-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NRqd5RAnZPTHcS02JhwP8PV41qvcoYHTeBnzOFihZM0vLDBYt4b8FT+oCv1QEYR4 wEafn80LTkjGe76IVLeHdw== 0001005150-98-000380.txt : 19980420 0001005150-98-000380.hdr.sgml : 19980420 ACCESSION NUMBER: 0001005150-98-000380 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19980417 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUNNINGHAM GRAPHICS INTERNATIONAL INC CENTRAL INDEX KEY: 0001053949 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 233561164 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-46541 FILM NUMBER: 98596158 BUSINESS ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 BUSINESS PHONE: 2012171990 MAIL ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 S-1/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998 REGISTRATION STATEMENT 333-46541 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ---------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CUNNINGHAM GRAPHICS INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 2750 22-3561164 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Organization) Classification Code Number) Identification Number)
629 GROVE STREET JERSEY CITY, NEW JERSEY 07310 (201) 217-1990 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) MR. MICHAEL R. CUNNINGHAM CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 629 GROVE STREET JERSEY CITY, NEW JERSEY 07310 (201) 217-1990 (Name, Address Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) ---------------- Copies of Communications to: JEFFREY A. BAUMEL, ESQ. JEFFREY S. LOWENTHAL, ESQ. LAWRENCE A. GOLDMAN, ESQ. STROOCK & STROOCK & LAVAN LLP GIBBONS, DEL DEO, DOLAN, 180 MAIDEN LANE GRIFFINGER & VECCHIONE, P.C. NEW YORK, NEW YORK 10038 ONE RIVERFRONT PLAZA (212) 806-5400 NEWARK, NEW JERSEY 07102 (973) 596-4500 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [X] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ SUBJECT TO COMPLETION, DATED APRIL 17, 1998 PROSPECTUS 2,100,000 SHARES [LOGO] CUNNINGHAM GRAPHICS INTERNATIONAL, INC. COMMON STOCK Cunningham Graphics International, Inc. (the "Company" or "CGII") is hereby offering (the "Offering") 2,100,000 shares of the Company's common stock, no par value per share (the "Common Stock"). Prior to the Offering, there has been no public market for the Common Stock. It is anticipated that the initial public offering price will be between $11.00 and $13.00 per share. Approximately $5.8 million, or 25.7%, of the estimated net proceeds of the Offering will be received by, or applied for the benefit of, the existing stockholders of the Company, substantially all of whom are executive officers and/or directors of the Company. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. It is expected that approximately 300,000 shares will be offered outside of the United States. The Company has applied for listing of the Common Stock on the Nasdaq National Market System under the symbol "CGII." At the request of the Company, up to 200,000 shares have been reserved for sale in the Offering to certain individuals, including directors and employees of the Company, members of their families, and other persons having business relationships with the Company. See "Underwriting." Following the Offering, affiliates of the Company will continue to control approximately 56.5% of the outstanding Common Stock, which will enable them to control all matters requiring a stockholder vote, including the election of directors. --------------- SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) Per Share . $ $ $ Total(3) . $ $ $
================================================================================ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $800,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 315,000 additional shares of Common Stock at the price to the public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------- The shares of Common Stock are being offered by the Underwriters named herein, subject to prior sale, when, as and if accepted by it and subject to certain prior conditions including the right of the Underwriters to reject orders in whole or in part. It is expected that delivery of such shares will be made in New York, New York, on or about , 1998. SCHRODER & CO. INC. PRUDENTIAL SECURITIES INCORPORATED The date of this Prospectus is , 1998. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. ---------------- CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Prospective investors should consider carefully the information set forth under "Risk Factors." Immediately prior to the Offering, Cunningham Graphics, Inc. (the "Predecessor") will be reorganized (the "Reorganization") such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for shares of Common Stock and promissory notes (the "Exchange Notes") in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed subchapter S corporation taxable income through the date of the Reorganization, estimated at $2.2 million, and will issue promissory notes in such amount to evidence such obligations (the "Distribution Notes" and, together with the Exchange Notes, the "Reorganization Notes"). See "The Company - -- The Reorganization." In addition, the Company will acquire (the "Acquisition"), in exchange for consideration consisting of cash and shares of Common Stock, all of the issued share capital of Roda Limited ("Roda"), an English corporation. Unless otherwise indicated or the context otherwise requires, all references herein to the "Company" mean the Predecessor with respect to periods prior to the Offering or CGII and its subsidiaries (including Roda) with respect to periods after the Offering. In addition, unless otherwise indicated, (i) all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option and (ii) the exchange rate used for conversion from Pounds Sterling to United States Dollars is $1.68 (the exchange rate in effect on March 27, 1998). THE COMPANY Cunningham Graphics International, Inc. provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company, which commenced operations in 1989, currently operates in select international markets through its facilities in the United States and through alliances with Roda Limited, its strategic partner in the United Kingdom, and with its strategic partner in Hong Kong. The Company is a major producer of financial research reports, having produced over 2 billion pages during 1997. The Company provides services, on a non-exclusive basis, to 13 of 20 leading investment banking firms in the United States as ranked by Institutional Investor in October 1997 based on their capabilities in providing research and analysis. The Company estimates that in 1997 the commercial printing and document production market accounted for more than $75 billion in revenue in the United States, based upon information from certain trade associations and other industry sources. The printing and document management business in the United States is highly fragmented, with approximately 40,000 companies presently in operation, only approximately 5% of which are estimated to have annual net sales in excess of $5 million. The Company believes that the commercial printing and document production business is similarly fragmented in the United Kingdom and in certain other markets. The printing and document management industry has evolved significantly over the last several years, driven in large part by rapid advances in publishing and electronic information technology. The Company believes that the growth of the printing and document production industry has been due to various factors, including (i) the increasing volume, complexity and variety of documents and printed materials produced by businesses worldwide, (ii) the increasing demand by businesses for the international dissemination of time-sensitive information, and (iii) the growing trend of businesses to outsource their in-house printing operations (e.g., print shops, copy centers and document management facilities) to document professionals equipped to provide these services more efficiently and cost-effectively. Graphic communications services provided by the Company include digital communications, document management, offset printing, digital printing, data output, bindery, fulfillment services, mailing services and outsource services. The Company prints brochures, booklets, confirmations of trade, client statements and adhesive books to meet the daily, weekly and monthly needs of its customers. To facilitate the rapid distribution of documents globally, the Company has designed and implemented the World Research LinkTM, an array of electronic data communication networks linking each of the Company's facilities with its strategic operating 3 partners and major customers. To date, the Company has established extensive non-exclusive client relationships with leading companies in the financial services, insurance and publishing industries, providing certain of the printing and graphic communications needs of Credit Suisse First Boston Corporation, Deutsche Morgan Grenfell, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch & Co., Inc., The Prudential Insurance Company of America, Empire Blue Cross/Blue Shield, New York Life Insurance Company, and The McGraw-Hill Company, among others. The Company has experienced significant growth, with net sales growing from $17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7 million pro forma for the Acquisition) for the year ended December 31, 1997 and income from operations growing over the same period from $528,000 to $2.4 million ($3.2 million pro forma for the Acquisition), representing compounded annual growth rates of 43.6% and 113.2%, respectively. A significant portion of this growth is attributable to the assimilation of certain in-house printing operations of Goldman, Sachs & Co. and Empire Blue Cross/Blue Shield. The Company intends to continue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. Pursuant to its growth strategy, concurrently with the closing of the Offering, the Company will acquire its London-based strategic partner Roda. Roda provides printing and document output and management services to financial services companies, primarily in the United Kingdom and European markets. The Company's senior officers have extensive experience in the graphic communications services industry, having been employed by the Company for an average of approximately 6 years and having an average of approximately 19 years of industry experience. The Company's Chairman, President and Chief Executive Officer, Michael R. Cunningham, founded the Company and has been actively involved in the industry for over 15 years. The Company believes that, based on the proven track record of its experienced management team and the wide range of services it provides, it is well-positioned to capitalize on the increasing outsourcing trend as well as on consolidation opportunities in the industry. THE OFFERING Common Stock offered....... 2,100,000 shares Common Stock to be outstanding after the Offering........ 4,865,000 shares(1)(2) Use of proceeds............ Of the total net proceeds from the Offering, approximately $6.1 million will be used to fund the cash portion of the purchase price for Roda, $1.4 million will be used to repay certain indebtedness of Roda to its stockholders (the "Roda Seller Debt"), $4.6 million (assuming an initial public offering price of $12.00 per share) will be used to repay the Reorganization Notes, representing a portion of the total consideration in the Reorganization to stockholders of the Predecessor and undistributed S corporation taxable income upon which such stockholders have already paid taxes, and up to $2.2 million will be used to repay bank indebtedness, including $1.2 million which was borrowed in April 1998 to partially fund a $1.4 million distribution to the stockholders of the Predecessor (who are current stockholders of the Company) for the payment of taxes on account of undistributed S corporation taxable income. The remaining net proceeds will be used for working capital and for general corporate purposes, which may include capital expenditures, marketing activities and future strategic acquisitions. Proposed Nasdaq symbol..... CGII - ---------- (1) Includes shares of Common Stock to be issued in connection with the Reorganization and the Acquisition. (2) Does not include 600,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options to purchase 290,300 shares have been granted at an exercise price equal to the initial public offering price, subject to consummation of the Offering. See "Management -- Stock Option Plans." 4 SUMMARY FINANCIAL DATA The following summary financial data is qualified in its entirety by the more detailed information in the financial statements of the Predecessor and the related notes thereto, the consolidated financial statements of Roda and the related notes thereto and the pro forma financial information appearing elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------- 1994 1995 1996 1997 ---------- ---------- ---------- ----------------------------------------- ACTUAL PRO FORMA(1) -------------------- -------------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales ........................................ $15,927 $17,327 $23,193 $ 35,744 $ 42,705 Operating expenses: Costs of production ............................. 12,085 12,860 17,616 26,894 31,187 Selling, general and administrative ............. 3,151 3,441 4,270 5,794 7,212 Depreciation and amortization ................... 448 498 563 694 1,114 ------- ------- ------- ------------ ------------ 15,684 16,799 22,449 33,382 39,513 ------- ------- ------- ------------ ------------ Income from operations ........................... 243 528 744 2,362 3,192 Interest expense ................................ (173) (257) (234) (250) (595) Other income .................................... -- 2 48 35 121 ------- ------- ------- ------------ ------------ Income before income taxes ....................... 70 273 558 2,147 2,718 Provision for income taxes ...................... 7 6 56 129 394 ------- ------- ------- ------------ ------------ Net income ....................................... $ 63 $ 267 $ 502 $ 2,018 $ 2,324 ======= ======= ======= ============ ============ PRO FORMA DATA (UNAUDITED): Income before income taxes ....................... $ 2,147 $ 2,718 Pro forma provision for income taxes ............ 880 (2) 1,142 (3) ------------ ------------ Pro forma net income ............................. $ 1,267 $ 1,576 ============ ============ Pro forma earnings per share ..................... $ 0.43 $ 0.43 ============ ============ Pro forma shares outstanding ..................... 2,978,594 (4) 3,657,552 (5) ============ ============ Pro forma as adjusted net income ................. $ 1,674 (6) ============ Pro forma as adjusted earnings per share ......... $ 0.40 ============ Pro forma as adjusted shares outstanding ......... 4,189,469 (7) ============
AT DECEMBER 31, 1997 --------------------------- PRO FORMA ACTUAL AS ADJUSTED(8) --------- --------------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents ............................................... $ 67 $ 8,447 Working capital ......................................................... 728 8,703 Total assets ............................................................ 10,938 33,367 Long-term debt and capitalized lease obligations, net of current portion 1,517 2,179 Stockholders' equity .................................................... 3,151 21,765
(See footnotes on following page) 5 (footnotes from previous page) (1) Gives effect to the Reorganization and the Acquisition as if they each had occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial Statements. (2) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (3) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 383,333 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the $6.1 million liability for cash payable to the Roda stockholders in connection with the Acquisition. (6) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS 850,000) to be repaid through the application of a portion of the net proceeds from the Offering as if such repayment had occurred on January 1, 1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds." (7) Reflects (i) the shares described in footnote (5) above and (ii) 531,917 of the additional shares to be sold in the Offering, representing the portion of the shares being sold in the Offering in order to generate sufficient proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company assumed to have been outstanding on December 31, 1997 and (c) pay underwriting discounts and expenses of the entire Offering. See the Unaudited Pro Forma Combined Financial Statements, "The Company -- The Reorganization" and "Use of Proceeds." (8) Gives effect to the following transactions as if they had occurred on December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii) the sale of 2,100,000 shares of Common Stock offered hereby and the use of the net proceeds therefrom, including: (a) the repayment of the Reorganization Notes, (b) the satisfaction of the liability for the cash payable to the Roda stockholders of $6.1 million (assuming an initial public offering price of $12.00 per share), (c) the repayment of the Roda Seller Debt, and (d) the repayment of $2.4 million of bank indebtedness assumed to have been outstanding on that date. See the Unaudited Pro Forma Combined Financial Statements and "Use of Proceeds." 6 RISK FACTORS An investment in the shares of Common Stock being offered by this Prospectus involves a high degree of risk. In addition, this Prospectus contains forward-looking statements which involve risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Background," "Business -- Business Strategy," Business -- Graphic Communications Services," "Business -- Printing Operations," "Business -- International Network," "Business -- Sales and Marketing," and "Business -- Competition," as well as in this Prospectus generally. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Accordingly, prospective investors should consider carefully the following risk factors, in addition to the other information concerning the Company and its business contained in this Prospectus, before purchasing the shares of Common Stock offered hereby. RELIANCE ON LIMITED NUMBER OF CUSTOMERS The Company's five largest customers accounted for approximately 65% of its net sales for the year ended December 31, 1997. The Company's largest customer, Goldman, Sachs & Co., has contracted with the Company for the Company to provide certain print-related products and services through December 30, 1999. Goldman, Sachs & Co. accounted for approximately 24% of the Company's net sales during 1997. Although the Company has had long-term relationships with Goldman, Sachs & Co. and its other significant customers, the Company's customers generally may terminate their relationships with the Company upon minimal, if any, advance notice and there can be no assurance that these relationships will continue. The termination of the relationships with any one or more significant customers could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there has been a trend toward consolidation in the financial services industry and a merger or acquisition involving any of the Company's principal customers resulting in the termination of such a relationship could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing." DEPENDENCE ON FINANCIAL SERVICES INDUSTRY To date, the Company has focused the marketing of its services primarily on companies within the financial services industry and the Company expects to continue this focus. As a result, the Company's results of operations will be particularly sensitive to fluctuations in the economy or financial markets affecting this industry. Any event adversely affecting the financial services industry could adversely affect the Company. The Company's success in increasing its revenues will also depend, in part, on its ability to attract new business from customers outside the financial services industry. No assurance can be given that the Company will be successful in attracting new customers in different industries. INTEGRATION OF RODA Following the Acquisition, the success of the Company will depend, in part, on the Company's ability to centralize accounting and administrative systems and eliminate unnecessary duplication of functions. Although Roda's business is similar to a portion of the businesses conducted by the Company's Predecessor, Roda operates in a foreign market that is distinct from the Predecessor's market. There are differences in technologies, cultural and business customs, applicable laws, operating and labor matters and currencies that will place substantial strains upon the Company's ability to integrate the business of Roda into its existing business. In addition, management of the Company has no experience in operating facilities that are outside the United States or geographically separated. No assurance can be given that the Company's senior management group will be able to integrate and manage effectively the newly acquired operations of Roda. Roda's printing operations in London have, to date, been 7 conducted independently of the Company, as a separate business. Consequently, there can be no assurance that operating results of the Company will match or exceed the combined individual operating results achieved by the Predecessor and Roda prior to the Acquisition. RISKS RELATED TO THE COMPANY'S EXPANSION STRATEGY The Company intends to seek to expand its operations through the acquisition of additional businesses which provide commercial, digital and time-sensitive printing services and through the expansion of its outsourcing business by assimilating additional customers' document management operations. There can be no assurance that the Company will be able to identify, successfully integrate or profitably manage any such businesses or operations. The proposed expansion may involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, inability to retain key personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, if competition for acquisition candidates or assumed operations were to increase, the cost of acquiring businesses or assuming customers' operations could increase materially. The inability of the Company to implement and manage its expansion strategy successfully may have a material adverse effect on the business and future prospects of the Company. See "Business -- Business Strategy." MANAGEMENT OF GROWTH The Company is continuing to experience significant growth, which has placed, and could continue to place, a strain on the Company's managerial and other resources. From December 1995 through January 1998, the number of the Company's employees increased from 186 to 370 and further increases are anticipated during 1998. The Company's future performance and profitability will depend, in large part, on its ability to manage its growth, particularly with respect to a workforce that is geographically dispersed, while continuing to integrate the operations of additional companies and to expand its current business. In order to manage growth successfully, the Company will be required to continue to improve its operational, financial and other internal systems and the training, motivation and management of its employees. If the Company is unable to manage growth effectively, the Company's business, financial condition and results of operations could be materially adversely affected. NEED FOR ADDITIONAL FINANCING The Company will need additional funds to implement its acquisition and internal growth strategies. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through additional debt or equity financings. Moreover, the Company may seek to use its Common Stock for all or a portion of the consideration to be paid in future acquisitions, the issuance of which may result in dilution to investors in the Offering. The extent to which the Company will be able or willing to use its Common Stock for this purpose will depend on its market value from time to time and the willingness of potential acquisition candidates to accept Common Stock as part of the consideration for the sale of their businesses. If the Company is unable to use its Common Stock to make future acquisitions, the Company may be required to use more of its cash resources, if available, to initiate and maintain its acquisition program. There can be no assurance that the Company will be able to obtain additional financing as needed. As a result, the Company might be unable to implement its acquisition strategy, which would have a material adverse effect on the future prospects of the Company. See "Business -- Business Strategy." The Company has a $2.0 million revolving line of credit from Summit Bank under which $1.2 million was outstanding as of April 16, 1998. The Company intends to use the line of credit for working capital, equipment purchases and other general corporate purposes. The Company's line of credit expires on May 30, 1998. Although the Company intends to seek to renew 8 and, if possible, increase the line, no assurance can be given that the line of credit will be renewed or increased or that it will be renewed or increased on terms that are acceptable to the Company. In addition, there can be no assurance that this or any future line of credit will be sufficient for the Company's needs or that the Company will be able to obtain other financing on terms that are acceptable to the Company. See "Business -- Business Strategy." RISK OF INTERNATIONAL OPERATIONS On a pro forma basis after giving effect to the Acquisition, sales to customers outside the United States would have accounted for 16% of the Company's net sales in the year ended December 31, 1997, and the Company anticipates that foreign sales will account for a significant portion of net sales in the foreseeable future. Risks inherent in the Company's international business activities include the fluctuation of currency exchange rates, various and changing regulatory requirements, increased sales and marketing expenses, political and economic instability, difficulty in staffing and managing foreign operations, potentially adverse taxes, complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON TECHNOLOGY; RISK OF TECHNOLOGICAL OBSOLESCENCE The success of the Company will be highly dependent on its ability to acquire and utilize competitive computer output and document production technologies that are not readily available on a cost-effective basis to the Company's existing and potential customers, thereby creating the incentive for such customers to outsource various services to the Company. Increasing use of the Internet and other electronic means of delivering information which has traditionally been delivered in paper form could substantially erode the Company's core business of printing financial research reports. There can be no assurance that one or more non-paper-based technologies (whether now existing or developed in the future) will not reduce or supplant the physical delivery of documents as a preferred medium for the Company's customers, which could in turn adversely affect the Company's business. The emergence of services by competitors of the Company incorporating new technologies could render some or all of the Company's services unmarketable or obsolete. There can be no assurance that the Company will be able to obtain the rights to use any such new technologies, that it will be able to implement effectively such new technologies on a cost-effective basis or that new technologies will not render noncompetitive or obsolete the Company's role as a provider of computer output and document management services. In addition, in order to maintain state-of-the-art technologies, the Company will have to make significant capital expenditures, which will require the Company to obtain additional financing. There can be no assurance that the Company will be able to obtain such additional financing. See "Business -- Graphic Communications Services." VARIABILITY OF QUARTERLY RESULTS The Company's quarterly operating results have been and will continue to be subject to variation, depending upon factors such as the mix of business among the Company's services, the cost of materials, labor and technology, particularly in connection with the delivery of business services, the costs associated with initiating new outsourcing contracts, the economic condition of the Company's target markets, seasonal concerns and the costs of acquiring and integrating new businesses. For example, while the Company has experienced a steady growth in net sales, the percentage in growth of net sales has varied from quarter to quarter during the years ended December 31, 1996 and December 31, 1997. The percentage in growth of net sales over the previous quarter was 19.5%, 9.4%, 19.9% and 13.8% for the four quarters of 1996; and 22.7%, (1.9%), 1.0% and 16.1% for the four quarters of 1997. Although most of the Company's long-term contracts for the provision of business services provide for pricing adjustments to reflect the actual costs of materials incurred by the Company, these adjustments typically occur on a quarterly and annual basis and therefore may add to fluctuations in quarterly and annual operating results of the Company. 9 RISK OF BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN SERVICES The Company's business is particularly sensitive to meeting deadlines and performing services for numerous clients on an overnight basis. Certain of the Company's existing operations are performed exclusively at either its Jersey City or Manhattan locations and such operations are dependent on the availability of continuous computer, electrical and telephone service. All of Roda's operations are performed at its single London location. As a result, any disruption of day-to-day operations could have a material adverse effect upon the Company. While the Company has, and intends to develop additional, reciprocal relationships with major printing and document production companies in locations elsewhere in the United States and near London for back-up facilities in the event of emergencies, there can be no assurance that the loss or disruption of any services affecting one or more of the Company's facilities would not disable the Company, at least temporarily. Any interruption in its ability to provide services, however brief, could result in the Company being unable to satisfy the needs of clients and could adversely affect the Company's business and its reputation within the industry. See "Business -- Graphic Communications Services," "-- Printing Operations" and "-- Facilities." BENEFITS TO INSIDERS The Company will use $4.6 million of the net proceeds of the Offering (assuming an initial public offering price of $12.00 per share) to repay the Reorganization Notes, which represent a portion of the total consideration in the Reorganization to the stockholders of the Predecessor, Michael R. Cunningham, Gordon Mays, Timothy Mays and trusts for the benefit of their respective children, and undistributed S corporation taxable income upon which such stockholders have already paid taxes. All three individuals are executive officers of the Company. Mr. Cunningham and Gordon Mays are also directors of the Company. In addition, the Company will use up to $1.2 million of the net proceeds of the Offering to repay borrowings under the Company's revolving line of credit incurred in April 1998 to partially fund a $1.4 million distribution to stockholders of the Predecessor for the payment of taxes on account of undistributed S corporation taxable income. The contractual representations and warranties made by the stockholders of the Predecessor to the Company in the Reorganization Agreement executed in connection with the Reorganization are limited generally to their ownership of the equity interests being conveyed and do not cover undisclosed liabilities or other matters relating to the Predecessor's business. Accordingly, the Company will have only limited recourse against the stockholders of the Predecessor. However, the limited scope of these contractual representations and warranties contained in the Reorganization Agreement does not affect or otherwise reduce the responsibilities or liabilities to investors in this Offering, under the United States securities laws, of the officers and directors of the Company who have signed the Registration Statement of which this Prospectus is a part. See "The Company -- The Reorganization," "Use of Proceeds" and "Certain Transactions -- The Reorganization." COMPETITION The graphic communications services industry is highly competitive. In each of the lines of business in which the Company provides services, it competes with a variety of companies, many of which have greater financial and other resources than the Company, or are subsidiaries or divisions of larger organizations. In particular, the industry is characterized by a small number of large, dominant organizations. No assurances can be given that the Company will be able to compete effectively against the larger companies in this industry. During recent periods of economic downturn, excess production capacity in the Company's business sectors has resulted in more competitive pricing, reducing the earnings of the Company. In addition, a significant source of competition is the in-house capability of the Company's target customer base. There can be no assurance that these businesses will outsource more of their printing and document management needs or that such businesses will continue to seek such outsourcing services. See "Business -- Competition." FLUCTUATIONS IN THE PRICE AND AVAILABILITY OF SUPPLIES Prices for paper and other raw materials used by the Company may increase from time to time in the future. Any significant increases in the prices of these materials that cannot be passed on to customers could have a material adverse effect on the Company's business, financial condition and 10 results of operations. In addition, increases in the prices of supplies and other materials might cause some of the Company's customers to utilize alternative technologies in their respective businesses that do not involve the use of paper or the mail, such as the Internet. Although the Company purchases raw materials from a varied group of suppliers, it is dependent upon a stable availability of paper and other supplies to continue its operations. Should shortages develop either for any of the Company's suppliers or generally within the industry, the Company would be unable to produce printed materials on a consistent basis and its business would be materially adversely affected. RELIANCE ON SENIOR MANAGEMENT The Company's operations will continue to be dependent on the continued services of its executive officers, including the senior management of Roda and additional senior management personnel which the Company intends to employ. Furthermore, the Company will likely be dependent on the senior management of any companies that may be acquired in the future. The Company has employment agreements with each of its senior executive officers. However, if any of these individuals elect not to continue in their roles with the Company, or if the Company is unable to attract and retain senior management, the Company's business could be adversely affected. The Company maintains key executive life insurance for Michael R. Cunningham, its President and Chief Executive Officer, in the amount of $3.0 million. See "Management." NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE; LABOR DELAYS The Company's performance will depend, to a large extent, on the continued service of key technical employees and its ability to attract, retain and motivate such personnel. Competition for such personnel is intense, particularly for highly skilled and experienced technical personnel who perform the Company's information technology services. Such technical personnel are in great demand and are likely to remain a limited resource for the foreseeable future. There can be no assurance that the Company will be able to attract, retain and motivate such personnel in the future, and the inability to do so could have a material adverse effect upon the Company's business, financial condition and results of operations. In addition, a strike or other labor-related delay or stoppage could have a material adverse effect upon the Company's business, operations and financial condition. ENVIRONMENTAL RISKS; GOVERNMENTAL REGULATIONS The Company's business is subject to a variety of federal, state and local laws, rules and regulations. Its production facilities in the United States are governed by laws and regulations relating to workplace safety and worker health, primarily the Occupational Safety and Health Act ("OSHA") and the regulations promulgated thereunder. Comparable laws and regulations exist in the United Kingdom, in particular, the Health and Safety at Work etc. Act 1974 and the numerous regulations issued under it. The Company believes that it is in substantial compliance with OSHA and its United Kingdom counterparts. The Company is also subject to environmental laws and regulations of the United States, the United Kingdom and the various States in which it operates concerning emissions into the air, discharges into waterways and the generation, handling and disposal of waste materials. The printing business generates substantial quantities of inks, solvents and other waste products requiring disposal. The Company typically recycles waste paper, and contracts for the removal of waste ink and other waste products. The Company believes it is in substantial compliance with all applicable air quality, waste disposal and other environmental-related laws and regulations. However, there can be no assurance that future changes in such laws and regulations will not have a material adverse effect on the Company's operations. CONTROL BY CERTAIN STOCKHOLDERS Following the completion of the Offering, the directors and other executive officers of the Company, and entities affiliated with them, will beneficially own approximately 56.5% of the then outstanding shares of Common Stock (53.2% if the Underwriters' over-allotment option is exercised in full). 11 Accordingly, present management of the Company is likely to continue to exercise substantial control over the Company's affairs. These stockholders, acting together, would be able to elect a sufficient number of directors to control the Company's Board of Directors and would be able to approve or disapprove any matter submitted to a vote of stockholders. In addition, because the Company has adopted a staggered Board of Directors, stockholders will be less able to alter the composition of the Board of Directors. See "Principal Stockholders" and "Description of Capital Stock -- Staggered Board of Directors." ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price for the Common Stock offered hereby will be determined by negotiations between the Company and the Underwriters and may bear no relationship to the price at which the Common Stock will trade after completion of the Offering. See "Underwriting" for factors to be considered in determining such offering price. POTENTIAL EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK Upon the consummation of the Reorganization, the Acquisition and the Offering, 4,865,000 shares of Common Stock will be outstanding. The 2,100,000 shares of Common Stock being sold in the Offering will be freely tradable unless acquired by affiliates of the Company. The remaining shares outstanding may be sold publicly only following their effective registration under the Securities Act, or pursuant to an available exemption (such as provided by Rule 144 following a holding period for previously unregistered shares) from the registration requirements of the Securities Act. Upon the consummation of the Offering, the Company will have outstanding under its stock option plans options to purchase an aggregate of 290,300 shares of Common Stock at the initial public offering price. The Company intends to register the shares issuable upon exercise of options granted under the stock option plans, and, upon such registration, such shares will be eligible for resale in the public market. See "Management -- Stock Option Plans." The Company, the stockholders of the Predecessor and the officers and directors of the Company have agreed for a period of 180 days from the consummation of the Offering not to offer, sell or otherwise dispose of any shares of Common Stock (or any securities convertible into or exercisable or exchangeable for Common Stock) or grant any options or warrants to purchase any shares of Common Stock without the prior written consent of Schroder & Co. Inc. on behalf of the Underwriters, except that the Company may grant options pursuant to its stock option plans and may issue privately placed shares of Common Stock in connection with acquisitions and pursuant to the Company's stock option plans. See "Shares Eligible For Future Sale." Sales of a substantial number of shares of Common Stock in the public market could adversely affect the market price of the Common Stock. DILUTION Investors purchasing shares of the Common Stock in the Offering will experience immediate and substantial dilution of $9.76 per share (assuming an initial public offering price of $12.00 per share) in the net tangible book value of their shares. See "Dilution." EFFECT OF CERTAIN CHARTER PROVISIONS The Board of Directors of the Company is empowered to issue common stock and preferred stock without stockholder action. The existence of this "blank-check" common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest or otherwise and may adversely affect the prevailing market price of the Common Stock. The Company currently has no plans to issue any such securities, other than the Common Stock being issued in connection with the Reorganization, the Offering and the Acquisition. See "The Company -- The Reorganization" and "- The Roda Acquisition" and "Description of Capital Stock." In addition, the New Jersey Shareholders Protection Act prohibits certain persons from engaging in business combinations with the Company. See "Description of Capital Stock." 12 POSSIBLE VOLATILITY OF STOCK PRICE The market price of the Common Stock offered hereby could be subject to significant fluctuations in response to various factors and events, including the liquidity of the market for the securities offered hereby, variations in the Company's operating results, new statutes or government regulations. In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of particular companies. Such market fluctuations also may adversely affect the market price of the Common Stock. Accordingly, there can be no assurance that the market price of the Common Stock will not decline below the initial public offering price. DIVIDEND POLICY The Company expects to retain any earnings to finance the operations and expansion of the Company's business. The Company's existing Loan and Security Agreement with Summit Bank may, under certain circumstances, restrict the Company's ability to pay dividends. Moreover, any additional debt financing that the Company arranges in the future is likely to restrict the payment of dividends. Therefore, the payment of any cash dividends on the Common Stock is unlikely in the foreseeable future. See "Dividend Policy." 13 THE COMPANY GENERAL The Predecessor commenced operations in 1989. The Company was incorporated in New Jersey in January 1998 in contemplation of the Offering and to effect the Reorganization. The Company's executive offices are located at 629 Grove Street, Jersey City, New Jersey 07310 and its telephone number is (201) 217-1990. THE REORGANIZATION Immediately prior to the Offering, the Predecessor will be reorganized such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for a total of 2,595,260 shares of Common Stock and the Exchange Notes. Upon completion of the Reorganization, CGII will have 2,595,261 shares of Common Stock outstanding. The principal amount of the Exchange Notes will be $2.4 million, assuming an initial public offering price of $12.00 per share and will be subject to adjustment for any change in the initial public offering price. Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization, estimated to total $2.2 million, and will issue Distribution Notes in such amount to evidence such obligations. The principal amount of the Exchange Notes was determined by the Company in connection with the Reorganization based on a number of factors, including the value of the enterprise contributed to the Company. The principal amount of the Distribution Notes was determined by the Company based upon the actual amount of undistributed S corporation taxable income as of December 31, 1997 and the anticipated additional undistributed S corporation taxable income during the period January 1, 1998 through the expected date of the Reorganization. The Company intends to repay the Reorganization Notes from the net proceeds of the Offering. The representations and warranties made by the stockholders of the Predecessor to the Company in connection with the Reorganization are limited generally to their ownership of the equity interests being conveyed and do not cover undisclosed liabilities or other matters relating to the Predecessor's business. Accordingly, the Company will have only limited recourse against the stockholders of the Predecessor. See "Risk Factors -- Benefits to Insiders," "Use of Proceeds" and "Certain Transactions -- The Reorganization." THE RODA ACQUISITION The Company will acquire 100% of the share capital of Roda in two stages. Concurrently with the consummation of the Offering, the Company will acquire all of the issued ordinary share capital of Roda pursuant to an agreement dated January 16, 1998, as amended (the "Roda Purchase Agreement") for an aggregate consideration of approximately $6.3 million. The $6.3 million consideration will be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will be valued at the initial public offering price, and (ii) a cash payment for the balance of the consideration ($4.3 million, assuming an initial public offering price of $12.00 per share). In addition, upon consummation of the Offering, the Company will deliver into escrow $1.8 million, representing the total redemption price of all of the issued preference share capital of Roda. The Company has the right to redeem, and intends to redeem, such preference shares on June 30, 1998. The Company may be required by the holders of the preference shares to redeem such shares prior to June 30, 1998. The amount in escrow will be used to pay the redemption price upon such redemption. In addition to the consideration for the ordinary and preference share capital, Roda's outstanding indebtedness will be reflected on the Company's consolidated balance sheet from and after the consummation of the Acquisition. As of December 31, 1997, Roda had approximately $4.3 million of indebtedness outstanding, including the Roda Seller Debt. Under the terms of the Roda Purchase Agreement, the Company has committed to cause Roda to repay the entire $1.4 million (POUNDS 850,000) of the Roda Seller Debt within 28 days following the closing. The Company intends to repay the Roda Seller Debt from the proceeds of the Offering. In order to secure the performance by the selling 14 stockholders of Roda of certain warranties and covenants, $462,000 (POUNDS 275,000) of the cash portion of the consideration will be held in escrow until one year following the closing. The obligations of the parties under the Roda Purchase Agreement are contingent upon the closing of the Offering. Roda provides printing and document output and management services to financial services companies primarily in the United Kingdom and European markets, and has been a strategic partner in the World Research Link(TM). Upon completion of the Offering and the Acquisition, Roda will become a wholly-owned subsidiary of the Company and its day-to-day operations in London will continue to be supervised by its current management team. Peter L. Furlonge, who has been a senior executive officer of Roda since 1989, and its chief executive officer since 1995, is continuing in such capacity pursuant to an employment agreement. Two other key employees of Roda will also enter into employment agreements with Roda incidental to the Acquisition. See "Business -- Graphic Communications Services" and "-- International Network." USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be approximately $22.6 million ($26.2 million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $12.00 per share. Of this amount, approximately $6.1 million (assuming an initial public offering price of $12.00 per share) will be used to fund the cash portion of the consideration for the acquisition of Roda, and approximately $1.4 million (POUNDS 850,000) will be used to repay the Roda Seller Debt. See "The Company -- The Roda Acquisition." The Roda Seller Debt, which has no specified maturity date, bears interest at the rate of 10% per annum, payable semi-annually. Pursuant to the Roda Purchase Agreement, the Company has agreed to cause Roda to repay the Roda Seller Debt within 28 days following the closing of the Acquisition. In addition, the Company expects to use $4.6 million (assuming an initial public offering price of $12.00 per share) to repay the Reorganization Notes, representing a portion of the consideration in the Reorganization to the stockholders of the Predecessor and undistributed S corporation taxable income upon which they have already paid taxes. See "The Company -- The Reorganization." The Reorganization Notes bear no interest and have no specified maturity date. The Company also intends to repay up to $1.0 million of indebtedness to Summit Bank under its term loan and all outstanding borrowings under its revolving line of credit with Summit Bank, expected to total $1.2 million as of the consummation of the Offering. The Predecessor borrowed $1.2 million under the line of credit in April 1998 in order to partially fund a $1.4 million distribution to stockholders of the Predecessor to enable them to pay taxes due on April 15, 1998 on account of undistributed S corporation taxable income. The term loan bears interest at a rate of 8.5% per annum and matures on December 1, 2001. The revolving line of credit bears interest at a floating rate equal to the prime rate and matures on May 30, 1998. As a result of the use of a portion of the proceeds of this Offering to repay borrowings under the revolving line of credit and to repay the Reorganization Notes, a total of $5.8 million, or 25.7%, of the estimated net proceeds of the Offering will be received by, or applied for the benefit of, existing stockholders of the Company. The remaining net proceeds of the Offering, estimated to be approximately $8.1 million, will be used for working capital and general corporate purposes, which may include capital expenditures, marketing activities and strategic acquisitions. The Company currently has no agreement or understanding with respect to any future acquisitions. Pending the use of the net proceeds, the Company will invest the net proceeds in short-term, United States government securities. DIVIDEND POLICY Following the Offering, it will be the policy of the Company's Board of Directors to retain all future earnings to finance the operation and expansion of the Company's business. Accordingly, the Company does not anticipate declaring or paying cash dividends on the Common Stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company's Board of Directors and will depend on, among other things, the Company's earnings, operations, capital 15 requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors. In addition, the Company's existing Loan and Security Agreement with Summit Bank may, under certain circumstances, restrict the Company's ability to pay dividends. Prior to the Reorganization, the Predecessor has been an S corporation within the meaning of (section)1361 of the Internal Revenue Code of 1986, as amended (the "Code"), making distributions to its stockholders in respect of income which was taxable to such stockholders under the applicable provisions of the Code. In connection with the Reorganization, the Company will pay to the stockholders of the Predecessor the amounts of their respective undistributed S corporation taxable income through the anticipated date of the Reorganization by delivery of the Distribution Notes. See "The Company -- The Reorganization." A portion of the net proceeds of the Offering will be used to repay the Distribution Notes. See "Use of Proceeds." 16 CAPITALIZATION The following table sets forth at December 31, 1997, (i) the actual short term debt and consolidated capitalization of the Predecessor and (ii) the pro forma short-term debt and consolidated capitalization of the Company as adjusted to give effect to the Reorganization, the Acquisition, and the sale of the Common Stock offered hereby and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds." The capitalization table should be read in connection with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Unaudited Pro Forma Combined Financial Statements, the Company's financial statements and related notes thereto and Roda's consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
AS OF DECEMBER 31, 1997 ---------------------------- COMPANY PRO FORMA PREDECESSOR AS ADJUSTED ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Short-term debt, including current portion of long-term debt and capitalized lease obligations ................................. $ 885 $ 1,870 ====== ======= Long-term debt and capitalized lease obligations, net of current portion ....................................................... $1,517 $ 2,179 Stockholders' equity: Preferred stock, no par value, 10,000,000 shares authorized; none issued and outstanding ................................. -- -- Common stock, no par value, 30,000,000 shares authorized; and 4,865,000 shares issued and outstanding, pro forma as adjusted(1) ................................................. 6 21,765 Additional paid-in capital ..................................... 734 -- Retained earnings .............................................. 2,411 -- ------ ------- Total stockholders' equity ..................................... 3,151 21,765 ------ ------- Total capitalization ........................................... $4,668 $23,944 ====== =======
- ---------- (1) Does not include 600,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options to purchase 290,300 shares have been granted at the initial public offering price subject to consummation of the Offering. See "Management -- Stock Option Plans" and "Underwriting." 17 DILUTION The difference between the initial public offering price per share and net tangible book value per share of Common Stock after this Offering constitutes the dilution to investors in this Offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of then outstanding shares of Common Stock. At December 31, 1997, the Predecessor's net tangible book value was $3.2 million, or $1.06 per share of Common Stock. After giving effect to (i) the Reorganization, (ii) the Acquisition, and (iii) the sale of the 2,100,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and the receipt and application of the estimated net proceeds therefrom (less underwriting discounts and commissions and estimated offering expenses), the adjusted pro forma net tangible book value of the Company as of December 31, 1997 would have been $10.9 million or $2.24 per share, representing an immediate increase in pro forma net tangible book value of $1.22 per share to existing stockholders and an immediate dilution of $9.76 per share to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per share basis: Assumed initial public offering price ............................ $ 12.00 -------- Predecessor net tangible book value ............................. $ 1.06 Decrease attributable to the Reorganization ..................... (2.03) Decrease attributable to the Acquisition ........................ (2.24) Increase attributable to investors in this offering ............. 5.45 ------- Pro forma as adjusted net tangible book value of the Company after the Offering .................................................... 2.24 -------- Dilution to new investors ........................................ $ 9.76 ========
The following table summarizes the number of shares of Common Stock issued by the Company, the total consideration paid to the Company, and the average price per share paid by the existing stockholders, the Roda stockholders and the new investors. For purposes of the total consideration and average price per share paid by the existing stockholders, the Company has based such valuation on the aggregate amount of such stockholders' cash equity contributions to the Predecessor without deducting distributions paid to such stockholders.
