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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
(NAME OF SUBJECT COMPANY)
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
(NAMES OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
25786M 10 8
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RHONDA I. KOCHLEFL
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
161 NORTH CLARK STREET, SUITE 2400
CHICAGO, ILLINOIS 60601
(312) 419-7600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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WITH A COPY TO:
ANDREW L. WEIL, ESQ.
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 876-8000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Donnelley Enterprise Solutions
Incorporated, a Delaware corporation (the "Company"). The address of the
Company's principal executive offices is 161 North Clark Street, Suite 2400,
Chicago, Illinois 60601. The title of the class of company securities to which
this statement relates is the common stock, par value $.01 per share (the
"Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by Bowne & Co., Inc., a New York
corporation ("Parent"), and DESI Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated June 3, 1998 (the "Schedule 14D-1"), to
purchase all of the outstanding Shares at a price of $21.00 per Share, net to
the seller in cash, without interest (such price, or such higher amount per
Share as may be payable in the Offer, being referred to herein as the "Per Share
Amount"), upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated June 3, 1998 (the "Offer to Purchase"), and the related Letter
of Transmittal (which together constitute the "Offer"), which are filed as
Exhibits (a)(1) and (a)(2), respectively, to the Schedule 14D-1.
The Offer is being made pursuant to the terms of an Agreement and Plan of
Merger, dated as of May 27, 1998, by and among the Company, Parent and Purchaser
(the "Merger Agreement"). The Merger Agreement provides, among other things, for
the making of the Offer by Purchaser and further provides that, upon the terms
and subject to the conditions set forth in the Merger Agreement and in
accordance with applicable law, Purchaser will be merged with and into the
Company (the "Merger" and, together with the Offer, the "Transaction") as
promptly as practicable after the later of consummation of the Offer or, if
required by the Delaware General Corporation Law, as amended ("DGCL"), the
approval of the Merger Agreement by the stockholders of the Company. Following
the consummation of the Merger (the "Effective Time"), the Company will be the
surviving corporation (the "Surviving Corporation") and will be a wholly-owned
subsidiary of Parent. The Merger Agreement has been filed as Exhibit 1 hereto,
and is incorporated herein by reference.
The Offer is conditioned upon, among other things, that (i) at the
expiration of the Offer there shall have been validly tendered and not withdrawn
a number of Shares (including all Shares tendered pursuant to the Stockholders'
Agreement described below) which constitutes more than 50% of the voting power
(determined on a fully-diluted basis) on the date of purchase, of all the
securities of the Company entitled to vote generally in the election of
directors or in a merger (the "Minimum Condition") (for purposes of determining
at any time whether the Minimum Condition has been met, each outstanding Share
legally or beneficially owned by Parent or Purchaser or any of its affiliates at
the commencement of the Offer is deemed validly tendered under the Offer and not
withdrawn), and (ii) any and all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall have expired or been terminated (the "HSR Condition"). See "Merger
Agreement -- Conditions to the Offer".
Based on information in the Schedule 14D-1, each of Parent and Purchaser
has its principal executive offices at c/o Bowne & Co., Inc., 345 Hudson Street,
New York, New York 10014.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described below or incorporated by reference herein, to the
knowledge of the Company, as of the date hereof, there exists no material
contract, agreement, arrangement or understanding and no actual or potential
conflict of interest between the Company or its affiliates and (i) the Company,
its executive officers, directors or affiliates or (ii) Purchaser or its
executive officers, directors or affiliates.
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(1) Arrangements with Purchaser or its Executive Officers, Directors or
Affiliates.
Certain information with respect to certain contracts, agreements,
arrangements or understandings between the Company and Purchaser or certain of
its executive officers, directors or affiliates is set forth under the captions
"Board of Directors" and "Compensation and Other Information Concerning
Directors and Executive Officers" in the Information Statement of the Company
attached hereto as Annex I (the "Information Statement"), and is incorporated
herein by reference.
The following is a summary of certain provisions of (i) the Merger
Agreement, (ii) the Stockholders' Agreement, dated as of May 27, 1998, between
Parent and R.R. Donnelley & Sons Company ("R.R. Donnelley") (the "Stockholders'
Agreement") and (iii) the Confidentiality and Standstill Agreement, dated as of
March 19, 1998, between the Company, Parent, and Purchaser (the "Confidentiality
and Standstill Agreement"). Such summary does not purport to be complete and is
qualified in its entirety by reference to the full text of the Merger Agreement,
the Stockholders' Agreement and the Confidentiality and Standstill Agreement
which have been filed as Exhibits 1, 2 and 3, respectively, to this Schedule
14D-9, each of which is hereby incorporated herein by reference. The Merger
Agreement, the Stockholders' Agreement and the Confidentiality and Standstill
Agreement may be examined and a copy may be obtained at the place and in the
manner set forth in Section 7 of the Offer to Purchase. All capitalized terms
used and not otherwise defined herein have the meanings given to such terms in
the Merger Agreement.
MERGER AGREEMENT
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that, upon the terms and subject to prior satisfaction or waiver of
the conditions to the Offer, Purchaser will purchase all Shares validly tendered
pursuant to the Offer. The Merger Agreement provides that each of Parent and
Purchaser reserves the right, in its sole discretion, to waive any of the
conditions to the Offer and make any other changes to the terms of the Offer,
except that, without the written consent of the Company, Parent and the
Purchaser will not (i) amend or waive the Minimum Condition or the HSR
Condition, (ii) amend any other condition of the Offer set forth in the Merger
Agreement or in "-- Conditions to the Offer," (iii) reduce the Per Share Amount,
(iv) change the form of consideration to be paid in the Offer (other than by
adding cash consideration), (v) reduce the maximum number of Shares to be
purchased in the Offer or (vi) amend any other term of the Offer in a manner
which, in the reasonable judgment of the Company, is adverse to the holders of
Shares.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, subject to the Company's right to terminate the Merger Agreement as
described under the caption "-- Termination; Fees" below, (i) extend the Offer
on one or more occasions for up to ten business days for each such extension
beyond the then-scheduled expiration date (the initial scheduled expiration date
being 20 business days following commencement of the Offer), if at the
then-scheduled expiration date of the Offer any of the conditions to Purchaser's
obligation to accept for payment and pay for the Shares are not satisfied or
waived, until such time as such conditions are satisfied or waived (and, at the
request of the Company, Purchaser will, subject to Parent's right to terminate
the Merger Agreement as described under the caption "-- Termination; Fees"
below, extend the Offer for additional periods up to but not later than
September 30, 1998, unless the conditions not satisfied or earlier waived on the
then-scheduled expiration date are one or more of the Minimum Condition or the
conditions regarding (a) the accuracy of the Company's representations and
warranties and compliance by the Company with the covenants in the Merger
Agreement, (b) the termination of the Merger Agreement in accordance with its
terms, (c) the occurrence of any event that has had, or is likely to have, a
Material Adverse Effect, and (d)(i) the withdrawal, modification or amendment in
any manner adverse to Parent or Purchaser of the Board of Directors of the
Company's recommendation or approval of the Offer, the Merger and the Merger
Agreement or the approval or recommendation by the Board of Directors of any
takeover proposal other than the Offer and the Merger, (ii) the entering into by
the Company of a definitive agreement or agreement in principle with respect to
an alternative acquisition transaction involving the Company, or (iii) the Board
of Directors has resolved to do any of the foregoing, provided that (x) if the
only condition not satisfied is the Minimum Condition, the satisfaction or
waiver of all other conditions will have been publicly disclosed at least five
business days before termination of the Offer
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and (y) if the condition regarding the accuracy of the Company's representations
and warranties and compliance by the Company with the covenants in the Merger
Agreement or the condition regarding the occurrence of any event that has had,
or is likely to have, a Material Adverse Effect has not been satisfied and the
failure to so satisfy can be remedied, the Offer will not be terminated unless
the failure is not remedied within 30 calendar days after Parent has furnished
the Company with written notice of such failure), (ii) extend the Offer for any
period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission (the "Commission") or the staff thereof
applicable to the Offer and (iii) extend the Offer for an aggregate period of
not more than five business days beyond the latest expiration date that would
otherwise be permitted under clause (i) or (ii) of this sentence if there have
not been tendered sufficient Shares (i.e., resulting in Purchaser's ownership of
90% or more of the outstanding Shares) so that the Merger could be effected
without a meeting of the Company's stockholders. Subject to the terms of the
Offer, including the conditions set forth in "-- Conditions to the Offer" (and,
if the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Purchaser shall accept for payment and pay for all
Shares duly tendered at the earliest time it is permitted to do so under
applicable provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Conditions to the Offer. Notwithstanding any other provisions of the Offer,
and in addition to the Minimum Condition and the HSR Condition, Purchaser shall
not be required to accept for payment, or subject to applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), purchase or pay for any
Shares tendered pursuant to the Offer, may postpone the acceptance for payment
of Shares tendered, and subject to the terms and conditions of the Merger
Agreement may terminate the Offer if at any time on or after May 27, 1998 and at
or before the time of payment for any such Shares any of the following
conditions shall occur or has occurred:
(a) (x) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and correct in any material respect,
except (i) those representations and warranties that address matters only
as of a particular date (which shall be true and correct as of such date),
and (ii) where the failure of such representations and warranties to be
true and correct is not likely to result in a Material Adverse Effect, or
(y) the Company shall have breached in any material respect any covenants
contained in the Merger Agreement resulting in or likely to have a Material
Adverse Effect;
(b) there shall have been any statute, rule, regulation, judgment,
injunction or other order promulgated, enacted, entered, enforced or issued
by any federal or state governmental authority or agency or court of
competent jurisdiction in the United States which would have the effect of
(i) making the purchase of, or payment for, some or all of the Shares by
Parent or Purchaser or their affiliates pursuant to the Offer or the Merger
illegal; (ii) otherwise preventing consummation of the Offer or Merger;
(iii) prohibiting the ownership or operation by the Company or any of its
subsidiaries, or Parent or any of its subsidiaries, of all or any material
portion of the business or assets of the Company or any of its
subsidiaries, taken as a whole, or Parent or its subsidiaries, taken as a
whole; (iv) materially limiting the ownership or operation by the Company
or any of its subsidiaries, or Parent or any of its subsidiaries, of all or
any material portion of the business or assets of the Company or any of its
subsidiaries, taken as a whole, or Parent or its subsidiaries, taken as a
whole or compelling Parent or any of its subsidiaries to dispose of or hold
separate all or any material portion of the businesses or assets of the
Company or any of its significant subsidiaries (as defined in Regulation
S-X) or Parent or any of its significant subsidiaries (as defined in
Regulation S-X), as a result of the transactions contemplated by the Offer
or the Merger; (v) imposing limitations on the ability of Parent, Purchaser
or any of Parent's affiliates effectively to acquire or hold or to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote any Shares acquired or owned by Parent or Purchaser or any of
its affiliates on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any significant subsidiary (as defined in Regulation S-X),
directly or indirectly owned by the Company; or (vi) requiring divestiture
by Parent or Purchaser or any of their affiliates of any Shares; and, in
each case,
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no such action or proceeding seeking to do any of the foregoing shall be
instituted or pending by any governmental administrative or regulatory
authority;
(c) (i) the Board of Directors of the Company shall have withdrawn,
modified or amended in any manner adverse to Parent or Purchaser its
recommendation or approval of the Offer, the Merger or the Merger
Agreement, or approved or recommended any takeover proposal other than the
Offer and the Merger, (ii) any corporation, partnership, person or entity
shall have entered into a definitive agreement or an agreement in principle
with the Company with respect to an alternative acquisition transaction
involving the Company, or (iii) the Board of Directors of the Company shall
have resolved to do any of the foregoing (except that the foregoing shall
not apply to a change solely in the reasons for such recommendation so long
as the Board of Directors of the Company continues to recommend acceptance
of the Offer by all holders of the Shares);
(d) the Merger Agreement shall have been terminated by the Company,
Parent or Purchaser in accordance with its terms;
(e) there shall be instituted any action, proceeding or counterclaim
by a federal or state governmental authority or agency by or before any
court or governmental, administrative or regulatory agency or authority
which has or is likely to have any of the effects described in clause (b)
above; or
(f) there shall have occurred any event that has had, or is likely to
have, a Material Adverse Effect;
which, in the reasonable judgment of Purchaser, makes it inadvisable to proceed
with the Offer or with such acceptance for payment.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion. The foregoing conditions (other than the
Minimum Condition and the HSR Condition) may be waived by Purchaser in whole or
in part at any time and from time to time in its sole discretion. The failure by
Purchaser at any time to exercise any of the foregoing rights will not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and other circumstances will not be deemed a waiver with
respect to any other facts and circumstances, and each such right will be deemed
an ongoing right that may be asserted at any time and from time to time.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Delaware law, at the Effective Time, the Purchaser will be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the Surviving
Corporation. The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation of the Surviving Corporation, and the By-Laws of Company in effect
at the Effective Time will be the By-Laws of the Surviving Corporation. The
Merger Agreement provides that the directors of Purchaser immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office, subject to the applicable provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until their successors
shall be duly elected or appointed and shall duly qualify. At the Effective
Time, the officers of the Company immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
The respective obligations of the Company and the Purchaser, on the one
hand, and the Company, on the other hand, to effect the Merger are subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part, to the
extent permitted by applicable law: (i) the Purchaser must have purchased the
Shares pursuant to the Offer (provided that the purchase of Shares pursuant to
the Offer is not a condition to the obligations of Parent and Purchaser under
the Merger Agreement if the Purchaser fails to accept for payment and pay for
Shares pursuant to the Offer in violation of the terms thereof or of the Merger
Agreement), (ii) if necessary to effect the Merger, the Merger Agreement must
have been duly approved by the holders of Shares in accordance with the DGCL and
the Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and By-laws of the
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Company (provided that stockholder approval will not be a condition to the
obligations of Parent and Purchaser under the Merger Agreement if Parent fails
to comply with the provision of the Merger Agreement requiring Parent to vote or
cause to be voted the Shares owned by it in favor of the Merger and the Merger
Agreement), (iii) consummation of the Merger will not result in violation of any
applicable United States federal or state law providing for criminal penalties
or (iv) no preliminary or permanent injunction or other order issued by any
federal or state court of competent jurisdiction in the United States
prohibiting the consummation of the Merger is in effect.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are held in the treasury of the Company, any Shares
owned by Parent, the Purchaser or any direct or indirect subsidiary of Parent,
Purchaser or the Company (which Shares will be cancelled), or any Shares which
are held by stockholders exercising appraisal rights under Delaware law; see
Item 8 below) will be converted into the right to receive the Per Share Amount
in cash, without interest, less any withholding taxes required under applicable
law and (ii) each share of the Purchaser issued and outstanding immediately
prior to the Effective Time will be converted into one validly issued, fully
paid and non-assessable share of common stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly after the payment by Purchaser for the Shares tendered pursuant to the
Offer in accordance with the terms of the Merger Agreement, Parent will be
entitled to designate such number of directors on the Board of Directors of the
Company (the "Board of Directors" or "Board"), rounded to the nearest whole
number, as will give Purchaser representation on such Board equal to at least
the number of directors which equals the product of the total number of the
directors on such Board (after giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that such number of Shares so
owned and paid for by the Purchaser or an affiliate of Purchaser bears to the
number of Shares outstanding. Promptly after consummation of the Offer, the
Company will, upon request of Parent, use its best efforts promptly either to
increase the size of the Board of Directors or, at the Company's election,
secure the resignations of such number of its incumbent directors as is
necessary to enable Parent's designees to be so elected or appointed to the
Company's Board, and will cause Parent's designees to be so elected or
appointed. Notwithstanding the foregoing, until the Effective Time, the Company
and Parent will use all reasonable best efforts to retain as members of the
Board of Directors at least three directors who are directors of the Company on
the date hereof and who are not representatives of Parent (the "Independent
Directors"); provided that subsequent to the purchase of and payment for not
less than a majority of the outstanding Shares pursuant to the Offer, Parent
will always have its designees represent at least a majority of the entire Board
of Directors. As used in the Merger Agreement, the term "Independent Directors"
initially means each of Ms. Rhonda I. Kochlefl and Messrs. Charles F. Moran and
Gregory A. Stoklosa; provided that in the event that any such initial director
resigns or otherwise ceases to be a director for any reason, then the other
Independent Directors will have the right, by majority vote, to designate a
replacement for such director (and such replacement will be an "Independent
Director"). If for any reason at any time prior to the Effective Time no
Independent Directors then remain, the other directors will use reasonable best
efforts to designate three persons to be the Independent Directors, none of whom
will be directors, officers, employees or affiliates of Parent or Purchaser or
employees of the Company. The Company's obligation to appoint the Purchaser's
designees to the Board of Directors is subject to compliance with Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder.
Notwithstanding anything in the Merger Agreement to the contrary, in the
event that Parent's designees are appointed or elected as described in the
preceding paragraph, after the payment for the Shares pursuant to the Offer and
prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors (who shall act as an independent committee of the Board of
Directors for this purpose) shall be required, and alone shall be sufficient, to
take action by the Company to (i) amend or terminate the Merger Agreement, (ii)
exercise or waive any of the Company's rights or remedies thereunder, (iii)
extend the time for performance of Parent's and Purchaser's respective
obligations thereunder, or (iv) approve any other action by the Company that
could adversely affect the interests of the stockholders of the Company (other
than Parent, Purchaser and their affiliates) with respect to the transactions
contemplated by the Merger Agreement.
