AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE CASSIDY COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8743 52-1021749
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
700 THIRTEENTH STREET, N.W., SUITE 400
WASHINGTON, DC 20005
(202) 347-0787
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LESTER G. FANT III, ESQ.
GENERAL COUNSEL
THE CASSIDY COMPANIES, INC.
700 THIRTEENTH STREET, N.W., SUITE 1160
WASHINGTON, DC 20005
TEL: (202) 824-6050
FAX: (202) 824-6010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
STEVEN E. BALLEW, ESQ. HOWARD B. ADLER, ESQ.
HOGAN & HARTSON L.L.P. GIBSON, DUNN & CRUTCHER LLP
555 THIRTEENTH STREET, N.W. 1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, DC 20004 WASHINGTON, DC 20036
TEL: (202) 637-5600 TEL: (202) 955-8500
FAX: (202) 637-5910 FAX: (202) 467-0539
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
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, as amended (the 'Securities Act'), 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share........ $ $46,000,000 $13,570
Total.......................................... $ $ $
</TABLE>
(1) Includes shares with a proposed maximum aggregate offering
price of $ being offered by one of the two Selling Stockholders and
shares with a proposed maximum aggregate offering price of
$6,000,000 being offered by the other Selling Stockholder only upon exercise
of the over-allotment option granted to the Underwriters by that Selling
Stockholder.
(2) Estimated solely for purposes of calculating the registration fee.
------------------------
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 1998
PROSPECTUS
SHARES
THE CASSIDY COMPANIES, INC.
COMMON STOCK
------------------------
Of the shares of common stock, $0.01 par value per share (the
'Common Stock'), offered hereby (the 'Offering'), shares are being
offered by The Cassidy Companies, Inc. ('CCI' or the 'Company') and
shares are being offered by the Company's Employee Stock Ownership Plan and
Trust (the 'ESOP'). The net proceeds received by the ESOP will be used to pay
the outstanding balance of certain indebtedness owed by the ESOP and the Company
(the 'ESOP Debt'), the accrued interest thereon and a prepayment charge. See
'Use of Proceeds' and 'Principal and Selling Stockholders.'
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See 'Underwriting' for a
discussion of the factors to be considered in determining the initial public
offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market System under the symbol 'CSDY.'
------------------------
SEE 'RISK FACTORS' ON PAGES 8 THROUGH 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
</TABLE>
(1) The Company and the two selling stockholders, the ESOP and the Chairman and
Chief Executive Officer of the Company (the 'Selling Stockholders'), have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $ .
(3) One of the Selling Stockholders, the Chairman and Chief Executive Officer of
the Company, has granted to the Underwriters an option exercisable within 30
days of the date hereof, to purchase up to an aggregate of additional
shares of the Common Stock, solely to cover over-allotments, if any. If the
Underwriters exercise such options in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Selling
Stockholders will be $ , $ and $ , respectively. See
'Principal and Selling Stockholders' and 'Underwriting.'
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the office of Friedman, Billings, Ramsey & Co., Inc.,
Arlington, Virginia, or in book entry form through the book entry facilities of
the Depository Trust Company, on or about , 1998.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[PICTURE OF WASHINGTON, D.C. INCLUDING CERTAIN
MONUMENTS AND PROFESSIONALS AT WORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
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 by, and should be read in conjunction
with, the more detailed information and consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those discussed in the forward-looking statements
as a result of certain factors, including those set forth under 'Risk Factors'
and elsewhere in this Prospectus. Prospective investors should carefully
consider the factors set forth under the caption 'Risk Factors' and are urged to
read this Prospectus in its entirety. Except as otherwise noted, all information
in this Prospectus (i) reflects the completion of a reclassification of the
Company's currently outstanding three classes of common stock into the single
class of the Common Stock offered hereby which will become effective in
connection with the closing of the Offering, a stock split and an increase in
the number of authorized shares of capital stock (See 'The Recapitalization')
and (ii) assumes no exercise of options granted under the Company's 1998 Stock
Option and Incentive Plan.
THE COMPANY
The Company, founded in 1975, is a leading provider of government relations
services, public affairs communications and opinion research services. The
Company formulates and implements comprehensive and often integrated government
relations and public affairs communication strategies designed to achieve its
clients' objectives by communicating and advocating its clients' positions
before key government decision-makers on specific public policy matters. The
successful outcome of the Company's engagements often will have a material
impact on its clients' businesses and prospects. The Company's government
relations practice, comprised of Cassidy and Associates and Boland & Madigan
(the 'Government Relations Group'), recorded revenues in 1997 greater than any
other company providing government relations services, according to a report in
the Legal Times, and provides clients with expert representation and advocacy in
the legislative and regulatory process. The Company's public affairs
communication and opinion research practice, which is comprised of Powell Tate,
Frederick Schneiders Research and Bork & Associates (the 'Public Affairs and
Opinion Research Group'), provides expert strategy and implementation in public
affairs and crisis communications, opinion research and litigation support
services to the Company's client base. The Company also offers its clients
in-depth industry expertise in specific vertical markets, including the
non-profit sector, insurance, telecommunications, technology, defense,
agriculture, transportation, international trade, energy resources, health care
and infrastructure, as well as an integrated approach to government related
business problems and opportunities by drawing upon the strengths of both the
Government Relations Group and the Public Affairs and Opinion Research Group.
The Company's growth strategy is to increase its market share by attracting and
retaining high quality professionals and by pursuing strategic acquisitions of
complementary businesses with established reputations, clients and revenues.
The market for the Company's services is growing. As Congress deals with an
increasing number of issues, the number of people and institutions affected by
government decisions also grows, creating more conflicts over policy among
groups with competing interests. As a result, the demand for experienced
government relations professionals who can guide clients through the
policy-making process has increased. According to a May 1998 report in the Legal
Times, the number of registered lobbyists is approximately 11,500 representing
approximately 9,000 registered clients. According to an Associated Press report
in March 1998, lobbying is now a $1.2 billion a year business.
In its 23-year history, CCI has represented over 1,100 clients, including
24 of the Fortune 50 corporations; coalitions and associations; public and
private utilities; universities and colleges; financial institutions; health
care providers; state, city and county governments; international businesses;
foreign governments and other entities. The Company's revenues and income from
operations have increased from $36.5 million and $1.5 million in the 1996 fiscal
year to $41.0 million and $6.0 million in the 1997 fiscal year, representing an
annual growth rate of 12.6% and 300.0%, respectively. The Company's revenues and
income from operations have increased from $19.4 million and $2.3 million in the
first six months of 1997, to $22.2 million and $2.8 million in the first six
months of 1998, representing an increase of 14.4% and 21.7%, respectively. For
each of the last three full fiscal years, over 60.0% of the Company's revenues
came from clients who had been clients in the preceding year. No single client
accounted for more than 5% of the Company's revenues in 1997 or in the
3
<PAGE>
first six months of 1998. In 1997 and in the first six months of 1998, the 10
largest clients contributed 22% and 18% of CCI's overall revenues, respectively.
The Company's revenues are generated primarily from contracts with one of
two different payment arrangements. The Government Relations Group, the
Company's largest business unit, uses written retainer contracts, usually for
periods of greater than 12 months, the fees for which are payable monthly or
quarterly in advance. The revenues of the Public Affairs and Opinion Research
Group are derived primarily from time and materials reimbursement contracts. The
Company does not provide services for contingent fees. As of June 30, 1998, the
Company had $26.8 million of future revenues under existing retainer contracts
to become due as follows: $12.0 million during the period beginning July 1, 1998
and ending December 31, 1998, $10.5 million in 1999 and $3.1 million in 2000.
Revenues to become due under existing retainer contracts after December 31, 2000
are $1.2 million.
Because the quality of the Company's services depends on the quality of the
senior professionals who deliver those services, the Company is highly selective
in recruiting for these positions. Full-time professionals and consultants are
selected from among the most highly respected individuals with recognized
expertise in their chosen fields of endeavor. As of June 30, 1998, CCI employed
73 full-time senior professionals engaged in client services. Numerous
professionals in the Company hold advanced degrees, including 23 masters
degrees, 17 law degrees and two doctorates. These professionals had together
approximately 400 years of experience working for Congress or the Executive
Branch. Many of these professionals are nationally recognized as experts in
their respective fields, having backgrounds in a wide range of disciplines,
including former members of Congress, key staffers on Capitol Hill and former
senior political appointees in the Executive Branch. The Company's full-time
professionals are complemented by the services of 14 senior consultants, who
provide expert advice on government relations initiatives and public policy
issues, and 23 marketing consultants, who assist the Company in its new business
development activities. See 'Business--Services--The Government Relations
Group-- Business Development Program.'
The Company was incorporated in the District of Columbia in 1975, and in
1991 changed its name from G. Cassidy & Associates, Inc. to its present name and
was reincorporated in Delaware. Its executive offices are located at 700
Thirteenth Street, N.W., Suite 400, Washington, D.C. 20005 and its phone number
is (202) 347-0787.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....... shares.
Common Stock Offered by the ESOP.......... shares.
Common Stock Outstanding (1)
Prior to the Offering................ 8,910,840
After the Offering...................
Use of Proceeds by the Company............ It is expected that approximately $2.0 million will be used to repay
lines of credit and the remainder for future acquisitions.
Use of Proceeds by the ESOP............... To pay the outstanding balance, accrued interest and a prepayment
charge on the ESOP Debt, in the approximate amount of $13.2 million,
to the Company, which will then repay a consortium of lenders led by
AEGON USA, Inc. (the 'ESOP Lender'). See note 5 to the Company's
consolidated financial statements.
Proposed Nasdaq Symbol.................... CSDY
Dividend Policy........................... The Company does not anticipate paying dividends in the foreseeable
future.
</TABLE>
- ------------------
(1) Gives effect to the Recapitalization (as defined herein), but does not
include 1,900,000 shares of the Common Stock reserved for issuance in
connection with the Company's 1998 Stock Option and Incentive Plan (the
'Plan'), of which options for shares of the Common Stock will be
granted prior to the closing of the Offering. See 'Management--Compensation
Plans--1998 Stock Option and Incentive Plan.' Additionally, the number of
shares of Common Stock outstanding includes 1,253,055 unallocated shares of
Common Stock held of record by the ESOP not reflected as outstanding for
earnings per share or presentation purposes in the historical financial
statements in accordance with generally accepted accounting principles, and
excludes 72,390 shares of Common Stock held by the Company as treasury
shares as of June 30, 1998.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth selected summary consolidated financial data
of the Company as of and for each of the five years in the period ended December
31, 1997 and the six months ended June 30, 1997 and 1998. The income statement
and balance sheet data for the five years ended December 31, 1997 have been
derived from the Company's consolidated financial statements, which were audited
by Ernst & Young LLP, independent public accountants, for each of the three
years ended December 31, 1997 and by Arthur Andersen & Co. L.L.P., independent
public accountants, for each of the two years ended December 31, 1994. The
income statement data for the six months ended June 30, 1997 and 1998 are
unaudited, but include, in the opinion of management, all adjustments considered
necessary for a fair presentation of such data. Operating results for interim
periods are not necessarily indicative of the results that may be achieved for
the entire fiscal year. The 'as adjusted' balance sheet data as of June 30, 1998
are as described in note (3) below. The information set forth below should be
read in conjunction with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Government relations group................... $ 13,539 $ 12,207 $ 26,384 $ 23,007 $ 23,891 $ 23,741 $ 21,522
Public affairs and opinion research group.... 8,624 7,157 14,661 13,450 12,383 11,706 9,571
--------- --------- --------- --------- --------- --------- ---------
Total revenues................................. 22,163 19,364 41,045 36,457 36,274 35,447 31,093
Non-stock employee compensation:
Government relations group................... 6,543 6,022 12,105 11,789 12,071 13,447 10,179
Public affairs and opinion research group.... 5,343 4,384 8,924 8,376 7,141 6,548 5,241
Total non-stock employee compensation.......... 11,886 10,406 21,029 20,165 19,212 19,995 15,420
Consulting expense............................. 1,268 1,252 2,851 3,122 3,211 3,457 3,472
General and administrative expense............. 5,039 4,470 9,248 9,095 9,031 8,983 8,001
ESOP stock compensation expense................ 1,139 936 1,878 1,218 1,195 2,333 1,141
Compensation element of common stock and option
issuances..................................... 0 0 0 1,313 1,276 11,997 1,772
--------- --------- --------- --------- --------- --------- ---------
Total Operating Expenses....................... 19,332 17,064 35,006 34,913 33,925 46,765 29,806
Income (loss) from operations.................. 2,831 2,300 6,039 1,544 2,349 (11,318) 1,287
Equity in losses of affiliates................. 0 0 0 0 (238) 23 (664)
ESOP-related interest expense.................. (529) (691) (1,294) (1,655) (1,837) (1,671) (426)
Other interest income (expense)................ (189) (172) (328) (121) (82) 78 55
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes (1).............................. 2,113 1,437 4,417 (232) (192) (12,888) 252
Income tax (provision) benefit................. (431) (359) (1,094) (17) (1,298) 1,792 (575)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations....... 1,682 1,078 3,323 (249) (1,106) (11,096) (323)
Discontinued operations, net of income taxes... (2,548) (1,133) (2,610) (1,525) (1,238) 780 447
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (866) $ (55) $ 713 $ (1,774) $ (2,344) $ (10,316) $ 124
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per common share(2):
Income (loss) from continuing operations..... $ 0.22 $ 0.16 $ 0.51 $ (0.04) $ (0.25) $ (2.93) $ (0.06)
Discontinued operations...................... (0.34) (0.17) (0.40) (0.28) (0.27) 0.21 0.09
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share............. $ (0.12) $ (0.01) $ 0.11 $ (0.32) $ (0.52) $ (2.72) $ 0.03
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares (in
thousands)(2)................................. 7,525 6,489 6,534 5,503 4,490 3,787 4,773
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
ACTUAL AS ADJUSTED (3)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 737
Total current assets...................................................................... 11,875
Total current liabilities................................................................. 17,684
</TABLE>
(Footnotes on next page)
6
<PAGE>
- ------------------
(1) The Company reflects the release of unallocated shares as security for the
ESOP Debt as ESOP stock compensation expense, which occurs when principal is
paid on such indebtedness. Excluding this expense, the related interest
expense on the ESOP Debt and the compensation expense related to certain
employee stock options, income (loss) from continuing operations before
income taxes for 1997, 1996, 1995, 1994, and 1993, would have been (in
thousands) $7,588, $3,954, $4,500, $3,113, and $2,739, respectively, and
income (loss) from operations for the six months ended June 30, 1998 and
June 30, 1997, would have been $3,781, and $3,063, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview.' After the closing of the Offering, the Company
expects to make no further contributions to the ESOP. Consequently, there
are expected to be no additional expense charges related to the ESOP
subsequent to the quarter in which the Offering closes. In the quarter in
which the Offering closes, however, the Company will incur a one-time
significant charge to earnings as a result of the sale by the ESOP of shares
of Common Stock in the Offering. If the price of the Common Stock in the
Offering is $ , the charge against earnings relating to the sale of
stock by the ESOP would be $ . In addition, the Company will incur a
one-time charge to earnings in the quarter in which the Offering closes of
approximately $ in connection with the establishment of a deferred
stock compensation plan (the 'Deferred Plan') for its employees who
previously had been issued shares of, and options to acquire shares of,
Restricted Class B Common Stock (as defined herein). See 'Other Significant
Recent Actions,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview' and 'Management--Compensation
Plans--Deferred Stock Compensation Plan.'
(2) Gives effect to the Recapitalization. See 'The Recapitalization.'
(3) Adjusted to reflect the sale by the Company of shares of the Common
Stock offered hereby at the assumed initial public offering price of
$ per share, after deduction of underwriting discounts and commissions
and estimated offering expenses and the application of the estimated net
proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
7
<PAGE>
RISK FACTORS
The shares of the Common Stock offered hereby involve a high degree of
risk. Prospective investors should consider carefully all the information
contained in this Prospectus (including the consolidated financial statements
and notes thereto) prior to purchasing the Common Stock in the Offering and in
particular the factors set forth below under '--Risks Related to the Company,'
and '--Risks Related to the Offering.' Prospective investors are cautioned that
the statements in this Prospectus that are not historical facts may be
forward-looking in nature, and, accordingly, whether they prove to be accurate
is subject to many risks and uncertainties. The actual results that the Company
achieves may differ materially from any forward-looking statements in this
Prospectus. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and those contained elsewhere in
this Prospectus.
RISKS RELATED TO THE COMPANY
Dependence on Key Persons
The Company is a holding company which delivers services through its two
operating groups, the Government Relations Group and the Public Affairs and
Opinion Research Group. The business success of each of these operating groups
is highly dependent upon the efforts, abilities, business generation
capabilities and project execution of their senior professionals and managers.
The loss of the services of any of these individuals could have a material
adverse effect on the affected group's business, operating results and financial
condition and an adverse effect on the Company's results as a whole. In
particular, the loss of one or more senior professionals of Cassidy & Associates
('C&A'), part of the Government Relations Group and the oldest, largest and most
profitable of the Company's operating units, could have a material adverse
effect on the Company's business, operating results and financial condition as a
whole.
Attraction and Retention of Professional Staff
The Company's future performance depends significantly upon its ability to
retain its professional staff members and to attract and develop other such
persons. The Company, in particular the Government Relations Group, seeks to
establish long-term relationships with its clients. Such relationships depend in
part upon the individual employees who represent the Company in its dealing with
such clients. Further, the largest operating units of the Company have
historically sought individuals who have distinguished themselves in senior
staff positions in Congress or the Executive Branch. There are a limited number
of such persons and an increasing number of entities offering government
relations services that compete for these individuals. Many of these
organizations have greater financial resources than the Company to attract and
compensate qualified personnel. There can be no assurance that losses of key
personnel to competitors or otherwise will not occur in the future. There can
also be no assurance that the Company will be able to attract and retain
sufficient numbers of additional highly skilled professional staff. The loss of
the services of a significant number of these persons or the failure to attract
needed new personnel would have a material adverse effect on the Company's
business, operating results and financial condition, including its ability to
secure and complete engagements.
Risks Related to Acquisitions
The Company believes that the acquisition of complementary businesses will
provide it with additional professionals, new service offerings, additional
industry expertise and a broader client base. The Company has adopted an
acquisition strategy to take advantage of these opportunities by focusing on
successfully operating companies that practice in the areas of the Company's
core competencies or in certain vertical markets, such as health care,
environment and tax, which are sufficiently related to the Company's existing
markets to enable the generation of cross-selling opportunities. There can be no
assurance that the Company will be able to identify compatible acquisition
candidates or negotiate an acquisition on terms favorable or even acceptable to
the Company. Further, there can be no assurance that the Company will be able to
integrate successfully acquired businesses without substantial expense, delays
or other operations or financial problems. The failure to integrate an
acquisition smoothly into the cross-selling activities of all of the Company's
operational units could have a material adverse impact on the Company's growth
strategies, operating results and financial condition.
8
<PAGE>
In February 1997, the Company ceased the operations of Strategic Response
('SR'), one of its operating units, and, in June 1998, decided to divest the New
York division of Powell Tate ('PTNY') as well as Pickholz Tweedy Cowan ('PTC').
Both SR and PTC had previously been acquired by the Company. SR was a grass-
roots lobbying firm, which mobilized citizens to express their opinions on
various issues to their Congressional representatives. This business unit was
discontinued because it was unable to recover from the poor performance of an
outside vendor, despite repeated efforts of the Company.
PTNY and PTC, the two business units to be divested, are also not engaged
in operations within the Company's core competencies. PTNY is a public relations
firm located in New York, which has a different client base and produces a
different type of work product than the Company's Washington, D.C.-oriented
public affairs communications practice. PTC is a direct marketing business. The
Company expects these divestitures to be completed within the next twelve
months.
The Company's decisions with respect to these entities resulted in charges
to the Company's earnings and highlight the risks associated with the Company's
growth and acquisition strategies. It is possible that unsuccessful future
acquisitions or growth strategies could have a material adverse effect on the
Company's business, operating results and financial condition. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.' The Company's experiences with these three business units
has caused it to reemphasize a growth strategy of expansion within its basic
core competencies. See 'Business-- Growth Strategies--Pursue Strategic
Acquisitions.'
Acquisitions may also involve a number of risks, including diversion of
management's attention, failure to retain key acquired personnel, unanticipated
events or circumstances and legal liabilities. Client satisfaction or
performance problems at a single acquired firm could have a material adverse
impact on the reputation of the Company as a whole. Further, there can be no
assurance that the Company's recent or future acquired businesses will generate
anticipated revenues or earnings.
The Company's ability to grow through the acquisition of additional
companies will also be dependent upon the availability of capital to complete
such acquisitions. The Company intends to finance acquisitions through a
combination of the proceeds of the Offering, its available cash resources, bank
borrowings and, in appropriate circumstances, the further issuance of equity
and/or debt securities. Acquiring additional companies will have a significant
effect on the Company's financial position and could cause substantial
fluctuations in the Company's quarterly and yearly operating results and one or
more unsuccessful acquisitions could cause material operating losses. Also,
acquisitions of the size currently being contemplated by the Company will result
in the recording of significant goodwill and intangible assets on the Company's
consolidated financial statements, the amortization of which will reduce
reported earnings in subsequent years.
Reputation
The reputation of the Company and its professionals for competence and
integrity is key to the Company's continued success. This reputation is largely
dependent on favorable public perception and the favorable perception of
important policy makers of the Company. The Company has a rigorous regulatory
compliance and ethics program, by which it seeks to ensure that its professional
reputation and the reputation of its professionals are maintained. See
'Business--Regulation--The Company's Compliance Program.' There are factors
largely beyond the control of the Company, however, that could affect how it is
viewed. For example, adverse media publicity could impact perceptions of the
Company's competence or integrity. To the extent that such adverse perceptions
become widely held, the Company's ability to assist effectively its clients and
to attract and retain clients could be compromised, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Dependence on Retainer Contracts
For the years ended December 31, 1995, 1996 and 1997, over 70% of the
Government Relations Group's revenues and over 45% of the Company's total
revenues came from clients of the Government Relations Group on retainer
contracts who were also clients of that group during the previous year.
Accordingly, the Company's prospects depend on the Government Relations Group's
ability to continue to enter into multi-year engagements and to sustain a high
level of renewal of such engagements. There can be no assurance that the Company
will be
9
<PAGE>
able to continue to attract clients that will enter into multi-year engagements
and to renew such engagements at the end of their terms. Any failure to do so
would have a material adverse effect on the Company's business, operating
results and financial condition.
Fluctuations in Operating Results
The Company's revenues and operating results are subject to variation from
quarter to quarter depending on a number of factors, including client retention
rates, the Congressional schedule, the closing of significant contracts and
general economic conditions. Because a significant portion of the Company's
expenses are relatively fixed, variations in revenues during any quarter may
cause significant variations in operating results from quarter to quarter. The
first quarter will typically be the quarter with the least revenue for the
Government Relations Group, with each subsequent quarter generally having more
revenue than the previous quarter because the renewal dates for the Government
Relations Group's retainer contracts are heavily weighted in the fourth quarter.
While recurring revenue between years from clients who have retainer contracts
exceeded 70% in each of the last three fiscal years, the impact of those clients
that do not renew their contracts often causes revenue to be less in the first
quarter than revenue in the fourth quarter of the preceding year. The revenues
of the Public Affairs and Opinion Research Group will fluctuate depending on the
demands for the group's services.
The Company is typically retained to communicate and advocate with regard
to appropriations and business-related matters. In 1996, there was a reduced
Congressional agenda resulting from the Federal Government 'shutdown' arising
out of the dispute between Congress and the Executive Branch over the fiscal
year 1996 budget. In addition, the Congressional agenda was heavily weighted
toward social issues, which, for the most part, did not financially impact the
Company's clients. During this period, demand for the Government Relations
Group's services decreased and revenues from the group declined 3.7% from $23.9
million to $23.0 million. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995--Revenues.' It is possible that in one or more
future periods, Congress may again have a reduced agenda or may not be focused
on issues that are considered to be priorities by the Company's clients, which
could have a negative impact on the Company's revenues.
Competition
The market for government relations and public affairs and opinion research
services is intensely competitive, highly fragmented and subject to rapid change
as the policies and politics of Washington, D.C. change. The Government
Relations Group competes with (i) law firms which have government relations
capacities, (ii) independent firms which offer one or more of the services
offered by the Company, (iii) smaller firms that have created a specialized
niche in the marketplace, (iv) start-up companies entering the market, (v)
industry and trade associations with in-house capabilities and (vi) subsidiaries
of large corporations which offer one or more of the services offered by the
Company. The Public Affairs and Opinion Research Group faces competition
primarily from the Washington, D.C. offices of large international advertising
and public relations firms, often headquartered outside the United States. Many
competitors of the Company are larger and have greater financial resources than
the Company. There can be no assurance that the Company will compete
successfully with its existing competitors or with any new competitors. See
'Business--Competition.'
Regulatory Compliance; Regulations
The Company is subject to the Lobbying Disclosure Act of 1995, as amended
(the 'Disclosure Act'), because of its government relations activities, and to
the Foreign Agents Registration Act of 1938, as amended ('FARA'), because of
those activities as well as its public relations activities on behalf of foreign
clients. The Company is also subject to the Federal Election Campaign Act (the
'Campaign Act'). Both the Disclosure Act and FARA impose certain registration,
disclosure and reporting requirements on the Company and some of its
professionals. Failure to make a filing under the Disclosure Act, to correct a
deficient filing after notice thereof or to otherwise not comply with the
Disclosure Act could result in a civil fine of up to $50,000 per incident.
Failure to comply with FARA could result in fines of up to $10,000 and
imprisonment of up to five years. In addition, the Campaign Act limits political
contributions to candidates for Federal office. The rules of the House of
Representatives and the United States Senate, and the Standards of Ethical
Conduct for Employees of the Executive Branch and certain provisions of Federal
criminal law (collectively, the 'Ethical Requirements') limit
10
<PAGE>
the providing of travel, lodging, gifts, meals and entertainment to Members of
Congress, and certain employees of the legislative and executive branches. The
Company and its employees must comply with the Ethical Requirements. Failure by
the Company and its professionals to comply with the Disclosure Act, FARA, the
Campaign Act, the Ethical Requirements or any other legal or regulatory
requirements imposed from time to time on the Company, could lead to adverse
publicity, fine, prosecution, and have a material adverse impact on the
Company's business, operating results and financial condition. See
'Business--Regulation.'
Control by Existing Stockholders; Potential Anti-Takeover Provisions
After completion of the Offering, the directors and executive officers of
the Company will beneficially own in the aggregate approximately % of the
outstanding Common Stock. In the event the Underwriters' over-allotment option
is exercised in full, those persons will own in the aggregate approximately
% of the outstanding Common Stock. An additional % will be held in the
ESOP. Such persons, excluding the ESOP, if they act together, are expected to be
the largest group of Company stockholders, and, as such, will have a significant
impact on the election of the Company's directors and on the implementation of
business strategies. In addition, such concentration of ownership may have the
effect of delaying or preventing transactions involving an actual or potential
change in control of the Company, including transactions in which the holders of
the Common Stock might receive a premium for their Common Stock over prevailing
market prices. See 'Principal and Selling Stockholders' and 'Description of
Securities.'
Certain provisions of the Company's amended and restated certificate of
incorporation (the 'Certificate of Incorporation'), the amended and restated
bylaws (the 'Bylaws') and of Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. These include
Section 203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder unless certain conditions are met. The Certificate of
Incorporation authorizes the issuance of 5.0 million shares of preferred stock,
par value $1.00 per share ('Preferred Stock'), on terms which may be fixed by
the Company's board of directors (the 'Board of Directors') without further
stockholder action and which could, under certain circumstances, be used as a
means of discouraging, delaying or preventing a change in control of the
Company. The terms of any series of Preferred Stock, which may include, among
other things, priority claims to assets and dividends and special voting rights,
could adversely affect the rights of holders of the Common Stock. The Company
has no present plans to issue shares of Preferred Stock. In addition, the
Certificate of Incorporation and Bylaws provide for a Board of Directors with
staggered terms, eliminate the right of stockholders to act by written consent
without a meeting unless such written consent is unanimous, or to call a special
meeting of stockholders, require advanced stockholder notice to nominate
directors and raise matters at the annual stockholders' meeting, do not provide
for cumulative voting in the election of directors, authorize the removal of
directors only for cause by the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock, limit amendments to the
Certificate of Incorporation to items that have been first proposed by the Board
of Directors and thereafter approved by the affirmative vote of the holders of
at least a majority (and in certain cases a supermajority) of the outstanding
shares of capital stock and require the vote of at least a majority of the
outstanding shares of capital stock for stockholders to amend the Bylaws. All of
the foregoing could have the effect of delaying, deferring or preventing a
change in control of the Company and could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
See 'Description of Securities.'
Holding Company Structure and Restrictions on Payment of Dividends
CCI is a holding company with limited assets of its own and conducts all of
its business through its two operating groups. The ability of CCI to pay
dividends on the Common Stock will be dependent upon either the cash flows and
earnings of the operating subsidiaries which make up the Government Relations
Group and the Public Affairs and Opinion Research Group and the payments of
funds by the subsidiaries to CCI in the form of repayment of loans, dividends or
otherwise or CCI's ability to otherwise realize the economic benefits from its
equity interests in its subsidiaries. The operating subsidiaries have no
obligation, contingent or otherwise, to pay dividends to CCI. The ability of the
operating subsidiaries to make payments to CCI will be subject to, among
11
<PAGE>
other things, the availability of funds, as well as various business
considerations and legal requirements. See 'Dividend Policy.'
No Intention To Pay Dividends
CCI does not anticipate paying dividends in the foreseeable future. As of
June 30, 1998, no significant amounts were available in the subsidiaries of CCI
to pay dividends to the Company. See 'Dividend Policy.'
RISKS RELATED TO THE OFFERING
Immediate and Substantial Dilution
The initial public offering price is substantially higher than the net
tangible book value of the Company's outstanding Common Stock at June 30, 1998,
giving effect to the Recapitalization. Purchasers of shares of the Common Stock
in the Offering will therefore experience immediate and substantial dilution in
net tangible book value per share, and existing stockholders will receive a
material increase in the tangible book value per share of their shares of the
Common Stock, giving effect to the Recapitalization. Assuming an initial public
offering price of $ per share, the immediate dilution to new
investors would be $ per share. See 'Dilution.'
Unspecified Acquisitions; Broad Discretion Over Use of Proceeds
The Company intends to use the net proceeds from the Offering to finance
acquisitions. Until the Company utilizes the net proceeds of the Offering, such
funds will be invested in investment grade securities. Although the Company
currently has no agreements or understandings to enter into any potential
business acquisition, it does intend to seek and investigate such opportunities
actively as they become available. Future events, including changes in
competitive conditions, the ability of the Company to identify appropriate
acquisition candidates, the availability of other financing and funds generated
from operations and the status of the Company's business from time to time, may
make changes in the allocation of the net proceeds of the Offering necessary or
desirable. See 'Use of Proceeds.'
Use of Proceeds to Benefit Insiders
The Company intends to use net proceeds to repay approximately $2.0 million
of an outstanding line of credit which has been personally guaranteed by Gerald
S. J. Cassidy, Chairman and Chief Executive Officer of the Company.
The ESOP intends to use net proceeds to repay the ESOP Debt, accrued
interest thereon and a pre-payment charge. The ESOP Debt has, in certain limited
circumstances, been guaranteed by Gerald S. J. Cassidy, James P. Fabiani, Vice
Chairman of the Company and Joseph L. Powell, a director of the Company.
Deferred Stock Compensation Plan; Options
In connection with the Offering and pursuant to the Deferred Plan, the
Company has agreed with certain holders of its class B common stock, par value
$0.01 per share (the 'Class B Common Stock'), which are subject to significant
transfer restrictions and forfeiture provisions (the 'Restricted Class B Common
Stock'), to accept the surrender of the Restricted Class B Common Stock and to
transfer to stockholders surrendering their Restricted Class B Common Stock
unrestricted shares of Common Stock by no later than the fifth anniversary of
the date of such surrender. See 'Management--Compensation Plans--Deferred Stock
Compensation Plan' for a description of the Deferred Plan and the rights of
certain executive officers of the Company therein. In connection with the
Deferred Plan, the Company expects to issue an aggregate of 3,600,000 shares of
the Common Stock to the grantor trust established pursuant to the Deferred Plan.
The Company has 1,900,000 shares of the Common Stock reserved for issuance
under the Plan, under which options to purchase shares will be granted.
Holders of such options are likely to exercise them when the Company could
obtain additional capital on terms more favorable than those provided by the
options. Further, while options are outstanding, the Company's ability to obtain
additional financing on favorable terms may be
12
<PAGE>
adversely affected. The options outstanding immediately after the Offering will
represent on a fully diluted basis % of the outstanding shares of the Common
Stock. See 'Management--Compensation Plans--1998 Stock Option and Incentive
Plan.'
Additionally, the Company has agreed, as part of its past acquisition of
several operating units, to issue shares of Common Stock based on the future net
income of the acquired companies. See 'Certain Transactions.'
Potential Decrease in the Market Pricing of the Common Stock Resulting from
Future Sale
Sales of a substantial number of shares of the Common Stock in the public
market, whether by purchasers in the Offering or other stockholders of the
Company, could adversely affect the prevailing market price of the Common Stock,
and could impair the Company's future ability to raise capital through an
offering of its equity securities. Upon completion of the Offering and giving
effect to the Recapitalization, the Company will have shares of the
Common Stock outstanding, including shares of the Common Stock offered
hereby. The shares of Common Stock offered hereby will be freely tradable
without restriction or further registration under the Securities Act by persons
other than 'affiliates' of the Company within the meaning of Rule 144
promulgated under the Securities Act ('Rule 144').
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated) who has been deemed to have beneficially owned 'restricted
securities' under Rule 144 for at least one year, including an 'affiliate,' 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 number of shares of common
stock or the average weekly trading volume in the shares of common stock during
the four calendar weeks preceding the filing of the required notice of such
sale. Sales under Rule 144 are also subject to certain requirements regarding
the manner of sale, notice and the availability of current public information
about the Company. A person (or persons whose shares are required to be
aggregated) who is not deemed to have been an affiliate of the Company during
the three months preceding a sale, and who has beneficially owned shares within
the definition of 'restricted securities' under Rule 144 for at least two years
is entitled to sell such shares under Rule 144(k) without regard to the volume
limitation, manner of sale provisions, notice requirements or public information
requirements of Rule 144. Affiliates continue to be subject to such limitations.
The Company's directors and executive officers and existing stockholders
own in the aggregate shares of the Common Stock, giving effect to the
Recapitalization, which may be eligible for sale under Rule 144. Such persons
may also be eligible in the future to receive shares of Common Stock currently
reserved under the Plan, the Deferred Plan and the ESOP. See
'Management--Compensation Plans--1998 Stock Option and Incentive Plan,'
'--Deferred Stock Compensation Plan' and '--Employee Stock Option Plan.' The
directors, executive officers and the ESOP, who own in the aggregate
shares of the Common Stock, giving effect to the Recapitalization, have agreed
with the Underwriters, however, that they will not, for a twelve month period
after the completion of the Offering, without the prior written consent of the
Representative of the Underwriters, offer, sell, contract to sell, or otherwise
dispose of, any shares of the Common Stock or any securities convertible into,
or exchangeable for, shares of the Common Stock. See 'Underwriting' and 'Shares
Eligible for Future Sales.'
No Public Market for the Securities
Prior to the Offering, there has not been any public market for the
Company's capital stock. Although the Company intends to seek quotation of the
shares of the Common Stock on the Nasdaq National Market System, there can be no
assurance that the Company will be successful in its efforts, and even if the
Company is successful, there can be no assurance that an active trading market
will develop or be sustained after the Offering.
Arbitrary Determination of Offering Price; Possible Volatility of Stock Price
The initial public offering price of the Common Stock will be determined by
negotiation among the Company, the Selling Stockholders and the Underwriters and
will not necessarily be related to the Company's asset value, net worth, results
of operations or any other criteria of value and may not be indicative of the
prices of the Common Stock that may prevail in the public market after the
Offering. Subsequent to the Offering, prices for the Common Stock will be
determined by the market and may be influenced by a number of factors, including
13
<PAGE>
the depth and liquidity of the market for the Common Stock, investor perception
of the Company and other comparable companies and general economic and other
conditions. In addition, the stock market has experienced significant price and
volume fluctuations that have affected the market price of equity securities of
companies and that have often been unrelated to the operating performance of
such companies. Accordingly, the market price of the Common Stock may decline
even if the Company's operating results or prospects have not changed.
14
<PAGE>
THE RECAPITALIZATION
The Company currently has three classes of common stock issued and
outstanding, each having different rights and preferences. In order to
facilitate the Offering, the Board of Directors as well as the stockholders,
voting separately by class, have approved the following transactions: (i) a
180-for-1 reverse stock split of the class A common stock (the 'Reverse Stock
Split'), (ii) the reclassification of the Company's three outstanding classes of
common stock into a single class of Common Stock (the 'Reclassification') and
(iii) a 15-for-1 forward stock split of the Common Stock (the 'Stock Split') and
an increase of the authorized shares of capital stock to 55,000,000 (the
'Authorized Share Increase'). The Reclassification, the Reverse Stock Split, the
Stock Split and the Authorized Share Increase are referred to herein as the
'Recapitalization' Giving effect to the Recapitalization, the 28,350 shares of
class A common stock, 5,500,635 shares of class B common stock and 3,381,855
shares of class C common stock currently issued and outstanding would be
converted into 8,910,840 shares of Common Stock. See 'Description of Capital
Stock.'
OTHER SIGNIFICANT RECENT ACTIONS
As explained in more detail in this Prospectus, the Company has taken or
will take three other actions, other than the Recapitalization, which have had
or will have a significant impact on its financial statements. First, it has
ceased to operate one business and is divesting two other businesses outside its
core competencies. This decision resulted in a $2.5 million charge in the second
quarter of 1998. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview' and 'Risk Factors--Risks Related
to the Company--Risks Related to Acquisitions.'
In connection with the Offering and pursuant to the Deferred Plan, the
Company has agreed with holders of the Restricted Class B Common Stock to accept
the surrender of their Restricted Class B Common Stock and to transfer to
stockholders surrendering their Restricted Class B Common Stock unrestricted
shares of Common Stock by no later than the fifth anniversary of the date of
such surrender. See 'Management--Compensation Plans--Deferred Stock Compensation
Plan' for a description of the Deferred Plan and the rights of certain executive
officers of the Company therein. In connection with the Deferred Plan, the
Company expects to issue an aggregate of 3,600,000 shares of the Common Stock to
the grantor trust established pursuant to the Deferred Plan. In accordance with
generally accepted accounting principals, at the time of the issuance of
interests in the Deferred Plan to the former holders of the Restricted Class B
Common Stock, the Company will recognize a charge to earnings for the fair
market value of the interests in the Deferred Plan as of the date the Deferred
Plan is established. This act will occur in connection with the consummation of
the Offering, and the estimated charge to earnings related to the establishment
of the Deferred Plan is expected to be $ million. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.'
It is also anticipated that in the quarter in which the Offering is
completed, the Company will recognize a significant charge against income
related to the ESOP. The ESOP trustee is offering for sale shares of the
Common Stock, with the intent of using the proceeds to repay the ESOP Debt. The
proceeds will be paid to the Company which will then pay the ESOP Lender. Once
the ESOP Debt has been repaid, the unallocated ESOP shares remaining after the
sale will be released as security for the ESOP Debt and then allocated to ESOP
participants. The fair market value of shares released to ESOP participants is
charged to ESOP stock compensation expense. If the price of the Common Stock in
the Offering is $ , the charge to earnings related to the sale of shares
of Common Stock in the Offering by the ESOP will be $ million. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview.'
Additionally, the Company's Board of Directors has authorized another
action which is not expected to have a significant impact on the Company's
financial statements. The board has authorized the officers of the Company to
prepare and submit to the board for approval a plan to distribute the Company's
(i) 43% ownership interest in Galway Partners, L.L.C., which engages in merchant
banking, investment banking and related financial services, and (ii) 2.25%
interest in Columbia Partners, L.L.C., Investment Management, an investment
management firm to its stockholders before the consummation of the Offering. At
June 30, 1998, the Company carried its investment in Galway Partners, L.L.C. at
a zero balance. See note 8 to the Company's consolidated financial statements.
15
<PAGE>
USE OF PROCEEDS
Assuming an offering price of $ per share of the Common Stock, the
net proceeds from the sale of the Common Stock are expected to be approximately
$ million (after deducting the underwriting discounts and expenses of the
Offering payable by the Company). Of the net proceeds to the Company,
approximately $2.0 million is expected to be used to repay lines of credit and
the remainder for future acquisitions. Pending such uses, the net proceeds are
expected to be invested in investment grade, interest-bearing securities.
Although the Company currently has no agreements or understandings to make any
acquisition, it intends to actively seek and investigate such opportunities as
they become available.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering that it will receive based on the current
status of its business. Future events, including changes in competitive
conditions, the ability of the Company to identify appropriate acquisition
candidates, the availability of other financing and funds generated from
operations and the status of the Company's business from time to time, may make
changes in the allocation of the net proceeds of the Offering necessary or
desirable.
Of the net proceeds to the ESOP, approximately $13.2 million will be used
to pay the remaining principal balance, accrued interest and a pre-payment
charge on the ESOP Debt. The ESOP will pay such amount to the Company which will
then repay the ESOP lender. See note 12 to the Company's consolidated financial
statements.
DIVIDEND POLICY
The Company does not anticipate paying dividends in the foreseeable future.
Future dividends, if any, will be subject to the discretion of the Board of
Directors and will depend upon, among other things, the results of operations,
capital requirements, general financial condition, contractual restrictions and
such other factors as the Board of Directors may deem relevant.
In addition, the Company is a holding company with no business operations
of its own. Therefore, the ability of the Company to pay dividends will be
dependent upon either the proceeds of the Offering and any earnings thereon and
dividends, distributions and other payments of funds from its various operating
subsidiaries. As of June 30, 1998, no significant amounts were available in the
subsidiaries of CCI to pay dividends to the Company.
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the capitalization of
the Company and the capitalization of the Company as adjusted for the Offering
at an initial public offering price of $ per share of the Common Stock,
including application of a portion of the net proceeds therefrom as set forth
under 'Use of Proceeds.' This table should be read in conjunction with the
consolidated financial statements of the Company, the notes thereto and the
other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------
ADJUSTED
HISTORICAL(1) AS ADJUSTED(2)
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Long-term debt........................................................... $ 12,236
Notes payable............................................................ 5,650
Stockholders' equity:
Preferred Stock, $1.00 par value, 5,000,000 shares authorized; no shares
issued and outstanding................................................. $ 0 $
Common Stock, $.01 par value, 50,000,000 shares authorized; 8,910,840
shares issued and outstanding; shares to be issued and
outstanding (as adjusted)(2)(3)........................................ 91
Additional paid-in capital............................................... 26,910
Retained earnings (Accumulated deficit).................................. (24,932)
Unearned ESOP shares..................................................... (10,108)
Treasury shares.......................................................... (758)
------------- --------------
Total debt and stockholders' equity.................................... $ 9,089 $
------------- --------------
------------- --------------
</TABLE>
(Footnotes on next page)
16
<PAGE>
- ------------------
(1) Adjusted to give effect to the Recapitalization. See 'The Recapitalization.'
(2) Adjusted to reflect the sale by the Company of shares of the Common
Stock offered hereby at the assumed initial public offering price of
$ per share, after deduction of underwriting discounts and commissions
and estimated offering expenses and the application of the estimated net
proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
(3) Excludes 1,900,000 shares of the Common Stock reserved for issuance under
the Plan, under which options to purchase shares will be outstanding
as of the closing of the Offering. See 'Management-- Compensation
Plans--1998 Stock Option and Incentive Plan' and 'Underwriting.'
Additionally, the number of shares of Common Stock outstanding includes
1,253,055 unallocated shares of Common Stock held of record by the ESOP not
reflected as outstanding for earnings per share or presentation purposes in
the historical financial statements in accordance with generally accepted
accounting principles and excludes 72,390 shares of Common Stock held by the
Company as treasury shares at June 30, 1998.