SHARE PURCHASED TOTAL CONSIDERATION ----------------------- ------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- --------- ------------- --------- -------------- Existing stockholders ......... 2,595,261 53.3% $ 740,000 2.6% $ 0.29 Roda stockholders ............. 169,739 3.5 2,037,000 7.3 $ 12.00 New investors ................. 2,100,000 43.2 25,200,000 90.1 $ 12.00 --------- ----- ----------- ----- Total ......................... 4,865,000 100.0% $27,977,000 100.0% ========= ===== =========== =====
See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Underwriting." 18 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements are based on the historical financial statements of the Predecessor and Roda. The unaudited pro forma combined balance sheet, to the extent indicated, gives effect to: (i) the Reorganization, (ii) the Acquisition and (iii) the Offering, as if each occurred as of December 31, 1997. The unaudited pro forma combined statement of income gives effect to the Acquisition as if it occurred on January 1, 1997. With the exeception of share and per share amounts, the Reorganization and the Offering have no effect on the unaudited pro forma combined statement of income. The unaudited pro forma combined financial statements give effect to the Acquisition under the purchase method of accounting. The Roda financial statements have been adjusted to conform to United States Generally Accepted Accounting Principles and have been converted into Dollars using the average exchange rate of $1.66 to POUNDS 1.00 for the statement of income for the year ended December 31, 1997 and the year end exchange rate of $1.67 to POUNDS 1.00 for the balance sheet as of December 31, 1997. The unaudited pro forma combined statement of income is not necessarily indicative of operating results which would have been achieved had the Acquisition been completed on January 1, 1997 and should not be construed as representative of future operating results. These unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements of the Company and Roda Limited including the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 19 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1997
REORGANIZATION PREDECESSOR ADJUSTMENTS(1)(2) ------------- ------------------- (IN THOUSANDS) CURRENT ASSETS: Cash ............................................................... $ 67 $ -- Accounts receivable ................................................ 5,673 -- Inventories ........................................................ 940 -- Prepaid expenses and other current assets .......................... 78 -- Notes and advances receivable -- stockholder/officers .............. 136 -- Deferred income taxes .............................................. 47 295 (1) ------- ----------- TOTAL CURRENT ASSETS ................................................ 6,941 295 Property and equipment, net ....................................... 3,579 -- Goodwill and other assets ......................................... 418 -- ------- ----------- TOTAL ASSETS ........................................................ $10,938 $ 295 ======= =========== CURRENT LIABILITIES Current portion of long-term debt -- third parties ................. $ 407 $ -- Revolving line of credit ........................................... 300 1,400 (2) Current portion of obligations under capital lease ................. 178 -- Accounts payable ................................................... 3,854 -- Accrued expenses ................................................... 1,474 -- Reorganization notes ............................................... -- 4,600 (2) Cash payable to Roda stockholders .................................. -- -- ------- ----------- TOTAL CURRENT LIABILITIES ........................................... 6,213 6,000 Long-term debt third parties -- net of current portion ............ 1,185 -- Obligations under capital lease -- net of current portion ......... 332 -- Notes payable -- related parties .................................. -- -- Deferred income taxes ............................................. 57 354 (1) Other liabilities ................................................. -- -- ------- ----------- TOTAL LIABILITIES ................................................... 7,787 6,354 STOCKHOLDERS' EQUITY Common stock ....................................................... 6 (2,914) (2) Additional Paid-in capital ......................................... 734 (734) (2) Retained Earnings .................................................. 2,411 (59) (1) (2,352) (2) ------- ----------- TOTAL STOCKHOLDERS' EQUITY .......................................... 3,151 (6,059) ------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $10,938 $ 295 ======= =========== RODA THE (HISTORICAL ACQUISITION COMPANY COMPANY CONVERTED)(3) ADJUSTMENTS(4) PRO FORMA ----------- --------------- ---------------- ----------- (IN THOUSANDS) CURRENT ASSETS: Cash ............................................................... $ 67 $ 2 $ -- $ 69 Accounts receivable ................................................ 5,673 1,381 -- 7,054 Inventories ........................................................ 940 246 -- 1,186 Prepaid expenses and other current assets .......................... 78 169 -- 247 Notes and advances receivable -- stockholder/officers .............. 136 -- -- 136 Deferred income taxes .............................................. 342 -- -- 342 -------- ------ --------- ------- TOTAL CURRENT ASSETS ................................................ 7,236 1,798 -- 9,034 Property and equipment, net ....................................... 3,579 1,442 -- 5,021 Goodwill and other assets ......................................... 418 3,513 (100) 11,206 (3,513) 10,888 -------- ------ --------- ------- TOTAL ASSETS ........................................................ $ 11,233 $6,753 $ 7,275 $25,261 ======== ====== ========= ======= CURRENT LIABILITIES Current portion of long-term debt -- third parties ................. $ 407 $ 780 $ -- $ 1,187 Revolving line of credit ........................................... 1,700 -- -- 1,700 Current portion of obligations under capital lease ................. 178 205 -- 383 Accounts payable ................................................... 3,854 932 -- 4,786 Accrued expenses ................................................... 1,474 579 -- 2,053 Reorganization notes ............................................... 4,600 -- -- 4,600 Cash payable to Roda stockholders .................................. -- -- 6,111 6,111 -------- ------ --------- ------- TOTAL CURRENT LIABILITIES ........................................... 12,213 2,496 6,111 20,820 Long-term debt third parties -- net of current portion ............ 1,185 1,195 -- 2,380 Obligations under capital lease -- net of current portion ......... 332 467 -- 799 Notes payable -- related parties .................................. -- 1,419 -- 1,419 Deferred income taxes ............................................. 411 165 -- 576 Other liabilities ................................................. -- 138 -- 138 -------- ------ --------- ------- TOTAL LIABILITIES ................................................... 14,141 5,880 6,111 26,132 STOCKHOLDERS' EQUITY Common stock ....................................................... (2,908) 334 (334) (871) 2,037 Additional Paid-in capital ......................................... -- 334 (334) -- Retained Earnings .................................................. -- 205 (205) TOTAL STOCKHOLDERS' EQUITY .......................................... (2,908) 873 1,164 (871) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 11,233 $6,753 $ 7,275 $25,261 ======== ====== ========= ======= COMPANY OFFERING PRO FORMA ADJUSTMENTS(5) AS ADJUSTED ---------------- ------------ (IN THOUSANDS) CURRENT ASSETS: Cash ............................................................... $ 22,636 $ 8,447 272 (6,111) (1,419) (4,600) (1,000) (1,400) Accounts receivable ................................................ 7,054 Inventories ........................................................ -- 1,186 Prepaid expenses and other current assets .......................... -- 247 Notes and advances receivable -- stockholder/officers .............. -- 136 Deferred income taxes .............................................. -- 342 ---------- ------- TOTAL CURRENT ASSETS ................................................ 8,378 17,412 Property and equipment, net ....................................... -- 5,021 Goodwill and other assets ......................................... (272) 10,934 TOTAL ASSETS ........................................................ $ 8,106 $33,367 ========== ======= CURRENT LIABILITIES Current portion of long-term debt -- third parties ................. $ -- $ 1,187 Revolving line of credit ........................................... (1,400) 300 Current portion of obligations under capital lease ................. -- 383 Accounts payable ................................................... -- 4,786 Accrued expenses ................................................... -- 2,053 Reorganization notes ............................................... (4,600) -- Cash payable to Roda stockholders .................................. (6,111) -- ---------- ------- TOTAL CURRENT LIABILITIES ........................................... (12,111) 8,709 Long-term debt third parties -- net of current portion ............ (1,000) 1,380 Obligations under capital lease -- net of current portion ......... -- 799 Notes payable -- related parties .................................. (1,419) -- Deferred income taxes ............................................. -- 576 Other liabilities ................................................. -- 138 ---------- ------- TOTAL LIABILITIES ................................................... (14,530) 11,602 STOCKHOLDERS' EQUITY Common stock ....................................................... 22,636 21,765 Additional Paid-in capital ......................................... -- Retained Earnings .................................................. TOTAL STOCKHOLDERS' EQUITY .......................................... 22,636 21,765 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 8,106 $33,367 ========== =======
20 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (1) As a result of the conversion from a S corporation to a C corporation the Company will record: (i) a deferred tax asset of $295,000, (ii) a deferred tax liability of $354,000, and (iii) the resulting net decrease in retained earnings of $59,000. (2) Reflects the issuance of the Reorganization Notes, consisting of: (i) the $2.2 million Distribution Notes, the amount of which approximates the undistributed S corporation taxable income to the Predecessor stockholders estimated through the anticipated date of the Reorganization, and (ii) the $2.4 million Exchange Notes to be issued as part of the consideration for the equity of the Predecessor (assuming an initial public offering price of $12.00 per share). Assumes that the Company borrowed $1.4 million on December 31, 1997 under the Predecessor's existing revolving line of credit to fund distributions to shareholders of the Predecessor for taxes due on April 15, 1998 attributable to undistributed S corporation income. (3) Historical balances for Roda at December 31, 1997 have been adjusted to conform to United States Generally Accepted Accounting Principles, including (i) the recognition of goodwill of $3.5 million related to a 1996 management buyout of Roda, (ii) the recording of a deferred tax liability of $165,000 and (iii) the resulting net increase to stockholders' equity of $3.3 million. (4) The aggregate consideration of $8.1 million payable to the Roda stockholders will consist of (i) 169,739 shares of Common Stock and (ii) a cash payment for the balance of the consideration. For presentation purposes, the shares issuable as part of the consideration have been valued at $2.0 million (assuming an initial public offering price of $12.00 per share), resulting in an assumed cash payment of $6.1 million which has been presented as "Cash Payable to Roda Stockholders." This liability will be satisfied with a portion of the net proceeds of the Offering. The purchase of Roda has been accounted for based upon available information regarding the estimated fair value of the assets and liabilities acquired as follows: Purchase price .................. $ 8,148,000 Acquisition costs ............... 100,000 Net liabilities assumed ......... 2,640,000 ----------- Goodwill ........................ $10,888,000 =========== Roda's stockholders' equity of $873,000 and prior goodwill of $3.5 million have been eliminated in consolidation with the Company. (5) The Offering adjustments assume an initial public offering price of $12.00 per share and give effect to (i) the receipt of the assumed net proceeds of $22.6 million (after deducting underwriting discounts and commissions of $1.8 million and estimated offering expenses of $800,000), (ii) the recognition of a $272,000 portion of the offering expenses previously paid and deferred by the Predecessor at December 31, 1997, (iii) the repayment of the Reorganization Notes, (iv) satisfaction of the liability for cash payable to the Roda stockholders of $6.1 million, (v) the repayment of the $1.4 million (POUNDS 850,000) Roda Seller Debt and (vi) the repayment of $2.4 million of bank indebtedness of the Company, consisting of a $1.0 million term loan and $1.4 million assumed to have been borrowed under the revolving line of credit on December 31, 1997. 21 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997
RODA PREDECESSOR/ (HISTORICAL ACQUISITION COMPANY COMPANY CONVERTED)(1) ADJUSTMENTS PRO FORMA -------------------- --------------- ----------------- -------------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales ............................................ $ 35,744 $ 6,961 $ -- $ 42,705 Operating expenses: Costs of production ................................. 26,894 4,293 -- 31,187 Selling, general and administrative ................. 5,794 1,418 -- 7,212 Depreciation and amortization ....................... 694 148 -- 842 Amortization of goodwill ............................ -- 90 (90)(2) 272 272 (2) --------- 33,382 5,949 (182) 39,513 ------------- -------- --------- ------------- Income from operations ............................... 2,362 1,012 (182) 3,192 Interest expense .................................... (250) (345) -- (595) Other income ........................................ 35 86 -- 121 ------------- -------- --------- ------------- Income before income taxes and minority interest. 2,147 753 (182) 2,718 Provision for income taxes .......................... 129 265 -- 394 ------------- -------- --------- ------------- Income before minority interest ...................... 2,018 488 (182) 2,324 Minority interest ................................... -- 106 (106) (3) -- ------------- -------- --------- ------------- Net income ........................................... $ 2,018 $ 382 $ (76) $ 2,324 ============= ======== ========= ============= PRO FORMA DATA (UNAUDITED): Income before income taxes ........................... $ 2,147 $ 2,718 Pro forma provision for income taxes ................ 880 (4) ------------- ------------- 1,142 (5) ------------- Pro forma net income ................................. $ 1,267 $ 1,576 ============= ============= Pro forma earnings per share ......................... $ 0.43 $ 0.43 ============= ============= Pro forma shares outstanding ......................... 2,978,594 (6) ============= ============= 3,657,552 (7) ============= Pro forma as adjusted net income ..................... $ 1,674 (8) ============= Pro forma as adjusted earnings per share ............. $ 0.40 ============= Pro forma as adjusted shares outstanding ............. 4,189,469 (9) =============
22 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (1) Historical balances for Roda at December 31, 1997 have been adjusted to conform to United States Generally Accepted Accounting Principles, including the amortization of goodwill of $90,000 related to a 1996 management buyout of Roda and the recording of deferred taxes of $75,000. (2) Reflects (i) the elimination of Roda's amortization of goodwill of $90,000 related to the 1996 management buyout of Roda and (ii) the Company's recognition of amortization of goodwill of $272,000 resulting from the Acquisition. (3) Reflects the elimination of $106,000 of minority interest in the earnings of Roda. (4) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (5) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis and computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (6) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 383,333 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (7) Reflects (i) the shares described in footnote (6) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the $6.1 million liability for cash payable to the Roda stockholders in connection with the Acquisition. (8) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS 850,000) to be repaid through the application of a portion of the net proceeds from the Offering as if such repayment had occurred on January 1, 1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds." (9) Reflects (i) the shares described in footnote (7) above and (ii) 531,917 of the additional shares to be sold in the Offering, representing the portion of the shares being sold in the Offering in order to generate sufficient proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company assumed to have been outstanding on December 31, 1997 and (c) pay underwriting discounts and expenses of the entire Offering. See the Unaudited Pro Forma Combined Financial Statements, "The Company -- The Reorganization" and "Use of Proceeds." 23 SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for the Predecessor and selected unaudited pro forma combined financial data for the Company. The selected historical financial data presented below as of and for the three years ended December 31, 1995, 1996 and 1997 are derived from the Predecessor's audited financial statements appearing elsewhere in this Prospectus and should be read in conjunction with those financial statements and the related notes appearing elsewhere in this Prospectus. The selected historical financial data presented below as of and for the years ended December 31, 1993 and 1994 are derived from the unaudited financial statements of the Predecessor for the year ended December 31, 1993 and audited financial statements of the Predecessor for the year ended December 31, 1994. The pro forma data are unaudited. The unaudited financial statements include all adjustments, consisting of only normal recurring accruals, which management considers necessary for a fair presentation of the financial position and the results of operations for these periods. The selected financial data below should be read in conjunction with the Predecessor financial statements and the related notes thereto, the Unaudited Pro Forma Combined Financial Statements and the related notes thereto and the information in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ------------- ----------- ----------- ----------- ----------------------------------------- ACTUAL PRO FORMA(1) (UNAUDITED) -------------------- -------------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales ......................... $ 13,959 $ 15,927 $ 17,327 $ 23,193 $ 35,744 $ 42,705 Operating expenses: Costs of production .............. 9,637 12,085 12,860 17,616 26,894 31,187 Selling, general and administrative .................. 3,053 3,151 3,441 4,270 5,794 7,212 Depreciation and amortization..... 281 448 498 563 694 1,114 -------- -------- -------- -------- ------------ ------------ 12,971 15,684 16,799 22,449 33,382 39,513 -------- -------- -------- -------- ------------ ------------ Income from operations ............ 988 243 528 744 2,362 3,192 Interest expense ................. (99) (173) (257) (234) (250) (595) Other income ..................... 3 -- 2 48 35 121 -------- -------- -------- -------- ------------ ------------ Income before income taxes ........ 892 70 273 558 2,147 2,718 Provision for income taxes ....... 119 7 6 56 129 394 -------- -------- -------- -------- ------------ ------------ Net income ........................ $ 773 $ 63 $ 267 $ 502 $ 2,018 $ 2,324 ======== ======== ======== ======== ============ ============ PRO FORMA DATA (UNAUDITED): Income before income taxes ........ $ 2,147 $ 2,718 Pro forma provision for income taxes ........................... 880 (2) 1,142 (3) ------------ ------------ Pro forma net income .............. $ 1,267 $ 1,576 ============ ============ Pro forma earnings per share ...... $ 0.43 $ 0.43 ============ ============ Pro forma shares outstanding ...... 2,978,594 (4) 3,657,552 (5) ============ ============ Pro forma as adjusted net income. $ 1,674 (6) ============ Pro forma as adjusted earnings per share ........................ $ 0.40 ============ Pro forma as adjusted shares outstanding ...................... 4,189,469 (7) ============
AT DECEMBER 31, ------------------------------------------------------------------ 1993 1994 1995 1996 1997 ------------- -------- -------- -------- ------------------------- PRO FORMA ACTUAL AS ADJUSTED(8) (UNAUDITED) --------- --------------- (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents ....................... $ 71 $ 144 $ 1 $ 543 $ 67 $ 8,447 Working capital ................................. 553 338 32 (867) 728 8,703 Total assets .................................... 3,787 5,680 5,568 9,471 10,938 33,367 Long-term debt and capitalized lease obligations, net of current portion ......................... 623 1,414 1,151 1,300 1,517 2,179 Stockholders' equity ............................ 1,742 1,084 830 1,344 3,151 21,765
(See footnotes on following page) 24 (footnotes from previous page) (1) Gives effect to the Reorganization and the Acquisition as if they each had occurred on January 1, 1997. See the Unaudited Pro Forma Combined Financial Statements. (2) Reflects an increase of $751,000 for income taxes computed utilizing an overall effective tax rate of 41% as if the Company had been a C corporation since January 1, 1997. (3) Reflects a pro forma provision for income taxes for the Company and Roda on a combined basis computed utilizing effective tax rates of 41% for United States income taxes and 31% for United Kingdom income taxes. (4) Reflects (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization, and (iii) 383,333 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the principal amount of the Reorganization Notes. (5) Reflects (i) the shares described in footnote (4) above, (ii) 169,739 shares issuable in connection with the Acquisition, and (iii) 509,219 shares, representing the number of shares having a value (based upon an assumed initial public offering price of $12.00 per share) corresponding to the $6.1 million liability for cash payable to the Roda stockholders in connection with the Acquisition. (6) Reflects the elimination of interest expense of $142,000 ($98,000 net of taxes) on the Roda Seller Debt of approximately $1.4 million (POUNDS 850,000) to be repaid through the application of a portion of the net proceeds from the Offering as if such repayment had occurred on January 1, 1997. See "The Company -- The Roda Acquisition" and "Use of Proceeds." (7) Reflects (i) the shares described in footnote (5) above and (ii) 531,917 of the additional shares to be sold in the Offering, representing the portion of the shares being sold in the Offering in order to generate sufficient proceeds necessary to (a) repay the $1.4 million (POUNDS 850,000) Roda Seller Debt, (b) repay $2.4 million of bank indebtedness of the Company assumed to have been outstanding on December 31, 1997 and (c) pay underwriting discounts and expenses of the entire Offering. See the Unaudited Pro Forma Combined Financial Statements, "The Company -- The Reorganization" and "Use of Proceeds." (8) Gives effect to the following transactions as if they had occurred on December 31, 1997: (i) the Reorganization; (ii) the Acquisition; and (iii) the sale of 2,100,000 shares of Common Stock offered hereby and the use of the net proceeds therefrom, including: (a) the repayment of the Reorganization Notes, (b) the satisfaction of the liability for the cash payable to the Roda stockholders of $6.1 million (assuming an initial public offering price of $12.00 per share), (c) the repayment of the Roda Seller Debt, and (d) the repayment of $2.4 million of bank indebtedness assumed to have been outstanding on that date. See the Unaudited Pro Forma Combined Financial Statements and "Use of Proceeds." 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company commenced its operations in 1989 when it opened a printing facility in New Jersey to provide overnight printing and delivery of time-sensitive analytical research and marketing reports for its financial institution customers in the New York City metropolitan area. Currently, the Company operates two facilities in the New York City area and has agreed to acquire London-based Roda, giving the Company its first facility outside the United States. To date, the Company has experienced significant growth primarily through the (i) expansion of its existing customer base, (ii) addition of products and services, (iii) assimilation of in-house printing operations, (iv) acquisition of selected assets and (v) establishment of strategic alliances. Immediately prior to the Offering, the Predecessor will be reorganized such that the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII in exchange for a total of 2,595,260 shares of Common Stock and Exchange Notes in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization, estimated to total $2.2 million, and will issue Distribution Notes in such amount to evidence such obligations. In April 1998, the Predecessor borrowed $1.2 million under its revolving line of credit to partially fund a $1.4 million distribution to its stockholders for the payment of taxes on account of undistributed S corporation taxable income. The Company will acquire 100% of the share capital of Roda in two stages. Concurrently with the consummation of the Offering, the Company will acquire all of the issued ordinary share capital of Roda pursuant to an agreement dated January 16, 1998, as amended (the "Roda Purchase Agreement") for an aggregate consideration of approximately $6.3 million. The $6.3 million consideration will be satisfied by (i) the delivery of 169,739 shares of Common Stock, which will be valued at the initial public offering price, and (ii) a cash payment for the balance of the consideration ($4.3 million, assuming an initial public offering price of $12.00 per share). In addition, upon consummation of the Offering, the Company will deliver into escrow $1.8 million, representing the total redemption price of all of the issued preference share capital of Roda. The Company has the right to redeem, and intends to redeem, such preference shares on June 30, 1998. The Company may be required by the holders of the preference shares to redeem such shares prior to June 30, 1998. The amount in escrow will be used to pay the redemption price upon such redemption. In addition to the consideration for the ordinary and preference share capital, Roda's outstanding indebtedness will be reflected on the Company's consolidated balance sheet from and after the consummation of the Acquisition. As of December 31, 1997, Roda had $4.3 million of indebtedness outstanding, including the Roda Seller Debt. Under the terms of the Roda Purchase Agreement, the Company has committed to cause Roda to repay the entire $1.4 million (POUNDS 850,000) of the Roda Seller Debt within 28 days following the closing. The Company intends to repay the Roda Seller Debt from the proceeds of the Offering. In order to secure the performance by the selling stockholders of Roda of certain warranties and covenants, $462,000 (POUNDS 275,000) of the cash portion of the consideration will be held in escrow until one year following the closing. The obligations of the parties under the Roda Purchase Agreement are contingent upon the closing of the Offering. Roda provides printing and document output and management services to financial services companies in the United Kingdom and European markets, and has been a strategic partner in the World Research Link(TM). Following the Offering and the completion of the Acquisition, Roda will become a wholly-owned subsidiary of the Company and its day-to-day operations in London will continue to be supervised by its current management team. To date, the Predecessor has been taxed as an S corporation. In connection with the Offering, the Company will become subject to federal and additional state income taxes upon the termination of the S corporation status. Concurrently with becoming subject to federal and additional state income taxes, the 26 Company will record additional deferred tax assets of $295,000 and additional deferred tax liabilities of $354,000 and a corresponding net tax expense of $59,000 in its statement of income. These tax items will be reflected as a special charge in the Company's income statement for the quarter in which the Reorganization occurs. The Company's five largest customers, all of which are financial institutions, accounted for approximately 65% of its net sales for the year ended December 31, 1997. After giving effect to the Acquisition, net sales to customers outside the United States would have accounted for 16% of the Company's pro forma net sales in the year ended December 31, 1997, and the Company anticipates that foreign sales will account for a significant portion of net sales in the foreseeable future. As a result, the Company's operations may be subject to the fluctuation of currency exchange rates, various and changing regulatory requirements, increased sales and marketing expenses, political and economic instability, difficulty in staffing and managing foreign operations, potentially adverse taxes, complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. The Company's largest customer, Goldman, Sachs & Co., accounted for approximately 24% of the Company's net sales during 1997. Although the Company has had long-term relationships with its significant customers, the Company's customers may terminate their relationship upon minimal, if any, advance notice and there can be no assurance that these relationships will continue. In addition, given the concentration of customers in the financial services industry, the Company's results of operations will be particularly sensitive to fluctuations in the economy or financial markets affecting this industry. The Company's net sales are derived primarily from providing printing and distribution services for customers in the financial services, insurance and publishing industries, a substantial component of which is the printing and distribution of financial and analytical research and marketing materials for the financial services industry. The Company also derives part of its net sales from providing fulfillment services, including labeling, mailing, inserting, kit assembly and inventory management for its customers. Finally, the Company provides computer and data output services and other document related services for customers. The Company's operating expenses consist of the following: (i) costs of production, (ii) selling, general and administrative expenses and (iii) depreciation and amortization. Costs of production consist primarily of the cost of paper and other production materials, labor, outside services, insurance and other production expenses including repairs and maintenance and rent. Selling, general and administrative expenses consist primarily of management, administrative and marketing expenses, salaries for officers, salaries and commissions paid to sales persons and professional fees. The Company's quarterly operating results have been and will continue to be subject to variation, depending upon factors such as the mix of business among the Company's services, the cost of materials, labor and technology, particularly in connection with the delivery of business services, the costs associated with initiating new outsourcing contracts or opening new offices, the economic condition of the Company's target markets, seasonal concerns and the costs of acquiring and integrating new businesses. RESULTS OF OPERATIONS The following table sets forth certain items from the Company's Statement of Income as a percentage of net sales for the periods indicated:
YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Net sales ............................................. 100.0% 100.0% 100.0% Costs of production .................................. 74.2 76.0 75.3 Selling, general and administrative expenses ......... 19.9 18.4 16.2 Depreciation and amortization ........................ 2.9 2.4 1.9 ----- ----- ----- Income from operations ................................ 3.0 3.2 6.6 Interest expense ..................................... ( 1.5) ( 1.0) ( 0.7) Other income ......................................... 0.0 0.2 0.1 ----- ----- ----- Income before income taxes ............................ 1.5 2.4 6.0 Provision for income tax ............................. 0.0 0.2 0.4 ----- ----- ----- Net income ............................................ 1.5% 2.2% 5.6% ===== ===== =====
27 Year ended December 31, 1997 compared to year ended December 31, 1996. Net sales. The Company reported net sales of $35.7 million for the year ended December 31, 1997 compared to $23.2 million for the year ended December 31, 1996, an increase of $12.5 million or 54%. The majority of this increase was attributable to an increase in business with existing customers, with the balance attributable to the addition of new customers. In 1997, the Company had four customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 57% of net sales. In 1996, the Company had three customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 42% of net sales. Costs of production. Costs of production were $26.9 million for 1997, as compared to $17.6 million for 1996, an increase of $9.3 million or 53%. Costs of production were approximately 75% of net sales for 1997, as compared to approximately 76% of net sales for 1996. The decrease in costs of production as a percentage of net sales was primarily a result of economies of scale resulting from improved utilization of the Company's existing facilities. Selling, general and administrative expenses. Selling, general and administrative expenses increased to approximately $5.8 million for 1997 from approximately $4.3 million for 1996, an increase of $1.5 million. The increase was attributable to costs associated with the addition of personnel to support future growth. As a percentage of net sales, selling, general and administrative expenses decreased from approximately 18% for 1996 to approximately 16% for 1997, primarily reflecting greater economies of scale as the Company improved the utilization of its existing facilities. Depreciation and amortization. Depreciation and amortization expense was $694,000 for 1997 as compared to $563,000 for 1996, an increase of $131,000 or 23%. The increase in depreciation and amortization expense was attributable to the addition of equipment by the Company during 1997. In connection with the Acquisition, the Company will record goodwill of approximately $10.9 million which will result in additional amortization expense in the future of approximately $272,000 per year. Interest expense. Interest expense was $250,000 for 1997, as compared to $234,000 for 1996, an increase of $16,000 or 7%. Such increase was largely attributable to higher levels of borrowings during 1997. Interest expense reflects interest on notes payable, capital lease obligations and on utilizations of the line of credit with Summit Bank. Other income. Other income included $35,000 for 1997, as compared to $48,000 for 1996, a decrease of $13,000. Other income primarily reflected gains on the sale of certain depreciated equipment. Provision for income taxes. Provision for income taxes was $129,000 for 1997, as compared to $56,000 for 1996. The increase is attributable to higher income generated during the period. As discussed above, upon termination of the Company's S corporation status, the Company will become subject to federal and additional state income taxes. Net income. As a result of the aforementioned, net income increased to $2.0 million for 1997 from $502,000 for 1996, an increase of $1.5 million. As a percentage of net sales, net income increased to 6% in 1997 from 2% in 1996. Year ended December 31, 1996 compared to year ended December 31, 1995. Net sales. The Company had net sales of $23.2 million for the year ended December 31, 1996 compared to $17.3 million for the year ended December 31, 1995, an increase of $5.9 million or 34%. The majority of this increase was attributable to an increase in business with existing customers, with the balance attributable to the addition of new customers. In 1996, the Company had three customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 42% of net sales. In 1995, the Company had two customers each of whom represented in excess of 10% of net sales, and together represented an aggregate of 37% of net sales. Costs of production. Costs of production were $17.6 million for 1996, as compared to $12.9 million for 1995, an increase of $4.7 million or 37%. Costs of production were approximately 76% of net sales for 1996, as compared to approximately 74% of net sales for 1995. The decrease in costs of production as a percentage of net sales was primarily a result of economies of scale resulting from improved utilization of the Company's existing facilities. 28 Selling, general and administrative expenses. Selling, general and administrative expenses increased to approximately $4.3 million for 1996 from approximately $3.4 million for 1995, an increase of $900,000 or 26%. The increase was attributable to costs associated with the addition of personnel to support future growth. As a percentage of net sales, selling, general and administrative expenses decreased to approximately 18% for 1996 from approximately 20% for 1995, reflecting economies of scale as the Company increased facilities utilization. Depreciation and amortization. Depreciation and amortization expense was $563,000 for 1996 as compared to $498,000 for 1995, an increase of $65,000 or 13%. The increase in depreciation and amortization expense primarily reflects the addition of equipment by the Company during 1996. Interest expense. Interest expense was $234,000 for 1996 compared to $257,000 for 1995, a decrease of $23,000 or 9%. Other income. Other income included $48,000 for 1996 as compared to $2,000 for 1995. Other income primarily reflected gains on the sale of depreciated equipment. Provision for income taxes. Provision for income taxes was $56,000 for 1996 as compared to $6,000 for 1995. The increase is attributable to higher income generated during the period. Net income. As a result of the aforementioned, net income increased to $502,000 for 1996 from $267,000 for 1995, an increase of $235,000 or 88%. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has financed its operations, including working capital and equipment acquisitions, using bank borrowings, vendor financing, financing lease transactions, as well as from cash flow generated from operating activities, and stockholder debt and equity contributions. As of December 31, 1997, the Company had net working capital of $728,000, as compared to a net working capital deficit at December 31, 1996 of $867,000. Net cash provided by operating activities was $1.5 million, $1.7 million and $594,000 for each of the years ended December 31, 1997, 1996 and 1995, respectively. Net cash used in investing activities was $797,000, $1.6 million and $254,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Net cash used in investing activities was primarily attributable to the acquisition of property and equipment, offset in part by the cash generated from the sale and leaseback of certain equipment for $1.3 million in 1997. Net cash used in financing activities totaled $1.1 million in 1997, as compared to net cash generated from financing activities of $511,000 in 1996. In 1995, net cash used in financing activities totaled $483,000. In 1997, cash was used in financing activities primarily to repay indebtedness to related parties and to fund a dividend to the Company's stockholders. In 1996, cash was provided by financing activities primarily from the net incurrence of additional third-party indebtedness to finance the acquisition of equipment and certain other assets. In 1995, cash was used in financing activities primarily to pay a dividend to the Company's stockholders, as well as to repay certain indebtedness. On December 15, 1997, the Company entered into a new Loan and Security Agreement with Summit Bank (the "Loan and Security Agreement"). The Loan and Security Agreement provides for a $2.0 million revolving line of credit and a $1.0 million three-year term loan facility. The revolving line of credit expires on May 30, 1998. Borrowings under the line of credit and the term loan bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 2.25% (8.5% at December 31, 1997). The debt is collateralized by substantially all of the Company's assets. Among other things, the Loan and Security Agreement restricts the Company's ability to incur additional indebtedness and requires the Company to maintain certain financial ratios. As of December 31, 1997, $300,000 was outstanding under the revolving line of credit and $1.0 million was outstanding under the term loan facility. The Company intends to repay the term loan facility with the proceeds of the Offering. As of December 31, 1997, the Company had no commitments for capital expenditures. As a result of the Acquisition, the Company will have additional debt outstanding, including borrowings under Roda's existing credit facility with the Bank of Scotland (the "Roda Facility") consisting of a $2.0 million (POUNDS 1.2 million) term loan and a $418,000 (POUNDS 250,000) revolving line of credit. The line of credit is reviewed by the bank annually for renewal, but is payable on demand. Borrowings under both 29 the term loan and the line of credit bear interest at the bank's base rate plus 2.50% (9.75% as of December 31, 1997). The debt is collateralized by substantially all of Roda's assets. As of December 31, 1997, approximately $357,000 (POUNDS 214,000) was outstanding on the credit facility and $1.6 million (POUNDS 968,000) was outstanding under the term loan. The term loan is payable in equal monthly installments through October 20, 2001. The Company intends to seek to expand its operations through the acquisition of additional businesses which provide commercial, digital and time-sensitive printing services and through the expansion of its outsourcing business. Such acquisitions could involve the issuance of additional securities of the Company, the payment of cash, including proceeds from the Offering, or the incurrence of debt. No assurances can be made that the Company will have access to necessary financing to pursue its growth strategy. The Company believes that the combination of the proceeds raised from the Offering, together with internally generated funds, will provide sufficient cash to meet the Company's capital and other cash requirements for the next twelve months. YEAR 2000 ISSUES In the year 2000, the Company's computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company will be required to modify its purchased software program so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company has been informed that the vendor for the purchased software is expected to release an upgrade to address the Year 2000 issue no later than December 31, 1998, which is prior to any anticipated impact on the Company's operating systems. The cost of the upgrade to the Company is included in its maintenance contract with its vendor and will not have a material impact on the Company's future financial results. The Company has had communications with all of its significant, large customers and suppliers to determine the extent to which the Company's interface systems are vulnerable to any failure by third parties to upgrade their own software. The Company believes that its large customers and suppliers are addressing the issues and will timely adjust their systems. However, if such modifications are not made by the Company or its vendors or customers, or are not completed in a timely manner, the Company's operations could be adversely affected. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD Recent pronouncements of the Financial Accounting Standards Board ("FASB") which are not required to be adopted at December 31, 1997, include the following Statements of Financial Accounting Standards ("SFAS"): SFAS No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income (all changes in equity during a period except those resulting from investments by and distributions to owners) and its components in the financial statements. This new standard, which will be effective for the Company for the year ending December 31, 1998, is currently anticipated to only impact the Company's financial statements related to the reporting of translation gains and losses for the proposed acquisition of Roda. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which will be effective for the Company for the year ending December 31, 1998, establishes standards for reporting information about operating segments in the annual financial statements, selected information about operating segments in interim financial reports and disclosures about products and services, geographic areas and major customers. This new standard will require the Company to report financial information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments, which may result in more detailed information in the notes to the Company's financial statements than is currently required and provided. The Company has not yet determined the effects, if any, of implementing SFAS No. 131 on its reporting of financial information. 30 BUSINESS OVERVIEW The Company provides a wide range of graphic communications services to financial institutions and corporations, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing services. The Company, which commenced operations in 1989, operates in select international markets through its facilities in the United States and through alliances with Roda, its strategic partner in the United Kingdom, and with its strategic partner in Hong Kong. The Company is a major producer of financial research reports, having produced over 2 billion pages during 1997. The Company provides services, on a non-exclusive basis, to 13 of the top 20 leading investment banking firms in the United States as ranked by Institutional Investor in October 1997 based on their capabilities in providing research and analysis. Graphic communications services provided by the Company include digital communications, document management, offset printing, digital printing, data output, bindery, fulfillment services, mailing services and outsource services. The Company prints brochures, booklets, confirmations of trade, client statements and adhesive books to meet the daily, weekly and monthly needs of its customers. To facilitate the rapid distribution of documents globally, the Company has designed and implemented the World Research Link(TM), an array of electronic data communication networks linking each of the Company's facilities with its strategic operating partners and major customers. To date, the Company has established extensive non-exclusive client relationships with leading companies in the financial services, insurance and publishing industries, providing certain of the printing and graphic communication needs of Credit Suisse First Boston Corporation, Deutsche Morgan Grenfell, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch & Co., Inc., The Prudential Insurance Company of America, Empire Blue Cross/Blue Shield, New York Life Insurance Company, and The McGraw-Hill Company, among others. The Company has experienced significant growth, with net sales growing from $17.3 million for the year ended December 31, 1995 to $35.7 million ($42.7 million pro forma for the Acquisition) for the year ended December 31, 1997 and income from operations growing over the same period from $528,000 to $2.4 million ($3.2 million pro forma for the Acquisition), representing compounded annual growth rates of 43.6% and 113.2%, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." A significant portion of this growth is attributable to the assimilation of certain in-house printing operations of Goldman, Sachs & Co. and Empire Blue Cross/Blue Shield. See "Graphic Communications Services -- Outsourcing Services." The Company intends to continue to pursue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. As part of its growth strategy, concurrently with the closing of the Offering, the Company will acquire its London-based strategic partner Roda. Roda provides printing and document output and management services to financial services companies, primarily in the United Kingdom and European markets. The Company's senior officers have extensive experience in the graphic communications services industry, having been employed by the Company for an average of approximately 6 years and having an average of approximately 19 years of industry experience. The Company's Chairman, President and Chief Executive Officer, Michael R. Cunningham, founded the Company and has been actively involved in the industry for over 15 years. Furthermore, based on the proven track record of its experienced management team and the wide range of services it provides, the Company is well-positioned to capitalize on the increasing outsourcing trend as well as on consolidation opportunities in the industry. INDUSTRY BACKGROUND The Company estimates that in 1997 the commercial printing and document production market accounted for more than $75 billion in revenue in the United States, based upon information from certain trade associations and other industry sources. The printing and document management business in the 31 United States is highly fragmented, with approximately 40,000 companies presently in operation, only approximately 5% of which are estimated to have annual net sales in excess of $5 million. The Company believes that the commercial printing and document production business is similarly fragmented in the United Kingdom and in certain other markets. The printing and document management industry has evolved significantly over the last several years driven in large part by rapid advances in publishing and electronic information technology. The Company believes that the growth of the printing and document production industry has been due to various factors, including (i) the increasing volume, complexity and variety of documents and printed materials produced by businesses worldwide, (ii) the increasing demand by businesses for the international dissemination of time-sensitive information, and (iii) the growing trend of businesses to outsource their in-house printing operations (e.g., print shops, copy centers and document management facilities) to document professionals equipped to provide these services more efficiently and cost-effectively. BUSINESS STRATEGY The Company believes that the fragmented nature of the graphic communications industry and the limited capital resources available to many small, private operators provide the Company with significant opportunities to expand its base of operations. The Company intends to continue its growth strategy by (i) pursuing acquisitions and establishing strategic alliances to expand and strengthen the Company's business reach in target markets worldwide, (ii) pursuing outsourcing opportunities through the assimilation of in-house printing operations of third-party businesses, (iii) expanding the scope and volume of services offered, (iv) actively cross-selling existing or newly-added products or services to its customers worldwide, and (v) improving the operating efficiency of its existing operations. Pursue Acquisitions and Establish Strategic Alliances The Company will seek to acquire complementary operations throughout the United States, United Kingdom and other international markets which, the Company believes, possess attractive characteristics, including concentrations of prospective customers with significant printing needs, such as financial institutions. The Company will typically target acquisition candidates with (i) annual net sales ranging from $3.0 to $15.0 million; (ii) attractive growth prospects within their respective markets; (iii) complementary technological capabilities; (iv) opportunities for economies of scale and synergies with the Company; (v) solid reputation with established customer relationships; and (vi) an experienced management team. The Company may also seek to make "tuck-in" acquisitions as a means to expand its existing operations, add product lines and services as well as expand its customer base. The Company will also seek to establish additional alliances with strategic partners in targeted geographic markets. This incremental approach to growth enables the Company to expand the scope of its operations without the need for substantial capital investments while mitigating the risks associated with start-up facilities in new markets. In addition, the Company believes that such relationships foster significant cross-selling opportunities across each partners' respective customer bases. The Company believes that such alliances also provide for future acquisition opportunities. Pursuant to this strategy, the Company initially established an alliance with Roda, a United Kingdom-based printing company. As part of its growth strategy, the Company recently entered into an agreement to acquire Roda, thereby solidifying the Company's presence in the United Kingdom and European printing markets. See "The Company -- The Roda Acquisition," "Graphic Communications Services -- Time Sensitive Printing," and "International Network." Expand Provision of Outsourcing Services To date, the Company has grown, in part, through the assimilation of certain in-house printing operations of third-party businesses, including the print shop and data output center of Goldman, Sachs & Co. and the print shop of Empire Blue Cross/Blue Shield. The Company believes that it is a cost effective and an efficient provider of a wide range of in-house printing services. The Company typically 32 provides outsourcing services by assuming all or part of the document output and distribution responsibilities previously performed by a customer's in-house operations. In some instances, the Company may take over the management of a customer's in-house operations. See "Graphic Communications Services -- Outsourcing Services." Expand the Scope and Volume of Services Offered The Company intends to continue to expand the scope and volume of services provided to its customers through the addition of complementary products and services. The Company also continually evaluates opportunities to add new equipment to its existing facilities or enhance its current technology in order to satisfy the evolving needs of its customer base. In addition, the Company regularly evaluates opportunities to add capacity to its existing operations to meet any anticipated increase in demand of its larger customers. Capitalize on Cross-Selling Opportunities The Company also intends to actively cross-sell existing and newly-added products or services to its customers worldwide. By leveraging on the wide range of products and services offered through both its own facilities and those of its strategic partners in complementary geographic markets, the Company believes that it can better serve the needs of international customers by offering a "one-stop shopping" approach to satisfying international printing needs. In addition, the Company also believes that it can cultivate new customer relationships as a result of introductions made by its strategic partners whose respective customers may require printing output in the United States or other markets served by the Company. The Company believes that its ability to cross-sell the products and services of its international alliance provides it with a distinct competitive advantage. See "Graphic Communications Services -- Time Sensitive Printing" and "International Network." Improve Efficiency of its Existing Operations Central to the Company's business strategy is to improve the profitability of its operations by maximizing the efficiency of its existing facilities while actively managing its operating and administrative costs. The Company believes that significant economies of scale may be achieved by leveraging its underutilized daytime production capacity through the increase of non-time-sensitive business. A significant portion of the Company's time-sensitive business is currently processed overnight, resulting in available daytime capacity. The Company also expects to achieve significant economies of scale in conjunction with its acquisition strategy. In this regard, the Company expects to (i) consolidate duplicative functions or facilities of newly-acquired businesses; (ii) leverage its purchasing power with its suppliers and employee benefit providers; and (iii) use its communication network to improve the coordination of production, maximize equipment utilization and enhance delivery. GRAPHIC COMMUNICATIONS SERVICES Time-Sensitive Services The Company's primary business focuses on the production of time-sensitive documents for major financial institutions and corporations. The Company offers a wide range of time-sensitive services including the printing, assembly and dissemination of folders, booklets and adhesive books on a daily, weekly and monthly basis. The Company also prints prospectuses, annual and semi-annual reports for mutual funds customers. Typically, the Company converts electronic data received from its customers on a daily basis into tailored analytical research reports which are printed and delivered to the Company's customers prior to the start of the next business day. The Company's production processes include digital communications, offset and digital printing, multiple binding procedures, branch fulfillment, list maintenance and prompt distribution. The Company's technological capabilities enable it to produce colorful, attractive products. 