**Exhibit 10.5**

** **

**EMPLOYMENT AGREEMENT**

 

ThisEMPLOYMENT AGREEMENT (the ***“Agreement”***), dated effective as of March 1, 2002, isentered into by and between CONSOLIDATED GRAPHICS, INC., a Texas corporationhaving its principal place of business in Houston, Harris County, Texas (***“CGX”***), and G.CHRISTOPHER COLVILLE (the ***“Executive”***); other capitalized terms used in thisAgreement are defined and shall have the meanings set forth in Section 17or elsewhere herein.

 

**WI T N E S S E T H**:

 

***WHEREAS***,Executive is to be employed as Executive Vice-President, Chief FinancialOfficer and Secretary of CGX;

 

***WHEREAS***,in connection with his employment, Executive will be provided by CGX withspecialized training and given access to confidential information;

 

***WHEREAS***,it is the desire of the Board of Directors of CGX (the ***“Board”***) to engage Executive as an executiveofficer of CGX and its subsidiaries pursuant to the terms of this Agreement;and

 

***WHEREAS***,Executive is desirous of committing himself to serve CGX on the terms herein provided.

 

***NOW, THEREFORE***,in consideration of the premises, representations and mutual covenantshereinafter set forth, the parties hereby covenant and agree as follows:

 

1.             ***Employment***. CGX hereby employs Executive, and Executive hereby accepts employment withCGX, on the terms and conditions set forth in this Agreement.

 

2.             ***Employment Period***.  The term of Executive’s employment (the ***“Employment Period”***) pursuant to the terms ofthis Agreement shall commence upon the Effective Date and shall continue until theTermination Date (as defined below).

 

3.             ***Duties***. Executive shall (i) serve under the direction of the Board andJoe R. Davis, the Chief Executive Officer of CGX (the ***“CEO”***), as Executive Vice-President, ChiefFinancial Officer and Secretary of CGX, (ii) have all the rights, powers andduties associated with his positions, and (iii) faithfully, to the best ofExecutive’s ability, perform the duties and other reasonably related servicesassigned to Executive by the Board and/or CEO from time to time (the ***“Duties”***).  Executive shall be subject to, and shallcomply with, CGX insider trading policies (a copy of which has been deliveredto Executive) and the other policies of CGX in effect from time to time(collectively, the ***“CGX Policies”***);*provided,however, that* to the extent such CGX Policies may contradict theexpress provisions of this Agreement, the provisions of this Agreement shallgovern.  Executive shall devote his fullbusiness time, efforts and attention to the business of CGX during the EmploymentPeriod consistent with past practice and, without the prior written consent ofthe Board, Executive shall not during the Employment Period render any servicesof a business, commercial or professional nature, to any person or organizationother than CGX and the Affiliates or be engaged in any other business activity,other than those activities described in Section 12 below.  Executive represents and warrants thatExecutive is not 

 

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a party to or bound by anyagreement or contract or subject to any restrictions, including withoutlimitation in connection with any previous employment, which might preventExecutive from entering into and performing Executive’s obligations under thisAgreement.

 

4.             ***Compensation***.  During the Employment Period, Executive shall be compensated forExecutive’s services as follows:

 

(a)           Executive shall bepaid a base monthly salary of not less than $20,833.33, subject to any and allcustomary payroll deductions, including deductions for the Federal InsuranceContributions Act and other federal, state and local taxes.  Such monthly salary shall be increasedduring the Employment Period at the same time and on at least as favorable abasis as other officers of CGX.

 

(b)           Except to the extentsuch policies may contradict the express provisions of this Agreement, in whichcase the provisions of this Agreement shall govern, Executive shall be eligibleto receive (i) fringe benefits on the same basis as other management employeesof CGX pursuant to CGX Policies in effect from time to time, including holidaytime and (ii) three (3) weeks paid vacation; *provided, however, that*earnedbut unused vacation or other compensated absences shall not be carried forwardfor use or payment in subsequent periods; and *provided, further,**that*CGX will act reasonably to continue in effect comparable medical benefits tothose currently in effect at the Company.

 

(c)           Executive shall beeligible to participate, to the extent that Executive meets all eligibilityrequirements of general application, in each of the employee benefit plansmaintained by CGX or in which employees of CGX generally are eligible toparticipate, including as of the date hereof, group hospitalization, medical,dental, and short and long term disability and life plans.  CGX agrees to reimburse Executive for hishospitalization and medical insurance premiums paid under the ConsolidatedOmnibus Budget Reconciliation Act of 1986 until Executive is able toparticipate fully under the CGX sponsored hospitalization and medical planprovided that such reimbursement shall not exceed, on a monthly basis, thatamount which would have been paid by CGX for such preimums for such month underthe CGX sponsored plan

 

5.             ***Bonus***. In addition to the other compensation set forth herein, Executive shallbe entitled to receive an annual cash bonus payment in an amount to bedetermined in the sole discretion of the CEO and approved by the Board or theCompensation Committee of the Board; provided, however, that the sum ofExecutive’s annual base salary (as paid monthly pursuant to Section 4(a)hereof) plus annual cash bonus payment shall equal or exceed the sum of theannual base salary plus annual cash bonus of each CGX employee working at CGX’scorporate headquarters other than that of the CEO and President.