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Stockholders Meeting. Pursuant to the Merger Agreement, if a Company
stockholder vote is required under the DGCL in order to effect the Merger, then
promptly after consummation of the Offer, the Company will take all necessary
actions in accordance with the DGCL and the Company's Certificate of
Incorporation and By-laws to convene a special meeting of its stockholders for
purposes of adopting the Merger Agreement (the "Company Stockholders' Meeting").
The Merger Agreement provides that if a Company stockholder vote is required
under the DGCL or any other applicable law in order to effect the Merger, then
promptly after consummation of the Offer, the Company will file a proxy
statement (the "Proxy Statement") with respect to such meeting with the
Commission under the Exchange Act, use all reasonable efforts to have such Proxy
Statement cleared by the Commission, and promptly thereafter mail such Proxy
Statement to its stockholders. Unless the Board by a majority vote determines in
good faith, based on the advice of outside legal counsel, that to do so would
constitute a breach of fiduciary duty to the stockholders of the Company under
applicable law, the Company will (i) include in the Proxy Statement the
recommendation of the Board that stockholders of the Company vote in favor of
adoption and approval of the Merger Agreement and the Merger and the written
opinion of William Blair & Company, L.L.C. ("William Blair") that the
consideration to be received by the stockholders of the Company pursuant to the
Offer and the Merger is fair from a financial point of view to such stockholders
and (ii) use its reasonable best efforts to obtain the necessary approval of the
Merger Agreement and the Merger by its stockholders. Parent agreed pursuant to
the Merger Agreement that it will vote, or cause to be voted, at the Company
Stockholders' Meeting all Shares then owned by it or Purchaser or any of
Parent's other subsidiaries and affiliates in favor of the Merger and the
adoption of the Merger Agreement. If the Purchaser acquires at least a majority
of the outstanding Shares in the Offer, the Purchaser will have sufficient
voting power to approve the Merger, even if no other stockholder votes in favor
of the Merger.
In the event that the Purchaser acquires at least 90% of the
then-outstanding Shares, Parent, Purchaser and the Company agreed pursuant to
the Merger Agreement that, at the request of Purchaser, subject to the
conditions to consummation of the Merger, to take all necessary and appropriate
action to cause the Merger to become effective, in accordance with Section 253
of the DGCL, as soon as reasonably practicable after such acquisition, without a
meeting of the stockholders of the Company.
Options. Pursuant to the Merger Agreement, the Company agreed to (i)
terminate each outstanding stock option plan for its employees and non-employee
directors, including the 1996 Stock Incentive Plan, the 1996 Broad-Based
Employee Stock Plan, the 1997 Non-Employee Director Plan (the "Option Plans")
and each employee stock purchase plan for its employees, including the 1997
Employee Stock Purchase Plan (the "ESPP") (collectively the "Stock Plans"),
immediately prior to the consummation of the Offer without prejudice to the
rights of the holders of options awarded pursuant thereto and (ii) grant no
additional options or similar rights under the Stock Plans or otherwise on or
after the date of the Merger Agreement.
With respect to options outstanding under the Option Plans (whether or not
then exercisable) immediately prior to the consummation of the Offer, the
Company will (a) cancel immediately prior to the consummation of the Offer each
such option it has the right to cancel and (b) with respect to options it does
not have the right to cancel, use its reasonable best efforts to obtain the
consent of the holder of such option to its cancellation and, subject to such
consent, cancel such option immediately prior to the consummation of the Offer.
In consideration, the Company will agree to and will pay to the holder of each
cancelled option under the Option Plans, upon cancellation of such option and
consummation of the Offer (whether or not such option was exercisable
immediately prior to its cancellation), an amount equal to the excess, if any,
of the Per Share Amount over the per-share exercise price for such option,
multiplied by the number of Shares subject to such option (such payment to be
net of applicable withholding taxes). The Company will cancel immediately prior
to the consummation of the Offer each option outstanding under the ESPP or any
other Stock Plan and will pay to the holder thereof (a) a refund of any amount
withheld from the holder's compensation to pay the exercise price thereof and
(b) an amount equal to the excess, if any, of the Per Share Amount over the per-
share exercise price for such option, multiplied by the number of Shares subject
to such option (such payment to be net of applicable withholding taxes).
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Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has agreed that (except as otherwise contemplated therein), unless
Parent otherwise agrees in writing (which consent shall not unreasonably be
withheld), prior to the Effective Time:
(a) the business of the Company and its subsidiaries will be conducted
in the ordinary and usual course of business and in a manner consistent
with past practice, and the Company will use its reasonable best efforts to
maintain and preserve intact its and its subsidiaries' business
organization, assets, employees, officers and consultants and advantageous
business relationships;
(b) neither the Company nor any of its subsidiaries will directly or
indirectly do any of the following: (i) except in the ordinary course of
business, sell, pledge, dispose of or encumber any assets of the Company or
of any of its subsidiaries; (ii) amend its charter or by-laws or similar
organizational documents; (iii) split, combine or reclassify any shares of
its capital stock or declare, set aside, make or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to
any of its capital stock; (iv) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any capital stock of the
Company or its subsidiaries; (v) adopt a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization of the Company; or (vi) authorize or propose any of the
foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing;
(c) neither the Company nor any of its subsidiaries will, directly or
indirectly, (i) except for Shares issuable upon exercise of options
outstanding under the Stock Plans on the date of the Merger Agreement,
issue, deliver, sell, pledge, dispose of or encumber, or authorize, propose
or agree to the issuance, sale, pledge, disposition or encumbrance of, any
shares of, or any options, warrants or rights of any kind to acquire any
shares of or any securities convertible into or exchangeable or exercisable
for any shares of, its capital stock of any class or any other securities
in respect of, in lieu of, or in substitution for Shares outstanding on the
date of the Merger Agreement; (ii) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof; (iii) except in an amount not in
excess of $12 million and other than drawdowns on the Company's line of
credit that do not result in its indebtedness increasing by more than $12
million over the amount thereof on the date of the Merger Agreement, incur
any indebtedness or issue any debt securities or assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for, the obligations of any other individual or entity, or
make any loans or advances, or capital contributions to, or investment in,
any other person or modify any indebtedness or other liability; (iv) change
the capitalization of the Company; (v) except in the ordinary course,
change any assumption underlying, or method of calculating, any bad debt,
contingency or other reserve; (vi) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or as required by applicable law;
(vii) waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing license, lease, contract or
other document, other than in the ordinary course of business consistent
with past practice; (viii) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice; or (ix)
authorize any capital expenditures which are, in the aggregate, in excess
of $2 million for the Company and its subsidiaries taken as a whole;
(d) except for the payment to holders of Options as contemplated by
the Merger Agreement, neither the Company nor any of its subsidiaries will
(i) establish, adopt, amend or terminate (except as may be required by law)
any Employee Benefit Plan or any other bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment,
collective bargaining, fringe benefit, change of control, incentive, stock
purchase, severance, termination or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any employee
or any officer or director or former employee; (ii) increase the
compensation or benefits of any of its directors, officers or employees,
except for increases in compensation for officers and employees of the
Company in the ordinary course of business and in a manner consistent with
past practice; or (iii) grant any severance,
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termination pay or fringe benefits not required to be paid under existing
agreements or policies, including, without limitation, amounts available in
the three sale incentive bonus pools described below under the caption
"Sale Incentive Arrangements";
(e) except as contemplated in connection with the Merger Agreement,
neither the Company nor any of its subsidiaries will make any tax election,
change any method of tax accounting, enter into or amend any tax sharing,
allocation or indemnity agreement (whether written or unwritten) or, except
in the ordinary course of business, settle or compromise any federal,
state, local or foreign income tax liability;
(f) neither the Company nor any of its subsidiaries will permit any
insurance policy naming it as beneficiary or a loss payee to be cancelled
or terminated without notice to Parent;
(g) neither the Company nor any of its subsidiaries will, except as
may be required as a result of a change in law or in generally accepted
accounting principles, change any of the accounting practices or principles
used by it;
(h) neither the Company nor any of its subsidiaries will agree, in
writing or otherwise, to take any of the foregoing actions or any action
which would make any representation or warranty of the Company in the
Merger Agreement untrue or incorrect so as to result in a Material Adverse
Effect or would result in any of the conditions described under "--
Conditions to the Offer" not being satisfied; and
(i) neither the Company nor any of its subsidiaries will authorize any
of the foregoing, or enter into or modify any contract, agreement,
commitment or arrangement to do any of the foregoing.
No Solicitation of Proposals. The Merger Agreement provides that neither
the Company nor any of its subsidiaries, nor any of their respective directors,
officers, employees, representatives or agents will, directly or indirectly,
solicit or initiate offers or proposals from, or provide any confidential
information to, or participate in any discussions or negotiations (or if
currently engaged in any of the foregoing actions, the Company, its affiliates
and their respective officers, directors, employees, representatives and agents
will immediately cease such activities) with, any person or entity (other than
Parent and its subsidiaries and their respective directors, officers, employees,
representatives and agents) concerning (i) any merger, acquisition, exchange or
sale of all or any material portion of the assets not in the ordinary course of
business consistent with past practice, or other similar transaction involving
the Company or any subsidiary or division of the Company, or the sale of any
equity interest in the Company or any subsidiary, or (ii) except for Shares
issuable upon exercise of the 477,913 options outstanding under the Stock Plans
on the date of the Merger Agreement, any sale by the Company or its subsidiaries
of authorized but unissued Shares or of any shares (whether or not outstanding)
of any of the Company's subsidiaries (all such offers and proposals being
referred to as "Acquisition Proposals"), provided, however, that nothing
contained in this and the immediately succeeding paragraph prohibits the Company
or its Board of Directors from (i) subject to certain obligations pursuant to
the Merger Agreement to consult with Parent and Purchaser, issuing a press
release or otherwise publicly disclosing the terms of the Merger Agreement,
including the nonsolicitation provisions thereof, or disclosing the terms of any
Acquisition Proposal; (ii) proceeding with the transactions contemplated by the
Merger Agreement; (iii) communicating to the Company's stockholders a position
as contemplated by Rule 14e-2 promulgated under the Exchange Act; provided,
however, that the Board of Directors will not recommend that the stockholders of
the Company tender their Shares in connection with any such tender offer unless
the Board of Directors by majority vote determines in good faith, based on the
advice of outside legal counsel to the Company, that failing to take such action
would constitute a breach of the Board's fiduciary duty to the stockholders of
the Company under applicable law; (iv) making any disclosure to the Company's
stockholders which the Board of Directors of the Company determines, based on
the advice of outside counsel, is required to be made under applicable law
(including laws relating to the fiduciary duties of directors); or (v) taking
any non-appealable, final action ordered to be taken by the Company by any court
of competent jurisdiction; and, provided, further, that the Board of Directors
may, on behalf of the Company, furnish or cause to be furnished information and
may direct the Company, its directors, officers, employees, representatives or
agents to furnish information and to participate in discussions or negotiations,
in each case in response to an unsolicited oral or written Acquisition Proposal
or expression of intention to make an Acquisition Proposal (except that
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<PAGE> 10
discussions or negotiations cannot proceed prior to receipt of such Acquisition
Proposal) if the Board of Directors by majority vote determines in good faith,
based on the advice of outside legal counsel, that failing to take such action
would constitute a breach of the Board's fiduciary duty under applicable law (an
Acquisition Proposal which satisfies the above requirement is referred to herein
as a "Superior Proposal"). The Board of Directors will provide a copy of any
written Acquisition Proposal (or describe the material terms of any oral
Acquisition Proposal) to Parent promptly after receipt thereof, will notify
Parent promptly if any such proposal is made and will keep Parent promptly
advised of all developments which could reasonably be expected to culminate in
the Board of Directors withdrawing, modifying or amending its recommendation of
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement.
Except as set forth in this and the immediately preceding paragraph,
neither the Company or any of its affiliates, nor any of its or their respective
officers, directors, employees, representatives or agents, will, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent and Purchaser, any affiliate
or associate of Parent and Purchaser or any designees of Parent or Purchaser)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transactions (including an exchange of stock or assets) involving the
Company or any subsidiary or division of the Company. The Company has agreed not
to release any third party from, or waive any provisions of, any confidentiality
or standstill agreement to which the Company is a party unless the Board of
Directors of the Company by a majority vote determines in good faith, based on
the advice of outside legal counsel, that the failure to provide such release or
waiver would constitute a breach of fiduciary duty to the stockholders of the
Company under applicable law. Notwithstanding the foregoing, the Board of
Directors of the Company may (subject to the terms of this and the following
sentence) withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend a Superior Proposal or enter into
an agreement with respect to a Superior Proposal, in each case if the Board of
Directors of the Company by a majority vote determines in good faith, based on
the advice of outside legal counsel, that failing to take such action would
constitute a breach of fiduciary duty to the stockholders of the Company under
applicable law; provided that the Company will not enter into an agreement with
respect to a Superior Proposal unless the Company has furnished Parent with
written notice specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal not later than
48 hours in advance of the time that it intends to enter into such agreement and
has caused its financial and legal advisers to negotiate with Parent to make
such amendments to the terms and conditions of the Merger Agreement as would
make the Merger Agreement as so amended at least as favorable to the Company's
stockholders from a financial point of view as the Superior Proposal, unless the
Board of Directors of the Company by majority vote determines in good faith,
based on the advice of outside legal counsel to the Company, that failure to
enter into an agreement with respect to a Superior Proposal without regard to
such notice or 48-hour period would constitute a breach of fiduciary duty to the
stockholders of the Company under applicable law. In addition, if the Company
proposes to enter into an agreement with respect to any Superior Proposal, it
will concurrently with entering into such agreement pay, or cause to be paid, to
Parent the amount required to be paid pursuant to the terms of the Merger
Agreement described in the second paragraph under the caption "-- Termination;
Fees" below.
Disposition of Certain Litigation. Pursuant to the Merger Agreement, the
Company agreed that it will not settle any litigation pending on, or commenced
after, the date of the Merger Agreement, against the Company or any of its
directors by any stockholder of the Company relating to the Offer or the Merger
Agreement, without the prior written consent of Parent (which consent shall not
unreasonably be withheld). The Company will not voluntarily cooperate with any
third party which has sought or may, after the date of the Merger Agreement,
seek to restrain or prohibit or otherwise oppose the Offer or the Merger and
will cooperate with Parent and Purchaser to resist any such effort to restrain
or prohibit or otherwise oppose the Offer or the Merger, unless the Board of
Directors of the Company by a majority vote determines in good faith, based on
the advice of outside legal counsel, that compliance with such requirements
would constitute a breach of fiduciary duty to the stockholders of the Company
under applicable law.
Indemnification and Insurance. Pursuant to the Merger Agreement, Parent
agrees that at all times after consummation of the Offer, it will indemnify, or
will cause the Company (or the Surviving Corporation if after
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<PAGE> 11
the Effective Time) and its subsidiaries to indemnify, each person who is now,
or has been at any time prior to the date of the Merger Agreement, an employee,
agent, director or officer of the Company or of any of the Company's
subsidiaries, together with each such person's heirs, representatives,
successors and assigns (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the same extent and in the same manner as is now
provided in the respective charters or by-laws of the Company and such
subsidiaries or otherwise in effect on the date of the Merger Agreement, with
respect to any claim, liability, loss, damage, cost or expense (whenever
asserted or claimed) ("Indemnified Liability") based in whole or in part on, or
arising in whole or in part out of, any matter existing or occurring at or prior
to the Effective Time. Parent will, and will cause the Company (or the Surviving
Corporation if after the Effective Time) to, maintain in effect for not less
than six years after consummation of the Offer the current policies of
directors' and officers' liability insurance maintained by the Company and the
Company's subsidiaries on the date of the Merger Agreement (provided that Parent
may substitute therefor policies having at least the same coverage and
containing terms and conditions which are no less advantageous to the persons
currently covered by such policies as insureds) with respect to matters existing
or occurring at or prior to the Effective Time; provided, however, that if the
aggregate annual premiums for such insurance at any time during such period will
exceed 300% of the per annum rate of premium currently paid by the Company and
its subsidiaries for such insurance on the date of the Merger Agreement (which
the Company has represented and warranted was $788,000 as of the date of the
Merger Agreement), then Parent will cause the Company (or the Surviving
Corporation if after the Effective Time) to, and the Company (or the Surviving
Corporation if after the Effective Time) will, provide the maximum coverage that
will then be available at an annual premium equal to 300% of such rate. Without
limiting the foregoing, in the event any Indemnified Party becomes involved in
any capacity in any action, proceeding or investigation based in whole or in
part on, or arising in whole or in part out of, any matter, including the
transactions contemplated hereby, existing or occurring at or prior to the
Effective Time, then to the extent permitted by law, Parent will, or will cause
the Company (or the Surviving Corporation if after the Effective Time) to,
periodically advance to such Indemnified Party its legal and other expenses
(including the cost of any investigation and preparation incurred in connection
therewith), subject to the provision by such Indemnified Party of an undertaking
to reimburse the amounts so advanced in the event of a final determination by a
court of competent jurisdiction that such Indemnified Party is not entitled
thereto. Such provisions of the Merger Agreement are intended for the benefit
of, and enforceable by, current and former employees, officers and directors of
the Company and their respective heirs and legal representatives and are binding
on all successors and assigns of Parent.
