new customer projects.
The Company currently has approximately 350 customers in the United States,
including financial institutions, healthcare companies, trade organizations and
retail and manufacturing firms. The Company's four largest customers, Goldman,
Sachs & Co., The Prudential Insurance Company of America, Credit Suisse First
Boston Corporation and Merrill Lynch & Co., Inc. accounted for approximately
24%, 13%, 10% and 10% respectively, of the Company's net sales for the year
ended December 31, 1997. After giving effect to the Acquisition, the Company's
four largest customers, Goldman, Sach & Co., Credit Suisse First Boston
Corporation, Lehman Brothers Inc., and The Prudential Insurance Company of
America, accounted for approximately 20%, 12%, 11% and 11%, respectively, of the
Company's net sales on a pro forma basis for the year ended December 31, 1997.
In 1997, Roda's largest customers were Lehman Brothers Inc. and Credit
Suisse First Boston Corporation, which accounted for approximately 25% and 22%,
respectively, of its sales. Roda's next three largest customers in London were
J. Henry Schroder & Co. Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO
Hoare Govett. Combined, these five customers accounted for approximately 86% of
Roda's sales during 1997.
The Company believes that its quality of its work product, timeliness of
performance, on-going customer support and its ability to customize services to
serve specific client needs have contributed to its record of successful
customer retention. The Company encourages its major customers to enter into
service contracts specifying certain types of business for a defined period. The
Company believes that such contracts enable it to improve its order flow and
provides it with a more predictable volume of business. The Company intends to
add sales representatives and customer support staff to further increase its
customer base in additional markets and to augment its volume of non-financial
commercial printing.
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<PAGE>
COMPETITION
The commercial printing and document production industry is highly
competitive. The Company competes with a variety of companies, many of which
possess significantly greater financial and other resources than the Company. In
the New York market, the Company competes with Bowne & Co., R.R. Donnelly, Xerox
Business Services, Big Flower Press Holdings, Inc. and Merrill Corporation, and
numerous smaller operations, in the printing of time-sensitive documents. A
major competitor of Roda in the London market is Williams Lea Ltd. (a strategic
partner of Bowne & Co.).
The Company believes that the principal competitive factors in providing
printing and document output services include technological expertise, quality
and accuracy, turnaround time, fulfillment, price, reliability, security of
service, reputation, client industry expertise, capacity and personalized
customer support and service. No assurances can be given that the Company will
be able to compete effectively against the larger companies in the printing
industry.
GOVERNMENTAL REGULATION
Under various environmental laws, ordinances and regulations in effect in
the United States, a current or previous owner or operator of real property may
be held liable for the cost of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose clean-up responsibility and liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances, and liability under such laws has been interpreted to be joint and
several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. Existing laws of a similar nature in the United
Kingdom will be replaced and strengthened when new laws for the remediation of
contaminated land become effective. These laws will impose clean-up
responsibility on a proportionate basis. Primary clean-up responsibility will be
imposed on those who caused or knowingly permitted the presence of the hazardous
or toxic substances. If no such persons can be found, then the current owner or
occupier may have clean-up responsibility. The costs of any required remediation
or removal of hazardous or toxic substances could be substantial and the
liability of an owner or operator as to any property is generally not limited
under such laws and regulations and could exceed the property's value and the
aggregate assets of the owner or operator. The presence of these substances or
failure to remediate such substances properly may also adversely affect the
owner's ability to sell or rent the property, or to borrow using the property as
collateral. Under these laws and regulations in the United States, an owner,
operator or an entity that arranges for the disposal of hazardous or toxic
substances, such as asbestos-containing materials, at a disposal site may also
be liable for the costs of any required remediation or removal of the hazardous
or toxic substances at the disposal site. In the United Kingdom, laws and
regulations require the owner or operator disposing of such substances to ensure
disposal at a properly licensed disposal site. Failure to do so is a violation
of law. In connection with the ownership or operation of its properties, the
Company could be liable for these costs, as well as certain other costs,
including governmental fines and injuries to persons or properties. As a result,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company, or acquired or
operated by the Company in the future, could have an adverse effect on the
Company's business, financial condition and results of operations. No assurance
can be given that existing environmental audits with respect to any of the
Company's properties reveal all environmental liabilities. In addition, the
Company's activities are also governed by laws and regulations affecting the
health and safety of its employees, including the United States Occupational
Safety and Health Act ("OSHA") and the United Kingdom Health and Safety at Work
etc. Act 1974 and the numerous regulations issued under it. Among other things,
these laws and regulations require the Company to obtain and maintain licenses
and permits and carry out risk assessments in connection with its operations.
This extensive regulatory framework imposes significant compliance burdens and
risks on the Company. Failure to comply with applicable laws, rules or
regulations or permitting requirements could subject the Company to civil
remedies, including fines and injunctions, as well as possible criminal
sanctions, which would have a material adverse effect on the Company.
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LITIGATION
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial condition and results of operations.
FACILITIES
The Company leases approximately 110,000 square feet of office and
production space at its principal location in Jersey City, New Jersey under a
lease which expires on February 29, 2000. The Company also subleases
approximately 25,000 square feet of production space in Manhattan from Goldman,
Sachs & Co. under an agreement which expires December 30, 1999. In the Southwark
area of London, Roda leases approximately 8,000 square feet of office and
production space under an agreement which expires on the date five years
subsequent to the closing of the Acquisition and leases nearby warehouse space
under a lease which expires September 28, 2000.
EMPLOYEES
As of December 31, 1997, the Company had approximately 370 employees in the
United States, all of which were employed on a full-time basis. As of such date,
255 United States-based employees were members of the United Paperworkers
International Union, with which the Company has a memorandum of agreement which
expires on June 30, 2000. As of December 31, 1997, Roda had approximately 50
full-time employees, of which approximately 30 were members of the National
Graphical Association, a labor union in the United Kingdom. The Company believes
that it is in compliance with its labor agreements and that its labor relations
are good.
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MANAGEMENT
The following table sets forth certain information concerning each of the
Company's directors, executive officers, designees to the Board of Directors who
will become directors following the consummation of the Offering and a key
employee of Roda:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- ----- --------------------------------------------------
<S> <C> <C>
Directors and Executive Officers
Michael R. Cunningham ............. 38 Chairman of the Board, President and Chief
Executive Officer
Gordon Mays ....................... 41 Director and Executive Vice President
Timothy Mays ...................... 39 Executive Vice President of Sales; Secretary
Robert Needle ..................... 39 Chief Operating Officer
Robert M. Okin .................... 52 Senior Vice President and Chief Financial Officer
Ioannis Lykogiannis ............... 46 Senior Vice President, Operations
Peter L. Furlonge ................. 45 Managing Director of Roda
James J. Cunningham ............... 40 Director
Designees to the Board of Directors
Arnold Spinner* ................... 63 Director Designee
Laurence Gerber* .................. 41 Director Designee
Stanley J. Moss* .................. 68 Director Designee
</TABLE>
- ----------
* Upon consummation of the Offering, it is anticipated that Messrs. Spinner,
Gerber and Moss will become directors.
Directors and Officers
Michael R. Cunningham, the principal founder of the Company, has been the
President and Chief Executive Officer of the Company since its inception. He has
spent his entire professional career in the printing and document production
industry. He also teaches Quality Control at the Center for Graphic
Communications Management and Technology of New York University. Mr. Cunningham
has a Masters Degree in Graphic Communications, Management and Technology from
New York University.
Gordon Mays has served as a director and Executive Vice President of the
Company since 1991. He is presently responsible for marketing and business
development and is also responsible for overseeing the Company's management
information services departments, including overseeing cost control measures and
governmental compliance. He has spent his entire professional career in the
printing and document production industry. From 1977 to 1991, Mr. G. Mays was
employed by Latham Process Corporation where he was responsible for production
and sales.
Timothy Mays has served as Executive Vice President of Sales and Secretary
of the Company since 1991. He presently oversees sales to major corporate
clients. He has spent his entire professional career in the printing and
document production industry. From 1979 to 1991, Mr. T. Mays was employed by
Latham Process Corporation where he was engaged in sales. Messrs T. Mays and G.
Mays are first-cousins.
Robert Needle joined the Company in 1995 and has served as Chief Operating
Officer of the Company since February 1998. Mr. Needle has served in various
capacities for the Company since 1995, including Co-Chief Operating Officer from
January 1997 to February 1998. He is responsible for all operations of the
Company. He has spent his entire professional career in the printing and
document production industry. From 1988 to 1995, Mr. Needle was employed by
Goldman Sachs & Co., first as Art Director of the Graphics Department and then
as Manager of Print Operations.
Robert M. Okin joined the Company in April 1998 as Senior Vice President
and Chief Financial Officer. Mr. Okin has held senior executive positions in the
printing industry for 24 years. Since June 1997, he has been Vice President and
Chief Financial Officer of Applied Printing Technologies, L.P. In
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1995, he was employed by The Corporate Printing Company, an international
financial printing company, as Executive Vice President and Chief Financial
Officer, and remained with its successor, Merrill Corporation, until 1997. From
1993 to 1994, he was Senior Vice President and Chief Financial Officer of The
Berkline Corporation. Prior thereto, he held senior financial officer positions
with Webcraft Technologies, Inc. and Polychrome Corporation. Mr. Okin is
licensed as a certified public accountant in the State of New York.
Ioannis Lykogiannis has served as Senior Vice President, Operations of the
Company since 1995. Mr. Lykogiannis has served in various capacities for the
Company since 1991, including Plant Manager from 1991 to 1995. He is responsible
for all internal production operations of the Company. From approximately 1984
to 1991, Mr. Lykogiannis was employed by Latham Process Corporation, most
recently as a Plant Production Manager.
Peter L. Furlonge has been an executive officer of Roda since 1989 and its
Managing Director since 1995. Prior to his employment by Roda, he was a
financial officer for various construction companies, including Foster Wheeler
in South Africa, where he was a manager of financial accounting. Mr. Furlonge is
a Qualified Chartered Secretary in England.
James J. Cunningham has been a Director of the Company since 1989. He has
been engaged in the private practice of law in San Diego, California since 1987,
and specializes in workers compensation and labor and employment law. Mr.
Cunningham is the brother of Michael R. Cunningham, the Chairman of the Board,
President and Chief Executive Officer of the Company.
Designees to the Board of Directors
It is expected that upon the consummation of the Offering, each of the
following individuals will become directors of the Company:
Arnold Spinner, Ph.D, has been the Director of the Center for Graphic
Communications Management and Technology of New York University since 1984. He
has held various teaching and administrative positions at New York University
since 1965.
Laurence Gerber is Chairman and Chief Executive Officer of Epoch Senior
Living, Inc., which he co-founded in late 1997. Prior thereto, since 1991, he
was President and Chief Executive Officer of Berkshire Group. From 1991 to 1997
he was also President and Chief Executive Officer of Berkshire Realty Co., Inc.
(NYSE). From June 1996 to October 1997 he was a director and member of the
executive committee of Harborside Healthcare Corporation (NYSE).
Stanley J. Moss is a lawyer engaged in the solo practice of law since 1992.
From 1992 to 1994 he acted as corporate counsel to Brenner Securities
Corporation. Prior thereto he was of counsel to the law firm Katten, Muchin &
Zavis. From 1987 to 1990 he was employed as a Senior Vice President, Secretary
and Corporate Counsel by Drexel Burnham Lambert Inc. From 1993 to 1997 he was a
trustee of Mid-Atlantic Realty Trust (NYSE) and from 1992 to 1995 he was a
director of Ground Round Restaurants, Inc. (NASDAQ NMS).
Key Employees
Robert M. Zanisnik has served as Senior Vice President of the Company since
he joined the Company in 1995. He is responsible for all production and customer
service activities of the Company. From 1970 to 1995, Mr. Zanisnik was employed
by The Prudential Insurance Company of America, most recently as a Manager of
Print Operations.
Kenneth G. Hay has served as Vice President of Finance of the Company since
February 1998. Mr. Hay has served as a principal financial officer of the
Company since he joined the Company in 1997. Prior to joining the Company,
during the period 1992 through 1996, he was Vice President Finance and Chief
Financial Officer of Dana Perfumes Corporation. He is licensed as a certified
public accountant in the State of New Jersey.
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<PAGE>
George Leos has served as Vice President, Production of the Company since
1995. Mr. Leos has served in various capacities for the Company since 1992,
including Production Supervisor from 1992 to 1995. He is responsible for all
scheduling and production planning of the Company. From approximately 1971 to
1992, Mr. Leos was employed by Latham Process Corporation, most recently as a
Production POUNDS rinting Superintendent.
Richard Monica has served as the controller of the Company since 1991.
Prior thereto, and since 1987, Mr. Monica served as controller of Kenny Press,
Inc., a commercial printer. From 1976 through 1988, he served as an assistant
accounting manager at Automatic Switch, a division of Emerson Electric, Inc.
Classified Board
Effective upon the closing of the Offering, the Company will implement a
staggered Board of Directors consisting of three classes, with each class
containing, as nearly as practicable, an equal number of directors. Messrs.
Spinner and Moss will be Class A Directors, for a term expiring at the 1999
Annual Meeting of Stockholders, Messrs. Gerber and James J. Cunningham will be
Class B Directors, for a term expiring at the 2000 Annual Meeting of
Stockholders, and Messrs. Gordon Mays and Michael R. Cunningham will be Class C
Directors, for a term expiring at the 2001 Annual Meeting of Stockholders.
Commencing with the 1999 Annual Meeting of Stockholders, directors of one class
will be elected for a three year term. See "Description of Securities --
Staggered Board of Directors."
Executive officers serve at the discretion of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has created two committees, the Audit
Committee and the Compensation Committee. The members of the committees will be
designated following the consummation of the Offering. It is anticipated that
Messrs. Spinner, G. Mays and Moss will comprise the Audit Committee and that
Messrs. Spinner, Moss and Gerber will comprise the Compensation Committee. The
Audit Committee periodically reviews the Company's auditing practices and
procedures and makes recommendations to management or to the Board of Directors
as to any changes to such practices and procedures deemed necessary from time to
time to comply with applicable auditing rules, regulations and practices, and
recommends independent auditors for the Company to be elected by the
stockholders. A majority of the members of the Audit Committee will be outside
directors. The Compensation Committee meets periodically to make recommendations
to the Board of Directors concerning the compensation and benefits payable to
the Company's executive officers and other senior executives and administers the
Company's stock option plan for employees. See "Stock Option Plans."
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities for the Chief Executive Officer
and the four most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers") during the fiscal year ended
December 31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------ ------ ----------- ---------- ----------------------
<S> <C> <C> <C> <C>
Michael R. Cunningham,
President and Chief
Executive Officer 1997 $347,798 -- --
1996 $324,314 -- --
1995 $305,476 -- --
Gordon Mays,
Executive Vice President 1997 $170,664 $40,775 --
1996 $153,448 -- --
1995 $134,632 -- --
Timothy Mays,
Executive Vice President of Sales 1997 $230,150 $36,638 --
1996 $221,137 -- --
1995 $266,650 -- --
Robert Needle,
Chief Operating Officer 1997 $159,116 $25,000 --
1996 $133,251 $15,000 --
1995 $ 95,231 -- --
Ioannis Lykogiannis,
Senior Vice President 1997 $111,690 $14,234 --
1996 $101,336 $ 1,500 --
1995 $ 88,933 -- --
</TABLE>
Pursuant to their employment agreements, each of Messrs. Cunningham, G.
Mays, T. Mays, Needle and Lykogiannis will receive base salaries of $250,000,
$175,000, $150,000, $155,000 and $119,000, respectively following the completion
of the Offering. See "Employment Agreements."
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual retainer of $6,000 and an additional fee of
$1,000 for each day's attendance at a Board of Directors meeting and/or
committee meeting or $500 for participation in a telephone conference meeting.
Under the Company's Directors' Stock Option Plan, each non-employee Director has
been granted an option to acquire 15,000 shares of Common Stock at the initial
public offering price and will automatically receive options to acquire 4,000
shares of Common Stock each year, commencing in 1999. See "Stock Option Plans --
The Directors' Stock Option Plan." Directors of the Company are reimbursed for
out-of-pocket expenses incurred in their capacity as directors of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
During the year ended December 31, 1997, there were no stock options
granted to the Named Executive Officers.
EMPLOYMENT AGREEMENTS
Michael R. Cunningham, Gordon Mays, Timothy Mays, Robert M. Zanisnik,
Robert Needle, Robert M. Okin and Ioannis Lykogiannis have entered into
employment agreements with the Company which are effective upon the consummation
of the Offering. Mr. Furlonge will enter into a new employment agreement with
the Company which will become effective upon the closing of the Acquisition.
The agreement with Mr. Cunningham is for a term of three years. He is
employed as President and Chief Executive Officer of the Company with general
supervisory authority of the business of the Company and its subsidiaries and is
charged with the responsibility of preparing and implementing a strategic plan
and seeking out and consummating acquisitions, in accordance with policies set
by the Board of Directors. Pursuant to his employment agreement, Mr. Cunningham
is paid an annual salary
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<PAGE>
of $250,000, which may be increased from time to time at the discretion of the
Board of Directors. He is also entitled to an annual bonus in an amount
determined by the Compensation Committee based upon the realization of the
Company's goals during such year.
The agreement with Mr. G. Mays is for a term of three years. He is employed
as Executive Vice President of the Company with responsibility for marketing,
business development and information systems. Pursuant to his employment
agreement, Mr. G. Mays is paid an annual salary of $175,000, which may be
increased from time to time at the discretion of the Board of Directors. He is
also entitled to an annual bonus in an amount determined by the Compensation
Committee based upon the realization of the Company's goals during such year.
The agreement with Mr. T. Mays is for a term of three years. He is employed
as Executive Vice President of Sales of the Company with responsibility for
overseeing major corporate accounts and identifying new customers. Pursuant to
his employment agreement, Mr. T. Mays is paid an annual salary of $150,000,
which may be increased from time to time at the discretion of the Board of
Directors. He is also entitled to an annual bonus in an amount determined by the
Compensation Committee based upon the realization of the Company's goals during
such year and to commissions on net sales to certain customers of the Company.
The agreement with Mr. Needle is for a term of three years. He is employed
as Chief Operating Officer of the Company with responsibility for all
manufacturing and customer service operations. Pursuant to his employment
agreement, Mr. Needle is paid an annual salary of $155,000, which may be
increased from time to time at the discretion of the Board of Directors. He is
also entitled to an annual bonus in an amount determined by the Compensation
Committee based upon the realization of the Company's goals during such year and
to commissions on net sales to certain customers of the Company.
The agreement with Mr. Okin has a term of one year, beginning April 6,
1998. He will be employed as Senior Vice President and Chief Financial Officer
of the Company with supervisory authority over the finance, human resources and
management information services departments of the Company. Pursuant to his
employment agreement, Mr. Okin is paid an annual salary of $145,000, which may
be increased from time to time at the discretion of the Board of Directors. He
is also entitled to an annual bonus in an amount determined by the Compensation
Committee based upon the realization of the Company's goals during such year.
The agreement with Mr. Lykogiannis is for a term of three years. He is
employed as a Senior Vice President, Operations of the Company with
responsibility for all internal production operations. Pursuant to his
employment agreement, Mr. Lykogiannis is paid an annual salary of $119,000 which
may be increased from time to time at the discretion of the Board of Directors.
The agreement with Mr. Zanisnik is for a term of three years. He is
employed as a Senior Vice President of the Company with responsibility for all
production and customer service activities. Pursuant to his employment
agreement, Mr. Zanisnik is paid an annual salary of $88,000, which may be
increased from time to time at the discretion of the Board of Directors. He is
also entitled to an annual bonus in an amount determined by the Compensation
Committee based upon the realization of the Company's goals during such year and
to commissions on net sales to certain customers of the Company.
The agreements with each of Messrs. Cunningham, G. Mays, T. Mays, Zanisnik,
Needle and Lykogiannis are automatically extended for additional periods of one
year effective on the second anniversary of the commencement date and on each
anniversary thereafter (the "Renewal Date") unless the Company gives notice to
the contrary at least six months prior to the Renewal Date. The agreement with
Mr. Okin is automatically extended for additional periods of one year unless the
Company gives notice to the contrary at least three months in advance of the
scheduled termination date. Each of the executive officers is entitled to a lump
sum payment in the amount of one-half times his then annual salary in the event
of a termination without cause, and, except in the case of Mr. Okin, a lump sum
payment in the amount of two times his then annual salary in the event a
termination without cause within one year after a "Change of Control." In Mr.
Okin's case, the payment under such circumstances
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<PAGE>
increases from one-half of his then annual salary to two times his then annual
salary over a period of two years. Except in the case of Mr. Okin, each of the
foregoing individuals is entitled to a lump sum payment in the amount of two
times his then annual salary in the event of a termination of employment by the
employee for "Good Reason" as defined under each of the respective employment
agreements. Each of the foregoing individuals is also entitled to a
comprehensive medical indemnity policy for himself and his family, long-term
disability insurance and such other benefits as the Board of Directors shall
adopt and approve. Messrs. Cunningham, G. Mays, T. Mays, Okin and Needle also
receive a car allowance.
The agreement between Roda and Mr. Furlonge is for a term of at least 18
months, and continues until terminated by either party upon at least six months'
prior notice. Mr. Furlonge is employed as a senior executive of Roda with the
job title Managing Director. He is paid an annual salary of $163,000 (POUNDS
100,000), which is subject to increase each year by an amount at least equal to
the percentage increase in a consumer price index over the prior year. He is
also entitled to an annual bonus in an amount determined by the Compensation
Committee based upon the realization of the Company's goals during such year. He
is entitled to a lump sum payment in the amount of two times his then annual
salary following a "Change in Control" of Roda or the Company, provided that he
continues to work for at least six months following the Change of Control (or,
if longer, for such period of time following the Change of Control to ensure
that he has completed at least 18 months of service under the agreement). If his
employment is terminated, except for cause, following a Change in Control, the
lump sum payment would be payable immediately. Mr. Furlonge is also entitled to
medical insurance for himself and his family, continued participation in Roda's
pension plan, life insurance in the amount of four times his annual salary and a
car allowance.
STOCK OPTION PLANS
1998 Stock Option Plan
In February 1998, the Board of Directors and the sole stockholder of the
Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000
shares of Common Stock for issuance thereunder. The Plan provides for the
granting to employees (including employee directors and officers) of options
intended to qualify as incentive stock options within the meaning of
(section)422 of the Code and for the granting of nonstatutory stock options to
employees and consultants. The 1998 Plan is currently administered by the
Company's Compensation Committee.
The 1998 Plan provides for the granting of both Incentive Stock Options
("ISOs") and nonstatutory stock options (a "NSO") and in connection with such
options the granting of stock appreciation rights (an "SAR") or additional stock
options, known as progressive stock options, in the event the grantee exercises
such stock options by surrendering shares of Common Stock of the Company (a
"PSO"). NSOs and SARs may be issued to any key employee or officer of the
Company or its subsidiaries, or any other person who is an independent
contractor, agent or consultant of the Company or its subsidiaries but not any
director of the Company who is not an employee of the Company. ISOs may be
issued to key employees and officers of the Company and its subsidiaries, but
not to any independent contractor, agent or consultant. The Compensation
Committee also determines the times at which options will vest and will become
exercisable, their transferability and the dates, not more than ten years after
the date of grant, on which options will expire. In the event of a tender offer
for more than 25% of the Company's outstanding stock, or a "change in control"
(as defined in the 1998 Plan) of the Company, all outstanding options become
immediately exercisable. The fair market value of the stock with respect to
which ISOs under the 1998 Plan or any other plan of the Company first become
exercisable may not exceed $100,000 in any year. The option price of an ISO is
to be at least 100% of the fair market value on the date of grant (110% in the
case of optionees holding more than ten percent of the combined voting power of
all classes of stock of the Company). The 1998 Plan, however, permits the
Compensation Committee to grant NSOs at any exercise price consistent with the
purposes of the 1998 Plan, whether or not such exercise price is equal to the
fair market value of the stock on the date of grant of the NSO. NSOs with an
exercise price of less than fair market value on the date of grant would not
qualify as performance-based compensation under (section)162(m) of the Code and,
therefore, any
45
<PAGE>
compensation expense generated by the exercise of such an option would not be
deductible by the Company when the Company is considered to be subject to such
Section, if the optionee is a "covered employee" who is paid compensation from
the Company in an amount in excess of $1,000,000 in the year of exercise.
Options may be exercised by the payment of the exercise price in cash,
Common Stock or a combination thereof. Subject to compliance with the provisions
of applicable governmental regulations, the Compensation Committee may make a
loan for the purpose of exercising any option granted under the 1998 Plan to an
optionee in an amount not to exceed 100% of the purchase price of the shares
acquired upon exercise of the options. The loan must be secured by a pledge of
shares of the Company having an aggregate purchase price equal to or greater
than the amount of the loan.
The 1998 Plan permits the Compensation Committee to grant SARs in
connection with any option granted under the 1998 Plan. SARs enable an optionee
to surrender an option and to receive a payment in cash or Common Stock, as
determined by the Compensation Committee, equal to the difference between the
fair market value of the Common Stock on the date of surrender of the related
option and the option price.
The 1998 Plan also permits the Compensation Committee to grant PSOs in
connection with any option granted under the 1998 Plan. PSOs enable an optionee
to receive additional stock options in the event the grantee exercises a stock
option, in whole or in part, by surrendering shares of Common Stock of the
Company. Any PSO granted will be for a number of shares equal to the number of
surrendered shares of Common Stock, shall not be exercisable for a minimum of
six months from the grant date of the option, shall have an option price per
share equal to 100% of the fair market value of a share of stock on the grant
date and shall be subject to such other terms and conditions as the Compensation
Committee may determine.
At the time of the Offering, options covering an aggregate of 230,300
shares of Common Stock will be outstanding under the 1998 Plan including options
to purchase 50,000 shares of Common Stock granted to each of Messrs. Needle and
Lykogiannis and options to purchase 45,000 shares granted to Mr. Okin. All of
such options will expire ten years after the date of grant, and have an exercise
price per share, subject to adjustment, equal to the initial public offering
price. Of the above 230,300 options, 175,000 will be fully vested upon the
consummation of the Offering and the remaining 55,300 will vest over a period of
three years.
The Directors' Stock Option Plan
In February 1998, the Board of Directors and the sole stockholder of the
Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and
reserved 150,000 shares of Common Stock for insurance thereunder. The
individuals eligible to participate in the Directors' Plan are each Director of
the Company who is not an employee of the Company or any of its subsidiaries (an
"Outside Director").
Under the terms of the Directors' Plan, upon the closing of the Offering,
each Outside Director automatically receives an NSO to acquire 15,000 shares of
Common Stock at the initial public offering price. Accordingly, at the time of
the Offering, options covering an aggregate of 60,000 shares of Common Stock
will be outstanding under the Directors' Plan. In addition, beginning in 1999,
on the first business day of the month following the month in which the annual
meeting of stockholders occurs, each Outside Director shall automatically
receive an NSO for the purchase of 4,000 shares of Common Stock at the fair
market value of the Common Stock on the date of grant. New Outside Directors
shall receive an NSO for the purchase of 15,000 shares of Common Stock upon
their initial election as directors. All options granted under the Directors'
Plan will be fully vested six months after the date of grant.
Options under the Directors' Plan will have a term of ten years and shall
not be exercisable until six months following the date of grant. Payment upon
exercise may be made only in cash or by check. In the case of a person who
ceases to be an Outside Director for reasons other than death, the options shall
not be exercisable after the third anniversary of the date such person ceased to
be an Outside Director. In the case of death, options that have not expired may
not be exercised by executors, administrators, heirs or distributees, after the
first anniversary of the date of death.
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<PAGE>
The Board of Directors has the authority to amend, suspend or discontinue
the Directors' Plan but the Board of Directors may not, without the approval of
stockholders, make any amendment which (i) makes a change in the persons
eligible to receive options under the Directors' Plan, (ii) increases the number
of shares of the Common Stock which may be issued under the Directors' Plan,
(iii) increases the maximum option price, (iv) decreases the option price or (v)
changes the number of shares subject to the automatic option.
401(K) PLAN
The Predecessor maintains a salary deferral and savings plan for its
employees (the "401(k) Plan") which is qualified under Section 401(k) of the
Code. Subject to limits set forth in the Code, employees who meet certain age
and service requirements may participate in the 401(k) Plan by contributing
through payroll deductions. The Company, at its discretion, may elect to
contribute to the 401(k) Plan in amounts and at times determined by the Board of
Directors.
RODA PENSION PLAN
Roda maintains a defined contribution pension plan, approved by the United
Kingdom's Inland Revenue, in which employees who meet certain age and service
requirements may participate. The plan is based upon contributions from both the
employer and employees, with Roda's contribution on behalf of each participating
employee being set at 5% of basic salary.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock, after giving effect to the Reorganization and the
Acquisition, both before and after the Offering, by (i) each person known to the
Company to be the beneficial owner of 5% or more thereof, (ii) each director and
designee who will become a director upon consummation of the Offering, (iii)
each of the Named Executive Officers and (iv) all directors and officers as a
group.
Under the rules of the Securities and Exchange Commission (the
"Commission"), a person is deemed to be a "beneficial owner" of a security if he
or she has or shares the power to vote or direct the voting of such security or
the power to dispose of or direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
security. Shares of Common Stock subject to options held by the directors and
officers that are not exercisable within 60 days of the date hereof are not, in
accordance with beneficial ownership rules promulgated by the Commission, deemed
outstanding for the purpose of computing such director's or officer's beneficial
ownership.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
BENEFICIALLY OWNED
----------------------
AMOUNT AND NATURE
OF BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNERSHIP OFFERING OFFERING
- ------------------------------------------------------- -------------------- ---------- ---------
<S> <C> <C> <C>
Michael R. Cunningham ................................. 2,032,728 (2) 79.0% 41.8%
Gordon Mays ........................................... 228,198 (3) 8.8% 4.7%
Timothy Mays .......................................... 165,803 (4) 6.4% 3.4%
Robert Needle ......................................... 50,000 (5) * 1.0%
Robert M. Okin ........................................ 45,000 (5) * *
Ioannis Lykogiannis ................................... 50,000 (5) * 1.0%
Peter L. Furlonge ..................................... 128,323 (6) * 2.6%
Arnold Spinner ........................................ -- * *
James J. Cunningham ................................... 132,398 (7) 5.0% 2.7%
Laurence Gerber ....................................... -- * *
Stanley J. Moss ....................................... -- * *
All directors and officers as a group (11 persons)..... 2,832,450 (8) 99.2% 56.5%
</TABLE>
- ----------
* Less than 1%.
(1) Unless otherwise indicated, the address of each such person is c/o
Cunningham Graphics International, Inc., 629 Grove St., Jersey City, New
Jersey 07310. All persons listed have sole voting and investment power with
respect to their shares unless otherwise indicated.
(2) Excludes 130,898 shares held by a trust for the benefit of Michael R.
Cunningham's children. The trustee of such trust, James J. Cunningham, the
brother of Mr. M. Cunningham, has the sole right to vote and dispose of
such shares. Also excludes 18,000 shares which will be gifted by Mr. M.
Cunningham at the time of the Offering.
(3) Excludes 9,817 shares held by a trust for the benefit of Gordon Mays'
children. The trustee of such trust, William J. Mays, the brother of Mr. G.
Mays, has the sole right to vote and dispose of such shares.
(4) Excludes 9,817 shares held by a trust for the benefit of Timothy Mays'
children. The trustee of such trust, William Edward Shannon, the
brother-in-law of Mr. T. Mays, has the sole right to vote and dispose of
such shares.
(5) Represents shares underlying options which have been granted to the
designated person, all of which are exercisable within 60 days of the date
of this Prospectus.
(6) Gives effect to 128,323 shares to be issued to Mr. Furlonge in the
Acquisition.
(7) Includes the 130,898 shares referred to in footnote (2).
(8) Includes 145,000 shares subject to options which have been granted to
officers and which are exercisable within 60 days of the date of this
Prospectus, and excludes the shares referred to in footnotes (3) and (4).