 

6.             ***Stock Options***.  In addition to the other compensation set forth herein, Executiveshall be provided with options to purchase CGX shares as follows:

 

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(a)           200,000 shares to begranted effective as of the Effective Date at an exercise price equal to theclosing price per share of CGX common stock as reported on the New York StockExchange on the day preceding the Effective Date; and

 

(b)           25,000 shares oneach anniversary date of the Effective Date during the Employment Period; suchoptions shall have an exercise price equal to the closing price per share ofCGX common stock as reported on the New York Stock Exchange (or otherapplicable national exchange on which the common stock of CGX is then listed) onthe day immediately preceding the effective date of the grant of such option.

 

All options granted pursuant tothe terms of this Agreement shall be granted pursuant to and subject to theterms of the form CGX Stock Option Agreement attached hereto as Exhibit “A”.

 

7.             ***Executive Expenses***.  During the Employment Period, Executive shall be entitled to bereimbursed for reasonable normal business expenses incurred in the performanceof the Duties hereunder in accordance with CGX Policies in effect from time totime; *provided,however, that* documentation supporting such expenses must besubmitted to and approved by the CEO or the Board before such reimbursement ispaid to Executive.

 

8.             ***No Competing Business***.  In consideration for the benefits receivedby Executive pursuant to this Agreement, during the Noncompetition Period,Executive shall not, except as permitted by Section 12 of thisAgreement, directly or indirectly own, manage, operate, control, invest oracquire an interest in, or otherwise engage or participate (whether as aproprietor, partner, employee, stockholder, member, director, officer,executive, joint venturer, investor, consultant, agent, sales representative,broker or other participant) in any Competitive Business operating in orsoliciting business from CGX’s Market, without regard to (i) whether theCompetitive Business has its office or other business facilities within CGX’sMarket, (ii) whether any of the activities of Executive referred to aboveoccur or are performed within CGX’s Market or (iii) whether Executiveresides, or reports to an office, within CGX’s Market.

 

9.             ***No Interference with the Business***.  In consideration for the benefits receivedby Executive pursuant to this Agreement, during the Noncompetition Period,Executive shall not:

 

(a)           directlyor indirectly solicit, induce or intentionally influence any third party salesrepresentative, agent, supplier, lender, lessor or any other person which has abusiness relationship with CGX and/or any Affiliate or which had on the date ofthis Agreement a business relationship with CGX and/or any Affiliate todiscontinue, reduce the extent of, discourage the development of or otherwiseharm such relationship with CGX and/or any Affiliate;

 

(b)           directlyor indirectly attempt to induce any known customer to terminate any contract orotherwise divert from CGX and/or any Affiliate any trade or business beingconducted by any such customer with CGX and/or any Affiliate or directly orindirectly attempt to solicit, induce or intentionally influence anyprospective or past customer of CGX and/or any Affiliate to 

 

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discontinue, reduce the extent of, or notconduct business with CGX and/or any Affiliate;

 

(c)           directlyor indirectly recruit, solicit, induce or influence any executive, employee orsales agent of CGX and/or any Affiliate to discontinue such sales, employmentor agency relationship with CGX and/or any such Affiliate;

 

(d)           employ,seek to employ or cause any other person or entity to employ or seek to employas a sales representative or Executive any person who is then (or was at anytime since the Effective Date) employed by CGX and/or any of the Affiliates; or

 

(e)           directlyor indirectly denigrate or in any manner undertake to discredit CGX, anyAffiliate or any successor thereof or any person, operation or entityassociated with CGX or any Affiliate.

 

10.           ***Consideration for Restrictions***.  Executive acknowledges that the restrictionsimposed under Sections 3, 8, 9, and 11 are supported by theconsideration to be received by Executive pursuant to the terms of thisAgreement.

 

11.           ***No Disclosure of Confidential Information***.  Executive shall not directly or indirectlyknowingly disclose to anyone or use or otherwise exploit for Executive’s own benefitor for the benefit of anyone other than CGX and/or any of the Affiliates anyConfidential Information.  Executiveshall not disclose the terms of this Agreement to anyone other than arepresentative or agent of Executive.

 

12.           ***Permitted Activities***. The restrictions set forth in Sections 3, 8 and 9 of thisAgreement shall not apply to Permitted Activities (as defined below).

 

13.           ***Reduction of Restrictions by Court Action***.  If the length of time, type of activity,geographic area or other restrictions set forth in the restrictions of Sections 3,8, 9, or 11 are deemed unreasonable in any court proceeding, the partieshereto agree that the court may reduce such restrictions to ones it deemsreasonable to protect the substantial investment of CGX and the Affiliates intheir businesses and the goodwill attached thereto.

 

14.           ***Remedies***. Executive understands that CGX and the Affiliates will not have anadequate remedy at law for the breach or threatened breach by Executive of anyone or more of the covenants set forth in this Agreement and agrees that in theevent of any such breach or threatened breach, CGX or any Affiliate may, inaddition to the other remedies which may be available to it, file a suit inequity to enjoin Executive from the breach or threatened breach of suchcovenants.  In the event either partycommences legal action to enforce its or his rights under this Agreement, theprevailing party in such action shall be entitled to recover all of the costsand expenses in connection therewith, including reasonable attorney’s fees.

 

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15.           ***Termination***.

