<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Donnelley Enterprise Solutions Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
161 NORTH CLARK STREET
CHICAGO, ILLINOIS 60601
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1997
To the Stockholders of
Donnelley Enterprise Solutions Incorporated:
The Annual Meeting of Stockholders of Donnelley Enterprise Solutions
Incorporated, a Delaware corporation, will be held on May 7, 1997 at 161 North
Clark Street, Suite 2850, Chicago, Illinois 60601, for the following purposes:
1. To elect two (2) persons to the Board of Directors;
2. To approve the Donnelley Enterprise Solutions Incorporated 1997 Non-
Employee Director Stock Plan;
3. To approve the Amended and Restated Donnelley Enterprise Solutions
Incorporated 1996 Stock Incentive Plan;
4. To approve the Donnelley Enterprise Solutions Incorporated 1997 Employee
Stock Purchase Plan; and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
A proxy statement and proxy card with respect to the meeting are enclosed.
The Annual Report to Stockholders and the Annual Report on Form 10-K of the
Company for the year ended December 31, 1996 are also enclosed.
THE BOARD OF DIRECTORS HAS FIXED THE CLOSE OF BUSINESS ON MARCH 17, 1997 AS
THE RECORD DATE FOR THE DETERMINATION OF STOCKHOLDERS ENTITLED TO NOTICE OF,
AND TO VOTE AT, THE ANNUAL MEETING AND ANY ADJOURNMENTS THEREOF.
WE ENCOURAGE YOU TO ATTEND THE ANNUAL MEETING AND VOTE YOUR SHARES IN
PERSON. HOWEVER, IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY USING THE ENVELOPE PROVIDED SO THAT
YOUR SHARES WILL BE REPRESENTED AT THE MEETING. YOU MAY REVOKE YOUR PROXY AT
ANY TIME BEFORE IT IS ACTUALLY VOTED BY NOTICE IN WRITING TO THE UNDERSIGNED.
YOUR ATTENTION IS DIRECTED TO THE ATTACHED PROXY STATEMENT AND ACCOMPANYING
PROXY.
By Order of the Board of Directors,
/s/ RHONDA I. KOCHLEFL
RHONDA I. KOCHLEFL
Chairman, President and Chief
Executive Officer
Chicago, Illinois
March 31, 1997
<PAGE>
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
CHICAGO, ILLINOIS 60601
161 NORTH CLARK STREET
PROXY STATEMENT
March 31, 1997
This proxy statement and accompanying proxy are first being furnished to the
Stockholders of Donnelley Enterprise Solutions Incorporated, a Delaware
corporation (the "Company"), beginning on or about March 31, 1997, in
connection with the solicitation by the Board of Directors of the Company (the
"Board") of proxies for use at the Company's 1997 Annual Meeting of
Stockholders to be held at 161 North Clark Street, Suite 2850, Chicago,
Illinois 60601, on May 7, 1997, at 10:00 a.m., CST, and at any adjournments
thereof (the "Meeting"), for the purposes set forth in the attached Notice of
Annual Meeting of Stockholders and in this proxy statement.
An Annual Report to Stockholders, containing condensed financial statements
for the fiscal year ended December 31, 1996, is being mailed together with the
Company's Annual Report on Form 10-K and this proxy statement to all
stockholders entitled to vote at the meeting. The Annual Report to
Stockholders contains condensed financial statements for the three years ended
December 31, 1996, and certain other information concerning the Company. The
Annual Report to Stockholders and condensed financial statements and the
Annual Report on Form 10-K are neither part of this proxy statement nor
incorporated by reference herein.
The Company's common stock, par value $.01 per share ("Common Stock"), is
the only issued and outstanding class of stock. Only stockholders of record as
of the close of business on March 17, 1997 (the "Record Date") will be
entitled to notice of, and to vote at, the Meeting and any adjournments
thereof. As of the Record Date, 5,005,000 shares of Common Stock were issued
and outstanding. Each share outstanding as of the Record Date entitles its
holder to one vote per share for each proposal submitted for stockholder
consideration. Stockholders may vote in person or by proxy. Execution of a
proxy will not in any way affect a Stockholder's right to attend the meeting
and vote in person.
A proxy, in the enclosed form, which is properly executed, duly returned to
the Company or its authorized representatives or agents and not revoked will
be voted in accordance with the stockholder's instructions contained in the
proxy. If no instructions are indicated on the proxy, the shares represented
thereby will be voted (i) FOR the election of the two directors nominated by
the Board; (ii) FOR the approval of the Donnelley Enterprise Solutions
Incorporated 1997 Non-Employee Director Stock Plan (the "1997 Plan"); (iii)
FOR the approval of the Amended and Restated Donnelley Enterprise Solutions
Incorporated 1996 Stock Incentive Plan (the "1996 Plan"); (iv) FOR the
approval of the 1997 Donnelley Enterprise Solutions Incorporated Employee
Stock Purchase Plan (the "Stock Purchase Plan"); and (v) on such other matters
that may properly come before the Meeting, in accordance with the best
judgment of the persons named in the proxy. Any stockholder submitting a proxy
may revoke it at any time before it is exercised by delivering written notice
thereof to the Chairman of the Company. Any stockholder attending the Meeting
may vote in person whether or not the stockholder has previously filed a
proxy. Presence at the Meeting by a stockholder who has signed a proxy does
not in itself revoke the proxy.
The Board knows of no other matter to be presented at the meeting. If any
other matter should be presented at the meeting upon which a vote may be
properly taken, shares represented by all proxies received by the Board will
be voted with respect thereto in accordance with the best judgment of the
persons named as proxies therein.
A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by such proxy are not being voted by such stockholder with
respect to a particular matter. This could occur, for example, when a broker
is not permitted to vote stock held in street name on certain matters in the
absence of instructions from the beneficial owner of such stock. The shares
subject to any such proxy which are not being voted with respect to a
particular matter ("non-voted shares") will be considered shares not present
and entitled to vote on such matter, although such shares may be considered
present and entitled to vote for other purposes and will
1
<PAGE>
count for purposes of determining the presence of a quorum. Abstentions will
likewise be considered present and entitled to vote for purposes of
determining the presence of a quorum.
The presence, either in person or by proxy, of the holders of a majority of
the shares entitled to vote will constitute a quorum at the Meeting. The
directors will be elected by the affirmative vote of a plurality of the votes
cast in the election of directors, provided a quorum is present. Stockholders
are not allowed to cumulate their votes in the election of directors.
Abstentions and non-voted shares are not treated as votes cast and therefore
will not affect the outcome of the election of directors. Approval of each of
the 1997 Plan, the 1996 Plan and the Stock Purchase Plan will require the
affirmative vote of the holders of a majority of the shares present in person
or by proxy at the Meeting and entitled to vote on such proposal, provided a
quorum is present. Abstentions are treated as being present and entitled to
vote at the Meeting and therefore will have the effect of a vote against
approval of the 1997 Plan, the 1996 Plan or the Stock Purchase Plan, as the
case may be. Non-voted shares are not treated as present and entitled to vote
at the Meeting and therefore will have no effect on the approval of the 1997
Plan, the 1996 Plan or the Stock Purchase Plan.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspectors appointed for the Meeting and such election inspectors
will determine whether or not a quorum is present.
OWNERSHIP OF CAPITAL STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Common Stock by all persons known to the Company
to be the beneficial owner of more than 5% of the outstanding Common Stock as
of the dates set forth below. The information set forth below is based on
information available to the Company and a review of statements filed with the
Securities and Exchange Commission (the "Commission") pursuant to Section
13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF CLASS
- ---------------- --------- --------
<S> <C> <C>
R.R. Donnelley & Sons Company............................ 2,140,000(1) 42.76%
77 West Wacker Drive
Chicago, Illinois 60601
Salomon Inc.............................................. 576,249(2) 11.5%
Seven World Trade Center
New York, New York 10048
Trimark Investment Management............................ 391,900(3) 7.83%
One First Canadian Place, Suite 5600
Toronto, Ontario, Canada M5X1E5
Artisan Partners Limited Partnership..................... 325,000(4) 6.49%
Artisan Investment Corporation
Andrew A. Ziegler
Carlene Murphy Ziegler
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
</TABLE>
- --------
(1) Amount of Common Stock beneficially owned as of December 31, 1996, as
indicated on the statement filed with the Commission on February 12, 1997.
(2) Amount of Common Stock beneficially owned as of February 28, 1997, as
indicated on the amended statement filed with the Commission on March 7,
1997.
(3) Amount of Common Stock beneficially owned as of March 17, 1997 as
indicated by the holder.
(4) Amount of Common Stock beneficially owned as of December 31, 1996, as
indicated on the statement filed with the Commission on February 14, 1996.
2
<PAGE>
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by each director, each of the executive officers
named in the table under "Compensation and Other Information Concerning
Directors and Executive Officers--Executive Compensation--Summary Compensation
Table" and all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ---------------- ------------ ----------
<S> <C> <C>
Rhonda I. Kochlefl(2).................................. 7,975 *
Leo S. Spiegel......................................... 2,500 *
Luke F. Botica......................................... 800 *
Thomas P. Bradbury..................................... 0 *
Linda A. Finkel........................................ 1,000 *
David J. Shea.......................................... 500 *
Daniel I. Malina....................................... 0 *
W. Ed Tyler............................................ 0 *
Charles F. Moran....................................... 0 *
Directors and executive officers as a group (9 per-
sons)................................................. 12,775 *
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise indicated, the named person possesses sole voting power
and investment power with respect to the shares. The shares shown include
shares issuable pursuant to options held by the respective person that may
be exercised within 60 days.
(2) Includes 5,000 shares of restricted stock granted to Ms. Kochlefl on
November 5, 1996.
1. ELECTION OF DIRECTORS
The Board consists of five members and is divided into three classes serving
staggered terms as follows: Class I, comprised of one person and serving for a
term expiring at the 1997 Annual Meeting of Stockholders; Class II, comprised
of two persons and serving for a term expiring at the 1998 Annual Meeting of
Stockholders; and Class III, comprised of two persons and serving for a term
expiring at the 1999 Annual Meeting of Stockholders. Following the expiration
of the initial term, directors will serve for three year terms. One director
is to be elected to Class I and one director is to be elected to Class II at
the Meeting. Each of the nominees is currently serving as a director of the
Company. The nominee for Class I, if elected, will continue in office until
the 2000 Annual Meeting of Stockholders. The nominee for Class II, if elected,
will continue in office until the 1998 Annual Meeting of Stockholders.
Shares represented by all proxies received by the Board and not so marked as
to withhold authority to vote for any individual director or for all directors
will be voted "FOR" the election of Charles F. Moran to Class I and Daniel I.
Malina to Class II. The Board knows of no reason why any of the nominees
should be unable or unwilling to serve, but if such should be the case,
proxies will be voted in accordance with the best judgment of the persons
named as proxies for such person or persons as may be designated by the Board
or the number of directors constituting the full Board may be reduced.
The affirmative vote of a plurality of votes cast in the election of
directors is required to elect each of Charles F. Moran as a director in Class
I and Daniel I Malina as a director in Class II.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS DIRECTORS OF
THE COMPANY.
3
<PAGE>
INFORMATION WITH RESPECT TO NOMINEES AND CONTINUING DIRECTORS
The following sets forth certain information about each of the Board's
nominees for election at the Meeting and each director whose term will continue
after the Meeting.
<TABLE>
<CAPTION>
INITIAL TERM
NAME AGE EXPIRES (CLASS) POSITION
- ---- --- --------------- --------
<S> <C> <C> <C>
Rhonda I. Kochlefl.......... 38 1999 (III) Chairman, President and Chief
Executive Officer and Director
Daniel I. Malina............ 38 1998 (II) Director
Charles F. Moran............ 67 2000 (I) Director
Leo S. Spiegel.............. 35 1998 (II) Senior Vice President and Chief
Technology Officer and Director
W. Ed Tyler................. 44 1999 (III) Director
</TABLE>
CLASS I--NOMINEE TO SERVE THREE YEARS UNTIL 2000 ANNUAL MEETING
CHARLES F. MORAN was the Senior Vice President of Administration of Sears,
Roebuck & Co. and a member of the Sears Management Committee from 1989 to
December 1993 when he retired. Mr. Moran has served as an outside director of
Thermadyne Holding Inc. since 1994, SPS Transactions Services Inc. since 1985,
and Hurley State Bank since 1996. He has also been a director of Homan-
Arthington Foundation, a non-profit foundation, since 1995. Mr. Moran has been
a director of the Company since March 1997.
CLASS II--NOMINEE TO SERVICE ONE YEAR UNTIL 1998 ANNUAL MEETING
DANIEL I. MALINA has been a Vice President, Corporate Development of R. R.
Donnelley & Sons Company ("R.R. Donnelley") since March 1996. He served as
Director of Corporate Development of R.R. Donnelley from November 1994 to March
1996. Mr. Malina joined R.R. Donnelley in 1994. Prior to joining
R.R. Donnelley, he was with Bell & Howell, an information services company
specializing in mail-processing systems, document management products and
electronic database publishing systems, as Vice President and General Manager
of its NB/Microseal Division. Prior to serving in that capacity, he served Bell
& Howell as Director, Business Development from January 1991 to January 1994.
Mr. Malina has been a director of the Company since July 1996.
CLASS II--SERVING UNTIL 1998 ANNUAL MEETING
LEO S. SPIEGEL has served as Senior Vice President and Chief Technology
Officer of the Company since February 1996. He served as director and the co-
founder, Chief Technology Officer and Executive Vice President of LANSystems,
Inc. from May 1991 until its acquisition by R.R. Donnelley in June 1995. From
June 1989 until May 1991, he was director and the co-founder and Executive Vice
President of Sales and Marketing of LANSystems, Inc. Prior to June 1989 he was
the founder, Chairman and President of Integrated Analysis, Inc., which merged
with LANSystems, Inc. in 1989. Mr. Spiegel has been a director of the Company
since February 1996.
