As filed with the Securities and Exchange Commission on January 13, 2005

Registration No. 333-119788

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 2

to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

American Reprographics Company
(Exact Name of Registrant as Specified in Its Charter)

 	 	 	 	 	
Delaware	 	7334	 	20-1700361	
(State or other jurisdiction of	 	(Primary Standard Industrial	 	(I.R.S. Employer	
incorporation or organization)	 	Classification Code Number)	 	Identification Number)	
700 North Central Avenue, Suite 550
Glendale, California 91203
(818) 500-0225
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Sathiyamurthy Chandramohan
Chief Executive Officer
American Reprographics Company
700 North Central Avenue, Suite 550
Glendale, California 91203
(818) 500-0225
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
 	 	 	 	 	
Teresa V. Pahl	 	Brett E. Cooper	 	Frank H. Golay, Jr.	
Hanson, Bridgett, Marcus,	 	Orrick, Herrington & Sutcliffe LLP	 	Sullivan & Cromwell LLP	
Vlahos & Rudy, LLP	 	The Orrick Building	 	1888 Century Park East	
333 Market Street, Suite 2100	 	405 Howard Street	 	Los Angeles, California 90067	
San Francisco, California 94105	 	San Francisco, California 94105	 	(310) 712-6600	
(415) 777-3200	 	(415) 773-5700	 	 	
       Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.     o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.     o  
CALCULATION OF REGISTRATION FEE

 	 	 	 	 	 	 	 	 	

	
		Proposed			
		Proposed		Maximum			
		Maximum		Aggregate		Amount of	
Title of Each Class of		Amount to be		Offering		Offering		Registration	
Securities to be Registered		Registered		Price Per Unit		Price(1)(2)		Fee	

Common Stock, $.001 par value per share	 	15,352,500	 	$16.00	 	$245,640,000	 	$30,982(3)	

		
(1) 	Includes shares to be sold upon exercise of the underwriters’ over-allotment option.	

		
(2) 	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.	

		
(3) 	A fee of $29,141 was previously paid.	

       The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. 	

Subject to Completion. Dated January 13, 2005.

13,350,000 Shares

Common Stock

       This is an initial public offering of shares of common stock of American Reprographics Company (“ARC”).

       ARC is offering 7,666,667 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 5,683,333 shares. ARC will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

       Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price will be between $14.00 and $16.00 per share. ARC’s common stock has been approved for listing on the New York Stock Exchange under the symbol “ARP”.

       See “Risk Factors” beginning on page 12 to read about factors you should consider before buying shares of the common stock.

       Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 	 	 	 	 	 	 	 	 	
		Per Share		Total	
					
Initial public offering price	 	$	 	 	 	$	 	 	
Underwriting discount	 	$	 	 	 	$	 	 	
Proceeds, before expenses, to ARC	 	$	 	 	 	$	 	 	
Proceeds, before expenses, to the selling stockholders	 	$	 	 	 	$	 	 	

       To the extent the underwriters sell more than 13,350,000 shares of common stock, the underwriters have the option to purchase up to an additional 2,002,500 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount.

       The underwriters expect to deliver the shares against payment in New York, New York on                     2005.

		
Goldman, Sachs & Co.	JPMorgan	
Credit Suisse First Boston
		
Robert W. Baird & Co.	CIBC World Markets	

Prospectus dated                     2005.

 

PROSPECTUS SUMMARY
       This summary highlights only selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including “Risk Factors,” “Forward-Looking Statements,” and the consolidated financial statements and related notes.
Our Company
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality that also require sophisticated document management services. We provide our core services through our suite of reprographics technology products, a network of 177 locally branded reprographics service centers in 135 cities, and more than 1,760 facilities management programs at our customers’ locations throughout the country. Our service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing us to provide our services both locally and nationally. We service more than 65,000 active customers and employ over 3,450 people, including a sales force of approximately 270 employees. In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor.
       Reprographics services typically encompass the management and reproduction of construction documents or other graphics-related material and the corresponding finishing and distribution services. We provide these business-to-business services to our customers in three major categories: document management, document distribution and logistics, and print-on-demand . We also sell reprographics equipment and supplies to complement these offerings. We also serve other independent reprographers by licensing our suite of reprographics technology products, including our flagship internet-based application, PlanWell. In addition, we operate PEiR (Profit and Education in Reprographics), a privately held trade organization through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers, while promoting our reprographics technology as the industry standard.
       For the year ended December 31, 2003, our net sales were $416.0 million, our income from operations was $61.0 million, and our net income was $3.6 million. For the nine months ended September 30, 2004, our net sales were $336.3 million, our income from operations was $56.9 million, and our net income was $25.5 million. For the nine months ended September 30, 2004, we believe that the AEC market accounted for approximately 80% of our net sales, with the remaining 20% consisting of sales to non-AEC markets.
Industry Overview
       According to the International Reprographics Association, or IRgA, and other industry sources, the reprographics industry in the United States is estimated to be approximately $5 billion in size. The IRgA indicates that the reprographics industry is highly fragmented, consisting of approximately 3,000 firms with average annual sales of approximately $1.5 million and 20 to 25 employees. Since construction documents are the primary medium of communication for the AEC industry, demand for reprographics services in the AEC market is closely tied to the level of activity in the construction industry, which in turn is driven by macroeconomic trends such as GDP growth, interest rates, job creation, office vacancy rates, and tax revenues. According to FMI Corporation, or FMI, a consulting firm to the construction industry, construction industry spending in the United States for 2005 is estimated at $1.0 trillion, with expenditures divided between residential construction (55%) and
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commercial and public, or non-residential, construction (45%). The $5 billion reprographics industry is approximately 0.5% of the $1.0 trillion construction industry in the United States. Our AEC revenues are most closely correlated to the non-residential sectors of the construction industry, which sectors are the largest users of reprographics services. According to FMI, the non-residential sectors of the construction industry are projected to grow at an average of 5.4% per year over the next three years.
       Market opportunities for business-to-business document management services such as ours are rapidly expanding into non-AEC industries. For example, non-AEC customers are increasingly using large and small format color imaging for point-of-purchase displays, digital publishing, presentation materials, educational materials and marketing materials as these services have become more efficient and available on a short-run, on-demand basis through digital technology. As a result, we believe that our addressable market is substantially larger than the core AEC reprographics market. We believe that the growth of non-AEC industries is generally tied to growth in the U.S. gross domestic product, or GDP, which is projected to have grown 4.4% in 2004 and is projected to grow 3.7% in 2005 according to Wall Street’s consensus estimates.
Our Competitive Strengths
       We believe that our growth will be driven by our competitive strengths, which include the following:

		
• 	Leading Market Position in Fragmented Industry. Our size and national footprint provide us with significant purchasing power, economies of scale, the ability to invest in industry leading technologies, and the resources to service large, national customers.	
 		
• 	Leader in Technology and Innovation. We believe our PlanWell online planrooms are well positioned to become the industry standard for managing and procuring reprographics services within the AEC industry. In addition, we have developed other proprietary software applications that complement PlanWell and have enabled us to improve the efficiency of our services, add complementary services and increase our revenue.	
 		
• 	Extensive National Footprint with Regional Expertise. Our national network of service centers maintains local customer relationships while benefiting from our centralized corporate functions and national scale. Our service facilities are organized as hub and satellite structures within individual markets, allowing us to balance production capacity and minimize capital expenditures through technology sharing among our service centers within each market. In addition, we serve our national and regional customers under a single contract through our Premier Accounts business unit, while offering centralized access to project specific services, billing, and tracking information.	
 		
• 	Flexible Operating Model. By promoting regional decision making for marketing, pricing, and selling practices, we remain responsive to our customers while benefiting from the cost structure advantages of our centralized administrative functions. Our flexible operating model also allows us to capitalize on an improving business environment.	
 		
• 	Consistent, Strong Cash Flow. Through management of our inventory and receivables and our low capital expenditure requirements, we have consistently generated strong cash flow from operations after capital expenditures regardless of industry and economic conditions.	
 		
• 	Low Cost Operator. We believe we are one of the lowest cost operators in the reprographics industry, which we have accomplished by minimizing branch level expenses and capitalizing on our significant scale for purchasing efficiencies.	
 		
• 	Experienced Management Team and Highly Trained Workforce. Our senior management team has an average of over 20 years of industry experience. We have also successfully retained approximately 93% of the managers of the 84 businesses we have acquired since 1997.	
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Our Business Strategy
       Our objective is to continue to strengthen our competitive position as the preferred provider of business-to-business document management, document distribution and logistics, and print-on-demand services . Our key strategies to accomplish this objective include:

		
• 	Continue to Increase Our Market Penetration and Expand Our Nationwide Footprint. We intend to increase our existing presence in key U.S. markets while expanding into under-penetrated regions through our facilities management contracts, targeted branch openings, strategic acquisitions, and national accounts.	

			
 	Õ  	Facilities Management Contracts. We expect to capitalize on the continued trend of our customers to outsource their document management services, including their in-house operations, thus building our base of recurring revenue while increasing our presence in local markets.	
 		
 	Õ  	Targeted Branch Openings. We seek to expand our geographic coverage, capture new customers and increase our market share by opening additional satellite branches at relatively low cost in regions near our established operations.	
 		
 	Õ  	Strategic Acquisitions. Because our industry consists primarily of small, privately-held companies that serve only local markets, we believe that we can continue to grow our business by successfully acquiring additional reprographics companies at reasonable prices.	
 		
 	Õ  	National Accounts. We will continue to pursue large customers that operate on regional and national levels through our Premier Accounts business unit, which offers a comprehensive suite of local reprographics services and centralized administrative functions to regional and national companies through our national network of reprographics service centers.	

		
• 	Promote PlanWell as the Industry Standard for Procuring Reprographics Services Online. Through continuing sales efforts and product enhancements, we plan to increase the market penetration of PlanWell and create a standardized, internet-based portal to manage, store, and retrieve documents. In order to achieve greater market share and build industry standardization, we will continue to license our PlanWell technology to other reprographics companies, including members of PEiR.	
 		
• 	Expand Our Non-AEC and Ancillary Product and Service Offerings. By leveraging advances in digital production equipment and our expertise in providing highly customized, quick-turn services to the AEC industry, we will continue to actively pursue customers from non-AEC industries that require rapid production of educational and training materials, short-run publishing materials, and marketing materials.	
In addition to expanding our non-AEC revenues, we continue to focus on creating new value-added services beyond traditional reprographics to offer all of our customers. We are actively engaged in services such as bid facilitation, print network management for offices and on-site production facilities, and on-demand color publishing. We seek to capitalize on our technological innovation to enhance our existing services and to create new reprographics technologies.
Corporate Reorganization
       Our predecessor, Ford Graphics, was founded in Los Angeles, California in 1960. We are currently organized as American Reprographics Holdings, L.L.C., a California limited liability company, or Holdings. We conduct our operations through our wholly-owned operating subsidiary, American Reprographics Company, L.L.C., a California limited liability company, or Opco, and its subsidiaries. Immediately prior to this offering, we will be reorganized as a Delaware corporation, American Reprographics Company. In this prospectus, unless the context indicates otherwise, “we,”
3 

 

“us,” “American Reprographics,” “ARC,” “our company,” and similar terms refer to Holdings and its consolidated subsidiaries.
       Our principal executive offices are located at 700 North Central Avenue, Suite 550, Glendale, California 91203 and our telephone number at that address is (818) 500-0225. Our website address is www.e-arc.com. The information found on our website, however, is not a part of this prospectus.
4 

 
 
The Offering

Common stock offered by us		7,666,667 shares	
 		
Common stock offered by the selling stockholders		5,683,333 shares	
 		
Total common stock offered		13,350,000 shares (30.4% of common stock to be outstanding after this offering)	
 		
Common stock to be outstanding after this offering		43,963,796 shares	
 		
Use of proceeds		We expect to use approximately $28.0 million of the net proceeds from this offering to repurchase our preferred equity (including accrued interest); approximately $50.7 million to repay a portion of our senior second priority secured term loan facility; and the balance of approximately $24.9 million to repay a portion of our senior first priority secured term loan facility. We will not receive any proceeds from the sale of shares by the selling stockholders.	
 		
Dividend policy		We do not anticipate paying any dividends on our common stock in the foreseeable future.	
 		
New York Stock Exchange symbol		“ARP”	
Unless otherwise noted, the information in this prospectus, including the information above:

		
• 	assumes our conversion from a California limited liability company to a Delaware corporation, which will occur prior to this offering;	
 		
• 	assumes 35,487,511 shares of common stock outstanding at September 30, 2004;	
 		
• 	excludes 1,712,915 shares of common stock subject to outstanding options at September 30, 2004 issued at a weighted average exercise price of $5.22 per share;	
 		
• 	excludes 22,500 shares of common stock issued upon option exercises since September 30, 2004;	
 		
• 	excludes 5,000,000 shares of common stock reserved for future issuance under our 2005 Stock Plan, and 750,000 shares of common stock reserved for future issuance under our 2005 Employee Stock Purchase Plan;	
 		
• 	includes a net of 809,618 shares of common stock (assuming an initial public offering price of $15.00 per share) issuable upon the exercise of outstanding warrants at September 30, 2004 issued at an exercise price of $4.61 per share, which will be issued upon the closing of this offering in connection with our conversion to a Delaware corporation; and	
 		
• 	assumes no exercise of the underwriters’ option to purchase additional shares.	
5 

 
Summary Historical and Unaudited Pro Forma Financial Data
       The summary historical and unaudited pro forma financial data presented below are derived from the audited financial statements of Holdings for the fiscal years ended December 31, 1999, 2000, 2001, 2002, and 2003, and for the nine-month period ended September 30, 2004, and the unaudited financial statements of Holdings for the nine-month period ended September 30, 2003. The summary historical financial data for the nine-month period ended September 30, 2003 is derived from unaudited interim financial statements which, in the opinion of management, include all normal, recurring adjustments necessary to state fairly the data included therein in accordance with generally accepted accounting principles, or GAAP, for interim financial information, except for pro forma data. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited pro forma financial data set forth below give effect to our conversion to a Delaware corporation and the completion of this offering, as described in “Use of Proceeds.” The unaudited pro forma financial data are not necessarily indicative of our financial position or results of operations that might have occurred had the transactions they give effect to been completed as of the dates indicated and do not purport to represent what our financial position or results of operations might be for any future period or date. For additional information see “Capitalization,” “Selected Historical and Unaudited Pro Forma Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited financial statements and unaudited financial statements included elsewhere in this prospectus. The financial information for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated as discussed in footnote 1 below. 

							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
				(Unaudited)			
		(Dollars in thousands)					
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reprographics services	 	$	198,774	 	 	$	287,995	 	 	$	338,124	 	 	$	324,402	 	 	$	315,995	 	 	$	242,507	 	 	$	253,367	 	
Facilities management	 	 	14,745	 	 	 	24,624	 	 	 	39,875	 	 	 	52,290	 	 	 	59,311	 	 	 	42,719	 	 	 	53,736	 	
Equipment and supplies sales	 	 	10,317	 	 	 	38,480	 	 	 	42,702	 	 	 	42,232	 	 	 	40,654	 	 	 	31,112	 	 	 	29,195	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	 	223,836	 	 	 	351,099	 	 	 	420,701	 	 	 	418,924	 	 	 	415,960	 	 	 	316,338	 	 	 	336,298	 	
Cost of sales	 	 	134,531	 	 	 	201,390	 	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	190,266	 	 	 	196,668	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	89,305	 	 	 	149,709	 	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	126,072	 	 	 	139,630	 	
Selling, general and administrative expenses	 	 	53,730	 	 	 	89,371	 	 	 	104,004	 	 	 	103,305	 	 	 	101,252	 	 	 	76,127	 	 	 	81,434	 	
Amortization of intangibles	 	 	2,823	 	 	 	3,966	 	 	 	5,801	 	 	 	1,498	 	 	 	1,709	 	 	 	1,269	 	 	 	1,267	 	
Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of intangible assets	 	 	—	 	 	 	—	 	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	32,752	 	 	 	35,828	 	 	 	63,748	 	 	 	66,343	 	 	 	60,971	 	 	 	48,676	 	 	 	56,929	 	
Other income	 	 	638	 	 	 	713	 	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	1,080	 	 	 	574	 	
Interest expense, net	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(28,958	)	 	 	(25,089	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	(1,195	)	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	24,175	 	 	 	6,108	 	 	 	16,522	 	 	 	26,967	 	 	 	7,684	 	 	 	20,798	 	 	 	32,414	 	
Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	20,107	 	 	 	1,324	 	 	 	10,735	 	 	 	20,700	 	 	 	3,553	 	 	 	16,578	 	 	 	25,474	 	
Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss) attributable to common members	 	 	20,107	 	 	 	(834	)	 	 	7,628	 	 	 	17,409	 	 	 	1,823	 	 	 	14,848	 	 	 	25,474	 	
Unaudited pro forma incremental income tax provision(2)	 	 	5,304	 	 	 	2,618	 	 	 	2,574	 	 	 	6,211	 	 	 	673	 	 	 	5,180	 	 	 	7,714	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
6 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
						(Unaudited)			
				(In thousands, except per unit amounts)					
Net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.82	 	 	$	(0.02	)	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	
 	Diluted	 	$	0.82	 	 	$	(0.02	)	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	
Unaudited pro forma net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Diluted	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	
Weighted average units:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	24,571	 	 	 	35,308	 	 	 	36,629	 	 	 	36,406	 	 	 	35,480	 	 	 	35,478	 	 	 	35,488	 	
 	Diluted	 	 	24,571	 	 	 	35,371	 	 	 	36,758	 	 	 	36,723	 	 	 	37,298	 	 	 	37,307	 	 	 	37,474	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
				(Unaudited)			
		(Dollars in thousands)					
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBIT(3)	 	$	33,390	 	 	$	35,346	 	 	$	64,052	 	 	$	66,884	 	 	$	47,074	 	 	$	49,756	 	 	$	57,503	 	
EBITDA(3)	 	$	42,932	 	 	$	50,288	 	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	64,975	 	 	$	71,842	 	
Adjusted EBITDA(3)	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	64,975	 	 	$	71,842	 	
Adjusted EBIT margin(3)	 	 	14.9	%	 	 	16.3	%	 	 	15.2	%	 	 	16.0	%	 	 	14.9	%	 	 	15.7	%	 	 	17.1	%	
Adjusted EBITDA margin(3)	 	 	19.2	%	 	 	20.5	%	 	 	21.3	%	 	 	20.5	%	 	 	19.7	%	 	 	20.5	%	 	 	21.4	%	
Depreciation and amortization(4)	 	$	9,542	 	 	$	14,942	 	 	$	25,442	 	 	$	19,178	 	 	$	19,937	 	 	$	15,219	 	 	$	14,339	 	
Capital expenditures, net	 	$	3,877	 	 	$	5,228	 	 	$	8,659	 	 	$	5,209	 	 	$	4,992	 	 	$	3,348	 	 	$	4,772	 	
Interest expense	 	$	9,215	 	 	$	29,238	 	 	$	47,530	 	 	$	39,917	 	 	$	39,390	 	 	$	28,958	 	 	$	25,089	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
									
						Restated(1)			
									
								As of September 30,	
								2004,	
									
						Pro	
		As of December 31,				Forma	
						As	
		1999		2000		2001		2002		2003		Actual		Adjusted(5)	
															
				(Unaudited)	
		(Dollars in thousands)			
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,814	 	 	$	31,565	 	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	12,008	 	 	$	2,911	 	
Total assets	 	$	204,464	 	 	$	358,026	 	 	$	372,583	 	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	 	$	366,935	 	
Long-term obligations and mandatorily redeemable preferred and common membership units(6)(7)	 	$	123,951	 	 	$	359,746	 	 	$	371,515	 	 	$	378,102	 	 	$	360,008	 	 	$	347,700	 	 	$	244,100	 	
Total members’ equity (deficit)(8)	 	$	32,422	 	 	$	(80,479	)	 	$	(78,955	)	 	$	(61,082	)	 	$	(60,015	)	 	$	(38,299	)	 	$	71,465	 	
Working capital	 	$	15,379	 	 	$	34,742	 	 	$	24,338	 	 	$	24,371	 	 	$	16,809	 	 	$	27,910	 	 	$	18,813	 	

		
  (1) 	The accompanying consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated to properly record separately identifiable intangible assets including customer relationships and trade names apart from goodwill and reflect amortization expense of such intangible assets previously recorded as goodwill and not subject to amortization. In connection with our acquisition of businesses during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2004, we had previously recorded the entire excess purchase price over the fair value of net assets	

7 

 

		
	acquired to goodwill. However, we subsequently determined in accordance with provisions of SFAS 141, “Business Combinations,” that approximately $15.9 million of the excess purchase price from these acquisitions should have been allocated to other intangible assets at the respective acquisition dates and amortized over their estimated useful lives. See Note 1 to our consolidated financial statements for additional detail.	

The restatement resulted in us recording other intangible assets during the periods ended December 31, 2002 and 2003 and September 30, 2004 consisting of customer relationships of $11.2 million, $615,000 and $484,000, and trade names of $1.4 million, $4,000 and $0, respectively, apart from goodwill at the respective acquisition dates. In addition, the restatement for the years ended December 31, 2001, 2002, and 2003 and the nine months ended September 30, 2003 and 2004 increased previously reported amortization expense by approximately $70,000, $1.3 million, $1.6 million, $1.2 million and $1.2 million, respectively.

The following table represents the effects of the restatement on previously reported balances for all periods presented:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		As Previously Reported		As Restated	

		December 31,		September 30,		December 31,		September 30,	
		2002		2003		2004		2002		2003		2004	
Consolidated Balance Sheets													
			
		(Dollars in thousands)	
Goodwill	 	$	242,134	 	 	$	243,668	 	 	$	245,999	 	 	$	228,144	 	 	$	229,059	 	 	$	230,639	 	
Other intangible assets	 	$	—	 	 	$	—	 	 	$	—	 	 	$	13,737	 	 	$	12,647	 	 	$	11,864	 	
Other assets	 	$	2,030	 	 	$	2,043	 	 	$	1,689	 	 	$	1,734	 	 	$	1,878	 	 	$	1,593	 	
Total assets	 	$	395,677	 	 	$	376,843	 	 	$	381,209	 	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	
Accumulated earnings	 	$	54,667	 	 	$	59,608	 	 	$	86,994	 	 	$	53,369	 	 	$	56,922	 	 	$	82,396	 	
Total members’ deficit	 	$	(59,784	)	 	$	(57,329	)	 	$	(33,861	)	 	$	(61,082	)	 	$	(60,015	)	 	$	(38,299	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		As Previously Reported		As Restated	

				Nine Months				Nine Months	
		Year Ended		Ended		Year Ended		Ended	
		December 31,		September 30,		December 31,		September 30,	
Consolidated Statements		2001		2002		2003		2003		2004		2001		2002		2003		2003		2004	
of Operations																					
			
		(Dollars in thousands, except per unit amounts)	
Amortization of intangibles	 	$	5,731	 	 	$	218	 	 	$	131	 	 	$	99	 	 	$	69	 	 	$	5,801	 	 	$	1,498	 	 	$	1,709	 	 	$	1,269	 	 	$	1,267	 	
Income from operations	 	$	63,818	 	 	$	67,623	 	 	$	62,549	 	 	$	49,846	 	 	$	58,394	 	 	$	63,748	 	 	$	66,343	 	 	$	60,971	 	 	$	48,676	 	 	$	56,929	 	
Income before income tax provision	 	$	16,592	 	 	$	28,247	 	 	$	9,262	 	 	$	21,968	 	 	$	34,462	 	 	$	16,522	 	 	$	26,967	 	 	$	7,684	 	 	$	20,798	 	 	$	32,414	 	
Income tax provision	 	$	5,802	 	 	$	6,304	 	 	$	4,321	 	 	$	4,417	 	 	$	7,076	 	 	$	5,787	 	 	$	6,267	 	 	$	4,131	 	 	$	4,220	 	 	$	6,940	 	
Net income	 	$	10,790	 	 	$	21,943	 	 	$	4,941	 	 	$	17,551	 	 	$	27,386	 	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
Net income attributable to common members	 	$	7,683	 	 	$	18,652	 	 	$	3,211	 	 	$	15,821	 	 	$	27,386	 	 	$	7,628	 	 	$	17,409	 	 	$	1,823	 	 	$	14,848	 	 	$	25,474	 	
Net income attributable to common members per common unit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.45	 	 	$	0.77	 	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	
 	Diluted	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.42	 	 	$	0.73	 	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	
Unaudited pro forma net income attributable to common members	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	10,253	 	 	$	19,011	 	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
Unaudited pro forma net income attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.29	 	 	$	0.54	 	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Diluted	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.27	 	 	$	0.51	 	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

		
		
  (2) 	Until our reorganization, which will be effective prior to the closing of this offering, a substantial portion of our business will continue to operate as a limited liability company, or LLC, and taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings. The unaudited pro forma incremental income tax provision amounts reflected in the table above were calculated as if our reorganization became effective on January 1, 1999.	

		
  (3) 	Non-GAAP Measures.	

		
 	EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) are supplemental measures of our performance that are not required by, or presented in accordance with GAAP. These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating, investing or financing activities as a measure of liquidity.	
 		
 	EBIT is a non-GAAP measure that represents earnings before interest expense and income taxes. EBITDA is a non-GAAP measure that represents earnings before interest expense, income taxes, depreciation, and amortization. Adjusted	
8 

 

		
	EBITDA represents EBITDA adjusted to exclude the impact of costs incurred in connection with our recapitalization in 2000 and loss on early extinguishment of debt. Adjusted EBIT margin is a non-GAAP measure that is calculated by subtracting depreciation and amortization from adjusted EBITDA and dividing the result by net sales. Adjusted EBITDA margin is a non-GAAP measure that is calculated by dividing adjusted EBITDA by net sales.	
 		
 	We calculate Adjusted EBITDA by adjusting EBITDA to eliminate the impact of a number of items we do not consider indicative of our ongoing operations and for the other reasons noted below. You are encouraged to evaluate each adjustment and whether you consider it appropriate. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.	
 		
 	We present EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) because we consider them important supplemental measures of our performance and liquidity and believe that such measures are meaningful to investors for the reasons discussed below.	
 		
 	We use EBIT as a metric to measure and compare the performance of our divisions. We operate our 42 divisions as separate business units, but manage debt and taxation at the corporate level. As a result, EBIT is the best measure of divisional profitability and the most useful metric by which to measure and compare the performance of our divisions. We also use EBIT as a metric to measure performance for the purpose of determining compensation at the division level and use EBITDA and Adjusted EBITDA to measure performance and determine compensation at the consolidated level. We also use EBITDA as a metric to manage cash flow from our divisions to the corporate level and to determine the financial health of each division. As noted above, because our divisions do not incur interest or income tax expense, the cash flow from each division should be equal to the corresponding EBITDA of each division, assuming no other changes to a division’s balance sheet. As a result, we reconcile EBITDA to cash flow on a monthly basis as one of our key internal controls. We also use EBIT, EBITDA and Adjusted EBITDA to evaluate potential acquisitions and to evaluate whether to incur capital expenditures. In addition, certain covenants in our credit agreements require compliance with financial ratios based on Adjusted EBITDA (as defined in our credit agreements).	
 		
 	EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, EBIT, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and Adjusted EBITDA only supplementally. For more information, see our consolidated financial statements and related notes included elsewhere in this prospectus.	
9 

 

       The following is a reconciliation of cash flows provided by operating activities to EBIT, EBITDA, and pro forma net income:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
				(Unaudited)			
		(Dollars in thousands)					
Cash flows provided by operating activities	 	$	28,569	 	 	$	28,054	 	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	46,909	 	 	$	42,419	 	
 	Changes in operating assets and liabilities	 	 	712	 	 	 	632	 	 	 	2,399	 	 	 	(4,040	)	 	 	(1,102	)	 	 	(3,878	)	 	 	2,609	 	
 	Noncash expenses, including depreciation and amortization	 	 	(9,174	)	 	 	(27,362	)	 	 	(44,815	)	 	 	(31,673	)	 	 	(43,582	)	 	 	(26,453	)	 	 	(19,554	)	
 	Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	Interest expense, net	 	 	9,215	 	 	 	29,238	 	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	28,958	 	 	 	25,089	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBIT	 	 	33,390	 	 	 	35,346	 	 	 	64,052	 	 	 	66,884	 	 	 	47,074	 	 	 	49,756	 	 	 	57,503	 	
 	Depreciation and amortization(4)	 	 	9,542	 	 	 	14,942	 	 	 	25,442	 	 	 	19,178	 	 	 	19,937	 	 	 	15,219	 	 	 	14,339	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	42,932	 	 	 	50,288	 	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	64,975	 	 	 	71,842	 	
 	Interest expense	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(28,958	)	 	 	(25,089	)	
 	Income tax provision and unaudited pro forma incremental income tax provision(2)	 	 	(9,372	)	 	 	(7,402	)	 	 	(8,361	)	 	 	(12,478	)	 	 	(4,804	)	 	 	(9,400	)	 	 	(14,654	)	
 	Depreciation and amortization	 	 	(9,542	)	 	 	(14,942	)	 	 	(25,442	)	 	 	(19,178	)	 	 	(19,937	)	 	 	(15,219	)	 	 	(14,339	)	
 	Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	

       The following is a reconciliation of net income to EBITDA and to adjusted EBITDA:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
				(Unaudited)			
		(Dollars in thousands)					
Net income	 	$	20,107	 	 	$	1,324	 	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
 	Interest expense, net	 	 	9,215	 	 	 	29,238	 	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	28,958	 	 	 	25,089	 	
 	Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	Depreciation and amortization	 	 	9,542	 	 	 	14,942	 	 	 	25,442	 	 	 	19,178	 	 	 	19,937	 	 	 	15,219	 	 	 	14,339	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	42,932	 	 	 	50,288	 	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	64,975	 	 	 	71,842	 	
 	Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	1,195	 	 	 	—	 	 	 	—	 	 	 	14,921	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	64,975	 	 	$	71,842	 	

10 

 

       The following is a reconciliation of our net income margin to Adjusted EBIT margin and Adjusted EBITDA margin:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

								Nine Months	
				Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
												(Unaudited)			
Net income margin	 	 	9.0%	 	 	 	0.4%	 	 	 	2.6%	 	 	 	4.9%	 	 	 	0.9%	 	 	 	5.2%	 	 	 	7.6%	 	
 	Interest expense, net	 	 	4.1%	 	 	 	8.3%	 	 	 	11.3%	 	 	 	9.5%	 	 	 	9.5%	 	 	 	9.2%	 	 	 	7.5%	 	
 	Income tax provision	 	 	1.8%	 	 	 	1.4%	 	 	 	1.4%	 	 	 	1.5%	 	 	 	1.0%	 	 	 	1.3%	 	 	 	2.1%	 	
 	Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	5.9%	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	0.3%	 	 	 	—	 	 	 	—	 	 	 	3.6%	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBIT margin	 	 	14.9%	 	 	 	16.3%	 	 	 	15.2%	 	 	 	16.0%	 	 	 	14.9%	 	 	 	15.7%	 	 	 	17.1%	 	
 	Depreciation and amortization	 	 	4.3%	 	 	 	4.3%	 	 	 	6.0%	 	 	 	4.6%	 	 	 	4.8%	 	 	 	4.8%	 	 	 	4.3%	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA margin	 	 	19.2%	 	 	 	20.5%	 	 	 	21.3%	 	 	 	20.5%	 	 	 	19.7%	 	 	 	20.5%	 	 	 	21.4%	 	

		
		
  (4) 	Depreciation and amortization includes a write-off of intangible assets of $3.4 million for the year ended December 31, 2001.	

		
  (5) 	Prepared on the same basis as the capitalization table. See “Capitalization.”	

		
  (6) 	In July 2003, we adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” In accordance with SFAS No. 150, the redeemable preferred equity of Holdings has been reclassified in our financial statements as a component of our total debt upon our adoption of this new standard. The redeemable preferred equity amounted to $25.8 million as of December 31, 2003 and $27.3 million as of September 30, 2004. SFAS No. 150 does not permit the restatement of financial statements for periods prior to the adoption of this standard.	

		
  (7) 	Redeemable common membership units amounted to $6.0 million and $8.1 million at December 31, 2000 and 2001, respectively.	

		
  (8) 	The decline in total members’ equity (deficit) from December 31, 1999 to December 31, 2000 was a result of an $88.8 million cash distribution to Holdings’ common unit holders in connection with the 2000 recapitalization and the reclassification of $20.3 million of preferred equity issued in connection with the 2000 recapitalization upon the adoption of SFAS No. 150 in July 2003.	
		
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RISK FACTORS
       Investing in our common stock involves a number of risks. You should carefully consider all of the information contained in this prospectus, including the risk factors set forth below, before investing in the common stock offered pursuant to this prospectus. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair or adversely affect our results of operations and financial condition. In such case, you may lose all or part of your original investment.
Risks Related to Our Business
Future downturns in the architectural, engineering and construction industry, or AEC industry, could diminish demand for our products and services, which would impair our future revenue and profitability.
       We believe that AEC markets accounted for approximately 80% of our net sales for the nine months ended September 30, 2004. Our historical operating results reflect the cyclical and variable nature of the AEC industry. This industry historically experiences alternating periods of inadequate supplies of housing, commercial and industrial space coupled with low vacancies, causing a surge in construction activity and increased demand for reprographics services, followed by periods of oversupply and high vacancies and declining demand for reprographics services. In addition, existing and future government policies and programs may greatly influence the level of construction spending in the public sector, such as highways, schools, hospitals, sewers, and heavy construction. Since we derive a majority of our revenues from reprographics products and services provided to the AEC industry, our operating results are more sensitive to the nature of this industry than other companies who serve more diversified markets. Our experience has shown that the AEC industry generally experiences economic downturns six months after a downturn in the general economy. We expect that there may be a similar delay in the rebound of the AEC industry following a rebound in the general economy. Future economic and industry downturns may be characterized by diminished demand for our products and services and, therefore, any continued weakness in our customers’ markets and overall global economic conditions could adversely affect our future revenue and profitability.
       In addition, because approximately 60% of our overall costs are fixed, changes in economic activity, positive or negative, affect our results of operations. As a result, our results of operations are subject to volatility and could deteriorate rapidly in an environment of declining revenues. Failure to maintain adequate cash reserves and effectively manage our costs could adversely affect our ability to offset our fixed costs and may have an adverse effect on our results of operations and financial condition.
Competition in our industry and innovation by our competitors may hinder our ability to execute our business strategy and maintain our profitability.
       The markets for our products and services are highly competitive, with competition primarily at a local and regional level. We compete primarily based on customer service, technological leadership, product performance and price. Our future success depends, in part, on our ability to continue to improve our service offerings, and develop and integrate technological advances. If we are unable to integrate technological advances into our service offerings to successfully meet the evolving needs of our customers in a timely manner, our operating results may be adversely affected. Technological innovation by our existing or future competitors could put us at a competitive disadvantage. In particular, our business could be adversely affected if any of our competitors develop or acquire superior technology that competes directly with or offers greater functionality than our technology, including PlanWell.
       We also face the possibility that competition will continue to increase, particularly if copy and printing or business services companies choose to expand into the reprographics services industry.
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Many of these companies are substantially larger and have significantly greater financial resources than us, which could place us at a competitive disadvantage. In addition, we could encounter competition in the future from large, well capitalized companies such as equipment dealers, system integrators, and other reprographics associations, that can produce their own technology and leverage their existing distribution channels. We could also encounter competition from non-traditional reprographics service providers that offer reprographics services as a component of the other services they provide to the AEC industry, such as vendors to our industry that provide services directly to our customers, bypassing reprographers. Any such future competition could adversely affect our business and impair our future revenue and profitability.
The reprographics industry has undergone vast changes in the last six years and will continue to evolve, and our failure to anticipate and adapt to future changes in our industry could harm our competitive position.
       In the past six years, the reprographics industry has undergone vast changes. The industry’s main production technology has migrated from analog to digital. This has prompted a number of trends in the reprographics industry, including a rapid shift toward decentralized production and lower labor utilization. As digital output devices become smaller, less expensive, easier to use and interconnected, end users of construction drawings are placing these devices within their offices and other locations. On-site reprographics equipment allows a customer to print documents and review hard copies without the delays or interruptions associated with sending documents out for duplication. Also, as a direct result of advancements in digital technology, labor demands have decreased. Instead of producing one print at a time, reprographers now have the capability to produce multiple sets of documents with a single production employee. By linking output devices through a single print server, a production employee simply directs output to the device that is best suited for the job. As a result of these trends, reprographers have had to modify their operations to decentralize printing and shift costs from labor to technology.
       Looking forward, we expect the reprographics industry to continue to evolve. Our industry will continue to embrace digital technology, not only in terms of production services, but also in terms of network technology, digital document storage and management, and information distribution, all of which will require investment in, and continued development of, technological innovation. If we fail to keep pace with current changes or fail to anticipate or adapt to future changes in our industry, our competitive position could be harmed.
If we fail to continue to develop and introduce new services successfully, our competitive positioning and our ability to grow our business could be harmed.
       In order to remain competitive, we must continually invest in new technologies that will enable us to meet the evolving demands of our customers. We cannot assure you that we will be successful in the introduction and marketing of any new services, or that we will develop and introduce in a timely manner innovative services that satisfy customer needs or achieve market acceptance. Our failure to develop new services and introduce them successfully could harm our competitive position and our ability to grow our business, and our revenues and operating results could suffer.
       In addition, as reprographics technologies continue to be developed, one or more of our current service offerings may become obsolete. In particular, digital technologies may significantly reduce the need for high volume printing. Digital technology may also make traditional reprographics equipment smaller and cheaper, which may cause larger AEC customers to discontinue outsourcing their reprographics needs. Any such developments could adversely affect our business and impair future revenue and profitability.
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If we are unable to charge for our value-added services to offset potential declines in print volumes, our long term revenue could decline.
       Our customers value the ability to view and order prints via the internet and print to output devices in their own offices and other locations throughout the country. In 2003, our reprographics services represented approximately 76% and our facilities management services represented approximately 14% of our total net sales, and both categories of revenue are generally derived via a charge per square foot of printed material. Future technological advances may further facilitate and improve our customers’ ability to print in their own offices or at a job site. As technology continues to improve, this trend toward consuming information on an “as needed” basis could result in decreasing printing volumes and declining revenues in the longer term. Failure to offset these potential declines in printing volumes by changing how we charge for our services and developing additional revenue sources could significantly affect our business and reduce our long term revenue, resulting in an adverse effect on our results of operations and financial condition.
We derive a significant percentage of net sales from within the State of California and our business could be disproportionately harmed by an economic downturn or natural disaster affecting California.
       We derived approximately half of our net sales in 2003, and in the nine months ended September 30, 2004, from our operations in California. As a result, we are dependent to a large extent upon the AEC industry in California and, accordingly, are sensitive to economic factors affecting California, including general and local economic conditions, macroeconomic trends, and natural disasters. Any adverse developments affecting California could have a disproportionately negative effect on our revenue, operating results and cash flows.
Our growth strategy depends in part on our ability to successfully identify and manage our acquisitions and branch openings. Failure to do so could impede our future growth and adversely affect our competitive position.
       As part of our growth strategy, we intend to prudently pursue strategic acquisitions within the reprographics industry. Since 1997, we have acquired 84 businesses, most of which were long established in the communities in which they conduct their business. Our efforts to execute our acquisition strategy may be affected by our ability to continue to identify, negotiate, integrate, and close acquisitions. In addition, any governmental review or investigation of our proposed acquisitions, such as by the Federal Trade Commission, or FTC, may impede, limit or prevent us from proceeding with an acquisition. For example, our acquisition of Consolidated Reprographics in 2001, was investigated by the FTC. This investigation has since been concluded without any action being taken against us. We regularly evaluate potential acquisitions, although we currently have no agreements or active negotiations with respect to any material acquisitions.
       Acquisitions involve a number of special risks. There may be difficulties integrating acquired personnel and distinct business cultures. Additional financing may be necessary and, if available, could increase our leverage, dilute our equity, or both. Acquisitions may divert management’s time and our resources from existing operations. It is possible that there could be a negative effect on our financial statements from the impairment related to goodwill and other intangibles. We may experience the loss of key employees or customers of acquired companies. In addition, risks may include high transaction costs and expenses of integrating acquired companies, as well as exposure to unforeseen liabilities of acquired companies and failure of the acquired business to achieve expected results. These risks could hinder our future growth and adversely affect our competitive position and operating results.
       In addition, we have recently begun to expand our geographic coverage by opening additional satellite branches in regions near our established operations to capture new customers and greater market share. Since September 2003, we have opened 17 new branches in areas that expand or
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further penetrate our existing markets, and we expect to open an additional 15 branches by the end of the first quarter of 2005. Although the capital investment for a new branch is modest, our growth strategy with respect to branch openings is in the early stages of implementation and the branches we open in the future may not ultimately produce returns that justify our investment.
If we are unable to successfully monitor and manage the business operations of our subsidiaries, our business and profitability could suffer.
       We operate our company under a dual operating structure of centralized administrative functions and regional decision making on marketing, pricing, and selling practices. Since 1997, we have acquired 84 businesses and, in most cases, have delegated the responsibility for marketing, pricing, and selling practices with the local and operational managers of these businesses. If we do not successfully manage our subsidiaries under this decentralized operating structure, we risk having disparate results, lost market opportunities, lack of economic synergies, and a loss of vision and planning, all of which could harm our business and profitability.
       In August 2003, we restated our financial statements for the years ended December 31, 2001 and 2002 to correct accounting misstatements at one of our subsidiaries during 2001 due to fraud by certain managers at the subsidiary. The accounting misstatements at the subsidiary resulted in the overstatement of net income in 2001 by $1,461,000. In response to these accounting misstatements, we have strengthened our financial and management policies and procedures, established an internal audit group, and improved our accounting controls. However, we cannot assure that these new internal controls will be effective in preventing similar fraud in the future.
We depend on certain key vendors for reprographics equipment, maintenance services and supplies, making us vulnerable to supply shortages and price fluctuations.
       We purchase reprographics equipment and maintenance services, as well as paper, toner and other supplies, from a limited number of vendors. Our four largest vendors, which supplied approximately 35% of our reprographics equipment, maintenance services, and production supplies in 2003, are Océ N.V., Xerox Corporation, Canon Inc., and Xpedx, a division of International Paper Company. Adverse developments concerning key vendors or our relationships with them could force us to seek alternate sources for our reprographics equipment, maintenance services and supplies or to purchase such items on unfavorable terms. An alternative source of supply of reprographics equipment, maintenance services and supplies may not be readily available. A delay in procuring reprographics equipment, maintenance services or supplies, or an increase in the cost to purchase such reprographics equipment, maintenance services or supplies could limit our ability to provide services to our customers on a timely and cost-effective basis.
Our failure to adequately protect the proprietary aspects of our technology, including PlanWell, may cause us to lose market share.
       Our success depends on our ability to protect and preserve the proprietary aspects of our technologies, including PlanWell. We rely on a combination of copyright and trademark protection, confidentiality agreements, non-compete agreements, reseller agreements, customer contracts, and technical measures to establish and protect our rights in our proprietary technologies. Under our PlanWell license agreements, we grant other reprographers a non-exclusive, non-transferable, limited license to use our technology and receive our services. Our license agreements contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. These protections, however, may not be adequate to remedy harm we suffer due to misappropriation of our proprietary rights by third parties. In addition, U.S. law provides only limited protection of proprietary rights and the laws of some foreign countries may offer less protection than the laws of the United States. Unauthorized third parties may copy aspects of our products, reverse engineer our products or otherwise obtain and use information that we regard as proprietary. Others may develop non-infringing technologies that are similar or superior to ours. If competitors are able to develop such
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technology and we cannot successfully enforce our rights against them, they may be able to market and sell or license the marketing and sale of products that compete with ours, and this competition could adversely affect our results of operations and financial condition. Furthermore, intellectual property litigation can be expensive, a burden on management’s time and our company’s resources, and its results can be uncertain.
We may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to use certain technologies in the future.
       Other companies or individuals may pursue litigation against us with respect to intellectual property-based claims, including claims relating to the use of PlanWell and our other brands, trademarks, logos, technologies, trade secrets, and proprietary information. In the event of an adverse result in any litigation with respect to PlanWell and other intellectual property rights relevant to our business that could arise in the future, we could be required to obtain licenses to the infringing technology; begin using other brands, trademarks and logos; pay substantial damages under applicable law; or expend significant resources to develop non-infringing technology. There can be no assurance that suitable replacement technologies would be available to us on commercially reasonable terms. In addition, because we have a number of unregistered trademarks, we may be at greater risk of infringement by those who have pre-existing and superior rights in similar trademarks. Our insurance may not cover potential claims or may not be adequate to indemnify us for damages we incur. Also, litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail.
Damage or disruption to our facilities, our technology centers, our vendors or a majority of our customers could impair our ability to effectively provide our services and may have a significant impact on our revenues, expenses and financial condition.
       We currently store most of our customer data at our two technology centers located in Northern California near known earthquake fault zones. Damage or destruction of one or both of these technology centers or a disruption of our data storage processes resulting from sustained process abnormalities, human error, acts of terrorism, violence, war or a natural disaster, such as fire, earthquake or flood, could have a material adverse effect on the markets in which we operate, our business operations, our expectations and other forward-looking statements contained in this prospectus. In addition, such damage or destruction on a national scale resulting in a general economic downturn could adversely affect our results of operations and financial condition. We store and maintain critical customer data on computer servers at our technology centers that our customers access remotely through the internet and/or directly through telecommunications lines. If our back-up power generators fail during any power outage, if our telecommunications lines are severed or those lines on the internet are impaired for any reason, our remote access customers would be unable to access their critical data, causing an interruption in their operations. In such event, our remote access customers and their customers could seek to hold us responsible for any losses. We may also potentially lose these customers and our reputation could be harmed. In addition, such damage or destruction, particularly those that directly impact our technology centers or our vendors or customers could have an impact on our sales, supply chain, production capability, costs, and our ability to provide services to our customers.
       Although we currently maintain general property damage insurance, we do not maintain insurance for loss from earthquakes, acts of terrorism or war. If we incur losses from uninsured events, we could incur significant expenses which would adversely affect our results of operations and financial condition.
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If we lose key personnel or qualified technical staff, our ability to manage the day-to-day aspects of our business will be adversely affected.
       We believe that the attraction and retention of qualified personnel is critical to our success. If we lose key personnel or are unable to recruit qualified personnel, our ability to manage the day-to-day aspects of our business will be adversely affected. Our operations and prospects depend in large part on the performance of our senior management team and the managers of our principal operating divisions. The loss of the services of one or more members of our senior management team, in particular, Mr. Chandramohan, our Chief Executive Officer, and Mr. Suriyakumar, our President and Chief Operating Officer, could disrupt our business and impede our ability to execute our business strategy. Because our executive and divisional management team has on average more than 20 years of experience within the reprographics industry, it would be difficult to replace them.
If we are required to write down our goodwill or other intangible assets, our operations and stockholders’ equity would be adversely affected.
       As described in the notes to our financial statements included elsewhere in this prospectus, we have $230.6 million of goodwill and $11.9 million of other intangible assets recorded on our balance sheet as of September 30, 2004. Goodwill arises when we pay more for a business than the fair market value of the acquired tangible and separately measurable intangible net assets. Until January 1, 2002, we amortized this goodwill on a straight-line basis over 40 years. Under accounting rules that we adopted beginning January 1, 2002, we are no longer able to amortize goodwill on a yearly basis. Instead, we are required to periodically determine if our goodwill has become impaired, in which case we would be required to write off the impaired portion of goodwill. The amount of goodwill that we would write off in any given year is treated as a charge against earnings under generally accepted accounting principles in the United States. If we are required to write off our goodwill or other intangible assets, we could incur significant charges against earnings, which would adversely affect our results of operations and stockholders’ equity.
We have substantial debt and have the ability to incur additional debt. The principal and interest payment obligations of such debt may restrict our future operations and adversely affect our business.
       As of September 30, 2004, assuming that this offering and the application of the net proceeds from this offering as described under “Use of Proceeds” had been completed by that date, we would have had approximately $255 million of outstanding indebtedness. In addition, the credit agreements governing our credit facilities permit us to incur additional debt under certain circumstances.
       The incurrence of substantial amounts of debt may make it more difficult for us to satisfy our financial obligations; require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes; increase our vulnerability to general adverse economic and industry conditions; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; place us at a competitive disadvantage compared with some of our competitors that have less debt; and limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.
       Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds to meet these obligations or to successfully execute our business strategy.
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The agreements governing our credit facilities impose restrictions on our business that may limit our business opportunities and hinder our ability to execute our business strategy.
       The credit agreements for our senior secured credit facilities contain, and other agreements we may enter into in the future may contain, covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things, incur additional debt, create liens, make investments, enter into transactions with affiliates, sell assets, guarantee debt, declare or pay dividends, redeem common stock or make other distributions to stockholders, and consolidate or merge. See “Description of Certain Indebtedness.”
       Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. An event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. If we were unable to repay debt to our senior lenders, these lenders could proceed against the collateral securing that debt.
Being a public company will increase our expenses and administrative workload.
       As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will have created or revised the roles and duties of our board committees, adopted additional internal controls and disclosure controls and procedures, retained a transfer agent and a financial printer, adopted an insider trading policy and will have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, our business could be harmed and current and potential stockholders could lose confidence in our company, which could cause our stock price to fall.
       Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We will be evaluating our internal controls systems to allow management to report on, and our independent auditors to attest to, our internal controls. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, we expect to incur substantial additional expenses and diversion of management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 by our December 31, 2005 deadline, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is presently no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to accurately report our financial results or prevent fraud and might be subject to sanctions or
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investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our business or investors’ confidence in our company, and could cause our stock price to fall.

       The accompanying consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated to properly record separately identifiable intangible assets including customer relationships and trade names apart from goodwill and reflect amortization expense of such intangible assets previously recorded as goodwill and not subject to amortization. In light of the aforementioned restatement of our financial statements due to the misapplication of purchase accounting, our independent registered public accounting firm notified us that our procedures were inadequate for appropriately assessing and applying purchase accounting principles. Our external auditors have concluded that this constitutes a material weakness as defined in Statement on Auditing Standards No. 60. We have revised our policies and procedures such that, in connection with material future acquisitions that are consummated, we will engage independent valuation consultants to assist us in determining the values to be assigned to intangible assets pursuant to FAS 141. While we believe that this process will adequately address this control deficiency there can be no assurance that similar issues may not arise again.

Our operations subject us to potential environmental liabilities that could increase our operating costs and harm our financial condition and results of operations.

       Our printing operations are subject to numerous federal, state and local laws, and regulations relating to the environment. Such environmental regulations may affect us by restricting the use of certain products or regulating their disposal and regulatory or legislative changes may cause future increases in our operating costs or otherwise affect our operations. Although we believe we are and have been in substantial compliance with such regulations, there is no assurance that in the future we may not be adversely affected by such regulations or incur increased operating costs in complying with such regulations.
       Our operations involve some use of hazardous substances and the generation of wastes, primarily toner, which could have adverse environmental impacts if released into the environment. Environmental regulations impose obligations on various entities to clean up contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the contamination. Accordingly, we may become liable, either contractually or by operation of law, for remediation costs even if a contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. While we are not subject to any existing remediation obligations, future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to future remediation liabilities that may be material.
Risks Related to Our Common Stock
Our stock price may be volatile, and you may not be able to resell your shares at or above the initial public offering price.
       Prior to this offering, there has been no public market for shares of our common stock. An active public trading market for our common stock may not develop or, if it develops, may not be maintained after this offering, and the market price could fall below the initial public offering price. Factors such as quarterly variations in our financial results, announcements by us or others, developments affecting us, our customers and our suppliers, acquisition of products or businesses by us or our competitors, and general market volatility could cause the market price of our common stock to fluctuate significantly. As a result, you could lose all or part of your investment. Our company, the selling stockholders, and the representatives of the underwriters will negotiate to
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determine the initial public offering price. The initial public offering price may be higher than the trading price of our common stock following this offering.
Anti-takeover provisions in our charter documents and Delaware corporate law may make it difficult for our stockholders to replace or remove our current board of directors and could deter an unsolicited third party acquisition offer, which may adversely affect the marketability and market price of our common stock.
       Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and in Delaware corporate law will make it difficult for stockholders to change the composition of our board of directors, which consequently will make it difficult to change the composition of management. In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. Public stockholders who might desire to participate in this type of transaction may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
Our board of directors can issue preferred stock without stockholder approval of the terms of such stock.
       Our amended and restated certificate of incorporation will authorize our board of directors, without stockholder approval, to issue up to 25,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, terms of redemption, liquidation preference, sinking fund terms, subscription rights, and the number of shares constituting any series or the designation of a series. Our board of directors will be able to issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of common stock, without stockholder approval. At the completion of this offering, no shares of preferred stock will be outstanding and we have no present plan to issue any shares of preferred stock.
Shares available for sale and future stock sales could decrease the market price of our stock.
       Sales of shares of our common stock in the public market following this offering, or the perception that sales may occur, could depress the market price of our common stock. After this offering, we will have 43,986,296 shares of common stock outstanding, including 22,500 shares issued pursuant to option exercises subsequent to September 30, 2004. The number of shares of common stock available for sale in the public market is temporarily limited by restrictions under federal securities law and under lock-up agreements that our directors, executive officers, the selling stockholders, and the holders of substantially all other shares of our common stock have entered into with the underwriters. Those lock-up agreements restrict these persons from disposing of or hedging their shares or securities convertible into or exchangeable for their shares until 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc. However, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. may release all or any portion of the shares from the restrictions of the lock-up agreements. All of the shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by our affiliates (as defined in Rule 144 of the Securities Act). The remaining shares outstanding after this offering will be available for sale into the public market after the expiration of the initial 180-day lock-up period, except for any shares purchased by our affiliates (as defined in Rule 144 of the Securities Act). Additional shares of common stock underlying options will become available for sale in the public market. We expect to file a registration statement on Form S-8 that will register approximately
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5.8 million shares of common stock, including shares of common stock issuable under our stock plans.
       As restrictions on resale end, our stock price could drop significantly if the holders of these restricted shares sell them or the market perceives they intend to sell them. These sales may also make it more difficult for us to sell securities in the future at a time and at a price we deem appropriate.
Because a limited number of stockholders control the majority of the voting power of our common stock, investors in this offering will not be able to determine the outcome of stockholder votes.

       Following this offering, our executive officers, directors, Code Hennessy & Simmons IV LP, and their affiliated entities will control 61.7% of the voting power of our common stock, or 57.1% if the underwriters’ over-allotment option is exercised in full. So long as these stockholders continue to hold, directly or indirectly, shares of common stock representing more than 50% of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors who will determine our strategic plans and financing decisions and appoint senior management. These stockholders will also be able to determine the outcome of substantially all matters submitted to a vote of our stockholders, including matters involving mergers, acquisitions, and other transactions resulting in a change in control of our company. These stockholders do not have any obligation to us to either retain or dispose of our common stock. They may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us, but which might involve risks to other holders of our common stock or adversely affect us or other investors, including investors in this offering.

You will incur immediate and substantial dilution as a result of this offering.

       The initial public offering price will be substantially higher than the book value (deficit) per share of our common stock. As a result, purchasers in this offering will experience immediate and substantial dilution of $19.53 per share in the tangible book value of the common stock from the assumed initial public offering price of $15.00. After our issue and sale of 7,666,667 shares of our common stock in this offering at an assumed initial public offering price of $15.00 per share, the purchasers of shares issued by us in this offering will contribute 40.5% of the total gross amount invested to date in our company, but will own only 17.4% of the shares of common stock outstanding. However, the purchasers of shares from the selling stockholders will own an additional 12.9% of the shares of common stock outstanding. In addition, to the extent that currently outstanding options to purchase common stock at a price per share less than our tangible net book value per share are exercised, there will be further dilution.

21 

 

FORWARD-LOOKING STATEMENTS
       This prospectus includes “forward-looking statements,” as defined by federal securities laws, with respect to our financial condition, results of operations and business, and our expectations or beliefs concerning future events. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements.
       All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.
       Factors that may cause actual results to differ from expected results include, among others:

		
• 	general economic conditions and a downturn in the architectural, engineering and construction industry;	
 		
• 	competition in our industry and innovation by our competitors;	
 		
• 	our failure to anticipate and adapt to future changes in our industry;	
 		
• 	uncertainty regarding our product and service innovations;	
 		
• 	the inability to charge for our value-added services to offset potential declines in print volumes;	
 		
• 	adverse developments affecting the State of California, including general and local economic conditions, macroeconomic trends, and natural disasters;	
 		
• 	our inability to successfully identify and manage our acquisitions or open new branches;	
 		
• 	our inability to successfully monitor and manage the business operations of our subsidiaries and uncertainty regarding the effectiveness of financial and management policies and procedures we established to improve accounting controls;	
 		
• 	adverse developments concerning our relationships with certain key vendors;	
 		
• 	our inability to adequately protect our intellectual property and litigation regarding intellectual property;	
 		
• 	acts of terrorism, violence, war, natural disaster or other circumstances that cause damage or disruption to us, our facilities, our technology centers, our vendors or a majority of our customers;	
 		
• 	the loss of key personnel or qualified technical staff;	
 		
• 	the potential writedown of goodwill or other intangible assets we have recorded in connection with our acquisitions;	
 		
• 	the availability of cash to operate and expand our business as planned and to service our debt;	
 		
• 	the increased expenses and administrative workload associated with being a public company;	
 		
• 	failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;	
 		
• 	potential environmental liabilities.	
       All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.
22 

 

       See the section entitled “Risk Factors” for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described in this prospectus are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
TRADEMARKS AND TRADE NAMES
       We own or have rights to trademarks, service marks, copyrights and trade names that we use in conjunction with the operation of our business, including the names “American Reprographics Company SM ,” “ARC SM ,” “Abacus PCR TM ,” “BidCaster SM ,” “EWO SM ,” “MetaPrint TM ,” “OneView SM ,” “PEiR SM ,” “PlanWell®,” “PlanWell PDS TM ,” “PlanWell Enterprise SM ,” and various design marks associated therewith. This prospectus also includes trademarks, service marks and trade names of other companies.
MARKET DATA
       We operate in an industry in which it is difficult to obtain precise industry and market information. Although we have obtained some industry data from third party sources that we believe to be reliable, in many cases we have based certain statements contained in this prospectus regarding our industry and our position in the industry on our estimates concerning our customers and competitors. These estimates are based on our experience in the industry, conversations with our principal vendors, our own investigation of market conditions and information obtained through our numerous acquisitions.
23 

 

USE OF PROCEEDS
       We expect to receive net proceeds of approximately $103.6 million from the sale of 7,666,667 shares of common stock by us in this offering at an assumed initial public offering price of $15.00 per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting commissions and discounts and estimated expenses. We will not receive any of the proceeds from the sale of shares by the selling stockholders or upon any exercise of the underwriters’ over-allotment option.
       We anticipate using the net proceeds to us from this offering as follows:

		
• 	approximately $28.0 million to repurchase our preferred equity, including accrued interest, which becomes payable upon our initial public offering;	
 		
• 	approximately $50.7 million to repay a portion of our $225 million senior second priority secured term loan facility, which has a maturity date of December 2009 and bears interest at a floating rate which was 8.625% as of September 30, 2004; and	
 		
• 	the balance of approximately $24.9 million to repay a portion of our $100 million senior first priority secured term loan facility, which has a maturity date of June 2009 and bears interest at a floating rate which was 4.84% as of September 30, 2004.	
       Pending application of the balance of the net proceeds described above, we plan to invest such balance in short and medium-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
       We have never declared or paid cash dividends on our common equity. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to compliance with certain covenants under our credit facilities, which restrict or limit our ability to declare or pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.
REORGANIZATION
       Immediately prior to this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization:

		
• 	each common unit of Holdings will be exchanged for one share of our common stock;	
 		
• 	each Holdings option will be exchanged for an option exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option; and	
 		
• 	the Holdings warrants will be exchanged for 809,618 shares of our common stock.	
       Pursuant to the operating agreement of Holdings, cash distributions are to be made to members of Holdings to provide them with funds to pay taxes that the members will owe for their share of our profits as a limited liability company through the date of our reorganization, calculated at the highest combined federal and state income tax rate applicable for tax withholding purposes, currently 43%. Accordingly, immediately prior to our reorganization, we will make a cash distribution to all members of Holdings of the estimated amount due the members with respect to such taxes in the amount of approximately $510,000. Within approximately 45 days after the closing of this offering, when the final amount due the members with respect to such taxes has been calculated, we will make a final payment for the balance, if any, due to the members. In addition, certain of our
24 

 

members, CHS Associates IV and ARC Acquisition Co., L.L.C. (the “CHS Entities”), in the past have received less than their proportionate share of distributions for such taxes and, under the terms of the operating agreement of Holdings, are owed the amount of the shortfall. In order to bring the total distributions to the CHS Entities into parity with the distributions with respect to such taxes made to other members, immediately prior to our reorganization, a distribution of approximately $8.6 million will be made to the CHS Entities. We may also make a further distribution to CHS Entities within 45 days after the closing of this offering if the estimated payment to the CHS Entities did not fully offset such shortfall.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       On October 24, 2003, Holdings’ board of advisors determined to no longer use the audit services of Ernst & Young LLP and approved the appointment of PricewaterhouseCoopers LLP to serve as our independent public accountants for the fiscal year ending December 31, 2003. During the years ended December 31, 2002 and 2001 and the subsequent interim period through October 24, 2003, we did not consult with PricewaterhouseCoopers LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
       The reports of Ernst & Young LLP on our consolidated financial statements for the years ended December 31, 2002 and 2001 did not contain an adverse opinion or disclaimer of opinion, or a qualification or modification as to uncertainty, audit scope, or accounting principles. During our fiscal years 2001 and 2002 and the subsequent interim period through October 24, 2003, there were no disagreements between Ernst & Young LLP and us on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Ernst & Young LLP would have caused it to make reference thereto in its reports on the financial statements for such period. There has been no matter that was the subject of a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
       We have provided Ernst & Young LLP with a copy of the foregoing disclosures and requested that Ernst & Young LLP furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not Ernst & Young LLP agrees with the above statements. A copy of such letter, dated October 15, 2004, is filed as an exhibit to the registration statement of which this prospectus is a part.
25 

 

CAPITALIZATION
       The following table sets forth our unaudited consolidated capitalization as of September 30, 2004:

		
• 	on an actual basis;	

• 	on a “pro forma” basis to reflect the reorganization of our company from a limited liability company to a corporation prior to this offering (see “Reorganization”); and	

		
• 	on a “pro forma as adjusted” basis to reflect the sale of 7,666,667 shares of our common stock by us in this offering at an assumed initial public offering price of $15 per share, the mid-point of the estimated offering price range shown on the cover of this prospectus, and the application of the net proceeds as described under “Use of Proceeds.”	
		
       This table should be read in conjunction with “Reorganization,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the related notes, appearing elsewhere in this prospectus.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		As of September 30, 2004	
			
				Pro Forma	
		Actual		Pro Forma		As Adjusted	

		(Dollars in thousands)	
Cash and cash equivalents(1)	 	$	12,008	 	 	$	2,911	 	 	$	2,911	 	
 	 	 		 	 	 		 	 	 		 	
Long-term debt, excluding current maturities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Existing senior secured credit facilities(2)	 	$	309,759	 	 	$	309,759	 	 	$	233,444	 	
 	Capital leases	 	 	9,026	 	 	 	9,026	 	 	 	9,026	 	
 	Mandatorily redeemable preferred membership units(3)	 	 	27,285	 	 	 	27,285	 	 	 	—	 	
 	Seller notes from acquisitions(4)	 	 	1,630	 	 	 	1,630	 	 	 	1,630	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total long-term debt	 	 	347,700	 	 	 	347,700	 	 	 	244,100	 	
Total equity/deficit:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common members’ capital — 35,487,511 member common membership units issued and outstanding actual; none pro forma and pro forma as adjusted	 	 	29,302	 	 	 	—	 	 	 	—	 	
 	Common stock, par value $0.001 per share — 150,000,000 shares authorized; none issued and outstanding actual; 35,487,511 issued and outstanding pro forma; 43,963,796 issued and outstanding pro forma as adjusted	 	 	—	 	 	 	35	 	 	 	44	 	
 	Preferred stock, par value $0.001 per share — 25,000,000 shares authorized; none issued and outstanding actual; none issued and outstanding pro forma; none issued and outstanding pro forma as adjusted	 	 	—	 	 	 	—	 	 	 	—	 	
 	Additional paid-in-capital	 	 	—	 	 	 	29,267	 	 	 	132,859	 	
 	Deferred compensation	 	 	(2,742	)	 	 	(2,742	)	 	 	(2,742	)	
 	Accumulated equity (deficit):	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accumulated earnings from inception, less distributions to members (1)(5)(7)	 	 	(64,516	)	 	 	(56,327	)	 	 	(58,353	)	
 	 	Accumulated other comprehensive income	 	 	(343	)	 	 	(343	)	 	 	(343	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total equity/(deficit)(6)	 	 	(38,299	)	 	 	(30,110	)	 	 	71,465	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total capitalization	 	$	309,401	 	 	$	317,590	 	 	$	315,565	 	

26 

 

		
(1) 	Reflects the payment of $8.6 million to the CHS Entities in connection with our reorganization and reflects a $510,000 distribution to members in respect to taxes. See “Reorganization.”	
 		
(2) 	At September 30, 2004, our senior secured credit facilities consisted of two facilities: (i) a $130 million senior first priority secured facility, consisting of a $100 million term loan facility, of which $99.3 million was outstanding at September 30, 2004, and a $30 million revolving credit facility, none of which was outstanding at September 30, 2004; and (ii) a $225 million senior second priority secured term facility of which $213.4 million was outstanding at September 30, 2004. Subsequent to September 30, 2004, we repaid $9.6 million of our senior secured term facilities. We intend to apply the net proceeds from this offering to repay approximately $50.7 million of our second priority secured facility and the balance of approximately $24.9 million to repay a portion of our first priority secured facility. See “Use of Proceeds.”	
 		
(3) 	Holdings issued 20,000 redeemable preferred units in connection with the 2000 recapitalization. Holders of such preferred units are entitled to an investment return of 13.25% per annum for periods prior to April 10, 2003 and 15.0% per annum thereafter. A portion of the investment return is distributed quarterly under a formula which takes into account federal and certain state and local income tax rates applicable to such investment return. The unpaid portion of the investment return accumulates annually and will be payable upon any redemption or repurchase of the preferred units. Pursuant to the terms of Holdings’ operating agreement, on the closing date of the offering, we will use a portion of the net proceeds of this offering to repurchase all outstanding preferred units. The total amount we expect to pay to repurchase such preferred units, including the unpaid portion of the investment return, is approximately $28.0 million.	
 		
(4) 	The seller notes were issued in connection with certain acquisitions, with interest rates ranging between 7.0% and 8.0% and maturities between 2005 and 2007.	
 		
(5) 	Accumulated earnings from inception includes the income tax effects of the corporate conversion which will result in an income tax benefit of $17.3 million.	
 		
(6) 	The deficit of $38.3 million, as of September 30, 2004, includes $88.8 million in cash distributions to Holdings’ common unit holders made in connection with the 2000 recapitalization.	
 		
(7) 	Accumulated earnings from inception includes a charge of $2.1 million to write off a portion of debt discount and deferred financing costs due to early extinguishment of debt from the use of proceeds.	
27 

 

DILUTION
       If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value (deficit) per share of our common stock upon the completion of this offering.

       On a pro forma basis to give effect to our reorganization as Delaware corporation, as described in “Reorganization,” our net tangible book value (deficit) as of September 30, 2004 equaled approximately $(272.6) million, or $(7.90) per share of common stock. Net tangible book value (deficit) per share represents the amount of our total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding. After giving effect to the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $15.00 per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value (deficit), as adjusted, as of September 30, 2004 would have equaled approximately $199.3 million, or $(4.53) per share of common stock. This represents an immediate increase in net tangible book value of $3.37 per share to our existing stockholders and an immediate dilution in net tangible book value of $19.53 per share to new investors of common stock in this offering. The following table illustrates this per share dilution to new investors purchasing our common stock in this offering.