Representations and Warranties. The Company, Parent and Purchaser have made
certain representations and warranties to each other in the Merger Agreement.
The Company represents and warrants, among other things, as to its organization
and qualifications to do business, its capitalization, its corporate authority
to enter into and perform the Merger Agreement and the absence of conflict of
such actions with its other obligations. The Company also makes certain
representations and warranties concerning its filings with the Commission under
the Exchange Act and its financial statements, absence of certain changes and
liabilities, employee benefit plans, litigation and legal matters, labor
matters, tax matters, environmental matters, claims of brokers, undisclosed
liabilities and regarding this Schedule 14D-9 and the Proxy Statement, if any.
Parent and Purchaser represent and warrant, among other things, as to their
respective organization and qualification, capital stock of Purchaser, corporate
authority to enter into and perform the Merger Agreement and the absence of
conflict of such actions with its other obligations, availability of all funds
necessary to consummate the Offer and the Merger, claims of brokers, the
information provided by Parent appearing in this Schedule 14D-9 and the Proxy
Statement, if any, ownership of Shares, certain litigation matters and regarding
the Schedule 14D-1 and the Offer Documents. The representations and warranties
of Parent, Purchaser and the Company terminate upon consummation of the Offer.
Termination; Fees. The Merger Agreement may be terminated and the Merger
may be abandoned (i) prior to the Effective Time (notwithstanding any approval
thereof by the stockholders of the Company) by the mutual consent of Parent and
the Company; (ii) by either Parent or the Company at any time prior to the
Effective Time (notwithstanding any approval thereof by the stockholders of the
Company), if (a) any court of competent jurisdiction or other governmental body
located or having jurisdiction within the United States or any country in which
the Company, directly or indirectly, has material assets or operations, has
issued a
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<PAGE> 12
final order, injunction, decree, judgment or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Offer or the Merger
and such order, injunction, decree, judgment, ruling or other action is or shall
have become final and nonappealable, (b) the Offer has expired or terminated
pursuant to the terms of the Merger Agreement without the purchase of any Shares
pursuant thereto; provided that Purchaser does not have the right to terminate
the Merger Agreement pursuant to such clause if the termination or expiration of
the Offer without the purchase of Shares is in violation of the terms of the
Offer or of the Merger Agreement, or (c) if Purchaser has not purchased Shares
pursuant to the Offer prior to September 30, 1998, provided that the right to
terminate the Merger Agreement pursuant to clauses (b) or (c) shall not be
available to any party whose failure (or the failure of whose affiliate) to
fulfill any obligation under the Merger Agreement or whose breach of a
representation or warranty under the Merger Agreement has resulted in the Offer
not being consummated; (iii) by Parent prior to consummation of the Offer if (a)
the Company breaches any of its representations and warranties or fails to
comply with any of the covenants or agreements contained in the Merger Agreement
to be complied with or performed by the Company at or prior to consummation of
the Offer and such breach or failure results in a Material Adverse Effect that
is not curable or, if curable, is not cured within 30 calendar days after
written notice of such breach is given by Parent to the Company or (b)(I) the
Company receives from a third party a bona fide Acquisition Proposal and the
Board of Directors of the Company, in the exercise of its fiduciary duty to
stockholders of the Company in accordance with the terms of the Agreement
accepts such a proposal or (II) if the Board of Directors of the Company
withdraws or modifies in a manner adverse to Parent or Purchaser its approval or
recommendation with respect to the Offer and the Merger, or resolves to effect
any of the foregoing or (c) the Minimum Condition has not been satisfied by the
expiration date of the Offer (as extended, if applicable, pursuant to the terms
of the Merger Agreement) and on or prior to such date any person other than
Parent or Purchaser has made a proposal or communication with respect to a
Superior Proposal and (iv) by the Company prior to the consummation of the Offer
if (a) Parent or Purchaser breaches any of its representations and warranties or
fails to comply with any of the covenants or agreements contained in the Merger
Agreement (other than the obligation to commence the Offer and to purchase
Shares upon the terms and subject to the conditions thereof) to be complied with
or performed by Parent or Purchaser at or prior to consummation of the Offer and
such breach or failure has a Material Adverse Effect on Parent's or Purchaser's
ability to consummate the Offer and such breach, if curable, is not cured within
30 calendar days after written notice of such breach is given by the Company to
Parent and Purchaser, or (b) if the Company enters into a written agreement
concerning a transaction that constitutes a Superior Proposal, provided that the
Company has complied with the nonsolicitation provisions of the Merger Agreement
(including the requirement that the Board of Directors of the Company by
majority vote determines in good faith, based on the advice of outside legal
counsel to the Company, that failing to accept the Superior Proposal would
constitute a breach of fiduciary duty to the stockholders of the Company under
applicable law and the payment of any amounts payable to Parent pursuant to the
provision of the Merger Agreement regarding the payment of fees and expenses in
connection with certain terminations of the Merger Agreement). In the event of
termination of the Merger Agreement and abandonment or rejection of the Offer
pursuant to any of the provisions of the Merger Agreement described in the
preceding paragraph, the Merger Agreement provides that no party thereto (or any
of its directors, officers, employees, advisers or other representatives) will
have any liability or further obligation to any other party to the Merger
Agreement, except with respect to the provisions of the Merger Agreement
relating to confidential information and payment of certain fees and expenses,
and except that nothing in such provision relieves any party from liability for
its fraud or wilful breach of the Merger Agreement.
If (i) Parent terminates the Merger Agreement pursuant to clause (iii)(a)
of the immediately preceding paragraph, and within 12 months thereafter, the
Company enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs, involving any party (or any affiliate or
associate thereof) (x) with whom the Company (or its agents) had any discussions
with respect to a Third Party Acquisition, (y) to whom the Company (or its
agents) furnished information with respect to or with a view to a Third Party
Acquisition or (z) who had submitted a proposal or expressed any interest
publicly or to the Company in a Third Party Acquisition, in the case of each of
clauses (x), (y) and (z) prior to such termination, (ii) Parent terminates the
Merger Agreement pursuant to clause (iii)(b) of the immediately
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<PAGE> 13
preceding paragraph or the Company terminates the Merger Agreement pursuant to
clause (iv)(b) of the immediately preceding paragraph or (iii) Parent terminates
the Merger Agreement pursuant to clause (iii)(c) of the immediately preceding
paragraph and within 12 months thereafter the Company enters into an agreement
or consummates a transaction with respect to a Third Party Acquisition that
provides for consideration for Shares or value (on a per Share basis) in excess
of the Per Share Amount; then the Company will pay to Parent, within three
business days following the execution and delivery of such agreement or such
occurrence, as the case may be, or simultaneously with any termination
contemplated by clause (ii) of this paragraph, a fee, in cash, of $4.0 million
(less any amounts previously paid as described in the immediately succeeding
paragraph), provided, however, that the Company in no event will be obligated to
pay more than one such fee with respect to all such agreements and occurrences
and such termination and that the Company in no event will be obligated to pay
more than $4.0 million in fees and expenses under the provisions described in
this paragraph and the immediately succeeding paragraph. "Third Party
Acquisition" means the occurrence of any of the following events: (a) the
acquisition of the Company by merger, tender offer or otherwise or similar
business combination by any person other than Parent, Purchaser or any affiliate
thereof (a "Third Party"); (b) the acquisition by a Third Party of more than 35%
of the outstanding Shares or 35% or more of the aggregate book or fair market
value of the assets of the Company and its subsidiaries considered as a whole;
or (c) the adoption by the Company of a plan of liquidation or the declaration
or payment of an extraordinary dividend of cash or assets.
Upon the termination of the Merger Agreement by Parent pursuant to clause
(iii)(a) of the first paragraph under the caption "-- Termination; Fees", the
Company will reimburse Parent (not later than three business days after
submission of statements therefor) for all documented out-of-pocket fees and
expenses actually and reasonably incurred by Parent, Purchaser and their
affiliates or on their behalf in connection with the Offer and the Merger and
the consummation of the transactions contemplated by the Merger Agreement
(including, without limitation, fees and disbursements payable to financing
sources, investment bankers, accountants, counsel to Purchaser or Parent or any
of the foregoing) up to a maximum amount of $2.0 million (subject to the
limitations set forth in the immediately preceding paragraph).
Certain Employee Benefit Matters. Pursuant to the Merger Agreement, prior
to the Effective Time, the Company will pay all compensation and benefits earned
through or prior to the Effective Time as provided pursuant to the terms of any
compensation arrangements, employment agreements and employee or director
benefit plans, programs and policies in existence as of the date of the Merger
Agreement for all employees (and former employees) and directors (and former
directors) of the Company and its subsidiaries, as well as all compensation and
benefits earned and required to be paid prior to the Effective Time pursuant to
the terms of an individual agreement with any employee, former employee,
director or former director in effect as of the date of the Merger Agreement,
including the amounts payable in the three sale incentive bonus pools described
under the caption "Sale Incentive Arrangements" below. During the period from
the Effective Time until the first anniversary thereof (the "Employment
Continuation Period"), Parent will provide for each employee of the Surviving
Corporation or its subsidiaries (each, an "Employee"), so long as he or she is
actively employed by the Surviving Corporation (or as required by law), and for
each former employee of the Company or one of its subsidiaries, to the extent
such person has rights thereto immediately prior to the Effective Time
(collectively, "Company Employees") (i)(a) to continue to participate in the
Company's welfare benefit plans, compensation plans, employee incentive programs
and bonus plans (including, without limitation, hospitalization, medical,
prescription, dental, disability, salary continuation, vacation, accidental
death, travel accident and individual or group life or other insurance) (each, a
"Company Plan"), as each such Company Plan is in effect on the date of the
Merger Agreement (without modification or amendment) during the period
commencing at the Effective Time through December 31, 1998, and (b) during the
period commencing January 1, 1999 through the first anniversary of the Effective
Time, the Surviving Corporation will provide each Company Employee with benefits
that are at least as valuable in the aggregate to such Company Employee as the
benefits provided to employees of Parent and its affiliates in comparable
positions of employment, to waive any pre-existing condition clause or waiting
period requirement in such welfare benefit plans or programs and to give credit
for deductible amounts and co-payments paid by a Company Employee during the
current deductible year prior to the Effective Time; (ii) participation in such
tax-qualified retirement plans of Parent (or an affiliate of Parent), which
shall provide in the aggregate benefits
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that are at least as valuable as the benefits provided to employees of Parent
and its affiliates in comparable positions of employment, and to grant each
Company Employee credit under such plans, for eligibility and vesting purposes,
for such Company Employee's service with the Company and its affiliates prior to
the Effective Time, except to the extent it would result in a duplication of
benefits with respect to the same period of service; and (iii) participation in
such other benefit plans and programs of Parent and its affiliates (including
without limitation, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, excess and supplemental retirement, severance or
termination pay and fringe benefits) which, in the aggregate will provide
benefits to Company Employees which are no less favorable in the aggregate than
those provided to employees of Parent and its affiliates in comparable positions
of employment; provided, however, that except as set forth in clause (i)(a)
above nothing in this paragraph will prevent the amendment or termination of any
specific plan, program or amendment or interfere with the Surviving
Corporation's right or obligation to make such changes as are necessary to
conform with applicable law. Notwithstanding anything in the Merger Agreement to
the contrary, Parent agreed to cause the Surviving Corporation to honor (without
modification) and assume (i) the written employment agreements, severance
agreements and indemnification agreements with existing directors and officers
of the Company, and (ii) certain incentive arrangements and other agreements,
all as in effect on the date of the Merger Agreement. Nothing in this paragraph
will require the continued employment of any person, or, except as set forth in
this paragraph, prevent the Company and/or the Surviving Corporation and their
subsidiaries from taking any action or refraining from taking any action which
the Company and its subsidiaries prior to the Effective Time could have taken or
refrained from taking. The parties have agreed that Company severance plans and
policies in effect as of the date of the Merger Agreement will remain in effect
for at least the one-year period commencing at the Effective Time. During such
one-year period, any Company Employee whose employment is terminated by the
Surviving Corporation or any of its subsidiaries (other than a Company Employee
terminated for cause or a Company Employee who is a "site" Employee terminated
upon the cancellation of an outsourcing agreement, which employees will only be
entitled to severance benefits, if any, provided to employees of Parent (or an
affiliate of Parent) in comparable positions of employment under similar
circumstances) will be deemed to have been terminated as a result of a change of
control of the Company (which results in enhanced benefits under the Company's
severance plans and policies). For purposes of this paragraph, a termination for
"cause" includes a termination for deficient performance or for material
violations of any Company policy. Such provisions of the Merger Agreement are
intended for the benefit of, and enforceable by, current and former employees,
officers and directors of the Company and their respective heirs and legal
representatives and are binding on all successors and assigns of Parent.
Filings; Reasonable Efforts. The Merger Agreement provides that, upon the
terms and subject to the conditions thereof, the parties thereto shall (a)
promptly after the date of the Merger Agreement make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Offer and the Merger and (b) use their reasonable efforts
promptly to take, or cause to be taken, and to cooperate with each other with
respect to, all other actions, and to do, or cause to be done, all things
necessary, proper or appropriate under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement. Notwithstanding the foregoing, the Company is not obligated to use
its reasonable efforts or take any action pursuant to this paragraph if the
Board of Directors of the Company by majority vote determines in good faith,
based on the advice of outside legal counsel to the Company, that such actions
would constitute a breach of the Board of Directors' fiduciary duties to the
stockholders of the Company under applicable law.
Public Announcement. Parent, Purchaser and the Company have agreed to
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Offer or the Merger, and will not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange.
Notices. The Company, Parent and Purchaser agreed pursuant to the Merger
Agreement to give prompt notice to each other at any time from the date of the
Merger Agreement to the Effective Time of the obtaining by it of actual
knowledge as to the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause a breach of any representation or
warranty contained in the Merger Agreement or
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result in any failure of the Company, Parent or Purchaser, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under the Merger Agreement, if such breach or failure
would result in a Material Adverse Effect or in a material adverse effect upon
Parent or any of its affiliates, or prevent or delay consummation of the Merger
in any material respect.
Expenses. The Merger Agreement provides that, subject to the provisions of
the Merger Agreement described above under the caption "-- Termination; Fees",
the Company, the Purchaser and Parent will each pay its own expenses incident to
preparing for, entering into and carrying out the Merger Agreement and the
consummation of the Offer and Merger.
Amendment. Subject to applicable law, the Merger Agreement may be amended
by an instrument in writing signed by Parent, the Purchaser and the Company at
any time before or after the purchase of Shares pursuant to the Offer or
approval and adoption of the Merger Agreement and the Merger by the stockholders
of the Company, but after any such purchase of Shares or approval no amendment
may be made that modifies the consideration to be given to the holders of Shares
or in any other way materially adversely affects the rights of such stockholders
(other than a termination of the Merger Agreement pursuant to its terms).
Waiver. Subject to applicable law, at any time prior to the Effective Time,
any party to the Merger Agreement may (a) extend the time for the performance of
any of the obligations or other acts of the other parties thereto, or (b) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. At any time prior to consummation of the Offer, any party to the
Merger Agreement may waive any inaccuracies in the representations and
warranties contained therein or in any documents delivered pursuant thereto. Any
agreement on the part of a party to the Merger Agreement to any such extension
or waiver will be valid only if set forth in an instrument in writing signed by
such party.
STOCKHOLDERS' AGREEMENT
Grant of Option. Pursuant to the Stockholders' Agreement, R.R. Donnelley
granted to Parent an irrevocable option to purchase the 2,140,000 Shares held by
R.R. Donnelley, together with any additional Shares that may be acquired by R.R.
Donnelley (the "R.R. Donnelley Shares") at a purchase price of $21.00 per Share
in cash (subject to adjustment in the event of a stock dividend or distribution
or any change in the Shares by reason of any stock dividend, split-up,
recapitalization, combination or the exchange of shares) (the "Option").
Exercise of Option. Pursuant to the Stockholders' Agreement, subject to
applicable law (including Rule 10b-13 under the Exchange Act), Parent may
exercise the Option as to all of the R.R. Donnelley Shares, at any time,
commencing upon the Exercise Date (as defined below) and prior to the Expiration
Date (as defined below). The "Exercise Date" is defined as the first to occur
of: (i) R.R. Donnelley fails to perform any agreement or covenant contained in
the Stockholders' Agreement; or (ii) the Merger Agreement is terminated and
Parent is entitled to receive the payment of fees or expenses pursuant to the
provision of the Merger Agreement regarding the payment of such amounts by the
Company to Parent in the event of certain terminations of the Merger Agreement.
See "Merger Agreement -- Termination; Fees." The "Expiration Date" is defined as
the first to occur of any of the following dates: (i) the Effective Time; (ii)
10 business days after termination of the Merger Agreement in accordance with
the terms thereof because the Federal Trade Commission, the Antitrust Division
of the Department of Justice or any state, federal or foreign court or other
governmental body of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; (iii) the earliest of (a) the
consummation of the third party transaction that triggered the payment of the
termination fee or expenses described in the second and third paragraphs under
the caption "Merger Agreement -- Termination; Fees" above; or (B) the first
anniversary of the date of the termination of the Merger Agreement, except as
set forth in clause (ii) above or (iv) written notice by Parent to R.R.
