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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Name of Subject Company)
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
231157108
(CUSIP Number of Class of Securities)
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MICHAEL R. CUNNINGHAM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
100 BURMA ROAD
JERSEY CITY, NEW JERSEY 07305
(201) 217-1990
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of Person(s) Filing Statement)
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WITH A COPY TO:
DANIEL S. STERNBERG, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE LIBERTY PLAZA
NEW YORK, NY 10006
(212) 225-2000
/ / Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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This Solicitation/Recommendation Statement on Schedule 14D-9 (the
"SCHEDULE 14D-9") of Cunningham Graphics International, Inc., a New Jersey
corporation (the "COMPANY"), relates to the offer by FIS Acquisition Corp., a
New Jersey corporation and a wholly owned subsidiary of Automatic Data
Processing, Inc., a Delaware corporation, to purchase all outstanding shares of
the common stock of the Company, without par value, for a purchase price of
$22.00 per share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
May 11, 2000, and in the related Letter of Transmittal. This Schedule 14D-9 is
being filed on behalf of the Company.
ITEM 1. SUBJECT COMPANY INFORMATION.
(a) The name of the subject company is Cunningham Graphics
International, Inc., a New Jersey corporation, and the address of the principal
executive offices of the Company is 100 Burma Road, Jersey City, New Jersey
07305, Telephone: (201) 217-1990.
(b) The title of the class of equity securities to which this
Schedule 14D-9 relates is the common stock, without par value, of the Company
(the "COMMON STOCK"). As of April 28, 2000, there were 5,757,606 shares of
Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) The filing person is the subject company.
(d) This Schedule 14D-9 relates to the tender offer disclosed in a Tender
Offer Statement on Schedule TO dated May 11, 2000 (the "SCHEDULE TO") of
Automatic Data Processing, Inc., a Delaware corporation ("PARENT"), and its
wholly owned subsidiary, FIS Acquisition Corp., a New Jersey corporation
("PURCHASER"), to purchase all of the outstanding shares of Common Stock (the
"SHARES") at a price of $22.00 per Share (the "OFFER PRICE"), net to the Seller
in cash upon the terms and subject to the conditions set forth in the Offer to
Purchase dated May 11, 2000 (the "OFFER TO PURCHASE") and the related Letter of
Transmittal and any supplement thereto (which together constitute the "OFFER").
A copy of the Offer to Purchase and the related Letter of Transmittal have been
filed as Exhibit 1 and Exhibit 2 hereto, respectively, and each is incorporated
herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 2, 2000 (the "MERGER AGREEMENT"), among the Company, Parent and
Purchaser. The Merger Agreement provides, among other things, that as soon as
practicable following the satisfaction or waiver of the conditions set forth in
the Merger Agreement, Purchaser shall be merged (the "MERGER") with and into the
Company, and the Company shall continue as the surviving corporation (the
"SURVIVING CORPORATION"). The Merger Agreement further provides that those
Shares that are not acquired in the Offer shall be converted in the Merger into
the right to receive $22.00 per Share in cash (the "MERGER CONSIDERATION").
According to the Schedule TO, the address of the principal executive offices
of Parent are located at One ADP Boulevard, Roseland, New Jersey 07068 and the
principal executive offices of Purchaser are located at the same address.
Certain information concerning the Offer and the Merger is available at the
Company's website located at http://www.cgii.net.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company and its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Schedule 14f-1 (the "INFORMATION STATEMENT") which is attached as Annex B hereto
and is incorporated herein by reference. Except as described herein (including
in the
1
Exhibits hereto and in Annex B hereto) or incorporated by reference herein, to
the knowledge of the Company, as of the date hereof there exists no material
agreement, arrangement or understanding and no actual or potential conflict of
interest between the Company or its affiliates and (i) the Company's executive
officers, directors or affiliates or (ii) Purchaser or Purchaser's executive
officers, directors or affiliates.
THE MERGER AGREEMENT. The summary of the Merger Agreement contained in the
Offer to Purchase, which has been filed with the Securities and Exchange
Commission (the "COMMISSION") as an exhibit to the Schedule TO and a copy of
which is enclosed with this Schedule 14D-9, is incorporated herein by reference.
Such summary should be read in its entirety for a more complete description of
the terms and provisions of the Merger Agreement. A copy of the Merger Agreement
has been filed as Exhibit 3 hereto and is incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION. Certain members of the
Company's Board of Directors (the "BOARD") and management may be deemed to have
certain interests in the Offer and the Merger that are in addition to their
interest as shareholders of the Company generally. The Board was aware of and
discussed these interests in connection with its consideration and approval of
the Merger Agreement. In considering the recommendation of the Board with
respect to the Offer and the Merger, the shareholders should be aware of these
interests which may present actual or potential conflicts of interest.
EMPLOYMENT AGREEMENTS. The summary of the Employment Agreements contained
in the Offer to Purchase, which has been filed with the Commission as an exhibit
to the Schedule TO and a copy of which is enclosed with this Schedule 14D-9, is
incorporated herein by reference. Such summary should be read in its entirety
for a more complete description of the terms and provisions of the Employment
Agreements. Copies of the Employment Agreements have been filed as Exhibits 8,
9, 10, 11, 12, 13 and 14 hereto and are incorporated herein by reference.
OPTIONS. Pursuant to the Merger Agreement and by virtue of the Merger, each
option or right to acquire Shares granted under any stock option or similar plan
of the Company or under any agreement to which the Company or any subsidiary is
a party (other than stock purchase rights under the Company's Employee Stock
Purchase Plan), whether or not then exercisable or vested, will be canceled and
converted into the right to receive an amount in cash, without interest, equal
to the excess, if any, of the Merger Consideration over the per Share exercise
or purchase price of such option or similar right. Holders of such options
include executive officers and directors of the Company.
INDEMNIFICATION. Pursuant to the Merger Agreement, Parent and Purchaser
agree that (i) all rights to indemnification existing in favor of the present or
former directors, officers and employees (or any person who served at the
Company's or any of its subsidiaries' request as an officer, director or agent)
of the Company or any of its subsidiaries (or any other entity or enterprise,
such as a partnership, joint venture, trust or employee benefit plan) as
provided in the Company's Certificate of Incorporation or Bylaws, or the
articles of organization, bylaws or similar documents of any of the Company's
subsidiaries or other entity or enterprise and the indemnification agreements,
if any, with such person or persons as of the date of the Merger Agreement with
respect to matters occurring prior to the effective time of the Merger (the
"EFFECTIVE TIME"), will survive the Merger and continue in full force and effect
without modification (other than modifications that would enlarge the
indemnification rights) for a period of not less than the statute of limitations
applicable to such matters, and (ii) Parent will, and after the Effective Time
will cause the Surviving Corporation to, comply fully with its obligations as
described in this sentence. The Merger Agreement also provides that the Company
shall, and after the Effective Time Parent and the Surviving Corporation shall,
indemnify, defend and hold harmless, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective,
individuals who as of the date of the Merger Agreement were directors, officers
or employees of the Company or otherwise entitled to indemnification under the
Certificate of Incorporation, By-Laws or
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indemnification agreements (collectively, the "INDEMNIFIED PARTIES") against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in any settlement entered
into with the consent of Parent (which consent shall not be unreasonably
withheld) in connection with any claim, action, suit, proceeding or
investigation, including without limitation, liabilities arising out of the
Merger Agreement and the transactions contemplated thereby, to the extent that
it was based on the fact that such Indemnified Party is or was a director,
officer or employee of the Company and arising out of actual or alleged actions
or omissions occurring at or prior to the Effective Time. Parent has also agreed
to maintain in effect, or to cause the Surviving Corporation to maintain in
effect, for a period of six years after the Effective Time, in respect of acts
or omissions occurring prior to the Effective Time, policies of directors' and
officers' liability insurance and fiduciary liability insurance covering the
persons described in the first sentence of this paragraph and providing
substantially similar coverage as is provided for the persons who are covered by
the Company's existing policies; provided, however, that Parent will not be
required in order to maintain such policies to pay an annual premium in excess
of 200% of the aggregate annual amounts currently paid by the Company to
maintain its existing policies; and provided further that, if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual premium
in excess of 200% of such amount, the Surviving Corporation shall only be
required to obtain as much coverage as can be obtained by paying an annual
premium equal to 200% of such amount.