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<PAGE>
CERTAIN TRANSACTIONS
CAPITALIZATION PRIOR TO THE REORGANIZATION
The Predecessor was initially capitalized in September 1983 through the
sale of 100 shares of common stock of the Predecessor, to Michael R. Cunningham,
the Company's founder. Mr. Cunningham subsequently made gifts of six shares to a
trust created for the benefit of his children.
On June 11, 1991, the Predecessor entered into a stock purchase agreement
(the "Stock Purchase Agreement") with Timothy Mays and Gordon Mays
(collectively, the "Buyers") which entitled the Buyers to purchase from the
Predecessor up to 53.85 shares of common stock, of which up to 11.11 shares of
common stock of the Predecessor could be purchased by the Buyers on June 12,
1991, and the remaining 42.74 shares of common stock of the Predecessor could be
purchased by the Buyers, at certain times after June 12, 1991 but in no event
later than December 1, 1996 ("Purchase Option Termination Date"). On June 12,
1991, pursuant to the terms of the Stock Purchase Agreement, Timothy Mays
purchased 3.67 shares of common stock of the Predecessor, and Gordon Mays
purchased 7.44 shares of common stock of the Predecessor, in consideration for
(i) the return by the Buyers to the Company of a promissory note dated April 12,
1991 evidencing indebtedness of the Company to the Buyers in the principal
amount of $100,000 and (ii) $200,000 paid by the Buyers to the Company. Pursuant
to the terms of the Stock Purchase Agreement, from time to time between June 12,
1991 and the Purchase Option Termination Date, Timothy Mays purchased an
additional 4.38 shares of common stock of the Predecessor, and Gordon Mays
purchased an additional 3.47 shares of common stock of the Predecessor, in
consideration for the retention by the Company of (i) all dividends declared by
the Company and payable to the Buyers and (ii) certain "Additional Compensation"
due to the Buyers under employment agreements with the Company.
Messrs. G. Mays and T. Mays subsequently made gifts of .45 shares of common
stock of the Predecessor each to a trust created for the benefit of their
respective children.
Messrs. Cunningham, G. Mays and T. Mays entered into a shareholders
agreement in 1991 providing for certain restrictions upon the disposition of
shares and upon the voting of stock, which agreement will be terminated
effective upon the consummation of the Reorganization.
LOANS FROM INSIDERS
From time to time, the Company borrowed funds from Michael R. Cunningham
and the trust for the benefit of his children, which are stockholders of the
Company. A total of $227,000 of such loans was outstanding as of December 31,
1996, all of which was repaid in 1997.
THE REORGANIZATION
In connection with the Reorganization, the Company will issue to the
stockholders of the Predecessor an aggregate of 2,595,260 shares of Common
Stock, Exchange Notes in the aggregate principal amount of $2.4 million
(assuming an initial public offering price of $12.00 per share) and Distribution
Notes in the aggregate principal amount of $2.2 million. The Exchange Notes and
the Distribution Notes will be paid from the proceeds of the Offering. See "The
Company -- The Reorganization." The number of shares of Common Stock, the
principal amounts of the Exchange Notes and the principal amounts of the
Distribution Notes, to be received by each stockholder of the Predecessor in the
Reorganization, are as follows:
<TABLE>
<CAPTION>
SHARES OF COMMON PRINCIPAL OF PRINCIPAL OF
STOCKHOLDER STOCK EXCHANGE NOTES DISTRIBUTION NOTES
- ------------------------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C>
Michael R. Cunningham ............... 2,050,727 $1,896,432 $1,738,400
Gordon Mays ......................... 228,198 211,030 193,443
Timothy Mays ........................ 165,803 153,330 140,551
James J. Cunningham, Trustee ........ 130,898 121,050 110,962
William J. Mays, Trustee ............ 9,817 9,079 8,322
William Edward Shannon, Trustee ..... 9,817 9,079 8,322
--------- ---------- ----------
Totals: ............................. 2,595,260 $2,400,000 $2,200,000
</TABLE>
The Company also intends to repay up to $1.0 million of indebtedness to
Summit Bank under its term loan and all outstanding borrowings under its
revolving line of credit with Summit Bank, expected to total $1.2 million as of
the consummation of the Offering. The Predecessor borrowed $1.2 million under
the line of credit in April 1998 in order to partially fund a $1.4 million
distribution to stockholders of the
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<PAGE>
Predecessor to enable them to pay taxes due on April 15, 1998 on account of
undistributed S corporation taxable income. The term loan bears interest at a
rate of 8.5% per annum and matures on December 1, 2001. The revolving line of
credit bears interest at a floating rate equal to the prime rate and matures on
May 30, 1998. As a result of the use of a portion of the proceeds of this
Offering to repay borrowings under the line of credit and to repay the
Reorganization Notes, a total of $5.8 million, or 25.7%, of the estimated net
proceeds of the Offering will be received by, or applied for the benefit of,
existing stockholders of the Company.
POLICY OF THE BOARD OF DIRECTORS
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the capital stock of the Company set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws of the Company, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
GENERAL
The Company's Certificate of Incorporation authorizes 30,000,000 shares of
Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par
value. After giving effect to (i) the Reorganization, (ii) the closing of the
Acquisition and (iii) the completion of the Offering, the Company will have
outstanding 4,865,000 shares of Common Stock and no shares of Preferred Stock.
In addition, the Company will have 450,000 shares of Common Stock reserved for
issuance under the Company's 1998 Stock Option Plan and 150,000 shares of Common
Stock reserved for issuance under the Company's Directors' Stock Option Plan.
See "Management -- Stock Option Plans."
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote is
required for all action to be taken by stockholders. Cumulative voting of shares
is prohibited. Accordingly, the holders of a majority of the voting power of the
shares voting for the election of directors can elect all of the directors if
they choose to do so. The Common Stock bears no preemptive rights, and is not
subject to redemption, sinking fund or conversion provisions. The shares of
Common Stock offered hereby will be, when issued and paid for, fully paid and
non-assessable.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Company's Board of Directors out of funds legally available
therefor, subject to the dividend and liquidation rights of any Preferred Stock
that may be issued (and subject to any dividend restriction contained in any
credit facility which the Company may enter into in the future) and distributed
pro rata in accordance with the number of shares of Common Stock held by each
stockholder. See "Risk Factors -- Dividend Policy."
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time by the Board of
Directors of the Company, without stockholder approval, in such series and with
such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions, as may be fixed
by the Board of Directors when designating any such series.
The Preferred Stock and the variety of characteristics available for it
offers the Company flexibility in financing and acquisition transactions. An
issuance of Preferred Stock could dilute the book value or adversely affect the
relative voting power of the Common Stock. The issuance of such shares could be
used to enable the holder to block an acquisition of the Company. Although the
Board of Directors is required when issuing such stock to act based on its
judgment as to the best interests of the stockholders of the Company, the Board
could act in a manner which would discourage or prevent a transaction some
stockholders might believe is in the Company's best interests or in which
stockholders could or would receive a premium for their shares of Common Stock
over the market price.
STATUTORY BUSINESS COMBINATION PROVISIONS
The New Jersey Business Corporation Act provides that in determining
whether a proposal or offer to acquire a corporation is in the best interest of
the Corporation, the Board may, in addition to considering the effects of any
action on stockholders, consider any of the following: (a) the effects of the
proposed action on the corporation's employees, suppliers, creditors and
customers, (b) the effects on the community in which the corporation operates
and (c) the long-term as well as short-term interests
51
<PAGE>
of the corporation and its stockholders, including the possibility that these
interests may best be served by the continued independence of the corporation.
The statute further provides that if, based on these factors, the Board
determines that any such offer is not in the best interest of the corporation,
it may reject the offer. These provisions may make it more difficult for a
stockholder to challenge the Board's rejection of, and may facilitate the
Board's rejection of, an offer to acquire the Company. The Company will be
subject to the New Jersey Shareholders Protection Act (the "Protection Act"),
which prohibits certain New Jersey corporations from engaging in business
combinations (including mergers, consolidations, significant asset dispositions
and certain stock issuances) with any interested stockholder (defined to
include, among others, any person that becomes a beneficial owner of 10% or more
of the affected corporation's voting power) for five years after such person
becomes an interested stockholder, unless the business combination is approved
by the Board of Directors prior to the date the stockholder became an interested
stockholder. In addition, the Protection Act prohibits any business combination
at any time with an interested stockholder other than a transaction that (i) is
approved by the Board of Directors prior to the date the interested stockholder
became an interested stockholder, or (ii) is approved by the affirmative vote of
the holders of two-thirds of the voting stock not beneficially owned by the
interested stockholder, or (iii) satisfies certain "fair price" and related
criteria.
STAGGERED BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides for a Board of
Directors of not less than three members, with the actual number to be set by
resolution of the Board from time to time. In addition, the Certificate of
Incorporation provides for the implementation of a staggered Board of Directors
effective at the closing of the Offering. Under this provision the Board of
Directors will be divided into three classes, Class A, Class B and Class C, with
each class containing as nearly as practicable, an even number of Directors.
Initially, the Class A Directors will have a term expiring at the 1999 Annual
Meeting of Stockholders, the Class B Directors will have a term expiring at the
2000 Annual Meeting of Stockholders and the Class C Directors will have a term
expiring at the 2001 Annual Meeting of Stockholders. Commencing with the 1999
Annual Meeting of Stockholders, as each class comes up for election, it will be
for a three-year term.
An effect of the staggered Board of Directors is to make it more difficult
or to discourage an attempt to obtain control of the Company by means of a
tender offer, proxy contest, merger or otherwise, and thereby to protect the
continuity of the Company's management.
LIMITATION OF DIRECTORS' LIABILITIES
Pursuant to provisions of the Company's Certificate of Incorporation,
directors of the Company are not personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or any transaction in which a director has derived an improper
personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of Common
Stock or the availability of such shares for sale will have on the market price
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
Upon consummation of the Offering, the Company will have outstanding
4,865,000 shares of Common Stock, of which the 2,100,000 Shares offered hereby
will be freely tradable without restriction or further registration under the
Securities Act, except for shares purchased by an "affiliate of the Company" (in
general, a person who has a controlling position with regard to the Company),
which will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act.
The remaining 2,765,000 shares of Common Stock to be outstanding after the
Offering are deemed to be "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act, and may only be sold pursuant to
an effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. Such restricted shares of Common Stock will become eligible for
sale, under Rule 144, subject to certain volume limitations prescribed by Rule
144. The holders of all of the restricted shares have agreed not to sell any of
their securities of the Company for a period of 180 days following the date of
this Prospectus, under any circumstances.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company (or persons whose
shares are aggregated with an affiliate) who has owned restricted shares of
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the issuer's Common Stock or the average weekly
trading volume during the four calendar weeks preceding such sale, provided that
certain public information about the issuer as required by Rule 144 is then
available and the seller complies with certain other requirements. A person who
is not an affiliate, has not been an affiliate within three months prior to
sale, and has beneficially owned the restricted shares for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
The Company, the stockholders of the Predecessor and the directors and
officers of the Company (who in the aggregate will beneficially own 2,832,450
shares of Common Stock) have agreed with the Underwriters that, for a period of
180 days following the Offering, they will not offer to sell, contract to sell,
grant an option to purchase or otherwise dispose (or announce any offer, sale,
grant of any option or other distribution) of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock without the prior written consent of Schroder & Co. Inc. on behalf of the
Underwriters (except that the Company may grant options to purchase or award
shares of Common Stock under the 1998 Plan and the Directors' Plan and issue
privately placed shares in connection with acquisitions). See "Management --
Stock Option Plans" and "Principal Stockholders."
As soon as practicable following the consummation of the Offering, the
Company intends to file a registration statement under the Securities Act to
register shares of Common Stock issuable pursuant to the 1998 Plan and the
Directors' Plan. See "Management -- Stock Option Plans." Shares of Common Stock
issued pursuant to the 1998 Plan and the Directors' Plan after the effective
date of such registration statement will be available for sale in the open
market, subject to the lock-up agreement described above, if applicable.
53
<PAGE>
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the number of shares of Common
Stock set forth opposite their respective names:
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------- -----------------
Schroder & Co. Inc. ................................... 1,050,000
Prudential Securities Incorporated .................... 1,050,000
---------
Total .............................................. 2,100,000
=========
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby, if any such shares
are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public, initially at the offering price
set forth on the cover page of this Prospectus; that the Underwriters propose
initially to allow a concession not in excess of $ per share to certain dealers;
and that the Underwriters may initially allow a concession not in excess of $
per share to other dealers. After the initial offering of the shares of Common
Stock, the public offering price and such concessions may be changed by the
Underwriters.
The Company has granted an option to the Underwriters, exercisable for 30
days from the date of this Prospectus, to purchase up to 315,000 additional
shares of Common Stock, at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriters may
exercise such option only to cover over-allotments in connection with the sale
of the Common Stock offered hereby.
The Underwriting Agreement provides that the Company and Michael R.
Cunningham will indemnify the Underwriters against certain liabilities,
including liabilities under the federal securities laws, or will contribute to
payments that the Underwriters may be required to make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Exchange Act. Overallotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on Nasdaq or otherwise and, if commenced, may be discontinued at any
time.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiation between the Company and the Underwriters. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market and general economic conditions, are the history of, and
prospects for, the industry in which the Company operates, the ability of the
Company's management, the Company's past and present operations, the Company's
historical results of operations, the Company's earnings prospects, the prices
of similar securities of comparable companies, and other relative factors. There
can be no assurance, however, that the price at which the Common Stock will sell
in the public market after the Offering will not be lower than the price at
which it is being sold by the Underwriters.
The Company, the stockholders of the Predecessor and the directors and
officers of the Company (who in the aggregate will beneficially own 2,832,450
shares of Common Stock) have agreed with the Underwriters that, for a period of
180 days following the Offering, they will not offer to sell, sell, contract to
sell, grant an option to purchase or otherwise dispose (or announce any offer,
sale, grant of any option or other distribution) of any shares of Common Stock
or any securities convertible into or exchangeable or
54
<PAGE>
exercisable for shares of Common Stock without the prior written consent of
Schroder & Co. Inc. on behalf of the Underwriters (except that the Company may
grant options to purchase or award shares of Common Stock under the 1998 Plan
and the Directors' Plan and issue privately placed shares in connection with
acquisitions). See "Management -- Stock Option Plans" and "Principal
Stockholders."
At the request of the Company, up to 200,000 shares of Common Stock have
been reserved for sale in the Offering to certain individuals, including
directors and employees of the Company, members of their families and/or
friends, and other persons having business relationships with the Company. The
price of such shares to such persons will be the initial public offering price
set forth on the cover of this Prospectus. The number of shares available for
sale to the general public will be reduced to the extent these persons purchase
such reserved shares. Any reserved shares not purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
The Company has agreed with the Underwriters that it will exercise its
right to redeem all of the preference share capital of Roda on June 30, 1998 if
it is not sooner required to redeem such shares by the holders thereof. A
portion of the proceeds of the Offering will be deposited into escrow to provide
for the payment of the redemption price of the preference shares.
55
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, a Professional Corporation, Newark, New Jersey. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York.
EXPERTS
The predecessor financial statements of Cunningham Graphics International,
Inc. for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
the authority of such firm as experts in accounting and auditing.
The financial statements of Roda Limited for the year ended December 31,
1997 and for the four months ended December 31, 1996, and of Roda Print Concepts
Limited for the ten month period ended October 31, 1996, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young,
Chartered Accountants, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Commission in Washington, D.C. with respect to the
securities offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
agreement or any other document referred to are not necessarily complete, and in
each instance, if such agreement or document is filed as an exhibit, reference
is made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. The Registration Statement, including exhibits
and schedules thereto, may be inspected and copied at the principal office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade Center, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is required
to file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
56
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
CONTENTS
Report of Independent Auditors ...................................... F-2
Predecessor Balance Sheets as of December 31, 1996 and 1997 ......... F-3
Predecessor Statements of Income for the years ended
December 31, 1995, 1996 and 1997 ................................... F-4
Predecessor Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 ................................... F-5
Predecessor Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 ................................... F-6
Notes to Predecessor Financial Statements ........................... F-7
RODA LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, AND 1997
CONTENTS
Report of Independent Auditors ...................................... F-16
Consolidated Profit and Loss Account for the year ended 31 December
1997 and the period from incorporation (29 August 1996) to 31
December 1996 and the Profit and Loss Account of Roda Print Concepts
Limited for the ten-month period ended 31 October 1996 ............. F-17
Consolidated Balance Sheets as of December 31, 1996 and 1997......... F-18
Consolidated Statement of Cash Flows for the year ended 31 December
1997 and the period from incorporation (29 August 1996) to 31
December 1996 and the Statement of Cash Flows of Roda Print Concepts
Limited for the ten-month period ended 31 October 1996.............. F-19
Notes to Financial Statements ....................................... F-20
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cunningham Graphics International, Inc.
We have audited the accompanying predecessor balance sheets of Cunningham
Graphics International, Inc. as of December 31, 1996 and 1997, and the related
predecessor statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the predecessor financial statements referred to above
present fairly, in all material respects, the financial position of Cunningham
Graphics International, Inc. at December 31, 1996 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Princeton, New Jersey
January 16, 1998
F-2
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
PREDECESSOR BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
1996 1997 1997
-------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .............................................................. $ 543 $ 67
Accounts receivable (net of allowance for doubtful accounts of
$28 in 1996 and $50 in 1997) .................................... 4,607 5,673
Inventories ....................................................... 541 940
Prepaid expenses and other current assets ......................... 70 78
Notes and advances receivable -- stockholder/officers ............. 158 136
Deferred income taxes ............................................. -- 47
------ -------
Total current assets ............................................... 5,919 6,941
Property and equipment -- net ...................................... 3,458 3,579
Other assets ....................................................... 94 418
------ -------
$9,471 $10,938
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt, third-party .................... $ 414 $ 407
Revolving line of credit .......................................... 1,350 300
Current portion of notes payable -- related parties ............... 73 --
Current portion of obligations under capital leases ............... 183 178
Accounts payable .................................................. 3,661 3,854
Accrued expenses .................................................. 1,105 1,474
------ -------
Total current liabilities .......................................... 6,786 6,213
Long-term debt, third-party -- net of current portion .............. 631 1,185
Notes payable -- related parties -- net of current portion ......... 154 --
Obligations under capital leases -- net of current portion ......... 515 332
Deferred income taxes .............................................. 41 57
------ -------
Total liabilities .................................................. 8,127 7,787
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 2,507 shares authorized,
119 shares in 1996 and 1997 issued and outstanding,
stated at $50 per share.......................................... 6 6 $ --
Additional paid-in capital ........................................ 734 734 (2,908)
Retained earnings ................................................. 604 2,411 --
------ ------- --------
Total stockholders' equity ......................................... 1,344 3,151 $ (2,908)
------ ------- ========
$9,471 $10,938
====== =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
PREDECESSOR STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales ..................................... $17,327 $23,193 $35,744
Operating expenses:
Costs of production .......................... 12,860 17,616 26,894
Selling, general and administrative .......... 3,441 4,270 5,794
Depreciation and amortization ................ 498 563 694
------- ------- -------
16,799 22,449 33,382
Income from operations ........................ 528 744 2,362
Interest expense ............................. (257) (234) (250)
Other income ................................. 2 48 35
------- ------- -------
Income before income taxes .................... 273 558 2,147
Provision for income taxes ................... 6 56 129
------- ------- -------
Net income .................................... $ 267 $ 502 $ 2,018
======= ======= =======
</TABLE>
<TABLE>
<S> <C>
PRO FORMA DATA (UNAUDITED):
Income before income taxes ............................................. $ 2,147
Pro forma provision for income taxes .................................. 880
---------
Pro forma net income ................................................... $ 1,267
=========
Pro forma earnings per share ........................................... $ 0.43
=========
Pro forma shares outstanding ........................................... 2,978,594
=========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
PREDECESSOR STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ........... 118 $ 6 $722 $ 356 $1,084
Net income .......................... -- -- -- 267 267
Distributions ....................... -- -- -- (521) (521)
--- --- ---- ------ ------
Balance at December 31, 1995 ......... 118 6 722 102 830
Net income .......................... -- -- -- 502 502
Sale of common stock ................ 1 -- 12 -- 12
--- --- ---- ------ ------
Balance at December 31, 1996 ......... 119 6 734 604 1,344
Net income .......................... -- -- -- 2,018 2,018
Distributions ....................... -- -- -- (211) (211)
--- --- ---- ------ ------
Balance at December 31, 1997 ......... 119 $ 6 $734 $2,411 $3,151
=== === ==== ====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
PREDECESSOR STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 267 $ 502 $ 2,018
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 498 563 694
Gain on sale of equipment ................................. -- (48) (18)
Deferred income taxes ..................................... (1) 32 (31)
Changes in operating assets and liabilities:
Increase in accounts receivable ......................... (34) (2,161) (1,066)
(Increase) decrease in inventories ...................... (436) 509 (399)
Increase in prepaid expenses and other current assets (29) (86) (8)
Increase in other assets ................................ (9) (45) (324)
Increase (decrease) in advance to officers .............. 257 (94) 22
Increase in accounts payable ............................ 219 1,835 193
(Decrease) increase in accrued expenses ................. (138) 664 369
------- -------- ---------
Net cash provided by operating activities .................. 594 1,671 1,450
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the disposition of equipment ................ -- 71 1,349
Acquisition of property and equipment ..................... (254) (1,711) (2,146)
------- -------- ---------
Net cash used in investing activities ...................... (254) (1,640) (797)
CASH FLOWS FROM FINANCING ACTIVITIES
Net principal proceeds (payments) on revolving line of
credit .................................................. 306 444 (1,050)
Proceeds from long-term borrowings, third-party ........... -- 614 1,023
Principal payments on long-term borrowings, third-party . (200) (302) (476)
Principal payments on obligations under capital lease ..... (138) (139) (188)
Proceeds from issuance of notes payable -- related
parties ................................................. 70 24 --
Principal payments on notes payable -- related parties..... -- (142) (227)
Shareholder distribution .................................. (521) -- (211)
Proceeds from sale of common stock ........................ -- 12 --
------- -------- ---------
Net cash (used in) provided by financing activities ........ (483) 511 (1,129)
------- -------- ---------
Net (decrease) increase in cash ............................ (143) (542) (476)
Cash, beginning of year .................................... 144 1 543
------- -------- ---------
Cash, end of year .......................................... $ 1 $ 543 $ 67
------- -------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Income taxes paid .......................................... $ 10 $ 40 $ 169
======= ======== =========
Interest paid .............................................. $ 254 $ 235 $ 251
======= ======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of equipment under capital lease ............... $ 23 $ 422 $ --
======= ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying predecessor financial statements include the operations of
Cunningham Graphics, Inc. (the "Company" or the "Predecessor Entity"). As
further discussed in Note 14, a reorganization of the Predecessor is planned for
1998.
DESCRIPTION OF COMPANY
The Company provides a wide range of graphic communication services to
financial institutions and corporations in the eastern United States, focusing
on producing and distributing time-sensitive analytical research and marketing
materials and on providing on-demand printing.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less when acquired. The carrying
amount reported for cash equivalents approximates fair value.
CONCENTRATION OF CREDIT RISK
The Company performs periodic credit evaluations of its customers and
generally does not require collateral.
INVENTORIES
Inventories are stated at the lower of cost or market by the specific
identification method. Inventory consists of raw materials and work in process.
Finished goods are shipped upon completion.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
assets, including those under capital lease, are computed using the
straight-line method over the lesser of the estimated useful lives of the
related assets or the lease term. Useful lives range from 3 to 10 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No such event has
occurred since adoption at January 1, 1995.
INCOME TAXES
The Company and its stockholders have elected to be taxed as an S
Corporation pursuant to the Internal Revenue Code and certain state and local
tax regulations. Therefore, no provision has been made in the accompanying
financial statements for federal and certain state and local income taxes, since
such taxes are the liability of the stockholders. The provision for income taxes
principally reflects taxes levied by certain state and local governments. (See
Notes 11 and 14).
Deferred taxes are computed based on the tax effects in future years of the
differences between financial and tax reporting bases of assets and liabilities.
Deferred tax assets and liabilities are classified as current and noncurrent
based on the classification of the related asset or liability for financial
reporting purposes, or based on the expected reversal date for deferred taxes
that are not related to an asset or liability.
F-7
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon shipment of products to customers.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
similar to the previously required fully diluted earnings per share.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Raw materials (net of valuation allowance of $200 at
December 31, 1996 and $194 at December 31, 1997)......... $477 $805
Work-in-process .......................................... 64 135
---- ----
$541 $940
==== ====
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Machinery and equipment ............................ $ 4,711 $ 4,813
Furniture, fixtures and office equipment ........... 653 974
Leasehold improvements ............................. 261 471
Autos and transportation equipment ................. 214 280
-------- --------
5,839 6,538
Accumulated depreciation and amortization .......... (2,381) (2,959)
-------- --------
$ 3,458 $ 3,579
======== ========
</TABLE>
The gross amount of the leased property included in property and equipment
is $1,062 and $1,069, and accumulated amortization is $341 and $386 at December
31, 1996 and 1997, respectively.
F-8
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
4. OTHER ASSETS
Included in other assets is approximately $342 of costs related to the
anticipated initial public offering and the acquisition of Roda Limited (Note
14).
5. ACCRUED EXPENSES
Other accrued liabilities consists of the following:
1996 1997
--------- ---------
Employee compensation .......... $ 761 $ 689
Other .......................... 344 785
------ ------
$1,105 $1,474
====== ======
6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
On December 15, 1997, the Company entered into a new Loan and Security
Agreement with a bank (the "Loan and Security Agreement"). The Loan and Security
Agreement provides for a $2,000 revolving line of credit and a $1,000 3-year
term loan (the "Term Loan"). The revolving line of credit expires on May 30,
1998. Borrowings under both the line of credit and the Term Loan bear interest
at the bank's prime rate or at the Company's option LIBOR plus 2.25% (8.5% at
December 31, 1997). The debt is collateralized by substantially all of the
Company's assets. Among other things, the Loan and Security Agreement restricts
the Company's ability to incur additional indebtedness and requires the Company
to maintain certain financial ratios.
At December 31, 1996, the revolving line of credit represents the amount
outstanding under a previous $2,000 revolving line of credit with a bank.
Borrowings under this agreement carried interest at the bank's prime rate plus
.5% (8.75% at December 31, 1996) and were secured by substantially all of the
Company's assets and guaranteed by the principal stockholder of the Company.
The Company leases property and equipment under capital leases expiring in
various years through 2001. Amortization ($74, $105 and $119 in 1995, 1996 and
1997, respectively) of assets under capital leases is included in depreciation
expense.
Long-term debt consists of the following (excluding notes payable to
related parties, see Note 7):
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Term loan, payable with interest only through December 1998 with principal
payments beginning January 1999 through December 2001 .......................... $ -- $1,000
Notes payable to finance companies, payable in monthly installments with interest
at rates ranging from 7.48% to 11.75%, through various dates from December
1998 to October 1999 (secured by certain equipment with a carrying value of
approximately $358)............................................................. 518 262
Non-interest bearing note payable in monthly installments through December
1999 (discounted based on imputed interest rate of 8%) ......................... 449 308
Various capital lease obligations ............................................... 698 510
Other (secured by equipment with a carrying value of $135)....................... 78 22
------ ------
1,743 2,102
Less current maturities ......................................................... 597 585
------ ------
$1,146 $1,517
====== ======
</TABLE>
The aggregate fair value of the instruments representing the Company's
revolving line of credit, long-term debt and obligations under capital lease
approximate their carrying value at December 31, 1996 and 1997. Such fair values
are estimated based on discounting the estimated future cash flows using the
Company's incremental borrowing rate for similar debt instruments.
F-9
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
--(CONTINUED)
Maturities of long-term debt and obligations under capital lease (principal
and interest) for each of the next five years are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
LONG-TERM CAPITAL
DEBT LEASE
----------- ------------
<S> <C> <C>
1998 ................................................ $407 $236
1999 ................................................ 516 185
2000 ................................................ 333 119
2001 ................................................ 336 84
----
Total minimum lease payments ........................ 624
Less amount representing interest ................... 114
----
Present value of net minimum lease payments ......... $510
====
</TABLE>
7. RELATED PARTY TRANSACTIONS
Included in notes and advances receivable -- stockholder/officers are notes
receivable aggregating $22 at December 31, 1996 and advances of $136 at December
31, 1996 and 1997. The notes bear interest at an annual rate of 8% and were
repaid in 1997. Advances receivable represent cash advances with no specific
repayment terms. The stockholder intends to repay the advances as a part of the
Offering. Notes payable to related parties consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Note payable to stockholder/officer, payable in
monthly installments with interest at the prime rate
(8.5% at December 31, 1996) ........................... $112 $--
Note payable to Cunningham Children Trust, payable
in monthly installments with interest at the prime rate
(8.5% at December 31, 1996) ........................... 115 --
---- ---
227 --
Less current portion .................................... 73 --
---- ---
$154 $--
==== ===
</TABLE>
In December 1997, the Company repaid the outstanding balances under these
notes payable.
F-10
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office facilities, equipment and automobiles under
noncancelable operating leases expiring in various years through 2000. One of
the facility leases requires the Company to pay additional rents based on its
proportionate share of certain costs of the facility.
In March 1997, the Company entered into a sale-leaseback arrangement. Under
the arrangement, the Company sold equipment and leased it back for a period of
six years. The leaseback has been accounted for as an operating lease. No gain
or loss was recorded on the transaction. Upon expiration of the lease, the
Company has agreed to acquire the equipment at terms more fully described in the
lease agreement.
Future minimum rental payments for each of the next five years and in the
aggregate under the above lease agreements are as follows:
1998 ........................ $1,094
1999 ........................ 1,085
2000 ........................ 360
2001 ........................ 286
2002 ........................ 237
Thereafter .................. 39
------
$3,101
======
Rent expense under all operating leases was $282, $463 and $631 for the
years ended December 31, 1995, 1996 and 1997, respectively.
9. CONCENTRATIONS
Sales to customers representing 10% or more of the Company's total net
sales (two customers in 1995, 24% and 14% each respectively; three customers in
1996, 15%, 15% and 13% each respectively; and four in 1997, 24%, 13%, 10% and
10% each respectively) represented total net sales of $6,445, $9,812 and
$20,375, respectively. Included in trade accounts receivable are amounts due
from these customers of $1,648 and $2,989 as of December 31, 1996 and 1997,
respectively.
The Company has 370 employees, approximately 255 of whom are members of a
union which are covered under a memorandum of agreement which expires on June
30, 2000.
10. STOCKHOLDERS' EQUITY
On June 11, 1991, the Company entered into an agreement with two
stockholders which entitled the two stockholders to purchase from the Company up
to 53.85 shares of its common stock through December 1, 1996. Through the
expiration of the agreement and pursuant to the terms of the agreement, the
stockholders purchased 18.96 shares (including one share in 1995 for an
aggregate consideration of $12).
F-11
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
11. INCOME TAXES
The provision for state income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ------ -------
<S> <C> <C> <C>
Current ................................... $ 8 $24 $ 160
Deferred .................................. (2) 32 (31)
------ --- -----
Total provision for income taxes .......... $ 6 $56 $ 129
===== === =====
</TABLE>
The significant components of the Company's deferred tax liabilities and
assets include depreciation, accounts receivable and inventory reserves and
accrued expenses. (See Note 14 regarding conversion from S Corporation to C
Corporation for tax purposes.)
12. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution pension plan pursuant to Section
401(k) of the Internal Revenue Code covering substantially all employees. The
Company, at its discretion, may elect to contribute to the plan at amounts and
dates determined by the Board of Directors. For the years ended December 31,
1995, 1996 and 1997 the Company made contributions of $24, $-0- and $52,
respectively, to the plan.
13. SUBSEQUENT EVENTS
Acquisition of Roda
On January 16, 1998, the Company and Roda entered into an agreement (the
"Roda Purchase Agreement") such that concurrently with the consummation of the
Offering, the Company will close the acquisition of all the outstanding capital
stock of Roda under the Roda Purchase Agreement for an aggregate purchase price
of $8,148. The purchase price will be satisfied by the delivery of 169,739
shares of common stock, which will be valued at the initial public offering
price, and a cash payment equal to the balance of the purchase price. Under the
terms of the Roda Purchase Agreement, the Company has committed to cause the
repayment of POUNDS 850 (approximately $1,400) of indebtedness to the present
Roda stockholders within 28 days following the closing. The Company intends to
use a portion of the proceeds of the Offering to repay this indebtedness. In
order to secure the performance by the selling stockholders of Roda of certain
warranties and covenants, POUNDS 275 (approximately $459) will be held in escrow
until one year following the closing. The acquisition of Roda will be accounted
for under the purchase method of accounting.