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value per share of
the Common Stock from the initial public offering price. All of the following
per share calculations give effect to the Recapitalization. The net tangible
book value of the Company as of June 30, 1998 was $ , or approximately
$ per share of the Common Stock. Net tangible book value per share
represents the amount of tangible assets of the Company less the amount of its
liabilities divided by the number of shares of the Common Stock outstanding.
After giving effect to the sale by the Company of shares of the Common
Stock offered hereby at a price of $ per share and the application of the
estimated net proceeds therefrom as set forth under 'Use of Proceeds,' the pro
forma net tangible book value of the Company as of June 30, 1998 would have been
approximately $ , or $ per share of the Common Stock. This
represents an immediate increase in net tangible book value of $ per share
to the existing stockholders and an immediate dilution of $ per share to
persons purchasing shares of the Common Stock in the Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of the Common Stock.................. $
Net tangible book value per share of the Common Stock at June 30, 1998............... $
Increase in net tangible book value per share of the Common Stock attributable to new
investors.......................................................................... .
------
Pro forma net tangible book value per share of the Common Stock after the Offering... .
------
Dilution per share of the Common Stock to new investors.............................. $ .
------
------
</TABLE>
The following table summarizes the difference between existing stockholders
and new investors with respect to the number of shares of the Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price paid per share of the Common Stock based on the initial public
offering price of $ per share in each case giving effect to the
Recapitalization.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
New Investors.........................................
Existing Stockholders.................................
Total.................................................
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for each of the five fiscal years in the period ended December
31, 1997 and the six months ended June 30, 1997 and 1998. The income statement
data for the five fiscal years ended December 31, 1997 have been derived from
the Company's consolidated financial statements, which were audited by Ernst &
Young LLP, independent public accountants, for each of the three years ended
December 31, 1997, and by Arthur Andersen & Co. L.L.P., independent public
accountants, for each of the two years ended December 31, 1994. The income
statement data for the six months ended June 30, 1997 and 1998 are unaudited,
but include, in the opinion of management, all adjustments considered necessary
for a fair presentation of such data. Operating results for interim periods are
not necessarily indicative of the results that may be achieved for the entire
fiscal year. The 'as adjusted' balance sheet data as of June 30, 1998 are as
described in note (3) below. The information set forth below should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Government relations group................... $13,539 $12,207 $26,384 $23,007 $23,891 $ 23,741 $21,522
Public affairs and opinion research group.... 8,624 7,157 14,661 13,450 12,383 11,706 9,571
------- ------- ------- ------- ------- -------- -------
Total revenues................................. 22,163 19,364 41,045 36,457 36,274 35,447 31,093
Non-stock employee compensation:
Government relations group................... 6,543 6,022 12,105 11,789 12,071 13,447 10,179
Public affairs and opinion research group.... 5,343 4,384 8,924 8,376 7,141 6,548 5,241
Total non-stock employee compensation.......... 11,886 10,406 21,029 20,165 19,212 19,995 15,420
Consulting expense............................. 1,268 1,252 2,851 3,122 3,211 3,457 3,472
General and administrative expense............. 5,039 4,470 9,248 9,095 9,031 8,983 8,001
ESOP stock compensation expense................ 1,139 936 1,878 1,218 1,195 2,333 1,141
Compensation element of common stock and option
issuances.................................... 0 0 0 1,313 1,276 11,997 1,772
------- ------- ------- ------- ------- -------- -------
Total operating expenses....................... 19,332 17,064 35,006 34,913 33,925 46,765 29,806
Income (loss) from operations.................. 2,831 2,300 6,039 1,544 2,349 (11,318) 1,287
Equity in losses of affiliates................. 0 0 0 0 (238) 23 (664)
ESOP-related interest expense.................. (529) (691) (1,294) (1,655) (1,837) (1,671) (426)
Other interest income (expense)................ (189) (172) (328) (121) (82) 78 55
------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing operations before
income taxes(1).............................. 2,113 1,437 4,417 (232) (192) (12,888) 252
Income tax (provision) benefit................. (431) (359) (1,094) (17) (1,298) 1,792 (575)
------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing operations....... 1,682 1,078 3,323 (249) (1,106) (11,096) (323)
Discontinued operations, net of income taxes... (2,548) (1,133) (2,610) (1,525) (1,238) 780 447
------- ------- ------- ------- ------- -------- -------
Net income (loss).............................. $ (866) $ (55) $ 713 $(1,774) $(2,344) $(10,316) $ 124
------- ------- ------- ------- ------- -------- -------
------- ------- ------- ------- ------- -------- -------
Earnings per Common Share:(2)
Income (loss) from continuing operations..... $ 0.22 $ 0.16 $ 0.51 $ (0.04) $ (0.25) $ (2.93) $ (0.06)
Discontinued operations...................... (0.34) (0.17) (0.40) (0.28) (0.27) 0.21 0.09
------- ------- ------- ------- ------- -------- -------
Net income (loss) per common share............. $ (0.12) $ (0.01) $ 0.11 $ (0.32) $ (0.52) $ (2.72) $ 0.03
------- ------- ------- ------- ------- -------- -------
------- ------- ------- ------- ------- -------- -------
Weighted average common shares (in
thousands)(2)................................ 7,525 6,489 6,534 5,503 4,490 3,787 4,773
------- ------- ------- ------- ------- -------- -------
------- ------- ------- ------- ------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
ACTUAL AS ADJUSTED (3)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 737
Total current assets.................................................................... 11,875
Total current liabilities............................................................... 17,684
Total debt and stockholders' equity..................................................... $ 9,089
</TABLE>
(Footnotes on next page)
18
<PAGE>
- ------------------
(1) The Company reflects the release of unallocated shares as security for the
ESOP Debt as ESOP stock compensation expense, which occurs when principal is
paid on such indebtedness. Excluding this expense, the related interest
expense on the ESOP Debt and the compensation expense related to certain
employee stock options, income (loss) from continuing operations before
income taxes for 1997, 1996, 1995, 1994, and 1993, would have been (in
thousands) $7,588, $3,954, $4,500, $3,113, and $2,739, respectively, and
income (loss) from operations for the six months ended June 30, 1998 and
June 30, 1997, would have been (in thousands) $3,781, and $3,063,
respectively. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview.' After the closing of the
Offering, the Company expects to make no further contributions to the ESOP.
Consequently, there are expected to be no additional expense charges related
to the ESOP subsequent to the quarter in which the Offering closes. In the
quarter in which the Offering closes, however, the Company will incur a
one-time significant charge to earnings as a result of the sale by the ESOP
of stock in the Offering. If the price of the Common Stock in the Offering
is $ , the charge against earnings relating to the sale of
stock by the ESOP would be $ . In addition, the Company will
incur a one-time charge to earnings in the quarter in which the Offering
closes of approximately $ in connection with the establishment
of the Deferred Plan for its employees who previously had been issued shares
of Restricted Class B Common Stock. See 'Other Significant Recent Actions,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview' and 'Management--Compensation Plans--Deferred Stock
Compensation Plan.'
(2) Gives effect to the Recapitalization. See 'The Recapitalization.'
(3) Adjusted to reflect the sale by the Company of shares of the
Common Stock offered hereby at the assumed initial public offering price of
$ per share, after deduction of underwriting discounts and
commissions and estimated offering expenses and the application of the
estimated net proceeds therefrom. See 'Use of Proceeds' and
'Capitalization.'
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CCI, founded in 1975, is a leading provider of government relations
services and a major provider of public affairs communication and opinion
research services. The Company conducts its operations primarily through two
operating groups, the Government Relations Group and the Public Affairs and
Opinion Research Group. See 'Business--Services.'
The Company's revenues are generated primarily from contracts with one of
two different payment arrangements: (i) written retainer contracts, usually for
periods of greater than 12 months, payable monthly or quarterly in advance
(utilized primarily by the Government Relations Group), and (ii) time and
materials reimbursement contracts (utilized primarily by the Public Affairs and
Opinion Research Group). For the years ended December 31, 1995, 1996 and 1997,
revenues from the Government Relations Group were approximately 65.9%, 63.2% and
64.3%, respectively, of the Company's total revenues. For the same periods,
revenues from the Public Affairs and Opinion Research Group were 34.1%, 36.8%
and 35.7%, respectively, of the Company's total revenues. For the six months
ended June 30, 1997, and 1998, revenues from the Government Relations Group were
approximately 63.0% and 61.1%, respectively, of the Company's total revenues.
For the same periods, revenues from the Public Affairs and Opinion Research
Group were 37.0% and 38.9%, respectively, of total revenues. The retainer
contracts of the Government Relations Group generally offer higher margins, but
usually have a longer sales cycle (period of elapsed time between the initial
contact with a potential client and signing a contract), than the typical time
and materials reimbursement contracts because the client is making a more
substantial financial commitment with the retainer contract. The Company does
not provide services for contingent fees. As of June 30, 1998, the Company had
$26.8 million of future revenues under existing retainer contracts to become due
as follows: $12.0 million during the period beginning July 1, 1998 and ending
December 31, 1998, $10.5 million in 1999 and $3.1 million in 2000. Revenues to
become due under existing retainer contracts after December 31, 2000 are $1.2
million.
The Company is a professional services firm, and, as a result, its most
significant expenses consist primarily of compensation-related expenses to
employees and outside marketing consultants, and general and administrative
expenses. The Government Relations Group makes extensive use of a network of
outside marketing consultants for its business development activities. Such
consultants generally receive a commission of up to 10% on the value of
contracts that are signed as a result of leads that they generate, and certain
consultants also receive a monthly retainer. Commissions due to the consultants
are accrued at the time services are rendered to the client, but are paid at the
end of the month in which the Company receives payment from the client. The
major components of general and administrative expenses are occupancy costs such
as rent and other general office expenses, payroll and property taxes, employee
benefits and marketing expenses. General and administrative expenses as a
percentage of revenues have decreased in recent years as a larger revenue base
has absorbed those costs.
In 1989, the Company adopted the ESOP, a tax-qualified employee stock
ownership plan for the benefit of current and former employees of the Company
and its subsidiaries who satisfy certain requirements for participation. The
assets of the ESOP are held in a trust of which Marine Midland Bank is presently
trustee. The Company has indemnified Marine Midland Bank (and its employees and
agents) against any loss that may arise from actions taken, or omitted to be
taken, by Marine Midland Bank (or its employees or agents) as trustee, except to
the extent that such loss is finally determined to have resulted from the gross
negligence or willful misconduct of an indemnitee.
On October 2, 1989, the newly formed ESOP purchased 1,222,830 shares of the
Company's outstanding stock at a price of $12.27 per share, or $15.0 million. A
second ESOP transaction took place on March 9, 1994, when the ESOP purchased an
additional 2,231,415 shares of the Company's outstanding stock at a price of
$8.07 per share, or $18.0 million. Both ESOP transactions were financed by
back-to-back loans pursuant to which the Company borrowed and then relent the
necessary funds to the ESOP. The Company's indebtedness is reflected as a
liability on the Company's financial statements, while the indebtedness of the
ESOP to the Company is not shown as an asset. ESOP-related interest expense
recognized by the Company for the years ended December 31,
20
<PAGE>
1995, 1996 and 1997 was $1.8 million, $1.7 million and $1.3 million,
respectively. ESOP-related interest expense recognized by the Company for the
six months ended June 30, 1997 and 1998 was $0.7 million and $0.5 million,
respectively.
The ESOP's debt to the Company is secured by unallocated shares of the
Company's stock that were purchased by the ESOP. As the principal is paid on the
ESOP Debt, the unallocated shares are released as security for the ESOP debt and
then allocated to the participants in the ESOP. The fair market value of shares
released to participants is charged to ESOP stock compensation expense at the
time the shares are released. The charge to earnings related to the release of
unallocated ESOP shares for the years ended December 31, 1995, 1996 and 1997 was
$0.5 million, $0.9 million and $1.9 million, respectively. The charge to
earnings related to the release of unallocated ESOP shares for the six months
ended June 30, 1997 and 1998 was $0.9 million and $1.1 million, respectively.
It is anticipated that during the quarter in which the Offering is
completed, the Company will recognize a significant charge against income
related to the ESOP. In connection with the Offering and giving effect to the
Recapitalization, the ESOP trustee intends to sell shares of the
Company's Common Stock owned by the ESOP with a proposed maximum aggregate
offering price of $ and to use the proceeds to pay the ESOP Debt,
accrued interest thereon and a pre-payment charge which total approximately
$13.2 million. The ESOP will pay such proceeds to the Company, which will then
repay the ESOP lender. As explained above, once the ESOP Debt has been repaid
with the proceeds from the Offering, unallocated ESOP shares will be
released as security for the ESOP Debt and then allocated to the participants in
the ESOP. The fair market value of shares released to ESOP participants is
charged to ESOP stock compensation expense. Assuming the price per share of the
Common Stock in the Offering is $ , the charge to earnings related to
the sale by the ESOP of the Common Stock will be $ million.
In February 1997, the Company made the decision to cease operations of SR.
SR's net loss for the years ended December 31, 1995, 1996 and 1997 was $0.7
million, $0.7 million and $0.7 million, respectively. SR's net loss for the six
months ended June 30, 1997 was $0.6 million. In June 1998, the Company made the
decision to divest PTNY and PTC. PTNY's net loss for the years ended December
31, 1995, 1996 and 1997 was $0.5 million, $0.6 million and $1.3 million,
respectively. PTNY's net loss for the six months ended June 30, 1997 and 1998
was $0.3 million and $0.4 million, respectively. PTC was 50% owned by the
Company from inception in January 1996 until June 6, 1997, at which time the
Company acquired the remaining 50% of the equity in PTC. The net losses from PTC
that were recognized by the Company for the years ended December 31, 1996 and
1997 and for the six months ended June 30, 1997 and 1998 were $0.3 million, $0.7
million, $0.1 million and $1.9 million, respectively. The Company is actively
seeking to sell both entities, but no definitive agreements have been reached.
In connection with the Offering and pursuant to the Deferred Plan, the
Company has agreed with holders of the Restricted Class B Common Stock to accept
the surrender of their Restricted Class B Common Stock and to transfer to
stockholders surrendering their Restricted Class B Common Stock unrestricted
shares of Common Stock by no later than the fifth anniversary of the date of
such surrender. See 'Management--Compensation Plans--Deferred Stock Compensation
Plan' for a description of the Deferred Plan and the rights of certain executive
officers of the Company therein. In connection with the Deferred Plan, the
Company expects to issue an aggregate of 3,600,000 shares of the Common Stock to
the grantor trust established pursuant to the Deferred Plan.
In accordance with generally accepted accounting principles, at the time of
the issuance of shares of capital stock into the trust, the Company will
recognize a charge to earnings of approximately $ million (assuming
the issuance price in the Offering is $ per share) for the fair market
value of the shares transferred. The estimated charge to earnings related to the
establishment of the Deferred Plan, which is expected to occur in connection
with the closing of the Offering, is $ million.
21
<PAGE>
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Government relations group..................................... 61.1% 63.0% 64.3% 63.2% 65.8%
Public affairs and opinion research group...................... 38.9 37.0 35.7 36.8 34.2
------ ------ ------ ------ ------
Total revenues................................................... 100.0 100.0 100.0 100.0 100.0
Non-stock employee compensation:
Government relations group..................................... 29.5 31.1 29.5 32.3 33.3
Public affairs and opinion research group...................... 24.1 22.6 21.7 23.0 19.7
Total non-stock employee compensation............................ 53.6 53.7 51.2 55.3 53.0
Consulting expenses.............................................. 5.7 6.5 6.9 8.6 8.9
G&A expenses..................................................... 22.7 23.1 22.5 24.9 24.9
ESOP stock compensation expense.................................. 5.1 4.8 4.6 3.3 3.3
Compensation element of common stock and
option issuances............................................... 0 0 0 3.6 3.5
------ ------ ------ ------ ------
Total operating expenses......................................... 87.2 88.1 85.3 95.8 93.5
Income from operations........................................... 12.8 11.9 14.7 4.2 6.5
Equity in losses of affiliates................................... 0 0 0 0 (0.7)
ESOP-related interest expense.................................... (2.4) (3.6) (3.2) (4.5) (5.1)
Other interest expense........................................... (0.9) (0.9) (0.8) (0.2) (0.2)
------ ------ ------ ------ ------
Income (loss) from continuing operations before income taxes..... 9.5 7.4 10.8 (0.6) 0.5
Income tax (provision) benefit................................... (1.9) (1.9) (2.7) 0 (3.6)
------ ------ ------ ------ ------
Income (loss) from continuing operations......................... 7.6 5.6 8.1 (0.7) (3.0)
Discontinued operations, net of income taxes..................... (11.5) (5.8) (6.4) (4.2) (3.4)
------ ------ ------ ------ ------
Net income (loss)................................................ (3.9)% (0.3)% 1.7% (4.5)% (6.5)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues
Total revenues increased 14.4% to $22.2 million for the six months ended
June 30, 1998 as compared to $19.4 million for the same period in 1997.
Government Relations Group revenues increased 10.9% to $13.5 million for the six
months ended June 30, 1998 from $12.2 million for the same period in 1997
primarily due to an increase in client retention and an increase in the group's
marketing efforts. For the six months ended June 30, 1998, revenues from the
Public Affairs and Opinion Research Group revenues increased 20.5% to $8.6
million from $7.2 million for the same period in 1997 primarily due to growth in
new practice areas. In addition, there was a decline in the group's revenues in
the first quarter of 1997 reflecting the lower level of public affairs activity
that sometimes follows a Presidential election.
Non-Stock Employee Compensation
Total non-stock employee compensation increased 14.2% to $11.9 million for
the six months ended June 30, 1998 as compared to $10.4 million for the same
period in 1997. Government Relations Group non-stock compensation to employees
increased 8.7% to $6.5 million for the six months ended June 30, 1998 from $6.0
million for the six months ended June 30, 1997, primarily as a result of an
increase in personnel. Public Affairs and Opinion Research Group non-stock
compensation to employees increased 21.9% to $5.3 million for the six months
ended June 30, 1998 from $4.4 million for the six months ended June 30, 1997,
which corresponds to the group's increase in revenue between those two periods.
In addition, Bork & Associates began operations in February 1998, which resulted
in the addition of senior professional staff.
22
<PAGE>
Consulting Expense
Consulting expense for the Government Relations Group was $1.3 million for
each of the six months ended June 30, 1998 and 1997. Consulting expense for the
Public Affairs and Opinion Research Group is not significant for the six months
ended June 30, 1998 or 1997.
General and Administrative Expenses
Total general and administrative expenses increased 12.7% to $5.0 million
for the six months ended June 30, 1998 as compared to $4.5 million in the same
period in 1997. The expense categories with the largest increase between the
periods were system integration fees associated with maintaining the Company's
computer network, occupancy costs associated with a space increase, payroll
taxes associated with increased non-stock employee compensation and marketing
expense. As a percentage of revenues, general and administrative expenses
decreased to 22.2% for the six months ended June 30, 1998 from 23.1% for the
same period in 1997 as the Company was able to support its revenue growth
without a proportionate increase in associated costs.
ESOP Stock Compensation Expense
Total ESOP stock compensation expense increased 21.7% to $1.1 million for
the six months ended June 30, 1998 as compared to $0.9 million in the same
period in 1997, primarily due to a larger portion of the 1998 ESOP Debt service
being attributable to principal reduction rather than interest, and to an
increase in the appraised value of the Company's capital stock at December 31,
1997. Principal payments on the ESOP Debt result in charges to ESOP stock
compensation expense as unallocated shares of the stock owned by the ESOP are
released as security for the ESOP Debt and then allocated to the participants in
the ESOP. The charge to ESOP stock compensation expense is calculated by
multiplying the number of unallocated shares of the Company's stock that were
released as security for the ESOP Debt as a result of principal payments by the
current fair market value of the stock. As a percentage of revenues, ESOP stock
compensation expense increased to 5.1% for the six months ended June 30, 1998
from 4.8% for the same period in 1997.
ESOP Interest Expense
ESOP interest expense decreased 23.4% to $0.5 million for the six months
ended June 30, 1998 as compared to $0.7 million in the same period in 1997,
primarily due to principal payments made on the ESOP Debt.
Discontinued Operations
Total losses from discontinued operations increased 124% to $2.5 million
for the six months ended June 30, 1998 as compared to $1.1 million for the same
period in 1997. This increase is primarily attributable to the estimated loss
from operations of the discontinued business units of approximately $0.6 million
from the measurement date to the ultimate divestiture date and the recognition
of approximately $1.4 million of losses attributed to the write-off of goodwill
associated with the discontinued operations, offset by increases in operating
results of the discontinued operations of approximately $0.5 million primarily
attributable to increases in revenues of $1.3 million offset by increases in
operating expenses of $0.8 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Total revenues increased 12.6% to $41.0 million for the year ended December
31, 1997 as compared to $36.5 million for 1996. Government Relations Group
revenues increased 14.7% to $26.4 million for the year ended December 31, 1997
from $23.0 million for 1996 due to an increase in client retention and an
increase in the group's marketing efforts. For the year ended December 31, 1997,
revenues from the Public Affairs and Opinion Research Group increased 9.0% to
$14.7 million from $13.5 million for 1996 primarily due to growth in several new
practice areas.
23
<PAGE>
Non-Stock Employee Compensation
Total non-stock employee compensation increased 4.3% to $21.0 million for
the year ended December 31, 1997 as compared to $20.2 million for 1996.
Government Relations Group non-stock compensation to employees increased 2.7% to
$12.1 million for the year ended December 31, 1997 from $11.8 million for 1996.
The small increase in compensation expense relative to the increase in revenue
was primarily due to increased utilization of personnel in the group and the
full year impact of a salary reduction for the group's senior executives in
August 1996 resulting from the reduced Congressional agenda discussed herein.
Public Affairs and Opinion Research Group non-stock compensation to employees
increased 6.5% to $8.9 million for the year ended December 31, 1997 from $8.4
million for 1996, primarily due to the increase in revenues.
Consulting Expense
Consulting expense for the Government Relations Group decreased 8.7% to
$2.9 million for the year ended December 31, 1997 from $3.1 million for 1996
primarily due to the group reducing the number of consultants who receive
retainers in addition to commissions. Consulting expense for the Public Affairs
and Opinion Research Group is not significant for the years ended December 31,
1997 or 1996.
General and Administrative Expenses
Total general and administrative expenses increased 1.7% to $9.2 million
for the year ended December 31, 1997 as compared to $9.1 million for 1996. As a
percentage of revenues, general and administrative expenses decreased to 22.5%
for the year ended December 31, 1997 from 24.9% for 1996 as the Company was able
to support its revenue growth without a proportionate increase in associated
costs.
ESOP Stock Compensation Expense
Total ESOP stock compensation expense increased 54.2% to $1.9 million for
the year ended December 31, 1997 as compared to $1.2 million in 1996, primarily
due to a larger portion of the 1997 ESOP Debt service being attributable to
principal reduction rather than interest, and to an increase in the appraised
value of the Company's capital stock at December 31, 1997. Principal payments on
the ESOP Debt result in charges to ESOP stock compensation expense as
unallocated shares of the stock owned by the ESOP are released as security for
the ESOP Debt and then allocated to the participants in the ESOP. The charge to
ESOP stock compensation expense is calculated by multiplying the number of
unallocated shares of the Company's stock that were released as security for the
ESOP Debt as a result of principal payments by the current fair market value of
the stock. As a percentage of revenues, ESOP stock compensation expense
increased to 4.6% for the year ended December 31, 1997 from 3.3% in 1996.
Compensation Element of Common Stock and Option Issuances
Compensation element of common stock and option issuances expense for the
year ended December 31, 1996 consisted of the fair market value of stock options
earned by the Public Affairs and Opinion Research Group's senior executive of
$1.3 million in accordance with his employment contract. There was not a
corresponding stock option award in 1997.
ESOP Interest Expense
ESOP interest expense decreased 21.8% to $1.3 million for the year ended
December 31, 1997 as compared to $1.7 million in 1996, primarily due to
principal payments made on the ESOP Debt.
Discontinued Operations
Total losses from discontinued operations increased 71.3% to $2.6 million
for the year ended December 31, 1997 as compared to $1.5 million for 1996. This
increase is primarily attributable to increases in operating costs of the
discontinued operations of approximately $1.3 million primarily attributable to
increases in non-stock employee compensation and occupancy costs offset by
increases in revenues of $0.2 million attributable to new clients and expansion
of assignments from existing clients.
24
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total revenues increased 0.5% to $36.5 million for the year ended December
31, 1996 as compared to $36.3 million for 1995. Government Relations Group
revenues decreased 3.7% to $23.0 million for the year ended December 31, 1996
from $23.9 million for 1995 primarily due to a reduced Congressional agenda
resulting from the 'shutdown' of the Federal government during the dispute
between Congress and the Executive Branch over the fiscal year 1996 budget. In
addition, the Congressional agenda was heavily weighted towards social issues
which, for the most part, did not financially impact the group's clients. For
the year ended December 31, 1996, Public Affairs and Opinion Research Group
revenues increased 8.6% to $13.5 million from $12.4 million for 1995. The
increase in the group's revenues was almost entirely due to the acquisition of
Frederick Schneiders Research in December 1995. Revenues for Powell Tate for the
year ended December 31, 1996 compared to 1995 were flat due primarily to the
circumstances related to the Federal Goverment shutdown and the reduced
Congressional agenda noted above.
Non-Stock Employee Compensation
Total non-stock employee compensation increased 5.0% to $20.2 million for
the year ended December 31, 1996 as compared to $19.2 million for 1995.
Government Relations Group non-stock compensation to employees decreased 2.3% to
$11.8 million for the year ended December 31, 1996 from $12.1 million for 1995,
primarily due to the full year impact of a reduction in the number of employees
that took place in 1995. In addition, a salary reduction for the group's senior
executives took effect in August 1996, and the 1996 bonus expense for personnel
in the group was less than the 1995 bonus expense, both reflecting the decrease
in the group's revenues in that year that resulted from the reduced
Congressional agenda discussed above. Public Affairs and Opinion Research Group
non-stock compensation to employees increased 17.3% to $8.4 million for the year
ended December 31, 1996 from $7.1 million for 1995, primarily due to the
acquisition of Frederick Schneiders Research described above.
Consulting Expense
Consulting expense for the Government Relations Group decreased 2.7% to
$3.1 million for the year ended December 31, 1996 from $3.2 million for 1995,
primarily due to the group reducing the number of consultants who receive
retainers in addition to commissions. Consulting expense for the Public Affairs
and Opinion Research Group is not significant for the years ended December 31,
1996 or 1995.
General and Administrative Expenses
Total general and administrative expenses increased 0.7% to $9.1 million
for the year ended December 31, 1996 as compared to $9.0 million for 1995. As a
percentage of revenues, general and administrative expenses were approximately
24.9% in both 1996 and 1995.
ESOP Stock Compensation Expense
Total ESOP stock compensation expense was $1.2 million for each of the
years ended December 31, 1996 and 1995. As a percentage of revenues, ESOP stock
compensation expense was approximately 1.9% in both 1996 and 1995.
Compensation Element of Common Stock and Option Issuances
Compensation element of common stock and option issuances expense was $1.3
million for each of the years ended December 31, 1996 and 1995, and consisted of
the fair market value of stock earned by the Public Affairs and Opinion Research
Group's senior executive during those years in accordance with his employment
contract.
25
<PAGE>
ESOP Interest Expense
ESOP interest expense decreased 9.9% to $1.7 million for the year ended
December 31, 1996 as compared to $1.8 million in 1995, primarily due to
principal payments made on the ESOP Debt.
Discontinued Operations
Total losses from discontinued operations increased 23.1% to $1.5 million
for the year ended December 31, 1996 as compared to $1.2 million for 1995. One
aspect of the increase was an increase of $1.1 million in operating costs of the
discontinued operations. The increase in operating costs was primarily
attributable to the Company's 50% interest in PTC's operating losses accounted
for under the equity method of accounting in 1996 (PTC began operations in
1996), and increases in PTNY's non-stock employee compensation and occupancy
costs. In addition, SR's revenues decreased $0.9 million. Those decreases in
operating results were offset by $1.7 million of increased revenues at PTNY
attributable to new clients and expansion of assignments from existing clients.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations. The Company's cash flows from operations were $(0.9) million, $5.0
million, $0.5 million and $4.9 million for the six months ended June 30, 1998
and for the years ended December 31, 1997, 1996 and 1995, respectively. Because
the Company's contributions to the ESOP for debt service are tax deductible, the
Company's net cash provided by operations reflects only alternative minimum tax
at the Federal level and certain state taxes. The timing of receipt of accounts
receivable from major clients can vary and, combined with the semi-annual ESOP
Debt service payments, has historically resulted in a fluctuation in cash flows
from period to period. It is anticipated that as a result of the Offering, the
ESOP Debt will be repaid and the Company will make no future contributions to
the ESOP.
Of the $1.5 million of cash flow used for investing activities for the year
ended December 31, 1997, $1.4 million was used to make capital expenditures,
primarily to upgrade the Company's computer network. The Company has no material
commitments for capital expenditures and, as a services company, does not
anticipate making capital expenditures in excess of $1.0 million in each of the
next two years.
Prior to March 1996, the Company had no short-term debt other than trade
payables incurred in the ordinary course of business. It currently has three
lines of credit that provide for borrowings of up to $5.5 million, $4.0 million
and $2.5 million with two banks, which may be used for general working capital
purposes. The lines of credit bear interest at the LIBOR Rate plus 1.25%, the
bank's prime rate and prime plus 0.5%, respectively. A total of $1.1 million and
$5.7 million were outstanding under the lines of credit at December 31, 1997 and
June 30, 1998, respectively. The Company's cash needs peak in the first quarter
since bonuses are paid each March 15, and the semi-annual ESOP Debt service is
due each April 1. In addition, all employees are subject to payroll taxes during
the first quarter. Finally, a substantial amount of the $1.4 million computer
network upgrade described above was paid in the first quarter of 1998 even
though the obligation was incurred and capitalized in the fourth quarter of
1997.
The Company's cash on hand at December 31, 1997 and June 30, 1998 was $0.1
million and $0.7 million, respectively. It is the Company's policy to use excess
cash to reduce its outstanding borrowings under the lines of credit.
The Company believes the net proceeds from the sale of the Common Stock
offered hereby, together with funds generated by operations and periodic
short-term borrowings, will provide adequate cash to fund its anticipated future
cash needs for the next 12 months, which may include costs associated with
acquisitions of other businesses.
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NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1997, the Company had federal net operating loss ('NOL')
carryforwards of approximately $7.8 million and approximately $0.4 million of
federal alternative minimum tax credit carryforwards, available to offset future
federal income taxes. The federal NOL carryforwards expire from 2009 through
2011, and the alternative minimum tax credit carryforward has no expiration
date. As required by Section 6405 of the Internal Revenue Code of 1996, as
amended (the 'Code'), the Internal Revenue Service has proposed to the Joint
Committee on Taxation that the Company's income tax returns for the years
through December 31, 1996 be accepted without examination, or as previously
adjusted. On May 1, 1998, the Company was advised that the Joint Committee on
Taxation has taken no exception to the conclusions the Internal Revenue Service
reached regarding the Company's tax returns for the years through December 31,
1996. These actions do not preclude, as a matter of law, future examination of
the Company's returns, even of returns for years as to which the Company has
been advised that the returns are accepted without examination.
YEAR 2000 ISSUES
The Company is currently developing a plan to ensure that its systems and
software infrastructure are Year 2000 compliant. Key financial, information and
operational systems will be assessed and plans will be developed to address
required systems modifications. Given the relatively small size of the Company's
systems and its predominantly new hardware, software and operating systems,
management does not anticipate any significant delays in becoming Year 2000
compliant. However, the Company is unable to control whether its current and
future business partners' systems are Year 2000 compliant. To the extent that
clients would be unable to pay invoices or suppliers would be unable to provide
services, the Company's operations could be affected by its business partners'
Year 2000 problems. Management does not believe, however, that Year 2000 changes
will have a material impact on the Company's business, financial condition or
results of operations.
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BUSINESS
OVERVIEW
The Company, founded in 1975, is a leading provider of government relations
services, public affairs communications and opinion research services. The
Company formulates and implements comprehensive and often integrated government
relations and public affairs communication strategies designed to achieve its
clients' objectives by communicating and advocating its clients' positions
before key Government decision-makers on specific public policy matters. The
successful outcome of the Company's engagements often will have a material
impact on its clients' businesses and prospects. CCI offers services in two
practice areas: government relations and public affairs communication and
opinion research. The Government Relations Group recorded revenues in 1997
greater than any other company providing government relations services,
according to a report in the Legal Times, and provides clients with expert
representation and advocacy in the legislative and regulatory process. The
Public Affairs and Opinion Research Group provides expert strategy and
implementation in public affairs and crisis communications, opinion research and
litigation support services to the Company's client base. The Company also
offers its clients in-depth industry expertise in specific vertical markets,
including the non-profit sector, insurance, telecommunications, technology,
defense, agriculture, transportation, international trade, energy resources,
health care and infrastructure, as well as an integrated approach to government
related business problems and opportunities by drawing upon the strengths of
both the Government Relations Group and the Public Affairs and Opinion Research
Group. The Company's growth strategy is to increase its market share by
attracting and retaining high quality professionals and by pursuing strategic
acquisitions of complementary businesses with established reputations, clients
and revenues.
In its 23-year history, CCI has represented over 1,100 clients, including
24 of the Fortune 50 corporations; coalitions and trade associations; public and
private utilities; universities and colleges; financial institutions; health
care providers; state, city and county governments; international businesses;
foreign governments and other entities. The Company's revenues and income from
operations have increased from $36.5 million and $1.5 million in the 1996 fiscal
year to $41.0 million and $6.0 million in the 1997 fiscal year, respectively,
representing an annual growth rate of 12.6% and 300.0%, respectively. The
Company's revenues and income from operations have increased from $19.4 million
and $2.3 million in the first six months of 1997, respectively, to $22.2 million
and $2.8 million in the first six months of 1998, respectively, representing an
increase of 14.4% and 21.7%, respectively. No single client accounted for more
than 5% of the Company's revenues in 1997 or in the first six months of 1998. In
1997 and in the first six months of 1998, the 10 largest clients contributed 22%
and 18% of CCI's overall revenues, respectively. For each of the last three full
fiscal years, over 60.0% of the Company's revenues came from clients who had
been clients in the preceding year.
The Company's revenues are generated primarily from contracts with one of
two different payment arrangements. The Government Relations Group, the
Company's largest business unit, uses written retainer contracts, usually for
periods of greater than 12 months, the fees for which are payable monthly or
quarterly in advance. The revenues of the Public Affairs and Opinion Research
Group are derived primarily from time and materials reimbursement contracts. The
Company does not provide services for contingent fees. As of June 30, 1998, the
Company had $26.8 million of future revenues under existing retainer contracts
to become due as follows: $12.0 million during the period beginning July 1, 1998
and ending December 31, 1998, $10.5 million in 1999 and $3.1 million in 2000.
Revenues to become due under existing retainer contracts after December 31, 2000
are $1.2 million.
Because the quality of the Company's services depends on the quality of the
senior professionals who deliver those services, the Company is highly selective
in recruiting for these positions. Full-time professionals and consultants are
selected from among the most highly respected individuals with recognized
expertise in their chosen fields of endeavor. As of June 30, 1998, CCI employed
73 full-time senior professionals engaged in client services. Numerous
professionals in the Company hold advanced degrees, including 23 masters
degrees, 17 law degrees and two doctorates. These professionals had together
approximately 400 years of experience working for Congress or the Executive
Branch. Many of these professionals are nationally recognized as experts in
their respective fields, having backgrounds in a wide range of disciplines,
including former members of Congress, key staffers on Capitol Hill and former
senior political appointees in the Executive Branch. The Company's full-time
professionals are complemented by the services of 14 senior consultants, who
provide expert advice on
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government relations initiatives and public policy issues, and 23 marketing
consultants, who assist the Company in its new business development activities.
See '--Services--The Government Relations Group--Business Development Program.'
INDUSTRY BACKGROUND
While the term 'lobbyist' was coined in the early nineteenth century to
refer to representatives of special interests waiting in the lobbies or
anterooms of elected officials to make their cases, lobbying, or government
relations consulting, dates back to the origins of organized government.
Lobbying has played a major role in shaping American public policy. It is a
deeply rooted tradition guaranteed by the First Amendment to the Constitution,
which forbids Congress to abridge the right of the people 'to petition the
government for redress of grievances.' James Madison, whose essay No. 10 in The
Federalist Papers remains the basis of political theory on interest groups, saw
as innate and inevitable the propensity of human beings to pursue their own
interests. Lobbying is now an established industry subject to extensive
disclosure requirements and regulation.
In the twentieth century United States, the lobbying industry flourished
with the expansion of government spending and authority, initially under
Franklin D. Roosevelt's New Deal in the 1930's, during the Second World War and
in the post-war economic expansion. In the 1970's, largely as a result of the
discontent with the Presidency engendered by Watergate and the Vietnam conflict,
Congress launched reforms intended to redefine its role in the policy process
and to counter-balance the power of the Executive Branch. The 1970's
Congressional reforms included, among others, the expansion of the number of
Congressional subcommittees, modifications in the seniority system and 'sunshine
laws,' which by opening up committee mark-up sessions, hearings and conferences,
encouraged greater participation in all phases of the policy-formation process.
These reforms dispersed congressional power, once concentrated in the
leadership and held by a few committee chairmen, among many members, as well as
to the ranks of professional staffers whose numbers have increased substantially
since the 1960's. This diffusion of power has not only provided a multiplicity
of points of communication to Congress, but, in the Company's opinion, also
makes it necessary to design sophisticated and comprehensive strategies in order
to communicate a message on behalf of a client to a much broader audience.
Factors external to Congress have also had a significant impact on the
policy-making process. In the international arena, the United States has emerged
as a dominant force in an increasingly interrelated global economy.
Congressional decisions have an increasingly direct effect upon the economies of
foreign countries. Similarly, events occurring overseas from the oil embargo of
the 1970's to the instability in global markets due to events in Thailand,
Indonesia, Japan and South Korea in 1998 have had important impacts on the
United States economy. These trends and events have led to an increase in the
frequency with which overseas interests lobby Congress and the Executive Branch.
The Company believes that foreign governments and businesses, long accustomed to
doing business in the United States exclusively through formal channels, today
find that they must also work directly with those who write and enforce the
laws. Simultaneously, for similar reasons, the Company believes that United
States businesses are more frequently lobbying Congress and the Executive branch
to support their interests before foreign governments and international bodies.
The market for the Company's services is growing. As Congress deals with an
increasing number of issues, the number of people and institutions affected by
government decisions also grows, creating more conflicts over policy among
groups with competing interests. As a result, the demand for experienced
government relations professionals who can guide clients through the
policy-making process has increased. According to a May 1998 report in the Legal
Times, the number of registered lobbyists is approximately 11,500 representing
approximately 9,000 registered clients. According to an Associated Press report
in March 1998, lobbying is now a $1.2 billion a year business.
These same developments plus the increase in the number of television
'magazine' shows and other forms of 'investigative journalism' and the 24-hour
news cycle, have created a market for public affairs communication services.
These services, which provide more than traditional public relations work,
assist businesses to create and deliver sophisticated, cost-effective public
communications to supplement direct communication with policy makers. Of the
firms reporting to O'Dwyer's Directory of Public Relations Firms 1998, there
were 28 public relations firms in Washington, D.C. alone in 1997. Public affairs
communication
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services also include crisis communications for businesses and are supported,
generally, by a related opinion research and counseling capacity.
COMPANY BACKGROUND AND HISTORY
<TABLE>
<C> <S>
1975--1988 o Gerald S. J. Cassidy, an attorney with significant Capitol Hill experience, principally in
the areas of health and nutrition, creates a government relations firm ('Cassidy &
Associates' or 'C&A') to assist clients in advocating their interests before government
decision makers.
o Given Mr. Cassidy's expertise in nutrition, C&A initially attracts clients such as Kellogg,
Nabisco and General Mills which wanted their products used in government programs such as
the School Lunch and Food For Peace programs.
o Among the first clients of the firm is Ocean Spray Cranberries--still a client more than 23
years later. C&A has assisted Ocean Spray in formulating and responding to government
regulations concerning juice labeling and in seeking wetland permits for the creation and
expansion of cranberry bogs, among other issues.
o C&A pioneers the practice of providing government relations services to the nation's leading
universities and colleges, assisting clients to obtain government funding for various types
of academic research centers, including a graduate school of nutrition, an inter-cultural
center for law and diplomacy, facilities for research on energy conservation, and poverty
and nutrition policy. At June 30, 1998, C&A was retained by 30 universities and colleges.
1989--1991 o The firm recruits top professionals from congressional staffs and the Executive Branch,
expanding its expertise and services offered beyond its traditional base in the non-profit
sector and the food industry and attracting additional clients. Firm management recruits new
employees with substantive experience in a variety of fields--including international
relations, health care, national defense, tax and trade issues.
1991 o The Company establishes Powell Tate, a newly formed public affairs communications firm
headed by Jody Powell, the former press secretary to President Carter, and Sheila Tate, the
former press secretary for Vice President Bush's 1988 presidential campaign and transition
and former press secretary to Nancy Reagan.
1994 o Boland & Madigan, a government relations firm, is acquired as a separate operating
subsidiary. Its principals bring substantive expertise in important vertical markets,
including technology, telecommunications, insurance and aviation.
1995 o The Company acquires Frederick Schneiders Research, bringing 'in-house' the capacity to
measure public opinion on policy issues affecting a client.
1998 o The firm acquires Bork & Associates, a litigation communications firm, headed by Robert
Bork, Jr., a founding member of the White House Writers Group, where he has been a senior
director since January 1993.
</TABLE>
COMPETITIVE STRENGTHS
Since 1975, the Company has been committed to providing expert government
relations advocacy and public affairs representation to its clients. The Company
believes the following factors have been critical to its success and make it a
strong competitor in its marketplace.
Reputation for Solving Complex Business Problems
The Company believes that over its 23-year history it has established a
strong reputation among its clients as a source of expertise in effectively
communicating an objective to members of Congress, the Administration and to the
public. In addition, the Company believes that its significant name recognition,
developed as a result of its
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quality work and high profile engagements, is critical in attracting new clients
and in recruiting and retaining both Company professionals and outside experts.
Retention of Client Base
Client retention has been a significant component of the Company's success.
For each of the last three full fiscal years, over 60% of the Company's revenues
came from clients who had been clients in the prior year. For the years ended
December 31, 1995, 1996, and 1997, 74%, 72% and 72%, respectively, of the
Government Relations Group's revenues came from clients on retainer contracts
who were also clients during the prior year. For the same periods, 64.3%, 50.7%
and 56.8%, respectively, of the revenues from the Company's Public Affairs and
Opinion Research Group came from clients who had also been clients in the prior
year.
Highly Experienced and Versatile Professionals
The Company believes that its most important asset is its staff of
full-time professionals. The Company's 73 senior professionals, as of June 30,
1998, have had together approximately 400 combined years of experience on
Capitol Hill and in the Executive Branch, including former members of Congress,
key staffers on Capitol Hill and former senior political appointees in the
Executive Branch. The Company's professionals are skilled in the process of
making laws and promulgating regulations. Many of these professionals are
nationally recognized as experts in their respective fields. In addition to
their expertise in a particular field, most of the Company's professionals are
able to apply their skills across numerous practice areas. The resulting
flexibility in staffing engagements is critical to the Company's ability to
apply resources as needed to meet the demands of clients. As a result, the
Company seeks to hire professionals who not only have strong public policy
experience, but also are creative and seek to develop expertise in new practice
areas and industries. The Company believes that the most effective professionals
and outside experts are attracted by the opportunity to work on the diverse
array of matters offered by the Company.
Vertical Expertise
By maintaining expertise in certain industries, the Company is able to
offer clients creative and pragmatic advice tailored to their specific needs.