 	 	 	 	 	 	 	 	 	 	
Assumed initial public offering price per share	 	 	 	 	 	$	15.00	 	
 	Net tangible book value (deficit) per share at September 30, 2004	 	$	(7.90	)	 	 	 	 	
 	Increase in net tangible book value per share attributable to this
offering	 	 	3.37	 	 	 	 	 	
 	 	 		 	 	 	 	 	
Net tangible book value per share after this offering	 	 	 	 	 	 	(4.53	)	
 	 	 	 	 	 	 		 	
Dilution per common share to new investors	 	 	 	 	 	$	19.53	 	

       The following table summarizes the differences between our existing stockholders and new investors, as of September 30, 2004, with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid. The calculations with respect to common shares purchased by new investors in this offering reflect the initial public offering price of $15.00 per share before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
						Average	
		Shares Purchased		Total Consideration		Price	
						Per	
		Number		Percent		Amount		Percent		Share	
											
Existing stockholders	 	 	35,487,511	 	 	 	80.7	%	 	$	168,954,000	 	 	 	59.5	%	 	$	4.76	 	
Exchange of warrants	 	 	809,618	 	 	 	1.8	%	 	$	—	 	 	 	0.0	%	 	$	—	 	
New investors	 	 	7,666,667	 	 	 	17.4	%	 	$	115,000,005	 	 	 	40.5	%	 	$	15.00	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	43,963,796	 	 	 	100.0	%	 	$	283,954,005	 	 	 	100.0	%	 	$	6.46	 	

The discussion and tables above assume no exercise of any of the stock options to purchase 1,712,915 shares with exercise prices ranging from $4.88 to $6.14 per share and a weighted average exercise price of $5.22 per share outstanding at September 30, 2004. If all our outstanding options at September 30, 2004 had been exercised, the net tangible book value (deficit) per share, as adjusted, would have been $(4.17) per share, representing an immediate increase in net tangible book value of $0.36 per share to our existing stockholders and an immediate dilution in net tangible book value of $19.17 per share to new investors purchasing shares in this offering.

28 

 

       If the underwriters’ over-allotment option is exercised in full, sales by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to 28,611,296 shares or approximately 65.1% of the total number of shares of common stock outstanding upon the closing of this offering and will increase the number of shares held by new public investors to 15,352,500 shares or approximately 34.9% of the total number of shares of common stock outstanding after this offering. See “Principal and Selling Stockholders.”
29 

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
       The selected historical and unaudited pro forma financial data presented below are derived from the audited financial statements of Holdings for the fiscal years ended December 31, 1999, 2000, 2001, 2002, and 2003, and for the nine-month period ended September 30, 2004, and the unaudited financial statements of Holdings for the nine-month period ended September 30, 2003. The selected historical financial data for the nine-month period ended September 30, 2003 is derived from unaudited interim financial statements which, in the opinion of management, include all normal, recurring adjustments necessary to state fairly the data included therein in accordance with GAAP for interim financial information, except for pro forma data. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited pro forma financial data set forth below give effect to our conversion to a Delaware corporation and the completion of this offering, as described in “Use of Proceeds.” The unaudited pro forma financial data are not necessarily indicative of our financial position or results of operations that might have occurred had the transactions they give effect to been completed as of the dates indicated and do not purport to represent what our financial position or results of operations might be for any future period or date. The financial data set forth below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and unaudited financial statements included elsewhere in this prospectus. The financial information for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated as discussed in footnote 1 below. 

							
						Restated(1)	

								Nine Months	
				Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

		(Dollars in thousands)		(Unaudited)	
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reprographics services	 	$	198,774	 	 	$	287,995	 	 	$	338,124	 	 	$	324,402	 	 	$	315,995	 	 	$	242,507	 	 	$	253,367	 	
Facilities management	 	 	14,745	 	 	 	24,624	 	 	 	39,875	 	 	 	52,290	 	 	 	59,311	 	 	 	42,719	 	 	 	53,736	 	
Equipment and supplies sales	 	 	10,317	 	 	 	38,480	 	 	 	42,702	 	 	 	42,232	 	 	 	40,654	 	 	 	31,112	 	 	 	29,195	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	 	223,836	 	 	 	351,099	 	 	 	420,701	 	 	 	418,924	 	 	 	415,960	 	 	 	316,338	 	 	 	336,298	 	
Cost of sales	 	 	134,531	 	 	 	201,390	 	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	190,266	 	 	 	196,668	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	89,305	 	 	 	149,709	 	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	126,072	 	 	 	139,630	 	
Selling, general and administrative expenses	 	 	53,730	 	 	 	89,371	 	 	 	104,004	 	 	 	103,305	 	 	 	101,252	 	 	 	76,127	 	 	 	81,434	 	
Amortization of intangibles	 	 	2,823	 	 	 	3,966	 	 	 	5,801	 	 	 	1,498	 	 	 	1,709	 	 	 	1,269	 	 	 	1,267	 	
Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of intangible assets	 	 	—	 	 	 	—	 	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	32,752	 	 	 	35,828	 	 	 	63,748	 	 	 	66,343	 	 	 	60,971	 	 	 	48,676	 	 	 	56,929	 	
Other income	 	 	638	 	 	 	713	 	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	1,080	 	 	 	574	 	
Interest expense	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(28,958	)	 	 	(25,089	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	(1,195	)	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	 	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	24,175	 	 	 	6,108	 	 	 	16,522	 	 	 	26,967	 	 	 	7,684	 	 	 	20,798	 	 	 	32,414	 	
Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	20,107	 	 	 	1,324	 	 	 	10,735	 	 	 	20,700	 	 	 	3,553	 	 	 	16,578	 	 	 	25,474	 	
Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss) attributable to common members	 	 	20,107	 	 	 	(834	)	 	 	7,628	 	 	 	17,409	 	 	 	1,823	 	 	 	14,848	 	 	 	25,474	 	
Unaudited pro forma incremental income tax provision(2)	 	 	5,304	 	 	 	2,618	 	 	 	2,574	 	 	 	6,211	 	 	 	673	 	 	 	5,180	 	 	 	7,714	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
30 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
												(Unaudited)			
			
		(In thousands, except per unit amounts)	
Net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.82	 	 	$	(0.02	)	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	
 	Diluted	 	$	0.82	 	 	$	(0.02	)	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	
 	
Unaudited pro forma net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Diluted	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	
 	
Weighted average units:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	24,571	 	 	 	35,308	 	 	 	36,629	 	 	 	36,406	 	 	 	35,480	 	 	 	35,478	 	 	 	35,488	 	
 	Diluted	 	 	24,571	 	 	 	35,371	 	 	 	36,758	 	 	 	36,723	 	 	 	37,298	 	 	 	37,307	 	 	 	37,474	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

				Nine Months Ended	
		Fiscal Year Ended December 31,		September 30,	
					
		1999		2000		2001		2002		2003		2003		2004	
															
				(Unaudited)			
		(Dollars in thousands)					
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization(3)	 	$	9,542	 	 	$	14,942	 	 	$	25,442	 	 	$	19,178	 	 	$	19,937	 	 	$	15,219	 	 	$	14,339	 	
Capital expenditures, net	 	$	3,877	 	 	$	5,228	 	 	$	8,659	 	 	$	5,209	 	 	$	4,992	 	 	$	3,348	 	 	$	4,772	 	
Interest expense	 	$	9,215	 	 	$	29,238	 	 	$	47,530	 	 	$	39,917	 	 	$	39,390	 	 	$	28,958	 	 	$	25,089	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
						Restated(1)	

		As of December 31,		As of	
				September 30,	
		1999		2000		2001		2002		2003		2004	

		(Dollars in thousands)	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,814	 	 	$	31,565	 	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	12,008	 	
Total assets	 	$	204,464	 	 	$	358,026	 	 	$	372,583	 	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	
Long term obligations and mandatorily redeemable preferred and common membership units(4)(5)	 	$	123,951	 	 	$	359,746	 	 	$	371,515	 	 	$	378,102	 	 	$	360,008	 	 	$	347,700	 	
Total members’ equity (deficit)(6)	 	$	32,422	 	 	$	(80,479	)	 	$	(78,955	)	 	$	(61,082	)	 	$	(60,015	)	 	$	(38,299	)	
Working capital	 	$	15,379	 	 	$	34,742	 	 	$	24,338	 	 	$	24,371	 	 	$	16,809	 	 	$	27,910	 	

		
(1) 	The accompanying consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated to properly record separately identifiable intangible assets including customer relationships and trade names apart from goodwill and reflect amortization expense of such intangible assets previously recorded as goodwill and not subject to amortization. In connection with our acquisition of businesses during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2004, we had previously recorded the entire excess purchase price over the fair value of net assets acquired to goodwill. However, we subsequently determined in accordance with provisions of SFAS 141, “Business Combinations,” that approximately $15.9 million of the excess purchase price from these acquisitions should have been allocated to other intangible assets at the respective acquisition dates and amortized over their estimated useful lives. See Note 1 to our consolidated financial statements for additional detail.	

The restatement resulted in us recording other intangible assets during the periods ended December 31, 2002 and 2003 and September 30, 2004 consisting of customer relationships of $11.2 million, $615,000, and $484,000, and trade names of $1.4 million, $4,000 and $0, respectively, apart from goodwill at the respective acquisition dates. In addition, the restatement for the years ended December 31, 2001, 2002, and 2003 and the nine months ended September 30, 2003 and 2004 increased previously reported amortization expense by approximately $70,000, $1.3 million, $1.6 million, $1.2 million and $1.2 million, respectively.

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The following table represents the effects of the restatement on previously reported balances for all periods presented:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		As Previously Reported		As Restated	

		December 31,		September 30,		December 31,		September 30,	
		2002		2003		2004		2002		2003		2004	
Consolidated Balance Sheets													
			
		(Dollars in thousands)	
Goodwill	 	$	242,134	 	 	$	243,668	 	 	$	245,999	 	 	$	228,144	 	 	$	229,059	 	 	$	230,639	 	
Other intangible assets	 	$	—	 	 	$	—	 	 	$	—	 	 	$	13,737	 	 	$	12,647	 	 	$	11,864	 	
Others assets	 	$	2,030	 	 	$	2,043	 	 	$	1,689	 	 	$	1,734	 	 	$	1,878	 	 	$	1,593	 	
Total assets	 	$	395,677	 	 	$	376,843	 	 	$	381,209	 	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	
Accumulated earnings	 	$	54,667	 	 	$	59,608	 	 	$	86,994	 	 	$	53,369	 	 	$	56,922	 	 	$	82,396	 	
Total members’ deficit	 	$	(59,784	)	 	$	(57,329	)	 	$	(33,861	)	 	$	(61,082	)	 	$	(60,015	)	 	$	(38,299	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		As Previously Reported		As Restated	

				Nine Months				Nine Months	
		Year Ended		Ended		Year Ended		Ended	
		December 31,		September 30,		December 31,		September 30,	
Consolidated Statements		2001		2002		2003		2003		2004		2001		2002		2003		2003		2004	
of Operations																					
			
		(Dollars in thousands, except per unit amounts)	
Amortization of intangibles	 	$	5,731	 	 	$	218	 	 	$	131	 	 	$	99	 	 	$	69	 	 	$	5,801	 	 	$	1,498	 	 	$	1,709	 	 	$	1,269	 	 	$	1,267	 	
Income from operations	 	$	63,818	 	 	$	67,623	 	 	$	62,549	 	 	$	49,846	 	 	$	58,394	 	 	$	63,748	 	 	$	66,343	 	 	$	60,971	 	 	$	48,676	 	 	$	56,929	 	
Income before income tax provision	 	$	16,592	 	 	$	28,247	 	 	$	9,262	 	 	$	21,968	 	 	$	34,462	 	 	$	16,522	 	 	$	26,967	 	 	$	7,684	 	 	$	20,798	 	 	$	32,414	 	
Income tax provision	 	$	5,802	 	 	$	6,304	 	 	$	4,321	 	 	$	4,417	 	 	$	7,076	 	 	$	5,787	 	 	$	6,267	 	 	$	4,131	 	 	$	4,220	 	 	$	6,940	 	
Net income	 	$	10,790	 	 	$	21,943	 	 	$	4,941	 	 	$	17,551	 	 	$	27,386	 	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
Net income attributable to common members	 	$	7,683	 	 	$	18,652	 	 	$	3,211	 	 	$	15,821	 	 	$	27,386	 	 	$	7,628	 	 	$	17,409	 	 	$	1,823	 	 	$	14,848	 	 	$	25,474	 	
Net income attributable to common members per common unit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.45	 	 	$	0.77	 	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	
 	Diluted	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.42	 	 	$	0.73	 	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	
Unaudited pro forma net income attributable to common members	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	10,253	 	 	$	19,011	 	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
Unaudited pro forma net income attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.29	 	 	$	0.54	 	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Diluted	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.27	 	 	$	0.51	 	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

		
		
(2) 	Until our reorganization, which will be effective prior to the closing of this offering, a substantial portion of our business will continue to operate as a limited liability company, or LLC, and taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings. The unaudited pro forma incremental income tax provision amounts reflected in the table above were calculated as if our reorganization became effective on January 1, 1999.	

		
(3) 	Depreciation and amortization includes a write-off of intangible assets of $3.4 million for the year ended December 31, 2001.	

		
(4) 	In July 2003, we adopted SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” In accordance with SFAS No. 150, the redeemable preferred equity of Holdings has been reclassified in our financial statements as a component of our total debt upon our adoption of this new standard. The redeemable preferred equity amounted to $25.8 million as of December 31, 2003 and $27.3 million as of September 30, 2004. SFAS No. 150 does not permit the restatement of financial statements for periods prior to the adoption of this standard.	

		
(5) 	Redeemable common membership units amounted to $6.0 million and $8.1 million at December 31, 2000 and 2001, respectively.	

		
(6) 	The decline in total members’ equity (deficit) from December 31, 1999 to December 31, 2000 was a result of an $88.8 million cash distribution to Holdings’ common unit holders in connection with the 2000 recapitalization and the reclassification of $20.3 million of preferred equity issued in connection with the 2000 recapitalization upon the adoption of SFAS No. 150 in July 2003.	
		
32 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See “Risk Factors” and “Forward-Looking Statements.”
Overview
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as the technology, financial services, retail, entertainment, and food and hospitality industries, that also require sophisticated document management services.
       From late 2001 through late 2003, we experienced a decline in net sales due to the overall softness in the U.S. economy, coupled with declining non-residential construction spending. Since approximately half of our net sales are derived from our operations in California, the significant downturn in the technology sector in this area further contributed to the decline of our net sales. Despite acquisition activity, our net sales declined from $420.7 million in 2001 to $416.0 million in 2003. In the nine months ended September 30, 2004, we have seen an improvement in sales due to the improvement of the overall U.S. economy and increased spending in the non-residential construction sector. Net sales increased 6.3% to $336.3 million compared to the same period in 2003.
       A significant component our growth has been related to acquisitions. In 2001, we acquired 14 reprographics companies for a total cost of $32.6 million. In 2002, we acquired eight companies for a total cost of $34.4 million, and in 2003, we acquired four companies for a total cost of $870,000. In the nine months ended September 30, 2004, we have acquired three companies for a total cost of $1.4 million. Subsequent to September 30, 2004, we acquired four reprographics companies and one distributor of reprographics equipment and supplies for a total cost of $1.9 million. As part of our growth strategy, we also have recently begun opening and operating branch service centers, which we view as a relatively low cost, rapid form of market expansion. Our branch openings require modest capital expenditures and are expected to generate operating profit within 12 months from opening. We have opened 17 new branches in key markets since September 2003 and expect to open an additional 15 branches by the end of the first quarter of 2005. To date, each branch that has been open at least 12 months has generated operating profit.
       During 2003, we began our strategy of licensing our PlanWell technology to other independent reprographers. This strategy is designed to increase the market penetration of our PlanWell technology, while offsetting a portion of its development costs through the generation of licensing revenues. In 2003, we also started PEiR (Profit and Education in Reprographics), a privately held trade organization through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers, while promoting our reprographics technology as the industry standard. PEiR currently consists of 45 independent reprographics companies.
       In December 2003, we refinanced our debt structure with the issuance of $225 million of second lien financing combined with a $130 million first lien debt package. This refinancing resulted in interest savings to the company for the nine months ended September 30, 2004 of approximately $6.2 million compared to the same period in 2003. These savings were partially offset by rising interest rates.
       We continue to focus on our key opportunities, which include: the expansion of our market share, our national footprint of reprographics centers and our facilities management programs; the
33 

 

establishment of PlanWell as the industry standard for procuring digital reprographics online; and the expansion of our service offerings to non-AEC related industries.
Factors Affecting Financial Performance
       Based on a review of the top 30% of our customers, representing approximately 90% of our net sales, and designating our customers as either AEC or non-AEC based on their primary use of our services, we believe that sales to the AEC market accounted for approximately 80% of our net sales for the nine months ended September 30, 2004, with the remaining 20% consisting of sales to non-AEC markets. As a result, our operating results and financial condition are significantly impacted by various economic factors affecting the AEC industry, such as non-residential construction spending, GDP growth, interest rates, employment rates, office vacancy rates, and government expenditures. Similar to the AEC industry, we believe that the reprographics industry typically lags the recovery in the broader economy by approximately six months.
       During the period from 2001 to 2003, non-residential construction activity in the United States declined as the overall economy softened and commercial vacancy rates increased. The consequent downturn in the AEC industry was the primary reason for the decline in our net sales during this period. Through cost cutting and aggressive sales and marketing, we were able to hold our operating margins fairly steady. Operating margins were 15.2% in 2001, 15.8% in 2002 and 14.7% in 2003. For the nine months ended September 30, 2004, our operating margins and net sales increased compared to the same period in 2003. Operating margins were 15.4% and 16.9% for the nine months ended September 30, 2003 and 2004, respectively.
Key Financial Measures
       The following key financial measures are used by our management to operate and assess the performance of our business: net sales and costs and expenses.
Net Sales
       Net sales represent total sales less returns, discounts and allowances. These sales consist of document management services, document distribution and logistics services, print-on-demand services, reprographics equipment and supplies sales, software licenses and PEiR memberships. We generate sales by individual orders through commissioned sales personnel and, in some cases, pursuant to national contracts. Our document management, document distribution and logistics, and print-on-demand services, including the use of PlanWell by our customers, are typically invoiced to a customer as part of a combined per square foot printing cost and, as such, it is impractical to allocate revenue levels for each item separately. Revenues for these services are included under the caption “Reprographics services.”
       Facilities management revenues are generated from printing produced in our customers’ locations on machines that we own or lease. Generally, this revenue is derived via a single cost per square foot of printed material, similar to our “Reprographics services” revenue.
       In 2003, our reprographics services represented approximately 76% of our net sales, facilities management revenues represented approximately 14%, and sales of reprographics equipment and supplies sales represented approximately 10%. Although our PlanWell and other software licenses and our PEiR memberships are strategic to providing our other services, to date these services have not been significant revenue contributors.
       We identify reportable segments based on how management internally evaluates financial information, business activities and management responsibility. On that basis, we operate in a single reportable business segment.
       To a large extent, our continued engagement by our customers for successive jobs depends upon the customer’s satisfaction with the quality of services that we provide. Our customer orders
34 

 

tend to be of a short-run, but recurring, nature. Since we do not operate with a backlog, it is difficult for us to predict the number, size and profitability of reprographics work that we expect to undertake more than a few weeks in advance.
Costs and Expenses
       Our cost of sales consists primarily of paper, toner and other consumables, labor, and maintenance, repair, rental and insurance costs associated with operating our facilities and equipment, along with depreciation charges. Paper cost is the most significant component of our material cost; however, paper pricing typically does not impact our operating margins because changes in paper pricing are generally passed on to our customers. We closely monitor material cost as a percentage of net sales to measure volume and waste. We also track labor utilization, or net sales per employee, to measure productivity and determine staffing levels.
       We maintain low inventory balances as well as low levels of other working capital requirements. In addition, capital expenditure requirements are low as most facilities and equipment are leased, with overall capital spending averaging approximately 1.5% of annual net sales over the last three years. Since we typically lease our reprographics equipment for periods averaging between three and five years, we are able to upgrade our equipment in response to rapid changes in technology.
       Our selling expenses generally include the salaries and commissions paid to our sales professionals, along with promotional, travel and entertainment costs. Our general and administrative expenses generally include the salaries and benefits paid to support personnel at our reprographics businesses and our corporate staff, as well as office rent, utilities, insurance and communications expenses, and various professional services.
       Our general and administrative expenses also include management fees paid to CHS Management IV LP in accordance with a management agreement entered into in connection with our recapitalization in 2000. These management fees, which may not exceed $1 million in any year, amounted to $803,000 during 2001, $889,000 during 2002, $858,000 during 2003, $622,000 during the nine months ended September 30, 2003, and $618,000 during the nine months ended September 30, 2004. The management agreement will be terminated upon the completion of this offering.
Impact of Conversion from an LLC to a Corporation
       Immediately prior to this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization, the members of Holdings will exchange their common units and options to purchase common units for shares of our common stock and options to purchase shares of our common stock. As required by the operating agreement of Holdings, we will repurchase all of the preferred equity of Holdings upon the closing of this offering with a portion of the net proceeds from this offering. As part of the reorganization, all outstanding warrants to purchase common units will be exchanged for shares of our common stock. We do not expect any significant impact on our operations as a result of the reorganization apart from an increase in our effective tax rate due to corporate level taxes, which will be offset by the elimination of tax distributions to our members and the recognition of deferred income taxes upon our conversion from a California limited liability company to a Delaware corporation.
Income Taxes
       Holdings and Opco, through which a substantial portion of our business is operated, are limited liability companies which are taxed as partnerships. As a result, the members of Holdings pay income taxes on the earnings of Opco, which are passed through to Holdings. Certain divisions are consolidated in Holdings and are treated as separate corporate entities for income tax purposes (the consolidated corporations). These consolidated corporations pay income tax and record provisions for income taxes in their financial statements. Following the reorganization of our company to a
35 

 

Delaware corporation, our earnings will be subject to federal, state and local taxes at a combined statutory rate of approximately 43%, which is lower than our pro forma effective income tax rate of 45.2% for the period ended September 30, 2004 due to the redemption of our preferred equity and the related nondeductible interest expense.

Members’ Deficit and Capital Accounts

       Our members’ deficit of $38.3 million as of September 30, 2004 includes $88.8 million in cash distributions to our common unit holders made in connection with our recapitalization in 2000 and previous cash distributions made to the members of Holdings to provide them with funds to pay taxes owed for their share of our profits as a limited liability company.

       Immediately prior to our reorganization, we will make a cash distribution to all members of Holdings of the estimated amount due the members with respect to such taxes in the amount of approximately $510,000. After the closing of this offering, when the members’ final tax liability has been calculated, we will make a final payment for the balance, if any, due to the members. In addition, due to their tax attributes, certain of our members, CHS Associates IV and ARC Acquisition Co., L.L.C. (the “CHS Entities”), have in the past elected to receive less than their proportionate share of distributions for such taxes and are owed a distribution of approximately $8.6 million. These distributions are not accrued at September 30, 2004, but will become payable and recorded immediately prior to the reorganization and consummation of this offering. The effects of all the proposed distributions have been reflected in the pro forma balance sheet at September 30, 2004 on page F-4 of this prospectus. We may also make a further distribution to the CHS Entities after the closing of this offering if the estimated payment to the CHS Entities does not fully offset such shortfall.

Acquisitions
       Our financial results during the periods discussed below were impacted by the acquisition of 14 reprographics businesses in 2001 for a total purchase price of $32.6 million, eight acquisitions in 2002 for a total purchase price of $34.4 million, four acquisitions in 2003 for a total purchase price of $870,000 and three acquisitions in the nine months ended September 30, 2004 for a total purchase price of $1.4 million. Because each acquisition was accounted for using the purchase method of accounting, our consolidated income statements reflect sales and expenses of acquired businesses only for post-acquisition periods. For more details regarding these acquisitions, see Note 2 to our consolidated financial statements.

       In connection with certain large acquisitions, we have made certain payments to employees of the acquired companies that could not be capitalized and included in goodwill because such payments represented compensation expense. These expenses are included in selling, general and administrative expenses in our consolidated financial statements and amounted to $1.4 million and $1.5 million in 2001 and 2002, respectively. There were no such expenses incurred during 2003 and the nine months ended September 30, 2004.

Restatement of Consolidated Financial Statements

       The accompanying consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated to properly record separately identifiable intangible assets including customer relationships and trade names apart from goodwill and reflect amortization expense of such intangible assets previously recorded as goodwill and not subject to amortization. In connection with our acquisition of businesses during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2004, we had previously recorded the entire excess purchase price over the fair value of net assets acquired to goodwill. However, we subsequently determined in accordance with provisions of SFAS 141, “Business Combinations,” that approximately $15.9 million of the excess purchase price from these acquisitions should have been allocated to other intangible assets

36 

 

at the respective acquisition dates and amortized over their estimated useful lives.

       The restatement resulted in us recording other intangible assets during the periods ended December 31, 2002 and 2003 and September 30, 2004 consisting of customer relationships of $11.2 million, $615,000, and $484,000, and trade names of $1.4 million, $4,000 and $0, respectively, apart from goodwill at the respective acquisition dates. In addition, the restatement for the years ended December 31, 2001, 2002, and 2003 and the nine months ended September 30, 2003 and 2004 increased previously reported amortization expense by approximately $70,000, $1.3 million, $1.6 million, $1.2 million and $1.2 million, respectively. For additional detail on the effects of the restatement on previously reported balances, please see Note 1 to our consolidated financial statements.

Controls and Procedures

       In light of the aforementioned restatement of our financial statements due to the misapplication of purchase accounting, our independent registered public accounting firm notified us that our procedures were inadequate for appropriately assessing and applying purchase accounting principles. Our external auditors have concluded that this constitutes a material weakness as defined in Statement on Auditing Standards No. 60. We have revised our policies and procedures such that, in connection with material future acquisitions that are consummated, we will engage independent valuation consultants to assist us in determining the values to be assigned to intangible assets pursuant to FAS 141. We believe that this process will adequately address this control deficiency.

Critical Accounting Policies

       The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We evaluate our estimates and assumptions on an ongoing basis and rely on historical experience and various other factors that we believe to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. We believe the critical accounting policies and areas that require more significant judgments and estimates used in the preparation of our consolidated financial statements to be: goodwill and other intangible assets; allowance for doubtful accounts; and commitments and contingencies.
Goodwill and Other Intangible Assets

       Effective January 1, 2002, we adopted Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which requires, among other things, the use of a nonamortization approach for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and intangibles having an indefinite life are not amortized, but instead will be reviewed for impairment at least annually or if an event occurs or circumstances indicate the carrying amount may be impaired. Events or circumstances which could indicate an impairment include a significant change in the business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in our strategy or disposition of a reporting unit or a portion thereof. Goodwill impairment testing is performed at the reporting unit level.

       SFAS 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit
37 

 

exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
       Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to such reporting units, assignment of goodwill to such reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

       We have selected September 30 as the date on which we will perform our annual goodwill impairment test. Based on our valuation of goodwill, no impairment charges related to the write-down of goodwill were recognized for the years ended December 31, 2002 and 2003. During the year ended December 31, 2001, we wrote-off $3.4 million of goodwill recorded from an acquisition completed during 2000 because the business was closed in 2001 due to underperformance.

       Other intangible assets that have finite useful lives are amortized over their useful lives. An impaired asset is written down to fair value. Intangible assets with finite useful lives consist primarily of not-to-compete covenants, trade names, and customer relationships and are amortized over the expected period of benefit which ranges from two to twenty years using the straight-line and accelerated methods. Customer relationships are amortized under an accelerated method which reflects the related customer attrition rates and trade names are amortized using the straight-line method.

Allowance for Doubtful Accounts
       We perform periodic credit evaluations of the financial condition of our customers, monitor collections and payments from customers, and generally do not require collateral. Receivables are generally due within 30 days. We provide for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. We write-off an account when it is considered to be uncollectible. We estimate our allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the creditworthiness of our customers. To date, uncollectible amounts have been within the range of management’s expectations.
Commitments and Contingencies
       In the normal course of business, we estimate potential future loss accruals related to legal, tax and other contingencies. These accruals require management’s judgment on the outcome of various events based on the best available information. However, due to changes in facts and circumstances, the ultimate outcomes could be different than management’s estimates.
Non-GAAP Measures
       EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) are supplemental measures of our performance that are not required by, or presented in accordance with GAAP. These measures are not measurements of our financial performance under GAAP and
38 

 

should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating, investing or financing activities as a measure of our liquidity.
       EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude the impact of costs incurred in connection with our recapitalization in 2000 and loss on early extinguishment of debt. Adjusted EBIT margin is a non-GAAP measure that is calculated by subtracting depreciation and amortization from adjusted EBITDA and dividing the result by net sales. Adjusted EBITDA margin is a non-GAAP measure that is calculated by dividing adjusted EBITDA by net sales.
       We calculate Adjusted EBITDA by adjusting EBITDA to eliminate the impact of a number of items we do not consider indicative of our ongoing operations and for the other reasons noted below. You are encouraged to evaluate each adjustment and whether you consider it appropriate. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
       We present EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) because we consider them important supplemental measures of our performance and liquidity and believe that such measures are meaningful to investors because they are used by management for the reasons discussed below.
       We use EBIT as a metric to measure and compare the performance of our divisions. We operate our 42 divisions as separate business units, but manage debt and taxation at the corporate level. As a result, EBIT is the best measure of divisional profitability and the most useful metric by which to measure and compare the performance of our divisions. We also use EBIT as a metric to measure performance for the purpose of determining compensation at the division level and use EBITDA and Adjusted EBITDA to measure performance and determine compensation at the consolidated level. We also use EBITDA as a metric to manage cash flow from our divisions to the corporate level and to determine the financial health of each division. As noted above, because our divisions do not incur interest or income tax expense, the cash flow from each division should be equal to the corresponding EBITDA of each division, assuming no other changes to a division’s balance sheet. As a result, we reconcile EBITDA to cash flow on a monthly basis as one of our key internal controls. We also use EBIT, EBITDA and Adjusted EBITDA to evaluate potential acquisitions and to evaluate whether to incur capital expenditures. In addition, certain covenants in our credit agreements require compliance with financial ratios based on Adjusted EBITDA (as defined in our credit agreements).
       EBIT, EBITDA and Adjusted EBITDA (and related ratios presented in this prospectus) have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

		
• 	they do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;	
 		
• 	they do not reflect changes in, or cash requirements for, our working capital needs;	
 		
• 	they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;	
 		
• 	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;	
39 

 

		
• 	Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, as discussed in our presentation of “Adjusted EBITDA” in this prospectus; and	
 		
• 	other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.	
       Because of these limitations, EBIT, EBITDA and Adjusted EBITDA (and related ratios presented this prospectus) should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and Adjusted EBITDA only supplementally. For more information, see our consolidated financial statements and related notes included elsewhere in this prospectus.
       The following is a reconciliation of cash flows provided by operating activities to EBIT, EBITDA and unaudited pro forma net income:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

		Fiscal Year Ended		Nine Months Ended	
		December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
			
		(Dollars in thousands)	
Cash flows provided by operating activities	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	46,909	 	 	$	42,419	 	
 	Changes in operating assets and liabilities	 	 	2,399	 	 	 	(4,040	)	 	 	(1,102	)	 	 	(3,878	)	 	 	2,609	 	
 	Non-cash expenses, including depreciation and amortization	 	 	(44,815	)	 	 	(31,673	)	 	 	(43,582	)	 	 	(26,453	)	 	 	(19,554	)	
 	Income tax provision	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	Interest expense	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	28,958	 	 	 	25,089	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBIT	 	 	64,052	 	 	 	66,884	 	 	 	47,074	 	 	 	49,756	 	 	 	57,503	 	
 	Depreciation and amortization	 	 	25,442	 	 	 	19,178	 	 	 	19,937	 	 	 	15,219	 	 	 	14,339	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	64,975	 	 	 	71,842	 	
 	Interest expense	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(28,958	)	 	 	(25,089	)	
 	Income tax provision and unaudited pro forma incremental income tax provision	 	 	(8,361	)	 	 	(12,478	)	 	 	(4,804	)	 	 	(9,400	)	 	 	(14,654	)	
 	Depreciation and amortization	 	 	(25,442	)	 	 	(19,178	)	 	 	(19,937	)	 	 	(15,219	)	 	 	(14,339	)	
 	Dividends and amortization of discount on preferred members’ equity	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income attributable to common members	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	

		
(1) 	See Note 1 to the consolidated financial statements.	

40 

 

       The following is a reconciliation of net income to EBITDA and to Adjusted EBITDA:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

		Fiscal Year Ended		Nine Months Ended	
		December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
			
		(Dollars in thousands)	
Net income	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
 	Interest expense, net	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	28,958	 	 	 	25,089	 	
 	Income tax provision	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	Depreciation and amortization	 	 	25,442	 	 	 	19,178	 	 	 	19,937	 	 	 	15,219	 	 	 	14,339	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	64,975	 	 	 	71,842	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	14,921	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	64,975	 	 	$	71,842	 	

		
(1) 	See Note 1 to the consolidated financial statements.	

       The following is a reconciliation of our net income margin to Adjusted EBIT margin and Adjusted EBITDA margin:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

				Nine Months	
		Fiscal Year Ended		Ended	
		December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Net income margin	 	 	2.6	%	 	 	4.9	%	 	 	0.9	%	 	 	5.2	%	 	 	7.6	%	
 	Interest expense, net	 	 	11.3	%	 	 	9.5	%	 	 	9.5	%	 	 	9.2	%	 	 	7.5	%	
 	Income tax provision	 	 	1.4	%	 	 	1.5	%	 	 	1.0	%	 	 	1.3	%	 	 	2.1	%	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	3.6	%	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBIT margin	 	 	15.2	%	 	 	16.0	%	 	 	14.9	%	 	 	15.7	%	 	 	17.1	%	
 	Depreciation and amortization	 	 	6.0	%	 	 	4.6	%	 	 	4.8	%	 	 	4.8	%	 	 	4.3	%	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA margin	 	 	21.3	%	 	 	20.5	%	 	 	19.7	%	 	 	20.5	%	 	 	21.4	%	

		
(1) 	See Note 1 to the consolidated financial statements.	

41 

 
Results of Operations
       The following table provides information on the percentages of certain items of selected financial data compared to net sales for the periods indicated:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

		As a Percentage of Net Sales	

		Fiscal Year Ended		Nine Months Ended	
		December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Net sales	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Cost of sales	 	 	57.9	 	 	 	59.1	 	 	 	60.6	 	 	 	60.1	 	 	 	58.5	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Gross profit	 	 	42.1	 	 	 	40.9	 	 	 	39.4	 	 	 	39.9	 	 	 	41.5	 	
Selling, general and administrative expenses	 	 	24.7	 	 	 	24.7	 	 	 	24.3	 	 	 	24.1	 	 	 	24.2	 	
Amortization of intangibles	 	 	1.4	 	 	 	0.4	 	 	 	0.4	 	 	 	0.4	 	 	 	0.4	 	
Write-off of intangible assets	 	 	0.8	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Income from operations	 	 	15.2	 	 	 	15.8	 	 	 	14.7	 	 	 	15.4	 	 	 	16.9	 	
Other income	 	 	0.1	 	 	 	0.1	 	 	 	0.2	 	 	 	0.3	 	 	 	0.2	 	
Interest expense, net	 	 	(11.3	)	 	 	(9.5	)	 	 	(9.5	)	 	 	(9.2	)	 	 	(7.5	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	(3.6	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	4.0	 	 	 	6.4	 	 	 	1.8	 	 	 	6.5	 	 	 	9.6	 	
Income tax provision	 	 	(1.4	)	 	 	(1.5	)	 	 	(1.0	)	 	 	(1.3	)	 	 	(2.1	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net income	 	 	2.6	%	 	 	4.9	%	 	 	0.8	%	 	 	5.2	%	 	 	7.5	%	

(1) See Note 1 to the consolidated financial statements.

		
	Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003	

			
		Restated(1)	

		Nine Months			
		Ended			
		September 30,		Increase (decrease)	
					
		2003		2004		(In dollars)		(Percent)	

		(In millions)			
Reprographics services	 	$	242.5	 	 	$	253.4	 	 	$	10.9	 	 	 	4.5	%	
Facilities management	 	 	42.7	 	 	 	53.7	 	 	 	11.0	 	 	 	25.8	 	
Equipment and supplies sales	 	 	31.1	 	 	 	29.2	 	 	 	(1.9	)	 	 	(6.1	)	
 	Total net sales	 	$	316.3	 	 	$	336.3	 	 	$	20.0	 	 	 	6.3	%	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	$	126.1	 	 	$	139.6	 	 	$	13.5	 	 	 	10.8	%	
Selling, general and administrative expenses	 	$	76.1	 	 	$	81.4	 	 	$	5.3	 	 	 	7.0	%	
Amortization of intangibles	 	$	1.3	 	 	$	1.3	 	 	$	—	 	 	 	—	%	
Interest expense, net	 	$	29.0	 	 	$	25.1	 	 	$	(3.9	)	 	 	(13.4	)%	
Income taxes	 	$	4.2	 	 	$	6.9	 	 	$	2.7	 	 	 	64.3	%	
Net income	 	$	16.6	 	 	$	25.5	 	 	$	8.9	 	 	 	53.6	%	
EBITDA	 	$	65.0	 	 	$	71.8	 	 	$	6.8	 	 	 	10.5	%	

(1) See Note 1 to the consolidated financial statements.

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       Net Sales. Net sales increased for the nine months ended September 30, 2004 compared to the same 2003 period primarily attributable to the improvement of the U.S. economy, particularly in the Western United States, acquisition activity, the expansion of our revenue base through the opening of new branches, and by increasing our market share in certain markets. Of the $20.0 million increase in our 2004 net sales, $17.1 million was attributable to organic revenue growth (which includes $2.5 million from the opening of new branches) and $2.9 million was attributable to our acquisition activity during 2003 and 2004. Prices during this period remained relatively stable, indicating that our revenue increases were primarily volume driven. As job creation in the United States continues to move forward, and commercial vacancy rates in the United States continue to decline, we expect to see similar revenue trends in our reprographics services.

       While revenue from reprographics services and facilities management increased, our revenue generated from sales of equipment and supplies sales decreased. This was due to our ability to convert many of our equipment sales contracts into facilities management contracts. We believe that the recurring revenues from such facilities management contracts that span over several years should make our revenue profile more stable. This ability to convert our equipment sales contracts into facilities management contracts, coupled with the increased decentralized nature of the architectural, engineering and construction, or AEC industry, leads us to believe that facilities management revenue will continue to increase in the near term.

       Net sales by geographic region were as follows: 

							
		Nine Months					
		Ended			
		September 30,		Increase (decrease)	
					
		2003		2004		(In dollars)		(Percent)	

		(In millions)			
Southern California	 	$	97.2	 	 	$	105.2	 	 	$	8.0	 	 	 	8.2	%	
Northern California	 	$	59.2	 	 	$	64.1	 	 	$	4.9	 	 	 	8.3	%	
Southern	 	$	46.7	 	 	$	51.6	 	 	$	4.9	 	 	 	10.5	%	
Midwest	 	$	41.4	 	 	$	38.5	 	 	$	(2.9	)	 	 	(7.0	)%	
Northeast	 	$	53.3	 	 	$	57.8	 	 	$	4.5	 	 	 	8.4	%	
Pacific Northwest	 	$	18.5	 	 	$	19.1	 	 	$	0.6	 	 	 	3.2	%	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
 	Total	 	$	316.3	 	 	$	336.3	 	 	 	 	 	 	 	 	 	

       The increase in net sales from our Southern California divisions in the 2004 period was driven by our efforts to capture market share combined with a strong local economy. The increase in net sales from our Northern California divisions in the 2004 period was due to improving economic conditions, business derived from new markets we entered, and increased market share. The increase in net sales from our Southern United States division in the 2004 period was driven by strong construction activity in Las Vegas and Tampa, partially offset by a 2.2% decline in net sales from our Houston divisions due to weak AEC activity in that market as a result of local corporate scandals that created an abundance of vacant office space. The decline in net sales from our Midwest divisions in the 2004 period was due to the continued softness in the manufacturing economy coupled with high unemployment rates in this region’s major markets. The increase in net sales from our Northeast divisions in the 2004 period was due to new business gained from facilities management customers from a company that filed for bankruptcy in New York in 2003. Excluding this purchase, net sales in the Northeast declined 1.1% due to the continued sluggish AEC economy in the Northeast since the 9/11 terrorist attacks.

       Gross Profit. Our gross profit increased for the nine months ended September 30, 2004 compared to the same period in 2003 due primarily to the increase in our net sales coupled with the fixed cost nature of our leases for production equipment and facilities. The gross margin realized on our incremental sales increase during this period amounted to 67.5%. Our overall gross margin
43 

 

improved by approximately 1.6 percentage points to 41.5% for the nine months ended September 30, 2004 compared to 39.9% in the comparable 2003 period. We were able to reduce our material cost as a percentage of net sales from 16.2% in the 2003 period to 15.4% in the 2004 period due to a negotiated reduction in the cost of material from one of our major vendors, coupled with better waste control procedures. Production labor cost as a percentage of net sales increased slightly from 21.4% in the 2003 period to 21.9% in the 2004 period due to the hiring of additional production labor in anticipation of continued revenue increases coupled with an increase in employee health benefits costs. Production overhead as a percent of revenue decreased from 22.6% in the nine months ended September 30, 2003 to 21.1% in 2004 due to the fixed cost nature of the expense coupled with the net sales increase.

       Selling, General and Administrative Expenses. Selling, general and administrative expenses increased for the nine months ended September 30, 2004 compared to the same 2003 period primarily due to higher sales commissions related to increased sales and higher incentive bonus accruals during 2004 compared to 2003 related to improved operating results. As a percentage of net sales, selling, general and administrative expenses during the nine month periods ended September 30, 2003 and 2004 increased slightly from 24.1% to 24.2%, respectively, despite the increase in net sales due to our larger sales force and increased selling and marketing activities during 2004 as we continued to pursue market share expansion. Our general and administrative expenses in the 2003 and 2004 nine month-periods included $0.6 million of management fees paid to CHS Management IV LP in accordance with a management agreement entered into in connection with our recapitalization in 2000. These management fees will cease after our initial public offering. We expect that our selling, general and administrative expenses will increase in absolute dollars due to increased legal and accounting fees as a public company, including costs associated with evaluating and enhancing our internal control over financial reporting.

       Amortization of Intangibles. Amortization of intangibles for the nine months ended September 30, 2004 remained flat compared to the same period in 2003.

       Interest Expense, Net. Net interest expense decreased for the nine months ended September 30, 2004 compared to the same period in 2003 due to the refinancing of our debt in December 2003, which lowered our overall effective interest rate in 2004 by approximately two percentage points. Also, since September 30, 2003, we have reduced our outstanding debt by $30.9 million. Partially offsetting these interest expense reductions was the additional interest expense recognized with the adoption of FAS 150. FAS 150 required that we treat our redeemable preferred stock as debt from the effective date of July 1, 2003. As a result, we incurred three months of this interest expense in 2003 amounting to $0.9 million, compared to nine months of interest expense amounting to $2.9 million for the same period in 2004.
       During the nine months ended September 30, 2003, the interest benefit from our interest rate swap contracts was $4.0 million. The interest rate swap contracts expired in September 2003, and we entered into a new interest rate hedge in September 2003. This hedge instrument is accounted for as a hedge, and fluctuations in the market value of the hedge do not impact our income statement. Absent significant acquisition activity and continued increases in interest rates, we expect that our interest expense would decline as a result of the repayment of debt from the proceeds of this offering.

       Income Taxes. Income tax provision increased for the nine months ended September 30, 2004 compared to the same period in 2003 primarily due to higher pretax income at the consolidated corporations. Our overall effective income tax rate for the 2004 period increased to 21.4% compared to 20.3% in the comparable 2003 period. We expect our overall effective income tax rate to increase to approximately 43.0% due to our conversion to a corporation as part of this offering.

44 

 

       We provided for pro forma income taxes of $14.7 million for the nine months ended September 30, 2004 and $9.4 million for the nine months ended September 30, 2003. Our overall effective pro forma income tax rate was 45.2% for the same 2004 and 2003 periods.

       Net Income. Net income increased for the nine months ended September 30, 2004 compared to the same period in 2003 primarily related to increased sales resulting from the improvement in the overall U.S. economy, increased AEC activity, as well as our reduced interest expense due to the refinancing of our debt in December 2003.
       EBITDA. Our EBITDA margin increased to 21.4% in the nine months ended September 30, 2004 compared to 20.5% in the same 2003 period primarily due to higher revenues. For a reconciliation of EBITDA to pro forma net income, please see “— Non-GAAP Measures” above.

	Year Ended December 31, 2003 Compared to Year Ended December 31, 2002	

			
		Restated(1)	

		Year Ended			
		December 31,		Increase (decrease)	
					
		2002		2003		(In dollars)		(Percent)	

		(In millions)			
Reprographics services	 	$	324.4	 	 	$	316.1	 	 	$	(8.3	)	 	 	(2.6	)%	
Facilities management	 	 	52.3	 	 	 	59.3	 	 	 	7.0	 	 	 	13.4	 	
Equipment and supplies sales	 	 	42.2	 	 	 	40.6	 	 	 	(1.6	)	 	 	(3.8	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	$	418.9	 	 	$	416.0	 	 	$	(2.9	)	 	 	(0.7	)%	
Gross profit	 	$	171.1	 	 	$	163.9	 	 	$	(7.2	)	 	 	(4.2	)%	
Selling, general and administrative expenses	 	$	103.3	 	 	$	101.3	 	 	$	(2.0	)	 	 	(1.9	)%	
Amortization of intangibles	 	$	1.5	 	 	$	1.7	 	 	$	0.2	 	 	 	13.0	%	
Interest expense, net	 	$	(39.9	)	 	$	(39.4	)	 	$	0.5	 	 	 	1.3	%	
Income taxes	 	$	6.3	 	 	$	4.1	 	 	$	(2.2	)	 	 	(34.9	)%	
Net income	 	$	20.7	 	 	$	3.6	 	 	$	(17.1	)	 	 	(82.6	)%	
EBITDA	 	$	86.1	 	 	$	67.0	 	 	$	(19.1	)	 	 	(22.2	)%	
Adjusted EBITDA	 	$	86.1	 	 	$	81.9	 	 	$	(4.2	)	 	 	(4.9	)%	

(1) See Note 1 to the consolidated financial statements.

       Net Sales. Net sales decreased in 2003 compared to 2002 primarily due to the continued slowdown in the economy and the AEC industry, particularly in our Northern California and Northeast divisions, and the continued pricing pressure on our sales due to reduction in activity levels due to contraction in the economy. As is typical in our industry, as the volume of reprographic business declines due to lower non-residential construction spending, we also saw prices decline. During this period, we experienced a contraction in the volume of reprographics work performed and a reduction in the prices of these services. Our acquisitions in 2002 and 2003 partially offset this negative trend. Excluding the benefit of acquisitions completed in 2002 and 2003, our net sales would have decreased by $19.9 million or 5.1%. Facilities management revenue increased due to our ability to convert our equipment sales contracts into facilities management contracts and the further decentralization of operations in the AEC industry. As this trend continues, AEC industry participants should require more output devices to support their additional facilities.
45 

 

       Net sales by geographic region were as follows: 

							
		Year Ended			
		December 31,		Increase (decrease)	
					
		2002		2003		(In dollars)		(Percent)	

		(In millions)			
Southern California	 	$	112.7	 	 	$	127.6	 	 	$	14.9	 	 	 	13.1	%	
Northern California	 	$	88.1	 	 	$	77.5	 	 	$	(10.6	)	 	 	(12.1	)%	
Southern	 	$	62.4	 	 	$	62.1	 	 	$	(0.3	)	 	 	(0.5	)%	
Midwest	 	$	53.9	 	 	$	52.9	 	 	$	(1.0	)	 	 	(1.8	)%	
Northeast	 	$	77.4	 	 	$	71.9	 	 	$	(5.5	)	 	 	(7.1	)%	
Pacific Northwest	 	$	24.3	 	 	$	24.0	 	 	$	(0.3	)	 	 	(1.2	)%	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
 	Total	 	$	418.9	 	 	$	416.0	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
       The increase in net sales in our Southern California divisions was primarily due to the acquisition of Consolidated Reprographics in May 2002. The decline in net sales derived from our divisions located in Northern California was a result of the continued soft economy and high commercial vacancy rates created from the continued contraction in the internet and technology sectors. The decrease in net sales from our Northeast divisions in 2003 compared to 2002 was due to the economic slowdown in New York City and Washington, D.C. after the 9/11 terrorist attacks. Additionally, our Washington, D.C. division was negatively affected by the entry of another reprographics firm in this market.
       Gross Profit. Our gross profit declined in 2003 compared to 2002 mainly due to lower net sales in 2003, particularly in Northern California and the Northeast where aggregate net sales in 2003 declined by $16.1 million, combined with strong pricing pressure which reduced our profit margins. Our overall gross profit margin declined by 1.5 percentage points to 39.4% in 2003 from 40.9% in 2002, driven primarily by the fixed cost nature of our equipment and facility leases. Production overhead as a percentage of net sales, which includes lease and maintenance costs, increased from 17.5% in 2002 to 19.0% in 2003. Additionally, our cost of production labor increased $364,000 due to increased health and workers compensation insurance rates. These increases were partially offset by a decrease in our material cost as a percentage of net sales.

       Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $2.0 million in 2003 compared to 2002 primarily due to a $1.5 million charge in 2002 related to non-recurring signing bonuses paid to the senior management of a division acquired in 2002. Excluding such signing bonuses, selling, general and administrative expenses for 2003 remained flat compared to 2002, despite the decrease in our net sales and gross profit, because we pursued market share expansion amid difficult industry conditions. As a result, our selling and marketing expenses increased by $1.0 million in 2003 compared to 2002 despite lower net sales in 2003. This was offset by a $2.5 million decrease in general and administrative expenses in 2003, which was primarily due to lower incentive bonus accruals resulting from the decline in our operating results. Our general and administrative expenses in 2003 included $858,000 of management fees.

       Amortization of Intangibles. Amortization of intangibles increased in 2003 compared to 2002 due to higher amortization of intangible assets resulting from acquisitions during 2002, particularly our acquisition of Consolidated Reprographics.

46 

 

       Interest Expense, Net. Net interest expense increased in 2003 due primarily to a net interest benefit from our interest rate swap contracts of $4.0 million in 2003 compared to a net interest benefit of $1.6 million in 2002, which was partially offset by a higher monthly average total debt balance during 2003 compared to 2002. Our monthly average total debt balance was higher during 2003 because of our acquisition of Consolidated Reprographics in May 2002 for which we incurred $20.0 million of net borrowings. The interest benefit related to the interest rate swap contracts was due to the improvement in the market value of the interest rate swap contracts as they moved closer to their expiration dates in September 2003.

       Income Taxes. Our income tax provision decreased for 2003 primarily due to lower pretax income at the consolidated corporations. Our overall effective income tax rate was 23.2% in 2002 and 53.8% in 2003. The effective rate increased due to $1.8 million of nondeductible interest expense on our preferred units and a higher overall effective state income tax rate due to a loss on early extinguishments of debts in the parent company that was not deductible for tax purposes by our subsidiaries outside of California.

       We provided for pro forma income taxes of $4.8 million for 2003 as compared to $12.5 million in 2002 due to a loss on early extinguishments of debts in 2003. However, our overall effective pro forma income tax rate was 46.3% in 2002 compared to 62.5% in 2003 as explained above.

       Net Income. Net income decreased for 2003 compared to 2002 primarily related to a $14.9 million loss related to the early extinguishment of debt in connection with our debt refinancing in December 2003.
       EBITDA and Adjusted EBITDA. EBITDA as a percentage of net sales for 2003 decreased to 16.1% from 20.5% for 2002 primarily as a result of the $14.9 million of loss from early extinguishment of debt, which we incurred as part of our debt refinancing in December 2003. Our Adjusted EBITDA for 2003, which excludes this early extinguishment charge, was $81.9 million, or 19.7% of net sales compared to 20.5% for 2002. Our EBITDA margin decreased in 2003 from 2002 primarily because of lower revenues. For a reconciliation of EBITDA and Adjusted EBITDA to pro forma net income, please see “— Non-GAAP Measures” above.

	Year Ended December 31, 2002 Compared to Year Ended December 31, 2001	

			
		Restated(1)	

		Year Ended			
		December 31,		Increase (decrease)	
					
		2001		2002		(In dollars)		(Percent)	
									
				(In millions)					
Reprographics services	 	$	$338.1	 	 	$	324.4	 	 	$	(13.7	)	 	 	(4.0	)%	
Facilities management	 	 	39.9	 	 	 	52.3	 	 	 	12.4	 	 	 	31.1	%	
Equipment and supplies sales	 	 	42.7	 	 	 	42.2	 	 	 	(0.5	)	 	 	(1.2	)%	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	$	420.7	 	 	$	418.9	 	 	$	(1.8	)	 	 	(0.4	)%	
Gross profit	 	$	177.0	 	 	$	171.1	 	 	$	(5.9	)	 	 	(0.3	)%	
Selling, general and administrative expenses	 	$	104.0	 	 	$	103.3	 	 	$	(0.7	)	 	 	(0.7	)%	
Amortization of intangibles	 	$	5.8	 	 	$	1.5	 	 	$	(4.3	)	 	 	(74.1	)%	
Interest expense, net	 	$	47.5	 	 	$	39.9	 	 	$	(7.6	)	 	 	(16.0	)%	
Income taxes	 	$	5.8	 	 	$	6.3	 	 	$	0.5	 	 	 	0.9	%	
Net income	 	$	10.7	 	 	$	20.7	 	 	$	10.0	 	 	 	93.5	%	
EBITDA	 	$	89.5	 	 	$	86.1	 	 	$	(3.4	)	 	 	(3.8	)%	

		
(1) 	See Note 1 to the consolidated financial statements.	

47 

 

       Net Sales. Net sales decreased in 2002 compared to 2001 due to the continued downturn in the economy generally and the AEC industry in particular and continued pricing pressure on our sales. Our net sales decreased during this period despite our acquisition of Consolidated Reprographics and seven other smaller reprographics companies in 2002. Excluding net sales related to businesses acquired during 2002 and 2001, net sales from our operations decreased by approximately $39.1 million, or 10.0%. The decrease of $39.1 million in revenue compared to 2001 resulted from a combination of price and volume declines.
       Net sales by geographic region were as follows: 

							
		Year Ended			
		December 31,		Increase (decrease)	
					
		2001		2002		(In dollars)		(Percent)	
									
				(In millions)					
Southern California	 	$	90.6	 	 	$	112.7	 	 	$	22.1	 	 	 	(24.4	)%	
Northern California	 	$	101.8	 	 	$	88.1	 	 	$	(13.7	)	 	 	(13.5	)%	
Southern	 	$	63.0	 	 	$	62.4	 	 	$	(0.6	)	 	 	(1.0	)%	
Midwest	 	$	53.5	 	 	$	53.9	 	 	$	0.4	 	 	 	0.7	%	
Northeast	 	$	85.6	 	 	$	77.4	 	 	$	(8.2	)	 	 	(9.6	)%	
Pacific Northwest	 	$	26.2	 	 	$	24.3	 	 	$	(1.9	)	 	 	(7.2	)%	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
 	Total	 	$	420.7	 	 	$	418.9	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
       The decline in net sales from our divisions located in Southern California, Northern California, the Pacific Northwest, and the Northeast, excluding 2002 acquisitions, was attributable to the nationwide softness in the economy, which fueled unemployment and high non-residential vacancy rates.
       Gross Profit. Our gross profit decreased in 2002 from 2001 due primarily to lower net sales in 2002. Our overall gross profit margin declined by 1.2 percentage points to 40.9% in 2002 from 42.1% in 2001, driven primarily by the fixed-cost nature of our leases for production equipment and facilities. Production overhead as a percentage of net sales, which includes lease and maintenance costs, increased from 15.6% in 2001 to 17.5% in 2002. This increase was partially offset by a decrease in our material cost as a percentage of net sales, caused by the lower cost of paper.

       Selling, General and Administrative Expenses. Selling, general and administrative expenses in 2002 and 2001 included $1.5 million in bonuses paid to the senior management of a division acquired in 2002, and a $1.4 million bonus paid to the president of a division acquired in 2000, respectively. Overall, selling, general and administrative expenses decreased in 2002 compared to 2001 due to cost savings from the elimination of certain redundant administrative offices during late 2001, which offset increases in our legal fees in 2002 compared to 2001 as a result of the investigation of our company by the Federal Trade Commission that was triggered by the Consolidated Reprographics acquisition and litigation that we pursued against certain competitors. Both of these matters have been concluded. As a percentage of net sales, selling, general and administrative expenses was 24.7% for 2002 and 2001. Our general and administrative expenses in 2002 included $889,000 of management fees.

       Amortization of Intangibles. Amortization of intangibles decreased in 2002 compared to 2001 due to our discontinuing the amortization of goodwill pursuant to our adoption of SFAS No. 142 as of January 1, 2002. In 2001, we wrote off $3.4 million of goodwill relating to a business acquired in 2000, which was subsequently closed in 2001 due to underperformance. This non-recurring expense was offset in 2002 by higher amortization of intangible assets resulting from acquisitions during 2002, particularly our acquisition of Consolidated Reprographics.

       Interest Expense, Net. Net interest expense decreased in 2002 compared to 2001 due to lower average borrowings and interest rates throughout 2002 as compared to 2001 and a net

48 

 

interest benefit from our interest rate swap contracts of $1.6 million compared to a net interest expense from our swap contracts of $5.6 million in 2001. The decrease was partially offset by additional borrowings incurred in May 2002 to finance the acquisition of Consolidated Reprographics, the addition of new capital leases, and higher interest expense from Holdings’ previously outstanding notes. The benefit from the swap contracts was due to the improvement in the market value of these rate swap contracts in 2002 as they moved closer to their expiration dates in September 2003.
       Income Taxes. Our income tax provision increased in 2002 compared to 2001 due to higher pretax income at the consolidated corporations. Our overall effective income tax rate for 2002 decreased to 23.2% as compared to 35.0% in 2001 due to the write off of non-deductible goodwill in 2001, as well as the impact of the SFAS No. 133 transition adjustment.
       We provided for pro forma income taxes of $12.5 million for 2002 and $8.4 million for 2001. Our overall effective pro forma income tax rate was 46.3% in 2002 compared to 50.6% in 2001 due to nondeductible goodwill amortization in 2001 and not in 2002. Goodwill ceased to be amortized in 2002 due to our adoption of SFAS No. 142 as of January 1, 2002.
       Net Income. Net income increased for 2002 from 2001 primarily due to a $7.2 million improvement in interest income related to an interest rate swap contract and a net decrease of $4.3 million in amortization expense related to discontinuing the amortization of goodwill pursuant to our adoption of SFAS No. 142 as of January 1, 2002.
       EBITDA. The decrease in EBITDA for 2002 compared to 2001 and the decrease in EBITDA as a percentage of net sales for 2002 to 20.5% from 21.3% for 2001 were primarily as a result of lower revenues. For a reconciliation of EBITDA to pro forma net income, please see “— Non-GAAP Measures” above.
49 

 

Quarterly Results of Operations
       The following table sets forth certain quarterly financial data for the seven quarters ended September 30, 2004. This quarterly information is unaudited, has been prepared on the same basis as the annual financial statements and, in our opinion, reflects all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the information for periods presented. Operating results for any quarter are not necessarily indicative of results for any future period.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

		Quarter Ended	
			
		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,		Sept. 30,	

		2003		2004	

		(Unaudited, dollars in thousands)	
Reprographics services	 	$	81,301	 	 	$	83,794	 	 	$	77,411	 	 	$	73,489	 	 	$	84,170	 	 	$	87,237	 	 	$	81,958	 	
Facilities management	 	 	13,644	 	 	 	14,448	 	 	 	14,628	 	 	 	16,592	 	 	 	16,529	 	 	 	17,954	 	 	 	19,254	 	
Equipment and supplies sales	 	 	10,327	 	 	 	10,640	 	 	 	10,145	 	 	 	9,541	 	 	 	9,819	 	 	 	10,424	 	 	 	8,953	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	$	105,272	 	 	$	108,882	 	 	$	102,184	 	 	$	99,622	 	 	$	110,518	 	 	$	115,615	 	 	$	110,165	 	
Gross profit	 	$	42,292	 	 	$	44,551	 	 	$	39,229	 	 	$	37,860	 	 	$	45,919	 	 	$	49,424	 	 	$	44,287	 	
Income from operations	 	$	16,625	 	 	$	18,329	 	 	$	13,722	 	 	$	12,295	 	 	$	18,588	 	 	$	20,639	 	 	$	17,702	 	
EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	2,036	 	 	$	23,376	 	 	$	25,839	 	 	$	22,627	 	
Adjusted EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	16,957	 	 	$	23,376	 	 	$	25,839	 	 	$	22,627	 	
Net income (loss)	 	$	5,946	 	 	$	8,049	 	 	$	2,583	 	 	$	(13,025	)	 	$	8,438	 	 	$	9,845	 	 	$	7,191	 	

		
(1) 	See Note 1 to the consolidated financial statements.	

50 

 

       The following is a reconciliation of Adjusted EBITDA and EBITDA to net income (loss) for each respective quarter.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		Restated(1)	

		Quarter Ended	
			
		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,		Sept. 30,	

		2003		2004	

		(Unaudited, dollars in thousands)	
Adjusted EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	16,957	 	 	$	23,376	 	 	$	25,839	 	 	$	22,627	 	
Loss on early extinguishment of debt	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(14,921	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	21,989	 	 	 	23,889	 	 	 	19,097	 	 	 	2,036	 	 	 	23,376	 	 	 	25,839	 	 	 	22,627	 	
Interest expense	 	 	(9,317	)	 	 	(8,799	)	 	 	(10,842	)	 	 	(10,432	)	 	 	(8,125	)	 	 	(8,405	)	 	 	(8,559	)	
Income tax benefit (provision)	 	 	(1,562	)	 	 	(2,012	)	 	 	(646	)	 	 	89	 	 	 	(2,299	)	 	 	(2,682	)	 	 	(1,959	)	
Depreciation and amortization	 	 	(5,164	)	 	 	(5,029	)	 	 	(5,026	)	 	 	(4,718	)	 	 	(4,514	)	 	 	(4,907	)	 	 	(4,918	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss)	 	$	5,946	 	 	$	8,049	 	 	$	2,583	 	 	$	(13,025	)	 	$	8,438	 	 	$	9,845	 	 	$	7,191	 	

		
(1) 	See Note 1 to the consolidated financial statements.	

       We believe that quarterly revenues and operating results may vary significantly in the future and that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, our quarterly operating results are typically affected by seasonal factors, primarily the number of working days in a quarter. Historically, our fourth quarter is the slowest, reflecting the slowdown in construction activity during the holiday season, and our second quarter is the strongest, reflecting the fewest holidays and best weather compared to the other quarters.
Impact of Inflation
       Inflation has not had a significant effect on our operations. Price increases for raw materials such as paper typically have been, and we expect will continue to be, passed on to customers in the ordinary course of business.

Liquidity and Capital Resources		
       Our principal sources of cash have been cash provided by operations and borrowings under our bank credit facilities or debt agreements. Our historical uses of cash have been for acquisitions of reprographics businesses, payment of principal and interest on outstanding debt obligations, capital expenditures and tax-related distributions to our LLC members. Supplemental information pertaining to our historical sources and uses of cash is presented as follows and should be read in
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conjunction with our consolidated statements of cash flows and notes thereto included elsewhere in this prospectus.

			
		Restated(1)	

		(Dollars in thousands)	
				Nine Months	
		Year Ended December 31,		Ended	
				September 30,	
		2001		2002		2003		2004	
									
Net cash provided by operating activities	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	42,419	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in investing activities	 	$	(37,065	)	 	$	(45,918	)	 	$	(8,336	)	 	$	(7,611	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in financing activities	 	$	(18,541	)	 	$	(14,610	)	 	$	(47,581	)	 	$	(40,115	)	

		
(1) 	See Note 1 to the consolidated financial statements.	

		
Operating Activities		

       Net cash provided by operating activities for the nine months ended September 30, 2004 primarily related to net income of $25.5 million, depreciation and amortization of $14.3 million, non-cash interest expense of $3.5 million from the amortization of deferred financing costs and the accretion of yield on our mandatorily redeemable preferred members’ equity, and an increase in accounts payable and accrued expenses of $8.2 million primarily due to the timing of payments on trade payables, incentive bonus accruals to be paid at year end, and the higher volume of business activity in 2004. These factors were offset by the growth in accounts receivables of $10.3 million primarily related to increased sales during 2004.

       Net cash provided by operating activities for the year ended December 31, 2003 primarily related to net income of $3.6 million, depreciation and amortization of $19.9 million, non-cash interest expense of $11.1 million from the accretion of yield on our Holdings notes and our mandatorily redeemable preferred members’ equity and the amortization of deferred financing costs, the write-off of unamortized debt discount and deferred financing costs of $9.0 million as a result of our debt refinancing in December 2003, a decrease in accounts receivable of $1.8 million and a $1.0 million decrease in inventory.

       Net cash provided by operating activities for the year ended December 31, 2002 primarily related to net income of $20.7 million, depreciation and amortization of $19.2 million, non-cash interest expense of $11.1 million from the accretion of yield on our Holdings notes and the amortization of deferred financing costs, a $2.1 million decrease in prepaid expenses and other current assets, a $0.7 million decrease in inventory, and a $2.7 million increase in accounts payable and accrued expenses.

       Net cash provided by operating activities for the year ended December 31, 2001 primarily related to net income of $10.7 million, depreciation and amortization of $25.4 million (which includes a write off of $3.4 million of goodwill), non-cash interest expense of $16.5 million from the accretion of yield on our Holdings notes and the amortization of deferred financing costs, a $5.3 million decrease in accounts receivable due to strong cash collections during the second half of 2001, deferred income tax provision of $2.2 million, a $1.4 million decrease in inventory, and a $1.4 million decrease in prepaid expenses and other current assets. These factors were offset by a $10.5 million decrease in accounts payable and accrued expenses primarily due to acquisition earnout payments paid during 2001 which were accrued during the prior year.

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Investing Activities		
       Net cash used in investing activities primarily relates to acquisition of businesses and capital expenditures. Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions amounted to $2.9 million during the nine months ended September 30, 2004, and $3.1 million, $40.4 million and $27.8 million during the years ended December 31, 2003, 2002 and 2001, respectively. We incurred capital expenditures totaling $4.8 million, $5.0 million, $5.2 million and $8.7 million for the nine months ended September 30, 2004 and the years ended December 31, 2003, 2002, and 2001, respectively.

Financing Activities		
       Net cash used in financing activities primarily relates to payments on long-term debt under our debt agreements and cash distributions to members. These are offset mainly by the proceeds from borrowings under our debt agreements. Cash used in financing activities for the nine months ended September 30, 2004 included $36.2 million of repayments under our debt agreements and $4.7 million in cash distributions to members. Cash used in financing activities for the year ended December 31, 2003 included $375.6 million of repayments on our prior credit facilities, an $8.1 million payment of loan fees related to our debt refinancing and $1.7 million in cash distributions to members. These were offset by $337.8 million in borrowings under our new credit facilities in December 2003. Cash used in financing activities for the year ended December 31, 2002 included $35.5 million of repayments on our debt agreements and $10.2 million in cash distributions to members (including $6.3 million of cash paid to redeem certain of the Company’s common membership units), partially offset by $32.0 million in borrowings under our debt agreements. Cash used in financing activities for the year ended December 31, 2001 included $20.4 million of repayments under our debt agreements and $3.4 million of cash distributions to members, offset by $5.2 million of proceeds from borrowings under our debt agreements.
       Our cash position, working capital and debt obligations as of December 31, 2001, 2002 and 2003 and September 30, 2004 are shown below and should be read in conjunction with our consolidated balance sheets and notes thereto included elsewhere in this prospectus.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		December 31,			
				September 30,	
		2001		2002		2003		2004	

		(Dollars in thousands)	
Cash and cash equivalents	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	12,008	 	
Working capital	 	 	24,338	 	 	 	24,371	 	 	 	16,809	 	 	 	27,910	 	
Mandatorily redeemable preferred and common membership units	 	 	30,116	 	 	 	23,903	 	 	 	25,791	 	 	 	27,285	 	
Other debt obligations	 	 	364,738	 	 	 	378,608	 	 	 	359,340	 	 	 	331,100	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total debt obligations	 	$	394,854	 	 	$	402,511	 	 	$	385,131	 	 	$	358,385	 	

       Debt obligations as of December 31, 2003 and September 30, 2004 include $25.8 million and $27.3 million of redeemable preferred equity which has been reclassified in our financial statements as a component of our total debt upon our adoption of SFAS No. 150 in July 2003. Debt obligations as of December 31, 2001 included $8.1 million of redeemable common membership units.