CLASS III--SERVING UNTIL 1999 ANNUAL MEETING
RHONDA I. KOCHLEFL has been the Chairman, President and Chief Executive
Officer of the Company since February 1996. From January 1995 to February 1996,
she was the President of Donnelley Business Services ("DBS"), and from June
1995 to February 1996, she was the Chairman of LANSystems, Inc. From 1993 to
January 1995, she was Vice President, Division Director of DBS. From 1988 to
1991, she was General Manager for the eastern region of DBS, for which she was
responsible for all sales and operations. Ms. Kochlefl has been a director of
the Company since February 1996.
4
<PAGE>
W. ED TYLER has been Executive Vice President and Sector President,
Information Management Sector of R.R. Donnelley since January 1996. Mr. Tyler
joined R.R. Donnelley in 1974 and has held a number of positions, including
President, Documentation Services and President, Networked Services Sector.
Mr. Tyler has been a director of the Company since February 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has two standing committees: the Audit Committee and the
Compensation Committee, each of which was formed in 1997. Between the
consummation of the Company's initial public offering of Common Stock (the
"IPO") on November 5, 1996 and December 31, 1996, the Board held no meetings.
The Audit Committee is responsible for reviewing the Company's annual and
quarterly financial statements with management and the Company's independent
auditors and consulting with management and the auditors regarding the
adequacy of financial and accounting procedures and controls. The Committee
recommends to the Board the retention of the Company's independent auditors
and, when circumstances warrant, selection of new auditors, consults with the
auditors regarding the audit, annually evaluates the auditors' performance and
reviews fees paid to the independent auditors for audit and non-audit
functions and evaluates the impact of non-audit services on the auditors'
independence. Currently, the members of the Audit Committee are Mr. Tyler
(Chairman) and Mr. Moran.
The Compensation Committee is responsible for reviewing and making
recommendations to the Board on all compensation, including all option grants
for executive officers. The Compensation Committee is also responsible for
reviewing the structure of the Company's bonus plans. The Compensation
Committee also administers the 1996 Plan and, subject to their approval by the
stockholders, the 1997 Plan and the Stock Purchase Plan. The Compensation
Committee is responsible for reviewing the Board's performance, recommending
changes in Board compensation and other administrative matters relating to the
Board. Currently, the members of the Compensation Committee are Mr. Moran
(Chairman) and Mr. Malina.
The Board does not have a nominating committee. The selection of nominees
for election to the Board at the Meeting was made by the entire Board. The
Compensation Committee will recommend nominees to the entire Board in the
future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file an initial report of beneficial
ownership and certain reports of changes in beneficial ownership of the Common
Stock with the Commission. Such persons are required by regulations of the
Commission to furnish the Company with copies of all such filings. Based on
its review of the copies of such filings received by the Company with respect
to 1996, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in 1996.
5
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the Company's
Chief Executive Officer and the other four most highly compensated executive
officers of the Company serving as such on December 31, 1996, as well as the
compensation of Thomas P. Bradbury, former President, LANSystems division.
Information for prior years is omitted in accordance with the rules of the
Commission.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ----------------------------
NUMBER OF
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION GRANTED (3) COMPENSATION (4)
POSITION YEAR $ $ $ # $
- ------------------ ------ ------- ------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl...... 1996 224,637 -- 9,644 60,000 --
Chairman, President and
Chief 1995 186,625 45,724 5,925 5,000 --
Executive Officer
Leo S. Spiegel.......... 1996 229,166 -- 3,946 40,000 813,525
Senior Vice President
and Chief 1995 204,470 122,445(2) -- 4,000 356,412
Technology Officer
Luke F. Botica.......... 1996 150,003 -- 149,420(5) 30,000 --
Senior Vice President
and Chief 1995 -- -- -- -- --
Financial Officer
Thomas P. Bradbury...... 1996 193,507 -- 4,812 -- 1,235,918(6)
Former President, 1995 255,668 156,385(2) -- 4,000 588,712
LANSystems Division (1)
Linda A. Finkel......... 1996 160,181 29,934 4,972 30,000 --
President, DBS Divi-
sion.................. 1995 123,574 26,972 4,787 3,000 --
David J. Shea........... 1996 140,692 28,477 5,211 15,000 --
President, 1995 126,492 22,136 4,024 3,000 --
Systems Management Di-
vision
</TABLE>
- --------
(1) Mr. Bradbury ceased being President, LANSystems division effective October
4, 1996.
(2) Includes $40,670 and $54,227 paid in March 1996 to Messrs. Spiegel and
Bradbury, respectively, under the provisions of the LANSystems, Inc.
earnout that relate to achievement in 1995 of specified financial targets.
(3) The stock options reflected in the table for the year 1995 represent
options to purchase shares of common stock, par value $1.25 per share, of
R.R. Donnelley.
(4) Amounts shown for 1995 represent payments made to Messrs. Spiegel and
Bradbury (i) at the closing of the acquisition of LANSystems, Inc. in June
1995 in respect of their LANSystems, Inc. common stock options and (ii) in
March 1996 under provisions of the LANSystems, Inc. earnout that relate to
such options and the achievement in 1995 of specified financial targets.
Amounts shown for 1996 represent payments made to Messrs. Spiegel and
Bradbury prior to the IPO in final payment of the LANSystems, Inc. earnout
obligations.
(5) Includes $149,420 paid to Mr. Botica to reimburse normal and customary
expenses associated with moving.
(6) Includes $92,091 paid to Mr. Bradbury pursuant to the terms of his
severence agreement.
6
<PAGE>
OPTION GRANTS IN 1996
The following table shows information for individuals named in the Summary
Compensation Table regarding grants of stock options to them during the year
ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE PRESENT VALUE
NAME GRANTED (#)(1) 1996 PRICE ($.SH) EXPIRATION DATE ($)(2)
- ---- -------------------- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl...... 60,000 15.00% $25.00 November 5, 2006 927,600
Leo S. Spiegel.......... 40,000 10.00% 25.00 November 5, 2006 618,400
Luke F. Botica.......... 30,000 7.50% 25.00 November 5, 2006 463,800
Thomas P. Bradbury...... 0 -- -- -- --
Linda A. Finkel......... 30,000 7.50% 25.00 November 5, 2006 463,800
David J. Shea........... 15,000 4.70% 25.00 November 5, 2006 231,900
</TABLE>
- --------
(1) Options become exercisable (at fair market value on the date of grant)
over a four year period, with one-quarter of the options becoming
exercisable on each of the first four anniversaries of the date of grant,
unless the vesting schedule is accelerated to become fully exercisable
upon death, retirement, disability or a change in control as defined in
the Company's 1996 Plan.
(2) The Black-Scholes option pricing method has been used to calculate present
value as of date of grant. The present value as of the date of grant,
calculated using the Black-Scholes method, is based on assumptions about
future interest rates, stock price volatility and dividend yield. The
Black-Scholes model is a complicated mathematical formula widely used to
value exchange traded options. However, stock options granted by the
Company to its officers differ from exchange traded options in three key
respects: options granted by the Company to its officers are long-term,
non-transferable and subject to vesting restrictions while exchange traded
options are short-term and can be exercised or sold immediately in a
liquid market. The Black-Scholes model relies on several key assumptions
to estimate the present value of options, including the volatility of, and
dividend yield on, the security underlying the option, the risk-free rate
of return on the date of grant and the term of the option. In calculating
the grant date present values set forth in the table, a factor of 53.0%
has been assigned to the volatility of the Common Stock; based on the
average volatility of the Company's comparable stocks, the yield on Common
Stock has been set at 0%; based upon the fact that the Company does not
anticipate paying cash dividends in the foreseeable future, the risk-free
rate of return has been fixed at 6.16%, the rate for a seven year U.S.
Treasury Note on the date of grant as reported in the Federal Reserve
Statistical Release, and the exercise of the options has been assumed to
occur at the end of the expected option life of seven years. There is no
assurance that these assumptions will prove to be true in the future.
Consequently, the grant date present values set forth in the table are
only theoretical values and may not accurately determine present value.
The actual value, if any, that may be realized by each individual will
depend on the market price of Common Stock on the date of exercise.
7
<PAGE>
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information for the individuals named
in the Summary Compensation Table on stock option exercises and the number and
value of such individuals' unexercised options at December 31, 1996. None of
the named individuals exercised options to purchase Common Stock in 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/96 (#) OPTIONS AT 12/31/96 ($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rhonda I. Kochlefl.......... 0 60,000 $ 0 $ 0
Leo S. Spiegel.............. 0 40,000 0 0
Luke F. Botica.............. 0 30,000 0 0
Thomas P. Bradbury.......... 0 0 0 0
Linda A. Finkel............. 0 30,000 0 0
David J. Shea............... 0 15,000 0 0
</TABLE>
COMPENSATION OF DIRECTORS
Each director receives $1,000 and reimbursement for expenses incurred for
each meeting of the Board or any of its committees that such director attends.
In addition, directors who serve as a committee chairperson receive an annual
fee of $2,000.
Pursuant to the 1997 Plan, subject to stockholder approval thereof,
beginning on the date of the Meeting, directors who are not employees of the
Company ("non-employee directors") will receive an annual grant of options to
purchase 5,000 shares of Common Stock at a price equal to the fair market
value of a share of Common Stock on the date of grant. All such option grants
become exercisable over a three year period, with one-third of the options
becoming exercisable on the first, second and third January 1 occurring after
their day of grant. For further information regarding the 1997 Plan, see
"Approval of the 1997 Non-Employee Director Stock Plan."
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Ms. Kochlefl entered into a four-year employment agreement with the Company
commencing on November 5, 1996, the date of the closing of the IPO. The
agreement provides for an annual base salary of $300,000 with a pro-rated
bonus opportunity for 1996 to earn up to 100% of base salary if certain
pre-established net income criteria are met by the Company. Bonus
opportunities for 1997, and later years, will be reviewed and approved by the
Board or a committee of the Board. Under the terms of the agreement, Ms.
Kochlefl was granted options to purchase 60,000 shares of Common Stock at a
purchase price of $25.00 per share of Common Stock and 5,000 shares of Common
Stock in the form of restricted stock.
Mr. Spiegel entered into a four-year employment agreement with the Company
commencing on November 5, 1996. The agreement provides for an annual base
salary of $250,000 with a pro-rated bonus opportunity for 1996 to earn up to
80% of base salary if certain pre-established net income criteria are met by
the Company. Bonus opportunities for 1997, and later years, will be reviewed
and approved by the Board or a committee of the Board. Under the terms of the
agreement, Mr. Spiegel was granted options to purchase 40,000 shares of Common
Stock at a purchase price of $25.00 per share of Common Stock.
Each of Ms. Kochlefl's and Mr. Spiegel's employment agreement provides for a
severance payment of up to 45 months' base salary, depending on the date of
severance, where termination is by the Company for any reason other than for
cause or by the executive upon breach by the Company of the agreement or for
good reason. In addition, 100% of all options and restricted stock awards held
by the executive will vest on such termination. A severance payment will not
be payable and options and restricted stock awards will not vest where
termination is by the Company for cause, by the executive for any reason other
than upon breach by the Company of the
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agreement or for good reason, or by reason of the executive's retirement or
death. In Ms. Kochlefl's case, any severance payment would be made in a single
payment at termination. In Mr. Spiegel's case, severance payments would be
made monthly. Each agreement also contains customary provisions providing for
the non-disclosure of confidential information and an agreement not to compete
with the Company for a period of 24 months after the termination of the
agreement.
Mr. Botica entered into a four-year employment agreement with the Company
commencing on November 5, 1996. The agreement provides for an annual base
salary of $200,004 with a pro-rated bonus opportunity for 1996 to earn up to
80% of base salary if certain pre-established net income criteria are met by
the Company. Bonus opportunities for 1997, and later years, will be reviewed
and approved by the Board or a committee of the Board. Under the terms of the
agreement, Mr. Botica was granted options to purchase 30,000 shares of Common
Stock at a purchase price of $25.00 per share of Common Stock.
Ms. Finkel entered into a four-year employment agreement with the Company
commencing on November 5, 1996. The agreement provides for an annual base
salary of $185,000 with a pro-rated bonus opportunity for 1996 to earn up to
80% of base salary if certain pre-established net income criteria are met by
the Company. Bonus opportunities for 1997, and later years, will be reviewed
and approved by the Board or a committee of the Board. Under the terms of the
agreement, Ms. Finkel was granted options to purchase 30,000 shares of Common
Stock at a purchase price of $25.00 per share of Common Stock.
Each of Mr. Botica's and Ms. Finkel's employment agreement provides for a
severance payment of 24 months' base salary, depending on the date of
severance, where termination is by the Company for any reason other than for
cause or by the executive upon breach by the Company of the agreement or for
good reason. In addition, 100% of all options and restricted stock awards held
by the executive will vest on such termination. A severance payment will not
be payable and options and restricted stock awards will not vest where
termination is by the Company for cause, by the executive for any reason other
than upon breach by the Company of the agreement or for good reason, or by
reason of the executive's retirement or death. Severance payments would be
made monthly. Each agreement also contains customary provisions providing for
the non-disclosure of confidential information and an agreement not to compete
with the Company for a period of 24 months after the termination of the
agreement.
AGREEMENT WITH FORMER EXECUTIVE OFFICER
The Company and Thomas P. Bradbury, who served as President, LANSystems
division, announced that Mr. Bradbury left the Company on October 11, 1996.
The Company and Mr. Bradbury entered into an agreement pursuant to which the
Company agreed to continue to pay Mr. Bradbury his salary through June 21,
1997, pay him a pro-rated bonus for 1996 and permit him to participate in
selected Company employee benefit plans through such date. The Company
recorded a charge of $300,000 in the third quarter of 1996 in respect of the
foregoing severance arrangement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During 1996, each of Rhonda I. Kochlefl, Chairman, President and Chief
Executive Officer, and Leo S. Spiegel, Senior Vice President and Chief
Technology Officer, were members of the Company's Board and participated in
deliberations concerning executive officer compensation.