F-12
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL
PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED)
Reorganization and Planned Public Offering
The Company intends to proceed with a reorganization and a concurrent
initial public offering of the common stock of the reorganized entity.
Immediately prior to the initial public offering of shares of common stock of
Cunningham Graphics International, Inc. (CGII) (the "Offering"), the Company
will be reorganized (the "Reorganization") such that all of the stockholders of
the Predecessor will contribute all of the outstanding shares of common stock of
the Predecessor to CGII, in exchange for a total of 2,595,260 shares of common
stock and promissory notes (the "Exchange Notes") in the aggregate principal
amount of $2,400 (assuming an initial offering price of $12.00 per share).
Concurrently with the Reorganization, CGII will assume the Predecessor's
obligations with respect to undistributed S corporation taxable income through
the date of the Reorganization estimated to total $2,200, and will issue
promissory notes in such amount to evidence such obligations (the "Distribution
Notes" and, together with the Exchange Notes, the "Reorganization Notes"). The
principal amount of the Reorganization Notes was determined by the Company in
connection with the Reorganization based on a number of factors, including the
value of the enterprise contributed to the Company. The principal amount of the
Distribution Notes was determined by the Company based upon the actual amount of
undistributed S corporation taxable income as of December 31, 1997 and the
anticipated additional undistributed S corporation taxable income during the
period January 1, 1998 through the expected date of the Reorganization. The
Company intends to pay the Reorganization Notes from the net proceeds of the
Offering.
1998 Stock Option Plan
In February 1998, the Board of Directors and the sole stockholder of the
Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000
shares of Common Stock for issuance thereunder. The Plan provides for the
granting to employees (including employee directors and officers) of options
intended to qualify as incentive stock options within the meaning of
(section)422 of the Code and for the granting of nonstatutory stock options to
employees and consultants. The Board of Directors has granted options to
purchase 230,300 shares of Common Stock under the 1998 Plan subject to
consummation of the Offering.
The Directors' Stock Option Plan
In February 1998, the Board of Directors and the sole stockholder of the
Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and
reserved 150,000 shares of Common Stock for insurance thereunder. The
individuals eligible to participate in the Directors' Plan are each Director of
the Company who is not an employee of the Company or any of its subsidiaries (an
"Outside Director"). The Board of Directors has granted options to purchase
60,000 shares of Common Stock under the Directors' Plan subject to consummation
of the Offering.
F-13
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL
PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) --(CONTINUED)
Pro Forma Adjustments (Unaudited)
The following table sets forth the capitalization of the Company at
December 31, 1997, and the pro forma capitalization of the Company as of such
date after giving effect to the issuance of the Reorganization Notes, to the
stockholders and the recording of a net deferred tax liability of approximately
$59 in connection with the Company becoming subject to federal and additional
state and local income taxes.
ACTUAL PRO FORMA
-------- ------------
Common stock ........................ $ 6 $ --
Additional paid-in capital .......... 734 (2,908)
Retained earnings ................... 2,411 --
------ --------
Total stockholders' equity .......... $3,151 $ (2,908)
====== ========
As discussed in Note 1, the Company has elected to be taxed as an S
corporation pursuant to the Internal Revenue Code and certain state and local
tax regulations. In connection with the Offering made hereby, the Company will
become subject to federal and additional state income taxes. Accordingly, in the
quarter in which the Offering is completed, the Company will record additional
deferred tax assets of $295 and additional deferred tax liabilities of $354 and
a corresponding net tax expense of $59 in the statement of income in accordance
with the provisions of SFAS No. 109.
The pro forma provision for income taxes represents the income tax
provisions that would have been reported had the Company been subject to federal
and additional state income taxes during the year ended December 31, 1997. The
unaudited pro forma net income for the year ended December 31, 1997 reflects an
increase of $751 for the year ended December 31, 1997 for income taxes based
upon income before income taxes as if the Company had become subject to federal
and additional state income taxes on that date.
Pro forma deferred income taxes will reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
pro forma financial reporting and the amounts used for income tax purposes.
Significant components of the Company's pro forma net deferred tax liability as
of December 31, 1997 is as follows:
1997
----------
Tax over book depreciation ..................... $ (411)
Allowance for doubtful accounts ................ 20
Inventory capitalization and reserves .......... 100
Other book accruals ............................ 232
------
$ (59)
======
The pro forma income tax provision consists of the following:
1997
---------
Current:
Federal ............................. $ 820
State and local ..................... 300
------
1,120
Deferred income tax benefit ......... (240)
------
$ 880
======
F-14
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED )
14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL
PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) --(CONTINUED)
A reconciliation setting forth the differences between the pro forma
effective tax rate of the Company and the U.S. federal statutory tax rate is as
follows:
1997
----------
Federal statutory rate ...................................... 34.0%
State and local taxes, net of federal tax benefits .......... 7.0
----
Effective tax rate .......................................... 41.0
====
Pro Forma Earnings Per Share (Unaudited)
The Pro Forma shares outstanding of 2,978,594 represent the total equity
value for the Common Stock of the Predecessor contributed to the Company in the
Reorganization and includes (i) the initial CGII founding share, (ii) 2,595,260
shares to be issued in the Reorganization and (iii) 383,333 shares, representing
the value of the $4,600 principal amount of the Reorganization Notes (based upon
the assumed initial public offering price of $12.00 per share).
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Roda Limited
We have audited the accompanying consolidated balance sheet of Roda Limited as
of 31 December 1997 and 1996 and the related consolidated profit and loss
account and statement of cash flows for the year ended 31 December 1997 and the
period from incorporation (29 August 1996) to 31 December 1996 and the profit
and loss account and statement of cash flows of Roda Print Concepts Limited
(Predecessor) for the ten-month period ended 31 October 1996. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statements presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roda Limited at 31
December 1997 and 1996 and the consolidated results of its operations and its
cash flows for the year ended 31 December 1997 and the period from incorporation
(29 August 1996) to 31 December 1996 and the results of operations and cash
flows of Roda Print Concepts Limited for the ten-month period ended 31 October
1996, in conformity with accounting principles generally accepted in the United
Kingdom which differ in certain respects from those followed in the United
States (see Note 25 of Notes to the Financial Statements).
Ernst & Young Chartered Accountants
Ernst & Young
Chartered Accountants
London, England
11 February 1998
F-16
<PAGE>
RODA LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR PERIOD FROM
TEN MONTHS INCORPORATION COMPANY YEAR
ENDED 31 (29 AUGUST 1996) ENDED 31
OCTOBER TO 31 DECEMBER DECEMBER
1996 1996 1997
NOTES POUNDS POUNDS POUNDS
------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
TURNOVER ............................................ 3 3,058,221 625,525 4,198,219
Cost of sales ....................................... (2,035,263) (399,674) (2,589,186)
---------- -------- ----------
GROSS PROFIT ........................................ 1,022,958 225,851 1,609,033
Administrative expenses ............................. (1,067,421) (149,319) (943,590)
---------- -------- ----------
OPERATING (LOSS)/PROFIT ............................. 4 (44,463) 76,532 665,443
Profit on disposal of tangible fixed assets ......... -- -- 52,076
Interest receivable ................................. 30 13 344
Interest payable .................................... 7 (29,995) (37,699) (208,456)
---------- -------- ----------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION ......................... (74,428) 38,846 509,407
Taxation ............................................ 8 9,070 (11,355) (169,000)
---------- -------- ----------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION .......................... (65,358) 27,491 340,407
Minority interest ................................... -- (18,130) (64,101)
---------- -------- ----------
(LOSS)/PROFIT FOR THE PERIOD ........................ (65,358) 9,361 276,306
DIVIDENDS
Preference dividend on non-equity shares
of Roda Print Concepts Limited ..................... (45,970) -- --
Ordinary dividend on equity shares of Roda Print
Concepts Ltd ....................................... (28,000) -- --
---------- -------- ----------
RETAINED (LOSS)/PROFIT
FOR THE PERIOD ..................................... 17 (139,328) 9,361 276,306
========== ======== ==========
</TABLE>
There were no recognized gains or losses other than those recorded above.
A summary of the significant adjustments to the profit/(loss) for the period
that would be required if United States generally accepted accounting principles
were to be applied instead of those generally accepted in the United Kingdom is
set forth in Note 25.
The notes to the financial statements are an integral part of the
financial statements.
F-17
<PAGE>
RODA LIMITED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
31 DECEMBER 31 DECEMBER
1996 1997
NOTES POUNDS POUNDS
------- --------------- ---------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets ........................................ 9 399,465 863,739
CURRENT ASSETS
Stocks ................................................. 11 96,220 148,026
Debtors ................................................ 12 799,336 928,254
Cash at bank and in hand ............................... 89,610 522
------- -------
985,166 1,076,802
CREDITORS: amounts falling due within one year ......... 13 (1,995,006) (1,493,999)
---------- ----------
NET CURRENT LIABILITIES ................................ (1,009,840) (417,197)
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES .................. (610,375) 446,542
CREDITORS: amounts falling due after more than
one year .............................................. 14 (1,147,710) (1,928,321)
MINORITY INTEREST ...................................... 21 (100) (100)
---------- ----------
21 (1,758,185) (1,481,879)
========== ==========
CAPITAL AND RESERVES
Called up share capital ................................ 16 200,000 200,000
Share premium .......................................... 17 199,998 199,998
Profit and loss account ................................ 17 (2,158,183) (1,881,877)
---------- ----------
(1,758,185) (1,481,879)
========== ==========
</TABLE>
A summary of the significant adjustments to capital and reserves that would be
required if United States generally accepted accounting principles were to be
applied instead of those generally accepted in the United Kingdom is set forth
in Note 25.
The notes to the financial statements are an integral part of the
financial statements.
F-18
<PAGE>
RODA LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION
TEN MONTHS (29 AUGUST 1996) COMPANY YEAR
ENDED 31 TO 31 DECEMBER ENDED 31
OCTOBER 1996 1996 DECEMBER 1997
NOTES POUNDS POUNDS POUNDS
------- -------------- ------------------ --------------
<S> <C> <C> <C> <C>
RECONCILIATION OF OPERATING
(LOSS)/PROFIT TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Operating (loss)/profit ............................. (44,463) 76,532 665,443
Depreciation charges ................................ 58,889 9,506 88,714
(Increase)/decrease in stocks ....................... (7,170) 8,532 (51,806)
(Increase)/decrease in debtors ...................... (75,115) 203,657 (123,515)
Increase/(decrease) in creditors .................... 297,438 (173,652) (56,337)
------- -------- --------
Net cash inflow from operating activities ........... 229,579 124,575 522,499
------- -------- --------
CASH FLOW STATEMENT
Net cash inflow from operating activities ........... 229,579 124,575 522,499
Returns on investment and servicing of finance . 22 (75,935) (55,816) (272,213)
Taxation ............................................ (46,647) -- (97,865)
Capital expenditure ................................. 22 (29,960) (2,436) (36,382)
Acquisitions ........................................ 10 -- (1,627,222) --
Equity dividends paid ............................... (28,000) -- --
------- ---------- --------
49,037 (1,560,899) 116,039
Management of liquid resources ...................... 22 25,685 -- --
FINANCING ........................................... 22 (183,432) 1,641,546 (410,245)
------- --------
(Decrease)/increase in cash ......................... (108,710) 80,647 (294,206)
======== ========== ========
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
(Decrease)/increase in cash ......................... (108,710) 80,647 (294,206)
Cash flow from decrease/(increase) in debt and
lease financing .................................... 81,924 (1,241,548) 410,245
Loans and finance leases acquired with
subsidiary ......................................... (54,351) (239,912) --
Loan stock issued ................................... (25,685) (50,000) --
New loan ............................................ -- (816,000) --
New finance leases .................................. -- -- (464,530)
-------- ---------- --------
Change in net debt .................................. (106,822) (2,266,813) (348,491)
Net debt at beginning of period ..................... (328,442) -- (2,266,813)
-------- ---------- ----------
Net debt at end of period ........................... 23 (435,264) (2,266,813) (2,615,304)
======== ========== ========
</TABLE>
The significant differences between the statement of cash flows presented above
and that required under United States generally accepted accounting principles
are described in Note 25.
The notes to the financial statements are an integral part of the
financial statements.
F-19
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These financial statements comprise the consolidated financial statements
of Roda Limited ("the Company") and its subsidiary Roda Print Concepts Limited
("the Predecessor") (together, "the Group") for the period from incorporation,
29 August 1996 to 31 December 1996 and for the year ended 31 December 1997,
together with the financial statements of the Predecessor for the 10 months
ended 31 October 1996. The Company acquired Roda Print Concepts Limited on 21
October 1996 (the trading results from 21 October 1996 to 31 October 1996 are
not considered material). Prior to its acquisition of Roda Print Concepts
Limited, Roda Limited did not trade. The acquisition was a management buy-out
and the current shareholders of Roda Ltd are not the same as the original
shareholders of Roda Print Concepts Limited.
2. ACCOUNTING POLICIES
Accounting convention
The financial statements are prepared under the historical cost convention
and in accordance with United Kingdom applicable accounting standards.
Goodwill
Goodwill on acquisition has been set off directly against reserves. If the
subsidiary is subsequently sold or closed, any goodwill arising on acquisition
which was written off to reserves will be taken into account in determining the
profit or loss on sale or closure.
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated
to write off the cost less estimated residual value of each asset evenly over
its expected useful life, as follows:
Leasehold improvements -- over the lease term
Plant and machinery -- 10% per annum
Fixtures, fittings and equipment -- 10% per annum
Motor vehicles -- 20% per annum
Stocks
Stocks are stated at the lower of cost and net realizable value. Cost
includes all expenses incurred in bringing the products to their present
location and condition. Net realisable value is based on estimated selling
prices less any further costs to be incurred on disposal.
Deferred taxation
Deferred taxation is provided on the liability method for all timing
differences which are expected to reverse in the future, calculated at the rate
at which it is estimated that tax will be payable.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction or at the contracted rate if the transaction is covered
by a forward exchange contract. Monetary assets and liabilities denominated in
foreign currencies are retranslated at the rate of exchange ruling at the
balance sheet date or, if appropriate, at the forward contract rate.
Pensions
The Group contributes to two defined contribution schemes for its directors
and employees. The assets of the schemes are held separately from those of the
Company in independently administered funds. The pension cost charge represents
contributions paid by the Company to the schemes.
F-20
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
2. ACCOUNTING POLICIES - (CONTINUED)
Leasing commitments
Assets held under finance leases, which are leases where substantially all
the risks and rewards of the ownership of the asset have passed to the Company,
are capitalized in the balance sheet and are depreciated over their useful
lives. The capital elements of future obligations under the leases are included
as liabilities in the balance sheet.
The interest elements of the rental obligations are charged in the profit
and loss account over the periods of the leases and represent a constant
proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged in the profit and loss
account on a straight line basis over the lease term.
3. TURNOVER
Turnover, which is stated net of value added tax and represents amounts
invoiced to third parties, and pre-tax profits are wholly attributable to the
Group's one continuing activity of general printing.
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
United Kingdom ......................... 2,393,100 336,000 2,972,334
Rest of the European Community ......... 236,969 108,918 531,138
Rest of the world ...................... 428,152 180,607 694,747
--------- ------- ---------
3,058,221 625,525 4,198,219
========= ======= =========
</TABLE>
4. OPERATING (LOSS)/PROFIT
This is stated after charging:
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Auditors' remuneration--audit fees .................. 6,250 1,250 --
Depreciation of owned fixed assets .................. 46,374 7,005 38,751
Depreciation of assets held under finance
leases and hire purchase contracts .................. 12,515 2,501 49,963
Operating lease rentals--land and buildings ......... 30,000 6,000 36,000
====== ===== ======
</TABLE>
F-21
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
5. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Emoluments .................... 225,435 23,131 157,063
Pension contributions ......... 224,389 2,666 14,149
------- ------ -------
449,824 25,797 171,212
======= ====== =======
</TABLE>
Directors' emoluments, excluding pension contributions, were paid by the
subsidiary undertakings and fell within the following ranges:
<TABLE>
<CAPTION>
NO. NO. NO.
----- ----- ----
<S> <C> <C> <C>
POUNDS nil -- POUNDS 5,000 ............. 3 3 --
POUNDS 15,000 -- POUNDS 19,999 ........... -- 1 --
POUNDS 20,000 -- POUNDS 24,999 ........... -- -- 2
POUNDS 75,000 -- POUNDS 79,999 ........... 1 -- --
POUNDS 105,000 -- POUNDS 109,999 .......... -- -- 1
POUNDS 120,000 -- POUNDS 127,999 .......... 1 -- --
</TABLE>
The emoluments of the highest paid director, were POUNDS 107,627 (1996 --
POUNDS 120,354, for the pre-acquisition period and POUNDS 19,131 for the
consolidated period) (these were not the same directors).
The chairman received no emoluments.
6. STAFF COSTS
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Wages and salaries ............ 926,724 190,969 1,300,333
Social security costs ......... 88,627 20,677 126,950
Other pension costs ........... 15,886 1,215 13,495
------- ------- ---------
1,031,237 212,861 1,440,778
========= ======= =========
</TABLE>
The average weekly number of employees during the period, including the
directors, was as follows:
<TABLE>
<CAPTION>
NO. NO. NO.
----- ----- ----
<S> <C> <C> <C>
Factory ................. 19 19 37
Administration .......... 12 12 9
Directors ............... 2 2 1
-- -- --
33 33 47
== == ==
</TABLE>
F-22
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
7. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Interest payable on bank overdraft ................. 23,513 4,055 4,759
Finance leases and hire purchase contracts ......... 5,808 1,001 27,469
Other interest payable ............................. 674 32,643 176,228
------ ------ -------
29,995 37,699 208,456
====== ====== =======
</TABLE>
8. TAXATION
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Based on the (loss)/profit for the period: .........
UK corporation tax at 31.5% (1996 -- 33%) .......... 12,505 (11,355) (115,000)
Corporation tax underprovided in previous years (3,435) -- (54,000)
------ ------- --------
9,070 (11,355) (169,000)
====== ======= ========
</TABLE>
9. TANGIBLE FIXED ASSETS
Company -- year to 31 December 1997
<TABLE>
<CAPTION>
IMPROVEMENT PLANT FIXTURES,
TO AND FITTINGS AND MOTOR
LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL
POUNDS POUNDS POUNDS POUNDS POUNDS
------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
COST:
At 1 January 1997 ................ 19,438 469,659 152,290 51,690 693,077
Additions ........................ 4,602 535,881 54,079 2,350 596,912
Disposals ........................ -- (90,597) -- -- (90,597)
------ ------- ------- ------ -------
At 31 December 1997 .............. 24,040 914,943 206,369 54,040 1,199,392
------ ------- ------- ------ ---------
DEPRECIATION:
At 1 January 1997 ................ 5,102 212,736 67,550 8,224 293,612
Provided during the year ......... 2,754 58,203 17,302 10,455 88,714
Disposals ........................ -- (46,673) -- -- (46,673)
------ ------- ------- ------ ---------
At 31 December 1997 .............. 7,856 224,266 84,852 18,679 335,653
------ ------- ------- ------ ---------
Net book value at
31 December 1997 ................ 16,184 690,677 121,517 35,361 863,739
====== ======= ======= ====== =========
Net book value at
31 December 1996 ................ 14,336 256,923 84,740 43,466 399,465
====== ======= ======= ====== =========
</TABLE>
The net book value of tangible fixed assets includes POUNDS 617,529 in
respect of assets held under finance leases.
F-23
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
9. TANGIBLE FIXED ASSETS - (CONTINUED)
Company -- period from incorporation (29 August 1996) to 31 December 1996
<TABLE>
<CAPTION>
IMPROVEMENT PLANT FIXTURES,
TO AND FITTINGS AND MOTOR
LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL
POUNDS POUNDS POUNDS POUNDS POUNDS
------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
COST:
On incorporation ........................ -- -- -- -- --
Arising on acquisition of ...............
subsidiary undertakings ................. 14,543 263,440 84,785 43,767 406,535
Additions ............................... -- -- 2,436 -- 2,436
------ ------- ------ ------ -------
At 31 December 1996 ..................... 14,543 263,440 87,221 43,767 408,971
------ ------- ------ ------ -------
DEPRECIATION:
On incorporation ........................ -- -- -- -- --
Provided during the period .............. 207 6,517 2,481 301 9,506
------ ------- ------ ------ -------
At 31 December 1996 ..................... 207 6,517 2,481 301 9,506
------ ------- ------ ------ -------
Net book value at
31 December 1996 ....................... 14,336 256,923 84,740 43,466 399,465
====== ======= ====== ====== =======
Net book value on incorporation ......... -- -- -- -- --
====== ======= ====== ====== =======
</TABLE>
The net book value of tangible fixed assets includes POUNDS 152,999 in
respect of assets held under finance leases.
Predecessor -- ten months to 31 October 1996
<TABLE>
<CAPTION>
IMPROVEMENT PLANT FIXTURES,
TO AND FITTINGS AND MOTOR
LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL
POUNDS POUNDS POUNDS POUNDS POUNDS
------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
COST:
At 1 January 1996 .................. 19,438 453,159 125,933 7,800 606,330
Additions .......................... -- 16,500 23,921 43,890 84,311
------ ------- ------- ------ -------
At 31 October 1996 ................. 19,438 469,659 149,854 51,690 690,641
------ ------- ------- ------ -------
DEPRECIATION:
At 1 January 1996 .................. 3,857 167,079 53,469 812 225,217
Provided during the period ......... 1,038 39,140 11,600 7,111 58,889
------ ------- ------- ------ -------
At 31 October 1996 ................. 4,895 206,219 65,069 7,923 284,106
------ ------- ------- ------ -------
NET BOOK VALUE:
At 31 October 1996 ................. 14,543 263,440 84,785 43,767 406,535
====== ======= ======= ====== =======
At 31 December 1995 ................ 15,581 286,080 72,464 6,988 381,113
====== ======= ======= ====== =======
</TABLE>
The net book value of tangible fixed assets includes POUNDS 145,500 in
respect of assets held under finance leases.
F-24
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
10. ANALYSIS OF THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED
<TABLE>
<CAPTION>
NET BOOK
VALUE AND
FAIR VALUE
POUNDS
-------------
<S> <C>
Fixed assets ................................ 406,535
Stocks ...................................... 104,752
Debtors ..................................... 1,003,004
Cash ........................................ 23,590
Overdraft ................................... (218,940)
Creditors ................................... (948,599)
Loans and finance leases .................... (239,914)
---------
Net assets .................................. 130,428
Less: Minority interest ..................... (100)
Goodwill arising on the acquisition ......... 2,167,544
---------
2,297,872
=========
DISCHARGED BY:
Loan ........................................ 866,000
Cash ........................................ 1,419,872
Retention account ........................... 12,000
---------
2,297,872
=========
</TABLE>
On 21 October 1996 the Company acquired, from the family interests of D
Boulton, 100% of the equity issued share capital of Roda Print Concepts Limited,
a company incorporated in Great Britain, for a consideration of POUNDS
2,297,872.
CASH FLOWS RELATING TO THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED:
<TABLE>
<CAPTION>
POUNDS
---------------
<S> <C>
Net overdraft ....................................................... (195,350)
Cost of acquisition of Roda Print Concepts Limited -- cash .......... (1,419,872)
Cost of acquisition of Roda Print Concepts Limited -- cash placed
in escrow account .................................................. (12,000)
----------
(1,627,222)
==========
</TABLE>
11. STOCKS
1996 1997
POUNDS POUNDS
-------- ----------
Raw materials ............ 96,220 133,934
Work in progress ......... -- 14,092
------ -------
96,220 148,026
====== =======
12. DEBTORS
1996 1997
POUNDS POUNDS
--------- ----------
Trade debtors .......................... 766,365 827,353
Other debtors .......................... 16,623 69,399
Prepayments and accrued income ......... 16,348 31,502
------- -------
799,336 928,254
======= =======
F-25
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1996 1997
POUNDS POUNDS
------------ ------------
<S> <C> <C>
Bank loans and overdrafts ..................... 261,594 466,712
Obligations under finance leases .............. 33,618 122,798
Trade creditors ............................... 631,304 558,372
Corporation tax ............................... 63,067 134,202
Advance corporation tax ....................... -- 5,403
Other taxes and social security costs ......... 62,316 41,765
Other creditors ............................... 913,502 133,124
Accruals ...................................... 29,605 31,623
------- -------
1,995,006 1,493,999
========= =========
</TABLE>
14. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1996 1997
POUNDS POUNDS
------------ ------------
<S> <C> <C>
Loans wholly repayable within five years:
Bank loans ............................... 947,369 715,785
Other creditors .......................... 117,975 82,336
Obligations under finance leases ......... 32,366 280,200
Loan notes ............................... 50,000 850,000
------- -------
1,147,710 1,928,321
========= =========
</TABLE>
The bank loans and overdraft are secured on the assets of the Group. Other
creditors (notes 13 and 14) include a loan from the directors' pension fund of
POUNDS 130,336 (1996 -- POUNDS 165,480) which is unsecured and repayable by
monthly instalments until 30 June 2004. The loan notes are part of the
management buy-out consideration, secured on the assets of the Group. These are
convertible to ordinary shares after a period of 5 years, if unredeemed, at the
option of the stockholder.
The finance lease liabilities mature as follows:
<TABLE>
<CAPTION>
1996 1997
POUNDS POUNDS
----------- ------------
<S> <C> <C>
Within one to two years ................................... 40,011 163,536
Within two to five years .................................. 33,717 321,497
------ -------
73,728 485,033
Less: finance charges allocated to future periods ......... (7,744) (82,035)
------ -------
65,984 402,998
====== =======
</TABLE>
15. PROVISION FOR LIABILITIES AND CHARGES
Deferred taxation not provided is as follows:
<TABLE>
<CAPTION>
NOT PROVIDED
---------------------------
1996 1997
POUNDS POUNDS
------------ ------------
<S> <C> <C>
Capital allowances in advance of depreciation ......... (54,190) (99,000)
======= =======
</TABLE>
F-26
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
16. SHARE CAPITAL
<TABLE>
<CAPTION>
ALLOTTED,
CALLED UP
AUTHORIZED AND FULLY PAID
------------------------- ------------------
1996 1997 1996 1997
POUNDS POUNDS POUNDS POUNDS
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
`A' ordinary shares of 50p each .. 100,000 100,000 100,000 100,000
`B' ordinary shares of 50p each .. 900,000 900,000 100,000 100,000
------- ------- ------- -------
1,000,000 1,000,000 200,000 200,000
========= ========= ======= =======
</TABLE>
On incorporation, 2 ordinary shares of POUNDS 1 each were issued to the
subscribers to the Memorandum and Articles of Association for cash consideration
of POUNDS 2. On 21 October 1996 the POUNDS 1 shares were each converted to two
50p ordinary `A' shares, and the authorised share capital was then increased to
POUNDS 1,000,000 (made up of 200,000 ordinary `A' shares and 1,800,000 ordinary
`B' shares). POUNDS 200,000 ordinary `B' shares and an additional POUNDS 199,996
ordinary `A' shares were then issued for POUNDS 1 each (i.e. at a premium of 50p
per share) for cash as part of the Management Buy-Out Agreement.
All shares have equal rights except on sale.
17. RECONCILIATION OF SHAREHOLDER'S FUNDS AND MOVEMENTS IN RESERVES
<TABLE>
<CAPTION>
TOTAL
SHARE PROFIT AND SHAREHOLDERS'
CAPITAL LOSS ACCOUNT FUNDS
POUNDS POUNDS POUNDS
--------- -------------- --------------
<S> <C> <C> <C>
PREDECESSOR
At 1 January 1996 ........... 200 269,556 269,756
Loss for the period ......... -- (139,328) (139,328)
--- -------- --------
At 31 October 1996 .......... 200 130,228 130,428
=== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PROFIT TOTAL
SHARE SHARE AND LOSS SHAREHOLDERS'
CAPITAL PREMIUM ACCOUNT FUNDS
POUNDS POUNDS POUNDS POUNDS
--------- --------- --------------- --------------
<S> <C> <C> <C> <C>
COMPANY
On incorporation ............................ 2 2
Issue of share capital: on acquisition of
Roda Print Concepts Limited ................ 199,998 199,998 -- 399,996
Goodwill write off .......................... (2,167,544) (2,167,544)
Profit for the period ....................... 9,361 9,361
---------- ----------
At 31 December 1996 ......................... 200,000 199,998 (2,158,183) (1,758,185)
Profit for the year ......................... -- -- 276,306 276,306
------- ------- ---------- ----------
At 31 December 1997 ......................... 200,000 199,998 (1,881,877) (1,481,879)
======= ======= ========== ==========
</TABLE>
18. FINANCIAL COMMITMENTS
The Group had annual commitments under non-cancellable operating leases as
follows:
<TABLE>
<CAPTION>
LAND AND
OTHER BUILDINGS
1996 1997 1996 1997
POUNDS POUNDS POUNDS POUNDS
------- ------- --------- ----------
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year .................. 3,000 4,281 -- --
within two to five years ......... -- -- 36,000 36,000
----- ----- ------ ------
3,000 4,281 36,000 36,000
===== ===== ====== ======
</TABLE>
F-27
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
19. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
The Group has authorised but not contracted for capital expenditure of
POUNDS nil (1996 -- POUNDS 120,000).
20. ULTIMATE CONTROLLING ENTITY
In the opinion of the directors there is no ultimate controlling entity.
21. MINORITY INTERESTS
The non-equity minority interests represents a 100% holding of the
preference shares of Roda Print Concepts Limited by a third party. The holders
of these shares have no rights against other group companies.
22. NOTES TO THE STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996 TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Interest received .................................... 30 -- 344
Dividends paid on non-equity shares .................. (45,970) -- --
Subsidiary dividend paid ............................. -- (18,130) (64,101)
Interest paid ........................................ (24,187) (36,685) (180,987)
Interest element of finance lease rental payments (5,808) (1,001) (27,469)
------- ------- --------
Net cash outflow from returns on investments
and servicing of finance ........................... (75,935) (55,816) (272,213)
======= ======= ========
CAPITAL EXPENDITURE:
Payments to acquire tangible fixed assets ............ (29,960) (2,436) (132,382)
Receipts from sales of tangible fixed assets ......... -- -- 96,000
------- ------- --------
(29,960) (2,436) (36,382)
======= ======= ========
MANAGEMENT OF LIQUID RESOURCES:
Sale of short term investment ........................ 25,685 -- --
------- ------- --------
Net cash inflow ...................................... 25,685 -- --
------- ------- --------
FINANCING:
Capital element of finance lease rental payments (37,736) (8,114) (127,517)
Capital repayment of pension fund loan ............... (5,866) (333) (35,149)
Capital repayment of bank loan ....................... (38,322) -- (231,579)
Loan to Roda Limited ................................. (101,508) -- --
Repayment of loan .................................... -- -- (16,000)
New secured loan ..................................... -- 1,200,000 --
New unsecured loan ................................... -- 49,995 --
Share capital issued ................................. -- 399,998 --
-------- --------- --------
Net cash (outflow)/inflow from financing ............. (183,432) 1,641,546 (410,245)
======== ========= ========
</TABLE>
F-28
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
23. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AS
1 JANUARY OTHER 31 OCTOBER
1996 CASH FLOWS CHANGES 1996
POUNDS POUNDS POUNDS POUNDS
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Cash at bank and in hand ......... 26,092 (2,502) 23,590
Bank overdraft ................... (112,732) (106,208) (218,940)
-------- -------- --------
(86,640) (108,710) (195,350)
Finance leases ................... (57,486) 37,736 (54,351) (74,101)
Loans ............................ (210,001) 145,696 (101,508) (165,813)
--------
Short term investment ............ 25,685 (25,685)
-------- --------
(328,442) (49,037) (155,859) (435,264)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT AS
1 NOVEMBER OTHER 31 DECEMBER
1996 CASH FLOWS ACQUISITION CHANGES 1996
POUNDS POUNDS POUNDS POUNDS POUNDS
------------ --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
COMPANY
Cash at bank and in hand ......... -- 89,610 89,610
Bank overdraft ................... -- (8,963) (8,963)
-- ------ ------
-- 80,647 80,647
Finance leases ................... -- 8,114 (74,099) (65,985)
Loans ............................ -- (1,249,662) (165,480) (866,333) (2,281,475)
- -------- -------- ----------
-- (1,160,901) (239,579) (866,333) (2,266,813)
== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AT AS
1 JANUARY OTHER 31 OCTOBER
1997 CASH FLOWS CHANGES 1997
POUNDS POUNDS POUNDS POUNDS
--------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
COMPANY
Cash at bank and in hand ......... 89,610 (89,088) 522
Bank overdraft ................... (8,963) (205,118) (214,081)
------ -------- --------
80,647 (294,206) (213,559)
Finance leases ................... (65,985) 127,517 (464,530) (402,998)
Loans ............................ (2,281,475) 282,728 (1,998,747)
---------- -------- ----------
(2,266,813) 116,039 (464,530) (2,615,304)
========== ======== ======== ==========
</TABLE>
F-29
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED )
24. COMPANIES ACT 1985
These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory
accounts for the year ended 31 December 1996 of Roda Print Concepts Ltd, have
been delivered to the Registrar of Companies for England and Wales. Statutory
accounts for the period from incorporation to 31 December 1997 for Roda Limited
and the year ended 31 December 1997 for Roda Print Concepts Ltd. will be
delivered to the Registrar. The auditors' reports on these accounts were
unqualified.
