SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to
Rule 14a-11(c) or Rule 14a-12
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
______________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
(5) Total fee paid:
______________________________________________________________________
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:_______________________________________________
(2) Form, Schedule or Registration Statement No.:_________________________
(3) Filing Party:_________________________________________________________
(4) Date Filed:___________________________________________________________
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
The undersigned hereby appoints Michael R. Cunningham with full power of
substitution, as proxy for the undersigned, to attend the annual meeting of
stockholders of Cunningham Graphics International, Inc. (the "Company"), to be
held at the law offices of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, One
Riverfront Plaza, 16th Floor, Newark, New Jersey 07102 on May 11, 1999, at 10:00
a.m. Eastern Daylight Time, or any adjournment thereof, and to vote the number
of shares of common stock of the Company that the undersigned would be entitled
to vote, and with all the power the undersigned would possess, if personally
present, as follows:
1. [ ] For or [ ] Withhold Authority to vote for the following nominees for
election as Class A directors: Arnold Spinner, Stanley J. Moss.
(Instruction: To withhold authority to vote for an individual nominee,
write the nominee's name on the line provided below.)
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2. Approval of the adoption of the Company's Employee Stock Purchase Plan.
For [ ] Against [ ] Abstain [ ]
3. Approval of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
For [ ] Against [ ] Abstain [ ]
4. The Proxy is authorized to vote in his discretion upon such other matters
as may properly come before the meeting.
(Continued on reverse side)
(Continued from previous page)
The Proxy will vote as specified herein or, if a choice is not specified,
he will vote "For" the nominees listed in Item 1 and "For" the proposals set
forth in Items 2 and 3.
This Proxy is solicited by the Board of Directors of the Company.
Receipt of the Notice of
Annual Meeting of
Stockholders, Proxy Statement
dated April 7, 1999 and Annual
Report to Stockholders is
hereby acknowledged:
Dated: _________________, 1999
______________________________
______________________________
______________________________
(Signature)
(Please sign exactly as your
name appears hereon,
indicating, where proper,
official position or
representative capacity).
Cunningham Graphics International, Inc.
629 Grove Street
Jersey City, New Jersey 07310
April 7, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors of Cunningham Graphics International,
Inc. (the "Company"), I cordially invite you to attend the 1999 Annual Meeting
of Stockholders (the "Meeting"). The Meeting will be held at the law offices of
Gibbons, Del Deo, Dolan, Griffinger & Vecchione, One Riverfront Plaza, 16th
Floor, Newark, New Jersey 07102 on May 11, 1999 at 10:00 a.m. Eastern Daylight
Time. The formal notice of the Meeting appears on the next page and directions
appear on the back cover. During the Meeting, stockholders who are present will
have the opportunity to meet and ask questions of our senior management team.
We believe that interaction between stockholders and management is
important and hope that you will be able to attend the Meeting.
Whether or not you are able to attend the Meeting, it is important that
your views be represented. To be sure that happens, please sign and date the
enclosed proxy card and return it in the envelope provided. If you plan to
attend the Meeting, please check the appropriate box on the proxy card.
Sincerely,
/s/ Michael R. Cunningham
Michael R. Cunningham
Chairman of the Board, President and
Chief Executive Officer
Cunningham Graphics International, Inc.
629 Grove Street
Jersey City, New Jersey 07310
----------------------------------------
Notice of Annual Meeting of Stockholders
To Be Held May 11, 1999
----------------------------------------
To Our Stockholders:
The 1999 Annual Meeting of Stockholders of Cunningham Graphics
International, Inc. (the "Company") will be held at the law offices of Gibbons,
Del Deo, Dolan, Griffinger & Vecchione, One Riverfront Plaza, 16th Floor,
Newark, New Jersey 07102, on May 11, 1999 at 10:00 a.m. Eastern Daylight Time,
for the following purposes:
(1) To elect two Class A directors to hold office for a term of three
years or until their successors have been duly elected and qualified.
(2) To approve the adoption of the Company's Employee Stock Purchase Plan.
(3) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 22, 1999,
as the record date for determining the stockholders entitled to notice of and to
vote at the meeting and any adjournment thereof.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
Stockholders unable to attend the meeting are asked to complete, sign and
date the enclosed proxy and return it promptly by mail in the enclosed
self-addressed envelope, which does not require postage if mailed in the United
States.
By Order of the Board of Directors
TIMOTHY MAYS
Secretary
April 7, 1999
Jersey City, New Jersey
Cunningham Graphics International, Inc.
629 Grove Street
Jersey City, New Jersey 07310
----------------------------------
Proxy Statement for Annual Meeting
----------------------------------
This Proxy Statement is furnished to you by the Board of Directors (the
"Board of Directors") of Cunningham Graphics International, Inc., a New Jersey
corporation (the "Company"), in connection with the solicitation of proxies to
be used at the Annual Meeting of Stockholders (the "Meeting") to be held at the
law offices of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, One Riverfront
Plaza, 16th Floor, Newark, New Jersey 07102, on May 11, 1999 at 10:00 a.m.
Eastern Daylight Time, and at any adjournment thereof. This Proxy Statement and
the accompanying Annual Report, Notice and Proxy are being mailed to
stockholders on or about April 8, 1999. The principal executive offices of the
Company are located at the address indicated above.
Only stockholders of record at the close of business on the record date,
March 22, 1999 (the "Record Date"), will be entitled to vote at the Meeting and
at all adjournments thereof.
On March 22, 1999, there were outstanding and entitled to vote 5,703,216
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"). Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Common Stock entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Holders of Common Stock have no cumulative voting rights.
VOTING OF PROXIES
If the proxy is properly signed by you and is not revoked, your shares will
be voted at the Meeting as you direct on the proxy, or if no manner is specified
with respect to any matter, your shares will be voted by the persons designated
to vote the proxy (a) "FOR" the election of each of Arnold Spinner and Stanley
J. Moss as Class A directors of the Company; (b) "FOR" the adoption of the
Company's Employee Stock Purchase Plan; (c) "FOR" the ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending December 31, 1999; and (d) in connection with the transaction
of such other business as may properly be brought before the Meeting, in
accordance with the judgment of the person or persons voting the proxy. If any
of the nominees for director is unable to serve or for good cause will not
serve, an event that is not anticipated by the Company, the shares represented
by the accompanying proxy will be voted for a substitute nominee designated by
the Board of Directors, or the Board of Directors may determine to reduce the
size of the Board of Directors.
You may revoke the proxy at any time prior to the Meeting by giving notice
of revocation in writing to the Secretary of the Company, by duly executing and
delivering to the Secretary of the Company a proxy bearing a later date, or by
voting in person at the Meeting.
Directors of the Company will be elected by a majority of the vote of the
outstanding shares of Common Stock present, in person or by proxy, and entitled
to vote at the Meeting. The affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock
present, in person or by proxy, and entitled to vote at the Meeting is required
for the ratification and approval of, unless otherwise required by the New
Jersey Business Corporation Act or the Company's Certificate of Incorporation,
any other matter which may be put to a stockholder vote at the Meeting. Votes
will NOT be considered cast if the shares are not voted for any reason,
including an abstention indicated as such on a written proxy or ballot, if
directions are given in a written proxy to withhold votes, or if the votes are
withheld by a broker. Votes cast, either in person or by proxy, will be
tabulated by Continental Stock Transfer & Trust Company, the Company's transfer
agent.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information, as of April 1, 1999,
with respect to the beneficial ownership of Common Stock of the Company for (i)
each person who is known by the Company to beneficially own more than 5% of
Common Stock; (ii) each named executive officer listed in the Summary
Compensation table below; (iii) each director of the Company; and (iv) all
directors and executive officers as a group. The Company has been advised that
each stockholder listed below has sole voting and dispositive power with respect
to such shares unless otherwise noted in the footnotes following the table.