REPORT ON EXECUTIVE COMPENSATION
1996 Compensation of Executive Officers
Prior to the IPO, the Company was a wholly-owned subsidiary of R.R.
Donnelley and the level of compensation for Ms. Kochlefl and Mr. Spiegel was
principally determined by the Human Resources Committee of R.R. Donnelley.
9
<PAGE>
After the IPO, each of Ms. Kochlefl, Mr. Spiegel, Mr. Botica and Ms. Finkel
was compensated pursuant to a four-year employment agreement with the Company
providing for a minimum annual base salary and a pro-rated bonus opportunity
for 1996 if certain pre-established 1996 net income criteria were met by the
Company. The agreements also set forth the number of options to purchase
shares of Common Stock granted in 1996 to the executive officers and, with
respect to Ms. Kochlefl, the number of shares of restricted Common Stock
granted in 1996. These grants were approved by the Human Resources Committee
of R.R. Donnelley. Each of Ms. Kochlefl's, Mr. Spiegel's, Mr. Botica's and Ms.
Finkel's agreements were approved by the Board in October 1996. The stock
options and awards of restricted Common Stock were also approved by the Board
in order to align the interests of management more closely with those of the
stockholders of the Company by increasing stock ownership by management and
tying a meaningful portion of compensation to the performance of Company
Common Stock.
Charles F. Moran became a member of the Board in March 1997. Accordingly, he
did not participate in compensation decisions made by the Board prior to that
date.
Compensation Policy Regarding Executive Officers
The Compensation Committee, whose current members are Mr. Moran and Mr.
Malina, is responsible for making decisions regarding the annual salary,
short-term cash and long-term stock incentive compensation, and other
compensation of executive officers, including the named executive officers. It
is expected that the Compensation Committee will make recommendations
regarding (i) the establishment of the target percentage of each executive
officer's total compensation package that is comprised of salary, short-term
cash and long-term stock incentive compensation, and other compensation, (ii)
the base salary of each executive officer, and (iii) the establishment of
performance criteria under annual and long-term awards that tie such awards to
Company performance. The Compensation Committee will also determine the size
and terms of any stock option or other stock-based awards made under the 1996
Plan and the 1997 Plan.
Tax laws limit the deduction a publicly-held corporation is allowed for
compensation paid to the chief executive officer and to the four most highly
compensated executive officers other than the chief executive officer.
Generally, amounts paid in excess of $1 million to a covered executive, other
than performance-based compensation, cannot be deducted. The Company will
consider ways to maximize the deductibility of executive compensation but has
reserved the right to compensate executive officers in a manner commensurate
with performance and the competitive environment for executive talent. As a
result, some portion of executive compensation paid to an executive officer
whose compensation is subject to the deduction limit of Section 162(m) may not
be deductible by the Company.
Compensation of Chairman
Prior to the IPO, the level of compensation of Ms. Kochlefl was principally
determined by the Human Resources Committee of R.R. Donnelley. After the IPO,
Ms. Kochlefl's 1996 compensation was determined in accordance with her
employment agreement with the Company, which became effective on November 5,
1996, the closing date of the IPO. As stated above, the terms of Ms.
Kochlefl's employment agreement were determined by the Human Resources
Committee of R.R. Donnelley and were approved by the Board in October 1996.
Under the employment agreement, Ms. Kochlefl was paid an annualized base
salary of $300,000 with a pro-rated bonus opportunity for 1996 to earn up to
100% of base salary if certain pre-established 1996 net income criteria were
met by the Company. In 1996, such minimum net income criteria were not met
and, therefore, Ms. Kochlefl did not receive a bonus.
Under her employment agreement, Ms. Kochlefl was granted options to purchase
60,000 shares of Common Stock. In addition, in 1996 Ms. Kochlefl was granted
5,000 shares of restricted Common Stock. As stated above, the stock options
and award of restricted Common Stock were approved by the Board in order to
align the
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interests of Ms. Kochlefl more closely with those of the stockholders of the
Company by increasing her stock ownership and tying a meaningful portion of
her compensation to the performance of Company Common Stock.
This report has been prepared by the following members of the Compensation
Committee:
Charles F. Moran
Daniel I. Malina
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of the
Company's Common Stock from October 31, 1996 (the date that trading in the
Common Stock commenced on the Nasdaq Stock Market's National Market) to
December 31, 1996 with: (a) the Nasdaq National Market Index; (b) a Peer Group
Index.
COMPARISON OF TWO MONTH CUMULATIVE TOTAL RETURN AMONG DONNELLEY ENTERPRISE
SOLUTIONS INC., THE NASDAQ MARKET INDEX AND A PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF TWO MONTH CUMULATIVE TOTAL RETURN
AMONG THE NASDAQ MARKET INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
Measurement Period Donnelley Enterprise The NASDAQ
(Fiscal Year Covered) Solutions Inc., Market Index PEER GROUP
- --------------------- -------------------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt-
10/31/96 $100.00 $100.00 $100.00
FYE 11/31/96 $100.50 $106.22 $ 97.68
FYE 12/31/96 $ 98.00 $105.11 $ 90.36
</TABLE>
The Peer Group Index consists of Accustaff Inc., Alternative Resources
Corp., American Management Systems, Cambridge Technology Partners, First Data
Corporation, International Network Services, Lason Inc., and Renaissance
Solutions, Inc. The cumulative total returns of each company have been
weighted according to each company's stock market capitalization as of
December 31, 1996.
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CERTAIN TRANSACTIONS
Prior to the IPO, the Company was a wholly-owned subsidiary of R.R.
Donnelley. While a wholly-owned subsidiary, the Company funded its operations
and capital expenditures through advances from R.R. Donnelley and by selling
certain accounts receivable to a subsidiary of R.R. Donnelley. Approximately
$20.3 million of the net proceeds of the IPO to the Company were used in final
payment of amounts owed by the Company to R.R. Donnelley. As of December 31,
1996, the Company had approximately $6.4 million in outstanding indebtedness
to R.R. Donnelley, which includes both the fees related to the Transition
Services Agreement and the Benefit Administration Services Agreement described
below, as well as amounts funded by R. R. Donnelley on behalf of the Company
as specified in the Transition Services Agreement, and R.R. Donnelley owned
42.8% of the Common Stock outstanding. In addition, Messrs. Malina and Tyler,
who are directors of the Company, are employees of R.R. Donnelley. Mr. Malina
is the Vice President, Corporate Development and Mr. Tyler is the Executive
Vice President and Sector President, Information Management Sector.
The Company sells information technology services and products to R.R.
Donnelley. These sales approximated $2,038,000 for the twelve-month period
ended December 31, 1996.
Prior to the IPO, the Company obtained certain services from R.R. Donnelley,
participated in a number of employee benefit plans maintained by R.R.
Donnelley and was included as part of R.R. Donnelley's federal income tax and
certain other tax returns. In connection with the IPO, the Company entered
into certain agreements with R.R. Donnelley relating to these matters. None of
these agreements resulted from "arm's length" negotiations.
Pursuant to a Transition Services Agreement between the Company and R.R.
Donnelley, R.R. Donnelley or its affiliates have agreed to perform certain
legal, tax, data processing, risk management, credit and collection, cash
management and banking and accounts payable services for the Company. The
Transition Services Agreement will be in effect until December 31, 1997,
except with respect to tax services, the provision of which will end on
January 31, 1998, and cash management and banking services, the provision of
which ends March 31, 1997. The Company has the right to terminate certain
services provided under the Transition Services Agreement upon 30 days'
notice. Total payments by the Company to R.R. Donnelley for services performed
pursuant to the Transition Services Agreement were approximately $66,000 in
fiscal 1996.
Pursuant to a Benefit Administration Services Agreement between the Company
and R.R. Donnelley, (i) R.R. Donnelley permitted the Company to continue to
participate in the Donnelley Deferred Compensation and Voluntary Savings Plan
and certain welfare plans of R.R. Donnelley until December 31, 1996; and (ii)
the Company ceased being a participant in all other R.R. Donnelley plans in
which it participated, including the R.R. Donnelley stock purchase plan.
The Benefit Administration Services Agreement provided that the Company
would reimburse R.R. Donnelley for (i) certain costs of benefits provided
under R.R. Donnelley's employee benefit plans for Company employees during the
period in which the Company continued to participate in such plans following
the IPO and (ii) the Company's pro rata share of administration and plan asset
management expenses incurred in the operation of these plans during such
period. During fiscal 1996, the Company paid R.R. Donnelley approximately
$543,500 pursuant to the Benefit Administration Services Agreement.
Prior to the IPO, the Company was included in the consolidated federal
income tax return of R.R. Donnelley and filed on a combined basis with R.R.
Donnelley in certain states. Thus, rather than paying income taxes directly in
these jurisdictions, the Company made tax sharing payments to R.R. Donnelley
pursuant to R.R. Donnelley's tax allocation policy. In general, R.R.
Donnelley's tax allocation policy provided that the consolidated or combined
tax liability was allocated among the entities in the consolidated or combined
group based principally upon taxable income, credits, preferences and other
amounts directly related to each entity. Upon completion of the IPO, the
Company no longer was permitted to be included in such consolidated and
combined tax returns. Instead, it began to file its own federal, state and
local income tax returns and pay its own
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<PAGE>
taxes on a separate company basis. Pursuant to a Tax Allocation and
Indemnification Agreement between the Company and R.R. Donnelley, however, the
Company remained obligated to pay to R.R. Donnelley any income taxes shown on
such consolidated and combined tax returns, generally to the extent
attributable to the Company, for calendar year 1995 and for the tax period
(the "Interim Period") beginning on January 1, 1996 and ending on November 4,
1996 (to the extent that it has not previously paid such amounts to R.R.
Donnelley). Under federal regulations, the Company will be subject to several
liability for the consolidated federal income taxes for any tax year
(including the Interim Period) in which it was a member of the R.R. Donnelley
federal consolidated group (whether or not such taxes are attributable to the
Company). R.R. Donnelley has agreed to indemnify the Company against such
liability and any similar liability under state and local law. R.R. Donnelley
has also agreed to indemnify the Company against any increase in the Company's
taxes (whether or not related to taxes paid on a consolidated or combined
basis) for periods ending on or prior to the date of completion of the IPO
that results from an action of a taxing authority or a court (except to the
extent such increase provides tax benefits to the Company for periods
beginning after such date, in which case the sum of such tax benefits will be
retained by R.R. Donnelley or paid by the Company to R.R. Donnelley). During
fiscal 1996, the Company did not pay any amounts to R.R. Donnelley pursuant to
the Tax Allocation and Indemnity Agreement.
2. APPROVAL OF THE 1997 NON-EMPLOYEE DIRECTOR STOCK PLAN
GENERAL
The Board is proposing the 1997 Plan for stockholder approval. The Board
believes that the ownership of Common Stock by directors supports the
maximization of long-term stockholder value by aligning the interests of
directors with those of stockholders. The 1997 Plan is designed to facilitate
the ownership of Common Stock by non-employee directors by providing for the
grant of stock options to non-employee directors. The Board adopted the 1997
Plan on March 10, 1997, subject to approval by the stockholders at the
Meeting. Reference is made to Exhibit A to this Proxy Statement for the full
text of the 1997 Plan, which is summarized below.
DESCRIPTION OF THE 1997 PLAN
Administration. The 1997 Plan will be administered by the Compensation
Committee. Subject to the express provisions of the 1997 Plan, the
Compensation Committee has the authority to interpret and construe the 1997
Plan and to adopt rules and regulation for administering the 1997 Plan.
Available Shares. 75,000 shares of Common Stock will be available for the
award of shares and the grant of stock options under the 1997 Plan, subject to
adjustment in the event of stock splits, stock dividends or changes in
corporate structure affecting Common Stock. To the extent a stock option
granted under the 1997 Plan expires or terminates unexercised, the shares of
Common Stock allocable to the unexercised portion of such option will be
available for awards under the 1997 Plan. In addition, to the extent that
shares are delivered (either actually or by attestation) to pay all or a
portion of an option exercise price, such shares will become available for
awards under the 1997 Plan.
Change in Control. In the event (i) a person (subject to certain exceptions)
becomes the beneficial owner of 50% or more of the voting power of the
Company's outstanding securities, (ii) during any period of twenty-four
consecutive months beginning on November 5, 1996, individuals who at the
beginning of such period constitute the Board and any new director whose
election was approved by at least two-thirds of the directors still in office
who either were directors at the beginning of the period or whose election was
previously so approved, cease to constitute a majority of the Board, (iii) the
stockholders approve a merger or consolidation with any other corporation
(unless the Company's stockholders and any employee benefit plan of the
Company receives 50% or more of the voting the stock of the surviving company
or unless the merger or consolidation implements a recapitalization in which
no person acquires more than 50% of the combined voting power of the Company's
outstanding securities) or the stockholders approve a complete liquidation of
the Company or a sale of all or substantially all of the Company's assets, all
options will be fully and immediately exercisable.
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<PAGE>
Effective Date, Termination and Amendment. If the stockholders approve the
1997 Plan, it will become effective as of the date of such approval. The 1997
Plan will terminate when shares of Common Stock are no longer available under
the 1997 Plan, unless terminated earlier by the Board. The Board may amend the
1997 Plan at any time except that no amendment may be made without stockholder
approval if stockholder approval would be required by applicable law, rule or
regulation or such amendment would increase the maximum number of shares of
Common Stock available under the 1997 Plan.
Stock Options. On the date of the Meeting (or, if later, on the date on
which a person is first elected or begins to serve as a non-employee director)
each person who is a non-employee director immediately after the Meeting will
be granted an option to purchase 5,000 shares of Common Stock. On the date of
each annual meeting subsequent to the Meeting, each person who is a non-
employee director after such annual meeting shall be granted an option to
purchase 5,000 shares of Common Stock, provided that such person has served as
a director for at least nine months prior to such annual meeting.