Donnelley of termination of the Stockholders' Agreement.
In order to exercise the option, Parent must send a written notice to R.R.
Donnelley of its intention to so exercise the Option (a "Notice"), specifying
the place, time and date of the closing of such purchase (the "Closing"), which
date will not be less than two business days nor more than five business days
from the date
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on which a Notice is delivered; provided, that the Closing will be held only if
such purchase would not otherwise then violate or cause the violation of, any
applicable law or regulations (including, without limitation, the HSR Act) or
any decree, order or injunction of any governmental agency, authority or court,
whether temporary, preliminary or permanent. If the Closing would be violative
of any such laws or rules or any such decree, order or injunction, then such
Notice will be deemed rescinded and of no effect and Parent will send a new
Notice at such time as the Closing is not violative of such laws, rules,
decrees, orders or injunctions. Notwithstanding the occurrence of such
rescission, the Stockholders' Agreement will remain in full force and effect.
Agreement to Tender. Pursuant to the Stockholders' Agreement, R.R.
Donnelley agreed to validly tender pursuant to the Offer and not withdraw all
R.R. Donnelley Shares, except to the extent that the tender of Shares pursuant
to the Offer would subject any profit realized on the transaction by R.R.
Donnelley to recovery by the Company under Section 16(b) of the Exchange Act.
Irrevocable Proxy. Pursuant to the Stockholders' Agreement, R.R. Donnelley
irrevocably appointed Parent or any designee of Parent the lawful agent,
attorney and proxy of R.R. Donnelley, during the term of the Stockholders'
Agreement, to (a) vote the R.R. Donnelley Shares in favor of the Merger, (b)
vote the R.R. Donnelley Shares against any action or agreement that would result
in a breach in any material respect of any covenant, representation or warranty
or any other obligation or agreement of the Company under the Merger Agreement
and (c) vote the R.R. Donnelley Shares against any action or agreement that
would impede, interfere with, delay, postpone or attempt to discourage the Offer
or the Merger, including, but not limited to (i) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company and its subsidiaries; (ii) a sale or transfer of a
material amount of assets of the Company and its subsidiaries or a
reorganization, recapitalization or liquidation of the Company and its
subsidiaries; (iii) any change in the management or Board of Directors of the
Company, except as otherwise agreed to in writing by Parent; (iv) any material
change in the present capitalization or dividend policy of the Company; or (v)
any other material change in the corporate structure or business of the Company.
Certain Representations and Warranties. In connection with the
Stockholders' Agreement, R.R. Donnelley made certain customary representations
and warranties to Parent, including with respect to (i) ownership of the R.R.
Donnelley Shares and the absence of encumbrances and other adverse claims with
respect to the ownership or right to vote the R.R. Donnelley Shares; (ii) R.R.
Donnelley's authority to enter into and perform its obligations under the
Stockholders' Agreement; and (iii) the absence of conflicts and requisite
governmental consents and approvals. In connection with the Stockholders'
Agreement, Parent made certain customary representations and warranties to R.R.
Donnelley, including with respect to (i) organization; (ii) Parent's authority
to enter into and perform its obligations under the Stockholders' Agreement;
(iii) absence of conflicts and requisite governmental consents and approvals;
and (iv) Parent's investment intent.
Certain Covenants. Pursuant to the Stockholders' Agreement, R.R. Donnelley
agreed that it will not, directly or indirectly, solicit, encourage, participate
in or initiate any inquiries or the making of any proposal by any person or
other entity (other than Parent or any of its affiliates) which constitutes or
may reasonably be expected to lead to (i) any sale of the R.R. Donnelley Shares
or (ii) any acquisition or purchase of a material portion of the Company's
assets or equity interest in, or any merger, consolidation or business
combination with, the Company or any of its subsidiaries; provided, however,
that the foregoing does not apply to any directors of the Company in their
capacity as such who are also employees, officers, representatives or agents of
R.R. Donnelley (the terms of the Merger Agreement set forth any and all
limitations on solicitation applicable to such persons in their capacity as
directors of the Company). If R.R. Donnelley receives an inquiry or proposal
with respect to the sale of R.R. Donnelley Shares, then R.R. Donnelley will
promptly inform Parent of the terms and conditions, if any, of such inquiry or
proposal and the identity of the person making it. R.R. Donnelley will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted prior to the date of the
Stockholders' Agreement with respect to any of the foregoing.
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Pursuant to the Stockholders' Agreement, R.R. Donnelley agreed that, while
the Stockholders' Agreement is in effect and except as contemplated thereby, it
will not (a) sell, transfer, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to the sale, transfer, pledge, encumbrance, assignment or other
disposition of, any of the R.R. Donnelley Shares; (b) grant any proxies, deposit
any R.R. Donnelley Shares into a voting trust or enter into a voting agreement
with respect to any R.R. Donnelley Shares; or (c) take any action that would
make any representation and warranty of R.R. Donnelley contained in the
Stockholders' Agreement untrue or incorrect or have the effect of preventing or
disabling R.R. Donnelley from performing its obligations under the Stockholders'
Agreement. R.R. Donnelley further agreed to use its best efforts to prevent the
Company from taking any action in violation of the Merger Agreement.
Pursuant to the Stockholders' Agreement, Parent agreed that, if pursuant to
the Offer, there is tendered a number of Shares that together with the R.R.
Donnelley Shares tendered pursuant to the Stockholders' Agreement equals 50.1%
or more of the voting power of the Company, and the conditions to the Offer as
set forth in the Merger Agreement are otherwise satisfied, then Parent will
purchase all of the R.R. Donnelley Shares immediately upon the purchase of the
other Shares pursuant to the Offer.
Termination. The Stockholders' Agreement terminates on the Expiration Date.
CONFIDENTIALITY AND STANDSTILL AGREEMENT
In connection with the proposed Transaction, the Company and Parent entered
into the Confidentiality and Standstill Agreement on March 19, 1998. Pursuant to
the Confidentiality and Standstill Agreement, Parent agreed to keep confidential
certain information furnished to it by the Company and to use such information
solely for the purpose of evaluating a possible transaction with the Company.
The Confidentiality and Standstill Agreement also provides that (i) Parent may
disclose such information to its representatives who need to know such
information for purposes of evaluating, or assisting Parent with, a possible
transaction with the Company and who shall be informed by Parent of the
confidential nature of such information, the limited purpose for which it is
being disclosed and that by receiving such information they are agreeing to be
bound by the Confidentiality and Standstill Agreement, (ii) subject to certain
requirements (including prior notification of the Company), Parent may disclose
such information to the extent required by law, and (iii) upon the Company's
request, Parent must promptly return all documents furnished by the Company and
destroy all portions of documents, memoranda, notes and other writings based on
the confidential information furnished by the Company.
The Confidentiality and Standstill Agreement also provides that Parent will
not, and will direct its representatives not to, directly or indirectly, during
the one year period commencing on the date of the Confidentiality and Standstill
Agreement, unless in any such case specifically invited in writing to do so by
the Board of Directors of the Company: (i) make any public announcement with
respect to, or submit any proposal for, a transaction between the Company (or
any portion thereof or any of its security holders or affiliates) and Parent (or
any of its security holders or affiliates), unless such proposal is directed and
disclosed solely to the management of the Company and its designated
representatives, and in the case of any such proposal from or involving parties
in addition to, or other than, Parent, the Company has given its advance written
consent to the involvement of such additional or other parties; (ii) purchase,
acquire or own, or offer or agree to purchase, acquire or own any voting
securities or rights (pursuant to an exchange, conversion, pledge or otherwise)
or options to acquire any voting securities of the Company; (iii) make, or in
any way participate in, directly or indirectly, any "solicitation" of "proxies"
(as such terms are defined or used in Regulation 14A under the Exchange Act) or
become a "participant" in an "election contest" (as such terms are defined or
used in Rule 14a-11 under the Exchange Act) with respect to the Company or seek
to advise or influence any person with respect to the voting of any voting
securities of the Company; (iv) initiate, propose or otherwise solicit
stockholders for the approval of one or more stockholder proposals with respect
to the Company as described in Rule 14a-8 under the Exchange Act or induce or
attempt to induce any other person to do so; (v) acquire or affect the control
of the Company or directly or indirectly participate in or encourage the
formation of any "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) which owns or
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seeks to acquire ownership of voting securities of the Company, or to acquire or
affect control of the Company; (vi) propose or seek to effect or negotiate with
or provide financial assistance or information to any party with respect to any
form of business combination transaction with the Company or any affiliate
thereof, or any restructuring, recapitalization or similar transaction with
respect to the Company or any portion thereof including any affiliate thereof;
(vii) encourage any employees of the Company to terminate his or her employment;
or solicit the employment of, or the engagement as a consultant or adviser of,
any employee of the Company so long as such person remains employed by the
Company; (viii) instigate, encourage, assist or render advice to or make any
recommendation or proposal to any person to engage in any of the actions
described in clauses (i) through (vii) of this paragraph; or (ix) except to the
extent required by law, make any public statement (or make available to any
member of the news media any information) with respect to any of the matters
described in this paragraph, or with respect to the Confidentiality and
Standstill Agreement.
(2) Arrangements with Executive Officers, Directors or Affiliates of the
Company.
Consummation of the Offer and related documents will have certain effects
under certain employment, compensation and stock option arrangements which
officers and directors of the Company participate in or are a party to, as
summarized below. Certain information with respect to certain contracts,
agreements, arrangements or understandings between the Company and certain of
its executive officers, directors and affiliates is set forth in the Information
Statement attached as Annex I to this Schedule 14D-9 and is incorporated herein
by reference.
SALE INCENTIVE ARRANGEMENTS
On May 8, 1998, the Board of Directors approved two sale incentive pools
for certain of the Company's executive officers ("Eligible Employees") in
connection with the contemplated Sale of the Company (as defined below), as well
as an additional sale incentive award for Rhonda I. Kochlefl, the Chairman,
President and Chief Executive Officer of the Company. Each Eligible Employee,
including Ms. Kochlefl, who remains employed by the Company up to the closing of
the Sale of the Company will be eligible for consideration for an award under
both sale incentive pools. In addition, Ms. Kochlefl, provided she remains so
employed, can receive the additional sale incentive award summarized below. All
of such awards will be administered by the non-employee members of the Company's
board of directors (the "Outside Board").
For purposes of each of such sale incentive awards, the phrase "Sale of the
Company" means any transaction or series of related transactions, the last of
which closes prior to January 1, 1999, which the Outside Board in its sole
discretion determines to result in the transfer of all or substantially all of
the Company's business by sale, merger, or otherwise, to one or more persons.
The "closing" of the Sale of the Company will occur on the last date as of which
a transaction included as part of the Sale of the Company is completed, as
determined by the Outside Board. A Sale of the Company will occur if the
Transaction is closed prior to January 1, 1999.
The sale incentive awards are as follows:
Qualitative Performance Sale Awards -- a pool of up to $350,000 for
"qualitative performance sale awards." The amount of any such award (which may
vary among recipients) will be determined by the Outside Board acting in its
sole discretion. It is contemplated that Ms. Kochlefl, Ms. Finkel, Mr. Shea and
Mr. Munro will be eligible for qualitative performance sale awards upon the
closing of a Sale of the Company. Each Eligible Employee's qualitative
performance sale award, if any, will be based on the Outside Board's evaluation
of a number of factors related to the process of the sale of the Company,
including the extent and quality of the eligible employee's cooperation in
advancing the interests of the Company's stockholders throughout the sale
process.
Quantitative Sale Awards -- a "quantitative sale award" pool payable if the
price per Share in a Sale of the Company is $15.00 or greater. Based on the Per
Share Amount, the quantitative award pool is approximately $1,138,000. Both the
$15.00 threshold and the formula for determining the size of the pool were
determined by the Outside Board. Ms. Kochlefl, Ms. Finkel, Mr. Shea and Mr.
Munro are eligible for quantitative sale awards payable at the closing of a Sale
of the Company.
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Additional Sale Incentive Award -- an additional sale incentive award to be
payable to Ms. Kochlefl at the closing of a Sale of the Company if the price per
Share in a Sale of the Company is $15.00 or greater. Based on the Per Share
Amount, such award would be approximately $659,000. Both the $15.00 threshold
and the formula for determining the size of the award were determined by the
Outside Board.
The foregoing summary does not purport to be complete and is qualified in
its entirety by reference to the full text of the letter to Ms. Kochlefl and the
form of letter to certain executive officers of the Company, copies of which
have been filed as Exhibits 4 and 5, respectively, to this Schedule 14D-9, each
of which is hereby incorporated herein by reference.
OTHER EMPLOYMENT AND EMPLOYEE BENEFIT ARRANGEMENTS
The Merger Agreement contains various provisions dealing with certain
employment, bonus, stock option, retirement plan and other employee benefit
arrangements which are applicable to directors and executive officers of the
Company. See Item 3(b)(1) above under the caption "Merger Agreement -- Options,"
"-- Indemnification and Insurance" and "-- Certain Employee Benefit Matters"
(the provisions of which are hereby incorporated herein by reference).
Certain executive officers of the Company have employment agreements (the
"Employment Agreements") which provide the employees covered thereby with
certain compensation and severance rights following the occurrence of a Change
of Control (as defined in the Employment Agreements) and certain other specified
events. A Change of Control will occur if the Offer is consummated. Certain
information with respect to the Employment Agreements is set forth in Annex I to
this Schedule 14D-9 under the caption "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements" and is hereby incorporated herein
by reference.
INDEMNIFICATION
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, for criminal
proceedings, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such director actually and reasonably
incurred.
In accordance with Section 102(b)(7) of the DGCL, the Company's Certificate
of Incorporation contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability to the Company or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL providing for liability of directors for unlawful
payment of dividends or unlawful stock repurchases or redemptions or (iv) for
any transaction from which the director derived an improper personal benefit.
The effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
The Company's Certificate of Incorporation provides that the Company shall
indemnify and may advance expenses incurred in relation to any action, suit or
proceeding to officers of the Company, and shall indemnify
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and shall advance expenses incurred in relation to any action, suit or
proceeding to directors of the Company, to the fullest extent permitted by the
DGCL. The Company has entered into indemnification agreements with each director
and officer of the Company mandating such indemnification and advances of
expenses to the fullest extent permitted by the DGCL. The Company also has in
effect insurance policies providing both directors' and officers' liability
coverage and corporation reimbursement coverage.
The Merger Agreement contains provisions pertaining to the indemnification
of directors and officers and the maintenance of directors' and officers'
liability insurance after consummation of the Offer. See Item 3(b)(1) above
under the caption "Merger Agreement -- Indemnification and Insurance" (the
provisions of which are hereby incorporated herein by reference).
The foregoing summary does not purport to be complete and is qualified in
its entirety by reference to the full text of the Company's Certificate of
Incorporation and the form of Indemnification Agreement, copies of which have
been filed as Exhibits 12 and 14, respectively, to this Schedule 14D-9, each of
which is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. At a meeting held on May 27, 1998, the Board of
Directors of the Company unanimously (i) determined that the Merger Agreement
and the transactions contemplated thereby, including, without limitation, the
Offer and the Merger, are advisable and fair to and in the best interest of the
Company's stockholders, (ii) approved the Merger Agreement and the transactions
contemplated thereby, including, without limitation, the Offer and Merger, and
(iii) resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares thereunder to Purchaser and adopt the Merger
Agreement (if such adoption is required under the DGCL by the holders of
Shares), provided that such recommendation may be withdrawn, modified or amended
if the Board of Directors of the Company by majority vote determines in good
faith, based on the advice of outside legal counsel, that the failure to
withdraw, modify or amend such recommendation would constitute a breach of
fiduciary duty to the Company's stockholders under applicable law. Accordingly,
the Board unanimously recommends that the stockholders of the Company accept the
Offer and tender their Shares pursuant to the Offer. A press release announcing
the Merger Agreement and the transactions contemplated thereby and a form of
letter to stockholders of the Company communicating the Board's recommendation
have been filed with the Commission as Exhibits 19 and 20, respectively, to this
Schedule 14D-9, and are incorporated herein by reference.
(b)(1) Background. R.R. Donnelley began offering reprographic services in
1988 through a division known as Donnelley Business Services ("DBS") and
expanded its service offerings to include networked and electronic color
printing, mailroom and facsimile services, word processing, desktop publishing
and imaging. In June 1995, DBS broadened its capabilities from managing
paper-based information to include the management of electronic information
through the acquisition of LANSystems, Inc., which has provided integration
services since 1983, including systems integration, consulting, technical
training and software development. As of January 1, 1996, R.R. Donnelley
contributed the assets of DBS to LANSystems, Inc. and changed LANSystem's
corporate name to Donnelley Enterprise Solutions Incorporated. On November 5,
1996, the Company completed an initial public offering of 2,860,000 Shares at a
price of $25 per Share, resulting in the reduction of R.R. Donnelley's ownership
in the Company to approximately 43% of the outstanding Shares.
In February 1997, the Company announced that it anticipated that its 1996
revenues (which were up 46% from 1995) and net income (which was up 107% from
1995 net income) were substantially less than analysts' estimates for the
Company's 1996 performance. The lower than expected 1996 revenues and net income
resulted from a revenue and earnings shortfall in the Company's LANSystems
division. Following this announcement the Company's stock price fell from $23.75
to $12.25 per Share.