       We expect a positive impact on our liquidity and results of operations going forward upon the completion of our initial public offering due to lower interest expense as net proceeds of approximately $103.6 million from the sale of our common stock will be used to reduce our existing debt obligations. Our overall interest expense may also be reduced as rates applicable to future borrowings on our revolving credit facility may decrease since the margin for loans made under the revolving facility is based on the ratio of our consolidated indebtedness to our consolidated adjusted EBITDA (as defined in our credit facilities). The applicable margin on our revolving facility ranges

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between 2.00% and 2.75% for LIBOR rate loans and ranges between 1.00% and 1.75% for index rate loans. In addition, the termination of our management agreement with CHS Management IV LP upon the completion of our initial public offering will positively impact our future results of operations and cash flows because of the elimination of management fees we are required to pay under this agreement. We paid CHS Management IV LP a management fee of $803,000 in 2001, $889,000 in 2002 and $858,000 in 2003, and we anticipate paying $858,000 in 2004.
       These positive factors will be offset to a certain extent by rising market interest rates on our debt obligations under our senior secured credit facilities which are subject to variable interest rates. As discussed in “Quantitative and Qualitative Disclosure About Market Risk,” we had $385.1 million of total debt outstanding as of December 31, 2003 of which $340.0 million was bearing interest at variable rates. A 1.0% change in interest rates on variable rate debt would have resulted in interest expense fluctuating by approximately $2.3 million during the year ended December 31, 2003.
       We believe that our cash flow provided by operations will be adequate to cover our 2005 working capital needs, debt service requirements and planned capital expenditures to the extent such items are known or are reasonably determinable based on current business and market conditions. However, we may elect to finance certain of our capital expenditure requirements through borrowings under our credit facilities or the issuance of additional debt.
       We continually evaluate potential acquisitions. Absent a compelling strategic reason, we expect that all future acquisitions will be cash flow accretive within six months. Currently, we are not party to any agreements or engaged in any negotiations regarding a material acquisition. We expect to fund future acquisitions through cash flow provided by operations, additional borrowings or the issuance of our equity. The extent to which we will be willing or able to use our equity or a mix of equity and cash payments to make acquisitions will depend on the market value of our shares from time to time and the willingness of potential sellers to accept equity as full or partial payment.
Debt Obligations
       Senior Secured Credit Facilities. We have two senior secured credit facilities: a $130 million senior first priority secured facility, or first priority facility, and a $225 million senior second priority secured facility, or second priority facility. Our first priority facility consists of a $100 million senior first priority secured term loan facility, or term facility, and a $30 million senior first priority secured revolving credit facility, or revolving facility. Our second priority facility consists of a $225 million senior second priority secured term loan facility. The proceeds of the term facility and a portion of the revolving facility, together with substantially all of the proceeds of the second priority facility, were used to refinance our then existing debt in December 2003. We may use amounts remaining available under the revolving facility for working capital, certain permitted acquisitions and general corporate purposes. See “Description of Certain Indebtedness.”
       The term facility matures in June 2009, the revolving facility matures in December 2008 and the second priority facility matures in December 2009. Opco’s obligations under each of the credit facilities are guaranteed by Holdings and each of its domestic subsidiaries. In addition, subject to limited exceptions, the first priority facility is secured by first priority security interests in all of Opco’s assets and the assets of Holdings and its domestic subsidiaries and 65% of the assets of its foreign subsidiary. The second priority facility is secured by second priority security interests in the assets securing the first priority facility. The priority of the security interests and related creditor rights between the first priority facility and the second priority facility are subject to an intercreditor agreement.
       Loans made under the credit facilities bear interest at a floating rate and may be maintained as index rate loans or as LIBOR rate loans. Index rate loans bear interest at the index rate plus the applicable index rate margin, as described in the first priority facility. Index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by The Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks, and (2) the
54 

 

Federal Reserve reported overnight funds rate plus 1/2 of 1%. LIBOR rate loans bear interest at the LIBOR rate, as described in the first priority facility, plus the applicable LIBOR rate margin.
       The applicable margin with respect to the term facility is 2.00% in the case of index rate loans and 3.00% in the case of LIBOR rate loans. The applicable margin for the revolving facility is determined by a grid based on the ratio of our consolidated indebtedness to our consolidated adjusted EBITDA (as defined in our credit facilities) for the most recently ended four fiscal quarters and range between 2.00% and 2.75% for LIBOR rate loans and range between 1.00% and 1.75% for index rate loans.
       The applicable margin with respect to loans made under the second priority facility is 5.875% in the case of index rate loans and 6.875% in the case of LIBOR rate loans; provided, that, if the ratio of our consolidated indebtedness over our consolidated adjusted EBITDA (as defined in our credit facilities) is greater than 4.8:1.0 for any four fiscal quarters, each of the applicable margins set forth above will be increased by 100 basis points. In addition to the foregoing, loans made under the second priority facility are issued at a discount of 1.0% to the face amount.
       The following table sets forth the outstanding balance, borrowing capacity and applicable interest rate under our senior secured credit facilities. Subsequent to September 30, 2004, we repaid $4.5 million under our term facility and $5.1 million under our second priority facility. 

					
		As of December 31, 2003		As of September 30, 2004	
					
				Available						Available			
				Borrowing		Interest				Borrowing		Interest	
		Balance		Capacity		Rate		Balance		Capacity		Rate	

		(Dollars in thousands)	
Term facility	 	$	100,000	 	 	$	—	 	 	 	5.75%	 	 	$	99,250	 	 	$	—	 	 	 	4.84%	 	
Revolving facility	 	 	15,000	 	 	 	15,000	 	 	 	5.75%	 	 	 	—	 	 	 	30,000	 	 	 	—	 	
Second priority facility, excluding debt discount	 	 	225,000	 	 	 	—	 	 	 	9.8%	 	 	 	213,364	 	 	 	—	 	 	 	8.63%	 	
 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	
 	 	$	340,000	 	 	$	15,000	 	 	 	 	 	 	$	312,614	 	 	$	30,000	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	
       In addition, under the revolving facility, we are required to pay a fee equal to 0.50% of the total unused commitment amount. We may also draw upon this credit facility through letters of credit which carry specific fees.
       Redeemable Preferred Units. As of September 30, 2004, we had $27.3 million of redeemable, non-voting preferred membership units. Holders of the redeemable preferred units are entitled to receive a yield of 13.25% of its liquidation value per annum for the first three years starting in April 2000, and increasing to 15% of the liquidation value per annum thereafter. The discount inherent in the yield for the first three years was recorded as an adjustment to the carrying amount of the redeemable preferred units. This discount was amortized as a dividend over the initial three years. Of the total yield on the redeemable preferred units, 48% is mandatorily payable quarterly in cash to the redeemable preferred unit holders. The unpaid portion of the yield accumulates annually and is added to the liquidation value of the redeemable preferred units. The preferred units are redeemable without premium or penalty, wholly or in part, at Holdings’ option at any time, for the liquidation value, including any unpaid yield. The preferred units are mandatorily redeemable on the closing of this offering to the extent of 25% of the net proceeds from this offering.
       Seller Notes. As of September 30, 2004, we had $5.0 million of seller notes outstanding, with interest rates ranging between 7.0% and 8.0% and maturities between 2004 and 2007. These notes were issued in connection with prior acquisitions.
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Off-Balance Sheet Arrangements
       At December 31, 2003 and 2002, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 
Contractual Obligations and Other Commitments
       Our future contractual obligations as of September 30, 2004 by fiscal year are as follows:

		Three Months					
		Ending		Twelve Months Ending December 31,			
		December 31,					
		2004		2005		2006		2007		2008		Thereafter	

		(Dollars in thousands)	
Debt obligations, including mandatorily redeemable preferred equity	 	$	1,005	 	 	$	3,722	 	 	$	1,696	 	 	$	635	 	 	$	47,875	 	 	$	288,138	 	
Capital lease obligation	 	 	1,780	 	 	 	6,174	 	 	 	3,907	 	 	 	2,231	 	 	 	944	 	 	 	278	 	
Operating lease obligations	 	 	9,064	 	 	 	29,516	 	 	 	19,760	 	 	 	12,884	 	 	 	8,428	 	 	 	20,291	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	11,849	 	 	$	39,412	 	 	$	25,363	 	 	$	15,750	 	 	$	57,247	 	 	$	308,707	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       Operating Leases. We have entered into various noncancelable operating leases primarily related to facilities, equipment and vehicles used in the ordinary course of our business.
       Contingent Transaction Consideration. We have entered into earnout agreements in connection with prior acquisitions. If the acquired businesses generate operating profits in excess of pre-determined targets, we are obligated to make additional cash payments in accordance with the terms of such earnout agreements. As of September 30, 2004, we estimate that we will be required to make additional cash payments of up to $822,000 between 2004 to 2007. These additional cash payments are accounted for as goodwill when earned.

       We are involved in a dispute with a state tax authority related to unresolved sales tax issues which arose from such state tax authority’s audit findings from their sales tax audit of certain of our operating divisions for the period from October 1998 to September 2001. The unresolved issues relate to the application of sales taxes on certain discounts we granted to our customers. Based on the position taken by the state tax authority on these unresolved issues, they have claimed that an additional $1.2 million of sales taxes are due from us for the period in question, plus approximately $372,000 of interest. We strongly disagree with the state tax authority’s position and have filed a petition for redetermination requesting an appeals conference to resolve these issues. At an appeals conference held on December 14, 2004, the appeals board ruled that we are liable in connection with one component of the dispute involving approximately $40,000, which we previously paid. We have requested another appeals conference to resolve the remaining issues, but such conference has not yet been scheduled. The accrued expenses in our consolidated balance sheet as of December 31, 2003 and September 30, 2004 each include approximately $151,000 of reserves related to this matter.

Quantitative and Qualitative Disclosure About Market Risk
       Our primary exposure to market risk is interest rate risk associated with our debt instruments. We use both fixed and variable rate debt as sources of financing. In September 2003, we entered into an interest rate hedge agreement with a notional amount of $111.2 million to reduce our exposure to fluctuations in interest rates. Under the hedge agreement, we pay a fixed rate of 2.29% and we receive a variable rate equal to the 1-month LIBOR rate. The difference between the fixed and variable rates is settled monthly and is recognized as an increase or decrease in interest expense. The
56 

 

notional amount of the hedge agreement is reduced quarterly by an amount equal to 50% of our scheduled quarterly principal payments on our senior credit facilities. Upon the expiration of the hedge agreement in September 2005, the notional amount will have been reduced to $96.0 million.
       In January 2004, we entered into two interest rate collar agreements, referred to as the front-end and the back-end interest rate collar agreements. The front-end interest rate collar agreement has an initial notional amount of $22.6 million which is increased quarterly to reflect reductions in the notional amount of our interest rate swap agreement, such that the notional amount of the swap agreement, together with the notional amount of the front-end interest rate collar agreement, remains not less than 40% of the aggregate principal amount outstanding on our senior credit facilities. The front-end interest rate collar agreement expires in September 2005. The back-end interest rate collar agreement becomes effective upon expiration of the swap agreement and front-end interest rate collar agreement in September 2005 and has a fixed notional amount of $111.0 million. The back-end interest rate collar agreement expires in December 2006. At September 30, 2004, the fair value of these interest rate collar agreements was $(405,000).
       At December 31, 2003, we had $385.1 million of total debt outstanding of which $340.0 million was bearing interest at variable rates approximating 8.5%. A 1.0% change in interest rates on variable rate debt would have resulted in interest expense fluctuating by approximately $2.3 million during the year ended December 31, 2003.
       We have not, and do not plan to, enter into any derivative financial instruments for trading or speculative purposes. As of December 31, 2003, we had no other significant material exposure to market risk, including foreign exchange risk and commodity risks.
Recent Accounting Pronouncements
       In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. Our adoption of SFAS No. 145 did not have a material impact on our financial position, results of operations or cash flows.
       In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” under which a liability for an exit cost was recognized as of the date of an entity’s commitment to an exit plan. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Our adoption of this standard effective January 1, 2003 had no impact on our financial position, results of operations or cash flows.
       In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. Our adoption of FIN 45 did not have a material impact on our financial position or results of operations or cash flows.
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       In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Our adoption of SFAS No. 148 did not have any impact on our financial statements as management does not have any intention to change to the fair value method.
       In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the variable interest entity’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include the assets, liabilities and the results of operations of the variable interest entity in its financial statements. In December 2003, the FASB issued a revision to FIN 46 to address certain implementation issues. The adoption of FIN 46 and FIN 46 (revised) had no material impact on our results of operations, financial position or cash flows.
       In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our financial position, results of operations or cash flows.
       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS 150 on July 1, 2003, which resulted in classifying mandatorily redeemable preferred stock as a liability in the balance sheet and related accretion being charged to interest expense in the statement of operations. See Note 1 to our consolidated financial statements for more detail.

       In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment.” SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that we currently use and requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statement of operations. The effective date of SFAS No. 123R is for interim and annual periods beginning after June 15, 2005. We are currently assessing the provisions of SFAS No. 123R and its impact on our consolidated financial statements.

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BUSINESS
Our Company
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, that also require sophisticated document management services. Reprographics services typically encompass the digital management and reproduction of construction documents or other graphics-related material and the corresponding finishing and distribution services. The business-to-business services we provide to our customers include document management, document distribution and logistics , and print-on-demand . We provide our core services through our suite of reprographics technology products, a network of 177 locally branded reprographics service centers, and more than 1,760 facilities management programs at our customers’ locations throughout the country. We also sell reprographics equipment and supplies to complement our full range of service offerings. In further support of our core services, we license our suite of reprographics technology products, including our flagship internet-based application, PlanWell, to independent reprographers. We also operate PEiR (Profit and Education in Reprographics) through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers, while promoting our reprographics technology as the industry standard. Our services are critical to our customers because they shorten their document processing and distribution time, improve the quality of their document information management, and provide a secure, controlled document management environment.
       We operate 177 reprographics service centers, including 174 service centers in 135 cities in 29 states throughout the United States and the District of Columbia and three reprographics service centers in the Toronto metropolitan area. Our reprographics service centers are located in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. These service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing us to provide our services both locally and nationally. We service more than 65,000 active customers and employ over 3,450 people, including a sales force of approximately 270 employees.
       In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We believe that our national footprint, our suite of reprographics technology products, and our value-added services, including logistics and facilities management, provide us with a distinct competitive advantage.
       While we began our operations in California and currently derive approximately half of our net sales from our operations in the state, we have continued to expand our geographic coverage and market share by entering complementary markets through strategic acquisitions of high quality companies with well recognized local brand names and, in most cases, more than 25 years of operating history. Since 1997, we have acquired 84 companies and have retained approximately 93% of the management of the acquired companies. As part of our growth strategy, we have recently begun opening and operating branch service centers, which we view as a low cost, rapid form of market expansion. Our branch openings require modest capital expenditures and are expected to generate operating profit within 12 months from opening. We have opened 17 new branches in key markets since September 2003 and expect to open an additional 15 branches by the end of the first quarter of 2005.
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Corporate Background and Reorganization
       Our predecessor, Ford Graphics, was founded in Los Angeles, California in 1960. In 1967, this sole proprietorship was dissolved and a new corporate structure was established under the name Micro Device, Inc., which continued to provide reprographics services under the name Ford Graphics. In 1989, our current senior management team purchased Micro Device, Inc., and in November 1997 our company was recapitalized as a California limited liability company, with management retaining a 50% ownership position and the remainder owned by outside investors. In February 2000, Code Hennessy & Simmons LLC, or CHS, through its affiliates acquired a 50% stake in our company from these outside investors in the 2000 recapitalization (referred to as the “2000 recapitalization”).
       We are currently organized as American Reprographics Holdings, L.L.C., a California limited liability company, or Holdings. We conduct our operations through our wholly-owned operating subsidiary, American Reprographics Company, L.L.C., a California limited liability company, or Opco, and its subsidiaries.
       Immediately prior to this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization, the members of Holdings will exchange their common units and options to purchase common units for shares of our common stock and options to purchase shares of our common stock. As required by the operating agreement of Holdings, we will repurchase all of the preferred equity of Holdings upon the closing of this offering with a portion of the net proceeds from this offering. As part of our reorganization, all outstanding warrants to purchase common units will be exchanged for shares of our common stock.
Current Ownership
       CHS is a private equity firm based in Chicago, Illinois specializing in leveraged buyouts and recapitalizations of middle market companies in partnership with company management through its private equity funds. Since its founding in 1988, CHS has formed five private equity funds totaling approximately $2.8 billion and currently has investments in 19 operating companies with combined annual revenues of more than $4.6 billion. CHS presently manages approximately $2.7 billion of equity capital from leading financial institutions, pension funds, insurance companies, and university endowments. Its principal offices are located at 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606. As of September 30, 2004, CHS affiliates owned approximately 49% of our outstanding common equity.
       Our founders, Mr. Chandramohan, Chairman and Chief Executive Officer, and Mr. Suriyakumar, President and Chief Operating Officer, purchased ARC in 1989 under its predecessor name, Micro Device, Inc., are still actively involved in the business, and have provided continuity of leadership and control since then. As of September 30, 2004, our executive officers had a pecuniary interest in approximately 33% of our outstanding common equity. See “Principal and Selling Stockholders.”
Acquisitions
       In addition to our primary focus on the growth of our business, we have pursued tactical acquisitions to expand and complement our existing service offerings and to expand our geographic locations where we believe we could be a market leader. In 2000, we acquired 14 reprographics companies for an aggregate purchase price of $111.6 million, including our acquisition of Ridgways, Inc., which enabled us to expand our geographic reach and market penetration in 14 major metropolitan markets. In 2001, we acquired 14 reprographics companies for an aggregate purchase price of $32.6 million. In 2002, we acquired eight reprographics companies for an aggregate purchase price of $34.4 million, including certain assets of the Consolidated Reprographics division of Lason Systems, Inc., which allowed us to increase our market penetration in Southern California.
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       We intend to continue to pursue a disciplined course of growing our business through complementary acquisitions. We regularly evaluate potential acquisitions and may engage in acquisition negotiations at any time and from time to time. Currently, we are not party to any agreements or engaged in any negotiations regarding a material acquisition.
Industry Overview
       The reprographics industry has traditionally provided services related to the reproduction and distribution of large format architectural, engineering and construction documents. Customer demands for speed and efficiency and advances in technology have transformed the reprographics industry such that reprographers are now expected to offer complex digital document management capabilities, document distribution expertise, comprehensive logistics, and the ability to provide document services under intense deadlines. These sophisticated services typically are charged as part of a per square foot printing cost.
       According to the International Reprographics Association, or IRgA, and other industry sources, the reprographics industry in the United States is estimated to be approximately $5 billion in size. The IRgA indicates that the reprographics industry is highly fragmented, consisting of approximately 3,000 firms with average annual sales of approximately $1.5 million and 20 to 25 employees. Since construction documents are the primary medium of communication for the architectural, engineering and construction industry, or AEC industry, demand for reprographics services in the AEC market is closely tied to the level of activity in the construction industry, which in turn is driven by macroeconomic trends such as GDP growth, interest rates, job creation, office vacancy rates, and tax revenues. According to FMI Corporation, or FMI, a consulting firm to the construction industry, construction industry spending in the United States for 2005 is estimated at $1.0 trillion, with expenditures divided between residential construction (55%) and commercial and public, or non-residential, construction (45%). Our AEC revenues are most closely correlated to the non-residential sectors of the construction industry because these sectors are the largest users of reprographics services. According to FMI, the non-residential sectors of the construction industry are projected to grow at an average of 5.4% per year over the next three years. Although we believe the estimates and industry data we have obtained to be reliable, we have not independently verified this information or the accuracy of any such estimates.
       For over 100 years, AEC customers have used reprographics services to print, distribute, and store architectural, engineering and construction diagrams and plans. Prior to the 1980’s, the blueprint was the primary medium of communication among the highly fragmented team of AEC professionals who was responsible for the creation and development of a construction project. With the advent of Computer Aided Drafting (CAD) software and the corresponding need for improved graphic reproduction and color graphics to support the digital nature of construction documents, reprographers have evolved their products and services to facilitate better communication through digital means. The production of documents through digital means significantly decreases errors in drawing interpretation due to the increased quality of information and the clarity with which these documents can be produced. The introduction of the internet spurred additional service and technology development, especially in the area of document management, document distribution and logistic services and print-on-demand.
       Non-residential construction projects are generally large in scale, time consuming, and subject to cost overruns and delays. A frequent cause of such problems is the complexity of the construction documentation and the logistics involved in distributing documents to their intended recipients. Reprographers can facilitate better document management through technology applications. For example, reprographers can provide more efficient document distribution by shifting from an analog “print and distribute” business model, where customer orders are placed and produced in one location and physically distributed locally or nationally, to a digital “distribute and print” model, where customer orders are placed in one location, distributed digitally and physically produced at one or more local service centers.
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       Market opportunities for business-to-business document management services such as ours are rapidly expanding into non-AEC industries. For example, non-AEC customers are increasingly using large and small format color imaging for point-of-purchase displays, digital publishing, presentation materials, educational materials and marketing materials as these services have become more efficient and available on a short run, on-demand basis through digital technology. As a result, we believe that our addressable market is substantially larger than the core AEC reprographics market. We believe that the growth of non-AEC industries is generally tied to growth in the U.S. gross domestic product, or GDP, which is projected to have grown 4.4% in 2004 and is projected to grow 3.7% in 2005 according to Wall Street’s consensus estimates.
       The development of digital technology and internet-based solutions for managing documents and the corresponding distribution and reproduction processes have also created an additional opportunity for reprographics companies such as ourselves to offer complementary, value-added services to AEC and non-AEC customers through intelligent technological solutions and an extensive physical network.
       We believe the following general trends will continue to impact our business:

		
• 	Economic Recovery. The recovery in the overall economy is expected to boost construction activity. We estimate that recovery in non-residential construction typically lags the recovery in the broader economy by approximately six months, and we believe that we are at the early stages of an upturn in the non-residential construction cycle. FMI forecasts increases in non-residential construction spending at an average of 5.4% per year over the next three years. The economy is continuing to show signs of recovery as indicated by positive GDP growth, employment growth, increased consumer confidence and supportive monetary policy. Wall Street’s consensus estimates forecast real GDP growth of 4.4% in 2004 and 3.7% in 2005.	

		
 	We believe we are well positioned to capitalize on these recovery trends through our economies of scale and through our nationwide network of service centers.	

		
• 	Digitization. The AEC industry is increasingly becoming digital, creating substantial efficiencies and cost savings for participants of the AEC industry through electronic design and collaboration. Improved document management by the AEC industry is compelling to participants due to frequent cost overruns and completion delays attributable to poor and inaccurate use of plans, specifications and other construction documentation, as well as the complex nature of construction projects. AEC and non-AEC customers alike are increasingly demanding higher value-added, comprehensive digital reprographics services. To meet the demands of the customers, the reprographics industry has been converting its main production technology from analog to digital. Digital technology is cost effective, allows for just-in-time printing and results in high quality documents that can be stored electronically, modified easily and printed in any quantity at any time. The internet is becoming the new distribution channel for the AEC industry, allowing reprographics businesses to shift from a “print and distribute” business model to a “distribute and print” model.	

		
 	We believe we are at the forefront of this industry trend and conduct our operations entirely by digital means through our 177 digitally connected service centers, each with similar production equipment and quality standards, and by enabling the digital fulfillment of our reprographics services through the development of our proprietary software, including PlanWell.	

		
• 	Expanding Geographic Presence. AEC firms of all sizes are expanding their operations into larger geographic territories. This trend requires reprographers to expand their service levels and offerings to keep up with customer demand. As a result, the ability to fulfill reprographics services across wider areas increases the logistical burden for the vast majority of reprographers, which are typically small, privately-held companies that serve only local markets. In addition, the desire for customers to possess a degree of centralized administrative control over their documents requires the support of a corresponding digital infrastructure. As AEC firms continue to decentralize and	
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	shift to the “distribute and print” model, we believe that reprographics firms with a comprehensive digital network and footprint of service facilities such as ours will be best positioned to serve their customers.	

		
 	The digitization of the AEC industry has also enabled AEC firms to expand globally to take advantage of opportunities in the global construction industry, which according to FMI is $3.3 trillion in size, and diversify the risks associated with operating in one region or one country. International reprographics markets appear to mirror the fragmentation and the small business orientation of the U.S. market, with few large reprographics companies. In addition, our recent efforts to introduce our technology solutions into Europe and Asia indicate that there is a significant lag in the adoption and availability of digital reprographics technology in those markets.	
 		
 	We believe that the addressable reprographics market of the global construction industry is significantly larger than the U.S. reprographics market and that we are well positioned to service the needs of global AEC firms. Although we derive less than 1% of our net sales from operations in foreign countries, our abilities to leverage our technology, offer value-added business service offerings, expand our physical operations, and successfully integrate new businesses offer us significant opportunities for growth outside the United States.	

		
• 	Secular Trends Favoring Outsourcing. Both AEC and non-AEC businesses are focused on increasing productivity by specializing in their core competencies and outsourcing non-core operations such as reprographics. The rapid pace of technological advances and the high costs of purchasing and operating equipment for in-house reprographics departments have further contributed to this trend. According to IDC, a global market intelligence and advisory firm, on-site outsourcing revenue will increase from $4.8 billion in 2003 to $6.6 billion in 2008, resulting in a projected CAGR of 6%. IDC also indicates that revenue from facilities management services and mailroom management services, from which the bulk of on-site revenue is derived, is expected to increase from $4.3 billion in 2003 to $5.9 billion in 2008, representing a projected CAGR of 6%.	

		
 	With a current base of more than 1,760 on-site facilities management programs, we believe we can leverage our depth of experience in selling and managing these programs into a growth opportunity that will meet or exceed the potential growth rate of the market itself.	
Our Competitive Strengths
       We believe that our growth will be driven by our competitive strengths, which include the following:

		
• 	Leading Market Position in Fragmented Industry. In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We are the largest reprographer in most of the geographic markets we serve, as the majority of the approximately 3,000 firms in the reprographics industry are small and locally focused. Our size and national footprint provide us with significant purchasing power, economies of scale, the ability to invest in the development of technologies, and the resources to service large, national customers. Our well-recognized local brand names and our reputation for quality and reliability within the reprographics and architectural, engineering and construction industries, or AEC industries, supported by our ability to provide a wide range of services, have allowed us to gain and sustain the leading position in our industry.	
 		
• 	Leader in Technology and Innovation. We strive to maintain the leading position in our industry by creating innovative, value-added technology solutions for our customers and other independent reprographers. We develop and support our suite of reprographics technology products through a team of approximately 20 full-time engineers and technical specialists at our two technology centers in Silicon Valley, as well as through continued investment in research and	
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	development. We also draw upon the combined experience, expertise and market insight of the management of our acquired reprographics firms to design, evaluate and improve our reprographics technology products. We believe PlanWell is best positioned to become the industry standard within the AEC industry. From PlanWell’s inception in June 2000 through September 30, 2004, more than 650,000 orders have been placed through PlanWell online planrooms for the management of more than 54,000 projects and seven million complex, large format documents. In addition, we have developed other proprietary software applications that complement PlanWell and have enabled us to improve the efficiency of our services, add complementary services and increase our opportunities for capturing revenue. These include Abacus PCR, our proprietary job tracking software, BidCaster, our proprietary “Invitation to Bid” tool (ITB), EWO, our proprietary electronic work order application, MetaPrint, our print automation and device manager, and OneView, our proprietary centralized project and administrative module for larger customers.	
 		
• 	Extensive National Footprint with Regional Expertise. Our service centers maintain local customer relationships while benefiting from our centralized corporate functions and national scale. Each service center provides personalized services that are tailored to meet the regional needs of our customers. Our service facilities are organized as hub and satellite structures within individual markets, allowing us to balance production capacity and minimize capital expenditures through technology sharing among our service centers within each market. Our service centers are in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. This enables us to maintain our national “distribute and print” operations and allows our service facilities to act as backup and supply centers for the more than 1,760 facilities management programs we have in place at customer sites throughout the United States. We also leverage the geographic coverage of our production facilities to address the service needs of large companies that operate in multiple locations. Our Premier Accounts sales initiative offers regional and national customers our localized services under a single contract, while offering centralized access to project specific services, billing, and tracking information.	
 		
• 	Flexible Operating Model. We are able to tailor our operations to meet the demands of the local markets that we serve by promoting regional decision making for marketing, pricing, and selling practices. In this manner, we remain responsive to our customers while benefiting from the cost structure advantages of our centralized administrative functions. Our flexible operating model also allows us to capitalize on an improving business environment. Capital investment for a new branch is modest and these new branches are expected to generate positive operating profit within 12 months from opening. The economies associated with opening a new branch give us flexibility and market response times that can significantly enhance our regional growth. We use our wide area network and management information systems to benchmark daily financial and operational data to help us identify and respond to changes in operating trends and disseminate best practices across all branches. We estimate that approximately 60% of our cost base is fixed and that the operating margin on our incremental revenue is more than two times our current operating margin. For example, for the year ended December 31, 2003, we achieved an operating margin of 14.7% and an EBITDA margin (exclusive of a one-time charge related to the early extinguishment of debt) of 19.7%. For the nine months ended September 30, 2004, we experienced revenue growth of 6.3% compared to the same period in 2003, and achieved an operating margin of 16.9% and an EBITDA margin of 21.4%, resulting in margin improvement of approximately 2.2 and 1.7 percentage points, respectively, compared to the year ended December 31, 2003, demonstrating the leverage in our operating model in an expanding business environment. For a description of EBITDA margin and its reconciliation to operating margin, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non- GAAP Measures.”	
 		
• 	Consistent, Strong Cash Flow. Through management of our inventory and receivables and our low capital expenditure requirements, we have consistently generated strong cash flow from operations after capital expenditures, regardless of industry and economic conditions. Our	
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	historical cash capital expenditures have been relatively low, with overall capital spending averaging approximately 1.5% of annual net sales over the last three years. In 2003, we generated cash flow from operations of $48.2 million. From the beginning of 2001 to the end of September 2004, we generated a cumulative $200.2 million of cash flow from operations.	
 		
• 	Low Cost Operator. We believe we are one of the lowest cost operators in the reprographics industry, which we have accomplished by minimizing branch level expenses and capitalizing on our significant scale for purchasing efficiencies. As a result of our national presence and size, we enjoy significant economies of scale, and we receive favorable terms from major vendors of equipment, software and reprographics supplies, such as Océ N.V., Xerox Corporation, Canon Inc., Xpedx, a division of International Paper Company, CDW Corporation, and Dell Inc. We also offer savings to other reprographers through our PEiR division, which allows members to purchase machinery and supplies at lower prices than they could obtain independently while further increasing our purchasing power.	
 		
• 	Experienced Management Team and Highly Trained Workforce. Our senior management team of S. “Mohan” Chandramohan, Chairman and Chief Executive Officer, K. “Suri” Suriyakumar, President and Chief Operating Officer, and Mark Legg, Chief Financial Officer, together with our divisional managers, has an average of over 20 years of industry experience. Mr. Chandramohan has been with us since February 1988 and Mr. Suriyakumar has been with us since November 1989. We have also successfully retained approximately 93% of the managers of the 84 businesses we have acquired since 1997. As a result of these acquisitions, we have developed a formalized training program that collects and disseminates best practices to our employees through formal instruction and seminars. The program covers all of our business practices, including general management, operations, sales and marketing, technology, human resources and accounting.	
Our Business Strategy
       Our objective is to continue to strengthen our competitive position as the preferred provider of business-to-business document management, document distribution and logistics, and print-on-demand services. We seek to strengthen this position while increasing revenue, cash flow, profitability, and market share. We believe our nationwide footprint, our continuous technological innovation, our promotion of PlanWell as the industry standard, and our value-added service offerings will allow us to continue to meet this objective. Our key strategies to accomplish this objective includes:

		
• 	Continue to Increase Our Market Penetration and Expand Our Nationwide Footprint. Through our technical and operational expertise and strong customer relationships, we expect to continue to penetrate key markets and build our nationwide presence. We believe that customers rely on local relationships for their document management services, and we intend to increase our existing presence in key U.S. markets while expanding into under-penetrated regions through facilities management contracts, targeted branch openings, strategic acquisitions, and national accounts.	

			
 	Õ  	Facilities Management Contracts: We expect to capitalize on the continued trend of our customers to outsource their document management services, including their in-house operations. Our facilities management services are turnkey solutions to our customers that can transform what was a cost center for our customers into a profit center. Rather than absorbing the entire cost of such a facility, our customers receive an invoice from us based on their use which is typically reimbursable by project owners and developers. Since January 1, 2001, the number of our facilities management contracts has more than doubled. Based on the nine months ended September 30, 2004, annualized net sales from these contracts have grown to $71.6 million. We will continue to concentrate on developing ongoing facilities management relationships in all of the markets we serve and building our base of recurring revenue.	
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 	Õ  	Targeted Branch Openings: Significant opportunities exist to expand our geographic coverage, capture new customers and increase our market share by opening additional satellite branches in regions near our established operations. Our strategy with respect to branch openings is in the early stages of implementation, having evolved as the next stage of our growth to complement our traditional acquisition strategy. Since September 2003, we have opened 17 new branches in areas that expand or further penetrate our existing markets and plan to open an additional 15 branches by the end of the first quarter of 2005. Capital investment for a new branch is modest and these new branches are expected to generate positive operating profit within 12 months from opening. We plan to open branches within our existing markets to serve new customers, in new markets to serve both existing and new customers, and in markets that have no ideal acquisition candidates or where potential acquisitions are likely to be too costly. We believe that our existing corporate infrastructure is capable of supporting a much larger branch network and significantly higher revenue.	
 		
 	Õ  	Strategic Acquisitions: Acquisitions have historically been an important component of our growth strategy. Since 1997, we have acquired 84 reprographics companies and have developed a structured approach to acquiring and integrating companies. We believe that there are significant opportunities to grow our business further through disciplined, strategic acquisitions due to the fragmented nature of our industry. Because our industry consists primarily of small, privately-held companies that serve only local markets, we believe that we can continue to grow our business by successfully acquiring additional reprographics companies at reasonable prices and subsequently realizing substantial operating and purchasing synergies by leveraging our existing corporate infrastructure. We will continue to leverage our acquisition and integration expertise to expand into new markets and increase our presence in existing underpenetrated markets.	
 		
 	Õ  	National Accounts: Our Premier Accounts business unit offers a comprehensive suite of reprographics services designed to meet the demands of large regional and national businesses. It provides local reprographics services to regional and national companies through our national network of reprographics service centers, while offering centralized access to project-specific services, billing and tracking information. For example, we recently entered into an exclusive Premier Accounts contract with one of the leading construction companies in the United States under which we offer a full range of document management, distribution and logistics, and print-on-demand services on a national scale. This contract requires that the customer use PlanWell for every project, and the use of PlanWell by this customer’s contractors, subcontractors and outside work force should significantly improve the potential for revenue growth from this account. Through our extensive national footprint and industry leading technology, we believe that we are well-positioned to meet the demands of national companies and will continue to capture additional revenues and customers through this business unit.	

		
• 	Promote PlanWell as the Industry Standard for Procuring Reprographics Services Online. Our goal is to continue to expand the market penetration of PlanWell and create a standardized, internet-based portal to manage, store, and retrieve documents. In order to increase market share and achieve industry standardization, we will continue to license our PlanWell technology to other reprographics companies, including members of PEiR. Through September 30, 2004, we have licensed PlanWell and our other technology products to 66 reprographics companies operating 83 service facilities across the United States. These efforts, combined with the functionality and capabilities of the PlanWell suite of products, should continue to position us at the forefront of technological innovation within the AEC and non-AEC reprographics markets, and create additional service and licensing revenue for us.	
 		
• 	Expand Our Non-AEC and Ancillary Product and Service Offerings. We believe that offering our services to non-AEC customers and expanding our existing suite of product and service offerings are effective methods of increasing sales to both new and existing customers. We have	
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	leveraged our expertise in providing highly customized, quick-turn services to the AEC industry to attract customers from non-AEC industries that are increasingly seeking document management, document distribution and logistics, and print-on-demand services. We have been successful in attracting non-AEC customers that require services such as the production of large format and small format color and black and white documents, educational and training materials, short-run publishing products, and retail and promotional items. We began targeting non-AEC customers upon our conversion to digital technology in 1997, and we believe that our services to these customers accounted for approximately 20% of our net sales for the nine months ended September 30, 2004.	
In addition to expanding our non-AEC revenues, we continue to focus on creating new value-added services beyond traditional reprographics to offer all of our customers. We are actively engaged in services such as bid facilitation, print network management for offices and on-site production facilities, and on-demand color publishing. We plan to continue to capitalize on our technological innovation to enhance our existing services and to create new reprographics technologies.
Our Services
       Reprographics services typically encompass the digital management and reproduction of graphics-related material and corresponding finishing and distribution services. We provide these business-to-business services to our customers in three major categories: document management, document distribution and logistics , and print-on-demand .
       Document Management. We store, organize, print and track AEC and non-AEC project documents using a variety of digital tools and industry expertise. The documents we manage are typically larger than 11x17, requiring specialized production equipment, and the documents are iterative in nature; frequently 10 or more versions of a single document must be tracked and managed throughout the course of a project.
       Document Distribution and Logistics. We provide fully-integrated document distribution and logistics, which consist of tracking document users, packaging prints, addressing and coordinating services for shipment (either in hard copy or electronic form), as well as local pick-up and delivery of documents to multiple locations within tight time constraints.
       Print-on-demand. We produce small and large-format documents in black and white or color using digital scanning and printing devices. We can reproduce documents when and where they are needed by balancing production capacity between the high-volume equipment in our network of reprographic service centers, as well as equipment placed on site in our customers’ facilities.
       These broad categories of services are provided to our architectural, engineering and construction industry, or AEC industry, customers, as well as to our customers in non-AEC industries that have similar document management and production requirements. Our AEC customers work primarily with high volumes of large format construction plans and small format specification documents that are technical, complex, constantly changing and frequently confidential. Our non-AEC customers generally require services that apply to black and white and color small format documents, promotional documents of all sizes, and the digital distribution of document files to multiple locations for a variety of print-on-demand needs including short-run digital publishing.
       We provide the following specific services through our suite of reprographics technology products, a network of 177 locally-branded reprographics service centers, and more than 1,760 facilities management programs. These services include:

		
• 	PlanWell, our proprietary, internet-based planroom launched in June 2000, and our suite of other reprographics software products that enable the online purchase and fulfillment of reprographics services. From Planwell’s inception in June 2000 through September 1, 2004, more than 650,000 orders have been placed through PlanWell online planrooms for the management of more than 54,000 projects and seven million complex, large format documents. While PlanWell typically	
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	facilitates the management of large and small format documents for professionals in the AEC industry, the application can be used to manage small format document collections and color documents for non-AEC users. PlanWell is provided in two primary configurations: PlanWell Enterprise , a hosted, comprehensive documentation system with a wide variety of administration and document management features; and PlanWell PDS, a simple, stand alone online planroom that acts as a document viewing and distribution tool for a single set of plans.	
 		
• 	Production services, including print-on-demand, document assembly, document finishing, mounting, laminating, binding, and kitting. We utilize a broad range of digital output equipment and finishing and assembly skills to produce print-on-demand projects at each of our 177 service centers. These services include the production of large format and small format documents in both black and white and color. Documents can be digitally transferred from one service facility to another to balance production capacity or take advantage of a “distribute and print” operating system.	
 		
• 	Document distribution and logistics, including the physical pick up, delivery, and shipping of time-sensitive, critical documents. These services are supported by a fleet of approximately 680 vehicles and nearly 700 employees. Our service facilities provide pedestrian, bicycle and car courier services in most metropolitan markets, and we also offer third party shipping services to all of our customers. Contracted courier services allow our divisions to manage additional delivery capacity through approximately 160 vehicles and drivers.	
 		
• 	Highly customized large and small format reprographics in color and black and white. For our non-AEC customers this includes digital reproduction of posters, tradeshow displays, plans, banners, signage and maps. We offer large format color services through a variety of processes, including inkjet, bubblejet, large format electrostatic printing and photographic printing. We also offer small format color reprographics services, which typically use laser printing technology, for products such as flyers, real estate deal books and financial presentations.	
 		
• 	Facilities management, including recurring on-site document management services and staffing at our customers’ locations. We currently have more than 1,760 facilities management programs, which typically include the management and procurement of related on-site equipment and supplies. Our facilities management services generally eliminate reprographics capital expenditures for our customers and keep equipment current and in good condition. Our facilities management services also help our customers track and capture reprographics costs that are often reimbursable, and frequently transform a customer’s cost center into profit center.	
 		
• 	Sales of reprographics equipment and supplies to other reprographics companies and end-users in the AEC industry to further complement our service and product offerings and increase our purchasing power. In addition, a number of our service centers are authorized dealers for reprographics equipment manufactures such as Océ and Xerox. Sales of reprographics equipment and supplies accounted for approximately $40.7 million, or 9.8%, of our net sales in 2003.	
 		
• 	The design and development of other document management and reprographics software, in addition to PlanWell, that supports ordering, tracking, job costing, and other customer specific accounting information for a variety of projects and services. Many of these applications create greater value and offer a wider range of services when used in conjunction with one another, providing an incentive to our customers to use our services beyond a single need. These proprietary applications include:	

			
 	Õ  	Electronic Work Order (EWO), which offers our customers access to the services of all of our service centers through the internet. This application also offers the reprographer the ability to create internet-based order forms that conform to their available service offerings and pricing. Customers can use a simple upload application to send files to the reprographer or schedule a pickup for original documents. This application can also be configured to interface with	
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 		other third party internet-based products, acting as the driving e-commerce engine for a reprographics organization.	
 		
 	Õ  	Abacus Print Cost Recovery (PCR) System, which provides a suite of software modules for reprographers and their customers to track documents produced from equipment installed as a part of a facilities management program.	
 		
 	Õ  	BidCaster “Invitation-to-Bid” (ITB) System, a data management internet application that issues customizable “invitations to bid” from a customer’s desktop using email and a hosted fax server. This application links potential bidders directly to a PlanWell online planroom to evaluate and order plans used in the submission of project bids, and tracks bid responses to provide the customer a much faster, convenient and efficient way to gather and complete project bids.	
 		
 	Õ  	MetaPrint Print Automation and Device Manager, a universal print driver that facilitates the printing of documents with output devices manufactured by multiple vendors, and allows the reprographer to print multiple documents in various formats as a single print submission.	
 		
 	Õ  	OneView Document Access and Customer Administration System, an internet-based application that leverages the security attributes of PlanWell to provide a single point of access to all of a customer’s project documents, regardless of which of our local production facilities stores the relevant documents. This application also imports and consolidates invoice data from each of our service centers in a variety of formats and reports.	
       To further support and promote our major categories of services, as well as lead our industry forward and establish ourselves firmly at the forefront of technology and innovation in the reprographics industry, we also:

		
• 	License our suite of reprographics technology products, including our flagship online planroom, PlanWell, to independent reprographers. Our licensing efforts promote our technology as the digital standard for the fulfillment of reprographics services in the AEC industry. Through September 30, 2004, we have licensed PlanWell and our other technology products to 66 reprographics companies operating 83 service facilities across the United States.	
 		
• 	Operate PEiR (Profit and Education in Reprographics), a trade organization wholly owned by us, through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers. PEiR members, currently consisting of 45 independent reprographers, are required to license PlanWell and may purchase equipment and supplies at a lower cost than they could obtain independently. In turn, their purchasing volumes increase our buying power and influence with our vendors. We also distribute our educational programs to PEiR members to help establish and promote best practices within the reprographics industry.	
Customers and Representative Projects
       Our customers are both local and national companies, with no single customer accounting for more than 2% of our net sales in 2003.
       We have historically provided reprographics and related business services primarily to the architectural, engineering and construction, or AEC, market. However, since 1997, we have focused on increasing the number of non-AEC customers in our customer base to increase diversification and expand our core services into markets that seek sophisticated document management, document distribution and logistics, and print-on-demand services. We generated approximately 80% of our net sales from AEC customers for the nine months ended September 30, 2004. We began targeting non-AEC customers upon our conversion to digital technology in 1997 and we believe that
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services to these customers accounted for approximately 20% of our net sales for the nine months ended September 30, 2004.
Top 20 AEC Customers
       The following is a list of our top 20 AEC customers based upon our net sales for the nine months ended September 30, 2004:

Anshen & Allen, Architects, Inc.
BSW Architects
EDAW, Inc.
Ewing Cole Cherry Brott
Gensler
Hammel, Green & Abrahamson, Inc.
Hillier International
The Irvine Company
KTGY Group, Inc.
MBH Architects, Inc.	 	Parsons Brinkerhoff Inc.
Perini Corporation
RBF Consulting
Rockwell Group
Skanska USA Building Inc.
Skidmore Owens & Merrill LLP
Standard Pacific Corporation
The Turner Corporation
URS Corporation
Wimberly Allison Tong & Goo	
Top 20 Non-AEC Customers
       The following is a list of our top 20 non-AEC customers based upon our net sales for the nine months ended September 30, 2004:

Adac Laboratories, Inc.
AIM Management Group Inc.
Applied Materials, Inc.
Baker Hughes Incorporated
The Boeing Company
Chevron Phillips Chemical
DBL Realtors Corp.
Etec Systems
Helix U.S.A. Ltd.
Lam Research Corporation	 	Los Angeles County Dept. of Public Works
NACE International
San Manuel Indian Bingo & Casino
Sound Transit
Southern California Edison
Staedtler, Inc.
Taco Bell Corp.
WDI/ Document Controls
Wells Fargo & Company
University of California, Los Angeles	
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Representative Projects
       The following is a representative list of recent small and large projects in which we supplied reprographics services:

Name of Project		Architect		Builder	
					
Miami International Airport	 	Corgan Associates, Inc.	 	The Turner Corporation	
 	North Terminal Development
(Miami, FL)	 	 	 	 	
Walt Disney Concert Hall	 	Frank O. Gehry & Associates, Inc.	 	M. A. Mortenson Company	
 	(Los Angeles, CA)	 	 	 	 	
University of Michigan	 	Polshek Partnership Architects LLP	 	Skanska USA Building Inc.	
 	Biomedical Science Research Building
(Ann Arbor, MI)	 	 	 	 	
Toyota Headquarters South	 	LPA, Inc.	 	The Turner Corporation	
 	Campus Office Development
(Torrance, CA)	 	 	 	 	
Bellagio Resort and Casino,	 	Marnell Carrao Associates	 	Marnell Carrao Associates	
 	Sam’s Town Gambling Hall
(Las Vegas, NV)	 	 	 	 	
FDA Regional Laboratory-Southwest
(Irvine, CA)	 	Zimmer, Gunsul, Frasca Partnership + HDR	 	Hensel Phelps	
Fluor Corporation Campus	 	Fluor Corporation	 	Fluor Corporation	
 	Headquarters (Irvine, CA)	 	 	 	 	
City of Aliso Viejo	 	Multiple	 	Multiple	
 	Masterplan (Aliso Viejo, CA)	 	 	 	 	
Minutemaid Park (Houston, TX)	 	HOK Sport + Venue + Event	 	Kellogg Brown & Root (KBR)	
Chesapeake Bay Bridge	 	PCL Civil Constructors Inc.	 	Multiple	
 	Tunnel (Virginia Beach, VA)	 	 	 	 	
Caltrans District 7	 	Morphosis Architects	 	Clark Construction Group, LLC	
 	Headquarters
(Los Angeles, CA)	 	 	 	 	
Norman Mineta San Jose	 	Gensler	 	Gilbane Building Company	
 	International Airport (San Jose, CA)	 	 	 	 	
Nissan Automotive Assembly	 	SSOE, Inc.	 	W.G. Yates & Sons	
 	Facility (Canton, MS)	 	 	 	Construction Co.,
Yates/ Walbridge	
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Operations
       Geographic Presence. We operate 177 reprographics service centers, including 174 service centers in 135 cities in 29 states throughout the United States and the District of Columbia and three service centers in the Toronto metropolitan area. Our reprographics service centers are located in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. The map below illustrates the number of our service centers by state.

       Hub and Satellite Configuration. We are organized into 42 divisions that typically consist of a cluster configuration of at least one large service facility, or hub facility, and several smaller facilities, or satellite facilities, that are digitally connected as a cohesive network, allowing us to provide all of our services both locally and nationwide. Our hub and satellite configuration enables us to shorten our customers’ document processing and distribution time, as well as achieve higher utilization of output devices by coordinating the distribution of work orders digitally among our service centers. In addition, this organizational structure allows us to balance production capacity, improve equipment utilization, and minimize capital expenditures through technology sharing among our service centers within each market. The hub and satellite model supports our ability to respond to the demands of local markets by promoting regional decision making for marketing, pricing, and selling practices while benefiting from centralized administrative functions.
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Overview of Typical Hub and Satellite Capabilities

Central Hub Facilities		Satellite Facilities	
			
• All capabilities and equipment of our satellite facilities	 	• Process simple reprographics	
• Process larger, more complex reprographics	 	• Quick turnaround capabilities	
• Higher production capacity	 	• Sophisticated equipment	
• Manage facilities management programs	 	• Responsive, localized service	
• Back-up support to satellite facilities	 	• Local delivery service	
 	 	• Light production capacity	
 	 	• Finishing services	

		
• 	Central Hub Facilities. In each of our major markets, we operate one or more large scale full service facilities that have high production capacity and sophisticated equipment. These larger facilities offer specialized services such as laser digital imaging on photographic material, large format color printing, and finishing services that may not be economically viable for smaller facilities to provide. Each central hub facility also maintains a library of design and imaging software, including architectural software, to process customer orders in digital format. In addition, digital equipment at all of our service facilities is networked, allowing a single order to be processed simultaneously on multiple pieces of equipment. These facilities also offer customers access to PlanWell, as well as document storage and retrieval services. Our central hub facilities also coordinate our facilities management programs.	
 		
• 	Satellite Facilities. To supplement the capabilities of our central hub facilities, we operate satellite facilities that are typically located closer to our customers than the central hubs. Our satellite facilities have quick turnaround capabilities, responsive, localized service, and handle the majority of digital processes. By utilizing a fleet of approximately 680 vehicles and nearly 700 employees, together with approximately 160 vehicles and drivers from contracted courier services for additional flexible capacity, these satellite facilities interact directly with customers and our central hub facilities to provide customers with a full range of high quality, on-demand reprographics services. In addition, our delivery fleet enables the smaller satellite facilities to coordinate with each other to reduce turnaround time for customers by evenly distributing work orders. The smaller satellite centers also typically provide digital black and white printing and imaging, color printing and limited finishing services.	
       Management Systems and Controls. We operate our business under a dual operating structure of centralized administrative functions and regional decision making. Acquired companies typically retain their local business identities, managers, sales force, and marketing efforts in order to maintain strong local relationships. Our local management maintains autonomy over the day-to-day operations of their business units, including profitability, customer billing, receivables collection, and service mix decisions. We believe that this decentralized and entrepreneurial approach to our operations is essential in capitalizing on our managers’ knowledge of local markets and long established customer relationships.
       Although we operate on a decentralized basis, our senior management closely monitors and reviews each of our 42 divisions through daily reports that contain operating and financial information such as sales, inventory levels, purchasing commitments, collections, and receivables. In addition, our operating divisions submit monthly reports to senior management that track each division’s financial and operating performance in comparison to monthly budgets.
Suppliers and Vendors
       We purchase raw materials, consisting primarily of paper, toner, and other consumables, and purchase or lease reprographics equipment. To minimize our materials cost, we maintain a paper
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converting operation whereby we purchase rolls of paper directly from paper mills that are cut to size and used in our operations, as well as sold to our customers. Our reprographics equipment, which includes imaging and printing equipment, is typically leased for use in our service facilities and facilities management sites. We use a two-tiered approach to purchasing in order to maximize the economies associated with our size, while maintaining the local efficiencies and time sensitivity required to meet customer demands. We continually monitor market conditions and product developments, as well as regularly review the contractual terms of our national purchasing agreements, to take advantage of our buying power and to maximize the benefits associated with these agreements.
       Our primary vendors of equipment, maintenance services and reprographics supplies include Océ N.V., Xerox Corporation, Canon Inc., and Xpedx, a division of International Paper Company. We have long standing relationships with all of our suppliers and we believe we receive favorable prices as compared to our competition due to the large quantities we purchase and strong relationships with our vendors. We have entered into annual supply contracts with certain vendors to guarantee prices. Significant market fluctuations in our raw material costs have historically been limited to paper prices and we have typically maintained strong gross margins as the result of our ability to pass increased material costs through to our customers.
Sales and Marketing
       Divisional Sales Force. We market our products and services throughout the United States through localized sales forces and marketing efforts at the divisional level. We had approximately 270 sales and customer service representatives as of September 30, 2004. Each sales force generally consists of a sales manager and a staff of between two to 12 sales and customer service representatives that target various customer segments. Depending on the size of the operating division, a sales team may serve both the central hub service facility and satellite facilities, or if market demographics require, operate on behalf of a single service facility.
       Our sales associates have been trained in our entire portfolio of services. They are in close contact with the local business community and offer our portfolio of services to customers in a variety of local industries in both the architectural, engineering and construction, or AEC market, and the non-AEC markets.
       In most locations, we follow a customized sales approach to the market that is dependent on the distinctive trade practices of the region. For example, in some major metropolitan markets, architects exert controlling influence over the management of construction projects, whereas in other markets, general contractors have greater control. We believe our strong connections to AEC and general business communities and our long operating history provide us with the insight and understanding to effectively address regionally focused trade practices through our targeted sales efforts.
       Premier Accounts. To further enhance our market share and service portfolio on a national level, we operate a “Premier Accounts” business unit. Designed to meet the requirements of large regional and national businesses, we established this operating division to take advantage of growing globalization within the AEC market, and to establish ourselves at the corporate level as the leading national reprographer with extensive geographic and service capabilities. The “Premier Accounts” sales initiative allows us to attract large AEC and non-AEC companies with document management, distribution and logistics, and print-on-demand needs that span wide geographical or organizational boundaries. Since its launch in the middle of 2003, we have established eight national accounts through Premier Accounts, including our most recent exclusive contract with one of the leading construction companies in the United States.
       PEiR Group. We established the PEiR Group (Profit and Education in Reprographics) in July 2003, a separate operating division of our company that is a membership-based organization for the reprographics industry. Comprised of independent reprographers and reprographics vendors, its
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mission is to “create a large, unified group of successful independent reprographers able to advance the industry by improving the profitability, productivity and professionalism of its members.” PEiR members are required to license our PlanWell online planroom application, facilitating the promotion of our technology as the industry standard. We also provide general purchasing discounts to PEiR members through our preferred vendors. This provides other reprographics companies the opportunity to purchase equipment and supplies at a lower cost than they could obtain independently, while increasing our influence and purchasing power with our vendors. Through PEiR, we also present educational programs to members to establish and promote best practices within the industry.
Competition
       According to the IRgA, most firms in the U.S. reprographics services industry are small, privately held entrepreneurial businesses. The larger reprographers in the United States, besides ourselves, include Service Point USA, a subsidiary of Service Point Solutions, S.A., Thomas Reprographics, Inc., ABC Imaging, LLC, and National Reprographics Inc. While we have no nationwide competitors, we do compete at the local level with a number of privately held reprographics companies, commercial printers, digital imaging firms, and to a limited degree, retail copy shops. Competition is primarily based on customer service, technological leadership, product performance and price. We believe that the scale and scope of our operations are distinct competitive advantages that differentiate us from our competitors. See “Risk Factors — Competition in our industry and innovation by our competitors may hinder our ability to execute our business strategy and maintain our profitability.”
Research and Development
       We believe that to compete effectively we must continue to invest in research and development of our services. Our research and development efforts are focused on improving and enhancing PlanWell as well as developing new proprietary services. As of September 30, 2004, we employed approximately 20 engineers and technical specialists with expertise in software, internet-based applications, database management, internet security and quality assurance. Cash outlays for research and development which include both capitalized and expensed items amounted to $2.5 million in 2001, $2.7 million in 2002, $2.8 million in 2003, and $1.9 million for the nine months ended September 30, 2004.
Proprietary Rights
       Our success depends on our proprietary information and technology. We rely on a combination of copyright, trademark and trade secret laws, license agreements, nondisclosure and noncompete agreements, reseller agreements, customer contracts, and technical measures to establish and protect our rights in our proprietary technology. Our PlanWell license agreements grant our customers a nonexclusive, nontransferable, limited license to use our products and receive our services and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our services. We retain all title and rights of ownership in our software products. In addition, we enter into agreements with some of our employees, third-party consultants and contractors that prohibit the disclosure or use of our confidential information and require the assignment to us of any new ideas, developments, discoveries or inventions related to our business. We also require other third parties to enter into nondisclosure agreements that limit use of, access to, and distribution of our proprietary information. We also rely on a variety of technologies that are licensed from third parties to perform key functions.
       We have registered “PlanWell” as a trademark with the United States Patent and Trademark Office and have applied for registration in Canada, Australia and the European Union. Additionally, we have applied to register the trademark “PlanWell PDS” with the United States Patent and Trademark Office and in Canada, Australia and the European Union. We do not have any other trademarks, service marks or patents that are material to our business.
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       For a discussion of the risks associated with our proprietary rights, see “Risk Factors — Our failure to adequately protect the proprietary aspects of our technology, including PlanWell, may cause us to lose market share” and “Risk Factors — We may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to use certain technologies in the future.”
Information Technology
       We operate two technology centers in Silicon Valley to support our reprographics services. Our second technology center was recently opened to accommodate the continuing growth of our digital operations, and to provide redundancy for our critical equipment and communication infrastructure. Our technology centers also serve as design and development facilities for our software applications, and house our nationwide database administration team and networking engineers.
       From these technology centers, our technical staff is able to remotely manage, control and troubleshoot the primary databases and connectivity of each of our 42 operating divisions. This allows us to avoid the costs and expenses of employing costly database administrators and network engineers in each of our service facilities.
       All of our reprographics service centers are connected via a high performance, dedicated wide area network (WAN), with additional capacity and connectivity through a virtual private network (VPN) to handle customer data transmissions and e-commerce transactions. Our technology centers are standardized on HP/Compaq ProLiant TM Servers and Microsoft Window 2000 Enterprise Server software. Our technology centers use both commonly available software and custom applications running in a clustered computing environment and employ industry leading technologies for redundancy, backup and security.
       We apply the extensive industry knowledge and experience of the managers of our acquired reprographics companies to our technology development in order to create solutions that are immediately practical to reprographers and their customers.
       We employ advanced digital technology to improve processes, reduce costs, and increase our efficiency. We have built our technology infrastructure in a manner which provides us with engineering talent, development tools, and powerful computing resources while carefully managing our costs. 
Employees
       As of September 30, 2004, we had over 3,450 employees. Approximately 20 of our employees are covered by two collective agreements. The collective bargaining agreement with our subsidiary, Ridgway’s Ltd., expires on November 30, 2007 and the agreement with our subsidiary, B.P. Independent Reprographics, Inc., expires on December 4, 2006, but will continue thereafter from year to year unless either party terminates the agreement. We have not experienced a work stoppage during the past five years and believe that our relationships with our employees and collective bargaining units are good.
Facilities
       We currently operate 184 production facilities, including five production support facilities and our two technology centers in Fremont, California, totaling approximately 1,371,000 square feet. We have five administrative facilities, totaling approximately 25,000 square feet. Our executive offices are located in Glendale, California.
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       The table below lists our facilities by region, type of facility, number of facilities and approximate square footage as of December 31, 2004. 

		Number of				Number of			
		Administrative		Square		Production		Square	
Region		Facilities		Footage		Facilities(1)		Footage(1)	
									
Southern California	 	1	 	 	7,000	 	 	 	37	 	 	 	308,000	 	
Northern California	 	1	 	 	5,000	 	 	 	35	 	 	 	270,000	 	
Pacific Northwest	 	0	 	 	0	 	 	 	9	 	 	 	97,000	 	
Northeast	 	3	 	 	13,000	 	 	 	33	 	 	 	194,000	 	
Southern	 	0	 	 	0	 	 	 	43	 	 	 	286,000	 	
Midwest	 	0	 	 	0	 	 	 	27	(2)	 	 	216,000	 	
 	 		 	 		 	 	 		 	 	 		 	
 	Total	 	5	 	 	25,000	 	 	 	184	 	 	 	1,371,000	 	

		
(1) 	Includes five production support facilities and our two technology centers in Fremont, California.	
 		
(2) 	Includes our three service centers in the Toronto metropolitan area.	
       We lease 172 of our production facilities, each of our administrative facilities and both of our technology centers. These leases generally expire between 2005 and 2009. Substantially all of the leases contain renewal provisions with automatic rent escalation clauses. The owned facilities are subject to major encumbrances under our credit facilities. In addition to the facilities that are owned, our fixed assets are comprised primarily of machinery and equipment, trucks, and computer equipment. 
Legal Proceedings
       We are a creditor and participant in the Chapter 7 Bankruptcy of Louis Frey Company, Inc., or LF Co., which is pending in the United States Bankruptcy Court, Southern District of New York. We managed LF Co. under a contract from May through September of 2003. LF Co. filed for Bankruptcy protection in August 2003, and the proceeding was converted to a Chapter 7 liquidation in October 2003. On or about June 30, 2004, the Bankruptcy Estate Trustee filed a complaint in the LF Co. Bankruptcy proceeding against us, which was amended on or about July 19, 2004, alleging, among other things, breach of contract, breach of fiduciary duties, conversion, unjust enrichment, tortious interference with contract, unfair competition and false commercial promotion in violation of The Lanham Act, misappropriation of trade secrets and fraud regarding our handling of the assets of LF Co. The Trustee claims damages of not less than $9.5 million, as well as punitive damages and treble damages with respect to the Lanham Act claims. Previously, on or about October 10, 2003, a secured creditor of LF Co., Merrill Lynch Business Financial Services, Inc., or Merrill, had filed a complaint in the LF Co. Bankruptcy proceeding against us, which was most recently amended on or about July 6, 2004. Merrill’s claims are duplicated in the Trustee’s suit. We, in turn, have filed answers and counterclaims denying liability to the Trustee and seeking reimbursement of all costs and damages sustained as a result of the Trustee’s actions and in our efforts to assist LF Co. Discovery has commenced and is ongoing in each of these cases. We believe that we have meritorious defenses as well as substantial counterclaims against Merrill Lynch and the Trustee. We intend to vigorously contest the above matters. Based on the discovery and depositions to date, we do not believe that the outcome of the above matters will have a material adverse impact on our results of operations or financial condition.
       We are involved in various legal proceedings and other legal matters from time to time in the normal course of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Environmental and Regulatory Considerations
       Our property consists principally of reprographics and related production equipment and we lease substantially all of our production and administrative facilities. We are not aware of any environmental liabilities which would have a material impact on our operations and financial condition.
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MANAGEMENT 
Directors and Executive Officers
       The following table sets forth the name, age and position of the persons who will be our directors and executive officers as of the date of the completion of the offering.

 	 	 	 	 	 	 	
Name		Age		Position	
					
Sathiyamurthy Chandramohan	 	 	45	 	 	Chief Executive Officer; Chairman of the Board of Directors	
Kumarakulasingam Suriyakumar	 	 	51	 	 	President; Chief Operating Officer; Director	
Mark W. Legg	 	 	49	 	 	Chief Financial Officer; Secretary	
Rahul K. Roy	 	 	45	 	 	Chief Technology Officer	
Andrew W. Code	 	 	46	 	 	Director	
Thomas J. Formolo	 	 	40	 	 	Director	
Edward D. Horowitz	 	 	57	 	 	Director	
Manuel Perez de la Mesa	 	 	47	 	 	Director	

       Executive officers are appointed by and serve at the pleasure of our board of directors. A brief biography of each person who will serve as a director or executive officer upon consummation of this offering follows below. Prior to our conversion from a California limited liability company to a Delaware corporation, each officer served Holdings in the capacities discussed below.
       Sathiyamurthy (“Mohan”) Chandramohan has served as an advisor and the Chairman of the Board of Advisors of Holdings since March 1998 and has served as a director and the Chairman of the Board of Directors of American Reprographics Company since October 2004. Mr. Chandramohan joined Micro Device, Inc. (our predecessor company) in February 1988 as President and became the Chief Executive Officer in March 1991. Prior to joining our company, Mr. Chandramohan was employed with U-Save Auto Parts Stores from December 1981 to February 1988, and became the company’s Chief Financial Officer in May 1985 and Chief Operating Officer in March 1987. Mr. Chandramohan served as the President of the International Reprographics Association (IRgA) from August 1, 2001 to July 31, 2002 and continues to be an active member of the IRgA.
       Kumarakulasingam (“Suri”) Suriyakumar has served as an advisor of Holdings since March 1998 and has served as a director of American Reprographics Company since October 2004. Mr. Suriyakumar joined Micro Device, Inc. in 1989. He became the Vice President of Micro Device, Inc. in 1990 and became the company’s President and Chief Operating Officer in 1991. Prior to joining our company, Mr. Suriyakumar was employed with Aitken Spence & Co. LTD, a highly diversified conglomerate and one of the five largest corporations in Sri Lanka. Mr. Suriyakumar is an active member of the IRgA.
       Mark W. Legg joined Holdings as its Chief Financial Officer in April 1998. From 1987 to 1998, Mr. Legg was employed at Vivitar Corporation, a distributor of photographic, optical, electronic and digital imaging products, as a Vice President and the Chief Financial Officer, and later as its Chief Operating Officer. Before Vivitar, he was director of corporate accounting at Sunrise Medical from 1984 to 1986. From 1979 to 1984, Mr. Legg was employed as an accountant with Price Waterhouse & Co.
       Rahul K. Roy joined Holdings as our Chief Technology Officer in September 2000. Prior to joining our company, Mr. Roy was the Founder, President and Chief Executive Officer of MirrorPlus Technologies, Inc., which developed software for the reprographics industry, from August 1993 until it was acquired by us in 1999. Mr. Roy served as the Chief Operating Officer of InPrint, a provider of printing, software, duplication, packaging, assembly and distribution services to technology companies, from 1993 until it was acquired by us in 1999.
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       Andrew W. Code has served as an advisor of Holdings since May 2002 and has served as a director of American Reprographics Company since October 2004. Mr. Code is a partner of CHS and founded its predecessors in 1988. Mr. Code is also a director of SCP Pool Corporation.
       Thomas J. Formolo has served as an advisor of Holdings since April 2000 and has served as a director of American Reprographics Company since October 2004. Mr. Formolo has been a partner of CHS since 1997 and employed by its affiliates since 1990.

       Edward D. Horowitz was appointed as a director of American Reprographics Company in January 2005. Mr. Horowitz has been a consultant to the Office of the Chairman of Rainbow Media Enterprises, a national Hi-Definition programming service and direct broadcast satellite provider, since 2003 and also has been Founder and Chairman, since 2001, of EdsLink LLC, a New York City based venture capital firm providing financial, advisory and technology consulting services. From 1997 through 2001 Mr. Horowitz served at Citigroup, a provider of banking, insurance and investment services, as an Executive Vice President and as Founder and Chairman of the e-Citi business unit of Citigroup. Mr. Horowitz also serves as a director of iVillage, a provider of online and offline media-based properties, MusicNet, an online music delivery company, and Acterna, a provider of integrated solutions for communications service providers.

       Manuel Perez de la Mesa functioned as a director for Holdings from July 2002 until his appointment as a director of American Reprographics Company in October 2004. Mr. Perez de la Mesa has been Chief Executive Officer of SCP Pool Corporation, a wholesale distributor of swimming pool supplies and related equipment, since May 2001 and has also been the President of SCP Pool Corporation since February 1999. Mr. Perez de la Mesa served as Chief Operating Officer of SCP Pool Corporation from February 1999 to May 2001.
Board Composition

       Prior to our reorganization to a Delaware corporation, we were governed under the direction of a board of advisors, consisting of Messrs. Chandramohan, Suriyakumar, Code, Formolo and Marcus J. George, a managing director of CHS. In connection with our reorganization from a limited liability company to a corporation, we have established a board of directors consisting initially of Messrs. Chandramohan, Suriyakumar, Code, Formolo, Horowitz and Perez, who are listed above.

       In addition, in order to ensure compliance with the independence requirements of the New York Stock Exchange, the composition of the board of directors may change prior to and following this offering. It is our intention to be in full and timely compliance with all applicable rules of the New York Stock Exchange and applicable law, including with respect to the independence of our directors. As discussed in greater detail below, we intend to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange rules which require that, among other things, our audit committee include at least a majority of independent directors within 90 days after the effective date of our registration statement. In addition, within one year after such effectiveness, our audit committee must consist entirely of independent directors.

       The board has determined that Messrs. Horowitz and Perez are independent directors under the rules governing companies listed on the New York Stock Exchange. No later than one year after the completion of this offering, we will satisfy the requirements for independent directors contained in the rules governing companies listed on the New York Stock Exchange through the appointment of two additional independent directors, one of whom will replace one of the six current directors, resulting in a board consisting of seven members, four of whom will be independent. In order to expedite this compliance process, in recent months we have been actively seeking independent directors who could be added to our board, and we expect to be able to announce the addition of one independent director within a short period after the completion of this offering.