 

(a)           The***“Termination Date”***shall mean the date in which the first of the following occur:

 

(i)                                     thefifth anniversary of the Effective Date or any date subsequent thereto providedone party has given notice to the other at least one (1) year in advance ofsuch date of his/its election to terminate this Agreement on such date;

 

(ii)                                  Executive’sdeath;

 

(iii)                               theDisability (as defined below) of Executive;

 

(iv)                              terminationby CGX of Executive for Cause (as defined below);

 

(v)                                 terminationby CGX of Executive without Cause;

 

(vi)                              theresignation of Executive for any reason (other than Good Reason (as definedbelow)), which shall take effect immediately upon CGX’s receipt of suchresignation,

 

(vii)                           theresignation of Executive for Good Reason, which shall take effect immediatelyupon CGX’s receipt of such resignation; or

 

(viii)                        a Changein Control (as defined in the Change in Control Agreement).

 

(each of (i), (ii), (iii), (iv), (v), (vi),(vii) and (viii) are referred to herein as a ***“Termination”***).

 

(b)           Ifa Termination occurs pursuant to subparagraphs (v) or (vii), then duringthe Severance Period (as defined below), (i) Executive shall receive Executive’smonthly salary in effect immediately prior to the Termination in accordancewith Section 4(a) and (ii) Executive shall continue to receive and/or beable to elect to receive benefits under CGX welfare plans or substantiallyequivalent welfare plans at CGX’s expense, including but not limited to,medical/hospital, dental, life, and disability, in accordance with the terms ofsuch plans in effect at the time; *provided, however, that* Executive shall beresponsible for the costs of such benefits to the same extent he wasresponsible (or would have been responsible had he then been a participant) forsuch costs prior to the Termination Date.

 

(c)           Ifa Termination occurs pursuant to subparagraphs (i), (ii), (iii), (iv), (vi) or(viii), then Executive or Executive’s estate shall receive (i) Executive’smonthly salary in effect immediately prior to the Termination in accordancewith Section 4(a) through the date of such Termination and (ii) anyother amounts 

 

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earned, accrued or owing as of suchTermination Date, but not yet paid by CGX to Executive.

 

(d)           Terminationof employment hereunder shall not relieve Executive of his obligations under Sections 8and 9 hereof, notwithstanding the termination of Executive’s compensationor the termination of the other terms and conditions of this Agreement.   In addition, termination of employmenthereunder shall not relieve Executive of his obligations under Section 11hereof which are intended to continue indefinitely, notwithstanding thetermination of Executive’s compensation or the termination of the other termsand conditions of this Agreement. Executive’s violation of any of his obligations under Sections 8,9 or 11 hereof shall relieve CGX of its obligation to pay any of thebenefits as contemplated in this Section 15.

 

(e)           Inaddition to all other compensation due to Executive hereunder, the followingshall occur immediately prior to the occurrence of a Termination pursuant to subparagraphs(ii), (iii) or (vii) of Section 15;

 

(i)                                     allCGX stock options held by Executive prior to such a Termination shall becomeexercisable, regardless of whether or not the vesting/performance conditionsset forth in the relevant agreements shall have been satisfied in full;

 

(ii)                                  allrestrictions on any restricted securities granted by CGX to Executive prior tosuch a Termination shall be removed and the securities shall become fullyvested and freely transferable, regardless of whether the vesting/performanceconditions set forth in the relevant agreements shall have been satisfied infull;

 

(iii)                               Executive(or Executive’s estate) shall have an immediate right to receive allperformance shares or bonuses granted prior to such a Termination, and suchperformance shares and bonuses shall become fully vested and freelytransferable or payable without restrictions, regardless of whether or notspecific performance goals set forth in the relevant agreements shall have beenattained;

 

(iv)                              allperformance units granted to Executive prior to such a Termination shall becomeimmediately payable in cash or common stock, at Executive’s sole option (or atthe sole option of the executor of the Executive’s estate), regardless ofwhether or not the relevant performance cycle has been completed, and regardlessof whether any other terms and conditions of the relevant agreements shall havebeen satisfied in full;

 

(v)                                 provided,that if the terms of any plan or agreement providing for such options,restricted securities, performance shares or bonuses, or performance units donot allow such acceleration or payment as 

 

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described above, CGX shall take or cause tobe taken any action required to allow such acceleration or payment or toseparately pay the value of such benefits.

 

16.  ***Gross–Up***.

 

(a)           Anythingin this Agreement to the contrary notwithstanding, in the event a publicaccounting firm selected by Executive (the ***“Accounting Firm”***) shall determine that any payment,benefit, or distribution by CGX to Executive (whether paid or payable ordistributed or distributable pursuant to the terms of Section 15 of thisAgreement or otherwise, but determined without regard to any additionalpayments required under this Section 16) (each a ***“Payment”***) is subject to the excise taximposed by Section 4999 of the Code, or any interest or penalties are incurredby Executive with respect to such excise tax (such excise tax, together withany such interest and penalties, are hereinafter collectively referred to asthe ***“Excise Tax”***), thenCGX shall pay to Executive an additional payment (a ***“Gross–Up Payment”***) in an amount suchthat after payment by Executive of all taxes (including any interest orpenalties imposed with respect to such taxes), including, without limitation,any income taxes (and any interest and penalties imposed with respect thereto),and the Excise Tax imposed upon the Gross–Up Payment, Executive retainsan amount of the Gross–Up Payment equal to the Excise Tax imposed uponthe Payments.