While the Company took steps to rectify these problems and improve results,
it also began to consider a number of strategic options to improve stockholder
value. At a meeting of the Board on March 10, 1997, the
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Board discussed the possibility of implementing a stock repurchase program,
which had been suggested to the Company by certain of the Company's
stockholders. After discussion, the Board determined that it would discuss the
possibility of a stock repurchase program with three investment banking firms
that had been underwriters of the Company's initial public offering (the
"Investment Bankers").
At its May 7, 1997 meeting, the Board discussed the possibility of, and
determined to take no action with respect to, a stock repurchase plan after
being advised by the Investment Bankers that a stock repurchase plan would not
be advisable.
At its August 12, 1997 meeting, the Board discussed the possibility of
pursuing acquisitions of high margin businesses which trade at higher multiples
than the Company, which it believed would, among other things, improve the
Company's market value. The Board, however, concluded that it should first await
further financial results of the Company. The Board also noted that in light of
the Company's declining stock price, the Company might face a hostile takeover
attempt, and accordingly must consider appropriate actions in the face of such a
threat.
At the Board of Directors meeting on September 15, 1997, the Board
discussed each Company division's value and prospects, and determined that the
Company had three principal alternatives (the "Alternatives"): (1) maintain the
status quo, (2) divest LANSystems, or (3) sell the Company. After extensive
discussion of these Alternatives, the Board determined that the Company should
consult with investment bankers regarding the Company's strategic options.
On September 18, 1997, the Company announced its plan to take a one-time
charge (ultimately determined to be $6.1 million) in the LANSystems division
resulting primarily from an increase in the allowance for doubtful accounts, a
reduction in scope of certain integration projects, changes in the estimated
percentage of completion of certain projects and an increase in the estimated
time required to complete certain other projects.
At a Board meeting held on October 20, 1997, a Strategic Planning Committee
was appointed, consisting of Messrs. Tyler, Malina and Moran, and charged with
considering the Company's strategic alternatives and, to the extent it deemed
appropriate, negotiating with potential purchasers of part or all of the
Company.
On December 22, 1997, representatives of William Blair met with Ms.
Kochlefl and agreed to perform certain preliminary valuation analyses regarding
the Company and its divisions, with a view toward developing a strategic plan.
Representatives of William Blair met with Ms. Kochlefl and Mr. Munro on January
26, 1998, and with Ms. Kochlefl and Messrs. Munro and Moran on February 2, 1998,
to report their preliminary conclusions regarding the Alternatives.
At the February 11, 1998 meeting of the Board, the Strategic Planning
Committee recommended the engagement of William Blair, and representatives of
William Blair reviewed and discussed with the Board the three Alternatives and
their relative risks and benefits. At that meeting, the directors expressed the
view that the sale of LANSystems should be explored before proceeding with other
alternatives for the Company.
On several occasions in late February and early March 1998, representatives
of R.R. Donnelley, the Company's largest stockholder, discussed with
representatives of the Company and the Board its interest in the sale of the
Company.
At its March 4, 1998 meeting, the Board continued its discussions regarding
the Alternatives and the views of R.R. Donnelley. At this meeting, the Board,
after consultation with its advisers, concluded that the Company should pursue a
two-track approach, simultaneously soliciting bids for the Company, as a whole,
and the LANSystems division, alone.
On March 6, 1998, the Board by unanimous written consent authorized the
engagement of William Blair as its exclusive financial adviser in connection
with a possible sale, merger, or other business combination or recapitalization
involving either the entire Company or the LANSystems division. On March 17,
1998, the Company entered into an engagement letter with William Blair to
provide such financial advisory services. See Item 5 below.
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On March 10, 1998, Ms. Kochlefl met with the Chairman of Parent at his
request. In response to his expression of interest in possibly acquiring the
Company, she advised him that the Company was considering a number of strategic
alternatives, including the possibility of a sale of the Company, and that she
would have the appropriate person contact him if the Board determined to pursue
a possible sale.
William Blair began contacting potential buyers in mid-March and over the
ensuing six weeks mailed out separate offering memoranda to approximately 12
potential purchasers of the Company and approximately four potential purchasers
of LANSystems.
At the April 1, 1998 Board meeting, William Blair informed the Board of the
status of the bidding process and its efforts to have potential bidders execute
confidentiality and standstill agreements. At this meeting, Ms. Kochlefl
discussed with the Board her intention to lead a management bid to purchase the
Company, and excused herself from all other discussions of the status of the
bidding process.
At the April 16, 1998 Board meeting, at which Ms. Kochlefl was not present,
William Blair discussed with the Board the progress of the bid process,
reporting on five non-binding indications of interest received for the Company,
including one from the management group and one from Parent.
During late April and early May, the Company received indications of
interest from five additional potential purchasers. Furthermore, William Blair
attempted to solicit improved indications of interest from certain of the
earlier bidders (including the management group) whose initial indications of
interest were at prices which were considered to be too low based upon the other
indications of interest. The Company also proceeded with management
presentations and due diligence sessions for the seven bidders whose indications
of interest it believed to be strongest. During this period, the Board advised
the management group that they needed to significantly increase their bid to
continue in the process, which the management group was unable to accomplish.
Accordingly, the management group withdrew from the process.
On May 6, 1998, the Board met to discuss the results of the solicitation of
indications of interest. William Blair provided the Board with the status of the
potential bidders, the range of their bids and an update regarding management
meetings with the bidders. At this time, the Board determined to proceed with a
schedule pursuant to which a proposed contract would be distributed to the seven
strongest potential bidders for the Company. The Board determined that this
process should proceed before scheduling further negotiations or management
meetings regarding a potential sale of LANSystems, for which two indications of
interest had been received.
On May 7, 1998, William Blair distributed bid packages to each of the seven
potential bidders. The packages required that final bids, including a proposed
form of contract, be delivered to William Blair no later than May 19, 1998.
William Blair received three final bids by May 19, 1998, and two additional bids
on May 20, 1998.
The Board met on May 20, 1998 to discuss the bids which had been received.
William Blair summarized the key provisions of the bids and the Board then
discussed the bids with William Blair and the Company's legal counsel. Based
upon this discussion, the Board determined that the Company, with the assistance
of William Blair, should begin further negotiations with the three highest
bidders, one of which was Parent. The Parent bid was a cash tender offer for all
of the Shares of the Company at $20.00 per Share, subject to certain final
diligence and certain considerations relating to R.R. Donnelley described below.
The other bids offered lesser amounts of per Share cash consideration and were
subject to additional conditions not related to R.R. Donnelley. In addition, the
Company and its advisers commenced discussions with R.R. Donnelley regarding
certain provisions in the three remaining bids requesting an option on R.R.
Donnelley's Shares. Parent also required from R.R. Donnelley a noncompetition
agreement and a release of obligations under a tax sharing agreement between
R.R. Donnelley and the Company.
From May 19 to May 25, 1998, William Blair discussed with the three final
bidders the terms of their bids, explained to each of these bidders that the
bidding process was about to be completed, and tried to obtain increases in
their bids and modification of their contingencies. Based on these discussions,
William Blair reported that the bidders other than Parent wanted to conduct
substantial additional due diligence of the Company during the following week
before tendering final bids and were not able to agree to increased bid
21
<PAGE> 23
prices at that time. On May 25, 1998, Parent's financial adviser, Goldman, Sachs
& Co., indicated to William Blair that Parent was willing to increase its cash
bid to $21.00 per Share and to drop certain significant conditions to its bid if
the Company agreed to immediately negotiate with Parent. On May 25, 1998,
William Blair discussed the status of the bids with members of the Board and the
Company's legal counsel. The Board and management at that time decided to meet
with Parent to continue the negotiations.
On May 26, 1998, representatives of Parent, including management, its
financial adviser and its legal counsel, met with the Company, William Blair and
the Company's legal counsel. On May 26, Parent and Company representatives
negotiated the terms of the Merger Agreement. Representatives of Parent also
negotiated the terms of a Stockholders' Agreement with R.R. Donnelley. At the
May 26 Board meeting, William Blair updated the Board on the status of the
negotiations with the three final bidders, and the Board agreed to continue to
negotiate the final points with Parent and directed William Blair to communicate
with the other two final bidders that they needed to quickly improve their bids
or they would not be the final purchaser.
On May 27, 1998, representatives of the Company continued to negotiate the
final terms of the Merger Agreement with the representatives of Parent.
Representatives of Parent also negotiated the final terms of the Stockholders'
Agreement with R.R. Donnelley.
At the first of two May 27 Board meetings, the Board discussed the terms of
the final Parent proposal and the then current draft of the Merger Agreement
with William Blair and the Company's legal counsel. William Blair then reported
to the Board that in additional conversations with the other two final bidders,
one such bidder indicated an intention to deliver the following day a more
definitive expression of interest, but with no indication of expected
improvement in its price, which remained below $20; the other such bidder
indicated that it would shortly submit a bid at between $20 and $21 (but not
more), subject to several days of additional diligence and approval of its
board. The Board concluded that neither of these two bidders represented an
opportunity for which the Company should delay entering into the Merger
Agreement. The Board, with the assistance of its advisers, also discussed in
detail the factors listed under "-- Reasons for the Recommendation." William
Blair then rendered to the Board its oral opinion (subsequently confirmed by
delivery of a written opinion dated May 27, 1998) to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
consideration to be paid to the stockholders of the Company in the proposed
transaction with Parent is fair to the stockholders of the Company from a
financial point of view, and reviewed with the Board the financial analyses
performed by it in connection with its opinion. After taking into consideration
the factors listed under "-- Reasons for the Recommendation" and the advice of
William Blair and the Company's legal counsel, the Board tentatively concluded
that it was in favor of adoption of the Merger Agreement, subject to a final
determination to be made after the lawyers for the Company reported to the Board
on the final negotiations of the Merger Agreement.
At the second May 27 Board meeting, the Company's counsel summarized the
final negotiations on the Merger Agreement since the prior Board meeting.
William Blair reported that the expected improved price bid from one of the
other final bidders had been received, but remained below $21, and subject to
further diligence. The Board (unanimously, with one director absent due to his
inability to obtain a telephone connection to the meeting), after taking into
consideration the factors listed under "-- Reasons for the Recommendation" and
the advice of William Blair and the Company's legal counsel, then concluded that
the terms of the Merger Agreement and the transactions contemplated thereby,
including, without limitation, the Offer and the Merger, are advisable and fair
to and in the best interest of the Company's stockholders. The absent director,
who had indicated his tentative approval at the first May 27 meeting, later
confirmed his agreement with the Board decision.
(b)(2) Reasons for the Recommendation. In making the determination and
recommendation set forth in paragraph (a) above, the Board of Directors of the
Company considered many factors including, but not limited to, the following:
(i) the oral and written presentations of William Blair at the May 27,
1998 Board meeting and the written opinion of William Blair dated May 27,
1998 that, based upon and subject to the matters set forth
22
<PAGE> 24
therein and as of the date thereof, the cash consideration to be received
by the Company's stockholders in the Offer and the Merger was fair to the
Company's stockholders from a financial point of view (a copy of such
opinion, setting forth assumptions made and matters considered and
limitations set forth by William Blair, is attached as Exhibit 21 to this
Schedule 14D-9 and should be read in its entirety);
(ii) historical and current market prices and trading information
for the Company's Shares, including the fact that the $21.00 Per Share
Amount represents a premium of approximately 61% over the closing price of
$13.06 per Share on May 27, 1998, the last trading day prior to the public
announcement of the Offer, and was the highest offer received by the
Company;
(iii) the terms of other proposals received for the acquisition of
the Company, including the fact that William Blair contacted a substantial
number of potential bidders over an extended period of time in a process
designed to elicit third party proposals to acquire the Company and enhance
stockholder value and that participants in such process had been afforded
sufficient time and information to submit proposals had they wished to do
so;
(iv) the Board's review, based in part on presentations by the
Company's management and financial advisers, of possible alternatives to
the Offer and the Merger, including continuing to operate the Company as a
separate entity (with or without a sale of the LANSystems division);
(v) the possibility, based on an evaluation of market risks and the
financial prospects of the Company, of obtaining a higher stock price by
continuing to operate the Company as an independent entity;
(vi) information with regard to the financial condition, results of
operations, business and prospects of the Company, as reflected in the
financial and comparative analyses presented by William Blair and in the
Company's projections, as well as the risks involved in achieving those
prospects, current economic and market conditions (including current
conditions in the industry in which the Company is engaged) and the going
concern value of the Company (as reflected in part in its historical and
projected operating results);
(vii) the expected timing of the Offer and the Merger and the
desirability of providing liquidity to the Company's stockholders;
(viii) the terms and conditions of the Merger Agreement, including the
fact that Parent's obligation to consummate the Offer and the Merger is
subject only to a limited number of conditions and the fact that the Offer
is not conditioned upon financing;
(ix) the fact that although the Merger Agreement does not permit the
Company, its subsidiaries and its representatives to initiate or solicit
any potential Acquisition Proposal, in the event of an unsolicited
Acquisition Proposal the Company may engage in negotiations or discussions
with, or provide information to, a third party if the Board determines, in
good faith, after receipt of advice from outside legal counsel, that in the
exercise of its fiduciary responsibilities such information should be
provided or such discussions held; and the fact that in the event that the
Board were to decide to accept an Acquisition Proposal by a third party,
the Board may terminate the Merger Agreement upon payment of an aggregate
$4 million termination fee (which includes expenses) to Parent; and
(x) the fact that R.R. Donnelley, which owns approximately 43% of
the outstanding Shares, desired to sell its Shares and had entered into the
Stockholders' Agreement with Parent, pursuant to which R.R. Donnelley
agreed to tender its Shares pursuant to the Offer and vote its Shares in
favor of the Merger Agreement.
The foregoing describes all material factors considered and given weight by
the Board in connection with its decision to approve the Merger Agreement and
recommend that all holders tender their Shares pursuant to the Offer. The Board
evaluated the factors listed above in light of its knowledge of the business and
operations of the Company and their business judgment. The Board based its
determination that the terms of the Offer and the Merger are advisable and fair
to the stockholders of the Company primarily on the opinion of William Blair and
the other factors set forth above. In view of the variety of factors considered
in connection with its
23
<PAGE> 25
evaluation of the Offer and the Merger, the Board did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Board may have given different weight to different factors.
The Board of Directors recognized that Parent and Purchaser would be able
to close the Offer and effect the Merger without the vote of any other
stockholder of the Company if they acquire a majority of the outstanding Shares
pursuant to the Offer. In addition, the Board recognized that, while the
acquisition of the entire equity interest of the Company was structured as a
cash tender offer followed by a cash merger in order to provide a prompt and
orderly transfer of ownership of the Company, the Offer would be outstanding for
a minimum of 20 business days, and that Purchaser could extend the expiration
date of the Offer under certain circumstances described in Item 3 above. The
Board also recognized that, while the consummation of the Transaction offers
stockholders the opportunity to realize a significant premium over the price at
which Shares were traded prior to the public announcement of the proposed
Transaction, the Transaction would eliminate the opportunity of all stockholders
other than Parent to participate in the future growth of the Company. The Board
concluded, however, that this loss of opportunity was reflected in the Per Share
Amount of $21.00 per Share, and also recognized that there can be no assurance
as to the level of growth to be attained by the Company in the future.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Except as described below, neither the Company nor any person acting on its
behalf has employed, retained or agreed to compensate any other person to make
solicitations or recommendations to stockholders of the Company concerning the
Offer.
William Blair is acting as financial adviser to the Company in connection
with the Offer and other matters arising in connection therewith pursuant to a
letter agreement, dated as of March 17, 1998, between William Blair and the
Company (the "Engagement Letter"). Under the terms of the Engagement Letter,
William Blair agreed to render certain financial advisory and investment banking
services in connection with a possible business combination (through tender
offer, merger, sale or exchange of stock, sale of all or a substantial part of
its assets or otherwise) of (i) the Company with another party and/or (ii) the
Company's LANSystems division (the events described in clauses (i) and (ii) are
each referred to as a "Possible Transaction"). The Engagement Letter also
provides, among other things, that William Blair will render an opinion as to
the fairness, from a financial point of view, to the Company's common
stockholders of the consideration to be received by such stockholders in any
Possible Transaction, or, alternatively, advise the Board of Directors that it
is unable to render such an opinion due to the inadequacy of such consideration.
Pursuant to the terms of the Engagement Letter, the Company agreed to pay
William Blair a quarterly retainer fee of $25,000. The Engagement Letter
provides that in the event that William Blair renders a fairness opinion or
advises the Board that it is unable to render such an opinion, then the Company
will pay William Blair an opinion fee of $100,000 in the event of a contemplated
sale of LANSystems or $300,000 in the event of a contemplated sale of the
Company. In the event that a Possible Transaction is consummated, the Engagement
Letter provides that the Company will pay or cause to be paid to William Blair a
fee equal to (i) 2.0% of the total consideration received by the Company and its
stockholders in the event of a sale of LANSystems (subject to a total minimum
fee of $300,000) and (ii) the sum of (x) 1.0% of the total consideration
received by the Company and its stockholders (calculated on a fully-diluted
basis), (y) an additional 1.0% of the amount by which such total consideration
exceeds the product of $7.50 times the number of Shares outstanding calculated
on a fully-diluted basis, and (z) an additional 1.0% of the amount by which such
total consideration exceeds the product of $15.00 times the number of Shares
outstanding calculated on a fully-diluted basis, in the event of a sale of the
Company, less the aggregate of any opinion fees therefore paid pursuant to the
Engagement Letter in connection with the respective Possible Transaction.