25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND UNITED STATES
The Group's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK GAAP")
which differ in certain respects from United States generally accepted
accounting principles ("US GAAP"). The significant differences as they apply to
the Group are summarized below.
Goodwill
Under UK GAAP the goodwill arising on the acquisition of Roda Print
Concepts Limited has been charged to reserves. Under US GAAP such goodwill would
be capitalised and amortised over its estimated useful life of 40 years. The
goodwill arising under UK GAAP differs from that arising under US GAAP because,
under US GAAP, the net assets acquired would be net of a deferred tax liability.
Corporation tax
Under UK GAAP an additional provision is required for a prior year, which
is booked in 1997. Under US GAAP such an item would be taken back to the prior
year.
Deferred taxation
Under UK GAAP the Group provides for deferred tax using the liability
method on all timing differences which are expected to reverse in the future
without being replaced, calculated at the rate at which it is anticipated the
timing differences will reverse. Under US GAAP deferred taxation is provided
using the liability method on all temporary differences. Deferred tax
liabilities and assets would be classified as current or non current based on
the classification between the book and tax bases of assets and liabilities.
F-30
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND UNITED STATES - (CONTINUED)
The following is a summary of the significant adjustments to profit/(loss)
for the period and capital and reserves, which would be required if US GAAP were
to be applied instead of UK GAAP together with a statement of shareholders'
equity:
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
INCOME
(Loss)/profit for the period as reported in consolidated
statement of income ........................................ (65,358) 9,361 276,306
Amortisation of goodwill ..................................... -- (18,614) (55,843)
Prior period tax adjustment .................................. -- (54,000) 54,000
Deferred taxation: Methodology ............................... (66,172) 11,982 (44,810)
------- ------- -------
Net (loss)/income as adjusted to accord with US GAAP ......... (131,530) (51,271) 229,653
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER 31 DECEMBER
1996 1997
--------------- ---------------
<S> <C> <C>
CAPITAL AND RESERVES
Capital and reserves as reported in the consolidated balance
sheet ......................................................... (1,758,185) (1,481,879)
Goodwill ........................................................ 2,215,102 2,159,259
Deferred taxation: Methodology .................................. (54,190) (99,000)
---------- ----------
Current liabilities-corporation tax ............................. (54,000) --
Shareholders' equity as adjusted to accord with US GAAP ......... 348,727 578,380
========== ==========
</TABLE>
Statement of movements in shareholders' equity as adjusted to US GAAP:
<TABLE>
<CAPTION>
POUNDS
------------
<S> <C>
Balance at 29 August 1996 .................. --
Share capital issued ....................... 399,998
Net loss as adjusted to US GAAP ............ (51,271)
-------
Balance at 31 December 1996 ................ 348,727
Net income as adjusted to US GAAP .......... 229,653
-------
Balance at 31 December 1997 ................ 578,380
=======
</TABLE>
F-31
<PAGE>
RODA LIMITED
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND UNITED STATES - (CONTINUED)
Cash flows
The consolidated statement of cash flows presents substantially the same
information as that required under US GAAP. These statements differ, however,
with regard to classification of items within the statements and as regards the
definition of cash and cash equivalents.
Under US GAAP, cash and cash equivalents would not include bank overdrafts
and borrowings with initial maturities of less than three months. Under UK GAAP,
cash flows are presented separately for operating activities, servicing of
finance and returns on investments, taxation, capital expenditure and financial
investment, equity dividends paid, management of liquid resources and financing.
US GAAP, however, require only three categories of cash flow activity to be
reported: operating, investing and financing. Cash flows from taxation and
servicing of finance and return on investments shown under UK GAAP would, with
the exception of dividends paid, be included as operating activities under US
GAAP. The payment of dividends would be included as a financing activity under
US GAAP. Under US GAAP, capitalised interest is treated as part of the cost of
the asset to which it relates and thus included as part of investing cash flows;
under UK GAAP all interest is treated as part of servicing of finance and
returns on investments.
The categories of cash flow activities under US GAAP can be summarised as
follows:
<TABLE>
<CAPTION>
COMPANY
PERIOD FROM
PREDECESSOR INCORPORATION COMPANY
TEN MONTHS (29 AUGUST YEAR
ENDED 1996) TO ENDED
31 OCTOBER 31 DECEMBER 31 DECEMBER
1996 1996 1997
POUNDS POUNDS POUNDS
------------- --------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities .............. 106,997 68,759 152,421
Cash outflows on investing activities ............. (29,960) (1,629,658) (36,382)
Cash flows from financing activities .............. (79,539) 1,650,509 (205,127)
------- ---------- --------
Increase/(decrease) in cash and cash equivalents . (2,502) 89,610 (89,088)
Cash and cash equivalents at beginning of period . 26,092 -- 89,610
------- ---------- --------
Cash and cash equivalent at end of period ......... 23,590 89,610 522
======= ========== ========
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
========================================================== ====================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. 2,100,000 SHARES
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
ASKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY [LOGO] CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................... 3
Risk Factors ............................. 7
The Company .............................. 14
Use of Proceeds .......................... 15
Dividend Policy .......................... 15
Capitalization ........................... 17 COMMON STOCK
Dilution ................................. 18
Unaudited Pro Forma Combined
Financial Statements .................. 19
Selected Financial Data .................. 24
Management's Discussion and Analysis of ------------------
Financial Condition and Results of PROSPECTUS
Operations ............................ 26
Business ................................. 31 ------------------
Management ............................... 40
Principal Stockholders ................... 48
Certain Transactions ..................... 49
Description of Capital Stock ............. 51
Shares Eligible for Future Sale .......... 53
Underwriting ............................. 54
Legal Matters ............................ 56
Experts .................................. 56
Additional Information ................... 56
Index to Financial Statements ............ F-1
SCHRODER & CO. INC.
----------------- PRUDENTIAL SECURITIES INCORPORATED
UNTIL 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO , 1998
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
========================================================== ====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock
offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ......... $ 9,262
NASD Filing Fee ............................................. $ 3,640
NASDAQ Listing Fee -- National Market Fee ................... $44,500
Blue Sky Fees and Expenses .................................. $ 3,000
-------
Legal Fees and Expenses ..................................... $ *
Accounting Fees ............................................. $ *
Printing and Engraving Costs ................................ $ *
Transfer Agent Fees ......................................... $ *
Miscellaneous Expenses ...................................... $ *
=======
Total ....................................................... $800,000
========
</TABLE>
- ----------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation contains a provision
eliminating or limiting director liability to the Registrant and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as director. The provision does not, however, eliminate or
limit the personal liability of a director (i) for any breach of such director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) under the New Jersey statutory provision making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Registrant protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the
Registrant or a stockholder thereof to successfully prosecute an action against
a director for breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the federal securities laws.
In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any director or officer of the Registrant who by reason of the fact that he or
she is a director or officer of the Registrant, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent in advance of the
final deposition of such proceeding in accordance with the applicable provisions
of the New Jersey Business Corporation Act.
Each of the officers and directors of the Company is insured against
certain liabilities which he or she might incur in his or her capacity as an
officer or director pursuant to a Directors and Officers Liability Policy issued
by Federal Insurance Company of Warren, New Jersey. The general effect of this
policy is that if during the policy period any claim or claims are made against
the officers and directors of the Company or any of them individually for a
Wrongful Act (as defined in the policy) while acting in their individual or
collective capacities as directors or officers, and the Company has indemnified
them, the insurer will pay for 100% of any Loss (as defined in the policy). In
those instances where the officers and directors are not indemnified by the
Company, the insurer will pay on behalf of the officers and directors
II-1
<PAGE>
of the Company or any of them, their executors, administrators, or assigns, 100%
of the Loss. The insurer's combined limit of liability is $1,000,000 during any
policy year and $1,000,000 for any single Loss. "Wrongful Act" is defined as any
error, misstatement, misleading statement, act, omission, neglect or breach of
duty actually or allegedly committed or attempted by the officers or directors
of the Company while acting in their individual or collective capacities or in
any matter, not excluded by the terms and conditions of the policy, claimed
against them by reason of their being directors or officers of the Company. The
term "Loss" is defined as any amount which the Company shall be required or
permitted by law to pay to such person as indemnity for a claim or claims made
against them for "Wrongful Acts," and includes damages, judgments, settlements,
costs, charges, and expenses incurred in the defense of actions, suits or
proceedings and appeals therefrom, except that the term "Loss" does not include
fines or penalties imposed by law or matters which may be deemed uninsurable
under the law pursuant to which the policy shall be construed.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Upon formation of the Company, one share of Common Stock was issued to
Michael R. Cunningham.
Immediately prior to the Offering, the Company is closing the private
placement of 2,595,260 shares of Common Stock to the existing stockholders of
the Predecessor in connection with the Reorganization.
The recipients of these securities are the following:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------------------------------- -----------------
<S> <C>
Michael R. Cunningham .................... 2,050,727
Gordon Mays .............................. 228,198
Timothy Mays ............................. 165,803
James J. Cunningham, Trustee ............. 130,898
William J. Mays, Trustee ................. 9,817
William Edward Shannon, Trustee .......... 9,817
</TABLE>
Contemporaneously with the completion of the Offering, the Company is
closing the private placement of 169,739 shares of Common Stock to the selling
stockholders of Roda as part of the purchase price for the shares of capital
stock of Roda. For purposes of the transaction, a share of Common Stock is being
valued at the initial public offering price.
The recipients of these securities are the following:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Peter L. Furlonge ......................... 128,323
Ralph J. Elman ............................ 624
Stelby Holdings Limited ................... 3,999
Central Investments Limited ............... 17,901
The Naggar Family Pension Scheme .......... 3,999
M. L. Tagliaferri ......................... 508
M. D. Moriarty ............................ 51
Mrs. J. Moriarty .......................... 76
George Harvey ............................. 14,258
</TABLE>
The Company relies on Section 4(2) of the Securities Act in making the
foregoing private placements. No offer was made to any person other than the
existing stockholders of the Predecessor and the selling stockholders of Roda
Limited.
No underwriters are involved nor will any commissions be paid in connection
with the foregoing transactions.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement among the Company, Schroder & Co. Inc. and
Prudential Securities Incorporated
1.2- Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda
Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor
1.2(a) Supplemental Agreement dated March 24, 1998 between P.L. Furlonge and others and
the Predecessor
2.1 Reorganization Agreement among Stockholders of the Predecessor and CGII
3.1- Certificate of Incorporation
3.2- By-Laws
4.2 Specimen Common Stock Certificate
5.1 Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione
10.1* 1998 Stock Option Plan
10.2- Directors' Stock Option Plan
10.3 Form of Employment Agreement between the Company and M.R. Cunningham
10.4 Form of Employment Agreement between the Company and G. Mays
10.5 Form of Employment Agreement between the Company and T. Mays
10.6 Form of Employment Agreement between the Company and R. Needle
10.7- Form of Service Agreement between Roda Limited and P.L. Furlonge
10.8 Employment Agreement between the Company and Robert M. Okin
10.9- Loan and Security Agreement dated December 15, 1997 between the Company and
Summit Bank, as amended
10.10-+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman,
Sachs & Co., as amended
10.11- Agreement of Lease dated April 18, 1989 between the Company and Lackawanna
Warehouse Corp. of New Jersey, as amended
10.12- Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs
& Co.
10.13* Form of Roda Lease
10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd.
and Workable Ltd.
10.15 Form of Employment Agreement between the Company and I. Lykogiannis
10.16 Form of Employment Agreement between the Company and R. Zanisnik
14(a)- Financial Statement Schedule
Report of Independent Auditors on Financial Statement Schedule
Schedule II -- Valuation of Qualifying Accounts
21.1 List of all subsidiaries of the Company
23.1 Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young Chartered Accountants
24.1 Power of Attorney (Page II -- 5)
27 Financial Data Schedule
99.1 Consent of Arnold Spinner
99.3* Consent of Laurence Gerber
99.4* Consent of Stanley J. Moss
</TABLE>
- ----------
- - Previously filed with the Commission on February 19, 1998 in the Company's
Registration Statement on Form S-1.
* Previously filed with the Commission on March 31, 1998 in Amendment No. 1
to the Company's Registration Statement on Form S-1.
+ Portions of this Exhibit have been omitted and have been filed separately
with the Secretary of the Commission pursuant to Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Jersey City, State
of New Jersey, on April 17, 1998.
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By: /s/ Michael R. Cunningham
------------------------------------------
Michael R. Cunningham
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby constitutes
and appoints Michael R. Cunningham and Gordon Mays, or either of them, as such
person's true and lawful attorney-in-fact and agent with full power of
substitution for such person and in such person's name, place and stead, in any
and all capacities, to sign and to file with the Commission, any and all
amendments and post-effective amendments to this Registration Statement, with
exhibits thereto and other documents in connection therewith, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any substitute therefor, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Michael R. Cunningham Chairman of the Board, April 17, 1998
----------------------------- President, Chief Executive
Michael R. Cunningham Officer and Director
(Principal Executive Officer)
/s/ Robert M. Okin Senior Vice President and April 17, 1998
----------------------------- Chief Financial Officer
Robert M. Okin (Principal Financial and
Accounting Officer)
/s/ James J. Cunningham Director April 17, 1998
-----------------------------
James J. Cunningham
/s/ Gordon Mays Director April 17, 1998
-----------------------------
Gordon Mays
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement among the Company, Schroder & Co. Inc. and
Prudential Securities Incorporated
1.2- Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda
Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor
1.2(a) Supplemental Agreement dated March 24, 1998 between P.L. Furlonge and others and
the Predecessor
2.1 Reorganization Agreement among Stockholders of the Predecessor and CGII
3.1- Certificate of Incorporation
3.2- By-Laws
4.2 Specimen Common Stock Certificate
5.1 Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione
10.1* 1998 Stock Option Plan
10.2- Directors' Stock Option Plan
10.3 Form of Employment Agreement between the Company and M.R. Cunningham
10.4 Form of Employment Agreement between the Company and G. Mays
10.5 Form of Employment Agreement between the Company and T. Mays
10.6 Form of Employment Agreement between the Company and R. Needle
10.7- Form of Service Agreement between Roda Limited and P.L. Furlonge
10.8 Employment Agreement between the Company and Robert M. Okin
10.9- Loan and Security Agreement dated December 15, 1997 between the Company and
Summit Bank, as amended
10.10-+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman,
Sachs & Co., as amended
10.11- Agreement of Lease dated April 18, 1989 between the Company and Lackawanna
Warehouse Corp. of New Jersey, as amended
10.12- Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs
& Co.
10.13* Form of Roda Lease
10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd.
and Workable Ltd.
10.15 Form of Employment Agreement between the Company and I. Lykogiannis
10.16 Form of Employment Agreement between the Company and R. Zanisnik
14(a)- Financial Statement Schedule
Report of Independent Auditors on Financial Statement Schedule
Schedule II -- Valuation of Qualifying Accounts
21.1 List of all subsidiaries of the Company
23.1 Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young Chartered Accountants
24.1 Power of Attorney (Page II -- 5)
27 Financial Data Schedule
99.1 Consent of Arnold Spinner
99.3* Consent of Laurence Gerber
99.4* Consent of Stanley J. Moss
</TABLE>
- ----------
- - Previously filed with the Commission on February 19, 1998 in the Company's
Registration Statement on Form S-1.
* Previously filed with the Commission on March 31, 1998 in Amendment No. 1
to the Company's Registration Statement on Form S-1.
+ Portions of this Exhibit have been omitted and have been filed separately
with the Secretary of the Commission pursuant to Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
Exhibit 1.1
2,100,000 Shares Of Common Stock
UNDERWRITING AGREEMENT
New York, New York
_________ __, 1998
SCHRODER & CO. INC.
PRUDENTIAL SECURITIES
As Representatives of the several Underwriters
c/o Schroder & Co. Inc.
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Ladies and Gentlemen:
CUNNINGHAM GRAPHICS INTERNATIONAL, INC., a New Jersey corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to you and the other Underwriters named in Schedule I hereto
(collectively, the "Underwriters") for whom you are acting as Representatives
(the "Representatives") of the several Underwriters, 2,100,000 shares (the "Firm
Shares") of the Company's Common Stock, no par value (the "Common Stock"). In
addition, the Company proposes to grant to you and the other Underwriters an
option to purchase up to an additional 315,000 shares of the Company's Common
Stock (the "Option Shares"), on the terms and for the purposes set forth in
Section 2 hereof. The Firm Shares and the Option Shares are herein collectively
referred to as the "Shares."
1. The Company and Michael R. Cunningham ("MRC") represent and warrant to,
and agree with, you that:
(a) A registration statement on Form S-1 (Registration No. 333-46541)
relating to the Shares, including a preliminary prospectus relating to the
Shares and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company
under the provisions of the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations (collectively referred to as the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The Commission has not
issued any order preventing or suspending the use of the Prospectus (as
defined below) or any Preliminary Prospectus (as defined below). The term
"Preliminary Prospectus" as used herein means a preliminary prospectus
relating to the Shares, as contemplated by Rule 430 or Rule 430A ("Rule
430A") of the Rules and Regulations, included at any time as part of the
foregoing registration statement or any amendment thereto before it became
effective under the Act and any prospectus filed with the
<PAGE>
Commission by the Company pursuant to Rule 424(a) of the Rules and
Regulations. Copies of such registration statement and amendments and of
each related Preliminary Prospectus have been delivered to the
Representatives. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission. If
such registration statement has become effective, a final prospectus
relating to the Shares containing information permitted to be omitted at
the time of effectiveness by Rule 430A will be filed by the Company with
the Commission in accordance with Rule 424(b) of the Rules and Regulations
promptly after execution and delivery of this Agreement. The term
"Registration Statement" means the registration statement as amended at the
time it becomes or became effective (the "Effective Date"), including all
financial statements and schedules and all exhibits, and all information
contained in any final prospectus filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or in a term sheet described in
Rule 434 of the Rules and Regulations in accordance with Section 5 hereof
and deemed to be included therein as of the Effective Date by Rule 430A of
the Rules and Regulations. The term "Prospectus" means the prospectus
relating to the Shares as first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no such filing is required, the
form of final prospectus relating to the Shares included in the
Registration Statement at the Effective Date.
(b) On the date that any Preliminary Prospectus was filed with the
Commission, the date the Prospectus is first filed with the Commission
pursuant to Rule 424(b) (if required), on the Closing Date and any Option
Closing Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement, each
Preliminary Prospectus and the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment or
supplement thereto), including the financial statements included in the
Prospectus, did or will comply in all material respects with all applicable
provisions of the Act and the Rules and Regulations, including containing
all statements required to be stated therein in accordance with the Act and
the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes effective,
no part of the Registration Statement or any such amendment did or will
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with
the Commission and at the Closing Date and, if later, the Option Closing
Date, the Prospectus did not or will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 1(b) do not apply to any statements or omissions made in reliance
on and in conformity with information relating to any
2
<PAGE>
Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement or Prospectus or
any amendment or supplement thereto, it being understood that such
information includes the last paragraph on the cover page, the paragraph at
the bottom of the inside cover page, and the information in the third and
sixth paragraphs under the caption "Underwriting" in the Prospectus.
Neither the Company or MRC has distributed, nor, prior to the later to
occur of (i) the Closing Date or, if later, the Option Closing Date and
(ii) completion of the distribution of the Shares, will distribute, any
offering material in connection with the offering or sale of the Shares
other than the Registration Statement, the Preliminary Prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(c) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives
expressly for use therein.
(d) On the Effective Date and the date the Prospectus is filed with
the Commission, and when any further amendment or supplements thereto
become effective or are filed with the Commission, as the case may be, the
Registration Statement, the Prospectus and such amendment or supplements
did and will conform in all material respects to the requirements of the
Act and the Rules and Regulations. On the Effective Date and the date the
Prospectus is filed with the Commission, and when any further amendment or
supplements thereto become effective or are filed with the Commission, as
the case may be, the Registration Statement, the Prospectus and such
amendment or supplements did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives
expressly for use therein.
(e) Prior to the consummation of the offering of the shares of Common
Stock (the "Offering"), Cunningham Graphics, Inc. (the "Predecessor"), a
New Jersey corporation, will be reorganized (the "Reorganization") as
contemplated by the Reorganization Agreement dated as of _______ ___, 1998
(the "Reorganization Agreement"), a copy of which has been filed as Exhibit
2.1 to the Registration Statement, pursuant to which each of the
stockholders of the Predecessor will contribute all of their respective
shares of common stock, no par value, of the Predecessor to the Company in
3
<PAGE>
exchange for ________ shares of Common Stock, in the aggregate and
promissory notes in the aggregate principal amount of $_______ (the
"Exchange Notes"). As a result of consummation of the Reorganization, the
Predecessor will become a wholly-owned subsidiary of the Company. The
Reorganization will be consummated prior to the Closing in accordance with
the terms of the Reorganization Agreement. Concurrently with the
consummation of the Offering, the Company intends to repay the Exchange
Notes out of the net proceeds from the Offering.
(f) The Company has entered into an agreement dated January 16, 1998,
as amended (the "Roda Purchase Agreement"), whereby the Company will
acquire 100% of the share capital of Roda Limited ("Roda"), an English
corporation, in two stages. As a result of the consummation of the
Acquisition, Roda will become a wholly-owned subsidiary of the Company.
Pursuant to the Roda Purchase Agreement, concurrently with the consummation
of the Offering, the Company will (i) acquire all of the issued ordinary
share capital of Roda for an aggregate consideration of $6.3 million and
(ii) deliver into escrow $1.8 million, the aggregate redemption price for
all of the issued preference share capital of Roda, which the Company
intends to redeem on June 30, 1998.
(g) Set forth on Exhibit A attached hereto is a list of each
corporation that is, or will be upon consummation of the Reorganization,
directly or indirectly wholly-owned by the Company (collectively, the
"Subsidiaries"). Each Subsidiary is listed in Exhibit 21.1 to the
Registration Statement. Each of the Company and the Subsidiaries is, and at
the Closing Date and any Option Closing Date will be, duly organized,
validly existing and in good standing under the laws of its state of
organization. Each of the Company and the Subsidiaries has, and at the
Closing Date and the Option Closing Date will have, full corporate power
and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus).
Each of the Company and the Subsidiaries is, and at the Closing Date and
the Option Closing Date will be, duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions in which
the nature of the activities conducted by it or the character of the assets
owned or leased by it makes such licensing or qualification necessary
except for jurisdictions in which the failure to be so licensed or
qualified would not have a material adverse effect on the business,
properties, condition (financial or otherwise), net worth, or results of
operations of the Company and the Subsidiaries, taken as a whole. The
Company, directly or indirectly, beneficially owns all of the outstanding
equity interests in each of the Subsidiaries, free and clear of all liens,
security interests, restriction, pledges, encumbrances, charges, equities,
claims, easements, assessments and tenancies (collectively,
"Encumbrances"), except as set forth in the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus).
Except with respect to the Subsidiaries and except as described in the
Registration Statement and Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus), the
4
<PAGE>
Company does not own, and at the Closing Date and any Option Closing Date
will not own, directly or indirectly, any shares of stock or any other
equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, limited liability company, joint
venture, association or other entity. Complete and correct copies of the
charter and the bylaws or other organizational documents of the Company and
each Subsidiary and all amendments thereto have been delivered to the
Representatives, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
(h) The outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable and
are not subject to any preemptive or similar rights. The Company has, and,
upon completion of the sale of the Shares, will have, an authorized, issued
and outstanding capitalization as set forth in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus). The description of the securities of the
Company in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus)
is, and at the Closing Date and, if later, the Option Closing Date will be,
complete and accurate in all material respects. Except as set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus), the Company does not
have outstanding, and at the Closing Date and, if later, the Option Closing
Date will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of its
capital stock or any such warrants, convertible securities or obligations.
(i) The financial statements and the related notes and schedules of
the Company and the Predecessor set forth in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) present fairly, in all material respects,
the financial condition of the Company and the Predecessor as of the dates
indicated and the related Predecessor's statements of income, stockholders'
equity, and cash flows for the periods covered thereby, all in conformity
with generally accepted accounting principles ("GAAP") which are applied on
a consistent basis throughout the entire period involved, except as
otherwise disclosed therein. The consolidated financial statements of Roda
set forth in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus)
present fairly, in all material respects, the financial condition of Roda
and its subsidiary as of the dates indicated and the related consolidated
profit and loss account and statement of cash flows for the periods covered
thereby, all in conformity with United Kingdom auditing standards, which do
not differ in any significant respect from GAAP, which are applied on a
consistent basis throughout the entire period involved, except as disclosed
therein. The summary financial data of the Company, the Predecessor and
Roda set forth under the captions "Prospectus Summary--
5
<PAGE>
Summary Financial Data" and "Selected Financial Data" in the Registration
Statement and Prospectus (or, if the Prospectus is not in existence, in the
most recent Preliminary Prospectus) have been prepared on a basis
consistent with the financial statements of the Company, the Predecessor
and Roda. The pro forma financial statements included in the Registration
Statement and the Prospectus comply in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X of the Commission
and the pro forma adjustments have been properly applied to the historical
amounts in the compilation of such statements. No other financial
statements or schedules of the Company, the Predecessor and Roda, or any
other entity are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. Ernst & Young LLP
and Ernst & Young Chartered Accountants (collectively, the "Accountants"),
who have reported on those of such financial statements and schedules which
are audited, are independent accountants with respect to the Company, the
Predecessor and Roda as required by the Act and the Rules and Regulations.
(j) Each of the Company and the Subsidiaries maintains a system of
internal accounting control sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorization, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(k) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and
prior to the Closing Date and, if later, the Option Closing Date, (i) there
has not been, and will not have been (after giving effect to the
Reorganization and the Acquisition), any change in the capitalization of
the Company or any material adverse change in the business, properties,
condition (financial or otherwise), net worth or results of operations of
the Company and the Subsidiaries, taken as a whole, arising for any reason
whatsoever, (ii) none of the Company or any Subsidiary has incurred (after
giving effect to the Reorganization and the Acquisition), nor will any of
them have incurred any material liabilities or obligations, direct or
contingent, (iii) none of the Company or any Subsidiary has entered into,
nor will any of them have entered into (after giving effect to the
Reorganization and the Acquisition), any material transactions, other than
pursuant to this Agreement, the Reorganization Agreement or the Roda
Purchase Agreement, and (iv) none of the Company or any of the Subsidiaries
(after giving effect to the Reorganization and the Acquisition), has paid
or declared any dividends or other distributions of any kind on any class
of its capital stock, partnership interests or other equity securities.
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(l) Each of the Company and the Subsidiaries has valid, subsisting and
enforceable leases for the respective properties described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) as leased by them or by
the Company (collectively, the "Leased Properties"), in each case free and
clear of all Encumbrances, except as set forth in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus). All Encumbrances on or affecting the Leased Properties which
are required to be disclosed in the Registration Statement and Prospectus
are disclosed therein. The use and occupancy of each of the Leased
Properties complies with all applicable codes and zoning laws and
regulations and there is no pending or, to the knowledge of the Company and
MRC, threatened condemnation, zoning change, environmental or other
proceeding or action that will in any material respect adversely affect the
business, properties, condition (financial or otherwise), net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole.
(m) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act").
(n) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), there are no actions, suits or proceedings pending
or threatened against or affecting the Company, any Subsidiary, or any
directors, officers or stockholders of any of the foregoing in their
capacity as such, before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic
or foreign (collectively, a "Governmental Body"), wherein an unfavorable
ruling, decision or finding could be reasonably expected to adversely
affect the business, properties, condition (financial or otherwise), net
worth or results of operations of the Company and the Subsidiaries, taken
as a whole.
(o) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), each of the Company and the Subsidiaries has, and
at the Closing Date, the Option Closing Date (if any) will have, all
governmental licenses, permits, consents, orders, approvals, franchises,
certificates and other authorizations (collectively, "Licenses") necessary
to carry on its business and to own or lease and operate its properties as
contemplated in the Prospectus (or, if the Prospectus is not in existence,
in the most recent Preliminary Prospectus), except where the failure to
have any such License would not have a material adverse effect on the
business, properties, condition (financial or otherwise), net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole. Each of the Company and the Subsidiaries has complied, and at the
Closing Date and the Option Closing Date (if any) will have complied, in
all material respects with all laws, regulations, Licenses and orders
applicable to it or its business and properties. None of
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the Company or any Subsidiary is, and, at the Closing Date and the Option
Closing Date (if any) none of them will be, in default (nor has any event
occurred which, with notice or lapse of time or both, would constitute a
default) in the due performance and observation of any term, covenant or
condition of any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, lease, contract or other agreement or instrument
(collectively, a "contract or other agreement") to which any of them is a
party or by which any of their respective properties is bound or affected,
which default would individually or in the aggregate have a material
adverse effect on the business, properties, condition (financial or
otherwise), net worth or results of operations of the Company and the
Subsidiaries, taken as a whole. To the best knowledge of the Company and
MRC, no other party under any such contract or other agreement is, or, at
the Closing Date or the Option Closing Date (if any) will be, in default in
any material respect thereunder. There are no governmental proceedings or
actions pending or threatened for the purpose of suspending, modifying or
revoking any License held by the Company or any Subsidiary. None of the
Company or any Subsidiary is in violation of any provision of its charter
or bylaws or other governing instrument.
(p) No consent, approval, authorization or order of, or any filing or
declaration with, any Governmental Body is required for the consummation of
the transactions contemplated by this Agreement or in connection with the
issuance and sale of the Shares by the Company in the Offering, except such
as have been obtained under the Act or the Rules and Regulations and such
as may be required under state securities or Blue Sky laws or the bylaws
and rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company.
(q) Each of the Company and MRC has full power (corporate or other)
and authority to enter into this Agreement and to carry out all the terms
and provisions herein and therein to be carried out by it or him,
respectively. This Agreement has been duly authorized, executed and
delivered by each of the Company and MRC and constitutes a valid and
binding agreement of the Company and MRC and is enforceable against each of
the Company and MRC in accordance with the terms hereof. Except as
disclosed in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
the execution, delivery and the performance of this Agreement, the
Reorganization Agreement and the Roda Purchase Agreement and the
consummation of the transactions contemplated hereby and thereby will not
result in the creation or imposition of any Encumbrance upon any of the
assets of the Company or any Subsidiary pursuant to the terms or provisions
of, or result in a breach or violation of or conflict with any of the terms
or provisions of, or constitute a default under, or give any other party a
right to terminate any of its obligations under, or result in the
acceleration of any obligation under, (i) the charter or bylaws or other
organizational document of the Company or any Subsidiary, or (ii) any
material contract or other material agreement to which any of them is a
party or by which they or any of
8
<PAGE>
their assets or properties are bound or affected, or (iii) any judgment,
ruling, decree, order, law, statute, rule or regulation of any Governmental
Body applicable to the business or assets of the Company or any Subsidiary.