 

(b)           Subjectto the provisions of Section 16(c) below, all determinationsrequired to be made under this Section 16, including whether andwhen a Gross–Up Payment is required and the amount of such Gross–UpPayment and the assumptions to be utilized in arriving at such determination,shall be made by the Accounting Firm which shall provide detailed supportingcalculations both to CGX and Executive as soon as possible following a requestmade by Executive or CGX.  All fees andexpenses of the Accounting Firm shall be borne solely by CGX. Any Gross–UpPayment, as determined pursuant to this Section 16, shall be paidby CGX to Executive within five (5) days of the receipt of the AccountingFirm’s determination. If the Accounting Firm determines that no Excise Tax ispayable by Executive, it shall furnish Executive with a written opinion thatfailure to report the Excise Tax on Executive’s applicable federal income taxreturn would not result in the imposition of a negligence or similarpenalty.  Any determination by theAccounting Firm shall be binding upon CGX and Executive.  As a result of the uncertainty in theapplication of Section 4999 of the Code at the time of the initialdetermination by the Accounting Firm hereunder, it is possible that Gross–UpPayments which will not have been made by CGX should have been made (***“Underpayment”***),consistent with the calculations required to be made hereunder.  If CGX exhausts its remedies pursuant to Section 16(c)below and Executive thereafter is required to make a payment of any Excise Tax,the Accounting Firm shall determine the amount of the Underpayment that hasoccurred and any such Underpayment shall be promptly paid by CGX to or for thebenefit of Executive.

 

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(c)           Executiveshall notify CGX in writing of any claim by the Internal Revenue Service that,if successful, would require the payment by CGX of the Gross–UpPayment.  Such notification shall begiven as soon as practicable but no later than ten (10) business days afterExecutive is informed in writing of such claim and shall apprise CGX of thenature of such claim and the date on which such claim is requested to bepaid.  Executive shall not pay suchclaim prior to the expiration of the ten (10)–day period following thedate on which Executive gives such notice to CGX (or such shorter period endingon the date that any payment of taxes with respect to such claim is due).  If CGX notifies Executive in writing priorto the expiration of such period that it desires to contest such claim,Executive shall:

 

(i)                                     giveCGX any information reasonably requested by CGX relating to such claim,

 

(ii)                                  takesuch action in connection with contesting such claim as CGX shall reasonablyrequest in writing from time to time, including, without limitation, acceptinglegal representation with respect to such claim by an attorney reasonablyselected by CGX,

 

(iii)                               cooperatewith CGX in good faith to effectively contest such claim, and

 

(iv)                              permitCGX to participate in any proceedings relating to such claim;

 

*provided, however, that* CGX shall bear and paydirectly all costs and expenses (including additional interest and penalties)incurred in connection with such contest and shall indemnify and hold Executiveharmless, on an after–tax basis, for any Excise Tax or income tax(including interest and penalties with respect thereto) imposed as a result ofsuch representation and payment of costs and expenses.  Without limitation on the foregoingprovisions of this Section 16(c), CGX shall control all proceedingstaken in connection with such contest and, at its sole option, may pursue orforgo any and all administrative appeals, proceedings, hearings and conferenceswith the taxing authority in respect of such claim and may, at its sole option,either direct Executive to pay the tax claimed and sue for a refund or contestthe claim in any permissible manner, and Executive agrees to prosecute suchcontest to a  determination before anyadministrative tribunal, in a court of initial jurisdiction and in one or moreappellate courts, as CGX shall determine; *provided further, that* if CGX directsExecutive to pay such claim and sue for a refund, CGX shall advance the amountof such payment to Executive on an interest–free basis and shallindemnify and hold Executive harmless, on an after–tax basis, from anyExcise Tax or income tax (including interest or penalties with respect thereto)imposed with respect to such advance or with respect to any imputed income withrespect to such 

 

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advance; and *provided further, that* any extension ofthe statute of limitations relating to payment of taxes for the taxable year ofExecutive with respect to which such contested amount is claimed to be due islimited solely to such contested amount. Furthermore, CGX’s control of the contest shall be limited to issueswith respect to which a Gross–Up Payment would be payable hereunder andExecutive shall be entitled to settle or contest, as the case may be, any otherissue raised by the Internal Revenue Service or any other taxing authority.

 

(d)           If,after the receipt by Executive of an amount advanced by CGX pursuant to this Section 16,Executive becomes entitled to receive, and receives, any refund with respect tosuch claim, Executive shall (subject to CGX’s complying with the requirementsof this Section 16) promptly pay to CGX the amount of such refund(together with any interest paid or credited thereon after taxes applicablethereto).  If, after the receipt byExecutive of any amount advanced by CGX pursuant to Section 16, adetermination is made that Executive shall not be entitled to any refund withrespect to such claim and CGX does not notify Executive in writing of itsintent to contest such denial of refund prior to the expiration of thirty (30)days after such determination, then such advance shall be forgiven and shallnot be required to be repaid and the amount of such advance shall offset, tothe extent thereof, the amount of Gross–Up Payment required to be paid.

 

17.           ***Definitions***.  Asused in this Agreement, terms defined in the preamble and recitals of orelsewhere in this Agreement shall have the meanings set forth therein and thefollowing terms shall have the meanings set forth below:

 

(a)*           Affiliate*or *Affiliates*shall mean and refer to any direct or indirect subsidiaries of CGX, or anyother entity or entities through which CGX or any subsidiary of CGX may conductCGX’s Line of Business.