The exercise price per share of all stock options granted under the 1997
Plan will be 100% of the fair market value per share of Common Stock on the
grant date, defined as the average between the highest and lowest sale prices
per share on The Nasdaq Stock Market on such date. Options granted under the
1997 Plan are not exercisable in the calendar year in which such options are
granted. Thereafter, one third of such Options become exercisable on each of
the first, second and third January 1 occurring after their date of grant.
Options granted under the 1997 Plan may be exercised until the tenth
anniversary of the date of grant. Options may be exercised either by the
payment of cash in the amount of the aggregate option price or by surrendering
(or attesting to ownership of) shares of Common Stock owned by the participant
for at least six months prior to the date the option is exercised, or a
combination of both, having a combined value equal to the aggregate option
price of the shares subject to the option or the portion of the option being
exercised. Any option or portion thereof that is not exercised on or before
the tenth anniversary of the date of grant will expire.
Options granted under the 1997 Plan will not be transferable by the
participant other than by court order, will or the laws of descent and
distribution, unless such transferability is permitted under Rule 16b-3 of the
Exchange Act and will be exercisable during the participant's lifetime only by
the participant or the participant's guardian, legal representative or similar
person.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain U.S. federal income tax
consequences generally arising with respect to grants under the 1997 Plan.
The grant of an option under the 1997 Plan will not result in income for the
participant or in a deduction for the Company. The exercise of an option will
generally result in compensation income for the participant and a deduction
for the Company, in each case measured by the difference between the exercise
price and the fair market value of the shares at the time of exercise.
The receipt of shares of Common Stock under the 1997 Plan will generally
result in compensation income for the participant and a deduction for the
Company, based on the fair market value of the shares on the date awarded.
The affirmative vote of the holders of a majority of the shares present in
person or by proxy at the Meeting and entitled to vote on the proposal to
approve the 1997 Plan is required to approve the 1997 Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE DONNELLEY ENTERPRISE
SOLUTIONS INCORPORATED 1997 NON-EMPLOYEE DIRECTOR STOCK PLAN.
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<PAGE>
3. APPROVAL OF THE AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
The Board is proposing the 1996 Plan for stockholder approval. In connection
with the IPO, the Board adopted and R.R. Donnelley, as the Company's then sole
stockholder, approved the 1996 Plan and the Donnelley Enterprise Solutions
Incorporated 1996 Broad-Based Employee Stock Plan. Under those plans, an
aggregate of 400,000 shares of Common Stock were available primarily for the
grant of incentive compensation awards in connection with the IPO. On March
17, 1997, the Board adopted an amendment to the 1996 plan providing for an
additional 100,000 shares of Common Stock to be available for incentive
compensation awards under the 1996 Plan. None of the additional 100,000 shares
of Common Stock that will be available under the 1996 Plan will be used for
grants to executive officers of the Company. The proposal to approve the 1996
Plan, as so amended, is being submitted to stockholder for the purpose of
satisfying the stockholder approval requirement for performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). If stockholder approval of the 1996 Plan is not
obtained, the amendment providing for an additional 100,000 shares of Common
Stock to be available under the 1996 Plan will not become effective. Reference
is made to Exhibit B to this Proxy Statement for the full text of the 1996
Plan, which is summarized below.
The purpose of the 1996 Plan is to provide incentives to management and
other persons through rewards based upon the ownership or performance of the
Common Stock. Under the 1996 Plan, the Company may grant options to purchase
Common Stock, including "incentive stock options" within the meaning of
section 422 of the Code, restricted stock, stock units and cash awards.
DESCRIPTION OF THE 1996 PLAN
Administration. The 1996 Plan is administered by the Compensation Committee.
Subject to the express provisions of the 1996 Plan, Compensation Committee has
the authority to select eligible officers and other key management employees
or agents of, and consultants and advisors to, the Company, its subsidiaries
and any other entity designated by the Board or the Compensation Committee in
which the Company has a direct or indirect equity interest, for participation
in the 1996 Plan and determine all of the terms and conditions of each grant
and award. Each grant and award will be evidenced by a written agreement
containing such provisions not inconsistent with the 1996 Plan as the
Compensation Committee shall approve. The Compensation Committee has the
authority to prescribe rules and regulations for administering the 1996 Plan
and to decide questions of interpretation of any provision of the 1996 Plan.
Except with respect to grants to officers of the Company who are subject to
Section 16 of the Exchange Act or a person whose compensation is likely to be
subject to the $1 million deduction limit under section 162(m) of the Code
(described below under "Federal Income Tax Consequences"), the Compensation
Committee may delegate some or all of its power and authority to administer
the 1996 Plan to the Chairman or other executive officer of the Company.
Available Shares. As described above, 400,000 shares of Common Stock are
currently available for incentive compensation awards under the 1996 Plan and
the 1996 Broad-Based Employee Stock Plan. If the proposal is approved by
stockholders, an additional 100,000 shares of Common Stock will be available
under the 1996 Plan. The total 500,000 shares of Common Stock that would be
available under the 1996 Plan would be reduced by the number of shares of
Common Stock subject to stock options granted under the 1996 Broad-Based
Employee Stock Plan. The number of shares available under the 1996 Plan is
subject to adjustment in the event of a stock split, stock dividend,
recapitalization, reorganization, merger or other similar event or change in
the Company's capitalization. In general, shares subject to a grant or award
which for any reason are not issued or delivered, including by reason of the
expiration, termination, cancellation or forfeiture of all or a portion of a
grant or award or by reason of the delivery or withholding of shares to pay
all or a portion of the exercise price of an option or to satisfy tax
withholding obligations, will again be available under the 1996 Plan. The
maximum number of shares of Common Stock with respect which (i) options may be
granted during any three-year period to any person is 150,000, and (ii) fixed
awards in the form of restricted Common Stock may be granted under the 1996
Plan is 100,000 in the aggregate, in each case subject to adjustment in the
event of a stock split, stock dividend, recapitalization, reorganization,
merger or other similar event or change in the Company's capitalization.
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Change in Control. In the event (i) a person (subject to certain exceptions)
becomes the beneficial owner of 50% or more of the voting power of the
Company's outstanding securities, (ii) during any period of twenty-four
consecutive months beginning on November 5, 1996, individuals who at the
beginning of such period of twenty-four consecutive months beginning on
November 5, 1996, individuals who at the beginning of such period constitute
the Board and any new director whose election was approved by at least two-
thirds of the directors still in office who either were directors at the
beginning of the period or whose election was previously so approved, cease to
constitute a majority of the Board or (iii) the stockholders approve a merger
or consolidation with any other corporation (unless the Company's stockholders
and any employee benefit plan of the Company receive 50% or more of the voting
stock of the surviving company or unless the merger or consolidation
implements a recapitalization in which no person acquires more than 50% of the
combined voting power of the Company's outstanding securities) or the
stockholders approve a complete liquidation of the Company or sale of all or
substantially all of the Company's assets, all options will be fully and
immediately exercisable, the highest level of achievement will be deemed to be
met with respect to performance awards of restricted Common Stock, stock units
or cash and such performance awards will be fully and immediately vested and
the period of continued employment for all fixed awards of restricted Common
Stock, stock units or cash will be deemed completed and such fixed awards will
be fully and immediately vested.
Effective Date, Termination and Amendment. The 1996 Plan became effective on
November 5, 1996, the date of the closing of the IPO. If the 1996 Plan, as
amended and restated, is approved by stockholders, the proposal to make an
additional 100,000 shares of Common Stock available under the 1996 Plan will
become effective as of the date of stockholder approval. The 1996 Plan will
terminate when shares of Common Stock are no longer available under the 1996
Plan, unless terminated earlier by the Board. The Board may amend the 1996
Plan at any time except that no amendment may be made without stockholder
approval if stockholder approval would be required by applicable law, rule or
regulation or such amendment would increase the maximum number of shares of
Common Stock available under the 1996 Plan.
Stock Options. The period for the exercise of a non-qualified stock option
and the option exercise price will be determined by the Compensation
Committee; provided that the option exercise price will not be less than the
fair market value of a share of Common Stock on the date of grant.
No incentive stock option will be exercisable more than ten years after its
date of grant, unless the recipient of the incentive stock option owns greater
than ten percent of the voting power of all shares of capital stock of the
Company (a "ten percent holder"), in which case the option will be exercisable
for no more than five years after its date of grant. If the recipient of an
incentive stock option is a ten percent holder, the option exercise price will
be the price required by the Code, currently 110% of fair market value.
Upon exercise, an option exercise price may be paid in cash or by the
deliver of previously owned shares of Common Stock, as determined by the
Compensation Committee. In the event of termination of employment by reason of
retirement or total and permanent disability, each option will be exercisable
to the extent set forth in the agreement evidencing such option for a period
of no more than five years after the date of such termination of employment,
but in no event after the expiration of such option. In the event of
termination of employment by reason of death or any reason other than
retirement or total and permanent disability, each option will be exercisable
to the extent set forth in the agreement evidencing such option for a period
of 90 days after the date of death or date of such termination of employment,
but in no event after the expiration of such option.
Performance Awards and Fixed Awards. Under the 1996 Plan, bonus awards,
whether performance awards or fixed awards, may be made in the form of (i)
cash, whether in an absolute amount or as a percentage of compensation, (ii)
stock units, each of which is substantially the equivalent of a share of
Common Stock but for the power to vote and, subject to the Compensation
Committee's discretion, the entitlement to an amount equal to dividends or
other distributions otherwise payable on a like number of shares of Common
Stock and (iii) shares of Common Stock issued to the eligible person but
forfeitable and with restrictions on transfer.
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Performance awards may be made in terms of a stated potential maximum dollar
amount, percentage of compensation or number of units or shares, with the
actual such amount, percentage or number to be determined by reference to the
level of achievement of corporate, business unit, division, individual or
other specific objectives over a performance period of not less than one nor
more than ten years, as determined by the Compensation Committee. Fixed awards
are not contingent on the achievement of specific objectives, but are
contingent on the participant's continuing in the Company's employ for a
period specified in the award.
If shares of restricted Common Stock are subject to a bonus award, the
participant will have the right, unless and until such award is forfeited or
unless otherwise determined by the Compensation Committee at the time of
grant, to vote the shares and to receive dividends thereon from the date of
grant and the right to participate in any capital adjustment applicable to all
holders of Common Stock; provided, however, that a distribution with respect
to shares of Common Stock, other than regular quarterly cash dividend, shall
be deposited with the Company and shall be subject to the same restrictions as
the shares of Common Stock with respect to which such distribution was made.
Upon termination of any applicable restriction period, including, if
applicable, the satisfaction or achievement of applicable performance
objectives, a certificate evidencing ownership of the shares of Common Stock
will be delivered to the holder of such award.
If stock units are credited to a participant pursuant to a bonus award,
then, subject to the Compensation Committee's discretion, amounts equal to
dividends and other distributions otherwise payable on a like number of shares
of Common Stock after the crediting of the units will be credited to an
account for the participant and held until the award is forfeited or paid out.
Interest shall be credited on the account annually at a rate equal to the
return on five-year U.S. Treasury obligations.
The Compensation Committee may provide for early vesting of an award in the
event of the participant's death, permanent and total disability or
retirement. At the time of vesting, (i) the award, if in units, will be paid
to the participant either in shares of Common Stock equal to the number of
units, in cash equal to the fair market value of such shares or in such
combination thereof as the Compensation Committee determines, and the
participant's account to which dividend equivalents, other distributions and
interest have been credited will be paid in cash, (ii) the award, if a cash
bonus award, will be paid to the participant either in cash, in shares of
Common Stock with a then fair market value equal to the amount of such award
or in such combination thereof as the Compensation Committee determines and
(iii) shares of restricted Common Stock issued pursuant to an award will be
released from the restrictions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the U.S. federal income tax
consequences generally arising with respect to grants and awards under the
1996 Plan.
Stock Options. A participant will not recognize any income upon the grant of
a stock option. A participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding) upon exercise of a non-
qualified stock option equal to the excess of the fair market value of the
shares purchased over their exercise price, and the Company will be entitled
to a corresponding deduction. A participant will not recognize any income
(except for purposes of the alternative minimum tax) upon exercise of an
incentive stock option. If the shares acquired by exercise of an incentive
stock option are held for the longer of two years from the date the option was
granted and one year from the date it was exercised, any gain or loss arising
from a subsequent disposition of such shares will be as long-term capital gain
or loss, and the Company will not be entitled to any deduction. If, however,
such shares are disposed of within such period, then in the year of such
disposition the participant will recognize compensation taxable as ordinary
income equal to the excess of the lesser of the excess of (A) either (i) the
amount realized upon such disposition and (ii) the fair market value of such
shares on the date of exercise, over (B) the exercise price, and the Company
will be entitled to a corresponding deduction.
Restricted Common Stock and Stock Units. A participant will not recognize
any income at the time of the grant of shares of restricted Common Stock
(unless the participant makes an election to be taxed at the time the
17
<PAGE>
restricted Common Stock is granted) or stock units, and the Company will not
be entitled to a tax deduction at such time. A participant will recognize
compensation taxable as ordinary income at the time the restrictions lapse on
restricted Common Stock (if such election was not made) and stock units in an
amount equal to the excess of the fair market value of the shares or units at
such time over the amount, if any, paid for such shares or units. The amount
of ordinary income recognized by a participant is deductible by the Company as
compensation expense, except to the extent the deduction limit of section
162(m) of the Code (described below) applies. In addition, a participant
receiving dividends with respect to restricted Common Stock for which the
above-described election has not been made and prior o the time the
restrictions lapse will recognize compensation taxable as ordinary income
(subject to income tax withholding), rather than dividend income, in an amount
equal to the dividends paid and the Company will be entitled to a
corresponding deduction, except to the extent the deduction limit of section
162(m) of the Code applies. A participant will recognize compensation taxable
as ordinary income (subject to income tax withholding) when amounts
attributable to stock units are paid (or made available) and the Company will
be entitled to a corresponding deduction, except to the extent the deduction
limit of section 162(m) of the Code applies.