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       In accordance with the terms of our amended and restated certificate of incorporation to be filed prior to the completion of this offering, the board of directors will be elected annually. There are no family relationships among any of the directors or executive officers of our company.
Board Compensation
       Except for reimbursement for reasonable travel expenses relating to attendance at board meetings and the grant of stock options, employee directors are not compensated for their services as directors. Directors who are not our employees receive cash compensation for their services as directors at a rate of $90,000 per year ($50,000 of which will be payable through annual grants of nonstatutory stock options under our 2005 Stock Plan). In addition, directors who are not our employees will receive $5,000 per year for duties as committee chair. Directors who are our employees are eligible to participate in our 2005 Stock Option Plan and, beginning in 2005, they will also be eligible to participate in our 2005 Employee Stock Purchase Plan. See “— Benefit Plans.”
Board Committees
Audit Committee

       Presently, our audit committee consists of Messrs. Perez, Formolo and Code. Mr. Perez is an audit committee financial expert and is an independent audit committee member. Our audit committee must have at least one independent member at the time our registration statement becomes effective, as required by the rules governing companies listed on the New York Stock Exchange. The audit committee must have a majority of independent members within 90 days after the effective date of our registration statement and the entire audit committee must consist of independent members within one year after the effective date of our registration statement, one of which must be a financial expert. The audit committee will comply with all of the rules governing companies listed on the New York Stock Exchange.

       Our audit committee is responsible for reviewing the adequacy of our system of internal accounting controls; reviewing the results of the independent accountants’ annual audit, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; reviewing our audited financial statements and discussing the statements with management; reviewing the audit reports submitted by the independent registered public accounting firm; reviewing disclosures by the independent registered public accounting firm concerning relationships with our company and the performance of our independent registered public accounting firm and annually recommending the independent registered public accounting firm; and preparing such reports or statements as may be required by securities laws.
Corporate Governance and Nominating Committee

       Presently, our corporate governance and nominating committee consists of Messrs. Perez, Formolo and Code. Mr. Perez is an independent corporation governance and nominating committee member. Our corporate governance and nominating committee must have at least one independent member at the time our registration statement becomes effective, as required by the rules governing companies listed on the New York Stock Exchange. The corporation governance and nominating committee must have a majority of independent members within 90 days after the effective date of our registration statement and the entire corporate governance and nominating committee must consist of independent members within one year after the effective date of our registration statement. The corporate governance and nominating committee will comply with all of the rules governing companies listed on the New York Stock Exchange.

       The corporate governance and nominating committee, among other things, identifies individuals qualified to become members of the board of directors, selects or recommends to the board of directors the nominees to stand for election as directors and develops and recommends to the board

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of directors a set of corporate governance principles. The corporate governance and nominating committee is governed by a charter that complies with the rules of the New York Stock Exchange.

Compensation Committee

       Presently, our compensation committee consists of Messrs. Perez, Formolo and Code. Mr. Perez is an independent compensation committee member. Our compensation committee must have at least one independent member at the time our registration statement becomes effective, as required by the rules governing companies listed on the New York Stock Exchange. The compensation committee must have a majority of independent members within 90 days after the effective date of our registration statement and the entire compensation committee must consist of independent members within one year after the effective date of our registration statement. The compensation committee will comply with all of the rules governing companies listed on the New York Stock Exchange.

       The compensation committee, among other things, reviews, approves and makes determinations concerning our compensation practices, policies and procedures for the members of senior management. The compensation committee is governed by a charter that complies with the rules of the New York Stock Exchange.

Compensation Committee Interlocks and Insider Participation
       During 2003, our entire board of advisors, consisting of Messrs. Chandramohan, Suriyakumar, Code, Formolo, and George, determined executive compensation. We did not have a compensation committee apart from the board of advisors. During 2003, Mr. Chandramohan served as our Chief Executive Officer and Mr. Suriyakumar served as our President and Chief Operating Officer.

       Messrs. Code and Formolo, both members of our board of directors, are affiliated with CHS Management IV LP. We are party to a management agreement with CHS Management IV LP, pursuant to which CHS Management IV LP has agreed to provide certain consulting services to us. The management agreement will be terminated upon the consummation of this offering.

       Messrs. Chandramohan and Suriyakumar, both members of our board of advisors, are affiliated with Sumo Holdings LA, LLC, Sumo Holdings San Jose, LLC, Sumo Holdings Irvine, LLC, Sumo Holdings Sacramento, LLC, Sumo Holdings Maryland, LLC, and Sumo Holdings Costa Mesa, LLC, each of which are parties to various real property leases with our subsidiaries relating to our facilities.
       For a further description of the transactions between the members of our board of directors, their affiliates and us, see “Certain Relationships and Related Transactions.” 
Executive Compensation
       The compensation paid to our Chief Executive Officer and the only other executive officers who received compensation in excess of $100,000 for services in all capacities to our company and our subsidiaries during 2003 is set forth below. We did not grant any options or membership unit appreciation rights, restricted units or long-term incentive plan, or LTIP, awards to our executive officers during 2003.
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Summary Compensation Table

					
		Annual Compensation			
					
				Other Annual		All Other	
Name and Principal Position		Salary		Bonus		Compensation(1)		Compensation	
									
S. Chandramohan	 	$	600,000	 	 	$	—	 	 	$	52,150	(2)	 	$	288	(3)	
 	Chairman of the Board of Directors and Chief Executive Officer	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
K. Suriyakumar	 	 	600,000	 	 	 	—	 	 	 	65,527	(4)	 	 	288	(3)	
 	President, Chief Operating Officer and Director	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mark W. Legg	 	 	200,000	 	 	 	387,000	 	 	 	—	 	 	 	1,288	(5)	
 	Chief Financial Officer and Secretary	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rahul Roy	 	 	360,000	 	 	 	—	 	 	 	—	 	 	 	2,688	(6)	
 	Chief Technology Officer	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

		
(1) 	Certain personal benefits provided by us to the named executive officers are not included in the above table as permitted by the SEC regulations because the aggregate amount of such personal benefits for each named executive officer in each year reflected in the table did not exceed the lesser of $50,000 or 10% of the sum of such officer’s salary and bonus in each respective year.	
 		
(2) 	Includes $47,770 for automobile lease payments.	
 		
(3) 	Consists of premiums for life insurance.	
 		
(4) 	Consists of automobile lease payments.	
 		
(5) 	Consists of $288 of premiums for life insurance and $1,000 paid by us as the employer match under our 401(k) plan.	
 		
(6) 	Consists of $288 of premiums for life insurance and $2,400 paid by us as the employer match under our 401(k) plan.	
Option Grants During the Year Ended December 31, 2003
       During 2003, no options to purchase any shares of common stock were granted to the named executive officers listed in the above Summary Compensation Table. None of such persons received awards of stock appreciation rights, restricted stock or LTIP awards during 2003.
Aggregated Option Exercises During the Year Ended December 31, 2003 and Value of Options Held at December 31, 2003
       The following table provides summary information concerning the shares of common stock acquired in 2003, the value realized upon exercise of stock options in 2003, and the year end number and value of unexercised options with respect to each of the named executive officers as of December 31, 2003. The value was calculated by determining the difference between the fair market value of underlying securities and the exercise price. The fair market value of our common stock at December 31, 2003 was assumed to be $15.00 per share, the mid-point of the estimated offering price range shown on the front cover of this prospectus.
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Fiscal Year-End Option Values

						Number of			
						Securities			
						Underlying		Value of Unexercised	
						Unexercised		in-the-Money	
						Options at		Options at	
						FY-End(#)		FY-End($)	
		Shares							
		Acquired on		Value		Exercisable/		Exercisable/	
Name		Exercise(#)		Realized($)		Unexercisable		Unexercisable	
									
S. Chandramohan	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
K. Suriyakumar	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Mark W. Legg	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Rahul Roy	 	 	—	 	 	 	—	 	 	 	420,000/280,000	 	 	 	$4,206,966/$2,730,364	 	
       During 2004, we granted Mr. Legg an option to purchase 15,000 shares of our common stock at an exercise price of $5.62 per share, and granted Mr. Roy an option to purchase 100,000 shares of our common stock at an exercise price of $5.85 per share.
Employment Agreements
       We had an agreement with each of Mr. Chandramohan and Mr. Suriyakumar that expired in December 2002. These agreements provided that, at the closing of an acquisition, each would be paid in cash a fee equal to one percent (1%) of the aggregate consideration paid by us in connection with the acquisition (including, without limitation, all interest bearing obligations assumed, the deferred purchase price of property or assets, all non-compete, consulting, employment or lease arrangements and similar forms of consideration). For purposes of these agreements with Messrs. Chandramohan and Suriyakumar, “acquisition” was defined as an acquisition by us of all or substantially all of the outstanding capital stock or of all or substantially all of the assets and business of any person, division or any similar business unit of any person. Since the expiration of these agreements, we have continued to pay Messrs. Chandramohan and Suriyakumar acquisition bonuses in accordance with the agreements. These payments will be discontinued upon the consummation of this offering.
       We have entered into a 2004 Bonus Plan with Mr. Legg that provides for the payment to Mr. Legg of (1) a bonus of up to $300,000 based on the financial results for the twelve months ended December 31, 2004 of three divisions specified in the Bonus Plan (up to $100,000 bonus per division), (2) a bonus of $100,000 for the repayment of no less than $30,700,000 of bank debt by December 31, 2004 (subject to increase for repayments of bank debt above this amount), and (3) a bonus of $100,000 for the achievement of 100% of divisional cash flow divided by divisional earnings before depreciation and amortization for the year ended December 31, 2004 (subject to increases of $25,000 for each percentage point over 100%). Under the Bonus Plan, Mr. Legg is not eligible to receive any of the bonus payments described above if our EBIT margin is equal to or less than 10% for the year ended December 31, 2004. In that situation, our CEO will determine the appropriate bonus based upon his evaluation of Mr. Legg’s performance. In accordance with the 2004 Bonus Plan, $210,000 of the bonus was paid in advance on July 31, 2004, with the balance to be paid on February 15, 2005.
       We have entered into employment agreements with each of the named executive officers that will become effective upon the effectiveness of this registration statement. Each employment agreement provides for a three-year term which automatically renews for additional one-year terms subject to the provisions thereof.
       The employment agreements with Messrs. Chandramohan and Suriyakumar provide for an annual base salary of $650,000. Each of Messrs. Chandramohan and Suriyakumar may also earn an annual bonus equal to $60,000 for each full percentage point by which our earnings per share for
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a fiscal year exceed by more than 10% our earnings per share for the previous year. The employment agreement with Mr. Legg provides for an annual base salary of $250,000. The employment agreement with Mr. Roy provides for an annual base salary of $400,000. Each of Messrs. Legg and Roy may also earn an annual bonus of up to $250,000 and $300,000, respectively, under performance criteria to be established annually. Each of the employment agreements provide for standard employee benefits.

       We may terminate the employment of each executive with or without cause and the executive may terminate his employment with or without good reason, as those terms are defined in the agreements. If we terminate the employment of the executive other than for cause or disability, or the executive terminates his employment for good reason, his medical benefits will continue and he will receive as severance benefits his base salary paid in periodic installments over the remaining term of the agreement, and all stock options or other equity awards will immediately vest. The executive will receive no severance or medical benefits if we terminate his employment for cause or if he terminates his employment for other than good reason.

       The severance payments and benefits described above are only payable if the executive executes and delivers to us an agreement releasing us and our related parties for all claims and liabilities that the executive may have against us and our related parties.

       Each executive has agreed to confidentiality, non-solicitation and non-competition provisions in his respective employment agreement.

Benefit Plans
American Reprographics Holdings, L.L.C. Unit Option Plan II
       On January 1, 2001, Holdings adopted the American Reprographics Holdings, L.L.C. Unit Option Plan II, or Unit Plan, under which selected employees, independent advisors, members of the board of advisors of Holdings (or any subsidiary) or members of the board of directors of any subsidiary may be granted common unit options. The members of Holdings approved the Unit Plan on December 22, 2000. Under the Unit Plan, 1,735,415 shares of Holdings’ plan member common units have been reserved for the grant of options. As of December 31, 2003, options to purchase a total of 1,446,000 plan member common units were outstanding under the Unit Plan. The exercise price of the units is to be determined by the board of advisors, provided, however, that the option price is not to be less than 85% of the fair market value of such unit at the time such option is granted, or, in the case of a person who owns units possessing more than 10% of the total combined voting power of all units of Holdings, 110% of the fair market value of such unit at the time such option is granted. For purposes of the Unit Plan, the term “fair market value” means the fair market value of a unit determined as of any particular date by the board of advisors, on a fully diluted basis assuming the exercise or conversion of all then exercisable options, warrants, and other rights to purchase units and, to the extent that the board of advisors in its discretion determines to be appropriate, the exercise or conversion of such options, warrants, and other rights to purchase units that are not then exercisable or convertible.
       Holdings’ board of advisors is to determine the vesting period of each option at the date of the grant, provided, however, that except for options granted to officers or consultants, or officers, directors or consultants of any of Holdings’ subsidiaries, each option shall become exercisable at no lesser rate than 20% for each full year elapsed after the grant of the option and on or before termination of service as an employee until fully exercisable. Upon termination of employment, Holdings and an affiliate of Holdings, ARC Acquisition Co., L.L.C., have the right to redeem the options. On July 1, 2003, Holdings amended the Unit Plan to extend the exercise period and vesting period for certain optionholders, provided (a) the optionholder had been employed by Holdings or any of its subsidiaries for a period of at least 10 years, (b) the optionholder was at least 55 years old on the date of termination, and (c) the optionholder’s service with Holdings and any of its subsidiaries terminated because of his or her retirement or any other voluntary reason other than his
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or her death or permanent disability. If an optionholder satisfies the aforementioned criteria, Holdings may elect to treat the portion of the option that was exercisable on the date of such termination of employment as exercisable by the optionholder until such time that he or she chose to “compete” (as defined in the Unit Plan) with Holdings or any of its subsidiaries. In addition, as long as the optionholder did not compete with Holdings or any of its subsidiaries, the option would continue to vest according to the Unit Plan and the applicable option agreement.
       Upon completion of this offering, members of Holdings will exchange their outstanding options granted under the Unit Plan for options under our 2005 Stock Plan exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option and all outstanding options under the Unit Plan will be canceled. The Unit Plan will be terminated prior to the completion of this offering, and no additional options will be granted under the Unit Plan. 
2005 Stock Plan
       We will adopt the American Reprographics Company 2005 Stock Plan, and obtain stockholder approval of the plan, prior to the completion of this offering. Upon our reorganization, all outstanding options under our Unit Option Plan will be canceled in exchange for an option under our 2005 Stock Plan exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option. The 2005 Stock Plan will be administered by our compensation committee.
       Type of Awards. The 2005 Stock Plan provides for the discretionary grant after the consummation of this offering of incentive stock options (within the provisions of Section 422 of the Internal Revenue Code) to employees, including officers and employee directors, and for the discretionary grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards to employees, directors and consultants. No person may be granted options or stock appreciation rights under the 2005 Stock Plan covering more than 500,000 shares of common stock in any calendar year.
       Reservation of Shares. The total shares of common stock currently reserved and authorized for issuance under the 2005 Stock Plan equals 5,000,000 shares of common stock. This authorization shall automatically increase annually on the first day of our fiscal year, from 2006 through and including 2010, by the lesser of (i) 1.0% of the outstanding shares on the date of the increase; (ii) 300,000 shares; or (iii) such smaller number of shares determined by our board of directors. The board may elect to increase, with stockholder approval, or reduce the number of additional shares authorized in any given year. In the event of a stock split or other alteration in our capital structure, appropriate adjustments will be made to the authorized shares and outstanding awards to prevent dilution or enlargement of participants’ rights.
       Administration. Our compensation committee, which generally administers the 2005 Stock Plan, has the authority to determine the terms of the options, restricted stock, and restricted stock units, or stock appreciation rights granted, including the exercise price of the option or purchase price for a restricted stock grant or restricted stock unit; the number of shares subject to each option or restricted stock grant or the number of restricted stock units or stock appreciation rights; the vesting and exercise forms of each award; and the form of consideration payable upon the exercise of each option or stock purchase right.
       Nonassignability. Generally, options, restricted stock or other awards granted under our 2005 Stock Plan are not transferable by the participant, and each option is exercisable during the lifetime of the participant and only by such participant.
       Stock Options. The exercise price of nonstatutory stock options and stock purchase rights granted under the 2005 Stock Plan is determined by the compensation committee. With respect to nonstatutory stock options, the exercise price must be at least equal to the fair market value of our
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common stock on the date of grant. Generally, the exercise price of all incentive stock options must be at least equal to the fair market value of the common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted must at least equal 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 2005 Stock Plan may not exceed 10 years. Options granted under the 2005 Stock Plan vest at the rate specified in the option agreement. Unless the terms of an optionholder’s stock option agreement provide for earlier or later termination, if an optionholder’s service with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up to 12 months, or 18 months in the event of death, after the date such service ends. If an optionholder’s service with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options up to three months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination. If an optionholder’s service with us, or any affiliate of ours, ceases with cause, the option will terminate at the time such service ceases. In no event may an option be exercised after its expiration date.
       Restricted Stock Awards. Restricted stock awards granted under the 2005 Stock Plan may be either in the form of a restricted stock purchase right, giving the participant a right to immediately purchase common stock, or in the form of a restricted stock award, for which the participant will be required to furnish consideration in the form of services to us (in consideration for past services to us). The purchase price shall be determined by the committee and may be less than the current fair market value of the common stock. Restricted stock awards may be subject to vesting conditions based upon such services to be rendered as specified by the committee, and the shares acquired may not be transferred by the participant until vested. If a restricted stock award recipient’s service with us, or any affiliate of ours, terminates, we may reacquire all of the shares of our common stock issued to the recipient pursuant to a restricted stock award which have not vested as of the date of termination. Participants holding restricted stock will be permitted to vote the shares and receive any dividends paid in cash.
       Restricted Stock Units. Restricted stock units granted under the 2005 Stock Plan represent a right to receive payment for units in the form or cash or shares of our common stock at a future date determined in accordance with the participant’s award agreement. The consideration for a restricted stock unit award may be payable in any form permitted under applicable laws. Restricted stock unit awards shall be granted subject to vesting conditions as determined by the compensation committee. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the compensation committee may grant restricted stock units that entitle their holders to receive dividend equivalents, which are rights to receive additional restricted stock units for a number of shares whose value is equal to any cash dividends we pay. If a restricted stock unit award recipient’s service with us, or any affiliate of ours, terminates, any unvested portion of the restricted stock unit award is forfeited upon the recipient’s termination of service.
       Stock Appreciation Rights. A stock appreciation right provides a participant the right to receive the appreciation in the fair market value of our common stock between the date of grant of the award and the date of its exercise. The appreciation is payable in shares of our common stock. Stock appreciation rights vest and become exercisable at the times and on the terms established by the compensation committee. The maximum term of any stock appreciation right is 10 years. If a stock appreciation right recipient’s service with us, or any affiliate of ours, ceases for any reason, the recipient may exercise any vested stock appreciation right up to three months from cessation of service, unless the terms of the stock appreciation right agreement provide for earlier or later termination.
       Non-Employee Director Awards. Commencing with our first annual meeting of stockholders (on or after the effective date of this offering), each non-employee director automatically will receive
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a nonstatutory stock option with a fair market value, as determined under the Black-Scholes option pricing formula, equal to $50,000 (or 55.56%) of such non-employee director’s annual cash compensation (exclusive of committee fees). Each nonstatutory stock option will cover his or her service since either the previous annual meeting or the date on which he or she was first elected or appointed.
       Corporate Transactions and Change in Control. In the event of certain corporate transactions, the surviving entity may assume all stock-based awards outstanding under the 2005 Stock Plan or substitute substantially equivalent awards. If the surviving entity elects not to assume or substitute for all such awards, then with respect to stock-based awards held by persons providing us or any of our affiliates service, the vesting (and, if applicable, the time during which the award may be exercised) will be accelerated in full. Stock awards will terminate if not exercised (if applicable) before the effective time of the corporate transaction. In addition, the relevant award agreement may accelerate the vesting and settlement of any award upon a change in control.
       Amendment and Termination. The 2005 Stock Plan will continue in effect until the tenth anniversary of its approval by the board of directors or our stockholders, whichever is earlier, unless earlier terminated by the board of directors. The board of directors may amend, suspend or terminate the 2005 Stock Plan at any time, provided that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options or effect any other change that would require stockholder approval under any applicable law or listing rule. Amendment, suspension or termination of the 2005 Stock Plan may not adversely affect any outstanding award without the consent of the participant, unless such amendment, suspension or termination is necessary to comply with applicable laws, regulations or rules.
2005 Employee Stock Purchase Plan
       We will adopt the American Reprographics Company 2005 Employee Stock Purchase Plan, or ESPP, and obtain stockholder approval of the plan, prior to the completion of this offering.
       Purpose. The purpose of the ESPP is to advance our interests and the interests of our stockholders by providing an incentive to attract, retain and reward eligible employees. It is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.
       Shares Subject to Purchase Plan. A total of 750,000 shares of our common stock are initially authorized and reserved for sale under the ESPP. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure.
       Administration. Our board of directors or a committee of the board will serve as administrator of the ESPP. The administrator has the authority to construe and interpret the terms of the ESPP and the purchase rights granted under it, to determine eligibility to participate, and to establish policies and procedures for administration of the plan.
       Eligibility. Our employees and employees of any parent corporation designated by the administrator are eligible to participate in the ESPP if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted a right to purchase stock under the ESPP if: (1) the employee immediately after grant would own stock possessing 5 percent or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (2) the employee’s rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans.
       Offerings. The ESPP is implemented by offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with a duration of not more than 27 months, and may
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specify shorter purchase periods within each offering. A new offering will automatically begin on March 1 and September 1 of each year, will generally be 24 months in duration and will consist of four six-month purchase periods, except that the first offering will commence on the effective date of the ESPP and will end on August 31, 2005. The administrator is authorized to establish additional or alternative sequential or overlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have a duration exceeding 27 months.
       Participation. Eligible employees who enroll in the ESPP may elect to have up to 15 percent of their eligible compensation withheld and accumulated for the purchase of shares at the end of each purchase period in each offering in which they participate. However, all eligible employees will be automatically enrolled in the ESPP’s initial offering period and may only purchase shares by delivering an exercise notice and payment of the applicable purchase price prior to the initial purchase date, provided that participants may elect to begin payroll deductions under the ESPP after the effective date of a Form S-8 registration statement registering the shares reserved for issuance under the ESPP. Participants may voluntarily withdraw from the ESPP at any time during an offering period and receive a refund, without interest, of all amount withheld from compensation not previously applied to purchase shares. Participation ends automatically upon termination of employment.
       Purchase of Shares. Amounts accumulated for each participant are used to purchase shares of our common stock at the end of each purchase period at a price generally equal to 85 percent of the lower of the fair market value of our common stock at the beginning of an offering period or at the end of the corresponding purchase period. Prior to commencement of an offering period, the administrator is authorized to reduce, but not increase, this purchase price discount for that offering period, or, under the circumstances described in the ESPP, during that offering period; provided that such purchase price discount complies with the applicable provisions of Section 423 of the Internal Revenue Code. The maximum number of shares a participant may purchase in any calendar year is the lesser of 400 shares or a number of shares having a fair market value of $10,000 (determined on the date of purchase). Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If an insufficient number of shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants’ compensation in excess of the amounts used to purchase shares will be refunded, without interest, or held in the participant’s account for the purchase of shares under the next offering period.
       Corporate Transactions. In the event of certain corporate transactions, an acquiring or successor corporation may assume our rights and obligations under the ESPP. If the acquiring or successor corporation does not assume such rights and obligations or does not substitute them with similar rights and obligations, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the effective time of the corporate transaction.
       Nonassignability. Rights granted under the ESPP are not transferable by a participant other than by will or the laws of descent and distribution. However, a participant may designate a beneficiary who is to receive any cash and/or shares from the participant’s account in the event the participant’s death.
       Amendment and Termination. The ESPP will continue in effect until terminated by the administrator. The administrator may amend, suspend or terminate the ESPP at any time, provided that unless stockholder approval is obtained within 12 months of such amendment, the plan cannot be amended to increase the number of shares authorized or change the definition of the corporations that may be designated by the administrator for participation in the plan. Amendment,
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suspension or termination of the ESPP may not adversely affect any purchase rights previously granted without the consent of the participant, unless such amendment, suspension or termination is necessary to qualify the plan under Section 423 of the Internal Revenue Code or to comply with applicable law, or is effected after a determination by the administrator that continuation of the plan or an offering period would result in unfavorable accounting consequences to us as a result of a change, after the plan’s effective date, in the generally accepted accounting principles applicable to the ESPP.
401(k) Plan
       Holdings sponsors a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code covering substantially all employees who are at least 21 years of age. Plan participants may contribute up to 75% of their annual eligible compensation, subject to contribution limitations imposed by the Internal Revenue Service. Holdings matches up to 20% of a participant’s contributions up to a maximum of 4% of their eligible annual compensation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
       Certain of our directors, executive officers, 5% beneficial owners and their affiliates have engaged in transactions with us in the ordinary course of business. We believe these transactions involved terms comparable to terms that would be obtained from an unaffiliated third party at the times the transactions were consummated. The following is a description of these transactions:
Related Party Leases and Purchases
       We are party to certain leases with entities owned by Mr. Chandramohan and Mr. Suriyakumar for our facilities located in Los Angeles, California, San Jose, California, Irvine, California, Sacramento, California, Oakland, California, Gaithersburg, Maryland, and Costa Mesa, California. Under these leases, we paid these entities rent in the aggregate amount of approximately $1,036,356 in 2001, $1,092,600 in 2002, $1,092,600 in 2003, and $1,119,785 for the nine months ended September 30, 2004. We are also obligated to reimburse these entities for certain real property taxes and assessments. These leases expire between January 2006 and December 2013.

       We sell certain products and services to Thomas Reprographics, Inc. and Albinson Inc., each of which is owned or controlled by Billy E. Thomas, who beneficially owns more than 5% of our common equity. These companies purchased products and services from us of approximately $215,000 and $95,000 during the twelve months ended December 31, 2002 and 2003, respectively, and $45,000 during the nine months ended September 30, 2004.

Management Agreement

       We are party to a management agreement with CHS Management IV LP, a Delaware limited partnership. Messrs. Code and Formolo, both members of our board of directors, have a direct beneficial ownership in CHS Management IV LP Under the management agreement, we paid CHS Management IV LP a management fee of $803,000 in 2001, $889,000 in 2002 and $858,000 in 2003, and we anticipate paying CHS Management IV LP a management fee of $858,000 in 2004. The annual management fee is subject to an annual increase based on our financial results but shall not exceed $1,000,000 annually. This management fee is in consideration of CHS Management IV LP providing ongoing consulting and management advisory services to us. Our board of directors may terminate the management agreement if it determines in good faith that CHS Management IV LP has materially failed to diligently provide such management services. This management agreement will be terminated upon the completion of this offering.

Indemnification Agreements
       We will enter into indemnification agreements with each director which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require us, among other things, to indemnify our officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms.
Registration Rights Agreement

       We have entered into a registration rights agreement with certain holders of our common stock and holders of warrants to purchase our common stock, including entities affiliated with certain of our executive officers and directors. After this offering, the holders of 22,745,283 shares of common stock are entitled to certain rights with respect to the registration of such shares under the Securities Act. For more detailed information regarding these registration rights, please see “Description of Capital Stock — Registration Rights Agreement.”

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Investor Unitholders Agreement
       Holdings entered into an Investor Unitholders Agreement with ARC Acquisition Co., L.L.C. and certain other parties that hold warrants to purchase Holdings common units. Under this agreement, subject to certain exceptions, (i) Holdings has a right of first refusal in connection with a transfer of units acquired by the warrant holders, (ii) the warrant holders have a right to participate in transfers of units by ARC Acquisition Co., L.L.C., (iii) ARC Acquisition Co., L.L.C. has limited preemptive rights in connection with an issuance of units by Holdings to the warrant holders and the warrant holders have limited preemptive rights in connection with an issuance of units by Holdings to ARC Acquisition Co., L.L.C., (iv) the warrant holders have the right to receive certain financial information from Holdings, and (v) the warrant holders have certain property inspection rights. The Investor Unitholders Agreement will be terminated upon the consummation of this offering.
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PRINCIPAL AND SELLING STOCKHOLDERS

       The following table sets forth information, as of December 31, 2004, regarding the beneficial ownership of our common stock: (1) immediately prior to the consummation of the offering, but after giving effect to our reorganization; and (2) as adjusted to reflect the sale of the shares of common stock in this offering, by:

		
• 	each of our directors and named executive officers;	
 		
• 	all directors and named executive officers as a group;	
 		
• 	each person who is known to us to own beneficially more than 5% of our common stock; and	
 		
• 	each of the selling stockholders.	

       The table includes all shares of common stock issuable within 60 days of December 31, 2004 upon the exercise of options and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated in the footnotes to this table, the persons named in the table have sole voting and sole investment control regarding all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 35,510,011 shares of common stock outstanding as of December 31, 2004 and 809,618 shares of common stock issuable upon the exchange of certain warrants, together with applicable options for that stockholder. Shares of common stock issuable upon exercise of options and other rights beneficially owned were deemed outstanding for the purpose of computing the percentage ownership of the person holding these options and other rights, but are not deemed outstanding for computing the percentage ownership of any other person.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
		Shares Beneficially				Shares Beneficially	
		Owned				Owned	
		Prior to Offering				After Offering***	
				Number of			
Name and Address*		Number		Percent		Shares Offered(1)		Number		Percent	
											
Principal Stockholders:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ARC Acquisition Co., L.L.C.(2)	 	 	17,334,221	 	 	 	47.7	%	 	 	4,688,234	 	 	 	12,645,987	 	 	 	28.8	%	
 	10 S. Wacker Drive, Suite 3175	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Chicago, IL 90606	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Micro Device, Inc. 	 	 	7,064,964	 	 	 	19.5	%	 	 	434,522	 	 	 	6,630,442	 	 	 	15.1	%	
 	
Billy E. Thomas(3)(4)	 	 	5,075,964	 	 	 	14.0	%	 	 	312,488	 	 	 	4,763,476	 	 	 	10.8	%	
 	600 North Central Expressway	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Richardson, TX 75080	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
OCB Reprographics, Inc. 	 	 	4,616,631	 	 	 	12.7	%	 	 	283,749	 	 	 	4,332,882	 	 	 	9.9	%	
 	17721 Mitchell North	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Irvine, CA 92714	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Directors and Named Executive Officers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Andrew W. Code(5)	 	 	17,362,686	 	 	 	47.8	%	 	 	4,695,933	 	 	 	12,666,753	 	 	 	28.8	%	
 	
Thomas J. Formolo(5)	 	 	17,362,686	 	 	 	47.8	%	 	 	4,695,933	 	 	 	12,666,753	 	 	 	28.8	%	
 	
Sathiyamurthy Chandramohan(3)(4)(6)(7)(8)	 	 	14,810,502	 	 	 	40.8	%	 	 	911,367	 	 	 	13,899,135	 	 	 	31.6	%	
 	
Kumarakulasingam Suriyakumar(3)(4)(6)(7)(8)(9)	 	 	14,777,145	 	 	 	40.7	%	 	 	909,350	 	 	 	13,867,795	 	 	 	31.5	%	
 	1981 N. Broadway, Suite 202	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Walnut Creek, CA 94596	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Rahul K. Roy(10)	 	 	897,500	 	 	 	2.4	%	 	 	3,943	 	 	 	893,557	 	 	 	2.0	%	
 	
Mark W. Legg(11)	 	 	350,001	 	 	 	**	 	 	 	9,319	 	 	 	340,682	 	 	 	**	 	

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		Shares Beneficially				Shares Beneficially	
		Owned				Owned	
		Prior to Offering				After Offering***	
				Number of			
Name and Address*		Number		Percent		Shares Offered(1)		Number		Percent	

Manuel Perez de la Mesa(12)	 	 	45,500	 	 	 	**	 	 	 	0	 	 	 	45,500	 	 	 	**	 	
 	
Edward D. Horowitz	 	 	0	 	 	 	0	%	 	 	0	 	 	 	0	 	 	 	0	%	
 	
All directors and executive officers as a group (eight persons)	 	 	33,588,331	 	 	 	90.4	%	 	 	5,628,091	 	 	 	27,960,240	 	 	 	62.4	%	
 	
Other Selling Stockholders:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Brownies Blueprint, Inc.	 	 	1,656,051	 	 	 	4.6	%	 	 	102,069	 	 	 	1,553,982	 	 	 	3.5	%	
 	
Dietrich-Post Company	 	 	858,024	 	 	 	2.4	%	 	 	52,742	 	 	 	805,282	 	 	 	1.8	%	
 	
Color Expressions of California, Inc.	 	 	459,333	 	 	 	1.3	%	 	 	28,739	 	 	 	430,594	 	 	 	**	 	
 	
Ted Carlson	 	 	300,000	 	 	 	**	 	 	 	11,828	 	 	 	288,172	 	 	 	**	 	
 	
Steve Gilmore	 	 	300,000	 	 	 	**	 	 	 	11,828	 	 	 	288,172	 	 	 	**	 	
 	
Patrick Duggan	 	 	225,000	 	 	 	**	 	 	 	8,961	 	 	 	216,039	 	 	 	**	 	
 	
Richard Nelson	 	 	75,000	 	 	 	**	 	 	 	3,226	 	 	 	71,774	 	 	 	**	 	
 	
Ken Gini(13)	 	 	41,001	 	 	 	**	 	 	 	1,434	 	 	 	39,567	 	 	 	**	 	
 	
Jack Anderson	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Janine Brandel	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
John Coats	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Johann De Abeyesinhe	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
David Dodge(14)	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Trevor Fernando	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Dan Hagan	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Doug McCrae	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Monita Sarthou	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Virgilio Sim	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Noel Van Langenberg	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
Laurie Williams	 	 	35,001	 	 	 	**	 	 	 	1,434	 	 	 	33,567	 	 	 	**	 	
 	
CHS Associates IV	 	 	28,465	 	 	 	**	 	 	 	7,699	 	 	 	20,766	 	 	 	**	 	
 	
Karl Winkelman	 	 	9,000	 	 	 	**	 	 	 	359	 	 	 	8,641	 	 	 	**	 	
 	
Paige Walsh	 	 	1,473	 	 	 	**	 	 	 	398	 	 	 	1,075	 	 	 	**	 	

			
 	*	Except as otherwise noted, the address of each person listed in the table is c/o American Reprographics Company, 700 North Central Avenue, Suite 550, Glendale, California 91203.	

			
 	**	Less than one percent of the outstanding shares of common stock.	

			
 	*** 	Assumes underwriters have not exercised their option to purchase additional shares.	
 		
 	(1) 	If the underwriters’ overallotment option is exercised in full, the additional shares sold would be allocated among the selling stockholders as follows:	

					
				Shares Beneficially	
				Owned Assuming	
				Exercise of	
		Shares Beneficially		Overallotment	
		Owned Subject to		Option	
		Overallotment			
Selling Stockholders		Option		Number		Percent	
							
ARC Acquisition Co., L.L.C. 	 	 	1,999,047	 	 	 	10,646,940	 	 	 	24.2	%	
Andrew W. Code(5)	 	 	2,002,330	 	 	 	10,664,423	 	 	 	24.2	%	
Thomas J. Formolo(5)	 	 	2,002,330	 	 	 	10,664,423	 	 	 	24.2	%	
CHS Associates IV	 	 	3,283	 	 	 	17,483	 	 	 	**	 	
Paige Walsh	 	 	170	 	 	 	905	 	 	 	**	 	

			
 		If the underwriters’ overallotment option is exercised in part, the additional shares sold would be allocated pro rata based upon the share amounts set forth in the preceding table.	
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 	(2) 	The sole member of ARC Acquisition Co., L.L.C. is Code Hennessey & Simmons IV LP. The general partner of Code Hennessy & Simmons IV LP is CHS Management IV LP. The general partner of CHS Management IV LP is Code Hennessy & Simmons LLC. Code Hennessy & Simmons LLC, CHS Management IV LP and Code Hennessy & Simmons IV LP may be deemed to beneficially own these shares, but disclaim beneficial ownership of shares in which they do not have a pecuniary interest. The investment committee of Code Hennessy & Simmons LLC is composed of Andrew W. Code, Daniel J. Hennessy, Brian P. Simmons, Thomas J. Formolo, Jon S. Vesely and Peter M. Gotsch. Messrs. Code, Hennessy, Simmons, Formolo, Vesely and Gotsch may be deemed to beneficially own these shares due to the fact that they share investment and voting control over shares held by ARC Acquisition Co., L.L.C., but disclaim beneficial ownership of shares in which they do not have a pecuniary interest.	

 	(3) 	Includes 4,616,631 shares held by OCB Reprographics, Inc. As Messrs. Chandramohan, Suriyakumar and Thomas have ownership interests of 22.4%, 17.6% and 40%, respectively, in OCB Reprographics, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(4) 	Includes 459,333 shares held by Color Expressions of California, Inc. As Messrs. Chandramohan, Suriyakumar and Thomas have ownership interests of 24.8%, 19.5% and 26.7%, respectively, in Color Expressions of California, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and, Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	

 	(5) 	Includes 17,334,221 shares held by ARC Acquisition Co., L.L.C. and 28,465 shares held by CHS Associates IV. Andrew W. Code and Thomas J. Formolo are members of the investment committee of Code Hennessy & Simmons LLC, the general partner of CHS Management IV LP, which in turn is the general partner of Code Hennessy & Simmons IV LP, which is the sole member of ARC Acquisition Co., L.L.C. Code Hennessy & Simmons LLC is also the general partner of CHS Associates IV. Messrs. Code and Formolo may be deemed to beneficially own the shares owned by ARC Acquisition Co., L.L.C. and CHS Associates IV, but disclaim beneficial ownership of shares in which they do not have a pecuniary interest.	

 	(6) 	Includes 7,064,964 shares held by Micro-Device, Inc. As Messrs. Chandramohan and Suriyakumar have ownership interests of 56% and 44%, respectively, in Micro-Device, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(7) 	Includes 1,656,051 shares held by Brownies Blueprint, Inc. As Messrs. Chandramohan and Suriyakumar have ownership interests of 42% and 33%, respectively, in Brownies Blueprint, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(8) 	Includes 858,024 shares held by Dietrich-Post Company. As Messrs. Chandramohan and Suriyakumar have ownership interests of 47.6% and 37.4%, respectively, in Dietrich-Post Company and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(9) 	Includes 122,142 shares held by the Suriyakumar Family Trust. Mr. Suriyakumar and his spouse, as trustees of the Suriyakumar Family Trust, share voting and investment power over these shares.	

		
		
(10) 	Includes 800,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of December 31, 2004.	

		
(11) 	Includes 15,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of December 31, 2004. Shares held by the Legg Family Trust. Mr. Legg and his spouse, as trustees of the Legg Family Trust, share voting and investment power over these shares.	

		
(12) 	Includes 25,500 shares issuable upon exercise of outstanding stock options exercisable within 60 days of December 31, 2004. Includes 6,000 shares held by Mr. Perez’s children.	

		
(13) 	Includes 6,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of December 31, 2004.	

(14) 	Shares held by David N. Dodge and Linda P. Dodge, as trustees of the David and Linda Dodge Family Trust u/a/d March 12, 2004. Mr. Dodge has sole voting and investment control over these shares.	
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DESCRIPTION OF CAPITAL STOCK
       Our authorized capital stock consists of 150 million shares of common stock, $.001 par value per share, and 25 million shares of undesignated preferred stock, $.001 par value per share. Immediately following the consummation of this offering 43,986,296 of the authorized shares of common stock will be issued and outstanding, including 22,500 shares issued pursuant to option exercises subsequent to September 30, 2004, and no shares of our preferred stock will be outstanding.
Common Stock
       The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available for that purpose. See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of any outstanding preferred stock. The common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of common stock (after giving effect to our reorganization) are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable.
Preferred Stock
       Upon the closing of this offering, the board of directors will have the authority, without further action by the stockholders, to issue up to 25 million shares of preferred stock, $.001 par value, in one or more series. The board of directors will also have the authority to designate the rights, preferences, privileges, and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences, and the number of shares constituting any series.
       The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of common stock. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock. As of the closing of the offering, no shares of preferred stock will be outstanding and we currently have no plans to issue any shares of preferred stock.
Registration Rights Agreement
       After this offering, the holders of 22,745,283 shares of common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in a registration rights agreement and are described below.
       Demand Registrations. At any time following six months after the closing of this offering, the holders of a majority of the registrable securities held by ARC Acquisition Co., L.L.C. and the holders of a majority of the registrable securities held by Messrs. Chandramohan and Suriyakumar (or entities in which they control a majority of the voting shares) shall each be entitled (as a group) to request up to two registrations on Form S-1 or similar long-form registration statements, respectively, and two short-form registrations on Form S-2, S-3 or any similar short-form registration statements, respectively. The holders of a majority of all other registrable securities under this agreement are entitled to request one short-form registration.
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       Piggyback Rights. The holders of registrable securities other than those originally requesting registration pursuant to a demand registration can request to participate in, or “piggyback” on, any demand registration.
       Piggyback Registrations. If we propose to register any of our equity securities under the Securities Act (other than pursuant to a demand registration of registrable securities or a registration on Form S-4 or Form S-8) for us or for holders of securities other than the registrable securities, we will offer the holders of registrable securities the opportunity to register their registrable securities.
       Conditions and Limitations; Expenses. The registration rights are subject to conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration and our right to delay or withdraw a registration statement under specified circumstances. We will pay the registration expenses of the holders of registrable securities in demand registrations and piggyback registrations in connection with the registration rights agreement.
Warrants
       At September 30, 2004, after giving effect to our reorganization as a Delaware corporation, we had outstanding warrants to purchase 1,168,842 shares of our common stock at an exercise price of $4.61 per share. The warrants expire on April 10, 2010. In connection with our reorganization, the warrants will be exchanged for 809,618 shares of our common stock (assuming an initial public offering price of $15.00 per share).
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
       Provisions of Delaware law and our charter documents could make the acquisition of our company and the removal of incumbent officers and directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to negotiate with it first. We believe that the benefits of increased protection of its potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
       Section 203. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date that the person became an interested stockholder unless, subject to exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders.
       Special Stockholder Meetings. Our amended and restated certificate of incorporation will provide that special meetings of the stockholders for any purpose or purposes, unless required by law, may only be called by the board of directors, the chairman of the board, if any, the chief executive officer or the president. This limitation on the ability to call a special meeting could make it more difficult for stockholders to initiate actions that are opposed by the board. These actions could include the removal of an incumbent director or the election of a stockholder nominee as a director. They could also include the implementation of a rule requiring stockholder ratification of specific defensive strategies that have been adopted by the board with respect to unsolicited takeover bids. In addition, the limited ability to call a special meeting of stockholders may make it more difficult to change the existing board and management.
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       Board of Directors. Subject to the rights of the holders of any outstanding series of preferred stock, our amended and restated certificate of incorporation will authorize only the board of directors to fill vacancies, including newly created directorships. Our amended and restated certificate of incorporation will also provide that directors may be removed by stockholders only by affirmative vote of holders of two-thirds of the outstanding shares of voting stock.
       Supermajority Vote to Amend Charter and Bylaws. Our amended and restated certificate of incorporation and amended and restated bylaws each will provide that our bylaws may be amended by our stockholders only with a two-thirds vote of the outstanding shares. In addition, our amended and restated certificate of incorporation will provide that its provisions related to, among other things, limitation of director liability and indemnification may only be amended by a two-thirds vote of the outstanding shares.
       No Stockholder Action by Written Consent. Our amended and restated certificate of incorporation will provide that stockholder action can be taken only at an annual or special meeting of stockholders and may not be taken by written consent. The amended and restated bylaws will provide that special meetings of stockholders can be called only by the board of directors, the chairman of the board, if any, the chief executive officer and the president. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by the board of directors, the chairman of the board, if any, and the President.
       Advance Notice Procedures. Our amended and restated bylaws will provide for an advance notice procedure for the nomination, other than by or at the direction of our board of directors, of candidates for election as directors as well as for other stockholder proposals to be considered at annual meetings of stockholders.
Indemnification Provisions
       Our amended and restated certificate of incorporation will limit the liability of directors to the maximum extent permitted by Delaware law. Delaware law expressly permits a corporation to provide that its directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:

		
• 	any breach of their duty of loyalty to the corporation or its stockholders;	
 		
• 	acts or omissions that are not in good faith or that involve intentional misconduct or a knowing violation of law;	
 		
• 	unlawful payments of dividends or unlawful stock repurchases or redemptions; or	
 		
• 	any transaction from which the director derived an improper personal benefit.	
       These express limitations do not apply to liabilities arising under the federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission.
       The provisions of Delaware law that relate to indemnification expressly state that the rights provided by the statute are not exclusive and are in addition to any rights provided in a certificate of incorporation, bylaws, agreement or otherwise. Our amended and restated certificate of incorporation will provide that we will indemnify our directors and officers, to the maximum extent permitted by law and that we may indemnify other employees and agents. Our amended and restated bylaws will also permit us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of actions in his or her capacity as an officer, director, employee or agent. Prior to the completion of this offering, we will obtain an insurance policy that insures our directors and officers against losses, above a deductible amount, from specified types of claims. We believe that these provisions and policies will help us attract and retain qualified persons.
       The limited liability and indemnification provisions in our amended and restated certificate of incorporation, amended and restated bylaws and any related indemnification agreements may
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discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder’s investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions.
       At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
       Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, employees, and agents under our restated certificate of incorporation or any related indemnification agreements we have been advised that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 
Transfer Agent and Registrar
       The transfer agent and registrar for our common stock is Mellon Investor Services LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
       No public market for our common stock existed before this offering. Future sales of substantial amounts of our common stock in the public market could cause the prevailing market price for our common stock to decline. A large number of our outstanding shares of common stock will not be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below. Sales of substantial amounts of our common stock in the public market after these restrictions lapse, and the potential for such sales, could depress the prevailing market price of our common stock and limit our ability to raise equity capital in the future.
       Upon completion of this offering, we will have outstanding an aggregate of 43,963,796 shares of common stock, excluding 22,500 shares issued pursuant to option exercises subsequent to September 30, 2004. All of the shares sold in this offering, other than those sold to our affiliates, will be freely tradable without restriction or further registration under the Securities Act. The remaining 30,636,296 shares of common stock held by existing stockholders, as of September 30, 2004, are restricted securities. Subject to the restrictions on transfer contained in the lock-up agreements described in “Underwriting,” restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act.
Lock-Up Agreements
       Our executive officers, directors, the selling stockholders and holders of substantially all other shares of our common stock have agreed not to dispose of or hedge, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, until 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
Rule 144
       In general, under Rule 144 of the Securities Act, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

		
• 	1% of the shares of common stock then outstanding, which will equal approximately          shares immediately after this offering; or	
 		
• 	the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.	
       We believe that holders of common stock issued to them in exchange for units of our predecessor’s common equity prior to our recapitalization in contemplation of this offering should generally be able to count the period of time during which they held such predecessor common equity for purposes of determining the length of time they have held our common stock for purposes of Rule 144. Sales under Rule 144 must comply with manner of sale provisions and post-sale notice requirements, and may only occur if information about us is publicly available.
Rule 144(k)
       Under Rule 144(k) of the Securities Act, a person who has not been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, shares eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering.
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       Substantially all of the shares of our common stock outstanding prior to this offering are held by CHS affiliates or other individuals who are our affiliates, and although many of such shares have been held for at least two years, such shares cannot be sold by any such holder pursuant to Rule 144(k) until 90 days after such holder ceases to be an affiliate.
Rule 701
       Rule 701 permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Rule 701 provides that affiliates may, under Rule 144, sell their Rule 701 shares 90 days after effectiveness of this registration statement without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 90 days after effectiveness of this registration statement without complying with the holding period, public information, volume limitation or notice requirements of Rule 144.
Registration Rights
       After this offering, the holders of 22,745,283 shares of our common stock, assuming the exchange of outstanding warrants for registrable securities, may demand that we register their shares under the Securities Act or, if we file another registration statement under the Securities Act, may elect to include their shares in such registration. If these shares are registered, they will be freely tradeable without restriction under the Securities Act. For more detailed information regarding these registration rights, please see “Description of Capital Stock — Registration Rights Agreement.”
Stock Options
       Upon the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering approximately 5.8 million shares of our common stock, including shares issuable under our stock plans. The registration statement will become effective upon filing. Accordingly, shares of our common stock registered under the registration statement on Form S-8 will be available for sale in the open market immediately thereafter, after complying with Rule 144 volume limitations applicable to affiliates and with lock-up restrictions.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Senior Secured Credit Facilities
       We have two senior secured credit facilities, a $130 million senior first priority secured facility, or first priority facility, and a $225 million senior second priority secured facility, or second priority facility, each pursuant to a credit and guaranty agreement dated as of December 18, 2003 between Opco, Holdings, the domestic subsidiaries of Holdings and a syndicate of financial institutions, including Goldman Sachs Credit Partners L.P. Our first priority facility consists of a $100 million senior first priority secured term loan facility, or term facility, and a $30 million senior first priority secured revolving credit facility, or revolving facility. Our second priority facility consists of a $225 million senior second priority secured term loan facility.
       The proceeds of the term facility and a portion of the revolving facility, together with substantially all of the proceeds of the second priority facility, were used to refinance our then existing debt. Amounts remaining available under the revolving facility may be used by us for working capital, certain permitted acquisitions and general corporate purposes.
Maturity
       The term facility matures in June 2009, the revolving facility matures in December 2008 and the second priority facility matures in December 2009.
Guarantees and Security
       Opco’s obligations under each of the credit facilities are guaranteed by Holdings and each of its domestic subsidiaries.

       In addition, subject to limited exceptions, the first priority facility is secured by first priority security interests in all of Opco’s assets and the assets of Holdings and its domestic subsidiaries and 65% of the assets of its foreign subsidiaries. Such pledged assets include the stock of their respective subsidiaries. The second priority facility is secured by second priority security interests in the assets securing the first priority facility. The priority of the security interests and related creditor rights between the first priority facility and the second priority facility are subject to an intercreditor agreement.

Interest and Fees
       Loans made under the credit facilities bear interest at a floating rate and may be maintained as index rate loans or as LIBOR rate loans. Index rate loans bear interest at the index rate plus the applicable index rate margin. The index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by The Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks, and (2) the Federal Reserve reported overnight funds rate plus 1/2 of 1%. The LIBOR rate loans bear interest at the LIBOR rate plus the applicable LIBOR rate margin.
       The applicable margin with respect to the term facility is 2.00% in the case of index rate loans and 3.00% in the case of LIBOR rate loans. The applicable margin for the revolving facility is determined by a grid based on the ratio of the consolidated indebtedness of Holdings and its subsidiaries to the consolidated adjusted EBITDA (as defined in the credit facilities) of Holdings and its subsidiaries for the most recently ended four fiscal quarters and range between 2.00% and 2.75% for LIBOR rate loans and range between 1.00% and 1.75% for index rate loans.
       The applicable margin with respect to loans made under the second priority facility is 5.875% in the case of index rate loans and 6.875% in the case of LIBOR rate loans. However, if the ratio of the consolidated indebtedness of Holdings and its subsidiaries over the consolidated adjusted EBITDA (as defined in the credit facilities) of Holdings and its subsidiaries is greater than 4.8:1.0 for any four
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fiscal quarters, each of the applicable margins set forth above will be increased by 100 basis points. In addition, loans made under the second priority facility are issued at a discount of 1.0% to the face amount.
       Under the revolving facility, we are also required to pay a fee equal to 0.50% of the total unused commitment amount. We may also draw upon the credit facilities through letters of credit which carry specific fees.
Covenants
       Our credit facilities require Holdings to meet certain financial tests, including minimum interest coverage, maximum leverage and minimum fixed charge coverage ratios. The credit facilities also limit Opco’s ability and the ability of Holdings and its other domestic subsidiaries to, among other things, incur debt, incur additional liens, make distributions on or repurchase equity, make certain investments, sell certain assets, enter into operating leases, engage in reorganizations or mergers, or change the character of our business. Certain of these covenants are subject to exceptions and materiality qualifiers.
Mandatory Prepayment
       We are required to apply any net proceeds received from (i) asset sales, (ii) insurance on account of any loss of any property or assets, or (iii) the incurrence of indebtedness for borrowed money, first to repay amounts outstanding under the term facility, second, to repay amounts outstanding (and to permanently reduce commitments) under the revolving facility, and third, provided there are no amounts outstanding under the first priority facility, to repay amounts outstanding under the second priority facility, subject to the call premium described below.
       Upon our receipt of cash proceeds from (i) the issuance of equity securities by us or any of our subsidiaries or (ii) excess cash flow, we are required to apply 75% of such net proceeds, or 50% if the consolidated indebtedness of Holdings and its subsidiaries over the consolidated adjusted EBITDA of Holdings and its subsidiaries is 3.0:1.0 or less for the most recent four fiscal quarters, to repay amounts outstanding under the second priority facility, in an amount not to exceed $67,500,000. We are required to apply the balance of such net proceeds to repay amounts outstanding under the first priority facility as described above.
Optional Prepayment
       The term facility and revolving facility may be prepaid in whole or in part without premium or penalty. In the event that there are no amounts outstanding under the term facility and revolving facility, amounts outstanding under the second priority facility may be prepaid in whole or in part subject to the call premium described below.
Call Premium
       Subject to certain exceptions, any repayments or prepayments of the second priority facility prior to December 2007 are subject to the payment of a premium ranging from 2.50% to 11.00% of the amount repaid or prepaid.
Events of Default
       The credit facilities contain customary events of default, including, payment defaults, defaults under other indebtedness, breach of covenant, breach of representations or warranties, certain events of bankruptcy, insolvency or dissolution, judgment defaults, change of control, invalidity of any loan documents or provisions supporting the credit facilities, and defaults or events relating to the employee benefit plans of Holdings or any of its subsidiaries. Certain of the events of default are subject to exceptions and materiality qualifiers. If an event of default occurs under the credit facilities
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and is not cured within the proscribed grace period, the lenders under the credit facilities will be entitled to take various actions, including terminating all loans and demanding payment for all outstanding amounts and foreclosing on collateral. In addition, under the second priority facility, the lenders may, upon a change of control, require us to repurchase all or any portion of the loans outstanding under the second priority facility at a purchase price of 101% of the principal amount.
       The terms used in this summary have specific meanings as used in the credit facilities. This summary of the credit facilities may not contain all of the information that is important to you and is subject to, and qualified in its entirety by reference to, all of the provisions of the credit agreements and related documents, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part. See “Where You Can Find More Information.”
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UNDERWRITING
       ARC, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares of common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of common stock indicated in the following table. Goldman, Sachs & Co., J.P. Morgan Securities Inc., Credit Suisse First Boston LLC, Robert W. Baird & Co. Incorporated and CIBC World Markets Corp. are the representatives of the underwriters. 

		Number of	
Underwriters		Shares	
			
Goldman, Sachs & Co.	 	 	 	 	
J.P. Morgan Securities Inc. 	 	 	 	 	
Credit Suisse First Boston LLC	 	 	 	 	
Robert W. Baird & Co. Incorporated	 	 	 	 	
CIBC World Markets Corp. 	 	 	 	 	
 	 	 		 	
 	Total	 	 	13,350,000	 	
 	 	 		 	
       The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below, unless and until this option is exercised.
       If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 2,002,500 shares of common stock from the selling stockholders to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
       The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by ARC and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase                additional shares. 
Paid by ARC
 	 	 	 	 	 	 	 	 	
		No Exercise		Full Exercise	
					
Per Share	 	$	 	 	 	$	 	 	
Total	 	$	 	 	 	$	 	 	
Paid by the Selling Stockholders

		No Exercise		Full Exercise	
					
Per Share	 	$	 	 	 	$	 	 	
Total	 	$	 	 	 	$	 	 	
       Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $     per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $     per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.
       ARC, its officers and directors, the selling stockholders and other stockholders who collectively hold substantially all of ARC’s common stock have agreed with the underwriters not to dispose of or
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hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
       Prior to the offering, there has been no public market for the common stock. The initial public offering price has been negotiated among ARC, the selling stockholders and the representatives. Among the factors to be considered in determining the initial public offering price of the common stock, in addition to prevailing market conditions, will be ARC’s historical performance, estimates of its business potential and earnings prospects, an assessment of its management and the consideration of the above factors in relation to market valuation of companies in related businesses.
       The common stock has been approved for listing on the New York Stock Exchange under the symbol “ARP”. In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
       In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from the selling stockholders in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
       The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
       Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.
       Each underwriter has represented, warranted and agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the date of the closing of this offering, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in
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investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)), received by it in connection with the issue or sale of any shares in circumstances in which section 21(1) of the FSMA does not apply to ARC; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of common stock in, from or otherwise involving the United Kingdom.
       The shares may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.
       The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.
       The prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation or subscription or purchase, of the shares of common stock may not be circulated or distributed, nor may the shares of common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the shares of common stock to the public in Singapore.
       The shares of common stock have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
       At ARC’s request, the underwriters have reserved for sale, at the initial public offering price, up to 667,500 shares offered by this prospectus for sale to some of ARC’s directors, officers and employees and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
       A prospectus in electronic format may be made available on the website maintained by one or more of the lead managers of this offering and may also be made available on websites maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to underwriters that may make Internet distributions on the same basis as other allocations.
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       The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

       ARC estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $3.4 million. The underwriters have agreed to reimburse certain of ARC’s estimated expenses, excluding underwriting discounts and commissions, in connection with this offering.

       ARC and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

       Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment and commercial banking services for ARC, for which they received or will receive customary fees and expenses. An affiliate of Goldman, Sachs & Co. is a lender under ARC’s credit facilities, having a commitment to lend up to $5.0 million under the revolving facility which currently has no balance. In addition, in connection with the purchase of certain debt of Holdings which has since been repaid, affiliates of Goldman, Sachs & Co. were issued warrants to purchase common units of Holdings. As part of the reorganization, such affiliates will exchange these warrants for 809,618 shares of ARC’s common stock. For more detailed information regarding these warrants, please see “Description of Capital Stock — Warrants.” In connection with a project to construct a new Goldman, Sachs & Co. headquarters in New York City, following a competitive bidding process, the developer, with Goldman, Sachs & Co.’s concurrence, has selected ARC to provide reprographics services for the project.

VALIDITY OF COMMON STOCK
       The validity of the shares of common stock being offered will be passed upon for American Reprographics Company by Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, San Francisco, California, and for the underwriters by Sullivan & Cromwell LLP, Los Angeles, California.
EXPERTS

       The consolidated financial statements and financial statement schedule as of December 31, 2003 and September 30, 2004 and for the year and the nine months then ended, respectively, included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company’s restatement of its consolidated balance sheets at December 31, 2003 and September 30, 2004 and related consolidated statements of operations, members’ deficit and comprehensive income, and cash flows for the year and nine months then ended, respectively) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

       The consolidated financial statements of American Reprographics Holdings, L.L.C. at December 31, 2002 and for each of the two years in the period ended December 31, 2002, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
       We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering. This prospectus contains all information about us and our common stock that may be material to an investor in this offering. The registration statement includes exhibits to which you should refer for additional information about us.
       You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the offices of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the prescribed fees. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the SEC. You can also inspect our registration statement on this website.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms	 	F-2	
Consolidated Balance Sheets as of December 31, 2002 and 2003 and September 30, 2004	 	F-4	
Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 (unaudited) and 2004	 	F-5	
Consolidated Statements of Members’ Deficit and Comprehensive Income (Loss) for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2004	 	F-6	
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 (unaudited) and 2004	 	F-7	
Notes to Consolidated Financial Statements	 	F-9	
F-1 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Advisors and Members
American Reprographics Holdings, L.L.C.:
       In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, members’ deficit and comprehensive income, and cash flows present fairly, in all material respects, the financial position of American Reprographics Holdings, L.L.C. and its subsidiaries (the “Company”) at December 31, 2003 and September 30, 2004, and the results of their operations and their cash flows for the year and nine months then ended, respectively, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2003 and nine months ended September 30, 2004 listed in the index at Item 16(b) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
       As discussed in Note 1 to the consolidated financial statements, the Company has restated its consolidated balance sheets at December 31, 2003 and September 30, 2004 and related consolidated statements of operations, members’ deficit and comprehensive income, and cash flows for the year and nine months then ended, respectively.
       Also, as discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for its redeemable preferred members’ equity upon the adoption of Statement of Financial Accounting Standard No. 150 effective July 1, 2003.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 10, 2005
F-2 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Advisors and Members
American Reprographics Holdings, L.L.C.
       We have audited the accompanying consolidated balance sheet of American Reprographics Holdings, L.L.C. as of December 31, 2002, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the years ended December 31, 2001 and 2002. Our audit also included the financial statement schedule listed to the index at Item 16(b) for the years ended December 31, 2001 and 2002. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
       In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Reprographics Holdings, L.L.C. at December 31, 2002, and the consolidated results of its operations and its cash flows for the years ended December 31, 2001 and 2002, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
       As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative financial instruments in 2001 upon the adoption of Statement of Financial Accounting Standard No. 133. The Company also changed its method of accounting for goodwill and other intangible assets in 2002 upon the adoption of Statement of Financial Accounting Standard No. 142.