VOTING AND TENDER AGREEMENT. The summary of the Voting and Tender Agreement
contained in the Offer to Purchase, which has been filed with the Commission as
an exhibit to the Schedule TO and a copy of which is enclosed with this
Schedule 14D-9, is incorporated herein by reference. Such summary should be read
in its entirety for a more complete description of the terms and provisions of
the Voting and Tender Agreement. A copy of the Voting and Tender Agreement has
been filed as Exhibit 4 hereto and is incorporated herein by reference.
CONFIDENTIALITY AGREEMENT. The summary of the Confidentiality Agreement
contained in the Offer to Purchase, which has been filed with the Commission as
an exhibit to the Schedule TO and a copy of which is enclosed with this
Schedule 14D-9, is incorporated herein by reference. Such summary should be read
in its entirety for a more complete description of the terms and provisions of
the Confidentiality Agreement. A copy of the Confidentiality Agreement has been
filed as Exhibit 5 hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER
ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES
AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
A letter to the Company's shareholders communicating the Board's
recommendations and the press release announcing the Merger Agreement and
related transactions are filed as Exhibits 6 and 7 hereto, respectively, and are
incorporated herein by reference.
(b)(i) BACKGROUND OF THE OFFER; CONTACTS WITH PARENT
As part of their ongoing efforts to develop the business of the Company, the
Company's senior management and the Board have from time to time considered
various strategic transactions, including acquisitions by the Company and a sale
by the Company of additional equity securities. In May 1999 the Company held
preliminary discussions with another public company in the printing industry
(the "INDUSTRY BIDDER") regarding a possible acquisition of the Company. These
discussions were initiated by the Industry Bidder and were terminated in
June 1999 without any agreement being reached
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between the parties. Between July and September 1999, the Company considered a
public offering of equity securities but abandoned this transaction due to
unfavorable market conditions. In November 1999, the Board determined to explore
more systematically, as one of the strategic alternatives available to the
Company, a possible sale of the Company.
To assist the Board in this process the Company retained Prudential
Securities Incorporated ("PRUDENTIAL SECURITIES") to serve as its financial
advisor and in November 1999, the Board instructed Prudential Securities to
initiate a process to explore the sale of the entire equity interest in the
Company. After evaluating with senior management of the Company the likely
interest of various strategic and financial buyers in such a transaction,
Prudential Securities initially contacted approximately 22 parties. Those
parties who indicated a general interest in pursuing a transaction were asked to
enter into a confidentiality agreement with the Company. Although Parent was not
initially identified as a potentially interested party, in early January 2000 a
representative of Parent and Michael R. Cunningham, the President and Chief
Executive Officer of the Company, met to discuss possible joint business
opportunities. As a result of this meeting, Mr. Cunningham believed that Parent
might be interested in considering an acquisition of the Company and thereafter
directed Prudential Securities to include Parent in the auction process.
Between November 1999 and January 2000 a total of eleven parties, including
a wholly owned subsidiary of Parent, having executed confidentiality agreements,
were sent information concerning the Company and were asked to submit
non-binding and preliminary indications of the level of their interest. In
January 2000 three of these parties, including Parent and the Industry Bidder,
communicated indications of interest and the remainder indicated that they had
no further interest in the Company. One party (a financial buyout firm) (the
"FINANCIAL BIDDER") indicated a range of value (on a per Share basis) from
$16.50 to $17.50; the Industry Bidder indicated orally a range from $21.00 to
$23.00; and Parent indicated a range from $17.00 to $18.00.
Following the receipt of their indications of interest, each of the three
potential bidders were given additional information regarding the Company,
including presentations by the management of the Company and access to financial
and other information of the Company, including tours of certain of the
Company's operating facilities and interviews with certain of the Company's
management. Prudential Securities also had discussions with the potential
bidders regarding the possible structure of their proposals, in particular with
the Financial Bidder, which indicated that, if it made any proposal, it would
propose a highly-leveraged recapitalization transaction that would be subject to
receipt of financing.
In early February, the Financial Bidder informed Prudential Securities that,
based on its further analysis of the Company and the nature of the transaction
it would be interested in pursuing, any transaction it might propose would have
a per Share value of less than $20.00 and that as a result it did not believe it
would be fruitful to submit a final proposal.
On February 10, 2000, Prudential Securities invited each of Parent and the
Industry Bidder to submit, by not later than February 23, 2000, a final proposal
to acquire the Company (together with comments on a proposed acquisition
agreement).
Shortly prior to that deadline the Industry Bidder informed Prudential
Securities that the best proposal it would consider making would value the
equity of the Company at $115 million (approximately $19.00 per Share--below the
lower end of the range it had previously indicated) and that any proposal would
consist of only $40 million of cash, with the remainder of the consideration in
the form of the Industry Bidder's common stock valued at a substantial premium
to its then current market value. Prudential Securities informed the Industry
Bidder that a proposal at that level would not be acceptable but urged the
Industry Bidder to nonetheless present its best offer. The Industry Bidder did
not, however, submit any further proposal to acquire the Company.
4
On February 23, 2000, Parent submitted an oral offer (confirmed in writing)
to acquire the Company at a price of $21.00 per Share in cash. Parent's offer
was subject to several conditions: that Parent have the opportunity to conduct
to its satisfaction additional due diligence, including, in particular,
environmental "due diligence" with respect to the Company's properties; that the
Company divest itself of one of its subsidiaries (the "DESIGNATED BUSINESS");
that an unspecified number of members of the executive management of the Company
enter into three-year employment agreements with Parent; and that
Michael Cunningham and other significant shareholders of the Company enter into
tender agreements with Parent.
The Board met on February 23, 2000 and reviewed with management and
Prudential Securities the results of the solicitation of final offers, including
the oral offer from Parent and the latest communications from the Industry
Bidder. The Board noted in particular that the prices indicated by both Parent
and the Industry Bidder were lower than the then most recent market price for
the Shares. The Board met again on March 2, 2000 to consider further Parent's
offer. At this meeting, Prudential Securities also reviewed with the Board its
preliminary analysis of the financial aspects of Parent's offer. The Board
directed the Company's management and advisors to continue discussions with
Parent seeking to obtain a higher purchase price and to address the principal
conditions of its offer. In the course of discussions thereafter between
representatives of Parent and the Company, Parent indicated that it might
consider an increase in its initial proposed price following the completion of
its due diligence and the Company agreed to allow Parent to continue its due
diligence review of the Company.