The Company has full corporate power and authority to authorize, issue,
offer and sell the Shares, as contemplated by this Agreement, free of any
preemptive rights. The offer, issuance and sale by the Company of any
shares of its Common Stock prior to the date hereof complied with or was
exempt from the registration requirements of the Act and applicable state
securities and Blue Sky laws.
(r) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All contracts to which the Company is a party, that are material
to the operation of the business of the Company, have been duly authorized,
executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against the Company in
accordance with the terms thereof.
(s) Neither the Company nor any of its directors, officers or
affiliates (within the meaning of the Rules and Regulations) has taken, nor
will he, she or it take, directly or indirectly, any action designed, or
which might reasonably be expected in the future, to cause or result in,
under the Act or otherwise, or which has constituted, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares or otherwise.
(t) No holder of securities of the Company has rights to the
registration of any securities of the Company as a result of the filing of
the Registration Statement.
(u) The Shares have been approved for listing on the Nasdaq National
Market System ("NASDAQ"), subject only to notice of issuance.
(v) No material labor dispute with the employees of the Company or
with the employees of any Subsidiary exists or is threatened or imminent.
(w) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), the Company or a Subsidiary owns, or is licensed
or otherwise has the full exclusive right to use, all material trademarks
and trade names which are used in or necessary for the conduct of its
business as described in the Registration Statement and Prospectus (or, if
the Prospectus is not in existence, in the most recent Preliminary
Prospectus). To the best knowledge of the Company and MRC, no claims have
been asserted by any person to the use of any such trademarks or trade
names or challenging or questioning the validity or effectiveness of any
such trademark or trade name. The use, in connection with the business and
operations of the Company, of such trademarks and trade names does not, to
the knowledge of the Company and MRC, infringe on the rights of any person.
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<PAGE>
(x) None of the Company or any Subsidiary, nor, to the best knowledge
of the Company and MRC, any employee or agent of the Company or any
Subsidiary, has made any payment of funds of the Company or any Subsidiary
or received or retained any funds of the Company or any Subsidiary in
violation of any law, rule or regulation or of a character required to be
disclosed in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus).
(y) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which the Company is engaged; none
of the Company or any Subsidiary has been refused any insurance coverage
sought or applied for; and neither the Company or MRC has reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires.
(z) The business, operations and facilities of the Company and each
Subsidiary have been and are being conducted in compliance in all material
respects with all applicable laws, ordinances, rules, regulations,
Licenses, permits, approvals, plans, authorizations or requirements
relating to occupational safety and health, or pollution, or protection of
health or the environment (including, without limitation, those relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic substances, materials or wastes into
ambient air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous
or liquid in nature) of any governmental department, commission, board,
bureau, agency or instrumentality of the United States, any state or
political subdivision thereof, or any foreign jurisdiction, and all
applicable judicial or administrative agency or regulatory decrees, awards,
judgments and orders relating thereto; and none of the Company or any
Subsidiary has received any notice from governmental instrumentality or any
third party alleging any violation thereof or liability thereunder
(including, without limitation, liability for costs of investigating or
remediating sites containing hazardous substances and/or damages to natural
resources), except for such noncompliances, violations or liabilities that
would not have a material adverse effect upon the business, properties,
condition (financial or otherwise), net worth or results of operations of
the Company and the Subsidiaries, taken as a whole.
(aa) Each of the Company and the Subsidiaries has filed all foreign,
federal, state and local tax returns that are required to be filed or has
requested extensions thereof and has paid all taxes required to be paid by
it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable.
(bb) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the
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<PAGE>
Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 of the Rules and Regulations under the Act.
(cc) The Company and each of its executive officers and directors has
delivered to the Underwriters an agreement in the form set forth as Exhibit
B hereto to the effect that it, he or she will not, for a period of 180
days after the date hereof, without the prior written consent of Schroder &
Co. Inc., offer to sell, sell, contract to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any
option to purchase or other disposition) of any shares of Common Stock or
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock (except that the Company may grant options to purchase or
award shares of Common Stock under its stock option plans and issue
privately placed shares in connection with any acquisitions).
(dd) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
2. Subject to the terms and conditions herein set forth, the Company agrees
to sell to the several Underwriters, and each of the Underwriters, severally and
not jointly, agrees to purchase from the Company, at a purchase price of
$________ per share, the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto, plus such number of Option Shares which
such Underwriter may become obligated to purchase pursuant to this Section 2.
In addition, subject to the terms and conditions herein set forth, the
Company agrees to sell to the several Underwriters, as required (for the sole
purpose of covering over-allotments in the sale of the Firm Shares), up to
315,000 Option Shares at a purchase price of $_____ per share. The right to
purchase the Option Shares may be exercised by the Representatives giving 48
hours' prior written or telephonic notice (subsequently confirmed in writing) to
the Company of their determination to purchase all or a portion of the Option
Shares. Such notice may be given at any time within a period of 30 days
following the date of this Agreement. No Option Shares shall be delivered to or
for the accounts of the several Underwriters unless the Firm Shares shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
3. The Underwriter proposes to offer the Shares for sale to the public at
the " Price to Public " set forth on the cover page of the Prospectus and upon
the other terms and conditions set forth in the Prospectus.
4. The Firm Shares, in definitive form, to be purchased by the Underwriter
hereunder shall be delivered by or on behalf of the Company to you for your
account, against payment by you of the purchase price therefor by wire transfer
of immediately available funds to an account designated by the Company, at the
office of Stroock & Stroock & Lavan LLP, New
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<PAGE>
York, New York, at 9:30 A.M., New York City time, on __________ __, 1998, or at
such other time, date and place as you and the Company may agree upon in
writing, such time and date being herein called the "Firm Shares Delivery Date."
The Option Shares, in definitive form, to be purchased by the Underwriters
hereunder shall be delivered by or on behalf of the Company to the
Representatives for the accounts of the Underwriters against payment of the
purchase price thereof by wire transfer of immediately available funds to an
account designated by the Company, in New York, New York, at such time and on
such date (not earlier than the Firm Shares Delivery Date nor later than ten
business days after giving of the notice delivered by the Representatives to the
Company with reference thereto) and in such denominations and registered in such
names as shall be specified in the notice delivered by the Representatives to
the Company with respect to the purchase of such Option Shares. The date and
time of such delivery and payment are herein sometimes referred to as the
"Option Shares Delivery Date" (and either of the Option Shares Delivery Date or
the Firm Shares Delivery Date may be referred to herein as a "Delivery Date").
Certificates evidencing the Shares shall be in definitive form and shall be
in such denominations and registered in such names as the Representatives shall
request not less than 48 hours prior to the applicable Delivery Date,
respectively. Such Shares will be made available for checking and packaging in
New York, New York, at least 24 hours prior to the applicable Delivery Date.
5. The Company and MRC covenant and agree with the Underwriters that:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by any Underwriter or
dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to
the Representatives within a reasonable period of time prior to the filing
thereof and the Representatives shall not have objected thereto in good
faith.
(b) If the Registration Statement is not yet effective, the Company
will use its best efforts to cause the Registration Statement to become
effective not later than the time indicated in Section 7(a) hereof. The
Company will notify the Representatives promptly, and will confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective, (ii) of
any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (iv) of the happening
of any event during the period mentioned in the second sentence of Section
5(b) that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to
make the statements
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<PAGE>
therein, in light of the circumstances in which they are made, not
misleading and (v) of receipt by the Company or any representative or
attorney of the Company of any other communication from the Commission
relating to the Company, the Registration Statement, any Preliminary
Prospectus or the Prospectus. If at any time the Commission shall issue any
order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal of such order at
the earliest possible moment. The Company will prepare the Prospectus in a
form approved by the Representatives and will file such Prospectus pursuant
to Rule 424(b) under the Act not later than the Commission's close of
business on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A, the
Company will use its best efforts to comply with the provisions of, and to
make all requisite filings with the Commission pursuant to, said Rule 430A
and to notify the Representatives promptly of all such filings.
(c) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or the
Registration Statement, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus or the Registration Statement to comply with the Act or the
Rules and Regulations, the Company will promptly notify the Representatives
thereof and, subject to Section 5(b) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects
such statement or omission or effects such compliance.
(d) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than 90 days after the
close of the period covered thereby, an earnings statement in form
complying with the provisions of Section 11(a) of the Act covering a period
of 12 consecutive months beginning not later than the first day of the
Company's fiscal quarter next following the Effective Date.
(e) The Company will file on a timely basis all documents required to
be filed with the Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act subsequent to the Effective Date and during any period when
the Prospectus is required to be delivered.
(f) The Company will comply with all the provisions of all
undertakings contained in the Registration Statement.
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<PAGE>
(g) During the period of three years commencing on the Effective Date,
the Company will furnish to each of the Representatives and each of the
Underwriters who may so request, a copy of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock, and
will furnish to each of the Representatives and each of the Underwriters
who may so request, a copy of each annual or other report it shall be
required to file with the Commission or NASDAQ and (ii) such additional
information concerning, the business and financial condition of the Company
as the Representatives may from time to time reasonably request in
connection with your obligations hereunder.
(h) The Company will apply the net proceeds from the sale of the
Shares in the manner set forth in the Prospectus under the caption "Use of
Proceeds."
(i) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(j) The Company will not for a period of 180 days after the date
hereof, without the prior written consent of Schroder & Co. Inc., offer to
sell, sell, contract to sell, grant any option to purchase or otherwise
dispose (or announce any offer to sell, sale, contract to sell, grant of
any option to purchase or other disposition) of any shares of Common Stock
or any securities convertible into or exchangeable for shares of Common
Stock (except that the Company may grant options to purchase or award
shares of Common Stock under its stock option plans and may issue privately
placed shares in connection with any acquisitions).
(k) Prior to any Delivery Date there will not be any change in the
capital stock or material change in the short-term debt or long-term debt
of the Company or any of its Subsidiaries, or any material adverse change,
or any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company or any of its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(l) The Company has caused the Shares to be authorized for quotation
on NASDAQ upon notice of issuance.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid: (i) the fees, disbursements and expenses
of counsel and accountants for the Company, and all other expenses, in
connection with the preparation, printing and filing of the Registration
Statement and the Prospectus and any amendments and supplements thereto and the
furnishing of copies thereof, including charges for mailing, air freight and
delivery and counting and packaging thereof and of any Preliminary Prospectus
and related offering documents to the Underwriters and dealers; (ii) the cost of
printing this
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Agreement, communications with the Underwriters and selling group and the
Preliminary and Supplemental Blue Sky Memoranda and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the exemption of the Shares for offering and
sale under securities laws as provided in Section 5(b) hereof, including the
fees, disbursements and expenses for counsel for the Underwriters in connection
with such exemption and in connection with Blue Sky surveys or similar advice
with respect to sales; (iv) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the NASD of the terms of the sale of the Shares; (v) all fees
and expenses in connection with the quotation of the Shares on NASDAQ; and (vi)
all other costs and expenses incident to the performance of the Company's
obligations hereunder that are not otherwise specifically provided for in this
Section 6, including the fees of the Company's Transfer Agent and Registrar, the
cost of any stock issue or transfer taxes on sale of the Shares to the
Underwriters, the cost of the Company's personnel and other internal costs, the
cost of printing and engraving the certificates representing the Shares and all
expenses and taxes incident to the sale and delivery of the Shares to be sold by
the Company to the Underwriters hereunder. It is understood, however, that,
except as provided in this Section, Section 8 and Section 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers that they may make.
7. The obligations of the Underwriters hereunder shall be subject, in their
discretion, to (i) the condition that all representations and warranties and
other statements of the Company and MRC herein are true and correct in all
material respects, when made and on each Delivery Date, (ii) the condition that
the Company and MRC shall have performed each of their respective obligations
hereunder theretofore to be performed and (iii) the following additional
conditions:
(a) The Registration Statement shall have become effective, and the
Representatives shall have received notice thereof not later than 10:00
P.M., New York City time, on the date of execution of this Agreement, or at
such other time as you and the Company may agree and the Prospectus shall
have been filed with the Commission in the manner and within the time
period required by Rule 424(b).
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
be pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the exemption of the Shares
under the securities or Blue Sky laws of any jurisdiction shall be in
effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of
the staff of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission or such
authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have
15
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been filed unless a copy thereof was first submitted to the Underwriters
and the Underwriters did not object thereto in good faith, and the
Underwriters shall have received certificates, dated the Closing Date and
the Option Closing Date and signed by the Chief Executive Officer of the
Company and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their information and
belief), to the effect of the foregoing clauses (i), (ii) and (iii) of this
Section 7.
(c) The Representatives shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact or omits to state a fact
which in the Underwriters' judgment is in either case material and in the
case of an omission is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(d) Gibbons, Del Deo, Dolan, Grifflinger & Vecchione, P.C., counsel to
the Company, shall have furnished to the Representatives their written
opinion, dated such Delivery Date, in form and substance satisfactory to
the Representatives, to the effect that:
(i) Each of the Company and the Subsidiaries (A) has been duly
incorporated or organized and is a validly existing corporation in
good standing under the laws of its jurisdiction of incorporation or
organization with full corporate power and authority to own or lease
and to operate its assets and to conduct its business as described in
the Registration Statement and Prospectus and (B) is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction (x) in which the conduct of its business requires such
qualification and (y) in which it owns or leases property;
(ii) To the knowledge of such counsel, the Company owns no
capital stock or other beneficial interest in any corporation,
partnership, joint venture or other business entity except for equity
interests in the Subsidiaries and except as set forth in the
Registration Statement;
(iii) The Shares have been validly authorized, duly executed by
authorized officers of the Company, and are the validly issued,
outstanding and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization moratorium and other similar laws relating
to or affecting creditors' rights generally, and general equitable
principles (whether considered in a proceeding in equity or at law).
(iv) The Company has authorized capital stock as set forth in the
Registration Statement and all of the authorized shares of Common
Stock, have been duly authorized, and have been duly reserved for
issuance, and all of the
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issued and outstanding shares of Common Stock will be validly issued
and outstanding, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof; all of the outstanding
shares of Common Stock were issued and sold in compliance with all
applicable Federal and state securities laws; except as described in
the Prospectus and except with respect to existing stock incentive or
stock purchase plans to the knowledge of such counsel, there are no
outstanding options, warrants or other rights calling for the issuance
of, and there are no commitments, plans or arrangements to issue any
shares of capital stock of the Company;
(v) To the best of such counsel's knowledge, except as set forth
in the Prospectus, there are no legal or governmental proceedings
pending or threatened to which the Company or any Subsidiary or any of
their respective officers or directors is a party or of which any
property of the Company or any of its subsidiaries is the subject
which, if resolved against the Company or any Subsidiary or any of
their respective officers or directors, individually, or to the extent
involving related claims or issues, in the aggregate, is of a
character required to be disclosed in the Prospectus which has not
been properly disclosed therein;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement
of the Company;
(vii) The Company has full corporate power and authority to
execute, deliver and perform this Agreement and the delivery and
performance of this Agreement, the consummation of the transactions
herein contemplated and the issue and sale of the Shares and the
compliance by the Company with all the provisions of this Agreement,
will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon
any of the property or assets of the Company or any Subsidiary
pursuant to, the terms of any material contract or other agreement
known to such counsel to which the Company or any Subsidiary is a
party or by which the Company or Subsidiary is bound or to which any
of the respective property or assets of the Company or Subsidiary is
subject, nor will such action result in any violation of the
provisions of the charter or bylaws or partnership agreement or
operating agreement, in each case as amended, of the Company or any
Subsidiary, any statute or any rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or the terms of any judgment, decree or order, known
to such counsel, of any arbitrator or Governmental Body having such
jurisdiction;
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(viii) No consent, approval, authorization, order, registration
or qualification of or with any court or any regulatory authority or
other governmental body is required for the issue and sale of the
Shares or the consummation of the other transactions contemplated by
this Agreement, except such as have been obtained under the Act or may
be required by the NASD, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(ix) To the best of such counsel's knowledge, neither the Company
nor any Subsidiary is currently in violation of its charter or bylaws
or other organizational documents in each case as amended to the date
hereof, or in material default under any indenture, mortgage, deed of
trust, lease, bank loan or credit agreement or any other agreement or
instrument of which such counsel has knowledge to which the Company or
any Subsidiary is a party or by which any of them or any of their
respective property may be bound or affected;
(x) There are no preemptive or other rights to subscribe for or
to purchase, nor any restriction upon the voting or transfer of, any
Shares pursuant to the Company's Charter or Bylaws, in each case as
amended to the date hereof, or any agreement or other instrument known
to such counsel; and no holders of securities of the Company have
rights to the registration thereof under the Registration Statement;
(xi) To the extent summarized therein, all contracts and
agreements summarized in the Registration Statement and the Prospectus
are fairly summarized therein, conform in all material respects to the
descriptions thereof contained therein, and, to the extent such
contracts or agreements or any other material agreements are required
under the Act or the rules and regulations thereunder to be filed or
incorporated by reference therein, as exhibits to the Registration
Statement, they are so filed or incorporated by reference; and such
counsel does not know of any contracts or other documents required to
be summarized or disclosed in the Prospectus or to be so filed or
incorporated by reference as an exhibit to the Registration Statement,
which have not been so summarized or disclosed, or so filed or
incorporated by reference;
(xii) All descriptions in the Prospectus of statutes, regulations
or legal or governmental proceedings are fair summaries thereof and
fairly present the information required to be shown with respect to
such matters;
(xiii) The Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration
Statement or any amendment
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thereto has been issued, and to the knowledge of such counsel no
proceedings for that purpose have been instituted or are pending or
are threatened or contemplated under the Act; the registration
statement originally filed with respect to the Shares and each
amendment thereto and the Prospectus and, if any, each amendment and
supplement thereto (except for the financial statements, schedules and
other financial and statistical data included therein, as to which
such counsel need not express any opinion), complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; the descriptions contained and summarized in the
Registration Statement and the Prospectus of contracts and other
documents are accurate and fairly present in all material respects the
information required to be shown by the Act and the Rules and
Regulations; to the knowledge of such counsel, there are no contracts
or documents which are required by the Act to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement which are not described or filed as
required by the Act and the Rules and Regulations; to the knowledge of
such counsel, there is not pending or threatened against the Company
any action, suit, proceeding or investigation before or by any
Governmental Body of a character required to be disclosed in the
Registration Statement or the Prospectus which is not so disclosed
therein; and the statements set forth under the headings "The
Company--The Reorganization," "--The Roda Acquisition,"
"Business--Government Regulation," "Business--Litigation," "Certain
Transactions" and "Description of Capital Stock" in the Registration
Statement and Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, provide an accurate summary of such legal matters, documents
and proceedings;
(xiv) The Shares conform as to legal matters, in all material
respects, to the statements concerning them in the Registration
Statement and the Prospectus;
(xv) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment
Company Act; and
(xvi) The Shares have been duly authorized for listing on NASDAQ,
subject only to official notice of issuance.
In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has participated
in conferences with officers and representatives of the Company and with the
Accountants, at which conferences such counsel made inquiries of such officers,
representatives and Accountants and discussed the contents of the Registration
Statement and the Prospectus and (without taking any further action to verify
independently the statements made in the
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Registration Statement and the Prospectus (other than the sections identified in
paragraph (xiii) above and, except as stated in the foregoing opinion, without
assuming responsibility for the accuracy, completeness or fairness of such
statements) nothing has come to such counsel's attention that causes such
counsel to believe that the Registration Statement as of the date it was
declared effective or as of the Closing Date or the Prospectus as of the date
thereof or as of the Closing Date contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need not express any opinion with respect to the financial
statements, schedules and other financial and statistical data included in the
Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any State other than New Jersey (to the extent
satisfactory in form and scope to counsel for the Underwriters) such counsel may
rely upon the opinion of local counsel to the Company. The foregoing opinion
shall also state that the Underwriters are justified in relying upon such
opinion of local counsel, and copies of such opinion shall be delivered to the
Underwriters and counsel for the Underwriters.
(f) Stroock & Stroock & Lavan LLP, counsel to the Underwriters, shall have
furnished to the Representatives their written opinion or opinions, dated such
Delivery Date, in form and substance satisfactory to the Representatives, with
respect to the incorporation of the Company, the validity of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them to
pass upon such matters. In rendering such opinion, such counsel may rely as to
all matters of New Jersey law upon the opinion of Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, P.C.; Newark, New Jersey.
(g) With respect to the letter of Ernst & Young LLP delivered to you
concurrently with the execution of this Agreement (the "initial letter"), the
Company shall have furnished to the Representatives a letter (as used in this
paragraph, the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the date of the bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more than
five days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
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(h) Neither the Company nor any of its subsidiaries shall have sustained
since the date as of which information is given in the Prospectus, any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and since the respective dates as of which
information is given in the Prospectus, there shall not have been any change in
the capital stock (other than shares issued pursuant to the exercise of stock
options or pursuant to the terms of the Shares) or short-term debt or long-term
debt of the Company or any Subsidiaries nor any change or any development
involving a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the Company
and its Subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case, is in your judgment so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares on the terms and in the manner
contemplated in the Prospectus.
(i) Between the date hereof and such Delivery Date there shall have been no
declaration of war by the Government of the United States; on such Delivery Date
there shall not have occurred any material adverse change in the financial or
securities markets in the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or other calamity or crisis, the effect of which is such as to make
it, in the judgment of the Representatives, impracticable to market the Shares
or to enforce contracts for the resale of Shares and no event shall have
occurred resulting in (i) trading in securities generally on the New York Stock
Exchange (the "NYSE") or in the Common Stock on NASDAQ being suspended or
limited or minimum or maximum prices being generally established on the NYSE or
NASDAQ, or (ii) additional material governmental restrictions, not in force on
the date of this Agreement, being imposed upon trading in securities generally
by the NASD or in the Common Stock on NASDAQ or by order of the Commission or
any court or other governmental authority, or (iii) a general banking moratorium
being declared by either Federal or New York authorities.
(j) At the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall be furnished to the Representatives an accurate certificate,
dated the date of its delivery, signed by each of the Chief Executive Officer
and the President of the Company, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, (x) the Registration Statement does not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading and (y) the Prospectus does not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the
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statements therein, in light of the circumstances under which they were
made, not misleading and (B) since the Effective Date no event has occurred
as a result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein not untrue or misleading in any
material respect;
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects; and
(iii) Each of the covenants required herein to be performed by the
Company on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be complied with
by the Company on or prior to the delivery of such certificate has been
duly, timely and fully complied with.
(k) The Company shall have delivered to you evidence that the Shares have
been authorized for quotation on NASDAQ upon notice of issuance.
(l) At the Closing Date, and as to the Option Shares, the Option Closing
Date, there shall be furnished to the Representatives, a certificate from MRC,
signed by MRC, dated the Closing Date, to the effect that:
(i) He has carefully examined the Registration Statement and the
Prospectus and (A) as of the date of such certificate, (x) the Registration
Statement does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and (y) the Prospectus
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (B) since the Effective Date no event has occurred
as a result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein not untrue or misleading in any
material respect;
(ii) Each of the representations and warranties of MRC contained in
this Agreement were, when originally made, and are, at the time such
certificate is delivered, true and correct in all material respects; and
(iii) Each of the covenants required herein to be performed by MRC on
or prior to the date of such certificate has been duly, timely and fully
performed and each condition herein required to be complied with by MRC on
or prior to the delivery of such certificate has been duly, timely and
fully complied with.
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8. (a) The Company and MRC, jointly and severally, will indemnify and hold
harmless each Underwriter for any losses, claims, damages or liabilities to
which such Underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or filed with the Commission or any securities association or
securities exchange (each, an "Application"), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading, (ii) any untrue
statement or alleged untrue statement made by the Company or MRC in Section 1 of
this Agreement, or (iii) the employment by the Company or MRC of any device,
scheme or artifice to defraud, or the engaging by the Company or MRC in any act,
practice or course of business which operates or would operate as a fraud or
deceit, or any conspiracy with respect thereto, in which the Company or MRC
shall participate, in connection with the issuance and sale of any of the
Shares, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating,
preparing to defend, defending or appearing as a third-party witness in
connection with any such action or claim; provided, however, that neither the
Company or MRC shall be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission relating
to any Underwriter made in any Preliminary Prospectus, the Registration
Statement, or the Prospectus or such amendment or supplement or any Application
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter expressly for use therein; and provided, further,
that, the indemnity agreement contained in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any
persons controlling such Underwriter) on account of any losses, claims, damages,
liabilities or litigation arising from the sale of Shares to any person, if such
Underwriter fails to send or give a copy of the Prospectus, as the same may be
then supplemented or amended, to such person, within the time required by the
Act and the untrue statement or alleged untrue statement or omission or alleged
omission to state a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, unless such failure is the result of noncompliance
by the Company with Section 5(b) hereof.
The indemnity agreement in this Section 8(a) shall be in addition to any
liability which the Company and MRC may otherwise have and shall extend upon the
same terms and conditions to each person, if any, who controls any Underwriter
within the meaning of the Act or the Exchange Act.
(b) Each Underwriter will indemnify and hold harmless the Company and
MRC against any losses, claims, damages or liabilities to which the Company or
MRC may become subject, under the Act or otherwise, insofar as such losses,
claims, damages
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or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or any Application, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in any Preliminary Prospectus, the Registration Statement, the Prospectus or
such amendment or supplement or any Application in reliance upon and in
conformity with written information furnished by such Underwriter to the Company
through the Representatives relating to such Underwriter expressly for use
therein, and will reimburse the Company and MRC for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim.
The indemnity agreement in this Section 8(b) shall be in addition to
any liability which the Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each officer and director of the Company or
MRC and to each person, if any, who controls the Company or MRC within the
meaning of the Act or the Exchange Act.
(c) Promptly after receipt by an indemnified party under Section 8(a)
or 8(b) of notice of the commencement of any action (including any governmental
investigation), such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party under Section 8(a) or 8(b) except to the
extent it was unaware of such action and has been prejudiced in any material
respect by such failure or from any liability which it may have to any
indemnified party otherwise than under such Section 8(a) or 8(b). In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
If, however, (i) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party or
(ii) an indemnified party shall have reasonably concluded that representation of
such indemnified party and the indemnifying party by the same counsel would be
inappropriate
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under applicable standards of professional conduct due to actual or potential
differing interests between them and the indemnified party so notifies the
indemnifying party, then the indemnified party shall be entitled to employ
counsel different from counsel for the indemnifying party at the expense of the
indemnifying party and the indemnifying party shall not have the right to assume
the defense of such indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
local counsel) for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same set of allegations or circumstances. The counsel with respect to which
fees and expenses shall be so reimbursed shall be designated in writing by
Schroder & Co. Inc. in the case of parties indemnified pursuant to Section 8(a)
and by the Company and MRC in the case of parties indemnified pursuant to
Section 8(b). If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel to which such indemnified party is entitled under Section 8(a) or 8(b),
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) In order to provide for just and equitable contribution under the
Act in any case in which (i) any Underwriter (or any person who controls any
Underwriter within the meaning of the Act or the Exchange Act) makes a claim for
indemnification pursuant to Section 8(a) hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that Section 8(a) provides for indemnification in such case or (ii)
contribution under the Act may be required on the part of any Underwriter or any
such controlling person in circumstances for which indemnification is provided
under Section 8(b), then, and in each such case, each indemnifying party shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject as an indemnifying party hereunder (after contribution from
others) in such proportion as is appropriate to reflect the relative benefits
received by the Company and MRC on the one hand and the Underwriters on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 8(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to
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reflect not only such relative benefits but also the relative fault of the
Company and MRC on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and MRC
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company and MRC bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or MRC on the one hand or the Underwriters on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, MRC
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation (even if the Underwriters were
treated as one entity for such purpose) which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
8(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) Promptly after receipt by any party to this Agreement of notice of
the commencement of any action, suit or proceeding, such party will, if a claim
for contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof, but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party for contribution
under the Act except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any liability which
it may have to any other party other than for contribution under the Act. In
case any such action, suit or proceeding is brought against any party, and such
party notifies a
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contributing party of the commencement thereof, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified.
9. (a) If, on either Delivery Date, any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to purchase on such
Delivery Date, the Representatives may in their discretion arrange for them or
another party or other parties to purchase such Shares on the terms contained
herein. If the aggregate principal amount of Shares as to which Underwriters
default on either Delivery Date is more than one-eleventh of the aggregate
principal amount of all Shares to be purchased on such Delivery Date and within
36 hours after such default by any Underwriter the Representatives do not
arrange for the purchase of such Shares which such defaulting Underwriter agreed
but failed to purchase, then the Company shall be entitled to a further period
of 36 hours within which to procure another party or other parties satisfactory
to the Representatives to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, the Representatives notify the Company
that the Representatives have so arranged for the purchase of such Shares, or
the Company notifies the Representatives that it has so arranged for the
purchase of such Shares, the Representatives or the Company shall have the right
to postpone such Delivery Date for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of such defaulting Underwriter or Underwriters by the Representatives
or the Company or both as provided in subsection (a) above, the aggregate
principal amount of such Shares of such defaulting Underwriter or Underwriters
which remain unpurchased does not exceed one-eleventh of the aggregate principal
amount of all the Shares to be purchased on such Delivery Date, then the Company
shall have the right to require each nondefaulting Underwriter to purchase the
principal amount of the Shares which such nondefaulting Underwriter agreed to
purchase hereunder and, in addition, to require each nondefaulting Underwriter
to purchase its pro rata share (based on the principal amount of Shares which
such nondefaulting Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by the Representatives or
the
27
<PAGE>
Company as provided in subsection (a) above, the aggregate principal amount of
such Shares of such defaulting Underwriter or Underwriters which remain
unpurchased exceeds one-eleventh of the aggregate principal amount of all Shares
to be purchased on such Delivery Date, or if the Company shall not exercise the
right described in subsection (b) above to require non-defaulting Underwriters
to purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement shall thereupon terminate without liability on the part of any
nondefaulting Underwriter or the Company, except for the expenses to be borne by
the Company and the Underwriters as provided in Section 6 hereof and the
indemnity agreement in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or an officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. This Agreement shall become effective (a) if the Registration Statement
has not heretofore become effective, at the earlier of 12:00 Noon, New York City
time, on the first full business day after the Registration Statement becomes
effective, or at such time after the Registration Statement becomes effective as
the Representatives may authorize the sale of the Shares to the public by the
Underwriters or other securities dealers, or (b) if the Registration Statement
has heretofore become effective, at the earlier of 24 hours after the filing of
the Prospectus with the Commission or at such time as the Representatives may
authorize the sale of the Shares to the public by the Underwriters or securities
dealers, unless, prior to any such time (i) the Representatives shall have
received notice from the Company that it elects that this Agreement shall not
become effective, or (ii) the Representatives shall have given notice to the
Company that the Underwriters have elected that this Agreement shall not become
effective; provided, however, that the provisions of this Section and Section 6
and Section 8 hereof shall at all times be effective.
If this Agreement shall be terminated pursuant to Section 9 hereof, or if
this Agreement, by election of the Underwriters, shall not become effective
pursuant to the provisions of this Section, the Company shall not then be under
any liability to any Underwriter except as provided in Section 6 and Section 8
hereof, but if this Agreement becomes effective and is not so terminated but the
Shares are not delivered by or on behalf of the Company as provided herein
because the Company has been unable for any reason beyond its control and not
due to any default by it to comply with the terms and conditions hereof, the
Company will reimburse the Underwriters through the Representatives for all
out-of-pocket expenses, including fees and disbursements of counsel, actually or
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares, but the Company shall then be
28
<PAGE>
under no further liability to the Underwriters except as provided in Section 6
and Section 8 hereof and in no event will the Company be liable to the
Underwriters for any loss of anticipated profits from transactions contemplated
by this Agreement.
12. The statements set forth in the last paragraph on the front cover page
of the Prospectus, the paragraph on the inside front cover of the Prospectus
containing stabilization language and the third and sixth paragraphs under the
caption "Underwriting" in the Prospectus constitute the only information
furnished by any Underwriter through the Representatives to the Company for
purposes of Sections 1(b), 1(c) and 8 hereof.