 

(b)*           Cause*shall mean and include without limitation (i) the inability of Executive toperform his Duties hereunder due to a legal impediment, including withoutlimitation, the entry against Executive of an injunction, restraining order orother type of judicial judgment, decree or order which would prevent or hinderExecutive from performing his Duties; (ii) the willful failure byExecutive to follow material CGX Policies or the willful disregard of thereasonable and material instructions of the CEO with respect to the performanceof Executive’s Duties, other than any failure not occurring in bad faith thatis remedied by Executive promptly after receipt of notice thereof from CGX;(iii) excessive absenteeism, flagrant neglect of work, serious misconduct,conviction of a felony or fraud; or (iv) the failure of Executive to devotesubstantially all of his full working time and attention to performance of hisDuties for CGX.

 

(c)*           Changein Control Agreement* shall mean that certain Change in ControlAgreement dated March 1, 2002 between CGX and Executive.

 

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(d)*           CGX’sLine of Business* shall mean general commercial printing services,including digital imaging, offset lithography, composition, electronicprepress, binding and finishing services, fulfillment of printed materials andincludes any products or services manufactured, developed or distributed,including electronic products and services, at any time by CGX and/or theAffiliates before or after the Effective Date.

 

(e)*           CGX’sMarket* shall mean the United States;

 

(f)*            CompetitiveBusiness* shall mean any person or entity engaged in a business thatproduces any of the products or performs any of the services comprising CGX’sLine of Business.

 

(g)*           ConfidentialInformation* shall mean trade secrets, customer and supplier lists,marketing arrangements, business plans, projections, financial information,training manuals, pricing manuals, product and service development plans,market strategies, internal performance statistics and other competitivelysensitive information belonging to and concerning CGX and/or any of theAffiliates and not generally known by or available to the public, whether ornot in written or tangible form, as the same may exist at any time during theEmployment Period.

 

(h)*           Disability*shall mean any illness, disability or incapacity of such a character as torender Executive unable to perform his Duties (which determination shall bemade by the CEO) for a total period of one hundred eighty (180) days, whetheror not such days are consecutive, during any consecutive twelve (12) month period.

 

(i)*            EffectiveDate* shall mean the execution date of this Agreement.

 

(j)*            EmploymentPeriod* shall mean that period of time set forth in Section 2of this Agreement.

 

(k)*           GoodReason* shall mean (i) the material breach of this Agreement by CGX,other than any failure not occurring in bad faith that is remedied by CGXpromptly after receipt of notice thereof from Executive, (ii) theimplementation by CGX of a condition to Executive’s continued employment withCGX that Executive’s principal place of work be changed to any location outsideof the Houston metropolitan area, (iii) a material diminution in theExecutive’s Duties or cash compensation, (vi) the replacement of Joe R.Davis as the CEO by any person other than Executive (provided that Executive resignshis employment citing the replacement as “Good Reason” within sixty (60) daysfollowing the date the Board selects a successor CEO other than Executive), and(v) the termination by the Executive of the Executive’s employment with CGXupon the occurrence of any of the events set forth in Section 4(b)(ii)to the Change of Control Agreement.

 

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(l)*            NoncompetitionPeriod* shall mean a period beginning on the Effective Date andcontinuing through the Employment Period and for the greater of (i) the periodof one (1) year after any Termination pursuant to Section15(a)(i),  (iii),(iv) or (vi) or (ii) the Severance Period.

 

(m)*          PermittedActivities* shall mean (i) owning not more than 1% of theoutstanding shares of a publicly–held Competitive Business which hasshares listed for trading on a securities exchange registered with theSecurities and Exchange Commission or through the automated quotation system ofa registered securities association; (ii) owning capital stock of CGX; or(iii) those activities or actions undertaken by Executive, to the extent,but only to the extent, such activities or actions are expressly approved inwriting by the CEO.

 

(n)*           SeverancePeriod* shall mean that period of time equal to the shorter of (i)either (A), if Joe R. Davis is then the CEO, one (1) year followingTermination or (B), if Joe R. Davis is not then the CEO, two (2)years following Termination or (ii) the remainder of the Employment Period thatwould have been applicable pursuant to Section 15(a)(i) but for theearly Termination, if at the time of such Termination either of the parties hadnotified the other of its election to terminate the Employment Period pursuantto Section 15(a)(i).

 

18.           ***Notices***.  Allnotices, demands or other communications required or provided hereunder shallbe in writing and shall be deemed to have been given and received whendelivered in person or transmitted by facsimile transmission (telecopy), cableor telex to the respective parties or seven (7) days after dispatch byregistered or certified mail, postage prepaid, addressed to the parties at theaddresses set forth below or at such other addresses as such parties maydesignate by notice to the other parties:

 
| If to CGX:                                             |   | Consolidated Graphics, Inc.         |
|--------------------------------------------------------|--------|-------------------------------------|
|                                                   |   | 5858 Westheimer, Suite 200          |
|                                                   |   | Houston, Texas 77057                |
|                                                   |   | Attention: Joe R. Davis             |
|                                                   |   |                                |
| *with a copy (which  shall not constitute notice) to:* |   | R.Clyde Parker, Jr., Esq.           |
|                                                   |   | Winstead Sechrest & Minick P.C. |
|                                                   |   | 910 Travis, Suite 2400              |
|                                                   |   | Houston, Texas 77002                |
|                                                   |   |                                |
| If to Executive:                                       |   | G. Christopher Colville             |
|                                                   |   | 5906 Masters Drive                  |
|                                                   |   | Houston, Texas 77069                |