Name and Address Amount and Nature Percent of
of Benficial Owner(1) of Beneficial Ownership Class(1)
--------------------- ----------------------- --------
Michael R. Cunningham, Chairman of the 2,032,928(2) 35.6%
Board, President and Chief Executive
Officer
Gordon Mays, 228,198(3) 4.0%
Director and Executive Vice President
Timothy Mays, 165,803(4) 2.9%
Executive Vice President of Sales
and Secretary
Robert Needle, 50,000(5) *
Chief Operating Officer
Robert M. Okin, 45,000(5) *
Senior Vice President and
Chief Financial Officer
Ioannis Lykogiannis, 50,000(5) *
Senior Vice President, Operations
2
Name and Address Amount and Nature Percent of
of Benficial Owner(1) of Beneficial Ownership Class(1)
--------------------- ----------------------- --------
James J. Cunningham, 147,798(6)(7) 2.6%
Director
Arnold Spinner, 15,000(7) *
Director
Laurence Gerber, 20,000(7) *
Director
Stanley J. Moss, 16,000(7) *
Director
Awad Asset Management, Inc. 534,885(8) 9.4%
250 Park Ave., 2nd fl.
New York, NY 10177
Putnam Investments, Inc. 407,400(9) 7.1%
One Post Office Square
Boston, MA 02109
Hacienda Resources Limited 398,216(10) 7.0%
Flat A, 20th floor, Eden Garden
9-11 Lok Fung Path
Shatin, New Territories
Hong Kong
Pilgrim Baxter & Associates, Ltd. 297,700(11) 5.2%
825 Duportail Road
Wayne, PA 19087
All Directors and Executive Officers 2,770,727 46.9%
as a Group (10
persons)(12)
* 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 Mr. M.
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.
(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.
3
(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 currently exercisable.
(6) Includes the 130,898 shares referred to in footnote (2). Also includes an
aggregate of 400 shares held by trusts for the benefit of James J.
Cunningham's children, of which Mr. J. Cunningham serves as trustee and of
which he has the sole right to vote and dispose of such shares.
(7) Includes 15,000 shares underlying options which have been granted to the
designated person, all of which are currently exercisable.
(8) The beneficial owner reported this information as of February 16, 1999.
(9) The reported beneficial ownership is directly through Putnam Investments,
Inc. ("PI") and indirectly through PI's wholly-owned subsidiaries, Putnam
Investment Management, Inc. ("PIM"), and the Putnam Advisory Company, Inc.
("PAC"). PI is a wholly-owned subsidiary of Marsh & McLennan Companies,
Inc. ("M&MC"). PI reported that it had shared voting power as to 227,400
shares and shared dispositive power as to 407,400 shares. PIM reported that
it had shared dispositive power as to 134,900 shares. PAC reported that it
had shared voting power as to 227,400 shares and shared dispositive power
as to 272,500 shares. M&MC and PI expressly declared that the filing of the
Schedule 13G shall not be deemed an admission by either or both of them
that they are for purposes of Section 13(d) or 13(g) of the Securities
Exchange Act of 1934, as amended, the beneficial owner of any securities
covered by Schedule 13G, and further stated that neither of them have any
power to vote or dispose of, or direct the voting or disposition of, any of
the securities in this table. The beneficial owner reported this
information as of February 4, 1999.
(10) Hacienda Resources Limited, a British Virgin Islands corporation, was
formed by Messrs. Lam Hok Ling and Tung Hok Ki to take title to the shares
of Common Stock issued by the Company on January 13, 1999 as part of the
purchase price for the acquisition of Workable Company Limited, and its
affiliated companies, the Company's subsidiary in Hong Kong. To the
Company's knowledge, such individuals have shared voting and dispositive
power to the 398,216 shares.
(11) The beneficial owner reported this information as of February 8, 1999.
(12) Includes 145,000 and 60,000 shares subject to options which have been
granted to officers and directors of the Company, respectively, and which
are currently exercisable, and excludes the shares referred to in footnotes
(3) and (4).
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Certificate of Incorporation, which became effective on
January 12, 1998, requires that the Board of Directors be divided into three
classes. In accordance with the Company's Certificate of Incorporation, upon the
completion of the Company's initial public offering of Common Stock on April 27,
1998, Class A directors were initially elected for a term that expires as of the
1999 annual meeting of the stockholders of the Company, Class B directors were
initially elected for a term that expires as of the 2000 annual meeting of
stockholders, and Class C directors were initially elected for a term that
expires as of the 2001 annual meeting of stockholders. At each annual meeting,
directors will be elected for a term of three years so that the term of office
of one class of directors will expire each year.
4
Two individuals are being nominated for election at the Meeting to serve as
Class A directors for a term of three years or until the election and
qualification of their successors.
The affirmative vote of the holders of a majority of the shares of Common
Stock voted in person or by proxy at the Meeting is required for the election of
each director. Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of Arnold Spinner and Stanley J.
Moss. If Messrs. Spinner and Moss become unable to serve or for good cause will
not serve, an event that is not anticipated by the Company, (i) the shares
represented by the proxies will be voted for a substitute nominee or substitute
nominees designated by the Board of Directors or (ii) the Board of Directors may
determine to reduce the size of the Board of Directors. At this time, the Board
of Directors knows of no reason why Messrs. Spinner and Moss may not be able to
serve as directors if elected.
The Board of Directors recommends a vote "FOR" the election of each of the
above nominees.
The name and age of each of the nominees and each of the incumbent
directors whose term will continue following the Meeting, their respective
positions with the Company and the period during which each such individual has
served as a director are set forth below. Additional biographical information
concerning each of the nominees and each of the incumbent directors, executive
officers and key employees of the Company follows the table.
5
Name Age Position with the Company Held Position Since
---- --- ------------------------- -------------------
Michael R. Cunningham 39 Chairman of the Board, President and 1998
Chief Executive Officer (Class C)
Gordon Mays 42 Director and Executive Vice President 1998
(Class C)
Laurence Gerber 42 Director (Class B) 1998
James J. Cunningham 41 Director (Class B) 1998
Arnold Spinner 64 Director (Class A) 1998
Stanley J. Moss 68 Director (Class A) 1998
CERTAIN BIOGRAPHICAL INFORMATION CONCERNING
INCUMBENT DIRECTORS AND EXECUTIVE OFFICERS
Michael R. Cunningham, the principal founder of the Company and Cunningham
Graphics, Inc., its predecessor and now wholly-owned subsidiary ("CGI"), has
been the President and Chief Executive Officer of the Company and CGI since
each's inception in 1998 and 1983, respectively. Mr. Cunningham 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 or CGI 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.
Laurence Gerber has been a Director of the Company since April 1998. He 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).
James J. Cunningham has been a Director of the Company or CGI 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.
6
Arnold Spinner, Ph.D, has been a Director of the Company since April 1998.
He 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.
Stanley J. Moss has been a Director of the Company since April 1998. He 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).
Timothy Mays, 40, has served as Executive Vice President of Sales and
Secretary of the Company or CGI 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, 40, joined CGI 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 or CGI 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 and Co., first as Art Director of the Graphics Department and
then as Manager of Print Operations.
Robert M. Okin, 53, 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. From June 1997 to April 1998,
he had been Vice President and Chief Financial Officer of Applied Printing
Technologies, L.P. In 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, 47, has served as Senior Vice President, Operations of
the Company or CGI since 1995. Mr. Lykogiannis has served in various capacities
for the Company or CGI 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.
7
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who beneficially own
more than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and The Nasdaq Stock Market, Inc. Based solely on a review of the
copies of reports furnished to the Company and written representations from the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's equity securities, the Company believes that, during
fiscal year 1998, all filing requirements applicable to its officers, directors
and ten percent beneficial owners were met, except that two Form 4s were filed
late by Michael R. Cunningham and one Form 4 was filed late by James J.
Cunningham.
Meetings of the Board and Committees
During fiscal year 1998, the Board of Directors held two meetings. Each of
the directors attended at least 75% of all meetings of the Board of Directors
and the total number of meetings held by all committees of the Board of
Directors of which each respective director was a member during the time he was
serving as such during the fiscal year ended December 31, 1998.
The Board of Directors has created an Audit Committee and a Compensation
Committee. Each committee is comprised of Arnold Spinner, Stanley J. Moss and
Laurence Gerber. None of the members of the Audit Committee or the Compensation
Committee is or has been an officer or employee of the Company.
The Audit Committee, which held one meeting during fiscal year 1998,
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.
The Compensation Committee, which held one meeting during fiscal year 1998,
has responsibility for making 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.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for each of the fiscal years ended December 31, 1998, 1997 and 1996
of those persons who were, at December 31, 1998, (i) the Chief Executive Officer
and (ii) the other four most highly compensated executive officers of the
Company for the fiscal year ended December 31, 1998 (the "named executive
officers"):
8
Summary Compensation Table
Annual Compensation Long Term Compensation
--------------------------------------------------------------------------
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($) (1)
------------------ ---- ---------- --------- ----------- --------------------
Michael R. Cunningham, Chairman of 1998 240,552 50,000 -- 5,151(2)
the Board, President and Chief 1997 347,798 -- -- --
Executive Officer 1996 324,314 -- -- --
Gordon Mays, 1998 176,270 28,250 -- 2,000(3)
Executive Vice President 1997 170,664 40,775 -- --
1996 153,448 -- -- --
Timothy Mays, 1998 173,810 20,500 -- 44,704(3)(4)
Executive Vice President of Sales 1997 230,150 36,638 -- --
1996 221,137 -- -- --
Robert Needle, 1998 155,577 28,250 50,000 82,566(3)(4)(5)
Chief Operating Officer 1997 159,116 25,000 -- --
1996 133,251 15,000 -- --
Ioannis Lykogiannis, 1998 116,963 12,775 50,000 1,463(6)
Senior Vice President 1997 111,690 14,234 -- --
1996 101,336 1,500 -- --
- --------------
No named executive officer received personal benefits or perquisites during the
fiscal year ended December 31, 1998 in excess of the lesser of $50,000 or 10% of
his aggregate salary and bonus.