Cash Bonus Awards. A participant will not recognize any income upon the
grant of a bonus award payable in cash and the Company will be entitled to a
tax deduction at such time. At the time such award is paid (or made
available), the participant will recognize compensation taxable as ordinary
income (subject to income tax withholding) in an amount equal to any cash paid
by the Company, and the Company will be entitled to a corresponding deduction,
except to the extent the deduction limit of section 162(m) of the Code
applies.
Section 162(m) of the Code. Section 162(m) of the Code generally limits to
$1 million the amount that a publicly held corporation is allowed each year to
deduct for the compensation paid to each of the corporation's chief executive
officer and the corporation's four most highly compensated executive officers
other than the chief executive officer. However, "performance-based"
compensation is not subject to the $1 million deduction limit. Based on
certain regulations issued by the U.S. Department of the Treasury, certain
compensation under the 1996 Plan, such as that payable with respect to
options, is not expected to be subject to the $1 million deduction limit, but
other compensation payable under the 1996 Plan, such as any restricted Common
Stock award which is not subject to a performance condition to vesting, would
be subject to such limit.
DETERMINABLE PLAN BENEFITS
The following table sets forth information regarding all awards granted
under the 1996 Plan during 1996. On January 31, 1997, the closing sale price
of the Common Stock, as reported in the Nasdaq National Market Issues was
$23.75 per share.
AMENDED AND RESTATED DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
1996 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
DOLLAR NUMBER
POSITION VALUE ($) OF UNITS
- -------- --------- --------
<S> <C> <C>
Rhonda I. Kochlefl........................................ $ -- 60,000(1)
125,000 5,000(2)
Leo S. Spiegel............................................ -- 40,000(1)
Thomas P. Bradbury........................................ -- --
Luke F. Botica............................................ -- 30,000(1)
Linda A. Finkel........................................... -- 30,000(1)
David J. Shea............................................. -- 15,000(1)
Executive officers as a group (6 persons)................. 125,000 180,000
All employees as a group, excluding executive officers
(314 persons)............................................ -- 123,550(3)
</TABLE>
- --------
(1) Represents options to purchase shares of Common Stock granted on the
closing date of the IPO. The option exercise price per share is $25.00.
(2) Represents shares of restricted Common Stock granted on the closing date
of the IPO. The dollar value is based on the closing price of the Common
Stock on the date of grant.
(3) Represents options to purchase shares of Common Stock granted on the
closing date of the IPO. The option exercise price per share for the
options granted on the closing date of the IPO is $25.00.
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<PAGE>
The affirmative vote of the holders of a majority of the shares present in
person or by proxy at the Meeting and entitled to vote on the proposal to
approve the 1996 Plan is required to approve the 1996 Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED AND RESTATED
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED 1996 STOCK INCENTIVE PLAN.
4. APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Board is proposing the Stock Purchase Plan for stockholder approval. The
purpose of the Stock Purchase Plan is to encourage and facilitate the purchase
of Common Stock by eligible employees of the Company and to provide an
additional incentive to promote the best interests of the Company and an
additional opportunity to participate in its economic progress. The Stock
Purchase Plan was adopted by the Board on March 17, 1997, and if approved by
the stockholders, will become effective July 1, 1997 or such later date as
shall be determined by the Board or the Compensation Committee. Reference is
made to Exhibit C to this Proxy Statement for the full text of the Stock
Purchase Plan which is summarized below.
DESCRIPTION OF THE STOCK PURCHASE PLAN
Administration, Amendment and Termination. The Stock Purchase Plan will be
administered by the Compensation Committee. Subject to the express provisions
of the Stock Purchase Plan, the Compensation Committee will have complete
authority to interpret the Stock Purchase Plan, to prescribe, amend and
rescind rules and regulations relating to it and to make all other
determinations necessary or advisable for the administration of the Stock
Purchase Plan. The Board or the Compensation Committee may at any time, and
from time to time, amend the Stock Purchase Plan in any respect, except that,
without stockholder approval, no amendment may be made changing the number of
shares to be reserved under the Stock Purchase Plan (unless certain changes
occur in the Company's capital structure as described in the Stock Purchase
Plan), or that would otherwise require stockholder approval under applicable
law.
The Stock Purchase Plan will terminate upon the purchase by participants of
all shares that may be issued under the Stock Purchase Plan or any earlier
time in the discretion of the Board.
Eligibility. In general, any employee of the Company is eligible to
participate in the Stock Purchase Plan as of the effective date of the Stock
Purchase Plan if such employee has been continuously employed by the Company
for at least one year (a "Participant"). Under the Stock Purchase Plan, the
Purchase Period begins on such date as shall be determined by the Board or the
Compensation Committee, provided it is after the 1997 Annual Meeting, and on
the first day of each calendar quarter thereafter. Approximately 537 employees
would have been eligible to participate in the Stock Purchase Plan as of March
1, 1997.
Available Shares. The maximum number of shares of Common Stock available for
purchase under the Stock Purchase Plan will be 200,000 shares, subject to
adjustment in the event of certain change to the Company's capital structure,
as described in the Stock Purchase Plan. Notwithstanding anything to the
contrary in the Stock Purchase Plan, no employee can purchase Common Stock
under the Stock Purchase Plan if such employee, immediately after the grant of
the option, would own stock (including shares then purchasable under the Stock
Purchase Plan) possessing five percent or more of the total combined voting
power or value of all classes of issued and outstanding stock of the Company.
In addition, no Participant can purchase Common Stock under the Stock Purchase
Plan and all other employee stock purchase plans (within the meaning of
section 423 of the Code) of the Company with an aggregate fair market value
(determined as of the beginning of each Purchase Period) in excess of $25,000
per calendar year.
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<PAGE>
Stock Purchases. Prior to the first day of each Purchase Period for which an
employee is eligible to participate in the Stock Purchase Plan, an employee
may file an election specifying his or her chosen rate of payroll deduction
contributions. Under the Stock Purchase Plan, an employee may elect to make
payroll deduction contributions in an amount equal to a whole percentage not
less than one and not more than ten percent of the employee's compensation (as
defined in the Stock Purchase Plan) for each payroll period, beginning with
the first pay date which occurs on or after the entry date as of which such
employee commences participation in the Stock Purchase Plan.
The Compensation Committee will cause to be established a separate "Purchase
Account" on behalf of each Participant to hold payroll deduction contributions
made under the Stock Purchase Plan. Subject to a Participant's right of
abandonment described below, the balance of each Participant's Purchase
Account will be applied on the last day of each Purchase Period to purchase
the number of whole shares of Common Stock determined by dividing the balance
of such Participant's Purchase Account as of such date by the Purchase Price.
The "Purchase Price" under the Stock Purchase Plan is, with respect to a
Purchase Period, will be determined by the Compensation Committee, provided,
however, that such price will be between 85% and 100% of the fair market value
of a share of Common Stock on the last day of such Purchase Period.
Following each Purchase Date, the Company will purchase or issue Common
Stock (including, at the option of the Company, shares issued out of
treasury), in its sole discretion, on behalf of each Participant.
FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the Stock Purchase Plan qualifies under section
423 of the Code as an employee stock purchase plan. Under section 423 the
Participant does not recognize any taxable income at the time Common Stock is
purchased under the Stock Purchase Plan. The following is a brief summary of
certain of the U.S. federal income tax consequences generally arising with
respect to purchases made under the Stock Purchase Plan.
If a Participant disposes of shares of Common Stock within two years after
the first day of the Purchase Period during which such shares were purchased
(a "disqualifying disposition"), the Participant will recognize compensation
taxable as ordinary income (and subject to tax withholding) in the amount of
the excess of the fair market value of such shares over the Purchase Price of
such shares. The Participant's cost basis in the shares will be increased by
the amount of such ordinary compensation income. If the amount realized upon
such disposition exceeds the Participant's cost basis in the shares of Common
Stock (as so increased), the Participant will recognize capital gain in the
amount of the difference between the amount realized and such adjusted cost
basis. Under current tax law, gain on capital assets held for less than one
year is treated as "short-term" capital gain which is not eligible for certain
preferential tax treatment afforded "long-term" capital gain. In the event the
amount realized is less than the cost basis in the shares of Common Stock (as
so increased), the Participant will recognize capital loss from such
disposition in the amount of the difference between the adjusted cost basis
and the amount realized.
If a Participant disposes of shares of Common Stock two years or more after
the first day of the Purchase Period during which such shares were purchased
(a "disqualifying disposition"), the tax treatment will be different. The
Participant will recognize compensation taxable as ordinary income in the
amount of the lesser of (i) the excess of the fair market value of the shares
for such date over the Purchase Price, and (ii) the excess of the amount
realized from such disposition over the Purchase Price of the shares. The
Participant's costs basis in the shares of Common Stock will be increased by
the amount of such ordinary compensation income. In addition, the Participant
will recognize long-term capital gain equal to the difference (if any) between
the amount realized upon such disposition and the cost basis in the shares (as
so increased). In the event the amount realized from such disposition is less
than the Purchase Price, the Participant will recognize long-term capital loss
in the amount of the difference between the Purchase Price and the amount
realized.
The Company will not be entitled to a deduction for any excess of the fair
market value of the shares of Common Stock over the Purchase Price, except to
the extent the Participant recognizes ordinary compensation income upon a
disqualifying disposition.
20
<PAGE>
The affirmative vote of the holders of a majority of the shares present in
person or by proxy at the 1997 Annual Meeting and entitled to vote on the
proposal to approve the Stock Purchase Plan is required to approve the Stock
Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE DONNELLEY
ENTERPRISE SOLUTIONS INCORPORATED 1997 EMPLOYEE STOCK PURCHASE PLAN.
INDEPENDENT AUDITORS
The Company has not selected its independent public accountants for the year
ending December 31, 1997. It is expected that this selection will be made at
the meeting of the Board to be held May 7, 1997, after the Audit Committee has
reviewed the audit proposal for such year. After such review, the Audit
Committee will recommend the selection of accountants for 1997 to the Board,
which will make the final selection.
Arthur Andersen LLP served as the Company's independent auditors for fiscal
1996. Representatives of that firm are expected to appear at the Annual
Meeting, will have an opportunity to make a statement, if they wish to do so,
and will be available to answer appropriate questions from stockholders at
that time.
OTHER MATTERS
The Board knows of no other business which will be presented for action at
the Meeting other than those items identified in the Notice of Annual Meeting
of Stockholders. If other matters properly come before the Meeting by the
Board of Directors, it is intended that proxies will be voted at the Meeting
in accordance with the best judgment of the person or persons exercising the
authority conferred by such proxies.
STOCKHOLDER PROPOSALS
The Company currently contemplates that the 1998 Annual Meeting of
Stockholders will be held in May 1998. Stockholder proposals intended to be
presented at that meeting must be received by the Company not later than
December 1, 1997, at its principal executive office, Attention: Rhonda I.
Kochlefl, Chairman, in order to be considered for inclusion in the Company's
proxy statement and form of proxy relating to that annual meeting.
The Company's By-laws provide that stockholders seeking to bring business
before a meeting of stockholders, or to nominate candidates for election as
directors at a meeting of stockholders, must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive office of the Company, by the
Chairman, not less than 60 days nor more than 90 days prior to the scheduled
meeting (or, if less than 70 days' notice of the meeting is given or make to
stockholders, not later than the close of business on the tenth day following
the earlier of (i) the day on which such notice of the date of the meeting was
mailed, or (ii) the day on which public disclosure of the date of such meeting
was made). The notice is required to contain certain information about the
nominee or proposal and the stockholder making the nomination or proposal. A
nomination or proposal that does not comply with the above procedure will be
disregarded.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies on behalf of the Board will be borne by
the Company. In addition to the solicitation of proxies by mail, the Company
may request banks, brokers and other custodians, nominees and fiduciaries to
solicit their customers who have stock of the Company registered in the names
of a nominee, and, if so, will reimburse such banks, brokers and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket costs.
Solicitation by officers and employees of the Company may also be made of some
stockholders may in person or by mail, telephone, or facsimile following the
original solicitation.
By Order of the Board of Directors
/s/ Rhonda I. Kochlefl
Rhonda I. Kochlefl
Chairman, President and Chief
Executive Officer
Chicago, Illinois
March 31, 1997
21
<PAGE>
EXHIBIT A
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
1997 NON-EMPLOYEE DIRECTOR STOCK PLAN
AS OF
MAY 7, 1997
1. PURPOSE OF THE PLAN. The purpose of the Donnelley Enterprise Solutions
Incorporated 1997 Non-Employee Director Stock Plan is to promote the long-term
growth of the Corporation by increasing the proprietary interest of Non-
Employee Directors in the Corporation and to attract and retain highly
qualified and capable Non-Employee Directors.
2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
"AWARD" means an award granted to a Non-Employee Director under the Plan
in the form of Options or Shares, or any combination thereof.
"BOARD" means the Board of Directors of the Corporation.
"CORPORATION" means Donnelley Enterprise Solutions Incorporated.
"FAIR MARKET VALUE" means, with respect to any date, the average between
the highest and lowest sale prices per Share on The Nasdaq Stock Market on
such date, provided that if there shall be no sale of Shares reported on
such date, the Fair Market Value of a Share on such date shall be deemed to
be equal to the average between the highest and lowest sale prices per
Share on The Nasdaq Stock Market for the last preceding date on which sales
of Shares were reported.
"OPTION" means an option to purchase Shares awarded under Section 8 which
does not meet the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended, or any successor law.
"OPTION GRANT DATE" means the date as of which an Option is granted to a
Non-Employee Director.