13. In all dealings hereunder, the Representatives shall act on behalf of
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by the Representatives jointly or by Schroder & Co.
Inc. on behalf of the Representatives.
All statements, requests, notices and agreements hereunder, unless
otherwise specified in this Agreement, shall be in writing and, if to the
Underwriters, shall be delivered or sent by mail, telex or facsimile
transmission (subsequently confirmed by delivery or by letter sent by mail) to
the Representatives in care of Schroder & Co. Inc. at Equitable Center, 787
Seventh Avenue, New York, New York 10019, Attention: Syndicate Department; and
if to the Company, shall be delivered or sent by mail, telex or facsimile
transmission (subsequently confirmed by delivery or by letter sent by mail) to
the address of the Company set forth in the Registration Statement, Attention:
Chief Executive Officer; provided, however, that any notice to any Underwriter
pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or
facsimile transmission (subsequently confirmed by delivery or by letter sent by
mail) to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by Schroder & Co. Inc. upon request. Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Section 8 and
Section 10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
29
<PAGE>
16. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES
THEREOF.
30
<PAGE>
17. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us two counterparts hereof. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement Among Underwriters, manually or facsimile
executed counterparts of which, to the extent practicable and upon request,
shall be submitted to the Company for examination, but without warranty on your
part as to the authority of the signers thereof. Upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
among you and the Company.
Very truly yours,
CUNNINGHAM GRAPHICS
INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
Michael R. Cunningham
Accepted as of the date hereof:
SCHRODER & CO. INC.
PRUDENTIAL SECURITIES
By: SCHRODER & CO. INC.
By:
--------------------------------
Name:
Title:
Acting on behalf of
themselves and as the
Representatives of the other
several Underwriters named in
Schedule I hereto.
31
<PAGE>
SCHEDULE I
UNDERWRITERS
Number
of Firm Shares
to be Purchased
---------------
Schroder & Co. Inc. .......................................... 1,050,000
Prudential Securities......................................... 1,050,000
Total.................................................... 2,100,000
=========
<PAGE>
EXHIBIT A
SUBSIDIARIES
Cunningham Graphics, Inc.
Roda Limited
Roda Print Concepts Limited (a subsidiary of Roda Limited)
A-1
<PAGE>
EXHIBIT B
____________ __, 1998
SCHRODER & CO. INC.
PRUDENTIAL SECURITIES
As Representatives of the several Underwriters
c/o Schroder & Co. Inc.
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Ladies and Gentlemen:
In order to induce the several Underwriters, for whom Shroder & Co. Inc.
and Prudential Securities are acting as representatives to underwrite a proposed
initial public offering (the "Offering") of shares of common stock, no par value
per share (the "Common Stock") of Cunningham Graphics International, Inc., a New
Jersey corporation (the "Company"), as contemplated by a registration statement
filed with the Securities and Exchange Commission on Form S-1 (Registration No.
333-46541), the undersigned hereby agrees that the undersigned will not,
directly or indirectly, for a period of 180 days after the commencement of the
Offering, without the prior written consent of Schroder & Co. Inc., offer to
sell, sell, contract to sell, grant any option to purchase or otherwise dispose
(or announce any offer, sale, grant of any option to purchase or other
disposition) of any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (except that the Company may grant
options to purchase or award shares of Common Stock under its stock option plans
and issue privately placed shares in connection with any acquisitions).
This letter shall have no further force or effect if the Company and the
Underwriters shall not have executed and delivered an underwriting agreement
related to the Offering by [_______ __, 1998] or if any underwriting agreement
entered into by such parties shall be terminated prior to the initial closing
date provided for therein.
This letter agreement shall not prohibit the undersigned from transferring
any shares of Common Stock to members of his or her immediate family or to a
trust for their benefit, provided that such persons or trust agree to be bound
by the terms hereof.
Very truly yours,
By:
--------------------------------
Name:
B-1
DATED 1998
(1) P. FURLONGE and OTHERS
(2) CUNNINGHAM GRAPHICS, INC.
SUPPLEMENTAL AGREEMENT
----------------------
Mundays
Crown House
Church Road
Claygate, Esher
Surrey KT10 0LP
Telephone: 01372 809000
Ref: RAP/RAF/R13553
<PAGE>
SUPPLEMENTAL AGREEMENT
----------------------
THIS SUPPLEMENTAL AGREEMENT is made the day of March 1998
BETWEEN
(1) The several persons who respective names and addresses are set out in
column 1 of the Schedule hereto other than the Trustees ("the Vendors");
and
(2) CUNNINGHAM GRAPHICS, INC. a corporation organised under the laws of the
State of New Jersey, USA ("the Purchaser").
And is supplemental to an agreement dated 16th January 1998 and made between the
Vendors (other than the trustees as hereinafter defined) and the Purchaser
("the Main Agreement").
WHEREAS
(A) Under the Main Agreement the Vendors (other than the Trustees) agreed to
sell to the Purchaser, subject to the fulfilment of certain conditions, the
entire issued share capital of Roda Limited ("the Company").
(B) Subsequent to the Main Agreement and contemporaneously with the signing of
this Agreement, the share capital of the Company has been reorganised
pursuant to resolutions in the agreed terms and P. Furlonge, one of the
Vendors, has transferred certain shares of the Company to the Trustees No
1.
(C) The parties to the Main Agreement and the Trustees have agreed to vary the
Main Agreement as set out in this Supplemental Agreement.
(D) The Main Agreement remains conditional at the date hereof.
1
<PAGE>
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. Definitions
-----------
1.1 Definitions in the Main Agreement shall, save as varied herein, have the
same meaning in this agreement.
1.2 References to Schedule 1 in the Main Agreement shall be deemed to be
references to the Schedule to this supplemental agreement.
1.3 "Trustees No 1" means N.H. Furlonge and M.C.P. Furlonge, the trustees of
the Peter Furlonge Family Trust.
1.4 "Trustees No 2" means N.H. Furlonge, P.L. Furlonge and M.C.P. Furlonge,
the trustees of the Peter Furlonge Life Interest Trust.
1.5 "Trustees" means Trustees No 1 and Trustees No 2.
2. Variations to the Main Agreement
--------------------------------
2.1 There shall be deemed to be incorporated into the Main Agreement the
following amendments and variations:-
2.1.1 Page 1
-------
The existing recital (A) shall be deleted and there shall be
substituted therefor the following:-
(A) Roda Limited ("the Company"), a company registered in England
with number 3243754 has an authorised share capital of
(Pound) 1,020,000 divided into 115,415 "A" Ordinary Shares of
(Pound) 0.50 each, 1,800,000 "B" Ordinary Shares of (Pound)
0.50 each, 84,585 "C" Ordinary Shares of (Pound) 0.50 each
and 2,000,000 New Preference Shares of 1p each of which
2
<PAGE>
all of the said "A" Ordinary Shares, 200,000 of the said "B"
Ordinary Shares and all of the "C" Ordinary Shares are
issued and fully paid or credited as fully paid and are
owned by the shareholders of the Company in the proportions
shown opposite their respective names in column 2 of
Schedule 1. None of the New Preference Shares have yet been
issued.
2.1.2 Page 2
-------
The definition of "A Ordinary Shares" shall be deleted and there shall
be substituted therefor the following:-
"A Ordinary Shares" The 115,415 issued A Ordinary Shares of
(Pound) 0.50 each in the capital of the Company.
2.1.3 Page 3
-------
There shall be inserted a new definition as following:-
"C Ordinary Shares" The 84,585 issued C Ordinary Shares of
(Pound) 0.50 each in the capital of the Company.
2.1.4 Page 6
-------
There shall be inserted a new definition as follows:-
"New Preference Shares" The 2,000,000 unissued Preference Shares
of 1p each in the capital of the Company.
2.1.5 Page 7
-------
The definition of "Shares" shall be deleted and there shall be
substituted therefor the following:
- "Shares" Together the A Ordinary Shares and
the B Ordinary Shares;
2.1.6 Page 10
-------
In clause 2.2 the date "15 May 1998" shall be substituted in place of
the date "30 April 1998".
3
<PAGE>
2.1.7 Page 11
-------
In clauses 4.1 and 4.1.2, the figure of US$8,147,500 shall be deleted
and there shall be substituted the figure of US$6,309,755.
2.1.8 Page 20
-------
There shall be inserted a new clause 11.5 as follows:-
11.5 P. Furlonge shall procure that at completion the Trustees No
1 and the Trustees No 2 shall enter into a power of
attorney, and a deed of guarantee of the liabilities of P.
Furlonge hereunder, in the agreed terms, and provision of
such powers and guarantees shall be a condition of
Completion as if the same was required pursuant to clause
5.2. Notwithstanding clause 11.1, P. Furlonge may satisfy
his obligation to deposit moneys in the Retention account by
procuring that the Trustees No 2 place into the Retention
Account 132,000 New Preference Shares on terms that any sums
to be paid by P. Furlonge to the Purchaser from the
Retention Account shall be satisfied by the sale to the
Purchaser by the Trustees No 2 at 0.0001 pence per New
Preference Share of such number of New Preference Shares
whose total redemption price (including premium) shall equal
the liability of P. Furlonge to be paid from the Retention
Account. If and to the extent that New Preference Shares are
transferred to the Purchaser after Completion, pursuant to
Article 7A of the new Articles of Association of the
Company, the moneys payable shall be paid into the Retention
Account first to the extent necessary to ensure that there
has been deposited on behalf of P. Furlonge a sum equal to
(Pound) 132,000 less any amounts paid out of the Retention
Account by way of transfer of New Preference Shares in
satisfaction of an obligation to make payment to the
Purchaser
4
<PAGE>
as described above. Each Vendor undertakes (insofar as he is
able to do so) to procure that no person is approved by the
Board of the Company as an Approved Purchaser under the
Company's New Articles of Association save for the Trustees
No 2.
2.1.9 Pages 31 and 32
---------------
Schedule 1 shall be deleted and there shall be substituted therefor
the Schedule to this Agreement.
2.1.10 Page 71
-------
In clause 3.1, the second sentence shall be replaced by the following
"Proportionate Part" means in respect of each Vendor the proportion of
the Claim which is the same as the amount shown against his name as
Notional Consideration in column 7 of Schedule 1 received by each
Vendor bears to the total of such Notional Consideration shown against
the names of all the Vendors.
2.1.11 Page 72
-------
In Clause 3.2(a) there shall be inserted after the words clause 4.1.2
"plus in the case of each Vendor the difference between Notional
Consideration shown in column 7 of Schedule 1 and Total Consideration
shown in column 3 of the same Schedule".
3 Agreements to be taken together
-------------------------------
3.1 The Main Agreement and this Supplemental Agreement shall be taken together
and construed as one and, save as varied hereby, the provisions of the Main
Agreement shall continue in full force and effect.
AS WITNESS the hands of the parties hereto the day and year first above written.
5
<PAGE>
<TABLE>
<CAPTION>
THE SCHEDULE
<S> <C> <C> <C>
(1) NAME & ADDRESS (2) NUMBER OF SHARES HELD (3) TOTAL (4) NUMBER OF
CONSIDERATION CONSIDERATION SHARES
"A" "B" "C"
ORDINARY ORDINARY ORDINARY
P L Furlonge of Castle Farm, Mountfield, 95,415 2,073,055 128,323
East Sussex,
TW32 5JV
R J Elman of 1 Bickenhall Mansions, ---- 952 87,292 624
Bickenhall Street, London W1H 3LF
Stelby Holdings Limited, P O Box 641, ---- 30,000 559,896 3,999
1 Seaton Place, St. Helier, Jersey
Central Investments Limited, La Motte ---- 134,286 2,506,208 17,901
Chambers, La Motte Street, St. Helier,
Jersey
The Naggar Family Pension Scheme, c/o 15 ---- 30,000 559,896 3,999
Grosvenor Gardens, London SW1W 0BD
M L Tagliaferri of 4 Motcomb Street, ---- 3,810 71,107 508
London SW1
(1) NAME & ADDRESS (5) PAR VALUE OF (6) RETENTION (7) NOTIONAL
LOAN NOTES HELD ACCOUNT CONSIDERATION
<CAPTION>
<S> <C> <C> <C>
P L Furlonge of Castle Farm, Mountfield, ---- (Pound) 132,000 3,910,800
East Sussex,
TW32 5JV
R J Elman of 1 Bickenhall Mansions, 4,048 (Pound) 2,946 87,292
Bickenhall Street, London W1H 3LF
Stelby Holdings Limited, P O Box 641, 127,500 (Pound) 18,898 559,896
1 Seaton Place, St. Helier, Jersey
Central Investments Limited, La Motte 570,714 (Pound) 84,591 2,506,208
Chambers, La Motte Street, St. Helier,
Jersey
127,500 (Pound) 18,898 559,896
The Naggar Family Pension Scheme, c/o 15
Grosvenor Gardens, London SW1W 0BD
M L Tagliaferri of 4 Motcomb Street, 16,190 (Pound) 2,400 71,107
London SW1
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) NAME & ADDRESS (2) NUMBER OF SHARES HELD (3) TOTAL (4) NUMBER OF
CONSIDERATION CONSIDERATION SHARES
"A" "B" "C"
ORDINARY ORDINARY ORDINARY
M D Moriarty and Mrs J Moriarty both of ---- 382 7,130 51
11 Carleton Gardens, Brecknock Road, 570 10,638 76
London N19 5AQ
G Harvey of George Harvey & Associates 20,000 ---- 434,533 14,258
Limited, Mountford House, Britton Street,
London EC1M 5NY
Nicholas Hill Furlonge and Maria Christa ---- 84,585
Petra Furlonge (trustees of Peter
Furlonge Family Trust)
TOTAL 115,415 200,000 84,585 6,309,755 169,739
<CAPTION>
(1) NAME & ADDRESS (5) PAR VALUE OF (6) (7) NOTIONAL
LOAN NOTES HELD RETENTION CONSIDERATION
ACCOUNT
M D Moriarty and Mrs J Moriarty both of 4,048 (Pound) 241 7,130
11 Carleton Gardens, Brecknock Road, ---- (Pound) 359 10,638
London N19 5AQ
G Harvey of George Harvey & Associates ---- (Pound) 14,667 434,533
Limited, Mountford House, Britton Street,
London EC1M 5NY
Nicholas Hill Furlonge and Maria Christa
Petra Furlonge (trustees of Peter
Furlonge Family Trust)
TOTAL 850,000 (Pound) 275,000 8,147,500
</TABLE>
7
<PAGE>
SIGNED BY P.L. FURLONGE
SIGNED BY R.J. ELMAN
SIGNED BY
FOR AND ON BEHALF OF STELBY
HOLDINGS LIMITED
SIGNED BY
FOR AND ON BEHALF OF THE
NAGGAR FAMILY PENSION
SCHEME
SIGNED BY
FOR AND ON BEHALF OF
CENTRAL INVESTMENTS LIMITED
SIGNED BY M.L. TAGLIAFERRI
SIGNED BY M.D. MORIARTY
SIGNED BY J. MORIARTY
8
<PAGE>
SIGNED BY G. HARVEY
SIGNED BY
FOR AND ON BEHALF OF CUNNINGHAM
GRAPHICS INC.
9
REORGANIZATION AGREEMENT
REORGANIZATION AGREEMENT made as of January 30, 1998 by and among
CUNNINGHAM GRAPHICS INTERNATIONAL, INC., a New Jersey corporation ("CGII"),
CUNNINGHAM GRAPHICS, INC., a New Jersey corporation ("CGI") and the individuals
identified on the signature page hereto as Stockholders (the "Stockholders").
RECITALS:
A. The Stockholders own all the issued and outstanding capital stock of CGI
(the "CGI Stock").
B. In connection with an initial public offering of securities and the
acquisition (the "Acquisition") of Roda Limited, a corporation organized under
the laws of England ("Roda"), the Stockholders have determined that it would be
advisable to form a holding company to own all of the capital stock of CGI and
to acquire all the share capital of Roda.
C. The parties wish to set forth their agreement regarding the formation
and organization of CGII and the terms upon which they will contribute their
respective shares of CGI Stock to CGII.
NOW, THEREFORE, in consideration of the foregoing, it is agreed as follows:
1. ACKNOWLEDGMENT OF INCORPORATION AND ORGANIZATION OF CGII.
Each of the Stockholders acknowledges that CGII has been incorporated
and organized by the filing of a certificate of incorporation and its adoption
of organizational resolutions, which have been made available to him for
examination. The parties further acknowledge that as of this date, Michael R.
Cunningham is the sole stockholder of CGII, having subscribed for one share for
a purchase price of $12.00.
2. CONTRIBUTION OF CGI STOCK.
(a) Immediately prior to the initial public offering (the "Offering")
of common stock of CGII (the "Common Stock") pursuant to a Registration
Statement on Form S-1 declared effective by the United States Securities and
Exchange Commission, each of the Stockholders agrees to contribute to CGII all
of his shares of CGI Stock (the "Reorganization"). In consideration therefore,
the Stockholders shall receive shares of Common Stock and notes of CGII (the
"Exchange Notes," and together with the Distribution Notes referred to in
paragraph 5
<PAGE>
below, the "Reorganization Notes"). On the date of the Reorganization, (i) each
of the Stockholders shall deliver to CGII his certificate or certificates
representing CGI Stock duly endorsed for transfer and (ii) CGII shall deliver to
each of the Stockholders a certificate representing shares of the Common Stock
and an Exchange Note and a Distribution Note of CGII payable to such
Stockholder.
(b) Each Stockholder acknowledges that he owns the number of shares of
CGI Stock and is entitled to receive in the Reorganization the number of shares
of Common Stock and an Exchange Note in the principal amount set forth opposite
his name on Schedule I hereto. Each Stockholder further acknowledges that the
aggregate principal amount of the Exchange Notes shall be determined as if CGII
were to issue an additional 200,000 shares of Common Stock in the
Reorganization. Accordingly, each Stockholder shall be entitled to receive his
proportionate interest in the aggregate amount derived by multiplying 200,000 by
the initial public offering price of the Common Stock.
(c) The Reorganization Notes are non-interest bearing and have no
specified maturity date; provided, however, it is intended that CGII will pay
the Reorganization Notes from the net proceeds of the Offering. CGII shall have
the right to offset against the principal amount of the respective
Reorganization Notes any amounts due to CGI by the respective Stockholders.
(d) Each Stockholder represents and warrants to CGII that (i) he has
good and marketable title to his shares of CGI Stock, free and clear of all
liens and encumbrances of any kind; (ii) he has the absolute right, power,
authority and capacity to execute and deliver this Agreement and perform his
obligations hereunder; and (iii) this Agreement constitutes his legal, valid and
binding obligation, enforceable against him in accordance with its terms.
3. SECURITIES LAWS.
Each of the Stockholders:
(a) represents and warrants that (i) he is acquiring the Common Stock
for investment purposes only, for his own account and without a view to the
resale, transfer or distribution thereof, (ii) he or his representative has had
access to the same kind of information concerning CGII that is required by
Schedule A of the Securities Act of 1933, as amended (the "Act"), to the extent
that CGII possesses such information; and (iii) has such knowledge and
experience in financial and business matters that he is capable of utilizing the
information that is available to him concerning CGII to evaluate the risk of his
investment in CGII and that he is able to bear the economic risk of his
investment in the Common Stock.
(b) acknowledges that he has been advised that the shares of Common
Stock issued under this Agreement are not being registered under any applicable
federal or state securities laws in reliance upon certain exemptions thereunder,
cannot be resold unless they are registered under those laws or unless an
exemption from registration is available and will bear a legend to such effect
and, accordingly, he may not be able to sell or otherwise dispose of the
2
<PAGE>
shares when he wishes to do so. Each of the Stockholders acknowledges that the
reliance of CGII and its agents upon such exemption from registration is
predicated upon the foregoing representations.
(c) agrees that the shares of Common Stock will not be resold (i)
without registration thereof under the Act (unless an exemption from such
registration is available and the Stockholder has provided to CGII an opinion of
counsel reasonably acceptable to CGII to such effect) or (ii) in violation of
any law.
(d) consents that the certificate or certificates representing the
Common Stock may be impressed with a legend indicating that the shares are not
registered under the Act and reciting that transfer thereof is restricted.
(e) consents that stop transfer instructions in respect of the shares
may be issued to any transfer agent, transfer clerk or other agent at any time
acting for CGII.
4. TERMINATION OF SHAREHOLDERS' AGREEMENT. Each of Michael R. Cunningham,
Gordon Mays and Timothy Mays agrees that effective upon the consummation of
transactions contemplated by this Agreement, the Shareholders' Agreement among
each of them and Cunningham Graphics, Inc. dated as of June 13, 1991 shall be
canceled and of no further force and effect.
5. DISTRIBUTION OF S CORPORATION TAXABLE INCOME. CGI shall distribute to
the Stockholders the amounts in their respective S Corporation "accumulated
adjustments accounts" immediately prior to the Reorganization, which, for
purposes of this Agreement are estimated to be $2,200,000 in the aggregate. Such
distribution shall be effected by CGI's issuance to each Stockholder of a note
in the respective amounts set forth opposite their names in Schedule I hereto
(each, a "Distribution Note"). In connection with the Reorganization, CGII
hereby agrees to assume and discharge the obligations of CGI by issuing restated
Distribution Notes. The Stockholders agree to accept the Distribution Notes in
satisfaction of CGI's obligation to make payments of undistributed S Corporation
taxable income.
6. ASSIGNMENT OF RODA AGREEMENT. Contemporaneously with the actions
described in paragraph 2(a) of this Agreement, CGI shall assign to CGII the
benefit of, and CGII shall perform the obligations of CGI under, that certain
agreement dated January 16, 1998, as amended, providing for the acquisition of
all the outstanding capital stock of Roda (the "Roda Agreement"). CGII shall
accordingly execute a Deed of Adherence as required pursuant to clause 18 of the
Roda Agreement.
7. SURVIVAL AND REPRESENTATIONS. The representations and warranties made by
the Stockholders in this Agreement shall survive for a period of one year
following the date of the Reorganization.
8. TERMINATION. This Agreement shall terminate and the parties shall have
no further obligations hereunder, if the Offering has not occurred by June 30,
1998.
3
<PAGE>
9. MODIFICATION. No modification of this Agreement shall be valid unless
such modification is in writing and signed by all parties hereto.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall be deemed to constitute a single
instrument.
[Remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by their duly authorized representatives as of
the day and year first above written.
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By:
------------------------------------
Name: Michael R. Cunningham
Title: President
CUNNINGHAM GRAPHICS, INC.
By:
------------------------------------
Name: Michael R. Cunningham
Title: President
THE STOCKHOLDERS:
---------------------------------------
Michael R. Cunningham
---------------------------------------
Gordon Mays
---------------------------------------
Timothy Mays
---------------------------------------
James J. Cunningham, Trustee
---------------------------------------
William J. Mays, Trustee
---------------------------------------
William Edward Shannon, Trustee
5
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
STOCKHOLDER SHARES OF SHARES OF COMMON EXCHANGE(1) AAA AS OF DISTRIBUTION
CGI STOCK STOCK NOTE DECEMBER 31 NOTE
----------- --------- ---------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Michael R. Cunningham 94 2,050,727 $1,896,432 $2,021,536 $1,738,400
Gordon Mays 10.46 228,198 211,030 224,949 193,443
Timothy Mays 7.60 165,803 153,330 163,443 140,551
James J. Cunningham, 6 130,898 121,050 129,034 110,962
Trustee
William J. Mays, Trustee 0.45 9,817 9,079 9,678 8,322
William Edward Shannon, 0.45 9,817 9,079 9,678 8,322
Trustee
TOTALS 118.96 2,595,260 $2,400,000 $2,558,318 $2,200,000
</TABLE>
- ----------
1 The principal amounts of the Exchange Notes assumes an initial public
offering price of $12.00 per share
EXHIBIT 4.2
______________ NUMBER SHARES
CUSIP 231157 10 8
[LOGO]
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY
This certifies that
is the owner of
FULL PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation
and the facsimile signatures of its duly authorized officers.
Dated:
[CUNNINGHAM GRAPHICS INTERNATIONAL, INC. CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED OFFICER
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian_________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act____________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________
___________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER
Signature Guaranteed:
________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad 15.
EXHIBIT 5.1
[GIBBONS, DEL DEO, DOLAN, GRIFFINGER &
VECCHIONE LETTERHEAD]
April __, 1998
Cunningham Graphics International, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Ladies and Gentlemen:
You have requested our opinion with respect to the public offering and
sale by you, Cunningham Graphics International, Inc., a New Jersey corporation
(the "Company"), pursuant to a Registration Statement on Form S-1 (No.
333-46541)(the "Registration Statement") under the Securities Act of 1993, as
amended (the "Act"), of a maximum of 2,415,000 shares of Common Stock (the
"Common Stock").
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of such documents and corporate and public records as we
deem necessary as a basis for the opinion hereinafter expressed. With respect to
such examination, we have assumed the genuineness of all signatures appearing on
all documents presented to us as originals, and the conformity to the originals
of all documents presented to us as conformed or reproduced copies. Where
factual matters relevant to such opinion were not independently established, we
have relied upon certificates of appropriate state and local officials, and upon
certificates of executive officers and responsible employees and agents of the
Company.
Based upon the foregoing, it is our opinion that the Common Stock has
been duly and validly authorized and when sold, paid for and issued as
contemplated by the Registration Statement will be duly and validly issued and
fully paid and nonassessable.
<PAGE>
Cunningham Graphics International, Inc.
April __, 1998
Page 2
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, and to the use of our name as your counsel in connection
with the Registration Statement and in the Prospectus forming a part thereof. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
Gibbons, Del Deo, Dolan, Griffinger & Vecchione
A Professional Corporation
Exhibit 10.3
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM
GRAPHICS, INC., a New Jersey corporation, with its principal offices located at
629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and MICHAEL R.
CUNNINGHAM, with an address at 10 Longview Road, Lebanon, New Jersey 08833
("Employee");
R E C I T A L S:
WHEREAS, the Employee is the controlling shareholder, President and
Chief Executive Officer of the Company; and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of Cunningham Graphics International, Inc.
("CGII") and will be followed by an initial public offering of common stock by
CGII, and wishes to memorialize the terms of the Employee's employment by the
Company prior to the consummation of such transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
<PAGE>
1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
2
<PAGE>
(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
3
<PAGE>
1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.15 "PANEL" shall have the meaning given such terms in Section 8.
1.16 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company (including non-extension) for Cause; (ii) the Term and the period
thereafter, not to exceed twelve months, which corresponds to the portion of
Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6;
(iii) the Term and twelve month period thereafter in the case of the termination
of Employee's employment voluntarily or as a result of a Disability; and (iv)
the Term and the six month period thereafter in the case of the non-extension of
this Agreement by the Company other than for Cause.
1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by the
Company.
1.19 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as President and Chief Executive Officer of
the Company. The duties of Employee shall be to have general supervisory
authority over the business of the Company, to prepare and implement a strategic
plan for the Company, including the seeking out and consummation of acquisitions
for the Company, to perform due diligence on acquisition proposals, to pursue
the objectives of the Business, to perform generally those responsibilities and
to render services as are necessary and desirable to protect and to advance the
best interests of the Company (collectively, the "Duties"), acting, in all
instances, under the supervision of and in accordance with the policies set by
the Board. To the extent that the Board determines to procure a policy of
directors and officers liability insurance, the Company shall take such actions
as are necessary to include Employee within the coverage of such policy.
4
<PAGE>
2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the Board. During the Term, Employee: (i) shall comply with all
laws, statutes, ordinances, rules and regulations relating to the Business, and
(ii) shall not engage in or become employed, directly or indirectly, in a
business which competes with the Business of the Company and its Subsidiaries,
without the prior written consent of the Board, nor shall he act as a consultant
to or provide any services to, whether on a remunerative basis or otherwise, the
commercial or professional business of any other Person which competes with the
Business of the Company and its Subsidiaries, without such written consent,
which, in both instances, may be given or withheld by the Board in its absolute
discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence outside the State of New Jersey without his consent.
It is, however, distinctly understood and agreed that Employee may be required,
in connection with the performance of his duties, to work from time to time at
other locations designated by the Board or as required in connection with the
Business of the Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence as of
the Commencement Date and shall end three years thereafter, unless extended
pursuant to the next sentence or unless sooner terminated pursuant to Section 7
(the later of (i) the third anniversary of the Commencement Date and (ii) the
date to which Employee's period of employment has been extended, is the "Term
Date"). If Employee's employment hereunder has not previously been terminated in
accordance with Section 7 hereof, then on the second anniversary of the
Commencement Date, and on each subsequent anniversary of the Commencement Date,
the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the services to
be rendered by him hereunder during the Term, and in consideration of the
various restrictions imposed upon Employee during the Term and the Restricted
Period, and otherwise under this Agreement, the Basic Salary and other benefits
as provided for and determined pursuant to Sections 5 and 6, inclusive, of this
Agreement; provided, however, that no compensation shall be paid to Employee
under this Agreement for any period subsequent to the termination of employment
of Employee for any reason whatsoever, except as provided in Section 7.
5. BASIC SALARY/BONUS
5
<PAGE>
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $250,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board (without Employee's participation as a director) and,
once increased, shall not thereafter be reduced. The Basic Salary shall be
reviewed at least once in every Employment Year by a committee of the Board
responsible for determining compensation of senior management of the Company,
each of the members of which is a "non-employee-director" as defined in Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for the President and
Chief Executive Officer of the Company. The Committee in consultation with
Employee shall establish in advance of each fiscal year of the Company during
the Term goals and levels of the Bonus for such fiscal year which shall be
related to the estimated budget for the Company for such fiscal year.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to Employee and his family on the day prior to the Commencement Date;
(ii) a monthly allowance for a luxury-type automobile and insurance;
(iii) such other benefits as the Board shall lawfully adopt and
approve for Employee;
(iv) term life insurance in the amount of $3,000,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the extent the same is available at normal market rates;
(v) four (4) weeks of paid vacation; and
6
<PAGE>
(vi) long term disability insurance coverage consistent with current
Company policy.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family for the balance of the stated Term, as if Employee had not been
terminated for Disability and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current annual salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to two
times his then current annual salary.
7
<PAGE>
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current annual salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good
Reason shall mean:
(a) A reduction or non-payment of Employee's Basic Salary or failure
to review Employee's Basic Salary as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or the failure of the Company to provide Employee with
the benefits provided for in Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a dispute exists as to the reasons given in the Notice of
Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"),
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, by the Panel, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal
8
<PAGE>
therefrom having expired and no appeal having been perfected); provided that the
Date of Termination shall be extended by a Notice of Dispute only if such notice
is given in good faith and the party giving such notice pursues the resolution
of such Dispute with reasonable diligence and provided further that pending the
resolution of any such Dispute, the Company shall continue to pay Employee the
same Basic Salary and to provide Employee with the same or substantially
comparable welfare benefits and prerequisites, including participation in the
Company's retirement plans, profit sharing plans, to the extent then so
available at the date of such determination, stock option plans, stock award
plans or stock appreciation right plans that Employee was paid and provided to
the extent that such continued participation is possible under the general terms
and provisions of such plans, programs and benefits but in no event beyond the
Term Date. Should a Dispute asserted by Employee ultimately be determined in
favor of the Company, then all sums (net of tax withholdings by the Company from
such sums) paid by the Company to Employee from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the
Date of Termination, shall be repaid promptly by Employee to the Company, all
options, rights and stock awards granted to Employee during such period shall be
canceled or returned to the Company, and no service as an employee shall be
credited to Employee for such period for pension purposes. Employee shall not be
obligated to pay to the Company the cost of providing Employee with welfare
benefits and prerequisites for such period unless the final judgment, order or
decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the extent not
previously paid hereunder and the payment of Employee's reasonable legal fees
incurred as a result of such Dispute upon submission to the Company of a
detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three arbitrators (the "Panel"). The only issue(s) to be determined by
the Panel will be those issues specifically submitted to the Panel. The Panel
will not extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16, and judgment upon the award rendered by the Panel may be entered by any
court having jurisdiction thereof. A determination of the Panel shall be by
majority vote.