Notwithstanding the foregoing, the Engagement Letter provides that in the event
that LANSystems and the Company are sold in separate transactions, the fee paid
to William Blair pursuant to (i) in the immediately preceding sentence will be
equal to $200,000. The Company also agreed in the Engagement Letter to reimburse
William Blair for its reasonable out-of-pocket expenses and to indemnify William
Blair against certain liabilities, including those relating to or in connection
with the Offer.
24
<PAGE> 26
William Blair's engagement pursuant to the Engagement Letter may be
terminated by either the Company or William Blair at any time, with or without
cause upon written notice to the other party; provided, however, that (a) no
such termination shall affect William Blair's right to expense reimbursement or
indemnification and (b) if the Company consummates any Possible Transaction
within 12 months following such termination with any party (i) which William
Blair identified in writing, (ii) in respect of which William Blair rendered
advice or (iii) with which the Company has directly or indirectly held
discussions prior to such termination, then William Blair will be entitled to
the full amount of the fee described in the preceding paragraph so long as
William Blair did not unilaterally terminate the engagement without cause.
Notwithstanding the foregoing, in the event that LANSystems is sold in a
transaction that closes subsequent to the sale of the Company, then William
Blair will not be entitled to the $200,000 fee described above in the event of a
sale of LANSystems if William Blair did not render advice or actively
participate in arranging or pricing such transaction.
In the ordinary course of its business, William Blair and its affiliates
may actively trade in securities of both the Company and Parent for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best of the Company's knowledge, except as described in the
Information Statement attached hereto as Annex I under the caption "Compensation
of Directors", no transactions in the Shares have been effected during the last
60 days by the Company or any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, except as described in Item
3(b)(1) above under the caption "Merger Agreement -- Options" (the provisions of
which are hereby incorporated herein by reference) and subject to applicable
securities laws and personal considerations (including tax planning), all
directors and executive officers of the Company presently intend to tender
pursuant to the Offer all Shares owned beneficially or of record by such
persons. The foregoing does not include any Shares over which, or with respect
to which, any such director or executive officer acts in a fiduciary or
representative capacity or is subject to the instructions of a third party with
respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as described in Item 3(b)(1) and Item 4 above (the provisions of
which are hereby incorporated herein by reference), no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company, (iii) a tender offer for, or other acquisition of,
securities by or of the Company or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(b)(1) and Item 4 above (the provisions of
which are hereby incorporated herein by reference), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relates to or would result in one or more of the matters
referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Stockholders do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, stockholders of the Company at the time
of the Merger who do not vote in favor of the Merger will have the right under
the DGCL to dissent and demand appraisal of, and receive payment in cash of the
fair value of, their Shares outstanding immediately prior to the effective date
of the Merger in accordance with Section 262 of the DGCL.
25
<PAGE> 27
Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of such merger or similar business combination)
and to receive payment of such fair value in cash. Any such judicial
determination of the fair value of such Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Stockholders should recognize that the value so determined
could be higher or lower than the price per Share paid pursuant to the Offer or
the consideration per Share to be paid in the Merger or other similar business
combination.
In addition, several decisions by Delaware courts have held that in certain
circumstances a controlling stockholder of a corporation involved in a merger
has a fiduciary duty to other stockholders that requires that the merger be fair
to other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of the consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above. However, a damages remedy or injunctive relief may
be available if a merger is found to be the product of procedural unfairness,
including fraud, misrepresentation or other misconduct.
26
<PAGE> 28
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 - Agreement and Plan of Merger, dated as of May 27, 1998, by
and among Parent, Purchaser and the Company.(1)
Exhibit 2 - Stockholders' Agreement, dated as of May 27, 1998, between
Parent and R.R. Donnelley & Sons Company.(1)
Exhibit 3 - Confidentiality and Standstill Agreement, dated March 19,
1998, between the Company, Parent and Purchaser
Exhibit 4 - Form of Letter from the Company to Rhonda I. Kochlefl, dated
May 8, 1998, with respect to the Company's sale incentive
award program.
Exhibit 5 - Form of letter from the Company to certain executive
officers, dated May 8, 1998, with respect to the Company's
sale incentive award program.
Exhibit 6 - Employment Agreement between Rhonda I. Kochlefl and the
Company(2).
Exhibit 7 - Employment Agreement between Linda A. Finkel and the
Company.(3)
Exhibit 8 - Employment Agreement between Thomas A. Munro and the
Company.
Exhibit 9 - Employment Agreement between Robert A. Lento and the
Company.(4)
Exhibit 10 - Employment Agreement between David J. Shea and the
Company.(4)
Exhibit 11 - Agreement Regarding Confidential Information, Intellectual
Property Non-Competition, Non-Solicitation and Change of
Control between Nestor P. Holynskyj and the Company.
Exhibit 12 - First Amended and Restated Certificate of Incorporation of
the Company.(2)
Exhibit 13 - By-laws of the Company.(2)
Exhibit 14 - Form of Indemnification Agreement between the Company and
certain of its officers and directors.
Exhibit 15 - Transition Services Agreement between the Company and R.R.
Donnelley.(2)
Exhibit 16 - Benefit Administration Services Agreement between the
Company and R.R. Donnelley.(2)
Exhibit 17 - Tax Allocation and Indemnification Agreement between the
Company and R.R. Donnelley.(2)
Exhibit 18 - Letter agreement, dated May 27, 1998, between the Company
and R.R. Donnelley.
Exhibit 19 - Form of Press Release issued by the Company and Parent on
May 28, 1998.(1)
Exhibit 20 - Form of Letter, dated June 3, 1998, to stockholders of the
Company.*
Exhibit 21 - Opinion of William Blair & Company, L.L.C. dated May 27,
1998.*
</TABLE>
- -------------------------
* Included in copies mailed to stockholders.
(1) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on May 29, 1998.
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (No. 333-10127), declared effective by the Commission on October
30, 1996.
(3) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on March 28,
1997.
(4) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, filed with the Commission on March 31,
1998.
27
<PAGE> 29
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
DONNELLEY ENTERPRISE SOLUTIONS
INCORPORATED
By: /s/ RHONDA I. KOCHLEFL
-----------------------------------
Name: Rhonda I. Kochlefl
Title: Chairman, President and
Chief Executive Officer
Dated: June 3, 1998
28
<PAGE> 30
ANNEX I
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
161 NORTH CLARK STREET
CHICAGO, ILLINOIS 60601
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about June 3, 1998 as part
of the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"). You are receiving this Information Statement in connection
with the possible election of persons designated by Parent to a majority of the
seats on the Board of Directors of the Company. You are urged to read this
Information Statement carefully. You are not, however, required to take any
action. Capitalized terms used and not otherwise defined herein shall have the
meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on June
3, 1998. The Offer is scheduled to expire at 12:01 a.m. on Wednesday, July 1,
1998, New York City time, at which time, upon the expiration of the Offer, if
all conditions of the Offer have been satisfied or waived, the Purchaser has
informed the Company that it intends to purchase all Shares validly tendered
pursuant to the Offer and not withdrawn. The consummation of the Offer and
Merger pursuant to the terms of the Merger Agreement would result in a change of
control of the Company.
The information contained in this Information Statement concerning Parent
and the Purchaser has been furnished to the Company by Parent and Purchaser, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
BOARD OF DIRECTORS
General
The Shares are the only class of voting stock of the Company outstanding
and each Share is entitled to one noncumulative vote. As of June 1, 1998, there
were 5,010,277 Shares issued and outstanding. The Board currently 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
2000 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. The size of the board is subject to certain
contractual commitments set forth in the Merger Agreement. See "-- Right to
Designate Directors." Each director of the Company holds office until such
director's successor is elected and qualified or until such director's earlier
resignation or removal.
Right to Designate Directors
The Company has agreed in the Merger Agreement that promptly after the
payment by Purchaser for the Shares tendered pursuant to the Offer in accordance
with the terms of the Merger Agreement, Parent will be entitled to designate
such number of directors on the Board of Directors, rounded to the nearest whole
number, as will give Purchaser representation on such Board equal to at least
the number of directors which equals the product of the total number of the
directors on such Board (after giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that such number of Shares owned
and paid for by the Purchaser and its affiliates bears to the number of Shares
outstanding. Promptly after consummation of the Offer, the Company will, upon
request of Parent, use its best efforts promptly either to increase the size of
the Board of Directors or, at the Company's election, secure the resignations of
such number of its
I-1
<PAGE> 31
incumbent directors as is necessary to enable Parent's designees to be so
elected or appointed to the Company's Board, and will cause Parent's designees
to be so elected or appointed. The Company's obligation to appoint the
Purchaser's designees to the Board of Directors is subject to compliance with
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.
The Parent Designees
Pursuant to the terms of the Merger Agreement, it is expected that the
Parent Designees will take office as directors of the Company upon Purchaser's
purchase of and payment for such number of Shares which represents at least a
majority of the outstanding Shares (on a fully-diluted basis) in the Offer.
Parent has informed the Company that it currently intends to choose the
designees (the "Parent Designees") it has a right to designate to the Board
pursuant to the Merger Agreement from the directors and executive officers of
Parent listed in Schedule I of the Offer to Purchase, a copy of which is being
mailed to the stockholders. The information with respect to such directors and
officers in Schedule I of the Offer to Purchase is hereby incorporated herein by
reference in its entirety. As of June 1, 1998, the names and ages of each such
officer and director were as follows:
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C>
Robert M. Conway.......................................... 54
Carl J. Crosetto.......................................... 49
Denise K. Fletcher........................................ 49
Robert M. Johnson......................................... 52
Edward H. Meyer........................................... 71
James P. O'Neil........................................... 53
H. Marshall Schwarz....................................... 61
Judith Shapiro............................................ 51
Wendell M. Smith.......................................... 63
Lisa A. Stanley........................................... 42
Vincent Tese.............................................. 55
Richard R. West........................................... 60
</TABLE>
It is expected that certain of the Parent Designees may assume office at
any time following the purchase by Purchaser of a specified minimum number of
Shares pursuant to the Offer, which purchase cannot be earlier than July 1, 1998
and that, upon assuming office, the Parent Designees will thereafter constitute
at least a majority of the Board. This step will be accomplished at a meeting or
by written consent of the Board providing that the size of the Board will be
increased and/or sufficient numbers of current directors will resign such that,
immediately following such action, the number of vacancies to be filled by
Parent Designees will constitute at least a majority of the available positions
on the Board.
The business address of each of the Parent Designees is c/o Bowne & Co.,
Inc., 345 Hudson Street, New York, New York 10014, and each such person is a
citizen of the United States. Parent has advised the Company that each of the
Parent Designees has consented to act as a director, and that none of such
persons has during the last five years been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was, or is, subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
Parent has also advised the Company that none of the Parent Designees is a
director of, or holds any position with, the Company, and that none of such
persons beneficially owns any equity securities, or rights to acquire any equity
securities, of the Company or has been involved in any transactions with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the
Commission. The election of the Parent Designees will be accomplished at a
meeting or by written consent of the Board.
I-2
<PAGE> 32
Board of Directors of the Company
Set forth below are the names, present positions, and ages of all directors
of the Company and the positions held by such persons in the last five years.
<TABLE>
<CAPTION>
TERM EXPIRES
NAME AGE (CLASS) POSITION
---- --- ------------ --------
<S> <C> <C> <C>
Rhonda I. Kochlefl................... 39 1999(III) Chairman, President and Chief Executive
Officer and Director
Charles F. Moran..................... 68 2000(I) Director
Leo S. Spiegel....................... 37 2001(II) Director
Gregory A. Stoklosa.................. 42 2001(II) Director
W. Ed Tyler.......................... 45 1999(III) Director
</TABLE>
CLASS I -- SERVING 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. From 1994 to May 1998, Mr. Moran served as an
outside director of Thermadyne Holdings Corporation. Mr. Moran has also served
as an outside director of SPS Transactions Services, Inc. since 1985, Hurley
State Bank since 1996 and Advantica Restaurant Group, Inc. since January 1998.
He has also been a director of Homan-Arthington Foundation and West Side
Affordable Housing, Inc. since 1995 and 1991, respectively. Mr. Moran has been a
director of the Company since March 1997.
CLASS II -- SERVING UNTIL 2001 ANNUAL MEETING
Gregory A. Stoklosa has been Vice President and Treasurer of R.R. Donnelley
since January 1996. Mr. Stoklosa joined R.R. Donnelley in 1993 as Director,
Financial Services and in 1994 was promoted to Assistant Treasurer, Global
Corporate Finance. Prior to joining R.R. Donnelley, Mr. Stoklosa was Assistant
Treasurer for Kraft General Foods, Inc. Mr. Stoklosa has been a director of the
Company since January 1998, replacing Daniel I. Malina who resigned from the
Board of Directors at that time.
Leo S. Spiegel has been the President and Chief Executive Officer of
Sandpiper Networks, Inc., an internet content distribution company, and a
principal in The Joleo Group since January 1998. He served as Senior Vice
President and Chief Technology Officer of the Company from February 1996 to
January 1998. 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, a division of R.R.
Donnelley, 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 Donnelley Business Services. From 1988 to 1991, she was General
Manager for the eastern region of Donnelley Business Services, for which she was
responsible for all sales and operations. Ms. Kochlefl has been a director of
the Company since February 1996.
W. Ed Tyler has been President and Chief Executive Officer and a director
of Moore Corporation Limited since April 1998. From November 1997 to April 1998,
he served as Executive Vice President and Chief Technology Officer of R.R.
Donnelley. From January 1996 to November 1997, he was the Executive
I-3
<PAGE> 33
Vice President and Sector President, Information Management Sector of R.R.
Donnelley. Mr. Tyler joined R.R. Donnelley in 1974 and 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.
Until the Effective Time, the Company and Parent have agreed pursuant to
the Merger Agreement to use all reasonable best efforts to retain as members of
the Board of Directors at least three directors who were directors of the
Company on the date of the Merger Agreement and who are not representatives of
Parent (the "Independent Directors"); provided that subsequent to the purchase
of and payment for not less than a majority of the outstanding Shares pursuant
to the Offer, Parent will always have its designees represent at least a
majority of the Board of Directors. The Independent Directors will initially be
Ms. Kochlefl and Messrs. Moran and Stoklosa, provided that in the event that any
of such persons resigns or otherwise ceases to be a director for any reason,
then the other Independent Directors have the right pursuant to the Merger
Agreement, by majority vote, to designate a replacement for such director (and
such replacement will be an "Independent Director"). If for any reason at any
time prior to the Effective Time no Independent Directors then remain, the other
directors will use reasonable best efforts to designate three persons to be the
Independent Directors, none of whom will be directors, officers, employees or
affiliates of Parent or Purchaser or employees of the Company.
It is contemplated that except for the Independent Directors, the remaining
current directors of the Company will resign upon the closing of the Offer.
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. The Board held nine
meetings during 1997.
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 Audit 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 Audit Committee held one meeting during 1997.
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 Company's Amended and Restated 1996 Stock Incentive Plan
("1996 Plan"), 1997 Employee Stock Purchase Plan and 1997 Non-Employee Director
Stock Plan ("1997 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. In addition, the
Compensation Committee recommends nominees for election to the Board. Currently,
the members of the Compensation Committee are Mr. Moran (Chairman) and Mr.
Tyler. The Compensation Committee held four meetings during 1997.
I-4
<PAGE> 34
EXECUTIVE OFFICERS
Listed below are the names, present titles, and ages of all executive
officers of the Company except for Ms. Kochlefl and the positions held by such
persons in the last five years. For such information with respect to Ms.
Kochlefl, see "Board of Directors -- Board of Directors of the Company" above.
Executive officers of the Company are appointed annually by the Board of
Directors and serve until their successors have been duly elected and qualified
or until their death, resignation or removal.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Vice President, Chief Financial Officer and Assistant
Thomas A. Munro...................... 37 Secretary
Nestor P. Holynskyj.................. 35 Chief Technology Officer
Linda A. Finkel...................... 38 President, Donnelley Business Services
Robert A. Lento...................... 37 President, LANSystems
David J. Shea........................ 42 President, Systems Management Group
</TABLE>
Thomas A. Munro has been Vice President, Chief Financial Officer and
Assistant Secretary since January 1998 and Vice President, Corporate Controller
and Assistant Secretary since March 1997. From 1995 to February 1997, he served
as Controller of DBS. From 1993 to 1995, he was Financial and Operations Manager
of DBS. He joined R.R Donnelley in 1987 and held various financial positions
with R.R. Donnelley.
Nestor P. Holynskyj has been Chief Technology Officer of the Company since
January 1998. He served as Vice President, Consulting Services Group of
LANSystems and Vice President/General Manager, Eastern region of LANSystems from
1990 to 1998. From 1980 to 1990, he held two Vice President positions at J.P.
Morgan.
Linda A. Finkel has been President of the DBS division of the Company since
February 1996. From 1994 to 1996, she served as the Vice President/General
Manager for the central region of DBS. She joined R.R. Donnelley in 1982 and
held various positions with R.R. Donnelley, including that of information
services account executive.