33 In addition, the Company's World Research Link(TM) network enables the Company to print and distribute these documents, in conjunction with its strategic partners, contemporaneously throughout several international locations. See "International Network." The demand for printed research and other time-sensitive reports has continued to grow despite continuing developments in electronic data transmission, such as the Internet, which provide customers with alternative methods of transmitting time-sensitive information. The Company expects that the demand for time-sensitive printed documents will continue to grow due to (i) the increasing globalization of its customers, particularly financial institutions, (ii) the growth and expansion of international capital markets and (iii) the increasing volume, complexity and variety of document and printed materials. The Company believes that printed research reports not only serve as information tools, but serve as marketing tools as well. As such, the Company believes that customers will continue to demand high quality and colorful research reports as they seek to distinguish themselves in their own competition for clients. Outsourcing Services The Company typically provides outsourcing services by assuming all or part of the document output and distribution responsibilities previously performed by a third party's in-house operations. This service often enables such third party to focus on its core business and to close all or portions of its in-house print shop and/or document management and copy centers and permits the Company to operate and perform all services on a remote basis. Such third party can also achieve significant cost savings on the cost of technology, material and services such as paper and shipping by taking advantage of the bulk purchase arrangements which the Company has with its suppliers. Thereafter, the third party may transmit computer-generated data to one of the Company's production and printing facilities, which then processes, produces and distributes all of the reports, statements and other computer-output documents on an as needed basis. The Company believes that it can operate print shop, document management and copy center functions more efficiently and cost effectively than can a non-graphic communications company. The Company has an established track record of assimilating into its existing operations the assets and workforce of third-party in-house print operations, including its assimilation of the print shop and data output center of Goldman, Sachs & Co. and the print shop of Empire Blue Cross/Blue Shield. In each of the foregoing transactions, the Company acquired selected equipment and inventory on favorable terms and retained a majority of the employees. Sales to these customers accounted for 57% and 82% of the total sales growth, post-assimilation, in the years ended December 31, 1996 and December 31, 1997, respectively, and accounted for 18.2% and 28.8%, respectively, of the total net sales in those two years. Because the Company was previously providing services to the two customers, it is possible that a portion of this sales growth might have occurred in the absence of the assimilation of these operations. Data Output Services The Company also provides a variety of data output services, including the production of trade confirmations and brokerage and investment account statements for a major financial institution. In addition, the Company provides certain database management services to its customers, including the ability to output data files of addresses directly onto envelopes or other printed material, insert flyers and other materials into mailings as well as to offer presorting of first class mail with bulk postal drop services. Commercial Printing The Company produces a broad range of commercial printing products that include catalogs, directories, brochures, booklets, folders, newsletters, flyers, sales and marketing kits and manuals. The type of printing varies from simple one color documents to complex multi-color documents on a wide range of paper stocks. The Company's customers for commercial printing products include its financial 34 institution clients, insurance companies, healthcare and pharmaceutical companies and trade associations. The Company also provides "overflow" printing for a number of in-house print operations of investment banking firms. Given the non-time-sensitive nature of many of these projects, the Company typically produces these products during non-critical daytime hours. The Company expects to continue to increase the volume of daytime commercial printing to take advantage of its available non-time-sensitive production capacity. See "Sales and Marketing." PRINTING OPERATIONS The Company provides a broad range of graphic communications services for a wide variety of commercial purposes. These services commence with the intake of data, and continue through the prepress and press processes, binding, and conclude with fulfillment and distribution. The Company continuously reviews its printing equipment needs and evaluates advances in computer hardware, software and peripheral equipment, computer networking and telecommunications systems as they relate to the Company's operations. Telecommunications and Order Entry The Company's capital investment in state-of-the-art telecommunications and customer on-line ordering systems allows the Company to offer its services internationally and throughout its customers' organizational network. In lieu of manual delivery of customer data files or artwork, the Company's telecommunications capabilities allow it to receive direct transmission of files, saving both time and expense while increasing quality of the work produced. Customers have many alternatives for sending electronic files to the Company. Using a modem, customers can contact the Company's private and secure electronic bulletin board, log-in and transmit or access data files. For customers with advanced telecommunications requirements, the Company offers ISDN line communication capability. For some of the Company's most significant customers, specialized equipment, such as fractional T1 lines have been installed. Customers having Internet access may use available File Transfer Protocol ("FTP") and World Wide Web applications to send and receive data in a secure manner. Secure router-based connections through proxy servers allow the Company to control traffic and direct files containing the text and graphics of research reports, marketing materials, mailing lists, order entry, job tickets and work orders, internationally through the World Research Link(TM). In addition, the Company has developed a customized order entry system. This system links the customer with the Company and can be accessed by customers through desk-top computers, thereby permitting customers to create an order while submitting digital files. Prepress Operations At each of its facilities, the Company operates a prepress department that prepares customer-supplied text, data, artwork and images for document production. Using computerized prepress equipment, the Company processes digital files, scanned images and graphics into "composed electronic files." These electronic files are used with a variety of output options, including digital printing, conventional offset printing or for electronic publishing, such as on the Internet. In addition, the Company can distribute composed electronic files that include text and graphics in various formats through the World Research Link(TM) to other facilities for document production. See "International Network." The Company believes that enhanced digital printing technology will further facilitate multi-purpose uses by its customers of the same electronic files. Digital printing technology will augment the Company's ability to return to the customer a printed document plus a reformatted document which can then be used on multiple media platforms including the Internet, the customer's intranet, multiple on-line information services and broadcast faxing. Press Operations The Company operates 12 presses in its Jersey City facility, seven of which are web presses and five of which are sheet-fed presses. The Company also operates five presses in its Manhattan facility, 35 two of which are web presses and three of which are sheet-fed presses. In London, Roda operates 10 presses, all of which are sheet-fed presses. The Company's presses vary in size and speed and can produce printed materials that range in page size, type of paper, number of pages and the amount of color required. The Company currently has four digital presses, one located in Jersey City and three in New York City, and intends to add digital press capability in London. Two of the Company's digital presses have in-line binding attachments which allow for the production of finished booklets. These presses are linked directly to the Company's computerized network and are currently being utilized for the production of research reports, personalized health care documents, confirmations of trade, client statements and general print products. The Company has developed the ability to provide digital printing services as a complement to offset printing. For smaller runs, digital printing is more efficient and reliable than printing on traditional presses and often results in a product of higher quality and better resolution. Digital printing involves the integration of a variety of systems that compile data, scan images, and compose data and images. Through high-speed computers, data may be received directly from customers and put directly on the press, eliminating the costly intermediate steps involved in the traditional printing process. Binding Services At each facility, the Company operates a bindery department which provide various finishing services. The Company's finishing services include cutting and folding, saddle stitching, punching, collation and inserting, and at the Jersey City facility, perfect binding and shrink-wrapping. By offering a variety of finishing services, the Company can offer its clients expeditious service as well as a wide range of finishing service options. Fulfillment Services At each facility, the Company also operates a fulfillment department. Many of the documents prepared for customers need to be stored for future distribution, both electronically and physically. The Company's fulfillment department stores materials and assembles orders for distribution upon customer request. Printed components are assembled into kits and are packed individually, or in bulk, for delivery. Upon completion of the order, the fulfillment system relieves the distribution from the customer's inventory and generates an activity report for inventory control. For those customers who require mail distribution, the Company operates a mailing department in each location. Using inkjet and cheshirre labeling machines, electronic mailing lists are addressed on envelopes. Documents are inserted into envelopes, sealed and sorted for mail. Management Information System The Company's personnel utilize a comprehensive and integrated management information system which gathers data from all departments and provides management with job status and historical information. The system is divided into several fully integrated modules consisting of estimating, production, purchasing, inventory and accounting modules. This system gives management the ability to monitor all work orders and department costs against budgets and profit goals. Using this system, management can also track the status of a particular work order as it moves through the production process. The system permits the Company to (i) determine the most efficient and cost-effective means of completing particular work orders, (ii) give customers pricing estimates quickly, (iii) measure pressroom efficiency and waste, (iv) analyze buying patterns, pricing and usage for inventory control purposes and (v) produce customized financial statements, reports and analyses. INTERNATIONAL NETWORK In 1994, the Company, in conjunction with its strategic partners, developed an international network known as the World Research Link(TM) designed to facilitate the expeditious distribution of time-sensitive financial research reports throughout select international financial markets, 24 hours a day. Through the use of high speed electronic links among the Company's facilities in the United States and its strategic partners in the United Kingdom and Hong Kong, the Company is able to print research reports concurrently throughout these three principal international financial markets. 36 The Company's strategic partner in the United Kingdom is Roda, a leading research report printer established in 1976. Roda's principal customers include the London branches of numerous major international financial institutions, including Credit Suisse First Boston Corporation and Lehman Brothers Inc., as well as other major international institutions, such as J. Henry Schroder & Co. Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO Hoare Govett. Concurrently with the Offering, the Company will acquire Roda and will subsequently seek to integrate its operations within the Company. The Company's strategic partner in Hong Kong is Workable Co. Ltd. ("Workable"), a leading research report printer established in 1988. Workable's principal customers include the Hong Kong branches of numerous major international financial institutions, including Credit Suisse First Boston Corporation, Merrill Lynch & Co., Inc. and Indosuez W.I. Carr Securities Ltd. Workable maintains around-the-clock operations and provides overnight shipments to other principal financial centers throughout Asia. Workable has invested in state-of-the art printing and data communications technology to facilitate the receipt and distribution of electronic data files and Japanese data transmissions. The Company and Workable have implemented a joint marketing plan which provides the Company with potential cross-selling opportunities to Workable's customers who maintain operations in New York and London. The Company intends to continue to expand its World Research Link(TM) through the establishment of additional strategic alliances throughout Europe, South America and Asia. The Company regards its international relationships as cross-selling opportunities and intends to develop additional joint marketing alliances whereby the Company and its strategic partners each expect to derive business from their respective customers' operations in various international markets. SALES AND MARKETING The Company's marketing activities are handled primarily through its own sales force consisting of nine individuals, a few of whom hold management positions. Following the Acquisition, the Company will have two salesmen in London. The Company's sales representatives are generally organized among customer industry groups, such as financial services, healthcare and insurance and by specific printing and document output services, such as research reports and on-demand mutual fund reports and commercial printing. In addition, the Company employs customer service representatives to provide on-going support to existing customers and to oversee the implementation of new customer projects. The Company currently has approximately 350 customers in the United States, including financial institutions, healthcare companies, trade organizations and retail and manufacturing firms. The Company's four largest customers, Goldman, Sachs & Co., The Prudential Insurance Company of America, Credit Suisse First Boston Corporation and Merrill Lynch & Co., Inc. accounted for approximately 24%, 13%, 10% and 10% respectively, of the Company's net sales for the year ended December 31, 1997. After giving effect to the Acquisition, the Company's four largest customers, Goldman, Sach & Co., Credit Suisse First Boston Corporation, Lehman Brothers Inc., and The Prudential Insurance Company of America, accounted for approximately 20%, 12%, 11% and 11%, respectively, of the Company's net sales on a pro forma basis for the year ended December 31, 1997. In 1997, Roda's largest customers were Lehman Brothers Inc. and Credit Suisse First Boston Corporation, which accounted for approximately 25% and 22%, respectively, of its sales. Roda's next three largest customers in London were J. Henry Schroder & Co. Limited, Indosuez W.I. Carr Securities Ltd. and ABN-AMRO Hoare Govett. Combined, these five customers accounted for approximately 86% of Roda's sales during 1997. The Company believes that its quality of its work product, timeliness of performance, on-going customer support and its ability to customize services to serve specific client needs have contributed to its record of successful customer retention. The Company encourages its major customers to enter into service contracts specifying certain types of business for a defined period. The Company believes that such contracts enable it to improve its order flow and provides it with a more predictable volume of business. The Company intends to add sales representatives and customer support staff to further increase its customer base in additional markets and to augment its volume of non-financial commercial printing. 37 COMPETITION The commercial printing and document production industry is highly competitive. The Company competes with a variety of companies, many of which possess significantly greater financial and other resources than the Company. In the New York market, the Company competes with Bowne & Co., R.R. Donnelly, Xerox Business Services, Big Flower Press Holdings, Inc. and Merrill Corporation, and numerous smaller operations, in the printing of time-sensitive documents. A major competitor of Roda in the London market is Williams Lea Ltd. (a strategic partner of Bowne & Co.). The Company believes that the principal competitive factors in providing printing and document output services include technological expertise, quality and accuracy, turnaround time, fulfillment, price, reliability, security of service, reputation, client industry expertise, capacity and personalized customer support and service. No assurances can be given that the Company will be able to compete effectively against the larger companies in the printing industry. GOVERNMENTAL REGULATION Under various environmental laws, ordinances and regulations in effect in the United States, a current or previous owner or operator of real property may be held liable for the cost of removal or remediation of certain hazardous or toxic substances, including, without limitation, asbestos-containing materials, that could be located on, in or under such property. Such laws and regulations often impose clean-up responsibility and liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances, and liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. Existing laws of a similar nature in the United Kingdom will be replaced and strengthened when new laws for the remediation of contaminated land become effective. These laws will impose clean-up responsibility on a proportionate basis. Primary clean-up responsibility will be imposed on those who caused or knowingly permitted the presence of the hazardous or toxic substances. If no such persons can be found, then the current owner or occupier may have clean-up responsibility. The costs of any required remediation or removal of hazardous or toxic substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations and could exceed the property's value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such substances properly may also adversely affect the owner's ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations in the United States, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In the United Kingdom, laws and regulations require the owner or operator disposing of such substances to ensure disposal at a properly licensed disposal site. Failure to do so is a violation of law. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. As a result, the presence, with or without the Company's knowledge, of hazardous or toxic substances at any property held or operated by the Company, or acquired or operated by the Company in the future, could have an adverse effect on the Company's business, financial condition and results of operations. No assurance can be given that existing environmental audits with respect to any of the Company's properties reveal all environmental liabilities. In addition, the Company's activities are also governed by laws and regulations affecting the health and safety of its employees, including the United States Occupational Safety and Health Act ("OSHA") and the United Kingdom Health and Safety at Work etc. Act 1974 and the numerous regulations issued under it. Among other things, these laws and regulations require the Company to obtain and maintain licenses and permits and carry out risk assessments in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company. Failure to comply with applicable laws, rules or regulations or permitting requirements could subject the Company to civil remedies, including fines and injunctions, as well as possible criminal sanctions, which would have a material adverse effect on the Company. 38 LITIGATION The Company is, from time to time, a party to legal proceedings arising in the normal course of its business. Management believes that none of the legal proceedings currently outstanding will have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company leases approximately 110,000 square feet of office and production space at its principal location in Jersey City, New Jersey under a lease which expires on February 29, 2000. The Company also subleases approximately 25,000 square feet of production space in Manhattan from Goldman, Sachs & Co. under an agreement which expires December 30, 1999. In the Southwark area of London, Roda leases approximately 8,000 square feet of office and production space under an agreement which expires on the date five years subsequent to the closing of the Acquisition and leases nearby warehouse space under a lease which expires September 28, 2000. EMPLOYEES As of December 31, 1997, the Company had approximately 370 employees in the United States, all of which were employed on a full-time basis. As of such date, 255 United States-based employees were members of the United Paperworkers International Union, with which the Company has a memorandum of agreement which expires on June 30, 2000. As of December 31, 1997, Roda had approximately 50 full-time employees, of which approximately 30 were members of the National Graphical Association, a labor union in the United Kingdom. The Company believes that it is in compliance with its labor agreements and that its labor relations are good. 39 MANAGEMENT The following table sets forth certain information concerning each of the Company's directors, executive officers, designees to the Board of Directors who will become directors following the consummation of the Offering and a key employee of Roda:
NAME AGE POSITION WITH THE COMPANY - ----------------------------------- ----- -------------------------------------------------- Directors and Executive Officers Michael R. Cunningham ............. 38 Chairman of the Board, President and Chief Executive Officer Gordon Mays ....................... 41 Director and Executive Vice President Timothy Mays ...................... 39 Executive Vice President of Sales; Secretary Robert Needle ..................... 39 Chief Operating Officer Robert M. Okin .................... 52 Senior Vice President and Chief Financial Officer Ioannis Lykogiannis ............... 46 Senior Vice President, Operations Peter L. Furlonge ................. 45 Managing Director of Roda James J. Cunningham ............... 40 Director Designees to the Board of Directors Arnold Spinner* ................... 63 Director Designee Laurence Gerber* .................. 41 Director Designee Stanley J. Moss* .................. 68 Director Designee
- ---------- * Upon consummation of the Offering, it is anticipated that Messrs. Spinner, Gerber and Moss will become directors. Directors and Officers Michael R. Cunningham, the principal founder of the Company, has been the President and Chief Executive Officer of the Company since its inception. He has spent his entire professional career in the printing and document production industry. He also teaches Quality Control at the Center for Graphic Communications Management and Technology of New York University. Mr. Cunningham has a Masters Degree in Graphic Communications, Management and Technology from New York University. Gordon Mays has served as a director and Executive Vice President of the Company since 1991. He is presently responsible for marketing and business development and is also responsible for overseeing the Company's management information services departments, including overseeing cost control measures and governmental compliance. He has spent his entire professional career in the printing and document production industry. From 1977 to 1991, Mr. G. Mays was employed by Latham Process Corporation where he was responsible for production and sales. Timothy Mays has served as Executive Vice President of Sales and Secretary of the Company since 1991. He presently oversees sales to major corporate clients. He has spent his entire professional career in the printing and document production industry. From 1979 to 1991, Mr. T. Mays was employed by Latham Process Corporation where he was engaged in sales. Messrs T. Mays and G. Mays are first-cousins. Robert Needle joined the Company in 1995 and has served as Chief Operating Officer of the Company since February 1998. Mr. Needle has served in various capacities for the Company since 1995, including Co-Chief Operating Officer from January 1997 to February 1998. He is responsible for all operations of the Company. He has spent his entire professional career in the printing and document production industry. From 1988 to 1995, Mr. Needle was employed by Goldman Sachs & Co., first as Art Director of the Graphics Department and then as Manager of Print Operations. Robert M. Okin joined the Company in April 1998 as Senior Vice President and Chief Financial Officer. Mr. Okin has held senior executive positions in the printing industry for 24 years. Since June 1997, he has been Vice President and Chief Financial Officer of Applied Printing Technologies, L.P. In 40 1995, he was employed by The Corporate Printing Company, an international financial printing company, as Executive Vice President and Chief Financial Officer, and remained with its successor, Merrill Corporation, until 1997. From 1993 to 1994, he was Senior Vice President and Chief Financial Officer of The Berkline Corporation. Prior thereto, he held senior financial officer positions with Webcraft Technologies, Inc. and Polychrome Corporation. Mr. Okin is licensed as a certified public accountant in the State of New York. Ioannis Lykogiannis has served as Senior Vice President, Operations of the Company since 1995. Mr. Lykogiannis has served in various capacities for the Company since 1991, including Plant Manager from 1991 to 1995. He is responsible for all internal production operations of the Company. From approximately 1984 to 1991, Mr. Lykogiannis was employed by Latham Process Corporation, most recently as a Plant Production Manager. Peter L. Furlonge has been an executive officer of Roda since 1989 and its Managing Director since 1995. Prior to his employment by Roda, he was a financial officer for various construction companies, including Foster Wheeler in South Africa, where he was a manager of financial accounting. Mr. Furlonge is a Qualified Chartered Secretary in England. James J. Cunningham has been a Director of the Company since 1989. He has been engaged in the private practice of law in San Diego, California since 1987, and specializes in workers compensation and labor and employment law. Mr. Cunningham is the brother of Michael R. Cunningham, the Chairman of the Board, President and Chief Executive Officer of the Company. Designees to the Board of Directors It is expected that upon the consummation of the Offering, each of the following individuals will become directors of the Company: Arnold Spinner, Ph.D, has been the Director of the Center for Graphic Communications Management and Technology of New York University since 1984. He has held various teaching and administrative positions at New York University since 1965. Laurence Gerber is Chairman and Chief Executive Officer of Epoch Senior Living, Inc., which he co-founded in late 1997. Prior thereto, since 1991, he was President and Chief Executive Officer of Berkshire Group. From 1991 to 1997 he was also President and Chief Executive Officer of Berkshire Realty Co., Inc. (NYSE). From June 1996 to October 1997 he was a director and member of the executive committee of Harborside Healthcare Corporation (NYSE). Stanley J. Moss is a lawyer engaged in the solo practice of law since 1992. From 1992 to 1994 he acted as corporate counsel to Brenner Securities Corporation. Prior thereto he was of counsel to the law firm Katten, Muchin & Zavis. From 1987 to 1990 he was employed as a Senior Vice President, Secretary and Corporate Counsel by Drexel Burnham Lambert Inc. From 1993 to 1997 he was a trustee of Mid-Atlantic Realty Trust (NYSE) and from 1992 to 1995 he was a director of Ground Round Restaurants, Inc. (NASDAQ NMS). Key Employees Robert M. Zanisnik has served as Senior Vice President of the Company since he joined the Company in 1995. He is responsible for all production and customer service activities of the Company. From 1970 to 1995, Mr. Zanisnik was employed by The Prudential Insurance Company of America, most recently as a Manager of Print Operations. Kenneth G. Hay has served as Vice President of Finance of the Company since February 1998. Mr. Hay has served as a principal financial officer of the Company since he joined the Company in 1997. Prior to joining the Company, during the period 1992 through 1996, he was Vice President Finance and Chief Financial Officer of Dana Perfumes Corporation. He is licensed as a certified public accountant in the State of New Jersey. 41 George Leos has served as Vice President, Production of the Company since 1995. Mr. Leos has served in various capacities for the Company since 1992, including Production Supervisor from 1992 to 1995. He is responsible for all scheduling and production planning of the Company. From approximately 1971 to 1992, Mr. Leos was employed by Latham Process Corporation, most recently as a Production POUNDS rinting Superintendent. Richard Monica has served as the controller of the Company since 1991. Prior thereto, and since 1987, Mr. Monica served as controller of Kenny Press, Inc., a commercial printer. From 1976 through 1988, he served as an assistant accounting manager at Automatic Switch, a division of Emerson Electric, Inc. Classified Board Effective upon the closing of the Offering, the Company will implement a staggered Board of Directors consisting of three classes, with each class containing, as nearly as practicable, an equal number of directors. Messrs. Spinner and Moss will be Class A Directors, for a term expiring at the 1999 Annual Meeting of Stockholders, Messrs. Gerber and James J. Cunningham will be Class B Directors, for a term expiring at the 2000 Annual Meeting of Stockholders, and Messrs. Gordon Mays and Michael R. Cunningham will be Class C Directors, for a term expiring at the 2001 Annual Meeting of Stockholders. Commencing with the 1999 Annual Meeting of Stockholders, directors of one class will be elected for a three year term. See "Description of Securities -- Staggered Board of Directors." Executive officers serve at the discretion of the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors of the Company has created two committees, the Audit Committee and the Compensation Committee. The members of the committees will be designated following the consummation of the Offering. It is anticipated that Messrs. Spinner, G. Mays and Moss will comprise the Audit Committee and that Messrs. Spinner, Moss and Gerber will comprise the Compensation Committee. The Audit Committee periodically reviews the Company's auditing practices and procedures and makes recommendations to management or to the Board of Directors as to any changes to such practices and procedures deemed necessary from time to time to comply with applicable auditing rules, regulations and practices, and recommends independent auditors for the Company to be elected by the stockholders. A majority of the members of the Audit Committee will be outside directors. The Compensation Committee meets periodically to make recommendations to the Board of Directors concerning the compensation and benefits payable to the Company's executive officers and other senior executives and administers the Company's stock option plan for employees. See "Stock Option Plans." SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid or accrued by the Company for services rendered in all capacities for the Chief Executive Officer and the four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") during the fiscal year ended December 31, 1997. 42
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS --------------------------------- SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) - ------------------------------------ ------ ----------- ---------- ---------------------- Michael R. Cunningham, President and Chief Executive Officer 1997 $347,798 -- -- 1996 $324,314 -- -- 1995 $305,476 -- -- Gordon Mays, Executive Vice President 1997 $170,664 $40,775 -- 1996 $153,448 -- -- 1995 $134,632 -- -- Timothy Mays, Executive Vice President of Sales 1997 $230,150 $36,638 -- 1996 $221,137 -- -- 1995 $266,650 -- -- Robert Needle, Chief Operating Officer 1997 $159,116 $25,000 -- 1996 $133,251 $15,000 -- 1995 $ 95,231 -- -- Ioannis Lykogiannis, Senior Vice President 1997 $111,690 $14,234 -- 1996 $101,336 $ 1,500 -- 1995 $ 88,933 -- --
Pursuant to their employment agreements, each of Messrs. Cunningham, G. Mays, T. Mays, Needle and Lykogiannis will receive base salaries of $250,000, $175,000, $150,000, $155,000 and $119,000, respectively following the completion of the Offering. See "Employment Agreements." DIRECTORS' COMPENSATION Directors who are employees of the Company do not receive additional compensation for serving as directors. Each director who is not an employee of the Company receives an annual retainer of $6,000 and an additional fee of $1,000 for each day's attendance at a Board of Directors meeting and/or committee meeting or $500 for participation in a telephone conference meeting. Under the Company's Directors' Stock Option Plan, each non-employee Director has been granted an option to acquire 15,000 shares of Common Stock at the initial public offering price and will automatically receive options to acquire 4,000 shares of Common Stock each year, commencing in 1999. See "Stock Option Plans -- The Directors' Stock Option Plan." Directors of the Company are reimbursed for out-of-pocket expenses incurred in their capacity as directors of the Company. OPTION GRANTS IN LAST FISCAL YEAR During the year ended December 31, 1997, there were no stock options granted to the Named Executive Officers. EMPLOYMENT AGREEMENTS Michael R. Cunningham, Gordon Mays, Timothy Mays, Robert M. Zanisnik, Robert Needle, Robert M. Okin and Ioannis Lykogiannis have entered into employment agreements with the Company which are effective upon the consummation of the Offering. Mr. Furlonge will enter into a new employment agreement with the Company which will become effective upon the closing of the Acquisition. The agreement with Mr. Cunningham is for a term of three years. He is employed as President and Chief Executive Officer of the Company with general supervisory authority of the business of the Company and its subsidiaries and is charged with the responsibility of preparing and implementing a strategic plan and seeking out and consummating acquisitions, in accordance with policies set by the Board of Directors. Pursuant to his employment agreement, Mr. Cunningham is paid an annual salary 43 of $250,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. The agreement with Mr. G. Mays is for a term of three years. He is employed as Executive Vice President of the Company with responsibility for marketing, business development and information systems. Pursuant to his employment agreement, Mr. G. Mays is paid an annual salary of $175,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. The agreement with Mr. T. Mays is for a term of three years. He is employed as Executive Vice President of Sales of the Company with responsibility for overseeing major corporate accounts and identifying new customers. Pursuant to his employment agreement, Mr. T. Mays is paid an annual salary of $150,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreement with Mr. Needle is for a term of three years. He is employed as Chief Operating Officer of the Company with responsibility for all manufacturing and customer service operations. Pursuant to his employment agreement, Mr. Needle is paid an annual salary of $155,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreement with Mr. Okin has a term of one year, beginning April 6, 1998. He will be employed as Senior Vice President and Chief Financial Officer of the Company with supervisory authority over the finance, human resources and management information services departments of the Company. Pursuant to his employment agreement, Mr. Okin is paid an annual salary of $145,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. The agreement with Mr. Lykogiannis is for a term of three years. He is employed as a Senior Vice President, Operations of the Company with responsibility for all internal production operations. Pursuant to his employment agreement, Mr. Lykogiannis is paid an annual salary of $119,000 which may be increased from time to time at the discretion of the Board of Directors. The agreement with Mr. Zanisnik is for a term of three years. He is employed as a Senior Vice President of the Company with responsibility for all production and customer service activities. Pursuant to his employment agreement, Mr. Zanisnik is paid an annual salary of $88,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year and to commissions on net sales to certain customers of the Company. The agreements with each of Messrs. Cunningham, G. Mays, T. Mays, Zanisnik, Needle and Lykogiannis are automatically extended for additional periods of one year effective on the second anniversary of the commencement date and on each anniversary thereafter (the "Renewal Date") unless the Company gives notice to the contrary at least six months prior to the Renewal Date. The agreement with Mr. Okin is automatically extended for additional periods of one year unless the Company gives notice to the contrary at least three months in advance of the scheduled termination date. Each of the executive officers is entitled to a lump sum payment in the amount of one-half times his then annual salary in the event of a termination without cause, and, except in the case of Mr. Okin, a lump sum payment in the amount of two times his then annual salary in the event a termination without cause within one year after a "Change of Control." In Mr. Okin's case, the payment under such circumstances 44 increases from one-half of his then annual salary to two times his then annual salary over a period of two years. Except in the case of Mr. Okin, each of the foregoing individuals is entitled to a lump sum payment in the amount of two times his then annual salary in the event of a termination of employment by the employee for "Good Reason" as defined under each of the respective employment agreements. Each of the foregoing individuals is also entitled to a comprehensive medical indemnity policy for himself and his family, long-term disability insurance and such other benefits as the Board of Directors shall adopt and approve. Messrs. Cunningham, G. Mays, T. Mays, Okin and Needle also receive a car allowance. The agreement between Roda and Mr. Furlonge is for a term of at least 18 months, and continues until terminated by either party upon at least six months' prior notice. Mr. Furlonge is employed as a senior executive of Roda with the job title Managing Director. He is paid an annual salary of $163,000 (POUNDS 100,000), which is subject to increase each year by an amount at least equal to the percentage increase in a consumer price index over the prior year. He is also entitled to an annual bonus in an amount determined by the Compensation Committee based upon the realization of the Company's goals during such year. He is entitled to a lump sum payment in the amount of two times his then annual salary following a "Change in Control" of Roda or the Company, provided that he continues to work for at least six months following the Change of Control (or, if longer, for such period of time following the Change of Control to ensure that he has completed at least 18 months of service under the agreement). If his employment is terminated, except for cause, following a Change in Control, the lump sum payment would be payable immediately. Mr. Furlonge is also entitled to medical insurance for himself and his family, continued participation in Roda's pension plan, life insurance in the amount of four times his annual salary and a car allowance. STOCK OPTION PLANS 1998 Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000 shares of Common Stock for issuance thereunder. The Plan provides for the granting to employees (including employee directors and officers) of options intended to qualify as incentive stock options within the meaning of (section)422 of the Code and for the granting of nonstatutory stock options to employees and consultants. The 1998 Plan is currently administered by the Company's Compensation Committee. The 1998 Plan provides for the granting of both Incentive Stock Options ("ISOs") and nonstatutory stock options (a "NSO") and in connection with such options the granting of stock appreciation rights (an "SAR") or additional stock options, known as progressive stock options, in the event the grantee exercises such stock options by surrendering shares of Common Stock of the Company (a "PSO"). NSOs and SARs may be issued to any key employee or officer of the Company or its subsidiaries, or any other person who is an independent contractor, agent or consultant of the Company or its subsidiaries but not any director of the Company who is not an employee of the Company. ISOs may be issued to key employees and officers of the Company and its subsidiaries, but not to any independent contractor, agent or consultant. The Compensation Committee also determines the times at which options will vest and will become exercisable, their transferability and the dates, not more than ten years after the date of grant, on which options will expire. In the event of a tender offer for more than 25% of the Company's outstanding stock, or a "change in control" (as defined in the 1998 Plan) of the Company, all outstanding options become immediately exercisable. The fair market value of the stock with respect to which ISOs under the 1998 Plan or any other plan of the Company first become exercisable may not exceed $100,000 in any year. The option price of an ISO is to be at least 100% of the fair market value on the date of grant (110% in the case of optionees holding more than ten percent of the combined voting power of all classes of stock of the Company). The 1998 Plan, however, permits the Compensation Committee to grant NSOs at any exercise price consistent with the purposes of the 1998 Plan, whether or not such exercise price is equal to the fair market value of the stock on the date of grant of the NSO. NSOs with an exercise price of less than fair market value on the date of grant would not qualify as performance-based compensation under (section)162(m) of the Code and, therefore, any 45 compensation expense generated by the exercise of such an option would not be deductible by the Company when the Company is considered to be subject to such Section, if the optionee is a "covered employee" who is paid compensation from the Company in an amount in excess of $1,000,000 in the year of exercise. Options may be exercised by the payment of the exercise price in cash, Common Stock or a combination thereof. Subject to compliance with the provisions of applicable governmental regulations, the Compensation Committee may make a loan for the purpose of exercising any option granted under the 1998 Plan to an optionee in an amount not to exceed 100% of the purchase price of the shares acquired upon exercise of the options. The loan must be secured by a pledge of shares of the Company having an aggregate purchase price equal to or greater than the amount of the loan. The 1998 Plan permits the Compensation Committee to grant SARs in connection with any option granted under the 1998 Plan. SARs enable an optionee to surrender an option and to receive a payment in cash or Common Stock, as determined by the Compensation Committee, equal to the difference between the fair market value of the Common Stock on the date of surrender of the related option and the option price. The 1998 Plan also permits the Compensation Committee to grant PSOs in connection with any option granted under the 1998 Plan. PSOs enable an optionee to receive additional stock options in the event the grantee exercises a stock option, in whole or in part, by surrendering shares of Common Stock of the Company. Any PSO granted will be for a number of shares equal to the number of surrendered shares of Common Stock, shall not be exercisable for a minimum of six months from the grant date of the option, shall have an option price per share equal to 100% of the fair market value of a share of stock on the grant date and shall be subject to such other terms and conditions as the Compensation Committee may determine. At the time of the Offering, options covering an aggregate of 230,300 shares of Common Stock will be outstanding under the 1998 Plan including options to purchase 50,000 shares of Common Stock granted to each of Messrs. Needle and Lykogiannis and options to purchase 45,000 shares granted to Mr. Okin. All of such options will expire ten years after the date of grant, and have an exercise price per share, subject to adjustment, equal to the initial public offering price. Of the above 230,300 options, 175,000 will be fully vested upon the consummation of the Offering and the remaining 55,300 will vest over a period of three years. The Directors' Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and reserved 150,000 shares of Common Stock for insurance thereunder. The individuals eligible to participate in the Directors' Plan are each Director of the Company who is not an employee of the Company or any of its subsidiaries (an "Outside Director"). Under the terms of the Directors' Plan, upon the closing of the Offering, each Outside Director automatically receives an NSO to acquire 15,000 shares of Common Stock at the initial public offering price. Accordingly, at the time of the Offering, options covering an aggregate of 60,000 shares of Common Stock will be outstanding under the Directors' Plan. In addition, beginning in 1999, on the first business day of the month following the month in which the annual meeting of stockholders occurs, each Outside Director shall automatically receive an NSO for the purchase of 4,000 shares of Common Stock at the fair market value of the Common Stock on the date of grant. New Outside Directors shall receive an NSO for the purchase of 15,000 shares of Common Stock upon their initial election as directors. All options granted under the Directors' Plan will be fully vested six months after the date of grant. Options under the Directors' Plan will have a term of ten years and shall not be exercisable until six months following the date of grant. Payment upon exercise may be made only in cash or by check. In the case of a person who ceases to be an Outside Director for reasons other than death, the options shall not be exercisable after the third anniversary of the date such person ceased to be an Outside Director. In the case of death, options that have not expired may not be exercised by executors, administrators, heirs or distributees, after the first anniversary of the date of death. 46 The Board of Directors has the authority to amend, suspend or discontinue the Directors' Plan but the Board of Directors may not, without the approval of stockholders, make any amendment which (i) makes a change in the persons eligible to receive options under the Directors' Plan, (ii) increases the number of shares of the Common Stock which may be issued under the Directors' Plan, (iii) increases the maximum option price, (iv) decreases the option price or (v) changes the number of shares subject to the automatic option. 401(K) PLAN The Predecessor maintains a salary deferral and savings plan for its employees (the "401(k) Plan") which is qualified under Section 401(k) of the Code. Subject to limits set forth in the Code, employees who meet certain age and service requirements may participate in the 401(k) Plan by contributing through payroll deductions. The Company, at its discretion, may elect to contribute to the 401(k) Plan in amounts and at times determined by the Board of Directors. RODA PENSION PLAN Roda maintains a defined contribution pension plan, approved by the United Kingdom's Inland Revenue, in which employees who meet certain age and service requirements may participate. The plan is based upon contributions from both the employer and employees, with Roda's contribution on behalf of each participating employee being set at 5% of basic salary. 47 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to beneficial ownership of the Common Stock, after giving effect to the Reorganization and the Acquisition, both before and after the Offering, by (i) each person known to the Company to be the beneficial owner of 5% or more thereof, (ii) each director and designee who will become a director upon consummation of the Offering, (iii) each of the Named Executive Officers and (iv) all directors and officers as a group. Under the rules of the Securities and Exchange Commission (the "Commission"), a person is deemed to be a "beneficial owner" of a security if he or she has or shares the power to vote or direct the voting of such security or the power to dispose of or direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. Shares of Common Stock subject to options held by the directors and officers that are not exercisable within 60 days of the date hereof are not, in accordance with beneficial ownership rules promulgated by the Commission, deemed outstanding for the purpose of computing such director's or officer's beneficial ownership.