During the remainder of March and April, Parent conducted an extensive due
diligence review of the Company's business and operations (in particular it
conducted "Phase I" environmental reviews of the Company's properties); counsel
for Parent and the Company negotiated the terms of the Merger Agreement and the
Tender and Voting Agreement; and the Company negotiated an agreement to transfer
the Designated Business to its former owners contingent upon the concurrent
completion of an acquisition of the Company.
In early April 2000, Parent informed the Company that it had substantially
completed its environmental due diligence to its satisfaction. Parent also
indicated that while it was prepared to seek corporate approval to make a final
proposal to acquire the Company, it did not expect to revise its proposed
purchase price of $21.00 per Share. Representatives of the Company informed
Parent that the proposed price would not be acceptable to the Company. Parent
also informed the Company that any final proposal to acquire the Company would
be subject to approval by Parent's Executive Committee (which was next scheduled
to meet at the end of April, 2000). Representatives of the Company informed
Parent that while the Company would consider a further proposal from Parent if
one were made, the Company would continue to consider alternatives to a
transaction with Parent.
At a regularly-scheduled meeting on April 25, 2000, the Board received
presentations from two investment banks regarding the prospects for a securities
offering by the Company as a possible alternative to a sale of the Company, as
well as an update with respect to the status of discussions with Parent.
On April 26, 2000, Parent informed the Company that its Executive Committee
had authorized the making of a further proposal and that Parent was now
proposing to acquire the Company for a per Share price of $22.00 payable in
shares of Parent common stock, provided that the transaction could be accounted
for as a "pooling of interests." On April 26, 2000, the Board held a further
meeting to discuss the revised proposal from Parent and following this meeting,
the Company requested that Parent consider making a cash proposal with an
increased price of at least $23.00 per Share and that it propose a higher price
if it wished to propose a share transaction. (After consulting with its
independent accounting firm the Company learned and informed Parent that the
proposed transaction
5
would not be eligible for "pooling of interests" accounting and the proposal to
acquire the Company in exchange for Parent shares was abandoned.)
On April 28, 2000, Parent informed the Company that it was prepared to make
a final proposal to acquire the Company for a per Share price of $22.00 in cash
and that this was the highest price it would consider. Parent also informed the
Company that it was not prepared to execute an agreement to acquire the Company
until the pending negotiations regarding renewal of the Company's collective
bargaining agreement were concluded with a ratified contract, scheduled to occur
on May 2, 2000, and until the Employment Agreements were executed.
On May 2, 2000, the Board met to consider Parent's final offer. At this
meeting, Prudential Securities made a further presentation to the Board and
delivered its oral opinion to the Board, subsequently confirmed in writing, that
the price of $22.00 per Share in cash proposed to be paid in the Offer and the
Merger was fair, from a financial point of view, to the Company's shareholders.
The Board then unanimously approved the Merger Agreement, the Offer and the
Merger and authorized the execution of the Merger Agreement. The Company, Parent
and Purchaser executed the Merger Agreement on May 2, 2000. On May 3, 2000, the
Company and Parent issued press releases announcing the execution of the Merger
Agreement. On May 11, 2000, Parent and Purchaser commenced the offer.
(b)(ii) REASONS FOR THE RECOMMENDATION BY THE BOARD OF DIRECTORS
In reaching its conclusions and recommendation described above, the Board
considered a number of factors, including without limitation the following
material factors:
1. The Board considered the financial and other terms and conditions of
the Merger Agreement and related agreements and transactions.
2. The Board considered the current and historical financial condition
and results of operations of the Company, as well as the prospects and
strategic objectives of the Company, current economic and market conditions
(including current conditions in the industry in which the Company
operates), the going concern value of the Company and the familiarity of the
Board with the business and prospects of the Company and the industry in
which it operates.
3. The Board considered possible alternatives to the Offer and the
Merger, including in particular raising additional equity capital, incurring
additional indebtedness and continuing to operate the Company as an
independent entity. The Board also considered the risks associated with
these alternatives, particularly in light of the size of the Company
relative to its competitors and technological and competitive developments
in the graphic communications and printing industry. The Board also
considered in this regard the dependence of the Company's long term growth
on identifying, consummating and integrating attractive acquisition
opportunities requiring increased capital and other resources.
4. The Board considered the historical and recent market prices of, and
trading activity in, the Shares, including the limited liquidity and low
trading volume in the Shares. The Board considered the fact that the Offer
Price was below market prices for the Shares during recent weeks as well as
the fact that the Offer Price represents a premium to recent historical
market prices for the Shares prevailing at the time the Company initiated
its exploration of a possible sale transaction.
5. The Board considered the process conducted by Prudential Securities
on behalf of the Company to solicit acquisition proposals and the number,
nature and terms of the indications and proposals received by the Company
during that process from persons other than Parent.
6. The Board considered the opinion of Prudential Securities to the
effect that, as of the date of such opinion and based upon and subject to
the matters described therein, the $22.00 per Share cash consideration to be
received in the Offer and the Merger by the holders of Shares was fair,
6
from a financial point of view, to such holders. (The full text of
Prudential Securities' written opinion which sets forth the assumptions
made, procedures followed, matters considered and limitations on the review
undertaken by Prudential Securities, is attached to this Schedule as Annex A
and is incorporated herein by reference. HOLDERS OF SHARES ARE URGED TO READ
SUCH OPINION CAREFULLY IN ITS ENTIRETY.)
7. The Board considered the fact that the Merger Agreement provides for
a first-step cash tender offer for all outstanding Shares thereby enabling
shareholders who tender their shares to receive promptly the Offer Price in
cash, and that shareholders who do not tender their Shares will receive the
same cash price in the subsequent Merger.
8. The Board considered the limited conditions to Purchaser's
obligations to consummate the Offer and the Merger and the likelihood that
the Offer and the Merger will be consummated promptly. In particular, the
Board considered that the Offer is not subject to the receipt of financing
as well as the financial condition and business reputation of Parent and
Parent's ability to complete the Offer and the Merger in a timely manner.
9. The Board considered the fact that the terms of the Merger Agreement
should not unduly discourage other third parties from making bona fide
alternative acquisition proposals subsequent to signing the Merger Agreement
and, if any such proposal were made, the Board has the right to determine to
provide information to and engage in negotiations with any other third
party. In this regard, the Board also considered the fact that, in the event
that the Board decided to accept a superior acquisition proposal from a
third party, the Board would be entitled to terminate the Merger Agreement
upon payment of the Termination Fee provided for in the Merger Agreement.
The Board did not believe that such Termination Fee would be a significant
deterrent to a higher offer by a third party interested in acquiring the
Company.
10. The Board further considered the fact that certain significant
shareholders, who hold approximately 44.4% of the outstanding Shares, have
entered into the Voting and Tender Agreement with Parent and have agreed to
tender all of their Shares in the Offer.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. The Board did not find it
practicable and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. Rather, the Board
viewed its determinations and recommendations as being based on the totality of
the information presented to and considered by the Board. In addition,
individual members of the Board may have given different weights to different
factors.