(1) The Company provides the named executive officers with certain group life,
health, medical and other non-cash benefits generally available to all
salaried employees and not included in this column pursuant to SEC rules.
(2) Represents (i) matching contributions by the Company under the Company's
401(k) Plan in the amount of $1,541, which are invested in certain mutual
funds, and (ii) insurance premiums under a term life insurance plan in the
amount of $3,610.
(3) Represents matching contributions by the Company under the Company's 401(k)
Plan in the amount of $2,000, which are invested in certain mutual funds.
(4) Includes commissions on sales to specified customers to which Messrs. T.
Mays and Needle are entitled under the terms of their respective employment
agreements in the amounts of $42,704 and $79,921, respectively.
(5) Represents insurance premiums under a term life insurance plan in the
amount of $645.
(6) Represents matching contributions by the Company under the Company's 401(k)
Plan, which are invested in certain mutual funds.
Compensation Arrangements
Michael R. Cunningham, Gordon Mays, Timothy Mays, Robert Needle and Ioannis
Lykogiannis entered into employment agreements with the Company which became
effective on April 27, 1998, the date of the closing of the Company's initial
public offering of Common Stock. Mr. Okin entered into an employment agreement
with the Company which became effective on April 6, 1998.
9
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 the policies
set by the Board of Directors. Pursuant to his employment agreement, Mr.
Cunningham is paid an annual salary 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, which began on April 6,
1998. He is 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.
10
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 agreements with each of Messrs. Cunningham, G. Mays, T. Mays, 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 these 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
of a termination without cause within one year after a "Change of Control." In
Mr. Okin's case, the payment under such circumstances increases from one-half of
his then annual salary to two times his then annual salary over a period of two
years from April 6, 1998. 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.
Compensation of Directors
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 or $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 a price of
$13 per share and automatically receives options to acquire 4,000 shares of
Common Stock each year, beginning in 1999. Directors of the Company are
reimbursed for out-of-pocket expenses incurred in their capacity as directors of
the Company.
Option Grants in Last Fiscal Year
Shown below is information with respect to the options to purchase Common
Stock granted to the Chief Executive Officer and the executive officers named in
the Summary Compensation Table above, during the fiscal year ended December 31,
1998:
11
Potential Realizable
Value at Assumed Annual
Rates Of Stock Price
Appreciation for Option
Individual Grants Term
- ------------------------------------------------------------------------------------------------ ---------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Granted Employees in Exercise Of Base Expiration
Name (#) Fiscal Year (%) Price ($/Sh) (1) Date 5% ($) 10% ($)
---- --- --------------- ---------------- ---- ------ -------
Michael R. Cunningham -- -- -- -- -- --
Gordon Mays -- -- -- -- -- --
Timothy Mays -- -- -- -- -- --
Robert Needle 50,000 21.8 13.00 4/27/08 32,500 65,000
Ioannis Lykogiannis 50,000 21.8 13.00 4/27/08 32,500 65,000
- --------
(1) The exercise price per share for all options granted is equal to the market
price of the underlying Common Stock as of the date of grant.
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to the exercise of options to
purchase Common Stock by the Chief Executive Officer and the executive officers
named in the Summary Compensation Table above and unexercised options to
purchase shares of Common Stock granted to the Chief Executive Officer and such
named executive officers.
Aggregated Option Exercises in Fiscal Year Ended December 31, 1998
and December 31, 1998 Option Value
Number of Securities
Underlying Unexercised Value Of Unexercised
Shares Options at In-The-Money Options
Acquired on Value Fiscal Year-End (#) at Fiscal Year-End ($) (1)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Michael R. Cunningham -- -- -- -- -- --
Gordon Mays -- -- -- -- -- --
Timothy Mays -- -- -- -- -- --
Robert Needle -- -- 50,000 -- 112,500 --
Ioannis Lykogiannis -- -- 50,000 -- 112,500 --
- --------
(1) Based on the difference between the exercise price of the options and the
closing price of the Common Stock on The Nasdaq National Market System on
December 31, 1998.
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee of the Board of Directors makes recommendations
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.
Members of the Compensation Committee during the fiscal year ended December
31, 1998 were Stanley J. Moss, Laurence Gerber and Arnold Spinner. The
Compensation Committee met once during the year.
Set forth below is a discussion of the Company's compensation philosophy,
together with a discussion of the factors considered by the Compensation
Committee in determining the compensation of the Company's Chairman, President
and Chief Executive Officer and other named executive officers in this Proxy
Statement for the fiscal year ended December 31, 1998.
Compensation Philosophy
The Company's compensation philosophy is to provide executives with annual
compensation that rewards individual performance during the year and provides
incentives to executives to improve the long-term performance of the Company. In
connection with the Company's initial public offering which closed in April
1998, the Company entered into written multi-year employment agreements with its
executive officers, the purpose of which is to retain the services of such
officers for extended periods. The minimum salary to which each such executive
officer is entitled is specified in his respective employment agreement, but the
annual bonus for such officers and the awards of stock options, are subject to
the approval of the Compensation Committee from time to time. In the case of
certain executive officers with sales responsibilities, a portion of their
compensation is in the form of commissions on sales to specified customers of
the Company. The principal terms of the employment agreements of executive
officers are described under the heading "Compensation Arrangements" above.
Salaries. The base salaries payable to executive officers for the fiscal
year ended December 31, 1998 was determined by the Company's President.
Bonuses. Historically, the amount of bonuses paid to executive officers was
at the discretion of the Company's President, without reference to specified
criteria. The Compensation Committee decided to continue this practice for the
fiscal year ended December 31, 1998 and awarded bonuses for fiscal year 1998
performance based solely upon the recommendation of the Company's President. The
Compensation Committee, in consultation with senior management, is in the
process of formulating a bonus compensation plan for implementation in fiscal
year 1999 which would make individual bonus awards dependent upon both Company
financial performance and an individual executive officer's contributions to
Company performance.
Grants of Stock Options. Awards of stock options were made to the
non-stockholder executive officers of the Company in connection with the
Company's initial public offering at the offering price, in amounts determined
by the Company's President, in his discretion. The value received by executive
officers from option grants depends completely on increases in the market price
of the Company's Common Stock over the option exercise price. Thus, this
component of compensation is aligned directly with increases in value to the
stockholders of the Company.
Chief Executive Officer Compensation
Effective upon the termination of CGI's S corporation election and the
closing of the Company's initial public offering, under the terms of Mr.
Cunningham's written employment agreement, his base salary was set at $250,000
per annum. In consideration of Mr. Cunningham's role in the Company's expansion
of its domestic customer base and increase in domestic sales, the completion of
the Company's initial public offering and the acquisition of Roda Limited, the
Compensation Committee awarded him a bonus of $50,000 for the fiscal year ended
December 31, 1998.
THE COMPENSATION COMMITTEE
Laurence Gerber, Chairman
Stanley J. Moss
Arnold Spinner
13
Stock Option Plans
1998 Stock Option Plan
In February 1998, the Board of Directors and the then 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 1998 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
ss.422 of the Internal Revenue Code of 1986, as amended (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 an 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. Options have no value unless
the price of the Common Stock appreciates after the date of grant and the holder
satisfies applicable vesting requirements.
As of April 1, 1999, options covering an aggregate of 229,750 shares of
Common Stock are outstanding under the 1998 Plan. Options covering 186,583
shares will be fully vested as of April 23, 1999.
The Directors' Stock Option Plan
In February 1998, the Board of Directors and the then sole stockholder of
the Company adopted the Directors' Stock Option Plan (the "Directors' Plan") and
reserved 150,000 shares of Common Stock for issuance thereunder. Each director
of the Company who is not an employee of the Company or any of its subsidiaries
(an "Outside Director") is eligible to participate in the Directors' Plan.
Each Outside Director received, at the time of the closing of the Company's
initial public offering of Common Stock, an NSO to acquire 15,000 shares of
Common Stock at $13 per share. As of April 1, 1999, options covering an
aggregate of 60,000 shares of Common Stock are outstanding under the Directors'
Plan. Each year, on the first day of the month following the month in which the
annual meeting of stockholders is held, each Outside Director shall
automatically receive an NSO for the purchase of 4,000 additional shares of
Common Stock at the fair market value on such date. 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 are
fully vested six months after the date of grant.