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Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
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9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period, compete
directly or indirectly with the Business. The phrase "compete directly or
indirectly with the Business" shall be deemed to include, without limiting the
generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or the Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those products and services as from time to time shall
be provided by the Company or any Affiliate, and Employee shall not approach any
Person for such purpose; nor shall Employee raid, entice or induce any Person
who on the Date of Termination is, or within one year immediately preceding the
Date of Termination was, an employee of the Company or any Affiliate, to become
employed by any other Person; similarly, Employee shall not approach any such
employee for such purpose or authorize or knowingly approve the taking of such
actions by any other Person or assist any such other Person in taking any such
action.
The phrase "compete directly or indirectly with the Business" shall
not be deemed to include an ownership interest as an inactive investor, which,
for purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
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The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: Chairman, Compensation Committee
If to Employee:
Michael R. Cunningham
10 Longview Road
Lebanon, New Jersey 08833
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
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14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
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16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Employee with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.8
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts
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would still be payable to Employee hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Employee's devisee, legatee or other designee or,
if there be no such designee, to Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
----------------------------------
Name: Gordon Mays
Title: Executive Vice President
----------------------------------
Michael R. Cunningham
15
Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM
GRAPHICS, INC., a New Jersey corporation, with its principal offices located at
629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and GORDON
MAYS, with an address at 84 Earl Street, Westbury, New York 11590 ("Employee");
R E C I T A L S:
WHEREAS, the Employee is a shareholder and senior officer of the
Company; and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of Cunningham Graphics International, Inc.
("CGII") and will be followed by an initial public offering of common stock by
CGII, and wishes to memorialize the terms of the Employee's employment by the
Company prior to the consummation of such transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
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1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "COMPENSATION" shall have the meaning assigned to that term in Section
4 of this Agreement.
1.10 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.11 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.12 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 180 consecutive days or
an aggregate of 210 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.13 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
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1.14 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
1.15 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.16 "PANEL" shall have the meaning given such terms in Section 8.
1.17 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.18 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company for Cause; (ii) the twelve month period thereafter in the case of the
termination of Employee's employment voluntarily, other than for Good Reason;
and (iii) during the period of Disability.
1.19 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by the
Company.
1.20 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.21 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Executive Vice President of the Company.
The duties of Employee shall be to have general supervisory responsibility for
the Company's marketing and business development plans and the Company's
information systems (collectively, the "Duties"), acting, in all instances,
under the supervision of the President of the Company and in accordance with the
policies set by the Board. To the extent that the Board determines to procure a
policy of directors and officers liability insurance, the Company shall take
such actions as are necessary to include Employee within the coverage of such
policy.
2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are reasonably assigned to him
from time-to-time by the Board. During the Term, Employee: (i) shall comply with
all laws, statutes, ordinances, rules and regulations
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relating to the Business, and (ii) shall not engage in or become employed,
directly or indirectly, in a business which competes with the Business of the
Company and its Affiliates, without the prior written consent of the Board, nor
shall he act as a consultant to or provide any services to, whether on a
remunerative basis or otherwise, the commercial or professional business of any
other Person which competes with the Business of the Company and its Affiliates,
without such written consent, which, in both instances, may be given or withheld
by the Board in its absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence without his consent. It is, however, distinctly
understood and agreed that Employee may be required, in connection with the
performance of his duties, to work from time to time at other locations
designated by the Board or as required in connection with the Business of the
Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end three years thereafter, unless
extended pursuant to the next sentence or unless sooner terminated pursuant to
Section 7 (the later of (i) the third anniversary of the Commencement Date and
(ii) the date to which Employee's period of employment has been extended, is the
"Term Date"). If Employee's employment hereunder has not previously been
terminated in accordance with Section 7 hereof, then on the second anniversary
of the Commencement Date, and on each subsequent anniversary of the Commencement
Date, the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement (collectively, the "Compensation"); provided,
however, that no Compensation shall be paid to Employee under this Agreement for
any period subsequent to the termination of employment of Employee for any
reason whatsoever, except as provided in Section 7.
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5. BASIC SALARY/BONUS
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $175,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board (without Employee's participation as a director) and,
once increased, shall not thereafter be reduced. The Basic Salary shall be
reviewed at least once in every Employment Year by a committee of the Board
responsible for determining compensation of senior management of the Company,
each of the members of which is a "non-employee-director" as defined in Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for an Executive Vice
President of the Company. The Committee in consultation with Employee shall
establish in advance of each fiscal year of the Company during the Term goals
and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to Employee and his family on the day prior to the Commencement Date;
(ii) provision of an automobile at a monthly cost up to $500, plus
insurance;
(iii) such other benefits as the Board shall lawfully adopt and
approve for Employee;
(iv) four (4) weeks of paid vacation;
(v) long term disability insurance coverage consistent with current
Company policy; and
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(vi) term life insurance in the amount of $1,000,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the extent the same is available at normal market rates.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Compensation for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Compensation for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family for the balance of the stated Term, as if Employee had not been
terminated for Disability and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current Basic Salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except
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<PAGE>
clauses (iii) and (iv)) until the Term Date. If a Change of Control occurs and
this Agreement is terminated by the Company without Cause within a period of one
year following the Change of Control, then Employee shall be entitled to a lump
sum payment equal to two times his then current Basic Salary, payable uon the
Date of Termination, payment of any accrued but unpaid amounts, and provided
with the benefits described in Section 6.1 (except clauses (iii) and (iv) until
the Term Date or for a period of six months, whichever is longer.
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current Basic Salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (iii) and (iv)) until the Term Date. For purposes of this Agreement,
Good Reason shall mean:
(a) A reduction or non-payment of Employee's Compensation or failure
to review Employee's Compensation as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or the failure of the Company to provide Employee with
the benefits provided for in Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be
<PAGE>
modified pursuant to the following two sentences. If within thirty (30) days
after any Notice of Termination is given, the party who receives such Notice of
Termination notifies the other party that a dispute exists as to the reasons
given in the Notice of Termination (a "Dispute" and the giving of such notice, a
"Notice of Dispute"), the Date of Termination shall be the date on which the
Dispute is finally determined, either by mutual written agreement of the
parties, by the Panel, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); provided that the Date of Termination shall be
extended by a Notice of Dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such Dispute with
reasonable diligence and provided further that pending the resolution of any
such Dispute, the Company shall continue to pay Employee the same Compensation
and to provide Employee with the same or substantially comparable welfare
benefits and prerequisites, including participation in the Company's retirement
plans, profit sharing plans, to the extent then so available at the date of such
determination, stock option plans, stock award plans or stock appreciation right
plans that Employee was paid and provided to the extent that such continued
participation is possible under the general terms and provisions of such plans,
programs and benefits but in no event beyond the Term Date. Should a Dispute
asserted by Employee ultimately be determined in favor of the Company, then all
sums (net of tax withholdings by the Company from such sums) paid by the Company
to Employee from the Date of Termination specified in the Notice of Termination
until final resolution of the Dispute pursuant to this paragraph, exclusive of
accrued, unpaid amounts prior to the Date of Termination, shall be repaid
promptly by Employee to the Company, all options, rights and stock awards
granted to Employee during such period shall be canceled or returned to the
Company, and no service as an employee shall be credited to Employee for such
period for pension purposes. Employee shall not be obligated to pay to the
Company the cost of providing Employee with welfare benefits and prerequisites
for such period unless the final judgment, order or decree of a court
arbitration panel or other body resolving the Dispute determines that Employee
acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be
determined in favor of Employee, then Employee shall be entitled to retain all
sums paid to Employee under this subparagraph pending resolution of the Dispute
and shall be entitled to receive, in addition, the payments and other benefits
provided for in this Section 7 to the extent not previously paid hereunder and
the payment of Employee's reasonable legal fees incurred as a result of such
Dispute upon submission to the Company of a detailed statement of fees from
Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three
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arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will
be those issues specifically submitted to the Panel. The Panel will not extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment
upon the award rendered by the Panel may be entered by any court having
jurisdiction thereof. A determination of the Panel shall be by majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
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In the event Employee is required by law or a court order to
disclose any such Confidential Information, he shall promptly notify the Company
of such requirement and provide the Company with a copy of any court order or of
any law which in his opinion requires such disclosure and, if the Company so
elects, to the extent that he is legally able, permit the Company an adequate
opportunity, at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period, compete
directly or indirectly with the Business. The phrase "compete directly or
indirectly with the Business" shall be deemed to include, without limiting the
generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or the Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those products and services as from time to time shall
be provided by the Company or any Affiliate, and Employee shall not approach any
Person for such purpose; nor shall Employee raid, entice or induce any Person
who on the Date of Termination is, or within one year immediately preceding the
Date of Termination was, an employee of the Company or any Affiliate, to become
employed by any other Person; similarly, Employee shall not approach any such
employee for such purpose or authorize or knowingly approve the taking of such
actions by any other Person or assist any such other Person in taking any such
action.
The phrase "compete directly or indirectly with the Business" shall
not be deemed to include an ownership interest as an inactive investor, which,
for purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
11. SURVIVAL
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The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Gordon Mays
84 Earl Street
Westbury, New York 11590
with a copy to:
David I. Ferber, Esq.
Ferber Chan & Essner
530 Fifth Avenue
New York, New York 10036-5101
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any
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successor in interest which takes over all or substantially all of the business
of the Company, as it is conducted at the time of such assignment. Any
corporation into or with which the Company is merged or consolidated or which
takes over all or substantially all of the business of the Company shall be
deemed to be a successor of the Company for purposes hereof. This Agreement
shall be binding upon and, except as aforesaid, shall inure to the benefit of
the parties and their respective successors and permitted assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this
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Agreement or the enforceability thereof. No failure of the Company or Employee
to exercise any power given it/him hereunder or to insist upon strict compliance
by the other party with any obligation hereunder, and no custom or practice at
variance with the terms hereof, shall constitute a waiver of the right of the
other party to demand strict compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.8
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
-------------------------------
Name: Michael R. Cunningham
Title: President and Chief
Executive Officer
-------------------------------
Gordon Mays
15
Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM
GRAPHICS, INC., a New Jersey corporation, with its principal offices located at
629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and TIMOTHY
MAYS, with an address at 3 Hearthstone Drive, Dix Hills, New York 11746
("Employee");
R E C I T A L S:
WHEREAS, the Employee is a shareholder and senior officer of the
Company; and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of Cunningham Graphics International, Inc.
("CGII") and will be followed by an initial public offering of common stock by
CGII, and wishes to memorialize the terms of the Employee's employment by the
Company prior to the consummation of such transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
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1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "COMPENSATION" shall have the meaning assigned to that term in Section
4 of this Agreement.
1.10 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.11 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.12 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 180 consecutive days or
an aggregate of 210 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.13 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
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1.14 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
1.15 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.16 "PANEL" shall have the meaning given such terms in Section 8.
1.17 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.18 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company for Cause; (ii) the twelve month period thereafter in the case of the
termination of Employee's employment voluntarily, other than for Good Reason;
and (iii) during the period of Disability.
1.19 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by the
Company.
1.20 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.21 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Executive Vice President - Sales of the
Company. The duties of Employee shall be to have general supervisory
responsibility for the Company's sales to major corporate customers
(collectively, the "Duties"), acting, in all instances, under the supervision of
the President of the Company and in accordance with the policies set by the
Board. To the extent that the Board determines to procure a policy of directors
and officers liability insurance, the Company shall take such actions as are
necessary to include Employee within the coverage of such policy.
2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the Board. During the Term, Employee: (i) shall comply with all
laws, statutes, ordinances, rules and regulations relating to
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the Business, and (ii) shall not engage in or become employed, directly or
indirectly, in a business which competes with the Business of the Company and
its Affiliates, without the prior written consent of the Board, nor shall he act
as a consultant to or provide any services to, whether on a remunerative basis
or otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Affiliates, without such
written consent, which, in both instances, may be given or withheld by the Board
in its absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence without his consent. It is, however, distinctly
understood and agreed that Employee may be required, in connection with the
performance of his duties, to work from time to time at other locations
designated by the Board or as required in connection with the Business of the
Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end three years thereafter, unless
extended pursuant to the next sentence or unless sooner terminated pursuant to
Section 7 (the later of (i) the third anniversary of the Commencement Date and
(ii) the date to which Employee's period of employment has been extended, is the
"Term Date"). If Employee's employment hereunder has not previously been
terminated in accordance with Section 7 hereof, then on the second anniversary
of the Commencement Date, and on each subsequent anniversary of the Commencement
Date, the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement (collectively, the "Compensation"); provided,
however, that no compensation shall be paid to Employee under this Agreement for
any period subsequent to the termination of employment of Employee for any
reason whatsoever, except as provided in Section 7.
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5. BASIC SALARY/BONUS
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $150,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board (without Employee's participation as a director) and,
once increased, shall not thereafter be reduced. The Basic Salary shall be
reviewed at least once in every Employment Year by a committee of the Board
responsible for determining compensation of senior management of the Company,
each of the members of which is a "non-employee-director" as defined in Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for Executive Vice
President - Sales of the Company. The Committee in consultation with Employee
shall establish in advance of each fiscal year of the Company during the Term
goals and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year.
5.3. COMMISSION. Employee shall be entitled to a commission in the amount
of one and one half percent (1 1/2%) on the payments actually collected, net of
inkjetting, labeling, insertion, mainframe printing, shipping and mailing
charges, in respect of printing and binding charges to New York Life, Credit
Suisse First Boston (United States printing jobs only), CIBC Oppenheimer
(non-mutual fund jobs only), AICPA, Bear Stearns (fixed income department jobs),
Needham, Brown Brothers, National League for Nursing, Benjamin Moore,
Outstanding Investor, American Cancer Society, CNET, Prudential Securities, and
future customers directly attributable to Employee as determined by the
President of the Company. The commission shall be based upon sales booked on and
after April 1, 1998. Payment of the commission shall be made on a quarterly
basis between 45 and 60 days following the end of each calendar quarter. At the
option of the Company, advance payments of the commission, subject to
reconciliation later in the year, may be made based upon historical sales
levels.
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6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to Employee and his family on the day prior to the Commencement Date;
(ii) provision of an automobile at a total monthly cost up to $500,
plus insurance;
(iii) such other benefits as the Board shall lawfully adopt and
approve for Employee;
(iv) term life insurance in the amount of $1,000,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the extent the same is available at normal market rates;
(v) four (4) weeks of paid vacation; and
(vi) long term disability insurance coverage consistent with current
Company policy.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Compensation for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Compensation for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family for the balance of the stated Term, as if Employee had not been
terminated for Disability and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
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7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current Basic Salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to two
times his then current Basic Salary, payable upon the Date of Termination,
payment of any accrued but unpaid amounts, and provided with the benefits
described in Section 6.1 (except clauses (iii) and (iv) until the Term Date or
for a period of six months, whichever is longer.
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current Basic Salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good
Reason shall mean:
(a) A reduction or non-payment of Employee's Basic Salary or failure
to review Employee's Basic Salary as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
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(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or commission as provided in Section 5.3, or the
failure of the Company to provide Employee with the benefits provided for in
Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a dispute exists as to the reasons given in the Notice of
Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"),
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, by the Panel, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected);
provided that the Date of Termination shall be extended by a Notice of Dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence and provided
further that pending the resolution of any such Dispute, the Company shall
continue to pay Employee the same Compensation and to provide Employee with the
same or substantially comparable welfare benefits and prerequisites, including
participation in the Company's retirement plans, profit sharing plans, to the
extent then so available at the date of such determination, stock option plans,
stock award plans or stock appreciation right plans that Employee was paid and
provided to the extent that such continued participation is possible under the
general terms and provisions of such plans, programs and benefits but in no
event beyond the Term Date. Should a Dispute asserted by Employee ultimately be
determined in favor of the Company, then all sums (net of tax withholdings by
the Company from such sums) paid by the Company to Employee from the Date of
Termination specified in the Notice of Termination until final resolution of the
Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior
to the Date of Termination, shall be repaid promptly by Employee to the Company,
all options, rights and stock awards granted to Employee during such period
shall be canceled or returned to the Company, and no service as an employee
shall be credited to Employee for such period for pension purposes. Employee
shall not be obligated to pay to the Company the cost of providing Employee with
welfare benefits and prerequisites for such period unless the final judgment,
order or decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the
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extent not previously paid hereunder and the payment of Employee's reasonable
legal fees incurred as a result of such Dispute upon submission to the Company
of a detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three arbitrators (the "Panel"). The only issue(s) to be determined by
the Panel will be those issues specifically submitted to the Panel. The Panel
will not extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16, and judgment upon the award rendered by the Panel may be entered by any
court having jurisdiction thereof. A determination of the Panel shall be by
majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to
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Employee, unless the arbitrators or a judicial forum shall finally determine
that Employee acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period, compete
directly or indirectly with the Business. The phrase "compete directly or
indirectly with the Business" shall be deemed to include, without limiting the
generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or the Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those
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products and services as from time to time shall be provided by the Company or
any Affiliate, and Employee shall not approach any Person for such purpose; nor
shall Employee raid, entice or induce any Person who on the Date of Termination
is, or within one year immediately preceding the Date of Termination was, an
employee of the Company or any Affiliate, to become employed by any other
Person; similarly, Employee shall not approach any such employee for such
purpose or authorize or knowingly approve the taking of such actions by any
other Person or assist any such other Person in taking any such action.
The phrase "compete directly or indirectly with the Business" shall
not be deemed to include an ownership interest as an inactive investor, which,
for purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Timothy Mays
3 Hearthstone Drive
Dix Hills, New York 11746
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with a copy to:
David I. Ferber, Esq.
Ferber Chan & Essner
530 Fifth Avenue
New York, New York 10036-5101
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the
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meaning of section 280G(b)(4) of the Code or are otherwise not likely to be
subject to disallowance as deductions; and (iv) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company or Employee to exercise
any power given it/him hereunder or to insist upon strict compliance by the
other party with any obligation hereunder, and no custom or practice at variance
with the terms hereof, shall constitute a waiver of the right of the other party
to demand strict compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff,
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counterclaim, recoupment, defense or other right which the Company may have
against Employee or anyone else. All amounts payable by the Company hereunder
shall be paid without notice or demand. Except as expressly provided herein, the
Company waives all rights which it may now have or may hereafter have conferred
upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement
in whole or in part. Except as provided in Section 7.8 herein, each and every
payment made hereunder by the Company shall be final and the Company will not
seek to recover for any reason all or any part of such payment from Employee or
any person entitled thereto. Employee shall not be required to mitigate the
amount of any payment or other benefit provided for in this Agreement by seeking
other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
-------------------------------
Name: Michael R. Cunningham
Title: President and Chief
Executive Officer
---------------------------------
Timothy Mays
15
Exhibit 10.6
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS,
INC., a New Jersey corporation, with its principal offices located at 629 Grove
Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS
INTERNATIONAL, INC. ("CGII") and ROBERT NEEDLE, with an address at 45 Ruby
Drive, Morganville, New Jersey 07751 ("Employee");
R E C I T A L S:
WHEREAS, the Employee is a senior executive officer of the Company;
and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of CGII and will be followed by an initial
public offering of common stock by CGII, and wishes to memorialize the terms of
the Employee's employment by the Company prior to the consummation of such
transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
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1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
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1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.15 "PANEL" shall have the meaning given such terms in Section 8.
1.16 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.17 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company (including non-extension) for Cause; (ii) the period thereafter, not to
exceed twelve months, which corresponds to the portion of Employee's annual
salary paid as a lump sum pursuant to Section 7.5 or 7.6; (iii) the twelve month
period thereafter in the case of the termination of Employee's employment
voluntarily; and (iv) the three month period thereafter in the case of the
termination of Employee's employment as a result of a Disability. The Restricted
Period shall end in the event of the non-renewal of the Term.
1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by
CGII.
1.19 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Chief Operating Officer of the Company.
The duties of Employee shall be to manage the day-to-day manufacturing
operations of the Company, including management of facilities and personnel,
supervision of the implementation of new technology and oversight of equipment
purchases ; to pursue the objectives of the Business, to perform generally those
responsibilities and to render services as are necessary and desirable to
protect and to advance the best interests of the Company (collectively, the
"Duties"), acting, in all instances, under the supervision of the President and
Chief Executive Officer, and in accordance with the policies set by the Board.
The Company reserves the right to change Employee's title and the scope of the
Duties, and upon any such change the Company shall not be in breach of this
Agreement provided that (i) the Company does not reduce the Basic Salary, Bonus
and other benefits to which Employee is entitled under Sections 5.1, 5.2, 5.3
and 6.1 of this Agreement and (ii) Employee remains in a managerial position
with responsibilities related
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to sales. To the extent that the Board determines to procure a policy of
directors and officers liability insurance, the Company shall take such actions
as are necessary to include Employee within the coverage of such policy.
2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the President. During the Term, Employee: (i) shall comply with
all laws, statutes, ordinances, rules and regulations relating to the Business,
and (ii) shall not engage in or become employed, directly or indirectly, in a
business which competes with the Business of the Company and its Affiliates,
without the prior written consent of the President, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Affiliates, without such
written consent, which, in both instances, may be given or withheld by the
President in his absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence outside the State of New Jersey without his consent.
It is, however, distinctly understood and agreed that Employee may be required,
in connection with the performance of his duties, to work from time to time at
other locations designated by the President or as required in connection with
the Business of the Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end three years thereafter, unless
extended pursuant to the next sentence or unless sooner terminated pursuant to
Section 7 (the later of (i) the third anniversary of the Commencement Date and
(ii) the date to which Employee's period of employment has been extended, is the
"Term Date"). If Employee's employment hereunder has not previously been
terminated in accordance with Section 7 hereof, then on the second anniversary
of the Commencement Date, and on each subsequent anniversary of the Commencement
Date, the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
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4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement; provided, however, that no compensation shall be
paid to Employee under this Agreement for any period subsequent to the
termination of employment of Employee for any reason whatsoever, except as
provided in Section 7.
5. BASIC SALARY/BONUS
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $155,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board (without Employee's participation as a director) and,
once increased, shall not thereafter be reduced. The Basic Salary shall be
reviewed at least once in every Employment Year by a committee of the Board
responsible for determining compensation of senior management of the Company,
each of the members of which is a "non-employee-director" as defined in Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for the Chief Operating
Officer of the Company. The Committee in consultation with Employee shall
establish in advance of each fiscal year of the Company during the Term goals
and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year. The Committee shall award
to Employee a special bonus in the range of $5,000 to $15,000 on or before July
15, 1998 dependent upon the integration into the operations of the Company of
the McGraw Hill print shop and the BZW print shop.
5.3. COMMISSION. Employee shall be entitled to a commission in the amount
of one percent (1%) on the payments actually collected, net of inkjetting,
labeling, insertion, mainframe printing, shipping and mailing charges (the
"Commission Base"), in respect of printing and
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binding charges to Goldman, Sachs & Co. ("Goldman Sachs") and McGraw Hill / S &
P by the Company and all other Subsidiaries. In the event that a Subsidiary is
not wholly-owned, the commission attributable to sales by such Subsidiary shall
be calculated on the basis of the amount derived by multiplying the Commission
Base by a percentage equal to the percentage of CGII's voting interest ownership
of the Subsidiary. The commission shall be based upon sales booked on and after
April 1, 1998. Payment of the commission shall be made on a quarterly basis
between 45 and 60 days following the end of each calendar quarter.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to Employee and his family on the day prior to the Commencement Date;
(ii) provision of an automobile at a total monthly cost up to $500,
plus insurance;
(iii) such other benefits as the Board shall lawfully adopt and
approve for Employee;
(iv) term life insurance in the amount of $500,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the extent the same is available at normal market rates;
(v) four (4) weeks of paid vacation; and
(vi) long term disability insurance coverage consistent with current
Company policy.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options
under the CGII 1998 Stock Option Plan (the "Plan") to acquire 50,000 shares of
CGII's common stock at the initial public offering price. Such options shall be
fully vested upon the closing of CGII's initial public offering. The agreement
memorializing the grant of such options shall provide for the "cashless"
exercise thereof. Subject to any restrictions imposed upon CGII by the terms of
an underwriting agreement, CGII agrees to file with the Securities and Exchange
Commission, as soon as practicable following the Commencement Date, a
registration statement on Form S-8 covering the sale of shares acquired upon the
exercise of options under the Plan.
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7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died, provide for the
payment of the life insurance benefit provided for in Section 6.1 and continue
payment of the commissions under Section 5.3 in respect of payments actually
collected from Goldman Sachs for the duration of the term of a printing services
agreement which may be in effect with Goldman Sachs at the time of Employee's
death or six months, whichever is longer.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family until the Term Date, and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current annual salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to two
times his then current annual salary.
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current annual salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good
Reason shall mean:
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(a) A reduction or non-payment of Employee's Basic Salary or failure
to review Employee's Basic Salary as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or commission as provided in Section 5.3, or the
failure of the Company to provide Employee with the benefits provided for in
Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a dispute exists as to the reasons given in the Notice of
Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"),
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, by the Panel, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected);
provided that the Date of Termination shall be extended by a Notice of Dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence and provided
further that pending the resolution of any such Dispute, the Company shall
continue to pay Employee the same Basic Salary and to provide Employee with the
same or substantially comparable welfare benefits and prerequisites, including
participation in the
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Company's retirement plans, profit sharing plans, to the extent then so
available at the date of such determination, stock option plans, stock award
plans or stock appreciation right plans that Employee was paid and provided to
the extent that such continued participation is possible under the general terms
and provisions of such plans, programs and benefits but in no event beyond the
Term Date. Should a Dispute asserted by Employee ultimately be determined in
favor of the Company, then all sums (net of tax withholdings by the Company from
such sums) paid by the Company to Employee from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the
Date of Termination, shall be repaid promptly by Employee to the Company, all
options, rights and stock awards granted to Employee during such period shall be
canceled or returned to the Company, and no service as an employee shall be
credited to Employee for such period for pension purposes. Employee shall not be
obligated to pay to the Company the cost of providing Employee with welfare
benefits and prerequisites for such period unless the final judgment, order or
decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the extent not
previously paid hereunder and the payment of Employee's reasonable legal fees
incurred as a result of such Dispute upon submission to the Company of a
detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three arbitrators (the "Panel"). The only issue(s) to be determined by
the Panel will be those issues specifically submitted to the Panel. The Panel
will not extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16, and judgment upon the award rendered by the Panel may be entered by any
court having jurisdiction thereof. A determination of the Panel shall be by
majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's
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qualifications. Each party shall number the candidates in order of preference,
shall note any objection they may have to any candidate, and shall deliver the
list so marked back to CPR. Any party failing without good cause to return the
candidate list so marked within ten (10) days after receipt shall be deemed to
have assented to all candidates listed thereon. CPR shall designate the
arbitrator willing to serve for whom the parties collectively have indicated the
highest preference and who does not appear to have a conflict of interest. If a
tie should result between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the
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Company, its Subsidiaries and its Affiliates, and all property associated
therewith, which he may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period, compete
directly or indirectly with the Business. The phrase "compete directly or
indirectly with the Business" shall be deemed to include, without limiting the
generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or any Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those products and services as from time to time shall
be provided by the Company or any Affiliate, and Employee shall not approach any
Person for such purpose; nor shall Employee raid, entice or induce any Person
who on the Date of Termination is, or within one year immediately preceding the
Date of Termination was, an employee of the Company or any Affiliate, to become
employed by any other Person; similarly, Employee shall not approach any such
employee for such purpose or authorize or knowingly approve the taking of such
actions by any other Person or assist any such other Person in taking any such
action.
The phrase "compete directly or indirectly with the Business" shall not be
deemed to include an ownership interest as an inactive investor, which, for
purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
Employee may request a waiver from the Company of a term of this Section
10. The Company agrees to consider any such request in good faith, but it is
expressly acknowledged by Employee that the Company shall have no obligation to
grant any waiver.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
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13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company or CGII:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Robert Needle
45 Ruby Drive
Morganville, New Jersey 07751
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
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15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Employee with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
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Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.8
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
--------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By:
--------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
--------------------------------------------
Robert Needle
16
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of March 27, 1998 by and among CUNNINGHAM GRAPHICS,
INC., a New Jersey corporation, with its principal offices located at 629 Grove
Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS
INTERNATIONAL, INC. ("CGII") and ROBERT M. OKIN with an address at 9 Quid Place,
Manalapan, New Jersey 07726 ("Employee");
R E C I T A L S:
WHEREAS, the Company desires to employ the Employee as a Senior Vice
President and Chief Financial Officer; and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of CGII and will be followed by an initial
public offering of common stock by CGII, and wishes to memorialize the terms of
the Employee's employment by the Company prior to the consummation of such
transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
6.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
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1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean April 6, 1998.
1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
1.14 "PANEL" shall have the meaning given such terms in Section 8.
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1.15 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.16 "RESTRICTED PERIOD" shall mean the Term and the twelve month period
thereafter in the case of a termination of employment of Employee by the Company
(including non-extension) for Cause; and the Term and the six month period
thereafter in all other cases of the termination of Employee's employment
whether voluntarily or by the Company (including non-extension).
1.17 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by
CGII.
1.18 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.19 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Senior Vice President and Chief
Financial Officer of the Company. The duties of Employee shall be act as the
principal financial officer of CGII and the Company; to supervise the finance,
human resources and management information services departments of the Company ;
to pursue the objectives of the Business, to perform generally those
responsibilities and to render services as are necessary and desirable to
protect and to advance the best interests of the Company (collectively, the
"Duties"), acting, in all instances, under the supervision of the President and
Chief Executive Officer, and in accordance with the policies set by the Board.
To the extent that the Board determines to procure a policy of directors and
officers liability insurance, the Company shall take such actions as are
necessary to include Employee within the coverage of such policy.
2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the President. During the Term, Employee: (i) shall comply with
all laws, statutes, ordinances, rules and regulations relating to the Business,
and (ii) shall not engage in or become employed, directly or indirectly, in a
business which competes with the Business of the Company and its Affiliates,
without the prior written consent of the President, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any
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other Person which competes with the Business of the Company and its Affiliates,
without such written consent, which, in both instances, may be given or withheld
by the President in his absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence outside the State of New Jersey without his consent.
It is, however, distinctly understood and agreed that Employee may be required,
in connection with the performance of his duties, to work from time to time at
other locations designated by the President or as required in connection with
the Business of the Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end one year thereafter, unless extended
pursuant to the next sentence or unless sooner terminated pursuant to Section 7
(the later of (i) the first anniversary of the Commencement Date and (ii) the
date to which Employee's period of employment has been extended, is the "Term
Date"). If Employee's employment hereunder has not previously been terminated in
accordance with Section 7 hereof, then on the first anniversary of the
Commencement Date, and on each subsequent anniversary of the Commencement Date,
the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee three months or more prior to such
anniversary date that this Agreement will not be so extended. The rights of
termination set forth in Section 7 shall be applicable during any such extended
period of employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement; provided, however, that no compensation shall be
paid to Employee under this Agreement for any period subsequent to the
termination of employment of Employee for any reason whatsoever, except as
provided in Section 7.
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5. BASIC SALARY/BONUS
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $145,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board and, once increased, shall not thereafter be reduced.
The Basic Salary shall be reviewed at least once in every Employment Year by a
committee of the Board responsible for determining compensation of senior
management of the Company, each of the members of which is a
"non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the
"Committee"). Any increase in Basic Salary shall not serve to offset or reduce
any other obligation to Employee under this Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for the Chief Financial
Officer of the Company. The Committee in consultation with Employee shall
establish in advance of each fiscal year of the Company during the Term goals
and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year.
5.3 SIGNING BONUS. Employee will be paid a signing bonus of $5,000 on the
Commencement Date in consideration of consulting services and other assistance
provided to the Company during evenings and weekends in the period from the date
hereof to the Commencement Date.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to other members of senior management;
(ii) a monthly allowance of $500 on account of automobile expenses
inclusive of insurance;
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(iii) such other benefits as the Board shall lawfully adopt and
approve for members of senior management generally;
(iv) three (3) weeks of paid vacation during each Employment Year;
provided, however, any vacation must be approved by the President with at least
two weeks' prior notice; and
(v) long term disability insurance coverage consistent with current
Company policy.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options
under the CGII 1998 Stock Option Plan (the "Plan") to acquire 45,000 shares of
CGII's common stock at the initial public offering price. Such options shall be
fully vested upon the closing of CGII's initial public offering. Subject to any
restrictions imposed upon CGII by the terms of an underwriting agreement, CGII
agrees to file with the Securities and Exchange Commission, as soon as
practicable following the closing of its initial public offering, a registration
statement on Form S-8 covering the sale of shares acquired upon the exercise of
options under the Plan.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family until the Term Date, and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
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7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current annual salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (iii) and (iv)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to one half
of Employee's then current annual salary, if the Change of Control occurs within
six months of the Commencement Date, with the lump sum amount increasing by a
factor of one half of the Employee's then current annual salary on each six
month anniversary of the Commencement Date thereafter, to a maximum of two times
the Employee's then current annual salary.