(c) After reasonable inquiry and to the best of the Company's knowledge,
each executive officer, director and affiliate of the Company currently intends
to tender all Shares, held of record or beneficially owned by such person, to
Purchaser as of the expiration date of the Offer.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
The Company has retained Prudential Securities as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of Prudential
Securities' engagement, the Company has agreed to pay Prudential Securities for
its services an aggregate transaction fee of approximately $3.2 million,
substantially all of which is contingent and would become payable upon the
consummation of the transaction. The Company also has agreed to reimburse
Prudential Securities for reasonable out-of-pocket and incidental expenses,
including the reasonable fees of legal counsel retained by Prudential
Securities, and to indemnify Prudential Securities and certain related parties
against certain liabilities, including liabilities under the federal securities
laws, arising out of Prudential Securities' engagement. Prudential Securities
and its affiliates have in the past provided services to the Company unrelated
to the Offer and the Merger, and for which services Prudential Securities has
received
7
compensation. In the ordinary course of business, Prudential Securities and its
affiliates may actively trade or hold the securities of the Company and Parent
and its affiliates for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer or the
Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by the
Company or, to the best of the Company's knowledge, by an executive officer,
director, subsidiary or affiliate of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
1. Except as set forth above or in this Schedule 14D-9, no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to: (1) a tender offer for or other acquisition of the Company's
securities by the Company, any subsidiary of the Company or any other person;
(2) any extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Company or any subsidiary of the Company; or (3) any
material change in the present dividend rate or policy, or indebtedness or
capitalization, of the Company.
2. Except as described in Item 3 or 4(a) or (b) above (the provisions of
which are hereby incorporated by reference), there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(1) above.
ITEM 8. ADDITIONAL INFORMATION.
1. The Information Statement attached as Annex B hereto is being furnished
in connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's shareholders.
2. THE NEW JERSEY SHAREHOLDER PROTECTION ACT
The Company is incorporated under the laws of the State of New Jersey,
maintains its principal executive offices in New Jersey and has significant
business operations in New Jersey. The Shareholder Protection Act,
Section 14A:10A-4 of the New Jersey Business Corporation Act, generally provides
that no resident domestic corporation shall engage in any business combination
with any interested shareholder for a period of five years following that
interested shareholder's stock acquisition date unless the business combination
is approved by the corporation's Board of Directors prior to that stock
acquisition date. An "interested shareholder" is any person (other than the
resident domestic corporation or its subsidiary) that (i) is the beneficial
owner directly or indirectly, of 10% or more of the voting power of the
outstanding voting stock of the resident domestic corporation, or (ii) is an
affiliate or associate of that resident domestic corporation who, at any time
within the five year period immediately prior to the date in question, was a
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding stock of the resident domestic corporation.
The Company's Board of Directors has unanimously approved the Merger
Agreement and the transactions contemplated thereby for the purposes of the New
Jersey Shareholder Protection Act. Accordingly, the Company believes that the
Shareholder Protection Act is inapplicable to the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.
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3. ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT") and the rules that have been promulgated thereunder by the
Federal Trade Commission ("FTC"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "ANTITRUST DIVISION") and the FTC and
certain waiting period requirements have been satisfied. The acquisition of
Shares pursuant to the Offer is subject to such requirements.
Parent filed on May 10, 2000 and the Company expects to file by May 22, 2000
with the FTC and the Antitrust Division a Notification and Report Form with
respect to the Offer and the Merger. Under the provisions of the HSR Act
applicable to the Offer, the purchase of Shares pursuant to the Offer may not be
consummated until the expiration of a 15-calendar day waiting period following
the filing by Parent. Accordingly the waiting period with respect to the Offer
would expire at 11:59 p.m., New York City time, on May 25, 2000 unless both the
Antitrust Division and the FTC request additional information or documentary
material or terminate the waiting period before such time. If, within such
15-calendar day waiting period, either the Antitrust Division or the FTC
requests additional information or documentary material from Parent, the waiting
period would be extended for an additional 10 calendar days following
substantial compliance by Parent with such request. Only one extension of the
waiting period pursuant to a request for additional information is authorized by
the HSR Act. Thereafter, such waiting period may be extended only by court order
or with Parent's consent. Any such extension of the waiting period will not give
rise to any withdrawal rights not otherwise provided for by applicable law.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase by
Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Parent, its subsidiaries
or the Company. Private parties and state attorneys general may also bring legal
action under federal or state antitrust laws under certain circumstances.
Although the Company believes that Purchaser's acquisition of Shares
pursuant to the Offer would not violate the antitrust laws, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such challenge is made, what the outcome will be.
ITEM 9. EXHIBITS(*)
Exhibit 1 Offer to Purchase, dated as of May 11, 2000. (1)(3)
Exhibit 2 Form of Letter of Transmittal. (1)(3)
Exhibit 3 Agreement and Plan of Merger, dated as of May 2, 2000, among
Automatic Data Processing, Inc., FIS Acquisition Corp. and
Cunningham Graphics International, Inc. (2)
Exhibit 4 Voting and Tender Agreement, dated as of May 2, 2000, among
Automatic Data Processing, Inc., FIS Acquisition Corp.,
Michael R. Cunningham, James J. Cunningham, Gordon Mays and
Timothy Mays (2)
Exhibit 5 Confidentiality Agreement, dated as of January 5, 2000,
between Prudential Securities Incorporated, as agent for
Cunningham Graphics International, Inc., and ADP Financial
Information Services, Inc. (1)
Exhibit 6 Letter to Shareholders of Cunningham Graphics
International, Inc., dated May 11, 2000 (3)
Exhibit 7 Press Release of Cunningham Graphics International, Inc.,
issued on May 3, 2000 (4)
9
Exhibit 8 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Gerald
(L.J.) Baillargeon (1)
Exhibit 9 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Gordon
Mays (1)
Exhibit 10 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Ioannis
Lykogiannis (1)
Exhibit 11 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Ned Hood
(1)
Exhibit 12 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Robert
Needle (1)
Exhibit 13 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Timothy
Mays (1)
Exhibit 14 Employment Agreement, dated as of May 2, 2000, between ADP
Financial Information Services, Inc., Cunningham Graphics
International, Inc., Cunningham Graphics Inc. and Michael R.
Cunningham (1)
- ------------------------
* (1) Filed as an exhibit to Automatic Data Processing, Inc. and FIS
Acquisition Corp. Tender Offer Statement on Schedule TO, dated May 11, 2000,
and is incorporated herein by reference.
(2) Previously filed on May 4, 2000, as an exhibit to Cunningham Graphics
International, Inc.'s Form 8-K
(3) Included in copies mailed to shareholders
(4) Previously filed on May 3, 2000, as an exhibit to Cunningham Graphics,
International, Inc.'s Schedule 14D-9C
10
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
By: /s/ MICHAEL R. CUNNINGHAM
--------------------------------------------
Name: Michael R. Cunningham
Title: President and Chief Executive Officer
Dated: May 11, 2000
11
ANNEX A
PRUDENTIAL SECURITIES INCORPORATED
[LOGO]
One New York Plaza, New York, NY 10292
(212) 778-1000
STRICTLY CONFIDENTIAL
May 2, 2000
The Board of Directors
Cunningham Graphics International, Inc.