14
Options under the Directors' Plan have a term of ten years and are not
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, the options shall not be exercisable after three years
following the date such person ceased to be an Outside Director. In the case of
the death of a person holding options under the Directors' Plan, options that
have not expired may not be exercised by executors, administrators, heirs or
distributees, after the later of (i) the first anniversary of the date of death
or (ii) the third anniversary of the date the person ceased to be an Outside
Director for a reason other than death.
401(k) Plan
The Company 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 the 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.
Company Performance
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Common Stock against the cumulative
total return of the Nasdaq Stock Market (U.S.) Index, the S&P Specialty Printing
Index and the S&P Services (Commercial and Consumer) Index. The graph assumes
that the value of the investment in the Common Stock and each index was $100 at
April 22, 1998 and that all dividends, if any, were reinvested.
Cumulative Total Return
-------------------------------------------------------------------------------
4-22-98 4-98 5-98 6-98 7-98 8-98 9-98 10-98 11-98 12-98
------- ---- ---- ---- ---- ---- ---- ----- ----- -----
Cunningham Graphics International, Inc. 100 145 137 133 142 98 94 100 136 117
Nasdaq Stock Market (US) 100 102 96 103 102 82 93 97 107 120
S & P Specialty Printing 100 106 108 111 104 89 87 104 106 110
S & P Services (Commercial & Consumer) 100 97 89 89 80 65 68 72 85 88
15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization Prior to Initial Public Offering
On April 22, 1998, the Company's predecessor and now wholly-owned
subsidiary, CGI, reorganized (the "Reorganization") such that all of the
stockholders of CGI contributed all of the outstanding shares of common stock of
CGI to the Company, in exchange for a total of 2,595,260 shares of Common Stock
of the Company and promissory notes (the "Exchange Notes") in the aggregate
principal amount of $2.6 million. In the Reorganization, the Company also
assumed CGI's obligations under promissory notes in the aggregate principal
amount of $2.2 million, representing undistributed S corporation taxable income
(the "Distribution Notes"). Collectively the Exchange Notes and Distribution
Notes are known as the "Reorganization Notes." Concurrently with the
Reorganization, the Company sold 2,530,000 shares of Common Stock in an initial
public offering (the "Offering"). The Company used a portion of the proceeds of
the Offering to repay the Reorganization Notes. The number of shares of Common
Stock, the principal amounts of the Exchange Notes and the principal amounts of
the Distribution Notes, received by each stockholder of CGI in the
Reorganization, are as follows:
Principal of Principal of
Stockholder Shares of Common Stock Exchange Notes Distribution Notes
----------- ---------------------- -------------- ------------------
Michael R. Cunningham 2,050,727 $2,054,472 $1,738,400
Gordon Mays 228,198 228,615 193,443
Timothy Mays 165,803 166,106 140,551
James J. Cunningham, Trustee 130,898 131,137 110,962
William J. Mays, Trustee 9,817 9,835 8,322
William Edward Shannon, Trustee 9,817 9,835 8,322
TOTALS: 2,595,260 $2,600,000 $2,200,000
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.
16
PROPOSAL 2. APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted the Cunningham Graphics International,
Inc. Employee Stock Purchase Plan (the "Plan"), subject to approval by the
stockholders of the Company. The Plan provides a means for employees of the
Company and its domestic subsidiaries to authorize payroll deductions on a
voluntary basis to be used for the periodic purchase of the Company's Common
Stock.
Under the Plan, the Company will initially sell shares to participants at a
price equal to the lesser of 85% of the fair market value of Common Stock at the
beginning of a three-month offering period or 85% of the fair market value of
Common Stock on the purchase date after the end of the offering period. The Plan
permits the Company to change the manner in which purchases are made so that,
instead of the Company selling shares at such a discount, the Company would make
a matching contribution equal to 15% of an employee's payroll contribution,
which funds would then be used for market purchases of Common Stock. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code").
The Board of Directors believes that the Plan will encourage broader stock
ownership by employees of the Company and its domestic subsidiaries and thereby
provide an incentive for employees to contribute to the profitability and
success of the Company. In particular, the Board of Directors intends that the
Plan offer a convenient means for such employees who might not otherwise own
Common Stock in the Company to purchase and hold Common Stock, and that the
discounted sale and matching contribution features of the Plan provide a
meaningful inducement to participate. The Board of Directors believes that
employees' continuing economic interest, as stockholders, in the performance and
success of the Company will further enhance the entrepreneurial spirit of the
Company, which can greatly contribute to the long-term growth and profitability
of the Company.
Description of the Plan
The Plan is set forth in full as Exhibit "A" to this Proxy Statement. The
following description of the material features of the Plan is qualified in its
entirety by reference to Exhibit "A."
Under the terms of the Plan, the shares of the Company's Common Stock which
are to be purchased by participants may either be purchased directly from the
Company or purchased in the market. The maximum number of shares that may be
purchased under the Plan from all sources is 300,000, subject to appropriate
adjustment in the case of any extraordinary dividend or other distribution,
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, or other
similar corporate transaction or event affecting the Common Stock. Shares
purchased from the Company will be either authorized but unissued shares or
treasury shares.
The Plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee will have the exclusive discretion and
authority to interpret the Plan, construe terms, adopt rules and regulations,
prescribe forms, and make all determinations under the Plan, including the
determination of whether the Company will sell shares directly to participants
at a discount (operating as a "discount plan") or will instead make matching
contributions for market purchases (operating as a "matching plan"). Initially,
the Plan will operate as a discount plan.
17
All full-time employees of the Company and its domestic subsidiaries will
be eligible to participate in the Plan beginning six months after commencing
employment, excluding any person who normally works less than 20 hours per week
or less than 5 months per year, and excluding any other employee who owns five
percent or more of the total combined voting power or value of all outstanding
shares of all classes of securities of the Company or any subsidiary.
Approximately 451 employees of the Company and its domestic subsidiaries
currently would be eligible to participate in the Plan.
An eligible employee may enroll for any three-month offering period,
commencing January 1, April 1, July 1 and October 1 of each year, by filing an
enrollment form with the Company at least 15 days before the commencement of the
offering period. After initial enrollment in the Plan, the employee will be
automatically re-enrolled in the Plan for subsequent offering periods unless he
or she files a notice of withdrawal before such offering period begins,
terminates employment or otherwise becomes ineligible to participate.
Upon enrollment in the Plan, the employee must elect a rate at which he or
she will make payroll contributions for the purchase of Common Stock. An
employee generally may elect to make contributions in an amount not less than
one percent nor more than ten percent of such employee's regular earnings (or
such higher or lower rates as the Board of Directors may specify), although an
employee's contributions will be adjusted downward (or refunded) to the extent
necessary to ensure that he or she will not purchase during any offering period
Common Stock that has a fair market value, as of the beginning of the offering
period, in excess of $3,750 (representing an annual limitation of $15,000). All
employee contributions will be made by means of direct payroll deduction. The
contribution rate elected by a participant will continue in effect until
modified by the participant, except that an employee may not increase a
previously elected contribution rate during a given offering period.
The contributions of an employee will be credited to an account maintained
on behalf of such employee by a financial institution, designated as custodian
under the Plan. The Plan provides that purchases of Common Stock are to be made
on the fifth business day after the end of each offering period. As described
above, for so long as the Plan is operated as a "discount plan," the Company
will sell shares directly to the custodian for employees' accounts at a price
equal to the lesser of 85% of the fair market value of Common Stock at the
beginning of the three-month offering period or 85% of the fair market value of
Common Stock on such purchase date. If the Board of Directors designates the
Plan as a "matching plan," discounted sales by the Company would be
discontinued, but the Company instead would make a matching contribution equal
to 15% of an employee's payroll contributions to be used by the custodian to
make market purchases of Common Stock at or promptly after such purchase date.
Pursuant to either of the above methods, shares of the Company's Common
Stock will be purchased on a given purchase date in the aggregate for all
accounts under the Plan. Shares purchased will be credited to the accounts
maintained by the custodian for each participant based upon the average cost of
all shares purchased. Interest may be credited on payroll contributions pending
investment in Common Stock, subject to the discretion of the Compensation
Committee. Dividends paid on Common Stock credited to participants' accounts
will be automatically reinvested in additional shares by the custodian, either
through purchases in the market or directly from the Company (no matching
contributions or discounts will apply to such dividend reinvestment purchases).