The Company believes that this vertical expertise, developed by CCI over decades
of providing government relations services to a diverse group of clients in
industries such as the non-profit sector, insurance, telecommunications,
technology, defense, agriculture, transportation, international trade, energy
resources, health care and infrastructure, is a basis for differentiating the
Company from its competitors. CCI believes that it has developed a strong
reputation and substantial name recognition within these specific industries,
leading to repeat business as well as to new engagements from clients in those
markets. See
'--Overview.'
Broad Range of Services and Cross-Selling
By offering clients government relations and public affairs communications,
CCI is able to satisfy a broad range of client needs, ranging from background
research for complex lawsuits to designing comprehensive government relations
and media communications strategies to assist a client in achieving its business
objectives. This broad range of expertise enables the Company to take an
interdisciplinary approach to engagements when needed, combining government
relations experts in one area with specialists in another discipline such as
crisis management.
The Company believes that understanding the politics and forces that shape
public policy decisions is essential and that, to be successful, a government
relations program must communicate with decision makers in an honest, compelling
and timely manner, providing information in an understandable and persuasive
manner and within the proper context. Consequently, the Company believes that
its core competencies of government relations, public affairs communications and
opinion research services are interrelated and that the integration of its
various services enhances the ability of the Company's professionals to reach
decision makers.
The Company emphasizes its diverse capabilities to clients and regularly
cross-markets across service areas. As a result, it is not unusual for a client
that the Company assists in a government relations matter also to retain the
Company for a public affairs or opinion research matter. For the years ended
December 31, 1995, 1996, and
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1997, the Company provided professional services from more than one of its two
operating groups to 14, 20, and 23 clients, respectively. Total revenues from
those clients during those years were approximately $8.6 million, $10.0 million
and $10.0 million, respectively, or 23.7%, 27.5% and 24.3%, respectively, of the
Company's total revenues.
GROWTH STRATEGIES
The Company intends to enhance its position as a leading government
relations and public affairs communications company by pursuing the following
growth strategies.
Attract and Retain High Quality Professionals and Groups of Professionals
Since its professionals are its most important asset, the Company's ability
to attract and retain highly credentialed and experienced professionals both to
work on engagements and to generate new business is crucial to the Company's
success. In order to attract highly qualified professionals, the Company offers
competitive compensation and benefits. CCI also believes that professionals are
attracted to CCI because of its strong reputation, the credentials, experience
and reputation of its professionals and the opportunity to work on diverse
matters and with high profile clients. The Company intends to grant stock
options or other stock-based incentives to certain employees as part of its
efforts to attract and retain professionals. See 'Management--Compensation
Plans--1998 Stock Option and Incentive Plan.'
CCI has traditionally expanded through the addition of small,
entrepreneurial groups, such as Powell Tate in 1991, Boland & Madigan in 1994
and Frederick Schneiders Research in 1995. The Company's senior officers then
assisted these companies in structuring, managing and growing their businesses.
The Company believes it can continue to expand the services offered to its
clients through the addition of other senior professionals and groups of
professionals.
Pursue Strategic Acquisitions
Given the highly fragmented nature of the government relations and public
affairs industries, CCI believes that there are numerous opportunities to
enhance its current business capabilities by acquiring government relations and
public affairs firms. The Company believes the acquisition of complementary
businesses will provide it with additional professionals, new service offerings,
additional industry expertise and a broader client base. The Company has adopted
an acquisition strategy to take advantage of these opportunities by focusing on
successfully operating companies that practice in the areas of the Company's
core competencies or in certain vertical markets, such as health care,
environment and tax, which are sufficiently related to the Company's markets to
enable the generation of cross-selling opportunities. The Company has recently
decided to divest certain operations which it believes did not meet these
criteria. See 'Risk Factors--Risks Related to Acquisitions,' 'Other Significant
Recent Actions' and 'Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview.'
The model acquisition candidate generally will have annual operating
revenues of $5.0 million to $10.0 million and have the capacity, in the opinion
of the Company's management, to sustain significant internal annual revenue
growth rates. The Company intends to finance acquisitions through a combination
of the proceeds of the Offering, its available cash resources, bank borrowings
and, in appropriate circumstances, the future issuance of equity and/or debt
securities. While the Company has held preliminary discussions with potential
acquisition candidates, there are currently no agreements or understandings
regarding any such acquisitions.
SERVICES
The Company provides services through two operating groups. Its Government
Relations Group is comprised of C&A and Boland & Madigan, which together
recorded revenues from government relations services in 1997 greater than any
other company providing such services, according to a report in the Legal Times.
The Company's Public Affairs and Opinion Research Group is comprised of Powell
Tate, Frederick Schneiders Research, a polling and research firm, and Bork &
Associates, a newly created litigation communications firm.
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The Government Relations Group
Washington, D.C. is one of the world's most important public policy
centers. Decisions made in a variety of forums in Washington affect virtually
every business and institution in the United States as well as foreign
governments and many businesses around the world. The Company's clients are
those affected by governmental decisions who realize the need to advocate before
decision makers specific public policy goals that further their interests and,
consequently, who desire to develop and pursue strategies and tactics designed
to achieve those goals. As of June 30, 1998, the Government Relations Group
provided services to approximately 160 clients (eight of which are represented
by both C&A and Boland & Madigan), of which 58 are corporations; 17 are
coalitions and associations; three are public and private utilities; four are
financial institutions; 30 are colleges and universities; 29 are health care
providers; six are state, city and county governments; six are foreign entities;
and seven are museums and foundations. Although the Company is headquartered in
Washington, D.C., it also maintains business development offices in Boston,
Massachusetts, Sacramento, California, and Chicago, Illinois. The Boston office
also provides services to the Company's clients.
Business Development Program. The clients of the Government Relations
Group can be divided into two basic categories. The first comprises those
entities which recognize that their business or institutional objectives are
significantly impacted by government action in Washington. This category of
potential clients usually has already determined that they need advocacy and
advice and are committed to finding the representation that they need. Those
entities which are not as experienced in recognizing, and responding to,
governmental rules, regulations, policies and programs which impact their
business comprise the second category of potential clients. The clients in this
category are often not actively seeking Washington representation.
The Company believes that potential clients in the first category would be
drawn to the Government Relations Group by its reputation and are most likely to
select the group for its Washington representation if the engagement requires
the quality and broad scope of services which the group and the Company as a
whole can offer and which, the Company believes, differentiates it from
competing firms. The Government Relations Group usually does not take part in
formal 'beauty contests' and, generally, avoids competition for client
engagements based solely on fees or costs. The Company does not provide services
for contingent fees.
The Government Relations Group has an active new business development
program to identify potential clients in the second category that might benefit
from professional Washington representation. The new business development
efforts of the Government Relations Group are led by the senior professional
staffs of each operating company assisted by a national network of consultants
who assist in marketing operations. Such consultants receive a commission of up
to 10% on the value of contracts that are signed as a result of leads that they
generate. Certain consultants also receive retainers in addition to the
commissions they earn. Revenues from retainer contracts that were signed as a
result of leads generated by such marketing consultants for the years ended
December 31, 1995, 1996 and 1997 were $11.6 million, $11.3 million and $12.4
million, respectively.
The first step in this business development process involves senior
professional staff and research staff identifying the key issues, pending
legislation, regulatory proposals and policy debates that are slated for
Congressional or Executive Branch consideration and action during a given year.
The group's professionals then study these matters to determine the sectors of
the economy and the specific industries that may be affected favorably or
adversely. Once specific industries are identified, the Government Relations
Group, through its senior professional staff and its network of consultants,
identifies the leading businesses or institutions within the affected industry.
Further research is conducted and then a determination is made regarding the
proper steps for achieving an introductory meeting with the potential client's
senior management. When an introductory meeting has been arranged, the
professionals from the Government Relations Group meet in a discussion and
presentation format with the leadership of the potential client to discuss the
advantages of Washington representation, the federal government issues that may
impact the potential client's activities or objectives over the next 24 months
and the process of representing a client in Washington. When such discussions
and presentations are successful, fees, terms of engagement, and negotiation on
the scope and breadth of the relationship are then negotiated and a written
contract executed. In addition, the new business development consultants are
also informed about the key issues before the federal government and are
encouraged to identify and develop further opportunities for representation
within their own communities. In 1997, C&A made presentations to 220 potential
clients, of which 51, or 23.2% resulted in revenue-producing engagements.
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Client Engagements. The first step in a new client engagement is an
in-depth discussion about the objectives of the engagement. The Government
Relations Group's professionals then work with the client to develop a detailed
strategy to accomplish the client's objectives. The Government Relations Group's
professionals bring to this effort an understanding of the substance of the
applicable law affecting the client and its business as well as an understanding
of the goals and objectives of the various Congressional and Executive Branch
personnel and units which are likely to be involved in the decision-making
process. Typically, a crucial part of any successful strategy is to identify the
public policy objectives that can themselves be advanced when the client's goals
are achieved.
The Government Relations Group's professionals then focus on implementing
the strategy. This effort frequently involves communicating the client's issues
and goals to decision makers by person-to-person meetings with members of
Congress, their staff, the members of the Executive Branch and other groups
taking part in the decision-making process to gain their support for the
client's position. The goal of this communication process is to ensure that
decision-makers are aware of the relationship among the client's objectives,
national policies and the interests of the public.
Examples of major client engagements undertaken by the Government Relations
Group include the following:
o Advocating that the Federal Government impose a moratorium on state and
local taxation of electronic commerce so as not to slow the expansion of
electronic commerce;
o Opposing a proposed content labeling regulation that a leading
agricultural cooperative believed would be misleading to consumers while
at the same time dramatically increasing its costs of doing business;
o Assisting a local community faced with the likely closure of a military
facility to make a comprehensive presentation to advocate the retention
of the base;
o Aiding a corporation specializing in the manufacturing of power cable in
seeking the lead position to design, manufacture and install one of the
world's largest underwater cable systems;
o Implementing a regulatory strategy so that a major agricultural company
could obtain a nationwide permit to expand its operations;
o Assisting a leading chemical company in developing a major new business
sector by marketing its product to the federal government;
o Assisting in obtaining an $18 million grant for the construction of a new
commuter rail system linking two metropolitan communities in New England;
and
o Working with a major medical center to secure a Medicare reclassification
in the Budget Reconciliation Act of 1997 that would allow them to
recapture $11 million annually in Medicare reimbursements.
Terms of Engagement. The Government Relations Group's revenues are
generated primarily from written retainer contracts, usually for periods of
greater than twelve months, payable monthly or quarterly in advance. For the
years ended December 31, 1995, 1996 and 1997, revenues from this group were
66.8%, 63.2% and 64.2%, respectively, of the Company's total revenues. Revenues
from retainer contracts from clients who were clients during the previous year
were approximately $17.7 million, $16.6 million, and $18.8 million,
respectively, or 48.8%, 45.0% and 45.7% of the Company's total revenues. As of
June 30, 1998, the Company had $26.8 million of future revenues under existing
retainer contracts to become due as follows: $10.5 million during the period
beginning July 1, 1998 and ending December 31, 1998; $ 12.0 million in 1999; and
$3.1 million in 2000. Revenues to become due under existing retainer contracts
after December 31, 2000 are $1.2 million.
Public Affairs and Opinion Research Group
Each of the three operating units of this group has its own client base,
although each unit derives a significant portion of its revenues from integrated
services that are provided in conjunction with at least one of the other units
in the Public Affairs and Opinion Research Group, as well as the Government
Relations Group. See '--Integration of All Company Services.'
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Opportunities in the Public Affairs Business. The Company believes that
the growth in public affairs communications over the past 15 years has been
fueled by fundamental changes in American society and the way in which public
policy decisions are made. For example, a decline in the power of congressional
leaders and in the strength of political parties has placed a premium on the
ability to quickly and persuasively inform constituents and interested groups
about public policy issues affecting them. Both government relations and law
firms have recognized, the Company believes, the need for sophisticated,
cost-effective public communications to supplement their direct communications
with policy makers. High-stakes and high-profile litigation plus television
'magazine' shows and other forms of 'investigative journalism' have increased
the demand for experienced communications assistance among corporations and
trade associations. Further, the Company believes that the arrival of real-time
information systems and the 24-hour news cycle have enhanced this demand, thus
increasing opportunities for the services of the Public Affairs and Opinion
Research Group.
The Business of Powell Tate. Powell Tate ('PT') provides strategic counsel
and comprehensive implementation of communication strategies to clients facing
challenges in public affairs and crisis communications. Since its inception in
July of 1991, PT has grown to become third largest, in terms of revenues, among
public relations firms in the Washington, D.C. area which reported to O'Dwyer's
Directory of Public Relations Firms 1998. This directory places PT twenty-first
in the United States based on 1997 revenues.
Since its inception, PT has focused on the importance of employing highly
experienced former government officials and journalists and implementing all
aspects of a communications plan. The range of services available to clients
includes issue and image advertising, creative and design services, media
relations and editorial services, events planning, spokesperson training,
coalition building, news media and Internet communications and in-depth
secondary research. The four most senior executives at PT have been with the
Company since its inception. PT has placed a premium on recruiting senior and
mid-level professionals with substantive experience in specific practice areas,
including, but not limited to, defense, aviation, telecommunications, finance
and international affairs.
The Business of Frederick Schneiders Research. Frederick Schneiders
Research ('FSR') specializes in opinion research among the public, opinion
leaders, policy makers, and other special populations. It employs qualitative
methodologies (e.g., focus group and in-depth interviews) and quantitative
methodologies (e.g., telephone, mail, Internet, and in-person interviews) to
provide clients with a basis for strategy and message development in their
public affairs programs and litigation and crisis management. In many PT
engagements, FSR makes a significant contribution to strategy development and to
the testing and refining of messages to be delivered through advertising and/or
other media outlets. FSR data are also used to measure the effectiveness of
strategy and messages. Its litigation opinion research services include jury
consulting, mock trials, change of venue surveys, consumer confusion surveys and
expert testimony.
The Business of Bork & Associates. Bork & Associates ('B&A'), which became
a Cassidy company in early 1998, specializes in providing communications counsel
in support of corporations and other entities facing significant litigation
challenges. B&A applies the techniques of modern political communications to the
legal arena, designing strategies to help clients avoid litigation, win
litigation and, above all, protect reputations. Working closely with its
clients' internal and outside counsel, B&A crafts and tests messages, develops
materials and recruits allies to support litigation strategy.
Business Development Programs. PT has a business development program,
headed by a senior vice president who has been with the firm since its
incorporation and who reports directly to the chief executive officer. The
majority of new business engagements come from former clients or referrals from
clients, law firms and other business partners. In order to identify business
opportunities, PT monitors closely both breaking news and longer-term trends. PT
coordinates joint proposals and presentations with other CCI companies.
Additionally, B&A and PT have developed branded products targeted at the
litigation support market, including a media training program for lawyers and a
litigation message development program.
FSR's business development efforts are headed by a senior executive. FSR
receives considerable media coverage of its research, and it currently has an
exclusive co-branded product with the National Journal to conduct regular
Internet-based surveys of the often hard-to-reach senior congressional staff.
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Client Engagements. PT currently provides public affairs services to
approximately 100 clients consisting of corporations, trade associations,
broad-based coalitions, non-profit organizations, international interests and
foreign governments.
Examples of major client representations include:
o PT organized a 2,000-member coalition seeking to expand the number of air
routes for airlines between the United States and Japan. This effort
required forging a consensus in order to encourage the Clinton
Administration to renegotiate the 1952 bilateral agreement governing
passenger air service between the two countries. PT worked with coalition
members to conduct news conferences and media outreach across the country
and to assist in communicating with local, state and federal officials.
o PT provided strategic counsel and media relations support to an Asian
company in its efforts to acquire a United States company. The
transaction required significant national security and regulatory
approvals. PT worked closely with legal, governmental affairs and
financial advisers to craft messages, identify issues, handle media
outreach and inquiries and draft materials to explain and build support
for the transaction.
o Following the crash of a commuter airline, PT was retained by the
aircraft manufacturer to provide crisis communications support during a
two-year investigation of the accident. During the period of extensive
media attention, PT provided strategic counsel, handled all media
inquiries and provided assistance in drafting materials to be publicly
distributed to demonstrate the company's commitment to find the actual
cause of the accident and underscore the aircraft's safety.
FSR clients come from a similarly broad cross section of interests, and
while PT and FSR often work together to assist joint clients, FSR currently has
an independent client base of approximately 30 clients. An example of a recent
FSR engagement is a year-long project for a major health care product and
pharmaceutical company in which FSR benchmarked the opinion of the company held
by physicians, other health care providers, government decisions makers and
consumers. The client uses the results as a basis for refining their public
affairs and public relations programs.
B&A professionals have represented a number of industries including
automobiles, manufacturing and transportation, chemicals and agribusiness,
retailing and franchising, and medical device and biotechnology. B&A has been
retained in class actions and individual lawsuits involving toxic torts, product
liability, antitrust enforcement, employment discrimination and securities
litigation.
The Company believes that the ability of the different elements of the
Public Affairs and Opinion Research Group to offer integrated services is
increasingly important, particularly in attracting larger projects dealing with
complex issues, typically where governmental decisions intersect with business
plans and corporate objectives. Two such engagements are as follows:
o During the health care debate in President Clinton's first term, the
Public Affairs and Opinion Research Group worked with a coalition of
companies to highlight the positive contributions in the delivery of
health care being made by the companies in this coalition. Extensive
public opinion polling was conducted in order to understand the political
climate and attitudes about health care, and then a public relations
strategy was created and implemented through providing materials to and
briefing the Washington, D.C.-based media as well as journalists across
the country.
o Several foreign governments have engaged PT and FSR to help understand
more thoroughly American attitudes about, and perceptions of, their
countries and to develop outreach programs designed to foster a climate
of better understanding in the United States of their countries' history
and culture.
Terms of Engagement. PT and B&A bill the majority of their clients on a
time and materials reimbursement basis. In certain instances an advance payment
of projected billings is required. Typically a budget range or estimate is
provided to a client at the beginning of a project. The client is provided
periodic updates both on the progress of the project and the status of time
expended. Invoices for time charges and out-of-pocket expenses are then billed
on a monthly basis. PT conducts an annual review of its billing rates and seeks
to reflect the value of its services, within the range of hourly rates generally
charged in the public affairs industry.
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FSR bills on a project fee basis that is based on the number of interviews
and the length of an opinion poll. There are also fixed fees for focus groups.
Depending on the difficulty or complexity of reaching a particular group of
respondents, the fee will vary.
For the years ended December 31, 1995, 1996 and 1997, revenues from the
Public Affairs and Public Opinion Group were 34.2%, 36.8% and 35.8%,
respectively, of the Company's total revenues. For the same periods, 64.3%,
50.7% and 56.8%, respectively, of the revenues of this group came from clients
who had been clients in the previous year.
INTEGRATION OF ALL COMPANY SERVICES
Just as PT and FSR have offered joint services to attract more complex and
larger projects, the Government Relations Group and the Public Affairs and
Opinion Research Group have been working together to provide clients with
coordinated government relations, public affairs and opinion research services.
The Company believes that it is the only independent company to provide such
comprehensive, integrated, strategic services. For the years ended December 31,
1995, 1996 and 1997, the Company provided professional services from both
operating groups to 14, 20 and 23 clients, respectively. Total revenues from
those clients during those years were approximately $8.6 million, $10.0 million
and $10.0 million, respectively, or 23.7%, 27.5% and 24.3%, respectively, of the
Company's total revenues. Further, one-third of FSR clients at June 30, 1998 are
also clients of other operating units of the Company.
Clients using the full services of the Company are typically those faced
with large and immediate threats to, or opportunities for, their business due to
a pending government decision and that have a significant financial interest in
the outcome of the decision. Examples of such coordinated efforts are:
o Working with a coalition of business and professional associations to
assist them in advancing tort reform in the United States Congress;
o Establishing and implementing a comprehensive government relations and
public affairs strategy to overturn a Presidential rescission of a
multibillion dollar defense system; and
o Working with the Taiwan Research Institute in order to ensure that Taiwan
and the Taiwan business community are not disadvantaged by the legal
status of Taiwan, including, among other assignments, advocating that the
United States Government grant permission for President Lee of Taiwan to
enter the United States to receive an honorary degree at Cornell
University, his alma mater.
COMPETITION
The market for government relations and public affairs and opinion research
services is intensely competitive, highly fragmented and subject to rapid change
as the policies and politics of the nation's capital change. In general, the
Government Relations Group competes with (i) law firms which have government
relations capacities of their own but which may refer clients to others for
public affairs or opinion research; (ii) independent firms that offer fewer than
all of the services provided by CCI (e.g., government relations or public
affairs or opinion research); (iii) smaller firms that have found or created a
specialized niche in the marketplace; (iv) start-up companies just entering the
market; (v) industry or trade associations with in-house capabilities; and (vi)
subsidiaries of large corporations which do business in one or more of the
service sectors of CCI.
PT faces competition primarily from the Washington, D.C. offices of large
international advertising and public relations firms, often headquartered
outside the United States. Most PT executives are former employees of such
firms.
FSR faces competition primarily from small, independent public opinion
research firms based in Washington, D.C.
The Company is unaware of any other company like B&A that is focused solely
on litigation communications, although the crisis communications divisions of
larger, multi-focused public relations firms offer these services. The Company
believes that B&A is positioned to develop this market niche.
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The Company believes that the principal competitive factors in its markets
are reputation, capability for strategic thought, management experience, proven
track record of accomplishment, well known and respected senior professionals
and quality of services provided. While some competitors may offer services at a
lower fee than the Company, the Company believes they are unable to provide the
scope and depth of services that the Company provides its clients.
HUMAN RESOURCES
As of June 30, 1998, the Company had 192 full-time employees, including 73
senior professionals engaged in client services, and 60 administrative
personnel. Client service personnel are organized into teams on all client
projects. The Company seeks to hire professionals with experience in
policy-making branches of the government and in business as well. Recent hires
for C&A include the Special Assistant to the President for Legislative Affairs
from the Clinton White House and the Associate Administrator for Legislative
Affairs for NASA. The Company's turnover in professional employees was 9.9% for
the twelve months ending June 30, 1998, which the Company believes compares
favorably to its competitors. The Company regards its relationship with its
employees as excellent.
FACILITIES
The Company leases 79,845 square feet of office space for its Washington,
D.C. headquarters from an independent third party. The lease expires March 31,
2006, and the annual rent is approximately $2.3 million. The Company also leases
office space in Boston, Chicago and Sacramento. The Company believes that its
facilities and its ability to acquire additional facilities are adequate for its
present operations and projected growth.
LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the Company
is currently involved, individually, and in the aggregate, is not material to
the Company's financial condition or results of operation.
REGULATION
Because of the nature of the Company's business, the Company, its directors
and employees are subject to various laws and regulations requiring disclosure
of activities and limiting political contribution. In particular, the Company is
subject to the Lobbying Disclosure Act of 1995 (the 'Disclosure Act'), as
amended by the Lobbying Disclosure Technical Amendments of 1997, which requires
the disclosure of lobbying activities by individuals and companies that engage
in communications with the Federal Government. Anyone who communicates with
covered Legislative or Executive Branch officials regarding federal legislation,
programs or policies may be required to register as a lobbyist with the Clerk of
the House (the 'Clerk') and the Secretary of the Senate (the 'Secretary'). The
Company, its directors and employees are also subject to the Foreign Agents
Registration Act of 1938, as amended ('FARA'), the Federal Election Campaign Act
(the 'Campaign Act') and federal bribery laws. Rules of the Legislative and
Executive Branches of the Government limit gifts to members of Congress and
employees of the Executive Branch.
The Company's Compliance Program
The Company devotes substantial resources to ensuring full compliance by
all employees with the letter and the spirit of the laws and regulations
discussed below. The centerpiece of these efforts is the Company's written
Principles of Professional Conduct, which is binding on all employees. All
employees acknowledge in writing their knowledge of and compliance with the
employee code of conduct. Further, the Company has an extensive and ongoing
program of training in ethical matters. The Company's Ethics Manual is a
document of 130 pages prepared and updated annually by the firm's Ethics
Counsel, which is a major law firm. This manual sets forth the rules and
regulations governing the Company's employees' activities, with examples of
applications to the Company's business activities. In addition, the Company
holds an annual ethics seminar. This event is held away from the Company's
offices, and attendance is mandatory. At the seminar, Ethics Counsel and others
review
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changes that have taken place in the regulatory framework and discuss specific
cases and questions that have arisen or might arise in the future. Finally, all
employees have access to, and are encouraged to use, the resources of the
Company in resolving questions that arise in practice. The general counsel of
the Company, the general counsel of C&A, and outside counsel are available to
provide assistance and guidance as to questions of compliance that arise.
The Disclosure Act
Registration Requirements. Under the Disclosure Act, the Company must file
a single registration on behalf of its employees who are lobbyists for each
client on whose behalf the employees act as lobbyists. 'Lobbying activities' are
defined under the Disclosure Act as lobbying contacts and efforts in support of
such contacts, including preparation and planning activities, research and other
background work if it is intended, at the time it is performed, for use in
lobbying contacts; and coordination with the lobbying activities of others for a
client. A 'lobbying contact' is a communication, either oral, written or
electronic, with Members of Congress or their personal and committee staffs, or
with the President, Vice President, and certain Executive Branch appointees,
regarding: (i) the formulation of Federal legislation, rules, regulations, an
Executive Order or policy; (ii) the administration of a Federal program or
policy, including the negotiation or award of a Federal contract, grant, loan,
permit, program or license; or (iii) the nomination of anyone subject to Senate
confirmation.
The registrations which the Company files must include considerable
information about its clients and activities, including (i) the name, address
and principal place of business of each of the Company's clients, and a general
description of each client's business or activities; (ii) the name, address,
principal place of business and amount of money spent by anyone, other than the
client, who contributed more than $10,000 in a six-month period to the lobbying
activities of the Company on behalf of the client, and who played a major role
in planning, supervising or controlling such activities; (iii) the name,
address, and principal place of business, amount of any contribution of more
than $10,000 to the lobbying activities of the Company, and approximate
percentage of equity ownership in the client, if any, of any foreign entity that
either owns at least 20% of a client or of an organization that contributes over
$10,000 in a six-month period to a client's lobbying efforts, plays a major role
in such activities or is an affiliate of the client (such as the foreign parent
or subsidiary of a domestic company) with a direct financial interest in the
outcome of the lobbying activity; and (iv) a list of the general issue areas in
which the Company expects to lobby and specific issues, to the extent
practicable, that have already been lobbied on behalf of the client. The Company
must also disclose the former position of any lobbyist employee who has served
as a covered Executive Branch official or a covered Legislative Branch official
within two years of becoming a lobbyist for the client.
The Disclosure Act requires that the Company file semiannual reports which
set forth any changes to the initial registration and, for each general issue
area in which the Company engaged in lobbying activities, the following
information: (i) a list of the specific issues that were the subject of
significant lobbying activities, including, to the extent possible, bill numbers
and references to specific executive branch actions; (ii) a statement of the
houses of Congress and the Executive Branch agencies contacted; (iii) a list of
the employees of the Company who acted as lobbyists on behalf of the client; and
(iv) a description of the interest, if any, of any foreign entity identified in
the Company's initial registration.
Public Disclosure and Identification of Clients. The Disclosure Act
requires that a list of all registered lobbyists, firms and clients,
registrations and filings be made available to the public. Further, certain
officials of Congress compile and summarize the information contained in
registrations and issue reports every six months.
In addition to the registration and reporting requirements discussed above,
the Disclosure Act mandates that when any person or entity registered under the
Disclosure Act makes a written lobbying contact with a covered Legislative
Branch or covered Executive Branch official on behalf of a 'foreign entity,' the
person or entity must identify the client, state that it is considered a foreign
entity under the Disclosure Act, and state whether the person making the contact
is registered on behalf of that client. The person must also identify any other
foreign entity that has been identified and reported under the Disclosure Act's
reporting requirements as having a direct interest in the outcome of the
lobbying activity.
The Disclosure Act prohibits a company from using appropriated funds to pay
any person for influencing or attempting to influence an employee of any Federal
agency, a member of Congress or an employee of Congress
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in connection with obtaining Federal contracts, grants, loans, loan insurance
and guarantees and any cooperative agreements ('award'). An applicant for an
award is required to certify on a form filed with the appropriate federal agency
that it has not lobbied with appropriated funds for such award. Applicants for
awards are also required to name any registrant under the Disclosure Act who had
made lobbying contacts on behalf of the applicant with regard to such award
using non-appropriated funds.
Enforcement. The Clerk and the Secretary are required to notify
registrants in writing that they have failed to comply with the Disclosure Act.
If a registrant does not respond within 60 days, these officials will notify the
United States Attorney for the District of Columbia. Registrants who fail to
correct a defective filing within 60 days after being notified, or fail to
comply with other provisions of the Disclosure Act, would face a civil fine of
up to $50,000.
Foreign Agents Registration Act
FARA imposes registration and semi-annual reporting requirements on any
person who, on behalf of a foreign principal, engages in certain specific
activities in the United States. The Company must register and file semi-annual
reports under FARA. Covered activities include, among others, engaging in
'political activities,' broadly defined to include any activity intended to
persuade an agency or official of the United States Government, or a section of
the public, with reference to: (i) the foreign policies of the United States;
(ii) the domestic policies of the United States; or (iii) the political or
public interests, policies or relations of the government of a foreign country,
or of a foreign political party. Lobbying with respect to pending or proposed
legislation is considered political activity and requires registration and
reporting under FARA. Moreover, FARA guidelines list the following as political
activities: (i) investment and trade promotion; (ii) 'image making' public
relations to enhance or change the public perception of a foreign government or
leader; (iii) arranging meetings, planning itineraries or providing forums for
visiting officials (foreign principals) to pursue their programs; (iv)
delivering or arranging lectures, speeches, press conferences, or media
interviews that involve a political or public interest; and (v) producing or
distributing press releases, newsletters or other information that fall within
FARA's definition of political propaganda.
Willful violations of, and failure to comply with, FARA may result in
criminal fines of up to $10,000 and/or imprisonment of up to five years or
criminal fines of up to $5,000 and/or imprisonment of up to six months,
depending on the nature of the violation. In addition, the Attorney General may
seek an injunction to prevent a person from continuing to act as an agent of a
foreign principal or to order compliance with FARA's requirements.
Federal Legislative and Executive Branches Gift Rules
Legislative Branch. Both the United States House of Representatives and
the United States Senate have applicable rules that limit the types of benefits
that members of Congress and their staffs may receive from corporations, firms,
organizations, lobbyists and other entities or individuals. The House of
Representatives rules prohibit the receipt of any gift unless an exception is
applicable. The exceptions include: (i) food and refreshments of nominal value;
(ii) reasonable travel, lodging and related expenses in connection with official
duties; and (iii) unsolicited charity event tickets provided by the event's
sponsor. The Senate rules permit its members and their staffs to receive gifts
provided they are worth less than $50 individually and, for gifts worth $10 or
more, worth less than $100 in the aggregate per year. Exceptions similar to
those applicable to the House of Representatives apply to the Senate.
Both the House of Representatives and the Senate rules prohibit lobbyists
and foreign agents from, among other things: (i) contributing to a member's or
staff's legal expense funds; (ii) contributing to an entity controlled by a
member or staff person; (iii) contributing to a charity at the direction of a
member or staff person; and (iv) paying for travel expenses. Although these
rules apply only to members of Congress and their staffs, violations of these
rules could make a donor a party to an ethics violation by a member or staff
person.
Executive Branch. The Executive Branch of the Government also has
applicable rules that limit the types of gifts that its employees may receive
from 'prohibited sources.' The Company and its employees could be such a source.
The Executive Branch Rules permit its employees to receive gifts provided they
are worth less than $20 individually and provided they are worth less than $50
in the aggregate. The rules also allow the receipt
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of incidental, modest gifts, such a food and refreshment offered other than as
part of a meal. Although these rules apply only to employees of the Executive
Branch, violation of these rules could result in the employee being subject to
disciplinary action by the employee's agency.
Federal Election Campaign Act
The Campaign Act limits individuals in making political contributions to
candidates in an election for federal offices. In addition, a corporation may
not, with limited exceptions, make contributions in connection with any federal
election. The term 'contribution' contains certain de minimus exclusions and is
defined to include: (i) any gift, subscription, loan, advance, or deposit of
money or anything of value made by any person for the purpose of influencing any
election for Federal office; and (ii) the payment by any person of compensation
for the personal services of another person which are rendered to a political
committee without charge for any purpose.
One of the exceptions allowing a corporation to make these political
contributions allows corporations to establish and administer an employee-funded
political action committee ('PAC') through which it may make contributions. PACs
are subject to reporting requirements and to penalties for non-compliance. The
Company has a PAC, which is funded by voluntary contributions by senior
professionals of the Company, and makes no direct contributions to candidates
for office. Corporations may also make unlimited 'soft-money' contributions to
political party committees for purposes unrelated to influencing a federal
election. Willful violations of, and failure to comply with, the Campaign Act
may result in fines of up to $25,000 or 300% of any contribution involved in
such violation.
Federal Bribery Laws
The Company and its employees are subject to the federal bribery laws,
which prohibit giving, offering or promising to give anything of value to any
public official (including members of Congress, their staffs and federal agency
employees) with the intention to, among other things, influence any official
act. Violations of these laws could result in civil fines and/or imprisonment of
up to 15 years
Compliance
The Company has not received a notification with regard to a violation or
investigation under any of the foregoing regulatory requirements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
July 20, 1998 are set forth below. Directors and executive officers of CCI are
elected to serve until they resign, are removed, are otherwise disqualified to
serve, or until their successors are elected and qualified. The Company's Board
of Directors is divided into three classes serving staggered three-year terms.
The Company's Certificate of Incorporation fixes the number of directors at
nine. There are currently five Company directors. It is anticipated that at
least three non-employee directors will be named to serve upon completion of the
Offering. Executive officers are generally appointed at the Board's first
meeting after each annual meeting of stockholders.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION(S) EXPIRES
- ------------------------------------------- --- ------------------------------------------- -------
<S> <C> <C> <C>
Gerald S. J. Cassidy....................... 58 Chairman, Chief Executive Officer and 2001
Director of the Company
James P. Fabiani........................... 50 Vice Chairman and Director of the Company 2001
and Chairman and
Chief Executive Officer of C&A
Lester G. Fant III......................... 57 General Counsel and Director 2000
John T. Hendrick........................... 45 Chief Financial Officer and Director 1999
Joseph L. Powell........................... 54 Chairman and Chief Executive Officer of PT 2000
and Director
John R. Silber............................. 73 Director(1) 2000
Michael J. P. Boland....................... 45 President and Chief Executive Officer of
Boland & Madigan
Keith Frederick............................ 43 President of FSR
Peter T. Madigan........................... 39 Chief Operating Officer of Boland & Madigan
Martin A. Russo............................ 54 Vice Chairman and Chief Operating Officer
of C&A
Greg Schneiders............................ 50 Chairman and Chief Executive Officer of FSR
Sheila Tate................................ 56 President of PT
</TABLE>
- ------------------
(1) Dr. Silber has agreed to become a director of the Company upon completion of
the Offering.
Gerald S. J. Cassidy has served as Chairman, Chief Executive Officer and
director of CCI since its formation in 1991. He founded C&A in 1975. He also
serves on the management committee of Galway Partners, L.L.C., a former
affiliate of the Company. Mr. Cassidy is a member of the Board of Directors of
Seragen Inc., a biotechnology company, and the Board of Trustees of Villanova
University. Mr. Cassidy earned his B.S. degree from Villanova University and his
J.D. degree from Cornell University School of Law.
James P. Fabiani has served as Vice Chairman and director of CCI since its
formation in 1991. Mr. Fabiani also serves as Chairman and Chief Executive
Officer of C&A. Mr. Fabiani is a member of the World Board of Governors of the
United Services Organization. Mr. Fabiani earned his B.A. degree from Harvard
College and his M.Ed. degree from the University of Massachusetts, Amherst.
Lester G. Fant III has served as Chairman of Galway Partners, L.L.C. and
General Counsel and director of the Company since July 1996. Prior to joining
the Company, Mr. Fant was a partner at Sidley & Austin in Washington, D.C. Mr.
Fant earned his B.A. degree from Vanderbilt University and his L.L.B. from
Harvard University.
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John T. Hendrick has served as Chief Financial Officer and director of the
Company and a managing director of Galway Partners, L.L.C. since 1996. Mr.
Hendrick is a certified public accountant with 25 years of business experience.
Prior to joining CCI, Mr. Hendrick was a general partner with Avalon Ventures, a
private venture capital partnership, from 1987 to 1996. Mr. Hendrick earned a
B.B.A. degree in accounting from McMurry University.
Joseph L. Powell has been a director of the Company since July 1991. He has
served as Chairman and Chief Executive Officer of PT since its creation in 1991.
Prior to joining the Company, Mr. Powell was Chairman and Chief Executive
Officer of Powell Adams & Rinehart, a public affairs firm. Mr. Powell was
formerly the press secretary to President Carter. Mr. Powell earned his B.A.
degree from Georgia State University and completed course work for a combined
M.A./Ph.D. in political science at Emory University.
John R. Silber will serve as a non-employee director of the Company upon
completion of the Offering. Dr. Silber is the Chancellor of Boston University
and has been a member of its Board of Trustees since 1971. Dr. Silber has been a
member of the Board of Directors of Seragen Inc., a biotechnology company since
1987. He is also a director of U.S. Surgical Corporation, a medical products
manufacturer. Dr. Silber received his B.A. degree from Trinity University and
his M.A. and Ph.D. degrees from Yale University.
Michael J. P. Boland co-founded Boland & Madigan in 1987 and has served as
its President and Chief Executive Officer since its inception. He also served as
a director of the Company until July 1998. Mr. Boland is a member of the Board
of Directors of the National Energy Resources Organization. He received his B.A.
degree from the University of Notre Dame and his J.D. degree from Gonzaga
University School of Law.
Keith Frederick co-founded FSR in 1989 and has served as its President
since its inception. He also served as a director of the Company until July
1998. He received his B.A. degree from George Washington University and
completed course work in quantitative political science at Clemson University
and Virginia Polytechnic Institute.
Peter T. Madigan co-founded Boland & Madigan in 1987 and has served as its
Chief Operating Officer since its inception. He also served as a director of the
Company until July 1998. Mr. Madigan is a member of the Board of Directors of
the International Republican Institute. He received his B.A. degree from the
University of Maine.
Martin A. Russo has served as Vice Chairman of C&A since 1993 and its Chief
Operating Officer since 1997. He also served as a director of the Company until
July 1998. Immediately prior to joining the Company, Mr. Russo served 18 years
in the House of Representatives. He received his B.A. degree from DePaul
University and his J.D. degree from DePaul University College of Law.
Greg Schneiders co-founded FSR in 1989 and has served as its Chairman and
Chief Executive Officer since its inception. He also served as a director of the
Company until July 1998. He received his B.A. degree from Georgetown University.
Sheila Tate has served as PT's President since its creation in 1991. Ms.
Tate was the press secretary to First Lady Nancy Reagan from 1981 until 1985,
and the press secretary for Vice President Bush's 1988 presidential campaign.
She earned her B.A. degree from Duquesne University.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the Board of Directors will establish two
committees, an audit committee and a compensation committee. The audit
committee, will, among other responsibilities, recommend the firm to be
appointed as independent accountants to audit the Company's consolidated
financial statements, discuss the scope and results of the audit with the
independent accountants, review with management and the independent accountants
the Company's interim and year-end operating results, consider the adequacy of
the internal accounting controls and audit procedures of the Company and review
the non-audit services to be performed by the independent accountants. A
majority of the directors on the audit committee will be non-employee directors.
The compensation committee will review and recommend the compensation
arrangements for management of the Company and administer the Plan. A majority
of the directors on the compensation committee will also be non-
43
<PAGE>
employee directors. The Board of Directors may from time to time establish
certain other committees to facilitate the management of the Company.
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company or any subsidiary of
the Company do not receive any additional compensation for serving on the Board
of Directors or any of its committees. Non-employee directors will be paid
$20,000 per year for their services as directors of the Company. In addition,
non-employee directors will receive a fee of $2,000 for each Board of Directors
and committee meeting attended. Directors who are not employees of the Company
will also receive on initial election to the board a one-time grant of an option
to purchase that number of shares of the Common Stock which equals $100,000
divided by the fair market value of the Common Stock on the day of the grant.
Based upon the initial public offering price of $ per share, each
initial non-employee director will receive options to purchase shares
of Common Stock. These options will have a term of ten years and will be
immediately exercisable. See '--Compensation Plans--1998 Stock Option and
Incentive Plan.' All directors will be reimbursed for travel expenses incurred
in connection with attending board and committee meetings as directors of the
Company.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal year ended December 31, 1997,
compensation paid to or earned by the Company's five most highly compensated
employees (the 'Named Executive Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
BONUS AND COMPENSATION
OTHER ANNUAL AND RESTRICTED
NAME AND POSITION(S) SALARY COMPENSATION STOCK AWARDS(1)
- --------------------------------------------------------------------- -------- ------------ ---------------
<S> <C> <C> <C>
Gerald S. J. Cassidy................................................. $757,320 $120,000
Chairman and Chief Executive Officer of the Company
James P. Fabiani..................................................... 711,552 140,000 (2)
Vice Chairman of the Company and Chairman and Chief Executive
Officer of C&A
Joseph L. Powell..................................................... 482,712 107,000 (3)
Chairman and Chief Executive Officer of Powell Tate
Lester G. Fant III(4)................................................ 549,996 20,000
General Counsel
Martin A. Russo(4)................................................... 386,004 90,000 (5)
Vice Chairman and Chief Operating Officer of C&A
</TABLE>
- ------------------
(1) For options granted which will be effective in connection with the Offering,
see '--Compensation Plans-- 1998 Stock Option and Incentive Plan.'
(2) Mr. Fabiani will receive 330,000 shares of Common Stock pursuant to the
Deferred Plan, giving effect to the Recapitalization. In this connection,
Mr. Cassidy has surrendered 330,000 shares of Common Stock to the Company.
(3) Pursuant to the terms and conditions of the Deferred Plan, Mr. Powell will
receive 1,050,000 shares of the Common Stock, giving effect to the
Recapitalization. See '--Compensation Plans--Deferred Stock Compensation
Plan.'
(4) During 1997, the Company issued to certain of its employees shares of the
Restricted Class B Common Stock subject to certain significant restrictions.
These shares of the Restricted Class B Common Stock are generally
non-transferable and are forfeitable upon termination of employment for any
reason other than death or disability. Because of these restrictions, no
amounts have been recorded as compensation in the Company's financial
statements relating to these grants of shares. Messrs. Fant and Russo
received 3,333 and 4,444 shares of the Restricted Class B Common Stock,
respectively, in 1997. In connection with the Offering, all of such shares
will be exchanged for the right to receive 49,995 and 66,660 shares of
Common
44
<PAGE>
Stock, respectively, pursuant to the Deferred Plan. See '--Compensation
Plans--Deferred Stock Compensation Plan.'
(5) Prior to June, 1998, the Company reimbursed Mr. Russo for approximately
$6,000 in monthly rent on a Washington, D.C. townhouse.
COMPENSATION PLANS
Employment Agreements
Gerald S. J. Cassidy has entered into an employment contract with the
Company, which commenced July 1, 1998 and ends five years thereafter. Mr.
Cassidy will be paid an annual base salary at the rate of $757,320 per year for
serving as Chairman of the Board and Chief Executive Officer of the Company. The
Company may terminate the employment contract with or without 'cause' upon
affirmative vote of the Board of Directors. For purposes of the employment
contract, cause includes (i) committing a material breach under the employment
contract, (ii) engaging in serious misconduct in the discharge of required
duties or a substantial and continuing failure to perform required duties, or
(iii) being convicted of a felony. If the Company terminates the agreement for
cause, Mr. Cassidy's salary and benefits will be paid only through the date of
termination. If the Company terminates the employment contract other than for
cause, the Company will pay Mr. Cassidy a severance payment equal to one month's
salary for each year of employment completed under the employment contract. Mr.
Cassidy has agreed that during the term of his employment, and for a one-year
period following a termination of employment, he will not work, own, manage,
control or be employed by an entity which (i) has as a client any person or
entity which was a client of the Company at any time during the twelve months
prior to termination of employment, or which was solicited by the Company to
become its client during that period, and which provides to the client the same
type of consulting services the Company was providing or offering to provide to
the client; or (ii) which employs or retains as a consultant any person who was
an employee or consultant of the Company at any time during the twelve months
prior to the Company's termination, if the Company directly or indirectly
induced such person to become so employed or retained (the 'Restrictive
Covenant').