 

19.           ***Assignment***.  CGX,but not Executive, may assign or delegate any of its rights or obligationshereunder; *provided,however, that* without the consent of Executive, CGX shall not berelieved of any of its obligations hereunder as a result of any assignment to athird party; *provided, further, that* an assignment made in accordancewith this section shall not constitute a termination of employment for purposesof this Agreement.  This Agreement shallbe binding 

 

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upon and inure to the benefitof any assignee thereof and any such assignee shall be deemed substituted forCGX under the terms of this Agreement and all references to “CGX” shall bedeemed to mean such assignee.  As usedin this Agreement, the term “assignee” shall include any Affiliate or person,firm, partnership, corporation or CGX which at any time, whether by merger,purchase or otherwise, acquires all of the capital stock or substantially allof the assets or business of CGX, and any assignee or successor thereof.

 

20.***           NoMitigation Obligation***. CGX hereby acknowledges that it will be difficult, and may beimpossible, for Executive to find reasonably comparable employment followingthe Termination Date and that the noncompetition covenants contained in Sections8 and 9 hereof will further limit the employment opportunities forExecutive.  Accordingly, the partieshereto expressly agree that the payment of the severance compensation andbenefits by CGX to Executive in accordance with the terms of this Agreementwill be liquidated damages, and that Executive shall not be required tomitigate the amount of any payment provided for in this Agreement by seekingother employment or otherwise, nor shall any profits, income, earnings or otherbenefits from any source whatsoever create any mitigation, offset, reduction orany other obligation on the part of Executive hereunder or otherwise, except tothe extent Executive actually receives comparable welfare benefits from anotheremployer during the Severance Period.

 

21.           ***Amendment and Modification***.  No amendment or modification of the terms of this Agreement shallbe binding upon either party unless reduced to writing and signed by Executiveand a duly appointed officer of CGX.

 

22.***           GoverningLaw***.  This Agreement andall rights and obligations hereunder, including matters of construction,validity and performance, shall be governed by the laws of the State of Texas,without giving effect to the principles of conflicts of laws thereof.

 

23.           ***Counterparts***. This Agreement may be executed in two or more counterparts, any one ofwhich shall be deemed the original without reference to the others.

 

24.           ***Severability***.  Ifany provision or portion of this Agreement shall be determined to be invalid orunenforceable for any reason, the remaining provisions and portions of thisAgreement shall be unaffected thereby and shall remain in full force and effectto the fullest extent permitted by law.

 

25.           ***Effective Date***. This Agreement shall become effective only upon and as of the EffectiveDate.

 

26.           ***Waiver***.  Thefailure of either party to insist, in any one or more instances, uponperformance of the terms or conditions of this Agreement shall not be construedas a waiver or relinquishment of any right granted hereunder or of the futureperformance of any such term, covenant or condition.

 

27.           ***Construction of Agreement***.  Headings of the sections in this Agreement are for referencepurposes only and shall not be deemed to have any substantive effect.  Unless the contents of this Agreementotherwise clearly requires, references to the plural include the singular andthe singular include the plural. Whenever the context here requires, the masculine 

 

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shall refer to the feminine,the neuter shall refer to the masculine or feminine, the singular shall referto the plural, and *vice versa*.

 

***IN WITNESS WHEREOF***,the parties hereto have executed this Agreement as of the date first writtenabove.

 
|   |   |   |   | **EXECUTIVE**:                        |
|--------|--------|--------|--------|---------------------------------------|
|   |   |   |   |                                  |
|   |   |   |   |                                  |   |   |
|   |   |   |   |                                  | /s/ G.  Christopher Colville |   |
|   |   |   |   | G. CHRISTOPHER COLVILLE               |
|   |   |   |   |                                  |
|   |   |   |   | **CGX**:                              |   |
|   |   |   |   |                                  |   |
|   |   |   |   | CONSOLIDATED GRAPHICS, INC.           |
|   |   |   |   |                                  |
|   |   |   |   | By:                                   |   | /s/ Joe R. Davis |   |
|   |   |   |   | Joe R. Davis, Chief Executive Officer |

 

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**EXHIBIT A**

 

 

**CGX 1/31/00 Master          CONSOLIDATED GRAPHICS, INC.**

**Form**                                      

STOCK OPTION AGREEMENT

**«Date»**

Consolidated Graphics,Inc. (the “Company”) hereby grants, effective as of «**Date»**(the “GrantDate”) to «**Optionee»**(the “Optionee”), an employee of the Company orone of its subsidiaries, the Option (the “Option”) to purchase from the Companyup to, but not exceeding in the aggregate**, «Shares»** shares of the Company’sCommon Stock, par value $.01 per share, (the “Stock”), at a price per shareequal to the closing price per share of Stock on the Grant Date as reported bythe New York Stock Exchange (the “Exercise Price”), such number of shares andsuch price per share being subject to adjustment as provided in paragraph 14(b)of the Consolidated Graphics, Inc. Long–Term Incentive Plan, as amendedfrom time to time (the “Plan”), and further subject to the following terms andconditions:

1.                                       This Option is issued in accordance withand subject to all of the terms, conditions and provisions of the Plan andadministrative interpretations thereunder, if any, which have been adopted bythe Committee thereunder and are in effect on the date hereof. Except asdefined herein, capitalized terms shall have the same meanings ascribed to themunder the Plan.