PERCENTAGE OF CLASS BENEFICIALLY OWNED ---------------------- AMOUNT AND NATURE OF BENEFICIAL BEFORE AFTER NAME OF BENEFICIAL OWNER(1) OWNERSHIP OFFERING OFFERING - ------------------------------------------------------- -------------------- ---------- --------- Michael R. Cunningham ................................. 2,032,728 (2) 79.0% 41.8% Gordon Mays ........................................... 228,198 (3) 8.8% 4.7% Timothy Mays .......................................... 165,803 (4) 6.4% 3.4% Robert Needle ......................................... 50,000 (5) * 1.0% Robert M. Okin ........................................ 45,000 (5) * * Ioannis Lykogiannis ................................... 50,000 (5) * 1.0% Peter L. Furlonge ..................................... 128,323 (6) * 2.6% Arnold Spinner ........................................ -- * * James J. Cunningham ................................... 132,398 (7) 5.0% 2.7% Laurence Gerber ....................................... -- * * Stanley J. Moss ....................................... -- * * All directors and officers as a group (11 persons)..... 2,832,450 (8) 99.2% 56.5%
- ---------- * Less than 1%. (1) Unless otherwise indicated, the address of each such person is c/o Cunningham Graphics International, Inc., 629 Grove St., Jersey City, New Jersey 07310. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated. (2) Excludes 130,898 shares held by a trust for the benefit of Michael R. Cunningham's children. The trustee of such trust, James J. Cunningham, the brother of Mr. M. Cunningham, has the sole right to vote and dispose of such shares. Also excludes 18,000 shares which will be gifted by Mr. M. Cunningham at the time of the Offering. (3) Excludes 9,817 shares held by a trust for the benefit of Gordon Mays' children. The trustee of such trust, William J. Mays, the brother of Mr. G. Mays, has the sole right to vote and dispose of such shares. (4) Excludes 9,817 shares held by a trust for the benefit of Timothy Mays' children. The trustee of such trust, William Edward Shannon, the brother-in-law of Mr. T. Mays, has the sole right to vote and dispose of such shares. (5) Represents shares underlying options which have been granted to the designated person, all of which are exercisable within 60 days of the date of this Prospectus. (6) Gives effect to 128,323 shares to be issued to Mr. Furlonge in the Acquisition. (7) Includes the 130,898 shares referred to in footnote (2). (8) Includes 145,000 shares subject to options which have been granted to officers and which are exercisable within 60 days of the date of this Prospectus, and excludes the shares referred to in footnotes (3) and (4). 48 CERTAIN TRANSACTIONS CAPITALIZATION PRIOR TO THE REORGANIZATION The Predecessor was initially capitalized in September 1983 through the sale of 100 shares of common stock of the Predecessor, to Michael R. Cunningham, the Company's founder. Mr. Cunningham subsequently made gifts of six shares to a trust created for the benefit of his children. On June 11, 1991, the Predecessor entered into a stock purchase agreement (the "Stock Purchase Agreement") with Timothy Mays and Gordon Mays (collectively, the "Buyers") which entitled the Buyers to purchase from the Predecessor up to 53.85 shares of common stock, of which up to 11.11 shares of common stock of the Predecessor could be purchased by the Buyers on June 12, 1991, and the remaining 42.74 shares of common stock of the Predecessor could be purchased by the Buyers, at certain times after June 12, 1991 but in no event later than December 1, 1996 ("Purchase Option Termination Date"). On June 12, 1991, pursuant to the terms of the Stock Purchase Agreement, Timothy Mays purchased 3.67 shares of common stock of the Predecessor, and Gordon Mays purchased 7.44 shares of common stock of the Predecessor, in consideration for (i) the return by the Buyers to the Company of a promissory note dated April 12, 1991 evidencing indebtedness of the Company to the Buyers in the principal amount of $100,000 and (ii) $200,000 paid by the Buyers to the Company. Pursuant to the terms of the Stock Purchase Agreement, from time to time between June 12, 1991 and the Purchase Option Termination Date, Timothy Mays purchased an additional 4.38 shares of common stock of the Predecessor, and Gordon Mays purchased an additional 3.47 shares of common stock of the Predecessor, in consideration for the retention by the Company of (i) all dividends declared by the Company and payable to the Buyers and (ii) certain "Additional Compensation" due to the Buyers under employment agreements with the Company. Messrs. G. Mays and T. Mays subsequently made gifts of .45 shares of common stock of the Predecessor each to a trust created for the benefit of their respective children. Messrs. Cunningham, G. Mays and T. Mays entered into a shareholders agreement in 1991 providing for certain restrictions upon the disposition of shares and upon the voting of stock, which agreement will be terminated effective upon the consummation of the Reorganization. LOANS FROM INSIDERS From time to time, the Company borrowed funds from Michael R. Cunningham and the trust for the benefit of his children, which are stockholders of the Company. A total of $227,000 of such loans was outstanding as of December 31, 1996, all of which was repaid in 1997. THE REORGANIZATION In connection with the Reorganization, the Company will issue to the stockholders of the Predecessor an aggregate of 2,595,260 shares of Common Stock, Exchange Notes in the aggregate principal amount of $2.4 million (assuming an initial public offering price of $12.00 per share) and Distribution Notes in the aggregate principal amount of $2.2 million. The Exchange Notes and the Distribution Notes will be paid from the proceeds of the Offering. See "The Company -- The Reorganization." The number of shares of Common Stock, the principal amounts of the Exchange Notes and the principal amounts of the Distribution Notes, to be received by each stockholder of the Predecessor in the Reorganization, are as follows:
SHARES OF COMMON PRINCIPAL OF PRINCIPAL OF STOCKHOLDER STOCK EXCHANGE NOTES DISTRIBUTION NOTES - ------------------------------------- ------------------ ---------------- ------------------- Michael R. Cunningham ............... 2,050,727 $1,896,432 $1,738,400 Gordon Mays ......................... 228,198 211,030 193,443 Timothy Mays ........................ 165,803 153,330 140,551 James J. Cunningham, Trustee ........ 130,898 121,050 110,962 William J. Mays, Trustee ............ 9,817 9,079 8,322 William Edward Shannon, Trustee ..... 9,817 9,079 8,322 --------- ---------- ---------- Totals: ............................. 2,595,260 $2,400,000 $2,200,000
The Company also intends to repay up to $1.0 million of indebtedness to Summit Bank under its term loan and all outstanding borrowings under its revolving line of credit with Summit Bank, expected to total $1.2 million as of the consummation of the Offering. The Predecessor borrowed $1.2 million under the line of credit in April 1998 in order to partially fund a $1.4 million distribution to stockholders of the 49 Predecessor to enable them to pay taxes due on April 15, 1998 on account of undistributed S corporation taxable income. The term loan bears interest at a rate of 8.5% per annum and matures on December 1, 2001. The revolving line of credit bears interest at a floating rate equal to the prime rate and matures on May 30, 1998. As a result of the use of a portion of the proceeds of this Offering to repay borrowings under the line of credit and to repay the Reorganization Notes, a total of $5.8 million, or 25.7%, of the estimated net proceeds of the Offering will be received by, or applied for the benefit of, existing stockholders of the Company. POLICY OF THE BOARD OF DIRECTORS All ongoing and any future transactions with affiliates of the Company, if any, will be on terms believed by the Company to be no less favorable than are available from unaffiliated third parties and will be approved by a majority of disinterested directors. 50 DESCRIPTION OF CAPITAL STOCK The summary of the terms of the capital stock of the Company set forth below does not purport to be complete and is subject to and qualified in its entirety by reference to the Certificate of Incorporation (the "Certificate of Incorporation") and By-Laws of the Company, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information." GENERAL The Company's Certificate of Incorporation authorizes 30,000,000 shares of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par value. After giving effect to (i) the Reorganization, (ii) the closing of the Acquisition and (iii) the completion of the Offering, the Company will have outstanding 4,865,000 shares of Common Stock and no shares of Preferred Stock. In addition, the Company will have 450,000 shares of Common Stock reserved for issuance under the Company's 1998 Stock Option Plan and 150,000 shares of Common Stock reserved for issuance under the Company's Directors' Stock Option Plan. See "Management -- Stock Option Plans." COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters voted upon by stockholders, and a majority vote is required for all action to be taken by stockholders. Cumulative voting of shares is prohibited. Accordingly, the holders of a majority of the voting power of the shares voting for the election of directors can elect all of the directors if they choose to do so. The Common Stock bears no preemptive rights, and is not subject to redemption, sinking fund or conversion provisions. The shares of Common Stock offered hereby will be, when issued and paid for, fully paid and non-assessable. Holders of Common Stock are entitled to receive dividends if, as and when declared by the Company's Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued (and subject to any dividend restriction contained in any credit facility which the Company may enter into in the future) and distributed pro rata in accordance with the number of shares of Common Stock held by each stockholder. See "Risk Factors -- Dividend Policy." PREFERRED STOCK Shares of Preferred Stock may be issued from time to time by the Board of Directors of the Company, without stockholder approval, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions, as may be fixed by the Board of Directors when designating any such series. The Preferred Stock and the variety of characteristics available for it offers the Company flexibility in financing and acquisition transactions. An issuance of Preferred Stock could dilute the book value or adversely affect the relative voting power of the Common Stock. The issuance of such shares could be used to enable the holder to block an acquisition of the Company. Although the Board of Directors is required when issuing such stock to act based on its judgment as to the best interests of the stockholders of the Company, the Board could act in a manner which would discourage or prevent a transaction some stockholders might believe is in the Company's best interests or in which stockholders could or would receive a premium for their shares of Common Stock over the market price. STATUTORY BUSINESS COMBINATION PROVISIONS The New Jersey Business Corporation Act provides that in determining whether a proposal or offer to acquire a corporation is in the best interest of the Corporation, the Board may, in addition to considering the effects of any action on stockholders, consider any of the following: (a) the effects of the proposed action on the corporation's employees, suppliers, creditors and customers, (b) the effects on the community in which the corporation operates and (c) the long-term as well as short-term interests 51 of the corporation and its stockholders, including the possibility that these interests may best be served by the continued independence of the corporation. The statute further provides that if, based on these factors, the Board determines that any such offer is not in the best interest of the corporation, it may reject the offer. These provisions may make it more difficult for a stockholder to challenge the Board's rejection of, and may facilitate the Board's rejection of, an offer to acquire the Company. The Company will be subject to the New Jersey Shareholders Protection Act (the "Protection Act"), which prohibits certain New Jersey corporations from engaging in business combinations (including mergers, consolidations, significant asset dispositions and certain stock issuances) with any interested stockholder (defined to include, among others, any person that becomes a beneficial owner of 10% or more of the affected corporation's voting power) for five years after such person becomes an interested stockholder, unless the business combination is approved by the Board of Directors prior to the date the stockholder became an interested stockholder. In addition, the Protection Act prohibits any business combination at any time with an interested stockholder other than a transaction that (i) is approved by the Board of Directors prior to the date the interested stockholder became an interested stockholder, or (ii) is approved by the affirmative vote of the holders of two-thirds of the voting stock not beneficially owned by the interested stockholder, or (iii) satisfies certain "fair price" and related criteria. STAGGERED BOARD OF DIRECTORS The Company's Certificate of Incorporation provides for a Board of Directors of not less than three members, with the actual number to be set by resolution of the Board from time to time. In addition, the Certificate of Incorporation provides for the implementation of a staggered Board of Directors effective at the closing of the Offering. Under this provision the Board of Directors will be divided into three classes, Class A, Class B and Class C, with each class containing as nearly as practicable, an even number of Directors. Initially, the Class A Directors will have a term expiring at the 1999 Annual Meeting of Stockholders, the Class B Directors will have a term expiring at the 2000 Annual Meeting of Stockholders and the Class C Directors will have a term expiring at the 2001 Annual Meeting of Stockholders. Commencing with the 1999 Annual Meeting of Stockholders, as each class comes up for election, it will be for a three-year term. An effect of the staggered Board of Directors is to make it more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. LIMITATION OF DIRECTORS' LIABILITIES Pursuant to provisions of the Company's Certificate of Incorporation, directors of the Company are not personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of duty of loyalty, for acts or omissions not in good faith or any transaction in which a director has derived an improper personal benefit. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Continental Stock Transfer & Trust Company. 52 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. Upon consummation of the Offering, the Company will have outstanding 4,865,000 shares of Common Stock, of which the 2,100,000 Shares offered hereby will be freely tradable without restriction or further registration under the Securities Act, except for shares purchased by an "affiliate of the Company" (in general, a person who has a controlling position with regard to the Company), which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. The remaining 2,765,000 shares of Common Stock to be outstanding after the Offering are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, and may only be sold pursuant to an effective registration under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. Such restricted shares of Common Stock will become eligible for sale, under Rule 144, subject to certain volume limitations prescribed by Rule 144. The holders of all of the restricted shares have agreed not to sell any of their securities of the Company for a period of 180 days following the date of this Prospectus, under any circumstances. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated with an affiliate) who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of the issuer's Common Stock or the average weekly trading volume during the four calendar weeks preceding such sale, provided that certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. A person who is not an affiliate, has not been an affiliate within three months prior to sale, and has beneficially owned the restricted shares for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The Company, the stockholders of the Predecessor and the directors and officers of the Company (who in the aggregate will beneficially own 2,832,450 shares of Common Stock) have agreed with the Underwriters that, for a period of 180 days following the Offering, they will not offer to sell, contract to sell, grant an option to purchase or otherwise dispose (or announce any offer, sale, grant of any option or other distribution) of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for shares of Common Stock without the prior written consent of Schroder & Co. Inc. on behalf of the Underwriters (except that the Company may grant options to purchase or award shares of Common Stock under the 1998 Plan and the Directors' Plan and issue privately placed shares in connection with acquisitions). See "Management -- Stock Option Plans" and "Principal Stockholders." As soon as practicable following the consummation of the Offering, the Company intends to file a registration statement under the Securities Act to register shares of Common Stock issuable pursuant to the 1998 Plan and the Directors' Plan. See "Management -- Stock Option Plans." Shares of Common Stock issued pursuant to the 1998 Plan and the Directors' Plan after the effective date of such registration statement will be available for sale in the open market, subject to the lock-up agreement described above, if applicable. 53 UNDERWRITING The Underwriters named below have agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company, and the Company has agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their respective names: UNDERWRITER NUMBER OF SHARES - ------------------------------------------------------- ----------------- Schroder & Co. Inc. ................................... 1,050,000 Prudential Securities Incorporated .................... 1,050,000 --------- Total .............................................. 2,100,000 ========= The Underwriting Agreement provides that the Underwriters are obligated to purchase all of the shares of Common Stock offered hereby, if any such shares are purchased. The Underwriters have advised the Company that they propose to offer the shares of Common Stock directly to the public, initially at the offering price set forth on the cover page of this Prospectus; that the Underwriters propose initially to allow a concession not in excess of $ per share to certain dealers; and that the Underwriters may initially allow a concession not in excess of $ per share to other dealers. After the initial offering of the shares of Common Stock, the public offering price and such concessions may be changed by the Underwriters. The Company has granted an option to the Underwriters, exercisable for 30 days from the date of this Prospectus, to purchase up to 315,000 additional shares of Common Stock, at the public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over-allotments in connection with the sale of the Common Stock offered hereby. The Underwriting Agreement provides that the Company and Michael R. Cunningham will indemnify the Underwriters against certain liabilities, including liabilities under the federal securities laws, or will contribute to payments that the Underwriters may be required to make in respect thereof. The Underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids in accordance with Regulation M under the Exchange Act. Overallotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum. Syndicate covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Underwriters to reclaim a selling concession from a syndicate member when the securities originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the securities to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on Nasdaq or otherwise and, if commenced, may be discontinued at any time. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price of the Common Stock will be determined by negotiation between the Company and the Underwriters. Among the factors to be considered in determining the initial public offering price, in addition to prevailing market and general economic conditions, are the history of, and prospects for, the industry in which the Company operates, the ability of the Company's management, the Company's past and present operations, the Company's historical results of operations, the Company's earnings prospects, the prices of similar securities of comparable companies, and other relative factors. There can be no assurance, however, that the price at which the Common Stock will sell in the public market after the Offering will not be lower than the price at which it is being sold by the Underwriters. The Company, the stockholders of the Predecessor and the directors and officers of the Company (who in the aggregate will beneficially own 2,832,450 shares of Common Stock) have agreed with the Underwriters that, for a period of 180 days following the Offering, they will not offer to sell, sell, contract to sell, grant an option to purchase or otherwise dispose (or announce any offer, sale, grant of any option or other distribution) of any shares of Common Stock or any securities convertible into or exchangeable or 54 exercisable for shares of Common Stock without the prior written consent of Schroder & Co. Inc. on behalf of the Underwriters (except that the Company may grant options to purchase or award shares of Common Stock under the 1998 Plan and the Directors' Plan and issue privately placed shares in connection with acquisitions). See "Management -- Stock Option Plans" and "Principal Stockholders." At the request of the Company, up to 200,000 shares of Common Stock have been reserved for sale in the Offering to certain individuals, including directors and employees of the Company, members of their families and/or friends, and other persons having business relationships with the Company. The price of such shares to such persons will be the initial public offering price set forth on the cover of this Prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase such reserved shares. Any reserved shares not purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. The Company has agreed with the Underwriters that it will exercise its right to redeem all of the preference share capital of Roda on June 30, 1998 if it is not sooner required to redeem such shares by the holders thereof. A portion of the proceeds of the Offering will be deposited into escrow to provide for the payment of the redemption price of the preference shares. 55 LEGAL MATTERS Certain legal matters with respect to the validity of the Common Stock offered hereby will be passed upon for the Company by Gibbons, Del Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New Jersey. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. EXPERTS The predecessor financial statements of Cunningham Graphics International, Inc. for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given the authority of such firm as experts in accounting and auditing. The financial statements of Roda Limited for the year ended December 31, 1997 and for the four months ended December 31, 1996, and of Roda Print Concepts Limited for the ten month period ended October 31, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young, Chartered Accountants, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed a Registration Statement on Form S-1 under the Securities Act with the Commission in Washington, D.C. with respect to the securities offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the securities offered hereby, reference is hereby made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in this Prospectus as to the contents of any agreement or any other document referred to are not necessarily complete, and in each instance, if such agreement or document is filed as an exhibit, reference is made to the copy of such agreement or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected and copied at the principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, New York, New York 10048, and Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 56 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 CONTENTS Report of Independent Auditors ...................................... F-2 Predecessor Balance Sheets as of December 31, 1996 and 1997 ......... F-3 Predecessor Statements of Income for the years ended December 31, 1995, 1996 and 1997 ................................... F-4 Predecessor Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and 1997 ................................... F-5 Predecessor Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 ................................... F-6 Notes to Predecessor Financial Statements ........................... F-7 RODA LIMITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, AND 1997 CONTENTS Report of Independent Auditors ...................................... F-16 Consolidated Profit and Loss Account for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the Profit and Loss Account of Roda Print Concepts Limited for the ten-month period ended 31 October 1996 ............. F-17 Consolidated Balance Sheets as of December 31, 1996 and 1997......... F-18 Consolidated Statement of Cash Flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the Statement of Cash Flows of Roda Print Concepts Limited for the ten-month period ended 31 October 1996.............. F-19 Notes to Financial Statements ....................................... F-20 F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors Cunningham Graphics International, Inc. We have audited the accompanying predecessor balance sheets of Cunningham Graphics International, Inc. as of December 31, 1996 and 1997, and the related predecessor statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the predecessor financial statements referred to above present fairly, in all material respects, the financial position of Cunningham Graphics International, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Princeton, New Jersey January 16, 1998 F-2 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA STOCKHOLDERS' EQUITY 1996 1997 1997 -------- ---------- -------------- (UNAUDITED) ASSETS Current assets: Cash .............................................................. $ 543 $ 67 Accounts receivable (net of allowance for doubtful accounts of $28 in 1996 and $50 in 1997) .................................... 4,607 5,673 Inventories ....................................................... 541 940 Prepaid expenses and other current assets ......................... 70 78 Notes and advances receivable -- stockholder/officers ............. 158 136 Deferred income taxes ............................................. -- 47 ------ ------- Total current assets ............................................... 5,919 6,941 Property and equipment -- net ...................................... 3,458 3,579 Other assets ....................................................... 94 418 ------ ------- $9,471 $10,938 ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt, third-party .................... $ 414 $ 407 Revolving line of credit .......................................... 1,350 300 Current portion of notes payable -- related parties ............... 73 -- Current portion of obligations under capital leases ............... 183 178 Accounts payable .................................................. 3,661 3,854 Accrued expenses .................................................. 1,105 1,474 ------ ------- Total current liabilities .......................................... 6,786 6,213 Long-term debt, third-party -- net of current portion .............. 631 1,185 Notes payable -- related parties -- net of current portion ......... 154 -- Obligations under capital leases -- net of current portion ......... 515 332 Deferred income taxes .............................................. 41 57 ------ ------- Total liabilities .................................................. 8,127 7,787 Commitments and contingencies Stockholders' equity: Common stock, no par value; 2,507 shares authorized, 119 shares in 1996 and 1997 issued and outstanding, stated at $50 per share.......................................... 6 6 $ -- Additional paid-in capital ........................................ 734 734 (2,908) Retained earnings ................................................. 604 2,411 -- ------ ------- -------- Total stockholders' equity ......................................... 1,344 3,151 $ (2,908) ------ ------- ======== $9,471 $10,938 ====== =======
See accompanying notes. F-3 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1996 1997 ---------- ---------- ---------- Net sales ..................................... $17,327 $23,193 $35,744 Operating expenses: Costs of production .......................... 12,860 17,616 26,894 Selling, general and administrative .......... 3,441 4,270 5,794 Depreciation and amortization ................ 498 563 694 ------- ------- ------- 16,799 22,449 33,382 Income from operations ........................ 528 744 2,362 Interest expense ............................. (257) (234) (250) Other income ................................. 2 48 35 ------- ------- ------- Income before income taxes .................... 273 558 2,147 Provision for income taxes ................... 6 56 129 ------- ------- ------- Net income .................................... $ 267 $ 502 $ 2,018 ======= ======= =======
PRO FORMA DATA (UNAUDITED): Income before income taxes ............................................. $ 2,147 Pro forma provision for income taxes .................................. 880 --------- Pro forma net income ................................................... $ 1,267 ========= Pro forma earnings per share ........................................... $ 0.43 ========= Pro forma shares outstanding ........................................... 2,978,594 =========
See accompanying notes. F-4 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL -------- -------- --------- ----------- --------- Balance at January 1, 1995 ........... 118 $ 6 $722 $ 356 $1,084 Net income .......................... -- -- -- 267 267 Distributions ....................... -- -- -- (521) (521) --- --- ---- ------ ------ Balance at December 31, 1995 ......... 118 6 722 102 830 Net income .......................... -- -- -- 502 502 Sale of common stock ................ 1 -- 12 -- 12 --- --- ---- ------ ------ Balance at December 31, 1996 ......... 119 6 734 604 1,344 Net income .......................... -- -- -- 2,018 2,018 Distributions ....................... -- -- -- (211) (211) --- --- ---- ------ ------ Balance at December 31, 1997 ......... 119 $ 6 $734 $2,411 $3,151 === === ==== ====== ======
See accompanying notes. F-5 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. PREDECESSOR STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
1995 1996 1997 ------------ ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 267 $ 502 $ 2,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 498 563 694 Gain on sale of equipment ................................. -- (48) (18) Deferred income taxes ..................................... (1) 32 (31) Changes in operating assets and liabilities: Increase in accounts receivable ......................... (34) (2,161) (1,066) (Increase) decrease in inventories ...................... (436) 509 (399) Increase in prepaid expenses and other current assets (29) (86) (8) Increase in other assets ................................ (9) (45) (324) Increase (decrease) in advance to officers .............. 257 (94) 22 Increase in accounts payable ............................ 219 1,835 193 (Decrease) increase in accrued expenses ................. (138) 664 369 ------- -------- --------- Net cash provided by operating activities .................. 594 1,671 1,450 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the disposition of equipment ................ -- 71 1,349 Acquisition of property and equipment ..................... (254) (1,711) (2,146) ------- -------- --------- Net cash used in investing activities ...................... (254) (1,640) (797) CASH FLOWS FROM FINANCING ACTIVITIES Net principal proceeds (payments) on revolving line of credit .................................................. 306 444 (1,050) Proceeds from long-term borrowings, third-party ........... -- 614 1,023 Principal payments on long-term borrowings, third-party . (200) (302) (476) Principal payments on obligations under capital lease ..... (138) (139) (188) Proceeds from issuance of notes payable -- related parties ................................................. 70 24 -- Principal payments on notes payable -- related parties..... -- (142) (227) Shareholder distribution .................................. (521) -- (211) Proceeds from sale of common stock ........................ -- 12 -- ------- -------- --------- Net cash (used in) provided by financing activities ........ (483) 511 (1,129) ------- -------- --------- Net (decrease) increase in cash ............................ (143) (542) (476) Cash, beginning of year .................................... 144 1 543 ------- -------- --------- Cash, end of year .......................................... $ 1 $ 543 $ 67 ------- -------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA Income taxes paid .......................................... $ 10 $ 40 $ 169 ======= ======== ========= Interest paid .............................................. $ 254 $ 235 $ 251 ======= ======== ========= SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of equipment under capital lease ............... $ 23 $ 422 $ -- ======= ======== =========
See accompanying notes. F-6 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying predecessor financial statements include the operations of Cunningham Graphics, Inc. (the "Company" or the "Predecessor Entity"). As further discussed in Note 14, a reorganization of the Predecessor is planned for 1998. DESCRIPTION OF COMPANY The Company provides a wide range of graphic communication services to financial institutions and corporations in the eastern United States, focusing on producing and distributing time-sensitive analytical research and marketing materials and on providing on-demand printing. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less when acquired. The carrying amount reported for cash equivalents approximates fair value. CONCENTRATION OF CREDIT RISK The Company performs periodic credit evaluations of its customers and generally does not require collateral. INVENTORIES Inventories are stated at the lower of cost or market by the specific identification method. Inventory consists of raw materials and work in process. Finished goods are shipped upon completion. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization of assets, including those under capital lease, are computed using the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term. Useful lives range from 3 to 10 years. IMPAIRMENT OF LONG-LIVED ASSETS The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No such event has occurred since adoption at January 1, 1995. INCOME TAXES The Company and its stockholders have elected to be taxed as an S Corporation pursuant to the Internal Revenue Code and certain state and local tax regulations. Therefore, no provision has been made in the accompanying financial statements for federal and certain state and local income taxes, since such taxes are the liability of the stockholders. The provision for income taxes principally reflects taxes levied by certain state and local governments. (See Notes 11 and 14). Deferred taxes are computed based on the tax effects in future years of the differences between financial and tax reporting bases of assets and liabilities. Deferred tax assets and liabilities are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. F-7 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED) REVENUE RECOGNITION Revenue is recognized upon shipment of products to customers. USE OF ESTIMATES The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously required fully diluted earnings per share. 2. INVENTORIES Inventories consist of the following:
1996 1997 ------ ------- Raw materials (net of valuation allowance of $200 at December 31, 1996 and $194 at December 31, 1997)......... $477 $805 Work-in-process .......................................... 64 135 ---- ---- $541 $940 ==== ====
3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
1996 1997 ----------- ----------- Machinery and equipment ............................ $ 4,711 $ 4,813 Furniture, fixtures and office equipment ........... 653 974 Leasehold improvements ............................. 261 471 Autos and transportation equipment ................. 214 280 -------- -------- 5,839 6,538 Accumulated depreciation and amortization .......... (2,381) (2,959) -------- -------- $ 3,458 $ 3,579 ======== ========
The gross amount of the leased property included in property and equipment is $1,062 and $1,069, and accumulated amortization is $341 and $386 at December 31, 1996 and 1997, respectively. F-8 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 4. OTHER ASSETS Included in other assets is approximately $342 of costs related to the anticipated initial public offering and the acquisition of Roda Limited (Note 14). 5. ACCRUED EXPENSES Other accrued liabilities consists of the following: 1996 1997 --------- --------- Employee compensation .......... $ 761 $ 689 Other .......................... 344 785 ------ ------ $1,105 $1,474 ====== ====== 6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE On December 15, 1997, the Company entered into a new Loan and Security Agreement with a bank (the "Loan and Security Agreement"). The Loan and Security Agreement provides for a $2,000 revolving line of credit and a $1,000 3-year term loan (the "Term Loan"). The revolving line of credit expires on May 30, 1998. Borrowings under both the line of credit and the Term Loan bear interest at the bank's prime rate or at the Company's option LIBOR plus 2.25% (8.5% at December 31, 1997). The debt is collateralized by substantially all of the Company's assets. Among other things, the Loan and Security Agreement restricts the Company's ability to incur additional indebtedness and requires the Company to maintain certain financial ratios. At December 31, 1996, the revolving line of credit represents the amount outstanding under a previous $2,000 revolving line of credit with a bank. Borrowings under this agreement carried interest at the bank's prime rate plus .5% (8.75% at December 31, 1996) and were secured by substantially all of the Company's assets and guaranteed by the principal stockholder of the Company. The Company leases property and equipment under capital leases expiring in various years through 2001. Amortization ($74, $105 and $119 in 1995, 1996 and 1997, respectively) of assets under capital leases is included in depreciation expense. Long-term debt consists of the following (excluding notes payable to related parties, see Note 7):
1996 1997 -------- --------- Term loan, payable with interest only through December 1998 with principal payments beginning January 1999 through December 2001 .......................... $ -- $1,000 Notes payable to finance companies, payable in monthly installments with interest at rates ranging from 7.48% to 11.75%, through various dates from December 1998 to October 1999 (secured by certain equipment with a carrying value of approximately $358)............................................................. 518 262 Non-interest bearing note payable in monthly installments through December 1999 (discounted based on imputed interest rate of 8%) ......................... 449 308 Various capital lease obligations ............................................... 698 510 Other (secured by equipment with a carrying value of $135)....................... 78 22 ------ ------ 1,743 2,102 Less current maturities ......................................................... 597 585 ------ ------ $1,146 $1,517 ====== ======
The aggregate fair value of the instruments representing the Company's revolving line of credit, long-term debt and obligations under capital lease approximate their carrying value at December 31, 1996 and 1997. Such fair values are estimated based on discounting the estimated future cash flows using the Company's incremental borrowing rate for similar debt instruments. F-9 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 6. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE --(CONTINUED) Maturities of long-term debt and obligations under capital lease (principal and interest) for each of the next five years are as follows:
OBLIGATIONS UNDER LONG-TERM CAPITAL DEBT LEASE ----------- ------------ 1998 ................................................ $407 $236 1999 ................................................ 516 185 2000 ................................................ 333 119 2001 ................................................ 336 84 ---- Total minimum lease payments ........................ 624 Less amount representing interest ................... 114 ---- Present value of net minimum lease payments ......... $510 ====
7. RELATED PARTY TRANSACTIONS Included in notes and advances receivable -- stockholder/officers are notes receivable aggregating $22 at December 31, 1996 and advances of $136 at December 31, 1996 and 1997. The notes bear interest at an annual rate of 8% and were repaid in 1997. Advances receivable represent cash advances with no specific repayment terms. The stockholder intends to repay the advances as a part of the Offering. Notes payable to related parties consists of the following:
1996 1997 ------ ----- Note payable to stockholder/officer, payable in monthly installments with interest at the prime rate (8.5% at December 31, 1996) ........................... $112 $-- Note payable to Cunningham Children Trust, payable in monthly installments with interest at the prime rate (8.5% at December 31, 1996) ........................... 115 -- ---- --- 227 -- Less current portion .................................... 73 -- ---- --- $154 $-- ==== ===
In December 1997, the Company repaid the outstanding balances under these notes payable. F-10 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 8. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office facilities, equipment and automobiles under noncancelable operating leases expiring in various years through 2000. One of the facility leases requires the Company to pay additional rents based on its proportionate share of certain costs of the facility. In March 1997, the Company entered into a sale-leaseback arrangement. Under the arrangement, the Company sold equipment and leased it back for a period of six years. The leaseback has been accounted for as an operating lease. No gain or loss was recorded on the transaction. Upon expiration of the lease, the Company has agreed to acquire the equipment at terms more fully described in the lease agreement. Future minimum rental payments for each of the next five years and in the aggregate under the above lease agreements are as follows: 1998 ........................ $1,094 1999 ........................ 1,085 2000 ........................ 360 2001 ........................ 286 2002 ........................ 237 Thereafter .................. 39 ------ $3,101 ====== Rent expense under all operating leases was $282, $463 and $631 for the years ended December 31, 1995, 1996 and 1997, respectively. 9. CONCENTRATIONS Sales to customers representing 10% or more of the Company's total net sales (two customers in 1995, 24% and 14% each respectively; three customers in 1996, 15%, 15% and 13% each respectively; and four in 1997, 24%, 13%, 10% and 10% each respectively) represented total net sales of $6,445, $9,812 and $20,375, respectively. Included in trade accounts receivable are amounts due from these customers of $1,648 and $2,989 as of December 31, 1996 and 1997, respectively. The Company has 370 employees, approximately 255 of whom are members of a union which are covered under a memorandum of agreement which expires on June 30, 2000. 10. STOCKHOLDERS' EQUITY On June 11, 1991, the Company entered into an agreement with two stockholders which entitled the two stockholders to purchase from the Company up to 53.85 shares of its common stock through December 1, 1996. Through the expiration of the agreement and pursuant to the terms of the agreement, the stockholders purchased 18.96 shares (including one share in 1995 for an aggregate consideration of $12). F-11 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 11. INCOME TAXES The provision for state income taxes consists of the following:
1995 1996 1997 --------- ------ ------- Current ................................... $ 8 $24 $ 160 Deferred .................................. (2) 32 (31) ------ --- ----- Total provision for income taxes .......... $ 6 $56 $ 129 ===== === =====