"OPTIONEE" means a Non-Employee Director of the Corporation to whom an
Option has been granted or, in the event of such Non-Employee Director's
death prior to the expiration of an Option, such Non-Employee Director's
executor, administrator, beneficiary or similar person, or, in the event of
a transfer permitted by Section 7 hereof, such permitted transferee.
"NON-EMPLOYEE DIRECTOR" means a director of the Corporation who is not an
employee of the Corporation or any subsidiary of the Corporation.
"PLAN" means the Donnelley Enterprise Solutions Incorporated 1997 Non-
Employee Director Stock Plan, as amended and restated from time to time.
"SHARES" means shares of the Common Stock, par value $.01 per share, of
the Corporation.
"STOCK OPTION AGREEMENT" means a written agreement between a Non-Employee
Director and the Corporation evidencing an Option.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
or a committee of the Board designated by the Board ("Committee"). Each member
of the Committee shall be a "Non-Employee Director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
The Board or Committee, as applicable, shall have full power and authority
to interpret and construe the Plan and adopt such rules and regulations as it
shall deem necessary and advisable to implement and administer the Plan. All
such interpretations, rules and regulations shall be conclusive and binding on
all parties. A majority of the Board or Committee, as applicable, shall
constitute a quorum. The acts of the Board or Committee shall be either (i)
acts of a majority of the members of the Board or Committee present at any
meeting at which a quorum is present or (ii) acts approved in writing by all
of the members of the Board or Committee without a meeting.
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4. AWARDS UNDER THE PLAN. Awards in the form of Options shall be granted to
a Non-Employee Directors in accordance with Section 8. Each Option granted
under the Plan shall be evidenced by a Stock Option Agreement.
5. ELIGIBILITY. Non-Employee Directors of the Corporation shall be eligible
to participate in the Plan in accordance with Section 8.
6. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section
11, the aggregate number of Shares which may be issued or delivered upon the
award of Shares and the exercise of Options shall not exceed 75,000 Shares. To
the extent that Shares subject to an outstanding Option are not issued or
delivered by reason of the expiration, termination, cancellation or forfeiture
of such Option or by reason of the delivery of Shares (either actually or by
attestation) to pay all or a portion of the exercise price of such Option,
then such Shares shall again be available under the Plan. Shares of Common
Stock to be issued may be authorized and unissued Shares, treasury Shares or a
combination thereof.
7. NON-TRANSFERABILITY OF OPTIONS. No Option shall be transferable other
than (i) by will, the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Corporation or (ii) as
otherwise set forth in the agreement relating to such Option. Each Option may
be exercised during the Optionee's lifetime only by the Optionee or the
Optionee's guardian, legal representative or similar person. Except as
permitted by the second preceding sentence, no Option may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any Option, such Option
and all rights thereunder shall immediately become null and void.
8. NON-ELECTIVE OPTIONS. Each Non-Employee Director shall be granted
Options, subject to the following terms and conditions:
TIME OF GRANT. On the date of the 1997 annual meeting of stockholders (or,
if later, on the date on which a person is first elected or begins to serve as
a Non-Employee Director), each person who is a Non-Employee Director
immediately after such annual meeting shall be granted an Option to purchase
5,000 Shares. On the date of each annual meeting subsequent to the 1997 annual
meeting of stockholders each person who is a Non-Employee Director immediately
after such annual meeting shall be granted an Option to purchase 5,000 shares;
provided, that such person has served as as a director of the Company for at
least nine months prior to such annual meeting.
PURCHASE PRICE. The purchase price per Share under each Option granted
pursuant to this Section 8 shall be 100% of the Fair Market Value per Share on
the Option Grant Date.
EXERCISE OF OPTIONS. Subject to Section 9, each Option shall not be
exercisable during the calendar year in which such Option is granted.
Thereafter, such Option may be exercised: (i) on or after the first January 1
occurring after its date of grant, for up to one-third of the Shares subject
to such Option on its date of grant, (ii) on or after the second January 1
occurring after its date of grant, for up to an additional one-third (two-
thirds on a cumulative basis) of the Shares subject to such Option on its date
of grant and (iii) on or after the third January 1 occurring after its date of
grant, for up to the remaining one-third (all Shares on a cumulative basis) of
the Shares subject to such Option on its date of grant. No Option shall be
exercised later than ten years after the Option Grant Date. An Option may be
exercised during the Optionee's continued service as a Non-Employee Director,
and, unless otherwise determined by the Board or Committee, as applicable, as
set forth in the Stock Option Agreement relating to the Option, for a period
not in excess of ninety days following termination of service as a Non-
Employee Director, and only within the original term of the Option; provided,
however, that if service by the Optionee as a Non-Employee Director shall have
terminated by reason of retirement or total and permanent disability, then the
Option may be exercised to the extent set forth in the Stock Option Agreement
relating to the Option for a period not in excess of five years following
termination of service as a Non-Employee Director, but not after the
expiration of the term of the Option. In the event of the death of an Optionee
(i) while serving as a Non-Employee Director, (ii) within a period not in
excess of five years after termination of service
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as a Non-Employee Director by reason of retirement or total and permanent
disability or (iii) within ninety days after termination of service as a Non-
Employee Director for any other reason, each outstanding Option held by such
Optionee at the time of death may be exercised to the extent set forth in the
Stock Option Agreement relating to the Option by the executor, administrator,
personal representative, beneficiary or similar persons of such deceased
Optionee within ninety days of the date of death. An exercisable Option, or
portion thereof, may be exercised only with respect to whole Shares.
An Option may be exercised (i) by giving written notice to the Corporation
specifying the number of whole Shares to be purchased and accompanied by
payment therefor in full (or arrangement made for such payment to the
Corporation's satisfaction) either (A) in cash, (B) in previously owned whole
Shares (which the Optionee has held for at least six months prior to delivery
of such Shares or which the Optionee purchased on the open market and for
which the Optionee has good title free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of
exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Corporation to whom
the Optionee has submitted an irrevocable notice of exercise or (D) a
combination of (A) and (B) and (ii) by executing such documents as the
Corporation may reasonably request. The Board or Committee, as applicable,
shall have sole discretion to disapprove of an election pursuant to any of
clauses (B)-(D). Any fraction of a Share which would be required to pay such
purchase price shall be disregarded and the remaining amount due shall be paid
in cash by the Optionee. No certificate representing Shares shall be delivered
until the full purchase price therefor has been paid.
9. CHANGE IN CONTROL. If while any Option is outstanding--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Corporation or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit
plan of the Corporation or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the stockholders of
the Corporation in substantially the same proportions as their ownership of
stock of the Corporation) (hereinafter a "Person") is or becomes the
beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Corporation (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates, excluding an acquisition
resulting from the exercise of a conversion or exchange privilege in
respect of outstanding convertible or exchangeable securities) representing
50% or more of the combined voting power of the Corporation's then
outstanding securities; or
(b) during any period of twenty-four (24) consecutive months (not
including any period prior to the effective date of the Plan), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into
any agreement with the Corporation to effect a transaction described in
Clause (a), (c) or (d) of this Section 9) whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds ( 2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority thereof; or
(c) the stockholders of the Corporation approve a merger or consolidation
of the Corporation with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an employee benefit
plan of the Corporation, at least 50% of the combined voting power of the
voting securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Corporation
(or similar transaction) in which no Person acquires more than 50% of the
combined voting power of the Corporation's then outstanding securities; or
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(d) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or disposition
by the Corporation of all or substantially all the Corporation's assets,
(any of such events being hereinafter referred to as a "Change in
Control"),
then from and after the date on which public announcement of the acquisition
of such percentage shall have been made, or the date on which the change in
the composition of the Board set forth above shall have occurred, or the date
of any such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Corporation's assets as
described above occurs (the applicable date being hereinafter referred to as
the "Acceleration Date"), all Options, whether or not then exercisable in
whole or in part, shall be fully and immediately exercisable.
10. AMENDMENT AND TERMINATION. The Plan may be amended or terminated by the
Board in any respect except that no amendment may be made without stockholder
approval if stockholder approval is required by applicable law, rule or
regulation. No amendment may impair the rights of an Optionee without the
consent of such Optionee.
11. ADJUSTMENTS. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular
cash dividend, the number and class of securities available under the Plan,
the number and class of securities subject to each outstanding Option and the
purchase price per security shall be appropriately adjusted by the Board or
Committee, as applicable, such adjustments to be made in the case of
outstanding Options without an increase in the aggregate purchase price. If
any such adjustment would result in a fractional security being (i) available
under the Plan, such fractional security shall be disregarded, or (ii) subject
to an outstanding Option, the Corporation shall pay the holder thereof, in
connection with the first exercise of such Option in whole or in part
occurring after such adjustment, an amount in cash determined by multiplying
(i) the fraction of such security (rounded to the nearest hundredth) by (ii)
the excess, if any, of (A) the Fair Market Value on the date of such exercise
over (B) the exercise price of such Option.
12. RESTRICTIONS ON SHARES. Each grant made hereunder shall be subject to
the requirement that if at any time the Corporation determines that the
listing, registration or qualification of Shares subject thereto upon any
securities exchange, quotation system or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of Shares thereunder, such Shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the
Corporation. The Corporation may require that certificates evidencing Shares
delivered pursuant to any grant made hereunder bear a legend indicating that
the sale, transfer or other disposition thereof by the holder is prohibited
except in compliance with the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
13. RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder
of the Corporation with respect to any Shares or other equity security of the
Corporation which are subject to a grant hereunder unless and until such
person becomes a stockholder of record with respect to such Shares or equity
security.
14. GOVERNING LAW. The Plan, each grant hereunder and any related Stock
Option Agreement, and all determinations made and actions taken pursuant
thereto, to the extent not otherwise governed by the laws of the United
States, shall be governed by the laws of the State of Delaware and construed
in accordance therewith without giving effect to principles of conflicts of
laws.
15. EFFECTIVE DATE. The Plan shall be submitted to the stockholders of the
Corporation for approval and, if approved, shall become effective as of the
date of such approval. The Plan shall terminate when Shares are no longer
available under the Plan unless terminated prior thereto by action of the
Board. No further grants shall be made under the Plan after termination, but
termination shall not affect the rights of any participant under any grants
made prior to termination.
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EXHIBIT B
AMENDED AND RESTATED
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
1996 STOCK INCENTIVE PLAN
AS OF
MAY 7, 1997
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of Donnelley Enterprise
Solutions, Inc. (the "Company"), the Committee hereinafter designated, may
grant cash or bonus awards, stock options, or combinations thereof, to
eligible persons, on the terms and subject to the conditions stated in the
Plan. For purposes of the Plan, references to employment by the Company also
mean employment by a majority-owned subsidiary of the Company and employment
by any other entity designated by the Board or the Committee in which the
Company has a direct or indirect equity interest.
2. Eligibility. Officers and other key management employees of, agents of,
consultants to and advisors to, the Company, its majority-owned subsidiaries,
and any other entity designated by the Board or the Committee in which the
Company has a direct or indirect equity interest, shall be eligible, upon
selection by the Committee, to receive cash or bonus awards or stock options,
either singly or in combination, as the Committee, in its discretion, shall
determine.
3. Limitation on Shares to be Issued. Subject to adjustment as provided in
Section 5 of this Article I, 500,000 shares of common stock ("common stock")
shall be available under the Plan, reduced by (i) the aggregate number of
shares of common stock which become subject to outstanding stock options under
the terms of the Donnelley Enterprise Solutions Incorporated 1996 Broad-Based
Employee Stock Plan, and (ii) the aggregate number of shares of common stock
which become subject to outstanding bonus awards and stock options under this
Plan. Shares subject to a grant or award under either the Donnelley Enterprise
Solutions Incorporated 1996 Broad-Based Employee Stock Plan or this Plan which
for any reason are not issued or delivered, including by reason of the
expiration, termination, cancellation or forfeiture of all or a portion of the
grant or award or by reason of the delivery or withholding of shares to pay
all or a portion of the exercise price or to satisfy tax withholding
obligations, shall again be available for future grants and awards hereunder.
For the purpose of complying with Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the rules and regulations thereunder,
the maximum number of shares of common stock with respect to which options may
be granted during any three-year period to any person shall be 150,000,
subject to adjustment as provided in Section 5 of this Article I. The maximum
number of shares of common stock with respect to which fixed awards in the
form of restricted stock may be granted hereunder is 100,000 in the aggregate,
subject to adjustment as provided in Section 5 of this Article I.
Shares of common stock to be issued may be authorized and unissued shares of
common stock, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a Committee
designated by the Board of Directors (the "Committee"). Each member of the
Committee shall be (i) an "outside director" within the meaning of Section
162(m) of the Code and (ii) a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee shall, subject to the terms of the Plan, select
eligible persons for participation; determine the form of each grant and
award, either as cash, a bonus award or stock options or a combination
thereof; and determine the number of shares or units subject to the grant or
award, the fair market value of the common stock or units when necessary, the
time and conditions of vesting, exercise or settlement, and all other terms
and conditions of each grant and award, including, without limitation, the
form of instrument evidencing the grant or award. The Committee may establish
rules and regulations for the administration of the Plan, interpret the Plan,
and impose, incidental to a grant or award, conditions with respect to
competitive employment or other activities not inconsistent with the
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Plan. All such rules, regulations, interpretations and conditions shall be
conclusive and binding on all parties. Each grant and award shall be evidenced
by a written instrument and no grant or award shall be valid until an
agreement is executed by the Company and the recipient thereof and, upon
execution by each party and delivery of the agreement to the Company, such
grant or award shall be effective as of the effective date set forth in the
agreement.
The Committee may delegate some or all of its power and authority hereunder
to the Chairman or other executive officer of the Company as the Committee
deems appropriate; provided, however, that the Committee may not delegate its
power and authority with regard to (i) the selection for participation in the
Plan of (A) an employee who is a "covered employee" within the meaning of
Section 162(m) of the Code or who, in the Committee's judgment, is likely to
be a covered employee at any time during the period a grant or award hereunder
to such employee would be outstanding or (B) an officer or other person
subject to Section 16 of the Exchange Act or (ii) decisions concerning the
timing, pricing or amount of a grant or award to such an employee, officer or
other person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by all of the members of the Committee without a meeting.