2.                                       (a)                                  ThisOption shall not be exercisable until after one year of the Optionee’scontinued employment with the Company or any subsidiary of the Companyimmediately following the Grant Date, and thereafter shall be exercisable asfollows:

(i)                                     From and after the first anniversary ofthe Grant Date, this Option shall be exercisable for any number of shares up toand including, but not in excess of, 20% of the aggregate number of sharessubject to this Option;

(ii)                                  From and after the second anniversary ofthe Grant Date, this Option shall be exercisable for any number of shares up toand including, but not in excess of, 40% of the aggregate number of sharessubject to this Option;

(iii)                               From and after the third anniversary ofthe Grant Date, this Option shall be exercisable for any number of shares up toand including, but not in excess of, 60% of the aggregate number of sharessubject to this Option;

(iv)                              From and after the fourth anniversary ofthe Grant Date, this Option shall be exercisable for any number of shares up toand including, but not in excess of, 80% of the aggregate number of sharessubject to this Option; and

(v)                                 From and after the fifth anniversary ofthe Grant Date; this Option shall be fully exercisable;

 

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Provided thatthe number of shares as to which this Option becomes exercisable shall, in eachcase, be reduced by the number of shares previously purchased pursuant to theterms hereof; and provided further that no additional installments shall becomeexercisable after the Option terminates pursuant to Section 2(b) or 3 hereof.

(b)                                 In the event of termination of employmentwith the Company and its subsidiaries during the one year immediately followingthe Grant Date for any reason, this Option shall immediately terminate and beof no force and effect.

3.                                       Unless earlier terminated pursuant toSection 2(b) hereof, the Option hereby granted shall terminate and be of noforce and effect with respect to any shares not previously purchased by theOptionee upon the earlier of (a) the tenth anniversary of the Grant Date or (b)the expiration of 180 days after the Optionee’s termination of employment withthe Company or any subsidiary.

Notwithstandingthe foregoing, if death of the Optionee occurs (i) after the Optionee’scompletion of 30 days of continued employment with the Company or anysubsidiary following the Grant Date and (ii) before the termination of thisOption (whether before or after the Optionee’s termination of employment withthe Company or any subsidiary), the Option shall not terminate, but shall beexercisable by the Optionee’s heirs, estate or personal representatives, untilthe earlier of (a) the tenth anniversary of the Grant Date or (b) one yearfollowing the death of the Optionee, whereupon the Option shall terminate andbe of no force and effect with respect to any shares not previously purchasedhereunder.

4.                                       Subject to the limitations set forthherein and in the Plan, this Option may be exercised by written notice providedto the Company as set forth in Section 5. Such written notice shall (a)state the number of shares with respect to which the Option is being exercisedand (b) be accompanied by a check, cash or money order payable to ConsolidatedGraphics, Inc. in the full amount of the purchase price for any shares beingacquired. In addition, unless the options and shares covered by the Plan havebeen registered pursuant to the Securities Act of 1933, as amended, the Companymay, at its election, require the Optionee to give a representation in writingin form and substance satisfactory to the Company to the effect that he isacquiring such shares for his own account for investment and not with a viewto, or for sale in connection with, the distribution of such shares or any partthereof.

If any law orregulation requires the Company to take any action with respect to the sharesspecified in such notice, the time for delivery thereof, which would otherwisebe as promptly as possible, shall be postponed for the period of time necessaryto take such action.

5.                                       Notice of exercise of the Option must bemade in the following manner, using such forms as the Company may from time totime provide:

 

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(a)                                  by registered or certified United Statesmail, postage prepaid, to Consolidated Graphics, Inc.. Attention: ChiefFinancial Officer, 5858 Westheimer, Suite 200, Houston, Texas 77057, in whichcase the date of exercise shall be the date of mailing; or

(b)                                 by hand delivery, fax or otherwise toConsolidated Graphics, Inc., Attention: Chief Financial Officer, 5858Westheimer, Suite 200, Houston, Texas 77057, in which case the date of exerciseshall be the date when receipt is acknowledged by the Company.

6.                                       The Optionee’s rights under the Plan andthis Stock Option Agreement are personal; no assignment or transfer of theOptionee’s rights under and interest in this Option may be made by the Optioneeotherwise than by will or by the laws of descent and distribution; and thisOption is exercisable during his lifetime only by the Optionee.

7.                                       No certificates representing shares ofStock purchased hereunder shall be delivered to or in respect of an Optioneeunless the amount of all federal, state and other governmental withholding taxrequirements imposed upon the Company with respect to the issuance of suchStock has been remitted to the Company or unless provisions to pay suchwithholding requirements have been made to the satisfaction of the Committeepursuant to Section 10 of the Plan. The Committee may make such provisions asit may deem appropriate for the withholding of any taxes which it determines isrequired in connection with this Option. With the Committee’s approval, the Optioneemay pay all or any portion of the taxes required to be withheld by the Companyor paid by the Optionee in connection with the exercise of all or any portionof this Option by electing to have the Company withhold shares of stock, or bydelivering previously owned shares of Stock, having a fair market valuedetermined in accordance with paragraph 10 of the Plan, equal to the amountrequired to be withheld or paid.  TheOptionee must make the foregoing election on or before the date that the amountof tax to be withheld is determined.