Participants will have the exclusive right to vote or direct the voting of
shares credited to their accounts, and will be permitted to withdraw, transfer,
or sell their shares without restriction. Participants' rights under the Plan
are nontransferable except pursuant to the laws of descent and distribution.
18
A participant's enrollment in the Plan may be terminated at any time,
effective for payroll periods or offering periods beginning after the filing of
a notice of termination of enrollment. Enrollment will also terminate upon
termination of a participant's employment by the Company or a domestic
subsidiary or if a participant ceases to meet the eligibility requirements of
the Plan. Upon termination of enrollment, uninvested cash amounts resulting from
previous payroll contributions will be repaid to the participant. The custodian
will continue to hold Common Stock for the account of such a participant until
the participant sells or withdraws the Common Stock, but in no event more than
one year after the participant ceases to be employed by the Company and its
subsidiaries. A participant may also reduce or eliminate future contributions
for future payroll periods without thereby terminating enrollment. In such case,
previous payroll contributions held in the participant's cash account will be
used for the purchase of Common Stock at the next purchase date.
To the extent not paid by the Company, costs and expenses incurred in the
administration of the Plan and maintenance of accounts, and brokerage fees and
commissions for purchases will be paid from participant accounts. The Company
will not pay brokerage fees and expenses relating to sales by participants, and
participants may be charged reasonable fees by the custodian for withdrawals of
share certificates and other specified services. The custodian will be
responsible for furnishing account statements to participants.
The Board of Directors may amend, alter, suspend, discontinue or terminate
the Plan without further stockholder approval, except stockholder approval must
be obtained within one year after the effectiveness of such action if required
by law or regulation or under the rules of any automated quotation system (such
as the Nasdaq National Market System) or securities exchange on which the Common
Stock is then quoted or listed, or if such stockholder approval is necessary in
order for the Plan to continue to meet the requirements of Section 423 of the
Code. Thus, stockholder approval will not necessarily be required for amendments
which might increase the cost of the plan or broaden eligibility. The Plan will
continue until terminated by action of the Board of Directors, although as noted
above the number of shares authorized under the Plan is limited.
Federal Income Tax Consequences
The Company believes that under present law the following federal income
tax consequences would generally result under the Plan. Rights to purchase
shares under the Plan are intended to constitute "options" issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the Code:
(1) The participant is not taxed on the value of the option when it is
granted or when the participant purchases shares under an option (although
the amount of a participant's payroll contributions under the Plan will be
taxable as ordinary income to the participant).
(2) If the participant sells his or her shares in less than two years
after the first day of the offering period during which he or she purchased
the shares, the fair market value of the shares on the date of purchase
less the amount the participant paid for the shares will be taxable as
ordinary income to the participant.
19
(3) If the participant holds the shares for at least two years after
the first day of the offering period during which he or she purchased the
shares, then the taxable amount of ordinary income to the participant will
be the lesser of:
(i) the fair market value of the shares on the first day of the
offering period less the amount the participant paid for the shares,
and
(ii) the fair market value of the shares on the date of sale less
the amount the participant paid for the shares.
(4) In addition, the participant will recognize a long-term or
short-term capital gain or loss, as the case may be, in an amount equal to
the difference between the amount realized upon any sale of the Common
Stock and the participant's basis in the Common Stock. A participant's
basis in the Common Stock is equal to the purchase price plus the amount,
if any, taxed to the participant as ordinary income.
(5) If a participant holds the shares for at least two years, as
described in (3) above, the Company is not entitled to a federal income tax
deduction for any discount in the sale price of Common Stock or matching
contribution applicable to such participant. If a participant sells his or
her shares in less than two years, as described in (2) above, the Company
generally should be entitled to a deduction in an amount equal to the
amount taxed to the participant as ordinary income.
The foregoing provides only a general description of the application of
federal income tax laws to the Plan. The summary does not address the effects of
other federal taxes or taxes imposed under state, local, or foreign tax laws.
Because of the complexities of the tax laws, participants are encouraged to
consult a tax advisor as to their individual circumstances.
The affirmative vote of the holders of a majority of the shares of Common
Stock of the Company present, in person or by proxy, and entitled to vote at the
Meeting is required for the approval of the Plan.
The Board of Directors recommends a vote "FOR" approval of the Company's
Employee Stock Purchase Plan.
PROPOSAL 3. RATIFICATION AND APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Company, subject to stockholder ratification, has selected Ernst &
Young LLP to serve as its independent auditors for the fiscal year ending
December 31, 1999. If the stockholders do not ratify the appointment of Ernst &
Young LLP, the Company may reconsider its selection.
A representative of Ernst & Young LLP is expected to be present at the
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement if he or she desires to do so.
20
The affirmative vote of the holders of a majority of the shares of Common
Stock of the Company present, in person or by proxy, and entitled to vote at the
Meeting is required for the ratification and approval of the appointment of
auditors.
The Board of Directors recommends a vote "FOR" ratification and approval of
the appointment of Ernst & Young LLP as independent auditors of the Company.
Stockholder Proposals For Next Annual Meeting
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company at its offices at
629 Grove Street, Jersey City, New Jersey 07310, on or before December 9, 1999
for consideration for inclusion in the proxy material for such annual meeting of
stockholders.
Expenses Of Solicitation
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
Other Matters
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement, and is not aware that any
other matters will be presented for action at the Meeting. If any other matters
come before the Meeting, the persons named in the enclosed proxy card will vote
the proxy with respect thereto in accordance with their best judgment, pursuant
to the discretionary authority granted by the proxy.
Whether or not you plan to attend the Meeting in person, please complete,
sign, date and return the enclosed proxy card promptly.
By Order of the Board of Directors
Michael R. Cunningham
Chairman of the Board, President
and Chief Executive Officer
Dated: April 7, 1999
21
EXHIBIT A
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The purpose of this Employee Stock Purchase Plan (the "Plan") of Cunningham
Graphics International, Inc. (the "Company") is to encourage stock
ownership by employees of the Company and its Subsidiaries and thereby
provide employees with an incentive to contribute to the profitability and
success of the Company. The Plan, which is intended to qualify as an
"employee stock purchase plan" meeting the requirements of Section 423 of
the Code, is for the exclusive benefit of eligible employees of the Company
and its Subsidiaries.
2. Definitions.
For purposes of the Plan, in addition to the terms defined in Section 1,
terms are defined as set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means the account maintained on behalf of the
Participant by the Custodian for the purpose of holding each
contributions pending investment in Stock.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code will be deemed to
include successor provisions thereto and regulations thereunder.
(d) "Custodian" means the broker-dealer, bank or other financial
institution, including any successor appointed by the Board to act as
custodian under the Plan.
(e) "Discount Plan" means the Plan for any Offering Period for which the
Plan has been designated a Discount Plan in accordance with Section
3(c).
(f) "Earnings" means that portion of a Participant's salary or wages, and
commissions, which is received by a Participant from the Company and
its Subsidiaries for services rendered during a specified pay period.
(g) "Enrollment Date" means the first business day of each Offering
Period.
(h) "Fair Market Value" means the closing sale price of Stock reported in
the table entitled "NASDAQ National Market Issues" or any successor
table in The Wall Street Journal (or, if Stock is then principally
traded on a national securities exchange, in the table reporting
composite transactions for such exchange) for such date or, if no
shares of Stock were traded on that date, on the next preceding day on
which there was such a trade.
(i) "Matching Plan" means the Plan for any Offering Period for which the
Plan has been designated a Matching Plan in accordance with Section
3(c).
(j) "Offering Period" means the three-month period beginning on January 1,
April 1, July 1, or October 1 of each year, with the first Offering
Period to begin July 1, 1999 or October 1, 1999 (as designated by the
Board).
(k) "Participant" means an employee of the Company or a Subsidiary who is
participating in the Plan.
(l) "Purchase Date" means the fifth business day after the end of each
Offering Period.
(m) "Purchase Right" means a Participant's option to purchase shares which
is deemed to be outstanding during an Offering Period. A Purchase
Right represents an "option" as such term is used under Section 423 of
the Code.
(n) "Stock" means the Common Stock, no par value per share, of the
Company, and such other securities as may be substituted or
resubstituted for Stock under Section 4.
(o) "Stock Account" means the account maintained on behalf of the
Participant by the Custodian for the purpose of holding Stock acquired
upon investment under the Plan.
(p) "Subsidiary" means any business entity (other than the Company), which
is organized under the laws of any of the fifty (50) States of the
United States or the District of Columbia, in an unbroken chain of
business entities beginning with the Company if each of the business
entities (other than the last corporation in the unbroken chain ) owns
stock or ownership interests possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock or ownership
interests in one of the other business entities in the chain.