James P. Fabiani has entered into an employment contract with the Company,
which commenced July 1, 1998 and ends five years thereafter. Mr. Fabiani will be
paid $711,552 per year for serving as Vice Chairman of the Company and Chairman
and Chief Executive Officer of C&A. The Company may terminate this agreement,
with or without cause, at any time. If the Company terminates the agreement for
cause, Mr. Fabiani's salary and benefits will be paid only through the date of
termination. If the Company terminates the employment contract other than for
cause, the Company will pay Mr. Fabiani a severance payment equal to one month's
salary for each year of employment completed under the employment contract. Mr.
Fabiani also has agreed to the Restrictive Covenant. For certain additional
rights to receive stock granted to Mr. Fabiani for past service as an officer
and director of the Company, see '--Deferred Stock Compensation Plan.'
Joseph L. Powell has entered into an employment contract with the Company,
which commenced July 1, 1998 and ends five years thereafter. Mr. Powell will be
paid $482,712 annually for serving as Chairman and Chief Executive Officer of
PT. The Company may terminate this agreement, with or without cause, at any
time. If the Company terminates the agreement for cause, Mr. Powell's salary and
benefits will be paid only through the date of termination. If the Company
terminates the employment contract other than for cause, the Company will pay
Mr. Powell a severance payment equal to six month's salary. Mr. Powell also has
agreed to the Restrictive Covenant. For certain additional rights to receive
stock granted to Mr. Powell, see '--Deferred Stock Compensation Plan.'
Lester G. Fant III has entered into an employment contract with the
Company, which commenced July 1, 1998 and ends five years thereafter. Mr. Fant
will be paid $549,996 annually for serving as General Counsel of the Company.
The Company may terminate this agreement, with or without cause, at any time. If
the Company terminates the agreement for cause, Mr. Fant's salary and benefits
will be paid only through the date of termination. If the Company terminates the
employment contract other than for cause, the Company will pay Mr. Fant a
severance payment equal to six month's salary. Mr. Fant also has agreed to the
Restrictive Covenant.
45
<PAGE>
Martin A. Russo has entered into an employment contract with the Company,
which commenced July 1, 1998 and ends five years thereafter. Mr. Russo will be
paid $386,004 annually for serving as Vice Chairman and Chief Operating Officer
of C&A. Mr. Russo's base salary may be increased further at the discretion of
the Board of Directors. The Company may terminate this agreement, with or
without cause, at any time. If the Company terminates the agreement for cause,
Mr. Russo's salary and benefits will be paid only through the date of
termination. If the Company terminates the employment contract other than for
cause, the Company will pay Mr. Russo a severance payment equal to one month's
salary for each year of employment completed under the employment contract. Mr.
Russo also has agreed to the Restrictive Covenant.
Deferred Stock Compensation Plan
As of June 30, 1998, certain of the Company's stockholders, including the
Named Executives other than Mr. Cassidy, owned shares of the Company's
Restricted Class B Common Stock. In connection with the Offering, the Company
established the Deferred Plan for the benefit of holders of shares of the
Restricted Class B Common Stock who surrendered such shares to the Company.
Pursuant to the Deferred Plan, the Company has agreed to transfer, upon the
fifth anniversary of such surrender, to each such person a number of shares of
the Common Stock comparable to the number of the Restricted Class B Common Stock
shares that such person surrendered. Shares of Common Stock may be distributed
earlier in the event of (i) such person's death or disability or (ii) the
occurrence of a secondary stock offering. Additionally, Mr. Powell has
surrendered options to receive shares of the Class B Common Stock and will have
transferred to him, on the same terms and conditions of other participants in
the Deferred Plan, 1,050,000 shares of the Common Stock, giving effect to the
Recapitalization. Mr. Fabiani will receive 330,000 shares of Common Stock
pursuant to the terms and conditions of the Deferred Plan. In this connection,
Mr. Cassidy has surrendered 330,000 shares of the Common Stock to the Company.
In connection with the creation of the Deferred Plan, the Company has
transferred 3,600,000 shares of the Common Stock to the grantor trust, giving
effect to the Recapitalization.
1998 Stock Option and Incentive Plan
The Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Code, non-qualified options, stock appreciation
rights, restricted stock and restricted stock units to directors, executives and
other employees of the Company and any of its subsidiaries or of any service
provider, as defined, whose participation in the Plan is determined to be in the
best interest of the Company. Giving effect to the Recapitalization, the Plan
authorizes the issuance of up to 1,900,000 shares of the Common Stock (subject
to anti-dilution adjustments in the event of a stock split, recapitalization or
similar transaction). The Board of Directors has the full power and authority to
take all actions and to make all determinations required under the Plan, but may
delegate that authority to its compensation committee, in which case the
compensation committee's interpretations of the Plan and its determinations
pursuant to the Plan will be final and binding on all parties claiming an
interest under the Plan. The Plan was adopted by the Board of Directors on July
15, 1998. The Plan will become effective in connection with the closing of the
Offering. The term of the Plan is unlimited; however, no incentive stock options
may be granted under the Plan on or after July 1, 2008.
Directors who are not employees of the Company, including the initial
non-employee directors of the Company who will become directors immediately
after the closing of the Offering, will receive on initial election to the board
a number of stock options such that the fair market value of the underlying
Common Stock on the day of the grant is $100,000. Based upon the initial public
offering price of $ per share, each initial non-employee director will
receive options to purchase shares of the Common Stock. These options
will have a term of 10 years and will be immediately exercisable.
The option exercise price for incentive stock options granted under the
Plan may not be less than 100% of the fair market value of the Common Stock on
the date of grant of the option. Options may be exercised up to 10 years after
grant, except as otherwise provided in the particular option agreement. Payment
for shares purchased under the Plan may be made in cash, cash equivalents or
through tender to the Company of shares of the Common Stock provided that
certain requirements are satisfied. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of stock of
the Company, however, the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value on the grant date and the
maximum term of an incentive stock option must not exceed five years.
46
<PAGE>
The Plan also authorizes the grant of stock appreciation rights whereby the
grantee of such a right may receive payment from the Company of an amount equal
to the excess of the fair market value of the shares of the Common Stock subject
to the right on the date the right is exercised over the exercise price of such
right. A particular award agreement may permit payment by the Company either in
shares of the Common Stock, cash or a combination thereof.
Options granted under the Plan are generally not transferable except that
non-qualified options may, in certain circumstances, be transferred to family
members of the grantee. If any optionee's employment with the Company or a
service provider terminates by reason of death, options will fully vest and may
be exercised within one year after such death. If the optionee's employment
terminates by reason of disability, options will continue to vest and shall be
exercisable to the extent vested for a period of one year after the termination
of employment. If the optionee's employment terminates for any other reason,
options not vested will terminate and vested options held by such optionee will
terminate 90 days after such termination.
The Plan authorizes the grant also of restricted stock or restricted stock
units, which are rights to receive shares of the Common Stock in the future.
Both the restricted stock and restricted stock units will be subject to
restrictions and risk of forfeiture. Such restrictions may include not only a
period of time of further employment or service to the Company or a service
provider but the satisfaction of individual or corporate performance objectives.
Performance objectives may include, among others, the trading price of the
shares of the Common Stock, market share, sales, revenue growth, cost reduction,
earnings per share, and return on equity. Unless the particular award agreement
states otherwise, the holders of restricted stock shall have the right to vote
such shares of the Common Stock and the right to receive any dividends declared
and paid with respect to such stock, but the holders of restricted stock units
shall have no such rights.
If the grantee's employment with the Company or a service provider
terminates by reason of death, all restricted stock and restricted stock units
granted under the Plan shall fully vest. If the grantee's employment terminates
by reason of disability, the grantee's restricted stock or restricted stock
units shall continue to vest for a period of one year. If the grantee's
employment is terminated for any other reason, the restricted stock or
unrestricted stock units shall be forfeited.
In the event of the dissolution or liquidation of the Company or upon a
merger, consolidation, or reorganization of the Company in which the Company is
not the surviving entity, or upon a sale of substantially all of the assets of
the Company or upon any transaction (including one in which the Company is the
surviving entity) that results in any person or entity owning 50% or more of the
combined voting power of all classes of securities of the Company, outstanding
restricted stock and restricted stock units shall vest and all options and stock
appreciation rights become immediately exercisable 15 days prior to the
consummation of a change in control, for a period of 15 days, unless provision
is made in writing in connection with such transaction for the continuation of
the Plan or the assumption or substitution of such options, restricted stock and
restricted stock units.
The Board of Directors may amend, suspend or terminate the Plan with
respect to the shares of the Common Stock as to which grants have not been made.
However, the Company's stockholders must approve any amendment that would cause
the Plan not to comply with the Code.
It is anticipated that the Board of Directors will grant options to certain
executive officers under the Plan before the closing of the Offering.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1989, the Company adopted the ESOP, a tax-qualified employee stock
ownership plan and trust for the benefit of current and former employees of the
Company who satisfy certain requirements. On October 2, 1989, the newly-formed
ESOP purchased 1,222,830 shares of the Company's common stock at a price of
$12.27 per share, or $15.0 million in the aggregate, giving effect to the
Recapitalization. A second ESOP transaction took place on March 9, 1994, when
the ESOP purchased an additional 2,231,415 shares of the Company's outstanding
common stock at a price of $8.07 per share, or $18.0 million in total, giving
effect to the Recapitalization. Both ESOP transactions were financed by
back-to-back loans pursuant to which the Company borrowed and then relent to the
ESOP the necessary funds. The ESOP has received the funds needed to service
these loans through
47
<PAGE>
contributions by the Company and dividends paid on the shares of Company stock
owned by the ESOP. As of June 30, 1998, the 1989 ESOP indebtedness had been
repaid in full; an unpaid principal balance of $12.2 million remained with
respect to the 1994 ESOP loan.
As of December 31, 1997, there were 251 participants in the ESOP, and the
ESOP owned 3,454,245 shares of the Company's Common Stock, giving effect to the
Recapitalization. Of these shares, 1,995,570 were allocated to participants'
accounts. The remainder were unallocated, held in a suspense account securing
the ESOP's debt. The ESOP trustee, presently Marine Midland Bank, generally has
discretion as to the manner in which shares of the Company's stock held by the
ESOP are to be voted. However, each participant in the ESOP has the right to
direct the trustee as to the exercise of voting rights attributable to the
shares of Company stock allocated to his or her account with respect to the
approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution or sale of
substantially all assets of a trade or business. The trustee has discretion with
respect to the voting of allocated shares as to which the trustee does not
receive timely instructions. The Company has indemnified Marine Midland Bank
(and its employees and agents) against any loss that may arise from actions
taken, or omitted to be taken, by Marine Midland Bank (or its employees or
agents) as trustee, except to the extent that such loss is finally determined to
have resulted from the gross negligence or willful misconduct of an indemnitee.
The ESOP provides for the distribution to each participant of the shares of
Company stock allocated to his or her account or cash equal to the fair market
value of those shares following the termination of his or her employment with
the Company (subject to, inter alia, certain vesting provisions in the case of a
participant who terminates his or her employment after fewer than five years of
service for a reason other than death, total and permanent disability or
attainment of age 65). In general, the distribution of shares allocated to a
participant's account will commence within one year after (i) the close of the
plan year in which the participant separates from service on account of death,
total and permanent disability or attainment of normal retirement age or (ii)
the close of the fifth plan year following the end of the plan year during which
the participant separates from service for any other reason. For purposes of
these distribution rules, shares of stock acquired with an ESOP loan are not
treated as part of a terminated participant's account until that loan has been
repaid. Prior to this Offering, participants receiving shares of Company stock
from the ESOP had the right to 'put' those shares to the Company. That put right
applies only as to shares that are not readily tradable on an established
market, and it should therefore generally cease to apply following the Offering
to shares that are subject to an exemption from registration requirements under
the Securities Act. Participants who are age 55 or older and have completed at
least ten years of participation in the ESOP also have the right to direct that
a portion of their accounts be invested in investments other than Company stock.
In connection with the Offering, the ESOP trustee intends to sell
shares of the Common Stock owned by the ESOP, giving effect to the
Recapitalization, with a proposed maximum aggregate offering price of $
and to utilize the proceeds to pay the outstanding balance, accrued interest and
prepayment charges on the ESOP Debt of approximately $13.2 million. The Company
does not anticipate making future contributions to the ESOP once these payments
are made.
CERTAIN TRANSACTIONS
Prior to June, 1998, Gerald S. J. Cassidy and James P. Fabiani were
partners in a partnership which owned a townhouse which was rented by Martin A.
Russo, Vice Chairman and Chief Operating Officer of C&A. Mr. Russo paid the
monthly rental of approximately $6,000 and was reimbursed by the Company.
Mr. Fant and Mr. Hendrick have approximately an aggregate 30.0% interest in
Galway Partners, L.L.C. which engages in merchant banking, investment banking
and related financial services. The Company has made loans to Galway Partners,
L.L.C. every month to meet operating and other expenses. Galway Partners, L.L.C.
will receive 2.0% of the gross proceeds from the Offering (estimated at
$920,000) as a financial advisory fee. Galway Partners, L.L.C. will pay the
legal and accounting fees of the Offering from such payment. The board has
authorized the officers of the Company to prepare and submit to the board for
approval a plan to distribute the Company's approximately 43% ownership interest
in Galway Partners, L.L.C., to its stockholders before the closing of the
Offering.
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<PAGE>
The ESOP Debt has, in certain limited circumstances, been guaranteed by
Gerald S. J. Cassidy, James P. Fabiani and Joseph L. Powell. This debt is being
repaid from the proceeds received by the ESOP in the Offering. See note 10 to
the Company's consolidated financial statements. Mr. Cassidy has also guaranteed
the repayment of the Company's lines of credit which will be repaid by the
Company from the proceeds of the Offering. See note 9 to the Company's
consolidated financial statements.
In connection with the Company's acquisition of Boland & Madigan, FSR, PTC
and B&A, the acquisition agreements provided for a payment of a portion of the
purchase price in shares of the Common Stock based on the net income of each of
the companies for specified fiscal years (the 'Earnout Payment'). Giving effect
to the Recapitalization, the Company has reserved 1,557,450 shares of Common
Stock for issuance in connection with the Earnout Payments for FSR and PTC. The
Company has not reserved any shares of Common Stock in connection with the
Earnout Payment for Boland & Madigan and B&A. In each acquisition, the Earnout
Payment provides for the issuance of shares of the Common Stock for each of the
first five years following the year of the acquisition. The Earnout Payment
period is from 1995 to 1999 for Boland & Madigan, 1996 to 2000 for FSR, 1997 to
2001 for PTC and 1998 to 2002 for B&A.
In general, the formula for calculating the Earnout Payment is based on the
net income for each of the companies and adjusted by prior payments under the
applicable agreement. The annual net income of each company is multiplied by
five and further multiplied by 60% (this percentage factor increases by 10% each
year to reach 100% in the fifth year of the Earnout Payment period). The result
is reduced by $500,000 and by any prior Earnout Payment. This total is then
divided by the fair market value per share of the Common Stock to arrive at the
number of shares to be issued to the companies' principals. The per share value
is subject to change each year as a result of increases or decreases in the fair
market value of each share. For years subsequent to the first year, the annual
net income is determined in each case based on a formula using the average
annual net income of up to three years within the five-year Earnout Payment
period. Boland & Madigan received Earnout Payments in shares of Common Stock
valued at approximately $753,000, $751,000 and $1,365,000 in 1997, 1996 and
1995, respectively. FSR, PTC and B&A have not received any Earnout Payments, as
a result of the application of the Earnout Payment formula calculation.
The Company has obtained key-man life insurance on nine of its executives
and one consultant. Business units of the Company are the beneficiaries of these
policies. The policy covering Mr. Cassidy provides a death benefit of $13.0
million and the beneficiary is C&A. The ESOP Debt covenants require the Company
to retain $2.0 million of any death benefit payable on Mr. Cassidy's policy, and
the Company has entered into an agreement with Mr. Cassidy to use the remaining
benefit to redeem shares of Common Stock owned by Mr. Cassidy's estate.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of June 30, 1998,
concerning the beneficial ownership of the Company's Common Stock, giving effect
to the Recapitalization and as adjusted to reflect the Offering: (i) by each
person (or group of affiliated persons) who is known by the Company to
beneficially own more than 5% of the Common Stock; (ii) by the Selling
Stockholders; (iii) by each of the directors and Named Executive Officers; and
(iv) by all directors and executive officers of the Company as a group. Except
as otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of the Common Stock shown as
beneficially owned by them. See 'Management--Director Compensation' regarding
options granted to certain directors in connection with the Offering. See
'Management--Executive Compensation' and 'Management--Compensation Plans--1998
Stock Option and Incentive Plan' for options granted to certain executive
officers in connection with the Offering. Four of the Named Executives have
rights to receive shares of the Common Stock pursuant to the terms and
conditions of the Deferred Plan. See 'Management-- Compensation Plans--Deferred
Stock Compensation Plan.'
After completion of the Offering, the directors and executive officers of
the Company will beneficially own in the aggregate approximately % of
the outstanding Common Stock. In the event the Underwriters' over-allotment
option is exercised in full, those persons will own in the aggregate
approximately % of the outstanding Common Stock. An additional
% will be held in the ESOP. As a result, such persons, excluding the
ESOP, if they act together, are expected to be the largest group of Company
stockholders, and, as such, will have a significant impact on the election of
the Company's directors and on the implementation of
49
<PAGE>
business strategies. See 'Risk Factors--Risks Related to the Company--Control By
Existing Stockholders; Potential Anti-Takeover Provisions.'
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF COMMON
NATURE OF STOCK OUTSTANDING PERCENT OF COMMON
BENEFICIAL BEFORE THE STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING AFTER THE OFFERING(2)
- ---------------------------------------------------------- ------------ ----------------- ---------------------
<S> <C> <C> <C>
ESOP(3)................................................... 3,381,855 38.0% __%
Gerald S. J. Cassidy(4)................................... 2,385,750 26.8 __%
James P. Fabiani(5)(6).................................... 724,815 8.1 __%
Lester G. Fant III(5)(7).................................. 458,085 5.1 __%
John T. Hendrick(5)....................................... 75,000 * __%
Martin A. Russo(5)........................................ 182,175 2.0 __%
All directors and executive officers as a group
(11 Persons)(5)(8)...................................... 4,580,130 51.4 __%
</TABLE>
- ------------------
*Less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of Common Stock if such person has
or shares voting power or investment power with respect to such shares, or
has the right to acquire beneficial ownership at any time within 60 days
from June 30, 1998. As used herein, 'voting power' is the power to vote or
direct the voting of shares, and 'investment power' is the power to dispose
or direct the disposition of shares.
(2) Assumes no exercise of the over-allotment option.
(3) The ESOP is offering shares in the Offering. The address of the
ESOP is c/o G. Cassidy and Associates, Inc., 700 Thirteenth Street, N.W.,
Suite 400, Washington, DC 20005.
(4) Includes 1,583,850 shares held of record by Gerald S. J. Cassidy Trust, a
revocable trust, of which Mr. Cassidy is the trustee. Mr. Cassidy is
offering shares in the Offering, but only in connection with the
over-allotment option. If the over-allotment option is not exercised, he
will sell no shares in the Offering and will continue to beneficially own
2,385,750 shares or % of the total outstanding shares of Common Stock
after the Offering. If the over-allotment option is exercised in full, he
will beneficially own shares or % of the total outstanding
shares of the Common Stock after the Offering. Mr. Cassidy's address is 700
Thirteenth Street, N.W., Suite 400, Washington, DC 20005-3960.
(5) See 'Management--Compensation Plans--Deferred Stock Compensation Plan' for a
description of the terms and conditions upon which Common Stock will be
transferred to Messrs. Fabiani, Fant, Hendrick, Russo and other executive
officers in the future.
(6) Mr. Fabiani's address is 700 Thirteenth Street, N.W., Suite 400, Washington,
DC 20005.
(7) Mr. Fant's address is 700 Thirteenth Street, N.W., Suite 1160, Washington,
D.C. 20005.
(8) Does not include options for shares of the Common Stock guaranteed
under the Plan. See 'Management--Compensation Plans--1998 Stock Option and
Incentive Plan.'
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DESCRIPTION OF CAPITAL STOCK
GENERAL
On the effectiveness of the Recapitalization in connection with the
Offering, the Company's authorized capital stock will consist of 50,000,000
shares of the Common Stock and 5,000,000 shares of preferred stock, par value
$1.00 per share (the 'Preferred Stock'). At June 30, 1998, and giving effect to
the Recapitalization, there were 8,910,840 shares of the Common Stock
outstanding held of record by 67 stockholders and no shares of Preferred Stock
outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of
Incorporation, its Bylaws and by the provisions of applicable law. Copies of the
Certificate of Incorporation and Bylaws, giving effect to the Recapitalization,
are included as exhibits to the registration statement of which this Prospectus
is a part.
COMMON STOCK
Each holder of the Common Stock is entitled to one vote for each share on
all matters submitted to a vote of stockholders. The Certificate of
Incorporation does not provide for cumulative voting, and, accordingly, the
holders of a plurality of the shares of the Common Stock entitled to vote in any
election of directors may elect all of the directors. The Certificate of
Incorporation provides that in the event of any liquidation, dissolution or
winding up of the Company, after there is paid to or set aside for the holders
of any class of stock having preference over the Common Stock the full amount to
which such holders are entitled, then the holders of the Common Stock shall be
entitled, after payment or provision for payment of all debts and liabilities of
the Company, to receive the remaining assets of the Company available for
distribution, in cash or in kind. The holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The rights,
privileges, preferences and priorities of holders of the Common Stock will be
subject to the rights of the holders of any shares of any series of the
Preferred Stock that the Company may issue in the future.
PREFERRED STOCK
The Certificate of Incorporation provides that the Board of Directors is
authorized to issue the Preferred Stock in series and to fix and state the
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Such action may be taken by the Board of Directors without stockholder
approval. Under the Certificate of Incorporation, each share of each series of
the Preferred Stock is to have the same relative rights as, and be identical in
all respects with, all other shares of the same series. While providing
flexibility in connection with possible financings, acquisitions and other
corporate purposes, the issuance of the Preferred Stock, among other things,
could adversely affect the voting power of the holders of the Common Stock and,
under certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of the Company. There will be no shares of the
Preferred Stock outstanding upon completion of the Offering, and the Company has
no present plan to issue shares of the Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations of Director Liability
Section 102(b)(7) of the Delaware General Corporation Law ('DGCL')
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b)(7) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors to the Company or its
stockholders to the fullest extent permitted by Section 102(b)(7). Specifically,
directors of the Company are not personally liable for monetary damages to the
Company or its stockholders for breach of the directors' fiduciary duty as a
director, except for liability: (a) for any breach of the directors' duty of
loyalty to the Company or its stockholders; (b) for acts or
51
<PAGE>
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (c) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL; or (d) for
any transaction from which the directors derived an improper personal benefit.
INDEMNIFICATION
To the maximum extent permitted by law, the Certificate of Incorporation
and the Bylaws provide for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they may become
subject, or which they may incur as a result of being or having been a director
or officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with
indemnifiable claims. The Company is in the process of applying for directors'
and officers' liability insurance.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and the Bylaws contain, among other
certain provisions described below that may reduce the likelihood of a change in
the Board of Directors or voting control of the Company without the consent of
the Board of Directors. These provisions could have the effect of discouraging,
delaying, or preventing tender offers or takeover attempts that some, or a
majority, of the stockholders might consider to be in the stockholders' best
interest, including offers or take-over attempts that might result in a premium
over the market price for the Common Stock.
Classification of Board of Directors
The Board of Directors is divided into three classes of directors, with
each class consisting of three directors. The term of office of the first class
of directors will expire at the 1999 annual meeting of stockholders; the term of
the second class of directors will expire at the 2000 annual meeting of
stockholders; and the term of the third class of directors will expire at the
2001 annual meeting of stockholders. At each annual meeting of stockholders, the
class of directors to be elected at such meeting will be elected for a
three-year term, and the directors in the other two classes will continue in
office. The stockholders have no right to cumulative voting for the election of
directors. The holders of a plurality of the shares of the Common Stock will
have the ability to elect all of the successors to the class of directors whose
term expires at that meeting.
Filling Board Vacancies; Removal
Any vacancy occurring on the Board of Directors, including any vacancy
created by an increase in the number of directors, may be filled for the
unexpired term by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
until such director's successor shall have been elected and qualified. Directors
may only be removed with cause by the affirmative vote of the holders of at
least a majority of the outstanding shares of capital stock then entitled to
vote at an election of directors. 'Cause' is defined to mean (i) conduct,
whether or not as a director of the Company or any subsidiary, involving willful
material misconduct, breach of material fiduciary duty involving personal
profit, or gross negligence as to material duties or (ii) conduct, whether or
not as a director of the Company or any subsidiary, involving dishonesty or
breach of trust which is punishable by imprisonment for a term exceeding one
year under state or federal law.
Stockholder Action by Unanimous Written Consent
Any action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any consent in writing by such holders, unless such consent is
unanimous.
52
<PAGE>
Call of Special Meetings
Special meetings of stockholders may be called at any time by the Board of
Directors or the Chairman of the Board. Special meetings may not be called by
the Company's stockholders.
Stockholder Nominations and Proposals
With certain exceptions, the Certificate of Incorporation and Bylaws
require that stockholders intending to present nominations for directors or
other business for consideration at a meeting of stockholders notify the
Company's secretary in writing no earlier than 120 days and no later than 90
days prior to the date of the meeting and state the identity of the stockholder
and the number of shares owned directly or indirectly by such stockholder.
Bylaw Amendments
The stockholders may amend the Bylaws by the affirmative vote of the
holders of at least a majority of the outstanding shares of the Common Stock of
the Company. Directors also may amend the Bylaws by an affirmative vote of at
least a majority of the directors then in office.
Certificate of Incorporation Amendments
Except as set forth in the Certificate of Incorporation or as otherwise
specifically required by law, no amendment of any provision of the Certificate
of Incorporation shall be made unless such amendment has been first proposed by
the Board of Directors upon the affirmative vote of at least two-thirds of the
directors then in office and thereafter approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of capital stock
entitled to vote thereon; provided however, if such amendment is to the
provisions in the Certificate of Incorporation relating to the authorized number
of shares of the Preferred Stock or the Common Stock, board authority to issue
the Preferred Stock, number and classes of directors, nomination and removal of
directors, the limitations on directors' liability, amendment of Bylaws, or
consent of stockholder in lieu of meetings, such amendment must be approved by
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of capital stock entitled to vote thereon.
Certain Statutory Provisions
The Company is subject to section 203 of the DGCL, which provides, in
general, that a stockholder acquiring more than 15% of the outstanding voting
shares of a corporation subject to the DGCL (an 'Interested Stockholder'), but
less than 85% of such shares, may not engage in certain 'Business Combinations'
with such corporation for a period of three years subsequent to the date on
which the stockholder became an Interested Stockholder unless (i) prior to such
date the corporation's board of directors approved either the Business
Combination or the transaction in which the stockholder became an Interested
Stockholder or (ii) the Business Combination is approved by the corporation's
board of directors and authorized by a vote of at least two-thirds of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder.
Section 203 defines the term 'Business Combination' to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested Stockholder
receives certain other benefits.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is to be selected by
the Company.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
the Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the shares of the Common Stock
sold in the Offering will be freely transferable and tradable without
restriction or further registration under the Securities Act except for any
shares purchased by any 'affiliate', as defined below, of the Company which will
be subject to the resale limitations of Rule 144. All the remaining shares of
the Common Stock held by existing stockholders are 'restricted' securities
within the meaning of Rule 144 and may only be sold in the public market
pursuant to an effective registration statement under the Securities Act or
pursuant to an applicable exemption from registration, including Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares for at least one year, including an 'affiliate', 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 number of shares of the
Common Stock or the average weekly trading volume in the shares of the Common
Stock during the four calendar weeks preceding the filing of the required notice
of such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are required to
be aggregated) who is not deemed to have been an affiliate of the Company during
the three months preceding a sale, and who has beneficially owned shares within
the definition of 'restricted securities' under Rule 144 for at least two years
is entitled to sell such shares under Rule 144(k) without regard to the volume
limitation, manner of sale provisions, notice requirements or public information
requirements of Rule 144. Affiliates continue to be subject to such limitations.
As defined in Rule 144, an 'affiliate' of an issuer is a person that directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such issuer.
Upon completion of the Offering, up to shares of the Common Stock,
which are beneficially held by the existing stockholders of the Company, may be
eligible for sale under Rule 144. The Company, each Selling Stockholder and each
other existing stockholder of the Company has agreed that it or they will not,
without the prior written consent of FBR, directly or indirectly, offer, pledge,
sell, offer to sell, contract to sell, grant any option to purchase or otherwise
sell, dispose of, make any short sale of, loan or grant any rights with respect
to any shares of the Common Stock, any options or warrants to purchase any
shares of the Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of the Common Stock, or enter into any swap or other
arrangement to transfer, in whole or in part, any of the economic consequences
of ownership of Common Stock, until the first anniversary of the closing of the
Offering, except that (i) the Company may grant additional options and issue
additional stock to its existing equity holders or under its stock plans and
repurchase shares thereunder, and (ii) the ESOP may distribute shares of Common
Stock pursuant to the provisions of the ESOP plan documents and the distributees
who are not currently stockholders may sell such shares unless they have agreed
otherwise.
No prediction can be made as to the effect, if any, that future sales of
the Common Stock, or the availability of shares of the Common Stock for future
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial numbers of shares of the Common Stock, pursuant to a
registration statement, Rule 144 or otherwise, or the perception that such sales
may occur, could adversely affect the prevailing market price of the Common
Stock.
The Company has reserved 1,900,000 shares of the Common Stock for issuance
upon the exercise of options outstanding or to be granted pursuant to the Plan.
As of the date hereof, options to purchase shares of the Common Stock
were outstanding and unexercised. See 'Management--Compensation Plans--1998
Stock Option and Incentive Plan.' The Company has also established a Deferred
Plan and will issue 3,600,000 shares of Common Stock to the trust established
under such plan in connection with the closing of the Offering. Five executive
officers of the Company have rights to receive stock under the Deferred Plan.
See 'Management-- Compensation Plans--Deferred Stock Compensation Plan.'
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among the
Company, the Selling Stockholders and the Underwriters (the 'Underwriting
Agreement'), the Underwriters named below, through their Representative,
Friedman, Billings, Ramsey & Co., Inc. (the 'Representative' or 'FBR'), have
severally agreed to purchase from the Company and the Selling Stockholders the
following respective numbers of shares of the Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------------------------- ----------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc...............................................................
Total:.........................................................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including, among other
things, the absence of any material adverse change in the Company's business and
the receipt of certain certificates, opinions and letters from the Company and
its counsel and independent auditors. The nature of the Underwriters' obligation
is such that they are committed to purchase all shares of the Common Stock
offered hereby if any of such shares are purchased. The offering of the Common
Stock is made for delivery when, as and if accepted by the Underwriters and
subject to prior sale and to withdrawal, cancellation or modification of the
Offering without notice. The Underwriters reserve the right to reject an order
for the purchase of shares in whole or in part.
The Underwriters propose initially to offer the shares of the Common Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow and
such dealers may re-allow a concession not in excess of $ per share to
certain other dealers. After the initial public offering of the Common Stock,
the offering price and other selling terms may be changed by the Underwriters.
Mr. Cassidy, the Chairman and Chief Executive Officer of the Company, has
granted to the Underwriters an over-allotment option, exercisable no later than
30 days after the date of this Prospectus, to purchase up to additional
shares of the Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent the Underwriters exercise such over-allotment option, each of the
Underwriters will be committed, subject to certain conditions, to purchase a
number of the additional shares of the Common Stock proportionate to such
underwriter's initial commitment. Mr. Cassidy will be obligated, pursuant to
such over-allotment option, to sell shares to the Underwriters to the extent the
over-allotment option is exercised. The Underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representative. Among the factors to be
considered in determining the initial public offering price are prevailing
market conditions, revenues and earnings of the Company, market valuations of
other companies engaged in activities similar to the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, the industry in which the Company competes, the
Company's management and other factors deemed relevant. The estimated initial
public offering price range set forth on the cover of this Prospectus is subject
to change as a result of market conditions and other factors. There can,
however, be no
55
<PAGE>
assurance that the price at which the shares of the Common Stock will sell in
the public market after the Offering will not be lower than the price at which
they are sold by the Underwriters.
For a period of two years from the date of this Prospectus, the Company has
granted FBR the right to provide all advisory and/or investment banking services
to the Company (the 'Right of First Refusal'). If FBR declines or fails to
exercise the Right of First Refusal within 15 days after notice from the Company
that the Company requires such services, the Company will have the right to
retain any other person on terms and conditions that are not materially more
favorable than those declined by FBR. In such an event, FBR would retain the
Right of First Refusal with respect to future transactions.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of shares of the Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
Until the distribution of the Common Stock is completed, the rules of the
SEC may limit the ability of the Underwriters and certain selling group members
to bid for or purchase the Common Stock. As an exception to these rules, the
Representative is permitted to engage in certain transactions that stabilize the
price of shares of the Common Stock. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of shares
of the Common Stock.
If the Underwriters create a short position in shares of the Common Stock
in connection with the Offering, i.e., if they sell more shares of the Common
Stock than are set forth on the cover page of this Prospectus, the
Representative may reduce that short position by purchasing shares of the Common
Stock in the open market. The Representative may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representative purchases
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of shares of the Common Stock, it may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold such shares of the Common Stock as part of the Offering.
In general, purchases of securities for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of shares of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Company will pay all expenses, other than underwriting discounts and
expenses, incident to the Offering and sale of the Common Stock by the Selling
Stockholders, including the fees, if any, of counsel and other advisors for the
Selling Stockholders.
The Company, each Selling Stockholder and each other existing stockholder
of the Company has agreed that it or they will not, without the prior written
consent of FBR, directly or indirectly, offer, pledge, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell, dispose of,
make any short sale of, loan or grant any rights with respect to any shares of
the Common Stock, any options or warrants to purchase any shares of the Common
Stock or any securities convertible into, or exercisable or exchangeable for,
shares of the Common Stock, or enter into any swap or other arrangement to
transfer, in whole or in part, any of the economic consequences of ownership of
Common Stock, until the first anniversary of the closing of the Offering, except
that (i) the Company may grant additional options and issue additional stock to
its existing equity holders or under its stock plans and repurchase shares
thereunder, and (ii) the ESOP may distribute shares of Common Stock pursuant to
the provisions of the ESOP plan documents and the distributees who are not
currently stockholders may sell such shares unless they have agreed otherwise.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C., and for the
Underwriters by Gibson, Dunn & Crutcher LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and for each of the three years in the period ended December 31, 1997 and
the financial statements of PTC as of December 31, 1997 and 1996 and for the
year ended December 31, 1997 and for the period from January 19, 1996
(Inception) to December 31, 1996 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent public
accountants, as set forth in their reports thereon appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement (herein,
together with all amendments, exhibits and schedules thereto, referred to as the
'Registration Statement') under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to the Company and
the Common Stock, reference is hereby made to the Registration Statement.
As a result of the Offering, the Company will become subject to the
reporting requirements of the Securities and Exchange Act of 1934, as amended
and in accordance therewith, will file reports and other information with the
SEC. The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants.
The Registration Statement, including the exhibits and schedules thereto, and
reports and other information filed by the Company with the SEC can be inspected
without charge and copied, upon payment of prescribed rates, at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, 13th Floor, New York, New York 10048 and the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material and any part thereof will also be available
by mail from the Public Reference Section of the SEC, at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and via the SEC's address on the
World Wide Web at http://www.sec.gov.
57
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
THE CASSIDY COMPANIES, INC.
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors................................................. F-2
Consolidated Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997 and 1996........ F-3
Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997 (Unaudited)
and the Years Ended December 31, 1997, 1996, and 1995........................................... F-4
Consolidated Statements of Changes in Stockholders' Deficit for the Six Months Ended June 30, 1998
(Unaudited) and the Years Ended December 31, 1997, 1996, and 1995............................... F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (Unaudited)
and the Years Ended December 31, 1997, 1996, and 1995........................................... F-6
Notes to Consolidated Financial Statements........................................................ F-7 to F-22
PICKHOLZ, TWEEDY, COWAN, LLC
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors................................................. F-23
Balance Sheets as of December 31, 1997 and 1996................................................... F-24
Statements of Operations for the Year Ended December 31,1997 and the Period from January 19, 1996
(inception) to December 31, 1996................................................................ F-25
Statements of Member's Equity for the Year Ended December 31, 1997 and the Period from January 19,
1996 (inception) to December 31, 1996........................................................... F-26
Statements of Cash Flows for the Year Ended December 31, 1997 and the Period from January 19, 1996
(inception) to December 31, 1996................................................................ F-27
Notes to Financial Statements..................................................................... F-28 to F-31
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
The Cassidy Companies, Inc.
We have audited the accompanying consolidated balance sheets of The Cassidy
Companies, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' deficit, 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Cassidy Companies, Inc. at December 31, 1997 and 1996, and the consolidated
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.
/s/ Ernst & Young LLC
Washington, DC
March 22, 1998, except for
Notes 18 and 19 as to which
the date is July 15, 1998
F-2
<PAGE>
THE CASSIDY COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
JUNE 30, ------- -------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................................................... $ 737 $ 117 $ 1,244
Accounts receivable, net..................................................... 9,491 7,412 5,586
Advances to affiliates....................................................... 1,175 411 354
Other current assets......................................................... 472 374 733
----------- ------- -------
Total current assets........................................................... 11,875 8,314 7,917
Property and equipment, net.................................................... 2,201 2,206 1,581
Goodwill, net.................................................................. 3,884 3,614 3,367
Other assets................................................................... 386 415 471
Net assets of discontinued operations.......................................... 1,612 3,103 862
----------- ------- -------
Total assets................................................................... $19,958 $17,652 $14,198
----------- ------- -------
----------- ------- -------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses........................................ $ 4,826 $ 5,916 $ 3,114
Current portion of long-term debt............................................ 3,565 3,565 3,318
Current portion of deferred rent obligation.................................. 332 332 388
Notes payable................................................................ 5,650 1,150 2,225
Deferred income.............................................................. 3,311 3,739 3,309
----------- ------- -------
Total current liabilities...................................................... 17,684 14,702 12,354
Long-term debt, less current portion........................................... 8,671 10,424 13,989
Deferred rent obligation, less current portion................................. 2,400 2,474 2,788
Stockholders' deficit:
Preferred stock, $1.00 par value; 5,000,000 shares authorized.................. -- -- --
Common stock, $0.01 par value 50,000,000 shares authorized:
Class A, 28,350 shares issued and outstanding at June 30, 1998 and December
31, 1997 and 1996, respectively........................................... 1 1 1
Class B, 5,500,635, 5,422,020 and 4,444,755 shares issued and outstanding at
June 30, 1998 and December 31, 1997 and 1996, respectively................ 55 54 44
Class B, 1,557,450 shares issued and held in escrow (Note 7) at June 30, 1998
and December 31, 1997 and 1996, respectively.............................. -- -- --
Class C, 3,454,245 shares issued; 2,201,190, 1,995,570 and 1,629,345 shares
outstanding at June 30, 1998 and December 31, 1997 and 1996,
respectively.............................................................. 35 35 35
Additional paid-in capital..................................................... 26,910 26,553 25,273
Accumulated deficit............................................................ (24,932) (24,066) (24,779)
Unearned ESOP shares........................................................... (10,108) (11,767) (15,043)
Less:
Class C common stock held in treasury at cost; 72,390, 72,390, and 41,460
shares at June 30, 1998 and December 31, 1997 and 1996, respectively...... (758) (758) (464)
----------- ------- -------
Total liabilities and stockholders' deficit.................................... $19,958 $17,652 $14,198
----------- ------- -------
----------- ------- -------
</TABLE>
See accompanying notes
F-3
<PAGE>
THE CASSIDY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Government relations group......................... $ 13,539 $ 12,207 $ 26,384 $ 23,007 $ 23,891
Public affairs and opinion research group.......... 8,624 7,157 14,661 13,450 12,383
-------- -------- -------- -------- --------
Total revenues....................................... 22,163 19,364 41,045 36,457 36,274
Operating expenses:
Non-stock compensation:
Government relations group......................... 6,543 6,022 12,105 11,789 12,071
Public affairs and opinion research group.......... 5,343 4,384 8,924 8,376 7,141
-------- -------- -------- -------- --------
Total non-stock compensation to employees............ 11,886 10,406 21,029 20,165 19,212
Consulting expense................................... 1,268 1,252 2,851 3,122 3,210
General and administrative expense................... 5,039 4,470 9,248 9,095 9,031
ESOP stock compensation expense...................... 1,139 936 1,878 1,218 1,195
Compensation element of common stock and option
issuances.......................................... -- -- -- 1,313 1,277
-------- -------- -------- -------- --------
Total operating expenses............................. 19,332 17,064 35,006 34,913 33,925
Income from operations............................... 2,831 2,300 6,039 1,544 2,349
Equity in losses of affiliates....................... -- -- -- -- (238)
ESOP interest expense................................ (529) (691) (1,294) (1,655) (1,837)
Other interest expense............................... (189) (172) (328) (121) (82)
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
income taxes....................................... 2,113 1,437 4,417 (232) 192
Income tax (provision) benefit....................... (431) (359) (1,094) (17) (1,298)
-------- -------- -------- -------- --------
Income (loss) from continuing operations............. 1,682 1,078 3,323 (249) (1,106)
Loss from discountinued operations, net of tax....... (2,548) (1,133) (2,610) (1,525) (1,238)
-------- -------- -------- -------- --------
Net income (loss).................................... $ (866) $ (55) $ 713 ($ 1,774) ($ 2,344)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per Common Share:
Income (loss) from continuing operations............. $ 0.22 $ 0.16 $ 0.51 $ (0.04) $ (0.25)
Loss from discontinued operations.................... (0.34) (0.17) (0.40) (0.28) (0.27)
-------- -------- -------- -------- --------
Net income (loss) per common share................... $ (0.12) $ (0.01) $ 0.11 $ (0.32) $ (0.52)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per Common Share--Assuming Dilution:
Income (loss) from continuing operations............. $ 0.20 $ 0.14 $ 0.43 $ (0.04) $ (0.25)
Loss from discontinued operations.................... (0.30) (0.15) (0.34) (0.28) (0.27)
-------- -------- -------- -------- --------
Net income (loss) per common share -assuming
dilution........................................... $ (0.10) $ (0.01) $ 0.09 $ (0.32) $ (0.52)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common shares (in thousands)........ 7,525 6,489 6,534 5,503 4,490
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common shares--assuming dilution (in
thousands)......................................... 8,595 7,559 7,604 5,503 4,490
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE CASSIDY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C ADDITIONAL UNEARNED
COMMON COMMON COMMON PAID-IN ACCUMULATED ESOP TREASURY
STOCK STOCK STOCK CAPITAL DEFICIT SHARES STOCK
------ ------ ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. $ 51 $ 33 $ 35 $ 22,264 $ (19,615) $(22,056) $ (122)
Stock issuance in connection with
acquisition.......................... -- 2 -- 998 -- -- --
Stock options grants for earnouts
related to prior acquisition......... -- 2 -- 1,435 -- -- --
Restricted stock issuances and option
exercise............................. -- 3 -- (3) -- -- --
ESOP compensation expense.............. -- -- -- (1,748) -- 3,798 --
Tax benefit from depreciation in value
of ESOP shares released.............. -- -- -- 528 -- -- --
ESOP dividends......................... -- -- -- -- (733) -- --
Compensation element of stock options
granted.............................. -- -- -- 1,277 -- -- --
Class C common stock purchased for
treasury, 20,310 shares.............. -- -- -- -- -- -- (233)
Net loss............................... -- -- -- -- (2,344) -- --
------ ------ ------ ---------- ----------- -------- --------
Balance, December 31, 1995............. 51 40 35 24,751 (22,692) (18,258 ) (355)
Stock options grants for earnouts
related to prior acquisition......... -- 2 -- 748 -- -- --
Restricted stock issuances and option
exercise............................. -- 2 -- (2) -- -- --
ESOP compensation expense.............. -- -- -- (1,635) -- 3,215 --
Tax benefit from depreciation in value
of ESOP shares released.............. -- -- -- 98 -- -- --
ESOP dividends......................... -- -- -- -- (313) -- --
Compensation element of stock options
granted.............................. -- -- -- 1,313 -- -- --
Class C common stock purchased for
treasury, 11,235 shares.............. -- -- -- -- -- -- (109)
Net loss............................... -- -- -- -- (1,774) -- --
------ ------ ------ ---------- ----------- -------- --------
Balance, December 31, 1996............. 51 44 35 25,273 (24,779) (15,043 ) (464)
Stock issuances in connection with
acquisitions......................... -- 2 -- 1,249 -- -- --
Stock options grants for earnouts
related to prior acquisition......... -- 2 -- 752 -- -- --
Restricted stock issuances............. -- 7 -- (7) -- -- --
ESOP compensation expense.............. -- -- -- (1,186) -- 3,276 3
Tax benefit from depreciation in value
of ESOP shares released.............. -- -- -- 471 -- -- --
Stock forfeitures...................... -- (1) 1 -- -- --
Class C common stock purchased for
treasury, 30,930 shares.............. -- -- -- -- -- -- (297)
Net income............................. -- -- -- -- 713 -- --
------ ------ ------ ---------- ----------- -------- --------
Balance, December 31, 1997............. 51 54 35 26,553 (24,066) (11,767 ) (758)
Stock issuances in connection with
acquistions (unaudited).............. -- 1 -- 499 -- -- --
ESOP compensation expense
(unaudited).......................... -- -- -- (319) -- 1,659 --
Tax benefit from depreciation in value
of ESOP shares released.............. -- -- -- 177 -- -- --
Net loss (unaudited)................... -- -- -- -- (866) -- --
------ ------ ------ ---------- ----------- -------- --------
Balance, June 30, 1998 (unaudited)..... $ 51 $ 55 $ 35 $ 26,910 $ (24,932) $(10,108) $ (758)
------ ------ ------ ---------- ----------- -------- --------
------ ------ ------ ---------- ----------- -------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE CASSIDY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................ $ (866) $ (55) $ 713 $(1,774) $(2,344)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Provision for loss on discontinued operations.................. (2,000) -- -- -- --
ESOP compensation expense...................................... 1,340 1,048 2,090 1,580 2,050
Compensation element of common stock and options granted....... -- -- -- 1,313 1,277
Tax effect of ESOP compensation expense........................ 177 235 471 98 528
Increase (decrease) in accounts receivable allowance........... (9) 76 293 (793) 943
Depreciation................................................... 333 301 615 665 652
Amortization................................................... 305 265 571 436 229
Amortization of debt issuance costs included in interest
expense...................................................... 41 65 81 113 145
Deferred rent.................................................. (73) (201) (370) (388) (378)
Equity in losses of affiliates................................. 14 158 223 294 274
Net loss (gain) on disposition of assets....................... 70 7 7 1 3
Changes in assets and liabilities:
Accounts receivable............................................ 159 (1,688) (2,492) 1,331 (4,451)
Other current assets........................................... 493 13 410 (530) 2,505
Other assets................................................... 15 31 (205) (132) (217)
Accounts payable & accrued expenses............................ (490) (476) 2,180 (832) 2,387
Deferred income................................................ (428) (406) 431 (895) 1,249
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities.............. (919) (627) 5,018 487 4,852
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures............................................. (415) (938) (1,363) (471) (291)
Advances to affiliates (repayments).............................. (793) 601 (57) 783 (164)
Investments in affiliates........................................ -- -- (35) (371) (1,483)
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities.............. (1,208) (337) (1,455) (59) (1,938)
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Repayment of debt................................................ (1,753) (1,621) (3,318) (3,031) (3,934)
Contributions and dividends paid to ESOP......................... (2,282) (2,312) (4,720) (4,797) (5,432)
Payment of principal and interest received on ESOP loan.......... 2,282 2,312 4,720 4,797 5,432
Line of credit borrowings (repayments), net...................... 4,500 1,800 (1,075) 2,225 --
Purchase of treasury stock....................................... -- -- (297) (110) (234)
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities.............. 2,747 179 (4,690) (916) (4,168)
------- ------- ------- ------- -------
Increase (decrease) in cash...................................... 620 (785) (1,127) (488) (1,254)
Cash at beginning of period...................................... 117 1,244 1,244 1,732 2,986
------- ------- ------- ------- -------
Cash at end of period............................................ $ 737 $ 459 $ 117 $ 1,244 $ 1,732
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Supplemental disclosures of cash flow information:
Interest paid.................................................. $ 560 $ 1,021 $ 1,674 $ 1,884 $ 1,978
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income taxes paid (recovered).................................. $ 688 $ 190 $ 474 $ 153 $(1,907)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. ORGANIZATION
The Cassidy Companies, Inc. (the 'Company') is a leading provider of
government relations services and a major provider of public affairs
communications and opinion research services. The Company conducts its
operations primarily through two operating groups, the Government Relations
Group and the Public Affairs and Opinion Research Group.