The significant components of the Company's deferred tax liabilities and assets include depreciation, accounts receivable and inventory reserves and accrued expenses. (See Note 14 regarding conversion from S Corporation to C Corporation for tax purposes.) 12. EMPLOYEE BENEFIT PLAN The Company has a defined contribution pension plan pursuant to Section 401(k) of the Internal Revenue Code covering substantially all employees. The Company, at its discretion, may elect to contribute to the plan at amounts and dates determined by the Board of Directors. For the years ended December 31, 1995, 1996 and 1997 the Company made contributions of $24, $-0- and $52, respectively, to the plan. 13. SUBSEQUENT EVENTS Acquisition of Roda On January 16, 1998, the Company and Roda entered into an agreement (the "Roda Purchase Agreement") such that concurrently with the consummation of the Offering, the Company will close the acquisition of all the outstanding capital stock of Roda under the Roda Purchase Agreement for an aggregate purchase price of $8,148. The purchase price will be satisfied by the delivery of 169,739 shares of common stock, which will be valued at the initial public offering price, and a cash payment equal to the balance of the purchase price. Under the terms of the Roda Purchase Agreement, the Company has committed to cause the repayment of POUNDS 850 (approximately $1,400) of indebtedness to the present Roda stockholders within 28 days following the closing. The Company intends to use a portion of the proceeds of the Offering to repay this indebtedness. In order to secure the performance by the selling stockholders of Roda of certain warranties and covenants, POUNDS 275 (approximately $459) will be held in escrow until one year following the closing. The acquisition of Roda will be accounted for under the purchase method of accounting. F-12 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) Reorganization and Planned Public Offering The Company intends to proceed with a reorganization and a concurrent initial public offering of the common stock of the reorganized entity. Immediately prior to the initial public offering of shares of common stock of Cunningham Graphics International, Inc. (CGII) (the "Offering"), the Company will be reorganized (the "Reorganization") such that all of the stockholders of the Predecessor will contribute all of the outstanding shares of common stock of the Predecessor to CGII, in exchange for a total of 2,595,260 shares of common stock and promissory notes (the "Exchange Notes") in the aggregate principal amount of $2,400 (assuming an initial offering price of $12.00 per share). Concurrently with the Reorganization, CGII will assume the Predecessor's obligations with respect to undistributed S corporation taxable income through the date of the Reorganization estimated to total $2,200, and will issue promissory notes in such amount to evidence such obligations (the "Distribution Notes" and, together with the Exchange Notes, the "Reorganization Notes"). The principal amount of the Reorganization Notes was determined by the Company in connection with the Reorganization based on a number of factors, including the value of the enterprise contributed to the Company. The principal amount of the Distribution Notes was determined by the Company based upon the actual amount of undistributed S corporation taxable income as of December 31, 1997 and the anticipated additional undistributed S corporation taxable income during the period January 1, 1998 through the expected date of the Reorganization. The Company intends to pay the Reorganization Notes from the net proceeds of the Offering. 1998 Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the 1998 Stock Option Plan ("1998 Plan") and reserved 450,000 shares of Common Stock for issuance thereunder. The Plan provides for the granting to employees (including employee directors and officers) of options intended to qualify as incentive stock options within the meaning of (section)422 of the Code and for the granting of nonstatutory stock options to employees and consultants. The Board of Directors has granted options to purchase 230,300 shares of Common Stock under the 1998 Plan subject to consummation of the Offering. The Directors' Stock Option Plan In February 1998, the Board of Directors and the sole stockholder of the Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and reserved 150,000 shares of Common Stock for insurance thereunder. The individuals eligible to participate in the Directors' Plan are each Director of the Company who is not an employee of the Company or any of its subsidiaries (an "Outside Director"). The Board of Directors has granted options to purchase 60,000 shares of Common Stock under the Directors' Plan subject to consummation of the Offering. F-13 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) --(CONTINUED) Pro Forma Adjustments (Unaudited) The following table sets forth the capitalization of the Company at December 31, 1997, and the pro forma capitalization of the Company as of such date after giving effect to the issuance of the Reorganization Notes, to the stockholders and the recording of a net deferred tax liability of approximately $59 in connection with the Company becoming subject to federal and additional state and local income taxes. ACTUAL PRO FORMA -------- ------------ Common stock ........................ $ 6 $ -- Additional paid-in capital .......... 734 (2,908) Retained earnings ................... 2,411 -- ------ -------- Total stockholders' equity .......... $3,151 $ (2,908) ====== ======== As discussed in Note 1, the Company has elected to be taxed as an S corporation pursuant to the Internal Revenue Code and certain state and local tax regulations. In connection with the Offering made hereby, the Company will become subject to federal and additional state income taxes. Accordingly, in the quarter in which the Offering is completed, the Company will record additional deferred tax assets of $295 and additional deferred tax liabilities of $354 and a corresponding net tax expense of $59 in the statement of income in accordance with the provisions of SFAS No. 109. The pro forma provision for income taxes represents the income tax provisions that would have been reported had the Company been subject to federal and additional state income taxes during the year ended December 31, 1997. The unaudited pro forma net income for the year ended December 31, 1997 reflects an increase of $751 for the year ended December 31, 1997 for income taxes based upon income before income taxes as if the Company had become subject to federal and additional state income taxes on that date. Pro forma deferred income taxes will reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for pro forma financial reporting and the amounts used for income tax purposes. Significant components of the Company's pro forma net deferred tax liability as of December 31, 1997 is as follows: 1997 ---------- Tax over book depreciation ..................... $ (411) Allowance for doubtful accounts ................ 20 Inventory capitalization and reserves .......... 100 Other book accruals ............................ 232 ------ $ (59) ====== The pro forma income tax provision consists of the following: 1997 --------- Current: Federal ............................. $ 820 State and local ..................... 300 ------ 1,120 Deferred income tax benefit ......... (240) ------ $ 880 ====== F-14 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. NOTES TO PREDECESSOR FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -(CONTINUED ) 14. FORMATION OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC., PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED) --(CONTINUED) A reconciliation setting forth the differences between the pro forma effective tax rate of the Company and the U.S. federal statutory tax rate is as follows: 1997 ---------- Federal statutory rate ...................................... 34.0% State and local taxes, net of federal tax benefits .......... 7.0 ---- Effective tax rate .......................................... 41.0 ==== Pro Forma Earnings Per Share (Unaudited) The Pro Forma shares outstanding of 2,978,594 represent the total equity value for the Common Stock of the Predecessor contributed to the Company in the Reorganization and includes (i) the initial CGII founding share, (ii) 2,595,260 shares to be issued in the Reorganization and (iii) 383,333 shares, representing the value of the $4,600 principal amount of the Reorganization Notes (based upon the assumed initial public offering price of $12.00 per share). F-15 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of Roda Limited We have audited the accompanying consolidated balance sheet of Roda Limited as of 31 December 1997 and 1996 and the related consolidated profit and loss account and statement of cash flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the profit and loss account and statement of cash flows of Roda Print Concepts Limited (Predecessor) for the ten-month period ended 31 October 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Roda Limited at 31 December 1997 and 1996 and the consolidated results of its operations and its cash flows for the year ended 31 December 1997 and the period from incorporation (29 August 1996) to 31 December 1996 and the results of operations and cash flows of Roda Print Concepts Limited for the ten-month period ended 31 October 1996, in conformity with accounting principles generally accepted in the United Kingdom which differ in certain respects from those followed in the United States (see Note 25 of Notes to the Financial Statements). Ernst & Young Chartered Accountants Ernst & Young Chartered Accountants London, England 11 February 1998 F-16 RODA LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
COMPANY PREDECESSOR PERIOD FROM TEN MONTHS INCORPORATION COMPANY YEAR ENDED 31 (29 AUGUST 1996) ENDED 31 OCTOBER TO 31 DECEMBER DECEMBER 1996 1996 1997 NOTES POUNDS POUNDS POUNDS ------- --------------- ------------------ --------------- TURNOVER ............................................ 3 3,058,221 625,525 4,198,219 Cost of sales ....................................... (2,035,263) (399,674) (2,589,186) ---------- -------- ---------- GROSS PROFIT ........................................ 1,022,958 225,851 1,609,033 Administrative expenses ............................. (1,067,421) (149,319) (943,590) ---------- -------- ---------- OPERATING (LOSS)/PROFIT ............................. 4 (44,463) 76,532 665,443 Profit on disposal of tangible fixed assets ......... -- -- 52,076 Interest receivable ................................. 30 13 344 Interest payable .................................... 7 (29,995) (37,699) (208,456) ---------- -------- ---------- (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ......................... (74,428) 38,846 509,407 Taxation ............................................ 8 9,070 (11,355) (169,000) ---------- -------- ---------- (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION .......................... (65,358) 27,491 340,407 Minority interest ................................... -- (18,130) (64,101) ---------- -------- ---------- (LOSS)/PROFIT FOR THE PERIOD ........................ (65,358) 9,361 276,306 DIVIDENDS Preference dividend on non-equity shares of Roda Print Concepts Limited ..................... (45,970) -- -- Ordinary dividend on equity shares of Roda Print Concepts Ltd ....................................... (28,000) -- -- ---------- -------- ---------- RETAINED (LOSS)/PROFIT FOR THE PERIOD ..................................... 17 (139,328) 9,361 276,306 ========== ======== ==========
There were no recognized gains or losses other than those recorded above. A summary of the significant adjustments to the profit/(loss) for the period that would be required if United States generally accepted accounting principles were to be applied instead of those generally accepted in the United Kingdom is set forth in Note 25. The notes to the financial statements are an integral part of the financial statements. F-17 RODA LIMITED CONSOLIDATED BALANCE SHEET
31 DECEMBER 31 DECEMBER 1996 1997 NOTES POUNDS POUNDS ------- --------------- --------------- FIXED ASSETS Tangible assets ........................................ 9 399,465 863,739 CURRENT ASSETS Stocks ................................................. 11 96,220 148,026 Debtors ................................................ 12 799,336 928,254 Cash at bank and in hand ............................... 89,610 522 ------- ------- 985,166 1,076,802 CREDITORS: amounts falling due within one year ......... 13 (1,995,006) (1,493,999) ---------- ---------- NET CURRENT LIABILITIES ................................ (1,009,840) (417,197) ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES .................. (610,375) 446,542 CREDITORS: amounts falling due after more than one year .............................................. 14 (1,147,710) (1,928,321) MINORITY INTEREST ...................................... 21 (100) (100) ---------- ---------- 21 (1,758,185) (1,481,879) ========== ========== CAPITAL AND RESERVES Called up share capital ................................ 16 200,000 200,000 Share premium .......................................... 17 199,998 199,998 Profit and loss account ................................ 17 (2,158,183) (1,881,877) ---------- ---------- (1,758,185) (1,481,879) ========== ==========
A summary of the significant adjustments to capital and reserves that would be required if United States generally accepted accounting principles were to be applied instead of those generally accepted in the United Kingdom is set forth in Note 25. The notes to the financial statements are an integral part of the financial statements. F-18 RODA LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION TEN MONTHS (29 AUGUST 1996) COMPANY YEAR ENDED 31 TO 31 DECEMBER ENDED 31 OCTOBER 1996 1996 DECEMBER 1997 NOTES POUNDS POUNDS POUNDS ------- -------------- ------------------ -------------- RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES Operating (loss)/profit ............................. (44,463) 76,532 665,443 Depreciation charges ................................ 58,889 9,506 88,714 (Increase)/decrease in stocks ....................... (7,170) 8,532 (51,806) (Increase)/decrease in debtors ...................... (75,115) 203,657 (123,515) Increase/(decrease) in creditors .................... 297,438 (173,652) (56,337) ------- -------- -------- Net cash inflow from operating activities ........... 229,579 124,575 522,499 ------- -------- -------- CASH FLOW STATEMENT Net cash inflow from operating activities ........... 229,579 124,575 522,499 Returns on investment and servicing of finance . 22 (75,935) (55,816) (272,213) Taxation ............................................ (46,647) -- (97,865) Capital expenditure ................................. 22 (29,960) (2,436) (36,382) Acquisitions ........................................ 10 -- (1,627,222) -- Equity dividends paid ............................... (28,000) -- -- ------- ---------- -------- 49,037 (1,560,899) 116,039 Management of liquid resources ...................... 22 25,685 -- -- FINANCING ........................................... 22 (183,432) 1,641,546 (410,245) ------- -------- (Decrease)/increase in cash ......................... (108,710) 80,647 (294,206) ======== ========== ======== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash ......................... (108,710) 80,647 (294,206) Cash flow from decrease/(increase) in debt and lease financing .................................... 81,924 (1,241,548) 410,245 Loans and finance leases acquired with subsidiary ......................................... (54,351) (239,912) -- Loan stock issued ................................... (25,685) (50,000) -- New loan ............................................ -- (816,000) -- New finance leases .................................. -- -- (464,530) -------- ---------- -------- Change in net debt .................................. (106,822) (2,266,813) (348,491) Net debt at beginning of period ..................... (328,442) -- (2,266,813) -------- ---------- ---------- Net debt at end of period ........................... 23 (435,264) (2,266,813) (2,615,304) ======== ========== ========
The significant differences between the statement of cash flows presented above and that required under United States generally accepted accounting principles are described in Note 25. The notes to the financial statements are an integral part of the financial statements. F-19 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION These financial statements comprise the consolidated financial statements of Roda Limited ("the Company") and its subsidiary Roda Print Concepts Limited ("the Predecessor") (together, "the Group") for the period from incorporation, 29 August 1996 to 31 December 1996 and for the year ended 31 December 1997, together with the financial statements of the Predecessor for the 10 months ended 31 October 1996. The Company acquired Roda Print Concepts Limited on 21 October 1996 (the trading results from 21 October 1996 to 31 October 1996 are not considered material). Prior to its acquisition of Roda Print Concepts Limited, Roda Limited did not trade. The acquisition was a management buy-out and the current shareholders of Roda Ltd are not the same as the original shareholders of Roda Print Concepts Limited. 2. ACCOUNTING POLICIES Accounting convention The financial statements are prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards. Goodwill Goodwill on acquisition has been set off directly against reserves. If the subsidiary is subsequently sold or closed, any goodwill arising on acquisition which was written off to reserves will be taken into account in determining the profit or loss on sale or closure. Depreciation Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost less estimated residual value of each asset evenly over its expected useful life, as follows: Leasehold improvements -- over the lease term Plant and machinery -- 10% per annum Fixtures, fittings and equipment -- 10% per annum Motor vehicles -- 20% per annum Stocks Stocks are stated at the lower of cost and net realizable value. Cost includes all expenses incurred in bringing the products to their present location and condition. Net realisable value is based on estimated selling prices less any further costs to be incurred on disposal. Deferred taxation Deferred taxation is provided on the liability method for all timing differences which are expected to reverse in the future, calculated at the rate at which it is estimated that tax will be payable. Foreign currencies Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or, if appropriate, at the forward contract rate. Pensions The Group contributes to two defined contribution schemes for its directors and employees. The assets of the schemes are held separately from those of the Company in independently administered funds. The pension cost charge represents contributions paid by the Company to the schemes. F-20 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 2. ACCOUNTING POLICIES - (CONTINUED) Leasing commitments Assets held under finance leases, which are leases where substantially all the risks and rewards of the ownership of the asset have passed to the Company, are capitalized in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under the leases are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding. Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term. 3. TURNOVER Turnover, which is stated net of value added tax and represents amounts invoiced to third parties, and pre-tax profits are wholly attributable to the Group's one continuing activity of general printing. An analysis of turnover by geographical market is given below:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ United Kingdom ......................... 2,393,100 336,000 2,972,334 Rest of the European Community ......... 236,969 108,918 531,138 Rest of the world ...................... 428,152 180,607 694,747 --------- ------- --------- 3,058,221 625,525 4,198,219 ========= ======= =========
4. OPERATING (LOSS)/PROFIT This is stated after charging:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Auditors' remuneration--audit fees .................. 6,250 1,250 -- Depreciation of owned fixed assets .................. 46,374 7,005 38,751 Depreciation of assets held under finance leases and hire purchase contracts .................. 12,515 2,501 49,963 Operating lease rentals--land and buildings ......... 30,000 6,000 36,000 ====== ===== ======
F-21 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 5. DIRECTORS' EMOLUMENTS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Emoluments .................... 225,435 23,131 157,063 Pension contributions ......... 224,389 2,666 14,149 ------- ------ ------- 449,824 25,797 171,212 ======= ====== =======
Directors' emoluments, excluding pension contributions, were paid by the subsidiary undertakings and fell within the following ranges:
NO. NO. NO. ----- ----- ---- POUNDS nil -- POUNDS 5,000 ............. 3 3 -- POUNDS 15,000 -- POUNDS 19,999 ........... -- 1 -- POUNDS 20,000 -- POUNDS 24,999 ........... -- -- 2 POUNDS 75,000 -- POUNDS 79,999 ........... 1 -- -- POUNDS 105,000 -- POUNDS 109,999 .......... -- -- 1 POUNDS 120,000 -- POUNDS 127,999 .......... 1 -- --
The emoluments of the highest paid director, were POUNDS 107,627 (1996 -- POUNDS 120,354, for the pre-acquisition period and POUNDS 19,131 for the consolidated period) (these were not the same directors). The chairman received no emoluments. 6. STAFF COSTS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Wages and salaries ............ 926,724 190,969 1,300,333 Social security costs ......... 88,627 20,677 126,950 Other pension costs ........... 15,886 1,215 13,495 ------- ------- --------- 1,031,237 212,861 1,440,778 ========= ======= =========
The average weekly number of employees during the period, including the directors, was as follows:
NO. NO. NO. ----- ----- ---- Factory ................. 19 19 37 Administration .......... 12 12 9 Directors ............... 2 2 1 -- -- -- 33 33 47 == == ==
F-22 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 7. INTEREST PAYABLE AND SIMILAR CHARGES
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Interest payable on bank overdraft ................. 23,513 4,055 4,759 Finance leases and hire purchase contracts ......... 5,808 1,001 27,469 Other interest payable ............................. 674 32,643 176,228 ------ ------ ------- 29,995 37,699 208,456 ====== ====== =======
8. TAXATION
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Based on the (loss)/profit for the period: ......... UK corporation tax at 31.5% (1996 -- 33%) .......... 12,505 (11,355) (115,000) Corporation tax underprovided in previous years (3,435) -- (54,000) ------ ------- -------- 9,070 (11,355) (169,000) ====== ======= ========
9. TANGIBLE FIXED ASSETS Company -- year to 31 December 1997
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ------------ COST: At 1 January 1997 ................ 19,438 469,659 152,290 51,690 693,077 Additions ........................ 4,602 535,881 54,079 2,350 596,912 Disposals ........................ -- (90,597) -- -- (90,597) ------ ------- ------- ------ ------- At 31 December 1997 .............. 24,040 914,943 206,369 54,040 1,199,392 ------ ------- ------- ------ --------- DEPRECIATION: At 1 January 1997 ................ 5,102 212,736 67,550 8,224 293,612 Provided during the year ......... 2,754 58,203 17,302 10,455 88,714 Disposals ........................ -- (46,673) -- -- (46,673) ------ ------- ------- ------ --------- At 31 December 1997 .............. 7,856 224,266 84,852 18,679 335,653 ------ ------- ------- ------ --------- Net book value at 31 December 1997 ................ 16,184 690,677 121,517 35,361 863,739 ====== ======= ======= ====== ========= Net book value at 31 December 1996 ................ 14,336 256,923 84,740 43,466 399,465 ====== ======= ======= ====== =========
The net book value of tangible fixed assets includes POUNDS 617,529 in respect of assets held under finance leases. F-23 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 9. TANGIBLE FIXED ASSETS - (CONTINUED) Company -- period from incorporation (29 August 1996) to 31 December 1996
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ---------- COST: On incorporation ........................ -- -- -- -- -- Arising on acquisition of ............... subsidiary undertakings ................. 14,543 263,440 84,785 43,767 406,535 Additions ............................... -- -- 2,436 -- 2,436 ------ ------- ------ ------ ------- At 31 December 1996 ..................... 14,543 263,440 87,221 43,767 408,971 ------ ------- ------ ------ ------- DEPRECIATION: On incorporation ........................ -- -- -- -- -- Provided during the period .............. 207 6,517 2,481 301 9,506 ------ ------- ------ ------ ------- At 31 December 1996 ..................... 207 6,517 2,481 301 9,506 ------ ------- ------ ------ ------- Net book value at 31 December 1996 ....................... 14,336 256,923 84,740 43,466 399,465 ====== ======= ====== ====== ======= Net book value on incorporation ......... -- -- -- -- -- ====== ======= ====== ====== =======
The net book value of tangible fixed assets includes POUNDS 152,999 in respect of assets held under finance leases. Predecessor -- ten months to 31 October 1996
IMPROVEMENT PLANT FIXTURES, TO AND FITTINGS AND MOTOR LEASEHOLD MACHINERY EQUIPMENT VEHICLES TOTAL POUNDS POUNDS POUNDS POUNDS POUNDS ------------- ----------- -------------- ---------- ---------- COST: At 1 January 1996 .................. 19,438 453,159 125,933 7,800 606,330 Additions .......................... -- 16,500 23,921 43,890 84,311 ------ ------- ------- ------ ------- At 31 October 1996 ................. 19,438 469,659 149,854 51,690 690,641 ------ ------- ------- ------ ------- DEPRECIATION: At 1 January 1996 .................. 3,857 167,079 53,469 812 225,217 Provided during the period ......... 1,038 39,140 11,600 7,111 58,889 ------ ------- ------- ------ ------- At 31 October 1996 ................. 4,895 206,219 65,069 7,923 284,106 ------ ------- ------- ------ ------- NET BOOK VALUE: At 31 October 1996 ................. 14,543 263,440 84,785 43,767 406,535 ====== ======= ======= ====== ======= At 31 December 1995 ................ 15,581 286,080 72,464 6,988 381,113 ====== ======= ======= ====== =======
The net book value of tangible fixed assets includes POUNDS 145,500 in respect of assets held under finance leases. F-24 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 10. ANALYSIS OF THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED
NET BOOK VALUE AND FAIR VALUE POUNDS ------------- Fixed assets ................................ 406,535 Stocks ...................................... 104,752 Debtors ..................................... 1,003,004 Cash ........................................ 23,590 Overdraft ................................... (218,940) Creditors ................................... (948,599) Loans and finance leases .................... (239,914) --------- Net assets .................................. 130,428 Less: Minority interest ..................... (100) Goodwill arising on the acquisition ......... 2,167,544 --------- 2,297,872 ========= DISCHARGED BY: Loan ........................................ 866,000 Cash ........................................ 1,419,872 Retention account ........................... 12,000 --------- 2,297,872 =========
On 21 October 1996 the Company acquired, from the family interests of D Boulton, 100% of the equity issued share capital of Roda Print Concepts Limited, a company incorporated in Great Britain, for a consideration of POUNDS 2,297,872. CASH FLOWS RELATING TO THE ACQUISITION OF RODA PRINT CONCEPTS LIMITED:
POUNDS --------------- Net overdraft ....................................................... (195,350) Cost of acquisition of Roda Print Concepts Limited -- cash .......... (1,419,872) Cost of acquisition of Roda Print Concepts Limited -- cash placed in escrow account .................................................. (12,000) ---------- (1,627,222) ==========
11. STOCKS 1996 1997 POUNDS POUNDS -------- ---------- Raw materials ............ 96,220 133,934 Work in progress ......... -- 14,092 ------ ------- 96,220 148,026 ====== ======= 12. DEBTORS 1996 1997 POUNDS POUNDS --------- ---------- Trade debtors .......................... 766,365 827,353 Other debtors .......................... 16,623 69,399 Prepayments and accrued income ......... 16,348 31,502 ------- ------- 799,336 928,254 ======= ======= F-25 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1996 1997 POUNDS POUNDS ------------ ------------ Bank loans and overdrafts ..................... 261,594 466,712 Obligations under finance leases .............. 33,618 122,798 Trade creditors ............................... 631,304 558,372 Corporation tax ............................... 63,067 134,202 Advance corporation tax ....................... -- 5,403 Other taxes and social security costs ......... 62,316 41,765 Other creditors ............................... 913,502 133,124 Accruals ...................................... 29,605 31,623 ------- ------- 1,995,006 1,493,999 ========= =========
14. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1996 1997 POUNDS POUNDS ------------ ------------ Loans wholly repayable within five years: Bank loans ............................... 947,369 715,785 Other creditors .......................... 117,975 82,336 Obligations under finance leases ......... 32,366 280,200 Loan notes ............................... 50,000 850,000 ------- ------- 1,147,710 1,928,321 ========= =========
The bank loans and overdraft are secured on the assets of the Group. Other creditors (notes 13 and 14) include a loan from the directors' pension fund of POUNDS 130,336 (1996 -- POUNDS 165,480) which is unsecured and repayable by monthly instalments until 30 June 2004. The loan notes are part of the management buy-out consideration, secured on the assets of the Group. These are convertible to ordinary shares after a period of 5 years, if unredeemed, at the option of the stockholder. The finance lease liabilities mature as follows:
1996 1997 POUNDS POUNDS ----------- ------------ Within one to two years ................................... 40,011 163,536 Within two to five years .................................. 33,717 321,497 ------ ------- 73,728 485,033 Less: finance charges allocated to future periods ......... (7,744) (82,035) ------ ------- 65,984 402,998 ====== =======
15. PROVISION FOR LIABILITIES AND CHARGES Deferred taxation not provided is as follows:
NOT PROVIDED --------------------------- 1996 1997 POUNDS POUNDS ------------ ------------ Capital allowances in advance of depreciation ......... (54,190) (99,000) ======= =======
F-26 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 16. SHARE CAPITAL
ALLOTTED, CALLED UP AUTHORIZED AND FULLY PAID ------------------------- ------------------ 1996 1997 1996 1997 POUNDS POUNDS POUNDS POUNDS ------------ ------------ --------- -------- `A' ordinary shares of 50p each .. 100,000 100,000 100,000 100,000 `B' ordinary shares of 50p each .. 900,000 900,000 100,000 100,000 ------- ------- ------- ------- 1,000,000 1,000,000 200,000 200,000 ========= ========= ======= =======
On incorporation, 2 ordinary shares of POUNDS 1 each were issued to the subscribers to the Memorandum and Articles of Association for cash consideration of POUNDS 2. On 21 October 1996 the POUNDS 1 shares were each converted to two 50p ordinary `A' shares, and the authorised share capital was then increased to POUNDS 1,000,000 (made up of 200,000 ordinary `A' shares and 1,800,000 ordinary `B' shares). POUNDS 200,000 ordinary `B' shares and an additional POUNDS 199,996 ordinary `A' shares were then issued for POUNDS 1 each (i.e. at a premium of 50p per share) for cash as part of the Management Buy-Out Agreement. All shares have equal rights except on sale. 17. RECONCILIATION OF SHAREHOLDER'S FUNDS AND MOVEMENTS IN RESERVES
TOTAL SHARE PROFIT AND SHAREHOLDERS' CAPITAL LOSS ACCOUNT FUNDS POUNDS POUNDS POUNDS --------- -------------- -------------- PREDECESSOR At 1 January 1996 ........... 200 269,556 269,756 Loss for the period ......... -- (139,328) (139,328) --- -------- -------- At 31 October 1996 .......... 200 130,228 130,428 === ======== ========
PROFIT TOTAL SHARE SHARE AND LOSS SHAREHOLDERS' CAPITAL PREMIUM ACCOUNT FUNDS POUNDS POUNDS POUNDS POUNDS --------- --------- --------------- -------------- COMPANY On incorporation ............................ 2 2 Issue of share capital: on acquisition of Roda Print Concepts Limited ................ 199,998 199,998 -- 399,996 Goodwill write off .......................... (2,167,544) (2,167,544) Profit for the period ....................... 9,361 9,361 ---------- ---------- At 31 December 1996 ......................... 200,000 199,998 (2,158,183) (1,758,185) Profit for the year ......................... -- -- 276,306 276,306 ------- ------- ---------- ---------- At 31 December 1997 ......................... 200,000 199,998 (1,881,877) (1,481,879) ======= ======= ========== ==========
18. FINANCIAL COMMITMENTS The Group had annual commitments under non-cancellable operating leases as follows:
LAND AND OTHER BUILDINGS 1996 1997 1996 1997 POUNDS POUNDS POUNDS POUNDS ------- ------- --------- ---------- Operating leases which expire: within one year .................. 3,000 4,281 -- -- within two to five years ......... -- -- 36,000 36,000 ----- ----- ------ ------ 3,000 4,281 36,000 36,000 ===== ===== ====== ======
F-27 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 19. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS The Group has authorised but not contracted for capital expenditure of POUNDS nil (1996 -- POUNDS 120,000). 20. ULTIMATE CONTROLLING ENTITY In the opinion of the directors there is no ultimate controlling entity. 21. MINORITY INTERESTS The non-equity minority interests represents a 100% holding of the preference shares of Roda Print Concepts Limited by a third party. The holders of these shares have no rights against other group companies. 22. NOTES TO THE STATEMENT OF CASH FLOWS
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996 TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Interest received .................................... 30 -- 344 Dividends paid on non-equity shares .................. (45,970) -- -- Subsidiary dividend paid ............................. -- (18,130) (64,101) Interest paid ........................................ (24,187) (36,685) (180,987) Interest element of finance lease rental payments (5,808) (1,001) (27,469) ------- ------- -------- Net cash outflow from returns on investments and servicing of finance ........................... (75,935) (55,816) (272,213) ======= ======= ======== CAPITAL EXPENDITURE: Payments to acquire tangible fixed assets ............ (29,960) (2,436) (132,382) Receipts from sales of tangible fixed assets ......... -- -- 96,000 ------- ------- -------- (29,960) (2,436) (36,382) ======= ======= ======== MANAGEMENT OF LIQUID RESOURCES: Sale of short term investment ........................ 25,685 -- -- ------- ------- -------- Net cash inflow ...................................... 25,685 -- -- ------- ------- -------- FINANCING: Capital element of finance lease rental payments (37,736) (8,114) (127,517) Capital repayment of pension fund loan ............... (5,866) (333) (35,149) Capital repayment of bank loan ....................... (38,322) -- (231,579) Loan to Roda Limited ................................. (101,508) -- -- Repayment of loan .................................... -- -- (16,000) New secured loan ..................................... -- 1,200,000 -- New unsecured loan ................................... -- 49,995 -- Share capital issued ................................. -- 399,998 -- -------- --------- -------- Net cash (outflow)/inflow from financing ............. (183,432) 1,641,546 (410,245) ======== ========= ========
F-28 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 23. ANALYSIS OF CHANGES IN NET DEBT
AT AS 1 JANUARY OTHER 31 OCTOBER 1996 CASH FLOWS CHANGES 1996 POUNDS POUNDS POUNDS POUNDS ------------- ------------ ------------ ------------- PREDECESSOR Cash at bank and in hand ......... 26,092 (2,502) 23,590 Bank overdraft ................... (112,732) (106,208) (218,940) -------- -------- -------- (86,640) (108,710) (195,350) Finance leases ................... (57,486) 37,736 (54,351) (74,101) Loans ............................ (210,001) 145,696 (101,508) (165,813) -------- Short term investment ............ 25,685 (25,685) -------- -------- (328,442) (49,037) (155,859) (435,264) ======== ======== ======== ========
AT AS 1 NOVEMBER OTHER 31 DECEMBER 1996 CASH FLOWS ACQUISITION CHANGES 1996 POUNDS POUNDS POUNDS POUNDS POUNDS ------------ --------------- ------------- ------------- --------------- COMPANY Cash at bank and in hand ......... -- 89,610 89,610 Bank overdraft ................... -- (8,963) (8,963) -- ------ ------ -- 80,647 80,647 Finance leases ................... -- 8,114 (74,099) (65,985) Loans ............................ -- (1,249,662) (165,480) (866,333) (2,281,475) - -------- -------- ---------- -- (1,160,901) (239,579) (866,333) (2,266,813) == ========== ======== ======== ==========
AT AS 1 JANUARY OTHER 31 OCTOBER 1997 CASH FLOWS CHANGES 1997 POUNDS POUNDS POUNDS POUNDS --------------- ------------ ------------- --------------- COMPANY Cash at bank and in hand ......... 89,610 (89,088) 522 Bank overdraft ................... (8,963) (205,118) (214,081) ------ -------- -------- 80,647 (294,206) (213,559) Finance leases ................... (65,985) 127,517 (464,530) (402,998) Loans ............................ (2,281,475) 282,728 (1,998,747) ---------- -------- ---------- (2,266,813) 116,039 (464,530) (2,615,304) ========== ======== ======== ==========
F-29 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED ) 24. COMPANIES ACT 1985 These financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory accounts for the year ended 31 December 1996 of Roda Print Concepts Ltd, have been delivered to the Registrar of Companies for England and Wales. Statutory accounts for the period from incorporation to 31 December 1997 for Roda Limited and the year ended 31 December 1997 for Roda Print Concepts Ltd. will be delivered to the Registrar. The auditors' reports on these accounts were unqualified. 25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP") which differ in certain respects from United States generally accepted accounting principles ("US GAAP"). The significant differences as they apply to the Group are summarized below. Goodwill Under UK GAAP the goodwill arising on the acquisition of Roda Print Concepts Limited has been charged to reserves. Under US GAAP such goodwill would be capitalised and amortised over its estimated useful life of 40 years. The goodwill arising under UK GAAP differs from that arising under US GAAP because, under US GAAP, the net assets acquired would be net of a deferred tax liability. Corporation tax Under UK GAAP an additional provision is required for a prior year, which is booked in 1997. Under US GAAP such an item would be taken back to the prior year. Deferred taxation Under UK GAAP the Group provides for deferred tax using the liability method on all timing differences which are expected to reverse in the future without being replaced, calculated at the rate at which it is anticipated the timing differences will reverse. Under US GAAP deferred taxation is provided using the liability method on all temporary differences. Deferred tax liabilities and assets would be classified as current or non current based on the classification between the book and tax bases of assets and liabilities. F-30 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES - (CONTINUED) The following is a summary of the significant adjustments to profit/(loss) for the period and capital and reserves, which would be required if US GAAP were to be applied instead of UK GAAP together with a statement of shareholders' equity:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ INCOME (Loss)/profit for the period as reported in consolidated statement of income ........................................ (65,358) 9,361 276,306 Amortisation of goodwill ..................................... -- (18,614) (55,843) Prior period tax adjustment .................................. -- (54,000) 54,000 Deferred taxation: Methodology ............................... (66,172) 11,982 (44,810) ------- ------- ------- Net (loss)/income as adjusted to accord with US GAAP ......... (131,530) (51,271) 229,653 ======== ======= =======
31 DECEMBER 31 DECEMBER 1996 1997 --------------- --------------- CAPITAL AND RESERVES Capital and reserves as reported in the consolidated balance sheet ......................................................... (1,758,185) (1,481,879) Goodwill ........................................................ 2,215,102 2,159,259 Deferred taxation: Methodology .................................. (54,190) (99,000) ---------- ---------- Current liabilities-corporation tax ............................. (54,000) -- Shareholders' equity as adjusted to accord with US GAAP ......... 348,727 578,380 ========== ==========
Statement of movements in shareholders' equity as adjusted to US GAAP:
POUNDS ------------ Balance at 29 August 1996 .................. -- Share capital issued ....................... 399,998 Net loss as adjusted to US GAAP ............ (51,271) ------- Balance at 31 December 1996 ................ 348,727 Net income as adjusted to US GAAP .......... 229,653 ------- Balance at 31 December 1997 ................ 578,380 =======
F-31 RODA LIMITED NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 25. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES - (CONTINUED) Cash flows The consolidated statement of cash flows presents substantially the same information as that required under US GAAP. These statements differ, however, with regard to classification of items within the statements and as regards the definition of cash and cash equivalents. Under US GAAP, cash and cash equivalents would not include bank overdrafts and borrowings with initial maturities of less than three months. Under UK GAAP, cash flows are presented separately for operating activities, servicing of finance and returns on investments, taxation, capital expenditure and financial investment, equity dividends paid, management of liquid resources and financing. US GAAP, however, require only three categories of cash flow activity to be reported: operating, investing and financing. Cash flows from taxation and servicing of finance and return on investments shown under UK GAAP would, with the exception of dividends paid, be included as operating activities under US GAAP. The payment of dividends would be included as a financing activity under US GAAP. Under US GAAP, capitalised interest is treated as part of the cost of the asset to which it relates and thus included as part of investing cash flows; under UK GAAP all interest is treated as part of servicing of finance and returns on investments. The categories of cash flow activities under US GAAP can be summarised as follows:
COMPANY PERIOD FROM PREDECESSOR INCORPORATION COMPANY TEN MONTHS (29 AUGUST YEAR ENDED 1996) TO ENDED 31 OCTOBER 31 DECEMBER 31 DECEMBER 1996 1996 1997 POUNDS POUNDS POUNDS ------------- --------------- ------------ Cash flows from operating activities .............. 106,997 68,759 152,421 Cash outflows on investing activities ............. (29,960) (1,629,658) (36,382) Cash flows from financing activities .............. (79,539) 1,650,509 (205,127) ------- ---------- -------- Increase/(decrease) in cash and cash equivalents . (2,502) 89,610 (89,088) Cash and cash equivalents at beginning of period . 26,092 -- 89,610 ------- ---------- -------- Cash and cash equivalent at end of period ......... 23,590 89,610 522 ======= ========== ========
F-32
========================================================== ==================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. 2,100,000 SHARES THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON ASKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY [LOGO] CUNNINGHAM GRAPHICS INTERNATIONAL, INC. CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ----------------- TABLE OF CONTENTS PAGE ---- Prospectus Summary ....................... 3 Risk Factors ............................. 7 The Company .............................. 14 Use of Proceeds .......................... 15 Dividend Policy .......................... 15 Capitalization ........................... 17 COMMON STOCK Dilution ................................. 18 Unaudited Pro Forma Combined Financial Statements .................. 19 Selected Financial Data .................. 24 Management's Discussion and Analysis of ------------------ Financial Condition and Results of PROSPECTUS Operations ............................ 26 Business ................................. 31 ------------------ Management ............................... 40 Principal Stockholders ................... 48 Certain Transactions ..................... 49 Description of Capital Stock ............. 51 Shares Eligible for Future Sale .......... 53 Underwriting ............................. 54 Legal Matters ............................ 56 Experts .................................. 56 Additional Information ................... 56 Index to Financial Statements ............ F-1 SCHRODER & CO. INC. ----------------- PRUDENTIAL SECURITIES INCORPORATED UNTIL 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO , 1998 DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ========================================================== ====================================================
PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is an estimate of the fees and expenses to be incurred in connection with the issuance and distribution of the shares of Common Stock offered hereby. Securities and Exchange Commission Registration Fee ......... $ 9,262 NASD Filing Fee ............................................. $ 3,640 NASDAQ Listing Fee -- National Market Fee ................... $44,500 Blue Sky Fees and Expenses .................................. $ 3,000 ------- Legal Fees and Expenses ..................................... $ * Accounting Fees ............................................. $ * Printing and Engraving Costs ................................ $ * Transfer Agent Fees ......................................... $ * Miscellaneous Expenses ...................................... $ * ======= Total ....................................................... $800,000 ========
- ---------- * To be included by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Certificate of Incorporation contains a provision eliminating or limiting director liability to the Registrant and its stockholders for monetary damages arising from acts or omissions in the director's capacity as director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, (iii) under the New Jersey statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of the Registrant protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, the ability of the Registrant or a stockholder thereof to successfully prosecute an action against a director for breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The Securities and Exchange Commission has taken the position that the provision will have no effect on claims arising under the federal securities laws. In addition, the Registrant's Certificate of Incorporation and Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any director or officer of the Registrant who by reason of the fact that he or she is a director or officer of the Registrant, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director, officer, employee or agent in advance of the final deposition of such proceeding in accordance with the applicable provisions of the New Jersey Business Corporation Act. Each of the officers and directors of the Company is insured against certain liabilities which he or she might incur in his or her capacity as an officer or director pursuant to a Directors and Officers Liability Policy issued by Federal Insurance Company of Warren, New Jersey. The general effect of this policy is that if during the policy period any claim or claims are made against the officers and directors of the Company or any of them individually for a Wrongful Act (as defined in the policy) while acting in their individual or collective capacities as directors or officers, and the Company has indemnified them, the insurer will pay for 100% of any Loss (as defined in the policy). In those instances where the officers and directors are not indemnified by the Company, the insurer will pay on behalf of the officers and directors II-1 of the Company or any of them, their executors, administrators, or assigns, 100% of the Loss. The insurer's combined limit of liability is $1,000,000 during any policy year and $1,000,000 for any single Loss. "Wrongful Act" is defined as any error, misstatement, misleading statement, act, omission, neglect or breach of duty actually or allegedly committed or attempted by the officers or directors of the Company while acting in their individual or collective capacities or in any matter, not excluded by the terms and conditions of the policy, claimed against them by reason of their being directors or officers of the Company. The term "Loss" is defined as any amount which the Company shall be required or permitted by law to pay to such person as indemnity for a claim or claims made against them for "Wrongful Acts," and includes damages, judgments, settlements, costs, charges, and expenses incurred in the defense of actions, suits or proceedings and appeals therefrom, except that the term "Loss" does not include fines or penalties imposed by law or matters which may be deemed uninsurable under the law pursuant to which the policy shall be construed. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Upon formation of the Company, one share of Common Stock was issued to Michael R. Cunningham. Immediately prior to the Offering, the Company is closing the private placement of 2,595,260 shares of Common Stock to the existing stockholders of the Predecessor in connection with the Reorganization. The recipients of these securities are the following:
NAME NUMBER OF SHARES - ------------------------------------------------- ----------------- Michael R. Cunningham .................... 2,050,727 Gordon Mays .............................. 228,198 Timothy Mays ............................. 165,803 James J. Cunningham, Trustee ............. 130,898 William J. Mays, Trustee ................. 9,817 William Edward Shannon, Trustee .......... 9,817
Contemporaneously with the completion of the Offering, the Company is closing the private placement of 169,739 shares of Common Stock to the selling stockholders of Roda as part of the purchase price for the shares of capital stock of Roda. For purposes of the transaction, a share of Common Stock is being valued at the initial public offering price. The recipients of these securities are the following:
NAME NUMBER OF SHARES - ---- ---------------- Peter L. Furlonge ......................... 128,323 Ralph J. Elman ............................ 624 Stelby Holdings Limited ................... 3,999 Central Investments Limited ............... 17,901 The Naggar Family Pension Scheme .......... 3,999 M. L. Tagliaferri ......................... 508 M. D. Moriarty ............................ 51 Mrs. J. Moriarty .......................... 76 George Harvey ............................. 14,258
The Company relies on Section 4(2) of the Securities Act in making the foregoing private placements. No offer was made to any person other than the existing stockholders of the Predecessor and the selling stockholders of Roda Limited. No underwriters are involved nor will any commissions be paid in connection with the foregoing transactions. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1 Form of Underwriting Agreement among the Company, Schroder & Co. Inc. and Prudential Securities Incorporated 1.2- Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor 1.2(a) Supplemental Agreement dated March 24, 1998 between P.L. Furlonge and others and the Predecessor 2.1 Reorganization Agreement among Stockholders of the Predecessor and CGII 3.1- Certificate of Incorporation 3.2- By-Laws 4.2 Specimen Common Stock Certificate 5.1 Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione 10.1* 1998 Stock Option Plan 10.2- Directors' Stock Option Plan 10.3 Form of Employment Agreement between the Company and M.R. Cunningham 10.4 Form of Employment Agreement between the Company and G. Mays 10.5 Form of Employment Agreement between the Company and T. Mays 10.6 Form of Employment Agreement between the Company and R. Needle 10.7- Form of Service Agreement between Roda Limited and P.L. Furlonge 10.8 Employment Agreement between the Company and Robert M. Okin 10.9- Loan and Security Agreement dated December 15, 1997 between the Company and Summit Bank, as amended 10.10-+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman, Sachs & Co., as amended 10.11- Agreement of Lease dated April 18, 1989 between the Company and Lackawanna Warehouse Corp. of New Jersey, as amended 10.12- Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs & Co. 10.13* Form of Roda Lease 10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd. and Workable Ltd. 10.15 Form of Employment Agreement between the Company and I. Lykogiannis 10.16 Form of Employment Agreement between the Company and R. Zanisnik 14(a)- Financial Statement Schedule Report of Independent Auditors on Financial Statement Schedule Schedule II -- Valuation of Qualifying Accounts 21.1 List of all subsidiaries of the Company 23.1 Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 23.3 Consent of Ernst & Young Chartered Accountants 24.1 Power of Attorney (Page II -- 5) 27 Financial Data Schedule 99.1 Consent of Arnold Spinner 99.3* Consent of Laurence Gerber 99.4* Consent of Stanley J. Moss