3. Administration.
(a) Board Administration.
The Plan will be administered by the Board; provided, however, that
the Board may delegate any administrative duties and authority (other
than authority to amend the Plan) to any Board committee or to any
officers or employees or committee thereof as the Board may designate
(in which case references herein to the Board will be deemed to mean
the committee or administrator to which such duties and authority have
been delegated). The Board or its delegatee will have the exclusive
discretion and authority to adopt, amend, suspend, waive, and rescind
such rules and regulations and appoint such agents as it may deem
necessary or advisable to administer the Plan, to correct any defect
or supply any omission or reconcile any inconsistency in the Plan and
to construe and interpret the Plan and rules and regulations
thereunder, to furnish to the Custodian such information as the
Custodian may require, and to make all other decisions and
determinations under the Plan (including factual determinations and
determinations relating to eligibility). Any determination hereunder
shall be final and binding on all parties. No person acting in
connection with the administration of the Plan will, in that capacity,
participate in deciding any matter relating to his or her
participation in the Plan.
(b) The Custodian.
The Custodian will act as custodian under the Plan, and will perform
such duties as are set forth in the Plan and in any agreement between
the Company and the Custodian. The Custodian will establish and
maintain, as agent for Participants, Cash and Stock Accounts and any
other subaccounts as may be necessary or desirable for the
administration of the Plan.
(c) Designation of Plan As Matching Plan or Discount Plan.
The Plan will be a Discount Plan for the initial Offering Period after
the effective date of the Plan. With respect to subsequent Offering
Periods, the Board may designate the Plan as either a Matching Plan or
a Discount Plan for any Offering Period that has not yet commenced;
provided, however, that, in the absence of any such designation by the
Board for a particular Offering Period, the Plan will continue to
operate as the same type of Plan most recently designated in this
2
Section 3(c) or by the Board. Any change in the type of Plan under
this Section 3(c) must be communicated to Participants and eligible
employees at least thirty (30) days in advance of the first Offering
Period for which the change will be effective.
(d) Waivers.
The Board may waive or modify any requirement that a notice or
election be made or filed under the Plan a specified period in advance
in an individual case or by adoption of a rule or regulation under the
Plan, without the necessity of an amendment to the Plan.
(e) Other Administrative Provisions.
The Company and each Subsidiary will furnish information from its
records as directed by the Board, and such records, including as to a
Participant's Earnings, will be conclusive on all persons unless
determined by the Board to be incorrect. Each Participant and other
person claiming benefits under the Plan must furnish to the Company in
writing an up-to-date mailing address and any other information as the
Board or Custodian may reasonably request. Any communication,
statement, or notice mailed with postage prepaid to any such
Participant or other person at the last mailing address filed with the
Company will be deemed sufficiently given when mailed and will be
binding upon the named recipient. The Plan will be administered on a
reasonable and nondiscriminatory basis. All Participants will have
equal rights and privileges (subject to the terms of the Plan) with
respect to Purchase Rights outstanding during any given Offering
Period.
4. Stock Subject to Plan.
Subject to adjustment as hereinafter provided, the total number of shares
of Stock reserved and available for issuance or which may be otherwise
acquired upon exercise of Purchase Rights under the Plan will be three
hundred thousand (300,000). Any shares of Stock delivered by the Company
under the Plan may consist, in whole or in part, of authorized and unissued
shares or treasury shares. The number and kind of such shares of Stock
subject to the Plan will be proportionately adjusted, as determined by the
Board, in the event of any extraordinary dividend or other distribution,
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event affecting the Stock.
5. Enrollment and Contributions.
(a) Eligibility.
A full or part-time employee of the Company or a Subsidiary may be
enrolled in the Plan for any Offering Period if such employee was
continuously so employed during the six (6) months preceding the
Enrollment Date, unless one of the following applies to the employee:
(i) Such person's customary employment is twenty (20) hours or less
per week;
(ii) Such person's customary employment is for not more than five (5)
months in any calendar year;
(iii) Such person would, immediately upon enrollment, be deemed to
own, for purposes of Section 423(b)(3) of the Code, an aggregate
of five percent (5%) or more of the total combined voting power
or value of all outstanding shares of all classes of the Company
or any Subsidiary; or
(iv) Such person is no longer employed by the Company or a Subsidiary.
The Company will notify an employee of the date as of which he or she
is eligible to enroll in the Plan, and will make available to each
eligible employee the necessary enrollment forms.
3
(b) Initial Enrollment.
An employee who is eligible under Section 5(a) (or who will become
eligible on or before a given Enrollment Date) may, after receiving
current information about the Plan, initially enroll in the Plan by
executing and filing with the Company's Human Resources Department a
properly completed enrollment form, including thereon the employee's
election as to the rate of payroll contributions for the Offering
Period. To be effective for any Offering Period, such enrollment form
must be filed at least fifteen (15) days before the Enrollment Date
for the Offering Period.
(c) Automatic Reenrollment for Subsequent Offering Periods.
A Participant whose enrollment in and payroll contributions under the
Plan continues throughout an Offering Period will automatically be
reenrolled in the Plan for the next Offering Period unless (i) the
Participant terminates enrollment before the Enrollment Date for the
next Offering Period in accordance with Section 7(a) or (ii) on such
Enrollment Date he or she is ineligible to participate under Section
5(a). The initial rate of payroll contributions for a Participant who
is automatically reenrolled for an Offering Period will be the same as
the rate of payroll contribution in effect at the end of the preceding
Offering Period, unless the Participant files a new enrollment form at
least fifteen (15) days before the Enrollment Date for the Offering
Period designating a different rate of payroll contributions.
(d) Payroll Contributions.
A Participant will make contributions under the Plan by means of
payroll deductions from each payroll period which ends during the
Offering Period, at the rate elected by the Participant in his or her
enrollment form filed nearest to, but not later than, fifteen (15)
days before the Enrollment Date for the Offering Period (except that
such rate may be changed during the Offering Period to the extent
permitted below). The rate of payroll contributions elected by a
Participant may not be less than one percent nor more than ten percent
of the Participant's Earnings for each payroll period, and only whole
percentages may be elected; provided, however, that the Board may
specify a lower minimum rate and higher maximum rate, subject to
Section 8(c) hereof. The foregoing and any election of a Participant
notwithstanding, a Participant's rate of payroll contributions will be
adjusted downward by the Company at any time or from time to time as
necessary to ensure that the limit on the amount of Stock purchased
with respect to an Offering Period set forth in Section 6(a)(iii) or
Section 4 is not exceeded. A Participant may elect to increase,
decrease, or discontinue payroll contributions for future Offering
Periods by filing a new enrollment form at least fifteen (15) days
before the Enrollment Date for the Offering Period designating a
different rate of payroll contributions. In addition, a Participant
may elect to decrease or discontinue payroll contributions during an
Offering Period by filing a new enrollment form, such change to be
effective for any payroll period beginning at least fifteen (15) days
after such filing.
(e) Crediting Participant Payroll Contributions to Cash Accounts.
All payroll contributions by a Participant under the Plan will be
credited to a Cash Account maintained by the Custodian on behalf of
the Participant. The Custodian will credit payroll contributions upon
receipt by the Custodian from the Company of information, in such form
as may be specified by the Custodian, identifying the amount of
payroll contribution to be deposited for each Participant. The Company
will deposit with the Custodian an amount equal to the aggregate
payroll contributions for the Offering Period (not otherwise repaid to
Participants under Section 7(b)) on or before the Purchase Date for
such Offering Period.
4
(f) Crediting Company Matching Allocations to Cash Accounts.
On or before the Purchase Date for an Offering Period for which the
Plan is a Matching Plan, the Company will allocate to each Cash
Account an amount equal to fifteen percent (15%) of the amount
credited to such Cash Account during such Offering Period as payroll
contributions and then remaining in such Account to be applied to the
purchase of Stock upon exercise of the Purchase Right for such
Offering Period. Such allocation by the Company will be rounded to the
nearest whole cent ($.01).
(g) Interest on Cash Accounts.
Cash Accounts may or may not bear interest pending investment in Stock
subject to the exclusive discretion of the Board or its delegatee;
provided, however, that if any Cash Account is credited with interest
during an Offering Period, all Cash Accounts must be credited with
interest during the Offering Period.
6. Purchases of Stock.
(a) Purchase Rights.
Enrollment in the Plan for any Offering Period by a Participant will
constitute a grant by the Company of a Purchase Right to such
Participant for such Offering Period. Each Purchase Right will be
subject to the following terms:
(i) The purchase prices at which Stock will be purchased under a
Purchase Right will be as specified in Section 6(c).