The Company has two wholly owned subsidiaries that comprise the Government
Relations Group, G. Cassidy and Associates, Inc. ('C&A') and Boland & Madigan,
Inc. These companies provide clients with expert representation and advocacy in
the legislative and regulatory process.
Three additional subsidiaries comprise the Public Affairs and Opinion
Research Group. Powell Tate, A Cassidy Company ('PT') represents corporations
and trade associations on diverse public affairs and public relations issues.
Frederick Schneiders Research, Inc. ('FSR') is involved in public opinion
research and strategic message planning. Bork & Associates ('B&A'), a litigation
communications firm, was acquired in February 1998.
In addition to the above, the Company has two additional subsidiaries and a
division of PT, in various stages of disposition, that represent operations that
have been discontinued. (See Note 18.) These discontinued operations include
Pickholz Tweedy Cowan LLC, ('PTC') which is engaged in the direct marketing
business; Strategic Response, A Cassidy Company ('SR') which designed
constituency development campaigns for major corporations, trade associations,
and nonprofit organizations; and Powell Tate-New York ('PTNY'), which is
involved in public opinion consulting involving corporate financial issues.
The Company's relationship with its clients is dependent on the continued
employment of its key executives.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Financial Information
The financial information presented as of any date other than December 31
has been prepared from the books and records of the Company without audit. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's consolidated financial position as of
June 30, 1998, the results of its operations and its cash flows for the six
months ended June 30, 1998 and 1997, and the changes in stockholders' deficit
for the six months ended June 30, 1998. The results of operations presented for
the six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include
the accounts of its wholly owned subsidiaries. All intercompany transactions and
accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
F-7
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
The Company recognizes revenue based on contracted monthly, quarterly and
other retainer periods starting in the month the contract begins. Certain
contracts provide for billings based on hours incurred at specified rates.
Revenues on these contracts are recognized as services are provided.
Deferred Income
Clients are sometimes billed a retainer fee in the month preceding the
period of service and others remit payments in advance of the service period.
Advance billings and advance payments are classified as deferred income and
recognized as revenue as they are earned.
Property and Equipment
The Company computes depreciation and amortization using the straight-line
method. Leasehold improvements are amortized over the shorter of the life of the
initial lease term or the useful life of the asset. Furniture, fixtures and
computer hardware, computer software, and transportation equipment are
depreciated over their estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture, fixtures and computer hardware...................................... 5 - 10 years
Computer software.............................................................. 3 years
Leasehold improvements......................................................... 4 - 6 years
Transportation equipment....................................................... 4 years
</TABLE>
Advertising
Advertising activity is expensed as incurred. Advertising expenses for the
six-month periods ended June 30, 1998 and 1997 were $691 and $522, respectively,
and for the years ended December 31, 1997, 1996, and 1995 were $1,129, $1,394,
and $1,416, respectively.
Income Taxes
The Company computes deferred income taxes under the liability method.
Under this method, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and income tax basis of
assets and liabilities and are measured using the enacted tax rate in effect
during the years in which the differences are expected to reverse.
Earnings Per Share
The Company's earnings per share calculations are based upon the weighted
average of shares of common stock outstanding. The dilutive effect of stock
options are excluded for purposes of calculating basic earnings per share. The
Company excludes shares held in escrow and unearned ESOP shares from its
computations of earnings per share as such shares are deemed to be held by the
Company. In addition, in periods where the basic earnings per share is less than
$0.00, the Company does not include any effects of the options to acquire Class
B common shares as the inclusion of such securities would be anti-dilutive.
F-8
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Segment Reporting
The Company has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, 'Disclosures about Segments
of an Enterprise and Related Information' ('Statement 131') which established
standards for public business enterprises' reporting of certain information
about operating segments in annual financial statements and requires those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also established standards for related
disclosures about products and services, geographic areas, and major customers.
Stock-Based Compensation
The Company has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('Statement 123'). Statement 123 allows companies to either
account for stock-based compensation under the new provisions of Statement 123
or under the provisions of Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees' ('APB 25'), but requires pro forma
disclosures in the footnotes to the consolidated financial statements as if the
measurement provisions of Statement 123 had been adopted. The Company intends to
continue to account for its stock-based compensation in accordance with APB 25.
3. ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for accounts
receivable amounts deemed uncollectible as determined by management. Activity in
the allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------- ---------------------------
1998 1997 1997 1996 1995
----- ----- ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................................... $ 593 $ 300 $ 300 $ 1,093 $ 150
Provision for losses charged to expense........................... 252 125 1,042 263 943
Charge-offs, net of recoveries.................................... (261) (201) (749) (1,056) --
----- ----- ------ ------- ------
Balance at end of period.......................................... $ 584 $ 224 $ 593 $ 300 $1,093
----- ----- ------ ------- ------
----- ----- ------ ------- ------
</TABLE>
F-9
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
JUNE 30, ------- -------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and computer hardware....................................... $ 3,799 $ 4,103 $ 3,026
Computer software............................................................... 598 585 286
Leasehold improvements.......................................................... 362 291 232
Transportation equipment........................................................ 27 27 27
----------- ------- -------
4,786 5,006 3,571
Less: accumulated depreciation.................................................. (2,585) (2,800) (1,990)
----------- ------- -------
$ 2,201 $ 2,206 $ 1,581
----------- ------- -------
----------- ------- -------
</TABLE>
Depreciation expense for the six month periods ended June 30, 1998 and 1997
was $333 and $301, respectively, and for the years ended December 31, 1997, 1996
and 1995 was $615, $665, and $652, respectively.
5. OTHER ASSETS
Included in other assets at December 31, 1997 were two notes receivable
totaling $99 from related parties that bear interest at 8.0%. Included in other
assets at December 31, 1996 is a $35 note receivable from a related party that
bears interest at 8.0 % and was repaid in 1997.
6. INTANGIBLES
Goodwill, which resulted from the Company's various acquisitions, is
amortized on a straight line basis over estimated lives which vary from five to
ten years. Substantially all goodwill amounts reflected by the Company were
attributable to issuances of the Company's Class B Common Stock to the selling
shareholders of the acquired businesses.
Amortization expense for the six-month periods ended June 30, 1998 and 1997
was $305 and $265, respectively, and for the years ended December 31, 1997,
1996, and 1995 was $571, $436, and $229, respectively. Accumulated amortization
as of June 30, 1998 and December 31, 1997 and 1996 was $1,035, $815, and $412,
respectively.
Debt issuance costs, included in other assets in the accompanying financial
statements totaled $1,239 as of June 30, 1998 and December 31, 1997 and 1996.
Amortization expense, recognized as a component of interest expense under the
effective interest method of accounting over the seven year term of the
Company's long term debt was $41 and $65 for the six months ended June 30, 1998
and 1997, respectively and $81, $113, and $145 for the years ended December 31,
1997, 1996 and 1995, respectively, accumulated amortization of the debt issuance
costs as of June 30, 1998 and December 31, 1997 and 1996 was $1,142, $1,102, and
$1,020, respectively.
F-10
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
7. ACQUISITIONS
Boland & Madigan, Inc.
In December 1994, the Company entered into an agreement to acquire Boland &
Madigan, Inc. in a transaction accounted for as a purchase. The Company acquired
all of the outstanding common stock of Boland & Madigan, Inc. in exchange for
61,980 shares of the Company's Class B common stock in 1995. The Company's
shares exchanged were then valued at approximately $500.
In addition, in connection with this acquisition, the Company is required
to pay additional consideration in the form of shares of Class B common stock,
based on Boland & Madigan, Inc.'s net income as defined in the merger agreement,
for each of the five years in the period ending December 31, 1999, to be
determined at each year end date. The number of shares issued in payment of the
additional consideration is determined on the date the shares are issued and
released from escrow. Additional consideration paid under this arrangement
approximated $754, $750, and $1,365 in 1997, 1996, and 1995, respectively.
Additional consideration paid under this arrangement is recorded as
goodwill and is amortized over the remaining amortization period. The excess of
the consideration over the fair value of assets acquired is being amortized over
a ten-year period through December 31, 2004.
Frederick Schneiders Research, Inc.
In December 1995, the Company entered into an agreement to acquire FSR in a
transaction accounted for as a purchase. The Company acquired all of the
outstanding common stock of FSR in exchange for 79,785 shares of Company's Class
B common stock. The Company's shares exchanged were then valued at approximately
$500.
In connection with the FSR acquisition, Cassidy is required to pay
additional consideration in the form of shares of Class B common stock, based on
FSR's net income, as defined in the merger agreement, for each of the five years
in the period ending December 31, 2000 to be determined at each year end date.
No additional consideration amounts have been earned in connection with this
agreement through 1997.
The Company issued and held in escrow 957,450 shares of Class B common
stock, pending future annual determinations of net income attained by FSR. The
value of these shares will be recognized as additional consideration if and when
released from escrow and will be amortized over the remaining amortization
period. The excess of the consideration over the fair value of assets acquired
is being amortized over a ten year period through December 2005.
Pickholz Tweedy Cowan, LLC
In 1996, the Company invested $500 for 50% of the equity of PTC, a limited
liability company established to engage in the direct marketing business. The
provisions of the limited liability company agreement provided the Company's
partner (Pickholz Tweedy Cowan, Inc.) with a put option to sell its interest in
PTC to the Company. In June 1997, the Company's partner exercised its put option
and sold the remaining 50% to the Company in exchange for 246,720 shares of the
Company's Class B common stock. The Company's shares that were exchanged were
valued at approximately $1,250.
In connection with the acquisition of PTC, the Company is required to pay
additional consideration in the form of shares of Class B common stock, based on
PTC's net income as defined in the put agreement, for each of the five years in
the period ending December 31, 2001. No amounts have been earned in connection
with this agreement. The Company issued and holds in escrow 600,000 shares of
Class B common stock, pending future annual determinations of net income
attained by PTC. The Company decided to sell PTC during the six-month period
ended June 30, 1998. (See Note 18.)
F-11
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
7. ACQUISITIONS--(CONTINUED)
Bork & Associates
In February 1998, the Company entered into an agreement to acquire Bork &
Associates in a transaction accounted for as a purchase. The Company acquired
all of the outstanding stock of Bork & Associates in exchange for 102,750 shares
of the Company's Class B common stock. The Company shares exchanged were then
valued at $500.
The Company's consolidated financial statements include the operations of
the acquired businesses from the dates of their respective acquisition.
8. INVESTMENT IN AFFILIATE
Galway Partners, L.L.C.
The Company has a membership interest in Galway Partners, L.L.C., a limited
liability company established to engage in merchant banking, investment banking,
and related financial services. The profits and losses are allocated among the
members in accordance with the limited liability company agreement.
In January 1997, the Company's ownership interest was increased from 33% to
43%. The Company accounts for its investment in Galway Partners, L.L.C. under
the equity method and recorded losses of $-0-, $26, and $291 for the years ended
December 31, 1997, 1996, and 1995, respectively. Amounts due from Galway
Partners, L.L.C. at June 30, 1998 and December 31, 1997 and 1996 were $1,130,
$375, and $187, respectively.
9. LINES OF CREDIT
The Company has three lines of credit that provide for borrowings of up to
$5,500, $4,000 and $2,500 for general working capital purposes. Borrowings under
the lines bear interest at the LIBOR Rate plus 1.25%, the bank's prime rate and
prime plus .5%, respectively, and are guaranteed by the Company's chairman and
chief executive officer The weighted average interest rate as of June 30, 1998
and December 31, 1997 and 1996 was 7.6%, 8.1%, and 7.2%, respectively.
The lines of credit expire on April 30, 1999, March 31, 1999 and March 28,
1999, respectively. A total of $5,650, $1,150, and $2,225 was outstanding under
the lines of credit at June 30, 1998, December 31, 1997 and December 31, 1996,
respectively.
10. LONG-TERM DEBT
At June 30, 1998 and December 31, 1997 and 1996, long-term debt consisted
of $12,236, $13,989 and $17,307, respectively, of Senior ESOP Notes held by five
insurance companies issued in connection with the 1989 and 1994 ESOP
transactions. The notes bear interest at 8.2%. The Company generally is required
to make semiannual principal and interest payments on the Senior ESOP Notes on
the first day of April and October. The remaining principal and interest is due
in full on October 1, 2001.
F-12
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
10. LONG-TERM DEBT--(CONTINUED)
Maturities of long-term debt were as follows at December 31, 1997:
<TABLE>
<S> <C>
1998............................................................................... $ 3,565
1999............................................................................... 3,583
2000............................................................................... 3,768
2001............................................................................... 3,073
-------
$13,989
-------
-------
</TABLE>
The Senior ESOP Note agreements contain covenants including limits on
future indebtedness, investments, dividends, capital expenditures, and mergers
and acquisitions. In addition, the note agreements contain financial covenants
related to the Company's total liabilities, amounts of liquid securities plus
unused lines of credit, minimum adjusted capital and life insurance on the
Company's chairman and chief executive officer.
In the event of a change in control, as defined in the agreements, the
Company is required to request the consent of each note holder. Under the terms
of the agreements, payment of all amounts due to any note holders not consenting
to the change in control is due within 105 days of the request. The Company's
chairman and chief executive officer has executed a conditional guarantee, which
is operative only in the event of a change in control, whereby he has guaranteed
full payment due to any note holders not consenting to the change in control.
Under the terms of the Senior ESOP Notes, three officers of the Company,
including the Company's chairman and chief executive officer, have executed a
limited guarantee whereby these individuals have guaranteed partial payment of
the principal and interest, if any amounts become past due as defined in the
agreement. Their aggregate maximum liability is approximately $4,500 at December
31, 1997.
11. COMMON STOCK
The Company is authorized to issue shares of preferred stock and three
classes of common stock. The holders of Class A common stock are entitled to
voting rights but not dividends. Class A stockholders, acting together with
Class C stockholders as a separate class, have the right to elect at least two
directors. These directors will have seven votes each on matters on which they
are entitled to vote.
The holders of Class B common stock are entitled to dividends if those
dividends are declared or paid on both Class B and Class C common stock. Class B
stockholders are entitled to voting rights as defined in the certificate of
incorporation. Class B stockholders, acting together with Class C stockholders
as a separate class, have the right to elect up to eleven directors. These
directors will have one vote on matters on which they are entitled to vote. As
described in Note 12, the Class C common stock allocated to ESOP participants is
subject to a put option to the Company as long as such shares are not readily
tradable.
In addition to any rights stated above with respect to Class A and Class B
stockholders, Class C stockholders are entitled to receive dividends and are
entitled to one vote each on matters submitted to a vote of stockholders.
In the event of liquidation, dissolution, or winding up of the Company,
after payment of debts and other liabilities and any preferences to holders of
preferred stock, the holders of Class A, B and C common stock will share ratably
in the remaining assets of the Company, except that holders of Class A common
stock will not receive more than $0.07 per share.
The Company has agreed to use its best efforts to provide that certain
Class B stockholders and holders of options to purchase Class B stock have a
priority right to sell a certain portion of their Class B common stock to the
ESOP in the event that the ESOP trust purchases additional shares (see Note 12).
F-13
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
11. COMMON STOCK--(CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net (loss) income (no reconciling items for basic or
diluted earnings per share calculations).............. $ (866) $ (55) $ 713 $(1,774) $(2,344)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Denominator:
Denominator for basic earnings per share--weighted
average shares (in thousands)......................... 7,525 6,489 6,534 5,503 4,490
Effect of dilutive securities:
Employee stock options (in thousands).................... 1,070 1,070 1,070 -- --
------- ------- ------- ------- -------
Dilutive potential common shares (in thousands)............ 1,070 1,070 1,070 -- --
------- ------- ------- ------- -------
Denominator for diluted earnings per share--adjusted
weighted average shares and assumed conversions (in
thousands)............................................... 8,595 7,559 7,604 5,503 4,490
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Basic earnings per share................................... $ (0.12) $ (0.01) $ 0.11 $ (0.32) $ (0.52)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Diluted earnings per share................................. $ (0.10) $ (0.01) $ 0.09 $ (0.32) $ (0.52)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The dilutive effect on earnings per share is attributable to Class B stock
options (see Note 15 for further discussion). As discussed in Note 19 the Class
B stock options will be converted to interests in the deferred stock
compensation plan at the consummation of the offering. In addition, the above
per share amounts have been adjusted to give consideration to the 180:1 reverse
stock split as to Class A common stock and the 15:1 stock split authorized by
the Company's Board of Directors on July 15, 1998 as more fully discussed in
Note 19.
12. EMPLOYEE STOCK OWNERSHIP PLAN
On October 2, 1989, the Company borrowed $15,000, which was then loaned by
the Company to the newly formed The Cassidy Companies, Inc. Employee Stock
Ownership Trust (the ESOP) on the same terms. The final payment on this loan was
made during 1997. With the proceeds, the ESOP purchased 1,222,830 shares of the
Company's outstanding common stock at a price of $12.27 per share.
On March 9, 1994, the Company borrowed $18,000 (see Note 10), which was
then loaned by the Company to the ESOP on the same terms. With the proceeds, the
ESOP purchased 2,231,415 shares of the Company's outstanding common stock at a
price of $8.07 per share. The ESOP owns all of the Company's outstanding Class C
common stock.
The Company's notes receivable from the ESOP are secured by any unallocated
shares purchased by the ESOP. The notes will be repaid from future contributions
by the Company to the ESOP and/or dividends on the Company's shares held by the
ESOP. Unearned ESOP shares are classified as a component of stockholders'
deficit in the accompanying consolidated balance sheets. The amount of the
Company's annual contribution to the ESOP is discretionary except that it must
be sufficient, together with dividends paid on shares held by the
F-14
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. EMPLOYEE STOCK OWNERSHIP PLAN--(CONTINUED)
ESOP, to enable the ESOP to meet its current obligations. As the loans are
repaid, common stock is committed to be released to ESOP participants.
Employees of the Company are generally eligible to participate in the Plan
after at least six months of service, provided they have worked at least 500
hours during such employment period and have attained age twenty-one.
Alternatively, employees who have worked at least 1,000 hours during their first
employment year and have attained age twenty-one are eligible to participate.
Participants who do not have at least 1,000 hours of service during a plan year
or who are not employed on the last working day of a plan year are generally not
eligible for an allocation of Company contributions for such year.
The Plan's participants are entitled to receive distributions from the ESOP
as determined under the terms of the Plan. If the distribution includes shares
of stock which are not readily tradable, the participant has the option to have
such shares purchased by the Company at fair market value. If, at any time prior
to October 2, 2000, any participant exercises the option to have the Company
purchase shares which were originally issued in connection with the 1989 ESOP
transaction, the minimum price paid by the Company will be $12.27 per share. No
such minimum price per share exists for shares issued in connection with the
1994 ESOP transaction. During the years ended December 31, 1997, 1996, and 1995,
the Company purchased 30,930, 11,235, and 20,310 Class C shares, respectively,
from ESOP participants who terminated employment under the terms of the put
option. The Company's obligation to purchase shares allocated to Plan
participants if all participants terminated employment and exercised their
options to have the Company purchase their Class C common shares would be
$21,392, $20,049, and $16,411 as of June 30, 1998 and December 31, 1997 and
1996, respectively. The ESOP participants put options terminate upon the
Company's stock becoming readily tradable.
Under the terms of a stockholders' agreement, the ESOP has co-sale rights
with respect to specified future sales of the Company's stock by the Company's
chairman and chief executive officer, the co-sale rights will terminate upon the
Company's stock becoming readily tradable.
The Company records ESOP related transactions in accordance with AICPA
Statement of Position 93-6 (SOP), 'Employers' Accounting for Employee Stock
Ownership Plans.' The significant provisions of the SOP are that 1) compensation
expense is recognized at the fair value of shares when committed to be released;
and 2) dividends on unallocated shares used for debt service are reported as a
reduction of debt or accrued interest, and do not reduce compensation and
interest expense. Dividends on allocated shares are recorded as an increase to
accumulated deficit.
The following is a summary of compensation expense related to the ESOP:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ESOP shares released at fair value............................... $1,340 $1,048 $2,090 $1,580 $2,050
Less: dividend on allocated shares............................... -- -- -- (313) (733)
------ ------ ------ ------ ------
Net ESOP compensation expense.................................... $1,340 $1,048 $2,090 $1,267 $1,317
------ ------ ------ ------ ------
------ ------ ------ ------ ------
ESOP interest expense............................................ $ 529 $ 691 $1,402 $1,767 $1,861
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
F-15
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. EMPLOYEE STOCK OWNERSHIP PLAN--(CONTINUED)
The status of Class C shares were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------------
1998 1997 1996
----------- ------ -------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
(UNAUDITED)
Allocated shares................................................................ 2,201 1,995 1,629
Unreleased shares............................................................... 1,253 1,459 1,825
----------- ------ -------
Total shares.................................................................... 3,454 3,454 3,454
Less shares held in treasury.................................................... (72) (72) (41)
----------- ------ -------
Total ESOP shares............................................................... 3,382 3,382 3,413
----------- ------ -------
----------- ------ -------
Fair value of unreleased shares as determined by an independent appraisal
performed as of December 31, 1997, 1996 and 1995, respectively, (no appraisals
are prepared as of interim dates)............................................. $9,506 $ 8,906
------ -------
------ -------
</TABLE>
13. INCOME TAXES
The components of the (provision) benefit for income taxes related to
continuing operations were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
SIX MONTHS ------- ------ -------
ENDED
JUNE 30,
-----------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................................................. $ (117) $ (778) $ 30 $(1,050)
State............................................................... (314) (316) (47) (248)
----------- ------- ------ -------
Total current.................................................... (431) (1,094) (17) (1,298)
Deferred:
Federal............................................................. -- -- -- --
State............................................................... -- -- -- --
----------- ------- ------ -------
Total deferred................................................... -- -- -- --
----------- ------- ------ -------
(Provision) benefit for income taxes.................................. $ (431) $(1,094) $ (17) $(1,298)
----------- ------- ------ -------
----------- ------- ------ -------
</TABLE>
The income tax (provision) benefit charged to discontinued operations for
the six months ended June 30, 1998 was $235, and for the years ended December
31, 1997, 1996, and 1995 was $486, $229, and $(340), respectively.
The provision for income taxes does not reflect the benefit realized for
the deduction of the excess of the cost of ESOP shares released over the fair
market value of those shares of approximately $177 for the six months ended June
30, 1998 and $471, $98, and $528 for the years ended December 31, 1997, 1996,
and 1995, respectively. The benefit related to this difference was charged
directly to income taxes payable with a corresponding credit directly to
additional paid-in capital.
F-16
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
13. INCOME TAXES--(CONTINUED)
Deferred income tax assets and liabilities are computed based on the
difference between the financial statement and tax bases of assets and
liabilities using the enacted marginal tax rate in effect for the year in which
the differences are expected to reverse. The components of the Company's
deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
SIX MONTHS ------- -------
ENDED
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income tax liabilities:
Depreciation.................................................................. $ (314) $ (301) $ (266)
----------- ------- -------
(314) (301) (266)
Deferred income tax assets:
Deferred compensation......................................................... 2,464 2,464 2,485
ESOP compensation expense, currently not deductible........................... 800 800 814
Deferred rent................................................................. 1,038 1,067 1,208
NOL carryforwards............................................................. 2,563 2,968 3,550
Alternative minimum tax credit carryforwards.................................. 519 398 386
Deferred income............................................................... 345 358 143
Accounts receivable allowance................................................. 221 226 114
Other......................................................................... 589 531 413
Valuation allowance........................................................... (8,225) (8,511) (8,847)
----------- ------- -------
Net deferred income tax asset................................................... $ -- $ -- $ --
----------- ------- -------
----------- ------- -------
</TABLE>
Approximately $2,350 and $2,300 of the above benefit for NOL carryforwards
as of June 30, 1998 and December 31, 1997, respectively, relate to tax
deductions resulting from the excess of the cost over the fair market value of
ESOP shares released. This benefit, when and if realized, will reduce income
taxes payable with a corresponding credit directly to additional paid in
capital. The Company has provided a valuation allowance to offset its entire net
deferred tax asset because management is unable to conclude it is more likely
than not that such benefits will be realized.
F-17
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
13. INCOME TAXES--(CONTINUED)
The reconciliation of the (provision) benefit for income taxes related to
continuing operations from the statutory rate of 34% is:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
SIX MONTHS ------- ------- -------
ENDED
JUNE 30,
-----------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at statutory rates............................................... $(718) $(1,501) $ (80) $ (65)
Non-deductible expenses.............................................. (159) (313) (316) (192)
State income tax net of federal benefit.............................. (314) (317) (47) (248)
Valuation allowance change........................................... 760 1,037 426 (793)
----------- ------- ------- -------
$(431) $(1,094) $ (17) $(1,298)
----------- ------- ------- -------
----------- ------- ------- -------
</TABLE>
At June 30, 1998 and December 31, 1997, the Company had a net operating
loss carryforward of approximately $6,700 and $7,800, which expires in 2009
through 2011. In addition, the Company has an alternative minimum tax credit
carryforward of approximately $519 at June 30, 1998 and $398 at December 31,
1997 which has no expiration date.
14. SEGMENT REPORTING
The Company's reportable segments are segregated into business units that
offer services for two distinct purposes: government relations and public
affairs. The Company's government relations segment, comprised of C&A and B&M,
provides expert representation and advocacy in the legislative and regulatory
process. The public affairs segment, comprised of PT, FSR and B&A, provides
crisis communications, opinion research and litigation support services.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. There are no intersegment sales and transfers.
All services provided to clients and customers are performed in the United
States.
During the six months ended June 30, 1998, the government relations group
recognized revenues and income from operations of $13,539 and $1,452,
respectively, and held assets of $8,503 as of June 30, 1998. The public affairs
group recognized revenues and income from operations of $8,623 and $230 during
the six months ended June 30, 1998 and held assets of $6,260 as of June 30,
1998.
Activity for the segments, corporate headquarters, and discontinued
operations are as follows:
<TABLE>
<CAPTION>
GOVERNMENT PUBLIC DISCONTINUED
RELATIONS AFFAIRS CORPORATE OPERATIONS TOTAL
---------- ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Revenues from external customers.................... $ 26,384 $14,661 $ -- $ 2,898 $43,943
Income from operations.............................. 3,228 95 -- (2,610) 713
Depreciation expense................................ 382 157 76 -- 615
Segment assets...................................... 7,413 5,580 3,047 1,937 17,977
Expenditures for long-lived assets.................. 432 7 862 62 1,363
</TABLE>
F-18
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
14. SEGMENT REPORTING--(CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT PUBLIC DISCONTINUED
RELATIONS AFFAIRS CORPORATE OPERATIONS TOTAL
---------- ------- --------- ------------ -------
Year Ended December 31, 1996:
<S> <C> <C> <C> <C> <C>
Revenues from external customers.................... $ 23,007 $13,450 $ -- $ 2,687 $39,144
Income from operations.............................. 232 (481) -- (1,525) (1,774)
Depreciation expense................................ 265 306 -- 94 665
Segment assets...................................... 6,971 3,845 2,520 1,318 14,654
Expenditures for long-lived assets.................. 146 325 -- -- 471
Year Ended December 31, 1995:
Revenues from external customers.................... $ 23,891 $12,383 $ -- $ 1,899 $38,173
Income from operations.............................. 130 (1,236) -- (1,238) (2,344)
Depreciation expense................................ 382 176 -- 94 652
</TABLE>
The reconciling item to adjust total consolidated assets to segment assets
is the amount of liabilities included in net assets of discontinued operations,
such amounts at June 30, 1998 and December 31, 1997 and 1996 were $242, $325 and
$456, respectively.
15. RESTRICTED STOCK AND STOCK OPTIONS ISSUED
At December 31, 1997, a total of 2,097,570 outstanding shares of Class B
common stock and 62,595 options to purchase Class B common stock, with an
exercise price of $0.00067 per share, have been issued to employees subject to
certain significant restrictions. The shares and the Class B shares issuable
upon exercise of the options are generally nontransferable and are either
forfeitable upon termination of employment or for any reason other than death or
disability. The restrictions regarding forfeiture of the shares described above
will lapse upon a change in control of the Company or upon a discretionary
decision to remove the restrictions by the Company's Board of Directors. No
amounts have been recorded as compensation in the accompanying consolidated
financial statements relating to these grants of shares and stock options.
Compensation expense will be recorded based on the fair market value of the
shares in the event the restrictions are released.
In addition to the stock options discussed above, the Company has granted
options to purchase 1,060,215 shares of Class B common stock to an officer of
the Company pursuant to an employment agreement. These options were granted at
an exercise price of $0.00067 per share and expire 20 years after the grant
date. Compensation expense related to these options, which approximately the
fair value of the underlying shares, totaled $-0-, $1,313, and $1,277 in 1997,
1996, and 1995, respectively. Option grants were $-0-, $-0-, and $279,585 during
the years ended December 31, 1997, 1996, and 1995.
16. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under several noncancelable operating
leases that expire at various dates through 2006. Certain of the leases required
no payment during a portion of the lease term. Rent expense under all leases is
recognized on a straight-line basis, and a deferred rent obligation has been
recognized in the accompanying financial statements related to periods of free
rent, improvement allowances, and certain expenses
F-19
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
paid by the lessor. Future minimum lease payments under noncancelable leases as
of December 31, 1997 are as follows.
<TABLE>
<S> <C>
1998............................................................................... $ 2,821
1999............................................................................... 2,807
2000............................................................................... 2,873
2001............................................................................... 2,861
2002............................................................................... 1,509
Thereafter......................................................................... 5,572
-------
Total minimum lease payments....................................................... $18,443
-------
-------
</TABLE>
Office rental expense charged to expense for the years ended December 31,
1997 1996 and 1995 was approximately $3,030, $2,872, and $2,614, respectively.
Certain office space leases provide for renewal options at their fair
rental value at the time of renewal.
Consulting Agreements
The Company has oral and written consulting agreements with various firms
and individuals that refer clients to the Company. Many of these agreements
provide for payments based on a percentage of the fees earned from the client
relationship. Total consulting expense was approximately $1,268 and $1,252 for
the six month periods ended June 30, 1998 and 1997, respectively and $2,851
$3,122 and $3,211 for the years ended December 31, 1997 1996 and 1995,
respectively.
17. LIFE INSURANCE
The Company maintains life insurance policies in the aggregate of $29,500
on nine of its key officers.
18. DISCONTINUED OPERATIONS
Effective July 15, 1998, the Company has adopted a plan to dispose of its
PTC and PTNY businesses. In addition, the Company discontinued its SR business
as of February 1997. These businesses are reported separately in the statements
of operations as discontinued operations.
F-20
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
18. DISCONTINUED OPERATIONS--(CONTINUED)
Summary operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenues:
PTC............................................................ $1,361 $ 7 $ 628 $ -- $ --
SR............................................................. -- 109 109 711 1,607
PTNY........................................................... 1,409 1,302 2,161 1,976 292
------ ------ ------ ------ ------
$2,770 $1,418 $2,898 $2,687 $1,899
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Loss from operations, net of tax:
PTC............................................................ $ 185 $ 79 $ 678 $ 260 $ --
SR............................................................. -- 737 645 654 698
PTNY........................................................... 363 317 1,287 611 540
------ ------ ------ ------ ------
548 1,133 2,610 1,525 1,238
Provision for loss on disposition, net of tax.................... 2,000 -- -- -- --
------ ------ ------ ------ ------
Total loss from discontinued operations.......................... $2,548 $1,133 $2,610 $1,525 $1,238
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
19. SUBSEQUENT EVENTS
On July 15, 1998, the Board of Directors authorized the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its Common Stock to the public in an Initial
Public Offering (the 'Offering'). In connection with this authorization, the
Board of Directors of the Company has approved additional related actions to
facilitate the Offering as described below.
The Board of Directors, as well as the stockholders, have approved the
reclassification of the Company's three outstanding classes of common stock into
shares of the Common Stock. As a result, the Company will have only one class of
authorized and issued equity securities upon the closing of the Offering.
The Company has entered into an understanding with 65 holders of 2,097,570
shares of its class B common stock by which the holders will surrender the
shares of class B stock owned by them all of which are subject to significant
restrictions (see Note 15), and will receive interests in a trust upon the
closing of the Offering. In addition, the Company's outstanding Class B Stock
Options will be canceled and holders thereof will receive interests in a trust
upon the closing of the Offering. The issuance of the common stock interests to
the trust, which are not subject to the significant restrictions referred to
above, will result in a charge to operations in the period the Offering is
consummated equal to the number of shares issued to the trust times the Offering
price per share.
On July 15, 1998, the Company's Board of Directors authorized (i) a 180 for
1 reverse stock split of its Class A Common Stock; (ii) conversion of the Class
A Common Stock to Class B Common Stock; and (iii) a 15 for 1 split of the
Company's $0.01 par value Common Stock, which will become effective upon the
closing of the Offering. All references in the accompanying consolidated
financial statements have been restated to reflect the split of the Company's
Common Stock.
F-21
<PAGE>
THE CASSIDY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995 AND JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
19. SUBSEQUENT EVENTS--(CONTINUED)
Upon completion of the Offering, the ESOP trustee is expected to pay the
outstanding balance on the ESOP debt along with accrued interest and a
prepayment penalty thereon. Once the ESOP debt has been repaid, the remaining
unallocated ESOP shares will be released as security for the ESOP debt and then
allocated to ESOP participants. The fair market value of shares released to ESOP
participants is charged to ESOP stock compensation expense. The estimated charge
to operations related to the awarding of these shares is expected to approximate
the number of shares to be allocated at the price of the Common Stock at the
Offering and is estimated to be approximately $5 million. Upon completion of the
Offering and the repayment of the outstanding balance on the ESOP debt, the
Company will discontinue making contributions to the ESOP and initiate a process
to design and implement a replacement benefit plan for its employees.
In addition, on July 15, 1998 the Company's board of directors voted to
distribute its ownership interest in Galway Partners, L.L.C. to the Company's
stockholders prior to the Offering.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Member
Pickholz Tweedy Cowan, LLC
We have audited the accompanying balance sheets of Pickholz Tweedy Cowan, LLC
('the Company') as of December 31, 1997 and 1996, and the related statements of
operations, member's equity, and cash flows for the year ended December 31, 1997
and the period from January 19, 1996 (inception) to December 31, 1996,
respectively. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Pickholz Tweedy Cowan, LLC at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997, and the period from January 19, 1996
(inception) to December 31, 1996, respectively, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLC
Washington, DC
June 19, 1998
F-23
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 29,343 $ 426,228
Accounts receivable, net of allowance for doubtful accounts of $53,534 and $4,790
at December 31, 1997 and 1996, respectively.................................... 642,173 62,540
Other current assets.............................................................. 8,168 32,100
----------- -----------
Total current assets................................................................ 679,684 520,868
Property and equipment, net......................................................... 66,122 62,748
----------- -----------
Total assets........................................................................ $ 745,806 $ 583,616
----------- -----------
----------- -----------
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable.................................................................. $ 631,337 $ 198,916
Accrued payroll................................................................... 50,952 --
Due to related party.............................................................. -- 141,859
----------- -----------
Total current liabilities........................................................... 682,289 340,775
Member's equity:
Paid-in capital................................................................... 2,014,853 1,119,486
Less: note receivable............................................................. (98,956) (75,000)
Accumulated deficit............................................................... (1,852,380) (801,645)
----------- -----------
Total member's equity............................................................... 63,517 242,841
----------- -----------
Total liabilities and member's equity............................................... $ 745,806 $ 583,616
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-24
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 19,
1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Sales............................................................................. $ 957,842 $ 815,707
Selling, general and administrative expenses...................................... 2,015,940 1,649,452
--------------- ---------------
Loss from operations.............................................................. (1,058,098) (833,745)
Other income (expense):
Interest income................................................................. 8,172 32,100
Other expense................................................................... (809) --
--------------- ---------------
Net loss.......................................................................... $(1,050,735) $ (801,645)
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-25
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
STATEMENTS OF MEMBER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
JANUARY 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOTE
PAID IN ACCUMULATED RECEIVABLE-
CAPITAL DEFICIT MEMBER TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 19, 1996 (inception).................. $ -- $ -- $ -- $ --
Initial capital contribution........................... 1,000,000 -- (550,000) 450,000
Additional capital contribution--The Cassidy Companies,
Inc................................................. 119,486 119,486
Payments on note receivable-member..................... 475,000 475,000
Net loss............................................... -- (801,645) -- (801,645)
---------- ----------- ----------- -----------
Balance at December 31, 1996............................. 1,119,486 (801,645) (75,000) 242,841
Additional capital contribution--The Cassidy Companies,
Inc................................................. 895,367 895,367
Restructuring of note receivable....................... (23,956) (23,956)
Net loss............................................... -- (1,050,735) (1,050,735)
---------- ----------- ----------- -----------
Balance at December 31, 1997............................. $2,014,853 $(1,852,380) $ (98,956) $ 63,517
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-26
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 19, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ----------------
<S> <C> <C>
Operating Activities
Net loss....................................................................... $ (1,050,735) $ (801,645)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation................................................................ 10,608 8,655
Changes in operating assets liabilities:
Accounts receivable....................................................... (579,633) (62,540)
Other current assets...................................................... 23,932 (32,100)
Accounts payable.......................................................... 432,421 198,916
Accrued salaries.......................................................... 50,952 --
Due to related party...................................................... (141,859) 141,859
------------ ----------------
Net cash (used in) operating activities.......................................... (1,254,314) (546,855)
Investing Activities
Purchase of property and equipment............................................. (13,982) (71,403)
------------ ----------------
Net cash used in investing activities.......................................... (13,982) (71,403)
Financing Activities
Additional capital contributions--The Cassidy Companies, Inc................... 895,367 119,486
Restructuring of note receivable............................................... (23,956) --
Proceeds from capital contributions............................................ -- 925,000
------------ ----------------
Net cash provided by financing activities...................................... 871,411 1,044,486
------------ ----------------
Net (decrease) increase in cash and cash equivalents........................... (396,885) 426,228
Cash and cash equivalents at beginning of period............................... 426,228 --
------------ ----------------
Cash and cash equivalents at end of period..................................... $ 29,343 $ 426,228
------------ ----------------
------------ ----------------
</TABLE>
See accompanying notes.
F-27
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. THE COMPANY
Pickholz Tweedy Cowan, LLC, a limited liability company (the 'Company'), is
engaged in the direct marketing business. The Company was formed on January 19,
1996 under an LLC agreement whereby The Cassidy Companies, Inc. ('Parent') and
Pickholz Tweedy Cowan, Inc. ('PTC') each owned 50% of the Company. The
provisions of the LLC agreement provided PTC with a put option to sell its
interest in the Company to the Parent at an unspecified date for a specified
value of the Parent's Class B Common Stock. In June 1997, PTC exercised its put
option and sold its 50% interest in the Company to the Parent. As of December
31, 1997, the Company is a wholly owned subsidiary of the Parent.
The Company's financial statements have been presented on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. While the Company
has experienced losses during the year ended December 31, 1997 and the period
from January 19, 1996 (inception) to December 31, 1996, it believes that its
existing resources, anticipated cash flows from operations, and funding from its
Parent (if needed) will provide sufficient resources to fund its operating
activities for 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue based on monthly, quarterly and other
retainer periods starting in the month service begins. Certain client
arrangements provide for billings based on hours incurred at specified rates.