David J. Shea has been the President of the Systems Management Group
division of the Company since February 1997. Prior to becoming the President, he
served as the Senior Vice President and General Manager of the Systems
Management Group division from July 1996 to February 1997. Mr. Shea was the Vice
President and General Manager of the eastern region of DBS and eastern region
General Manager of DBS from November 1993 to June 1996. From 1990 to 1993, he
was Client Solutions Executive and Consulting Practice Manager of Integrated
Systems Solutions Corporation, a systems outsourcing subsidiary of IBM.
Robert A. Lento has been the President of the LANSystems division since
January 1997. From January 1995 to 1997, he was the Senior Vice President of
Operations for Entex Information Services, Inc. ("Entex"), an integration
services firm. From 1992 to 1995, Mr. Lento was a Regional Director of Entex.
From 1990 to 1992, he was a General Manager of Entex. Prior to joining Entex,
Mr. Lento was the owner of Computer Professionals, Inc., which was acquired by
Entex in 1990.
I-5
<PAGE> 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Shares by all persons known to the Company to be
the beneficial owner of more than 5% of the outstanding Shares, based on a
review of statements filed with the Commission pursuant to Section 13(d) and
13(g) of the Exchange Act.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF CLASS
- ---------------- ------ --------
<S> <C> <C>
R.R. Donnelley & Sons Company(1)(2)......................... 2,140,000 42.76%
77 West Wacker Drive
Chicago, Illinois 60601
The Kaufmann Fund, Inc.(1) ................................. 719,500 14.39%
140 E. 45th Street, 43rd Floor
New York, New York 10017
Trimark Financial Corporation(1)............................ 426,700 8.5%
Trimark Investment Management, Inc.
One First Canadian Place, Suite 5600
P.O. Box 487
Toronto, Canada M5X 1E5
T. Rowe Price Associates, Inc.(1) .......................... 350,000 6.9%
T. Rowe Price New Horizons Fund, Inc.
100 E. Pratt Street
Baltimore, Maryland 21202
Kennedy Capital Management, Inc.(1) ........................ 313,900 6.3%
10829 Olive Blvd.
St. Louis, Missouri 63141
</TABLE>
- -------------------------
(1) Based on information in Schedule 13D of R.R. Donnelley & Sons Company, dated
February 12, 1997; Schedule 13G of The Kaufman Fund, Inc., dated December
31, 1997; Schedule 13G of Trimark Financial Corporation, dated February 11,
1998; Schedule 13G of T. Rowe Price Associates, Inc., dated February 12,
1998; and Schedule 13G of Kennedy Capital Management, Inc., dated February
10, 1998.
(2) See "Stockholders' Agreement" in Item 3 of the Schedule 14D-9.
I-6
<PAGE> 36
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of Shares as of June 1, 1998 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(2) OF CLASS
---------------- ------------ ----------
<S> <C> <C>
Rhonda I. Kochlefl(1)....................................... 25,941 *
Leo S. Spiegel(4)........................................... 2,500 *
Robert A. Lento............................................. 7,682 *
Linda A. Finkel............................................. 11,500 *
David J. Shea............................................... 9,688(3) *
Gregory A. Stoklosa......................................... -- *
W. Ed Tyler................................................. 1,667 *
Charles F. Moran............................................ 1,667 *
Directors and executive officers as a group (10 persons).... 65,268(1) 1.3%
</TABLE>
- -------------------------
* Less than one percent.
(1) Includes 5,000 shares of restricted stock granted to Ms. Kochlefl on
November 5, 1996, one quarter of which vested on November 5, 1997, and the
remainder of which will vest upon consummation of the Offer. See "Employment
Contracts, Termination of Employment and Change-in-Control Arrangements."
(2) Unless otherwise indicated, the named person possess 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 as follows: Ms. Kochlefl -- 15,000; Mr.
Lento -- 6,250; Ms. Finkel -- 7,500; Mr. Shea -- 7,500; Mr. Tyler -- 1,667;
Mr. Moran -- 1,667; and other executive officers not named in the
table -- 3,700.
(3) Mr. Shea shares voting and dispositive power with respect to 2,000 Shares.
(4) Mr. Spiegel resigned from his position as a executive officer of the Company
effective January 15, 1998.
I-7
<PAGE> 37
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, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- -------------------------------------------
NUMBER
OF SECURITIES
UNDERLYING ALL OTHER
OTHER ANNUAL RESTRICTED OPTIONS COMPENSATION
FISCAL SALARY BONUS COMPENSATION STOCK AWARD GRANTED(3) (4)
NAME AND PRINCIPAL POSITION YEAR $ $ $ ($) # $
- --------------------------- ------ ------ ----- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl....... 1997 300,000 -- -- -- --
Chairman, President and
Chief 1996 224,637 -- 9,644 $125,000 60,000 --
Executive Officer 1995 186,625 45,724 5,925 5,000 --
Leo S. Spiegel........... 1997 249,996 -- -- -- --
Former Senior Vice
President 1996 229,166 -- 3,946 40,000 813,525
and Chief Technology
Officer(1) 1995 204,470 122,445(2) -- 4,000 356,412
Robert A. Lento.......... 1997 201,250 -- -- 25,000 --
President, LANSystems 1996 -- -- -- -- --
1995 -- -- -- -- --
Linda A. Finkel.......... 1997 184,992 104,292 -- -- --
President, Donnelley
Business 1996 160,181 29,934 4,972 30,000 --
Services 1995 123,574 26,972 4,787 3,000 --
David J. Shea............ 1997 179,167 37,000 -- 15,000 --
President, Systems
Management 1996 140,692 28,477 5,211 15,000 --
Group 1995 126,492 22,136 4,024 3,000 --
</TABLE>
- -------------------------
(1) Mr. Spiegel resigned from his position as an executive officer of the
Company effective January 15, 1998.
(2) Includes $40,670 paid in March 1996 to Mr. Spiegel under the provisions of
the LANSystems, Inc. earnout that related 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 $1.25 per share, of R.R.
Donnelley.
(4) Amounts shown for 1995 represent payments made to Mr. Spiegel (i) at the
closing of the acquisition of LANSystems, Inc. in June 1995 in respect of
their LANSystems, Inc. common stock options and (ii) in March 1996 under
provisions of the LANSystems, Inc. earnout that relate to such options and
the achievement in 1995 of specified financial targets. Amounts shown for
1996 represent payments made to Mr. Spiegel prior to the Company's initial
public offering of Shares on November 5, 1996 (the "IPO") in final payment
of the LANSystems, Inc. earnout obligations.
I-8
<PAGE> 38
OPTION GRANTS IN 1997
The following table shows information for individuals named in the Summary
Compensation Table regarding grants of stock options to them during the year
ended December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES EXERCISE PRICE PRESENT VALUE
NAME GRANTED(#)(1)(2) IN 1997 ($/SH) EXPIRATION DATE ($)(3)
- ---- -------------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl....... -- -- -- -- --
Leo S. Spiegel........... -- -- -- -- --
Robert A. Lento.......... 25,000 25% $10.50 3/10/2007 $178,490
Linda A. Finkel.......... -- -- -- --
David J. Shea............ 15,000 15% $10.50 3/10/2007 $107,094
</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. Consummation of the Offer will constitute such a change in
control.
(2) Does not include options granted in February 1998 with an exercise price of
$9.875 per share as follows: Ms. Kochlefl--49,000; Ms. Finkel -- 27,000; Mr.
Lento -- 10,000; and Mr. Shea -- 16,000.
(3) 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 78.4% has been
assigned to the volatility of the Shares; based on the average volatility of
the Company's comparable stocks, the yield on the Shares 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 6.4%, the rate for a five 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 correct 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 the Shares on
the date of exercise.
I-9
<PAGE> 39
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, 1997. None of
the named individuals exercised options to purchase Shares in 1997. For a
description of the treatment of the outstanding stock options pursuant to the
terms of the Merger Agreement, see "Merger Agreement -- Options" in Item 3 of
the Schedule 14D-9 and "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" below.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/97(#) OPTIONS AT 12/31/97($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rhonda I. Kochlefl(2)............................ 15,000 45,000 $0 $0
Leo S. Spiegel(1)................................ 10,000 30,000 0 0
Robert A. Lento(2)............................... -- 25,000 -- 0
Linda A. Finkel(2)............................... 7,500 22,500 0 0
David J. Shea(2)................................. 3,750 26,210 0 0
</TABLE>
- -------------------------
(1) Pursuant to the 1996 Plan, Mr. Spiegel's stock options terminated on April
15, 1998.
(2) Upon consummation of the Offer, the executive will receive the difference
between the Per Share Amount and the exercise price of the unexercised
options (net of applicable withholding taxes).
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, which was adopted on May 7, 1997, directors who
are not employees of the Company ("non-employee directors") receive an annual
grant of options to purchase 5,000 Shares at a price equal to the fair market
value of a Share on the date of grant. Each year's grant is issued on the date
of the annual meeting in such year except in the case of persons who become
non-employee directors between the dates of annual meetings, who receive a grant
upon attaining such status and do not receive a grant at the first annual
meeting thereafter. Pursuant to the 1997 Plan, (i) Messrs. Moran and Tyler, and
Mr. Malina, a director who has since resigned, each received his 1997 grant on
May 7, 1997 with an exercise price of $10.75 per Share, (ii) Mr. Spiegel
received his 1998 grant on January 16, 1998 with an exercise price of $8.125 per
Share, (iii) Mr. Stoklosa received his 1998 grant on January 30, 1998, with an
exercise price of $7.50 per Share, and (iv) Messrs. Moran and Tyler each
received his 1998 grant on May 6, 1998 with an exercise price of $12.75 per
Share. 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. In addition, all of such options
will vest upon consummation of the Offer.
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. Pursuant to
the agreement, Ms. Kochlefl earned a base salary of $300,000 with a bonus
opportunity for 1997 to earn up to 100% of base salary if certain pre-
established net income criteria were met by the Company. Ms. Kochlefl did not
receive a bonus for 1997. Bonus opportunities for 1998, and later years, will be
reviewed and approved by the Board or a committee of the Board.
In the event Ms. Kochlefl's employment is terminated, her employment
agreement provides for customary payments of earned, but unpaid, base salary and
bonus, with any bonus earned but not yet payable, to be paid on a pro rata basis
to the date of termination in accordance with the Company's payroll policies;
compensation for vacation time accrued but not taken; and a severance payment of
no less than
I-10
<PAGE> 40
24 months and up to 27 months' base salary, depending on the date of severance,
where such 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.
The definition of "Good Reason" includes (i) a material diminution in the
responsibilities, duties and power of Ms. Kochlefl, including the failure of the
Board of Directors or stockholders of the Company to elect Ms. Kochlefl to the
Board of Directors, and to the positions of Chairman of the Board and/or Chief
Executive Officer, (ii) a move of Ms. Kochlefl's office from its present
location to a location outside of the Chicago, Illinois metropolitan area or
(iii) Ms. Kochlefl becoming subject to the direction of any person other than
the Board of Directors of the Company. If Ms. Kochlefl is terminated for any
reason other than for cause or if she terminates her employment agreement for
Good Reason, the Company anticipates Ms. Kochlefl will be entitled to receive
$600,000. In addition, 100% of all options and restricted stock awards Ms.
Kochlefl holds will vest on such termination or upon a change of control (as
defined in the 1996 Plan). The consummation of the Offer will result in a change
of control under the 1996 Plan and, accordingly, all of the options and
restricted stock held by Ms. Kochlefl will vest at such time. The Company
anticipates payments pursuant to the acceleration and cash-out of these options
will be $545,125. In addition, 100% of Ms. Kochlefl's restricted stock awards
will vest upon the change of control. 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. Any severance payment would be made in a single payment at
termination. Ms. Kochlefl's 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.
Ms. Finkel, Mr. Lento and Mr. Shea each entered into a four-year employment
agreement with the Company commencing on November 5, 1996, January 13, 1997 and
March 1, 1997, respectively. Mr. Munro entered into a three-year employment
agreement with the Company commencing on August 1, 1997. Pursuant to the
agreements, Ms. Finkel, Mr. Lento, Mr. Shea and Mr. Munro earned a base salary
of $185,000, $210,000, $175,000 and $170,000, respectively. In 1998, Ms.
Finkel's and Mr. Shea's base salary increased to $205,000 and $200,000
respectively. Ms. Finkel, Mr. Lento and Mr. Shea had a bonus opportunity for
1997 to earn up to 80% of base salary if certain pre-established net income
criteria were met by the Company. Although the criteria were not met for 1997,
the Board, on a discretionary basis, authorized bonus payments to Ms. Finkel,
Mr. Shea and Mr. Munro for 1997 of $104,292, $37,000 and $25,000 respectively.
Mr. Lento did not receive a bonus for 1997. Bonus opportunities for 1998, and
later years, will be reviewed and approved by the Board or a committee of the
Board.
Each of Ms. Finkel's, Mr. Lento's, Mr. Shea's and Mr. Munro's employment
agreement provides for a severance payment of 24 months' base salary, 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 Ms.
Finkel's, Mr. Shea's and Mr. Munro's employment agreements, the definition of
"Good Reason" includes (i) a material diminution in the executive's
responsibilities, duties and powers or (ii) in the case of Ms. Finkel, a move of
Ms. Finkel's offices from their present location to a location outside of the
Chicago, Illinois metropolitan area and in the case of Mr. Shea, a move of Mr.
Shea's offices from their present location to a location outside of the New York
metropolitan area. In Mr. Lento's employment agreement, the definition of "Good
Reason" includes (i) a material diminution in his responsibilities, duties and
powers (ii) a move of his offices from their present location to a location
outside of the New York metropolitan area, (iii) a change in his reporting
relationship such that he no longer reports directly to the Chairman, President
and Chief Executive Officer of the Company or (iv) the acquisition by any person
or group of beneficial ownership of more than 50% of either the then outstanding
stock or the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors. If Ms.
Finkel, Mr. Lento, Mr. Shea or Mr. Munro are terminated for any reason other
than for cause or if they terminate their employment agreements for Good Reason,
the Company anticipates such executives will be entitled to receive $410,000,
$420,000, $400,000 and $340,000, respectively, with payments to be made over a
24 month period. In addition, each such executive will receive a prorated bonus
for the year of termination, and 100% of all options held by each such executive
will vest on such termination. In addition, all of the options held by such
executives will vest upon consummation of the Offer, which constitutes a change
of control under the 1996
I-11
<PAGE> 41
Plan. The Company anticipates payments pursuant to the acceleration and cash-out
of the options held by Ms. Finkel, Mr. Lento, Mr. Shea and Mr. Munro will be
$300,375, $373,750, $335,500 and $215,000, respectively. 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 each such executive for any reason
other than upon breach by the Company of the agreement or for Good Reason, or by
reason of each such 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.
Mr. Holynskyj entered into an Agreement Regarding Confidential Information,
Intellectual Property Non-Competition, Non-Solicitation and Change of Control
with the Company on February 2, 1998. Pursuant to the agreement, if Mr.
Holynskyj's employment with the Company is terminated as a result of a Change of
Control of the Company (as defined below), Mr. Holynskyj will be entitled to
receive an amount equivalent to his then current annual salary within thirty
days of the date of termination. For purposes of the agreement, the phrase
"Change of Control" means the acquisition by any person or group of beneficial
ownership, other than R.R. Donnelley, in one or a series of transactions, of
more than 50% of either the then outstanding stock or the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors. If Mr. Holynskyj's employment with the
Company is terminated as a result of a Change of Control, the Company
anticipates Mr. Holynskyj will be entitled to receive $158,000, his current
annual salary, within thirty days of the date of termination. The agreement also
contains provisions providing for the non-disclosure of confidential information
and an agreement not to compete with the Company for a period of 18 months after
the termination of the agreement.
Mr. Spiegel entered into a four-year employment agreement with the Company
commencing on November 5, 1996. Pursuant to the agreement, Mr. Spiegel earned a
base salary of $250,000 with a bonus opportunity for 1997 to earn up to 80% of
base salary if certain pre-established net income criteria were met by the
Company. Mr. Spiegel was not paid a bonus for 1997. Mr. Spiegel's employment
agreement terminated effective January 15, 1998. Pursuant to the terms of the
agreement, Mr. Spiegel remains subject to 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.
Certain executive officers of the Company may receive payments (the "Sale
Incentive Arrangements") in connection with the contemplated Sale of the Company
(as defined in Item 3(b)(2) of the Schedule 14D-9). A summary of the Sale
Incentive Arrangements is set forth in Item 3(b)(2) of the Schedule 14D-9 under
the caption "Sale Incentive Arrangements" and is incorporated herein by
reference.
CERTAIN RELATIONSHIPS AND 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,
1997, the Company had approximately $510,000 in outstanding indebtedness to R.R.
Donnelley (which was subsequently paid), including both the fees related to the
Transition 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 approximately 43% of the Shares outstanding.
In addition, Mr. Stoklosa, who is a director of the Company, is an employee of
R.R. Donnelley. Mr. Stoklosa is the Vice President and Treasurer of R.R.
Donnelley.
The Company sells integration services and products to R.R. Donnelley.
These sales approximated $411,000 for the twelve-month period ended December 31,
1997.