- ---------- - - Previously filed with the Commission on February 19, 1998 in the Company's Registration Statement on Form S-1. * Previously filed with the Commission on March 31, 1998 in Amendment No. 1 to the Company's Registration Statement on Form S-1. + Portions of this Exhibit have been omitted and have been filed separately with the Secretary of the Commission pursuant to Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act. II-3 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be bona fide offering thereof. The undersigned registrant hereby undertakes to provide to the Underwriters, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-4 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jersey City, State of New Jersey, on April 17, 1998. CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: /s/ Michael R. Cunningham ------------------------------------------ Michael R. Cunningham President and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby constitutes and appoints Michael R. Cunningham and Gordon Mays, or either of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Commission, any and all amendments and post-effective amendments to this Registration Statement, with exhibits thereto and other documents in connection therewith, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any substitute therefor, may lawfully do or cause to be done by virtue thereof.
NAME TITLE DATE ---- ----- ---- /s/ Michael R. Cunningham Chairman of the Board, April 17, 1998 ----------------------------- President, Chief Executive Michael R. Cunningham Officer and Director (Principal Executive Officer) /s/ Robert M. Okin Senior Vice President and April 17, 1998 ----------------------------- Chief Financial Officer Robert M. Okin (Principal Financial and Accounting Officer) /s/ James J. Cunningham Director April 17, 1998 ----------------------------- James J. Cunningham /s/ Gordon Mays Director April 17, 1998 ----------------------------- Gordon Mays
II-5 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1 Form of Underwriting Agreement among the Company, Schroder & Co. Inc. and Prudential Securities Incorporated 1.2- Agreement for the Sale and Purchase of the Entire Issued Share Capital of Roda Limited dated January 16, 1998 between P.L. Furlonge and others and the Predecessor 1.2(a) Supplemental Agreement dated March 24, 1998 between P.L. Furlonge and others and the Predecessor 2.1 Reorganization Agreement among Stockholders of the Predecessor and CGII 3.1- Certificate of Incorporation 3.2- By-Laws 4.2 Specimen Common Stock Certificate 5.1 Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione 10.1* 1998 Stock Option Plan 10.2- Directors' Stock Option Plan 10.3 Form of Employment Agreement between the Company and M.R. Cunningham 10.4 Form of Employment Agreement between the Company and G. Mays 10.5 Form of Employment Agreement between the Company and T. Mays 10.6 Form of Employment Agreement between the Company and R. Needle 10.7- Form of Service Agreement between Roda Limited and P.L. Furlonge 10.8 Employment Agreement between the Company and Robert M. Okin 10.9- Loan and Security Agreement dated December 15, 1997 between the Company and Summit Bank, as amended 10.10-+ Printing Services Agreement dated July 12, 1996 between the Company and Goldman, Sachs & Co., as amended 10.11- Agreement of Lease dated April 18, 1989 between the Company and Lackawanna Warehouse Corp. of New Jersey, as amended 10.12- Agreement of Sublease dated July 15, 1996 between the Company and Goldman, Sachs & Co. 10.13* Form of Roda Lease 10.14* Joint Marketing Agreement among Cunningham Graphics, Inc., Roda Print Concepts Ltd. and Workable Ltd. 10.15 Form of Employment Agreement between the Company and I. Lykogiannis 10.16 Form of Employment Agreement between the Company and R. Zanisnik 14(a)- Financial Statement Schedule Report of Independent Auditors on Financial Statement Schedule Schedule II -- Valuation of Qualifying Accounts 21.1 List of all subsidiaries of the Company 23.1 Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 23.3 Consent of Ernst & Young Chartered Accountants 24.1 Power of Attorney (Page II -- 5) 27 Financial Data Schedule 99.1 Consent of Arnold Spinner 99.3* Consent of Laurence Gerber 99.4* Consent of Stanley J. Moss
- ---------- - - Previously filed with the Commission on February 19, 1998 in the Company's Registration Statement on Form S-1. * Previously filed with the Commission on March 31, 1998 in Amendment No. 1 to the Company's Registration Statement on Form S-1. + Portions of this Exhibit have been omitted and have been filed separately with the Secretary of the Commission pursuant to Registrant's Application Requesting Confidential Treatment under Rule 406 of the Securities Act. EX-1.1 2 EXHIBIT 1.1 Exhibit 1.1 2,100,000 Shares Of Common Stock UNDERWRITING AGREEMENT New York, New York _________ __, 1998 SCHRODER & CO. INC. PRUDENTIAL SECURITIES As Representatives of the several Underwriters c/o Schroder & Co. Inc. Equitable Center 787 Seventh Avenue New York, New York 10019-6016 Ladies and Gentlemen: CUNNINGHAM GRAPHICS INTERNATIONAL, INC., a New Jersey corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to you and the other Underwriters named in Schedule I hereto (collectively, the "Underwriters") for whom you are acting as Representatives (the "Representatives") of the several Underwriters, 2,100,000 shares (the "Firm Shares") of the Company's Common Stock, no par value (the "Common Stock"). In addition, the Company proposes to grant to you and the other Underwriters an option to purchase up to an additional 315,000 shares of the Company's Common Stock (the "Option Shares"), on the terms and for the purposes set forth in Section 2 hereof. The Firm Shares and the Option Shares are herein collectively referred to as the "Shares." 1. The Company and Michael R. Cunningham ("MRC") represent and warrant to, and agree with, you that: (a) A registration statement on Form S-1 (Registration No. 333-46541) relating to the Shares, including a preliminary prospectus relating to the Shares and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (collectively referred to as the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The Commission has not issued any order preventing or suspending the use of the Prospectus (as defined below) or any Preliminary Prospectus (as defined below). The term "Preliminary Prospectus" as used herein means a preliminary prospectus relating to the Shares, as contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations, included at any time as part of the foregoing registration statement or any amendment thereto before it became effective under the Act and any prospectus filed with the Commission by the Company pursuant to Rule 424(a) of the Rules and Regulations. Copies of such registration statement and amendments and of each related Preliminary Prospectus have been delivered to the Representatives. If such registration statement has not become effective, a further amendment to such registration statement, including a form of final prospectus, necessary to permit such registration statement to become effective will be filed promptly by the Company with the Commission. If such registration statement has become effective, a final prospectus relating to the Shares containing information permitted to be omitted at the time of effectiveness by Rule 430A will be filed by the Company with the Commission in accordance with Rule 424(b) of the Rules and Regulations promptly after execution and delivery of this Agreement. The term "Registration Statement" means the registration statement as amended at the time it becomes or became effective (the "Effective Date"), including all financial statements and schedules and all exhibits, and all information contained in any final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or in a term sheet described in Rule 434 of the Rules and Regulations in accordance with Section 5 hereof and deemed to be included therein as of the Effective Date by Rule 430A of the Rules and Regulations. The term "Prospectus" means the prospectus relating to the Shares as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is required, the form of final prospectus relating to the Shares included in the Registration Statement at the Effective Date. (b) On the date that any Preliminary Prospectus was filed with the Commission, the date the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if required), on the Closing Date and any Option Closing Date and when any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement, each Preliminary Prospectus and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement thereto), including the financial statements included in the Prospectus, did or will comply in all material respects with all applicable provisions of the Act and the Rules and Regulations, including containing all statements required to be stated therein in accordance with the Act and the Rules and Regulations. On the Effective Date and when any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement or any such amendment did or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. At the Effective Date, the date the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and, if later, the Option Closing Date, the Prospectus did not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 1(b) do not apply to any statements or omissions made in reliance on and in conformity with information relating to any 2 Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto, it being understood that such information includes the last paragraph on the cover page, the paragraph at the bottom of the inside cover page, and the information in the third and sixth paragraphs under the caption "Underwriting" in the Prospectus. Neither the Company or MRC has distributed, nor, prior to the later to occur of (i) the Closing Date or, if later, the Option Closing Date and (ii) completion of the distribution of the Shares, will distribute, any offering material in connection with the offering or sale of the Shares other than the Registration Statement, the Preliminary Prospectus, the Prospectus or any other materials, if any, permitted by the Act. (c) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Representatives expressly for use therein. (d) On the Effective Date and the date the Prospectus is filed with the Commission, and when any further amendment or supplements thereto become effective or are filed with the Commission, as the case may be, the Registration Statement, the Prospectus and such amendment or supplements did and will conform in all material respects to the requirements of the Act and the Rules and Regulations. On the Effective Date and the date the Prospectus is filed with the Commission, and when any further amendment or supplements thereto become effective or are filed with the Commission, as the case may be, the Registration Statement, the Prospectus and such amendment or supplements did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Representatives expressly for use therein. (e) Prior to the consummation of the offering of the shares of Common Stock (the "Offering"), Cunningham Graphics, Inc. (the "Predecessor"), a New Jersey corporation, will be reorganized (the "Reorganization") as contemplated by the Reorganization Agreement dated as of _______ ___, 1998 (the "Reorganization Agreement"), a copy of which has been filed as Exhibit 2.1 to the Registration Statement, pursuant to which each of the stockholders of the Predecessor will contribute all of their respective shares of common stock, no par value, of the Predecessor to the Company in 3 exchange for ________ shares of Common Stock, in the aggregate and promissory notes in the aggregate principal amount of $_______ (the "Exchange Notes"). As a result of consummation of the Reorganization, the Predecessor will become a wholly-owned subsidiary of the Company. The Reorganization will be consummated prior to the Closing in accordance with the terms of the Reorganization Agreement. Concurrently with the consummation of the Offering, the Company intends to repay the Exchange Notes out of the net proceeds from the Offering. (f) The Company has entered into an agreement dated January 16, 1998, as amended (the "Roda Purchase Agreement"), whereby the Company will acquire 100% of the share capital of Roda Limited ("Roda"), an English corporation, in two stages. As a result of the consummation of the Acquisition, Roda will become a wholly-owned subsidiary of the Company. Pursuant to the Roda Purchase Agreement, concurrently with the consummation of the Offering, the Company will (i) acquire all of the issued ordinary share capital of Roda for an aggregate consideration of $6.3 million and (ii) deliver into escrow $1.8 million, the aggregate redemption price for all of the issued preference share capital of Roda, which the Company intends to redeem on June 30, 1998. (g) Set forth on Exhibit A attached hereto is a list of each corporation that is, or will be upon consummation of the Reorganization, directly or indirectly wholly-owned by the Company (collectively, the "Subsidiaries"). Each Subsidiary is listed in Exhibit 21.1 to the Registration Statement. Each of the Company and the Subsidiaries is, and at the Closing Date and any Option Closing Date will be, duly organized, validly existing and in good standing under the laws of its state of organization. Each of the Company and the Subsidiaries has, and at the Closing Date and the Option Closing Date will have, full corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). Each of the Company and the Subsidiaries is, and at the Closing Date and the Option Closing Date will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary except for jurisdictions in which the failure to be so licensed or qualified would not have a material adverse effect on the business, properties, condition (financial or otherwise), net worth, or results of operations of the Company and the Subsidiaries, taken as a whole. The Company, directly or indirectly, beneficially owns all of the outstanding equity interests in each of the Subsidiaries, free and clear of all liens, security interests, restriction, pledges, encumbrances, charges, equities, claims, easements, assessments and tenancies (collectively, "Encumbrances"), except as set forth in the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). Except with respect to the Subsidiaries and except as described in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), the 4 Company does not own, and at the Closing Date and any Option Closing Date will not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any firm, partnership, limited liability company, joint venture, association or other entity. Complete and correct copies of the charter and the bylaws or other organizational documents of the Company and each Subsidiary and all amendments thereto have been delivered to the Representatives, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date or, if later, the Option Closing Date. (h) The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and are not subject to any preemptive or similar rights. The Company has, and, upon completion of the sale of the Shares, will have, an authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). The description of the securities of the Company in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus) is, and at the Closing Date and, if later, the Option Closing Date will be, complete and accurate in all material respects. Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), the Company does not have outstanding, and at the Closing Date and, if later, the Option Closing Date will not have outstanding, any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of its capital stock or any such warrants, convertible securities or obligations. (i) The financial statements and the related notes and schedules of the Company and the Predecessor set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus) present fairly, in all material respects, the financial condition of the Company and the Predecessor as of the dates indicated and the related Predecessor's statements of income, stockholders' equity, and cash flows for the periods covered thereby, all in conformity with generally accepted accounting principles ("GAAP") which are applied on a consistent basis throughout the entire period involved, except as otherwise disclosed therein. The consolidated financial statements of Roda set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus) present fairly, in all material respects, the financial condition of Roda and its subsidiary as of the dates indicated and the related consolidated profit and loss account and statement of cash flows for the periods covered thereby, all in conformity with United Kingdom auditing standards, which do not differ in any significant respect from GAAP, which are applied on a consistent basis throughout the entire period involved, except as disclosed therein. The summary financial data of the Company, the Predecessor and Roda set forth under the captions "Prospectus Summary-- 5 Summary Financial Data" and "Selected Financial Data" in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus) have been prepared on a basis consistent with the financial statements of the Company, the Predecessor and Roda. The pro forma financial statements included in the Registration Statement and the Prospectus comply in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X of the Commission and the pro forma adjustments have been properly applied to the historical amounts in the compilation of such statements. No other financial statements or schedules of the Company, the Predecessor and Roda, or any other entity are required by the Act or the Rules and Regulations to be included in the Registration Statement or the Prospectus. Ernst & Young LLP and Ernst & Young Chartered Accountants (collectively, the "Accountants"), who have reported on those of such financial statements and schedules which are audited, are independent accountants with respect to the Company, the Predecessor and Roda as required by the Act and the Rules and Regulations. (j) Each of the Company and the Subsidiaries maintains a system of internal accounting control sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (k) Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Date and, if later, the Option Closing Date, (i) there has not been, and will not have been (after giving effect to the Reorganization and the Acquisition), any change in the capitalization of the Company or any material adverse change in the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole, arising for any reason whatsoever, (ii) none of the Company or any Subsidiary has incurred (after giving effect to the Reorganization and the Acquisition), nor will any of them have incurred any material liabilities or obligations, direct or contingent, (iii) none of the Company or any Subsidiary has entered into, nor will any of them have entered into (after giving effect to the Reorganization and the Acquisition), any material transactions, other than pursuant to this Agreement, the Reorganization Agreement or the Roda Purchase Agreement, and (iv) none of the Company or any of the Subsidiaries (after giving effect to the Reorganization and the Acquisition), has paid or declared any dividends or other distributions of any kind on any class of its capital stock, partnership interests or other equity securities. 6 (l) Each of the Company and the Subsidiaries has valid, subsisting and enforceable leases for the respective properties described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) as leased by them or by the Company (collectively, the "Leased Properties"), in each case free and clear of all Encumbrances, except as set forth in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). All Encumbrances on or affecting the Leased Properties which are required to be disclosed in the Registration Statement and Prospectus are disclosed therein. The use and occupancy of each of the Leased Properties complies with all applicable codes and zoning laws and regulations and there is no pending or, to the knowledge of the Company and MRC, threatened condemnation, zoning change, environmental or other proceeding or action that will in any material respect adversely affect the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. (m) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). (n) Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), there are no actions, suits or proceedings pending or threatened against or affecting the Company, any Subsidiary, or any directors, officers or stockholders of any of the foregoing in their capacity as such, before or by any Federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign (collectively, a "Governmental Body"), wherein an unfavorable ruling, decision or finding could be reasonably expected to adversely affect the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. (o) Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), each of the Company and the Subsidiaries has, and at the Closing Date, the Option Closing Date (if any) will have, all governmental licenses, permits, consents, orders, approvals, franchises, certificates and other authorizations (collectively, "Licenses") necessary to carry on its business and to own or lease and operate its properties as contemplated in the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), except where the failure to have any such License would not have a material adverse effect on the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. Each of the Company and the Subsidiaries has complied, and at the Closing Date and the Option Closing Date (if any) will have complied, in all material respects with all laws, regulations, Licenses and orders applicable to it or its business and properties. None of 7 the Company or any Subsidiary is, and, at the Closing Date and the Option Closing Date (if any) none of them will be, in default (nor has any event occurred which, with notice or lapse of time or both, would constitute a default) in the due performance and observation of any term, covenant or condition of any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument (collectively, a "contract or other agreement") to which any of them is a party or by which any of their respective properties is bound or affected, which default would individually or in the aggregate have a material adverse effect on the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. To the best knowledge of the Company and MRC, no other party under any such contract or other agreement is, or, at the Closing Date or the Option Closing Date (if any) will be, in default in any material respect thereunder. There are no governmental proceedings or actions pending or threatened for the purpose of suspending, modifying or revoking any License held by the Company or any Subsidiary. None of the Company or any Subsidiary is in violation of any provision of its charter or bylaws or other governing instrument. (p) No consent, approval, authorization or order of, or any filing or declaration with, any Governmental Body is required for the consummation of the transactions contemplated by this Agreement or in connection with the issuance and sale of the Shares by the Company in the Offering, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the bylaws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Company. (q) Each of the Company and MRC has full power (corporate or other) and authority to enter into this Agreement and to carry out all the terms and provisions herein and therein to be carried out by it or him, respectively. This Agreement has been duly authorized, executed and delivered by each of the Company and MRC and constitutes a valid and binding agreement of the Company and MRC and is enforceable against each of the Company and MRC in accordance with the terms hereof. Except as disclosed in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), the execution, delivery and the performance of this Agreement, the Reorganization Agreement and the Roda Purchase Agreement and the consummation of the transactions contemplated hereby and thereby will not result in the creation or imposition of any Encumbrance upon any of the assets of the Company or any Subsidiary pursuant to the terms or provisions of, or result in a breach or violation of or conflict with any of the terms or provisions of, or constitute a default under, or give any other party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, (i) the charter or bylaws or other organizational document of the Company or any Subsidiary, or (ii) any material contract or other material agreement to which any of them is a party or by which they or any of 8 their assets or properties are bound or affected, or (iii) any judgment, ruling, decree, order, law, statute, rule or regulation of any Governmental Body applicable to the business or assets of the Company or any Subsidiary. The Company has full corporate power and authority to authorize, issue, offer and sell the Shares, as contemplated by this Agreement, free of any preemptive rights. The offer, issuance and sale by the Company of any shares of its Common Stock prior to the date hereof complied with or was exempt from the registration requirements of the Act and applicable state securities and Blue Sky laws. (r) There is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All contracts to which the Company is a party, that are material to the operation of the business of the Company, have been duly authorized, executed and delivered by the Company, constitute valid and binding agreements of the Company and are enforceable against the Company in accordance with the terms thereof. (s) Neither the Company nor any of its directors, officers or affiliates (within the meaning of the Rules and Regulations) has taken, nor will he, she or it take, directly or indirectly, any action designed, or which might reasonably be expected in the future, to cause or result in, under the Act or otherwise, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or otherwise. (t) No holder of securities of the Company has rights to the registration of any securities of the Company as a result of the filing of the Registration Statement. (u) The Shares have been approved for listing on the Nasdaq National Market System ("NASDAQ"), subject only to notice of issuance. (v) No material labor dispute with the employees of the Company or with the employees of any Subsidiary exists or is threatened or imminent. (w) Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), the Company or a Subsidiary owns, or is licensed or otherwise has the full exclusive right to use, all material trademarks and trade names which are used in or necessary for the conduct of its business as described in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). To the best knowledge of the Company and MRC, no claims have been asserted by any person to the use of any such trademarks or trade names or challenging or questioning the validity or effectiveness of any such trademark or trade name. The use, in connection with the business and operations of the Company, of such trademarks and trade names does not, to the knowledge of the Company and MRC, infringe on the rights of any person. 9 (x) None of the Company or any Subsidiary, nor, to the best knowledge of the Company and MRC, any employee or agent of the Company or any Subsidiary, has made any payment of funds of the Company or any Subsidiary or received or retained any funds of the Company or any Subsidiary in violation of any law, rule or regulation or of a character required to be disclosed in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). (y) The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the business in which the Company is engaged; none of the Company or any Subsidiary has been refused any insurance coverage sought or applied for; and neither the Company or MRC has reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires. (z) The business, operations and facilities of the Company and each Subsidiary have been and are being conducted in compliance in all material respects with all applicable laws, ordinances, rules, regulations, Licenses, permits, approvals, plans, authorizations or requirements relating to occupational safety and health, or pollution, or protection of health or the environment (including, without limitation, those relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic substances, materials or wastes into ambient air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, gaseous or liquid in nature) of any governmental department, commission, board, bureau, agency or instrumentality of the United States, any state or political subdivision thereof, or any foreign jurisdiction, and all applicable judicial or administrative agency or regulatory decrees, awards, judgments and orders relating thereto; and none of the Company or any Subsidiary has received any notice from governmental instrumentality or any third party alleging any violation thereof or liability thereunder (including, without limitation, liability for costs of investigating or remediating sites containing hazardous substances and/or damages to natural resources), except for such noncompliances, violations or liabilities that would not have a material adverse effect upon the business, properties, condition (financial or otherwise), net worth or results of operations of the Company and the Subsidiaries, taken as a whole. (aa) Each of the Company and the Subsidiaries has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable. (bb) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under "Use of Proceeds" and shall file such reports with the Commission with respect to the sale of the 10 Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 of the Rules and Regulations under the Act. (cc) The Company and each of its executive officers and directors has delivered to the Underwriters an agreement in the form set forth as Exhibit B hereto to the effect that it, he or she will not, for a period of 180 days after the date hereof, without the prior written consent of Schroder & Co. Inc., offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any shares of Common Stock or securities convertible into, or exchangeable or exercisable for, shares of Common Stock (except that the Company may grant options to purchase or award shares of Common Stock under its stock option plans and issue privately placed shares in connection with any acquisitions). (dd) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 2. Subject to the terms and conditions herein set forth, the Company agrees to sell to the several Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, at a purchase price of $________ per share, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto, plus such number of Option Shares which such Underwriter may become obligated to purchase pursuant to this Section 2. In addition, subject to the terms and conditions herein set forth, the Company agrees to sell to the several Underwriters, as required (for the sole purpose of covering over-allotments in the sale of the Firm Shares), up to 315,000 Option Shares at a purchase price of $_____ per share. The right to purchase the Option Shares may be exercised by the Representatives giving 48 hours' prior written or telephonic notice (subsequently confirmed in writing) to the Company of their determination to purchase all or a portion of the Option Shares. Such notice may be given at any time within a period of 30 days following the date of this Agreement. No Option Shares shall be delivered to or for the accounts of the several Underwriters unless the Firm Shares shall be simultaneously delivered or shall theretofore have been delivered as herein provided. 3. The Underwriter proposes to offer the Shares for sale to the public at the " Price to Public " set forth on the cover page of the Prospectus and upon the other terms and conditions set forth in the Prospectus. 4. The Firm Shares, in definitive form, to be purchased by the Underwriter hereunder shall be delivered by or on behalf of the Company to you for your account, against payment by you of the purchase price therefor by wire transfer of immediately available funds to an account designated by the Company, at the office of Stroock & Stroock & Lavan LLP, New 11 York, New York, at 9:30 A.M., New York City time, on __________ __, 1998, or at such other time, date and place as you and the Company may agree upon in writing, such time and date being herein called the "Firm Shares Delivery Date." The Option Shares, in definitive form, to be purchased by the Underwriters hereunder shall be delivered by or on behalf of the Company to the Representatives for the accounts of the Underwriters against payment of the purchase price thereof by wire transfer of immediately available funds to an account designated by the Company, in New York, New York, at such time and on such date (not earlier than the Firm Shares Delivery Date nor later than ten business days after giving of the notice delivered by the Representatives to the Company with reference thereto) and in such denominations and registered in such names as shall be specified in the notice delivered by the Representatives to the Company with respect to the purchase of such Option Shares. The date and time of such delivery and payment are herein sometimes referred to as the "Option Shares Delivery Date" (and either of the Option Shares Delivery Date or the Firm Shares Delivery Date may be referred to herein as a "Delivery Date"). Certificates evidencing the Shares shall be in definitive form and shall be in such denominations and registered in such names as the Representatives shall request not less than 48 hours prior to the applicable Delivery Date, respectively. Such Shares will be made available for checking and packaging in New York, New York, at least 24 hours prior to the applicable Delivery Date. 5. The Company and MRC covenant and agree with the Underwriters that: (a) The Company will not, either prior to the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by any Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representatives within a reasonable period of time prior to the filing thereof and the Representatives shall not have objected thereto in good faith. (b) If the Registration Statement is not yet effective, the Company will use its best efforts to cause the Registration Statement to become effective not later than the time indicated in Section 7(a) hereof. The Company will notify the Representatives promptly, and will confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (iv) of the happening of any event during the period mentioned in the second sentence of Section 5(b) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements 12 therein, in light of the circumstances in which they are made, not misleading and (v) of receipt by the Company or any representative or attorney of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any Preliminary Prospectus or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal of such order at the earliest possible moment. The Company will prepare the Prospectus in a form approved by the Representatives and will file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Securities Act. If the Company has omitted any information from the Registration Statement pursuant to Rule 430A, the Company will use its best efforts to comply with the provisions of, and to make all requisite filings with the Commission pursuant to, said Rule 430A and to notify the Representatives promptly of all such filings. (c) If, at any time when a Prospectus relating to the Shares is required to be delivered under the Act, any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or the Registration Statement, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if for any other reason it is necessary at any time to amend or supplement the Prospectus or the Registration Statement to comply with the Act or the Rules and Regulations, the Company will promptly notify the Representatives thereof and, subject to Section 5(b) hereof, will prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. (d) The Company will make generally available to its stockholders as soon as practicable, but in any event not later than 90 days after the close of the period covered thereby, an earnings statement in form complying with the provisions of Section 11(a) of the Act covering a period of 12 consecutive months beginning not later than the first day of the Company's fiscal quarter next following the Effective Date. (e) The Company will file on a timely basis all documents required to be filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act subsequent to the Effective Date and during any period when the Prospectus is required to be delivered. (f) The Company will comply with all the provisions of all undertakings contained in the Registration Statement. 13 (g) During the period of three years commencing on the Effective Date, the Company will furnish to each of the Representatives and each of the Underwriters who may so request, a copy of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to each of the Representatives and each of the Underwriters who may so request, a copy of each annual or other report it shall be required to file with the Commission or NASDAQ and (ii) such additional information concerning, the business and financial condition of the Company as the Representatives may from time to time reasonably request in connection with your obligations hereunder. (h) The Company will apply the net proceeds from the sale of the Shares in the manner set forth in the Prospectus under the caption "Use of Proceeds." (i) The Company will not take, directly or indirectly, any action designed to cause or result in, or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (j) The Company will not for a period of 180 days after the date hereof, without the prior written consent of Schroder & Co. Inc., offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer to sell, sale, contract to sell, grant of any option to purchase or other disposition) of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (except that the Company may grant options to purchase or award shares of Common Stock under its stock option plans and may issue privately placed shares in connection with any acquisitions). (k) Prior to any Delivery Date there will not be any change in the capital stock or material change in the short-term debt or long-term debt of the Company or any of its Subsidiaries, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or any of its subsidiaries, otherwise than as set forth or contemplated in the Prospectus. (l) The Company has caused the Shares to be authorized for quotation on NASDAQ upon notice of issuance. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid: (i) the fees, disbursements and expenses of counsel and accountants for the Company, and all other expenses, in connection with the preparation, printing and filing of the Registration Statement and the Prospectus and any amendments and supplements thereto and the furnishing of copies thereof, including charges for mailing, air freight and delivery and counting and packaging thereof and of any Preliminary Prospectus and related offering documents to the Underwriters and dealers; (ii) the cost of printing this 14 Agreement, communications with the Underwriters and selling group and the Preliminary and Supplemental Blue Sky Memoranda and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the exemption of the Shares for offering and sale under securities laws as provided in Section 5(b) hereof, including the fees, disbursements and expenses for counsel for the Underwriters in connection with such exemption and in connection with Blue Sky surveys or similar advice with respect to sales; (iv) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the NASD of the terms of the sale of the Shares; (v) all fees and expenses in connection with the quotation of the Shares on NASDAQ; and (vi) all other costs and expenses incident to the performance of the Company's obligations hereunder that are not otherwise specifically provided for in this Section 6, including the fees of the Company's Transfer Agent and Registrar, the cost of any stock issue or transfer taxes on sale of the Shares to the Underwriters, the cost of the Company's personnel and other internal costs, the cost of printing and engraving the certificates representing the Shares and all expenses and taxes incident to the sale and delivery of the Shares to be sold by the Company to the Underwriters hereunder. It is understood, however, that, except as provided in this Section, Section 8 and Section 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers that they may make. 7. The obligations of the Underwriters hereunder shall be subject, in their discretion, to (i) the condition that all representations and warranties and other statements of the Company and MRC herein are true and correct in all material respects, when made and on each Delivery Date, (ii) the condition that the Company and MRC shall have performed each of their respective obligations hereunder theretofore to be performed and (iii) the following additional conditions: (a) The Registration Statement shall have become effective, and the Representatives shall have received notice thereof not later than 10:00 P.M., New York City time, on the date of execution of this Agreement, or at such other time as you and the Company may agree and the Prospectus shall have been filed with the Commission in the manner and within the time period required by Rule 424(b). (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission, (ii) no order suspending the effectiveness of the Registration Statement or the exemption of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have 15 been filed unless a copy thereof was first submitted to the Underwriters and the Underwriters did not object thereto in good faith, and the Underwriters shall have received certificates, dated the Closing Date and the Option Closing Date and signed by the Chief Executive Officer of the Company and the Chief Financial Officer of the Company (who may, as to proceedings threatened, rely upon the best of their information and belief), to the effect of the foregoing clauses (i), (ii) and (iii) of this Section 7. (c) The Representatives shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact or omits to state a fact which in the Underwriters' judgment is in either case material and in the case of an omission is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Gibbons, Del Deo, Dolan, Grifflinger & Vecchione, P.C., counsel to the Company, shall have furnished to the Representatives their written opinion, dated such Delivery Date, in form and substance satisfactory to the Representatives, to the effect that: (i) Each of the Company and the Subsidiaries (A) has been duly incorporated or organized and is a validly existing corporation in good standing under the laws of its jurisdiction of incorporation or organization with full corporate power and authority to own or lease and to operate its assets and to conduct its business as described in the Registration Statement and Prospectus and (B) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction (x) in which the conduct of its business requires such qualification and (y) in which it owns or leases property; (ii) To the knowledge of such counsel, the Company owns no capital stock or other beneficial interest in any corporation, partnership, joint venture or other business entity except for equity interests in the Subsidiaries and except as set forth in the Registration Statement; (iii) The Shares have been validly authorized, duly executed by authorized officers of the Company, and are the validly issued, outstanding and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization moratorium and other similar laws relating to or affecting creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). (iv) The Company has authorized capital stock as set forth in the Registration Statement and all of the authorized shares of Common Stock, have been duly authorized, and have been duly reserved for issuance, and all of the 16 issued and outstanding shares of Common Stock will be validly issued and outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof; all of the outstanding shares of Common Stock were issued and sold in compliance with all applicable Federal and state securities laws; except as described in the Prospectus and except with respect to existing stock incentive or stock purchase plans to the knowledge of such counsel, there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue any shares of capital stock of the Company; (v) To the best of such counsel's knowledge, except as set forth in the Prospectus, there are no legal or governmental proceedings pending or threatened to which the Company or any Subsidiary or any of their respective officers or directors is a party or of which any property of the Company or any of its subsidiaries is the subject which, if resolved against the Company or any Subsidiary or any of their respective officers or directors, individually, or to the extent involving related claims or issues, in the aggregate, is of a character required to be disclosed in the Prospectus which has not been properly disclosed therein; (vi) This Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company; (vii) The Company has full corporate power and authority to execute, deliver and perform this Agreement and the delivery and performance of this Agreement, the consummation of the transactions herein contemplated and the issue and sale of the Shares and the compliance by the Company with all the provisions of this Agreement, will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any of the property or assets of the Company or any Subsidiary pursuant to, the terms of any material contract or other agreement known to such counsel to which the Company or any Subsidiary is a party or by which the Company or Subsidiary is bound or to which any of the respective property or assets of the Company or Subsidiary is subject, nor will such action result in any violation of the provisions of the charter or bylaws or partnership agreement or operating agreement, in each case as amended, of the Company or any Subsidiary, any statute or any rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or the terms of any judgment, decree or order, known to such counsel, of any arbitrator or Governmental Body having such jurisdiction; 17 (viii) No consent, approval, authorization, order, registration or qualification of or with any court or any regulatory authority or other governmental body is required for the issue and sale of the Shares or the consummation of the other transactions contemplated by this Agreement, except such as have been obtained under the Act or may be required by the NASD, and such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (ix) To the best of such counsel's knowledge, neither the Company nor any Subsidiary is currently in violation of its charter or bylaws or other organizational documents in each case as amended to the date hereof, or in material default under any indenture, mortgage, deed of trust, lease, bank loan or credit agreement or any other agreement or instrument of which such counsel has knowledge to which the Company or any Subsidiary is a party or by which any of them or any of their respective property may be bound or affected; (x) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any Shares pursuant to the Company's Charter or Bylaws, in each case as amended to the date hereof, or any agreement or other instrument known to such counsel; and no holders of securities of the Company have rights to the registration thereof under the Registration Statement; (xi) To the extent summarized therein, all contracts and agreements summarized in the Registration Statement and the Prospectus are fairly summarized therein, conform in all material respects to the descriptions thereof contained therein, and, to the extent such contracts or agreements or any other material agreements are required under the Act or the rules and regulations thereunder to be filed or incorporated by reference therein, as exhibits to the Registration Statement, they are so filed or incorporated by reference; and such counsel does not know of any contracts or other documents required to be summarized or disclosed in the Prospectus or to be so filed or incorporated by reference as an exhibit to the Registration Statement, which have not been so summarized or disclosed, or so filed or incorporated by reference; (xii) All descriptions in the Prospectus of statutes, regulations or legal or governmental proceedings are fair summaries thereof and fairly present the information required to be shown with respect to such matters; (xiii) The Registration Statement is effective under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement or any amendment 18 thereto has been issued, and to the knowledge of such counsel no proceedings for that purpose have been instituted or are pending or are threatened or contemplated under the Act; the registration statement originally filed with respect to the Shares and each amendment thereto and the Prospectus and, if any, each amendment and supplement thereto (except for the financial statements, schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion), complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; the descriptions contained and summarized in the Registration Statement and the Prospectus of contracts and other documents are accurate and fairly present in all material respects the information required to be shown by the Act and the Rules and Regulations; to the knowledge of such counsel, there are no contracts or documents which are required by the Act to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed as required by the Act and the Rules and Regulations; to the knowledge of such counsel, there is not pending or threatened against the Company any action, suit, proceeding or investigation before or by any Governmental Body of a character required to be disclosed in the Registration Statement or the Prospectus which is not so disclosed therein; and the statements set forth under the headings "The Company--The Reorganization," "--The Roda Acquisition," "Business--Government Regulation," "Business--Litigation," "Certain Transactions" and "Description of Capital Stock" in the Registration Statement and Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, provide an accurate summary of such legal matters, documents and proceedings; (xiv) The Shares conform as to legal matters, in all material respects, to the statements concerning them in the Registration Statement and the Prospectus; (xv) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act; and (xvi) The Shares have been duly authorized for listing on NASDAQ, subject only to official notice of issuance. In addition, such counsel shall state that in the course of the preparation of the Registration Statement and the Prospectus, such counsel has participated in conferences with officers and representatives of the Company and with the Accountants, at which conferences such counsel made inquiries of such officers, representatives and Accountants and discussed the contents of the Registration Statement and the Prospectus and (without taking any further action to verify independently the statements made in the 19 Registration Statement and the Prospectus (other than the sections identified in paragraph (xiii) above and, except as stated in the foregoing opinion, without assuming responsibility for the accuracy, completeness or fairness of such statements) nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement as of the date it was declared effective or as of the Closing Date or the Prospectus as of the date thereof or as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express any opinion with respect to the financial statements, schedules and other financial and statistical data included in the Registration Statement or the Prospectus). In rendering any such opinion, such counsel may rely, as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials and, as to matters involving the application of laws of any State other than New Jersey (to the extent satisfactory in form and scope to counsel for the Underwriters) such counsel may rely upon the opinion of local counsel to the Company. The foregoing opinion shall also state that the Underwriters are justified in relying upon such opinion of local counsel, and copies of such opinion shall be delivered to the Underwriters and counsel for the Underwriters. (f) Stroock & Stroock & Lavan LLP, counsel to the Underwriters, shall have furnished to the Representatives their written opinion or opinions, dated such Delivery Date, in form and substance satisfactory to the Representatives, with respect to the incorporation of the Company, the validity of the Shares, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters. In rendering such opinion, such counsel may rely as to all matters of New Jersey law upon the opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.; Newark, New Jersey. (g) With respect to the letter of Ernst & Young LLP delivered to you concurrently with the execution of this Agreement (the "initial letter"), the Company shall have furnished to the Representatives a letter (as used in this paragraph, the "bring-down letter") of such accountants, addressed to the Underwriters and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. 