7.6 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause shall be communicated by
written Notice of Termination to Employee. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice given by the Company, which shall
indicate the specific basis for termination of employment and shall set forth in
reasonable detail the basis of determination of the remaining payments due to
Employee under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, as such date may be modified pursuant to the following
two sentences. If within thirty (30) days after any Notice of Termination is
given, Employee notifies the Company that a dispute exists as to the reasons
given in the Notice of Termination (a "Dispute" and the giving of such notice, a
"Notice of Dispute"), the Date of Termination shall be the date on which the
Dispute is finally determined, either by mutual written agreement of the
parties, by the Panel, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); provided that the Date of Termination shall be
extended by a Notice of Dispute only if such notice is given in good faith and
Employee pursues the resolution of such Dispute with reasonable diligence and
provided further that pending the resolution of any such Dispute, the Company
shall continue to pay Employee the same Basic Salary and to provide Employee
with the same or substantially comparable welfare benefits and prerequisites,
including participation in the Company's retirement plans, profit sharing plans,
to the extent then so available at the date of such determination, stock option
plans, stock award plans or stock appreciation right plans that Employee was
paid and provided to the extent that such continued participation is possible
under the general terms and provisions of such plans, programs and benefits but
in no event beyond the Term Date. Should a Dispute asserted by Employee
ultimately be determined in favor of the Company, then all sums (net of tax
withholdings by the Company from such sums) paid by the Company to Employee from
the Date of Termination specified in the Notice of Termination until final
resolution of the Dispute
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pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the
Date of Termination, shall be repaid promptly by Employee to the Company, all
options, rights and stock awards granted to Employee during such period shall be
canceled or returned to the Company, and no service as an employee shall be
credited to Employee for such period for pension purposes. Employee shall not be
obligated to pay to the Company the cost of providing Employee with welfare
benefits and prerequisites for such period unless the final judgment, order or
decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the extent not
previously paid hereunder and the payment of Employee's reasonable legal fees
incurred as a result of such Dispute upon submission to the Company of a
detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three arbitrators (the "Panel"). The only issue(s) to be determined by
the Panel will be those issues specifically submitted to the Panel. The Panel
will not extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16, and judgment upon the award rendered by the Panel may be entered by any
court having jurisdiction thereof. A determination of the Panel shall be by
majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
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This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period,
compete directly or indirectly with the Business. The phrase "compete directly
or indirectly with the Business" shall be deemed to include, without limiting
the generality thereof, (1) engaging or having a material
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interest, directly or indirectly, as owner, employee, officer, director,
partner, sales representative, stockholder, capital investor, lessor, renderer
of consultation services or advise, either alone or in association with other,
in the operation of any aspect of any type of business or enterprise competitive
with the Business; (2) soliciting any of the employees of the Company or any
Affiliate to leave the employ of the Company or any Affiliate; (3) soliciting
any of the employees of the Company or any Affiliate to become employees of any
other Person; or (4) soliciting any customer of the Company or any Affiliate
with respect to the Business. Similarly, Employee shall not raid, entice or
induce any Person who on the Date of Termination is, or within one (1) year
immediately preceding the Date of Termination was, a customer of the Company or
any Affiliate, to become a customer of any other Person for products or services
the same as, or similar to, those products and services as from time to time
shall be provided by the Company or any Affiliate, and Employee shall not
approach any Person for such purpose; nor shall Employee raid, entice or induce
any Person who on the Date of Termination is, or within one year immediately
preceding the Date of Termination was, an employee of the Company or any
Affiliate, to become employed by any other Person; similarly, Employee shall not
approach any such employee for such purpose or authorize or knowingly approve
the taking of such actions by any other Person or assist any such other Person
in taking any such action.
The phrase "compete directly or indirectly with the Business" shall not be
deemed to include an ownership interest as an inactive investor, which, for
purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
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13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company or CGII:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Robert M. Okin
9 Quid Place
Manalapan, New Jersey 07726
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total
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Payments") would not be deductible (in whole or part) as a result of section
280G of the Code by the Company, an affiliate or other person making such
payment or providing such benefit, the payments and benefits hereunder shall be
reduced until no portion of the Total Payments is not deductible, or the
payments and benefits hereunder are reduced to zero. At Employee's request, such
reduction may be effected by extending the date the payment would otherwise be
due by not more than five years or by decreasing the amount of the payment or
benefit otherwise due and payable. For purposes of this limitation (i) no
portion of the Total Payments the receipt or enjoyment of which Employee shall
have effectively waived in writing prior to the date of payment shall be taken
into account, (ii) no portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel selected by Employee and acceptable to the
Company's independent auditors, is not likely to constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, (iii) the
payments and benefits hereunder shall be reduced only to the extent necessary so
that, in the opinion of the tax counsel referred to in clause (ii), the Total
Payments (other than those referred to in clauses (i) or (ii)) in their entirety
are likely to constitute reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4) of the Code or are otherwise not likely
to be subject to disallowance as deductions; and (iv) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Employee with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
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17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.7
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
---------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By:
---------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
--------------------------------------------
Robert M. Okin
15
Exhibit 10.15
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS,
INC., a New Jersey corporation, with its principal offices located at 629 Grove
Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS
INTERNATIONAL, INC. ("CGII") and IOANNIS LYKOGIANNIS, with an address at 15
Elmwood Drive, Warren, N.J. 07059 ("Employee");
R E C I T A L S:
WHEREAS, the Employee is a senior executive officer of the Company;
and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of CGII and will be followed by an initial
public offering of common stock by CGII, and wishes to memorialize the terms of
the Employee's employment by the Company prior to the consummation of such
transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
<PAGE>
1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
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1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.15 "PANEL" shall have the meaning given such terms in Section 8.
1.16 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company (including non-extension) for Cause; (ii) the Term and the period
thereafter, not to exceed twelve months, which corresponds to the portion of
Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6;
(iii) the Term and twelve month period thereafter in the case of the termination
of Employee's employment voluntarily or as a result of a Disability; and (iv)
the Term and the six month period thereafter in the case of the non-extension of
this Agreement by the Company other than for Cause.
1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by
CGII.
1.19 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Senior Vice President - Operations of
the Company. The duties of Employee shall be to manage internal production
operations of the Company (collectively, the "Duties"), acting, in all
instances, under the supervision of the President and the Chief Operating
Officer, and in accordance with the policies set by the Board. The Company
reserves the right to change Employee's title and the scope of the Duties, and
upon any such change the Company shall not be in breach of this Agreement
provided that (i) the Company does not reduce the Basic Salary, Bonus and other
benefits to which Employee is entitled under Sections 5.1, 5.2 and 6.1 of this
Agreement and (ii) Employee remains in a managerial position with
responsibilities related to production activities. To the extent that the Board
determines to procure a policy of directors and officers liability insurance,
the Company shall take such actions as are necessary to include Employee within
the coverage of such policy.
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2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the President. During the Term, Employee: (i) shall comply with
all laws, statutes, ordinances, rules and regulations relating to the Business,
and (ii) shall not engage in or become employed, directly or indirectly, in a
business which competes with the Business of the Company and its Affiliates,
without the prior written consent of the President, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Affiliates, without such
written consent, which, in both instances, may be given or withheld by the
President in his absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence outside the State of New Jersey without his consent.
It is, however, distinctly understood and agreed that Employee may be required,
in connection with the performance of his duties, to work from time to time at
other locations designated by the President or as required in connection with
the Business of the Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end three years thereafter, unless
extended pursuant to the next sentence or unless sooner terminated pursuant to
Section 7 (the later of (i) the third anniversary of the Commencement Date and
(ii) the date to which Employee's period of employment has been extended, is the
"Term Date"). If Employee's employment hereunder has not previously been
terminated in accordance with Section 7 hereof, then on the second anniversary
of the Commencement Date, and on each subsequent anniversary of the Commencement
Date, the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement; provided, however, that no compensation shall be
paid to Employee under this Agreement for any period subsequent to the
termination of employment of Employee for any reason whatsoever, except as
provided in Section 7.
5. BASIC SALARY/BONUS
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5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $119,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board (without Employee's participation as a director) and,
once increased, shall not thereafter be reduced. The Basic Salary shall be
reviewed at least once in every Employment Year by a committee of the Board
responsible for determining compensation of senior management of the Company,
each of the members of which is a "non-employee-director" as defined in Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for a Senior Vice
President of the Company. The Committee in consultation with Employee shall
establish in advance of each fiscal year of the Company during the Term goals
and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
(i) provision of an automobile at a total monthly cost up to $500,
inclusive of insurance;
(ii) such other benefits as the Board shall lawfully adopt and approve
for Employee;
(iii) four (4) weeks of paid vacation;
(iv) long term disability insurance coverage consistent with current
Company policy; and
(v) term life insurance in the amount of $250,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the exent the same is available at normal market rates.
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Employee shall have the option to be included in the Company's medical insurance
plan which is provided to other senior officers of the Company.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options
under the CGII 1998 Stock Option Plan (the "Plan") to acquire 50,000 shares of
CGII's common stock at the initial public offering price. Such options shall be
fully vested upon the closing of CGII's initial public offering. Subject to any
restrictions imposed upon CGII by the terms of an underwriting agreement, CGII
agrees to file with the Securities and Exchange Commission, as soon as
practicable following the Commencement Date, a registration statement on Form
S-8 covering the sale of shares acquired upon the exercise of options under the
Plan.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family until the Term Date, and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
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7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current annual salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (ii) and (iii)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to two
times his then current annual salary.
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current annual salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (ii) and (iii)) until the Term Date. For purposes of this Agreement,
Good Reason shall mean:
(a) A reduction or non-payment of Employee's Basic Salary or failure
to review Employee's Basic Salary as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or the failure of the Company to provide Employee with
the benefits provided for in Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
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7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a dispute exists as to the reasons given in the Notice of
Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"),
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, by the Panel, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected);
provided that the Date of Termination shall be extended by a Notice of Dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence and provided
further that pending the resolution of any such Dispute, the Company shall
continue to pay Employee the same Basic Salary and to provide Employee with the
same or substantially comparable welfare benefits and prerequisites, including
participation in the Company's retirement plans, profit sharing plans, to the
extent then so available at the date of such determination, stock option plans,
stock award plans or stock appreciation right plans that Employee was paid and
provided to the extent that such continued participation is possible under the
general terms and provisions of such plans, programs and benefits but in no
event beyond the Term Date. Should a Dispute asserted by Employee ultimately be
determined in favor of the Company, then all sums (net of tax withholdings by
the Company from such sums) paid by the Company to Employee from the Date of
Termination specified in the Notice of Termination until final resolution of the
Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior
to the Date of Termination, shall be repaid promptly by Employee to the Company,
all options, rights and stock awards granted to Employee during such period
shall be canceled or returned to the Company, and no service as an employee
shall be credited to Employee for such period for pension purposes. Employee
shall not be obligated to pay to the Company the cost of providing Employee with
welfare benefits and prerequisites for such period unless the final judgment,
order or decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the extent not
previously paid hereunder and the payment of Employee's reasonable legal fees
incurred as a result of such Dispute upon submission to the Company of a
detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the
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matter to mandatory and binding arbitration with the Center for Public Resources
("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes, by a panel of three arbitrators (the "Panel"). The only
issue(s) to be determined by the Panel will be those issues specifically
submitted to the Panel. The Panel will not extend, modify or suspend any of the
terms of this Agreement. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the
Panel may be entered by any court having jurisdiction thereof. A determination
of the Panel shall be by majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
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The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period, compete
directly or indirectly with the Business. The phrase "compete directly or
indirectly with the Business" shall be deemed to include, without limiting the
generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or any Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those products and services as from time to time shall
be provided by the Company or any Affiliate, and Employee shall not approach any
Person for such purpose; nor shall Employee raid, entice or induce any Person
who on the Date of Termination is, or within one year immediately preceding the
Date of Termination was, an employee of the Company or any Affiliate, to become
employed by any other Person; similarly, Employee shall not approach any such
employee for such purpose or authorize or knowingly approve the taking of such
actions by any other Person or assist any such other Person in taking any such
action.
The phrase "compete directly or indirectly with the Business" shall not be
deemed to include an ownership interest as an inactive investor, which, for
purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
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11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company or CGII:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Ioannis Lykogiannis
15 Elmwood Drive
Warren, New Jersey 07059
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This
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Agreement shall be binding upon and, except as aforesaid, shall inure to the
benefit of the parties and their respective successors and permitted assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Employee with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
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Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.8
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
-----------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By:
-----------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
----------------------------------------------
Ioannis Lykogiannis
Exhibit 10.16
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS,
INC., a New Jersey corporation, with its principal offices located at 629 Grove
Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS
INTERNATIONAL, INC. ("CGII") and ROBERT M. ZANISNIK, with an address at 30
Cypress Terrace, Springfield, New Jersey 07081 ("Employee");
R E C I T A L S:
WHEREAS, the Employee is a senior executive officer of the Company;
and
WHEREAS, the Company is contemplating a reorganization, by which it
will become a wholly-owned subsidiary of CGII and will be followed by an initial
public offering of common stock by CGII, and wishes to memorialize the terms of
the Employee's employment by the Company prior to the consummation of such
transactions;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "AFFILIATE" shall mean a Person which, directly or indirectly,
controls, is controlled by or is under common control with CGII or the Company,
and for purposes hereof, "control" shall mean the ownership of 20% or more of
the voting interests of the Person in question.
1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section
5.1 of this Agreement.
1.3 "BOARD" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "BUSINESS" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly, including, but not limited to, commercial
printing and services ancillary thereto.
<PAGE>
1.5 "CAUSE" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful commission
by Employee of a criminal act, that in the reasonable judgment of the Board
causes or will likely cause substantial economic damage to the Company or
substantial injury to the business reputation of the Company;
(b) The willful commission by Employee of an act of fraud in the
performance of such Employee's duties on behalf of the Company or a Subsidiary;
or
(c) The continuing willful failure of Employee to perform the
substantive duties of the Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the Board.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "CHANGE OF CONTROL" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a Subsidiary, which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(B) 33-1/3% of the Board of Directors consists of individuals other than
the members of the Board of Directors on the Commencement Date (the "Incumbent
Directors"); provided, however, that any person becoming a director subsequent
to such date whose election or nomination for election was approved by at least
two-thirds of the directors who at the time of such election or nomination
comprised the Incumbent Directors shall for purposes of this definition be
considered an Incumbent Director;
(C) the shareholders of the Company approve, or if no shareholder approval
is required or obtained, the Company completes a merger, consolidation or
similar transaction of the Company with or into any other corporation, or a
binding share exchange involving the Company's securities occurs, other than any
such transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
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(D) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration
Statement on Form S-1 is declared effective by the United States Securities and
Exchange Commission and the Company consummates the initial public offering of
its securities.
1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
operational methods, methods of doing business, technical processes, formulae,
designs and design projects, inventions, research projects, strategic plans,
possible acquisition information and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in, or are or may be
useful in connection with, the Business of the Company, any Subsidiary or any
Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date
upon which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "DISABILITY" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to the Employee
or his agent.
1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
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1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6.
1.15 "PANEL" shall have the meaning given such terms in Section 8.
1.16 "PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month
period thereafter in the case of a termination of employment of Employee by the
Company (including non-extension) for Cause; (ii) the Term and the period
thereafter, not to exceed twelve months, which corresponds to the portion of
Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6;
(iii) the Term and twelve month period thereafter in the case of the termination
of Employee's employment voluntarily or as a result of a Disability; and (iv)
the Term and the six month period thereafter in the case of the non-extension of
this Agreement by the Company other than for Cause.
1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding
voting interests of which is owned or controlled, directly or indirectly, by
CGII.
1.19 "TERM" shall mean the period of employment of Employee under this
Agreement.
1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3
of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Senior Vice President of the Company.
The duties of Employee shall be to manage production and customer service
activities of the Company (collectively, the "Duties"), acting, in all
instances, under the supervision of the President and Chief Executive Officer,
and in accordance with the policies set by the Board. The Company reserves the
right to change Employee's title and the scope of the Duties, and upon any such
change the Company shall not be in breach of this Agreement provided that (i)
the Company does not reduce the Basic Salary, Bonus and other benefits to which
Employee is entitled under Sections 5.1, 5.2, 5.3 and 6.1 of this Agreement and
(ii) Employee remains in a managerial position with responsibilities related to
production activities. To the extent that the Board determines to procure a
policy of directors and officers liability insurance, the Company shall take
such actions as are necessary to include Employee within the coverage of such
policy.
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2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the President. During the Term, Employee: (i) shall comply with
all laws, statutes, ordinances, rules and regulations relating to the Business,
and (ii) shall not engage in or become employed, directly or indirectly, in a
business which competes with the Business of the Company and its Affiliates,
without the prior written consent of the President, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Affiliates, without such
written consent, which, in both instances, may be given or withheld by the
President in his absolute discretion.
2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee
shall be within a thirty mile radius of Jersey City, New Jersey or such other
location as is consented to by Employee. The Duties shall not require Employee
to relocate his residence without his consent. It is, however, distinctly
understood and agreed that Employee may be required, in connection with the
performance of his duties, to work from time to time at other locations
designated by the President or as required in connection with the Business of
the Company.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement shall commence
as of the Commencement Date and shall end three years thereafter, unless
extended pursuant to the next sentence or unless sooner terminated pursuant to
Section 7 (the later of (i) the third anniversary of the Commencement Date and
(ii) the date to which Employee's period of employment has been extended, is the
"Term Date"). If Employee's employment hereunder has not previously been
terminated in accordance with Section 7 hereof, then on the second anniversary
of the Commencement Date, and on each subsequent anniversary of the Commencement
Date, the Term shall be extended for one additional year, unless the Board shall
provide written notice to Employee six months or more prior to such anniversary
date that this Agreement will not be so extended. The rights of termination set
forth in Section 7 shall be applicable during any such extended period of
employment.
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon Employee during the Term and the
Restricted Period, and otherwise under this Agreement, the Basic Salary and
other benefits as provided for and determined pursuant to Sections 5 and 6,
inclusive, of this Agreement; provided, however, that no compensation shall be
paid to Employee under this Agreement for any period subsequent to the
termination of employment of Employee for any reason whatsoever, except as
provided in Section 7.
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5. BASIC SALARY/BONUS
5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all
of the services to be rendered by him hereunder during each Employment Year, a
salary of $88,000 per Employment Year (as adjusted upward by the Board from time
to time) (the "Basic Salary"), payable in substantially equal monthly payments,
less such deductions or amounts as are required to be deducted or withheld by
applicable laws or regulations, deductions for employee contributions to welfare
benefits provided by the Company to Employee and such other deductions or
amounts, if any, as are authorized by Employee. The Basic Salary shall be
prorated for the month in which employment by the Company or a Subsidiary
commences or terminates, and for any Employment Year which is less than twelve
(12) months in duration. The Basic Salary may be increased from time-to-time by
the Board (without Employee's participation as a director) and, once increased,
shall not thereafter be reduced. The Basic Salary shall be reviewed at least
once in every Employment Year by a committee of the Board responsible for
determining compensation of senior management of the Company, each of the
members of which is a "non-employee-director" as defined in Rule 16b-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Committee"). Any increase in Basic Salary shall not serve to
offset or reduce any other obligation to Employee under this Agreement.
5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid
a cash bonus (the "Bonus") for each Employment Year within ninety days after the
close of the fiscal year of the Company ending within such Employment Year in an
amount determined in accordance with the Company's then-current bonus or
incentive compensation policy in an amount appropriate for a Senior Vice
President of the Company. The Committee in consultation with Employee shall
establish in advance of each fiscal year of the Company during the Term goals
and levels of the Bonus for such fiscal year which shall be related to the
estimated budget for the Company for such fiscal year.
5.3. COMMISSION. Employee shall be entitled to a commission in the amount
of three percent (3%) on the payments actually collected, net of inkjetting,
labeling, insertion, mainframe printing, shipping and mailing charges, in
respect of printing and binding charges to GAB Business Service, Inc. (Customer
#6000) and The Prudential Insurance Company of America and affiliates (Customers
#15165, 15166,15167,15168,15169) and such other accounts obtained by the Company
which are attributable to Employee and which have been approved by the senior
executive officer of the Company with responsibility for supervising marketing
(presently Gordon Mays). The commission shall be based upon sales booked on and
after April 1, 1998. Payment of the commission shall be made on a quarterly
basis between 45 and 60 days following the end of each calendar quarter.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional
benefits to Employee during the Term:
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(i) provision of a comprehensive medical indemnity policy for Employee
and his family having terms no less favorable than the coverage made available
to Employee and his family on the day prior to the Commencement Date;
(ii) such other benefits as the Board shall lawfully adopt and approve
for Employee;
(iii) term life insurance in the amount of $300,000 payable to his
spouse, or such other designated beneficiary as Employee may specify from time
to time, to the extent the same is available at normal market rates;
(iv) three (3) weeks of paid vacation; and
(v) long term disability insurance coverage consistent with current
Company policy.
6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee
for all reasonable expenses actually incurred or paid by him during the Term in
the performance of his services under this Agreement, upon presentation of such
bills, expense statements, vouchers or such other supporting information as the
Board may reasonably require. In the event the Company requires Employee to
travel on business during the Term, Employee shall be reimbursed for any related
travel expenses in accordance with this Section 6.2.
6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options
under the CGII 1998 Stock Option Plan (the "Plan") to acquire 10,000 shares of
CGII's common stock at the initial public offering price. Such options shall be
fully vested upon the closing of CGII's initial public offering. Subject to any
restrictions imposed upon CGII by the terms of an underwriting agreement, CGII
agrees to file with the Securities and Exchange Commission, as soon as
practicable following the Commencement Date, a registration statement on Form
S-8 covering the sale of shares acquired upon the exercise of options under the
Plan.
7. TERMINATION OF EMPLOYMENT
7.1 DEATH. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, pay any other
amounts which were accrued but unpaid, provide welfare benefits to his family
for the balance of the stated Term as if Employee had not died and provide for
the payment of the life insurance benefit provided for in Section 6.1.
7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company
may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any other
amounts which were accrued but unpaid, and provide welfare benefits to his
family until the Term Date, and pay or provide for the payment of the disability
benefit provided for in Section 6.1, until Employee reaches age 65.
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7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at
any time with or without cause upon 30 days prior written notice to the Company.
After such 30 day period, the Company shall have no further liability to make
payments hereunder except those required by law or which were accrued and unpaid
at the end of the Term.
7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment
hereunder for Cause at any time by written notice given to Employee by the
Board. Upon such termination Employee shall not have any right to receive any
further payments hereunder except for amounts accrued and unpaid hereunder prior
thereto and provide welfare benefits as required by law and except as provided
in Section 7.8.
7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the
Company without Cause, Employee shall be entitled to a lump sum payment equal to
one half of Employee's then current annual salary, payable upon the Date of
Termination, payment of any accrued but unpaid amounts, and provided with the
benefits described in Section 6.1 (except clauses (ii) and (iv)) until the Term
Date. If a Change of Control occurs and this Agreement is terminated by the
Company without Cause within a period of one year following the Change of
Control, then Employee shall be entitled to a lump sum payment equal to two
times his then current annual salary.
7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated
by Employee for Good Reason, Employee shall be entitled to a lump sum payment
equal to two times his then current annual salary payable on the Date of
Termination and provided with the benefits described in Section 6.1 (except
clauses (ii) and (iv)) until the Term Date. For purposes of this Agreement, Good
Reason shall mean:
(a) A reduction or non-payment of Employee's Basic Salary or failure
to review Employee's Basic Salary as required in this Agreement;
(b) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(c) The failure by the Company to continue to provide Employee with
substantially the same welfare benefits (which for purposes of this Agreement
shall mean benefits under all welfare plans as that term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
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(d) The failure of the Company to award or pay Employee the Bonus as
provided in Section 5.2, or commission as provided in Section 5.3, or the
failure of the Company to provide Employee with the benefits provided for in
Section 6.1.
7.7 NOTICE OF TERMINATION. Any purported termination of employment by the
Company by reason of Employee's Disability or for Cause, or by Employee for Good
Reason shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by Employee or the Company, which shall indicate the specific basis
for termination of employment and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for determination of any payments
under this Agreement.
7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a dispute exists as to the reasons given in the Notice of
Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"),
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, by the Panel, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected);
provided that the Date of Termination shall be extended by a Notice of Dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence and provided
further that pending the resolution of any such Dispute, the Company shall
continue to pay Employee the same Basic Salary and to provide Employee with the
same or substantially comparable welfare benefits and prerequisites, including
participation in the Company's retirement plans, profit sharing plans, to the
extent then so available at the date of such determination, stock option plans,
stock award plans or stock appreciation right plans that Employee was paid and
provided to the extent that such continued participation is possible under the
general terms and provisions of such plans, programs and benefits but in no
event beyond the Term Date. Should a Dispute asserted by Employee ultimately be
determined in favor of the Company, then all sums (net of tax withholdings by
the Company from such sums) paid by the Company to Employee from the Date of
Termination specified in the Notice of Termination until final resolution of the
Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior
to the Date of Termination, shall be repaid promptly by Employee to the Company,
all options, rights and stock awards granted to Employee during such period
shall be canceled or returned to the Company, and no service as an employee
shall be credited to Employee for such period for pension purposes. Employee
shall not be obligated to pay to the Company the cost of providing Employee with
welfare benefits and prerequisites for such period unless the final judgment,
order or decree of a court arbitration panel or other body resolving the Dispute
determines that Employee acted in bad faith in giving a Notice of Dispute.
Should a Dispute ultimately be determined in favor of Employee, then Employee
shall be entitled to retain all sums paid to Employee under this subparagraph
pending resolution of the Dispute and shall be entitled to receive, in addition,
the payments and other benefits provided for in this Section 7 to the extent not
previously paid hereunder and the payment of Employee's reasonable legal fees
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incurred as a result of such Dispute upon submission to the Company of a
detailed statement of fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
dispute regarding the rights and obligations of any party under this Agreement
or under any law governing the relationship created by this Agreement, including
without limitation Employee's challenge of a purported termination for Cause or
Disability, must be resolved pursuant to this Section 8. Within seven (7) days
of either party's written notice to the other of his or its desire to submit any
arbitrable matter as set forth herein to arbitration, the parties will meet to
attempt to amicably resolve their differences and, failing such resolution,
either or both of the parties may submit the matter to mandatory and binding
arbitration with the Center for Public Resources ("CPR"). The issue(s) in
dispute shall be settled by arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes, by a
panel of three arbitrators (the "Panel"). The only issue(s) to be determined by
the Panel will be those issues specifically submitted to the Panel. The Panel
will not extend, modify or suspend any of the terms of this Agreement. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16, and judgment upon the award rendered by the Panel may be entered by any
court having jurisdiction thereof. A determination of the Panel shall be by
majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon any
award rendered by the Panel may be entered in any court having jurisdiction. The
decision of the Panel within the scope of the submission is final and binding on
all parties, and any right to judicial action on any matter subject to
arbitration hereunder hereby is waived (unless otherwise provided by applicable
law), except suit to enforce this arbitration award or in the event arbitration
is not available for any reason or in the event the Company shall seek equitable
relief to enforce Section 9 of this Agreement. If the rules of the CPR differ
from those of this Section 8, the provisions of this Section 8 will control. The
Company shall pay all the costs of arbitration including the fees of the
arbitrators, and the arbitrators shall award reasonable legal fees to Employee,
unless the arbitrators or a judicial forum shall finally determine that Employee
acted in bad faith.
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9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within two years after the Date of
Termination, (i) use or disclose any such Confidential Information outside the
Company, its Subsidiaries and Affiliates; or (ii) except as required in the
proper performance of his services hereunder, remove or aid in the removal of
any Confidential Information or any property or material relating thereto from
the premises of the Company or any Subsidiary or Affiliate.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
10. NON-COMPETITION PROVISIONS
Employee agrees that he will not, during the Restricted Period,
compete directly or indirectly with the Business. The phrase "compete directly
or indirectly with the Business" shall be deemed to include, without limiting
the generality thereof, (1) engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, sales
representative, stockholder, capital investor, lessor, renderer of consultation
services or advise, either alone or in association with other, in the operation
of any aspect of any type of business or enterprise competitive with the
Business; (2) soliciting any of the employees of the Company or any Affiliate to
leave the employ of the Company or any Affiliate; (3) soliciting any of the
employees of the Company or any Affiliate to become employees of any other
Person; or (4) soliciting any customer of the Company or any Affiliate with
respect to the Business. Similarly, Employee shall not raid, entice or induce
any Person who on the Date of Termination is, or within one (1) year immediately
preceding the Date of Termination was, a customer of the Company or any
Affiliate, to become a customer of any other Person for products or services the
same as, or similar to, those products and services as from time to time shall
be provided by the Company or any Affiliate, and Employee shall not approach any
Person for such purpose; nor shall Employee raid, entice or
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induce any Person who on the Date of Termination is, or within one year
immediately preceding the Date of Termination was, an employee of the Company or
any Affiliate, to become employed by any other Person; similarly, Employee shall
not approach any such employee for such purpose or authorize or knowingly
approve the taking of such actions by any other Person or assist any such other
Person in taking any such action.
The phrase "compete directly or indirectly with the Business" shall not be
deemed to include an ownership interest as an inactive investor, which, for
purposes of this Agreement, shall mean only the beneficial ownership of less
than five (5%) percent of the outstanding shares of any series or class of
securities of any competitor of the Company or any Affiliate, which securities
of such series or class are publicly traded in the securities market.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10, and 14 shall survive
termination of this Agreement and remain enforceable according to their terms.
12. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
13. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company or CGII:
Cunningham Graphics, Inc.
629 Grove Street
Jersey City, New Jersey 07310
Attn: President
If to Employee:
Robert M. Zanisnik
30 Cypress Terrace
Springfield, New Jersey 07081
By notifying the other parties in writing, given as aforesaid, any
party may from time-to-time change its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be
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given, in connection with notice to any party.
14. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may
be assigned or delegated by Employee. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
15. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
16. ENTIRE AGREEMENT, WAIVER AND OTHER
16.1. INTEGRATION. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or
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oral, express or implied, covering the subject matter hereof. No
representations, inducements, promises or agreements, oral or otherwise, not
embodied herein, shall be of any force or effect.
16.2. NO WAIVER. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Employee with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification
of any provisions of this Agreement on behalf of the Company, nor shall any
action taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by all of the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and
the rights and obligations of the parties hereto enforced, in accordance with
the laws of the State of New Jersey.
17.2 HEADINGS. The Section and Subsection headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.3 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against Employee or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as expressly
provided herein, the Company waives all rights which it may now have or may
hereafter have conferred upon it, by statute or otherwise, to terminate, cancel
or rescind this Agreement in whole or in part. Except as provided in Section 7.8
herein, each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover for any reason all or any part of such
payment from Employee or any person entitled thereto. Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
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17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be payable to
Employee hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there be no
such designee, to Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
CUNNINGHAM GRAPHICS, INC.
By:
---------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By:
---------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
--------------------------------------------
Robert M. Zanisnik
15
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated January 16, 1998, in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-46541) and related Prospectus of
Cunningham Graphics International, Inc. for the registration of 2,415,000 shares
of its common stock.
/s/ Ernst & Young LLP
Princeton, New Jersey
April 16, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus
of Cunningham Graphics International, Inc. for the registration of 2,415,000
shares of its common stock and to the inclusion therein of our report dated 11
February 1998 with respect to the consolidated financial statements of Roda
Limited and the financial statements of Roda Print Concepts Limited
(Predecessor).
/s/ ERNST & YOUNG
Chartered Accountants
London, England
16 April 1998