		
 	/s/ ERNST & YOUNG LLP	
Woodland Hills, California
February 28, 2003
F-3 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED BALANCE SHEETS
(Restated — See Note 1)

					
		December 31,		September 30, 2004	
					
						Pro Forma	
		2002		2003		Actual		(Note 12)	
									
								(Unaudited)	
			
		(Dollars in thousands)	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	24,995	 	 	$	17,315	 	 	$	12,008	 	 	$	12,008	 	
 	Accounts receivable, less allowance of $2,148, $2,790 and $3,288 at December 31, 2002 and 2003, and September 30, 2004, respectively	 	 	60,080	 	 	 	56,663	 	 	 	65,675	 	 	 	65,675	 	
 	Inventories, net	 	 	7,223	 	 	 	5,937	 	 	 	5,861	 	 	 	5,861	 	
 	Prepaid expenses and other current assets	 	 	6,448	 	 	 	5,661	 	 	 	6,662	 	 	 	8,571	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total current assets	 	 	98,746	 	 	 	85,576	 	 	 	90,206	 	 	 	92,115	 	
Property and equipment, net	 	 	46,079	 	 	 	37,268	 	 	 	36,132	 	 	 	36,132	 	
Goodwill	 	 	228,144	 	 	 	229,059	 	 	 	230,639	 	 	 	230,639	 	
Other intangible assets, net	 	 	13,737	 	 	 	12,647	 	 	 	11,864	 	 	 	11,864	 	
Deferred financing costs, net	 	 	6,688	 	 	 	8,288	 	 	 	7,183	 	 	 	7,183	 	
Other assets	 	 	1,734	 	 	 	1,878	 	 	 	1,593	 	 	 	1,593	 	
Deferred income taxes	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,377	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total assets	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	 	$	394,903	 	

Liabilities and members’ deficit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	19,426	 	 	$	18,742	 	 	$	19,981	 	 	$	19,981	 	
 	Accrued payroll and payroll-related expenses	 	 	10,102	 	 	 	9,906	 	 	 	9,392	 	 	 	9,392	 	
 	Accrued expenses	 	 	13,508	 	 	 	14,622	 	 	 	21,973	 	 	 	21,973	 	
 	Accrued distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,097	 	
 	Accrued earnout payments	 	 	2,142	 	 	 	374	 	 	 	265	 	 	 	265	 	
 	Current portion of derivative liability	 	 	4,788	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Current portion of long-term debt and capital leases	 	 	24,409	 	 	 	25,123	 	 	 	10,685	 	 	 	10,685	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total current liabilities	 	 	74,375	 	 	 	68,767	 	 	 	62,296	 	 	 	71,393	 	
Long-term debt and capital leases, net of debt discount	 	 	354,199	 	 	 	334,217	 	 	 	320,415	 	 	 	320,415	 	
Mandatorily redeemable preferred membership units	 	 	—	 	 	 	25,791	 	 	 	27,285	 	 	 	27,285	 	
Other long-term liabilities	 	 	3,733	 	 	 	5,956	 	 	 	5,920	 	 	 	5,920	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total liabilities	 	 	432,307	 	 	 	434,731	 	 	 	415,916	 	 	 	425,013	 	

Commitments and contingencies (Note 6)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Mandatorily redeemable preferred membership units	 	 	23,903	 	 	 	—	 	 	 	—	 	 	 	—	 	

Members’ deficit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common members’ capital, including warrants to purchase common membership units — 35,467,511 and 35,487,511 and 35,487,511 common membership units issued and outstanding at December 31, 2002 and 2003, and September 30, 2004, respectively	 	 	26,117	 	 	 	26,228	 	 	 	29,302	 	 	 	29,302	 	
 	Deferred compensation	 	 	—	 	 	 	—	 	 	 	(2,742	)	 	 	(2,742	)	
 	Accumulated deficit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accumulated distributions to members	 	 	(139,734	)	 	 	(142,343	)	 	 	(146,912	)	 	 	(132,394	)	
 	 	Accumulated earnings	 	 	53,369	 	 	 	56,922	 	 	 	82,396	 	 	 	76,067	 	
 	 	Accumulated other comprehensive loss	 	 	(834	)	 	 	(822	)	 	 	(343	)	 	 	(343	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total members’ deficit	 	 	(61,082	)	 	 	(60,015	)	 	 	(38,299	)	 	 	(30,110	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total liabilities and members’ deficit	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	 	$	394,903	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
F-4 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Restated — See Note 1)

									
				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands, except per unit amounts)	
				(Unaudited)			
Reprographics services	 	$	338,124	 	 	$	324,402	 	 	$	315,995	 	 	$	242,507	 	 	$	253,367	 	
Facilities management	 	 	39,875	 	 	 	52,290	 	 	 	59,311	 	 	 	42,719	 	 	 	53,736	 	
Equipment and supplies sales	 	 	42,702	 	 	 	42,232	 	 	 	40,654	 	 	 	31,112	 	 	 	29,195	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total net sales	 	 	420,701	 	 	 	418,924	 	 	 	415,960	 	 	 	316,338	 	 	 	336,298	 	
Cost of sales	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	190,266	 	 	 	196,668	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	126,072	 	 	 	139,630	 	
Selling, general and administrative expenses	 	 	104,004	 	 	 	103,305	 	 	 	101,252	 	 	 	76,127	 	 	 	81,434	 	
Amortization of intangible assets	 	 	5,801	 	 	 	1,498	 	 	 	1,709	 	 	 	1,269	 	 	 	1,267	 	
Write-off of goodwill	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	63,748	 	 	 	66,343	 	 	 	60,971	 	 	 	48,676	 	 	 	56,929	 	
Other income	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	1,080	 	 	 	574	 	
Interest expense, net	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(28,958	)	 	 	(25,089	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	16,522	 	 	 	26,967	 	 	 	7,684	 	 	 	20,798	 	 	 	32,414	 	
Income tax provision	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	10,735	 	 	 	20,700	 	 	 	3,553	 	 	 	16,578	 	 	 	25,474	 	
Dividends and amortization of discount on preferred members’ equity	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income attributable to common members	 	$	7,628	 	 	$	17,409	 	 	$	1,823	 	 	$	14,848	 	 	$	25,474	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
 	Basic	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	

 	Diluted	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	

Unaudited pro forma data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Net income attributable to common members	 	$	7,628	 	 	$	17,409	 	 	$	1,823	 	 	$	14,848	 	 	$	25,474	 	
Unaudited pro forma incremental income tax provision (Notes 1 and 5)	 	 	2,574	 	 	 	6,211	 	 	 	673	 	 	 	5,180	 	 	 	7,714	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income attributable to common members	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
 	Basic	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Diluted	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

Weighted average common member units outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	36,628,801	 	 	 	36,406,220	 	 	 	35,480,289	 	 	 	35,477,881	 	 	 	35,487,511	 	
 	Diluted	 	 	36,757,814	 	 	 	36,723,031	 	 	 	37,298,349	 	 	 	37,307,083	 	 	 	37,473,657	 	
The accompanying notes are an integral part of these consolidated financial statements.
F-5 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS’ DEFICIT AND COMPREHENSIVE INCOME

													
								Retained Earnings					
								(Accumulated Deficit)		Accumulated			
										Other			
										Accumulated		Comprehensive		Total	
		Common		Common				Accumulated		Earnings		Income (Loss)		(Restated —	
		Membership		Members’		Deferred		Distributions to		(Restated —		(Restated —		See	
		Units		Capital		Compensation		Members		See Note 1)		See Note 1)		Note 1)	

		(Dollars in thousands)	
Balance at December 31, 2000	 	 	35,467,511	 	 	$	26,117	 	 	$	—	 	 	$	(128,530	)	 	$	21,934	 	 	$	—	 	 	$	(80,479	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10,735	 	 	 	—	 	 	 	10,735	 	
 	 	Cumulative effect of accounting change	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,060	)	 	 	(3,060	)	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,113	 	 	 	1,113	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8,788	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,411	)	 	 	—	 	 	 	—	 	 	 	(3,411	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,447	)	 	 	—	 	 	 	—	 	 	 	(1,447	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(325	)	 	 	—	 	 	 	—	 	 	 	(325	)	
 	Accretion to redemption price of redeemable common membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,081	)	 	 	—	 	 	 	—	 	 	 	(2,081	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2001	 	 	35,467,511	 	 	 	26,117	 	 	 	—	 	 	 	(135,794	)	 	 	32,669	 	 	 	(1,947	)	 	 	(78,955	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	20,700	 	 	 	—	 	 	 	20,700	 	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,113	 	 	 	1,113	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	21,813	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,897	)	 	 	—	 	 	 	—	 	 	 	(3,897	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,543	)	 	 	—	 	 	 	—	 	 	 	(1,543	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(325	)	 	 	—	 	 	 	—	 	 	 	(325	)	
 	Redemption of common membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,825	 	 	 	—	 	 	 	—	 	 	 	1,825	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2002	 	 	35,467,511	 	 	 	26,117	 	 	 	—	 	 	 	(139,734	)	 	 	53,369	 	 	 	(834	)	 	 	(61,082	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,553	 	 	 	—	 	 	 	3,553	 	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	834	 	 	 	834	 	
 	 	Interest rate swap fair value adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(822	)	 	 	(822	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,565	 	
 	Issuance of common membership units	 	 	20,000	 	 	 	111	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	111	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,670	)	 	 	—	 	 	 	—	 	 	 	(1,670	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(858	)	 	 	—	 	 	 	—	 	 	 	(858	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(81	)	 	 	—	 	 	 	—	 	 	 	(81	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2003	 	 	35,487,511	 	 	 	26,228	 	 	 	—	 	 	 	(142,343	)	 	 	56,922	 	 	 	(822	)	 	 	(60,015	)	
 	 	Deferred stock-based compensation charge for options issued to employees	 	 	—	 	 	 	3,074	 	 	 	(3,074	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Amortization of deferred stock-based compensation	 	 	—	 	 	 	—	 	 	 	332	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	332	 	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	25,474	 	 	 	—	 	 	 	25,474	 	
 	 	Fair value adjustment of derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	479	 	 	 	479	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	25,953	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4,569	)	 	 	—	 	 	 	—	 	 	 	(4,569	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at September 30, 2004	 	 	35,487,511	 	 	$	29,302	 	 	$	(2,742	)	 	$	(146,912	)	 	$	82,396	 	 	$	(343	)	 	$	(38,299	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
F-6 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated — See Note 1)

								Nine Months	
				Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands)	
					
				(Unaudited)	
Operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accretion of yield on redeemable preferred member units	 	 	—	 	 	 	—	 	 	 	949	 	 	 	475	 	 	 	1,494	 	
 	Allowance for doubtful accounts	 	 	682	 	 	 	816	 	 	 	1,698	 	 	 	1,144	 	 	 	1,110	 	
 	Reserve for inventory obsolescence	 	 	68	 	 	 	135	 	 	 	248	 	 	 	223	 	 	 	68	 	
 	Depreciation	 	 	16,203	 	 	 	17,680	 	 	 	18,228	 	 	 	13,950	 	 	 	12,739	 	
 	Amortization of intangible assets	 	 	5,801	 	 	 	1,498	 	 	 	1,709	 	 	 	1,269	 	 	 	1,267	 	
 	Amortization of deferred financing costs	 	 	1,239	 	 	 	1,350	 	 	 	1,559	 	 	 	1,154	 	 	 	1,855	 	
 	Noncash interest expense	 	 	15,217	 	 	 	9,740	 	 	 	8,565	 	 	 	6,187	 	 	 	—	 	
 	Deferred income taxes	 	 	2,167	 	 	 	454	 	 	 	1,622	 	 	 	2,051	 	 	 	689	 	
 	Write-off of intangible assets	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Write-off of unamortized debt discount	 	 	—	 	 	 	—	 	 	 	3,875	 	 	 	—	 	 	 	—	 	
 	Write-off of deferred financing costs	 	 	—	 	 	 	—	 	 	 	5,129	 	 	 	—	 	 	 	—	 	
 	Amortization of deferred stock-based compensation	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	332	 	
 	Changes in operating assets and liabilities, net of effect of business acquisitions:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accounts receivable, net	 	 	5,332	 	 	 	(1,395	)	 	 	1,802	 	 	 	(191	)	 	 	(10,287	)	
 	 	Inventory	 	 	1,388	 	 	 	718	 	 	 	1,034	 	 	 	733	 	 	 	29	 	
 	 	Prepaid expenses and other assets	 	 	1,402	 	 	 	2,058	 	 	 	410	 	 	 	421	 	 	 	(572	)	
 	 	Accounts payable and accrued expenses	 	 	(10,521	)	 	 	2,659	 	 	 	(2,144	)	 	 	2,915	 	 	 	8,221	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash provided by operating activities	 	 	53,151	 	 	 	56,413	 	 	 	48,237	 	 	 	46,909	 	 	 	42,419	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(8,659	)	 	 	(5,209	)	 	 	(4,992	)	 	 	(3,348	)	 	 	(4,772	)	
Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions	 	 	(27,822	)	 	 	(40,355	)	 	 	(3,116	)	 	 	(2,635	)	 	 	(2,893	)	
Other	 	 	(584	)	 	 	(354	)	 	 	(228	)	 	 	(30	)	 	 	54	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in investing activities	 	 	(37,065	)	 	 	(45,918	)	 	 	(8,336	)	 	 	(6,013	)	 	 	(7,611	)	

The accompanying notes are an integral part of these consolidated financial statements.
F-7 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Restated — See Note 1)

								Nine Months	
				Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands)	
					
				(Unaudited)	
Financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from borrowings under debt agreements	 	$	5,220	 	 	$	32,000	 	 	$	337,750	 	 	$	—	 	 	$	1,000	 	
Payments on long-term debt under debt agreements	 	 	(20,350	)	 	 	(35,507	)	 	 	(375,613	)	 	 	(28,695	)	 	 	(36,191	)	
Payment of loan fees	 	 	—	 	 	 	(950	)	 	 	(8,159	)	 	 	(736	)	 	 	(355	)	
Proceeds from issuance of common membership units	 	 	—	 	 	 	—	 	 	 	111	 	 	 	111	 	 	 	—	 	
Member distributions and redemptions	 	 	(3,411	)	 	 	(10,153	)	 	 	(1,670	)	 	 	(1,827	)	 	 	(4,569	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in financing activities	 	 	(18,541	)	 	 	(14,610	)	 	 	(47,581	)	 	 	(31,147	)	 	 	(40,115	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net increase (decrease) in cash and cash equivalents	 	 	(2,455	)	 	 	(4,115	)	 	 	(7,680	)	 	 	9,749	 	 	 	(5,307	)	
Cash and cash equivalents at beginning of period	 	 	31,565	 	 	 	29,110	 	 	 	24,995	 	 	 	24,995	 	 	 	17,315	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Cash and cash equivalents at end of period	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	34,744	 	 	$	12,008	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Supplemental disclosure of cash flow information	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid for:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Interest	 	$	32,469	 	 	$	29,891	 	 	$	28,190	 	 	$	18,593	 	 	$	19,375	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Income taxes	 	$	4,471	 	 	$	4,233	 	 	$	1,966	 	 	$	1,921	 	 	$	4,427	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Noncash investing and financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noncash transactions include the following:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accretion of noncash portion of yield on preferred membership units	 	$	1,447	 	 	$	1,543	 	 	$	858	 	 	$	858	 	 	$	—	 	
 	Amortization of discount on preferred membership units	 	$	325	 	 	$	325	 	 	$	81	 	 	$	81	 	 	$	—	 	
 	Accretion to redemption price of redeemable common membership units	 	$	2,081	 	 	$	(1,825	)	 	$	—	 	 	$	—	 	 	$	—	 	
 	Capital lease obligations incurred	 	$	8,975	 	 	$	5,685	 	 	$	4,443	 	 	$	3,772	 	 	$	6,274	 	
 	Issuance of subordinated notes in connection with the acquisition of businesses	 	$	10,071	 	 	$	316	 	 	$	—	 	 	$	—	 	 	$	250	 	
 	Change in fair value of derivatives	 	$	—	 	 	$	—	 	 	$	(822	)	 	$	—	 	 	$	479	 	
 
The accompanying notes are an integral part of these consolidated financial statements.
F-8 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except dollars per unit)
1.     Description of Business and Summary of Significant Accounting Policies
       American Reprographics Holdings, L.L.C. (the Company), formerly known as Ford Graphics Holdings, LLC, is a California limited liability company organized on October 24, 1997, and has a finite life through December 31, 2047. The Company, through its operating subsidiary, American Reprographics Company, L.L.C., is a leading provider of digital reprographics services and supplies to companies operating primarily in the architecture, engineering, and construction industries throughout the United States.

Restatement of Consolidated Financial Statements

       The accompanying consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 have been restated to properly record separately identifiable intangible assets including customer relationships and trade names apart from goodwill and reflect amortization expense of such intangible assets previously recorded as goodwill and not subject to amortization. In connection with the acquisition of businesses by the Company during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2004, the Company had previously recorded the entire excess purchase price over the fair value of net assets acquired to goodwill. However, the Company subsequently determined in accordance with provisions of SFAS 141, “Business Combinations,” that approximately $15.9 million of the excess purchase price from these acquisitions should have been allocated to other intangible assets at the respective acquisition dates and amortized over their estimated useful lives.

       The restatement resulted in the Company recording other intangible assets during the periods ended December 31, 2002 and 2003 and September 30, 2004 consisting of customer relationships of $11,168, $615, and $484, and trade names of $1,442, $4 and $0, respectively, apart from goodwill at the respective acquisition dates. In addition, the restatement for the years ended December 31, 2001, 2002, and 2003 and the nine months ended September 30, 2003 and 2004 increased previously reported amortization expense by $70, $1,280, $1,578, $1,170 and $1,198, respectively.

       The following table represents the effects of the restatement on previously reported balances for all periods presented:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		As Previously Reported		As Restated	

		December 31,		September 30,		December 31,		September 30,	
		2002		2003		2004		2002		2003		2004	
Consolidated Balance Sheets													
Goodwill	 	$	242,134	 	 	$	243,668	 	 	$	245,999	 	 	$	228,144	 	 	$	229,059	 	 	$	230,639	 	
Other intangible assets	 	$	—	 	 	$	—	 	 	$	—	 	 	$	13,737	 	 	$	12,647	 	 	$	11,864	 	
Other assets	 	$	2,030	 	 	$	2,043	 	 	$	1,689	 	 	$	1,734	 	 	$	1,878	 	 	$	1,593	 	
Total assets	 	$	395,677	 	 	$	376,843	 	 	$	381,209	 	 	$	395,128	 	 	$	374,716	 	 	$	377,617	 	
Accumulated earnings	 	$	54,667	 	 	$	59,608	 	 	$	86,994	 	 	$	53,369	 	 	$	56,922	 	 	$	82,396	 	
Total members’ deficit	 	$	(59,784	)	 	$	(57,329	)	 	$	(33,861	)	 	$	(61,082	)	 	$	(60,015	)	 	$	(38,299	)	

F-9 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

					
		As Previously Reported		As Restated	

				Nine Months				Nine Months	
		Year Ended		Ended		Year Ended		Ended	
		December 31,		September 30,		December 31,		September 30,	
Consolidated Statements		2001		2002		2003		2003		2004		2001		2002		2003		2003		2004	
of Operations																					
Amortization of intangibles	 	$	5,731	 	 	$	218	 	 	$	131	 	 	$	99	 	 	$	69	 	 	$	5,801	 	 	$	1,498	 	 	$	1,709	 	 	$	1,269	 	 	$	1,267	 	
Income from operations	 	$	63,818	 	 	$	67,623	 	 	$	62,549	 	 	$	49,846	 	 	$	58,394	 	 	$	63,748	 	 	$	66,343	 	 	$	60,971	 	 	$	48,676	 	 	$	56,929	 	
Income before income tax provision	 	$	16,592	 	 	$	28,247	 	 	$	9,262	 	 	$	21,968	 	 	$	34,462	 	 	$	16,522	 	 	$	26,967	 	 	$	7,684	 	 	$	20,798	 	 	$	32,414	 	
Income tax provision	 	$	5,802	 	 	$	6,304	 	 	$	4,321	 	 	$	4,417	 	 	$	7,076	 	 	$	5,787	 	 	$	6,267	 	 	$	4,131	 	 	$	4,220	 	 	$	6,940	 	
Net income	 	$	10,790	 	 	$	21,943	 	 	$	4,941	 	 	$	17,551	 	 	$	27,386	 	 	$	10,735	 	 	$	20,700	 	 	$	3,553	 	 	$	16,578	 	 	$	25,474	 	
Net income attributable to common members	 	$	7,683	 	 	$	18,652	 	 	$	3,211	 	 	$	15,821	 	 	$	27,386	 	 	$	7,628	 	 	$	17,409	 	 	$	1,823	 	 	$	14,848	 	 	$	25,474	 	
Net income attributable to common members per common unit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.45	 	 	$	0.77	 	 	$	0.21	 	 	$	0.48	 	 	$	0.05	 	 	$	0.42	 	 	$	0.72	 	
 	Diluted	 	$	0.21	 	 	$	0.51	 	 	$	0.09	 	 	$	0.42	 	 	$	0.73	 	 	$	0.21	 	 	$	0.47	 	 	$	0.05	 	 	$	0.40	 	 	$	0.68	 	
Unaudited pro forma net income attributable to common members	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	10,253	 	 	$	19,011	 	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
Unaudited pro forma net income attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.29	 	 	$	0.54	 	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Diluted	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.27	 	 	$	0.51	 	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

Corporate Conversion Transaction
       Prior to the consummation of the proposed initial public offering as discussed in Note 12, the Company will convert from a California limited liability company (American Reprographics Holdings, L.L.C.) to a Delaware corporation (American Reprographics Company). The unaudited pro forma data presented in the consolidated statements of operations gives effect to the Company’s reorganization as a corporation as if it occurred on January 1, 2001.
       As a limited liability company, all income taxes were paid by the Company’s members. As a corporation, the Company will be responsible for the payment of all federal and state corporate income taxes. The unaudited pro forma net income attributable to common members represents the Company’s net income for the period as adjusted to give effect to the incremental provision for income taxes. See Note 5.
Principles of Consolidation
       The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation.
F-10 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
Unaudited Interim Financial Information

       The accompanying unaudited consolidated financial statements for the interim period ended September 30, 2003 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and notes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The unaudited consolidated financial statements include the accounts of American Reprographics Holdings, L.L.C. and its subsidiaries. In the opinion of management, the unaudited interim period consolidated financial statements include all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation of the financial position, result of operations and cash flows. The unaudited interim period consolidated financial statements are not necessarily an indication of the results to be expected for the full fiscal year. All financial information as of September 30, 2003 and for the nine months then ended presented herein are unaudited.

Cash Equivalents
       Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased.
       The Company maintains its cash deposits at numerous banks located throughout the United States, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash and cash equivalents.
Concentrations of Credit Risk and Significant Vendors
       Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. No individual customer represented more than 2% of net sales for any of the three years in the period ended December 31, 2003 or for the nine months ended September 30, 2003 and 2004.
       The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. Receivables are generally due within 30 days. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company writes off an account when it is considered to be uncollectible. The Company estimates its allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the creditworthiness of its customers. To date, losses have been within the range of management’s expectations.
       The Company contracts with various suppliers. Although there are a limited number of suppliers that could supply the Company’s inventory, management believes any shortfalls from existing suppliers would be absorbed from other suppliers on comparable terms. However, a change in suppliers could cause a delay in sales and adversely effect results.
       Purchases from the Company’s three largest vendors during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004 comprised approximately 49%, 54%, 51%, 46% and 52%, respectively, of the Company’s total purchases of inventory and supplies.
F-11 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
Inventories
       Inventories are valued at the lower of cost (principally determined on a first-in, first-out basis) or market. Inventories primarily consist of reprographics materials for use and resale and equipment for resale. On an ongoing basis, inventories are reviewed and written down for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value. Charges to increase inventory reserves are recorded as an increase in cost of goods sold. Estimated inventory obsolescence has been provided for in the financial statements and has been within the range of management’s expectations. As of December 31, 2002 and 2003, and September 30, 2004, the reserves for inventory obsolescence amounted to $273, $278, and $320, respectively.
Property and Equipment
       Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:

Buildings and leasehold improvements	 	 	10 - 20  years	 	
Machinery and equipment	 	 	3 - 7 years	 	
Furniture and fixtures	 	 	3 - 7 years	 	
       Assets acquired under capital lease arrangements are recorded at the present value of the minimum lease payments and are amortized using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Such amortization expense is included in depreciation expense. Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms or the useful lives of the improvements. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Gains or losses on the sale or disposal of property and equipment are reflected in operating income.
       The Company accounts for computer software costs developed for internal use in accordance with Statement of Position 98-1 (SOP 98-1), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” which requires companies to capitalize certain qualifying costs incurred during the application development stage of the related software development project. The primary use of this software is for internal use and, accordingly, such capitalized software development costs are amortized on a straight-line basis over the economic lives of the related products not to exceed three years. The Company’s machinery and equipment (see Note 3) include $4,535, $4,574 and $4,228 of capitalized software development costs as of December 31, 2002 and 2003, and September 30, 2004, respectively, net of accumulated amortization of $755, $2,519 and $4,085 as of December 31, 2002 and 2003, and September 30, 2004, respectively. Depreciation expense includes the amortization of capitalized software development costs which amounted to $378, $377, $1,763, $1,323 and $1,566 during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004, respectively.
       In August 2002, the Company decided to license internally developed software for use by third party reprographics companies. In accordance with SOP 98-1, the Company applies the net revenues from certain of its software licensing activity to reduce the carrying amount of the capitalized software costs. Software licensing revenues which have been offset against the carrying amount of capitalized software costs amounted to $0, $0, $98, $51, and $134 during the years
F-12 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004, respectively.
Impairment of Long-Lived Assets
       The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors considered by the Company include, but are not limited to, significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows, if not. To date, the Company has not recognized an impairment charge related to the write-down of long-lived assets.

Goodwill and Other Intangible Assets (See Note 1 — Restatement of Consolidated Financial Statements)

       Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which requires, among other things, the use of a nonamortization approach for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and intangibles having an indefinite life are not amortized, but instead will be reviewed for impairment at least annually or if an event occurs or circumstances indicate that the carrying amount may be impaired. Events or circumstances which could indicate an impairment include a significant change in the business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof. Goodwill impairment testing is performed at the reporting unit level.

       SFAS 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
F-13 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

       Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth of the Company’s business, the useful life over which cash flows will occur, and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

       In accordance with SFAS 142, the Company completed the first step of the transitional goodwill impairment test during May 2002 and the annual impairment test in September 2002 and determined based on such tests that no impairment of goodwill was indicated. The Company has selected September 30 as the date on which it will perform its annual goodwill impairment test. Based on the Company’s valuation of goodwill, no impairment charges related to the write-down of goodwill were recognized for the years ended December 31, 2002 and 2003. During the year ended December 31, 2001, the Company wrote-off $3,438 of goodwill recorded from an acquisition completed during 2000 because the business was closed in 2001 due to underperformance.

       Had the Company adopted SFAS No. 142 on January 1, 2001, and, as such, goodwill was not amortized effective on that date, the Company’s unaudited pro forma net income attributable to common members for 2001 would have been higher by $5,274 or $0.14 per common member unit.
       Prior to January 1, 2002, goodwill related to businesses purchased was amortized on a straight-line basis over 40 years.

       In connection with its acquisitions subsequent to July 1, 2001, the Company has applied the provisions of SFAS No. 141 “Business Combinations”, using the purchase method of accounting. The assets and liabilities assumed were recorded at their estimated fair values. The excess purchase price over those fair values was recorded as goodwill and other intangible assets.

       The changes in the carrying amount of goodwill and other intangible assets from December 31, 2002 through September 30, 2004 are summarized as follows:

 	 	 	 	 	
		(As Restated —	
		See Note 1)	
		Goodwill	
			
Balance at December 31, 2002	 	$	228,144	 	
Additions	 	 	915	 	
 	 	 		 	
Balance at December 31, 2003	 	 	229,059	 	
Additions	 	 	1,580	 	
 	 	 		 	
Balance at September 30, 2004	 	$	230,639	 	

       The additions to goodwill include the excess purchase price over fair value of net assets acquired, adjustments to acquisition costs and certain earnout payments. See Note 2.
F-14 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

       Other intangible assets that have finite useful lives are amortized over their useful lives. An impaired asset is written down to fair value. Intangible assets with finite useful lives consist primarily of not-to-compete covenants, trade names, and customer relationships and are amortized over the expected period of benefit which ranges from two to twenty years using the straight-line and accelerated methods. Customer relationships are amortized under an accelerated method which reflects the related customer attrition rates and trade names are amortized using the straight-line method. At December 31, 2002 and 2003, and September 30, 2004 customer relationships and the related accumulated amortization consist of $13,144, $13,759, $14,243, and $1,290, $2,785 and $3,912, respectively. Trade names and the related accumulated amortization consist of $1,649, $1,653, $1,653, and $61, $144 and $206 at December 31, 2002 and 2003 and September 30, 2004, respectively. Amortization expense related to intangible assets (including goodwill during 2001) for the years ended December 31, 2001, 2002 and 2003 and for the nine months ended September 30, 2003 and 2004 was $5,801, $1,498, $1,709, $1,269 and $1,267, respectively.

       The estimated future amortization expense of other intangible assets as of September 30, 2004 are as follows:

 	 	 	 	 	
2004 (remaining three months)	 	$	411	 	
2005	 	 	1,573	 	
2006	 	 	1,424	 	
2007	 	 	1,262	 	
2008	 	 	1,081	 	
2009	 	 	998	 	
Thereafter	 	 	5,115	 	
 	 	 		 	
 	 	$	11,864	 	

Deferred Financing Costs
       Direct costs incurred in connection with indebtedness agreements are capitalized as incurred and amortized on a straight line basis over the term of the related indebtedness, which approximates the effective interest method. At December 31, 2002 and 2003, and September 30, 2004 the Company has deferred financing costs of $6,688, $8,288, and $7,183, respectively, net of accumulated amortization of $3,493, $47, and $1,508, respectively. As discussed further in Note 4, the Company wrote-off $6,318 of deferred financing costs in 2003 as a result of the refinancing of the Company’s credit facilities in December 2003. Approximately $1,189 of deferred financing costs written-off were incurred during 2003.
Derivative Financial Instruments
       In 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), and its related amendments. As a result of the adoption of SFAS No. 133, the Company recognizes all derivative financial instruments, such as its interest rate swap contracts, as either assets or liabilities in the consolidated financial statements at fair value.
       The accounting for changes in the fair value (i.e., unrealized gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
F-15 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
relationship and further, on the type of hedging relationship. Derivatives that are not hedges must be adjusted to fair value through current earnings.
       The Company enters into interest rate swaps to manage its exposure to changes in interest rates. Interest rate swaps also allow the Company to raise funds at floating rates and effectively swap them into fixed rates. These agreements involve the exchange of floating-rate for fixed-rate payments without the exchange of the underlying principal amount.
       During 2000, the Company entered into two interest rate swap agreements with an aggregate notional amount of $117,500 which changed the nature of the interest rate paid on a portion of its long-term debt. Under the agreements, the Company paid fixed rates of 6.44% and 6.73% and received a variable rate at the lower of the Eurodollar rate or 7% on the notional amount. The differential between the fixed and variable rates was settled monthly and was recognized as an increase or decrease in interest expense related to the debt. These agreements were designed to hedge the variable portion of the interest rates on the credit facilities up to the notional amount to the extent the Eurodollar rate remained at 7% or lower. However, these agreements did not qualify as hedges under SFAS No. 133 and, therefore, the change in fair value of these interest rate swap agreements has been recorded as interest expense.
       The adoption of SFAS No. 133 in 2001 resulted in an adjustment for the cumulative effect of an accounting change of $3,060 which was recognized as a charge to other comprehensive income (loss) in the Company’s consolidated statements of members’ (deficit) and comprehensive income (loss) for the year ended December 31, 2001. This charge was amortized as interest expense related to the interest rate swap contract in the accompanying consolidated statements of operations over the term of the swap which expired in September 2003 using the effective-interest method.
       During 2001, the Company recorded additional interest expense of $5,590 based on the negative change in market value of the interest rate swap agreements, including $1,113 of amortization of the original transition adjustment. During 2002 and 2003, the Company recorded an interest benefit of $1,636 and $3,954, respectively, based on the improvement in the market value of the interest rate swap agreements as compared to the prior year, net of $1,113 and $834, respectively, of amortization of the original transition adjustment. The agreements expired in September 2003.
       In September 2003, the Company entered into a new interest rate swap agreement with an initial notional amount of $111,160. Under the terms of this swap agreement, the Company pays a fixed rate of 2.29% and receives a variable rate on the notional amount equal to the Eurodollar rate. The swap agreement provides for a quarterly reduction of $1,863 in the notional amount of the swap starting in October 2003 until July 2005, when the notional amount of the swap will be reduced to $95,988 until its expiration in September 2005. Because this swap agreement has been designated and qualifies as a cash flow hedge under SFAS No. 133, the Company has recorded the fair value of this swap agreement in the Company’s consolidated balance sheet in “Other long term liabilities” with a corresponding adjustment to other comprehensive income (loss) as of and for the year ended December 31, 2003 and for the nine months ended September 30, 2004, respectively. This swap agreement had a negative fair value of $822 and a positive fair value of $62 as of December 31, 2003 and September 30, 2004, respectively. The counterparty to this interest rate swap is a financial institution with a high credit rating. Management does not believe that there is a significant risk of nonperformance by the counterparty. For the year ended December 31, 2003 and the nine months
F-16 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
ended September 30, 2004, the Company determined that its interest rate swap qualified as an effective hedge as defined by SFAS 133.
       In January 2004, the Company entered into two interest rate collar agreements, referred to as the front-end and the back-end interest rate collar agreements. The front-end interest rate collar agreement has an initial notional amount of $22,566 which is increased quarterly to reflect reductions in the notional amount of our interest rate swap agreement, such that the notional amount of the swap agreement, together with the notional amount of the front-end interest rate collar agreement, remains not less than 40% of the aggregate principal amount outstanding on our 2003 Senior Credit Facility. The front-end interest rate collar agreement expires in September 2005. The back-end interest rate collar agreement becomes effective upon expiration of the swap agreement and front-end interest rate collar agreement in September 2005 and has a fixed notional amount of $111,000. The back-end interest rate collar agreement expires in December 2006. At September 30, 2004, the fair value of these interest rate collar agreements was $(405).
Adoption of Statement of Financial Accounting Standard No. 150
       Effective July 1, 2003, the Company adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The scope of this pronouncement includes mandatorily redeemable equity instruments.
       Upon the adoption of SFAS No. 150, the Company’s mandatorily redeemable preferred membership units (the Preferred Units) of $25,791 and $27,285 as of December 31, 2003 and September 30, 2004, respectively, have been classified as long-term liabilities in the Company’s consolidated balance sheet as they are redeemable at a fixed and determinable date (upon or after the earlier of the occurrence of a qualified IPO or April 10, 2010). Dividends and accretion related to the Preferred Units, which previously had been recorded below net income as a charge in determining net income available to common members have been charged to interest expense in the accompanying consolidated statement of operations since adoption of this standard on July 1, 2003 and amounted to $1,825 and $2,872 during the year ended December 31, 2003 and the nine months ended September 30, 2004. In accordance with SFAS No. 150, dividends and accretion related to the mandatorily redeemable preferred membership units recorded prior to July 1, 2003 have not been reclassified to interest expense. Prior to the adoption of SFAS 150, dividends paid on the Preferred Units were accounted for as a direct reduction to members’ equity, and the Preferred Units were presented between liabilities and members’ deficit in the Company’s consolidated balance sheet.
Fair Values of Financial Instruments
       The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:

		
 	       Cash and cash equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair value due to the relatively short period to maturity of these instruments.	
F-17 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

		
 	       Short- and long-term debt (excluding the Holdings and Opco Notes): The carrying amounts of the Company’s borrowings reported in the consolidated balance sheets approximate their fair value based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements or since the floating rates change with market conditions.	
 		
 	       Holdings and Opco Notes: The carrying amount of the Company’s fixed interest rate borrowings under the Holdings and Opco Notes reported in the consolidated balance sheet at December 31, 2002 may not approximate their fair value because of changes in market interest rates. It was not practicable to estimate the fair value of the Holdings and Opco Notes because the terms of such notes payable were unique to the Company and its capitalization structure and there was no public market for such notes payable. As discussed further in Note 4, the Company redeemed the Holdings and Opco Notes before their maturity in connection with the refinancing of the Company’s credit facilities in December 2003.	
 		
 	       Interest rate swap agreements: The fair values of the interest rate swap agreements, as previously disclosed, are the amounts at which they could be settled based on estimated market rates.	

	Revenue Recognition	
       The Company applies the provisions of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements,” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) shipment of products has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured.
       The Company recognizes revenues from reprographics services when services have been rendered while revenues from the resale of reprographics supplies and equipment are recognized upon shipment.
       In addition, the Company has established contractual pricing for certain large national customer accounts (Premier Accounts). These contracts generally establish uniform pricing at all branches for Premier Accounts. Revenues earned from the Company’s Premier Accounts are recognized in the same manner as non-premier account revenues and the Company has no additional performance obligations.
       Included in revenues are fees charged to customers for shipping, handling and delivery services. Such revenues amounted to $18,836, $20,500, $23,060, $17,755 and $19,251 for the years ended December 31, 2001, 2002 and 2003, and for the nine months ended September 30, 2003 and 2004, respectively.
       Revenues from software licensing activities are recognized over the term of the license. Revenues from membership fees are recognized over the term of the membership agreement. Revenues from software licensing activities and membership revenues comprise less than 1% of the Company’s consolidated revenues during the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004.
F-18 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       Management provides for returns, discounts and allowances based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management’s expectations.

	Comprehensive Income	
       SFAS No. 130, “Reporting Comprehensive Income,” establishes guidelines for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in members’ equity (deficit), except those resulting from investments by or distributions to members. The Company’s comprehensive income includes the change in fair value of derivative instruments and is included in the consolidated statement of members’ deficit and comprehensive income.

	Segment and Geographic Reporting	
       The provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies reportable segments based on how management internally evaluates separate financial information, business activities and management responsibility. On that basis and based on operating segments that have similar economic characteristics, products and services and class of customers which have been aggregated, the Company operates in a single reportable business segment.
       The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. Operations outside the United States of America have been immaterial to date.
       The following summary presents the Company’s revenues for each of the Company’s significant products and service lines: 

									
				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Reprographics services	 	$	338,124	 	 	$	324,169	 	 	$	315,227	 	 	$	241,958	 	 	$	252,234	 	
Facilities management	 	 	39,874	 	 	 	52,290	 	 	 	59,311	 	 	 	42,719	 	 	 	53,736	 	
Equipment and supplies sales	 	 	42,703	 	 	 	42,231	 	 	 	40,654	 	 	 	31,112	 	 	 	29,195	 	
Software licenses and membership fees	 	 	—	 	 	 	234	 	 	 	768	 	 	 	549	 	 	 	1,133	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	420,701	 	 	$	418,924	 	 	$	415,960	 	 	$	316,338	 	 	$	336,298	 	

		
	Advertising and Shipping and Handling Costs	
       Advertising costs are expensed as incurred and approximated $2,232, $2,036, $1,807, $1,437 and $1,730 during the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004, respectively. Shipping and handling costs incurred by the Company are included in cost of sales.
F-19 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

	Accounting for Equity-Based Compensation	
       The Company accounts for grants of options to purchase its common membership units to key personnel in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to require companies to account for their employee stock-based awards using the fair value method. The disclosure provisions are required, however, for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”.
       The Company has adopted the disclosure requirements of SFAS No. 148 effective January 1, 2003. The adoption of this standard did not have a significant impact on the Company’s financial condition or operating results.
       The Company accounts for grants of options to employees to purchase its common membership units using the intrinsic value method in accordance with APB Opinion No. 25 and FIN No. 44, “Accounting for Certain Transactions Involving Stock Compensation”. As permitted by SFAS No. 123 and as amended by SFAS No. 148, the Company has chosen to continue to account for such option grants under APB Opinion No. 25 and provide the expanded disclosures specified in SFAS No. 123, as amended by SFAS No. 148.
       Had compensation cost for the Company’s option grants been determined based on their fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company’s unaudited pro forma net income attributable to common members and earnings per common member unit for the years ended December 31, 2001, 2002, and 2003 and the nine months ended
F-20 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)
1.                       Description of Business and Summary of Significant Accounting Policies — (Continued)
September 30, 2003 and 2004 would have been decreased to the adjusted pro forma amounts indicated below:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		(As Restated — See Note 1)	
					
				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Unaudited pro forma net income attributable to common members:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	5,054	 	 	$	11,198	 	 	$	1,150	 	 	$	9,668	 	 	$	17,760	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	332	 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(146	)	 	 	(112	)	 	 	(86	)	 	 	(90	)	 	 	(342	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	4,908	 	 	$	11,086	 	 	$	1,064	 	 	$	9,578	 	 	$	17,750	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Basic earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	0.14	 	 	$	0.31	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(0.01	)	 	 	(0.01	)	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	0.13	 	 	$	0.30	 	 	$	0.03	 	 	$	0.27	 	 	$	0.50	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Diluted earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	0.14	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(0.01	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	0.13	 	 	$	0.30	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

F-21 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       For purposes of computing the pro forma disclosures required by SFAS No. 123, the fair value of each option granted to employees and directors is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for the years ended December 31, 2001, 2002, and 2003 and for the nine months ended September 30, 2003 and 2004: dividend yields of 0% for all periods; expected volatility of 0%, 0%, 36%, 32.4% and 28.3%, respectively; risk-free interest rates of 3.5%, 3.5%, 2.6%, 2.4%, and 2.9%, respectively; and expected lives of 5 years, 4 years, 2 years, 2 years and 2.5 years, respectively. Prior to the one year period preceding the anticipated initial public offering, the Company used the minimum value method to determine fair value of option grants.
       The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

	Research and development expenses	
       Research and development activities relate to the development of software primarily for internal use. Costs incurred for research and development are comprised of a) amounts capitalized in accordance with SOP 98-1 as discussed in “Property and Equipment” in Note 1, and b) amounts which are expensed as incurred. During the twelve months ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004, the Company expensed costs incurred for research and development activities of $464, $569, $874, $616, and $527, respectively.

	Use of Estimates	
       The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	Earnings Per Common Member Unit	
       The Company accounts for earnings per common member unit in accordance with SFAS No. 128, “Earnings per Share”. Basic earnings per common member unit is computed by dividing unaudited pro forma net income attributable to common members by the weighted-average number of common member units outstanding. Diluted earnings per common member unit is computed similar to basic earnings per unit except that the denominator is increased to include the number of additional common member units that would have been outstanding if the potential common member units had been issued and if the additional common member units were dilutive. Common member unit equivalents are excluded from the computation if their effect is anti-dilutive. There are no common member unit equivalents excluded for antidilutive effects for the periods presented below. The Company’s common member unit equivalents consist of member unit options issued under the Company’s Equity Option Plan as well as warrants to purchase common member units issued during 2000 to certain creditors of the Company as discussed further in the long-term debt section (Note 4).
F-22 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       Basic and diluted earnings per common unit were calculated using the following units for the years ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2003 and 2004: 

									
				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Weighted common member units outstanding — basic	 	 	36,628,801	 	 	 	36,406,220	 	 	 	35,480,289	 	 	 	35,477,881	 	 	 	35,487,511	 	
 	
Effect of dilutive stock options	 	 	25,065	 	 	 	120,597	 	 	 	985,991	 	 	 	997,133	 	 	 	1,154,077	 	
 	
Effect of dilutive warrants	 	 	103,948	 	 	 	196,214	 	 	 	832,069	 	 	 	832,069	 	 	 	832,069	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Weighted average common member units outstanding — diluted	 	 	36,757,814	 	 	 	36,723,031	 	 	 	37,298,349	 	 	 	37,307,083	 	 	 	37,473,657	 	

		
	Recent Accounting Pronouncements	
       In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company’s adoption of SFAS No. 145 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
       In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” under which a liability for an exit cost was recognized as of the date of an entity’s commitment to an exit plan. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. The Company’s adoption of this standard effective January 1, 2003 had no impact on its financial position, results of operations or cash flows.
       In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The Company’s
F-23 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
adoption of FIN 45 did not have a material impact on the Company’s financial position, results of operations or cash flows.
       In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. The Company’s adoption of SFAS No. 148 did not have any impact on the Company’s financial statements as management does not have any intention to change to the fair value method.
       In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company’s financial position, results of operations or cash flows.
       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS 150 on July 1, 2003, which resulted in classifying mandatorily redeemable preferred membership units as a liability in the balance sheet and related dividends and accretion being charged to interest expense in the statement of operations. See Note 1, Adoption of Statement of Financial Accounting Standard No. 150, to the consolidated financial statements for more detail.
       In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the variable interest entity’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include the assets, liabilities and the results of operations of the variable interest entity in its financial statements. In December 2003, the FASB issued a revision to FIN 46 to address certain implementation issues. The adoption of FIN 46 and FIN 46 (revised) had no material impact on the Company’s results of operations, financial position or cash flows.
F-24 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

       In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment.” SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that is currently used and requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statement of operations. The effective date of SFAS No. 123R is for interim and annual periods beginning after June 15, 2005. The Company is currently assessing the provisions of SFAS No. 123R and its impact on its consolidated financial statements.

		
2.	Acquisitions	
       The Company acquired a group of reprographics companies in September 2000 (the Acquired Business). In connection with the acquisition of the Acquired Business, the Company issued 1,161,290 common membership units of the Company (the Purchase Consideration Units) to a former owner of the Acquired Business valued at $6,000 based on management’s estimate of the fair value of such units at the date of issuance. The Company granted the former owner of the Acquired Business an option (the Put Option) to sell the Purchase Consideration Units back to the Company for a price equal to the Net Equity Value, as defined, of each Purchase Consideration Unit, payable in cash. In August 2002, the former owner exercised the Put Option. The Company paid $6,256 in cash to the former owner in 2002 as consideration for the redemption of the Purchase Consideration Units resulting in a reduction of redeemable common members capital of $8,081 and an increase to accumulated earnings of $1,825.

       In 2001, the Company paid $1,428 of bonuses to management of the Acquired Business specifically related to the acquisition of the Acquired Business. The $1,428 has been classified in the accompanying consolidated statements of operations as selling, general and administrative expenses.

       During 2001, the Company acquired the capital stock or assets and liabilities of fourteen reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $32,577, for which the Company paid approximately $22,506 in cash and issued $10,071 of notes payable to the former owners of the acquired companies.

       During 2002, the Company acquired the capital stock or assets and liabilities of eight reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $34,404, for which the Company paid approximately $34,088 in cash and issued $316 of notes payable to the former owners of the acquired companies. In connection with the acquisition of a reprographics company in 2002, the Company paid bonuses totaling $1,500 to a group of management employees of the acquired company. Such bonuses have been classified in the accompanying consolidated statements of operations as selling, general and administrative expenses.

       During 2003, the Company acquired the assets and liabilities of four reprographics companies in the United States. In addition, the Company also acquired certain assets of a reprographics company in bankruptcy. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $870, which the Company paid in cash.
F-25 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
2.	Acquisitions — (Continued)	
       During the nine months ended September 30, 2004, the Company acquired the assets and liabilities of three reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $1,418, for which the Company paid $1,168 in cash and issued $250 of notes payable to the former owners of the acquired companies.

       The results of operations of the companies acquired during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004 have been included in the consolidated financial statements from their respective dates of acquisition. Such acquisitions were accounted for using the purchase method of accounting, and, accordingly, the assets and liabilities of the acquired entities have been recorded at their estimated fair values at the dates of acquisition. The excess purchase price over the net assets acquired has been allocated to goodwill and other intangible assets. For income tax purposes, $2,240, $23,934, $217 and $827 of goodwill resulting from acquisitions completed during the years ended December 31, 2001, 2002 and 2003, and September 30, 2004, respectively, are amortized over a 15-year period.

       The assets and liabilities of the entities acquired during each period are as follows:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	
					
		December 31,			
				September 30,	
		2002		2003		2004	
							
Purchase price	 	$	34,404	 	 	$	870	 	 	$	1,418	 	

Cash and cash equivalents	 	 	77	 	 	 	12	 	 	 	6	 	
Accounts receivable	 	 	4,835	 	 	 	83	 	 	 	35	 	
Property and equipment	 	 	4,360	 	 	 	32	 	 	 	558	 	
Inventories	 	 	624	 	 	 	34	 	 	 	21	 	
Other assets	 	 	411	 	 	 	—	 	 	 	34	 	
 	 	 		 	 	 		 	 	 		 	
 	Total assets	 	 	10,307	 	 	 	161	 	 	 	654	 	
Accounts payable	 	 	1,234	 	 	 	75	 	 	 	13	 	
Accrued expenses	 	 	109	 	 	 	5	 	 	 	18	 	
Long-term debt	 	 	—	 	 	 	—	 	 	 	32	 	
 	 	 		 	 	 		 	 	 		 	
 	Net assets acquired	 	 	8,964	 	 	 	81	 	 	 	591	 	

Excess purchase price over net tangible assets acquired	 	$	25,440	 	 	$	789	 	 	$	827	 	

Intangible assets (As Restated — See Note 1):	 	 	 	 	 	 	 	 	 	 	 	 	
 	Customer relationships	 	$	11,168	 	 	$	615	 	 	$	484	 	
 	Trade names	 	 	1,442	 	 	 	4	 	 	 	—	 	
 	Goodwill	 	 	12,830	 	 	 	170	 	 	 	343	 	
 	 	 		 	 	 		 	 	 		 	
 	 	$	25,440	 	 	$	789	 	 	$	827	 	

       Customer relationships and trade names acquired are amortized over their estimated useful lives of thirteen and twenty years using accelerated (based on customer attrition rates) and straight-line methods, respectively.

F-26 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

2.	Acquisitions — (Continued)	
       The following summary presents the Company’s unaudited proforma results, as if the acquisitions had been completed at the beginning of each year presented:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		(As Restated — See Note 1)	

				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
Net sales	 	$	482,780	 	 	$	441,871	 	 	$	423,360	 	 	$	322,890	 	 	$	336,992	 	
Unaudited pro forma net income attributable to common members	 	$	9,478	 	 	$	12,331	 	 	$	1,275	 	 	$	9,761	 	 	$	17,797	 	
Earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.26	 	 	$	0.34	 	 	$	0.04	 	 	$	0.28	 	 	$	0.50	 	
 	Diluted	 	$	0.26	 	 	$	0.34	 	 	$	0.03	 	 	$	0.26	 	 	$	0.47	 	

       The above proforma information is presented for comparative purposes only and is not necessarily indicative of what actually would have occurred had the acquisitions been completed as of the beginning of each period presented, nor are they necessarily indicative of future consolidated results.
       Certain acquisition agreements entered into by the Company contain earnout agreements which provide for additional consideration (Earnout Payments) to be paid if the acquired entity’s results of operations exceed certain targeted levels measured on an annual basis generally from four to five years after the acquisition. Targeted levels are generally set above the historical experience of the acquired entity at the time of acquisition. Earnout Payments are recorded as additional purchase price and are to be paid annually in cash. Accrued expenses in the accompanying consolidated balance sheets include $2,142, $374 and $265 of Earnout Payments payable as of December 31, 2002 and 2003 and September 30, 2004, respectively, to former owners of acquired companies based on the earnings of acquired entities. The increase to goodwill as of December 31, 2002 and 2003 and as of September 30, 2004 as a result of the earnouts was $1,307, $374, and $265, respectively.
       The earnout provisions generally contain limits on the amount of Earnout Payments that may be payable over the term of the agreement. The Company’s estimate of the aggregate amount of additional consideration that may be payable over the terms of the earnout agreements subsequent to September 30, 2004 is approximately $822.
       In accordance with FAS 141, the Company made certain adjustments to goodwill as a result of changes to the purchase price of acquired entities, during the one year period subsequent to the acquisition. The increase to goodwill as of December 31, 2002 and 2003 and as of September 30, 2004 as a result of purchase price adjustments was $126, $371 and $1,239, respectively.
F-27 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

3.	Property and Equipment	
       Property and equipment consist of the following: 

					
		December 31,			
				September 30,	
		2002		2003		2004	
							
Machinery and equipment	 	$	79,095	 	 	$	76,030	 	 	$	80,876	 	
Buildings and leasehold improvements	 	 	14,379	 	 	 	15,143	 	 	 	16,239	 	
Furniture and fixtures	 	 	2,268	 	 	 	3,086	 	 	 	2,948	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	95,742	 	 	 	94,259	 	 	 	100,063	 	
Less accumulated depreciation and amortization	 	 	(49,663	)	 	 	(56,991	)	 	 	(63,931	)	
 	 	 		 	 	 		 	 	 		 	
 	 	$	46,079	 	 	$	37,268	 	 	$	36,132	 	
 	 	 		 	 	 		 	 	 		 	
       Machinery and equipment includes $29,687, $28,209 and $32,220 of equipment recorded under capital lease agreements with related accumulated amortization of $14,081, $15,291 and $17,900 at December 31, 2002 and 2003, and September 30, 2004, respectively.

4.	Long-Term Debt	
       Long-term debt consists of the following: 

					
		December 31,			
				September 30,	
		2002		2003		2004	
							
Borrowings from senior secured First Priority — Revolving Credit Facility; variable interest payable quarterly (5.75% interest rate at December 31, 2003); any unpaid principal and interest due December 18, 2008	 	$	—	 	 	$	15,000	 	 	$	—	 	
Borrowings from senior secured First Priority — Term Loan Credit Facility; variable interest payable quarterly (5.75% and 4.84% interest rate at December 31, 2003 and September 30, 2004); principal payable in varying quarterly installments; any unpaid principal and interest due June 18, 2009	 	 	—	 	 	 	100,000	 	 	 	99,250	 	
Borrowings from senior secured Second Priority — Term Loan Credit Facility; variable interest payable quarterly (9.88% and 8.63% interest rate at December 31, 2003 and September 30, 2004); any unpaid principal and interest due December 18, 2009	 	 	—	 	 	 	225,000	 	 	 	213,364	 	
Borrowings from senior secured term loan — Tranche A; variable interest payable quarterly (3.9% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	47,668	 	 	 	—	 	 	 	—	 	
Borrowings from senior secured term loan — Tranche B; variable interest payable quarterly (5.1% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	165,925	 	 	 	—	 	 	 	—	 	
F-28 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt — (Continued)	

		December 31,			
				September 30,	
		2002		2003		2004	
							
Borrowings from senior secured term loan — Tranche B-1; variable interest payable quarterly (5.1% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	19,900	 	 	 	—	 	 	 	—	 	
Senior subordinated notes payable (Opco Notes); 13.25% interest payable semiannually	 	 	54,412	 	 	 	—	 	 	 	—	 	
Senior subordinated notes payable (Holdings Notes) at Accreted Value; 19.6% effective interest rate	 	 	68,252	 	 	 	—	 	 	 	—	 	
Various subordinated notes payable; interest ranging from 6.6% to 11%; principal and interest payable monthly through January 2007	 	 	10,623	 	 	 	7,510	 	 	 	5,027	 	
Various capital leases; interest rates ranging to 15.9%; principal and interest payable monthly through September 2009	 	 	16,549	 	 	 	14,064	 	 	 	15,314	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	383,329	 	 	 	361,574	 	 	 	332,955	 	
Less debt discount due to Warrants	 	 	(721	)	 	 	—	 	 	 	—	 	
Less debt discount due to difference between the Accreted Value and the carrying amount	 	 	(4,000	)	 	 	—	 	 	 	—	 	
Less debt discount on Second Priority Credit Facility	 	 	—	 	 	 	(2,234	)	 	 	(1,855	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	378,608	 	 	 	359,340	 	 	 	331,100	 	
Less current portion	 	 	(24,409	)	 	 	(25,123	)	 	 	(10,685	)	
 	 	 		 	 	 		 	 	 		 	
 	 	$	354,199	 	 	$	334,217	 	 	$	320,415	 	
 	 	 		 	 	 		 	 	 		 	
       During 2000, the Company entered into a credit agreement with a group of financial institutions which provided the Company with a Senior Credit Facility consisting of a $45,000 Senior Secured Revolving Facility, a $65,000 Senior Secured Tranche A Term Loan Facility, and a $170,000 Senior Secured Tranche B Term Loan Facility. The Company also received $54,412 and $38,088 in gross cash proceeds from the issuance during 2000 of senior subordinated Opco Notes (the Opco Notes) and senior subordinated Holdings Notes (the Holdings Notes, and collectively with the Opco Notes, the Notes), respectively. The Company capitalized $9,239 of loan fees incurred in connection with the credit facilities negotiated in 2000.
       Concurrent with the issuance of the Notes, the Company granted the holders of the Notes warrants to purchase up to an aggregate of 1,168,842 common units of the Company. Such warrants (the Warrants) are exercisable at any time subsequent to the grant date at an exercise price of $4.61 per warrant. The estimated aggregate fair value of the Warrants was $1,039 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 15%, risk-free interest rate of 6%, and an expected life of 10 years. The fair value of the Warrants was recorded as a discount on the related Notes and was being amortized as interest expense over the term of the Notes. As a result of the debt refinancing completed by the Company in December 2003 (as discussed further below), the Company wrote off $616 of unamortized discount on the Warrants in December 2003. None of the Warrants have been exercised as of September 30, 2004.
F-29 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
4.	Long-Term Debt — (Continued)	
       In May 2002, the Company negotiated an amendment to the credit agreement which provided a $20,000 Senior Secured Tranche B-1 Term Loan Facility. The Company used the net proceeds from the Tranche B-1 Term Loan Facility to finance its acquisition of the assets of a reprographics company in May 2002. During 2002, the Company capitalized $950 in loan fees incurred in connection with the amendment negotiated in May 2002.
       Interest on the Holdings Notes accreted monthly based on an accretion schedule specified in the Holdings Notes agreement and was added to the outstanding principal balance of the Holdings Notes (the Accreted Value) until April 2005. The effective interest rate on the Holdings Notes during its entire nine-year term through April 2009 was approximately 19.6%. The difference between the Accreted Value and the carrying amount of the Holdings Notes represented a discount (the Accretion Discount) which was being amortized over the nine-year term of the Holdings Notes using the effective interest method. The Holdings Notes were repaid in December 2003 in connection with the Company’s refinancing of its borrowings discussed below.

       In December 2003, the Company refinanced its borrowings under its then existing senior credit facilities, the Notes and the Holdings Notes by entering into a new credit agreement with a group of financial institutions which provides the Company a $355,000 Senior Secured Credit Facility (the 2003 Senior Credit Facility). Such credit facility is comprised of a $130,000 First Priority Facility (consisting of a $30,000 Senior Revolving Credit Facility and a $100,000 Senior Term Loan Credit Facility) and a $225,000 Second Priority Facility. At December 31, 2003 and September 30, 2004, $771 and $2,479, respectively, of the $30,000 Senior Revolving Credit Facility have been utilized for the issuance of letters of credit related to the Company’s workers compensation and automobile insurance policies. There were no outstanding borrowings against such letters of credit as of December 31, 2003 and September 30, 2004.

       As a result of the debt refinancing completed in December 2003, the Company recorded a $14,921 loss on early debt extinguishment, comprised of the following: a) the write-off of $6,318 in capitalized loan fees related to the Company’s credit facilities existing prior to the debt refinancing; b) $4,728 in early redemption premiums related to the Notes paid by the Company upon completion of the debt refinancing; and c) the write off of $3,875 in unamortized discounts related to the Warrants and the Accretion Discount. The Company also capitalized $8,335 of new loan fees incurred in connection with the 2003 Senior Credit Facility, of which $176 was included in prepaid expenses as of December 31, 2002.
       Borrowings under the First Priority Revolving Credit Facility bear interest at either (i) a Eurodollar rate plus a margin (the Applicable Margin) that ranges from 2% to 2.75% per annum, depending on the Company’s Leverage Ratio, as defined, or (ii) an Index Rate, as defined, plus the Applicable Margin less 1% per annum. The First Priority Revolving Credit Facility is also subject to a commitment fee equal to 0.50% of the average daily unused portion of such revolving facility. Borrowings under the First Priority Term Loan Facility bear interest at either (i) a Eurodollar rate plus 3% per annum, or (ii) an Index Rate, as defined, plus 2% per annum.
       Borrowings under the Second Priority Facility bear interest at either (i) a Eurodollar rate, subject to a Eurodollar rate minimum of 1.75% per annum, plus a margin of either 6.875% or 7.875% per annum, depending on the Company’s Leverage Ratio, as defined in the credit agreement, or (ii) a Base Rate, as defined in the credit agreement, plus a margin of either 5.875% or 6.875% per annum, depending on the Company’s Leverage Ratio, as defined in the credit agreement.
F-30 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt — (Continued)	
       The Company’s overall weighted average interest rate on its long term debt was approximately 8.9%, 8.4% and 7.4% for the years ended December 31, 2002 and 2003, and nine months ended September 30, 2004.
       Under the terms of the 2003 Senior Credit Facility, the Company is subject to mandatory principal prepayments equal to 75% of Consolidated Excess Cash Flow, as defined, starting in the year ending December 31, 2004, or up to 75% of the net proceeds of equity offerings. Mandatory prepayments from such sources (the Permitted Payments) are applied first to the Second Priority Facility in an aggregate amount not to exceed $67,500, with any excess above $67,500 applied to the First Priority Facility. In July 2004, the Company made a mandatory principal prepayment on its Second Priority Credit Facility in the amount of $11,636 based on 75% of its Consolidated Excess Cash Flow, as defined, during the six months ended June 30, 2004. Mandatory principal prepayments are also required equal to 100% of the net proceeds from asset sales and insurance proceeds that each exceed $5 million in aggregate, as well as 100% of net proceeds from new debt offerings. Mandatory prepayments from such sources are applied to the First Priority Facility until it is fully paid, followed by the Second Priority Facility. With the exception of Permitted Payments as discussed above, prepayments on the Second Priority Facility carry a penalty during the first three years of its term equal to a percentage of the prepayment, as follows: Year 1 — 11%; Year 2 — 7.5%; and Year 3 — 2.5%.
       Borrowings under the 2003 Senior Credit Facility are secured by substantially all of the assets of the Company. The 2003 Senior Credit Facility also contains restrictive covenants which, among other things, provide limitations on capital expenditures, and restrictions on indebtedness and distributions to the Company’s equity holders. Additionally, the Company is required to meet debt covenants based on certain financial ratio thresholds applicable to the First and Second Priority Facilities, as follows with ratio thresholds as of September 30, 2004: (i) First Priority Facility — Interest Coverage Ratio not lower than 1.70, Fixed Charge Coverage Ratio not lower than 1.25, Leverage Ratio not higher than 5.10, and First Priority Senior Debt Leverage Ratio not higher than 1.75, each as defined; and (ii) Second Priority Facility — Leverage Ratio not higher than 5.30, as defined. The Company is in compliance with all such covenants as of September 30, 2004.
       Minimum future maturities of long-term debt and capital lease obligations as of September 30, 2004 are as follows: 

		Long-Term		Capital Lease	
		Debt		Obligations	
					
Year ending December 31:	 	 	 	 	 	 	 	 	
 	2004	 	$	1,005	 	 	$	2,122	 	
 	2005	 	 	3,722	 	 	 	7,113	 	
 	2006	 	 	1,696	 	 	 	4,358	 	
 	2007	 	 	635	 	 	 	2,402	 	
 	2008	 	 	47,875	 	 	 	999	 	
Thereafter	 	 	260,853	 	 	 	288	 	
 	 	 		 	 	 		 	
 	 	$	315,786	 	 	 	17,282	 	
 	 	 		 	 	 	 	 	
Less interest	 	 	 	 	 	 	1,968	 	
 	 	 	 	 	 	 		 	
 	 	 	 	 	 	$	15,314	 	
 	 	 	 	 	 	 		 	
F-31 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

5.	Income Taxes	

       A substantial portion of the Company’s business is operated in a limited liability company (LLC), taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings, not the LLC. Accordingly, no income taxes have been provided on these earnings. The LLC had book income of $6,481, $12,179, $370, $11,898 and $16,865 during the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004, respectively, which are not subject to tax at the LLC level.

       As discussed in Note 1, the Company will convert from a California limited liability company to a Delaware corporation immediately prior to the completion of the proposed public offering. The unaudited pro forma incremental income tax provision included in the statement of operations reflects the additional income tax expense that would have been reported if the Company had been a corporation effective January 1, 2001.
       The following table includes the consolidated provision for income taxes related to that portion of the Company’s business not operated as an LLC and the unaudited pro forma income tax provision reflecting the incremental income tax expense that would have been reported if the LLC portion of the business had been a corporation resulting in a pro forma income tax provision, as follows:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		(As Restated — See Note 1)	
					
				Nine Months Ended	
		Year Ended December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
								(Unaudited)			
Current:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	$	2,096	 	 	$	4,394	 	 	$	1,562	 	 	$	1,360	 	 	$	4,930	 	
 	State	 	 	1,524	 	 	 	1,419	 	 	 	947	 	 	 	809	 	 	 	1,321	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	3,620	 	 	 	5,813	 	 	 	2,509	 	 	 	2,169	 	 	 	6,251	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	1,950	 	 	 	410	 	 	 	1,411	 	 	 	1,784	 	 	 	287	 	
 	State	 	 	217	 	 	 	44	 	 	 	211	 	 	 	267	 	 	 	402	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	2,167	 	 	 	454	 	 	 	1,622	 	 	 	2,051	 	 	 	689	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income tax provision, as reported	 	 	5,787	 	 	 	6,267	 	 	 	4,131	 	 	 	4,220	 	 	 	6,940	 	
Unaudited pro forma incremental income tax provision	 	 	2,574	 	 	 	6,211	 	 	 	673	 	 	 	5,180	 	 	 	7,714	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Pro forma income tax provision	 	$	8,361	 	 	$	12,478	 	 	$	4,804	 	 	$	9,400	 	 	$	14,654	 	

F-32 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

5.	Income Taxes — (Continued)	
       The consolidated deferred tax assets and liabilities consist of the following:

			
		(As2Restated — See Note 1)	
			
		December 31,	
				September 30,	
		2002		2003		2004	
							
Deferred tax assets:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Financial statement accruals not currently deductible	 	$	1,387	 	 	$	1,179	 	 	$	1,159	 	
 	State taxes	 	 	52	 	 	 	28	 	 	 	111	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	1,439	 	 	 	1,207	 	 	 	1,270	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Excess of net book value for financial reporting purposes over income tax basis of property, plant and equipment	 	 	(993	)	 	 	(1,700	)	 	 	(1,790	)	
 	Excess of net book value for financial reporting purposes over income tax basis of intangible assets	 	 	(2,317	)	 	 	(3,075	)	 	 	(3,737	)	
 	Change in method of accounting for tax purposes	 	 	(75	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	(3,385	)	 	 	(4,775	)	 	 	(5,527	)	
 	 	 		 	 	 		 	 	 		 	
Net deferred tax liabilities	 	$	(1,946	)	 	$	(3,568	)	 	$	(4,257	)	
 	 	 		 	 	 		 	 	 		 	
       Deferred tax assets and liabilities are included in prepaid expenses and other current assets and other long-term liabilities, respectively, in the accompanying consolidated balance sheets.
       A reconciliation of the statutory federal income tax rate to the Company’s pro forma effective tax rate is as follows:

			
		(As Restated — See Note 1)	

				Nine Months	
		Year Ended		Ended	
		December 31,		September 30,	
					
		2001		2002		2003		2003		2004	
											
Statutory federal income tax rate	 	 	34	%	 	 	34	%	 	 	34	%	 	 	34	%	 	 	34	%	
State taxes	 	 	9	 	 	 	8	 	 	 	12	 	 	 	6	 	 	 	5	 	
Non-deductible goodwill amortization	 	 	7	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Non-deductible interest expense on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	8	 	 	 	2	 	 	 	3	 	
Non-deductible other items	 	 	1	 	 	 	4	 	 	 	8	 	 	 	3	 	 	 	3	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Pro forma effective income tax rate	 	 	51	%	 	 	46	%	 	 	62	%	 	 	45	%	 	 	45	%	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       Non-deductible other items include meals and entertainment, certain acquisition costs and other items that, individually, are not significant.
F-33 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

6.	Commitments and Contingencies	

       The Company leases machinery, equipment, and office and operational facilities under noncancelable operating lease agreements. Certain lease agreements for the Company’s facilities generally contain renewal options and provide for annual increases in rent based on the local Consumer Price Index. The following is a schedule of the Company’s future minimum lease payments as of September 30, 2004:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		Third		Related			
		Party		Party		Total	
							
Year ending December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
 	2004	 	$	8,209	 	 	 	855	 	 	$	9,064	 	
 	2005	 	 	26,461	 	 	 	3,055	 	 	 	29,516	 	
 	2006	 	 	17,429	 	 	 	2,331	 	 	 	19,760	 	
 	2007	 	 	10,611	 	 	 	2,273	 	 	 	12,884	 	
 	2008	 	 	6,135	 	 	 	2,293	 	 	 	8,428	 	
 	Thereafter	 	 	11,001	 	 	 	9,290	 	 	 	20,291	 	
 	 	 		 	 	 		 	 	 		 	
 	 	$	79,846	 	 	$	20,097	 	 	$	99,943	 	

       Total rent expense under operating leases, including month-to-month rentals, amounted to $30,157, $32,143, $36,161, $26,850 and $27,612 during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004, respectively. Under certain lease agreements, the Company is responsible for other costs such as property taxes, insurance, maintenance, and utilities.

       The Company is involved in a dispute with a state tax authority related to unresolved sales tax issues which arose from such state tax authority’s audit findings from their sales tax audit of certain operating divisions of the Company for the period from October 1998 to September 2001. The unresolved issues relate to the application of sales taxes on certain discounts granted by the Company to its customers. Based on the position taken by the state tax authority on these unresolved issues, they have claimed that an additional $1,179 of sales taxes are due from the Company for the period in question, plus $372 of interest. The Company strongly disagrees with the state tax authority’s position and has filed a petition for redetermination requesting an appeals conference to resolve these issues. At an appeals conference held on December 14, 2004, the appeals board ruled that the Company is liable in connection with one component of the dispute involving approximately $40, which the Company had previously paid. The Company has requested another appeals conference to resolve the remaining issues, but such conference has not yet been scheduled. The Company’s accrued expenses in its consolidated balance sheet as of December 31, 2003 and September 30, 2004 each include $151 of reserves related to this matter, based primarily on certain components of the state tax authority’s audit findings that the Company is not disputing.

       The Company has an agreement to pay its Chief Executive Officer (“CEO”) and its Chief Operating Officer (“COO”) each a fee equal to 1% of the aggregate consideration paid by the Company in connection with any acquisition. The Company recorded fees of $623, $653, $9, $3 and $28 during the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2003 and 2004, respectively, for which the Company is obligated to pay its CEO and COO in connection with this agreement. Such fees are expensed as incurred and are included in selling, general and administrative expenses.
F-34 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

6.	Commitments and Contingencies — (Continued)	
       The Company has entered into employment agreements with certain of its management employees which require annual gross salary payments which range from $40 to $200 per annum. The employment agreements range from a period of one to three years and include a provision for annual bonuses based on specific performance criteria. In the event that such key management employees are terminated without cause, the Company is contractually obligated to pay the remaining balance due on the employment contracts.
       The following is a schedule of the Company’s future minimum annual payments under such employment agreements as of September 30, 2004:

Year ending December 31:	 	 	 	 	
  	2004	 	$	248	 	
 	2005	 	 	438	 	
 	2006	 	 	68	 	
 	 	 		 	
 	 	$	754	 	
 	 	 		 	
       The Company’s operating agreement provides for the indemnification of its officers and members of its board of advisors under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The operating agreement provides for the Company, among other things, to indemnify its officers and board members against certain liabilities that may arise by reason of their status or service as officers and board members (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms. There have been no events to date which would require the Company to indemnify its officers or members of its board of Advisors.
       The Company is a creditor and participant in the Chapter 7 Bankruptcy of Louis Frey Company, Inc., or LF Co., which is pending in the United States Bankruptcy Court, Southern District of New York. We managed LF Co. under a contract from May through September of 2003. LF Co. filed for Bankruptcy protection in August 2003, and the proceeding was converted to a Chapter 7 liquidation in October 2003. On or about June 30, 2004, the Bankruptcy Estate Trustee filed a complaint in the LF Co. Bankruptcy proceeding against the Company, which was amended on or about July 19, 2004, alleging, among other things, breach of contract, breach of fiduciary duties, conversion, unjust enrichment, tortious interference with contract, unfair competition and false commercial promotion in violation of The Lanham Act, misappropriation of trade secrets and fraud regarding the Company’s handling of the assets of LF Co. The Trustee claims damages of not less than $9.5 million, as well as punitive damages and treble damages with respect to the Lanham Act claims. Previously, on or about October 10, 2003, a secured creditor of LF Co., Merrill Lynch Business Financial Services, Inc., or Merrill, had filed a complaint in the LF Co. Bankruptcy proceeding against the Company, which was most recently amended on or about July 6, 2004. Merrill’s claims are duplicated in the Trustee’s suit. The Company, in turn, has filed answers and counterclaims denying liability to the Trustee and seeking reimbursement of all costs and damages sustained as a result of the Trustee’s actions and in the Company’s efforts to assist LF Co. Discovery has commenced and is ongoing in each of these cases. The Company believes that it has meritorious defenses as well as substantial counterclaims against Merrill Lynch and the Trustee. The Company intends to vigorously contest the above matters. Based on the discovery and depositions to date, the Company does not believe that
F-35 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)
6.                          Commitments and Contingencies — (Continued)
the outcome of the above matters will have a material adverse impact on its results of operations or financial condition.
       The Company may be involved in litigation and other legal matters from time to time in the normal course of business. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

7.	Related Party Transactions	
       The Company leases several of its facilities under operating lease agreements with entities owned by certain of its executive officers and other related parties which expire through July 2019. Rental expense on these facilities amounted to $2,683, $2,281, $2,209, $1,589 and $1,938 during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004, respectively.
       The Company has a management agreement with an equity investor (the Management Agreement) which requires the Company to pay annual management fees to the equity investor as compensation for certain management services rendered to the Company. In accordance with the Management Agreement, the management fees charged to the Company are subject to an annual increases based on the Company’s earnings but shall not exceed $1,000 annually. The Management Agreement expires in April 2005 and is automatically renewable. However, the Company’s board of advisors has the ability to terminate the Management Agreement under certain circumstances as defined in the Management Agreement. In addition, the Management Agreement will terminate upon completion of the Company’s initial public offering. Management fees paid by the Company to the equity investor amounted to $803, $889, $858, $622 and $618 during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004, respectively.

       The Company sells certain products and services to Thomas Reprographics, Inc. and Albinson Inc., each of which is owned or controlled by Billy E. Thomas, who beneficially owns more than 5% of the common equity in the Company. These companies purchased products and services from the Company of approximately $215 and $95 during the twelve months ended December 31, 2002 and 2003, respectively, and $90 and $45 during the nine months ended September 30, 2003 and 2004, respectively.