20 (h) Neither the Company nor any of its subsidiaries shall have sustained since the date as of which information is given in the Prospectus, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and since the respective dates as of which information is given in the Prospectus, there shall not have been any change in the capital stock (other than shares issued pursuant to the exercise of stock options or pursuant to the terms of the Shares) or short-term debt or long-term debt of the Company or any Subsidiaries nor any change or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case, is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus. (i) Between the date hereof and such Delivery Date there shall have been no declaration of war by the Government of the United States; on such Delivery Date there shall not have occurred any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or other calamity or crisis, the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Shares or to enforce contracts for the resale of Shares and no event shall have occurred resulting in (i) trading in securities generally on the New York Stock Exchange (the "NYSE") or in the Common Stock on NASDAQ being suspended or limited or minimum or maximum prices being generally established on the NYSE or NASDAQ, or (ii) additional material governmental restrictions, not in force on the date of this Agreement, being imposed upon trading in securities generally by the NASD or in the Common Stock on NASDAQ or by order of the Commission or any court or other governmental authority, or (iii) a general banking moratorium being declared by either Federal or New York authorities. (j) At the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives an accurate certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the President of the Company, in form and substance reasonably satisfactory to the Representatives, to the effect that: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, (x) the Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (y) the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the 21 statements therein, in light of the circumstances under which they were made, not misleading and (B) since the Effective Date no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect; (ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects; and (iii) Each of the covenants required herein to be performed by the Company on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by the Company on or prior to the delivery of such certificate has been duly, timely and fully complied with. (k) The Company shall have delivered to you evidence that the Shares have been authorized for quotation on NASDAQ upon notice of issuance. (l) At the Closing Date, and as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives, a certificate from MRC, signed by MRC, dated the Closing Date, to the effect that: (i) He has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, (x) the Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (y) the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (B) since the Effective Date no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect; (ii) Each of the representations and warranties of MRC contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects; and (iii) Each of the covenants required herein to be performed by MRC on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by MRC on or prior to the delivery of such certificate has been duly, timely and fully complied with. 22 8. (a) The Company and MRC, jointly and severally, will indemnify and hold harmless each Underwriter for any losses, claims, damages or liabilities to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or filed with the Commission or any securities association or securities exchange (each, an "Application"), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading, (ii) any untrue statement or alleged untrue statement made by the Company or MRC in Section 1 of this Agreement, or (iii) the employment by the Company or MRC of any device, scheme or artifice to defraud, or the engaging by the Company or MRC in any act, practice or course of business which operates or would operate as a fraud or deceit, or any conspiracy with respect thereto, in which the Company or MRC shall participate, in connection with the issuance and sale of any of the Shares, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating, preparing to defend, defending or appearing as a third-party witness in connection with any such action or claim; provided, however, that neither the Company or MRC shall be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission relating to any Underwriter made in any Preliminary Prospectus, the Registration Statement, or the Prospectus or such amendment or supplement or any Application in reliance upon and in conformity with written information furnished to the Company by such Underwriter expressly for use therein; and provided, further, that, the indemnity agreement contained in this Section 8(a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any persons controlling such Underwriter) on account of any losses, claims, damages, liabilities or litigation arising from the sale of Shares to any person, if such Underwriter fails to send or give a copy of the Prospectus, as the same may be then supplemented or amended, to such person, within the time required by the Act and the untrue statement or alleged untrue statement or omission or alleged omission to state a material fact contained in such Preliminary Prospectus was corrected in the Prospectus, unless such failure is the result of noncompliance by the Company with Section 5(b) hereof. The indemnity agreement in this Section 8(a) shall be in addition to any liability which the Company and MRC may otherwise have and shall extend upon the same terms and conditions to each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act. (b) Each Underwriter will indemnify and hold harmless the Company and MRC against any losses, claims, damages or liabilities to which the Company or MRC may become subject, under the Act or otherwise, insofar as such losses, claims, damages 23 or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or any Application, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement, the Prospectus or such amendment or supplement or any Application in reliance upon and in conformity with written information furnished by such Underwriter to the Company through the Representatives relating to such Underwriter expressly for use therein, and will reimburse the Company and MRC for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim. The indemnity agreement in this Section 8(b) shall be in addition to any liability which the Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company or MRC and to each person, if any, who controls the Company or MRC within the meaning of the Act or the Exchange Act. (c) Promptly after receipt by an indemnified party under Section 8(a) or 8(b) of notice of the commencement of any action (including any governmental investigation), such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party under Section 8(a) or 8(b) except to the extent it was unaware of such action and has been prejudiced in any material respect by such failure or from any liability which it may have to any indemnified party otherwise than under such Section 8(a) or 8(b). In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. If, however, (i) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party or (ii) an indemnified party shall have reasonably concluded that representation of such indemnified party and the indemnifying party by the same counsel would be inappropriate 24 under applicable standards of professional conduct due to actual or potential differing interests between them and the indemnified party so notifies the indemnifying party, then the indemnified party shall be entitled to employ counsel different from counsel for the indemnifying party at the expense of the indemnifying party and the indemnifying party shall not have the right to assume the defense of such indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same set of allegations or circumstances. The counsel with respect to which fees and expenses shall be so reimbursed shall be designated in writing by Schroder & Co. Inc. in the case of parties indemnified pursuant to Section 8(a) and by the Company and MRC in the case of parties indemnified pursuant to Section 8(b). If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel to which such indemnified party is entitled under Section 8(a) or 8(b), the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) In order to provide for just and equitable contribution under the Act in any case in which (i) any Underwriter (or any person who controls any Underwriter within the meaning of the Act or the Exchange Act) makes a claim for indemnification pursuant to Section 8(a) hereof, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that Section 8(a) provides for indemnification in such case or (ii) contribution under the Act may be required on the part of any Underwriter or any such controlling person in circumstances for which indemnification is provided under Section 8(b), then, and in each such case, each indemnifying party shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject as an indemnifying party hereunder (after contribution from others) in such proportion as is appropriate to reflect the relative benefits received by the Company and MRC on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8(c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to 25 reflect not only such relative benefits but also the relative fault of the Company and MRC on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and MRC on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by the Company and MRC bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or MRC on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, MRC and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation (even if the Underwriters were treated as one entity for such purpose) which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) Promptly after receipt by any party to this Agreement of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party of the commencement thereof, but the omission so to notify the contributing party will not relieve it from any liability which it may have to any other party for contribution under the Act except to the extent it was unaware of such action and has been prejudiced in any material respect by such failure or from any liability which it may have to any other party other than for contribution under the Act. In case any such action, suit or proceeding is brought against any party, and such party notifies a 26 contributing party of the commencement thereof, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. 9. (a) If, on either Delivery Date, any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase on such Delivery Date, the Representatives may in their discretion arrange for them or another party or other parties to purchase such Shares on the terms contained herein. If the aggregate principal amount of Shares as to which Underwriters default on either Delivery Date is more than one-eleventh of the aggregate principal amount of all Shares to be purchased on such Delivery Date and within 36 hours after such default by any Underwriter the Representatives do not arrange for the purchase of such Shares which such defaulting Underwriter agreed but failed to purchase, then the Company shall be entitled to a further period of 36 hours within which to procure another party or other parties satisfactory to the Representatives to purchase such Shares on such terms. In the event that, within the respective prescribed periods, the Representatives notify the Company that the Representatives have so arranged for the purchase of such Shares, or the Company notifies the Representatives that it has so arranged for the purchase of such Shares, the Representatives or the Company shall have the right to postpone such Delivery Date for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in the opinion of the Representatives may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of such defaulting Underwriter or Underwriters by the Representatives or the Company or both as provided in subsection (a) above, the aggregate principal amount of such Shares of such defaulting Underwriter or Underwriters which remain unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Shares to be purchased on such Delivery Date, then the Company shall have the right to require each nondefaulting Underwriter to purchase the principal amount of the Shares which such nondefaulting Underwriter agreed to purchase hereunder and, in addition, to require each nondefaulting Underwriter to purchase its pro rata share (based on the principal amount of Shares which such nondefaulting Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the Representatives or the 27 Company as provided in subsection (a) above, the aggregate principal amount of such Shares of such defaulting Underwriter or Underwriters which remain unpurchased exceeds one-eleventh of the aggregate principal amount of all Shares to be purchased on such Delivery Date, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement shall thereupon terminate without liability on the part of any nondefaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity agreement in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or an officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares. 11. This Agreement shall become effective (a) if the Registration Statement has not heretofore become effective, at the earlier of 12:00 Noon, New York City time, on the first full business day after the Registration Statement becomes effective, or at such time after the Registration Statement becomes effective as the Representatives may authorize the sale of the Shares to the public by the Underwriters or other securities dealers, or (b) if the Registration Statement has heretofore become effective, at the earlier of 24 hours after the filing of the Prospectus with the Commission or at such time as the Representatives may authorize the sale of the Shares to the public by the Underwriters or securities dealers, unless, prior to any such time (i) the Representatives shall have received notice from the Company that it elects that this Agreement shall not become effective, or (ii) the Representatives shall have given notice to the Company that the Underwriters have elected that this Agreement shall not become effective; provided, however, that the provisions of this Section and Section 6 and Section 8 hereof shall at all times be effective. If this Agreement shall be terminated pursuant to Section 9 hereof, or if this Agreement, by election of the Underwriters, shall not become effective pursuant to the provisions of this Section, the Company shall not then be under any liability to any Underwriter except as provided in Section 6 and Section 8 hereof, but if this Agreement becomes effective and is not so terminated but the Shares are not delivered by or on behalf of the Company as provided herein because the Company has been unable for any reason beyond its control and not due to any default by it to comply with the terms and conditions hereof, the Company will reimburse the Underwriters through the Representatives for all out-of-pocket expenses, including fees and disbursements of counsel, actually or reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares, but the Company shall then be 28 under no further liability to the Underwriters except as provided in Section 6 and Section 8 hereof and in no event will the Company be liable to the Underwriters for any loss of anticipated profits from transactions contemplated by this Agreement. 12. The statements set forth in the last paragraph on the front cover page of the Prospectus, the paragraph on the inside front cover of the Prospectus containing stabilization language and the third and sixth paragraphs under the caption "Underwriting" in the Prospectus constitute the only information furnished by any Underwriter through the Representatives to the Company for purposes of Sections 1(b), 1(c) and 8 hereof. 13. In all dealings hereunder, the Representatives shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by the Representatives jointly or by Schroder & Co. Inc. on behalf of the Representatives. All statements, requests, notices and agreements hereunder, unless otherwise specified in this Agreement, shall be in writing and, if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to the Representatives in care of Schroder & Co. Inc. at Equitable Center, 787 Seventh Avenue, New York, New York 10019, Attention: Syndicate Department; and if to the Company, shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to the address of the Company set forth in the Registration Statement, Attention: Chief Executive Officer; provided, however, that any notice to any Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by Schroder & Co. Inc. upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Section 8 and Section 10 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 15. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 29 16. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. 30 17. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us two counterparts hereof. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement Among Underwriters, manually or facsimile executed counterparts of which, to the extent practicable and upon request, shall be submitted to the Company for examination, but without warranty on your part as to the authority of the signers thereof. Upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement among you and the Company. Very truly yours, CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: -------------------------------- Name: Title: ----------------------------------- Michael R. Cunningham Accepted as of the date hereof: SCHRODER & CO. INC. PRUDENTIAL SECURITIES By: SCHRODER & CO. INC. By: -------------------------------- Name: Title: Acting on behalf of themselves and as the Representatives of the other several Underwriters named in Schedule I hereto. 31 SCHEDULE I UNDERWRITERS Number of Firm Shares to be Purchased --------------- Schroder & Co. Inc. .......................................... 1,050,000 Prudential Securities......................................... 1,050,000 Total.................................................... 2,100,000 ========= EXHIBIT A SUBSIDIARIES Cunningham Graphics, Inc. Roda Limited Roda Print Concepts Limited (a subsidiary of Roda Limited) A-1 EXHIBIT B ____________ __, 1998 SCHRODER & CO. INC. PRUDENTIAL SECURITIES As Representatives of the several Underwriters c/o Schroder & Co. Inc. Equitable Center 787 Seventh Avenue New York, New York 10019-6016 Ladies and Gentlemen: In order to induce the several Underwriters, for whom Shroder & Co. Inc. and Prudential Securities are acting as representatives to underwrite a proposed initial public offering (the "Offering") of shares of common stock, no par value per share (the "Common Stock") of Cunningham Graphics International, Inc., a New Jersey corporation (the "Company"), as contemplated by a registration statement filed with the Securities and Exchange Commission on Form S-1 (Registration No. 333-46541), the undersigned hereby agrees that the undersigned will not, directly or indirectly, for a period of 180 days after the commencement of the Offering, without the prior written consent of Schroder & Co. Inc., offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (except that the Company may grant options to purchase or award shares of Common Stock under its stock option plans and issue privately placed shares in connection with any acquisitions). This letter shall have no further force or effect if the Company and the Underwriters shall not have executed and delivered an underwriting agreement related to the Offering by [_______ __, 1998] or if any underwriting agreement entered into by such parties shall be terminated prior to the initial closing date provided for therein. This letter agreement shall not prohibit the undersigned from transferring any shares of Common Stock to members of his or her immediate family or to a trust for their benefit, provided that such persons or trust agree to be bound by the terms hereof. Very truly yours, By: -------------------------------- Name: B-1 EX-1.2 3 EXHIBIT 1.2A DATED 1998 (1) P. FURLONGE and OTHERS (2) CUNNINGHAM GRAPHICS, INC. SUPPLEMENTAL AGREEMENT ---------------------- Mundays Crown House Church Road Claygate, Esher Surrey KT10 0LP Telephone: 01372 809000 Ref: RAP/RAF/R13553 SUPPLEMENTAL AGREEMENT ---------------------- THIS SUPPLEMENTAL AGREEMENT is made the day of March 1998 BETWEEN (1) The several persons who respective names and addresses are set out in column 1 of the Schedule hereto other than the Trustees ("the Vendors"); and (2) CUNNINGHAM GRAPHICS, INC. a corporation organised under the laws of the State of New Jersey, USA ("the Purchaser"). And is supplemental to an agreement dated 16th January 1998 and made between the Vendors (other than the trustees as hereinafter defined) and the Purchaser ("the Main Agreement"). WHEREAS (A) Under the Main Agreement the Vendors (other than the Trustees) agreed to sell to the Purchaser, subject to the fulfilment of certain conditions, the entire issued share capital of Roda Limited ("the Company"). (B) Subsequent to the Main Agreement and contemporaneously with the signing of this Agreement, the share capital of the Company has been reorganised pursuant to resolutions in the agreed terms and P. Furlonge, one of the Vendors, has transferred certain shares of the Company to the Trustees No 1. (C) The parties to the Main Agreement and the Trustees have agreed to vary the Main Agreement as set out in this Supplemental Agreement. (D) The Main Agreement remains conditional at the date hereof. 1 NOW IT IS HEREBY AGREED AS FOLLOWS: 1. Definitions ----------- 1.1 Definitions in the Main Agreement shall, save as varied herein, have the same meaning in this agreement. 1.2 References to Schedule 1 in the Main Agreement shall be deemed to be references to the Schedule to this supplemental agreement. 1.3 "Trustees No 1" means N.H. Furlonge and M.C.P. Furlonge, the trustees of the Peter Furlonge Family Trust. 1.4 "Trustees No 2" means N.H. Furlonge, P.L. Furlonge and M.C.P. Furlonge, the trustees of the Peter Furlonge Life Interest Trust. 1.5 "Trustees" means Trustees No 1 and Trustees No 2. 2. Variations to the Main Agreement -------------------------------- 2.1 There shall be deemed to be incorporated into the Main Agreement the following amendments and variations:- 2.1.1 Page 1 ------- The existing recital (A) shall be deleted and there shall be substituted therefor the following:- (A) Roda Limited ("the Company"), a company registered in England with number 3243754 has an authorised share capital of (Pound) 1,020,000 divided into 115,415 "A" Ordinary Shares of (Pound) 0.50 each, 1,800,000 "B" Ordinary Shares of (Pound) 0.50 each, 84,585 "C" Ordinary Shares of (Pound) 0.50 each and 2,000,000 New Preference Shares of 1p each of which 2 all of the said "A" Ordinary Shares, 200,000 of the said "B" Ordinary Shares and all of the "C" Ordinary Shares are issued and fully paid or credited as fully paid and are owned by the shareholders of the Company in the proportions shown opposite their respective names in column 2 of Schedule 1. None of the New Preference Shares have yet been issued. 2.1.2 Page 2 ------- The definition of "A Ordinary Shares" shall be deleted and there shall be substituted therefor the following:- "A Ordinary Shares" The 115,415 issued A Ordinary Shares of (Pound) 0.50 each in the capital of the Company. 2.1.3 Page 3 ------- There shall be inserted a new definition as following:- "C Ordinary Shares" The 84,585 issued C Ordinary Shares of (Pound) 0.50 each in the capital of the Company. 2.1.4 Page 6 ------- There shall be inserted a new definition as follows:- "New Preference Shares" The 2,000,000 unissued Preference Shares of 1p each in the capital of the Company. 2.1.5 Page 7 ------- The definition of "Shares" shall be deleted and there shall be substituted therefor the following: - "Shares" Together the A Ordinary Shares and the B Ordinary Shares; 2.1.6 Page 10 ------- In clause 2.2 the date "15 May 1998" shall be substituted in place of the date "30 April 1998". 3 2.1.7 Page 11 ------- In clauses 4.1 and 4.1.2, the figure of US$8,147,500 shall be deleted and there shall be substituted the figure of US$6,309,755. 2.1.8 Page 20 ------- There shall be inserted a new clause 11.5 as follows:- 11.5 P. Furlonge shall procure that at completion the Trustees No 1 and the Trustees No 2 shall enter into a power of attorney, and a deed of guarantee of the liabilities of P. Furlonge hereunder, in the agreed terms, and provision of such powers and guarantees shall be a condition of Completion as if the same was required pursuant to clause 5.2. Notwithstanding clause 11.1, P. Furlonge may satisfy his obligation to deposit moneys in the Retention account by procuring that the Trustees No 2 place into the Retention Account 132,000 New Preference Shares on terms that any sums to be paid by P. Furlonge to the Purchaser from the Retention Account shall be satisfied by the sale to the Purchaser by the Trustees No 2 at 0.0001 pence per New Preference Share of such number of New Preference Shares whose total redemption price (including premium) shall equal the liability of P. Furlonge to be paid from the Retention Account. If and to the extent that New Preference Shares are transferred to the Purchaser after Completion, pursuant to Article 7A of the new Articles of Association of the Company, the moneys payable shall be paid into the Retention Account first to the extent necessary to ensure that there has been deposited on behalf of P. Furlonge a sum equal to (Pound) 132,000 less any amounts paid out of the Retention Account by way of transfer of New Preference Shares in satisfaction of an obligation to make payment to the Purchaser 4 as described above. Each Vendor undertakes (insofar as he is able to do so) to procure that no person is approved by the Board of the Company as an Approved Purchaser under the Company's New Articles of Association save for the Trustees No 2. 2.1.9 Pages 31 and 32 --------------- Schedule 1 shall be deleted and there shall be substituted therefor the Schedule to this Agreement. 2.1.10 Page 71 ------- In clause 3.1, the second sentence shall be replaced by the following "Proportionate Part" means in respect of each Vendor the proportion of the Claim which is the same as the amount shown against his name as Notional Consideration in column 7 of Schedule 1 received by each Vendor bears to the total of such Notional Consideration shown against the names of all the Vendors. 2.1.11 Page 72 ------- In Clause 3.2(a) there shall be inserted after the words clause 4.1.2 "plus in the case of each Vendor the difference between Notional Consideration shown in column 7 of Schedule 1 and Total Consideration shown in column 3 of the same Schedule". 3 Agreements to be taken together ------------------------------- 3.1 The Main Agreement and this Supplemental Agreement shall be taken together and construed as one and, save as varied hereby, the provisions of the Main Agreement shall continue in full force and effect. AS WITNESS the hands of the parties hereto the day and year first above written. 5
THE SCHEDULE (1) NAME & ADDRESS (2) NUMBER OF SHARES HELD (3) TOTAL (4) NUMBER OF CONSIDERATION CONSIDERATION SHARES "A" "B" "C" ORDINARY ORDINARY ORDINARY P L Furlonge of Castle Farm, Mountfield, 95,415 2,073,055 128,323 East Sussex, TW32 5JV R J Elman of 1 Bickenhall Mansions, ---- 952 87,292 624 Bickenhall Street, London W1H 3LF Stelby Holdings Limited, P O Box 641, ---- 30,000 559,896 3,999 1 Seaton Place, St. Helier, Jersey Central Investments Limited, La Motte ---- 134,286 2,506,208 17,901 Chambers, La Motte Street, St. Helier, Jersey The Naggar Family Pension Scheme, c/o 15 ---- 30,000 559,896 3,999 Grosvenor Gardens, London SW1W 0BD M L Tagliaferri of 4 Motcomb Street, ---- 3,810 71,107 508 London SW1 (1) NAME & ADDRESS (5) PAR VALUE OF (6) RETENTION (7) NOTIONAL LOAN NOTES HELD ACCOUNT CONSIDERATION P L Furlonge of Castle Farm, Mountfield, ---- (Pound) 132,000 3,910,800 East Sussex, TW32 5JV R J Elman of 1 Bickenhall Mansions, 4,048 (Pound) 2,946 87,292 Bickenhall Street, London W1H 3LF Stelby Holdings Limited, P O Box 641, 127,500 (Pound) 18,898 559,896 1 Seaton Place, St. Helier, Jersey Central Investments Limited, La Motte 570,714 (Pound) 84,591 2,506,208 Chambers, La Motte Street, St. Helier, Jersey 127,500 (Pound) 18,898 559,896 The Naggar Family Pension Scheme, c/o 15 Grosvenor Gardens, London SW1W 0BD M L Tagliaferri of 4 Motcomb Street, 16,190 (Pound) 2,400 71,107 London SW1
6
(1) NAME & ADDRESS (2) NUMBER OF SHARES HELD (3) TOTAL (4) NUMBER OF CONSIDERATION CONSIDERATION SHARES "A" "B" "C" ORDINARY ORDINARY ORDINARY M D Moriarty and Mrs J Moriarty both of ---- 382 7,130 51 11 Carleton Gardens, Brecknock Road, 570 10,638 76 London N19 5AQ G Harvey of George Harvey & Associates 20,000 ---- 434,533 14,258 Limited, Mountford House, Britton Street, London EC1M 5NY Nicholas Hill Furlonge and Maria Christa ---- 84,585 Petra Furlonge (trustees of Peter Furlonge Family Trust) TOTAL 115,415 200,000 84,585 6,309,755 169,739 (1) NAME & ADDRESS (5) PAR VALUE OF (6) (7) NOTIONAL LOAN NOTES HELD RETENTION CONSIDERATION ACCOUNT M D Moriarty and Mrs J Moriarty both of 4,048 (Pound) 241 7,130 11 Carleton Gardens, Brecknock Road, ---- (Pound) 359 10,638 London N19 5AQ G Harvey of George Harvey & Associates ---- (Pound) 14,667 434,533 Limited, Mountford House, Britton Street, London EC1M 5NY Nicholas Hill Furlonge and Maria Christa Petra Furlonge (trustees of Peter Furlonge Family Trust) TOTAL 850,000 (Pound) 275,000 8,147,500
7 SIGNED BY P.L. FURLONGE SIGNED BY R.J. ELMAN SIGNED BY FOR AND ON BEHALF OF STELBY HOLDINGS LIMITED SIGNED BY FOR AND ON BEHALF OF THE NAGGAR FAMILY PENSION SCHEME SIGNED BY FOR AND ON BEHALF OF CENTRAL INVESTMENTS LIMITED SIGNED BY M.L. TAGLIAFERRI SIGNED BY M.D. MORIARTY SIGNED BY J. MORIARTY 8 SIGNED BY G. HARVEY SIGNED BY FOR AND ON BEHALF OF CUNNINGHAM GRAPHICS INC. 9 EX-2.1 4 EXHIBIT 2.1 REORGANIZATION AGREEMENT REORGANIZATION AGREEMENT made as of January 30, 1998 by and among CUNNINGHAM GRAPHICS INTERNATIONAL, INC., a New Jersey corporation ("CGII"), CUNNINGHAM GRAPHICS, INC., a New Jersey corporation ("CGI") and the individuals identified on the signature page hereto as Stockholders (the "Stockholders"). RECITALS: A. The Stockholders own all the issued and outstanding capital stock of CGI (the "CGI Stock"). B. In connection with an initial public offering of securities and the acquisition (the "Acquisition") of Roda Limited, a corporation organized under the laws of England ("Roda"), the Stockholders have determined that it would be advisable to form a holding company to own all of the capital stock of CGI and to acquire all the share capital of Roda. C. The parties wish to set forth their agreement regarding the formation and organization of CGII and the terms upon which they will contribute their respective shares of CGI Stock to CGII. NOW, THEREFORE, in consideration of the foregoing, it is agreed as follows: 1. ACKNOWLEDGMENT OF INCORPORATION AND ORGANIZATION OF CGII. Each of the Stockholders acknowledges that CGII has been incorporated and organized by the filing of a certificate of incorporation and its adoption of organizational resolutions, which have been made available to him for examination. The parties further acknowledge that as of this date, Michael R. Cunningham is the sole stockholder of CGII, having subscribed for one share for a purchase price of $12.00. 2. CONTRIBUTION OF CGI STOCK. (a) Immediately prior to the initial public offering (the "Offering") of common stock of CGII (the "Common Stock") pursuant to a Registration Statement on Form S-1 declared effective by the United States Securities and Exchange Commission, each of the Stockholders agrees to contribute to CGII all of his shares of CGI Stock (the "Reorganization"). In consideration therefore, the Stockholders shall receive shares of Common Stock and notes of CGII (the "Exchange Notes," and together with the Distribution Notes referred to in paragraph 5 below, the "Reorganization Notes"). On the date of the Reorganization, (i) each of the Stockholders shall deliver to CGII his certificate or certificates representing CGI Stock duly endorsed for transfer and (ii) CGII shall deliver to each of the Stockholders a certificate representing shares of the Common Stock and an Exchange Note and a Distribution Note of CGII payable to such Stockholder. (b) Each Stockholder acknowledges that he owns the number of shares of CGI Stock and is entitled to receive in the Reorganization the number of shares of Common Stock and an Exchange Note in the principal amount set forth opposite his name on Schedule I hereto. Each Stockholder further acknowledges that the aggregate principal amount of the Exchange Notes shall be determined as if CGII were to issue an additional 200,000 shares of Common Stock in the Reorganization. Accordingly, each Stockholder shall be entitled to receive his proportionate interest in the aggregate amount derived by multiplying 200,000 by the initial public offering price of the Common Stock. (c) The Reorganization Notes are non-interest bearing and have no specified maturity date; provided, however, it is intended that CGII will pay the Reorganization Notes from the net proceeds of the Offering. CGII shall have the right to offset against the principal amount of the respective Reorganization Notes any amounts due to CGI by the respective Stockholders. (d) Each Stockholder represents and warrants to CGII that (i) he has good and marketable title to his shares of CGI Stock, free and clear of all liens and encumbrances of any kind; (ii) he has the absolute right, power, authority and capacity to execute and deliver this Agreement and perform his obligations hereunder; and (iii) this Agreement constitutes his legal, valid and binding obligation, enforceable against him in accordance with its terms. 3. SECURITIES LAWS. Each of the Stockholders: (a) represents and warrants that (i) he is acquiring the Common Stock for investment purposes only, for his own account and without a view to the resale, transfer or distribution thereof, (ii) he or his representative has had access to the same kind of information concerning CGII that is required by Schedule A of the Securities Act of 1933, as amended (the "Act"), to the extent that CGII possesses such information; and (iii) has such knowledge and experience in financial and business matters that he is capable of utilizing the information that is available to him concerning CGII to evaluate the risk of his investment in CGII and that he is able to bear the economic risk of his investment in the Common Stock. (b) acknowledges that he has been advised that the shares of Common Stock issued under this Agreement are not being registered under any applicable federal or state securities laws in reliance upon certain exemptions thereunder, cannot be resold unless they are registered under those laws or unless an exemption from registration is available and will bear a legend to such effect and, accordingly, he may not be able to sell or otherwise dispose of the 2 shares when he wishes to do so. Each of the Stockholders acknowledges that the reliance of CGII and its agents upon such exemption from registration is predicated upon the foregoing representations. (c) agrees that the shares of Common Stock will not be resold (i) without registration thereof under the Act (unless an exemption from such registration is available and the Stockholder has provided to CGII an opinion of counsel reasonably acceptable to CGII to such effect) or (ii) in violation of any law. (d) consents that the certificate or certificates representing the Common Stock may be impressed with a legend indicating that the shares are not registered under the Act and reciting that transfer thereof is restricted. (e) consents that stop transfer instructions in respect of the shares may be issued to any transfer agent, transfer clerk or other agent at any time acting for CGII. 4. TERMINATION OF SHAREHOLDERS' AGREEMENT. Each of Michael R. Cunningham, Gordon Mays and Timothy Mays agrees that effective upon the consummation of transactions contemplated by this Agreement, the Shareholders' Agreement among each of them and Cunningham Graphics, Inc. dated as of June 13, 1991 shall be canceled and of no further force and effect. 5. DISTRIBUTION OF S CORPORATION TAXABLE INCOME. CGI shall distribute to the Stockholders the amounts in their respective S Corporation "accumulated adjustments accounts" immediately prior to the Reorganization, which, for purposes of this Agreement are estimated to be $2,200,000 in the aggregate. Such distribution shall be effected by CGI's issuance to each Stockholder of a note in the respective amounts set forth opposite their names in Schedule I hereto (each, a "Distribution Note"). In connection with the Reorganization, CGII hereby agrees to assume and discharge the obligations of CGI by issuing restated Distribution Notes. The Stockholders agree to accept the Distribution Notes in satisfaction of CGI's obligation to make payments of undistributed S Corporation taxable income. 6. ASSIGNMENT OF RODA AGREEMENT. Contemporaneously with the actions described in paragraph 2(a) of this Agreement, CGI shall assign to CGII the benefit of, and CGII shall perform the obligations of CGI under, that certain agreement dated January 16, 1998, as amended, providing for the acquisition of all the outstanding capital stock of Roda (the "Roda Agreement"). CGII shall accordingly execute a Deed of Adherence as required pursuant to clause 18 of the Roda Agreement. 7. SURVIVAL AND REPRESENTATIONS. The representations and warranties made by the Stockholders in this Agreement shall survive for a period of one year following the date of the Reorganization. 8. TERMINATION. This Agreement shall terminate and the parties shall have no further obligations hereunder, if the Offering has not occurred by June 30, 1998. 3 9. MODIFICATION. No modification of this Agreement shall be valid unless such modification is in writing and signed by all parties hereto. 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which together shall be deemed to constitute a single instrument. [Remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused the same to be executed by their duly authorized representatives as of the day and year first above written. CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: ------------------------------------ Name: Michael R. Cunningham Title: President CUNNINGHAM GRAPHICS, INC. By: ------------------------------------ Name: Michael R. Cunningham Title: President THE STOCKHOLDERS: --------------------------------------- Michael R. Cunningham --------------------------------------- Gordon Mays --------------------------------------- Timothy Mays --------------------------------------- James J. Cunningham, Trustee --------------------------------------- William J. Mays, Trustee --------------------------------------- William Edward Shannon, Trustee 5 SCHEDULE I
STOCKHOLDER SHARES OF SHARES OF COMMON EXCHANGE(1) AAA AS OF DISTRIBUTION CGI STOCK STOCK NOTE DECEMBER 31 NOTE ----------- --------- ---------------- ----------- --------- ------------ Michael R. Cunningham 94 2,050,727 $1,896,432 $2,021,536 $1,738,400 Gordon Mays 10.46 228,198 211,030 224,949 193,443 Timothy Mays 7.60 165,803 153,330 163,443 140,551 James J. Cunningham, 6 130,898 121,050 129,034 110,962 Trustee William J. Mays, Trustee 0.45 9,817 9,079 9,678 8,322 William Edward Shannon, 0.45 9,817 9,079 9,678 8,322 Trustee TOTALS 118.96 2,595,260 $2,400,000 $2,558,318 $2,200,000
- ---------- 1 The principal amounts of the Exchange Notes assumes an initial public offering price of $12.00 per share EX-4.2 5 EXHIBIT 4.2 EXHIBIT 4.2 ______________ NUMBER SHARES CUSIP 231157 10 8 [LOGO] CUNNINGHAM GRAPHICS INTERNATIONAL, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY This certifies that is the owner of FULL PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF CUNNINGHAM GRAPHICS INTERNATIONAL, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney, upon surrender of this Certificate, properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: [CUNNINGHAM GRAPHICS INTERNATIONAL, INC. CORPORATE SEAL] COUNTERSIGNED AND REGISTERED CONTINENTAL STOCK TRANSFER AND TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED OFFICER The Corporation will furnish without charge to each stockholder who so requests a statement of the designations, powers, preferences and relative participating, optional or other special rights of each class of stock or series thereof of the Corporation and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the Corporation or the Transfer Agent. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian_________________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act____________________________ in common (State)