8.                                       The Option is intended to qualify as an“incentive stock option” within the meaning of Section 422 of the InternalRevenue Code of 1986, as amended (the “Code”), except where prior stock optiongrants to Optionee make incentive stock option status unavailable and providedthat nothing in this Agreement shall be interpreted as a  representation, guarantee, or otherunderstanding on the part of the Company that the Option is or will bedetermined to be an “incentive stock option” within the meaning of that or anyother section of the Code.  Optioneeshall notify the Company (i) of any “disqualifying disposition” (within themeaning of Section 421 of the Code) of the Stock acquired upon exercise of theOption (specifically, a sale of such Stock within two years from the date theOption was granted or within one year from the date the Option was exercised)and (ii) of such other events or circumstances relating to the Option or theStock as are specified by the Committee. Such notice(s) shall be provided atsuch time and in such manner as is specified by the Committee.

9.                                       Notwithstanding anything in this StockOption Agreement to the contrary, immediately prior to the occurrence of aChange in Control, this Option to the extent not previously exercised orterminated shall become fully vested and immediately exercisable.  For purposes of this******Stock Option Agreement, a “Change inControl” will be deemed to have occurred if at any time any of the followingevents shall occur:

 

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(a)                                  the Company is merged, consolidated,converted or reorganized into or with another corporation or other legalentity, and as a result of such merger, consolidation, conversion orreorganization less than a majority of the combined voting power of the thenoutstanding securities of the Company or such corporation or other legal entityimmediately after such transaction are held in the aggregate by the holders ofVoting Stock (as hereinafter defined) of the Company immediately prior to suchtransaction and/or such voting power is not held by substantially all of suchholders in substantially the same proportions relative to each other;

(b)                                 the Company sells (directly orindirectly) all or substantially all of its assets (including, withoutlimitation, by means of the sale of the capital stock or assets of one or moredirect or indirect subsidiaries of the Company) to any other corporation orother legal entity, of which less than a majority of the combined voting powerof the then outstanding voting securities (entitled to vote generally in theelection of directors or persons performing similar functions on behalf of suchother corporation or legal entity) of such other corporation or legal entity isheld in the aggregate by the holders of Voting Stock of the Company immediatelyprior to such sale and/or such voting power is not held by substantially all ofsuch holders in substantially the same proportions relative to each other;

(c)                                  any person (as the term “person” is usedin Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934,as amended (the “Exchange Act”) becomes (subsequent to the Grant Date) thebeneficial owner (as the term “beneficial owner” is defined under Rule 13d–3or any successor rule or regulation promulgated under the Exchange Act) ofsecurities representing twenty percent (20%) or more of the combined votingpower of the then–outstanding securities entitled to vote generally inthe election of directors of the Company (“Voting Stock”);

(d)                                 the Company files a report or proxystatement with the Securities and Exchange Commission pursuant to the ExchangeAct disclosing in response to Form 8–K, Schedule 14A orSchedule 14C (or any successor schedule, form or report or item therein)that a change in control of the Company has occurred;

(e)                                  if during any one (1)–year period,individuals who at the beginning of any such period constitute the directors ofthe Company cease for any reason to constitute at least a majority thereof, unlessthe election, or the nomination for election by the Company’s shareholders, ofeach director of the Company first elected during such period was approved by avote of at least two–thirds of (i) the directors of the Company thenstill in office who were directors of the Company at the beginning of any suchperiod or (ii) directors of the Company whose nomination and/or electionwas approved by the directors referenced in clause (i) immediately preceding;or

 

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(f)                                    the shareholders of the Company approve aplan contemplating the liquidation or dissolution of the Company.

Notwithstandingthe foregoing provisions of Subsection 9(c) or 9(d) hereof, a “Change inControl” shall not be deemed to have occurred for purposes of this Agreementsolely because (i) the Company, (ii) a corporation or other legal entityin which the Company directly or indirectly beneficially owns 100% of thevoting securities of such entity, or (iii) any employee stock ownership plan orany other employee benefit plan of the Company or any wholly–ownedsubsidiary of the Company, either files or becomes obligated to file a reportor a proxy statement under or in response to Schedule 13D,Schedule 14D–1, Form 8–K, Schedule 14A or Schedule14C (or any successor schedule, form or report or item therein) under theExchange Act, disclosing beneficial ownership by it of shares of Voting Stock,whether in excess of twenty percent (20%) or otherwise, or because the Companyreports that a change in control of the Company has occurred by reason of suchbeneficial ownership.

10.                                 This Agreement shall be governed by,construed and enforced in accordance with the laws of the State of Texas.

CONSOLIDATEDGRAPHICS, INC.

COMPENSATIONCOMMITTEE
| Effective Date of Grant                 |                                  |
|-----------------------------------------|---------------------------------------|
| **«Date1», 2000**             | By                                    |   |
|                                    | Joe R. Davis, Chief Executive Officer |
| Exercise Price: **$«Price1»** | Authorized Representative             |

 

This Option has beenaccepted as of the above date by the undersigned, subject to the terms andprovisions of the Plan and administrative interpretations thereof referred toabove.  I also hereby acknowledgereceipt of the memorandum regarding Notice of Disqualifying Dispositions andthe Consolidated Graphics, Inc. Prospectus dated October 22, 1998.

 

Name:  «Optionee»

 

 

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