		
8.	Retirement Plans	
       The Company sponsors a defined contribution plan (the Plan) covering substantially all employees who are at least 21 years of age and have satisfied a service requirement ranging from three to six months through December 31, 2001. Effective January 2002, the Plan was amended to remove the minimum service requirement. Plan participants may contribute up to 19% of their annual eligible compensation, subject to contribution limitations imposed by the Internal Revenue Service. The Company matches up to 20% of participant contributions to a maximum of 4% of their annual eligible compensation. The Company’s total expense under these plans amounted to $501, $388, $544, $413 and $467 during the years ended December 31, 2001, 2002, and 2003, and the nine months ended September 30, 2003 and 2004, respectively.
F-36 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

9.	Equity Option Plan	
       In January 2001, the Company established the American Reprographics Holdings, LLC Unit Option Plan (the Option Plan) which permits the grant of options (the Options) to key personnel to purchase up to 1,735,415 common membership units of the Company (the Option Units). Options granted under the Option Plan are nontransferable and may be exercised at an option price to be determined by the Company’s board of advisors provided that the option price is not less than 85% of the fair market value of such unit of grant date.
       In the event of a key personnel’s termination of employment with the Company, Option Units attributable to the exercise of an Option shall generally be subject to redemption by the Company at a redemption price generally equal to the fair market value per common membership unit. In limited circumstances, the Option Units could be repurchased at the Option exercise price. As of September 30, 2004, a repurchase of any units under the Option Plan was not expected. The option to repurchase the Option Units shall terminate in the event of an initial public offering.
       The Company has granted Options to certain key personnel in accordance with the terms of the Option Plan at exercise prices equal to management’s estimate of the fair value of the common membership units at the date of issuance (except for 2004 grants described below). A summary of the activity related to the Company’s Option Plan is as follows:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
							
		Year Ended December 31,					
					
								Nine Months Ended	
		2001		2002		2003		September 30, 2004	
									
				Weighted				Weighted				Weighted				Weighted	
				Average				Average				Average				Average	
		Number		Exercise		Number		Exercise		Number		Exercise		Number		Exercise	
		of Units		Price		of Units		Price		of Units		Price		of Units		Price	
																	
Outstanding at beginning of the period	 	 	—	 	 	$	—	 	 	 	667,500	 	 	$	4.87	 	 	 	1,421,500	 	 	$	5.07	 	 	 	1,446,000	 	 	$	5.09	 	
 	Granted	 	 	667,500	 	 	 	4.87	 	 	 	761,500	 	 	 	5.25	 	 	 	39,500	 	 	 	5.55	 	 	 	307,915	 	 	 	5.91	 	
 	Canceled	 	 	—	 	 	 	—	 	 	 	(7,500	)	 	 	(4.87	)	 	 	(15,000	)	 	 	(4.87	)	 	 	(41,000	)	 	 	(5.52	)	
 	Expired	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Exercised	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Outstanding at end of the period	 	 	667,500	 	 	$	4.87	 	 	 	1,421,500	 	 	$	5.07	 	 	 	1,446,000	 	 	$	5.09	 	 	 	1,712,915	 	 	$	5.22	 	

       During the nine months ended September 30, 2004, the Company granted 304,415 options to purchase common membership units to employees with exercise prices ranging from $5.62 to $6.85 per unit. The fair market value of the Company’s common member units on the date of grant was $16 per unit. In connection with the issuances, the Company recorded a deferred compensation charge of $3,074 in connection with the issuance as the exercise price of the units was less than the estimated fair market value of the Company’s membership units as of the date of grant after giving consideration to the anticipated fair value of the membership units during the one-year period preceeding the proposed initial public offering. The Company will amortize the deferred compensation charge over the vesting period of the options, generally five years. As of September 30, 2004, the Company has amortized $332 of the deferred compensation charge.

       Of the total options outstanding, 297,000, 485,000, 806,250 and 1,052,000 options were exercisable at December 31, 2001, 2002, and 2003 and September 30, 2004, respectively, at

F-37 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

9.	Equity Option Plan — (Continued)	

exercise prices ranging from $4.75 to $5.58 per option. As of September 30, 2004, the 1,712,915 options outstanding had a weighted average remaining contractual life of 90 months and there were 22,500 options available for future grant.

		
10.	Members’ Equity and Redeemable Membership Units	

	Common and Redeemable Common Membership Units	
       Each common membership unit is entitled to one vote with respect to any action presented for a vote of the Company’s members. Except for units issued in accordance with the Option Plan, common membership units may be transferred without the consent of the board of advisors under certain conditions specified in the Company’s Amended and Restated Operating Agreement. During the year ended December 31, 2002, the Company redeemed all outstanding redeemable common membership units. See Note 2.

	Mandatorily Redeemable Preferred Membership Units	
       Holders of the Company’s mandatorily redeemable preferred units are entitled to receive a yield of 13.25% of its Liquidation Value per annum for the first three years starting in April 2000, and increasing to 15% of the Liquidation Value per annum thereafter. The discount inherent in the yield for the first three years was recorded as an adjustment to the carrying amount of the mandatorily redeemable preferred units. This discount was amortized as a dividend over the initial three years. Of the total yield on the mandatorily redeemable preferred units, 48% is mandatorily payable quarterly in cash to the mandatorily redeemable preferred unit holders. The unpaid portion of the yield accumulates annually and is added to the Liquidation Value of the mandatorily redeemable preferred units. Such units have an aggregate liquidation preference over common units of $20 million plus accumulated and unpaid yield. Mandatorily redeemable preferred units have no voting rights.
       Mandatorily redeemable preferred units are redeemable without premium or penalty, wholly or in part, at the Company’s option at any time, for the Liquidation Value, including any unpaid yield. Redeemable preferred units are mandatorily redeemable on the earlier to occur of (i) an initial public offering of the Company (to the extent of 25% of the net proceeds thereof), (ii) a sale of equity or assets of the Company or any of its principal operating subsidiaries after retirement in full of the Company’s debt under its senior credit facilities, or (iii) April 10, 2010. At December 31, 2002 and 2003, and September 30, 2004, the Company had 20,000 redeemable preferred membership units issued and outstanding.
Distributions to Members
       In accordance with the Company’s Amended and Restated Operating Agreement, cash distributions will be made first, to all preferred members based on their tax liability imposed on the yield earned on their preferred units; second, to all common members, based on their tax liability imposed on the Company’s earnings. The Amended and Restated Operating Agreement also provides for certain members who receive less than their proportionate share of cash distributions, at their election or the election of the Company’s management, to be granted an additional cash distribution to bring their proportionate share of cash distributions equal to the rest of the Company’s common members. Any remaining cash available for distribution will be distributed, at the discretion of the Company’s board of advisors, first to all preferred members to the extent of the Liquidation
F-38 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

10.	Members’ Equity and Redeemable Membership Units — (Continued)	
Value of their preferred units; second, to all common members, except to those common members where such distribution would cause or increase a deficit to their capital accounts.

11.	Quarterly Financial Data (Unaudited)	

       Quarterly financial data for the years ended December 31, 2002 and 2003 and the three months ended March 31, June 30, and September 30, 2004 are as follows, as restated (See Note 1):

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		(As Restated — See Note 1)	
		Quarter Ended	
			
		March 31,		June 30,		September 30,		December 31,	
		2002		2002		2002		2002	
									
Net sales	 	$	100,772	 	 	$	110,078	 	 	$	107,549	 	 	$	100,525	 	
Gross profit	 	$	42,352	 	 	$	46,813	 	 	$	43,739	 	 	$	38,242	 	
Net income	 	$	7,444	 	 	$	6,266	 	 	$	5,041	 	 	$	1,949	 	
Net income attributable to common members	 	$	6,655	 	 	$	5,436	 	 	$	4,205	 	 	$	1,113	 	
Unaudited pro forma net income attributable to common members	 	$	4,423	 	 	$	3,556	 	 	$	2,692	 	 	$	527	 	
Unaudited pro forma net income attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.12	 	 	$	0.10	 	 	$	0.07	 	 	$	0.02	 	
 	Diluted	 	$	0.12	 	 	$	0.10	 	 	$	0.07	 	 	$	0.01	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
			
		(As Restated — See Note 1)	
		Quarter Ended	
			
		March 31,		June 30,		September 30,		December 31,	
		2003		2003		2003		2003	
									
Net sales	 	$	105,272	 	 	$	108,882	 	 	$	102,184	 	 	$	99,622	 	
Gross profit	 	$	42,292	 	 	$	44,551	 	 	$	39,229	 	 	$	37,860	 	
Net income (loss)	 	$	5,946	 	 	$	8,049	 	 	$	2,583	 	 	$	(13,025	)	
Net income (loss) attributable to common members	 	$	5,110	 	 	$	7,155	 	 	$	2,583	 	 	$	(13,025	)	
Unaudited pro forma net income (loss) attributable to common members	 	$	3,278	 	 	$	4,620	 	 	$	1,770	 	 	$	(8,518	)	
Unaudited pro forma net income (loss) attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.09	 	 	$	0.13	 	 	$	0.05	 	 	$	(0.24	)	
 	Diluted	 	$	0.09	 	 	$	0.13	 	 	$	0.04	 	 	$	(0.23	)	

F-39 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
11.	Quarterly Financial Data (Unaudited) — Continued	

					
		(As Restated — See Note 1)			
		Quarter Ended			
					
		March 31,		June 30,		September 30,			
		2004		2004		2004			
									
Net sales	 	$	110,518	 	 	$	115,615	 	 	$	110,165	 	 	 	 	 	
Gross profit	 	$	45,919	 	 	$	49,424	 	 	$	44,287	 	 	 	 	 	
Net income	 	$	8,438	 	 	$	9,845	 	 	$	7,191	 	 	 	 	 	
Net income attributable to common members	 	$	8,438	 	 	$	9,845	 	 	$	7,191	 	 	 	 	 	
Unaudited pro forma net income attributable to common members	 	$	5,883	 	 	$	6,864	 	 	$	5,013	 	 	 	 	 	
Unaudited pro forma net income attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.17	 	 	$	0.19	 	 	$	0.14	 	 	 	 	 	
 	Diluted	 	$	0.16	 	 	$	0.18	 	 	$	0.13	 	 	 	 	 	

		
12.	Subsequent Events	

		
	Debt Repayment	

       In November 2004, the Company made a mandatory principal prepayment on its Second Priority Credit Facility in the amount of $5,133 based on 75% of its Consolidated Excess Cash Flow, as defined in its debt agreement, during the three months ended September 30, 2004. In November 2004, the Company also made a voluntary principal prepayment on its First Priority Credit Facility in the amount of $4,200. In December 2004, the Company made a scheduled principal payment of $250,000 on its First Priority Credit Facility.

		
	Acquisitions	

       Subsequent to September 30, 2004, the Company completed the acquisition of four reprographics companies and one distributor of reprographics equipment and supplies in the United States with combined annual sales of approximately $8.3 million for a total purchase price of $1.9 million.

Initial Public Offering and Pro Forma Balance Sheet (Unaudited)

       The Company filed a registration statement with the SEC in October 2004 to sell a certain amount of its common equity in an initial public offering (the IPO). Prior to the consummation of the planned IPO, the Company will convert from a California limited liability company (American Reprographics Holdings, L.L.C.) to a Delaware corporation (American Reprographics Company or ARC). In this reorganization, the Company’s common members will exchange their common member units for common stock of ARC. Each option issued to purchase the Company’s common member units will be exchanged for an option exercisable for shares of ARC’s common stock with the same exercise prices and vesting terms as the original grants, and the warrants will be exchanged for 809,618 shares of the Company’s common stock, assuming an initial public offering price of $15.00

F-40 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

per share. As required by the Company’s operating agreement, ARC will repurchase all of the mandatorily redeemable preferred membership units of the Company upon closing of the IPO with a portion of the net proceeds of the offering.

       In connection with the planned IPO, the Company will adopt the 2005 Stock Plan (the Stock Plan) which will provide for discretionary grants of incentive stock options to employees, including officers and employee directors, and for the discretionary grant of nonstatutory stock options, restricted stock, restricted stock units, and stock appreciation rights to employees, directors and consultants. The Stock Plan will also provide for the periodic automatic grant of nonstatutory stock options to non-employee directors. The Stock Plan authorizes the Company to grant options to purchase up to 5,000,000 shares of common stock. The Company will also adopt an Employee Stock Purchase Plan (“ESPP”) to provide an incentive to attract, retain and reward eligible employees of the Company. The ESPP authorizes the Company to grant options to purchase 750,000 shares of common stock.

       In connection with the Company’s operating agreement, cash distributions are to be made to members of the Company to pay taxes that the members will owe for their share of the Company’s profits as a limited liability company through the date of the effective date of the IPO. The cash distributions will be calculated at the highest combined federal and state income tax rates applicable for tax withholding purposes, currently 43%. Accordingly, the Company estimates that it will make a cash distribution to all of its members in the amount of approximately $510 upon the consummation of the IPO. In addition, due to their tax attributes, certain members in the past have elected to receive less than their proportionate share of distributions for such taxes as a result of a difference in the tax basis of their equity interest in the Company. In accordance with the terms of the Company’s operating agreement, an additional distribution of approximately $8,587 will be made to such members in connection with the consummation of the IPO to bring their proportionate share of tax distributions equal to the rest of the Company’s common members. These distributions are not accrued at September 30, 2004, but will become payable and recorded immediately prior to the reorganization and consummation of the IPO.

       The pro forma balance sheet information at September 30, 2004 included at page F-4 includes the effects of the distributions discussed above and the deferred income tax benefit of approximately $17.3 million resulting from the conversion from a California limited liability company to a Delaware corporation. The current portion of the deferred income tax benefit of approximately $1.9 million is included in prepaid expenses and other current assets.

F-41 

 

      No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS

 	 	 	 	 	
		Page	
			
Prospectus Summary	 	 	1	 	
Risk Factors	 	 	12	 	
Forward-Looking Statements	 	 	22	 	
Trademarks and Trade Names	 	 	23	 	
Market Data	 	 	23	 	
Use of Proceeds	 	 	24	 	
Dividend Policy	 	 	24	 	
Reorganization	 	 	24	 	
Change in Independent Registered Public Accounting Firm	 	 	25	 	
Capitalization	 	 	26	 	
Dilution	 	 	28	 	
Selected Historical and Unaudited Pro Forma Financial Data	 	 	30	 	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	33	 	
Business	 	 	59	 	
Management	 	 	78	 	
Certain Relationships and Related Transactions	 	 	90	 	
Principal and Selling Stockholders	 	 	92	 	
Description of Capital Stock	 	 	95	 	
Shares Eligible for Future Sale	 	 	99	 	
Description of Certain Indebtedness	 	 	101	 	
Underwriting	 	 	104	 	
Validity of Common Stock	 	 	107	 	
Experts	 	 	107	 	
Where You Can Find More Information	 	 	108	 	
Index to Consolidated Financial Statements	 	 	F-1	 	

      Through and including                     , 2005 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

13,350,000 Shares

American Reprographics Company
Common Stock

Goldman, Sachs & Co.
JPMorgan
Credit Suisse First Boston
Robert W. Baird & Co.
CIBC World Markets
Representatives of the Underwriters

 
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.	Other Expenses of Issuance and Distribution	
       The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the New York Stock Exchange listing fee.

 	 	 	 	 	 	
		Amount	
		to be Paid	
			
SEC registration fee	 	$	30,982	 	
New York Stock Exchange listing fee	 	 	221,100	 	
Printing and engraving expenses	 	 	175,000	 	
Legal fees and expenses	 	 	1,550,000	 	
Accounting fees and expenses	 	 	1,200,000	 	
Blue Sky qualification and NASD fees and expenses	 	 	35,000	 	
Transfer Agent and Registrar fees	 	 	20,000	 	
Miscellaneous fees and expenses	 	 	167,918	 	
 	 	 		 	
 	Total	 	$	3,400,000	 	

 

Item 14.  	Indemnification of Directors and Officers	

       Section 102 of the Delaware General Corporation Law, as amended, allows a corporation to eliminate the personal liability of a director of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock purchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit.
       Section 145 of the Delaware General Corporation Law provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies (i) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (ii) if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred by the indemnified person and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event such person is adjudged liable to the corporation unless a court believes that in light of all the circumstances indemnification should apply.
       Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully and negligently approves an unlawful payment of dividends or an unlawful stock
II-1 

 

purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.
       Article VI of the registrant’s Amended and Restated Certificate of Incorporation will provide that the liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law.
       The registrant’s Bylaws provide that it may indemnify any person who is or was a director, officer or employee of the registrant to the fullest extent permitted by Delaware law. The indemnification provisions contained in the registrant’s Bylaws are not exclusive of any other rights to which a person may be entitled by law, agreement or vote of stockholders or disinterested directors or otherwise.
       The registrant has entered, and will enter, into indemnification agreements with each officer and director which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require the registrant, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms.
       The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration Statement, provides for indemnification of the registrant and its controlling persons against certain liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

Item 15.	Recent Sales of Unregistered Securities	

       Since January 1, 2002, the registrant’s predecessor, American Reprographics Holdings, L.L.C. (“Holdings”), has sold and issued the following unregistered securities:

			
 	• 	Holdings issued 20,000 common units to a consultant for cash consideration of $110,712 on May 22, 2003; and	
 		
 	• 	Holdings has issued options to certain employees to purchase an aggregate of 1,735,415 common units under Holdings’ unit option plan, 22,500 of which have been exercised at a purchase price of $5.25 per unit.	
       The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on:

			
 	• 	Rule 701 promulgated under the Securities Act; or	
 		
 	• 	Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering.	
       The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. All recipients had adequate access, through their relationships with the registrant, to information about the registrant.
II-2 

 

		
Item 16.	Exhibits and Financial Statement Schedules	
       (a) Exhibits

 	 	 	 	 	
Number		Description	
			
 	1	.1	 	Form of Underwriting Agreement.*	
 	3	.1	 	Certificate of Incorporation of American Reprographics Company.**	
 	3	.2	 	Bylaws of American Reprographics Company.**	
 	3	.3	 	Form of Amended and Restated Certificate of Incorporation to be effective upon closing.*	
 	3	.4	 	Form of Amended and Restated Bylaws to be effective upon closing.*	
 	4	.1	 	Specimen Stock Certificate.*	
 	5	.1	 	Opinion of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP regarding the legality of the common stock being registered.*	
 	10	.1	 	Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.**	
 	10	.2	 	Second Lien Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.**	
 	10	.3	 	Intercreditor Agreement, dated as of December 18, 2003, between American Reprographics Company, L.L.C. and General Electric Capital Corporation and Goldman Sachs Credit Partners L.P., as collateral agents.**	
 	10	.4	 	2004 Bonus Plan, dated March 24, 2004, between American Reprographics Company and Mr. Legg.**	
 	10	.5	 	American Reprographics Holdings, L.L.C. Unit Option Plan II, adopted effective as of January 1, 2001.**	
 	10	.6	 	Amendment No. 1 dated as of July 1, 2003 to American Reprographics Holdings, L.L.C. Unit Option Plan II.**	
 	10	.7	 	Form of American Reprographics Company 2005 Stock Plan.*	
 	10	.8	 	Forms of Stock Option Agreements under the 2005 Stock Plan.**	
 	10	.9	 	American Reprographics Company 2005 Employee Stock Purchase Plan.**	
 	10	.10	 	Lease Agreement, dated November 19, 1997, between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings LA, LLC.**	
 	10	.11	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings San Jose, LLC.**	
 	10	.12	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings Irvine, LLC.**	
 	10	.13	 	Lease Agreement, dated December 1, 1997, between American Reprographics Company, L.L.C. and Sumo Holdings Sacramento, LLC (Oakland Property).**	
 	10	.14	 	Lease Agreement between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings Sacramento, LLC (Sacramento Property).**	
 	10	.15	 	Lease Agreement, dated December 7, 1995, between Leet-Melbrook, Inc. and Sumo Holdings Maryland, LLC (as successor lessor).**	
 	10	.16	 	Lease Agreement, dated September 23, 2003, between American Reprographics Company (dba Consolidated Reprographics) and Sumo Holdings Costa Mesa, LLC.**	

II-3 

 

 	 	 	 	 	
Number		Description	
			
 	10	.17	 	Management Agreement, dated April 10, 2000, between American Reprographics Company, L.L.C. and CHS Management IV LP.**	
 	10	.18	 	Termination Agreement to Management Agreement, dated November 29, 2004, between American Reprographics Company, L.L.C. and CHS Management IV LP.**	
 	10	.19	 	Indemnification Agreement, dated April 10, 2000, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, Micro Device, Inc., Dietrich-Post Company, ZS Ford L.P., and ZS Ford L.L.C.**	
 	10	.20	 	Investor Registration Rights Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.21	 	First Amendment to Investor Registration Rights Agreement, among American Reprographics Holdings, L.L.C., American Reprographics Company, ARC Acquisition Co., L.L.C., CHS Associates IV, Ms. Paige Walsh, Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund, 2000, L.P.*	
 	10	.22	 	Warrant Agreement, dated April 10, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.23	 	First Amendment to Warrant Agreement, dated September 8, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.24	 	Investor Unitholders Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.25	 	Termination Agreement of Investor Unitholders Agreement, dated November 29, 2004, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund, 2000, L.P.**	
 	10	.26	 	Form of Indemnification Agreement between American Reprographics Company and each of its Officers and Directors.**	
 	10	.27	 	Forms of Restricted Stock Award Agreements under 2005 Stock Plan.**	
 	10	.28	 	Form of Restricted Stock Unit Award Agreement under 2005 Stock Plan.**	
 	10	.29	 	Form of Stock Appreciation Right Agreement under 2005 Stock Plan.*	
 	10	.30	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Sathiyamurthy Chandramohan.*	
 	10	.31	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Kumarakulasingam Suriyakumar.*	
 	10	.32	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Mark W. Legg.*	
 	10	.33	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Rahul K. Roy.*	
 	16	.1	 	Letter from Ernst & Young LLP Regarding Change in Independent Registered Public Accounting Firm dated October 15, 2004.**	
 	21	.1	 	List of Subsidiaries.**	

II-4 

 

 	 	 	 	 	
Number		Description	
			
 	23	.1	 	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.*	
 	23	.2	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*	
 	23	.3	 	Consent of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP (included in Exhibit 5.1).*	
 	24	.1	 	Power of Attorney (included on page II-6).*	

		
* 	Filed herewith.	

		
** 	Previously filed.	

       (b) Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2001, 2002 and 2003, and for the nine months ended September 30, 2004 appears on page II-7. All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown on the financial statements or notes thereto.

		
Item 17.	Undertakings	
       The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
       Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
       The undersigned registrant hereby undertakes that:

		
 	       (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.	
 		
 	       (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.	
II-5 

 
SIGNATURES

       Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused Amendment No. 2 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Glendale, State of California on January 13, 2005.

		
 	AMERICAN REPROGRAPHICS COMPANY	

			
 	By: 	/s/ SATHIYAMURTHY CHANDRAMOHAN	

 	Sathiyamurthy Chandramohan	
 	Chief Executive Officer	

POWER OF ATTORNEY

       KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Sathiyamurthy Chandramohan, Kumarakulasingam Suriyakumar, and Mark W. Legg, and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming his signatures as they may be signed by said attorney to any and all amendments to said Registration Statement.

       Pursuant to the requirements of the Securities Act of 1933, Amendment No. 2 to this registration statement has been signed by the following persons in the capacities and on the dates indicated:

 	 	 	 	 	 	 	
					
Signature		Title		Date	

/s/ SATHIYAMURTHY CHANDRAMOHAN

Sathiyamurthy Chandramohan	 	Chief Executive Officer; Chairman of the Board of Directors (Principal Executive Officer)	 	January 13, 2005	
 	
 *

Kumarakulasingam Suriyakumar	 	President;
Chief Operating Officer; Director	 	January 13, 2005	
 	
*

Mark W. Legg	 	Chief Financial Officer; Secretary (Principal Financial Officer and Principal Accounting Officer)	 	January 13, 2005	
 	
*

Andrew W. Code	 	Director	 	January 13, 2005	

II-6 

 

 	 	 	 	 	 	 	
					
Signature		Title		Date	

*

Thomas J. Formolo	 	Director	 	January 13, 2005	
 	
*

Manuel Perez de la Mesa	 	Director	 	January 13, 2005	
 	
/s/ EDWARD D. HOROWITZ

Edward D. Horowitz	 	Director	 	January 13, 2005	
 	
*By:	 	/s/ SATHIYAMURTHY CHANDRAMOHAN

Sathiyamurthy Chandramohan
Attorney-in-Fact	 	 	 	 	

II-7 

 
Schedule II
AMERICAN REPROGRAPHICS HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS

		Balance at		Charges to				Balance at	
		Beginning of		Cost and				End of	
		Period		Expenses		Deductions		Period	

		(Dollars in thousands)	
Year ended December 31, 2001:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	1,974	 	 	$	682	 	 	$	(781	)	 	$	1,875	 	
 	Allowance for inventory obsolescence	 	 	247	 	 	 	68	 	 	 	(18	)	 	 	297	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,221	 	 	$	750	 	 	$	(799	)	 	$	2,172	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Year ended December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	1,875	 	 	$	816	 	 	$	(543	)	 	$	2,148	 	
 	Allowance for inventory obsolescence	 	 	297	 	 	 	135	 	 	 	(159	)	 	 	273	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,172	 	 	$	951	 	 	$	(702	)	 	$	2,421	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Year ended December 31, 2003:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	2,148	 	 	$	1,698	 	 	$	(1,056	)	 	$	2,790	 	
 	Allowance for inventory obsolescence	 	 	273	 	 	 	248	 	 	 	(243	)	 	 	278	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,421	 	 	$	1,946	 	 	$	(1,299	)	 	$	3,068	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Nine months ended September 30, 2004:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	2,790	 	 	$	1,110	 	 	$	(612	)	 	$	3,288	 	
 	Allowance for inventory obsolescence	 	 	278	 	 	 	68	 	 	 	(26	)	 	 	320	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	3,068	 	 	$	850	 	 	$	(617	)	 	$	3,301	 	

II-8 

 
EXHIBIT INDEX
       The following exhibits are filed as part of this Form S-1 Registration Statement.

 	 	 	 	 	
Number		Description	
			
 	1	.1	 	Form of Underwriting Agreement.*	
 	3	.1	 	Certificate of Incorporation of American Reprographics Company.**	
 	3	.2	 	Bylaws of American Reprographics Company.**	
 	3	.3	 	Form of Amended and Restated Certificate of Incorporation to be effective upon closing.*	
 	3	.4	 	Form of Amended and Restated Bylaws to be effective upon closing.*	
 	4	.1	 	Specimen Stock Certificate.*	
 	5	.1	 	Opinion of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP regarding the legality of the common stock being registered.*	
 	10	.1	 	Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.**	
 	10	.2	 	Second Lien Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.**	
 	10	.3	 	Intercreditor Agreement, dated as of December 18, 2003, between American Reprographics Company, L.L.C. and General Electric Capital Corporation and Goldman Sachs Credit Partners L.P., as collateral agents.**	
 	10	.4	 	2004 Bonus Plan, dated March 24, 2004, between American Reprographics Company and Mr. Legg.**	
 	10	.5	 	American Reprographics Holdings, L.L.C. Unit Option Plan II, adopted effective as of January 1, 2001.**	
 	10	.6	 	Amendment No. 1, dated as of July 1, 2003, to American Reprographics Holdings, L.L.C. Unit Option Plan II.**	
 	10	.7	 	Form of American Reprographics Company 2005 Stock Plan.*	
 	10	.8	 	Forms of Stock Option Agreements under the 2005 Stock Plan.**	
 	10	.9	 	American Reprographics Company 2005 Employee Stock Purchase Plan.**	
 	10	.10	 	Lease Agreement, dated November 19, 1997, between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings LA, LLC.**	
 	10	.11	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings San Jose, LLC.**	
 	10	.12	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings Irvine, LLC.**	
 	10	.13	 	Lease Agreement, dated December 1, 1997, between American Reprographics Company, L.L.C. and Sumo Holdings Sacramento, LLC (Oakland Property).**	
 	10	.14	 	Lease Agreement between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings Sacramento, LLC (Sacramento Property).**	
 	10	.15	 	Lease Agreement, dated December 7, 1995, between Leet-Melbrook, Inc. and Sumo Holdings Maryland, LLC (as successor lessor).**	
 	10	.16	 	Lease Agreement, dated September 23, 2003, between American Reprographics Company (dba Consolidated Reprographics) and Sumo Holdings Costa Mesa, LLC.**	

 

 	 	 	 	 	
Number		Description	
			
 	10	.17	 	Management Agreement, dated April 10, 2000, between American Reprographics Company, L.L.C. and CHS Management IV LP.**	
 	10	.18	 	Termination Agreement to Management Agreement, dated November 29, 2004, between American Reprographics Company, L.L.C. and CHS Management IV LP.**	
 	10	.19	 	Indemnification Agreement, dated April 10, 2000, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, Micro Device, Inc., Dietrich-Post Company, ZS Ford L.P., and ZS Ford L.L.C.**	
 	10	.20	 	Investor Registration Rights Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.21	 	First Amendment to Investor Registration Rights Agreement, among American Reprographics Holdings, L.L.C., American Reprographics Company, ARC Acquisition Co., L.L.C., CHS Associates IV, Ms. Paige Walsh, Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P.*	
 	10	.22	 	Warrant Agreement, dated April 10, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.23	 	First Amendment to Warrant Agreement, dated September 8, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.24	 	Investor Unitholders Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.**	
 	10	.25	 	Termination Agreement of Investor Unitholders Agreement, dated November 29, 2004, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P.**	
 	10	.26	 	Form of Indemnification Agreement between American Reprographics Company and each of its Officers and Directors.**	
 	10	.27	 	Forms of Restricted Stock Award Agreements under 2005 Stock Plan.**	
 	10	.28	 	Form of Restricted Stock Unit Award Agreement under 2005 Stock Plan.**	
 	10	.29	 	Form of Stock Appreciation Right Agreement under 2005 Stock Plan.*	
 	10	.30	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Sathiyamurthy Chandramohan.*	
 	10	.31	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Kumarakulasingam Suriyakumar.*	
 	10	.32	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Mark W. Legg.*	
 	10	.33	 	Employment Agreement, dated January 7, 2005, between American Reprographics Company and Mr. Rahul K. Roy.*	
 	16	.1 	 	Letter from Ernst & Young LLP Regarding Change in Independent Registered Public Accounting Firm dated October 15, 2004.**	
 	21	.1 	 	List of Subsidiaries.**	

 

 	 	 	 	 	
Number		Description	
			
 	23	.1 	 	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.*	
 	23	.2 	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*	
 	23	.3 	 	Consent of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP (included in Exhibit 5.1).*	
 	24	.1 	 	Power of Attorney (included on page II-6).*	

		
* 	Filed herewith.	

		
** 	Previously filed.	

EXHIBIT 1.1
AMERICAN REPROGRAPHICS COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
______________, 2005
Goldman, Sachs & Co.,
J.P. Morgan Securities Inc.,
Credit Suisse First Boston LLC,
Robert W. Baird & Co. Incorporated,
CIBC World Markets Corp.,
As representatives of the several Underwriters named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004,
and
c/o J.P. Morgan Securities Inc.,
277 Park Avenue,
New York, New York 10172.
Ladies and Gentlemen:
American Reprographics Company, a Delaware corporation (the "Company"), which will be the parent of American Reprographics Holdings, L.L.C., a California limited liability company (the "LLC"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 7,666,667 shares of Common Stock, $0.001 par value ("Stock"), of the Company and the stockholders of the Company upon the consummation of the Reorganization (as defined below) named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 5,683,333 shares and, at the election of the Underwriters, up to 2,002,500 additional shares of Stock. The aggregate of 13,350,000 shares to be sold by the Company and the Selling Stockholders is herein called the "Firm Shares" and the aggregate of 2,002,500 additional shares to be sold by the Selling Stockholders is herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-119788) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the best of Company's knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; and such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1;
(iv) The transactions described in the Prospectus under the heading "Reorganization" (the "Reorganization") have been duly authorized by all necessary corporate or company action on the part of each of the Company and the LLC and by the members and managers of the LLC; and the Reorganization will not conflict with or result in a breach or violation of any of
2
the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company, the LLC or any of their subsidiaries is a party or by which the Company, the LLC or any of their subsidiaries is bound or to which any of the property or assets of the Company, the LLC or any of their subsidiaries is subject, other than any default that would not, individually or in the aggregate, have a Material Adverse Effect (as defined below), nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the LLC or any of their subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company and the LLC and by the members and managers of the LLC of the Reorganization, except for such consents as shall have been obtained prior to the effectiveness of the Reorganization;
(v) None of the Company, the LLC or any of their subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the equity or long-term debt of the Company, the LLC or any of their subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, securityholders' equity or results of operations of the Company, the LLC and their subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Prospectus;
(vi) The Company, the LLC and their subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made of such property by the Company, the LLC and their subsidiaries; and any real property and buildings held under lease by the Company, the LLC and their subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made of such real property and buildings by the Company, the LLC and their subsidiaries;
(vii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, and the LLC has been duly organized and is validly existing as a limited liability company under the laws of the State of California, in each case with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation or limited liability company for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction;
(viii) Each "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Act) of the Company and the LLC as of the date of this Agreement is listed on Annex III (each, a "Significant Subsidiary" and collectively, the "Significant
3
Subsidiaries"); each Significant Subsidiary has been duly organized and is validly existing as a corporation or other business entity in good standing under the laws of its jurisdiction of organization, with power and authority (corporate or other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation or other business entity for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction;
(ix) Each of the Company and the LLC has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company, including, at the time of the Reorganization, the shares to be issued as part of the Reorganization, have been or will be duly and validly authorized and issued, are or will be fully paid and non-assessable and conform or will conform to the description of the Stock contained in the Prospectus; and all of the issued shares of capital stock or other equity securities, as applicable, of the LLC and each subsidiary of the Company and the LLC have been duly and validly authorized and issued, are fully paid and non-assessable in the case of capital stock and (except for directors' qualifying shares) are owned directly or indirectly by the Company or the LLC, as applicable, free and clear of all liens, encumbrances, equities or claims;
(x) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus;
(xi) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company, the LLC or any of their subsidiaries is a party or will be a party after the Reorganization or by which the Company, the LLC or any of their subsidiaries is bound or will be bound after the Reorganization or to which any of the property or assets of the Company, the LLC or any of their subsidiaries is subject or will be subject after the Reorganization other than any conflict, breach, violation or default that, individually or in the aggregate, would not affect the validity of the Shares and would not have a material adverse effect on the consolidated financial position, securityholders' equity or results of operations of the Company, the LLC and their subsidiaries, taken as a whole (a "Material Adverse Effect"), nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the LLC or any of their subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters, and except where the failure to obtain any such consent, approval, authorization, order, registration or
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qualification would not, individually or in the aggregate, affect the validity of the Shares and would not have a Material Adverse Effect;
(xii) None of the Company, the LLC or any of their subsidiaries is in violation of its Certificate of Incorporation or By-laws or Operating Agreement, as applicable, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, other than any default that would not, individually or in the aggregate, have a Material Adverse Effect;
(xiii) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock and under the caption "Underwriting", insofar as they purport to describe the provisions of the laws (other than the laws of any foreign jurisdiction) and documents referred to therein, are accurate and complete in all material respects;
(xiv) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company, the LLC or any of their subsidiaries is a party or of which any property of the Company, the LLC or any of their subsidiaries is the subject which, if determined adversely to the Company, the LLC or any of their subsidiaries, would individually or in the aggregate have a Material Adverse Effect; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others;
(xv) To the Company's knowledge, there has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company, the LLC or any of their subsidiaries upon any of the property now or previously owned or leased by the Company, the LLC or any of their subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order judgment, decree or permit, give rise to any liability, except for any violation or liability which would not individually or in the aggregate have a Material Adverse Effect; there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company, the LLC or any of their subsidiaries has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not individually or in the aggregate have a Material Adverse Effect;
(xvi) Each of the Company, the LLC and their subsidiaries owns or possesses, or can acquire on reasonable terms, all intellectual property rights necessary for the conduct of its business as currently carried on and as currently proposed to be carried on as described in the Prospectus (collectively, the "Intellectual Property"), except where the failure to own or possess, or be able to acquire, such Intellectual Property would not have a Material Adverse Effect; except as described in the Prospectus,
(i) no third parties have received any material rights to any such Intellectual Property from the Company, the LLC or any of their subsidiaries, other than licenses granted in the ordinary course of business; (ii) to the Company's knowledge, there is no infringement by third parties of any such Intellectual
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Property; (iii) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the Company's, the LLC's or any of their subsidiaries' rights in or to, or the enforceability, validity or scope of, any such Intellectual Property; and
(iv) to the Company's knowledge, none of the technology employed by the Company, the LLC or any of their subsidiaries has been obtained or is being used by the Company, the LLC or any of their subsidiaries in violation of the rights of any other person;
(xvii) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934); such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Company's principal executive officer and principal financial officer by others within those entities, and such disclosure controls and procedures are or will be effective in all material respects to perform the functions for which they were established; the Company has taken all necessary actions to ensure that the Company's auditors and the Audit Committee of the Board of Directors will be timely advised of (i) any significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and the Company has taken all necessary actions to ensure that any material weaknesses in internal controls will be identified for the Company's auditors;
(xviii) The Company has taken all necessary actions to ensure that, upon and at all times after the effectiveness of the Registration Statement, it and its directors and officers (in their capacities as such) will be in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the "Sarbanes-Oxley Act") that are then in effect for the Company and is actively taking steps to ensure that it and its directors and officers (in their capacities as such) will be in compliance in all material respects with other applicable provisions of the Sarbanes-Oxley Act not currently in effect upon and at all times after the effectiveness of such provisions;
(xix) The Company is and will be in compliance in all material respects with all applicable corporate governance requirements set forth in the Listed Company Manual of the Exchange (as defined below) that are currently in effect and is actively taking steps to ensure that it will be in compliance with other applicable corporate governance requirements not currently in effect upon and at all times after the effectiveness of such requirements;
(xx) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company", as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); and
(xxi) PricewaterhouseCoopers LLP, who have certified certain financial statements of the LLC and its subsidiaries, are independent public accountants, and Ernst & Young LLP, who had certified certain financial statements of the LLC and its subsidiaries, were independent public accountants during all relevant periods, as required by the Act and the rules and regulations of the Commission thereunder.
(b) Each of the Selling Stockholders severally, and not jointly, represents and warrants to, and agrees with, each of the Underwriters and the Company that:
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(i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power of Attorney and the Custody Agreement hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained (except that no representation or warranty is made with respect to registration under the Act of the Shares or with respect to any consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters, but no implication is intended that such registration or such consents, approvals, etc. have not been obtained); and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power-of-Attorney and the Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, other than any conflict, breach, violation or default that would not, individually or in the aggregate, affect the validity of the Shares and would not have a Material Adverse Effect, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws, the Partnership Agreement, the Operating Agreement or other organizational document, as applicable, of such Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Upon consummation of the Reorganization, and immediately prior to each Time of Delivery (as defined in Section 4 hereof), such Selling Stockholder will have good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and continuing to and including the date specified in the form of lock-up agreement attached hereto as Annex IV (the "Lock-Up Period"), not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares or any units of the LLC, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities or units of the LLC (in each case, except as permitted by such form of lock-up agreement), without the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.;
(v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
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(vi) To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the "Custody Agreement"), duly executed and delivered by such Selling Stockholder to Mellon Investor Services L.L.C., as custodian (the "Custodian"), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a limited liability company, partnership or corporation, by the dissolution of such limited liability company, partnership or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such limited liability company, partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event
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had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $[ ], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, each of the Selling Stockholders agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to 2,002,500 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. Any such election to purchase Optional Shares shall be made in proportion to the maximum number of Optional Shares to be sold by each Selling Stockholder as set forth in Schedule II hereto. Any such election to purchase Optional Shares may be exercised only by written notice from Goldman, Sachs & Co. and J.P. Morgan Securities Inc. to the Attorneys-in-Fact, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
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through the facilities of the Depository Trust Company ("DTC"), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company and [the Custodian] [each of the Selling Stockholders], as their interests may appear, to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of [DTC or its designated custodian][Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004] (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on [ ], 2005 or such other time and date as Goldman, Sachs & Co., J.P. Morgan Securities Inc., the Company and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. and J.P. Morgan Securities Inc. in the written notice given by Goldman, Sachs & Co. and J.P. Morgan Securities Inc. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co., J.P. Morgan Securities Inc., the Company and the Selling Stockholders may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(m) hereof, will be delivered at the offices of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, 333 Market Street, Suite 2100, San Francisco, California 94105 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 4:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement
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or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction;
(c) Prior to 3:00 p.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing through the date 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.;
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(f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the Registration Statement, to furnish to you and, upon the request from any other Underwriter, to such Underwriter, copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you and any such Underwriter (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional non-confidential information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission), but nothing in this provision shall require delivery of documents that are available through the EDGAR system of the Commission;
(h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the "Exchange");
(j) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act; and
(l) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Company's trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the "License"); provided, however, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred.
6. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that: (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies
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thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey (not to exceed $10,000); (iv) all fees and expenses in connection with listing the Shares on the Exchange; (v) the filing fees incident to, and the reasonable fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar and the fees and expenses of the Attorneys-in-fact and the Custodian; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; and (b) such Selling Stockholder will pay or cause to be paid:
(i) any fees and expenses of counsel for such Selling Stockholder (other than the fees and expenses of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, which shall be paid by the Company), and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with clause (b) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling Stockholders agree to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. Notwithstanding any provision to the contrary herein, the fees and expenses of Schiff Hardin LLP, counsel for ARC Acquisition Co., LLC, CHS Associates IV and Paige Walsh (collectively, the "CHS Parties"), shall be paid by the Company. It is understood, however, that except as provided above, the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell LLP, counsel for the Underwriters, shall have furnished to you such written opinion or opinions (a draft of each such opinion is attached as Annex II (a)
13
hereto), dated such Time of Delivery, with respect to certain matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;
(c) (i) Hanson, Bridgett, Marcus, Vlahos, & Rudy LLP, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, in the form attached as Annex II(b)(i) hereto; and (ii) Orrick, Herrington & Sutcliffe LLP, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, in the form attached as Annex II(b)(ii) hereto;
(d) (i) Schiff Hardin LLP, counsel for the CHS Parties, shall have furnished to you their written opinion, dated such Time of Delivery, in the form attached as Annex II(c)(i) hereto; and (ii) the respective counsel for each of the Selling Stockholders other than the CHS Parties, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel, dated such Time of Delivery, in the form attached as Annex II(c)(ii) hereto;
(e) (i) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, with respect to certain financial statements and other financial information contained in the Prospectus (the executed copy of the letter delivered by PricewaterhouseCoopers LLP prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered by PricewaterhouseCoopers LLP on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); and (ii) on the date of the Prospectus at a time prior to the execution of this Agreement, Ernst & Young LLP shall have furnished to you a letter, dated the date of the Prospectus, in form and substance satisfactory to you, with respect to certain financial statements and other financial information contained in the Prospectus (the executed copy of the letter delivered by Ernst & Young LLP prior to the execution of this Agreement is attached as Annex I(c) hereto);
(f)(i) None of the Company, the LLC nor any of their subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the equity or long-term debt of the Company, the LLC or any of their subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, securityholders' equity or results of operations of the Company, the LLC and their subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus;
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(g) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's or the LLC's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's or the LLC's debt securities;
(h) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange; (ii) a suspension or material limitation in trading in the Company's securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York or California State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(i) The Shares at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the Exchange;
(j) The Company has obtained and delivered to the Underwriters executed copies of an agreement from each director and officer and securityholders of the LLC who, upon the consummation of the Reorganization, will own substantially all other shares of the Stock, in the form of the lock-up agreement included in Annex IV, or otherwise in form and substance satisfactory to you (each, a "Lock-Up Agreement");
(k) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement;
(l) The Reorganization shall have become effective in all respects; and
(m) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any
15
amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein.
(b) Each of the Selling Stockholders, severally, and not jointly, will:
(i) indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission relates to such Selling Stockholder and, further, was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; and (ii) reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim to the extent with respect to such written information so furnished by such Selling Stockholder as such expenses are incurred; provided, however, that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein; and provided, further, that the liability of each such Selling Stockholder shall not exceed the product of the number of Shares sold by such Selling Stockholder (including any Optional Shares) and the purchase price per share set forth in Section 2 of this Agreement.
(c) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and each Selling Stockholder for any legal or other
16
expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such
17
statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company and the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right to postpone a Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of
18
Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. and J.P. Morgan Securities Inc. on behalf of you as the Representatives; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
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All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the Representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department, and J.P. Morgan Securities Inc., 277 Park Avenue, New York, New York 10172, Attention: Syndicate Desk; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention:
Secretary; and if to the signatory to any Lock-Up Agreement shall be delivered or sent by mail, telex or facsimile transmission in care of the Company to the address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
17. The Company and the Selling Stockholders are authorized, subject to applicable law, to disclose any and all aspects of this potential transaction that are necessary to support any U.S. federal income tax benefits expected to be claimed with respect to such transaction, and all materials of any kind (including tax opinions and other tax analyses) related to those benefits, without the Underwriters imposing any limitation of any kind.
If the foregoing is in accordance with your understanding, please sign and return to us ten counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof.
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Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such action.
Very truly yours,
American Reprographics Company
By:...................................
Name:
Title:
Each of the Selling Stockholders
other than the CHS Parties
By:...................................
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the above
Selling Stockholders
ARC Acquisition Co., L.L.C.
CHS Associates IV
Paige Walsh
By:...................................
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the CHS
Parties
Accepted as of the date hereof at New York, New York:
Goldman, Sachs & Co.
J.P. Morgan Securities Inc.
Credit Suisse First Boston LLC
Robert W. Baird & Co. Incorporated
CIBC World Markets Corp.
By:.....................................

(Goldman, Sachs & Co.)
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By: J.P. Morgan Securities Inc.
By:.....................................
Name:
Title:
On behalf of each of the Underwriters
22
 
SCHEDULE I

                                                              NUMBER OF OPTIONAL
                                                                 SHARES TO BE
                                             TOTAL NUMBER OF     PURCHASED IF
                                               FIRM SHARES      MAXIMUM OPTION
                UNDERWRITER                  TO BE PURCHASED      EXERCISED
                -----------                  ---------------      ---------
Goldman, Sachs & Co........................
J.P. Morgan Securities Inc.................
Credit Suisse First Boston LLC.............
Robert W. Baird & Co. Incorporated.........
CIBC World Markets Corp....................

                                                ----------        ---------
      Total................................     13,350,000        2,002,500
                                                ==========        =========	

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SCHEDULE II

                                                                  NUMBER OF OPTIONAL
                                                                     SHARES TO BE
                                                 TOTAL NUMBER OF       SOLD IF
                                                   FIRM SHARES      MAXIMUM OPTION
                                                   TO BE SOLD         EXERCISED
                                                   ----------         ---------
The Company....................................     7,666,667

The Selling Stockholders:
    ARC Acquisition Co., L.L.C.(a).............
    Micro Device, Inc. (b).....................
    William Thomas (b).........................
    OCB Reprographics, Inc. (b)................
    Sathiyamurthy Chandramohan (b).............
    Kumarakulasingam Suriyakumar (b)...........
    Rahul K. Roy (b)...........................
    Mark W. Legg (b)...........................
    Brownies Blueprint, Inc. (b)...............
    Dietrich-Post Company (b)..................
    Color Expressions of California, Inc. (b)..
    Ted Carlson (b)............................
    Steve Gilmore (b)..........................
    Patrick Duggan (b).........................
    Richard Nelson (b).........................
    Ken Gini (b)...............................
    Jack Anderson (b)..........................
    Janine Brandel (b).........................
    John Coats (b).............................
    Johann De Abeyesinhe (b)...................
    David Dodge (b)............................
    Trevor Fernando (b)........................
    Dan Hagan (b)..............................
    Doug McCrae (b)............................
    Monita Sarthou (b).........................
    Virgilio Sim (b)...........................
    Noel Van Langenberg (b)....................
    Laurie Williams (b)........................
    CHS Associates IV, L.P. (a)................
    Karl Winkelman (b).........................
    Paige Walsh (a)............................

                                                   ----------               ---------
      Total....................................    13,350,000               2,002,500
                                                   ==========               =========	

(a) This Selling Stockholder is represented by Schiff Hardin LLP and has appointed Mr. Thomas J. Formolo and Mr. Marcus J. George, and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
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(b) This Selling Stockholder is represented by Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP and has appointed Mr. Sathiyamurthy ("Mohan") Chandramohan and Mr. Kumarakulasingam ("Suri") Suriyakumar, and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
25
 
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AMERICAN REPROGRAPHICS COMPANY,
 a Delaware corporation

pursuant to Sections 141(f), 241, and 245 of the Delaware General Corporation Law
AMERICAN REPROGRAPHICS COMPANY, a corporation organized and existing under and by virtue of the provisions of the Delaware General Corporation Law,
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation, American Reprographics Company, was in effect immediately prior to the filing of this Amended and Restated Certificate of Incorporation and that this Corporation was originally incorporated pursuant to the Delaware General Corporation Law on September 30, 2004 under the name American Reprographics Company.
SECOND: That the Certificate of Incorporation of this corporation shall be amended and restated in its entirety to read as follows:
ARTICLE I
NAME
The name of this corporation is American Reprographics Company ("Corporation").
ARTICLE II
REGISTERED AGENT
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law ("DGCL").
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ARTICLE IV
CAPITAL STOCK
A. This Corporation is authorized to issue two classes of stock to be designated, respectively, common stock ("Common Stock") and preferred stock ("Preferred Stock"). The total number of shares which the Corporation is authorized to issue is One Hundred Seventy-Five Million (175,000,000) shares. One Hundred Fifty Million (150,000,000) shares shall be Common Stock, each having a par value of one-tenth of one cent ($0.001). Twenty-Five Million (25,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($0.001).
B. The Preferred Stock may be issued from time to time in one or more series, without further stockholder approval. The Board of Directors is hereby expressly authorized to provide for the issue of any or all of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, including, without limitation, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.
C. Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).
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ARTICLE V
BOARD OF DIRECTORS
For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A. MANAGEMENT OF THE CORPORATION. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
B. NUMBER OF DIRECTORS. The authorized number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the then authorized number of directors constituting the Board of Directors.
C. ELECTION OF THE BOARD OF DIRECTORS.
1. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
2. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
3. In the election of directors, each holder of shares of any class or series of capital stock of the Corporation shall be entitled to one vote for each share held. No stockholder will be permitted to cumulative votes at any election of directors and any such right is expressly denied.
4. Notwithstanding the foregoing provisions of this Article V, Section C, each director shall serve until his successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
D. ADVANCE NOTICE.
Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.
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E. REMOVAL OF DIRECTORS.
Subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, the Board of Directors or any individual director may be removed from office at any time:(1) with cause by the affirmative vote of the holders of 66-2/3% of the voting power of all the then-outstanding shares of capital stock of the Corporation, entitled to vote at an election of directors or (2) without cause by the affirmative vote of the holders of 66-2/3% of the voting power of all the then-outstanding shares of capital stock of the Corporation, entitled to vote at an election of directors.
F. VACANCIES.
Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified.
ARTICLE VI
LIABILITY OF DIRECTORS
A. The liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated to the fullest extent permitted by the DGCL, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors, or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to
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by the Board of Directors. The right to indemnification conferred by this Article shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article to directors and officers of the Corporation.
The rights to indemnification and to the advancement of expenses conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under this Amended and Restated Certificate of Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article VII by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director, officer, employee or agent of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
ARTICLE VIII
LOCATION OF MEETINGS OF STOCKHOLDERS AND BOOKS AND RECORDS
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the Corporation.
ARTICLE IX
CALLING OF SPECIAL MEETINGS OF STOCKHOLDERS
Unless otherwise required by law, special meetings of the stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, (ii) Chief Executive Officer, (iii) the President, or (iii) the Board. The ability of the stockholders to call a special meeting of the stockholders is hereby specifically denied.
ARTICLE X
NO ACTION BY WRITTEN CONSENT
No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws and no action shall be taken by the stockholders by written consent or electronic transmission.
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ARTICLE XI
AMENDMENTS OF THE BYLAWS
The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the bylaws of the Corporation by the board of directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.
ARTICLE XII
AMENDMENTS
A. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in
Section B of this Article XII, and all rights conferred upon the stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Corporation required by law or by this Amended and Restated Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI, VII, IX, X, XI, and XII.
* * * *
THIRD: That the Corporation has not received any payment for any of its stock.
FOURTH: That said Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation, has been duly adopted by the Board of Directors in accordance with Sections 141(f), 241 and 245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate has been executed by a duly authorized officer of the Corporation this ______ day of _________________, 20___.
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Name: ----------------------------------- Title: -----------------------------------
7 1129625.5
 
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
AMERICAN REPROGRAPHICS COMPANY,
A DELAWARE CORPORATION

ARTICLE I.            OFFICES...............................................................................     1

         Section  1. Registered Office......................................................................     1

         Section  2. Other Offices..........................................................................     1

ARTICLE II.           CORPORATE SEAL........................................................................     1

         Section  3. Corporate Seal.........................................................................     1

ARTICLE III.          STOCKHOLDERS' MEETINGS................................................................     1

         Section  4. Place Of Meetings......................................................................     1

         Section  5. Annual Meetings........................................................................     1

         Section  6. Special Meetings.......................................................................     4

         Section  7. Notice Of Meetings.....................................................................     4

         Section  8. Quorum.................................................................................     5

         Section  9. Adjournment And Notice Of Adjourned Meetings...........................................     5

         Section  10. Voting Rights.........................................................................     6

         Section  11. Joint Owners Of Stock.................................................................     6

         Section  12. List Of Stockholders..................................................................     6

         Section  13. Action Without Meeting................................................................     6

         Section  14. Organization..........................................................................     6

ARTICLE IV.           DIRECTORS.............................................................................     7

         Section  15. Number And Term Of Office.............................................................     7

         Section  16. Powers................................................................................     7

         Section  17. Election of Directors.................................................................     7

         Section  18. Vacancies.............................................................................     8

         Section  19. Resignation...........................................................................     8

         Section  20. Removal...............................................................................     8

         Section  21. Meetings..............................................................................     9

         Section  22. Quorum And Voting.....................................................................     9

         Section  23. Action Without Meeting................................................................    10

         Section  24. Fees And Compensation.................................................................    10

         Section  25. Committees............................................................................    10

         Section  26. Organization..........................................................................    11

ARTICLE V.            OFFICERS..............................................................................    11

         Section  27. Officers Designated...................................................................    11

         Section  28. Tenure And Duties Of Officers.........................................................    12	

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         Section  29. Delegation Of Authority...............................................................    13

         Section  30. Resignations..........................................................................    13

         Section  31. Removal...............................................................................    13

ARTICLE VI.           EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION..    13

         Section  32. Execution Of Corporate Instruments....................................................    13

         Section  33. Voting Of Securities Owned By The Corporation.........................................    14

ARTICLE VII.          SHARES OF STOCK.......................................................................    14

         Section  34.  Form And Execution Of Certificates...................................................    14

         Section  35. Lost Certificates.....................................................................    15

         Section  36. Transfers.............................................................................    15

         Section  37. Fixing Record Dates...................................................................    15

         Section  38. Registered Stockholders...............................................................    16

ARTICLE VIII.         OTHER SECURITIES OF THE CORPORATION...................................................    16

         Section  39. Execution Of Other Securities.........................................................    16

ARTICLE IX.           DIVIDENDS.............................................................................    16

         Section  40. Declaration Of Dividends..............................................................    16

         Section  41. Dividend Reserve......................................................................    17

ARTICLE X.            FISCAL YEAR...........................................................................    17

         Section  42. Fiscal Year...........................................................................    17

ARTICLE XI.           INDEMNIFICATION.......................................................................    17

         Section  43. Indemnification of Directors, Executive Officers, Other Officers,
                  Employees And Other Agents ...............................................................    17

ARTICLE XII.          NOTICES...............................................................................    20

         Section  44. Notices...............................................................................    20

ARTICLE XIII.         AMENDMENTS............................................................................    21

         Section  45. Amendments............................................................................    21

ARTICLE XIV.          LOANS TO OFFICERS.....................................................................    22

         Section  46. Loans To Officers.....................................................................    22	

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AMENDED AND RESTATED
BYLAWS
OF
AMERICAN REPROGRAPHICS COMPANY,
 a Delaware corporation
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II.
CORPORATE SEAL
Section 3. CORPORATE SEAL. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile to be impressed or affixed or reproduced or otherwise.
ARTICLE III.
STOCKHOLDERS' MEETINGS
Section 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law ("DGCL").
Section 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held
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on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholder's notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in
Section 5.
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in clause (iii) of the last sentence of this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-4(d) thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at
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the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the third sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred
(100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this
Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
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Section 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board of Directors,
(ii)Chief Executive Officer, (iii) the President, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 6(c). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above.
Section 7. NOTICE OF MEETINGS. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present
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in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication; if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange or Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.
Section 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if
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after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
Section 13. ACTION WITHOUT MEETING. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission.
Section 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent,
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a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV.
DIRECTORS
Section 15. NUMBER AND TERM OF OFFICE. The authorized number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the then authorized number of directors constituting the Board of Directors. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. ELECTION OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
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(b) No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled, unless, at the time of the election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
Section 18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 18 in the case of the death, removal or resignation of any director.
Section 19. RESIGNATION. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. REMOVAL.
' Subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, the Board of Directors or any individual director may be removed from office at any time: (1) with cause by the affirmative vote of the holders of 66-2/3% of the voting power of all the then-outstanding shares of capital stock of the Corporation, entitled to vote at an election of directors or (2) without cause by the affirmative vote of the holders of 66-2/3% of the
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voting power of all the then-outstanding shares of capital stock of the Corporation, entitled to vote at an election of directors.
Section 21. MEETINGS.
(a) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.
(b) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President, or a majority of the authorized number of directors.
(c) MEETINGS BY ELECTRONIC COMMUNICATIONS EQUIPMENT. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) NOTICE OF SPECIAL MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid , at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee hereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors
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fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
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(c) TERM. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections
(a) or (b) of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V.
OFFICERS
Section 27. OFFICERS DESIGNATED.
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(a) GENERAL. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
(b) SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the Chief Executive Officer or, in the his absence, the President, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided herein or as the Board of Directors may from time to time determine.
Section 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have general supervision of all the departments and business of the corporation. The Chief Executive Officer shall be responsible for having all orders and resolutions of the Board of Directors carried into effect. Unless some other officer has been elected President of the corporation, the Chief Executive Officer shall be the president of the corporation. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(d) DUTIES OF PRESIDENT. The President shall also serve as the Chief Operating Officer of the corporation and shall be responsible for the day-to-day operations of the corporation. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to
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the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
Section 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. RESIGNATIONS. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation
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shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI.
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII.
SHARES OF STOCK
Section 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or
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registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner's legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
Section 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the
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record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII.
OTHER SECURITIES OF THE CORPORATION
Section 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same
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or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX.
DIVIDENDS
Section 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation,and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X.
FISCAL YEAR
Section 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI.
INDEMNIFICATION
Section 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law.
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The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Section 43 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative,
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by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action by clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under any other applicable law.
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(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term "PROCEEDING" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "EXPENSES" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "CORPORATION" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a "DIRECTOR," "EXECUTIVE OFFICER," "OFFICER," "EMPLOYEE," or "AGENT" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "OTHER ENTERPRISES" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43.
ARTICLE XII.
NOTICES
Section 44. NOTICES.
(a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which
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notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(f) NOTICE TO STOCKHOLDERS SHARING AN ADDRESS. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.
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ARTICLE XIII.
AMENDMENTS
Section 45. AMENDMENTS. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation.
ARTICLE XIV.
LOANS TO OFFICERS
Section 46. LOANS TO OFFICERS. Except as otherwise prohibited by applicable law including the Sarbanes- Oxley Act of 2002, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
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EXHIBIT 4.1

COMMON STOCK COMMON STOCK ARP THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR THE CITY OF RIDGEFIELD PARK, NJ CERTAIN DEFINITIONS OR NEW YORK NY CUSIP 029263 10 0 This Certifies that is the record holder of AUTHORIZED SIGNATURE FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $0.001 PAR VALUE, OF AMERICAN REPROGRAPHICS COMPANY TRANSFER AGENT AND REGISTRAR transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon the surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: MELLON INVESTOR SERVICES LLC SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER	

 

AMERICAN REPROGRAPHICS COMPANY
The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation’s Secretary at the principal office of the Corporation.

     The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM-	 	as tenants in common	
TEN ENT-	 	as tenants by the entireties	
JT TEN-	 	as joint tenants with
right of survivorship and
not as tenants in common	
 	 	 	 	 	 	 	
UNIF GIFT MIN ACT-	 	 	 	Custodian	 	 	
 	 	 	 	 	 	 	
	 	(Cust)	 	 	 	(Minor)	
 	 	 
under Uniform Gifts to Minors	
 	 	 	 	 	
 	 	Act	 	 	
 	 	 	 	
 	 	 	(State)	
 	 	 	 	 	 	 	 	 	 	 	
UNIF TRF MIN ACT-	 	 	 	Custodian (until age	 	 	 	 	)	 	
	 	 	 	 	 	 	 	 	
	 	(Cust)	 	 	 	 	 	 	 	 	
 	 	 	 	 	
 	 	 	 	under Uniform Transfers	
	 	 	 	 	
	 	(Minor)	 	 	
 	 	 	 	 	
 	 	to Minors Act	 	 	
 	 	 	 	 	
 	 	 	 	(State)	

Additional abbreviations may also be used though not in the above list.
     FOR VALUE RECEIVED, ___________________________ hereby sell, assign and transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE

 
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)

 
_________________________________________________________________________________________________Shares of the Common Stock represented by the within Certificate, and do(es) hereby irrevocably constitute and Appoint __________________________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

 	 	 	
Dated	 	 	

X	 	 	

X	 	 	
	 	 	
	 	NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(s) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.	

SIGNATURE(S) GUARANTEED:

By	 	 	
	 	 	
	 	THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.	