(ii) Except as limited in (iii) below, the number of shares of Stock
that may be purchased upon exercise of the Purchase Right for an
Offering Period will equal the number of shares (including
fractional shares) that can be purchased at the purchase price
specified in Section 6(c) with the aggregate amount credited to
the Participant's Cash Account as of the Purchase Date
(including, for any Offering Period for which the Plan is a
Matching Plan, amounts credited as a result of the Company's
matching allocation under Section 5(f)).
(iii) The number of shares of Stock subject to a Participant's
Purchase Right for any Offering Period will not exceed the number
derived by dividing three thousand seven hundred fifty dollars
($3,750) by one hundred percent (100%) of the Fair Market Value
of one share of Stock on the Enrollment Date for the Offering
Period.
(iv) The Purchase Right will be automatically exercised on the
Purchase Date for the Offering Period.
(v) Payments by a Participant for Stock purchased under a Purchase
Right will be made only through payroll deduction in accordance
with Section 5(d) and (e).
(vi) The Purchase Right will expire on the earlier of the Purchase
Date for the Offering Period or the date on which the
Participant's enrollment in the Plan terminates.
(b) Purchase of Stock.
At or as promptly as practicable after the Purchase Date for an
Offering Period, amounts credited to each Participant's Cash Account
as of such Purchase Date (including, for any Offering Period for which
the Plan is a Matching Plan, amounts credited as a result of the
Company's matching allocation under Section 5(f)) will be applied by
the Custodian to the purchase of shares of Stock, in accordance with
the terms of the Plan. For any Offering Period for which the Plan is a
Matching Plan, shares of Stock will be purchased by the Custodian in
transactions on the
5
NASDAQ National Market System, any securities exchange upon which
Stock is traded, otherwise in the over-the-counter market, or in
negotiated transactions. For any Offering Period for which the Plan is
a Discount Plan, shares of Stock will be purchased by the Custodian
from the Company. Shares sold by the Company may be authorized but
unissued shares or treasury shares, as permitted under Section 4
hereof. The Custodian will aggregate the amounts in all Cash Accounts
when purchasing Stock, and shares so purchased will be allocated to
each Participant's Stock Account in proportion to the cash amounts
withdrawn from such Participant's Cash Account. Upon completion of
purchases in respect of a Purchase Date (which will be completed in
not more than thirty (30) days after the Purchase Date), all shares of
Stock so purchased for a Participant will be credited to the
Participant's Stock Account.
(c) Purchase Price.
The purchase price of each share of Stock purchased in respect of a
Purchase Date will be determined as follows:
(i) For any Offering Period for which the Plan is a Matching Plan,
the purchase price of each share will equal one hundred percent
(100%) of the average cost of all shares of Stock acquired in
respect of such Purchase Date.
(ii) For any Offering Period for which the Plan is a Discount Plan,
the purchase price of each share will equal eighty-five percent
(85%) of the lesser of (A) the Fair Market Value of a share of
Stock on the Enrollment Date or (B) the Fair Market Value of a
share of Stock on the Purchase Date.
(d) Dividend Reinvestment; Other Distributions.
Cash dividends on any Stock credited to a Participant's Stock Account
will be automatically reinvested in additional shares of Stock; such
amounts will not be available in the form of cash to Participants. All
cash dividends paid on Stock credited to Participants' Stock Accounts
will be paid over by the Company to the Custodian at the dividend
payment date. The Custodian will aggregate all purchases of Stock in
connection with dividend reinvestment for a given dividend payment
date. Purchases of Stock for purposes of dividend reinvestment will be
made as promptly as practicable (but not more than thirty (30) days)
after a dividend payment date. The Custodian will make such purchases,
as directed by the Board, either (i) in transactions on the NASDAQ
National Market System, any securities exchange upon which Stock is
traded, otherwise in the over-the-counter market, or in negotiated
transactions or (ii) directly from the Company at one hundred percent
(100%) of the Fair Market Value of a share of Stock on the dividend
payment date. Any shares of Stock distributed as a dividend or
distribution in respect of shares of Stock or in connection with a
split of the Stock credited to a Participant's Stock Account will be
credited to such Account. In the event of any other non-cash dividend
or distribution in respect of Stock credited to a Participant's Stock
Account, the Custodian will, if reasonably practicable and at the
direction of the Board, sell any property received in such dividend or
distribution as promptly as practicable and use the proceeds to
purchase additional shares of Common Stock in the same manner as cash
paid over to the Custodian for purposes of dividend reinvestment.
(e) Voting Rights.
Each Participant will be entitled to vote the number of shares of
Stock credited to his or her Stock Account (including any fractional
shares credited to such account) on any matter as to which the
approval of the Company's shareholders is sought. If a Participant
does not vote or grant a valid
6
proxy with respect to shares credited to his or her Stock Account,
such shares will not be voted. Similar procedures will apply in the
case of any consent solicitation of Company shareholders.
(f) Withdrawals and Transfers.
Shares of Stock may be withdrawn from a Participant's Stock Account,
in which case one or more certificates for whole shares may be issued
in the name of, and delivered to, the Participant, with such
Participant receiving cash in lieu of fractional shares based on the
Fair Market Value of a share of Stock on the date of withdrawal.
Alternatively, whole shares of Stock may be withdrawn from a
Participant's Stock Account by means of a transfer to another
broker-dealer or financial institution that maintains an account for
the Participant, together with the transfer of cash in lieu of
fractional shares based on the Fair Market Value of a share of Stock
on the date of withdrawal. Participants may not designate any other
person to receive shares of Stock withdrawn or transferred under the
Plan. A Participant seeking to withdraw or transfer shares of Stock
must give instructions to the Custodian in such manner and form as may
be prescribed by the Custodian, which instructions will be acted upon
as promptly as practicable. Withdrawals and transfers will be subject
to any fees imposed in accordance with Section 8(a) hereof.
(g) Excess Account Balances.
If any amounts remain in a Cash Account following a Purchase Date as a
result of the limitation set forth in Section 6(a)(iii), such amounts
which resulted from payroll contributions will be returned to the
Participant by the Custodian as promptly as practicable, and such
amounts which resulted from matching allocations by the Company will
be returned to the Company by the Custodian as promptly as
practicable.
7. Termination and Distributions.
(a) Termination of Enrollment.
A Participant's enrollment in the Plan will terminate upon the
earliest of:
(i) the beginning of any payroll period or Offering Period that
begins after he or she files a written notice of termination of
enrollment with the Company, provided that such Participant will
continue to be deemed to be enrolled with respect to any
completed Offering Period for which purchases have not been
completed;
(ii) such time as the Participant becomes ineligible to participate
under Section 5(a) of the Plan;
(iii) the termination of the Participant's employment by the Company
and its Subsidiaries; or
(iv) the termination of the Plan.
An employee whose enrollment in the Plan terminates may again
enroll in the Plan as of any subsequent Enrollment Date that is
at least ninety (90) days after such termination of enrollment if
he or she satisfies the eligibility requirements of Section 5(a)
as of such Enrollment Date. A Participant's election to
discontinue payroll contributions will not constitute a
termination of enrollment.
(b) Distributions.
As soon as practicable after a Participant's enrollment in the Plan
terminates, amounts in the Participant's Cash Account which resulted
from payroll contributions will be repaid to the Participant and
amounts in the Participant's Cash Account which resulted from matching
7
allocations by the Company will be repaid to the Company. (If amounts
credited to the Participant's Cash Account have not yet been deposited
by the Company with the Custodian, the Company rather than the
Custodian will make the repayment to the Participant). The Custodian
will continue to maintain the Participant's Stock Account for the
Participant until the earlier of such time as the Participant directs
the sale of all Stock in the Account, withdraws or transfers all Stock
in the Account, or one year after the Participant ceases to be
employed by the Company and its Subsidiaries. If a Participant's
termination of enrollment results from his or her death, all amounts
payable will be paid to his or her estate.
8. General.
(a) Costs.
To the extent provided in this Section 8(a), costs and expenses
incurred in the administration of the Plan and maintenance of Cash
Accounts will be paid from Cash Accounts, to the extent that they are
not paid by the Company. Any brokerage fees and commissions for the
purchase of Stock under the Plan (including Stock purchased upon
reinvestment of dividends and distributions) will be paid from Cash
Accounts, to the extent not paid by the Company, but any brokerage
fees and commissions for the sale of Stock under the Plan by a
Participant will be borne by such Participant's Cash Account or by
direct payment by the Participant. The rate at which such fees and
commissions will be charged to Participants will be determined by the
Custodian or any broker-dealer used by the Custodian (including an
affiliate of the Custodian), and communicated from time to time to
Participants. In addition, the Custodian may impose or pass through a
reasonable fee for the withdrawal of Stock in the form of stock
certificates (as permitted under Section 6(f)), and reasonable fees
for other services unrelated to the purchase of Stock under the Plan,
to the extent approved in writing by the Company and communicated to
Participants.