5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular
cash dividend, the number and class of securities available under the Plan,
the number and class of securities subject to each outstanding bonus award,
the number and class of securities subject to each outstanding stock option
and the purchase price per security shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding stock
options without a change in the aggregate purchase price. If any such
adjustment would result in a fractional security being (i) available under the
Plan, such fractional security shall be disregarded, or (ii) subject to an
outstanding grant or award under the Plan, the Company shall pay the holder
thereof, in connection with the first vesting, exercise or settlement of such
grant or award in whole or in part occurring after such adjustment, an amount
in cash determined by multiplying (i) the fraction of such security (rounded
to the nearest hundredth) by (ii) the excess, if any, of (A) the fair market
value on the date of such vesting, exercise or settlement over (B) the
exercise price, if any, of such grant or award.
6. Effective Date and Term of Plan. The Plan, as amended and restated, shall
be submitted to the stockholders of the Company for approval and, if approved,
shall become effective as of the date of such approval. The Plan shall
terminate when shares of common stock are no longer available under the Plan
unless terminated prior thereto by action of the Board. No further grants or
awards shall be made under the Plan after termination, but termination shall
not affect the rights of any participant under any grants or awards made prior
to termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect except that no amendment may be made without stockholder approval if
stockholder approval is required by applicable law, rule or regulation,
including Section 162(m) of the Code, or such amendment would increase
(subject to Section 5 of this Article I) the maximum number of shares
available under the Plan. No amendment may impair the rights of a holder of an
outstanding grant or award without the consent of such holder.
II. BONUS AWARDS
1. Form of Award. Bonus awards, whether performance awards or fixed awards,
may be made to eligible persons in the form of (i) cash, whether in an
absolute amount or as a percentage of compensation, (ii) stock units, each of
which is substantially the equivalent of a share of common stock but for the
power to vote and, subject to the Committee's discretion, the entitlement to
an amount equal to dividends or other distributions
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otherwise payable on a like number of shares of common stock, (iii) shares of
common stock issued to the eligible person but forfeitable and with
restrictions on transfer in any form as hereinafter provided or (iv) any
combination of the foregoing.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or
shares, with the actual such amount, percentage or number to be determined by
reference to the level of achievement of corporate, sector, business unit,
division, individual or other specific objectives over a performance period of
not less than one nor more than ten years, as determined by the Committee. No
rights or interests of any kind shall be vested in an individual receiving a
performance award until the conclusion of the performance period and the
determination of the level of achievement specified in the award, and the time
of vesting, if any, thereafter shall be as specified in the award.
3. Fixed Awards. Awards may be made which are not contingent on the
achievement of specific objectives, but are contingent on the participant's
continuing in the Company's employ for a period specified in the award.
4. Rights with Respect to Restricted Shares. If shares of restricted common
stock are subject to an award, the participant shall have the right, unless
and until such award is forfeited or unless otherwise determined by the
Committee at the time of grant, to vote the shares and to receive dividends
thereon from the date of grant and the right to participate in any capital
adjustment applicable to all holders of common stock; provided, however, that
a distribution with respect to shares of common stock, other than a regular
quarterly cash dividend, shall be deposited with the Company and shall be
subject to the same restrictions as the shares of common stock with respect to
which such distribution was made.
During the restriction period, a certificate or certificates representing
restricted shares shall be registered in the holder's name and may bear a
legend, in addition to any legend which may be required under applicable laws,
rules or regulations, indicating that the ownership of the shares of common
stock represented by such certificate is subject to the restrictions, terms
and conditions of the Plan and the agreement relating to the restricted
shares. All such certificates shall be deposited with the Company, together
with stock powers or other instruments of assignment (including a power of
attorney), each endorsed in blank with a guarantee of signature if deemed
necessary or appropriate, which would permit transfer to the Company of all or
a portion of the shares of common stock subject to the award in the event such
award is forfeited in whole or in part. Upon termination of any applicable
restriction period, including, if applicable, the satisfaction or achievement
of applicable objectives, and subject to the Company's right to require
payment of any taxes, a certificate or certificates evidencing ownership of
the requisite number of shares of common stock shall be delivered to the
holder of such award.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, then, subject to the Committee's discretion,
amounts equal to dividends and other distributions otherwise payable on a like
number of shares of common stock after the crediting of the units (unless the
record date for such dividends or other distributions precedes the date of
grant of such award) shall be credited to an account for the participant and
held until the award is forfeited or paid out. Interest shall be credited on
the account annually at a rate equal to the return on five year U.S. Treasury
obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion,
provide for early vesting of an award in the event of the participant's death,
permanent and total disability or retirement, or such other circumstances as
the Committee may specify. At the time of vesting, (i) the award, if in units,
shall be paid to the participant either in shares of common stock equal to the
number of units, in cash equal to the fair market value of such shares, or in
such combination thereof as the Committee shall determine, and the
participant's account to which dividend equivalents, other distributions and
interest have been credited shall be paid in cash, (ii) the award, if a cash
bonus award, shall be paid to the participant either in cash, or in shares of
common stock with a then fair market value equal to the amount of such award,
or in such combination thereof as the Committee shall determine and (iii)
shares of restricted common stock issued pursuant to an award shall be
released from the restrictions.
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III. STOCK OPTIONS
1. Grants of Options. Options to purchase shares of common stock may be
granted to such eligible persons as may be selected by the Committee. These
options may, but need not, constitute "incentive stock options" under Section
422 of the Code or any other form of option under the Code. To the extent that
the aggregate fair market value (determined as of the date of grant) of shares
of common stock with respect to which options designated as incentive stock
options are exercisable for the first time by a participant during any
calendar year (under the Plan or any other plan of the Company, or any parent
or subsidiary) exceeds the amount (currently $100,000) established by the
Code, such options shall not constitute incentive stock options.
2. Number of Shares and Purchase Price. The number of shares of common stock
subject to an option and the purchase price per share of common stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of common stock shall not
be less than 100% of the fair market value of a share of common stock on the
date of grant of the option; provided further, that if an incentive stock
option shall be granted to any person who, on the date of grant of such
option, owns capital stock possessing more than ten percent of the total
combined voting power of all classes of capital stock of the Company (or of
any parent or subsidiary) (a "Ten Percent Holder"), the purchase price per
share of common stock shall be the price (currently 110% of fair market value)
required by the Code in order to constitute an incentive stock option.
3. Exercise of Options. The period during which options granted hereunder
may be exercised shall be determined by the Committee; provided, however, that
no incentive stock option shall be exercised later than ten years after its
date of grant; provided further, that if an incentive stock option shall be
granted to a Ten Percent Holder, such option shall not be exercisable more
than five years after its date of grant. The Committee may, in its discretion,
establish performance measures which shall be satisfied or met as a condition
to the grant of an option or to the exercisability of all or a portion of an
option. The Committee shall determine whether an option shall become
exercisable in cumulative or non-cumulative installments and in part or in
full at any time. An exercisable option, or portion thereof, may be exercised
only with respect to whole shares of common stock.
An option may be exercised (i) by giving written notice to the Company
specifying the number of whole shares of common stock to be purchased and
accompanied by payment therefor in full (or arrangement made for such payment
to the Company's satisfaction) either (A) in cash, (B) in previously owned
whole shares of common stock (which the optionee has held for at least six
months prior to delivery of such shares or which the optionee purchased on the
open market and for which the optionee has good title free and clear of all
liens and encumbrances) having a fair market value, determined as of the date
of exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise or (D) a combination
of (A) and (B) and (ii) by executing such documents as the Company may
reasonably request. The Committee shall have sole discretion to disapprove of
an election pursuant to any of clauses (B)-(D). Any fraction of a share of
common stock which would be required to pay such purchase price shall be
disregarded and the remaining amount due shall be paid in cash by the
optionee. No certificate representing common stock shall be delivered until
the full purchase price therefor has been paid.
4. Termination of Employment or Service. An option may be exercised during
the optionee's continued employment with the Company or during the optionee's
continued provision of services to the Company, and, unless otherwise
determined by the Committee as set forth in the agreement relating to the
option, for a period not in excess of ninety days following termination of
employment or the provision of services, as the case may be, and only within
the original term of the option; provided, however, that if employment of the
optionee by the Company or the provision of services by the optionee to the
Company shall have terminated by reason of retirement or total and permanent
disability, then the option may be exercised to the extent set forth in the
agreement relating to the option for a period not in excess of five years
following termination of employment or the provision of services, but not
after the expiration of the term of the option. In the event of the death of
an optionee (i) during employment or the term in which services are being
provided, (ii) within a period not in
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excess of five years after termination of employment or the term in which
services are being provided by reason of retirement or total and permanent
disability or (iii) within ninety days after termination of employment or the
term in which services are being provided for any other reason, outstanding
options held by such optionee at the time of death may be exercised to the
extent set forth in the agreement relating to the option by the executor,
administrator, personal representative, beneficiary or similar persons of such
deceased optionee within ninety days of the date of death.
IV. OTHER
1. Non-Transferability of Options. No option shall be transferable other
than (i) by will, the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as
otherwise set forth in the agreement relating to such option. Each option may
be exercised during the participant's lifetime only by the participant or the
participant's guardian, legal representative or similar person. Except as
permitted by the second preceding sentence, no option may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option, such award
and all rights thereunder shall immediately become null and void.
2. Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of common stock or the payment of any
cash pursuant to a grant or award hereunder, payment by the holder thereof of
any Federal, state, local or other taxes which may be required to be withheld
or paid in connection therewith. An agreement may provide that (i) the Company
shall withhold whole shares of common stock which would otherwise be delivered
to a holder, having an aggregate fair market value determined as of the date
the obligation to withhold or pay taxes arises in connection therewith (the
"Tax Date"), or withhold an amount of cash which would otherwise be payable to
a holder, in the amount necessary to satisfy any such obligation or (ii) the
holder may satisfy any such obligation by any of the following means: (A) a
cash payment to the Company, (B) delivery to the Company of previously owned
whole shares of common stock (which the holder has held for at least six
months prior to the delivery of such shares or which the holder purchased on
the open market and for which the holder has good title, free and clear of all
liens and encumbrances) having an aggregate fair market value determined as of
the Tax Date, (C) authorizing the Company to withhold whole shares of common
stock which would otherwise be delivered having an aggregate fair market value
determined as of the Tax Date or withhold an amount of cash which would
otherwise be payable to a holder, (D) in the case of the exercise of an
option, a cash payment by a broker-dealer acceptable to the Company to whom
the optionee has submitted an irrevocable notice of exercise or (E) any
combination of (A), (B) and (C); provided, however, that the Committee shall
have sole discretion to disapprove of an election pursuant to any of clauses
(B)-(E). An agreement relating to a grant or award hereunder may provide for
shares of common stock to be delivered or withheld having an aggregate fair
market value in excess of the minimum amount required to be withheld, but not
in excess of the amount determined by applying the holder's maximum marginal
tax rates. Any fraction of a share of common stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the holder.
3. Acceleration Upon Change in Control. If while any performance award or
fixed award granted under Article II or any stock option granted under Article
III is outstanding--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Company or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the
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Company (not including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its affiliates,
excluding an acquisition resulting from the exercise of a conversion or
exchange privilege in respect of outstanding convertible or exchangeable
securities) representing 50% or more of the combined voting power of the
Company's then outstanding securities; or
(b) during any period of twenty-four (24) consecutive months (not
including any period prior to the effective date of the Plan), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into
any agreement with the Company to effect a transaction described in Clause
(a), (c) or (d) of this Section) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds ( 2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets (any of such
events being hereinafter referred to as a "Change in Control"), then from
and after the date on which public announcement of the acquisition of such
percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date
of any such stockholder approval of a merger, consolidation, plan of
complete liquidation or an agreement for the sale of the Company's assets
as described above occurs (the applicable date being hereinafter referred
to as the "Acceleration Date"), (i) with respect to such performance
awards, the highest level of achievement specified in the award shall be
deemed met and the award shall be immediately and fully vested, (ii) with
respect to such fixed awards, the period of continued employment or
provision of services, as the case may be, specified in the award upon
which the award is contingent shall be deemed completed and the award shall
be immediately and fully vested and (iii) with respect to such options, all
such options, whether or not then exercisable in whole or in part, shall be
fully and immediately exercisable.
4. Restrictions on Shares. Each grant and award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of common stock subject
thereto upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company.
The Company may require that certificates evidencing shares of common stock
delivered pursuant to any grant or award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder
is prohibited except in compliance with the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
5. No Right of Participation or Employment. No person shall have any right
to participate in the Plan. Neither the Plan nor any grant or award made
hereunder shall confer upon any person any right to continued employment or
engagement for services by the Company, any subsidiary or any affiliate of the
Company or affect in any manner the right of the Company, any subsidiary or
any affiliate of the Company to terminate the employment or engagement for
services of any person at any time without liability hereunder.
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6. Rights as Stockholder. No person shall have any right as a stockholder of
the Company with respect to any shares of common stock or other equity
security of the Company which is subject to a grant or award hereunder unless
and until such person becomes a stockholder of record with respect to such
shares of common stock or equity security.
7. Governing Law. The Plan, each grant and award hereunder and the related
agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United
States, shall be governed by the laws of the State of Delaware and construed
in accordance therewith without giving effect to principles of conflicts of
laws.
8. Approval of Plan. The Plan, as amended and restated, and all grants and
awards made hereunder shall be null and void if the adoption of the Plan, as
amended and restated, is not approved by the stockholders of the Company.
9. Foreign Eligible Persons. Without amending this Plan, the Committee may
grant options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment
of the Committee be necessary or desirable to foster and promote achievement
of this Plan and, in furtherance of such purposes the Committee may make such
modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its subsidiaries operates or has
employees, agents, consultants or advisors.