100 Burma Road
Jersey City, NJ 07305
Members of the Board of Directors:
We understand that Automated Data Processing, Inc. ("ADP"), FIS Acquisition
Corp., a wholly owned subsidiary of ADP ("Purchaser"), and Cunningham Graphics
International, Inc. (the "Company") propose to enter into an Agreement and Plan
of Merger (the "Merger Agreement"), providing, upon the terms and subject to the
conditions set forth therein, for (i) Purchaser to commence a tender offer (the
"Offer") to purchase all of the outstanding shares (the "Shares") of common
stock, without par value (the "Common Stock"), at a purchase price of $22.00 per
Share, net to the seller in cash (the "Consideration"), and (ii) the subsequent
merger (the "Merger" and, together with the Offer, the "Transaction") of
Purchaser with and into the Company, with the Company to continue as the
surviving corporation, pursuant to which each outstanding Share not previously
tendered and purchased in the offer (other than shares owned by ADP, any
subsidiary of ADP, or the Company) shall be converted into the right to receive
the Consideration. In addition, we understand that certain shareholders of the
Company who in the aggregate own shares of Common Stock representing
approximately 44.4% of the currently issued and outstanding Shares will enter
into a Voting and Tender Agreement (the "Voting and Tender Agreement") with ADP
and Purchaser, contemporaneously with the execution of the Merger Agreement,
pursuant to which each such shareholder shall agree, among other things, to
tender all Shares owned by such shareholder in the Offer.
You have requested our opinion as to the fairness, from a financial point of
view, of the Consideration to be received by holders of Common Stock in the
Offer and Merger.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and considered such financial and other factors as
we deemed relevant under the circumstances, including:
(i) a draft, dated May 1, 2000, of the Merger Agreement;
(ii) a draft, dated May 1, 2000, of the Voting and Tender Agreement;
(iii) certain publicly-available historical financial and operating data for
the Company, including, but not limited to, (a) the press release
reporting earnings for the quarter ended March 31, 2000, (b) the Annual
Report to Shareholders and Annual Report on Form 10-K for the two
fiscal years ended December 31, 1999 and 1998, (c) the Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1999,
June 30, 1999 and March 31, 1999, (d) the Proxy
A-1
[LOGO]
Statement for the Annual Meeting of Shareholders held on May 11, 1999,
and (e) the Registration Statement on Form S-1, as amended, filed on
February 19, 1998;
(iv) certain internal financial statements and other financial and operating
data concerning the Company, prepared by the management of the Company;
(v) historical stock market prices and trading volumes for the Common Stock;
(vi) publicly available financial, operating and stock market data
concerning certain companies engaged in business we deemed reasonably
similar to that of the Company;
(vii) the financial terms of certain recent transactions that we deemed
relevant to our inquiry; and
(viii) such other financial studies, analyses and investigations that we
deemed appropriate.
We have assumed, with your consent, that the drafts of the Merger Agreement
and the Voting and Tender Agreement that we reviewed (and referred to above)
will conform in all material respects to those documents when in final form.
We have met with senior management of the Company to discuss (i) the past
and current operating and financial condition of the Company, (ii) the prospects
for the Company, including its future financial performance and (iii) such other
matters that we deemed relevant.
In connection with our review and analysis and in arriving at our opinion,
we have relied upon the accuracy and completeness of the financial and other
information that is publicly available or was provided to us by the Company and
we have not undertaken any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company nor have any such valuations or appraisals been provided to us. With
respect to certain financial forecasts provided to us by the Company, we have
assumed that such information (and the assumptions and bases therefor)
represents management's best currently available estimate as to the future
financial performance of the Company. Our opinion is necessarily based on
economic, financial and market conditions as they exist and can be evaluated as
of the date hereof and we assume no responsibility to update or revise our
opinion based upon events or circumstances occurring after the date hereof.
Our opinion does not address nor should it be construed to address the
relative merits of the Transaction or alternative business strategies that may
be available to the Company.
As you know, we have been retained by the Company to render this opinion and
provide other financial advisory services in connection with the Transaction and
will receive an advisory fee for such services, part of which fee is contingent
upon the consummation of the Transaction. In the past, we have provided
financial advisory and financing services to the Company and have received fees
for such services. In the ordinary course of business we may actively trade the
shares of the common stock of ADP and the Company's Common Stock for our own
account and for the accounts of customers and, accordingly, we may at any time
hold a long or short position in such securities. We also provide equity
research coverage regarding the Company.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion does not constitute a recommendation to
the shareholders of the Company as to whether such shareholders should tender
their Shares in the Offer or how such shareholders should
A-2
[LOGO]
vote in connection with the Merger or as to any other action such shareholders
should take regarding the Offer or the Merger. This opinion may not be
reproduced, summarized, excerpted from or otherwise publicly referred to or
disclosed in any manner without our prior written consent, except that the
Company may include this opinion in its entirety in materials relating to the
Offer or the Merger sent to the Company's shareholders and filed with the
Securities and Exchange Commission.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be received by the holders of the Common
Stock in the Offer and the Merger is fair to such holders from a financial point
of view.
Very truly yours,
Prudential Securities Incorporated
A-3
ANNEX B
INFORMATION STATEMENT
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
100 BURMA ROAD
JERSEY CITY, NEW JERSEY 07305
- --------------------------------------------------------------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14F OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
- --------------------------------------------------------------------------------
This Information Statement is being furnished to the holders of the common
stock, no par value per share ("Common Stock" or the "Shares"), of Cunningham
Graphics International, Inc., a New Jersey corporation (the "Company"), in
connection with the possible designation by FIS Acquisition Corp., a New Jersey
corporation ("Purchaser") and wholly-owned subsidiary of Automatic Data
Processing, Inc., a Delaware corporation ("Parent"), of certain persons as
directors of the Company pursuant to the terms of a Merger Agreement, dated as
of May 2, 2000 (the "Merger Agreement"), by and among the Company, Purchaser and
Parent. This Information Statement is part of the Solicitation/ Recommendation
Statement on Schedule 14D-9 (as amended from time to time, the
"Schedule 14D-9") of the Company. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the
Schedule 14D-9. THIS INFORMATION IS BEING PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS.
Pursuant to the Merger Agreement, after Purchaser has accepted for payment,
and paid for, Shares pursuant to the Offer, and from time to time thereafter,
Purchaser has the right to have persons designated by it become directors of the
Company (the "Purchaser Designees") so that the total number of such persons
equals the number, rounded up to the next whole number, which is the product of
(i) the total number of directors on the Board of Directors of the Company and
(ii) the percentage that such number of Shares so purchased bears to the total
number of Shares then outstanding. The Merger Agreement provides that the
Company, upon request by Purchaser, will promptly take all actions necessary to
cause such Purchaser Designees to be elected or appointed to the Board of
Directors of the Company, including, without limitation, (a) increasing the size
of the Board of Directors or (b) securing the resignations of one or more
existing directors (except that there must be no fewer than two Continuing
Directors (as defined below)). Following the election or appointment of
Purchaser Designees and prior to the time the Merger becomes effective (the
"Effective Time") if any of the directors of the Company then in office is a
director of the Company on the date hereof (a "Continuing Director"), any
amendment or termination of the Merger Agreement which requires action by the
Company, any extension of time for the performance of any of the obligations or
other acts of Parent or Purchaser under the Merger Agreement and any exercise or
waiver of any of the provisions of the Merger Agreement providing rights or
remedies to the Company, will require the affirmative vote of a majority of the
Continuing Directors.
The information contained in this Annex B concerning Purchaser and Parent
has been furnished to the Company by Purchaser and Parent, and the Company
assumes no responsibility for the accuracy or completeness of any such
information.
B-1
VOTING SECURITIES OF THE COMPANY
As of April 28, 2000, 5,757,606 shares of Common Stock were issued and
outstanding, each of which entitles the holder thereof to one vote, and no
shares of Preferred Stock were issued and outstanding.