Revenues on these arrangements are recognized as services are provided.
Unbilled Accounts Receivable
Certain of the Company's clients are billed in the month following the
month of service. Unbilled accounts receivable represent fees that have been
earned but will be billed in subsequent periods together with incurred expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................................................. 10 years
Computer hardware.................................................................. 5 years
Computer software.................................................................. 3 years
</TABLE>
Selling and Marketing
Selling and marketing costs are charged to expense as incurred. For the
year ended December 31, 1997 and the period from January 19, 1996 (inception) to
December 31, 1996, total selling and marketing expenses were $62,661 and
$32,457, respectively.
F-28
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, consisting primarily of cash, receivables, accounts payable and
accrued liabilities to approximate the fair value of the respective assets and
liabilities.
Income Taxes
The Company is treated as a partnership for income tax purposes.
Accordingly, no provision for income taxes has been included in these financial
statements, as taxable income or loss passes through to, and is reported by, the
member.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Furniture and fixtures....................................... $ 55,241 $55,546
Computer hardware............................................ 26,519 12,232
Computer software............................................ 3,625 3,625
-------- -------
85,385 71,403
Less accumulated depreciation................................ (19,263) (8,655)
-------- -------
$ 66,122 $62,748
-------- -------
-------- -------
</TABLE>
4. COMMITMENTS
Operating Leases
The Company leases its facilities under a sub-lease from a subsidiary of
the Parent. Operating costs are allocated to the Company as defined in the
sub-lease. Effective January 1998, the Company entered into a five year lease
for its facilities with an unrelated third party.
At December 31, 1997, minimum annual lease obligations under operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- ------------------------------------------------------------------------
<S> <C>
1998.................................................................... $115,500
1999.................................................................... 115,500
2000.................................................................... 115,500
2001.................................................................... 115,500
2002.................................................................... 115,500
--------
$577,500
--------
--------
</TABLE>
F-29
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 AND 1996
4. COMMITMENTS--(CONTINUED)
Rent expense was $129,200 and $120,227 for the year ended December 31, 1997
and the period from January 19, 1996 (inception) to December 31, 1996,
respectively.
As part of the lease agreement, office operating costs are allocated to the
Company equal to 11% of total office expenses as defined under the agreement.
These amounts totaled $27,000 and $23,000 for the year ended December 31, 1997
and the period from January 19, 1996 (inception) to December 31, 1996.
5. RELATED PARTY TRANSACTIONS
The Company rents office space from a subsidiary of the Parent under a
sublease agreement. Rent and office expenses under the sub-lease agreement were
$268,330 and $253,176 for the year ended December 31, 1997 and the period from
January 19, 1996 (inception) to December 31, 1996, respectively. Amounts due to
the subsidiary of the Parent at December 31, 1997 and 1996 were $0 and $141,859,
respectively.
In connection with the start up of the Company, two promissory notes
totaling $550,000 were issued by the Parent and PTC to the Company. These notes
bore interest at 8% and were payable on demand. Balances due from the Parent and
PTC at December 31, 1996 were $0 and $75,000, respectively.
In July 1997, the Company agreed to refinance the promissory note
receivable from PTC. The new terms state the principal and accrued interest are
payable upon the next Employee Stock Ownership Plan transaction by the Parent.
Under the new note, any unpaid interest through the restructuring date was added
to the principal balance. Principal and interest due at December 31, 1997 were
$98,956 and $7,672, respectively.
Accrued interest in connection with these notes at December 31, 1997 and
1996 totaled $7,672 and $32,100, respectively.
During the year ended December 31, 1997 and the period from January 19,
1996 (inception) to December 31, 1996, the Parent funded the Company's payroll
and operating expenses. These payments are recorded as paid in capital by the
Company.
6. MEMBER EQUITY
Effective January 19, 1996, the Company was founded under an operating
agreement by the Parent and PTC. Under this agreement the owners agreed to
contribute $1,000,000 to the start up of the Company.
In connection with the initial capital contribution, the founders signed
promissory notes totaling $550,000 as discussed above.
As discussed above, the Parent has funded certain of the Company's payroll
and operating expenses. Amounts funded and recorded as paid in capital for the
year ended December 31, 1997 and the period from January 19, 1996 (inception) to
December 31, 1996 were $895,367 and $119,486, respectively.
7. SIGNIFICANT CUSTOMERS
The Company transacts business with two customers which generated
approximately 61% and 30% of the total revenue recognized by the Company for the
year ended December 31, 1997. Total revenues from these customers for the period
January 19, 1996 (inception) to December 31, 1996 were approximately 57% and
33%, respectively, of the total revenues recognized by the Company.
8. RETIREMENT PLAN
The Company's employees are eligible to participate in the Parent's
Employee Stock Ownership Plan and Trust (the ESOP).
F-30
<PAGE>
PICKHOLZ TWEEDY COWAN, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 AND 1996
8. RETIREMENT PLAN--(CONTINUED)
Employees of the Company are generally eligible to participate in the Plan
after at least six months of service, provided they have worked at least 500
hours during such employment period and have attained age twenty-one.
Alternatively, employees who have worked at least 1,000 hours during their first
employment year and have attained age twenty-one are eligible to participate.
Participants who do not have at least 1,000 hours of service during a plan year
or who are not employed on the last working day of a plan year are generally not
eligible for an allocation of Company contributions for such year.
The amount of the Parent's annual contribution to the ESOP is discretionary
except that it must be sufficient, together with dividends paid on shares held
by the ESOP, to enable the trust to meet its current obligations. The Plan's
participants are entitled to receive distributions from the ESOP as determined
under the terms of the Plan. If the distribution includes shares of stock which
are not readily tradable, the participant has the option to have such shares
purchased by the Parent at fair market value. There were no distributions to the
Company's employees under the ESOP for the year ended December 31, 1997 or the
period from January 19, 1996 (inception) to December 31, 1996.
9. SUBSEQUENT EVENT
In June 1998, the Parent implemented a process to divest of the Company.
The Parent expects the divestiture to occur within twelve months.
F-31
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, ANY PERSON
OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
The Recapitalization........................... 15
Other Significant Recent Actions............... 15
Use of Proceeds................................ 16
Dividend Policy................................ 16
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 28
Management..................................... 42
Certain Transactions........................... 48
Principal and Selling Stockholders............. 49
Description of Capital Stock................... 51
Shares Eligible for Future Sale................ 54
Underwriting................................... 55
Legal Matters.................................. 57
Experts........................................ 57
Additional Information......................... 57
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING
TRANSACTIONS IN THE SHARES OF COMMON STOCK WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO 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.
SHARES
THE CASSIDY COMPANIES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses payable by the Company in
connection with the distribution of the Common Stock hereunder.
<TABLE>
<S> <C>
SEC registration fee........................................... $13,570
NASD filing fee................................................ 5,100
Nasdaq Stock Market listing fee................................ *
Accounting fees and expenses................................... *
Legal fees and expenses........................................ *
Printing and engraving expenses................................ *
Blue Sky fees and expenses..................................... 5,000
Transfer Agent fees and expenses............................... *
Miscellaneous expenses......................................... *
-------
Total.......................................................... $
-------
-------
</TABLE>
- ------------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, a corporation may indemnify its directors,
officers, employees and agents and its former directors, officers, employees and
agents and those who serve, at the corporation's request, in such capacities
with another enterprise, against expenses (including attorneys' fees), as well
as judgments, fines and settlements in nonderivative lawsuits, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. The DGCL provides, however, that such person must have acted in
good faith and in a manner such person reasonably believed to be in (or not
opposed to) the best interests of the corporation and, in the case of a criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful. In addition, the DGCL does not permit indemnification in
an action or suit by or in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person fairly and reasonably is entitled to indemnity
for costs the court deems proper in light of liability adjudication. Indemnity
is mandatory to the extent a claim, issue or matter has been successfully
defended.
The Registrant's Certificate of Incorporation and Bylaws provide for the
indemnification of directors and executive officers to the fullest extent
permitted by the DGCL and authorize the indemnification by the Registrant of
other officers, employees and other agents as set forth in the DGCL.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act, under
certain circumstances.
It is anticipated that upon completion of the Offering, officers and
directors of the Registrant will be covered by insurance which (with certain
exceptions and within certain limitations) indemnifies them against losses and
liabilities arising from any alleged 'wrongful act' including any alleged error
or misstatement or misleading statement, or wrongful act or omission or neglect
or breach of duty.
The Selling Stockholders will not bear any of the expenses of the Offering,
other than payment of the underwriting discounts and commissions applicable to
shares of the Common Stock sold by the Selling Stockholders.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
(a) NUMBER EXHIBIT DESCRIPTION
---------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Form of Underwriting Agreement among the Company, the Selling Stockholders and the Underwriters*
3 Organizational Documents
3.1 Articles of Incorporation of The Cassidy Companies, Inc., as amended
3.2 Form of Amended and Restated Articles of Incorporation of The Cassidy Companies, Inc.
3.3 Bylaws of The Cassidy Companies, Inc.
3.4 Form of Amended Bylaws of The Cassidy Companies, Inc.
4 Specimen Common Stock Certificate*
5 Opinions re Legality
5.1 Opinion of Hogan & Hartson L.L.P.*
10 Material Contracts
10.1 ESOP Loan Agreement
10.2 Deferred Stock Compensation Plan*
10.3 1998 Stock Option and Incentive Plan
10.4 Employment Agreement among the Company and its Executive Officers*
10.5 Letter agreement between The Cassidy Companies, Inc. and the ESOP Trustee*
10.6 Form of letter executed by holders of certain shares of Class B Common Stock*
21 List of Subsidiaries of The Cassidy Companies, Inc.
23 Consents of Experts and Counsel
23.1 Consent of Hogan & Hartson L.L.P. (counsel) (included as part of Exhibit 5a)
23.2 Consent of Ernst & Young LLP (accountants)
24 Powers of Attorney (included on signature pages of Registration Statement on page II-4)
27 Financial Data Schedules
27.1 Financial Data Schedule for six months period ending June 30, 1998
27.2 Financial Data Schedule for twelve month period ending December 31, 1997
99 Additional Exhibits
99.1 Consent of John R. Silber to be named as a proposed director
------------------
* To be filed by amendment.
</TABLE>
(b) The financial statement schedules for which provision is made in the
applicable accounting regulations of the SEC are either not required under
the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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, the 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 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 hereby 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
II-2
<PAGE>
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 the Commission declared it 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 in this Registration Statement, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREIN TO BE DULY AUTHORIZED IN THE DISTRICT OF
COLUMBIA, ON THIS 21ST DAY OF JULY, 1998.
THE CASSIDY COMPANIES, INC.
By: _____/s/ GERALD S. J. CASSIDY_____
Gerald S. J. Cassidy
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gerald S. J. Cassidy and Lester G. Fant
III jointly and severally, each in his own capacity, as his true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do so 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 he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons, in the
capacities indicated below, on this 21st day of July, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -------------------------------------------
<C> <S> <C>
/s/ GERALD S. J. CASSIDY Chairman and Chief Executive Officer
- ------------------------------------------
Gerald S. J. Cassidy
/s/ JOHN T. HENDRICK Principal Financial and Accounting Officer
- ------------------------------------------ and Director
John T. Hendrick
/s/ JAMES P. FABIANI Vice Chairman and Director
- ------------------------------------------
James P. Fabiani
/s/ LESTER G. FANT III Director
- ------------------------------------------
Lester G. Fant III
/s/ JOSEPH L. POWELL Director
- ------------------------------------------
Joseph L. Powell
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NO.
- ------ -------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
1 Form of Underwriting Agreement among the Company, the Selling Stockholders and the
Underwriters*
3 Organizational Documents
3.1 Articles of Incorporation of The Cassidy Companies, Inc., as amended
3.2 Form of Amended and Restated Articles of Incorporation of The Cassidy Companies, Inc.
3.3 Bylaws of The Cassidy Companies, Inc.
3.4 Form of Amended Bylaws of The Cassidy Companies, Inc.
4 Specimen Common Stock Certificate*
5 Opinions re Legality
5.1 Opinion of Hogan & Hartson L.L.P.*
10 Material Contracts
10.1 ESOP Loan Agreement
10.2 Deferred Stock Compensation Plan*
10.3 1998 Stock Option and Incentive Plan
10.4 Employment Agreement among the Company and its Executive Officers*
10.5 Letter agreement between The Cassidy Companies, Inc. and the ESOP Trustee*
10.6 Form of letter executed by holders of certain shares of Class B Common Stock*
21 List of Subsidiaries of The Cassidy Companies, Inc.
23 Consents of Experts and Counsel
23.1 Consent of Hogan & Hartson L.L.P. (counsel) (included as part of Exhibit 5a)
23.2 Consent of Ernst & Young LLP (accountants)
24 Powers of Attorney (included on signature pages of Registration Statement on page II-4)
27 Financial Data Schedules
27.1 Financial Data Schedule for six month period ending June 30, 1998
27.2 Financial Data Schedule for twelve month period ending December 31, 1998
99 Additional Exhibits
99.1 Consent of John R. Silber to be named as a proposed director
</TABLE>
- ------------------
* To be filed by amendment.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
THE CASSIDY COMPANIES, INC.
FIRST: The name of the Corporation is The Cassidy Companies, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes which the Corporation
shall have authority to issue is 1,600,000 shares, of which (i) 100,000 shares,
par value $1.00 per share, shall be Preferred Stock ("Preferred Stock") and (ii)
1,500,000 shares, par value $0.01 per share, shall be Class A Common Stock,
Class B Common Stock and Class C Common Stock, to be issued as shares of Class A
Common Stock, Class B Common Stock and/or Class C Common Stock as the Board of
Directors shall resolve from time to time. The Class A Common Stock, Class B
Common Stock and Class C Common Stock are sometimes hereinafter referred to
collectively as "Common Stock". The relative powers and preferences and rights,
and the qualifications, limitations or restrictions of the above classes of
stock shall be as set forth hereinafter.
FIFTH: A. Shares of Preferred Stock may be issued in one or more series at
such time or times, and for such consideration or considerations, as the Board
of Directors may determine.
B. The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series with such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
including, but not limited to, determination of any of the following:
(i) the distinctive serial designation and the number of shares
constituting a series;
(ii) the dividend rate or rates, whether dividends shall be
cumulative and, if so, from what date, the payment date or dates for
dividends, and the participating or other special rights, if any, with
respect to dividends;
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(iii) the voting powers full or limited, if any, of the shares of
such series;
(iv) the amount or amounts payable upon the shares in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation prior to any payment or distribution of the assets of the
Corporation to any class or classes or to any series of any class or
classes, of stock of the Corporation ranking junior to the Preferred Stock;
(v) whether the shares shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation or any other corporation, and if so convertible or
exchangeable, the conversion price or prices, or the rates of exchange, and
the adjustments thereof, if any, at which such conversion or exchange may
be made, and any other terms and conditions of such conversion or exchange;
and
(vi) any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
SIXTH: A. Except as otherwise required by law or expressly provided in this
Certificate of Incorporation, each share of Class A Common Stock shall entitle
the holder thereof to one (1) vote on each matter submitted to a vote of the
stockholders.
B. The holders of shares of Class A Common Stock shall have the
right, acting together with the holders of shares of Class C Common Stock as a
separate class, to elect (and to remove with or without cause) not less than two
(2) directors. Each director elected by the holders of shares of Class A Common
Stock and Class C Common Stock shall have seven (7) votes on each matter on
which a director is entitled to vote. Any vacancy occurring in the Board of
Directors because of the death, resignation or removal for any cause of any
director elected by the holders of shares of Class A Common Stock and Class C
Common Stock may be filled only by such holders.
C. No dividends shall be declared or paid to holders of shares of
Class A Common Stock in respect of such shares.
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SEVENTH: A. Except as otherwise required by law or expressly provided in
this Certificate of Incorporation, the holders of shares of Class B Common Stock
are not entitled to vote on matters submitted to the vote of stockholders. Each
share of Class B Common Stock shall entitle the holder thereof to one (1) vote
on each matter required by law or expressly provided hereby to be voted on by
holders of shares of Class B Common Stock.
B. Without the favorable vote of holders of at least a majority of
the issued and outstanding shares of Class B Common Stock, acting as a separate
class, the Corporation shall not amend this Certificate of Incorporation if such
amendment would:
(i) increase or decrease the par value of shares of Class B
Common Stock; or
(ii) change the powers; preferences or special rights of the
shares of Class B Common Stock so as to affect them adversely.
The number of authorized shares of Class B Common Stock may be increased or
decreased, but not below the number of shares thereof then outstanding, by the
affirmative vote of the holders of a majority of shares of Class A Common Stock
and Class C Common Stock.
C. The holders of shares of Class B Common Stock shall be entitled
to dividends when and as the same shall be declared by the Board of Directors,
and as the same may be permitted by law; provided, that dividends declared or
paid on shares of Class B Common Stock shall also be declared and paid on shares
of Class C Common Stock.
EIGHTH: A. Except as otherwise required by law or expressly provided in
this Certificate of Incorporation, each share of Class C Common Stock shall
entitle the holder thereof to one (1) vote on each matter submitted to a vote of
the stockholders.
B. The holders of shares of Class C Common Stock shall have the
right, acting together with the holders of shares of Class A Common Stock as a
separate class, to elect (and to remove with or without cause) not less than two
(2) directors. Each director elected by the holders of shares of Class C Common
Stock and Class A Common Stock shall have seven (7) votes on each matter on
which a director is entitled to vote. Any vacancy occurring in the Board of
Directors because of the death, resignation or removal of any director elected
by the holders of shares of Class A Common Stock and Class C Common Stock may be
filled only by such holders.
C. The holders of shares of Class C Common Stock shall be entitled
to dividends when and as the same shall be declared by the Board of Directors,
and as the same may be permitted by law.
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NINTH: A. The holders of shares of Class B Common Stock shall have the
right, acting together with the holders of shares of Class C Common Stock as a
separate class, to elect (and remove with or without cause) such number of
directors as shall be determined pursuant to the By-Laws of the Corporation.
Each director elected by the holders of shares of Class B Common Stock and Class
C Common Stock shall have one (1) vote on each matter on which a director is
entitled to vote. Any vacancy occurring in the Board of Directors because of the
death, resignation or removal of any director elected by holders of shares of
Class B Common Stock and Class C Common Stock shall be filled in accordance with
the Corporation's By-Laws.
B. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (sometimes referred to herein as
liquidation), after payment or provision for payment of the debts and other
payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any outstanding
shares of Preferred Stock hereafter authorized shall be entitled upon
liquidation, the holders of shares of Common Stock shall be entitled to share
ratably in the remaining assets of the Corporation; provided, however, that
holders of shares of Class A Common Stock shall not be entitled to receive more
than $1 of such remaining assets in respect of each such share of Class A Common
Stock in the event of liquidation.
TENTH: In all respects other than as expressly set forth in this
Certification of Incorporation, the Class A Common Stock, the Class B Common
Stock and the Class C Common Stock shall be identical.
ELEVENTH: The name and mailing address of the incorporator of the
Corporation are as follows:
Name Address
---- -------
Imad I. Qasim 1722 Eye Street, N.W.
Washington, DC 20006
TWELFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the By-Laws of the Corporation, subject to any specific
limitation on such power provided by any By-Laws adopted by the stockholders.
THIRTEENTH: Elections of directors need not be by written ballot unless the
By-Laws of the Corporation so provide.
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FOURTEENTH: The Corporation is to have perpetual existence.
FIFTEENTH: The Corporation reserves the right to amend, alter change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
SIXTEENTH: A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Section A by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
B. Each person who was or is made a party or is threatened to be
made a party to or is or was involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in Section C of this Article Sixteenth with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section B shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section B or
otherwise.
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C. If a claim under Section B of this Article Sixteenth is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standard of conduct which make it permissible under the
General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
D. The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Article Sixteenth shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
E. The Corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to, providing a trust fund,
letter of credit, or self-insurance, at its expense, to protect itself and any
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the General
Corporation Law of the State of Delaware.
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F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any agent of the Corporation to the fullest
extent of the provisions of this Article Sixteenth with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Corporation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, makes this Certificate, hereby declaring and certifying that the facts
herein stated are true, and accordingly has hereunto set his hand and seal this
13th day of March 1991.
/s/ Imad I. Qasim
------------------------------
Imad I. Qasim
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Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE CASSIDY COMPANIES, INC.
The Cassidy Companies, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation was originally incorporated on March 14, 1991, and its
original Certificate of Incorporation was filed with the Secretary of the State
of Delaware on the same date.
2. The Board of Directors of the Corporation, at a meeting duly called and
held in accordance with the By-Laws of the Corporation and Section 141 of the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law"), duly adopted resolutions proposing and declaring advisable
the adoption of the Amended and Restated Certificate of Incorporation of the
Corporation in the form hereof.
3. Holders of at least a majority of the outstanding shares of capital
stock of the Corporation, in accordance with the By-Laws of the Corporation and
Section 228 of the Delaware General Corporation Law, duly approved the Amended
and Restated Certificate of Incorporation of the Corporation in the form hereof.
4. Having been duly adopted pursuant to Sections 242 and 245 of the
Delaware General Corporation Law, this Amended and Restated Certificate of
Incorporation restates and integrates and further amends the provisions
previously filed with the Secretary of the State of Delaware.
5. The text of the Certificate of Incorporation of the Corporation hereby
is amended and restated to read in its entirety as follows:
ARTICLE 1. CORPORATE TITLE
The name of the Corporation is THE CASSIDY COMPANIES, INC.
ARTICLE 2. PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
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ARTICLE 3. CAPITAL STOCK
3.1. Authorized Shares
The total number of shares of all classes which the Corporation shall have
authority to issue is 55,000,000 shares, of which (i) 5,000,000 shares, par
value $1.00 per share, shall be Preferred Stock ("Preferred Stock") and (ii)
50,000,000 shares, par value $0.01 per share, shall be common stock ("Common
Stock"). The relative powers and preferences and rights, and the qualifications,
limitations or restrictions of the above classes of stock shall be as set forth
hereinafter.
3.2. Serial Preferred Stock
Shares of Preferred Stock may be issued in one or more series at such time
or times, and for such consideration or considerations, as the Board of
Directors may determine. The Board of Directors is expressly authorized at any
time, and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series with such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
including, but not limited to, determination of any of the following:
(i) the distinctive serial designation and the number of shares
constituting a series;
(ii) the dividend rate or rates, whether dividends shall be
cumulative and, if so, from what date, the payment date or dates for
dividends, and the participating or other special rights, if any, with
respect to dividends;
(iii) the voting powers full or limited, if any, of the shares of such
series;
(iv) the amount or amounts payable upon the shares in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation prior to any payment or distribution of the assets of the
Corporation to any class or classes or to any series of any class or
classes, of stock of the Corporation ranking junior to the Preferred Stock;
(v) whether the shares shall be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the
same or any other class or classes of stock of the Corporation or any other
corporation, and if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange; and
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(vi) any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
3.3. Common Stock
Except as otherwise required by law or expressly provided in this
Certificate of Incorporation, each share of Common Stock shall entitle the
holder thereof to one (1) vote on each matter submitted to a vote of the
stockholders. There shall be no cumulative voting in the election of directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (sometimes referred to herein as
liquidation), after payment or provision for payment of the debts and other
payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any outstanding
shares of Preferred Stock hereafter authorized shall be entitled upon
liquidation, the holders of shares of Common Stock shall be entitled to share
ratably in the remaining assets of the Corporation.
ARTICLE 4. DIRECTORS
4.1. Management of Business and Affairs of the Corporation
The business and affairs of the Corporation shall be managed by or under
the directors of the Board of Directors.
4.2. Number of Directors
The Board of Directors shall consist of nine (9) directors. The Board of
Directors shall divide the directors into three classes and, when the number of
directors is changed, shall determine the class or classes to which the
increased or decreased number of directors shall be apportioned; provided that
the directors in each class shall be as nearly equal in number as possible; and
provided further, that no decrease in the number of directors shall affect the
term of any director then in office.
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4.3. Classes of Directors
The Board of Directors shall initially be divided into three classes,
designated as Class I, Class II and Class III, where three (3) directors shall
be in Class I, two (2) directors shall be in Class II and two (2) directors
shall be in Class III. The initial term of Class I directors shall expire at the
annual meeting of stockholders in 1999, that of Class II shall expire at the
annual meeting in 2000, and that of Class III directors shall expire at the
annual meeting in 2001, and in all cases as to each director until his or her
successor shall be elected and shall qualify, or until his or her earlier
resignation, removal from office, death or incapacity.
Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified. Except as set
forth in this Certificate and the By-Laws with respect to vacancies, directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the duly constituted meeting and entitled to vote on the
election of directors.
4.4. Nomination of Directors
The Board of Directors shall nominate candidates to stand for election as
directors; and other candidates also may be nominated by any Corporation
stockholder, provided such other nomination(s) is submitted in writing to the
Secretary of the Corporation no earlier than one hundred twenty (120) days and
no later than ninety (90) days prior to the meeting of stockholders at which
such directors are to be elected, together with the identity of the nominating
stockholder and the number of shares of the Corporation's stock owned, directly
or indirectly, by the nominating stockholder. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2.4 of the
By-Laws with respect to vacancies, and each director elected shall hold office
until such director's successor is elected and qualified or until the director's
earlier death, resignation or removal. Directors need not be stockholders.
4.5. Vacancies
Any vacancy occurring in the Board of Directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled for
the unexpired term by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
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4.6. Removal of Directors
No director may be removed except for cause and then only at a duly
constituted meeting of stockholders called for such purpose. At least ninety
(90) days prior to such meeting of stockholders, written notice shall be sent to
the director or directors whose removal will be considered at such meeting. The
term "cause" shall mean (i) conduct, whether or not as a director of the
Corporation or any subsidiary, involving willful material misconduct, breach of
material fiduciary duty involving personal profit, or gross negligence as to
material duties or (ii) conduct, whether or not as a director of the Corporation
or any subsidiary, involving dishonesty or breach of trust which is punishable
by imprisonment for a term exceeding one year under state or federal law.
4.7. Limitation of Liability
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Article 4.7. by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
ARTICLE 5. MEETINGS OF STOCKHOLDERS
5.1. Action at Meetings
Any action required to be taken at any annual meeting or special meeting
shall be taken at such annual meeting or special meeting. Any such action may
not be taken by written consent in lieu of a meeting, unless such consent is
unanimous.
5.2. Business at Meetings
Any Corporation stockholder may submit business items to be presented at
the annual meeting or a special meeting, provided such submission is made in
writing to the Secretary of the Corporation no earlier than one hundred twenty
(120) days and no later than ninety (90) days prior to such annual or special
meeting of stockholders, together with the identity of the stockholder
submitting such item and the number of shares of the Corporation's stock owned,
directly or indirectly, by such stockholder.
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5.3. Special Meetings
Special meetings of the stockholders may be called solely by the Board of
Directors or the Chairman.
ARTICLE 6. BY-LAWS
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal the By-Laws of the Corporation, subject to any specific
limitation on such power provided by any By-Laws adopted by the stockholders.
ARTICLE 7. REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The
name of the Corporation's registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE 8. CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE 9. INDEMNIFICATION
9.1. Authorization of Indemnification
Each person who was or is made a party or is threatened to be made a party
to or is or was involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
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therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in Article 9.2. hereof with respect to proceedings seeking to
enforce rights to indemnification, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article 9.1. shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article 9.1. or
otherwise.
9.2. Right of Claimant to Bring Action Against the Corporation
If a claim under Article 9.1. is not paid in full by the Corporation within
thirty (30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which make it permissible under the General Corporation Law of the State
of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
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9.3. Non-exclusivity
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article 9 shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
9.4. Insurance
The Corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, providing a trust fund, letter of
credit, or self-insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the General
Corporation Law of the State of Delaware.
9.5. Advance Payments
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any agent of the Corporation to the fullest extent of
the provisions of this Article 9 with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
ARTICLE 10. AMENDMENT OF CERTIFICATE OF INCORPORATION
Except as set forth in this Article 10 or as otherwise specifically
required by law, no amendment of any provision of this Certificate of
Incorporation shall be made unless such amendment has been first proposed by the
Board of Directors of the Corporation upon the affirmative note of at least
two-thirds of the directors then in office at a duly constituted meeting of the
Board of Directors called for such purpose and thereafter approved by the
stockholders of the Corporation by the affirmative vote of the holders of at
least a majority of the shares entitled to vote thereon at the duly called
annual or special meeting; provided, however, that if such amendment is to the
provisions set forth in Articles 3, 4, 5, 6 or this Article 10, such amendment
must be approved by at least two-thirds of the shares entitled to vote thereon
rather than a majority.
-8-
<PAGE>
IN WITNESS WHEREOF, The Cassidy Companies, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed and attested by its duly
authorized officers, this ____ day of July, 1998.
The Cassidy Companies, Inc.
By:____________________________
Name:__________________________
Title:_________________________
-9-
Exhibit 3.3
BY-LAWS
OF
[THE CASSIDY COMPANIES, INC.]
A Delaware Corporation
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meeting.
The annual meeting of stockholders for the election of directors and the
transaction of such other business as may properly come before it shall be held
on the fourth Monday of January of each year, or such other date, and at such
time and place, within or without the State of Delaware, as shall be determined
by the resolution of the Board of Directors. If the day fixed for the annual
meeting is a legal holiday, such meeting shall be held on the next succeeding
business day. If the election of directors shall not be held on the day
designated herein for the annual meeting of the stockholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the stockholders as soon thereafter as is convenient.
Section 1.2. Special Meetings.
Special meetings of stockholders may be called by the Board of Directors or
the Chairman and shall be called by the Chairman or the Secretary at the request
in writing, stating the purpose or purposes thereof, of holders of at least a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote thereat. Special meetings of stockholders may
be held at such time and at such places, within or without the State of
Delaware, as may be determined by resolution of the Board of Directors or as may
be specified in the call of any meeting. If no designation of the place is made
for the meeting, or if a special meeting be otherwise called, the place of
meeting shall be the principal executive office of the Corporation in the
District of Columbia.
Section 1.3. Notice of Meetings and Adjourned Meetings.
Written notice of every meeting of stockholders stating the place, date,
time and purposes thereof, shall, except when otherwise required by the
Certificate of Incorporation or the laws of the State of Delaware, be delivered
at least ten but not more than sixty days prior to the meeting to each
stockholder of record entitled to vote thereat, either personally or by mail, by
or at the direction of the Chairman, the Secretary, or the officer or persons
calling the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the records of the Corporation. Any meeting at which a quorum
of stockholders is present, in person or by proxy, may adjourn from time to time
without notice, other than announcement at such meeting, until its business is
completed. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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Section 1.4. Quorum.
Except as otherwise provided by law, a majority of the shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at a
meeting of stockholders. Except as otherwise provided by law where a separate
vote by class is required, a majority of the outstanding shares of such class,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote. If at any meeting a quorum is not
present, the chairman of such meeting shall (or may) adjourn, by the affirmative
vote of a majority of the shares so represented, the meeting to another time
and/or place without notice other than announcement at such meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 1.5. Voting.
Unless otherwise provided by the Certificate of Incorporation or these
By-Laws, each stockholder entitled to vote at any meeting of stockholders is
entitled to one vote for each share of stock held by him which has voting power
upon the matter in question. If a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders for all matters, unless the
vote of a greater number or voting by classes is required by Delaware law, the
Certificate of Incorporation, or these By-Laws. Where a separate vote by class
is required, the affirmative vote of the holders of a majority of the shares of
each class present in person or represented by proxy at the meeting shall by the
act or such class, except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws.
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Section 1.6. Proxies.
At every meeting of the stockholders, each stockholder having the right to
vote thereat shall be entitled to vote in person or by proxy. Such proxy shall
be executed in writing and shall be filed with the Secretary of the Corporation
before or at the time of the meeting. No proxy shall be valid after three years
from the date of its execution, unless otherwise provided in the proxy.
Section 1.7. Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business in the District or Columbia or the Secretary of the
Corporation. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. If no record
date has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
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(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.8. Stockholder List.
The Secretary or the officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine such list or to vote
in person or by proxy at any meeting of stockholders.
Section 1.9. Voting of Shares by Certain Holders.
Shares standing in the name of another corporation, domestic or foreign,
and entitled to vote may be voted by such officer, agent, or proxy as the
by-laws of such corporation may prescribe or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares standing in the name of a deceased person, a minor, an incompetent
or a corporation declared bankrupt and entitled to vote may be voted by his
administrator, executor, guardian, or conservator, as the case may be, either in
person or by proxy without transfer of such shares into his name.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer books of the Corporation the pledgor has expressly
empowered the pledgee to vote thereon, in which case only the pledgee, or his
proxy, may represent such stock and vote thereon.
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Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held by this Corporation, shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in this section shall be construed to limit the right of this
Corporation to vote shares of its own stock held by it in a fiduciary capacity.
Section 1.10. Selection and Duties of Inspectors at Meetings of
Stockholders.
The Board, in advance of any meeting of stockholders, may appoint one or
more inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the chairman of such meeting, may appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the chairman of such meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or proxies,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or proxies, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of chairman of the meeting, the
inspector or inspectors shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them. Any report or certificate made by the inspector or
inspectors shall be prima facie evidence of the facts stated of the vote as
certified by him or them.
Section 1.11. Order of Business.
The order of business at all meetings of stockholders shall be determined
by the chairman of the meeting.
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Section 1.12. Consent of Stockholders in Lieu of Meeting.
Any action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by persons entitled
to vote stock representing not less than the number of shares necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Every written consent shall bear the date of
signature of each stockholder or his representative who signs the consent.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Such consents shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business in the District of Columbia or the Secretary of the Corporation.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 1.12 to the Corporation, written consents signed by a sufficient
number of stockholders to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business in the District of Columbia or the Secretary of the Corporation.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Such consents shall be
filed with the minutes of proceedings of the stockholders and actions authorized
or taken under such consents shall have the same force and effect as those
adopted by stockholders' vote at their meetings.
ARTICLE II
DIRECTORS
Section 2.1. General Powers.
The business and affairs of the Corporation shall be managed by or under
the direction of its Board of Directors.
Section 2.2. Number, Election and Term of Office of Directors.
The initial Board of Directors of the Corporation shall consist of two (2)
directors and thereafter shall consist of such number (not more than thirteen
(13) and not less than two (2)) as the Board of Directors shall determine from
time to time. The Board of Directors shall determine the number of directors
(which may not be less than two (2)) who shall be elected annually by holders of
shares of Class A Common Stock and Class C Common Stock, each par value $0.01
per share, of the Corporation, acting together as a separate class, and the
number of directors who shall be elected annually by holders of shares of Class
B Common Stock and Class C Common Stock, each par value $0.01 per share, of the
Corporation, acting together as a separate class. Directors shall be elected
annually by the stockholders as provided by Sections 1.1 and 1.5 of these
By-Laws and by the Certificate of Incorporation. Each director elected shall
hold office until his successor is elected and qualified, or until his earlier
death, removal or resignation. Directors need not be residents of the State of
Delaware or stockholders of the Corporation. Every reference in these By-Laws to
a majority or other proportion of directors shall refer to a majority or other
proportion of the votes of such directors pursuant to the Certificate of
Incorporation.
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Section 2.3. Resignation or Removal.
Any director may resign by giving written notice to the Board of Directors
or the Chairman. Any such resignation shall take effect at the time of receipt
of notice thereof or at any later time specified therein, and, unless expressly
required, acceptance of such resignation shall not be necessary to make it
effective. Except as otherwise required by the laws of the State of Delaware or
the Certificate of Incorporation, any director may be removed, with or without
cause, by the affirmative vote or consent of the holders of a majority of the
shares entitled to vote to elect such director.
Section 2.4. Vacancies.
Except as otherwise required by the Certificate of Incorporation, any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, may be filled for the remainder of the
unexpired term by the affirmative vote of a majority of the directors then in
office, although less than a quorum, or by the stockholders. Except as otherwise
required by the Certificate of Incorporation, when one or more directors shall
resign from the Board of Directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office as provided in this Section for the filling of other
vacancies.
Section 2.5. Place of Meetings.
Meetings of the Board of Directors may be held at such places, within or
without the State of Delaware, as the Board of Directors may from time to time
determine or as may be specified in the call of any meetings.
Section 2.6. Regular Meetings.
A regular annual meeting of the Board of Directors shall be held without
call or notice immediately after and at the same general place as the annual
meeting of stockholders, for the purpose of organizing the Board of Directors,
electing officers and transacting any other business that may properly come
before the meeting. Additional regular meetings of the Board of Directors may be
held without call or notice at such place and at such times as shall be fixed by
resolution of the Board of Directors.
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Section 2.7. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman or
any three directors then in office. Notice of special meetings shall either be
mailed by the Secretary to each director at least two days before the meeting or
be given personally or telegraphed or telecopied to each director by the
Secretary at least twenty-four hours before the meeting. Such notice shall set
forth the date, time and place of such meeting but need not, unless otherwise
required by law, state the purpose of the meeting. When notice is given by mail,
the mail shall be addressed to each director at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Any director may waive notice of any meeting in writing either
before or after the meeting.
Section 2.8. Quorum and Voting.
A majority of the entire Board of Directors shall constitute a quorum for
the transaction of business at any meeting of the Board of Directors. The act of
the majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless otherwise provided by the laws
of the State of Delaware, the Certificate of Incorporation or these By-Laws. A
majority of the directors present at any meeting at which a quorum is present
may adjourn the meeting to any other date, time or place without further notice
other than announcement at the meeting. If at any meeting a quorum is not
present, a majority of the directors present may adjourn the meeting to any
other date, time or place without notice other than announcement at the meeting
until a quorum is present.
Section 2.9. Telephonic Meetings.
Members of the Board of Directors or of any committee designated by the
Board of Directors may participate in a meeting of the Board of Directors or a
committee thereof by means of conference telephone or other similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 2.9 shall constitute presence in person at such meeting.
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Section 2.10. Compensation.
Unless otherwise restricted by the Certificate of Incorporation, the Board
of Directors shall have the authority to fix the compensation of directors. The
directors shall be paid their reasonable expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors and an annual retainer or salary for
services as a director. Members of any committee of the Board of Directors may
be allowed like fees and expenses for service on or attendance at meetings of
such committee. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 2.11. Presumption of Assent.
Unless otherwise provided by the laws of the State of Delaware, a director
of the Corporation who is present at a meeting of the Board of Directors at
which action is taken on any corporate matter shall be presumed to have assented
to the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 2.12. Action without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting,
if a written consent thereto is signed by all members of the Board of Directors
or of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or such committee.
Section 2.13. Presiding Officer.
The presiding officer at any meeting of the Board of Directors shall be the
Chairman or, in his absence, any other director elected chairman by vote of a
majority of the directors present at the meeting.
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Section 2.14. Executive Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors, designate an Executive Committee consisting
of such number of directors as the Board of Directors shall determine. The
Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the Corporation with respect to any
matter which may require action prior to, or which in the opinion of the
Executive Committee may be inconvenient, inappropriate or undesirable to be
postponed until, the next meeting of the Board of Directors; provided the
Executive Committee shall not have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or an amendment to these By-Laws. Any member of the
Board of Directors may request the chairman of the Executive Committee to call a
meeting of the Executive Committee with respect to a specified subject.
Section 2.15. Audit Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors designate an Audit Committee consisting of
not less than three directors. The Audit Committee, if so designated, shall
review the Corporation's internal auditing program, the scope of work performed
by the Corporation's certified public accountants, and other matters relating to
the Corporation including the results of examinations of the Corporation by any
regulatory authorities and any other matters which may from time to time be
deemed appropriate by the Committee. The Audit Committee shall meet upon the
call of the Chairman or any member of the Audit Committee.
Section 2.16. Compensation and Benefits Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors designate a Compensation and Benefits
Committee consisting of not less than three directors. The Compensation and
Benefits Committee, if so designated, shall study, review and make
recommendations to the Board with respect to the salary policy for the
Corporation, the compensation of senior officers, and the development of and
amendment to incentive and benefit plans. The Compensation and Benefits
Committee shall meet upon the call of the Chairman or any member of the
Compensation and Benefits Committee.
Section 2.17. Other Committees.
The Board of Directors may from time to time, in its discretion, by
resolution passed by a majority of the Board of Directors, designate, and
appoint, other committees of one or more directors which shall have and may
exercise such lawfully delegable powers and duties conferred or authorized by
the resolutions of designation and appointment. The Board shall have power at
any time to change the members of any such committee, to fill vacancies, and to
discharge any such committee.
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Section 2.18. Alternates.
The Board of Directors may from time to time designate from among the
directors alternates to serve on one or more committees as occasion may require.
Whenever a quorum cannot be secured for any meeting of any committee from among
the regular members thereof and designated alternates, the member or members of
such committee present at such meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of such absent or
disqualified member.
Section 2.19. Committees' Quorum and Manner of Acting.
The presence of a majority of members of any committee shall constitute a
quorum for the transaction of business at any meeting of such committee, and the
act of a majority of those present shall be necessary for the taking of any
action thereat.
Section 2.20. Committee Chairman, Books and Records, Etc.
The chairman of each committee shall be selected from among the members of
the committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and all
actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent with
these By-Laws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
Section 2.21. Reliance upon Records.
Every director of the Corporation, or member of any committee designated by
the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports, or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the director or member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to matters the director
or member reasonably believes are within such other person's professional or
expert competence and as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of which the Corporation's stock might properly be
purchased or redeemed.
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Section 2.22. Interested Directors.
The presence of a director, who is directly or indirectly a party in a
contract or transaction with the Corporation, or between the Corporation and any
other corporation, partnership, association, or other organization in which such
director is a director or officer, or has a financial interest, may be counted
in determining whether a quorum is present and such director may participate in
the meeting of the Board or committee thereof to the extent permitted by
applicable law.
ARTICLE III
OFFICERS
Section 3.1. Number and Designation.
The officers of the Corporation shall be a Chairman, a President, one or
more Vice Presidents, a Secretary, and a Treasurer, and such Assistant
Secretaries, Assistant Treasurers, or other officers as may be elected or
appointed by the Board of Directors. Any two or more offices may be held by the
same person unless the Certificate of Incorporation or these By-Laws provide
otherwise.
Section 3.2. Election and Term of Office.
The officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her
earlier death, resignation, or removal.
Section 3.3. Removal and Resignation.
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in it judgment the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any officer
may resign at any time by giving written notice to the Board of Directors, to
the Chairman, or to the Secretary of the Corporation. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
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Section 3.4. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
Section 3.5. Chairman.
The Chairman shall be the chief executive officer of the Corporation and
shall in general supervise and control all of the business and affairs of the
Corporation. The Chairman may sign, alone or with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed, and in general
he shall perform all duties incident to the offices of the Chairman and chief
executive officer and such other duties as from time to time may be prescribed
by the Board of Directors. When present, he shall preside at all meetings of the
stockholders and of the Board of Directors.
Section 3.6. President.
The President shall be the principal operating officer of the Corporation.
In the event the office of the Chairman is vacant or in the event of the
inability of the Chairman to act as Chairman and chief executive officer or upon
the refusal by the Chairman to perform the duties of the Chairman and chief
executive officer, the President shall perform the duties and exercise the
authority of the Chairman and chief executive officer and, when so acting, shall
have all the powers of, and be subject to all the restrictions placed upon the
Chairman and chief executive officer. He may sign, alone or with the Secretary
or any other proper officer of the Corporation thereunto authorized by the Board
of Directors, any deeds, mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed, and in general
he shall perform all duties incident to the office of President and such other
duties as from time to time may be prescribed by the Board of Directors or the
Chairman, subject, however, to the control of the Board and the Chairman.
13
<PAGE>
Section 3.7. The Vice Presidents.
In the event the office of the President is vacant or in the event of the
inability of the President to act as President or upon the refusal by the
President to perform the duties of the President, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
determined by the Board of Directors or if there be no such determination, then
in the order of their election) shall perform the duties of the President and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Board of Directors may also designate
certain Vice Presidents as being in charge of designated divisions, plants, or
functions of the Corporation's business and add appropriate description to their
title. Any Vice President shall perform such duties as from time to time may be
assigned to him by the Chairman, the President or by the Board of Directors.