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EXHIBIT C
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
1997 EMPLOYEE STOCK PURCHASE PLAN
AS OF
MAY 7, 1997
1. Purpose. The purpose of the Donnelley Enterprise Solutions Incorporated
1997 Employee Stock Purchase Plan (the "Plan") is to provide employees of
Donnelley Enterprise Solutions Incorporated, a Delaware corporation (the
"Company"), and its Subsidiary Companies (as defined below) added incentive to
remain employed by such companies and to encourage increased efforts to
promote the best interests of such companies by permitting eligible employees
to purchase common shares, par value $.01 per share, of the Company ("Common
Shares") at below-market prices. The Plan is intended to qualify as an
"employee stock purchase plan" under section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"). For purposes of the Plan, the term
"Subsidiary Companies" shall mean all corporations which are subsidiary
corporations (within the meaning of Section 424(f) of the Code) and of which
the Company is the common parent. The Company and its Subsidiary Companies
that, from time to time, adopt the Plan are sometimes hereinafter called
collectively the "Participating Companies."
2. Eligibility. Participation in the Plan shall be open to each employee of
the Participating Companies who has been continuously employed by the
Participating Companies for at least one year (an "Eligible Employee"). No
right to purchase Common Shares hereunder shall accrue under the Plan in favor
of any person who is not an Eligible Employee as of the first day of a
Purchase Period (as defined in Section 3). Notwithstanding anything contained
in the Plan to the contrary, no Eligible Employee shall acquire a right to
purchase Common Shares hereunder if (i) immediately after receiving such
right, such employee would own 5% or more of the total combined voting power
or value of all classes of stock of the Company or any Subsidiary Company
(including any stock attributable to such employee under section 424(d) of the
Code) or (ii) for any calendar year such right would permit such employee's
aggregate rights to purchase stock under all employee stock purchase plans of
the Company and its Subsidiary Companies exercisable during such calendar year
to accrue at a rate which exceeds $25,000 of fair market value of such stock
for such calendar year.
3. Effective Date of Plan; Purchase Periods. The Plan shall become effective
on such date as may be specified by the Board of Directors (the "Board") of
the Company or the Committee (as defined in Section 11), provided it is after
the 1997 Annual Meeting. The Plan shall cease to be effective unless, within
12 months before or after the date of its adoption by the Board, it has been
approved by the shareholders of the Company at a duly-called meeting of such
shareholders.
A "Purchase Period" shall consist of the three month period beginning on
each July 1, October 1, January 1, and April 1, each commencing on or after
the effective date and prior to termination of the Plan.
4. Basis of Participation. (a) Payroll Deduction. Each Eligible Employee
shall be entitled to enroll in the Plan as of the first day of any Purchase
Period which begins on or after such employee has become an Eligible Employee.
To enroll in the Plan, an Eligible Employee shall execute and deliver a
payroll deduction authorization (the "Authorization") to the Company or its
designated agent at the time and in the manner specified by the Company. The
executed Authorization shall become effective on the first day of the Purchase
Period following the day of delivery thereof to the Company or its designated
agent. Each Authorization shall direct that payroll deductions be made by the
employee's employer for each payroll period during which the employee is a
participant in the Plan. The amount of each payroll deduction specified in an
Authorization for each such payroll period shall be a whole percentage amount
determined by the Committee, unless otherwise determined by the Committee to
be a whole dollar amount, in either case not to exceed 10%, or such lesser
percentage as may be determined by the Committee, of the participant's base
rate of pay for the Purchase Period, determined on the first day of the
Purchase Period (before withholding or other deductions), paid to him or her
by any of the Participating Companies.
Payroll deductions (and any other amount paid under the Plan) shall be made
for each participant in accordance with such participant's Authorization until
such participant's participation in the Plan terminates, such participant's
Authorization is revised or the Plan terminates, all as hereinafter provided.
C-1
<PAGE>
A participant may change the amount of his or her payroll deduction
effective as of the first day of any Purchase Period by filing a new
Authorization with the Company or its designated agent at the time and in the
manner specified by the Committee. A participant may not change the amount of
his or her payroll deduction effective as of any date other than the first day
of a Purchase Period, except that a participant may elect to terminate his or
her participation in the Plan as provided in Section 7.
Payroll deductions for each participant shall be credited to a purchase
account established on behalf of the participant on the books of the
participant's employer or such employer's designated agent (a "Purchase
Account"). At the end of each Purchase Period, the amount in each
participant's Purchase Account will be applied to the purchase from the
Company of the number of Common Shares determined by dividing such amount by
the Purchase Price (as defined in Section 5) for such Purchase Period. No
interest shall accrue at any time for any amount credited to a Purchase
Account of a participant.
(b) Other Methods of Participation. The Committee may, in its discretion,
establish additional procedures whereby Eligible Employees may participate in
the Plan by means other than payroll deduction, including, but not limited to,
delivery of funds by participants in a lump sum or automatic charges to
participants' bank accounts. Such other methods of participating shall be
subject to such rules and conditions as the Committee may establish. The
Committee may at any time amend, suspend or terminate any participation
procedures established pursuant to this paragraph without prior notice to any
participant or Eligible Employee.
5. Purchase Price. The purchase price (the "Purchase Price") per Common
Share hereunder for any Purchase Period shall be determined by the Committee,
provided, however, that such price shall be between 85% and 100% of the fair
market value of a Common Share on the last day of such Purchase Period. If
such sum results in a fraction of one cent, the Purchase Price shall be
increased to the next higher full cent. The fair market value of a Common
Share on a given day shall be deemed to be the closing sale price per share
for the Common Shares on the New York Stock Exchange on such day or, if there
shall be no such sale of Common Shares on such day, then on the next preceding
day on which there shall have been such a sale. In no event, however, shall
the Purchase Price be less than the par value of the Common Shares.
6. Issuance of Shares. The Common Shares purchased by each participant shall
be considered to be issued and outstanding to such participant's credit as of
the close of business on the last day of each Purchase Period. The total
number of Common Shares purchased by all participants during each Purchase
Period shall be issued, as of the last day in such Purchase Period, to a
nominee or agent for the benefit of the participants. A participant will be
issued a certificate for his or her shares when his or her participation in
the Plan is terminated, the Plan is terminated or upon request, but in the
last case only in denominations of at least 25 shares; provided, however, that
no certificate shall be issued to a participant who is then employed by the
Company with respect to any shares which have been outstanding to such
participant's credit for less than two years.
After the close of each Purchase Period, a report will be sent to each
participant stating the entries made to such participant's Purchase Account,
the number of Common Shares purchased and the applicable Purchase Price. In
the event that the maximum number of Common Shares are purchased by the
participant for the Purchase Period and cash remains credited to the
participant's Purchase Account, such cash shall be delivered promptly to such
participant.
7. Termination of Participation. A participant may elect at any time to
terminate his or her participation in the Plan, provided such election is
received by the Company or its designated agent in writing prior to the date
specified by the Committee for termination of participation during the
Purchase Period for which such termination is to be effective. Upon any such
termination, the cash credited to such participant's Purchase Account on the
date of such termination, one or more certificates for the number of full
Common Shares held for his or her benefit, and the cash equivalent for any
fractional share so held shall be delivered promptly to such participant. Such
cash equivalent shall be determined by multiplying the fractional share by the
fair market value of a Common Share on the last day of the Purchase Period
immediately preceding such termination, determined as provided in Section 5.
C-2
<PAGE>
If the participant dies, terminates employment with the Participating
Companies for any reason, or otherwise ceases to be an Eligible Employee, such
participant's participation in the Plan shall immediately terminate. Upon such
terminating event, the cash credited to such participant's Purchase Account on
the date of such termination, one or more certificates for the number of full
Common Shares held for such participant's benefit, and the cash equivalent of
any fractional share so held, determined as provided above in this Section 7,
shall be delivered promptly to such participant or his or her legal
representative, as the case may be.
Notwithstanding anything herein to the contrary, if a participant sells,
assigns, transfers or otherwise disposes of any shares of Common Stock which
are purchased under the Plan within two years of the date of purchase of such
shares under the Plan, such participant shall automatically cease to be
eligible to participate in the Plan on the next eight Purchase Periods next
following the date on which the Company becomes aware of the most recent such
disposition. A participant who transfers shares to a trust or brokerage
account may restore such person's right to participate in the Plan by re-
registering such shares in the participant's name within three months of
notice from the Company and delivering a copy of the certificate representing
such re-registered shares to the Compensation and Employee Benefits department
of the Company.
8. Termination or Amendment of the Plan. The Company, by action of the Board
or the Committee, may terminate the Plan at any time, in which case notice of
such termination shall be given to all participants, but any failure to give
such notice shall not impair the effectiveness of the termination.
Without any action being required, the Plan shall terminate in any event
when the maximum number of Common Shares to be sold under the Plan (as
provided in Section 12) has been purchased. Such termination shall not impair
any rights which under the Plan shall have vested on or prior to the date of
such termination. If at any time the number of Common Shares remaining
available for purchase under the Plan are not sufficient to satisfy all then-
outstanding purchase rights, the Board or Committee may determine an equitable
basis of apportioning available Common Shares among all participants.
The Board or the Committee may amend the Plan from time to time in any
respect for any reason; provided, however, no such amendment shall (a)
materially adversely affect any purchase rights outstanding under the Plan
during the Purchase Period in which such amendment is to be effected, (b)
increase the maximum number of Common Shares which may be purchased under the
Plan, (c) decrease the Purchase Price of the Common Shares for any Purchase
Period below 85% of the fair market value thereof on the last day of such
Purchase Period or (d) adversely affect the qualification of the Plan under
section 423 of the Code.
Upon termination of the Plan, one or more certificates for the number of
full Common Shares held for each participant's benefit, the cash equivalent of
any fractional share so held, determined as provided in Section 7, and, except
as otherwise provided in Section 14, the cash, if any, credited to the such
participant's Purchase Account, shall be distributed promptly to such
participant.
9. Non-Transferability. Rights acquired under the Plan are not transferable
and may be exercised only by a participant.
10. Shareholder's Rights. No Eligible Employee or participant shall by
reason of the Plan have any rights of a shareholder of the Company until he or
she shall acquire Common Shares as herein provided.
11. Administration of the Plan. The Plan shall be administered by the
Compensation Committee of the Board of Directors of Donnelley Enterprise
Solutions Incorporated (the "Committee"). In addition to the power to amend or
terminate the Plan pursuant to Section 8, the Committee shall have full power
and authority to: (i) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (ii) establish such rules and
regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (iii) make any other determination and
take any other action that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee shall be final,
conclusive and binding upon all persons, including the Company, any
participant and any other employee of the Company. A majority of the members
of the Committee may determine its actions and fix the time and place of its
meetings.
C-3
<PAGE>
The Plan shall be administered so as to ensure that all participants have
the same rights and privileges as are provided by section 423(b)(5) of the
Code.
12. Maximum Number of Shares. The maximum number of Common Shares which may
be purchased under the Plan is 200,000 subject, however, to adjustment as
hereinafter set forth. Common Shares sold hereunder may be treasury shares,
authorized and unissued shares, or a combination thereof. If the Company
shall, at any time after the effective date of the Plan, change its issued
Common Shares into an increased number of shares, with or without par value,
through a stock dividend or a split-up of shares, or into a decreased number
of shares, with or without par value, through a combination of shares, then,
effective with the record date for such change, the maximum number of Common
Shares which thereafter may be purchased under the Plan and the maximum number
of shares which thereafter may be purchased during any Purchase Period shall
be the maximum number of shares which, immediately prior to such record date,
remained available for purchase under the Plan and Purchase Period
proportionately increased, in case of such stock dividend or split-up, or
proportionately decreased in case of such combination of shares.
13. Miscellaneous. Except as otherwise expressly provided herein, any
Authorization, election or notice under the Plan from an Eligible Employee or
participant shall be delivered to the Company or its designated agent and,
subject to any limitations specified in the Plan, shall be effective when so
delivered. The Plan, and the Company's obligation to sell and deliver Common
Shares hereunder, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approval by any regulatory or governmental
agency as may, in the opinion of counsel for the Company, be required.
14. Change in Control. In order to maintain the participants' rights in the
event of any Change in Control of the Company, as hereinafter defined, upon
such Change in Control the then current Purchase Period shall thereupon end,
and all participants' Purchase Accounts shall be applied to purchase shares
pursuant to Section 5, and the Plan shall immediately thereafter terminate.
"Change in Control" shall have the meaning assigned to such term in the
Donnelley Enterprise Solutions Incorporated Corporation 1996 Stock Incentive
Plan.
C-4
<PAGE>
PROXY BALLOT QUESTIONS:
1. Election of Directors
Nominees: Daniel I. Malina and Charles F. Moran
[_] FOR all nominees listed above
(except as marked to the contrary below)
[_] WITHHOLD AUTHORITY
to vote for all nominees listed above
-----------------------------------------------------------------------------
2. Approval of the Company's 1997 Non-Employee Director Stock Plan
[_] FOR[_] AGAINST[_] ABSTAIN
3. Approval of the Company's Amended and Restated 1996 Stock Incentive Plan
[_] FOR[_] AGAINST[_] ABSTAIN
4. Approval of the Company's 1997 Employee Stock Purchase Plan
[_] FOR[_] AGAINST[_] ABSTAIN
(To be signed on reverse side)
When properly executed, this proxy will be voted as directed. If no direction
is given, this proxy will be voted FOR Proposals 1, 2, 3 and 4 and in the
discretion of the proxies nominated hereby on any other business as may
properly come before the meeting.
Dated: ______________________ , 1997
------------------------------------
Signature
------------------------------------
Signature, if held jointly
Please sign exactly as your name
appears above. For joint accounts,
each owner should sign. When
signing as executor, administrator,
attorney, trustee or guardian,
etc., please give your full title.