 
Exhibit 5.1
HANSON, BRIDGETT, MARCUS, VLAHOS, RUDY LLP
 333 Market Street, Suite 2100
San Francisco, CA 94105-2173
January 11, 2005
American Reprographics Company
700 North Central Avenue
Suite 550
Glendale, CA 91203-3299
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (Registration No. 333-119788) filed by you with the Securities and Exchange Commission on October 15, 2004, as amended by Amendment No. 1 and Amendment No. 2 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, (the "Act") pursuant to which American Reprographics Company, a Delaware corporation (the "Company") will issue and sell up to 7,666,667 shares of common stock of the Company, in a firm commitment underwritten public offering and certain stockholders of the Company ("Selling Stockholders") will sell up to 5,683,333 shares of the Company's common stock (collectively, the "Shares"). The Shares include an over-allotment option granted to the underwriters by certain Selling Stockholders to purchase shares of the Company's common stock. (Such Registration Statement, as amended, and including any registration statement related thereto and filed pursuant to Rule 462(b) under the Act (a "Rule 462(b) registration statement") is herein referred to as the "Registration Statement.")
We understand that the Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to the Underwriting Agreement filed as an exhibit thereto. As your legal counsel, we have examined the proceedings taken and are familiar with the proceedings proposed to be taken by you in connection with the sale and issuance of the Shares.
American Reprographics Company
January 11, 2005
Page 2
Based upon the foregoing, we are of the opinion that (i) the shares of Common Stock to be offered and sold by the Company (including any shares of Common Stock registered pursuant to a Rule 462(b) registration statement) have been duly authorized and, when issued and sold by the Company in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of the Company, will be legally issued, fully paid and nonassessable, and (ii) the shares of Common Stock to be offered and sold by the Selling Stockholders have been duly authorized and legally issued and are fully paid and nonassessable. This opinion is limited to matters governed by the General Corporation Law of the State of Delaware (including the statutory provisions of the General Corporation Law of the State of Delaware and also all applicable provisions of the Delaware Constitution and reported decisions interpreting the General Corporation Law of the State of Delaware and the Delaware Constitution).
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement, and we consent to the reference of our name under the caption "Legal Matters" in the prospectus forming part of the Registration Statement.
Very truly yours,

/s/ Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP

HANSON, BRIDGETT, MARCUS VLAHOS & RUDY, LLP	

EXHIBIT 10.7
AMERICAN REPROGRAPHICS COMPANY
2005 STOCK PLAN
ADOPTED _______________
APPROVED BY SHAREHOLDERS _________________
TERMINATION DATE: __________________
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock Awards are Employees, Directors and Consultants. Only Non-Employee Directors are eligible to receive Options under Section 8.
(b) AVAILABLE STOCK AWARDS. The Plan provides for the grant of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Purchase Awards,
(v) Restricted Stock Awards, and (vi) Restricted Stock Unit Awards.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Stock Awards, to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates and to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in the value of the Common Stock.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL MEETING" means the annual meeting of the stockholders of the Company.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 12(a).
(e) "CAUSE" means, with respect to a Participant, the occurrence of any of the following: (i) such Participant's commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participant's attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participant's intentional and material violation of any contract or agreement between the Participant and the Company or any statutory duty owed to the Company; (iv) such Participant's unauthorized use or disclosure of the Company's confidential information or trade secrets or (v) such Participant's gross misconduct. The determination that a termination is for Cause shall be made by the Company in its discretion. Any determination by the Company that
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the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the purposes of outstanding Stock Awards held by such Participant shall have no impact upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
(f) "CHANGE IN CONTROL" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the "SUBJECT PERSON") exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
(iii) there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by shareholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(iv) individuals who, on the date this Plan is adopted by the Board, are members of the Board (the "INCUMBENT BOARD") cease for any reason to constitute at least a
2
majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means a committee of one (1) or more members of the Board appointed by the Board in accordance with Section 3(c).
(i) "COMMON STOCK" means the common stock of the Company.
(j) "COMPANY" means American Reprographics Company, a Delaware corporation.
(k) "CONSULTANT" means any person, including an advisor, who (i) is engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services or (ii) is serving as a member of the Board of Directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered a "Consultant" for purposes of the Plan.
(l) "CONTINUOUS SERVICE" means that the Participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's service with the Company or an Affiliate, shall not terminate a Participant's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director shall not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company's leave of absence policy or in the written terms of the Participant's leave of absence.
(m) "CORPORATE TRANSACTION" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries;
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(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(n) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
(o) "DIRECTOR" means a member of the Board.
(p) "DISABILITY" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.
(q) "EMPLOYEE" means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an "Employee" for purposes of the Plan.
(r) "ENTITY" means a corporation, partnership or other entity.
(s) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(t) "EXCHANGE ACT PERSON" means any natural person, Entity or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that "Exchange Act Person" shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) an Entity Owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their Ownership of stock of the Company.
(u) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on the New York Stock Exchange, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.
4
(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in good faith.
(v) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(w) "IPO DATE" means the effective date of the initial public offering of the Common Stock.
(x) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("REGULATION S-K")), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(y) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option.
(z) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(aa) "OPTION" means an option to purchase shares of Common Stock granted pursuant to the Plan.
(bb) "OPTION AGREEMENT" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(cc) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(dd) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an "affiliated corporation", and does not receive remuneration from the Company or an "affiliated corporation," either directly or indirectly, in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code.
(ee) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired "Ownership" of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding,
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relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ff) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(gg) "PLAN" means this American Reprographics Company 2005 Stock Plan, as amended and restated.
(hh) "RESTRICTED STOCK AWARD" means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(c).
(ii) "RESTRICTED STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Bonus Award evidencing the terms and conditions of a Stock Bonus Award grant. Each Stock Bonus Award Agreement shall be subject to the terms and conditions of the Plan.
(jj) "RESTRICTED STOCK PURCHASE AWARD" means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(b).
(kk) "RESTRICTED STOCK PURCHASE AWARD AGREEMENT" means a written agreement between the Company and a holder of a Restricted Stock Purchase Award evidencing the terms and conditions of a Restricted Stock Purchase Award grant. Each Restricted Stock Purchase Award Agreement shall be subject to the terms and conditions of the Plan.
(ll) "RESTRICTED STOCK UNIT AWARD" means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(d).
(mm) "RESTRICTED STOCK UNIT AWARD AGREEMENT" means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan.
(nn) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(oo) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(pp) "STOCK APPRECIATION RIGHT" means a right to receive the appreciation of Common Stock that is granted pursuant to the terms and conditions of Section 7(a).
(qq) "STOCK APPRECIATION RIGHT AGREEMENT" means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan.
(rr) "STOCK AWARD" means any right granted under the Plan, including an Option, a Stock Appreciation Right, a Restricted Stock Purchase Award, or a Restricted Stock Unit Award.
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(ss) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(tt) "SUBSIDIARY" means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).
(uu) "TEN PERCENT SHAREHOLDER" means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee, as provided in Section 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To effect, at any time and from time to time, with the consent of any adversely affected Optionholder, (1) the reduction of the exercise price of any outstanding Option under the Plan, (2) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor of (A) a new Option under the Plan or another equity plan of the Company covering the same or a different number of shares of Common Stock, (B) a Stock Appreciation Right, (C) a Restricted Stock Purchase Award, (D) a Restricted Stock Award, (E) a Restricted Stock Unit Award, (F) cash and/or (G) other valuable consideration (as determined by the Board, in its discretion), or (3) any other action that is treated as a repricing under generally accepted accounting principles.
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(iv) To amend the Plan or a Stock Award as provided in Section 13.
(v) To terminate or suspend the Plan as provided in Section 14.
(vi) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan.
(vii) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside the United States.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate some or all of the administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "COMMITTEE" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii) SECTION 162(m) AND RULE 16b-3 COMPLIANCE. In the discretion of the Board, the Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or the Committee, in its discretion, may (1) delegate to a committee of one or more members of the Board who need not be Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, and/or (2) delegate to a committee of one or more members of the Board who need not be Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.
(d) DELEGATION TO AN OFFICER. The Board may delegate to one or more Officers of the Company the authority to do one or both of the following: (i) designate Officers and Employees of the Company or any of its Subsidiaries to be recipients of Stock Awards and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Officers and Employees of the Company; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding anything to the contrary in this Section 3(d), the Board may
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not delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to Section 2(u)(ii) above.
(e) EFFECT OF BOARD'S DECISION. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 12(a) relating to Capitalization Adjustments, the shares of Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate five million (5,000,000) shares of Common Stock plus an automatic annual increase to be added on the first day of the fiscal year of the Company for a period beginning on the first day of the fiscal year that begins on January 1, 2006, and ending on (and including) the first day of the fiscal year that begins on January 1, 2010, equal to the least of the following amounts: (i) one percent (1%) of the Company's outstanding shares of Common Stock on the day preceding the first day of the applicable Company fiscal year (rounded to the nearest whole share), (ii) three hundred thousand (300,000) shares of Common Stock, or (iii) an amount as may be determined by the Board.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then the shares of Common Stock not issued under such Stock Award, or forfeited to or repurchased by the Company, shall revert to and again become available for issuance under the Plan. If any shares subject to a Stock Award are not delivered to a Participant because such shares are withheld for the payment of taxes or the Stock Award is exercised through a reduction of shares subject to the Stock Award (i.e., "net exercised"), the number of shares that are not delivered to the Participant shall remain available for issuance under the Plan. If the exercise price of any Stock Award is satisfied by tendering shares of Common Stock held by the Participant (either by actual delivery or attestation), then the number of shares so tendered shall remain available for issuance under the Plan. For purposes of qualification under Section 422 of the Code, notwithstanding anything to the contrary in this Section 4(b) and subject to the provisions of Section 12(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued as Incentive Stock Options shall be six million five hundred thousand (6,500,000) shares of Common Stock. In addition, the aggregate maximum number of shares of Common Stock that may be issued as Restricted Stock Awards shall be ten percent (10%) of the total of the Company's outstanding shares of Common Stock, as determined with respect to each Restricted Stock Award at the time such award is granted.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
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5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT SHAREHOLDERS. A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION ON ANNUAL GRANTS. Subject to the provisions of Section 12(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted Options or Stock Appreciation Rights covering more than five hundred thousand (500,000) shares of Common Stock during any calendar year.
(d) CONSULTANTS. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("FORM S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of any other rule governing the use of Form S-8.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) TERM. The Board shall determine the term of an Option; provided however that, subject to the provisions of Section 5(b) regarding Ten Percent Shareholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date on which it was granted.
(b) EXERCISE PRICE OF AN OPTION. Subject to the provisions of Section 5(b) regarding Ten Percent Shareholders, the exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
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(c) CONSIDERATION. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable law, either
(i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company (either by actual delivery or attestation) of other Common Stock at the time the Option is exercised, (2) by a "net exercise" of the Option (as further described below),
(3) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds or (4) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of a "net exercise" of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value that does not exceed the aggregate exercise price. With respect to any remaining balance of the aggregate exercise price, the Company shall accept a cash payment from the Participant. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the "net exercise", (ii) shares actually delivered to the Participant as a result of such exercise and (iii) shares withheld for purposes of tax withholding.
(d) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(e) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
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(f) VESTING GENERALLY. The total number of shares of Common Stock subject to an Option may vest and therefore become exercisable in periodic installments that may be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(f) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.
(g) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's Continuous Service terminates (for reasons other than Cause or upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (i) the expiration of the term of the Option as set forth in the Option Agreement or (ii) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement). If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(h) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (for reasons other than Cause or upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.
(i) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the expiration of the term of the Option as set forth in the Option Agreement or
(ii) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Option Agreement). If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(j) DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to Section 6(d) or 6(e), but only within the period ending on the earlier of (i) the
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expiration of the term of such Option as set forth in the Option Agreement or
(ii) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement). If, after the Optionholder's death, the Option is not exercised within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(k) TERMINATION FOR CAUSE. In the event that an Optionholder's Continuous Service is terminated for Cause, the Option shall terminate upon the termination date of such Optionholder's Continuous Service, and the Optionholder shall be prohibited from exercising his or her Option from and after the time of such termination of Continuous Service.
(l) EARLY EXERCISE. The Option may include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical, provided, however, that each Stock Appreciation Right Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) STRIKE PRICE AND CALCULATION OF APPRECIATION. Each Stock Appreciation Right will be denominated in shares of Common Stock equivalents. The appreciation payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of:
(aa) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of shares of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over
(bb) an amount (the strike price) that will be determined by the Board at the time of grant of the Stock Appreciation Right, which amount shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Stock Appreciation Right on the date the Stock Appreciation Right is granted.
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(ii) VESTING. At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its discretion, deems appropriate.
(iii) EXERCISE. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.
(iv) PAYMENT. The appreciation payable in respect of a Stock Appreciation Right may be paid only in the form of Common Stock. In addition, neither the Company nor any Affiliate may enter into any agreement or arrangement providing for its purchase of Common Stock delivered on exercise of a Stock Appreciation Right.
(v) TERM. The Board shall determine the term of a Stock Appreciation Right; provided, however, that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date on which it was granted.
(vi) DEFERRAL OF COMPENSATION. A Stock Appreciation Right may not include any feature for the deferral of compensation other than the deferral of recognition of income until the Participant's exercise of such Stock Appreciation Right.
(b) TERMINATION OF CONTINUOUS SERVICE. In the event that a Participant's Continuous Service terminates, the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Participant's Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement) or
(ii) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate.
(c) RESTRICTED STOCK PURCHASE AWARDS. Each Restricted Stock Purchase Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board's election, shares of Common Stock may be (i) held in book entry form subject to the Company's instructions until any restrictions relating to the Restricted Stock Purchase Award lapse; or (ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Purchase Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Purchase Award Agreements need not be identical, provided, however, that each Restricted Stock Purchase Award Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. At the time of the grant of a Restricted Stock Purchase Award, the Board will determine the price to be paid by the Participant for each share subject to
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the Restricted Stock Purchase Award. To the extent required by applicable law, the price to be paid by the Participant for each share of the Restricted Stock Purchase Award will not be less than the par value of a share of Common Stock.
(ii) CONSIDERATION. At the time of the grant of a Restricted Stock Purchase Award, the Board will determine the consideration permissible for the payment of the purchase price of the Restricted Stock Purchase Award. The purchase price of Common Stock acquired pursuant to the Restricted Stock Purchase Award shall be paid either: (i) in cash at the time of purchase or (ii) in any other form of legal consideration that may be acceptable to the Board and permissible under the Delaware General Corporation Law.
(iii) VESTING. Shares of Common Stock acquired under a Restricted Stock Purchase Award may be subject to a share repurchase right or option in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event that a Participant's Continuous Service terminates, the Company shall have the right, but not the obligation, to repurchase or otherwise reacquire, any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted Stock Purchase Award Agreement. At the Board's election, the repurchase right may be at the least of:
(i) the Fair Market Value on the relevant date or (ii) the Participant's original cost. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the purchase of the restricted stock unless otherwise determined by the Board or provided in the Restricted Stock Purchase Award Agreement.
(v) TRANSFERABILITY. Rights to purchase or receive shares of Common Stock granted under a Restricted Stock Purchase Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Purchase Award Agreement, as the Board shall determine in its discretion, and so long as Common Stock awarded under the Restricted Stock Purchase Award remains subject to the terms of the Restricted Stock Purchase Award Agreement.
(d) RESTRICTED STOCK AWARDS. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board's election, shares of Common Stock may be (i) held in book entry form subject to the Company's instructions until any restrictions relating to the Restricted Stock Award lapse; or (ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical, but each Restricted Stock Award Agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A Restricted Stock Award may be awarded in consideration for past services actually rendered to the Company or an Affiliate.
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(ii) VESTING. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a Participant's Continuous Service terminates, any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination of Continuous Service shall be forfeited under the terms of the Restricted Stock Award Agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(e) RESTRICTED STOCK UNIT AWARDS. A Restricted Stock Unit Award shall be denominated in units equivalent to a number of shares of Common Stock and shall represent a promise to pay the value of such units upon vesting. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical, provided, however, that each Restricted Stock Unit Award Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) VESTING. At the time of the grant of a Restricted Stock Unit Award, the Board shall impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its discretion, deems appropriate.
(ii) PAYMENT. A Restricted Stock Unit Award, net of any withholding obligations, may, to the extent vested, be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iii) ADDITIONAL RESTRICTIONS. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award after the vesting of such Restricted Stock Unit Award.
(iv) DIVIDEND EQUIVALENTS. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
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8. NON-EMPLOYEE DIRECTORS' NONSTATUTORY STOCK OPTION PROGRAM.
Without any further action by the Board, automatic Option grants shall be made under the Plan in accordance with this Section 8 to Non-Employee Directors who meet the criteria specified in Section 8(a). All Options granted under this
Section 8 shall be Nonstatutory Stock Options and shall be in such form as may be approved by the Board, subject to the provisions of the Plan and Section 8.
(a) NON-DISCRETIONARY GRANTS. Without any further action of the Board, on the date of each Annual Meeting, commencing with the first Annual Meeting on or after the IPO Date, each person who is then a Non-Employee Director shall be automatically granted a Nonstatutory Option having a value (on the date of grant) equal to $50,000 of the annual cash compensation (excluding Committee fees) then payable by the Company to such Non-Employee Director, for his or her service as Non-Employee Director since the later of: (i) the last preceding Annual Meeting, or (ii) the date on which such person is elected or appointed for the first time to be a Non-Employee Director. For this purpose, the value of an Option, and thus the number of shares of Common Stock granted under such Option, shall be determined under the Black-Scholes option pricing formula, and any fractional shares shall be rounded to the nearest whole number of shares.
(b) OPTION PROVISIONS. Each Option granted under this Section 8 shall include (through incorporation by reference in the Option or otherwise) the substance of each of the provisions of Section 6, except that no Option granted under this Section 8 shall be exercisable after the expiration of ten (10) years after the date on which it was granted and the exercise price of each Option granted under this Section 8 shall be one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.
9. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.
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11. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan, any Stock Award Agreement or other instrument executed thereunder or any Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The
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Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock Award Agreement, the Company may in its discretion, satisfy any federal, state or local tax withholding obligation relating to a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock Award; or (iii) by such other method as may be set forth in the Stock Award Agreement.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other event occurs with respect to, the Common Stock subject to the Plan or subject to any Stock Award without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (each a "CAPITALIZATION ADJUSTMENT"), then (i) the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to Sections 4(a) and 4(b) and the maximum number of securities subject to award to any person pursuant to Section 5(c) and (ii) the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested Common Stock not subject to the Company's right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and Common Stock subject to the Company's repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such stock is still in Continuous Service; provided however that, the Board may, in its discretion, cause some or all Stock Awards to be fully vested, exercisable and/or no longer subject to repurchase (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) CORPORATE TRANSACTION. In the event of a Corporate Transaction, any surviving corporation or acquiring corporation may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the shareholders of the Company, as the case may be, pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued
19
pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor's parent company), if any, in connection with such Corporate Transaction. In the event that any surviving corporation or acquiring corporation does not assume or continue all such outstanding Stock Awards or substitute similar stock awards for all such outstanding Stock Awards, then with respect to Stock Awards that have been not assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to such effective time and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall (contingent upon the effectiveness of the Corporate Transaction) lapse. With respect to any other Stock Awards outstanding under the Plan that have not been assumed, continued or substituted, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated, unless otherwise provided in a written agreement between the Company or any Affiliate and the holder of such Stock Award, and such Stock Awards shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction.
(d) CHANGE IN CONTROL. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. Subject to the limitations, if any, of applicable law, the Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12(a) relating to Capitalization Adjustments, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy applicable law.
(b) SHAREHOLDER APPROVAL. The Board, in its discretion, may submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
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(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms more favorable than previously provided in the agreement evidencing a Stock Award, subject to any specified limits in the Plan that are not subject to Board discretion; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective immediately upon the date on which membership units of American Reprographics Holdings, L.L.C., a California limited liability company, are contributed to the Company, but no Stock Award shall be exercised (or, in the case of Restricted Stock Awards, shall be granted) unless and until the Plan has been approved by the shareholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
16. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules.
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EXHIBIT 10.21
FIRST AMENDMENT TO
INVESTOR REGISTRATION RIGHTS AGREEMENT
This First Amendment To Investor Registration Rights Agreement (this "First Amendment") is dated for reference purposes December 29, 2004, and is entered into by and among (i) American Reprographics Holdings, L.L.C., a California limited liability company ("Holdings"), (ii) American Reprographics Company, a Delaware corporation ("Newco") (iii) ARC Acquisition Co., L.L.C., a Delaware limited liability company ("Acquisition Co."), CHS Associates IV, a Delaware general partnership ("CHS Associates IV"), and Paige Walsh ("Walsh"),
(iv) Sathiyamurthy Chandramohan ("Mohan"), (v) Kumarakulasingam Suriyakumar ("Suri") and (vi) GS Mezzanine Partner II, L.P., a Delaware limited partnership ("GS Mezzanine"), GS Mezzanine Partners II Offshore, L.P., a Cayman Islands exempted limited partnership ("GS Offshore"), Stone Street Fund 2000, L.P., a Delaware limited partnership ("Stone Street") and Bridge Street Special Opportunities Fund 2000, L.P., a Delaware limited partnership ("Bridge Street") (GS Mezzanine, GS Offshore, Stone Street and Bridge Street are collectively referred to herein as the "GS Parties"). Holdings, Newco, Acquisition Co, CHS Associates IV, Walsh, Mohan, Suri and the GS Parties are collectively referred to herein as the "Parties."
RECITALS:
A. Holdings, Acquisition Co., GS Mezzanine and GS Offshore entered into that certain Investor Registration Rights Agreement made as of April 10, 2000 (the "Registration Rights Agreement").
B. Stone Street and Bridge Street became parties to the Registration Rights Agreement and the Common Units held by Stone Street and Bridge Street became GS Registrable Securities when GS Mezzanine and GS Offshore assigned rights under the Registration Rights Agreement to Stone Street and to Bridge Street.
C. CHS Associates IV became a party to the Registration Rights Agreement and the Common Units held by CHS Associates IV became Company Registrable Securities when Acquisition Co. assigned Common Units to CHS Associates IV.
D. Newco is a newly formed Delaware corporation. In connection with the underwritten public offering of Newco's common stock (the "IPO"), each holder of Holdings' common units prior to the IPO shall exchange their outstanding common units for an equal number of shares of Newco's common stock (the "Exchange").
E. Pursuant to Section 10(c) of the Registration Rights Agreement, the undersigned Parties wish to amend the Registration Rights Agreement in this First Amendment as provided herein.
AGREEMENT
NOW, THEREFORE, the Registration Rights Agreement hereby is amended as follows:
1. Closing Date. This First Amendment shall be effective as of the closing date of the IPO ("Closing Date"). Notwithstanding any provision to the contrary herein, if the Closing Date does not occur prior to April 1, 2005, then this First Amendment shall have no effect and shall be null and void for all purposes.
2. Assumption by Newco. As of the Closing Date, Newco hereby agrees to assume all rights and obligations of Holdings under the Registration Rights Agreement. The Parties further agree that each share of Newco common stock issued in the Exchange shall be considered a Common Unit for purposes of the Registration Rights Agreement.
3. Revised Section 1(c): As of the Closing Date, the following sentence is hereby added at the end of Section 1(c) of the Registration Rights Agreement:
In the event a majority of holders of Company Registrable Securities or M&S Registrable Securities, as the case may be, request any Long-Form Registration but are unable to sell at least fifty percent (50%) of their Registrable Securities requested to be included in such Long-Form Registration because of a reduction in the amount which may be sold pursuant to Section 1(d) below, such holders shall be entitled to withdraw their request for such Long-Form Registration upon written notice to Company and Holdings, and, in such event, such registration shall not count as one of the Long-Form Registrations that such holders are entitled to request hereunder (and Holdings shall, at its option, be entitled to promptly withdraw such Long-Form Registration).
4. New Section 10(o). As of the Closing Date, the following provision is hereby added to the Registration Rights Agreement as Section 10(o):
Section 10(o). Termination. This Agreement shall terminate as to any holder of Registrable Securities at the earlier of (i) seven years after the closing date of the initial public offering of the Common Units or
(ii) after the closing date of the first registered public offering of the Common Units, at such time as such holder of Registrable Securities may immediately sell under Rule 144, or a successor rule, all Registrable Securities then held by such holder, disregarding Rule 144(k).
5. Holdings Operating Agreement Section 11.1 Notice. The Parties acknowledge and agree that any notice delivered pursuant to Section 11.1 of the Amended and Restated Operating Agreement of American Reprographics Holdings, L.L.C. dated April 10, 2000, as amended, shall not be considered a demand registration for purposes of the Registration Rights Agreement.
6. Full Force and Effect. Except as set forth herein, all other terms and conditions of the Registration Rights Agreement shall remain in full force and effect.
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7. Applicable Law. This First Amendment shall be governed and controlled as to validity, enforcement, interpretation, construction effect and in all other respects by the internal laws of the State of California applicable for such contracts made in that state.
8. Counterparts. This First Amendment may be executed in multiple counterparts, each of which shall be deemed an original, and all such counterparts shall constitute but one instrument.
9. Warranty. Each of the Parties warrants that it has full power, right and authority to enter into this First Amendment without the consent or approval of any other person. Each of the parties further warrants that it has not assigned any of its rights under the Registration Rights Agreement or any of its Registrable Securities to any person that is not a party to this First Amendment.
10. Entire Agreement. This First Amendment and the Registration Rights Agreement constitute the entire agreement of the Parties.
[remainder of page intentionally blank]
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IN WITNESS WHEREOF, the Parties have executed this First Amendment as of the date first above written.
HOLDINGS:
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
 a California limited liability company

By: /s/ S. Chandramohan
   ---------------------------------
Printed Name: S. Chandramohan
Title: CEO	

NEWCO:
AMERICAN REPROGRAPHICS COMPANY
 a Delaware corporation

By: /s/ S. Chandramohan
   ---------------------------------
Printed Name: S. Chandramohan
Title: CEO	

MOHAN:

    /s/ S. Chandramohan
------------------------------------
Sathiyamurthy Chandramohan	

SURI:

    /s/ K. Suriyakumar
------------------------------------
Kumarakulasingam Suriyakumar	

4
ACQUISITION CO.:
ARC ACQUISITION CO., L.L.C.,
 a Delaware limited liability company
By: Code Hennessy & Simmons IV LP
its sole member
By: CHS Management IV LP
its general partner
By: Code Hennessy & Simmons LLC
its general partner

By: /s/ Thomas J. Formolo
    --------------------------------
Printed Name:
              ----------------------
Title:
       -----------------------------	

CHS ASSOCIATES IV:
CHS ASSOCIATES IV
 a Delaware general partnership
By: Code Hennessy & Simmons LLC
its managing partner

By: /s/ Thomas J. Formolo
    --------------------------------
Printed Name:
              ----------------------
Title:
       -----------------------------	

WALSH:

     /s/ Paige Walsh
------------------------------------
Paige Walsh	

5
GS PARTIES:
GS MEZZANINE PARTNER II, L.P.
 a Delaware limited partnership
By: GS Mezzanine Advisors II, L.L.C.
its general partner

By: /s/ K. B. Enquist
    --------------------------------
Printed Name: Katherine B. Enquist
Title: Vice President	

GS MEZZANINE PARTNERS II OFFSHORE, L.P.
 a Cayman Islands exempted limited
partnership
By: GS Mezzanine Advisors II, L.L.C.
its general partner

By: /s/ K. B. Enquist
    --------------------------------
Printed Name: Katherine B. Enquist
Title: Vice President	

STONE STREET FUND 2000, L.P
 a Delaware limited partnership
By: Stone Street 2000, L.L.C.
its general partner

By: /s/ K. B. Enquist
    --------------------------------
Printed Name: Katherine B. Enquist
Title: Vice President	

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BRIDGE STREET SPECIAL OPPORTUNITIES
 FUND 2000, L.P.
a Delaware limited partnership
By: Bridge Street Special Opportunities
2000, L.L.C. its general partner

By: /s/ K. B. Enquist
    --------------------------------
Printed Name: Katherine B. Enquist
Title: Vice President	

7
 
EXHIBIT 10.29
AMERICAN REPROGRAPHICS COMPANY
2005 STOCK PLAN
STOCK APPRECIATION RIGHT AGREEMENT
Pursuant to your Stock Appreciation Right Grant Notice ("GRANT NOTICE") and this Stock Appreciation Right Agreement (the "SAR AGREEMENT"), American Reprographics Company (the "COMPANY") has granted you a stock appreciation right ("SAR") under its 2005 Stock Plan (the "PLAN") with respect to the number of shares of the Company's Common Stock indicated in your Grant Notice at the grant value ("GRANT VALUE") indicated in your Grant Notice. Defined terms not explicitly defined in this SAR Agreement but defined in the Plan shall have the same definitions as in the Plan.
1. VESTING. Subject to the limitations contained herein, your SAR will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND GRANT VALUE. The Grant Value of each share of Common Stock subject to your SAR will be not less than one hundred percent (100%) of the Fair Market Value of such share of Common Stock on the Date of Grant. The number of shares of Common Stock subject to your SAR and the Grant Value per share may be adjusted from time to time for Capitalization Adjustments.
3. WHOLE SHARES. You may exercise your SAR only for whole shares of Common Stock.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your SAR unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act. The exercise of your SAR also must comply with other applicable laws and regulations governing your SAR, and you may not exercise your SAR if the Company determines that such exercise would not be in material compliance with such laws and regulations.
5. TERM. You may not exercise your SAR before the commencement of its term or after its term expires. The term of your SAR commences on the Date of Grant and expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service for any reason, provided that if during any part of such three (3) month period you may not exercise your SAR solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," your SAR shall not expire until the earlier of the Expiration Date indicated in your Grant Notice or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
(b) the Expiration Date indicated in your Grant Notice; or
(c) the day before the tenth (10th) anniversary of the Date of Grant.
6. EXERCISE.
(a) You may exercise the vested portion of your SAR during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
(b) By exercising your SAR you agree that, as a condition to any exercise of your SAR, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your SAR, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
(c) By exercising your SAR you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to your shares of Common Stock until the end of such period.
7. VALUE OF SAR. Upon exercise of your SAR, you will be entitled to receive from the Company an amount equal to the Appreciation in the shares of Common Stock covered by the SAR that are exercised. For this purpose, "APPRECIATION" means the excess of (i) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of the shares of Common Stock covered by the SAR that are exercised, over (ii) the aggregate Grant Value for such shares.
8. PAYMENT. The Company shall satisfy its obligation to pay amounts owed upon exercise of this SAR in shares of Common Stock. Payment of such amounts shall commence as soon as administratively practicable after the date of exercise of such SAR.
9. TRANSFERABILITY. Your SAR is not transferable, except (i) by will or by the laws of descent and distribution, and (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the SAR is to be passed to beneficiaries upon the death of the trustor (settlor).
10. SAR NOT A SERVICE CONTRACT. Your SAR is not an employment or service contract, and nothing in your SAR shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the
2
Company or an Affiliate to continue your employment. In addition, nothing in your SAR shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
11. WITHHOLDING OBLIGATIONS.
(a) At the time your SAR is exercised, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision as instructed by the Company, for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your SAR.
(b) The Company may, in its sole discretion, and in compliance with any applicable legal conditions or restrictions, withhold from the amounts otherwise payable to you upon the exercise of your SAR an amount not exceeding the minimum amount of tax required to be withheld by law.
12. NOTICES. Any notices provided for in your SAR or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
13. GOVERNING PLAN DOCUMENT. Your SAR is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your SAR, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your SAR and those of the Plan, the provisions of the Plan shall control.
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EXHIBIT 10.30
EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is entered into by and between AMERICAN REPROGRAPHICS COMPANY, a Delaware corporation ("ARC) as the employer; and SATHIYAMURTHY CHANDRAMOHAN, a resident of California, an individual ("EXECUTIVE"), as the employee, on January 7, 2005, but shall be effective only upon the date (the "Effective Date") of the effectiveness of a Registration Statement on Form S-1 filed by ARC for the initial public offering of ARC's shares of common stock. ARC and Executive may be referred to collectively in this Agreement as the "Parties" and individually as a Party.
RECITALS
ARC has agreed to employ Executive and Executive has agreed to accept such employment, subject to the terms and conditions set forth herein.
Now, therefore, in consideration of the promises, covenants and agreements set forth in this Agreement, the Parties agree as follows:
1. POSITION AND DUTIES
(a) ARC hereby employs Executive as its Chief Executive Officer, and Executive agrees to serve ARC in such capacity, upon the terms and conditions set forth herein.
(b) Executive shall report to the Board of Directors of ARC ("Board"). Executive's primary responsibilities shall be (i) with the concurrence of the Board, and for as long during the term of this Agreement as he wishes, to act as Chairman of the Board and preside at all meetings of the stockholders and the Board, (ii) to be responsible for developing long range corporate goals and for creating strategies to achieve those goals, for general corporate development, and for mergers and acquisitions, (iii) to perform other duties commonly incident
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to the office of Chief Executive Officer of a publicly traded company, and (iv) to perform such other duties and have such other powers as the Board shall designate from time to time. Executive shall have the authority generally incident and necessary to perform such duties. Executive will be the head of ARC's executive team.
(c) During the term of this Agreement, Executive will devote substantially all of his employment time and attention to the affairs of ARC and use his best efforts to promote the business and interests of ARC. Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of ARC, and not to do any act which would injure the business, interests, or reputation of ARC or any of its subsidiaries or affiliates.
2. TERM
The term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date hereof and continue until the third (3rd) anniversary of the Effective Date unless otherwise terminated in accordance with the provisions hereof; provided, however, that this Agreement will automatically be extended on a year-to-year basis on the terms and conditions set forth herein, including the bonus provisions of Section 3(b), unless either party gives written notice to the other at least one hundred twenty (120) days prior to the expiration of the term of this Agreement, which includes any extensions, that this Agreement shall terminate at the end of such term, or extension thereof.
3. DIRECT COMPENSATION
In consideration of the services to be provided by Executive, Executive shall receive compensation, less all applicable taxes, social security payments and other items that ARC is required by law to withhold or deduct therefrom, as follows:
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(a) BASE SALARY. Executive's annual Base Salary shall be $650,000, paid in 12 equal monthly installments on the last day of each calendar month. Base Salary for any partial month shall be prorated on the basis of a 365 day year. Base Salary shall be subject to annual review by ARC's Board of Directors Compensation Committee (the "Compensation Committee"), and may be adjusted in light of the financial performance of ARC or the personal performance of Executive, but shall in no event be less than $650,000 per year during to the term of this Agreement. After any such change, Executive's new level of Base Salary shall be Executive's Base Salary for purposes of this Agreement.
(b) INCENTIVE BONUS. During the term of this Agreement, Executive shall be eligible to receive an annual Incentive Bonus ("Incentive Bonus") as follows:
(i) "EPS" as used herein means the pre-tax earnings per share from operations (excluding extraordinary items) of the common stock of ARC calculated under Generally Accepted Accounting Principles applied on a consistent basis ("GAAP") by ARC's regular certified public accountants as of the close of business on the last day of each relevant fiscal year. EPS shall be calculated on a fully diluted basis, taking into account unexercised options and warrants to the extent and in the manner required under GAAP. For the fiscal year ended December 31, 2004, EPS shall be calculated by dividing (A) the aggregate (rather than per-share) pro forma pre-tax earnings from operations (excluding extraordinary items) of American Reprographics Holdings, L.L.C. ("Holdings"), calculated under GAAP by ARC's regular certified public accountants as if Holdings and its subsidiaries were a consolidated group of corporations for that year, by (B) the number of shares of common stock of ARC that would be used to calculate EPS on a fully diluted basis under GAAP if the calculation were made at the closing of the initial public offering of ARC common stock.
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(ii) For each fiscal year of ARC ending December 31, 2005, 2006 or 2007, Executive shall receive an Incentive Bonus in an amount equal to $60,000 for each full percentage point by which EPS for such fiscal year exceeds by more than 10 percentage points the EPS for the immediately preceding fiscal year, after taking into account the amounts of (A) the Incentive Bonus earned by Executive under this Section 3(b), and (B) a similar bonus earned by Kumarakulasingam Suriyakumar under a separate Employment Agreement entered into contemporaneously with this Agreement. Executive shall not be entitled to any Incentive Bonus for a partial percentage point increase. To illustrate: if EPS for the fiscal year ended December 31, 2004 is $1.00, an Incentive Bonus of $60,000 will be paid if EPS for the fiscal year ended December 31, 2005 equals or exceeds $1.11 but is less than $1.12, and $120,000 will be paid if such EPS equals or exceeds $1.12 but is less than $1.13. If EPS for the fiscal year ended December 31, 2005 is $1.20, an Incentive Bonus of at least $60,000 will be paid if EPS for the fiscal year ended December 31, 2005 equals or exceeds $1.332. Notwithstanding the foregoing, if EPS for a fiscal year shall be less than EPS for the fiscal year ended December 31, 2004, for purposes of calculating an Incentive Bonus, if any, for the following year, EPS for the preceding year shall be presumed to be the amount of EPS for the fiscal year ended December 31, 2004.
(iii) The Incentive Bonus shall be paid no later than 60 days following the close of each fiscal year, in cash or ARC common stock, or partly in each, as elected by Executive at least 20 days before the date such Incentive Bonus is paid. To the extent that such Incentive Bonus is paid in ARC common stock, such stock shall be valued using the average of the closing prices of ARC common stock on the New York Stock Exchange for the 5 trading days immediately preceding the date of issuance of ARC common stock in payment of the
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Incentive Bonus, provided, however, that as a condition to receiving ARC common stock Executive must deposit with ARC on the date of issuance cash in the amount, if any, by which the total of employee withholding taxes required to be withheld with respect to the entire Incentive Bonus exceeds the cash portion of the Incentive Bonus available for withholding. To be eligible to receive a bonus, Executive must have been employed by ARC during the entire fiscal year to which such Incentive Bonus relates.
4. GENERAL BENEFITS
During the term of this Agreement, Executive shall be entitled to other benefits provided by ARC to its senior executives from time to time, including but not limited to, 401(k) and other retirement plans, deferred compensation, paid holidays, sick leave and other similar benefits. Executive shall be entitled to 4 weeks paid vacation each calendar year accrued and vested in accordance with ARC's vacation policy applicable to senior management.
5. STOCK PLANS
In the sole discretion of the Board of Directors of ARC, Executive shall be eligible to participate in stock option, stock purchase, stock bonus and similar plans of ARC ( "Stock Plans") established from time to time by ARC.
6. GROUP INSURANCE OR BENEFIT PLANS
(a) During the term of this Agreement, Executive shall be automatically covered by ARC group insurance programs (including any self-insured programs sponsored by ARC), including medical, dental, vision, disability, and life, if any. Executive's spouse and children which are eligible for coverage may join the insurance programs, subject to ARC's
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policies and applicable laws. The premiums for all insurance programs for Executive and Executive's spouse and eligible children shall be paid by ARC.
(b) Provided that this Agreement has not terminated under Section 11(c) or (f), ARC shall continue to provide to Executive, Executive's spouse and Executive's eligible children, at no expense to either, medical insurance coverage under the same group insurance or ARC-sponsored self-insurance, or equivalent coverage, as is provided from time to time to ARC's senior executives. Such coverage shall continue until the first to occur of (i) medical insurance coverage being available through another employer, or (ii), in the case of Executive's eligible children, the termination of eligibility under ARC's policies and applicable laws, or (iii) in the cases of Executive and his spouse, qualification, in each instance, for Medicare coverage.
7. SPECIAL BENEFITS
Executive shall be allowed additional employer-paid benefits of his choice ("Special Benefits"), including the lease of automobiles, social, golf or athletic club memberships and other benefits not specifically provided for in this Agreement, provided, however, that the annual cost to ARC shall not exceed $10,000. Any employer taxes imposed upon ARC by reason of the furnishing of such Special Benefits shall be included in the annual $10,000 limitation. Any unused allowance for Special Benefits shall not be carried over to a subsequent year.
8. REIMBURSEMENT OF BUSINESS RELATED EXPENSES
Executive shall be entitled to receive prompt reimbursement for reasonable expenses incurred by him in performing services hereunder during the term of this Agreement in accordance with the policies and procedures then in effect and established by ARC for its employees. Executive may, at his discretion, fly business class or first class on all airplane
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flights of more than one (1) hour if Executive deems such to be appropriate for the conduct of his duties. In addition to the Special Benefits set forth in
Section 7 above, Executive shall also be entitled to reimbursement of Executive membership dues and related ongoing costs of appropriate professional organizations which are approved by the Board.
9. OBLIGATIONS AND RESTRICTIVE COVENANTS.
(a) OBLIGATIONS. During the term of this Agreement, Executive shall not engage in any other employment, occupation or consulting activity for any direct or indirect remuneration. This obligation shall not preclude Executive from: (i) serving in any volunteer capacity with any professional, community, industry, civic, educational or charitable organization; (ii) serving as a member of corporate boards of directors, provided that the Board has given its consent, and these activities or services do not materially interfere or conflict with Executive's responsibilities or ability to perform his duties under this Agreement; or (iii) engaging in personal investment activities for himself and his family which do not interfere with the performance of his duties and obligations hereunder.
(b) NON-COMPETITION; NON-SOLICITATION. The Parties hereto recognize that Executive's services are unique and the restrictive covenants set forth in this Section 9 are essential to protect the business (including trade secret and other confidential information disclosed by ARC to, learned by or developed by Executive during the course of employment by ARC) and the good will of ARC. For purposes of this Section 9, all references to "ARC" shall include ARC's predecessors, subsidiaries and affiliates. As part of the consideration for the compensation and benefits to be paid to Executive hereunder, during the term of this Agreement Executive shall not:
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(i) Engage in any business similar or related to or competitive with the business conducted by ARC described from time to time in ARC's Annual Report on Form 10-K to its shareholders and Board (the "Core Business of ARC");
(ii) Render advice or services to, or otherwise assist, any other person, association, corporation, or other entity that is engaged, directly or indirectly, in any business similar or related to, or competitive with, the Core Business of ARC;
(iii) Transact any business in any manner with or pertaining to suppliers or customers of ARC which, in any manner, would have, or is likely to have, an adverse effect upon the Core Business of ARC; or
(iv) Induce any employee of ARC to terminate his or her employment with ARC, or hire or assist in the hiring of any such employee by any person or entity not affiliated with ARC.
For purposes of this Agreement, "affiliate" shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control, with ARC.
10. CONFIDENTIALITY
Executive acknowledges that it is the policy of ARC to maintain as secret and confidential all valuable and unique information heretofore or hereafter acquired, developed or used by ARC relating to the business, operations, employees and customers of ARC , which information gives ARC a competitive advantage in the industry, and which information includes technical knowledge, know-how or trade secrets and information concerning operations, sales, personnel, suppliers, customers, costs, profits, markets, pricing policies, and other confidential information and materials (the "Confidential Information").
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(a) NON-DISCLOSURE. Executive recognizes that the services to be performed by Executive are special and unique, and that by reason of his duties he will be given, acquire or learn Confidential Information. Executive recognizes that all such Confidential Information is the sole and exclusive property of ARC. Executive shall not, either during or after his employment by ARC, disclose the Confidential Information to anyone outside ARC or use the Confidential Information for any purpose whatsoever, other than for the performance of his duties hereunder, except as authorized by ARC in connection with performance of such duties.
(b) RETURN OF CONFIDENTIAL INFORMATION. Executive shall deliver promptly upon termination of employment with ARC, or at any time requested by ARC, all memos, notes, records, reports, manuals, drawings, and any other documents, whether in electronic form or otherwise, containing any Confidential Information, including without limitation all copies of such materials in any format which Executive may then possess or have under his control.
(c) OWNERSHIP OF INVENTIONS; ASSIGNMENT OF RIGHTS. Executive agrees that all information, inventions, intellectual property, trade secrets, copyrights, trademarks, content, know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by ARC (the "Work Product") are the property of ARC and shall not be used by him in any way adverse to the interests of ARC. Executive assigns to ARC any and all rights of every nature which Executive may have in any such Work Product; provided, however, that such assignment does not apply to any right which qualifies fully under California Labor Code Section 2870. This section shall survive any termination of this Agreement and the employment relationship between Executive and ARC. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent of the Board. Likewise, Executive shall not
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disclose to ARC, use in ARC's business, or cause ARC to use, any information or material that is a trade secret of others.
(d) PREDECESSORS, SUBSIDIARIES AND AFFILIATES. For purposes of this
Section 10, references to ARC include its predecessors, subsidiaries and affiliates.
11. TERMINATION.
Notwithstanding any other term or provision contained in this Agreement, this Agreement and the employment hereunder will terminate prior to the expiration of the term of this Agreement under the following circumstances:
(a) DEATH. Upon Executive's death.
(b) DISABILITY. Upon Executive becoming "Permanently Disabled", which, for purposes of this Agreement, shall mean Executive's incapacity due to physical or mental illness or cause, which, in the written opinion of Executive's regular licensed physician, results in the Executive being unable to perform his duties on a full-time basis for 6 months during a period of 12 months.
(c) TERMINATION BY ARC FOR CAUSE. Upon written notice to Executive, ARC may terminate this Agreement for Cause, which, for purposes of this Agreement, shall mean termination by action of the Board in its reasonable discretion because of Executive's:
(i) Willful refusal without proper cause to perform (other than by reason of physical or mental disability or death) the duties set forth in this Agreement or delegated from time to time in writing by the Board, which remains uncorrected for 30 days following written notice to Executive by the Board; or
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(ii) Gross negligence, self dealing or willful misconduct of Executive in connection with the performance of his duties hereunder, including, without limitation, misappropriation of funds or property of ARC or its subsidiaries or affiliates, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of ARC or its subsidiaries or affiliates, or any willful act or gross negligence having the effect of injuring the reputation, business or business relationships of ARC or its subsidiaries or affiliates; or
(iii) fraud, dishonesty or misappropriation of ARC business and assets that harms the business of ARC or its subsidiaries or affiliates; or
(iv) habitual insobriety, abuse of alcohol, abuse of prescription drugs, or use of illegal drugs; or
(v) engaging in any criminal activity involving moral turpitude; or
(vi) indictment or being held for trial in connection with a misdemeanor involving moral turpitude or any felony; or
(vii) conviction of a felony or entry into a guilty plea that negatively reflects on Executive's fitness to perform the duties or harms the reputation or business or ARC or its subsidiaries or affiliates; or
(viii) any material breach of any covenants under this Agreement or other material policy of ARC, other than under clauses (i) through
(vii) of this Section 11(c) which remains uncorrected for 30 days following written notice to Executive by the Board.
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(d) TERMINATION BY ARC WITHOUT CAUSE. Upon written notice to Executive, ARC may terminate this Agreement at any time without any Cause or reason whatsoever.
(e) TERMINATION BY EXECUTIVE WITH GOOD REASON. Upon written notice to ARC of any of the following "Good Reasons," and the failure of ARC to correct the reduction, change or breach within 30 days after receipt of such notice, Executive may terminate this Agreement after the occurrence of
(i) a material change by ARC in the nature of Executive's title, duties, authorities and responsibilities set forth in this Agreement without Executive's express written consent; or
(ii) a reduction in the nature of Executive's compensation as established under this Agreement, other than as expressly permitted in this Agreement, without Executive's express written consent; or
(iii) a material breach by ARC of any material sections of this Agreement, other than as set forth in subsections (i) or (iii) of this Section 11(e); or
(iv) a change of Control, as defined in Section 11(g), as a result of which Executive is not offered the same or comparable position in the surviving company, or is offered such position but within twelve (12) months after Executive accepts such position, Executive's employment is terminated either without cause or for a Good Reason described in subsections
(i)or (ii) of this Section 11(e) or in subsection (iii) as to the employment agreement then applicable to Executive.
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(f) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Upon 45 days prior written notice to ARC, Executive may terminate this Agreement and resign from Executive's employment hereunder without any Good Reason.
(g) CHANGE OF CONTROL.
(i) For purposes of this Agreement, "Change of Control" shall mean:
(A) ARC merges or consolidates with any other corporation (other than one of ARC's subsidiaries), as a result of which ARC is not the surviving company, or the shares of ARC voting stock outstanding immediately after such transaction do not constitute, become exchanged for or converted into, more than 50% of the Voting Shares of the merged or consolidated company (as defined below);
(B) ARC sells or otherwise transfers or disposes of all or substantially all of its assets;
(C) Any third person or entity shall become the Beneficial Owner, as defined by Rule 13(d)-3 under the Securities Exchange Act of 1934, in one transaction or a series of related transactions within any 12 month period, of at least 50% of the Voting Shares of ARC's then outstanding voting securities.
(ii) For purposes of this Agreement, "Voting Shares" shall mean the combined voting securities entitled to vote in the election of directors of a corporation, including ARC, or the merged, consolidated or surviving company, if other than ARC.
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12. SEVERANCE BENEFITS
(a) BASIC BENEFITS. Upon the expiration or termination of this Agreement for any reason, and subject to the provisions of Section 12(e), Executive will be entitled to: (i) payment for all Base Salary and unused vacation accrued and prorated, but unpaid, as of the effective date of termination, (ii) payment, when due, of any earned but unpaid Incentive Bonus for the preceding fiscal year, (iii) any unreimbursed business expenses authorized by this Agreement, and (iv) continuation of any benefits under
Section 6(a) as required by applicable law, (v) such rights as then exist with respect to then vested stock options, restricted stock or other rights under similar plans.
(b) TERMINATION BY ARC FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC for Cause pursuant to Section 11(c), or by Executive without Good Reason pursuant to Section 11(f), Executive shall not be entitled to any additional payments or benefits hereunder.
(c) TERMINATION BY ARC WITHOUT CAUSE; TERMINATION BY EXECUTIVE WITH GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC without Cause pursuant to Section 11(d), or by Executive for Good Reason as defined in Section 11(e), subject to Executive's compliance with the provisions of Section 15 below, Executive shall receive the following additional payments or benefits:
(i) Executive's then Base Salary for the remaining term of this Agreement, paid as and when due as if this Agreement had not been terminated;
(ii) Continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section
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6(a) if this Agreement had not been terminated, and thereafter under Section 6(b) in accordance with the provisions of such Section;
(iii) Continuation of the Special Benefits under Section 7 of this Agreement, if this Agreement had not been terminated; and
(iv) All unvested stock options, restricted stock or similar rights granted to Executive shall accelerate and become vested and exercisable immediately as of the effective date of termination.
(d) TERMINATION BECAUSE OF DEATH OR DISABILITY OF EXECUTIVE. If this Agreement and Executive's employment hereunder is terminated under Sections 11(a) or (b) by reason of Executive's death or by reason of being Permanently Disabled, Executive or his family shall be entitled to the additional benefits described in Section 12(c)(ii) above.
(e) PARACHUTE PAYMENTS. In the event that the severance, acceleration of stock options and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute "parachute payments" within the meaning of Section 280G (as it may be amended or replaced) of the Internal Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 12(e), would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder shall be either:
(i) provided to Executive in full; or
(ii) provided to Executive only as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing
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amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless ARC and Executive otherwise agree in writing, any determination required under this
Section 12(e) shall be made in writing in good faith by ARC `s independent public accountants (the "Accountants"). In the event of a reduction in benefits hereunder, Executive shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 12(e), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. ARC and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 12(e). ARC shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 12(e).
13. ARBITRATION AND EQUITABLE RELIEF
(a) ARBITRATION. In consideration of Executive's employment with ARC, its promise to arbitrate all employment-related disputes and Executive's receipt of the compensation paid to Executive by ARC, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including ARC and any employee, officer, director, shareholder or benefit plan of ARC in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's employment with ARC or the termination of that employment with ARC, including any provision of this Agreement, shall be subject to binding arbitration under the arbitration rules set forth in the California Code of Civil Procedure section 1280 through 1294.2, including section 1283.05 collectively (the "Rules") and pursuant to California law. Disputes which Executive agrees to arbitrate, and hereby agrees to waive any
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right to a trial by jury, include without limitation, any common law claims, statutory claims under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act of 1990, the Age Discrimination In Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment And Housing Act, the California Labor Code (except for workers compensation or unemployment insurance claims), or ERISA, claims of harassment, discrimination or wrongful termination and any other statutory claims under state or federal law.
(b) PROCEDURE. Any arbitration will be administered by JAMS and a neutral arbitrator will be selected in a manner consistent with its rules for the resolution of employment disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall have the power to award any remedies, including attorneys' fees and costs, available under applicable law. ARC will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that Executive shall pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules. To the extent that the JAMS rules for the resolution of employment disputes conflict with the Rules, the Rules shall take precedence. The decision of the arbitrator shall be in writing.
(c) REMEDY. Except as provided by the Rules and this Agreement, arbitration shall be the sole, exclusive and final remedy for any dispute between ARC and Executive. Accordingly, except as provided for by the Rules and this Agreement, neither ARC nor Executive will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any
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lawful ARC policy, and the arbitrator shall not order or require ARC to adopt a policy not otherwise required by law which ARC has not adopted.
(d) AVAILABILITY OF INJUNCTIVE RELIEF. In addition to the right under the Rules to petition the court for provisional relief, ARC may also petition the court for injunctive relief, notwithstanding any provision in this Agreement requiring arbitration, where ARC alleges or claims a violation of this Agreement, or any separate agreement between Executive and ARC regarding trade secrets, confidential information or non-solicitation, or California Labor Code ss.2870. No bond shall be required of ARC. Executive understands and agrees that any breach or threatened breach of this Agreement or of any such separate agreement will cause irreparable injury to ARC or its subsidiaries or affiliates and that money damages will not provide an adequate remedy therefore, and Executive hereby consents to the issuance of an injunction. In the event either Party seeks injunctive relief, the prevailing Party shall be entitled to recover reasonable costs and attorney fees related thereto.
(e) ADMINISTRATIVE RELIEF. This Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the Workers' Compensation Board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.
(f) VOLUNTARY NATURE OF AGREEMENT. Executive acknowledges and agrees that he is executing this Agreement voluntarily and without any duress or undue influence by ARC or anyone else. Executive further acknowledges and agrees that he has carefully read this Agreement, that he has asked any questions needed for him to understand the terms, consequences and binding effect of this Agreement, and that he fully understands this
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Agreement, including that HE IS WAIVING HIS RIGHT TO A JURY TRIAL. Finally, Executive acknowledges that he has been provided an opportunity to seek the advice of an attorney of his choice before signing this Agreement.
14. GOVERNING LAW
This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California without regard to California conflict of laws principles.
15. RELEASE
In exchange for the benefits and other consideration under this Agreement to which Executive would not otherwise be entitled, Executive shall enter into and execute a release substantially in the form attached hereto as Exhibit A (the "Release") upon his termination of employment. Unless the Release is executed by Executive and delivered to ARC within thirty (30) days after the termination of Executive's employment with ARC, Executive shall receive only the basic severance benefits provided under Section 12(a) of this Agreement and no additional benefits under Section 12 or the extended health insurance coverage under Section 6 (b) of this Agreement.
16. NOTICES
Any notices or other communications desired or required under this Agreement shall be in writing, signed by the Party making the same, and shall be deemed delivered when personally delivered or on the second business day after the same is sent by certified or registered mail, postage prepaid, addressed as follows (or to such other address as may be designated by like written notice):
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If to Executive:       At the last residential address known by ARC

If to ARC:             American Reprographics Company
                       700 North Central Avenue, Suite 550
                       Glendale, CA 91203
                       Attn.: Chief Operating Officer	

17. SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
18. ASSIGNMENT
Except as otherwise specifically provided herein, neither Party shall assign this Agreement or any rights hereunder without the consent of the other Party, and any attempted or purported assignment without such consent shall be void; provided that Executive's consent under this Agreement shall not be required hereby for any of the transactions involving a Change of Control. This Agreement shall otherwise bind and inure to the benefit of the Parties hereto and their respective successors, assigns, heirs, legatees, devisees, executors, administrators and legal representatives.
19. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the Parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties regarding the subject matter of this Agreement. Any prior employment agreement, bonus agreement or other compensation agreement between Executive and ARC or any predecessor,
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subsidiary or affiliate of ARC, is hereby terminated on and as of the Effective Date. This Agreement may not be amended or modified except in writing signed by both Parties.
20. WAIVER
If either Party waives any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
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21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first hereinabove set forth.
AMERICAN REPROGRAPHICS COMPANY, EXECUTIVE
 a Delaware corporation

By:     /s/ K. Suriyakumar                      /s/ S. Chandramohan
        ___________________________             ________________________________
        Kumarakulasingam Suriyakumar            Sathiyamurthy Chandramohan
Title:  Chief Operating Officer                 Address: 1946 Lamp Post Lane
                                                        ________________________
                                                        La Canada, CA 91011
                                                        ________________________	

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EXHIBIT A
RELEASE AGREEMENT
I understand that my position with American Reprographics Company ("ARC") terminated effective _______________ (the "Separation Date"). ARC has agreed that if I choose to sign this Agreement, ARC will pay me severance benefits (minus the standard withholdings and deductions) pursuant to the terms of the Executive Employment Agreement entered into on __________ __, 2004 between myself and ARC (the "Severance Benefits). I understand that I am not entitled to the Severance Benefits unless I sign this Agreement. I understand that in addition to the Severance Benefits, ARC will pay me all of my accrued salary and vacation, to which I am entitled by law.
In consideration for the Severance Benefits I am receiving under this Agreement, I agree not to use or disclose any of ARC's proprietary information without written authorization from ARC, to immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control, and to release ARC and its officers, directors, agents, attorneys, employees, shareholders, and affiliates from any and all claims, debts, liabilities, demands, causes of action, attorneys' fees, damages, or obligations of every kind and nature, whether they are known or unknown, arising at any time prior to the date I sign this Agreement. This general release includes, but is not limited to: all federal and state statutory and common law claims, claims related to my employment or the termination of my employment or related to breach of contract, tort, wrongful termination, discrimination, wages or benefits, or claims for any form of compensation. This release is not intended to release any
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claims I have or may have against any of the released parties for (a) indemnification as a director, officer, agent or employee under applicable law, charter document or agreement, (b) severance and other termination benefits under my employment agreement and any related written documents, (c) health or other insurance benefits based on claims already submitted or which are covered claims properly submitted in the future, (d) vested rights under pension, retirement or other benefit plans, or (e) in respect of events, acts or omissions occurring after the date of this Release Agreement.
In releasing claims unknown to me at present, I am waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"). I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled. I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after my signing of this Agreement; (b) I should consult with an attorney prior to executing this release, (c) I have twenty-one (21) days within which to consider this release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following the execution of this release to revoke the Agreement; (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by me and by ARC
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("Effective Date"); and I will not be paid any of the Severance Benefits until this Agreement has become effective.
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between ARC and me with regard to the subject matter hereof I am not relying on any promise or representation by ARC that is not expressly stated herein. This Agreement may only be modified by a writing signed by both me and a duly authorized officer of ARC. I accept and agree to the terms and conditions stated above:

AMERICAN REPROGRAPHICS COMPANY,                  EXECUTIVE
a Delaware corporation

By:                                              _______________________________
        ___________________________              Sathiyamurthy Chandramohan
        ___________________________
                                                 Address:_______________________
Title:  ___________________________                      _______________________	

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Exhibit 10.31
EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is entered into by and between AMERICAN REPROGRAPHICS COMPANY, a Delaware corporation ("ARC) as the employer; and KUMARAKULASINGAM SURIYAKUMAR, a resident of California, an individual ("EXECUTIVE"), as the employee, on January 7, 2005, but shall be effective only upon the date (the "Effective Date") of the effectiveness of a Registration Statement on Form S-1 filed by ARC for the initial public offering of ARC's shares of common stock. ARC and Executive may be referred to collectively in this Agreement as the "Parties" and individually as a Party.
RECITALS
ARC has agreed to employ Executive and Executive has agreed to accept such employment, subject to the terms and conditions set forth herein.
Now, therefore, in consideration of the promises, covenants and agreements set forth in this Agreement, the Parties agree as follows:
1. POSITION AND DUTIES
(a) ARC hereby employs Executive as its President and Chief Operations Officer ("COO"), and Executive agrees to serve ARC in such capacity, upon the terms and conditions set forth herein.
(b) Executive shall report to the Chief Executive Officer of ARC ("CEO"). Executive's primary responsibilities shall be to (i) manage the daily operations of ARC, including, sales and marketing, business development, administration, and information systems, (ii) lead the execution of ARC's long range corporate goals, and (iii) perform such other duties which are normal and customary to the position of President and COO of a publicly traded
1
company. Executive shall have the authority generally incident and necessary to perform such duties. Executive will be a member of the executive team.
(c) During the term of this Agreement, Executive will devote substantially all of his employment time and attention to the affairs of ARC and use his best efforts to promote the business and interests of ARC. Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of ARC, and not to do any act which would injure the business, interests, or reputation of ARC or any of its subsidiaries or affiliates.
2. TERM
The term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date hereof and continue until the third (3rd) anniversary of the Effective Date unless otherwise terminated in accordance with the provisions hereof; provided, however, that this Agreement will automatically be extended on a year-to-year basis on the terms and conditions set forth herein, including the bonus provisions of Section 3(b), unless either party gives written notice to the other at least one hundred twenty (120 (days) prior to the expiration of the term of this Agreement, which includes any extensions, that this Agreement shall terminate at the end of such term, or extension thereof.
3. DIRECT COMPENSATION
In consideration of the services to be provided by Executive, Executive shall receive compensation, less all applicable taxes, social security payments and other items that ARC is required by law to withhold or deduct therefrom, as follows:
(a) Base Salary. Executive's annual Base Salary shall be $650,000, paid in 12 equal monthly installments on the last day of each calendar month. Base Salary for any
2
partial month shall be prorated on the basis of a 365 day year. Base Salary shall be subject to annual review by ARC's CEO and ARC's Board of Directors Compensation Committee (the "Compensation Committee"), and may be adjusted in light of the financial performance of ARC or the personal performance of Executive, but shall in no event be less than $650,000 per year during to the term of this Agreement. After any such change, Executive's new level of Base Salary shall be Executive's Base Salary for purposes of this Agreement.
(b) INCENTIVE BONUS. During the term of this Agreement, Executive shall be eligible to receive an annual Incentive Bonus ("Incentive Bonus") as follows:
(i) "EPS" as used herein means the pre-tax earnings per share from operations (excluding extraordinary items) of the common stock of ARC calculated under Generally Accepted Accounting Principles applied on a consistent basis ("GAAP") by ARC's regular certified public accountants as of the close of business on the last day of each relevant fiscal year. EPS shall be calculated on a fully diluted basis, taking into account unexercised options and warrants to the extent and in the manner required under GAAP. For the fiscal year ended December 31, 2004, EPS shall be calculated by dividing (A) the aggregate (rather than per-share) pro forma pre-tax earnings from operations (excluding extraordinary items) of American Reprographics Holdings, L.L.C. ("Holdings"), calculated under GAAP by ARC's regular certified public accountants as if Holdings and its subsidiaries were a consolidated group of corporations for that year, by (B) the number of shares of common stock of ARC that would be used to calculate EPS on a fully diluted basis under GAAP if the calculation were made at the closing of the initial public offering of ARC common stock.
(ii) For each fiscal year of ARC ending December 31, 2005, 2006 or 2007, Executive shall receive an Incentive Bonus in an amount equal to $60,000 for
3
each full percentage point by which EPS for such fiscal year exceeds by more than 10 percentage points the EPS for the immediately preceding fiscal year, after taking into account the amounts of (A) the Incentive Bonus earned by Executive under this Section 3(b), and (B) a similar bonus earned by Sathiyamurthy Chandramohan under a separate Employment Agreement entered into contemporaneously with this Agreement. Executive shall not be entitled to any Incentive Bonus for a partial percentage point increase. To illustrate: if EPS for the fiscal year ended December 31, 2004 is $1.00, an Incentive Bonus of $60,000 will be paid if EPS for the fiscal year ended December 31, 2005 equals or exceeds $1.11 but is less than $1.12, and $120,000 will be paid if such EPS equals or exceeds $1.12 but is less than $1.13. If EPS for the fiscal year ended December 31, 2005 is $1.20, an Incentive Bonus of at least $60,000 will be paid if EPS for the fiscal year ended December 31, 2006 equals or exceeds $1.332. Notwithstanding the foregoing, if EPS for a fiscal year shall be less than EPS for the fiscal year ended December 31, 2004, for purposes of calculating an Incentive Bonus, if any, for the following year, EPS for the preceding year shall be presumed to be the amount of EPS for the fiscal year ended December 31, 2004.
(iii) The Incentive Bonus shall be paid no later than 60 days following the close of each fiscal year, in cash or ARC common stock, or partly in each, as elected by Executive at least 20 days before the date such Incentive Bonus is paid. To the extent that such Incentive Bonus is paid in ARC common stock, such stock shall be valued using the average of the closing prices of ARC common stock on the New York Stock Exchange for the 10 trading days immediately preceding the date of issuance of ARC common stock in payment of the Incentive Bonus, provided, however, that as a condition to receiving ARC common stock Executive must deposit with ARC on the date of issuance cash in the amount, if any, by which the total of employee withholding taxes required to be withheld with respect to the entire
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Incentive Bonus exceeds the cash portion of the Incentive Bonus available for withholding. To be eligible to receive a bonus, Executive must have been employed by ARC during the entire fiscal year to which such Incentive Bonus relates.
4. GENERAL BENEFITS
During the term of this Agreement, Executive shall be entitled to other benefits provided by ARC to its senior executives from time to time, including but not limited to, 401(k) and other retirement plans, deferred compensation, paid holidays, sick leave and other similar benefits. Executive shall be entitled to 4 weeks paid vacation each calendar year accrued and vested in accordance with ARC's vacation policy applicable to senior management.
5. STOCK PLANS
In the sole discretion of the Board of Directors of ARC, Executive shall be eligible to participate in stock option, stock purchase, stock bonus and similar plans of ARC ( "Stock Plans") established from time to time by ARC.
6. GROUP INSURANCE OR BENEFIT PLANS
(a) During the term of this Agreement, Executive shall be automatically covered by ARC group insurance programs (including any self-insured programs sponsored by ARC), including medical, dental, vision, disability, and life, if any. Executive's spouse and children which are eligible for coverage may join the insurance programs, subject to ARC's policies and applicable laws. The premiums for all insurance programs for Executive and Executive's spouse and eligible children shall be paid by ARC.
(b) Provided that this Agreement has not terminated under Section 11(c) or (f), ARC shall continue to provide to Executive, Executive's spouse and Executive's eligible
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children, at no expense to either, medical insurance coverage under the same group insurance or ARC-sponsored self-insurance, or equivalent coverage, as is provided from time to time to ARC's senior executives. Such coverage shall continue until the first to occur of (i) medical insurance coverage being available through another employer, or (ii), in the case of Executive's eligible children, the termination of eligibility under ARC's policies and applicable laws, or (iii) in the cases of Executive and his spouse, qualification, in each instance, for Medicare coverage.
7. SPECIAL BENEFITS
Executive shall be allowed additional employer-paid benefits of his choice ("Special Benefits"), including the lease of automobiles, social, golf or athletic club memberships and other benefits not specifically provided for in this Agreement, provided, however, that the annual cost to ARC shall not exceed $10,000. Any employer taxes imposed upon ARC by reason of the furnishing of such Special Benefits shall be included in the annual $10,000 limitation. Any unused allowance for Special Benefits shall not be carried over to a subsequent year.
8. REIMBURSEMENT OF BUSINESS RELATED EXPENSES.
Executive shall be entitled to receive prompt reimbursement for reasonable expenses incurred by him in performing services hereunder during the term of this Agreement in accordance with the policies and procedures then in effect and established by ARC for its employees. Executive may, at his discretion, fly business class or first class on all airplane flights of more than one (1) hour if Executive deems such to be appropriate for the conduct of his duties. In addition to the Special Benefits set forth in Section 7 above, Executive shall also be entitled to reimbursement of Executive membership dues and related ongoing costs of appropriate professional organizations which are approved by ARC's CEO.
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9. OBLIGATIONS AND RESTRICTIVE COVENANTS.
(a) OBLIGATIONS. During the term of this Agreement, Executive shall not engage in any other employment, occupation or consulting activity for any direct or indirect remuneration. This obligation shall not preclude Executive from: (i) serving in any volunteer capacity with any professional, community, industry, civic, educational or charitable organization; (ii) serving as a member of corporate boards of directors, provided that ARC's CEO has given written consent, and these activities or services do not materially interfere or conflict with Executive's responsibilities or ability to perform his duties under this Agreement; or (iii) engaging in personal investment activities for himself and his family which do not interfere with the performance of his duties and obligations hereunder.
(b) NON-COMPETITION; NON-SOLICITATION. The Parties hereto recognize that Executive's services are unique and the restrictive covenants set forth in this Section 9 are essential to protect the business (including trade secret and other confidential information disclosed by ARC to, learned by or developed by Executive during the course of employment by ARC) and the good will of ARC. For purposes of this Section 9, all references to "ARC" shall include ARC's predecessors, subsidiaries and affiliates. As part of the consideration for the compensation and benefits to be paid to Executive hereunder, during the term of this Agreement Executive shall not:
(i) Engage in any business similar or related to or competitive with the business conducted by ARC described from time to time in ARC's Annual Report on Form 10-K to its shareholders and Board (the "Core Business of ARC");
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(ii) Render advice or services to, or otherwise assist, any other person, association, corporation, or other entity that is engaged, directly or indirectly, in any business similar or related to, or competitive with, the Core Business of ARC;
(iii) Transact any business in any manner with or pertaining to suppliers or customers of ARC which, in any manner, would have, or is likely to have, an adverse effect upon the Core Business of ARC; or
(iv) Induce any employee of ARC to terminate his or her employment with ARC, or hire or assist in the hiring of any such employee by any person or entity not affiliated with ARC.
For purposes of this Agreement, "affiliate" shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control, with ARC.
10. CONFIDENTIALITY
Executive acknowledges that it is the policy of ARC to maintain as secret and confidential all valuable and unique information heretofore or hereafter acquired, developed or used by ARC relating to the business, operations, employees and customers of ARC , which information gives ARC a competitive advantage in the industry, and which information includes technical knowledge, know-how or trade secrets and information concerning operations, sales, personnel, suppliers, customers, costs, profits, markets, pricing policies, and other confidential information and materials (the "Confidential Information").
(a) NON-DISCLOSURE. Executive recognizes that the services to be performed by Executive are special and unique, and that by reason of his duties he will be given, acquire or learn Confidential Information. Executive recognizes that all such Confidential Information is
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the sole and exclusive property of ARC. Executive shall not, either during or after his employment by ARC, disclose the Confidential Information to anyone outside ARC or use the Confidential Information for any purpose whatsoever, other than for the performance of his duties hereunder, except as authorized by ARC in connection with performance of such duties.
(b) RETURN OF CONFIDENTIAL INFORMATION. Executive shall deliver promptly upon termination of employment with ARC, or at any time requested by ARC, all memos, notes, records, reports, manuals, drawings, and any other documents, whether in electronic form or otherwise, containing any Confidential Information, including without limitation all copies of such materials in any format which Executive may then possess or have under his control.
(c) OWNERSHIP OF INVENTIONS; ASSIGNMENT OF RIGHTS. Executive agrees that all information, inventions, intellectual property, trade secrets, copyrights, trademarks, content, know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by ARC (the "Work Product") are the property of ARC and shall not be used by him in any way adverse to the interests of ARC. Executive assigns to ARC any and all rights of every nature which Executive may have in any such Work Product; provided, however, that such assignment does not apply to any right which qualifies fully under California Labor Code Section 2870. This section shall survive any termination of this Agreement and the employment relationship between Executive and ARC. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent of the Board. Likewise, Executive shall not disclose to ARC, use in ARC's business, or cause ARC to use, any information or material that is a trade secret of others.
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(d) PREDECESSORS, SUBSIDIARIES AND AFFILIATES. For purposes of this
Section 10, references to ARC include its predecessors, subsidiaries and affiliates.
11. TERMINATION.
Notwithstanding any other term or provision contained in this Agreement, this Agreement and the employment hereunder will terminate prior to the expiration of the term of this Agreement under the following circumstances:
(a) DEATH. Upon Executive's death.
(b) DISABILITY. Upon Executive becoming "Permanently Disabled", which, for purposes of this Agreement, shall mean Executive's incapacity due to physical or mental illness or cause, which, in the written opinion of Executive's regular licensed physician, results in the Executive being unable to perform his duties on a full-time basis for 6 months during a period of 12 months.
(c) TERMINATION BY ARC FOR CAUSE. Upon written notice to Executive, ARC may terminate this Agreement for Cause, which, for purposes of this Agreement, shall mean termination by action of the Board in its reasonable discretion because of Executive's:
(i) willful refusal without proper cause to perform (other than by reason of physical or mental disability or death) the duties set forth in this Agreement or delegated from time to time in writing by ARC's CEO, which remains uncorrected for 30 days following written notice to Executive by ARC's CEO; or
(ii) gross negligence, self dealing or willful misconduct of Executive in connection with the performance of his duties hereunder, including, without limitation,
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misappropriation of funds or property of ARC or its subsidiaries or affiliates, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of ARC or its subsidiaries or affiliates, or any willful act or gross negligence having the effect of injuring the reputation, business or business relationships of ARC or its subsidiaries or affiliates; or
(iii) fraud, dishonesty or misappropriation of ARC business and assets that harms the business of ARC or its subsidiaries or affiliates; or
(iv) habitual insobriety, abuse of alcohol, abuse of prescription drugs, or use of illegal drugs; or
(v) engaging in any criminal activity involving moral turpitude; or
(vi) indictment or being held for trial in connection with a misdemeanor involving moral turpitude or any felony; or
(vii) conviction of a felony or entry into a guilty plea that negatively reflects on Executive's fitness to perform the duties or harms the reputation or business or ARC or its subsidiaries or affiliates; or
(viii) any material breach of any covenants under this Agreement or other material policy of ARC, other than under clauses (i) through
(vii) of this Section 11(c) which remains uncorrected for 30 days following written notice to Executive by the ARC's CEO.
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(d) TERMINATION BY ARC WITHOUT CAUSE. Upon written notice to Executive, ARC may terminate this Agreement at any time without any Cause or reason whatsoever.
(e) TERMINATION BY EXECUTIVE WITH GOOD REASON. Upon written notice to ARC of any of the following "Good Reasons," and the failure of ARC to correct the reduction, change or breach within 30 days after receipt of such notice, Executive may terminate this Agreement after the occurrence of
(i) a material change by ARC in the nature of Executive's title, duties, authorities and responsibilities set forth in this Agreement without Executive's express written consent; or
(ii) a reduction in the nature of Executive's compensation as established under this Agreement, other than as expressly permitted in this Agreement, without Executive's express written consent; or
(iii) a change in the officer (other than a change in the person who occupies such position) to whom Executive reports without Executive's express consent; or
(iv) a material breach by ARC of any material sections of this Agreement, other than as set forth in clauses (i) through (iii) of this Section 11(e); or
(v) a Change of Control, as defined in Section 11(g), as a result of which Executive is not offered the same or comparable position in the surviving company, or is offered such position but within twelve (12) months after Executive accepts such position, Executive's employment is terminated either without cause or for a Good Reason described in
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subsections (i), (ii), (iii) of this Section 11(e) or in subsection (iv) as to the employment agreement then applicable to Executive.
(f) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Upon 45 days prior written notice to ARC, Executive may terminate this Agreement and resign from Executive's employment hereunder without any Good Reason.
(g) CHANGE OF CONTROL.
(i) For purposes of this Agreement, "Change of Control" shall mean:
(A) ARC merges or consolidates with any other corporation (other than one of ARC's subsidiaries), as a result of which ARC is not the surviving company, or the shares of ARC voting stock outstanding immediately after such transaction do not constitute, become exchanged for or converted into, more than 50% of the Voting Shares of the merged or consolidated company (as defined below);
(B) ARC sells or otherwise transfers or disposes of all or substantially all of its assets;
(C) Any third person or entity shall become the Beneficial Owner, as defined by Rule 13(d)-3 under the Securities Exchange Act of 1934, in one transaction or a series of related transactions within any 12 month period, of at least 50% of the Voting Shares of ARC's then outstanding voting securities.
(ii) For purposes of this Agreement, "Voting Shares" shall mean the combined voting securities entitled to vote in the election of directors of a corporation, including ARC, or the merged, consolidated or surviving company, if other than ARC.
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12. SEVERANCE BENEFITS
(a) BASIC BENEFITS. Upon expiration or termination of this Agreement for any reason, and subject to the provisions of Section 12(e), Executive will be entitled to: (i) payment for all Base Salary and unused vacation accrued and prorated, but unpaid, as of the effective date of termination,
(ii) payment, when due, of any earned but unpaid Incentive Bonus for the preceding fiscal year, (iii) any unreimbursed business expenses authorized by this Agreement, (iv) continuation of any benefits under Section 6(a) as required by applicable law, and (v) such rights as then exist with respect to then vested stock options, restricted stock or other rights under similar plans.
(b) TERMINATION BY ARC FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC for Cause pursuant to Section 11(c), or by Executive without Good Reason pursuant to Section 11(f), Executive shall not be entitled to any additional payments or benefits hereunder.
(c) TERMINATION BY ARC WITHOUT CAUSE; TERMINATION BY EXECUTIVE WITH GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC without Cause pursuant to Section 11(d), or by Executive for Good Reason as defined in Section 11(e), subject to Executive's compliance with the provisions of Section 15 below, Executive shall receive the following additional payments or benefits:
(i) Executive's then Base Salary for the remaining term of this Agreement, paid as and when due as if this Agreement had not been terminated;
(ii) Continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section
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6(a) if this Agreement had not been terminated, and thereafter under Section 6(b) in accordance with the provisions of such Section;
(iii) Continuation of the Special Benefits under Section 7 of this Agreement, if this Agreement had not been terminated; and
(iv) All unvested stock options, restricted stock or similar rights granted to Executive shall accelerate and become vested and exercisable immediately as of the effective date of termination.
(d) TERMINATION BECAUSE OF DEATH OR DISABILITY OF EXECUTIVE. If this Agreement and Executive's employment hereunder is terminated under Sections 11(a) or (b) by reason of Executive's death or by reason of being Permanently Disabled, Executive or his family shall be entitled to the additional benefits described in Section 12(c)(ii) above.
(e) PARACHUTE PAYMENTS. In the event that the severance, acceleration of stock options and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute "parachute payments" within the meaning of Section 280G (as it may be amended or replaced) of the Internal Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 12(e), would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder shall be either:
(i) provided to Executive in full; or
(ii) provided to Executive only as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing
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amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless ARC and Executive otherwise agree in writing, any determination required under this
Section 12(e) shall be made in writing in good faith by ARC `s independent public accountants (the "Accountants"). In the event of a reduction in benefits hereunder, Executive shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 12(e), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. ARC and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 12(e). ARC shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 12(e).
13. ARBITRATION AND EQUITABLE RELIEF
(a) ARBITRATION. In consideration of Executive's employment with ARC, its promise to arbitrate all employment-related disputes and Executive's receipt of the compensation paid to Executive by ARC, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including ARC and any employee, officer, director, shareholder or benefit plan of ARC in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's employment with ARC or the termination of that employment with ARC, including any provision of this Agreement, shall be subject to binding arbitration under the arbitration rules set forth in the California Code of Civil Procedure section 1280 through 1294.2, including section 1283.05 collectively (the "Rules") and pursuant to California law. Disputes which Executive agrees to arbitrate, and hereby agrees to waive any
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right to a trial by jury, include without limitation, any common law claims, statutory claims under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act of 1990, the Age Discrimination In Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment And Housing Act, the California Labor Code (except for workers compensation or unemployment insurance claims), or ERISA, claims of harassment, discrimination or wrongful termination and any other statutory claims under state or federal law.
(b) PROCEDURE. Any arbitration will be administered by JAMS and a neutral arbitrator will be selected in a manner consistent with its rules for the resolution of employment disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall have the power to award any remedies, including attorneys' fees and costs, available under applicable law. ARC will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that Executive shall pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules. To the extent that the JAMS rules for the resolution of employment disputes conflict with the Rules, the Rules shall take precedence. The decision of the arbitrator shall be in writing.
(c) REMEDY. Except as provided by the Rules and this Agreement, arbitration shall be the sole, exclusive and final remedy for any dispute between ARC and Executive. Accordingly, except as provided for by the Rules and this Agreement, neither ARC nor Executive will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any
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lawful ARC policy, and the arbitrator shall not order or require ARC to adopt a policy not otherwise required by law which ARC has not adopted.
(d) AVAILABILITY OF INJUNCTIVE RELIEF. In addition to the right under the Rules to petition the court for provisional relief, ARC may also petition the court for injunctive relief, notwithstanding any provision in this Agreement requiring arbitration, where ARC alleges or claims a violation of this Agreement, or any separate agreement between Executive and ARC regarding trade secrets, confidential information or non-solicitation, or California Labor Code ss.2870. No bond shall be required of ARC. Executive understands and agrees that any breach or threatened breach of this Agreement or of any such separate agreement will cause irreparable injury to ARC or its subsidiaries or affiliates and that money damages will not provide an adequate remedy therefore, and Executive hereby consents to the issuance of an injunction. In the event either Party seeks injunctive relief, the prevailing Party shall be entitled to recover reasonable costs and attorney fees related thereto.
(e) ADMINISTRATIVE RELIEF. This Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the Workers' Compensation Board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.
(f) VOLUNTARY NATURE OF AGREEMENT. Executive acknowledges and agrees that he is executing this Agreement voluntarily and without any duress or undue influence by ARC or anyone else. Executive further acknowledges and agrees that he has carefully read this Agreement, that he has asked any questions needed for him to understand the terms, consequences and binding effect of this Agreement, and that he fully understands this
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Agreement, including that HE IS WAIVING HIS RIGHT TO A JURY TRIAL. Finally, Executive acknowledges that he has been provided an opportunity to seek the advice of an attorney of his choice before signing this Agreement.
14. GOVERNING LAW
This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California without regard to California conflict of laws principles.
15. RELEASE
In exchange for the benefits and other consideration under this Agreement to which Executive would not otherwise be entitled, Executive shall enter into and execute a release substantially in the form attached hereto as Exhibit A (the "Release") upon his termination of employment. Unless the Release is executed by Executive and delivered to ARC within thirty (30) days after the termination of Executive's employment with ARC, Executive shall receive only the basic severance benefits provided under Section 12(a) of this Agreement and no additional benefits under Section 12 or the extended health insurance coverage under Section 6 (b) of this Agreement.
16. NOTICES
Any notices or other communications desired or required under this Agreement shall be in writing, signed by the Party making the same, and shall be deemed delivered when personally delivered or on the second business day after the same is sent by certified or registered mail, postage prepaid, addressed as follows (or to such other address as may be designated by like written notice):
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If to Executive:      At the last residential address known by ARC

If to ARC:            American Reprographics Company
                      700 North Central Avenue, Suite 550
                      Glendale, CA 91203
                      Attn.: Chief Executive Officer	

17. SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
18. ASSIGNMENT
Except as otherwise specifically provided herein, neither Party shall assign this Agreement or any rights hereunder without the consent of the other Party, and any attempted or purported assignment without such consent shall be void; provided that Executive's consent under this Agreement shall not be required hereby for any of the transactions involving a Change of Control. This Agreement shall otherwise bind and inure to the benefit of the Parties hereto and their respective successors, assigns, heirs, legatees, devisees, executors, administrators and legal representatives.
19. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the Parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties regarding the subject matter of this Agreement. Any prior employment agreement, bonus agreement or other compensation agreement between Executive and ARC or any predecessor,
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subsidiary or affiliate of ARC, is hereby terminated on and as of the Effective Date. This Agreement may not be amended or modified except in writing signed by both Parties.
20. WAIVER
If either Party waives any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first hereinabove set forth.