BOARD OF DIRECTORS, PURCHASER DESIGNEES
AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
The persons named below are the current members of the Board. The following
sets forth as to each director, his age, principal occupation and business
experience, the period during which he has served as a director, and any family
relationships with any other director or executive officer of the Company and
the directorships currently held by him in corporations whose shares are
publicly registered.
SERVED AS
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
- ---- -------- ----------------------------------------- --------------
Michael R. Cunningham.................. 40 Chairman of the Board (Class C), 1998
President and Chief Executive Officer
Gordon Mays............................ 43 Director (Class C) and Executive Vice 1998
President
James J. Cunningham.................... 42 Director (Class B) 1998
Laurence Gerber (1).................... 43 Director (Class B) 1998
Arnold Spinner (1)..................... 65 Director (Class A) 1998
- ------------------------
(1) Member of the Compensation and Audit Committees
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
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. Mays was employed by Latham Process Corporation where he was responsible for
production and sales.
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.
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
B-2
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).
Arnold Spinner, Ph.D, has been a Director of the Company since April 1998.
In 1999, he retired as a member of the faculty of New York University where he
held various teaching and administrative positions since 1965. He will continue
as Director of the Center for Graphic Communications Management and Technology
of New York University, a position he has held since 1984, through June 2000.
PURCHASER DESIGNEE BIOGRAPHICAL INFORMATION
Purchaser has informed the Company that it will choose the Purchaser
Designees from the individuals shown in the table below to serve on the Board.
The information contained herein has been furnished to the Company by Purchaser
and the Company assumes no responsibility for the accuracy or completeness of
such information. None of the Purchaser Designees is a director of, or holds any
position with the Company. To the best of Purchaser's knowledge, no Purchaser
Designee or any of its respective associates beneficially owns any equity
securities or rights to acquire securities of the Company, nor has any such
person been involved in any transaction with the Company or any of its
directors, executive officers of affiliates that is required to be disclosed
pursuant to the rules and regulations of the Commission. The name, age, present
principal occupation or employment and five-year employment history of each of
the following individuals are set forth below.
PROPOSED DIRECTOR LIST
PRESENT OCCUPATION OR EMPLOYMENT
NAME AGE AND DIRECTORSHIPS
- ---- -------- ------------------------------------------
James B. Benson 55 Mr. Benson has been Vice President,
General
Counsel and Secretary of ADP since October
1998, August 1989 and November 1996,
respectively, and has served in senior
executive positions at ADP for more than
the past five years.
Richard J. Haviland 53 Mr. Haviland has been Chief Financial
Officer
and Vice President of ADP since August
1997 and has served in senior executive
positions at ADP for more than the past
five
years.
Raymond L. Colotti 53 Mr. Colotti is Corporate Vice President of
ADP and has served in senior executive
positions at ADP for more than the past
five
years.
Robert Singer 57 Mr. Singer has been Senior Counsel at ADP
for more than the last five years.
Adam D. Amsterdam 39 Mr. Amsterdam has been Vice President and
Assistant General Counsel at ADP for the
last four years and has served in senior
executive positions at ADP for more than
the past five years.
B-3
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. The Board meets on a regularly scheduled basis to review significant
developments affecting the Company and to act on matters requiring approval by
the Board of Directors. It also holds special meetings, including telephonic
meetings, and acts by written consent when important matters require Board
action between scheduled meetings. The Board of Directors met 13 times, nine of
which were telephonic meetings, during 1999, and acted by written consent six
times during 1999. During such period, all current members of the Board of
Directors participated in at least 75% of the aggregate of all meetings of the
Board and any committees on which they serve.
The Board of Directors has two standing committees (each, a "Committee"):
the Audit Committee and the Compensation Committee. The members of both
Committees are Arnold Spinner and Laurence Gerber. None of such individuals is
or has been an officer or employee of the Company.
The Audit Committee, which held two meetings during fiscal year 1999,
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 three meetings during fiscal year
1999, and acted by written consent one time, 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
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 is
granted an option to acquire 15,000 shares of Common Stock upon commencement of
service and automatically receives options to acquire 4,000 shares of Common
Stock each year, on the first day of the month following the month in which the
annual meeting of stockholders occurs. Directors of the Company are reimbursed
for out-of-pocket expenses incurred in their capacity as directors of the
Company.
B-4
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth, as of May 1, 2000, certain information
regarding the Company's senior executive officers, each of whom is expected to
serve in such capacity until consummation of the Merger. Officers are elected
annually by the Board of Directors and serve at its discretion.
NAME AGE POSITION WITH THE COMPANY
- ---- -------- ----------------------------------------------------
Michael J. Cunningham.................. 40 Chairman of the Board, President and Chief Executive
Officer
Gordon Mays............................ 43 Executive Vice President
Timothy Mays........................... 41 Executive Vice President of Sales and Secretary
Robert Needle.......................... 41 Chief Operating Officer
Ned Hood............................... 53 Chief Technology Officer
Ioannis Lykogiannis.................... 48 Senior Vice President, Operations
Gerald (L.J.) Baillargeon.............. 33 Vice President and Chief Financial Officer
BUSINESS EXPERIENCE
See "Board Biographical Information" above for biographical information
regarding Messrs. Michael R. Cunningham and Gordon Mays.
Timothy Mays 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. Mays was employed by Latham
Process Corporation where he was engaged in sales. Messrs. Timothy Mays and
Gordon Mays are first-cousins.
Robert Needle 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.
Ned Hood joined the Company as Chief Technology Officer in September 1999.
From November 1996 to September 1999 he was employed as Vice President of
Operations and Technology for XYAN, Inc. From April 1993 to November 1996
Mr. Hood was employed as Vice President of Production Operations for Reed
Technology & Information Services.
Ioannis Lykogiannis 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.
Gerald (L.J.) Baillargeon joined the Company as Vice President--Finance in
1998, became Acting Chief Financial Officer in November 1999 and was appointed
as Chief Financial Officer in April 2000. From December 1993 to September 1998,
Mr. Baillargeon was employed by Ernst & Young LLP, first as a senior accountant
and then as a manager. He is licensed as a certified public accountant in the
State of New Hampshire.
B-5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information, as of May 1, 2000, 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.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER (1) OWNERSHIP CLASS
- ----------------------- ----------------- ----------
Michael R. Cunningham,...................................... 2,032,928(2) 35.3%
Chairman of the Board,
President and Chief Executive Officer
Gordon Mays,................................................ 236,531(3) 4.1%
Director and Executive Vice President
Timothy Mays,............................................... 170,803(4) 3.0%
Executive Vice President of Sales and Secretary
Robert Needle,.............................................. 58,333(5) *
Chief Operating Officer
Ioannis Lykogiannis,........................................ 50,666(6) *
Senior Vice President, Operations
James J. Cunningham,........................................ 151,798(7)(8) 2.6%
Director
Arnold Spinner,............................................. 19,000(8) *
Director
Laurence Gerber,............................................ 24,000(8) *
Director
Awad Asset Management, Inc.................................. 509,265(9) 8.8%
250 Park Ave., 2(nd) Fl.
New York, NY 10177
Putnam Investments, Inc..................................... 407,400(10) 7.1%
One Post Office Square
Boston, MA 02109
Hacienda Resources Limited.................................. 398,216(11) 6.9%
Block 18 Greenwood Terrace
No. 26-28 Sui Wo Road
Shatin, New Territories
Hong Kong
Pilgrim Baxter & Associates, Ltd............................ 297,700(12) 5.2%
825 Duportail Road
Wayne, PA 19087
All Directors and Executive Officers as a Group 2,760,726 46.4%
(10 persons)(13)..........................................