Additional abbreviations may also be used though not in the above list. For Value Received, ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________ _______________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated_________________ ___________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER Signature Guaranteed: ________________________________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad 15. EX-5.1 6 EXHIBIT 5.1 EXHIBIT 5.1 [GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE LETTERHEAD] April __, 1998 Cunningham Graphics International, Inc. 629 Grove Street Jersey City, New Jersey 07310 Ladies and Gentlemen: You have requested our opinion with respect to the public offering and sale by you, Cunningham Graphics International, Inc., a New Jersey corporation (the "Company"), pursuant to a Registration Statement on Form S-1 (No. 333-46541)(the "Registration Statement") under the Securities Act of 1993, as amended (the "Act"), of a maximum of 2,415,000 shares of Common Stock (the "Common Stock"). We have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents and corporate and public records as we deem necessary as a basis for the opinion hereinafter expressed. With respect to such examination, we have assumed the genuineness of all signatures appearing on all documents presented to us as originals, and the conformity to the originals of all documents presented to us as conformed or reproduced copies. Where factual matters relevant to such opinion were not independently established, we have relied upon certificates of appropriate state and local officials, and upon certificates of executive officers and responsible employees and agents of the Company. Based upon the foregoing, it is our opinion that the Common Stock has been duly and validly authorized and when sold, paid for and issued as contemplated by the Registration Statement will be duly and validly issued and fully paid and nonassessable. Cunningham Graphics International, Inc. April __, 1998 Page 2 We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement, and to the use of our name as your counsel in connection with the Registration Statement and in the Prospectus forming a part thereof. In giving this consent, we do not thereby concede that we come within the categories of persons whose consent is required by the Act or the General Rules and Regulations promulgated thereunder. Very truly yours, Gibbons, Del Deo, Dolan, Griffinger & Vecchione A Professional Corporation EX-10.3 7 EXHIBIT 10.3 Exhibit 10.3 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and MICHAEL R. CUNNINGHAM, with an address at 10 Longview Road, Lebanon, New Jersey 08833 ("Employee"); R E C I T A L S: WHEREAS, the Employee is the controlling shareholder, President and Chief Executive Officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of Cunningham Graphics International, Inc. ("CGII") and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.11 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 3 1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.15 "PANEL" shall have the meaning given such terms in Section 8. 1.16 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month period thereafter in the case of a termination of employment of Employee by the Company (including non-extension) for Cause; (ii) the Term and the period thereafter, not to exceed twelve months, which corresponds to the portion of Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6; (iii) the Term and twelve month period thereafter in the case of the termination of Employee's employment voluntarily or as a result of a Disability; and (iv) the Term and the six month period thereafter in the case of the non-extension of this Agreement by the Company other than for Cause. 1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by the Company. 1.19 "TERM" shall mean the period of employment of Employee under this Agreement. 1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as President and Chief Executive Officer of the Company. The duties of Employee shall be to have general supervisory authority over the business of the Company, to prepare and implement a strategic plan for the Company, including the seeking out and consummation of acquisitions for the Company, to perform due diligence on acquisition proposals, to pursue the objectives of the Business, to perform generally those responsibilities and to render services as are necessary and desirable to protect and to advance the best interests of the Company (collectively, the "Duties"), acting, in all instances, under the supervision of and in accordance with the policies set by the Board. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 4 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Subsidiaries, without the prior written consent of the Board, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Subsidiaries, without such written consent, which, in both instances, may be given or withheld by the Board in its absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence outside the State of New Jersey without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the Board or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5. BASIC SALARY/BONUS 5 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $250,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for the President and Chief Executive Officer of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) a monthly allowance for a luxury-type automobile and insurance; (iii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iv) term life insurance in the amount of $3,000,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the extent the same is available at normal market rates; (v) four (4) weeks of paid vacation; and 6 (vi) long term disability insurance coverage consistent with current Company policy. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family for the balance of the stated Term, as if Employee had not been terminated for Disability and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current annual salary. 7 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current annual salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: (a) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal 8 therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. 9 Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 10 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or the Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY 11 The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: Chairman, Compensation Committee If to Employee: Michael R. Cunningham 10 Longview Road Lebanon, New Jersey 08833 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 12 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 13 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts 14 would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: ---------------------------------- Name: Gordon Mays Title: Executive Vice President ---------------------------------- Michael R. Cunningham 15 EX-10.4 8 EXHIBIT 10.4 Exhibit 10.4 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and GORDON MAYS, with an address at 84 Earl Street, Westbury, New York 11590 ("Employee"); R E C I T A L S: WHEREAS, the Employee is a shareholder and senior officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of Cunningham Graphics International, Inc. ("CGII") and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "COMPENSATION" shall have the meaning assigned to that term in Section 4 of this Agreement. 1.10 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.11 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.12 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 180 consecutive days or an aggregate of 210 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.13 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 3 1.14 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 1.15 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.16 "PANEL" shall have the meaning given such terms in Section 8. 1.17 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.18 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month period thereafter in the case of a termination of employment of Employee by the Company for Cause; (ii) the twelve month period thereafter in the case of the termination of Employee's employment voluntarily, other than for Good Reason; and (iii) during the period of Disability. 1.19 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by the Company. 1.20 "TERM" shall mean the period of employment of Employee under this Agreement. 1.21 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Executive Vice President of the Company. The duties of Employee shall be to have general supervisory responsibility for the Company's marketing and business development plans and the Company's information systems (collectively, the "Duties"), acting, in all instances, under the supervision of the President of the Company and in accordance with the policies set by the Board. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are reasonably assigned to him from time-to-time by the Board. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations 4 relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the Board, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the Board in its absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the Board or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement (collectively, the "Compensation"); provided, however, that no Compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5 5. BASIC SALARY/BONUS 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $175,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for an Executive Vice President of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) provision of an automobile at a monthly cost up to $500, plus insurance; (iii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iv) four (4) weeks of paid vacation; (v) long term disability insurance coverage consistent with current Company policy; and 6 (vi) term life insurance in the amount of $1,000,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the extent the same is available at normal market rates. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Compensation for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Compensation for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family for the balance of the stated Term, as if Employee had not been terminated for Disability and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current Basic Salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except 7 clauses (iii) and (iv)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current Basic Salary, payable uon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (iv) until the Term Date or for a period of six months, whichever is longer. 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current Basic Salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (iii) and (iv)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: (a) A reduction or non-payment of Employee's Compensation or failure to review Employee's Compensation as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Compensation and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three 9 arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). 10 In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or the Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11. SURVIVAL 11 The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Gordon Mays 84 Earl Street Westbury, New York 11590 with a copy to: David I. Ferber, Esq. Ferber Chan & Essner 530 Fifth Avenue New York, New York 10036-5101 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any 12 successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this 13 Agreement or the enforceability thereof. No failure of the Company or Employee to exercise any power given it/him hereunder or to insist upon strict compliance by the other party with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the other party to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: ------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer ------------------------------- Gordon Mays 15 EX-10.5 9 EXHIBIT 10.5 Exhibit 10.5 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and between CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), and TIMOTHY MAYS, with an address at 3 Hearthstone Drive, Dix Hills, New York 11746 ("Employee"); R E C I T A L S: WHEREAS, the Employee is a shareholder and senior officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of Cunningham Graphics International, Inc. ("CGII") and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "COMPENSATION" shall have the meaning assigned to that term in Section 4 of this Agreement. 1.10 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.11 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.12 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 180 consecutive days or an aggregate of 210 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.13 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 3 1.14 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 1.15 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.16 "PANEL" shall have the meaning given such terms in Section 8. 1.17 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.18 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month period thereafter in the case of a termination of employment of Employee by the Company for Cause; (ii) the twelve month period thereafter in the case of the termination of Employee's employment voluntarily, other than for Good Reason; and (iii) during the period of Disability. 1.19 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by the Company. 1.20 "TERM" shall mean the period of employment of Employee under this Agreement. 1.21 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Executive Vice President - Sales of the Company. The duties of Employee shall be to have general supervisory responsibility for the Company's sales to major corporate customers (collectively, the "Duties"), acting, in all instances, under the supervision of the President of the Company and in accordance with the policies set by the Board. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to 4 the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the Board, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the Board in its absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the Board or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement (collectively, the "Compensation"); provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5 5. BASIC SALARY/BONUS 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $150,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for Executive Vice President - Sales of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 5.3. COMMISSION. Employee shall be entitled to a commission in the amount of one and one half percent (1 1/2%) on the payments actually collected, net of inkjetting, labeling, insertion, mainframe printing, shipping and mailing charges, in respect of printing and binding charges to New York Life, Credit Suisse First Boston (United States printing jobs only), CIBC Oppenheimer (non-mutual fund jobs only), AICPA, Bear Stearns (fixed income department jobs), Needham, Brown Brothers, National League for Nursing, Benjamin Moore, Outstanding Investor, American Cancer Society, CNET, Prudential Securities, and future customers directly attributable to Employee as determined by the President of the Company. The commission shall be based upon sales booked on and after April 1, 1998. Payment of the commission shall be made on a quarterly basis between 45 and 60 days following the end of each calendar quarter. At the option of the Company, advance payments of the commission, subject to reconciliation later in the year, may be made based upon historical sales levels. 6 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) provision of an automobile at a total monthly cost up to $500, plus insurance; (iii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iv) term life insurance in the amount of $1,000,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the extent the same is available at normal market rates; (v) four (4) weeks of paid vacation; and (vi) long term disability insurance coverage consistent with current Company policy. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Compensation for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Compensation for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family for the balance of the stated Term, as if Employee had not been terminated for Disability and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current Basic Salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current Basic Salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (iv) until the Term Date or for a period of six months, whichever is longer. 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current Basic Salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: (a) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; 8 (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or commission as provided in Section 5.3, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Compensation and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the 9 extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to 10 Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or the Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those 11 products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Timothy Mays 3 Hearthstone Drive Dix Hills, New York 11746 12 with a copy to: David I. Ferber, Esq. Ferber Chan & Essner 530 Fifth Avenue New York, New York 10036-5101 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the 13 meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company or Employee to exercise any power given it/him hereunder or to insist upon strict compliance by the other party with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the other party to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, 14 counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: ------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer --------------------------------- Timothy Mays 15 EX-10.6 10 EXHIBIT 10.6 Exhibit 10.6 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS INTERNATIONAL, INC. ("CGII") and ROBERT NEEDLE, with an address at 45 Ruby Drive, Morganville, New Jersey 07751 ("Employee"); R E C I T A L S: WHEREAS, the Employee is a senior executive officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of CGII and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.11 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 3 1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.15 "PANEL" shall have the meaning given such terms in Section 8. 1.16 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.17 "RESTRICTED PERIOD" shall mean the Term and (i) the twelve month period thereafter in the case of a termination of employment of Employee by the Company (including non-extension) for Cause; (ii) the period thereafter, not to exceed twelve months, which corresponds to the portion of Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6; (iii) the twelve month period thereafter in the case of the termination of Employee's employment voluntarily; and (iv) the three month period thereafter in the case of the termination of Employee's employment as a result of a Disability. The Restricted Period shall end in the event of the non-renewal of the Term. 1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by CGII. 1.19 "TERM" shall mean the period of employment of Employee under this Agreement. 1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Chief Operating Officer of the Company. The duties of Employee shall be to manage the day-to-day manufacturing operations of the Company, including management of facilities and personnel, supervision of the implementation of new technology and oversight of equipment purchases ; to pursue the objectives of the Business, to perform generally those responsibilities and to render services as are necessary and desirable to protect and to advance the best interests of the Company (collectively, the "Duties"), acting, in all instances, under the supervision of the President and Chief Executive Officer, and in accordance with the policies set by the Board. The Company reserves the right to change Employee's title and the scope of the Duties, and upon any such change the Company shall not be in breach of this Agreement provided that (i) the Company does not reduce the Basic Salary, Bonus and other benefits to which Employee is entitled under Sections 5.1, 5.2, 5.3 and 6.1 of this Agreement and (ii) Employee remains in a managerial position with responsibilities related 4 to sales. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the President. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the President, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the President in his absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence outside the State of New Jersey without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the President or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 5 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5. BASIC SALARY/BONUS 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $155,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for the Chief Operating Officer of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. The Committee shall award to Employee a special bonus in the range of $5,000 to $15,000 on or before July 15, 1998 dependent upon the integration into the operations of the Company of the McGraw Hill print shop and the BZW print shop. 5.3. COMMISSION. Employee shall be entitled to a commission in the amount of one percent (1%) on the payments actually collected, net of inkjetting, labeling, insertion, mainframe printing, shipping and mailing charges (the "Commission Base"), in respect of printing and 6 binding charges to Goldman, Sachs & Co. ("Goldman Sachs") and McGraw Hill / S & P by the Company and all other Subsidiaries. In the event that a Subsidiary is not wholly-owned, the commission attributable to sales by such Subsidiary shall be calculated on the basis of the amount derived by multiplying the Commission Base by a percentage equal to the percentage of CGII's voting interest ownership of the Subsidiary. The commission shall be based upon sales booked on and after April 1, 1998. Payment of the commission shall be made on a quarterly basis between 45 and 60 days following the end of each calendar quarter. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) provision of an automobile at a total monthly cost up to $500, plus insurance; (iii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iv) term life insurance in the amount of $500,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the extent the same is available at normal market rates; (v) four (4) weeks of paid vacation; and (vi) long term disability insurance coverage consistent with current Company policy. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options under the CGII 1998 Stock Option Plan (the "Plan") to acquire 50,000 shares of CGII's common stock at the initial public offering price. Such options shall be fully vested upon the closing of CGII's initial public offering. The agreement memorializing the grant of such options shall provide for the "cashless" exercise thereof. Subject to any restrictions imposed upon CGII by the terms of an underwriting agreement, CGII agrees to file with the Securities and Exchange Commission, as soon as practicable following the Commencement Date, a registration statement on Form S-8 covering the sale of shares acquired upon the exercise of options under the Plan. 7 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died, provide for the payment of the life insurance benefit provided for in Section 6.1 and continue payment of the commissions under Section 5.3 in respect of payments actually collected from Goldman Sachs for the duration of the term of a printing services agreement which may be in effect with Goldman Sachs at the time of Employee's death or six months, whichever is longer. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family until the Term Date, and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current annual salary. 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current annual salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (iii) and (v)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: 8 (a) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or commission as provided in Section 5.3, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the 9 Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's 10 qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the 11 Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or any Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. Employee may request a waiver from the Company of a term of this Section 10. The Company agrees to consider any such request in good faith, but it is expressly acknowledged by Employee that the Company shall have no obligation to grant any waiver. 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 12 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company or CGII: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Robert Needle 45 Ruby Drive Morganville, New Jersey 07751 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 13 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 14 Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: -------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: -------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer -------------------------------------------- Robert Needle 16 EX-10.8 11 EXHIBIT 10.8 Exhibit 10.8 EMPLOYMENT AGREEMENT AGREEMENT dated as of March 27, 1998 by and among CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS INTERNATIONAL, INC. ("CGII") and ROBERT M. OKIN with an address at 9 Quid Place, Manalapan, New Jersey 07726 ("Employee"); R E C I T A L S: WHEREAS, the Company desires to employ the Employee as a Senior Vice President and Chief Financial Officer; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of CGII and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 6.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean April 6, 1998. 1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.11 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 1.14 "PANEL" shall have the meaning given such terms in Section 8. 3 1.15 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.16 "RESTRICTED PERIOD" shall mean the Term and the twelve month period thereafter in the case of a termination of employment of Employee by the Company (including non-extension) for Cause; and the Term and the six month period thereafter in all other cases of the termination of Employee's employment whether voluntarily or by the Company (including non-extension). 1.17 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by CGII. 1.18 "TERM" shall mean the period of employment of Employee under this Agreement. 1.19 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Senior Vice President and Chief Financial Officer of the Company. The duties of Employee shall be act as the principal financial officer of CGII and the Company; to supervise the finance, human resources and management information services departments of the Company ; to pursue the objectives of the Business, to perform generally those responsibilities and to render services as are necessary and desirable to protect and to advance the best interests of the Company (collectively, the "Duties"), acting, in all instances, under the supervision of the President and Chief Executive Officer, and in accordance with the policies set by the Board. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the President. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the President, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any 4 other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the President in his absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence outside the State of New Jersey without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the President or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end one year thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the first anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the first anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee three months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5 5. BASIC SALARY/BONUS 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $145,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for the Chief Financial Officer of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 5.3 SIGNING BONUS. Employee will be paid a signing bonus of $5,000 on the Commencement Date in consideration of consulting services and other assistance provided to the Company during evenings and weekends in the period from the date hereof to the Commencement Date. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to other members of senior management; (ii) a monthly allowance of $500 on account of automobile expenses inclusive of insurance; 6 (iii) such other benefits as the Board shall lawfully adopt and approve for members of senior management generally; (iv) three (3) weeks of paid vacation during each Employment Year; provided, however, any vacation must be approved by the President with at least two weeks' prior notice; and (v) long term disability insurance coverage consistent with current Company policy. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options under the CGII 1998 Stock Option Plan (the "Plan") to acquire 45,000 shares of CGII's common stock at the initial public offering price. Such options shall be fully vested upon the closing of CGII's initial public offering. Subject to any restrictions imposed upon CGII by the terms of an underwriting agreement, CGII agrees to file with the Securities and Exchange Commission, as soon as practicable following the closing of its initial public offering, a registration statement on Form S-8 covering the sale of shares acquired upon the exercise of options under the Plan. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family until the Term Date, and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (iii) and (iv)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, if the Change of Control occurs within six months of the Commencement Date, with the lump sum amount increasing by a factor of one half of the Employee's then current annual salary on each six month anniversary of the Commencement Date thereafter, to a maximum of two times the Employee's then current annual salary. 7.6 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause shall be communicated by written Notice of Termination to Employee. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the basis of determination of the remaining payments due to Employee under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, Employee notifies the Company that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and Employee pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute 8 pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. 9 This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material 10 interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or any Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 11 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company or CGII: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Robert M. Okin 9 Quid Place Manalapan, New Jersey 07726 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total 12 Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 13 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.7 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: --------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: --------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer -------------------------------------------- Robert M. Okin 15 EX-10.15 12 EXHIBIT 10.15 Exhibit 10.15 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS INTERNATIONAL, INC. ("CGII") and IOANNIS LYKOGIANNIS, with an address at 15 Elmwood Drive, Warren, N.J. 07059 ("Employee"); R E C I T A L S: WHEREAS, the Employee is a senior executive officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of CGII and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.11 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 3 1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.15 "PANEL" shall have the meaning given such terms in Section 8. 1.16 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month period thereafter in the case of a termination of employment of Employee by the Company (including non-extension) for Cause; (ii) the Term and the period thereafter, not to exceed twelve months, which corresponds to the portion of Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6; (iii) the Term and twelve month period thereafter in the case of the termination of Employee's employment voluntarily or as a result of a Disability; and (iv) the Term and the six month period thereafter in the case of the non-extension of this Agreement by the Company other than for Cause. 1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by CGII. 1.19 "TERM" shall mean the period of employment of Employee under this Agreement. 1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Senior Vice President - Operations of the Company. The duties of Employee shall be to manage internal production operations of the Company (collectively, the "Duties"), acting, in all instances, under the supervision of the President and the Chief Operating Officer, and in accordance with the policies set by the Board. The Company reserves the right to change Employee's title and the scope of the Duties, and upon any such change the Company shall not be in breach of this Agreement provided that (i) the Company does not reduce the Basic Salary, Bonus and other benefits to which Employee is entitled under Sections 5.1, 5.2 and 6.1 of this Agreement and (ii) Employee remains in a managerial position with responsibilities related to production activities. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 4 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the President. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the President, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the President in his absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence outside the State of New Jersey without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the President or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5. BASIC SALARY/BONUS 5 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $119,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for a Senior Vice President of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: (i) provision of an automobile at a total monthly cost up to $500, inclusive of insurance; (ii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iii) four (4) weeks of paid vacation; (iv) long term disability insurance coverage consistent with current Company policy; and (v) term life insurance in the amount of $250,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the exent the same is available at normal market rates. 6 Employee shall have the option to be included in the Company's medical insurance plan which is provided to other senior officers of the Company. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options under the CGII 1998 Stock Option Plan (the "Plan") to acquire 50,000 shares of CGII's common stock at the initial public offering price. Such options shall be fully vested upon the closing of CGII's initial public offering. Subject to any restrictions imposed upon CGII by the terms of an underwriting agreement, CGII agrees to file with the Securities and Exchange Commission, as soon as practicable following the Commencement Date, a registration statement on Form S-8 covering the sale of shares acquired upon the exercise of options under the Plan. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family until the Term Date, and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (ii) and (iii)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current annual salary. 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current annual salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (ii) and (iii)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: (a) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 8 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the 9 matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. 10 The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or any Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company or CGII: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Ioannis Lykogiannis 15 Elmwood Drive Warren, New Jersey 07059 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This 12 Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 13 Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: ----------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: ----------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer ---------------------------------------------- Ioannis Lykogiannis EX-10.16 13 EXHIBIT 10.16 Exhibit 10.16 EMPLOYMENT AGREEMENT AGREEMENT dated as of April 13, 1998 by and among CUNNINGHAM GRAPHICS, INC., a New Jersey corporation, with its principal offices located at 629 Grove Street, Jersey City, New Jersey 07310 (the "Company"), CUNNINGHAM GRAPHICS INTERNATIONAL, INC. ("CGII") and ROBERT M. ZANISNIK, with an address at 30 Cypress Terrace, Springfield, New Jersey 07081 ("Employee"); R E C I T A L S: WHEREAS, the Employee is a senior executive officer of the Company; and WHEREAS, the Company is contemplating a reorganization, by which it will become a wholly-owned subsidiary of CGII and will be followed by an initial public offering of common stock by CGII, and wishes to memorialize the terms of the Employee's employment by the Company prior to the consummation of such transactions; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "AFFILIATE" shall mean a Person which, directly or indirectly, controls, is controlled by or is under common control with CGII or the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the voting interests of the Person in question. 1.2 "BASIC SALARY" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "BOARD" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "BUSINESS" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, commercial printing and services ancillary thereto. 1.5 "CAUSE" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act, that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "CHANGE OF CONTROL" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the Commencement Date (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "COMMENCEMENT DATE" shall mean the date that the Company's Registration Statement on Form S-1 is declared effective by the United States Securities and Exchange Commission and the Company consummates the initial public offering of its securities. 1.9 "CONFIDENTIAL INFORMATION" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "DATE OF TERMINATION" shall mean the Term Date, or such earlier date upon which this Agreement shall terminate pursuant to Section 7 hereof. 1.11 "DISABILITY" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "DUTIES" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "EMPLOYMENT YEAR" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 3 1.14 "GOOD REASON" shall have the meaning given such term in Section 7.6. 1.15 "PANEL" shall have the meaning given such terms in Section 8. 1.16 "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.17 "RESTRICTED PERIOD" shall mean (i) the Term and the twelve month period thereafter in the case of a termination of employment of Employee by the Company (including non-extension) for Cause; (ii) the Term and the period thereafter, not to exceed twelve months, which corresponds to the portion of Employee's annual salary paid as a lump sum pursuant to Section 7.5 or 7.6; (iii) the Term and twelve month period thereafter in the case of the termination of Employee's employment voluntarily or as a result of a Disability; and (iv) the Term and the six month period thereafter in the case of the non-extension of this Agreement by the Company other than for Cause. 1.18 "SUBSIDIARY" shall mean a Person, 50% or more of the outstanding voting interests of which is owned or controlled, directly or indirectly, by CGII. 1.19 "TERM" shall mean the period of employment of Employee under this Agreement. 1.20 "TERM DATE" shall have the meaning assigned to that term in Section 3 of this Agreement. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 EMPLOYMENT; TITLE; DUTIES. The Company hereby employs Employee, and Employee hereby accepts appointment, as Senior Vice President of the Company. The duties of Employee shall be to manage production and customer service activities of the Company (collectively, the "Duties"), acting, in all instances, under the supervision of the President and Chief Executive Officer, and in accordance with the policies set by the Board. The Company reserves the right to change Employee's title and the scope of the Duties, and upon any such change the Company shall not be in breach of this Agreement provided that (i) the Company does not reduce the Basic Salary, Bonus and other benefits to which Employee is entitled under Sections 5.1, 5.2, 5.3 and 6.1 of this Agreement and (ii) Employee remains in a managerial position with responsibilities related to production activities. To the extent that the Board determines to procure a policy of directors and officers liability insurance, the Company shall take such actions as are necessary to include Employee within the coverage of such policy. 4 2.2 PERFORMANCE OF DUTIES. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the President. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Affiliates, without the prior written consent of the President, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Affiliates, without such written consent, which, in both instances, may be given or withheld by the President in his absolute discretion. 2.3 LOCATION OF EMPLOYMENT. The principal place of employment of Employee shall be within a thirty mile radius of Jersey City, New Jersey or such other location as is consented to by Employee. The Duties shall not require Employee to relocate his residence without his consent. It is, however, distinctly understood and agreed that Employee may be required, in connection with the performance of his duties, to work from time to time at other locations designated by the President or as required in connection with the Business of the Company. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement shall commence as of the Commencement Date and shall end three years thereafter, unless extended pursuant to the next sentence or unless sooner terminated pursuant to Section 7 (the later of (i) the third anniversary of the Commencement Date and (ii) the date to which Employee's period of employment has been extended, is the "Term Date"). If Employee's employment hereunder has not previously been terminated in accordance with Section 7 hereof, then on the second anniversary of the Commencement Date, and on each subsequent anniversary of the Commencement Date, the Term shall be extended for one additional year, unless the Board shall provide written notice to Employee six months or more prior to such anniversary date that this Agreement will not be so extended. The rights of termination set forth in Section 7 shall be applicable during any such extended period of employment. 4. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 7. 5 5. BASIC SALARY/BONUS 5.1 BASIC SALARY. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $88,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 BONUS. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation policy in an amount appropriate for a Senior Vice President of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 5.3. COMMISSION. Employee shall be entitled to a commission in the amount of three percent (3%) on the payments actually collected, net of inkjetting, labeling, insertion, mainframe printing, shipping and mailing charges, in respect of printing and binding charges to GAB Business Service, Inc. (Customer #6000) and The Prudential Insurance Company of America and affiliates (Customers #15165, 15166,15167,15168,15169) and such other accounts obtained by the Company which are attributable to Employee and which have been approved by the senior executive officer of the Company with responsibility for supervising marketing (presently Gordon Mays). The commission shall be based upon sales booked on and after April 1, 1998. Payment of the commission shall be made on a quarterly basis between 45 and 60 days following the end of each calendar quarter. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 ADDITIONAL BENEFITS. The Company shall provide the following additional benefits to Employee during the Term: 6 (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iii) term life insurance in the amount of $300,000 payable to his spouse, or such other designated beneficiary as Employee may specify from time to time, to the extent the same is available at normal market rates; (iv) three (3) weeks of paid vacation; and (v) long term disability insurance coverage consistent with current Company policy. 6.2 REIMBURSEMENT FOR EXPENSES. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any related travel expenses in accordance with this Section 6.2. 6.3. STOCK OPTIONS. The Company confirms the grant to Employee of options under the CGII 1998 Stock Option Plan (the "Plan") to acquire 10,000 shares of CGII's common stock at the initial public offering price. Such options shall be fully vested upon the closing of CGII's initial public offering. Subject to any restrictions imposed upon CGII by the terms of an underwriting agreement, CGII agrees to file with the Securities and Exchange Commission, as soon as practicable following the Commencement Date, a registration statement on Form S-8 covering the sale of shares acquired upon the exercise of options under the Plan. 7. TERMINATION OF EMPLOYMENT 7.1 DEATH. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, pay any other amounts which were accrued but unpaid, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 6.1. 7.2 DISABILITY. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment, pay any other amounts which were accrued but unpaid, and provide welfare benefits to his family until the Term Date, and pay or provide for the payment of the disability benefit provided for in Section 6.1, until Employee reaches age 65. 7 7.3 VOLUNTARY TERMINATION. This Agreement may be terminated by Employee at any time with or without cause upon 30 days prior written notice to the Company. After such 30 day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 7.4 TERMINATION FOR CAUSE. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 7.8. 7.5 TERMINATION WITHOUT CAUSE. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to one half of Employee's then current annual salary, payable upon the Date of Termination, payment of any accrued but unpaid amounts, and provided with the benefits described in Section 6.1 (except clauses (ii) and (iv)) until the Term Date. If a Change of Control occurs and this Agreement is terminated by the Company without Cause within a period of one year following the Change of Control, then Employee shall be entitled to a lump sum payment equal to two times his then current annual salary. 7.6. TERMINATION FOR GOOD REASON. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to two times his then current annual salary payable on the Date of Termination and provided with the benefits described in Section 6.1 (except clauses (ii) and (iv)) until the Term Date. For purposes of this Agreement, Good Reason shall mean: (a) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (b) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (c) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; 8 (d) The failure of the Company to award or pay Employee the Bonus as provided in Section 5.2, or commission as provided in Section 5.3, or the failure of the Company to provide Employee with the benefits provided for in Section 6.1. 7.7 NOTICE OF TERMINATION. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.8 DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a dispute exists as to the reasons given in the Notice of Termination (a "Dispute" and the giving of such notice, a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute asserted by Employee ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph, exclusive of accrued, unpaid amounts prior to the Date of Termination, shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be canceled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in this Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees 9 incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 10 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 DELIVERY OF MATERIAL. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. NON-COMPETITION PROVISIONS Employee agrees that he will not, during the Restricted Period, compete directly or indirectly with the Business. The phrase "compete directly or indirectly with the Business" shall be deemed to include, without limiting the generality thereof, (1) engaging or having a material interest, directly or indirectly, as owner, employee, officer, director, partner, sales representative, stockholder, capital investor, lessor, renderer of consultation services or advise, either alone or in association with other, in the operation of any aspect of any type of business or enterprise competitive with the Business; (2) soliciting any of the employees of the Company or any Affiliate to leave the employ of the Company or any Affiliate; (3) soliciting any of the employees of the Company or any Affiliate to become employees of any other Person; or (4) soliciting any customer of the Company or any Affiliate with respect to the Business. Similarly, Employee shall not raid, entice or induce any Person who on the Date of Termination is, or within one (1) year immediately preceding the Date of Termination was, a customer of the Company or any Affiliate, to become a customer of any other Person for products or services the same as, or similar to, those products and services as from time to time shall be provided by the Company or any Affiliate, and Employee shall not approach any Person for such purpose; nor shall Employee raid, entice or 11 induce any Person who on the Date of Termination is, or within one year immediately preceding the Date of Termination was, an employee of the Company or any Affiliate, to become employed by any other Person; similarly, Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other Person or assist any such other Person in taking any such action. The phrase "compete directly or indirectly with the Business" shall not be deemed to include an ownership interest as an inactive investor, which, for purposes of this Agreement, shall mean only the beneficial ownership of less than five (5%) percent of the outstanding shares of any series or class of securities of any competitor of the Company or any Affiliate, which securities of such series or class are publicly traded in the securities market. 11. SURVIVAL The provisions of Sections 7, 8, 9, 10, and 14 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company or CGII: Cunningham Graphics, Inc. 629 Grove Street Jersey City, New Jersey 07310 Attn: President If to Employee: Robert M. Zanisnik 30 Cypress Terrace Springfield, New Jersey 07081 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be 12 given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company except to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. INTEGRATION. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or 13 oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. NO WAIVER. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 GOVERNING LAW. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 17.2 HEADINGS. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 OBLIGATIONS OF COMPANY. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.8 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 14 17.5 RIGHTS OF BENEFICIARIES OF EMPLOYEE. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. CUNNINGHAM GRAPHICS, INC. By: --------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer CUNNINGHAM GRAPHICS INTERNATIONAL, INC. By: --------------------------------------------- Name: Michael R. Cunningham Title: President and Chief Executive Officer -------------------------------------------- Robert M. Zanisnik 15 EX-23.2 14 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated January 16, 1998, in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-46541) and related Prospectus of Cunningham Graphics International, Inc. for the registration of 2,415,000 shares of its common stock. /s/ Ernst & Young LLP Princeton, New Jersey April 16, 1998 EX-23.3 15 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus of Cunningham Graphics International, Inc. for the registration of 2,415,000 shares of its common stock and to the inclusion therein of our report dated 11 February 1998 with respect to the consolidated financial statements of Roda Limited and the financial statements of Roda Print Concepts Limited (Predecessor). /s/ ERNST & YOUNG Chartered Accountants London, England 16 April 1998 -----END PRIVACY-ENHANCED MESSAGE-----