Section 3.8. The Treasurer.
The Treasurer shall have charge and custody of and be responsible for all
funds and securities of the Corporation, receive and give receipts for moneys
due and payable to the Corporation from any source whatsoever, deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
IV of they By-Laws, disburse the funds of the Corporation as ordered by the
Board of Directors or the Chairman or as otherwise required in the conduct of
the business of the Corporation, and render to the Chairman or the Board of
Directors, upon request, an account of all his transactions as Treasurer and on
the financial condition of the Corporation. The Treasurer, unless another
officer of the Corporation is named by the Board of Directors to perform such
functions, shall have the duties and responsibilities and shall exercise the
authority and powers of the chief financial officer of the Corporation, and
shall in general perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chairman,
the President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond (which shall be renewed regularly),
in such sum and with such surety or sureties as the Board of Directors shall
determine for the faithful discharge of his duties and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
14
<PAGE>
Section 3.9. The Secretary.
The Secretary shall (a) keep the minutes of the stockholders' and of the
Board of Directors' meetings and committees of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation; (d) affix
the seal of the Corporation or a facsimile thereof, or cause it to be affixed
and, when so affixed, attest the seal by his signature, to all certificates for
shares prior to the issue thereof and to all documents the execution of which on
behalf of the Corporation under its seal is duly authorized by the Board of
Directors or otherwise in accordance with the provisions of these By-Laws
(provided, however, the Board of Directors or the Chairman and the President may
give general authority to any other officer to affix the seal of the Corporation
and to attest the affixing by his signature); (e) keep a register of the post
office address of each stockholder, director or committee member, which shall be
furnished to the Secretary by such stockholder, director or member; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Chairman, the
President or the Board of Directors.
Section 3.10. Assistant Treasurers and Assistant Secretaries.
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer or by the Secretary, respectively, or
by the Board, the Chairman or the President. The Assistant Treasurers shall,
respectively, if required by the Board of Directors, give bonds (which shall be
renewed regularly) for the faithful discharge of their duties in such sums and
with such sureties as the Board of Directors shall determine.
Section 3.11. Salaries.
The salaries of the officers shall be fixed from time to time by the Board
of Directors or such officer as it shall designate for such purpose or as it
shall otherwise direct. No officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
ARTICLE IV
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 4.1. Contracts.
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
15
<PAGE>
Section 4.2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in the name of the Corporation unless authorized
by a resolution of the Board of Directors. Such authority conferred by the Board
may be general or confined to specific instances.
Section 4.3. Checks, Drafts, Etc.
All checks, drafts or other orders for payment of money issued in the name
of the Corporation shall be signed by such officers, employees or agents of the
Corporation as shall from time to time be designated by the Board of Directors,
the Chairman, the [President], the chief financial officer or the Corporation or
the Treasurer.
Section 4.4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as shall be designated from time to time by the Board of
Directors, the Chairman, the President the chief financial officer of the
Corporation or the Treasurer; and such officers may designate any type of
depository arrangement (including but not limited to depository arrangements
resulting in net debits against the Corporation) as from time to time offered or
available.
ARTICLE V
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 5.1. Certificates of Stock.
Shares of stock of the Corporation shall be represented by certificates
which shall be in such form as may be determined by the Board of Directors,
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the Chairman, the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
If any stock certificate is signed (a) by a transfer agent or an assistant
transfer agent or (b) by a transfer clerk acting on behalf of the Corporation
and a registrar, the signature of any officer of the Corporation may be
facsimile. In case any such officer whose facsimile signature has thus been used
on any such certificate shall cease to be such officer, whether because of
death, resignation or otherwise, before such certificate has been delivered by
the Corporation, such certificate may nevertheless be delivered by the
Corporation, as though the person whose facsimile signature has been used
thereon had not ceased to be such officer. All certificates properly surrendered
to the Corporation for transfer shall be canceled and no new certificate shall
be issued to evidence transferred shares until the former certificate for at
least a like number of shares shall have been surrendered and canceled and the
Corporation reimbursed for any applicable taxes on the transfer, except that in
the case of a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms, and with such indemnity (if any) to the Corporation,
as the Board of Directors may prescribe specifically or in general terms or by
delegation to a transfer agent for the Corporation.
16
<PAGE>
Section 5.2. Lost, Stolen, or Destroyed Certificates.
The Board of Directors in individual cases or by general resolution or by
delegation to the transfer agent may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificates, or his legal representative, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5.3. Transfers of Stock.
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, and upon payment of applicable
taxes with respect to such transfer, and in compliance with any restrictions on
transfer applicable to the certificate or shares represented thereby of which
the Corporation shall have notice and subject to such rules and regulations as
the Board of Directors may from time to time deem advisable concerning the
transfer and registration of certificates for shares of capital stock of the
Corporation, the Corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Transfers of shares shall be made only on the books of the Corporation by
the registered holder thereof or by his attorney or successor duly authorized as
evidenced by documents filed with the Secretary or transfer agent of the
Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the certificates are presented to the Corporation for transfer, both
the transferor and transferee request the Corporation to do so.
17
<PAGE>
Section 5.4. Transfer and Registry Agents.
The Corporation may from time to time maintain one or more transfer offices
or agents and registry offices or agents at such place or places as may be
determined from time to time by the Board.
Section 5.5. Restrictions on Transfer.
Any stockholder may enter into an agreement with other stockholders or with
the Corporation providing for reasonable limitation or restriction on the right
of such stockholder to transfer shares of capital stock of the Corporation held
by him, including, without limiting the generality of the foregoing, agreements
granting to such other stockholders or to the Corporation the right to purchase
for a given period of time any of such shares on terms equal to terms offered
such stockholders by any third party. Any such limitation or restriction on the
transfer of shares of the Corporation shall be set forth conspicuously on
certificates representing such shares or notice thereof may be otherwise given
to the Corporation or the transfer agent, in which case the Corporation or the
transfer agent shall not be required to transfer such shares upon the books of
the Corporation without receipt of satisfactory evidence of compliance with the
terms of such limitation or restriction.
Section 5.6. Stockholders of Record.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Fiscal Year.
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the thirty-first day of December in each year.
Section 6.2. Seal.
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "CORPORATE SEAL" and "DELAWARE"; and it shall otherwise be in the
form approved by the Board of Directors. Such seal may be used by causing it, or
a facsimile thereof, to be impressed or affixed or otherwise reproduced.
18
<PAGE>
ARTICLE VII
OFFICES
Section 7.1. Registered Office.
The registered office of the Corporation in the State of Delaware shall be
located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, and the name of its registered agent is The Prentice Hall Corporation
System, Inc.
Section 7.2. Other Offices.
The Corporation may have offices at such other places both within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors or as the business of the Corporation may require.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Director Liability.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Section 8.1 by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
19
<PAGE>
Section 8.2. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is or was involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or a person of whom he is the legal representative is
or was a director, officer or employee of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his heirs executors
and administrators; provided, however, that except as provided in Section 8.2 of
these By-Laws with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Article VIII shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director of officer is not entitled to be
indemnified under this Article VIII or otherwise.
20
<PAGE>
Section 8.3. Expenses.
If a claim under Section 8.2 of these By-Laws is not paid in full by the
Corporation within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which made it permissible under the General
Corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in, the circumstances because he has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
Section 8.4. Non-Exclusive.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article VIII shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 8.5. Insurance.
The Corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, providing a trust fund, letter of
credit, or self-insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the General
Corporation Law of the State of Delaware.
Section 8.6. Agent.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any agent of the Corporation to the fullest extent of
the provisions of this Article VIII with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
21
<PAGE>
ARTICLE IX
NOTICES
Section 9.1. Manner of Notice.
Whenever under the provisions of the laws of the State of Delaware, the
Certificate of Incorporation of these By-Laws notice is required to be given to
any stockholder, director or member of any committee designated by the Board of
Directors, it shall not be construed to require personal delivery and such
notice may be given in writing by depositing it, in a sealed envelope, in the
United States mails, air mail or first class, postage prepaid, addressed (or by
delivering it to a telegraph company, charges prepaid, for transmission) to such
stockholder, director or member either at the address of such stockholder,
director or member as it appears on the books of the Corporation or, in the case
of such a director or member, at his business address; and such notice shall be
deemed to be given at the time when it is thus deposited in the United States
mails (or delivered to the telegraph company). Such requirement for notice shall
be deemed satisfied, except in the case of stockholder meetings with respect to
which written notice is mandatorily required by law, if actual notice is
received orally or in writing by the person entitled thereto as far in advance
of the event with respect to which notice is given as the minimum notice periods
required by law or these By-Laws.
Whenever notice is required to be given under any provision of the
Certificate of Incorporation or these By-Laws to any stockholders to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given.
22
<PAGE>
Section 9.2. Waiver of Notice.
Whenever any notice is required to be given under the provisions of the
laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before, at or after the time stated therein, shall be
deemed equivalent thereto. Attendance by a person at a meeting shall constitute
a waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or committee of
directors need be specified in any written waiver of notice unless so required
by the laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws.
ARTICLE X
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends, in cash, in property, or in shares of the Corporation's
capital stock, on its outstanding shares in the manner and upon the terms and
conditions provided by law and by the Certificate of Incorporation.
ARTICLE XI
AMENDMENTS
Except to the extent otherwise provided in the Certificate of Incorporation
or these By-Laws, these By-Laws shall be subject to alteration, amendment or
repeal, and new By-Laws may be adopted (i) by the affirmative vote of the
holders of not less than a majority of the voting power of all outstanding
shares of Class A Common Stock of the Corporation or (ii) by the affirmative
vote of not less than a majority of the members of the Board of Directors at any
meeting of the Board of Directors at which there is a quorum present and voting.
23
Exhibit 3.4
THE CASSIDY COMPANIES, INC.
AMENDED AND RESTATED BY-LAWS
Adopted
as of
July __, 1998
(Original By-Laws adopted ____________, 199_)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I STOCKHOLDERS................................................................................1
Section 1.1. Annual Meeting....................................................................1
Section 1.2. Special Meetings..................................................................1
Section 1.3. Notice of Meetings and Adjourned Meetings.........................................1
Section 1.4. Quorum............................................................................2
Section 1.5. Voting............................................................................2
Section 1.6. Proxies...........................................................................2
Section 1.7. Fixing Date for Determination of Stockholders of Record..........................3
Section 1.8. Stockholder List.................................................................3
Section 1.9. Voting of Shares by Certain Holders...............................................4
Section 1.10. Selection and Duties of Inspectors at Meetings of Stockholders....................4
Section 1.11. Order of Business.................................................................5
ARTICLE II DIRECTORS..................................................................................5
Section 2.1. General Powers....................................................................5
Section 2.2. Number, Election and Term of Office of Directors..................................5
Section 2.3. Resignation.......................................................................5
Section 2.4. Vacancies.........................................................................5
Section 2.5. Place of Meetings.................................................................6
Section 2.6. Regular Meetings..................................................................6
Section 2.7. Special Meetings..................................................................6
Section 2.8. Quorum and Voting.................................................................6
Section 2.9. Telephonic Meetings...............................................................7
Section 2.10. Compensation......................................................................7
Section 2.11. Presumption of Assent.............................................................7
Section 2.12. Action without Meeting............................................................8
Section 2.13. Presiding Officer.................................................................8
Section 2.14. Executive Committee...............................................................8
Section 2.15. Audit Committee...................................................................8
Section 2.16. Compensation and Benefits Committee...............................................9
Section 2.17. Other Committees..................................................................9
Section 2.18. Alternates........................................................................9
Section 2.19. Committees' Quorum and Manner of Acting...........................................9
Section 2.20. Committee Chairman, Books and Records, Etc.......................................10
Section 2.21. Reliance upon Records............................................................10
Section 2.22. Interested Directors.............................................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE III OFFICERS.................................................................................11
Section 3.1. Number and Designation...........................................................11
Section 3.2. Election and Term of Office......................................................11
Section 3.3. Removal and Resignation..........................................................11
Section 3.4. Vacancies........................................................................11
Section 3.5. Chairman.........................................................................12
Section 3.6. President........................................................................12
Section 3.7. The Vice Presidents..............................................................12
Section 3.8. The Treasurer....................................................................13
Section 3.9. The Secretary....................................................................13
Section 3.10. Assistant Treasurers and Assistant Secretaries...................................14
Section 3.11. Salaries.........................................................................14
ARTICLE IV CONTRACTS, LOANS, CHECKS, AND DEPOSITS....................................................14
Section 4.1. Contracts........................................................................14
Section 4.2. Loans............................................................................14
Section 4.3. Checks, Drafts, Etc..............................................................15
Section 4.4. Deposits.........................................................................15
ARTICLE V CERTIFICATES OF STOCK AND THEIR TRANSFER...................................................15
Section 5.1. Certificates of Stock............................................................15
Section 5.2. Lost, Stolen, or Destroyed Certificates..........................................16
Section 5.3. Transfers of Stock...............................................................16
Section 5.4. Transfer and Registry Agents.....................................................16
Section 5.5. Restrictions on Transfer.........................................................17
Section 5.6. Stockholders of Record...........................................................17
ARTICLE VI GENERAL PROVISIONS........................................................................17
Section 6.1. Fiscal Year......................................................................17
Section 6.2. Seal.............................................................................17
ARTICLE VII OFFICES..................................................................................18
Section 7.1. Registered Office................................................................18
Section 7.2. Other Offices....................................................................18
ARTICLE VIII NOTICES.................................................................................18
Section 8.1. Manner of Notice.................................................................18
Section 8.2. Waiver of Notice.................................................................19
ARTICLE IX DIVIDENDS.................................................................................19
ARTICLE X AMENDMENTS.................................................................................19
</TABLE>
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
THE CASSIDY COMPANIES, INC.
A Delaware Corporation
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meeting.
The annual meeting of stockholders for the election of directors and the
transaction of such other business as may properly come before it shall be held
on the fourth Monday of April of each year, or such other date, and at such time
and place, within or without the State of Delaware, as shall be determined by
the resolution of the Board of Directors. If the day fixed for the annual
meeting is a legal holiday, such meeting shall be held on the next succeeding
business day.
Section 1.2. Special Meetings.
Special meetings of stockholders may be called by the Board of Directors or
the Chairman. Special meetings of stockholders may be held at such time and at
such places, within or without the State of Delaware, as may be determined by
resolution of the Board of Directors or as may be specified in the call of any
meeting or by the Chairman, depending on whether the Board of Directors or the
Chairman called the special meeting. If no designation of the place is made for
the meeting, or if a special meeting be otherwise called, the place of meeting
shall be the principal executive office of the Corporation.
Section 1.3. Notice of Meetings and Adjourned Meetings.
Written notice of every meeting of stockholders stating the place, date,
time and purposes thereof, shall, except when otherwise required by the
Certificate of Incorporation or the laws of the State of Delaware, be delivered
at least ten but not more than sixty days prior to the meeting to each
stockholder of record entitled to vote thereat, either personally or by mail, by
or at the direction of the Chairman, the Secretary, or the officer or persons
calling the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the records of the Corporation. Any meeting at which a quorum
of stockholders is present, in person or by proxy, may adjourn from time to time
without notice, other than announcement at such meeting, until its business is
completed. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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Section 1.4. Quorum.
Except as otherwise provided by law, a majority of the shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at a
meeting of stockholders. Except as otherwise provided by law where a separate
vote by class is required, a majority of the outstanding shares of such class,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote. If at any meeting a quorum is not
present, the chairman of such meeting shall (or may) adjourn, by the affirmative
vote of a majority of the shares so represented, the meeting to another time
and/or place without notice other than announcement at such meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 1.5. Voting.
Unless otherwise provided by the Certificate of Incorporation or these
By-Laws, each stockholder entitled to vote at any meeting of stockholders is
entitled to one vote for each share of stock held by him which has voting power
upon the matter in question. There shall be no cumulative voting in the elction
of directors. If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders for all matters, unless the vote of a
greater number or voting by classes is required by Delaware law, the Certificate
of Incorporation, or these By-Laws. Where a separate vote by class is required,
the affirmative vote of the holders of a majority of the shares of each class
present in person or represented by proxy at the meeting shall by the act or
such class, except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws.
Section 1.6. Proxies.
At every meeting of the stockholders, each stockholder having the right to
vote thereat shall be entitled to vote in person or by proxy. Such proxy shall
be executed in writing and shall be filed with the Secretary of the Corporation
before or at the time of the meeting. No proxy shall be valid after three years
from the date of its execution, unless otherwise provided in the proxy.
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Section 1.7. Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.8. Stockholder List.
The Secretary or the officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine such list or to vote
in person or by proxy at any meeting of stockholders.
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Section 1.9. Voting of Shares by Certain Holders.
Shares standing in the name of another corporation, domestic or foreign,
and entitled to vote may be voted by such officer, agent, or proxy as the
by-laws of such corporation may prescribe or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares standing in the name of a deceased person, a minor, an incompetent
or a corporation declared bankrupt and entitled to vote may be voted by his
administrator, executor, guardian, or conservator, as the case may be, either in
person or by proxy without transfer of such shares into his name.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer books of the Corporation the pledgor has expressly
empowered the pledgee to vote thereon, in which case only the pledgee, or his
proxy, may represent such stock and vote thereon.
Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held by this Corporation, shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in this section shall be construed to limit the right of this
Corporation to vote shares of its own stock held by it in a fiduciary capacity.
Section 1.10. Selection and Duties of Inspectors at Meetings of
Stockholders.
The Board, in advance of any meeting of stockholders, may appoint one or
more inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the chairman of such meeting, may appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the chairman of such meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or proxies,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or proxies, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of chairman of the meeting, the
inspector or inspectors shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them. Any report or certificate made by the inspector or
inspectors shall be prima facie evidence of the facts stated of the vote as
certified by him or them.
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Section 1.11. Order of Business.
The order of business at all meetings of stockholders shall be determined
by the chairman of the meeting.
ARTICLE II
DIRECTORS
Section 2.1. General Powers.
The business and affairs of the Corporation shall be managed by or under
the direction of its Board of Directors.
Section 2.2. Number, Election and Term of Office of Directors.
The Board of Directors of the Corporation shall consist of seven (7)
directors. Directors shall be elected annually by the stockholders as provided
by Sections 1.1 and 1.5 of these By-Laws and by the Certificate of
Incorporation. Each director elected shall hold office until his or her
successor is elected and qualified, or until his or her earlier death, removal
or resignation. Directors need not be residents of the State of Delaware or
stockholders of the Corporation. Every reference in these By-Laws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors pursuant to the Certificate of Incorporation.
Section 2.3. Resignation.
Any director may resign by giving written notice to the Board of Directors
or the Chairman. Any such resignation shall take effect at the time of receipt
of notice thereof or at any later time specified therein, and, unless expressly
required, acceptance of such resignation shall not be necessary to make it
effective.
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Section 2.4. Vacancies.
Except as otherwise required by the Certificate of Incorporation, any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, may be filled for the remainder of the
unexpired term by the affirmative vote of a majority of the directors then in
office, although less than a quorum, or by the stockholders. Except as otherwise
required by the Certificate of Incorporation, when one or more directors shall
resign from the Board of Directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office as provided in this Section for the filling of other
vacancies.
Section 2.5. Place of Meetings.
Meetings of the Board of Directors may be held at such places, within or
without the State of Delaware, as the Board of Directors may from time to time
determine or as may be specified in the call of any meetings.
Section 2.6. Regular Meetings.
A regular annual meeting of the Board of Directors shall be held without
call or notice immediately after and at the same general place as the annual
meeting of stockholders, for the purpose of organizing the Board of Directors,
electing officers and transacting any other business that may properly come
before the meeting. Additional regular meetings of the Board of Directors may be
held without call or notice at such place and at such times as shall be fixed by
resolution of the Board of Directors.
Section 2.7. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman or
any three directors then in office. Notice of special meetings shall either be
mailed by the Secretary to each director at least two days before the meeting or
be given personally or telegraphed or telecopied to each director by the
Secretary at least twenty-four hours before the meeting. Such notice shall set
forth the date, time and place of such meeting but need not, unless otherwise
required by law, state the purpose of the meeting. When notice is given by mail,
the mail shall be addressed to each director at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Any director may waive notice of any meeting in writing either
before or after the meeting.
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Section 2.8. Quorum and Voting.
A majority of the entire Board of Directors shall constitute a quorum for
the transaction of business at any meeting of the Board of Directors. The act of
the majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless otherwise provided by the laws
of the State of Delaware, the Certificate of Incorporation or these By-Laws. A
majority of the directors present at any meeting at which a quorum is present
may adjourn the meeting to any other date, time or place without further notice
other than announcement at the meeting. If at any meeting a quorum is not
present, a majority of the directors present may adjourn the meeting to any
other date, time or place without notice other than announcement at the meeting
until a quorum is present.
Section 2.9. Telephonic Meetings.
Members of the Board of Directors or of any committee designated by the
Board of Directors may participate in a meeting of the Board of Directors or a
committee thereof by means of conference telephone or other similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 2.9 shall constitute presence in person at such meeting.
Section 2.10. Compensation.
Unless otherwise restricted by the Certificate of Incorporation, the Board
of Directors shall have the authority to fix the compensation of directors. The
directors shall be paid their reasonable expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors and an annual retainer or salary for
services as a director. Members of any committee of the Board of Directors may
be allowed like fees and expenses for service on or attendance at meetings of
such committee. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 2.11. Presumption of Assent.
Unless otherwise provided by the laws of the State of Delaware, a director
of the Corporation who is present at a meeting of the Board of Directors at
which action is taken on any corporate matter shall be presumed to have assented
to the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
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Section 2.12. Action without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting,
if a written consent thereto is signed by all members of the Board of Directors
or of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or such committee.
Section 2.13. Presiding Officer.
The presiding officer at any meeting of the Board of Directors shall be the
Chairman or, in his absence, any other director elected chairman by vote of a
majority of the directors present at the meeting.
Section 2.14. Executive Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors, designate an Executive Committee consisting
of such number of directors as the Board of Directors shall determine. The
Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the Corporation with respect to any
matter which may require action prior to, or which in the opinion of the
Executive Committee may be inconvenient, inappropriate or undesirable to be
postponed until, the next meeting of the Board of Directors; provided the
Executive Committee shall not have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or an amendment to these By-Laws. Any member of the
Board of Directors may request the chairman of the Executive Committee to call a
meeting of the Executive Committee with respect to a specified subject.
Section 2.15. Audit Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors designate an Audit Committee consisting of
not less than three directors. The Audit Committee, if so designated, shall
review the Corporation's internal auditing program, the scope of work performed
by the Corporation's certified public accountants, and other matters relating to
the Corporation including the results of examinations of the Corporation by any
regulatory authorities and any other matters which may from time to time be
deemed appropriate by the Committee. The Audit Committee shall meet upon the
call of the Chairman or any member of the Audit Committee.
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Section 2.16. Compensation and Benefits Committee.
The Board of Directors may, in its discretion by resolution passed by a
majority of the Board of Directors designate a Compensation and Benefits
Committee consisting of not less than three directors. The Compensation and
Benefits Committee, if so designated, shall study, review and make
recommendations to the Board with respect to the salary policy for the
Corporation, the compensation of senior officers, and the development of and
amendment to incentive and benefit plans. The Compensation and Benefits
Committee shall meet upon the call of the Chairman or any member of the
Compensation and Benefits Committee.
Section 2.17. Other Committees.
The Board of Directors may from time to time, in its discretion, by
resolution passed by a majority of the Board of Directors, designate, and
appoint, other committees of one or more directors which shall have and may
exercise such lawfully delegable powers and duties conferred or authorized by
the resolutions of designation and appointment. The Board shall have power at
any time to change the members of any such committee, to fill vacancies, and to
discharge any such committee.
Section 2.18. Alternates.
The Board of Directors may from time to time designate from among the
directors alternates to serve on one or more committees as occasion may require.
Whenever a quorum cannot be secured for any meeting of any committee from among
the regular members thereof and designated alternates, the member or members of
such committee present at such meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of such absent or
disqualified member.
Section 2.19. Committees' Quorum and Manner of Acting.
The presence of a majority of members of any committee shall constitute a
quorum for the transaction of business at any meeting of such committee, and the
act of a majority of those present shall be necessary for the taking of any
action thereat.
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Section 2.20. Committee Chairman, Books and Records, Etc.
The chairman of each committee shall be selected from among the members of
the committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and all
actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent with
these By-Laws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
Section 2.21. Reliance upon Records.
Every director of the Corporation, or member of any committee designated by
the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports, or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the director or member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to matters the director
or member reasonably believes are within such other person's professional or
expert competence and as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of which the Corporation's stock might properly be
purchased or redeemed.
Section 2.22. Interested Directors.
The presence of a director, who is directly or indirectly a party in a
contract or transaction with the Corporation, or between the Corporation and any
other corporation, partnership, association, or other organization in which such
director is a director or officer, or has a financial interest, may be counted
in determining whether a quorum is present and such director may participate in
the meeting of the Board or committee thereof to the extent permitted by
applicable law.
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ARTICLE III
OFFICERS
Section 3.1. Number and Designation.
The officers of the Corporation shall be a Chairman, a President, one or
more Vice Presidents, a Secretary, and a Treasurer, and such Assistant
Secretaries, Assistant Treasurers, or other officers as may be elected or
appointed by the Board of Directors. Any two or more offices may be held by the
same person unless the Certificate of Incorporation or these By-Laws provide
otherwise.
Section 3.2. Election and Term of Office.
The officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her
earlier death, resignation, or removal.
Section 3.3. Removal and Resignation.
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in it judgment the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any officer
may resign at any time by giving written notice to the Board of Directors, to
the Chairman, or to the Secretary of the Corporation. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.4. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
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Section 3.5. Chairman.
The Chairman shall be the chief executive officer of the Corporation and
shall in general supervise and control all of the business and affairs of the
Corporation. The Chairman may sign, alone or with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed, and in general
he shall perform all duties incident to the offices of the Chairman and chief
executive officer and such other duties as from time to time may be prescribed
by the Board of Directors. When present, he shall preside at all meetings of the
stockholders and of the Board of Directors.
Section 3.6. President.
The President shall be the principal operating officer of the Corporation.
In the event the office of the Chairman is vacant or in the event of the
inability of the Chairman to act as Chairman and chief executive officer or upon
the refusal by the Chairman to perform the duties of the Chairman and chief
executive officer, the President shall perform the duties and exercise the
authority of the Chairman and chief executive officer and, when so acting, shall
have all the powers of, and be subject to all the restrictions placed upon the
Chairman and chief executive officer. He may sign, alone or with the Secretary
or any other proper officer of the Corporation thereunto authorized by the Board
of Directors, any deeds, mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed, and in general
he shall perform all duties incident to the office of President and such other
duties as from time to time may be prescribed by the Board of Directors or the
Chairman, subject, however, to the control of the Board and the Chairman.
Section 3.7. The Vice Presidents.
In the event the office of the President is vacant or in the event of the
inability of the President to act as President or upon the refusal by the
President to perform the duties of the President, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
determined by the Board of Directors or if there be no such determination, then
in the order of their election) shall perform the duties of the President and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Board of Directors may also designate
certain Vice Presidents as being in charge of designated divisions, plants, or
functions of the Corporation's business and add appropriate description to their
title. Any Vice President shall perform such duties as from time to time may be
assigned to him by the Chairman, the President or by the Board of Directors.
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Section 3.8. The Treasurer.
The Treasurer shall have charge and custody of and be responsible for all
funds and securities of the Corporation, receive and give receipts for moneys
due and payable to the Corporation from any source whatsoever, deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
IV of they By-Laws, disburse the funds of the Corporation as ordered by the
Board of Directors or the Chairman or as otherwise required in the conduct of
the business of the Corporation, and render to the Chairman or the Board of
Directors, upon request, an account of all his transactions as Treasurer and on
the financial condition of the Corporation. The Treasurer, unless another
officer of the Corporation is named by the Board of Directors to perform such
functions, shall have the duties and responsibilities and shall exercise the
authority and powers of the chief financial officer of the Corporation, and
shall in general perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chairman,
the President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond (which shall be renewed regularly),
in such sum and with such surety or sureties as the Board of Directors shall
determine for the faithful discharge of his duties and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 3.9. The Secretary.
The Secretary shall (a) keep the minutes of the stockholders' and of the
Board of Directors' meetings and committees of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation; (d) affix
the seal of the Corporation or a facsimile thereof, or cause it to be affixed
and, when so affixed, attest the seal by his signature, to all certificates for
shares prior to the issue thereof and to all documents the execution of which on
behalf of the Corporation under its seal is duly authorized by the Board of
Directors or otherwise in accordance with the provisions of these By-Laws
(provided, however, the Board of Directors or the Chairman and the President may
give general authority to any other officer to affix the seal of the Corporation
and to attest the affixing by his signature); (e) keep a register of the post
office address of each stockholder, director or committee member, which shall be
furnished to the Secretary by such stockholder, director or member; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Chairman, the
President or the Board of Directors.
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Section 3.10. Assistant Treasurers and Assistant Secretaries.
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer or by the Secretary, respectively, or
by the Board, the Chairman or the President. The Assistant Treasurers shall,
respectively, if required by the Board of Directors, give bonds (which shall be
renewed regularly) for the faithful discharge of their duties in such sums and
with such sureties as the Board of Directors shall determine.
Section 3.11. Salaries.
The salaries of the officers shall be fixed from time to time by the Board
of Directors or such officer as it shall designate for such purpose or as it
shall otherwise direct. No officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
ARTICLE IV
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 4.1. Contracts.
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 4.2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in the name of the Corporation unless authorized
by a resolution of the Board of Directors. Such authority conferred by the Board
may be general or confined to specific instances.
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Section 4.3. Checks, Drafts, Etc.
All checks, drafts or other orders for payment of money issued in the name
of the Corporation shall be signed by such officers, employees or agents of the
Corporation as shall from time to time be designated by the Board of Directors,
the Chairman, the President, the chief financial officer or the Corporation or
the Treasurer.
Section 4.4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as shall be designated from time to time by the Board of
Directors, the Chairman, the President the chief financial officer of the
Corporation or the Treasurer; and such officers may designate any type of
depository arrangement (including but not limited to depository arrangements
resulting in net debits against the Corporation) as from time to time offered or
available.
ARTICLE V
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 5.1. Certificates of Stock.
Shares of stock of the Corporation shall be represented by certificates
which shall be in such form as may be determined by the Board of Directors,
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the Chairman, the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
If any stock certificate is signed (a) by a transfer agent or an assistant
transfer agent or (b) by a transfer clerk acting on behalf of the Corporation
and a registrar, the signature of any officer of the Corporation may be
facsimile. In case any such officer whose facsimile signature has thus been used
on any such certificate shall cease to be such officer, whether because of
death, resignation or otherwise, before such certificate has been delivered by
the Corporation, such certificate may nevertheless be delivered by the
Corporation, as though the person whose facsimile signature has been used
thereon had not ceased to be such officer. All certificates properly surrendered
to the Corporation for transfer shall be canceled and no new certificate shall
be issued to evidence transferred shares until the former certificate for at
least a like number of shares shall have been surrendered and canceled and the
Corporation reimbursed for any applicable taxes on the transfer, except that in
the case of a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms, and with such indemnity (if any) to the Corporation,
as the Board of Directors may prescribe specifically or in general terms or by
delegation to a transfer agent for the Corporation.
15
<PAGE>
Section 5.2. Lost, Stolen, or Destroyed Certificates.
The Board of Directors in individual cases or by general resolution or by
delegation to the transfer agent may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificates, or his legal representative, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5.3. Transfers of Stock.
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, and upon payment of applicable
taxes with respect to such transfer, and in compliance with any restrictions on
transfer applicable to the certificate or shares represented thereby of which
the Corporation shall have notice and subject to such rules and regulations as
the Board of Directors may from time to time deem advisable concerning the
transfer and registration of certificates for shares of capital stock of the
Corporation, the Corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Transfers of shares shall be made only on the books of the Corporation by
the registered holder thereof or by his attorney or successor duly authorized as
evidenced by documents filed with the Secretary or transfer agent of the
Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the certificates are presented to the Corporation for transfer, both
the transferor and transferee request the Corporation to do so.
Section 5.4. Transfer and Registry Agents.
The Corporation may from time to time maintain one or more transfer offices
or agents and registry offices or agents at such place or places as may be
determined from time to time by the Board.
16
<PAGE>
Section 5.5. Restrictions on Transfer.
Any stockholder may enter into an agreement with other stockholders, with
the Corporation or with third parties providing for reasonable limitation or
restriction on the right of such stockholder to transfer shares of capital stock
of the Corporation held by him, including, without limiting the generality of
the foregoing, agreements granting to such other stockholders or to the
Corporation the right to purchase for a given period of time any of such shares
on terms equal to terms offered such stockholders by any third party. Any such
limitation or restriction on the transfer of shares of the Corporation shall be
set forth conspicuously on certificates representing such shares or notice
thereof may be otherwise given to the Corporation or the transfer agent, in
which case the Corporation or the transfer agent shall not be required to
transfer such shares upon the books of the Corporation without receipt of
satisfactory evidence of compliance with the terms of such limitation or
restriction.
Section 5.6. Stockholders of Record.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Fiscal Year.
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the thirty-first day of December in each year.
Section 6.2. Seal.
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "CORPORATE SEAL" and "DELAWARE"; and it shall otherwise be in the
form approved by the Board of Directors. Such seal may be used by causing it, or
a facsimile thereof, to be impressed or affixed or otherwise reproduced.
17
<PAGE>
ARTICLE VII
OFFICES
Section 7.1. Registered Office.
The registered office of the Corporation in the State of Delaware shall be
located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, and the name of its registered agent is The Prentice-Hall Corporation
System, Inc.
Section 7.2. Other Offices.
The Corporation may have offices at such other places both within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors or as the business of the Corporation may require.
ARTICLE VIII
NOTICES
Section 8.1. Manner of Notice.
Whenever under the provisions of the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws notice is required to be given to
any stockholder, director or member of any committee designated by the Board of
Directors, it shall not be construed to require personal delivery and such
notice may be given in writing by depositing it, in a sealed envelope, in the
United States mails, air mail or first class, postage prepaid, addressed (or by
delivering it to a telegraph company, charges prepaid, for transmission) to such
stockholder, director or member either at the address of such stockholder,
director or member as it appears on the books of the Corporation or, in the case
of such a director or member, at his business address; and such notice shall be
deemed to be given at the time when it is thus deposited in the United States
mails (or delivered to the telegraph company). Such requirement for notice shall
be deemed satisfied, except in the case of stockholder meetings with respect to
which written notice is mandatorily required by law, if actual notice is
received orally or in writing by the person entitled thereto as far in advance
of the event with respect to which notice is given as the minimum notice periods
required by law or these By-Laws.
18
<PAGE>
Whenever notice is required to be given under any provision of the
Certificate of Incorporation or these By-Laws to any stockholders to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given.
Section 8.2. Waiver of Notice.
Whenever any notice is required to be given under the provisions of the
laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before, at or after the time stated therein, shall be
deemed equivalent thereto. Attendance by a person at a meeting shall constitute
a waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or committee of
directors need be specified in any written waiver of notice unless so required
by the laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends, in cash, in property, or in shares of the Corporation's
capital stock, on its outstanding shares in the manner and upon the terms and
conditions provided by law and by the Certificate of Incorporation.
ARTICLE X
AMENDMENTS
Except to the extent otherwise provided in the Certificate of Incorporation
or these By-Laws, these By-Laws shall be subject to alteration, amendment or
repeal, and new By-Laws may be adopted (i) by the affirmative vote of the
holders of not less than a majority of the voting power of all outstanding
shares of the Corporation entitled to vote thereon or (ii) by the affirmative
vote of not less than a majority of the members of the Board of Directors at any
meeting of the Board of Directors at which there is a quorum present and voting.
19
Exhibit 10.1
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made as of March 9, 1994, by and
between G. Cassidy and Associates, Inc., a Delaware corporation (the "Company")
and U.S. Trust Company of California, N.A., a national banking association, not
in its individual or corporate capacity, but solely in its capacity as trustee
(the "Trustee") of the Cassidy and Associates, Inc. Employee Stock Ownership
Trust (the "Trust") (the Trust is hereinafter sometimes referred to as the
"Borrower"), which implements and forms part of the Cassidy and Associates, Inc.
Employee Stock Ownership Plan (the "Plan") (the Trust and the Plan are
hereinafter sometimes collectively referred to as the "ESOP").
W I T N E S S E T H:
WHEREAS, the Company has duly established the Plan and the Trust and has
duly appointed the Trustee;
WHEREAS, the Company has previously entered into a Loan Agreement with the
Trust dated October 2, 1989 (the "1989 Loan Agreement"), which agreement remains
in full force and is not intended to be replaced by this Agreement;
WHEREAS, pursuant to that certain Stock Purchase Agreement dated of even
date herewith (the "Stock Purchase Agreement") between the Trust and the selling
shareholders party thereto, the Trust has agreed to acquire from the selling
shareholders, and the selling shareholders have agreed to sell to the Trust,
148,761 shares, par value $0.01 per share, of Class C Common Stock of the
Company (the "ESOP Shares") for the aggregate price of $18,000,000;
<PAGE>
WHEREAS, the Trust desires to borrow from the Company, and the Company
desires to lend to the Trust, $18,000,000 (the "Loan") to be used to purchase
the ESOP Shares, on the terms and conditions hereof;
WHEREAS, the parties hereto intend that the Loan constitute an "exempt
loan" within the meaning of Section 4975(d)(3) of the Code, Treasury Regulation
Section 54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation Section 2550.408b-3 (collectively, the "Exempt Loan Rules") and a
"Stock Purchase Loan" within the meaning of Article 1 of the Trust and of
Section 5.2 of the Plan;
WHEREAS, in contemplation of this Agreement and contemporaneously with the
execution hereof, the Company has entered that certain Note Agreement dated of
even date ("Note Agreement") herewith with the purchasers party thereto;
WHEREAS, pursuant to the Note Agreement, the Company may sell $18,000,000
of its 7.95% Senior ESOP Notes (the "Notes").
-2-
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
The following terms, as used herein, have the following meanings:
1.1 "Closing Date" means the date of the closing of the sale and purchase
of the ESOP Shares.
1.2 "Code" means the Internal Revenue Code of 1986, as amended.
1.3 "Collateral" means collateral subject to pledge pursuant to the Pledge
Agreement.
1.4 "Class C Common Stock" means the common shares, par value $0.01 per
share, of Class C Common Stock of the Company.
1.5 "Contributions" means amounts contributed by the Company to the ESOP.
1.6 "Default" has the meaning specified in Section 5.1.
-3-
<PAGE>
1.7 "Default Amount" has the meaning specified in Section 5.2.
1.8 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.9 "Make-Whole Premium" has the meaning specified in Section 2.6.
1.10 "Note" means the Note of the Borrower payable to the Company in the
form attached hereto as Exhibit A.
1.11 "Pledge Agreement" means the Pledge Agreement dated the Closing Date
between the Borrower and the Company in the form attached hereto as Exhibit B.
1.12 "Reinvestment Rate" has the meaning specified in Section 2.6.
1.13 "Required Status" has the meaning specified in Section 1.18.
1.14 "Statistical Release" has the meaning specified in Section 2.6.
1.15 "Trust Agreement" means the Cassidy and Associates, Inc. Employee
Stock Ownership Trust Agreement between the Company and the Trustee.
-4-
<PAGE>
1.16 "Weighted Average Life to Maturity" has the meaning specified in
Section 2 6.
1.17 The terms "Borrower," "Company," "Exempt Loan Rules," "ESOP," "ESOP
Shares," "Loan," "Note Agreement," "Plan," "Stock Purchase Agreement," "Trust"
and "Trustee" have the meanings set forth in the preamble of this Agreement.
1.18 General Interpretation. This Agreement and the Pledge Agreement shall
be construed and interpreted so as to maintain the status of the Plan as a
qualified leveraged employee stock ownership plan under Sections 401(a) and
4975(e)(7) of the Code, the Trust as exempt from taxation under Section 501(a)
of the Code, the Loan as an "exempt loan" under the Exempt Loan Rules and the
Loan as a "Stock Purchase Loan" under the Trust and the Plan (collectively, the
"Required Status").
-5-
<PAGE>
ARTICLE II
LOAN
2.1 Commitment to Lend; Loan Maturity. The Company agrees, on the terms and
conditions set forth in this Agreement, to make a Loan of $18,000,000 to the
Borrower on the Closing Date. The Loan shall mature on October 1, 2001.
2.2 Use of Proceeds. The Borrower shall use the proceeds of the Loan to
purchase the ESOP Shares pursuant to the Stock Purchase Agreement
2.3 Note. The Loan shall be evidenced by the Note payable to the Company.
2.4 Interest. The Loan shall bear interest at the rate of 7.95% per annum,
payable semiannually on the first day of each April and October in each year
(commencing April 1, 1994) and at maturity and on overdue principal (including
any overdue required repayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest at the rate
of 7.95% per annum after maturity until paid, to be expressed to mature on
October 1, 2001. Interest on the Note shall be computed on basis of a 360-day
year of twelve 30-day months. The Note is not subject to prepayment or
redemption at the option of the Borrower prior to its maturity date except on
the terms and conditions and in the amounts and with the premium, if any, set
forth in Section 2.6 of this Agreement.
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<PAGE>
2.5 Repayment of Principal. The Borrower agrees that on the first day of
each April and October in each year commencing April 1, 1994 and ending October
1, 2001 (the "Fixed Payment Dates") it will repay and apply, and there shall
become due and payable on the principal amount of the Loan, the applicable
amounts set forth opposite the Fixed Payment Dates as follows:
Fixed Payment Dates Applicable Amounts
------------------- ------------------
April 1, 1994 $ 550,000
October 1, 1994 $ 550,000
April 1, 1995 $ 356,205
October 1, 1995 $ 67,147
April 1, 1996 $ 282,546
October 1, 1996 $ 221,331
April 1, 1997 $ 293,655
October 1, 1997 $1,690,046
April 1, 1998 $1,753,175
October 1, 1998 $1,811,691
April 1, 1999 $1,797,343
October 1, 1999 $1,785,208
April 1, 2000 $1,850,368
October 1, 2000 $1,917,907
April 1, 2001 $1,987,910
leaving $1,085,469 becoming due at maturity on October 1, 2001. No premium shall
be payable in connection with any required repayment made pursuant to this
Section 2.5. For the purposes of this Section 2.5, any prepayment of less than
all of the outstanding loan shall be deemed to be applied first to the amount of
principal scheduled to remain unpaid on October 1, 2001, and then to the
remaining scheduled principal payments in reverse chronological order.
-7-
<PAGE>
2.6 Prepayment. The Borrower may at its option prepay the Loan, or portion
thereof (and shall be required to make a prepayment in the amount of any
prepayment made by the Company pursuant to Section 2.2 of the Note Agreement) by
payment of a principal amount of the Loan, together with accrued interest
thereon to the date of such prepayment and a premium (except that no premium
shall be paid on any prepayment by the Borrower which is required as a result of
a prepayment by the Company pursuant to Section 2.2 of the Note Agreement) equal
to the Make-Whole Premium (determined as of five (5) business days prior to the
date of such prepayment); provided, that no such prepayment shall be permitted
if as a result thereof the Company would incur an excise tax under Chapter 43 of
Subtitle D of the Code or if such prepayment would adversely affect the Required
Status. Any prepayment made at the option of the Borrower pursuant to this
Section 2.6 shall be applied by the Company as an optional prepayment under
Section 2.3 of the Note Agreement.
For purposes of this Section 2.6:
"Make-Whole Premium" means, in connection with any prepayment, the excess,
if any, of (i) the aggregate present value as of the date of such prepayment of
each dollar of principal being prepaid (taking into account the application of
such repayment required by Section 2.5) and the amount of interest (exclusive of
interest accrued to the date of prepayment) that would have been payable in
respect of such dollar if such prepayment had not been made, determined by
discounting such amounts at the Reinvestment Rate from the respective dates on
which they would have been payable, over (ii) 100% of the principal amount of
the Loan being prepaid. If the Reinvestment Rate is equal to or higher than
7.95%, the Make-Whole Premium shall be zero.