(b) Statements to Participants.
The Custodian will reflect payroll contributions, matching allocations
(if any), purchases, sales, and withdrawals and transfers of shares of
Common Stock and other Plan transactions by appropriate adjustments to
the Participant's Accounts. The Custodian will, not less frequently
than annually, provide or cause to be provided a written statement to
the Participant showing the transactions in his or her Accounts and
the date thereof, the number of shares of Stock purchased or sold, the
aggregate purchase price paid or sales price received, the purchase or
sales price per share, the brokerage fees and commissions paid (if
any), the total shares held for the Participant's Stock Account
(computed to at least three decimal places), and other information.
(c) Compliance with Section 423.
It is the intent of the Company that this Plan comply in all respects
with applicable requirements of Section 423 of the Code and
regulations thereunder. Accordingly, if any provision of this Plan
does not comply with such requirements, such provision will be
construed or deemed amended to the extent necessary to conform to such
requirements.
9. General Provisions.
(a) Compliance With Legal and Other Requirements.
The Plan, the granting and exercising of Purchase Rights hereunder,
and the other obligations of the Company and the Custodian under the
Plan will be subject to all applicable federal and state laws, rules,
and regulations, and to such approvals by any regulatory or
governmental agency as
8
may be required. The Company may, in its discretion, postpone the
issuance or delivery of Stock upon exercise of Purchase Rights until
completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule, or
regulation, listing or other required action with respect to any
automated quotation system or stock exchange upon which the Stock or
other Company securities are designated or listed, or compliance with
any other contractual obligation of the Company, as the Company may
consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Stock in
compliance with applicable laws, rules, and regulations, designation
or listing requirements, or other contractual obligations.
(b) Limits on Encumbering Rights.
No right or interest of a Participant under the Plan, including any
Purchase Right, may be pledged, encumbered, or hypothecated to or in
favor of any party, subject to any lien, obligation, or liability of
such Participant, or otherwise assigned, transferred, or disposed of
except pursuant to the laws of descent or distribution, and any right
of a Participant under the Plan will be exercisable during the
Participant's lifetime only by the Participant.
(c) No Right to Continued Employment.
Neither the Plan nor any action taken hereunder, including the grant
of a Purchase Right, will be construed as giving any employee the
right to be retained in the employ of the Company or any of its
Subsidiaries, nor will it interfere in any way with the right of the
Company or any of its Subsidiaries to terminate any employee's
employment at any time.
(d) Taxes.
The Company or any Subsidiary is authorized to withhold from any
payment to be made to a Participant, including any payroll and other
payments not related to the Plan, amounts of withholding and other
taxes due in connection with any transaction under the Plan, and a
Participant's enrollment in the Plan will be deemed to constitute his
or her consent to such withholding. In addition, Participants may be
required to advise the Company of sales and other dispositions of
Stock acquired under the Plan in order to permit the Company to comply
with tax laws and to claim any tax deductions to which the Company may
be entitled with respect to the Plan.
(e) Changes to the Plan.
The Board may amend, alter, suspend, discontinue, or terminate the
Plan without the consent of shareholders or Participants, except that
any such action will be subject to the approval of the Company's
shareholders within one year after such Board action if such
shareholder approval is required by any federal or state law or
regulation or the rules of any automated quotation system or stock
exchange on which the Stock may then be quoted or listed, or if such
shareholder approval is necessary in order for the Plan to continue to
meet the requirements of Section 423 of the Code, and the Board may
otherwise, in its discretion, determine to submit other such actions
to shareholders for approval; provided, however, that, without the
consent of an affected Participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may materially
and adversely affect the rights of such Participant with respect to
outstanding Purchase Rights relating to any Offering Period that has
been completed prior to such Board action. The foregoing
notwithstanding, upon termination of the Plan the Board may elect to
terminate all outstanding Purchase Rights at such time as the Board
may designate; in the event of such termination of any Purchase Right
prior to its exercise, all amounts contributed to the Plan which
remain in a Participant's Cash Account will be returned to the
Participant (without interest) as promptly as practicable.
9
(f) No Rights to Participate; No Shareholder Rights.
No Participant or employee will have any claim to participate in the
Plan with respect to Offering Periods that have not commenced, and the
Company will have no obligation to continue the Plan. No Purchase
Right will confer on any Participant any of the rights of a
shareholder of the Company unless and until Stock is duly issued or
transferred and delivered to the Participant (or credited to the
Participant's Stock Account).
(g) Fractional Shares.
Unless otherwise determined by the Board, purchases of Stock under the
Plan executed by the Custodian may result in the crediting of
fractional shares of Stock to the Participant's Stock Account. Such
fractional shares will be computed to at least three decimal places.
Fractional shares will not, however, be issued by the Company, and
certificates representing fractional shares will not be delivered to
Participants under any circumstances.
(h) Nonexclusivity of the Plan.
Neither the adoption of the Plan by the Board nor its submission to
the shareholders of the Company for approval will be construed as
creating any limitations on the power of the Board to adopt such other
compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only
in specific cases.
(i) Plan Year.
The Plan will operate on a plan year which begins on the first day of
the first Offering Period and ends December 31, 1999, and thereafter
coincides with the calendar year.
(j) Governing Law.
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan will be determined in accordance with
the laws of the State of New Jersey, without giving effect to
principles of conflicts of laws, and applicable federal law.
(k) Effective Date.
The Plan will become effective at such time as the Plan has been
approved by shareholders of the Company, at a meeting thereof, by a
vote sufficient to meet the requirements of Section 423(b)(2) of the
Code.
10
================================================================================
GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE
A PROFESSIONAL CORPORATION
DIRECTIONS TO LEGAL CENTER
16TH FLOOR
FROM PENN STATION, NEWARK
An above ground walkway connects the Legal Center to Penn Station. Take
escalator in front of McDonald's to upper level. Take walkway heading towards
Gateway Center. To enter Legal Center, bear right halfway through Gateway Center
walkway to The Legal Center walkway, which brings you into The Legal Center
Lobby.
FROM NORTH JERSEY OR NEW YORK
Take New Jersey Turnpike to Exit 15E. Follow signs for Newark, and get onto
Raymond Boulevard (west). Take Raymond Boulevard 3 miles, and go under the
railroad tracks. The Legal Center will be on your right. To park, turn right
just prior to the building, follow signs to parking garage. Ask attendant where
Gibbons, Del Deo's visitor parking is located.
FROM SOUTH JERSEY
Take Garden State Parkway North to New Jersey Turnpike North to Exit 13A. After
toll, bear left onto Rt. 1 & 9 North -- stay to the left onto Rt. 21 North
(Newark). Take Rt. 21 over the viaduct onto McCarter Highway, go about 2 miles
(pass Gateway Center building on right). Staying on McCarter Highway, cross
Raymond Blvd. intersection and bear right to pass in front of Don Pepe's
Restaurant. At end of street turn right onto service road and enter the
building's parking garage. Ask attendant where Gibbons, Del Deo's visitor
parking is located.
FROM WEST JERSEY
Take Route 22 East to Route 21 (McCarter Highway). Take 21 North over viaduct
onto McCarter Highway, go about 2 miles (pass Gateway Center building on right)
. Staying on McCarter Highway, cross Raymond Blvd. intersection and bear right
to pass in front of Don Pepe's Restaurant. At end of street turn right onto
service road and enter the building's parking garage. Ask attendant where
Gibbons, Del Deo's visitor parking is located.
FROM 78 EAST
Follow signs (1&9) & (21) Newark. Take route 21 North-- over viaduct onto
McCarter Highway, go about 2 miles (pass Gateway Center building on right) .
Staying on McCarter Highway, cross Raymond Blvd. intersection and bear right to
pass in front of Don Pepe's Restaurant. At end of street turn right onto service
road and enter the building's parking garage. Ask attendant where Gibbons, Del
Deo's visitor parking is located.
FROM 280 EAST
Take 280E to Exit 15 (Route 21 South - Downtown). At bottom of ramp (traffic
light) turn right onto Route 21 South (McCarter Highway). Follow Rt. 21 to
Raymond Blvd and make a left at the light, the Legal Center will be on your left
and the Gateway Hilton will be on your right. Make a left at the first light
into the parking garage under building. Ask attendant where Gibbons, Del Deo's
visitor parking is located.
ONE RIVERFRONT PLAZA
NEWARK NEW JERSEY 07102-5497
(973) 596-4500
TELECOPIER (973) 596-0545
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