AMERICAN REPROGRAPHICS                            EXECUTIVE
COMPANY,
a Delaware corporation
                                                  /s/ K. Suriyakumar
By: /s/ S. Chandramohan                           ______________________________
   ________________________________________       Kumarakulasingam Suriyakumar
       Sathiyamurthy Chandramohan                 Address: 2401 Via Diablo
                                                          ______________________
Title: Chairman and Chief Executive Officer               Diablo, CA 94528
                                                          ______________________	

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EXHIBIT A
RELEASE AGREEMENT
I understand that my position with American Reprographics Company ("ARC") terminated effective _______________ (the "Separation Date"). ARC has agreed that if I choose to sign this Agreement, ARC will pay me severance benefits (minus the standard withholdings and deductions) pursuant to the terms of the Executive Employment Agreement entered into on __________ __, 2004 between myself and ARC (the "Severance Benefits). I understand that I am not entitled to the Severance Benefits unless I sign this Agreement. I understand that in addition to the Severance Benefits, ARC will pay me all of my accrued salary and vacation, to which I am entitled by law.
In consideration for the Severance Benefits I am receiving under this Agreement, I agree not to use or disclose any of ARC's proprietary information without written authorization from ARC, to immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control, and to release ARC and its officers, directors, agents, attorneys, employees, shareholders, and affiliates from any and all claims, debts, liabilities, demands, causes of action, attorneys' fees, damages, or obligations of every kind and nature, whether they are known or unknown, arising at any time prior to the date I sign this Agreement. This general release includes, but is not limited to: all federal and state statutory and common law claims, claims related to my employment or the termination of my employment or related to breach of contract, tort, wrongful termination, discrimination, wages or benefits, or claims for any form of compensation. This release is not intended to release any
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claims I have or may have against any of the released parties for (a) indemnification as a director, officer, agent or employee under applicable law, charter document or agreement, (b) severance and other termination benefits under my employment agreement and any related written documents, (c) health or other insurance benefits based on claims already submitted or which are covered claims properly submitted in the future, (d) vested rights under pension, retirement or other benefit plans, or (e) in respect of events, acts or omissions occurring after the date of this Release Agreement.
In releasing claims unknown to me at present, I am waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"). I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled. I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after my signing of this Agreement; (b) I should consult with an attorney prior to executing this release, (c) I have twenty-one (21) days within which to consider this release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following the execution of this release to revoke the Agreement; (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by me and by ARC
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("Effective Date"); and I will not be paid any of the Severance Benefits until this Agreement has become effective.
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between ARC and me with regard to the subject matter hereof I am not relying on any promise or representation by ARC that is not expressly stated herein. This Agreement may only be modified by a writing signed by both me and a duly authorized officer of ARC. I accept and agree to the terms and conditions stated above:

AMERICAN REPROGRAPHICS                         EXECUTIVE
COMPANY, a Delaware corporation

By:                                            _________________________________
   ______________________________              Kumarakulasingam Suriyakumar

   _________________________                   Address:
                                                        ________________________

Title:  ___________________________                     ________________________	

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EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is entered into by and between AMERICAN REPROGRAPHICS COMPANY, a Delaware corporation ("ARC) as the employer; and MARK W. LEGG, a resident of California, an individual ("EXECUTIVE"), as the employee, on January 7, 2005, but shall be effective only upon the date (the "Effective Date") of the effectiveness of a Registration Statement on Form S-1 filed by ARC for the initial public offering of ARC's shares of common stock. ARC and Executive may be referred to collectively in this Agreement as the "Parties" and individually as a Party.
RECITALS
ARC has agreed to employ Executive and Executive has agreed to accept such employment, subject to the terms and conditions set forth herein.
Now, therefore, in consideration of the promises, covenants and agreements set forth in this Agreement, the Parties agree as follows:
1. POSITION AND DUTIES
(a) ARC hereby employs Executive as its Chief Financial Officer ("CFO"), and Executive agrees to serve ARC in such capacity, upon the terms and conditions set forth herein.
(b) Executive shall report to ARC's Chief Executive Officer ("CEO") and Chief Operating Officer ("COO"). Executive's primary responsibilities shall be to (i) keep or cause to be kept the books of account of ARC in a thorough and proper manner and shall render statements of the financial affairs of ARC in such form and as often as required by the Board or ARC's CEO. Executive, in his capacity as CFO, subject to the order of the Board, shall have the
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custody of all funds and securities of ARC, and shall attest to financial statements, shall be responsible for ARC's compliance with financial reporting and disclosure laws and rules, and shall perform other duties commonly incident to the office of CFO, and shall also perform such other duties and have such other powers as the Board or ARC's CEO shall designate from time to time. Executive shall have the authority generally incident and necessary to perform such duties. Executive will be a member of the executive team.
(c) During the term of this Agreement, Executive will devote all of his employment time and attention to the affairs of ARC and use his best efforts to promote the business and interests of ARC. Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of ARC, and not to do any act which would injure the business, interests, or reputation of ARC or any of its subsidiaries or affiliates.
2. TERM
The term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date hereof and continue until the third (3rd) anniversary of the Effective Date unless otherwise terminated in accordance with the provisions hereof; provided, however, that this Agreement will automatically be extended on a year-to-year basis on the terms and conditions set forth herein, including the bonus provisions of Section 3(b), unless either party gives written notice to the other at one hundred twenty (120) days prior to the expiration of the term of this Agreement, which includes any extensions, that this Agreement shall terminate at the end of such term, or extension thereof.
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3. DIRECT COMPENSATION
In consideration of the services to be provided by Executive, Executive shall receive compensation, less all applicable taxes, social security payments and other items that ARC is required by law to withhold or deduct therefrom, as follows:
(a) BASE SALARY. Executive's annual Base Salary shall be $250,000, paid in 12 equal monthly installments on the last day of each calendar month. Base Salary for any partial month shall be prorated on the basis of a 365 day year. Base Salary shall be subject to annual review by ARC's CEO and ARC's Board of Directors Compensation Committee (the "Compensation Committee"), and may be adjusted in light of the financial performance of ARC or the personal performance of Executive, but shall in no event be less than $250,000 per year during to the term of this Agreement. After any such change, Executive's new level of Base Salary shall be Executive's Base Salary for purposes of this Agreement.
(b) INCENTIVE BONUS. During the term of this Agreement, Executive shall be eligible to receive an annual Incentive Bonus ("Incentive Bonus") in amount not exceeding $250,000 per year under performance criteria to be established by ARC's CEO and COO in consultation with Executive. The Incentive Bonus shall be paid no later than 60 days following the close of each fiscal year, in cash or ARC common stock, or partly in each, as elected by Executive at least 20 days before the date such Incentive Bonus is paid. To the extent that such Incentive Bonus is paid in ARC common stock, such stock shall be valued using the average of the closing prices of ARC common stock on the New York Stock Exchange for the 10 trading days immediately preceding the date of issuance of ARC common stock in payment of the Incentive Bonus, provided, however, that as a condition to receiving ARC common stock Executive must deposit with ARC on the date of issuance cash in the amount, if any, by which
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the total of employee withholding taxes required to be withheld with respect to the entire Incentive Bonus exceeds the cash portion of the Incentive Bonus available for withholding. To be eligible to receive a bonus, Executive must have been employed by ARC during the entire fiscal year to which such Incentive Bonus relates. Subject to the foregoing, and to possible repayment if the Incentive Bonus is, in fact, not earned, or if Executive's employment terminates prior to the end of a fiscal year, the parties will make a reasonable estimate of the probable amount of the Incentive Bonus to be earned for a particular year on or about August 1 of each such fiscal year, and 40% of the amount of such estimate shall be paid to Executive on or about August 15 of such fiscal year. A final reconciliation of the actual amount of Executive's Incentive Bonus against the amount paid in August of such fiscal year shall be made at the time that the Incentive Bonus, if any, is due, as above provided, and at that time ARC shall pay the remaining amount due, or Executive shall refund the excess previously paid, as the case may be.
(c) ADDITIONAL BONUSES. ARC may from time to time, in its absolute discretion, establish additional bonus programs for Executive.
4. GENERAL BENEFITS
During the term of this Agreement, Executive shall be entitled to other benefits provided by ARC to its senior executives from time to time, including but not limited to, 401(k) and other retirement plans, deferred compensation, paid holidays, sick leave and other similar benefits. Executive shall be entitled to 4 weeks paid vacation each calendar year accrued and vested in accordance with ARC's vacation policy applicable to senior management.
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5. STOCK PLANS
In the sole discretion of the Board of Directors of ARC, Executive shall be eligible to participate in stock option, stock purchase, stock bonus and similar plans of ARC ("Stock Plans") established from time to time by ARC.
6. GROUP INSURANCE OR BENEFIT PLANS
During the term of this Agreement, Executive shall be automatically covered by ARC group insurance programs (including any self-insured programs sponsored by ARC), including medical, dental, vision, disability, and life, if any. Executive's spouse and children which are eligible for coverage may join the insurance programs, subject to ARC's policies and applicable laws. The premiums for all insurance programs for Executive and Executive's spouse and eligible children shall be paid by ARC.
7. SPECIAL BENEFITS
Executive shall be allowed additional employer-paid benefits of his choice ("Special Benefits"), including the lease of automobiles, social, golf or athletic club memberships and other benefits not specifically provided for in this Agreement, provided, however, that the annual cost to ARC shall not exceed $15,000. Any employer taxes imposed upon ARC by reason of the furnishing of such Special Benefits shall be included in the annual $15,000 limitation. Any unused allowance for Special Benefits shall not be carried over to a subsequent year.
8. REIMBURSEMENT OF BUSINESS RELATED EXPENSES
Executive shall be entitled to receive prompt reimbursement for reasonable expenses incurred by him in performing services hereunder during the term of this Agreement in accordance with the policies and procedures then in effect and established by ARC for its
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employees. In addition to the Special Benefits set forth in Section 7 above, Executive shall also be entitled to reimbursement of Executive membership dues and related ongoing costs of appropriate professional organizations which are approved by ARC's CEO.
9. OBLIGATIONS AND RESTRICTIVE COVENANTS.
(a) OBLIGATIONS. During the term of this Agreement, Executive shall not engage in any other employment, occupation or consulting activity for any direct or indirect remuneration. This obligation shall not preclude Executive from: (i) serving in any volunteer capacity with any professional, community, industry, civic, educational or charitable organization; (ii) serving as a member of corporate boards of directors, provided that ARC's CEO has given written consent, and these activities or services do not materially interfere or conflict with Executive's responsibilities or ability to perform his duties under this Agreement; or (iii) engaging in personal investment activities for himself and his family which do not interfere with the performance of his duties and obligations hereunder.
(b) NON-COMPETITION; NON-SOLICITATION. The Parties hereto recognize that Executive's services are unique and the restrictive covenants set forth in this Section 9 are essential to protect the business (including trade secret and other confidential information disclosed by ARC to, learned by or developed by Executive during the course of employment by ARC) and the good will of ARC. For purposes of this Section 9, all references to "ARC" shall include ARC's predecessors, subsidiaries and affiliates. As part of the consideration for the compensation and benefits to be paid to Executive hereunder, during the term of this Agreement Executive shall not:
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(i) Engage in any business similar or related to or competitive with the business conducted by ARC described from time to time in ARC's Annual Report on Form 10-K to its shareholders and Board (the "Core Business of ARC");
(ii) Render advice or services to, or otherwise assist, any other person, association, corporation, or other entity that is engaged, directly or indirectly, in any business similar or related to, or competitive with, the Core Business of ARC;
(iii) Transact any business in any manner with or pertaining to suppliers or customers of ARC which, in any manner, would have, or is likely to have, an adverse effect upon the Core Business of ARC; or
(iv) Induce any employee of ARC to terminate his or her employment with ARC, or hire or assist in the hiring of any such employee by any person or entity not affiliated with ARC.
For purposes of this Agreement, "affiliate" shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control, with ARC.
10. CONFIDENTIALITY
Executive acknowledges that it is the policy of ARC to maintain as secret and confidential all valuable and unique information heretofore or hereafter acquired, developed or used by ARC relating to the business, operations, employees and customers of ARC , which information gives ARC a competitive advantage in the industry, and which information includes technical knowledge, know-how or trade secrets and information concerning operations, sales, personnel, suppliers, customers, costs, profits, markets, pricing policies, and other confidential information and materials (the "Confidential Information").
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(a) NON-DISCLOSURE. Executive recognizes that the services to be performed by Executive are special and unique, and that by reason of his duties he will be given, acquire or learn Confidential Information. Executive recognizes that all such Confidential Information is the sole and exclusive property of ARC. Executive shall not, either during or after his employment by ARC, disclose the Confidential Information to anyone outside ARC or use the Confidential Information for any purpose whatsoever, other than for the performance of his duties hereunder, except as authorized by ARC in connection with performance of such duties.
(b) RETURN OF CONFIDENTIAL INFORMATION. Executive shall deliver promptly upon termination of employment with ARC, or at any time requested by ARC, all memos, notes, records, reports, manuals, drawings, and any other documents, whether in electronic form or otherwise, containing any Confidential Information, including without limitation all copies of such materials in any format which Executive may then possess or have under his control.
(c) OWNERSHIP OF INVENTIONS; ASSIGNMENT OF RIGHTS. Executive agrees that all information, inventions, intellectual property, trade secrets, copyrights, trademarks, content, know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by ARC (the "Work Product") are the property of ARC and shall not be used by him in any way adverse to the interests of ARC. Executive assigns to ARC any and all rights of every nature which Executive may have in any such Work Product; provided, however, that such assignment does not apply to any right which qualifies fully under California Labor Code Section 2870. This section shall survive any termination of this Agreement and the employment relationship between Executive and ARC. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent of the Board. Likewise, Executive shall not
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disclose to ARC, use in ARC's business, or cause ARC to use, any information or material that is a trade secret of others.
(d) PREDECESSORS, SUBSIDIARIES AND AFFILIATES. For purposes of this
Section 10, references to ARC include its predecessors, subsidiaries and affiliates.
11. TERMINATION.
Notwithstanding any other term or provision contained in this Agreement, this Agreement and the employment hereunder will terminate prior to the expiration of the term of this Agreement under the following circumstances:
(a) DEATH. Upon Executive's death.
(b) DISABILITY. Upon Executive becoming "Permanently Disabled", which, for purposes of this Agreement, shall mean Executive's incapacity due to physical or mental illness or cause, which, in the written opinion of Executive's regular licensed physician, results in the Executive being unable to perform his duties on a full-time basis for 6 months during a period of 12 months.
(c) TERMINATION BY ARC FOR CAUSE. Upon written notice to Executive, ARC may terminate this Agreement for Cause, which, for purposes of this Agreement, shall mean termination by ARC in its reasonable discretion because of Executive's:
(i) willful refusal without proper cause to perform (other than by reason of physical or mental disability or death) the duties set forth in this Agreement or delegated from time to time in writing by the Board or ARC's CEO, which remains uncorrected for 30 days following written notice to Executive by ARC's CEO; or
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(ii) gross negligence, self dealing or willful misconduct of Executive in connection with the performance of his duties hereunder, including, without limitation, misappropriation of funds or property of ARC or its subsidiaries or affiliates, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of ARC or its subsidiaries or affiliates, or any willful act or gross negligence having the effect of injuring the reputation, business or business relationships of ARC or its subsidiaries or affiliates; or
(iii) fraud, dishonesty or misappropriation of ARC business and assets that harms the business of ARC or its subsidiaries or affiliates; or
(iv) habitual insobriety, abuse of alcohol, abuse of prescription drugs, or use of illegal drugs; or
(v) engaging in any criminal activity involving moral turpitude; or
(vi) indictment or being held for trial in connection with a misdemeanor involving moral turpitude or any felony; or
(vii) conviction of a felony or entry into a guilty plea that negatively reflects on Executive's fitness to perform the duties or harms the reputation or business or ARC or its subsidiaries or affiliates; or
(viii) any material breach of any covenants under this Agreement or other material policy of ARC, other than under clauses (i) through
(vii) of this Section 11(c) which remains uncorrected for 30 days following written notice to Executive by ARC's CEO.
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(d) TERMINATION BY ARC WITHOUT CAUSE. Upon written notice to Executive, ARC may terminate this Agreement at any time without any Cause or reason whatsoever.
(e) TERMINATION BY EXECUTIVE WITH GOOD REASON. Upon written notice to ARC of any of the following "Good Reasons," and the failure of ARC to correct the reduction, change or breach within 30 days after receipt of such notice, Executive may terminate this Agreement after the occurrence of
(i) a material change by ARC in the nature of Executive's title, duties, authorities and responsibilities set forth in this Agreement without Executive's express consent; or
(ii) a reduction in the nature of Executive's compensation as established under this Agreement, other than as expressly permitted in this Agreement, without Executive's express consent; or
(iii) a change in the officer (other than a change in the person who occupies such position) to whom Executive reports without Executive's express consent; or
(iv) a material breach by ARC of any material sections of this Agreement, other than as set forth in clauses (i) through (iii) of this Section 11(e); or
(v) a Change of Control, as defined in Section 11(g), as a result of which Executive is not offered the same or comparable position in the surviving company, or is offered such position but within twelve (12) months after Executive accepts such position, Executive's employment is terminated either without cause or for a Good Reason described in
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subsections (i), (ii), (iii) of this Section 11(e) or in subsection (iv) as to the employment agreement then applicable to Executive.
(f) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Upon 45 days prior written notice to ARC, Executive may terminate this Agreement and resign from Executive's employment hereunder without any Good Reason.
(g) CHANGE OF CONTROL.
(i) For purposes of this Agreement, "Change of Control" shall mean:
(A) ARC merges or consolidates with any other corporation (other than one of ARC's subsidiaries), as a result of which ARC is not the surviving company, or the shares of ARC voting stock outstanding immediately after such transaction do not constitute, become exchanged for or converted into, more than 50% of the Voting Shares of the merged or consolidated company (as defined below);
(B) ARC sells or otherwise transfers or disposes of all or substantially all of its assets;
(C) Any third person or entity shall become the Beneficial Owner, as defined by Rule 13(d)-3 under the Securities Exchange Act of 1934, in one transaction or a series of related transactions within any 12 month period, of at least 50% of the Voting Shares of ARC's then outstanding voting securities.
(ii) For purposes of this Agreement, "Voting Shares" shall mean the combined voting securities entitled to vote in the election of directors of a corporation, including ARC, or the merged, consolidated or surviving company, if other than ARC.
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(h) EXPIRATION. For purposes of this Agreement, the expiration of this Agreement at the end of its term, including any extensions, does not constitute a termination.
12. SEVERANCE BENEFITS
(a) BASIC BENEFITS. Upon expiration or termination of this Agreement for any reason, and subject to the provisions of Section 12(e), Executive will be entitled to: (i) payment for all Base Salary and unused vacation accrued and prorated, but unpaid, as of the effective date of termination, (ii) payment, when due, of any earned but unpaid Incentive Bonus for the preceding fiscal year, (iii) any unreimbursed business expenses authorized by this Agreement,
(iv) continuation of any benefits under Section 6 as required by applicable law, and (v) such rights as then exist with respect to then vested stock options, restricted stock or other rights under similar plans.
(b) TERMINATION BY ARC FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC for Cause pursuant to Section 11(c), or by Executive without Good Reason pursuant to Section 11(f), Executive shall not be entitled to any additional payments or benefits hereunder.
(c) TERMINATION BY ARC WITHOUT CAUSE; TERMINATION BY EXECUTIVE WITH GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC without Cause pursuant to Section 11(d), or by Executive for Good Reason as defined in Section 11(e), subject to Executive's compliance with the provisions of Section 15 below, Executive shall receive the following additional payments or benefits:
(i) Executive's then Base Salary for the remaining term of this Agreement, paid as and when due as if this Agreement had not been terminated, provided,
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however, that if Section 11(e)(5) is applicable to such termination, such Base Salary shall continue to be paid for the greater of the remaining term of this Agreement or twelve (12) months;
(ii) Continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section 6 for the period during which Base Salary is paid under
Section 12(c)(i) above;
(iii) Continuation of the Special Benefits under Section 7 of this Agreement, for the period during which Base Salary is paid under Section 12(c)(i) above; and
(iv) All unvested stock options, restricted stock or similar rights granted to Executive shall accelerate and become vested and exercisable immediately as of the effective date of termination.
(d) TERMINATION BECAUSE OF DEATH OR DISABILITY OF EXECUTIVE. If this Agreement and Executive's employment hereunder is terminated under Sections 11(a) or (b) by reason of Executive's death or by reason of being Permanently Disabled, Executive or his family shall be entitled to continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section 6 for a period of 12 months after the termination of employment.
(e) PARACHUTE PAYMENTS. In the event that the severance, acceleration of stock options and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute "parachute payments" within the meaning of Section 280G (as it may be amended or replaced) of the Internal Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 12(e), would be subject to the excise tax imposed by Section
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4999 (as it may be amended or replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder shall be either:
(i) provided to Executive in full; or
(ii) provided to Executive only as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless ARC and Executive otherwise agree in writing, any determination required under this Section 12(e) shall be made in writing in good faith by ARC `s independent public accountants (the "Accountants"). In the event of a reduction in benefits hereunder, Executive shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 12(e), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. ARC and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this
Section 12(e). ARC shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 12(e).
13. ARBITRATION AND EQUITABLE RELIEF
(a) ARBITRATION. In consideration of Executive's employment with ARC, its promise to arbitrate all employment-related disputes and Executive's receipt of the compensation paid to Executive by ARC, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including ARC and any employee, officer,
15
director, shareholder or benefit plan of ARC in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's employment with ARC or the termination of that employment with ARC, including any provision of this Agreement, shall be subject to binding arbitration under the arbitration rules set forth in the California Code of Civil Procedure section 1280 through 1294.2, including section 1283.05 collectively (the "Rules") and pursuant to California law. Disputes which Executive agrees to arbitrate, and hereby agrees to waive any right to a trial by jury, include without limitation, any common law claims, statutory claims under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act of 1990, the Age Discrimination In Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment And Housing Act, the California Labor Code (except for workers compensation or unemployment insurance claims), or ERISA, claims of harassment, discrimination or wrongful termination and any other statutory claims under state or federal law.
(b) PROCEDURE. Any arbitration will be administered by JAMS and a neutral arbitrator will be selected in a manner consistent with its rules for the resolution of employment disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall have the power to award any remedies, including attorneys' fees and costs, available under applicable law. ARC will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that Executive shall pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules. To the extent that the JAMS rules for the resolution of employment disputes conflict with the Rules, the Rules shall take precedence. The decision of the arbitrator shall be in writing.
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(c) REMEDY. Except as provided by the Rules and this Agreement, arbitration shall be the sole, exclusive and final remedy for any dispute between ARC and Executive. Accordingly, except as provided for by the Rules and this Agreement, neither ARC nor Executive will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful ARC policy, and the arbitrator shall not order or require ARC to adopt a policy not otherwise required by law which ARC has not adopted.
(d) AVAILABILITY OF INJUNCTIVE RELIEF. In addition to the right under the Rules to petition the court for provisional relief, ARC may also petition the court for injunctive relief, notwithstanding any provision in this Agreement requiring arbitration, where ARC alleges or claims a violation of this Agreement, or any separate agreement between Executive and ARC regarding trade secrets, confidential information or non-solicitation, or California Labor Code
Section 2870. No bond shall be required of ARC. Executive understands and agrees that any breach or threatened breach of this Agreement or of any such separate agreement will cause irreparable injury to ARC or its subsidiaries or affiliates and that money damages will not provide an adequate remedy therefore, and Executive hereby consents to the issuance of an injunction. In the event either Party seeks injunctive relief, the prevailing Party shall be entitled to recover reasonable costs and attorney fees related thereto.
(e) ADMINISTRATIVE RELIEF. This Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the Workers' Compensation Board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.
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(f) VOLUNTARY NATURE OF AGREEMENT. Executive acknowledges and agrees that he is executing this Agreement voluntarily and without any duress or undue influence by ARC or anyone else. Executive further acknowledges and agrees that he has carefully read this Agreement, that he has asked any questions needed for him to understand the terms, consequences and binding effect of this Agreement, and that he fully understands this Agreement, including that HE IS WAIVING HIS RIGHT TO A JURY TRIAL. Finally, Executive acknowledges that he has been provided an opportunity to seek the advice of an attorney of his choice before signing this Agreement.
14. GOVERNING LAW
This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California without regard to California conflict of laws principles.
15. RELEASE
In exchange for the benefits and other consideration under this Agreement to which Executive would not otherwise be entitled, Executive shall enter into and execute a release substantially in the form attached hereto as Exhibit A (the "Release") upon his termination of employment. Unless the Release is executed by Executive and delivered to ARC within thirty (30) days after the termination of Executive's employment with ARC, Executive shall receive only the basic severance benefits provided under Section 12(a) of this Agreement and no additional benefits under Section 12.
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16. NOTICES
Any notices or other communications desired or required under this Agreement shall be in writing, signed by the Party making the same, and shall be deemed delivered when personally delivered or on the second business day after the same is sent by certified or registered mail, postage prepaid, addressed as follows (or to such other address as may be designated by like written notice):

If to Executive:  At the last residential address known by ARC

If to ARC:        American Reprographics Company
                  700 North Central Avenue, Suite 550
                  Glendale, CA 91203
                  Attn.:  Chief Executive Officer	

17. SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
18. ASSIGNMENT
Except as otherwise specifically provided herein, neither Party shall assign this Agreement or any rights hereunder without the consent of the other Party, and any attempted or purported assignment without such consent shall be void; provided that Executive's consent under this Agreement shall not be required hereby for any of the transactions involving a Change of Control. This Agreement shall otherwise bind and inure to the benefit of the Parties hereto and their respective successors, assigns, heirs, legatees, devisees, executors, administrators and legal representatives.
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19. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the Parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties regarding the subject matter of this Agreement. Any prior employment agreement, bonus agreement or other compensation agreement between Executive and ARC or any predecessor, subsidiary or affiliate of ARC, is hereby terminated on and as of the Effective Date. This Agreement may not be amended or modified except in writing signed by both Parties.
20. WAIVER
If either Party waives any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first hereinabove set forth.

AMERICAN REPROGRAPHICS                         EXECUTIVE
COMPANY,
a Delaware corporation
                                               By:      /s/ Mark W. Legg
By: /s/ S. Chandramohan                                 ------------------------
   -------------------------                                Mark W. Legg

                                               Address: 2075 Glastonbury Road
                                                       -------------------------
                                                        Westlake Village, CA
                                                       -------------------------	

Title:
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EXHIBIT A
RELEASE AGREEMENT
I understand that my position with American Reprographics Company ("ARC") terminated effective _______________ (the "Separation Date"). ARC has agreed that if I choose to sign this Agreement, ARC will pay me severance benefits (minus the standard withholdings and deductions) pursuant to the terms of the Executive Employment Agreement entered into on __________ __, 2004 between myself and ARC (the "Severance Benefits). I understand that I am not entitled to the Severance Benefits unless I sign this Agreement. I understand that in addition to the Severance Benefits, ARC will pay me all of my accrued salary and vacation, to which I am entitled by law.
In consideration for the Severance Benefits I am receiving under this Agreement, I agree not to use or disclose any of ARC's proprietary information without written authorization from ARC, to immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control, and to release ARC and its officers, directors, agents, attorneys, employees, shareholders, and affiliates from any and all claims, debts, liabilities, demands, causes of action, attorneys' fees, damages, or obligations of every kind and nature, whether they are known or unknown, arising at any time prior to the date I sign this Agreement. This general release includes, but is not limited to: all federal and state statutory and common law claims, claims related to my employment or the termination of my employment or related to breach of contract, tort, wrongful termination, discrimination, wages or benefits, or claims for any form of compensation. This release is not intended to release any
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claims I have or may have against any of the released parties for (a) indemnification as a director, officer, agent or employee under applicable law, charter document or agreement, (b) severance and other termination benefits under my employment agreement and any related written documents, (c) health or other insurance benefits based on claims already submitted or which are covered claims properly submitted in the future, (d) vested rights under pension, retirement or other benefit plans, or (e) in respect of events, acts or omissions occurring after the date of this Release Agreement.
In releasing claims unknown to me at present, I am waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"). I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled. I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after my signing of this Agreement; (b) I should consult with an attorney prior to executing this release, (c) I have twenty-one (21) days within which to consider this release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following the execution of this release to revoke the Agreement; (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by me and by ARC
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("Effective Date"); and I will not be paid any of the Severance Benefits until this Agreement has become effective.
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between ARC and me with regard to the subject matter hereof I am not relying on any promise or representation by ARC that is not expressly stated herein. This Agreement may only be modified by a writing signed by both me and a duly authorized officer of ARC. I accept and agree to the terms and conditions stated above:

AMERICAN REPROGRAPHICS                         EXECUTIVE
COMPANY, a Delaware corporation

                                               By:      ________________________
By:    ___________________________                      Mark W. Legg
       ___________________________             Address: ________________________
                                                        ________________________

Title: ___________________________	

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Exhibit 10.33
EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is entered into by and between AMERICAN REPROGRAPHICS COMPANY, a Delaware corporation ("ARC) as the employer; and RAHUL K. ROY, a resident of California, an individual ("EXECUTIVE"), as the employee, on January 7, 2005, but shall be effective only upon the date (the "Effective Date") of the effectiveness of a Registration Statement on Form S-1 filed by ARC for the initial public offering of ARC's shares of common stock. ARC and Executive may be referred to collectively in this Agreement as the "Parties" and individually as a Party.
RECITALS
ARC has agreed to employ Executive and Executive has agreed to accept such employment, subject to the terms and conditions set forth herein.
Now, therefore, in consideration of the promises, covenants and agreements set forth in this Agreement, the Parties agree as follows:
1. POSITION AND DUTIES
(a) ARC hereby employs Executive as its Chief Technology Officer ("CTO"), and Executive agrees to serve ARC in such capacity, upon the terms and conditions set forth herein.
(b) Executive shall report to ARC's Chief Operating Officer ("COO"). Executive's primary responsibilities shall be to:
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(i) Design, develop and implement technology solutions as required for general business planning regarding technology and systems required to maintain ARC's business operations and competitiveness;
(ii) recognize new developments in technology and anticipate trends;
(iii) update and improve technology solutions acquired by, or developed within, ARC to facilitate ARC to maintain its competitive edge in the market place;
(iv) establish and advise ARC on long-term needs for information systems and plan strategies for developing systems and acquiring hardware to meet ARC's business needs;
(v) research, develop and establish the infrastructure required for the company's information management systems and to enable the company and its systems to remain current with industry standards and trends;
(vi) serve as technical project manager or designate and oversee project managers related to ARC systems and technology;
(vii) be responsible for the development, operation, protection and maintenance of ARC's software tools and products, including the PlanWell series, Abacus, BidCaster, EWO, MetaPrint and OneView, and such new or additional products as may be owned or developed by ARC from time to time;
(viii) manage and maintain ARC's technology centers and oversee the training of technical personnel;
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(ix) ensure that ARC's intellectual properties, including such software tools and products, are at all times during the term of, and upon the expiration or termination of, this Agreement, fully secured and documented in accordance with industry standards and best practices;
(x) ensure that, upon the expiration or termination of this Agreement, the duties and responsibilities of Executive as CTO shall be transitioned to a new person hired or otherwise designated by ARC as ARC's new CTO in such a manner that there will be no disruptions or interruptions to ARC's business; and
(xi) perform other duties commonly incident to the office and such other duties and have such other powers as ARC's Chief Executive Officer ("CEO") or COO shall designate from time to time.
Without limiting the foregoing, Executive shall have the authority generally incident and necessary to perform such duties.
(c) During the term of this Agreement, Executive will devote all of his employment time and attention to the affairs of ARC and use his best efforts to promote the business and interests of ARC. Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of ARC, and not to do any act which would injure the business, interests, or reputation of ARC or any of its subsidiaries or affiliates.
2. TERM
The term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date hereof and continue until the third (3rd) anniversary of the Effective Date unless otherwise terminated in accordance with the provisions hereof; provided, however, that
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this Agreement will automatically be extended on a year-to-year basis on the terms and conditions set forth herein, including the bonus provisions of Section
3(b), unless either party gives written notice to the other at least one hundred twenty (120) days prior to the expiration of the term of this Agreement, which includes any extensions, that this Agreement shall terminate at the end of such term, or extension thereof.
3. DIRECT COMPENSATION
In consideration of the services to be provided by Executive, Executive shall receive compensation, less all applicable taxes, social security payments and other items that ARC is required by law to withhold or deduct therefrom, as follows:
(a) BASE SALARY. Executive's annual Base Salary shall be $400,000, paid in 12 equal monthly installments on the last day of each calendar month. Base Salary for any partial month shall be prorated on the basis of a 365 day year. Base Salary shall be subject to annual review by the COO and ARC's Board of Directors Compensation Committee (the "Compensation Committee"), and may be adjusted in light of the financial performance of ARC or the personal performance of Executive, but shall in no event be less than $400,000 per year during to the term of this Agreement. After any such change, Executive's new level of Base Salary shall be Executive's Base Salary for purposes of this Agreement.
(b) INCENTIVE BONUS. During the term of this Agreement, Executive shall be eligible to receive an annual Incentive Bonus ("Incentive Bonus") in amount not exceeding $300,000 per year under performance criteria to be established by the CEO and the COO of ARC in consultation with Executive. The Incentive Bonus shall be paid no later than 60 days following the close of each fiscal year, in cash or ARC common stock, or partly in each, as elected by Executive at least 20 days before the date such Incentive Bonus is paid. To the extent
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that such Incentive Bonus is paid in ARC common stock, such stock shall be valued using the average of the closing prices of ARC common stock on the New York Stock Exchange for the 10 trading days immediately preceding the date of issuance of ARC common stock in payment of the Incentive Bonus, provided, however, that as a condition to receiving ARC common stock Executive must deposit with ARC on the date of issuance cash in the amount, if any, by which the total of employee withholding taxes required to be withheld with respect to the entire Incentive Bonus exceeds the cash portion of the Incentive Bonus available for withholding. To be eligible to receive a bonus, Executive must have been employed by ARC during the entire fiscal year to which such Incentive Bonus relates.
(c) ADDITIONAL BONUSES. ARC may from time to time, in its absolute discretion, establish additional bonus programs for Executive.
4. GENERAL BENEFITS
During the term of this Agreement, Executive shall be entitled to other benefits provided by ARC to its senior executives from time to time, including but not limited to, 401(k) and other retirement plans, deferred compensation, paid holidays, sick leave and other similar benefits. Executive shall be entitled to 4 weeks paid vacation each calendar year accrued and vested in accordance with ARC's vacation policy applicable to senior management.
5. STOCK PLANS
In the sole discretion of the Board of Directors of ARC, Executive shall be eligible to participate in stock option, stock purchase, stock bonus and similar plans of ARC ("Stock Plans") established from time to time by ARC.
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6. GROUP INSURANCE OR BENEFIT PLANS
During the term of this Agreement, Executive shall be automatically covered by ARC group insurance programs (including any self-insured programs sponsored by ARC), including medical, dental, vision, disability, and life, if any. Executive's spouse and children which are eligible for coverage may join the insurance programs, subject to ARC's policies and applicable laws. The premiums for all insurance programs for Executive and Executive's spouse and eligible children shall be paid by ARC.
7. SPECIAL BENEFITS
Executive shall be allowed additional employer-paid benefits of his choice ("Special Benefits"), including the lease of automobiles, social, golf or athletic club memberships and other benefits not specifically provided for in this Agreement, provided, however, that the annual cost to ARC shall not exceed $15,000. Any employer taxes imposed upon ARC by reason of the furnishing of such Special Benefits shall be included in the annual $15,000 limitation. Any unused allowance for Special Benefits shall not be carried over to a subsequent year.
8. REIMBURSEMENT OF BUSINESS RELATED EXPENSES
Executive shall be entitled to receive prompt reimbursement for reasonable expenses incurred by him in performing services hereunder during the term of this Agreement in accordance with the policies and procedures then in effect and established by ARC for its employees. In addition to the Special Benefits set forth in Section 7 above, Executive shall also be entitled to reimbursement of Executive membership dues and related ongoing costs of appropriate professional organizations which are approved by ARC's COO.
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9. OBLIGATIONS AND RESTRICTIVE COVENANTS
(a) OBLIGATIONS. During the term of this Agreement, Executive shall not engage in any other employment, occupation or consulting activity for any direct or indirect remuneration. This obligation shall not preclude Executive from: (i) serving in any volunteer capacity with any professional, community, industry, civic, educational or charitable organization; (ii) serving as a member of corporate boards of directors, provided that ARC's COO has given written consent, and these activities or services do not materially interfere or conflict with Executive's responsibilities or ability to perform his duties under this Agreement; or (iii) engaging in personal investment activities for himself and his family which do not interfere with the performance of his duties and obligations hereunder.
(b) NON-COMPETITION; NON-SOLICITATION. The Parties hereto recognize that Executive's services are unique and the restrictive covenants set forth in this Section 9 are essential to protect the business (including trade secret and other confidential information disclosed by ARC to, learned by or developed by Executive during the course of employment by ARC) and the good will of ARC. For purposes of this Section 9, all references to "ARC" shall include ARC's predecessors, subsidiaries and affiliates. As part of the consideration for the compensation and benefits to be paid to Executive hereunder, during the term of this Agreement Executive shall not:
(i) Engage in any business similar or related to or competitive with the business conducted by ARC described from time to time in ARC's Annual Report on Form 10-K to its shareholders and Board (the "Core Business of ARC");
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(ii) Render advice or services to, or otherwise assist, any other person, association, corporation, or other entity that is engaged, directly or indirectly, in any business similar or related to, or competitive with, the Core Business of ARC;
(iii) Transact any business in any manner with or pertaining to suppliers or customers of ARC which, in any manner, would have, or is likely to have, an adverse effect upon the Core Business of ARC; or
(iv) Induce any employee of ARC to terminate his or her employment with ARC, or hire or assist in the hiring of any such employee by any person or entity not affiliated with ARC.
For purposes of this Agreement, "affiliate" shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control, with ARC.
10. CONFIDENTIALITY; INVENTIONS
(a) CONFIDENTIALITY. Executive acknowledges that it is the policy of ARC to maintain as secret and confidential all valuable and unique information heretofore or hereafter acquired, developed or used by ARC relating to the business, operations, employees and customers of ARC, which information gives ARC a competitive advantage in the industry, and which information includes technical knowledge, know-how or trade secrets and information concerning operations, sales, personnel, suppliers, customers, costs, profits, markets, pricing policies, all matters referred to in Section 10(b) below, and other confidential information and materials (the "Confidential Information").
(i) NON-DISCLOSURE. Executive recognizes that the services to be performed by Executive are special and unique, and that by reason of his duties he will be given,
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acquire or learn Confidential Information. Executive recognizes that all such Confidential Information is the sole and exclusive property of ARC and its subsidiaries or affiliates. Executive shall not, either during or after his employment by ARC, disclose the Confidential Information to anyone outside ARC or use the Confidential Information for any purpose whatsoever, other than for the performance of his duties hereunder, except as authorized by ARC in connection with performance of such duties.
(ii) RETURN OF CONFIDENTIAL INFORMATION. Executive shall deliver promptly upon termination of employment with ARC, or at any time requested by ARC, all memos, notes, records, reports, manuals, drawings, and any other documents, whether in electronic form or otherwise, containing any Confidential Information, including without limitation all copies of such materials in any format which Executive may then possess or have under his control.
(b) OWNERSHIP OF INVENTIONS; ASSIGNMENT OF RIGHTS.
(i) DISCLOSURE OF INVENTIONS TO COMPANY. Employee agrees promptly to fully disclose in writing to ARC and to hold in trust for the sole right and benefit of ARC, or its designee, all of Employee's rights, titles, and interests in and to any and all inventions, discoveries, developments, concepts, improvements, trade secrets, formulas, techniques, processes, software, and know-how, whether or not patentable and whether or not reduced to practice, all works of authorship, whether or not copyrightable, and any and all other like developments or items conceived, developed, or learned by Employee during the period of employment by ARC, either alone or jointly with others, which relate to or result from the actual or anticipated business, work, research, development or investigations of ARC, or which result,
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to any extent, from use of ARC's property, supplies, equipment or facilities or of the Proprietary Information (the foregoing hereinafter collectively referred to as the "Inventions").
(ii) INVENTIONS ARE SOLE PROPERTY OF ARC. To the extent Inventions include material subject to copyright protection, such materials have been specially commissioned by ARC and they shall be deemed "work for hire" as such term is defined under U.S. copyright law. Employee acknowledges and agrees that all Inventions shall be the sole property of ARC or any other entity designated by it, and Employee hereby irrevocably and exclusively assigns to ARC, its successors, and assigns, without further consideration, all right, title, and interest in and to all such Inventions including, without limit, any trademarks, service marks, trade names, copyrights, patents, trade secrets, mask work rights or other intellectual property or proprietary rights relating to the Inventions, in any and all countries, whether or not registrable under United States or foreign trademark, copyright, patent or similar laws and all applications for registration thereunder ("Rights"). Such assignment does not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code (attached hereto for reference); provided, however, Employee shall maintain contemporaneous written records of the process of creating such an invention; and provided further that such invention (including the records relating thereto) remains subject to the disclosure obligation of the preceding paragraph. To the extent any of Employee's rights in Inventions, including without limitation any moral rights, are not subject to assignment hereunder, Employee further grants to ARC an exclusive, perpetual, irrevocable, royalty-free worldwide license to such Inventions for use, sale, license and distribution, marketing, advertising, copying and to make derivative works thereof or any other use ARC wishes. ARC or any other entity designated by it shall be the sole owner of all Inventions and Rights
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pertaining to the Inventions. In case any Invention is described in a patent application or disclosed to third parties by Employee within three years after leaving the employ of ARC, it is to be presumed that the Invention was conceived during the period of Employee's employment by ARC and the Invention will belong to ARC unless proved by Executive to have been conceived following termination of such employment. Employee hereby irrevocably and forever waives, and agrees never to assert any Moral Rights, as defined below, as applicable, in or to the Inventions which Employee may now have or which may accrue to Employee's benefit under U.S. or foreign copyright laws and any and all other residual rights and benefits which arise under any other applicable law now in force or hereafter enacted. The term "Moral Rights" shall mean any and all rights of paternity or integrity of the Inventions and the right to object to any modification, translation or use of the Inventions, and any similar rights existing under the judicial or statutory law of any country in the world or under any treaty, regardless of whether or not such right is denominated or referred to as a moral right.
(iii) ASSIGNMENT OF INVENTIONS. Employee agrees to assist ARC, or its designee, at ARC's expense to secure ARC's Rights in and to the Inventions and will disclose to ARC all pertinent information and data with respect to the Inventions that is needed to secure the Rights and will execute all applications, specifications, assignments and other instruments which ARC reasonably requests to enable ARC to apply for and obtain the Rights, and to assign and convey to ARC, its successors, assigns, and nominees the sole and exclusive rights, titles and interests in and to such Inventions and Rights. Employee further agrees that his obligation to execute or cause to be executed, any such instrument or papers shall continue after the termination of employment with ARC. In the event that ARC is unable, after reasonable effort, to secure Employee's signature on any of the foregoing assignments, instruments or papers,
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whether because of Employee's physical or mental incapacity or for any other reason whatsoever, Employee hereby irrevocably designates and appoints ARC and its duly authorized officers and agents as Employee's agent and attorney-in-fact, to act for and on Employee's behalf and stead, to execute and/or file any documents, and to do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of letters patent, copyright, trademark and other analogous rights or protections thereon, or which are otherwise necessary to secure, apply for or obtain Rights, or to assign and convey to ARC, its successors, assigns and nominees the sole and exclusive rights, titles and interests in and to such Inventions and Rights with the same legal force and effect as if executed by Employee. Employee's obligation to assist ARC in obtaining and enforcing Rights for the Inventions in any and all countries shall continue beyond the termination of Employee's relationship with ARC but ARC shall compensate Employee at a reasonable rate after such termination for time actually spent by Employee at ARC's request for such assistance.
(iv) PRIOR INVENTIONS. Any and all prior inventions, discoveries and improvements made by Employee prior to employment with ARC shall not be affected by this Agreement. A complete list of such inventions, discoveries and improvements made by Employee prior to Employee's employment with ARC, to the extent such exist, are set forth on Exhibit A, attached hereto and incorporated herein by reference. If Employee has no such inventions, discoveries or improvements to attach as an exhibit hereto, Employee shall enter "none" on the face of Exhibit A.
(c) USE OF INFORMATION. Executive shall not deliver, reproduce or in any way allow Confidential Information to be delivered or used by any third party without specific direction or consent of ARC's COO. Likewise, Executive shall not disclose to ARC, use in
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ARC's business, or cause ARC to use, any documents, information or material that is a trade secret of others.
(d) PREDECESSORS, SUBSIDIARIES AND AFFILIATES. For purposes of this
Section 10, references to ARC include its predecessors, subsidiaries and affiliates.
11. TERMINATION.
Notwithstanding any other term or provision contained in this Agreement, this Agreement and the employment hereunder will terminate prior to the expiration of the term of this Agreement under the following circumstances:
(a) DEATH. Upon Executive's death.
(b) DISABILITY. Upon Executive becoming "Permanently Disabled", which, for purposes of this Agreement, shall mean Executive's incapacity due to physical or mental illness or cause, which, in the written opinion of Executive's regular licensed physician, results in the Executive being unable to perform his duties on a full-time basis for 6 months during a period of 12 months.
(c) TERMINATION BY ARC FOR CAUSE. Upon written notice Executive, ARC may terminate this Agreement for Cause, which, for purposes of this Agreement, shall mean termination by ARC in its reasonable discretion because of Executive's:
(i) Willful refusal without proper cause to perform (other than by reason of physical or mental disability or death) the duties set forth in this Agreement or delegated from time to time in writing by ARC's CEO or COO, which remains uncorrected for 30 days following written notice to Executive by ARC's COO; or
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(ii) Gross negligence, self dealing or willful misconduct of Executive in connection with the performance of his duties hereunder, including, without limitation, misappropriation of funds or property of ARC or its subsidiaries or affiliates, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of ARC or its subsidiaries or affiliates, or any willful act or gross negligence having the effect of injuring the reputation, business or business relationships of ARC or its subsidiaries or affiliates; or
(iii) fraud, dishonesty or misappropriation of ARC business and assets that harms the business of ARC or its subsidiaries or affiliates; or
(iv) habitual insobriety, abuse of alcohol, abuse of prescription drugs, or use of illegal drugs; or
(v) engaging in any criminal activity involving moral turpitude; or
(vi) indictment or being held for trial in connection with a misdemeanor involving moral turpitude or any felony; or
(vii) conviction of a felony or entry into a guilty plea that negatively reflects on Executive's fitness to perform the duties or harms the reputation or business or ARC or its subsidiaries or affiliates; or
(viii) any material breach of any covenants under this Agreement or other material policy of ARC, other than under clauses (i) through
(vii) of this Section 11(c) which remains uncorrected for 30 days following written notice to Executive by ARC's COO.
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(d) TERMINATION BY ARC WITHOUT CAUSE. Upon written notice to Executive, ARC may terminate this Agreement at any time without any Cause or reason whatsoever.
(e) TERMINATION BY EXECUTIVE WITH GOOD REASON. Upon written notice to ARC of any of the following "Good Reasons," and the failure of ARC to correct the reduction, change or breach within 30 days after receipt of such notice, Executive may terminate this Agreement after the occurrence of
(i) a material change by ARC in the nature of Executive's title, duties, authorities and responsibilities set forth in this Agreement without Executive's express consent; or
(ii) a reduction in the nature of Executive's compensation as established under this Agreement, other than as expressly permitted in this Agreement, without Executive's express consent; or
(iii) a change in the officer (other than a change in the person who occupies such position) to whom Executive reports without Executive's express consent; or
(iv) a material breach by ARC of any material sections of this Agreement, other than as set forth in clauses (i) through (iii) of this Section 11(e); or
(v) a Change of Control, as defined in Section 11(g), as a result of which Executive is not offered the same or comparable position in the surviving company, or is offered such position but within twelve (12) months after Executive accepts such position, Executive's employment is terminated either without cause or for a Good Reason described in
15
subsections (i), (ii), (iii) of this Section 11(e) or in subsection (iv) as to the employment agreement then applicable to Executive.
(f) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Upon 45 days prior written notice to ARC, Executive may terminate this Agreement and resign from Executive's employment hereunder without any Good Reason.
(g) CHANGE OF CONTROL.
(i) For purposes of this Agreement, "Change of Control" shall mean:
(A) ARC merges or consolidates with any other corporation (other than one of ARC's subsidiaries), as a result of which ARC is not the surviving company, or the shares of ARC voting stock outstanding immediately after such transaction do not constitute, become exchanged for or converted into, more than 50% of the Voting Shares of the merged or consolidated company (as defined below);
(B) ARC sells or otherwise transfers or disposes of all or substantially all of its assets;
(C) Any third person or entity shall become the Beneficial Owner, as defined by Rule 13(d)-3 under the Securities Exchange Act of 1934, in one transaction or a series of related transactions within any 12 month period, of at least 50% of the Voting Shares of ARC's then outstanding voting securities.
(ii) For purposes of this Agreement, "Voting Shares" shall mean the combined voting securities entitled to vote in the election of directors of a corporation, including ARC, or the merged, consolidated or surviving company, if other than ARC.
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(h) EXPIRATION. For purposes of this Agreement, the expiration of this Agreement at the end of its term, including any extensions, does not constitute a termination.
12. SEVERANCE BENEFITS
(a) BASIC BENEFITS. Upon expiration or termination of this Agreement for any reason, and subject to the provisions of Section 12(e) below, Executive will be entitled to: (i) payment for all Base Salary and unused vacation accrued and prorated, but unpaid, as of the effective date of termination,
(ii) payment, when due, of any earned but unpaid Incentive Bonus for the preceding fiscal year, (iii) any unreimbursed business expenses authorized by this Agreement, (iv) continuation of any benefits under Section 6 as required by applicable law, and (v) such rights as then exist with respect to then vested stock options, restricted stock or other rights under similar plans
(b) TERMINATION BY ARC FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC for Cause pursuant to Section 11(c), or by Executive without Good Reason pursuant to Section 11(f), Executive shall not be entitled to any additional payments or benefits hereunder.
(c) TERMINATION BY ARC WITHOUT CAUSE; TERMINATION BY EXECUTIVE WITH GOOD REASON. If this Agreement and Executive's employment hereunder is terminated by ARC without Cause pursuant to Section 11(d), or by Executive for Good Reason as defined in Section 11(e), subject to Executive's compliance with the provisions of Sections 15 and 16 below, Executive shall receive the following additional payments or benefits:
(i) Executive's then Base Salary for the remaining term of this Agreement, paid as and when due as if this Agreement had not been terminated, provided,
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however, that if Section 11(e)(5) is applicable to such termination, such Base Salary shall continue to be paid for the greater of the remaining term of this Agreement or twelve (12) months;
(ii) Continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section 6 for the period during which Base Salary is paid under Section 12(c)(i) above;
(iii) Continuation of the Special Benefits under Section 7 of this Agreement, for the period during which Base Salary is paid under
Section 12(c)(i) above; and
(iv) All unvested stock options, restricted stock or similar rights granted to Executive shall accelerate and become vested and exercisable immediately as of the effective date of termination.
(d) TERMINATION BECAUSE OF DEATH OR DISABILITY OF EXECUTIVE. If this Agreement and Executive's employment hereunder is terminated under Sections 11(a) or (b) by reason of Executive's death or by reason of being Permanently Disabled, Executive or his family shall be entitled to continuation of coverage and premium payments by ARC under ARC's group insurance programs for Executive and his eligible family members under Section 6 for a period of 12 months after the termination of employment.
(e) PARACHUTE PAYMENTS. In the event that the severance, acceleration of stock options and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute "parachute payments" within the meaning of Section 280G (as it may be amended or replaced) of the Internal Revenue Code of 1986, as amended or replaced (the "Code") and (ii) but for this
Section 12(e), would be subject to the excise tax imposed by Section
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4999 (as it may be amended or replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder shall be either:
(i) provided to Executive in full; or
(ii) provided to Executive only as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless ARC and Executive otherwise agree in writing, any determination required under this Section 12(e) shall be made in writing in good faith by ARC `s independent public accountants (the "Accountants"). In the event of a reduction in benefits hereunder, Executive shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 12(e), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. ARC and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 12(e). ARC shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 12(e).
13. ARBITRATION AND EQUITABLE RELIEF
(a) ARBITRATION. In consideration of Executive's employment with ARC, its promise to arbitrate all employment-related disputes and Executive's receipt of the compensation paid to Executive by ARC, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including ARC and any employee, officer,
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director, shareholder or benefit plan of ARC in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's employment with ARC or the termination of that employment with ARC, including any provision of this Agreement, shall be subject to binding arbitration under the arbitration rules set forth in the California Code of Civil Procedure section 1280 through 1294.2, including section 1283.05 collectively (the "Rules") and pursuant to California law. Disputes which Executive agrees to arbitrate, and hereby agrees to waive any right to a trial by jury, include without limitation, any common law claims, statutory claims under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act of 1990, the Age Discrimination In Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment And Housing Act, the California Labor Code (except for workers compensation or unemployment insurance claims), or ERISA, claims of harassment, discrimination or wrongful termination and any other statutory claims under state or federal law.
(b) PROCEDURE. Any arbitration will be administered by JAMS and a neutral arbitrator will be selected in a manner consistent with its rules for the resolution of employment disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall have the power to award any remedies, including attorneys' fees and costs, available under applicable law. ARC will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that Executive shall pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules. To the extent that the JAMS rules for the resolution of employment disputes conflict with the Rules, the Rules shall take precedence. The decision of the arbitrator shall be in writing.
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(c) REMEDY. Except as provided by the Rules and this Agreement, arbitration shall be the sole, exclusive and final remedy for any dispute between ARC and Executive. Accordingly, except as provided for by the Rules and this Agreement, neither ARC nor Executive will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful ARC policy, and the arbitrator shall not order or require ARC to adopt a policy not otherwise required by law which ARC has not adopted.
(d) AVAILABILITY OF INJUNCTIVE RELIEF. In addition to the right under the Rules to petition the court for provisional relief, ARC may also petition the court for injunctive relief, notwithstanding any provision in this Agreement requiring arbitration, where ARC alleges or claims a violation of this Agreement, or any separate agreement between Executive and ARC regarding trade secrets, confidential information or non-solicitation, or California Labor Code ss.2870. No bond shall be required of ARC. Executive understands and agrees that any breach or threatened breach of this Agreement, including, without limitation, the provisions of Section 16, or of any such separate agreement will cause irreparable injury to ARC or its subsidiaries or affiliates and that money damages will not provide an adequate remedy therefore, and Executive hereby consents to the issuance of an injunction. In the event either Party seeks injunctive relief, the prevailing Party shall be entitled to recover reasonable costs and attorney fees related thereto.
(e) ADMINISTRATIVE RELIEF. This Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the Workers' Compensation Board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.
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(f) VOLUNTARY NATURE OF AGREEMENT. Executive acknowledges and agrees that he is executing this Agreement voluntarily and without any duress or undue influence by ARC or anyone else. Executive further acknowledges and agrees that he has carefully read this Agreement, that he has asked any questions needed for him to understand the terms, consequences and binding effect of this Agreement, and that he fully understands this Agreement, including that HE IS WAIVING HIS RIGHT TO A JURY TRIAL. Finally, Executive acknowledges that he has been provided an opportunity to seek the advice of an attorney of his choice before signing this Agreement.
14. GOVERNING LAW
This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California without regard to California conflict of laws principles.
15. RELEASE
In exchange for the benefits and other consideration under this Agreement to which Executive would not otherwise be entitled, Executive shall enter into and execute a release substantially in the form attached hereto as Exhibit B (the "Release") upon his termination of employment. Unless the Release is executed by Executive and delivered to ARC within thirty (30) days after the termination of Executive's employment with ARC, Executive shall receive only the basic severance benefits provided under Section 12(a) of this Agreement and no additional benefits under Section 12.
16. CONSULTING AGREEMENT
Upon the expiration or earlier termination of this Agreement, Executive shall continue to provide limited services to ARC, at ARC's request, for the sole purpose of carrying out the
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provisions of Sections 1(b)(ix) and (x) for a period of up to 12 months, which Executive acknowledges are vital to the welfare of ARC and its business and shareholders. Such services shall be performed during normal business hours on normal business days, or at such other times and days as Executive may reasonably request. Executive shall be paid at the hourly rate then prevailing for consultants performing similar services in the San Francisco Bay Area. During such consulting period, the provisions of Sections 10, 13, 14 and 16 through 21 will continue to apply.
17. NOTICES
Any notices or other communications desired or required under this Agreement shall be in writing, signed by the Party making the same, and shall be deemed delivered when personally delivered or on the second business day after the same is sent by certified or registered mail, postage prepaid, addressed as follows (or to such other address as may be designated by like written notice):

If to Executive:      At the last residential address known by ARC

If to ARC:            American  Reprographics  Company
                      700 North Central Avenue, Suite 550
                      Glendale, CA 91203
                      Attn.: Chief Executive Officer	

18. SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
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19. ASSIGNMENT
Except as otherwise specifically provided herein, neither Party shall assign this Agreement or any rights hereunder without the consent of the other Party, and any attempted or purported assignment without such consent shall be void; provided that Executive's consent under this Agreement shall not be required hereby for any of the transactions involving a Change of Control. This Agreement shall otherwise bind and inure to the benefit of the Parties hereto and their respective successors, assigns, heirs, legatees, devisees, executors, administrators and legal representatives.
20. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the Parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties regarding the subject matter of this Agreement. Any prior employment agreement, bonus agreement or other compensation agreement between Executive and ARC or any predecessor, subsidiary or affiliate of ARC, is hereby terminated on and as of the Effective Date. This Agreement may not be amended or modified except in writing signed by both Parties.
21. WAIVER
If either Party waives any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
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22. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first hereinabove set forth.

AMERICAN REPROGRAPHICS                  EXECUTIVE
COMPANY,
a Delaware corporation

By:   /s/ S. Chandramohan               By:        /s/ Rahul K. Roy
      _______________________                   _____________________________
                                                Rahul K. Roy
                                        Address:
                                                _____________________________	

Title: CEO _____________________________
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EXHIBIT A
PRIOR INVENTIONS DISCLOSURE
PURSUANT TO
SECTION 10(b)(iv)
1. Mirroring Technology (now the property of ARC)
2. E-Com Database (now the property of ARC)
3. Accounting Packages
4. Ink Mixing Software
5. CD-ROM Retrieval Engine

   /s/ Rahul K. Roy
___________________________
Rahul Roy	

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EXHIBIT B
RELEASE AGREEMENT
I understand that my position with American Reprographics Company ("ARC") terminated effective _______________ (the "Separation Date"). ARC has agreed that if I choose to sign this Agreement, ARC will pay me severance benefits (minus the standard withholdings and deductions) pursuant to the terms of the Executive Employment Agreement entered into on __________ __, 2004 between myself and ARC (the "Severance Benefits). I understand that I am not entitled to the Severance Benefits unless I sign this Agreement. I understand that in addition to the Severance Benefits, ARC will pay me all of my accrued salary and vacation, to which I am entitled by law.
In consideration for the Severance Benefits I am receiving under this Agreement, I agree not to use or disclose any of ARC's proprietary information without written authorization from ARC, to immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control, and to release ARC and its officers, directors, agents, attorneys, employees, shareholders, and affiliates from any and all claims, debts, liabilities, demands, causes of action, attorneys' fees, damages, or obligations of every kind and nature, whether they are known or unknown, arising at any time prior to the date I sign this Agreement. This general release includes, but is not limited to: all federal and state statutory and common law claims, claims related to my employment or the termination of my employment or related to breach of contract, tort, wrongful termination, discrimination, wages or benefits, or claims for any form of compensation. This release is not intended to release any claims I have or may have against any of the released parties for (a) indemnification as a
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director, officer, agent or employee under applicable law, charter document or agreement, (b) severance and other termination benefits under my employment agreement and any related written documents, (c) health or other insurance benefits based on claims already submitted or which are covered claims properly submitted in the future, (d) vested rights under pension, retirement or other benefit plans, or (e) in respect of events, acts or omissions occurring after the date of this Release Agreement.
In releasing claims unknown to me at present, I am waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"). I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled. I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after my signing of this Agreement; (b) I should consult with an attorney prior to executing this release, (c) I have twenty-one (21) days within which to consider this release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following the execution of this release to revoke the Agreement; (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by me and by ARC
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("Effective Date"); and I will not be paid any of the Severance Benefits until this Agreement has become effective.
This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between ARC and me with regard to the subject matter hereof I am not relying on any promise or representation by ARC that is not expressly stated herein. This Agreement may only be modified by a writing signed by both me and a duly authorized officer of ARC. I accept and agree to the terms and conditions stated above:

AMERICAN REPROGRAPHICS                         EXECUTIVE
COMPANY, a Delaware corporation

By:                                            By:
      ___________________________                      ____________________
      ___________________________                      Rahul K. Roy
                                               Address:
                                                       ____________________
                                                       ____________________
Title:___________________________	

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Exhibit 23.1 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1/ A of our report dated January 10, 2005, relating to the consolidated financial statements and financial statement schedule of American Reprographics Holdings, LLC, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California

January 12, 2005

 

Exhibit 23.2 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 28, 2003, with respect to the consolidated financial statements and schedule of American Reprographics Holdings, L.L.C. included in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-119788) and related Prospectus of American Reprographics Company dated January 13, 2005.

		
 	/s/ Ernst & Young LLP	
Woodland Hills, California

January 12, 2005