* Less than 1%
- ------------------------
(1) Unless otherwise indicated, the address of each such person is c/o
Cunningham Graphics International, Inc., 100 Burma Road, Jersey City, New
Jersey 07305. "Beneficial owner" means generally any person who, directly or
indirectly, has or shares voting power or investment power with respect to a
security. All information with respect to the beneficial ownership of any
stockholder has been furnished by such stockholder and the Company believes
that all persons listed have sole voting and investment power with respect
to their shares unless otherwise indicated.
B-6
(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 Mr. G. 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. Includes 8,333
shares underlying options granted to Mr. G. Mays all of which are currently
exercisable.
(4) Excludes 9,817 shares held by a trust for the benefit of Mr. T. 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. Includes 5,000 shares underlying options granted to Mr. T. Mays
all of which are currently exercisable.
(5) Represents 58,333 shares underlying options which have been granted to
Mr. Needle, all of which are currently exercisable.
(6) Represents 56,666 shares underlying options which have been granted to
Mr. Lykogiannis, all of which are currently exercisable.
(7) 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.
(8) Includes 19,000 shares underlying options which have been granted to the
designated person, all of which are currently exercisable.
(9) The beneficial owner reported this information as of February 7, 2000.
(10) 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.
(11) 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.
(12) The beneficial owner reported this information as of February 8, 1999.
(13) Includes 2,564,727 shares and 195,999 shares subject to options which have
been granted to officers and directors of the Company, respectively, and
which are currently exercisable or exercisable within 60 days, and excludes
the shares referred to in footnotes (3) and (4).
B-7
COMPENSATION OF 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, 1999, 1998 and 1997
of those persons who were, at December 31, 1999, (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, 1999 (the "named executive
officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------- ----------------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($) (1)
- --------------------------- -------- ---------- --------- ----------- --------------------
Michael R. Cunningham,........................ 1999 250,000 30,000 -- 6,215(2)
Chairman of the Board, 1998 240,552 50,000 -- 5,151(2)
President and Chief Executive Officer 1997 347,798 -- -- --
Gordon Mays,.................................. 1999 179,701 30,000 15,000 4,438(3)
Executive Vice President 1998 176,270 28,250 -- 4,243(3)
1997 170,664 40,775 -- --
Timothy Mays,................................. 1999 150,000 30,000 5,000 154,511(4)
Executive Vice President of Sales 1998 173,810 20,500 -- 47,972(4)
1997 230,150 36,638 -- --
Robert Needle,................................ 1999 158,280 30,000 15,000 112,512(5)
Chief Operating Officer 1998 155,577 28,250 50,000 82,566(5)
1997 159,116 25,000 -- --
Ioannis Lykogiannis, Senior................... 1999 125,145 10,000 10,000 2,027(6)
Vice President 1998 116,963 12,775 50,000 1,956(6)
1997 111,690 14,234 -- --
- ------------------------------
No named executive officer received personal benefits or perquisites during the
fiscal year ended December 31, 1999 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 $2,500 for 1999 and $1,541 for 1998, which are
invested in certain mutual funds and (ii) insurance premiums under a term
life insurance plan in the amount of $3,715 for 1999 and $3,610 for 1998.
(3) Represents (i) matching contributions by the Company under the Company's
401(k) Plan in the amount of $2,234 and $2,000 for 1998, which are invested
in certain mutual funds and (ii) insurance premiums under a term life
insurance plan in the amount of $2,204 for 1999 and 1998.
(4) Includes (i) matching contributions by the Company under the Company's
401(k) Plan in the amount of $2,500 for 1999 and $2,000 for 1998, which are
invested in certain mutual funds; (ii) insurance premiums under a term life
insurance plan in the amount of $3,268 for 1999 and 1998 and
(iii) commissions on sales to specified customers to which under the terms
of his employment agreement in the amounts of $148,743 in 1999 and $42,704
in 1998.
(5) Includes (i) matching contributions by the Company under the Company's
401(k) Plan in the amount of $2,500 for 1999 and $2,000 for 1998, which are
invested in certain mutual funds; (ii) insurance premiums under a term life
insurance plan in the amount of $645 for 1999 and 1998 and
(iii) commissions on sales to specified customers to which R. Needle under
the terms of his employment agreement in the amounts of $109,367 in 1999 and
$79,921 in 1998.
(6) Represents (i) matching contributions by the Company under the Company's
401(k) Plan in the amount of $1,535 for 1999 and $1,463 for 1998, which are
invested in certain mutual funds and (ii) insurance premiums under a term
life insurance plan in the amount of $493 for 1999 and 1998.
B-8
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. Baillargeon entered into an employment
agreement with the Company which became effective on November 15, 1999, upon his
appointment as Acting Chief Financial Officer.
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 $260,000, 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 $200,000, 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 $181,000,
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 $177,000, 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. 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 $142,000,
which may be increased from time to time at the discretion of the Board of
Directors.
The agreement with Mr. Baillargeon is for a term of three years. He is
employed as Vice President and Chief Financial Officer of the Company with
supervisory authority over the finance and human resources departments of the
Company. Pursuant to his employment agreement, Mr. Baillargeon is paid an annual
salary of $130,000, 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 agreements with each of Messrs. Cunningham, G. Mays, T. Mays, Needle,
Lykogiannis and Baillargeon 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")
B-9
unless the Company gives notice to the contrary at least six months prior to the
Renewal 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, in the case of Messrs. Cunningham, G. Mays, T.
Mays, Needle and Lykogiannis, 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." Mr. Baillargeon is entitled to a lump sum payment
of $150,000 if there is a Change of Control in a transaction approved by the
Board if he shall remain employed by the Company six months after the Change of
Control or sooner terminated without cause. He is entitled to an additional lump
sum payment in the amount of two times his then annual salary in the event of a
termination without cause within two years after the Change of Control. Except
in the case of Mr. Baillargeon, 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 and Needle also receive a car allowance.
Concurrently with the execution of the Merger Agreement, Michael R.
Cunningham, Gordon Mays, Robert Needle, Timothy Mays, Gerald (L.J.) Baillargeon,
Ionnis Lykogiannis and Ned Hood (each an "EXECUTIVE" and together, the
"EXECUTIVES") entered into new employment agreements (each a "NEW AGREEMENT")
with Parent, the Company and Cunningham Graphics Inc. ("CGI"). The New
Agreements will become effective at the Effective Time and they generally
provide for a three-year term and supersede each Executive's previous employment
agreement (each a "PRIOR AGREEMENT"), as described above, with the exception of
Mr. Hood, for whom a prior agreement did not exist.
The New Agreements provide that Messrs. Cunningham, G. Mays, Needle, T.