-8-
<PAGE>
"Reinvestment Rate" means .25% plus the arithmetic mean of the yields under
the respective headings "This Week" and "Last Week" published in the Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the Weighted Average Life to
Maturity of the principal being prepaid (taking into account the application of
such repayment required by Section 2.5). If no maturity exactly corresponds to
such Weighted Average Life to Maturity, yields for the two published maturities
most closely corresponding to such Weighted Average Life to Maturity shall be
calculated pursuant to the immediately preceding sentence and the Reinvestment
Rate shall be interpolated or extrapolated from such yields on a straight-line
basis, rounding in each of such relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the premium hereunder
shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded U.S. Government
Securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination hereunder, then such other
reasonably comparable index which shall be designated by the Company.
-9-
<PAGE>
"Weighted Average Life to Maturity" of the principal amount of the Loan
being prepaid means, as of the time of any determination thereof, the number of
years obtained by dividing the then Remaining Dollar-Years of such principal by
the aggregate amount of such principal. The term "Remaining Dollar-Years" of
such principal shall mean the amount obtained by (i) multiplying (1) the
remainder of (A) the amount of principal that would have become due on each
scheduled payment date if such prepayment had not been made, less (B) the amount
of principal on the Loan scheduled to become due on such date (after giving
effect to such repayment and the application thereof in accordance with the
provisions of Section 2.5), by (2) the number of years (calculated to the
nearest one-twelfth) which will elapse between the date of determination and
such scheduled payment date, and (ii) totaling the products obtained in (i).
2.7 Pledge. The obligations of the Borrower are secured by the Collateral
pledged pursuant to the Pledge Agreement.
ARTICLE III
REPRESENTATIONS OF THE BORROWER
The Borrower represents and warrants as follows:
-10-
<PAGE>
3.1 ESOP Existence. The Plan is in material compliance with all ERISA
provisions. The Trust is a duly organized, validly existing employee stock
ownership trust. The Trust and Plan constitute a valid employee stock ownership
plan for the purposes of ERISA and Section 4975(e)(7) of the Code.
3.2 ESOP Authority. The Trust has full power and authority and is duly
authorized to conduct the activities in which it is now engaged, to own the
properties owned by it and to consummate the transactions contemplated in or in
connection with this Agreement.
3.3 No Prohibited Transactions. The consummation of the transactions
contemplated in or in connection with this Agreement will not involve any
non-exempt prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
3.4 Use of Proceeds. The proceeds of the Loan will be used by the Trust
solely to acquire "employer securities" for the Trust within the meaning of
Section 409(1) of the Code.
-11-
<PAGE>
ARTICLE IV
CLOSING CONDITIONS
The obligation of the Company to make the Loan on the Closing Date shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions precedent:
4.1 Note Agreement; Purchase and Sale of ESOP Stock; Pledge Agreement. On
or prior to the Closing Date (i) the Company shall have executed and delivered
the Note Agreement and received proceeds in the amount of $18,000,000; (ii) the
Trustee and certain selling shareholders shall have executed and delivered the
Stock Purchase Agreement; (iii) all conditions precedent to the purchase and
sale of the ESOP Shares shall have been satisfied and the ESOP Shares shall have
been purchased by the Trust in accordance with the terms of the Stock Purchase
Agreement; and (iv) the Trustee shall have executed and delivered the Pledge
Agreement.
4.2 Plan and Trust Agreement. The Company shall have been furnished with a
true and correct copy of the Plan and the Trust Agreement and there shall have
been no amendments to the Plan or the Trust Agreement which might adversely
affect the rights of the Company hereunder.
4.3 Satisfactory Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to the
consummation thereof, shall be satisfactory in form and substance to the Company
and its counsel, and the Company shall have received (executed or certified as
may be appropriate) all legal documents or proceedings taken in connection with
the consummation of said transactions.
-12-
<PAGE>
ARTICLE V
DEFAULTS AND REMEDIES THEREFOR
5.1 Defaults. Any one or more of the following shall constitute a "Default"
hereunder:
(a) Default shall occur in the payment of interest on the Loan when the
same shall have become due; or
(b) Default shall occur in the making of any required repayment on the
Loan as provided in Section 2.5.
5.2 Remedies. When a Default has occurred and is continuing, the Company
may (i) declare the Default Amount due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived; (ii) may exercise its remedies under the Pledge Agreement to the extent
of the Defaulted Amount; and (iii) may avail itself of all remedies available at
law in respect of the Default Amount. For purposes hereof the term "Default
Amount" shall mean as of any date the amount of principal and interest, if any,
which is due and payable under Sections 2.4 or 2.5 of the Agreement and which is
unpaid on such date.
-13-
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 Limited Recourse. Notwithstanding any provision of this Agreement or
the Note to the contrary, the obligations of the Borrower under this Agreement
are payable only from, and the Company shall have no recourse against assets of
the Borrower other than (i) Contributions (other than contributions of "employer
securities" within the meaning of Section 409(1) of the Code) made by the
Company to the Borrower to enable the Borrower to meet its obligations pursuant
to this Agreement, (ii) the Collateral and (iii) dividends, distributions or
other earnings attributable to the Collateral and to the investment of the
Contributions.
6.2 No Recourse Against Trustee. Neither the Trustee nor any successor
trustee shall have personal liability for the obligations of the Borrower to the
Company hereunder.
6.3 Notices. All notices hereunder shall be in writing, delivered or mailed
by registered or certified mail or by overnight air courier, to the following
addresses:
If to the Company:
Cassidy and Associates, Inc.
700 13th Street, N.W.
Washington, D.C. 20005
Attention: Gerald S. J. Cassidy
-14-
<PAGE>
With a copy to:
Sidley & Austin
1722 Eye Street, N.W.
Washington, D.C. 20006
Attention: Lester G. Fant, III
If to the Borrower:
U.S. Trust Company of California, N.A.
as Trustee for the Cassidy and Associates, Inc. Employee Stock
Ownership Trust
c/o UST Fiduciary Services, Ltd.
1300 Eye Street, N.W.
Suite 1080 East
Washington, D.C. 20005
Attention: Norman P. Goldberg
With a copy to:
Keck, Mahin & Cate
1201 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Luis Granados
6.4 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their successors and assigns.
6.5 Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid; provided, that the provisions of this section shall not operate in a
manner which would result in a failure to maintain the Required Status.
-15-
<PAGE>
6.6 Amendments. This Agreement may be amended in writing by the parties;
provided, that no amendment shall be executed which would adversely affect the
Required Status. The parties agree to negotiate in good faith any amendment
(which amendment may have retroactive effect) necessary to be executed to
maintain Required Status.
6.7 Governing Law. This Agreement and the Note executed hereunder shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to the principles of conflict of laws thereof) to the extent not
preempted by federal law.
6.8 Captions. The descriptive headings of the various Sections or parts of
this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
-16-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement on
the date and year first above written.
G. CASSIDY AND ASSOCIATES, INC.
By: [illegible signature]
-----------------------------------------
Its: President
-----------------------------------------
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., not in its individual or corporate
capacity but solely as Trustee of the Cassidy
and Associates, Inc. Employee Stock
Ownership Trust
By: /s/ Norman P. Goldberg
-----------------------------------------
Its: Senior Vice President
-----------------------------------------
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Exhibit 10.3
THE CASSIDY COMPANIES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. PURPOSE.................................................................................................................1
2. DEFINITIONS.............................................................................................................1
3. ADMINISTRATION OF THE PLAN..............................................................................................4
3.1. Board...........................................................................................................4
3.2. Committee.......................................................................................................5
3.3. Grants..........................................................................................................5
3.4. Grants to Outside Directors.....................................................................................6
3.5. No Liability....................................................................................................6
3.6. Applicability of Rule 16b-3.....................................................................................6
4. STOCK SUBJECT TO THE PLAN...............................................................................................6
4.1. Aggregate Limitation............................................................................................6
4.2. Application of Aggregate Limitation.............................................................................6
4.3. Per-Grantee Limitation..........................................................................................7
5. EFFECTIVE DATE AND TERM OF THE PLAN.....................................................................................7
5.1. Effective Date..................................................................................................7
5.2. Term............................................................................................................8
6. PERMISSIBLE GRANTEES....................................................................................................8
6.1. Employees and Service Providers.................................................................................8
6.2. Successive Grants...............................................................................................8
7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS........................................................................8
8. AWARD AGREEMENT.........................................................................................................8
9. OPTION PRICE............................................................................................................9
10. VESTING, TERM AND EXERCISE OF OPTIONS...................................................................................9
10.1. Vesting and Option Period.......................................................................................9
10.2. Term............................................................................................................9
10.3. Acceleration....................................................................................................9
10.4. Termination of Employment or Other Relationship for a Reason Other than Death or Disability....................10
10.4.1. Incentive Stock Options................................................................................10
10.4.2. Options Other than Incentive Stock Options.............................................................10
10.5. Rights in the Event of Death...................................................................................11
10.6. Rights in the Event of Disability..............................................................................11
10.7. Limitations on Exercise of Option..............................................................................11
10.8. Method of Exercise.............................................................................................12
10.9. Delivery of Stock Certificates.................................................................................12
11. TRANSFERABILITY OF OPTIONS.............................................................................................13
11.1. General Rule...................................................................................................13
11.2. Family Transfers...............................................................................................13
</TABLE>
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12. RESTRICTED STOCK.......................................................................................................13
12.1. Grant of Restricted Stock or Restricted Stock Units............................................................13
12.2. Restrictions...................................................................................................14
12.3. Restricted Stock Certificates..................................................................................14
12.4. Rights of Holders of Restricted Stock..........................................................................14
12.5. Rights of Holders of Restricted Stock Units....................................................................15
12.6. Termination of Employment or Other Relationship for a Reason Other than Death or Disability....................15
12.7. Rights in the Event of Death...................................................................................15
12.8. Rights in the Event of Disability..............................................................................16
12.9. Delivery of Stock and Payment Therefor.........................................................................16
13. STOCK APPRECIATION RIGHTS..............................................................................................16
13.1. Grant of Stock Appreciation Rights.............................................................................16
13.2. Nature of a Stock Appreciation Right...........................................................................16
13.3. Terms and Conditions Governing SARs............................................................................17
14. PARACHUTE LIMITATIONS..................................................................................................17
15. REQUIREMENTS OF LAW....................................................................................................18
15.1. General........................................................................................................18
15.2. Rule 16b-3.....................................................................................................19
16. AMENDMENT AND TERMINATION OF THE PLAN..................................................................................19
17. EFFECT OF CHANGES IN CAPITALIZATION....................................................................................19
17.1. Changes in Stock...............................................................................................19
17.2. Reorganization in Which the Company Is the Surviving Entity and in Which No Change of Control Occurs...........20
17.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a Change of Control.............................20
17.4. Adjustments....................................................................................................21
17.5. No Limitations on Company......................................................................................21
18. DISCLAIMER OF RIGHTS...................................................................................................21
19. NONEXCLUSIVITY OF THE PLAN.............................................................................................22
20. WITHHOLDING TAXES......................................................................................................22
21. CAPTIONS...............................................................................................................23
22. OTHER PROVISIONS.......................................................................................................23
23. NUMBER AND GENDER......................................................................................................23
24. SEVERABILITY...........................................................................................................23
25. POOLING................................................................................................................23
26. GOVERNING LAW..........................................................................................................23
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THE CASSIDY COMPANIES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
The Cassidy Companies, Inc., a Delaware corporation (the "Company"), sets
forth herein the terms of its 1998 Stock Option and Incentive Plan (the "Plan")
as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain
highly qualified officers, key employees, outside directors and other persons,
and to motivate such officers, key employees, outside directors and other
persons to serve the Company and its affiliates (as defined herein) and to
expend maximum effort to improve the business results and earnings of the
Company, by providing to such officers, key employees, outside directors and
other persons an opportunity to acquire or increase a direct proprietary
interest in the operations and future success of the Company. To this end, the
Plan provides for the grant of stock options, restricted stock, restricted stock
units and stock appreciation rights in accordance with the terms hereof. Stock
options granted under the Plan may be non-qualified stock options or incentive
stock options, as provided herein, except that stock options granted to outside
directors shall in all cases be non-qualified stock options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any company
or other trade or business that controls, is controlled by or is under common
control with such person within the meaning of Rule 405 of Regulation C under
the Securities Act.
2.2 "Award Agreement" means the stock option agreement, restricted stock
agreement, restricted stock unit agreement, stock appreciation right agreement
or other written agreement between the Company and a Grantee that evidences and
sets out the terms and conditions of a Grant.
2.3 "Benefit Arrangement" shall have the meaning set forth in Section 14
hereof.
2.4 "Board" means the Board of Directors of the Company.
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2.5 "Change of Control" means (i) the dissolution or liquidation of the
Company or a merger, consolidation, or reorganization of the Company with one or
more other entities in which the Company is not the surviving entity, (ii) a
sale of substantially all of the assets of the Company to another entity, or
(iii) any transaction (including without limitation a merger or reorganization
in which the Company is the surviving entity) which results in any person or
entity (other than persons who are stockholders or affiliates of the Company at
the time the Plan is approved by the Company's stockholders) owning 50% or more
of the combined voting power of all classes of stock of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.7 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.8 "Company" means The Cassidy Companies, Inc.
2.9 "Effective Date" means the date designated by the Board in its
resolution adopting the Plan.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.11 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed on
an established national or regional stock exchange, is admitted to quotation on
the NASDAQ National Market, or is publicly traded on an established securities
market, the Fair Market Value of a share of Stock shall be the closing price of
the Stock on such exchange or in such market (the highest such closing price if
there is more than one such exchange or market) on the Grant Date or such other
determination date (or if there is no such reported closing price, the Fair
Market Value shall be the mean between the highest bid and lowest asked prices
or between the high and low sale prices on such trading day) or, if no sale of
Stock is reported for such trading day, on the next preceding day on which any
sale shall have been reported. If the Stock is not listed on such an exchange,
quoted on such system or traded on such a market, Fair Market Value shall be the
value of the Stock as determined by the Board in good faith.
2.12 "Grant" means an award of an Option, Restricted Stock, Restricted
Stock Unit or Stock Appreciation Right under the Plan.
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2.13 "Grant Date" means, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves a
Grant, (ii) the date on which the recipient of a Grantee first becomes eligible
to receive a Grant under Section 6 hereof, or (iii) such other date as may be
specified by the Board or such Committee.
2.14 "Grantee" means a person who receives or holds an Option, Restricted
Stock, Restricted Stock Unit or Stock Appreciation Right under the Plan.
2.15 "Immediate Family Members" means the spouse, children and
grandchildren of the Grantee.
2.16 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.17 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.18 "Option Period" means the period during which Options may be exercised
as set forth in Section 10 hereof.
2.19 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.20 "Other Agreement" shall have the meaning set forth in Section 14
hereof.
2.21 "Outside Director" means a member of the Board who is not an officer
or employee of the Company.
2.22 "Plan" means this The Cassidy Companies, Inc. 1998 Stock Option and
Incentive Plan.
2.23 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.24 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 12.2 hereof.
2.25 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to Section 12 hereof, that are subject to restrictions and to a risk of
forfeiture.
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2.26 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 12 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.27 "Securities Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.
2.28 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
Section 6 hereof.
2.29 "Stock" means the common stock, par value $0.01 per share, of the
Company, authorized by the certificate of incorporation of the Company as
amended effective ____________, 1998.
2.30 "Stock Appreciation Right" or "SAR" means a right granted to a Grantee
pursuant to the provisions of Section 13 hereof.
2.31 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.32 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 10.2 hereof.
3. ADMINISTRATION OF THE PLAN
3.1. Board.
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Grant or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Grant or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's certificate of incorporation and
by-laws and applicable law. The interpretation and construction by the Board of
any provision of the Plan, any Grant or any Award Agreement shall be final and
conclusive. As permitted by law, the Board may delegate its authority under the
Plan to a member of the Board of Directors or an executive officer of the
Company.
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3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Company and applicable law. In the event that the Plan, any Grant or any
Award Agreement entered into hereunder provides for any action to be taken by or
determination to be made by the Board, such action may be taken by or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate the authority delegated to it under
the Plan to a member of the Board of Directors or an executive officer of the
Company.
3.3. Grants.
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority (i) to designate Grantees, (ii) to determine the type
or types of Grant to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to a Grant, (iv) to establish the terms and
conditions of each Grant (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of a Grant or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement evidencing a Grant, (vi) to
make Grants alone, in addition to, in tandem with, or in substitution or
exchange for any other Grant or any other award granted under another plan of
the Company or a Subsidiary, and (vii) to amend, modify, or supplement the terms
of any outstanding Grant. Such authority specifically includes the authority, in
order to effectuate the purposes of the Plan but without amending the Plan, to
modify Grants to eligible individuals who are foreign nationals or are
individuals who are employed outside the United States to recognize differences
in local law, tax policy, or custom. The terms and conditions imposed by the
Board with respect to the vesting, exercise or forfeiture of a Grant may,
without limitation, include performance-based conditions relating to the trading
price of shares of Stock, market share, sales, revenue growth, cost reduction,
earnings per share and return on equity. As a condition to any subsequent Grant,
the Board shall have the right, at its discretion, to require Grantees to return
to the Company Grants previously awarded under the Plan. Subject to the terms
and conditions of the Plan, any such new Grant shall be upon such terms and
conditions as are specified by the Board at the time the new Grant is made.
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3.4. Grants to Outside Directors.
Each Outside Director shall be awarded automatically, upon his or her
initial election to the Board, a one-time grant of an Option, which shall not be
an Incentive Stock Option, to purchase, at an exercise price per share equal to
the Fair Market Value of the Stock on the date of Grant (but in no event less
than the par value of such Stock), that number of shares of Stock equal to
$100,000 divided by the Fair Market Value of the Stock on the date of Grant,
rounded down to the nearest whole number. Said Option shall be exercisable for a
period commencing upon the date of grant and terminating on the tenth
anniversary of such date.
3.5. No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Grant or
Award Agreement.
3.6. Applicability of Rule 16b-3.
Those provisions of the Plan that make express reference to Rule 16b-3
under the Exchange Act shall apply only to Reporting Persons.
4. STOCK SUBJECT TO THE PLAN
4.1. Aggregate Limitation.
Subject to adjustment as provided in Section 17 hereof, the aggregate
number of shares of Stock available for issuance under the Plan pursuant to
Incentive Stock Options or other Grants shall be one million nine hundred
thousand (1,900,000). Stock issued or to be issued under the Plan shall be
authorized but unissued shares. If any shares covered by a Grant are not
purchased or are forfeited, or if a Grant otherwise terminates without delivery
of any Stock subject thereto, then the number of shares of Stock counted against
the aggregate number of shares available under the Plan with respect to such
Grant shall, to the extent of any such forfeiture or termination, again be
available for making Grants under the Plan.
4.2. Application of Aggregate Limitation.
The limitation contained in Section 4.1 shall apply not only to Grants that
are settleable by the delivery of shares of Stock but also to Grants relating to
shares of Stock but settleable only in cash (such as cash-only SARs). The Board
may adopt reasonable counting procedures to ensure appropriate counting, avoid
double counting (as, for example, in the case of tandem or substitute awards)
and make adjustments if the number of shares of Stock actually delivered differs
from the number of shares previously counted in connection with a Grant.
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4.3. Per-Grantee Limitation.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act:
(i) no person eligible for a Grant under Section 6 hereof may be
awarded Options in any calendar year exercisable for greater
than four hundred thousand (400,000) shares of Stock (subject
to adjustment as provided in Section 17 hereof);
(ii) the maximum number of shares of Restricted Stock that can be
awarded under the Plan (including for this purpose any shares
of Stock represented by Restricted Stock Units) to any person
eligible for a Grant under Section 12 hereof is four hundred
thousand (400,000) per calendar year (subject to adjustment as
provided in Section 17 hereof); and
(iii) the maximum number of shares of Stock that can be the subject
of SARs awarded to any Grantee under Section 13 hereof is four
hundred thousand (400,000) per calendar year (subject to
adjustment as provided in Section 17 hereof).
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date, subject to approval
of the Plan, within one year before or after the date upon which the Plan was
adopted by the Board, by a majority of the votes cast on the proposal at a
meeting of stockholders, provided that the total votes cast represent a majority
of all shares entitled to vote or by the written consent of the holders of a
majority of the Company's shares entitled to vote. Upon approval of the Plan by
the stockholders of the Company as set forth above, all Grants made under the
Plan on or after the Effective Date shall be fully effective as if the
stockholders of the Company had approved the Plan on the Effective Date. If the
stockholders fail to approve the Plan within the time period set forth above,
any Grants made hereunder shall be null and void and of no effect.
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5.2. Term.
The Plan has no termination date; however, no Incentive Stock Option may be
granted under the Plan on or after July 1, 2008.
6. PERMISSIBLE GRANTEES
6.1. Employees and Service Providers.
Subject to the provisions of Section 7, Grants may be made under the Plan
to any employee of, or Service Provider or employee of a Service Provider
providing, or who has provided, services to, the Company or any Subsidiary,
including any such employee who is an officer or director of the Company or of
any Subsidiary, as the Board shall determine and designate from time to time.
6.2. Successive Grants.
An eligible person may receive more than one Grant, subject to such
restrictions as are provided herein.
7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS
An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee's employer and its affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
8. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award
Agreement, in such form or forms as the Board shall from time to time determine.
Award Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing a Grant of Options shall specify whether such Options
are intended to be non-qualified stock options or Incentive Stock Options, and
in the absence of such specification such options shall be deemed non-qualified
stock options.
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9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price of an Incentive
Stock Option shall be the Fair Market Value on the Grant Date of a share of
Stock; provided, however, that in the event that a Grantee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than
ten percent of the Company's outstanding Stock), the Option Price of an Option
granted to such Grantee that is intended to be an Incentive Stock Option shall
be not less than 110 percent of the Fair Market Value of a share of Stock on the
Grant Date. In no case shall the Option Price of any Option be less than the par
value of a share of Stock.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting and Option Period.
Subject to Sections 10.2 and 17.3 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this Section 10.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The period during which
any Option shall be exercisable shall constitute the "Option Period" with
respect to such Option.
10.2. Term.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the outstanding Stock), an Option granted to such
Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its Grant Date.
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10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the stockholders
of the Company as provided in Section 5.1 hereof.
10.4. Termination of Employment or Other Relationship for a Reason Other
than Death or Disability.
10.4.1. Incentive Stock Options.
Upon the termination of a Grantee's employment with the Company and its
Subsidiaries other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Incentive Stock Option
or portion thereof held by such Grantee that has not vested in accordance with
the provisions of Section 10.1 hereof shall terminate immediately, and any
Incentive Stock Option or portion thereof that has vested in accordance with the
provisions of Section 10.1 hereof but has not been exercised shall terminate at
the close of business on the 90th day following the Grantee's termination of
employment (or, if such 90th day is a Saturday, Sunday or holiday, at the close
of business on the next preceding day that is not a Saturday, Sunday or
holiday). Upon termination of an Incentive Stock Option or portion thereof, the
Grantee shall have no further right to purchase shares of Stock pursuant to such
Incentive Stock Option or portion thereof. Whether a leave of absence or leave
on military or government service shall constitute a termination of employment
or other relationship for purposes of the Plan shall be determined by the Board,
which determination shall be final and conclusive. For purposes of the Plan, a
termination of employment shall not be deemed to occur if the Grantee is
immediately thereafter employed with the Company or any Subsidiary.
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10.4.2. Options Other than Incentive Stock Options.
This Section 10.4.2 shall apply with respect to Options other than
Incentive Stock Options. Upon the termination of a Grantee's employment or other
relationship with the Company and its Subsidiaries other than by reason of death
or "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code), any Option or portion thereof held by such Grantee that has not
vested in accordance with the provisions of Section 10.1 hereof shall terminate
immediately, and any Option or portion thereof that has vested in accordance
with the provisions of Section 10.1 hereof but has not been exercised shall
terminate at the close of business on the 90th day following the Grantee's
termination of employment or other relationship (or, if such 90th day is a
Saturday, Sunday or holiday, at the close of business on the next preceding day
that is not a Saturday, Sunday or holiday), unless the Board, in its discretion,
extends the period during which the Option may be exercised (which period may
not be extended beyond the original term of the Option). Upon termination of an
Option or portion thereof, the Grantee shall have no further right to purchase
shares of Stock pursuant to such Option or portion thereof. Whether a leave of
absence or leave on military or government service shall constitute a
termination of employment or other relationship for purposes of the Plan shall
be determined by the Board, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment, service or other
relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company, a Subsidiary or a Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company or a
Subsidiary. Whether a termination of a Grantee's employment or other
relationship with the Company and its Subsidiaries shall have occurred shall be
determined by the Board, which determination shall be final and conclusive.
10.5. Rights in the Event of Death.
If a Grantee dies while employed by or providing services to the Company,
all Options granted to such Grantee that have not previously terminated shall
fully vest on the date of death, and the executors or administrators or legatees
or distributees of such Grantee's estate shall have the right, at any time
within one year after the date of such Grantee's death (or such longer period as
the Board, in its discretion, may determine prior to the expiration of such
one-year period) and prior to termination of the Option pursuant to Section 10.2
above, to exercise any Option held by such Grantee at the date of such Grantee's
death.
10.6. Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company is
terminated by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Grantee, such Grantee's Options that
have not previously terminated shall continue to vest, and shall be exercisable
to the extent that they are vested, for a period of one year after such
termination of employment or service (or, in the case of an Option that is not
an Incentive Stock Option, such longer period as the Board, in its discretion,
may determine prior to the expiration of such one-year period), subject to
earlier termination of the Option as provided in Section 10.2 above. Whether a
termination of employment or service is to be considered by reason of "permanent
and total disability" for purposes of the Plan shall be determined by the Board,
which determination shall be final and conclusive.
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10.7. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein, or after ten years following the
date upon which the Option is granted, or after the occurrence of an event
referred to in Section 17 hereof which results in termination of the Option.
10.8. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised. The minimum number of shares of
Stock with respect to which an Option may be exercised, in whole or in part, at
any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement and (ii) the maximum number of shares
available for purchase under the Option at the time of exercise. Payment of the
Option Price for the shares purchased pursuant to the exercise of an Option
shall be made (i) in cash or in cash equivalents; (ii) through the tender to the
Company of shares of Stock, which shares, if acquired from the Company, shall
have been held for at least six months and which shall be valued, for purposes
of determining the extent to which the Option Price has been paid thereby, at
their Fair Market Value on the date of exercise; or (iii) by a combination of
the methods described in (i) and (ii). The Board may provide, by inclusion of
appropriate language in an Award Agreement, that payment in full of the Option
Price need not accompany the written notice of exercise provided that the notice
of exercise directs that the certificate or certificates for the shares of Stock
for which the Option is exercised be delivered to a licensed broker acceptable
to the Company as the agent for the individual exercising the Option and, at the
time such certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or other taxes which the Company may in
its judgment, be required to withhold with respect to the exercise of the
Option. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Unless otherwise stated
in the applicable Award Agreement, an individual holding or exercising an Option
shall have none of the rights of a stockholder (for example, the right to
receive cash or dividend payments or distributions attributable to the subject
shares of Stock or to direct the voting of the subject shares of Stock) until
the shares of Stock covered thereby are fully paid and issued to such
individual. Except as provided in Section 17 hereof, no adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date of such issuance.
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10.9. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
11. TRANSFERABILITY OF OPTIONS
11.1. General Rule.
Except as provided in Section 11.2, during the lifetime of a Grantee, only
the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's
guardian or legal representative) may exercise an Option. Except as provided in
Section 11.2, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.
11.2. Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer all
or part of an Option that is not an Incentive Stock Option to (i) any Immediate
Family Member, (ii) a trust or trusts for the exclusive benefit of any Immediate
Family Member, or (iii) a partnership or limited liability company in which
Immediate Family Members are the only partners or members, provided that (x)
there may be no consideration for any such transfer, and (y) subsequent
transfers of transferred Options are prohibited except those in accordance with
this Section 11.2 or by will or the laws of descent and distribution. Following
transfer, any such Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of Section 11.2 hereof the term "Grantee" shall be deemed to refer to
the transferee. The events of termination of the employment or other
relationship of Section 10.4 hereof shall continue to be applied with respect to
the original Grantee, following which the Option shall be exercisable by the
transferee only to the extent and for the periods specified in Sections 10.4,
10.5 or 10.6.
12. RESTRICTED STOCK
12.1. Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Grants under Section 6 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
-13-
<PAGE>
12.2. Restrictions.
At the time a Grant of Restricted Stock or Restricted Stock Units is made,
the Board shall establish a period of time (the "Restricted Period") applicable
to such Restricted Stock or Restricted Stock Units. Each Grant of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted Period.
The Board may, in its sole discretion, at the time a Grant of Restricted Stock
or Restricted Stock Units is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period, including the satisfaction
of corporate or individual performance objectives, which may be applicable to
all or any portion of the Restricted Stock or Restricted Stock Units. Such
performance objectives shall be established in writing by the Board by not later
than the ninetieth day of the period of service to which such performance
objectives relate and while the outcome is substantially uncertain. Performance
objectives may be based on Stock price, market share, sales, earnings per share,
return on equity or costs. Performance objectives may include positive results,
maintaining the status quo or limiting economic losses. Subject to the fourth
sentence of this Section 12.2, the Board also may, in its sole discretion,
shorten or terminate the Restricted Period or waive any other restrictions
applicable to all or a portion of the Restricted Stock or Restricted Stock
Units. Neither Restricted Stock nor Restricted Stock Units may be sold,
transferred, assigned, pledged or otherwise encumbered or disposed of during the
Restricted Period or prior to the satisfaction of any other restrictions
prescribed by the Board with respect to such Restricted Stock or Restricted
Stock Units.
12.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Secretary of the Company shall hold such
certificates for the Grantee's benefit until such time as the Restricted Stock
is forfeited to the Company, or the restrictions lapse.
12.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board may
provide that any dividends paid on Restricted Stock must be reinvested in shares
of Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any,
received by a Grantee with respect to Restricted Stock as a result of any stock
split, stock dividend, combination of shares, or other similar transaction shall
be subject to the restrictions applicable to the original Grant.
-14-
<PAGE>
12.5. Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a Grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash payment for each Restricted Stock Unit held equal to the per-share
dividend paid on the Stock. Such Award Agreement may also provide that such cash
payment will be deemed reinvested in additional Restricted Stock Units at a
price per unit equal to the Fair Market Value of a share of Stock on the date
that such dividend is paid.
12.6. Termination of Employment or Other Relationship for a Reason Other
than Death or Disability.
Upon the termination of a Grantee's employment or other relationship with
the Company and its Subsidiaries, in either case other than, in the case of
individuals, by reason of death or "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code), any shares of Restricted Stock or
Restricted Stock Units held by such Grantee that have not vested, or with
respect to which all applicable restrictions and conditions have not lapsed,
shall immediately be deemed forfeited, unless the Board, in its discretion,
determines otherwise. Upon forfeiture of Restricted Stock or Restricted Stock
Units, the Grantee shall have no further rights with respect to such Grant,
including but not limited to any right to vote Restricted Stock or any right to
receive dividends with respect to shares of Restricted Stock or Restricted Stock
Units. Whether a leave of absence or leave on military or government service
shall constitute a termination of employment or other relationship for purposes
of the Plan shall be determined by the Board, which determination shall be final
and conclusive. For purposes of the Plan, a termination of employment, service
or other relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company or any other Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company. Whether a
termination of a Grantee's employment or other relationship with the Company and
its Subsidiaries shall have occurred shall be determined by the Board, which
determination shall be final and conclusive.
-15-
<PAGE>
12.7. Rights in the Event of Death.
If a Grantee dies while employed by the Company or a Service Provider, or
while serving as a Service Provider, all Restricted Stock or Restricted Stock
Units granted to such Grantee shall fully vest on the date of death unless the
Board provided otherwise in the Award Agreement relating to such Restricted
Stock or Restricted Stock Units. Upon such vesting, the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the Grantee's
estate.
12.8. Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company or a
Service Provider, or while serving as a Service Provider, is terminated by
reason of the "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Grantee, such Grantee's Restricted Stock or
Restricted Stock Units shall continue to vest in accordance with the applicable
Award Agreement for a period of one year after such termination of employment or
service (or such longer period as the Board, in its discretion, may determine
prior to the expiration of such one-year period), subject to the earlier
forfeiture of such Restricted Stock or Restricted Stock Units in accordance with
the terms of the applicable Award Agreement. Whether a termination of employment
or service is to be considered by reason of "permanent and total disability" for
purposes of the Plan shall be determined by the Board, which determination shall
be final and conclusive.
12.9. Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, upon payment by the Grantee to the Company, in cash or by check, of the
greater of (i) the aggregate par value of the shares of Stock represented by
such Restricted Stock or Restricted Stock Units or (ii) the purchase price, if
any, specified in the Award Agreement relating to such Restricted Stock or
Restricted Stock Units, a stock certificate for such shares shall be delivered,
free of all such restrictions, to the Grantee or the Grantee's beneficiary or
estate, as the case may be.
13. STOCK APPRECIATION RIGHTS
13.1. Grant of Stock Appreciation Rights.
The Board may from time to time grant SARs to persons eligible to receive
grants under Section 6 hereof, subject to the provisions of this Section and to
such restrictions, conditions and other terms as the Board may determine.
-16-
<PAGE>
13.2. Nature of a Stock Appreciation Right.
An SAR shall confer on the Grantee a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of Stock on the
date of exercise over (B) the grant price of the SAR as determined by the Board.
Unless the Board provides otherwise in the Award Agreement, the grant price of
an SAR shall not be less than the Fair Market Value of a share of Stock on the
date of grant.
13.3. Terms and Conditions Governing SARs.
The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which an SAR may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which and the circumstances
under which an SAR shall cease to be exercisable, the method of exercise, method
of settlement, form of consideration payable in settlement, whether or not an
SAR shall be in tandem or in combination with any other Grant, and any other
terms and conditions of any SAR.
14. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the Grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock, Restricted Stock Unit or Stock Appreciation Right held by that Grantee
and any right to receive any payment or other benefit under this Plan shall not
become exercisable or vested (i) to the extent that such right to exercise,
vesting, payment, or benefit, taking into account all other rights, payments, or
benefits to or for the Grantee under this Plan, all Other Agreements, and all
Benefit Arrangements, would cause any payment or benefit to the Grantee under
this Plan to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as
a result of receiving a Parachute Payment, the aggregate after-tax amounts
received by the Grantee from the Company under this Plan, all Other Agreements,
and all Benefit Arrangements would be less than the maximum after-tax amount
that could be received by the Grantee without causing any such payment or
benefit to be considered a Parachute Payment. In the event that the receipt of
any such right to exercise, vesting, payment, or benefit under this Plan, in
conjunction with all other rights, payments, or benefits to or for the Grantee
under any Other Agreement or any Benefit Arrangement would cause the Grantee to
be considered to have received a Parachute Payment under this Plan that would
have the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall have
the right, in the Grantee's sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any Benefit
Arrangements that should be reduced or eliminated so as to avoid having the
payment or benefit to the Grantee under this Plan be deemed to be a Parachute
Payment.
-17-
<PAGE>
15. REQUIREMENTS OF LAW
15.1. General.
The Company shall not be required to sell or issue any shares of Stock
under any Grant if the sale or issuance of such shares would constitute a
violation by the Grantee, any other person exercising a right emanating from
such Grant, or the Company of any provision of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of any shares
subject to a Grant upon any securities exchange or under any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the issuance or purchase of shares hereunder, no shares of Stock may be
issued or sold to the Grantee or any other person exercising a right emanating
from such Grant unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company, and any delay caused thereby shall in no way affect
the date of termination of the Grant. Specifically, in connection with the
Securities Act, upon the exercise of any Option or any SAR that may be settled
in shares of Stock or the delivery of any shares of Restricted Stock or Stock
underlying Restricted Stock Units, unless a registration statement under such
Act is in effect with respect to the shares of Stock covered by such Grant, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other person
exercising a right emanating from such Grant may acquire such shares pursuant to
an exemption from registration under the Securities Act. Any determination in
this connection by the Board shall be final, binding, and conclusive. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act. The Company shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or an SAR or the issuance of shares of Stock pursuant to the Plan to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option (or SAR that
may be settled in shares of Stock) shall not be exercisable until the shares of
Stock covered by such Option (or SAR) are registered or are exempt from
registration, the exercise of such Option (or SAR) under circumstances in which
the laws of such jurisdiction apply shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
-18-
<PAGE>
15.2. Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Grants pursuant to the Plan and the exercise of Options and SARs granted
hereunder will qualify for the exemption provided by Rule 16b-3 under the
Exchange Act. To the extent that any provision of the Plan or action by the
Board does not comply with the requirements of Rule 16b-3, it shall be deemed
inoperative to the extent permitted by law and deemed advisable by the Board,
and shall not affect the validity of the Plan. In the event that Rule 16b-3 is
revised or replaced, the Board may exercise its discretion to modify this Plan
in any respect necessary to satisfy the requirements of, or to take advantage of
any features of, the revised exemption or its replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Grants have not been
made; provided, however, that the Board shall not, without approval of the
Company's stockholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul a Grant if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 16 or
Section 17 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Grant theretofore awarded under the Plan.
-19-
<PAGE>
17. EFFECT OF CHANGES IN CAPITALIZATION
17.1. Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which Grants of Options, Restricted Stock, Restricted Stock Units and Stock
Appreciation Rights may be made under the Plan shall be adjusted proportionately
and accordingly by the Company. In addition, the number and kind of shares for
which Grants are outstanding shall be adjusted proportionately and accordingly
so that the proportionate interest of the Grantee immediately following such
event shall, to the extent practicable, be the same as immediately before such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares that are subject to the unexercised
portion of an Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share. The conversion of any convertible
securities of the Company shall not be treated as an increase in shares effected
without receipt of consideration.
17.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change of Control Occurs.
Subject to Section 17.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities in which no Change in Control occurs, any Option(or SAR)
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option (or SAR) would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the Option Price (or SAR grant price) per share so that the
aggregate Option Price (or grant price) thereafter shall be the same as the
aggregate Option Price (or grant price) of the shares remaining subject to the
Option (or SAR) immediately prior to such reorganization, merger, or
consolidation. Subject to any contrary language in an Award Agreement evidencing
a Grant of Restricted Stock, any restrictions applicable to such Restricted
Stock shall apply as well to any replacement shares received by the Grantee as a
result of the reorganization, merger or consolidation.
-20-
<PAGE>
17.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change of Control.
Subject to the exceptions set forth in the last sentence of this Section
17.3, (i) upon the occurrence of a Change of Control, all outstanding shares of
Restricted Stock and Restricted Stock Units shall be deemed to have vested, and
all restrictions and conditions applicable to such shares of Restricted Stock
and Restricted Stock Units shall be deemed to have lapsed, immediately prior to
the occurrence of such Change of Control, and (ii) fifteen days prior to the
scheduled consummation of a Change of Control, all Options and SARs outstanding
hereunder shall become immediately exercisable and shall remain exercisable for
a period of fifteen days. Any exercise of an Option or SAR during such
fifteen-day period shall be conditioned upon the consummation of the event and
shall be effective only immediately before the consummation of the event. Upon
consummation of any Change of Control, the Plan and all outstanding but
unexercised Options and SARs shall terminate. The Board shall send written
notice of an event that will result in such a termination to all individuals who
hold Options or SARs not later than the time at which the Company gives notice
thereof to its stockholders. This Section 17.3 shall not apply to any Change of
Control to the extent that (A) provision is made in writing in connection with
such Change of Control for the continuation of the Plan or the assumption of the
Options, SARs, Restricted Stock and Restricted Stock Units theretofore granted,
or for the substitution for such Options, SARs, Restricted Stock and Restricted
Stock Units of new options, SARs, restricted stock and restricted stock units
covering the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares or units and
exercise prices, in which event the Plan and Options, SARs, Restricted Stock and
Restricted Stock Units theretofore granted shall continue in the manner and
under the terms so provided or (B) a majority of the full Board determines that
such Change of Control shall not trigger application of the provisions of this
Section 17.3 subject to Section 25.
17.4. Adjustments.
Adjustments under this Section 17 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
17.5. No Limitations on Company.
The making of Grants pursuant to the Plan shall not affect or limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
-21-
<PAGE>
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company or Service Provider
either to increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company. In addition, notwithstanding anything
contained in the Plan to the contrary, unless otherwise stated in the applicable
Award Agreement, no Grant awarded under the Plan shall be affected by any change
of duties or position of the Grantee, so long as such Grantee continues to be a
director, officer, consultant or employee of the Company. The obligation of the
Company to pay any benefits pursuant to this Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the manner
and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
participant or beneficiary under the terms of the Plan. No Grantee shall have
any of the rights of a stockholder with respect to the shares of Stock subject
to an Option or SAR except to the extent the certificates for such shares of
Stock shall have been issued upon the exercise of the Option or SAR.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
20. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the exercise of an Option or SAR. At the time of
such vesting, lapse, or exercise, the Grantee shall pay to the Company or the
Subsidiary, as the case may be, any amount that the Company or the Subsidiary
may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company or the Subsidiary, which may be
withheld by the Company or the Subsidiary, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Subsidiary to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company or the
Subsidiary shares of Stock already owned by the Grantee. The shares of Stock so
delivered or withheld shall have an aggregate Fair Market Value equal to such
withholding obligations. The Fair Market Value of the shares of Stock used to
satisfy such withholding obligation shall be determined by the Company or the
Subsidiary as of the date that the amount of tax to be withheld is to be
determined. A Grantee who has made an election pursuant to this Section 20 may
satisfy his or her withholding obligation only with shares of Stock that are not
subject to any repurchase, forfeiture, unfulfilled vesting, or other similar
requirements.
-22-
<PAGE>
21. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
22. OTHER PROVISIONS
Each Grant awarded under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
23. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
24. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
25. POOLING
Notwithstanding anything in the Plan to the contrary, if any right under or
feature of the Plan would cause to be ineligible for pooling of interest
accounting a transaction that would, but for the right or feature hereunder, be
eligible for such accounting treatment, the Board may modify or adjust the right
or feature so that the transaction will be eligible for pooling of interest
accounting. Such modification or adjustment may include payment of cash or
issuance to a Grantee of Stock having a Fair Market Value equal to the cash
value of such right or feature.
26. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Grants awarded hereunder shall be governed by the laws of the State of
Delaware.
* * *
-23-
<PAGE>
The Plan was duly adopted and approved by the Board of Directors of the
Company as of the ___ day of __________, 1998.
/S/
-------------------------------
The Plan was duly approved by the stockholders of the Company on the day of
_________, 1998.
/S/
-------------------------------
-24-
EXHIBIT 21
Subsidiaries of the Registrant
Name State of Formation
- ---- ------------------
Boland & Madigan, Inc. Delaware
Fredick Schneiders Research, Inc. Delaware
G. Cassidy & Associates, Inc. Delaware
Powell Tate, a Cassidy Company Delaware
Exhibit 23.2
We consent to the reference to our firm under the caption "Experts" and to the
use of our report on the financial statements of The Cassidy Companies, Inc.
dated March 22, 1998 (except Notes 18 and 19, as to which the date is July 15,
1998) and our report on the financial statements of Pickholz Tweedy Cowan, LLC
dated June 19, 1998 in the Registration Statement (Form S-1 No. 33-_____) and
the related Prospectus of The Cassidy Companies, Inc. for the registration of
_______ shares of its common stock.
/s/ Ernst & Young LLP
Washington, D.C.
July 20, 1998
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<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.09
</TABLE>
Exhibit 99.1
Consent of Future Director
I, John Silber, resident at 132 Carlton St. Brookline, Ma., do hereby
consent to being named a future director of The Cassidy Companies, Inc. (the
"Company"), effective immediately after the closing of the Company's initial
public offering, in the Company's registration statement initially filed with
the United States Securities and Exchange Commission on Form S-1 (registration
number 333-________).
/s/ John Silber
Date: July 16, 1998 ----------------------
John Silber