Mays, Baillargeon, Lykogiannis and Hood will serve as President, Executive Vice
President--Marketing and Sales, Chief Operating Officer, Executive Vice
President--Sales, Chief Financial Officer, Senior Vice President and Chief
Technology Officer, respectively, and their annual base salaries will be
$261,700, $210,000, $184,000, $184,000, $133,700, $146,000 and $151,700,
respectively. Each Executive also will be eligible to receive an annual bonus
ranging from approximately 20% to 40% of annual base salary, plus a stretch
bonus to be established if certain performance objectives are achieved. In
addition, Messrs. Needle and T. Mays will be entitled to commissions of between
1% and 3% of payments actually collected by the Company with respect to certain
sales proceeds. Mr. Baillargeon's New Agreement also preserved his entitlement
to a lump sum payment of $150,000 if there is a change of control (as defined in
his Prior Agreement) in a transaction approved by the Board if he remains
employed by the Company or CGI six months after the change of control or sooner
terminated without Cause. This transaction would constitute such change of
control. Finally, Messrs. Cunningham, Needle, G. Mays, T. Mays, Baillargeon,
Lykogiannis and Hood will receive options to purchase 15,000, 10,000, 10,000,
10,000, 6,000, 6,000 and 7,500 shares of common stock of Parent, respectively,
subject to the approval of Parent's stock option committee. The options, if
approved, will vest and become exercisable in five equal installments over a
five year period.
If an Executive's employment is terminated by Parent or CGI without Cause
(as such term is defined in the New Agreements), the New Agreements provide that
the Executive will continue to receive his base salary and annual bonus, if any,
through the remaining term of the agreement, subject to the Executive executing
a general release and waiver, waiving all claims he may have against Parent and
its affiliates.
Each New Agreement also contains provisions relating to non-competition,
non-solicitation, non-disclosure and the assignment of intellectual property
rights. Under certain circumstances, the period during which the Executives are
restricted under the foregoing provisions may be up to approximately four years
longer than the restricted period under the Prior Agreements.
B-10
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,
1999:
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ------------------------------------------------------------------------------------------------ -------------------
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED (#) YEAR (%) ($/SH) (1) DATE 5% ($) 10% ($)
- ---- ----------- ---------- ----------- ---------------- -------- --------
Michael R. Cunningham................ -- -- -- -- -- --
Gordon Mays.......................... 10,000 6 16.50 April 7, 2009 103,800 263,000
5,000 3 13.50 November 4, 2009 42,450 107,600
Timothy Mays......................... 5,000 3 13.50 November 4, 2009 42,450 107,600
Robert Needle........................ 10,000 6 16.50 April 7, 2009 103,800 263,000
5,000 3 13.50 November 4, 2009 42,450 107,600
Ioannis Lykogiannis.................. 5,000 3 16.50 April 7, 2009 51,900 131,500
5,000 3 13.50 November 4, 2009 42,450 107,600
- ------------------------------
(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, 1999
AND DECEMBER 31, 1999 OPTION VALUE
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Michael R. Cunningham........... -- -- -- -- -- --
Gordon Mays..................... -- -- 5,000 10,000 2,190 0
Timothy Mays.................... -- -- 5,000 -- 2,190 0
Robert Needle................... -- -- 55,000 10,000 49,090 0
Ioannis Lykogiannis............. -- -- 55,000 5,000 49,090 0
- ------------------------
(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, 1999.
B-11
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, 1999 were Stanley J. Moss, Laurence Gerber and Dr. Arnold Spinner.
Mr. Moss retired as a director effective April 10, 2000.
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, 1999.
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, 1999 was set in accordance with their respective
employment agreements.
BONUSES. Senior management developed a bonus compensation plan under which
senior executives of the Company and its subsidiaries have been assigned to
tiers depending upon their positions and the nature of their respective
responsibilities. Each tier was assigned a potential bonus expressed as a range
of percentages of base salary. The plan further provided for the establishment
of a bonus pool based upon the Company' financial performance during the fiscal
year. Accordingly, bonuses would be awarded on the basis of both the Company's
financial performance and an individual executive officer's contribution to
Company performance. The President recommended to the Committee that a bonus
pool be set aside for the fiscal year ended December 31, 1999. The President
also made recommendations to the Committee for the award of bonuses from the
bonus pool to management employees in accordance with the tier structure.
GRANTS OF STOCK OPTIONS. During the year ended December 31, 1999, awards of
stock options were made to certain executive officers of the Company identified
by the President of the Company as having been instrumental in the development
of the Company's business. 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.
B-12
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary for Mr. Michael R. Cunningham for fiscal year ended
December 31, 1999 was $250,000 in accordance with the terms of his employment
agreement. In consideration of Mr. Cunningham's role in the Company's domestic
and international acquisition program, the expansion of the Company's domestic
customer base and increase in domestic sales through the implementation of new
long-term print service agreements with several financial institution customers,
the Compensation Committee awarded him a bonus of $30,000 for the fiscal year
ended December 31, 1999.
THE COMPENSATION COMMITTEE
Laurence Gerber, Chairman
Arnold Spinner
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
Section422 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 May 1, 2000, options covering an aggregate of 338,410 shares of Common
Stock are outstanding under the 1998 Plan.
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. Each year, on the first day of the month
following the month in which the annual meeting of stockholders is held,
B-13
each Outside Director automatically receives an NSO for the purchase of 4,000
additional shares of Common Stock at the fair market value on such date. New
Outside Directors 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. As of
March 1, 2000, options covering an aggregate of 80,000 shares of Common Stock
are outstanding under the Directors' Plan.
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.
EMPLOYEE STOCK PURCHASE PLAN
In 1999, the Company adopted the Cunningham Graphics International, Inc.
Employee Stock Purchase Plan (the "Stock Purchase Plan"). However,
implementation of the Stock Purchase Plan has been postponed. The Stock Purchase
Plan, when implemented, would provide a means for employees of the Company and
its domestic subsidiaries to authorize payroll deductions on a voluntary basis
to be used for the period purchase of the Company's Common Stock.
Under the Stock Purchase Plan, the Company would 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 Stock Purchase 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 Stock Purchase Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Code. The maximum
number of shares that may be purchased under the Stock Purchase 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.
All full-time employees of the Company and its domestic subsidiaries will be
eligible to participate in the Stock Purchase Plan beginning six months after
commencing employment, excluding any person who normally works less than
20 hours per week or less than five 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.
Upon enrollment in the Stock Purchase Plan, the employee will have to 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.
B-14
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 Stock Purchase Plan. The Stock Purchase Plan provides that purchases
of Common Stock are to be made on the fifth business day after the end of each
offering period. For so long as the Stock Purchase 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 Stock Purchase 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.
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.
B-15
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN*
AMONG CUNNINGHAM GRAPHICS INTERNATIONAL, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX, THE S & P SPECIALTY PRINTING INDEX
AND THE S & P SERVICES (COMMERCIAL & CONSUMER) INDEX
[GRAPH]
* $100 INVESTED ON 4/22/98 IN STOCK OR ON 3/31/98 IN INDEX-INCLUDING
REINVESTMENT OF DIVIDENDS, FISCAL YEAR ENDING DECEMBER 31.
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------------------------------
4/22/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
--------- -------- -------- -------- -------- -------- -------- --------
Cunningham Graphics International,
Inc................................... 100 133 94 117 101 128 95 107
Nasdaq Stock Market (US)................ 100 103 93 120 135 147 151 218
S & P Specialty Printing................ 100 111 87 110 84 103 85 72
S & P Services (Commercial &
Consumer)............................. 100 89 68 88 69 79 64 77
B-16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PAYMENTS TO STANLEY MOSS FOR LEGAL SERVICES
During 1999, Stanley J. Moss, a Director of the Company, was paid $4,375 for
legal services to the Company.
POLICY OF THE BOARD OF DIRECTORS
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
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 1999, all filing requirements applicable to its officers, directors
and ten percent beneficial owners were met.
B-17