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
I-12
<PAGE> 42
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, certain of which continued to be in force in 1997. 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 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 was in effect until December 31, 1997, except with respect to
tax services, the provision of which ended on January 31, 1998, and cash
management and banking services, the provision of which ended March 31, 1997.
Total payments by the Company to R.R. Donnelley for services performed pursuant
to the Transition Services Agreement were approximately $219,000 in fiscal 1997.
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 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, but only
to the extent of any taxes shown as a liability or reserve on the Company's
balance sheet at November 4, 1996. In addition, 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). The Company agreed to
indemnify R.R. Donnelley against any tax liabilities with respect to periods
after the completion of the IPO. During fiscal 1997, the Company did not pay any
amounts to R.R. Donnelley pursuant to the Tax Allocation and Indemnity
Agreement.
Under a separate arrangement between the Company and R.R. Donnelley, the
Company could be obligated to pay up to approximately $1,000,000 of
reimbursement to R.R. Donnelley or entitled to receive up to approximately
$3,000,000 of reimbursement from R.R. Donnelley with respect to certain tax
matters relating to the period prior to November 4, 1996.
The Company entered into a letter agreement dated January 16, 1998 with The
Joleo Group, a corporation owned by Leo S. Spiegel and his wife, pursuant to
which Mr. Spiegel will provide consulting services to the Company with respect
to a variety of matters including strategic planning and account management. Mr.
Spiegel is charging the Company fees and expenses for such services that the
Company believes are reasonable for such services.
I-13
<PAGE> 1
EXHIBIT 3
CONFIDENTIALITY AND STANDSTILL AGREEMENT
This Confidentiality and Standstill Agreement (the "Agreement") is made as
of March 19, 1998 between Bowne & Co., Inc. (the "Company"), and Donnelley
Enterprise Solutions Incorporated, a Delaware corporation ("DESI"). For the
purposes of this Agreement, the term "DESI" shall be deemed to mean DESI and/or
any one or more of its divisions, as the context requires.
WHEREAS, the parties hereto desire to enter into exploratory discussions for
the sole purpose of considering whether a possible business combination or other
transaction involving DESI or any portion thereof, including any one or more of
its divisions, and the Company might be mutually beneficial; and
WHEREAS, the parties hereto acknowledge that such discussions may require
the exchange of confidential and proprietary information among the parties; and
WHEREAS, the parties hereto wish to maintain the confidential and
proprietary nature of such information,
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Scope of Agreement.
(a) The Company will treat, and will cause each of its affiliates to
treat, any information concerning DESI or its affiliates which is furnished to
the Company or its Representatives by or on behalf of DESI, whenever furnished
(subject to the exceptions set forth in Section 1(b) below, collectively
referred to herein as the "Evaluation Material"), confidential in accordance
with the terms of this Agreement.
(b) The terms "Evaluation Material" excludes all of the following:
(i) information which was or becomes generally available to the
public other than as a result of a disclosure by the Company of such
information;
(ii) information which was or becomes available to the Company
on a nonconfidential basis from a source other than DESI or its or
Representatives; provided that such source is not bound by a
confidentiality agreement with such other party in respect thereof; or
(iii) information which was in the possession of the Company prior
to it being furnished to the Company by or on behalf of DESI, provided
that the source of such information was not bound by a confidentiality
agreement with DESI in respect thereof.
(c) As used in this Agreement:
(i) the term "affiliate" has the meaning provided in Rule 12b-2
under the Securities Exchange Act of 1934 (the "Exchange Act") and includes
persons or entities who become affiliates after the date hereof;
(ii) the terms "own" and "ownership" include, but are not limited
to, beneficial ownership as defined in Rule 13d-3 under the Exchange Act;
<PAGE> 2
(iii) the term "person" means any entity, individual or group,
including without limitation any corporation, company, limited liability
company, group, syndicate or partnership; and
(iv) the term "Representatives" includes attorneys, accountants,
consultants, financial advisors and other agents.
2. Limited Use of Information.
The Company will use the Evaluation Material solely for the purpose of
evaluating a possible business combination transaction or other transaction
involving DESI, or any portion thereof (including any one or more of its
divisions) and the Company. The Company will safeguard such information at least
to the extent that it would protect its own proprietary and confidential
information; provided, however, that any such information may be disclosed to
the Company's Representatives who need to know such information for the purpose
of evaluating, or assisting the Company with, any such possible transaction and
who shall be informed by the Company of the confidential nature of such
information, the limited purpose for which it is being disclosed and that by
receiving such information they are agreeing to be bound by this Agreement. The
Company will upon DESI's request deliver to DESI a list of those to whom such
information has been disclosed.
3. Non-Disclosure of Negotiations.
Unless required by law or unless the Company has obtained the prior written
consent of DESI, the Company will not, and will direct its Representatives not
to, disclose to any person either the fact that discussions or negotiations are
taking place concerning a possible transaction between DESI and the Company or
any of the terms, conditions or other facts with respect to any such possible
transaction, including the status thereof. If the Company, in the opinion of its
counsel, is required by law to disclose to any person information relating to
such possible transaction, it may, subject to complying with the remaining
provisions of this subsection, disclose such information to such person or
persons without liability hereunder; provided, however, that (i) the Company
shall give DESI written notice of the information to be so disclosed as far in
advance of its disclosure as is practicable, (ii) shall cooperate with DESI in
its efforts to protect the information from disclosure, and (iii) shall limit
its disclosure of such information to the minimum disclosure required by law
unless DESI agrees in writing to a greater level of disclosure.
4. Securities Law Compliance. Each party hereto acknowledges that it is
aware, and will advise its Representatives who are informed of the matters
which are the subject of this Agreement, that the United States securities
laws prohibit any person who has material, non-public information concerning a
company from purchasing or selling securities of that company or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such other person is likely to purchase or
sell such securities.
5. Requests from Other Persons.
In the event that the Company or any of its affiliates is requested in the
course of a legal, administrative or regulatory proceeding or investigation (by
oral questions, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any
Evaluation Material, the Company will notify DESI promptly of such request(s)
and the documents requested thereby so that DESI may seek an appropriate
protective order and/or waive in writing compliance with the provisions of this
Agreement. If, in the absence of such a protective order or the receipt of such
a waiver the Company is nonetheless, in the opinion of the Company's counsel,
compelled to disclose such Evaluation Material or else stand liable for contempt
or suffer other censure or penalty from any tribunal or governmental or similar
authority, the Company may disclose such information without liability
hereunder; provided, however, that the Company shall comply with the provisions
of subsections (i), (ii) and (iii) of Section 3 hereof.
6. Return or Destruction of Evaluation Material.
<PAGE> 3
(a) All information disclosed by one party to the other party pursuant to
this Agreement shall be and remain the property of the party disclosing such
information.
(b) The Company will at any time upon the request of DESI made during the
term of this Agreement promptly redeliver to DESI all written material
containing or reflecting any Evaluation Material supplied to the Company or its
Representatives by or on behalf of DESI (whether prepared by DESI or otherwise,
and whether in the possession of the Company or any of its Representatives) and
will not retain any copies, extracts or other reproductions in whole or in part
of such written material. All documents, memoranda, notes and other writings
whatsoever (including all copies, extracts or other reproductions), prepared by
the Company or its Representatives based on the Evaluation Material shall be
destroyed, and such destruction shall be certified in writing to DESI by an
authorized officer supervising such destruction. The redelivery of such material
shall not relieve the Company's obligation of confidentiality or other
obligations hereunder.
7. Disclaimers Regarding Evaluation Material.
(a) DESI shall not make any representation or warranty herein as to the
accuracy or completeness of the Evaluation Material provided by or on behalf of
DESI.
(b) The use of the Evaluation Material by the Company or its
Representatives in a manner not inconsistent with this Agreement shall not
subject the Company or its Representatives to any liability to any other party.
8. Standstill Provisions.
The Company will not, and will direct its Representatives not to, directly
or indirectly, during the one year period commencing on the date of this
Agreement, unless in any such case specifically invited in writing to do so by
the Board of Directors of DESI:
(i) make any public announcement with respect to, or submit any
proposal for, a transaction between DESI (or any portion thereof, including
any one or more of its divisions, or any of its security holders or
affiliates) and the Company (or any of its security holders or
affiliates), unless such proposal is directed and disclosed solely to the
management of DESI and its designated Representatives, and in the case of
any such proposal from or involving parties in addition to, or other than,
the Company, DESI has given its advance written consent to the involvement
of such additional or other parties;
(ii) purchase, acquire or own, or offer or agree to purchase,
acquire or own, directly or indirectly, any voting securities or direct
or indirect rights (pursuant to an exchange, conversion, pledge or
otherwise) or options to acquire any voting securities of DESI;
(iii) make, or in way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A under the Exchange Act) or become a "participant" in an
"election contest" (as such terms are defined or used in Rule 14a-11 under
the Exchange Act) with respect to DESI or seek to advise or influence any
person with respect to the voting of any voting securities of DESI;
(iv) initiate, propose or otherwise solicit shareholders for the
approval of one or more shareholder proposals with respect to DESI as
described in Rule 14a-8 under the Exchange Act or induce or attempt to
induce any other person to do so;
(v) acquire or affect the control of DESI or directly or indirectly
participate in or encourage the formation of any "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) which owns or seeks to acquire
ownership of voting securities of DESI, or to acquire or affect control of
DESI;
<PAGE> 4
(vi) propose or seek to effect or negotiate with or provide
financial assistance or information to any party with respect to any form
of business combination transaction (including, without limitation, a
merger, consolidation or acquisition or disposition of significant assets
of DESI, or any of its divisions, or any other entity) with DESI or any
affiliate thereof, or any restructuring, recapitalization or similar
transaction with respect to DESI or any portion thereof including any
affiliate thereof;
(vii) encourage any employees of DESI to terminate his or her
employment; or solicit the employment of, or the engagement as a consultant
or advisor of, any employee of DESI so long as such person remains
employed by DESI.
(viii) instigate, encourage, assist or render advice to or make any
recommendation or proposal to any person to engage in any of the actions
covered by clauses (i) through (vii) of this Section 8; or
(ix) except to the extent required by law, make any public
statement (or make available to any member of the news media any
information) with respect to any of the matters covered by this Section 8,
or with respect to this Agreement.
For purposes of this Agreement, the term "voting securities" shall mean
(i) any securities which are entitled to vote upon any matters, whether such
securities are entitled to vote on such matters in all events or only upon the
occurrence of a default or other contingencies, or (ii) any options, warrants,
rights or securities which by their terms may be convertible into or
exchangeable for any security described in clause (i) of this sentence.
9. Right of Termination. Each party hereto has the right, in its sole and
absolute discretion, to reject any or all proposals and to terminate discussions
and negotiations with, or directly or indirectly involving, any other party
hereto at any time, but no such rejection or termination shall terminate this
Agreement.
10. Notices. All notices, requests or other communications required or
permitted to be delivered under this Agreement shall be in writing, delivered in
person or by registered or certified mail, return receipt requested, as follows:
(a) If to the Company:
Bowne & Co., Inc.
345 Hudson Street
New York, New York 10014
Attention: Robert M. Johnson
(b) If to DESI:
Donnelley Enterprise Solutions Incorporated
161 North Clark Street, Suite 2400
Chicago, Illinois 60601
Attention: Chief Financial Officer
Any party hereto may from time to time, by written notice given as aforesaid,
designate any other address to which notices, requests or other communications
addressed to it shall be sent.
11. Agreement Term. This Agreement shall terminate on the third
anniversary of its date; provided, however, that the provisions of Section 3
and 6 shall survive any termination in respect of any obligations that remain
unfulfilled as of the date of such termination.
12. No Waiver. No failure or delay by any party hereto in exercising any
right, power or privilege
<PAGE> 5
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege.
13. Remedies. Each party hereto acknowledges that money damages would
be an inadequate remedy for any breach of this Agreement and that DESI (in the
case of a breach by the Company) shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach. The
Company waives any requirement for the securing or posting of any bond in
connection with any such remedy. The Company shall not take any action to
impede DESI from seeking to enforce any such equitable remedy. Such remedy
shall not be deemed to be the exclusive remedy for any breach of this
Agreement, but shall be in addition to all other remedies available at law or
equity.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Illinois, without giving
effect to the principles of conflict of laws thereof.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon one instrument.
16. Headings. The descriptive headings of the sections of this Agreement
are solely for the convenience of the parties hereto and shall not affect the
meaning or construction of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
By: William Blair & Company, L.L.C., acting as its agent
By: /s/ David Grumhaus
------------------------------
Its: Associate
------------------------------
BOWNE & CO., INC.
By: /s/ Robert Johnson
------------------------------
Its: Chairman & CEO
------------------------------
Confidentiality and Standstill Agreement dated March 19, 1998.
<PAGE> 1
EXHIBIT 4
May 8, 1998
Ms. Rhonda I. Kochlefl
988 Lake Street
Winnetka, Illinois 60093
Re: Sale Incentive Pools
Dear Rhonda:
I am pleased to tell you that the board of directors of Donnelley
Enterprise Solutions Incorporated ("DESI") has approved two sale incentive pools
for DESI management in connection with the contemplated Sale of DESI, plus an
additional sales incentive for you. If you are an employee of DESI through the
closing of the Sale of DESI (as defined below), you will be eligible for
consideration for an award under both pools and the additional sale incentive
award as explained in this letter.
1. Qualitative performance sale awards. The DESI Outside Board has
authorized a pool of up to $350,000 for "qualitative performance sale awards."
While it is contemplated that qualitative sale performance awards will be paid
to eligible individuals, the amount of any such award (which may vary among
recipients) will be determined by the non-employee members of DESI's board of
directors ("DESI Outside Board") acting in its sole discretion. Your qualitative
performance sale award, if any, will be based on the DESI Outside Board's
evaluation of the following factors:
- the extent of your cooperation in advancing the
interests of DESI shareholders throughout the sale
process;
- the enthusiasm with which you participate in the sale
process;
- the quality of your dealings with the prospective
buyers, the DESI board, investment bankers,
accountants, and their respective counsel and counsel
to DESI;
- the manner in which you present the company's story
to potential buyers and others.
2. Quantitative sale award. The DESI Outside Board has also authorized
a "quantitative sale award" pool. The size of the pool will be a percentage of
the amount by
<PAGE> 2
Ms. Rhonda I. Kochlefl
May 8, 1998
Page 2
which the net proceeds from the Sale of DESI exceeds a threshold amount. Both
the percentage and the threshold have been determined by the DESI Outside Board.
There is no maximum limitation on the size of the quantitative sale award pool,
and at favorable sales prices the quantitative sale award pool could aggregate
$600,000 or more.
Although no quantitative sale award will be payable if less than 100%
of DESI is sold, the net proceeds from sales of all portions of DESI will be
taken into account in determining the net proceeds from the Sale of DESI.
3. Additional sale incentive award. The DESI Outside Board has also
authorized an additional sale incentive award to be payable to you. The size of
the additional sale incentive award will be a percentage of the amount by which
the net proceeds from the Sale of DESI exceeds a threshold amount. Both the
percentage and the threshold have been determined by the DESI Outside Board.
There is no maximum limitation on the size of the additional sale incentive
award, and at favorable sales prices the additional sale incentive award could
be $300,000 or more. Although no additional sale incentive award will be paid to
you if less than 100% of DESI is sold, the net proceeds from sales of all
portions of DESI will be taken into account in determining the net proceeds from
the Sale of DESI.
4. Conditions applicable to all awards. Any award is subject to the
following:
a. It is contemplated that no more than five individuals will
be eligible for awards under the qualitative sale award pool and that
five individuals will be eligible for awards under the quantitative
sale award pool.
b. Award amounts, if any, under the qualitative sale award
pool will be determined by the DESI Outside Board in its sole
discretion. The DESI Outside Board need not allocate 100% of the
qualitative sale award pool.
c. Any award amounts payable will be paid at the closing of
the Sale of DESI.
d. Any award amount is subject to applicable withholding.
e. The DESI Outside Board retains the exclusive right to
construe and interpret the terms and conditions set forth in this
letter and to determine and apply the criteria for measuring and
payment of an award.
f. Nothing in this letter or the terms of the sale incentive
award pools grants or implies a right to continued employment by DESI.
<PAGE> 3
Ms. Rhonda I. Kochlefl
May 8, 1998
Page 3
5. "Sale of DESI" means any transaction or series of related
transactions, the last of which closes prior to January 1, 1999, which the DESI
Outside Board in its sole discretion determines to result in the transfer of all
or substantially all of DESI's business by sale, merger, or otherwise, to one or
more persons. The "closing" of the Sale of DESI will occur on the last date as
of which a transaction included as part of the Sale of DESI is completed, as
determined by the DESI Outside Board.
Your enthusiastic participation in the sale of DESI is key to its
success and we look forward to an exciting few months.
Very truly yours,
DONNELLEY ENTERPRISE SOLUTIONS
INCORPORATED
By:
--------------------------------
Name:
--------------------------
Its:
---------------------------
<PAGE> 1
EXHIBIT 5
May 8, 1998
[NAME]
[ADDRESS]
Re: Sale Incentive Pools
Dear ________:
I am pleased to tell you that the board of directors of Donnelley
Enterprise Solutions Incorporated ("DESI") has approved two sale incentive pools
for DESI management in connection with the contemplated Sale of DESI. If you are
an employee of DESI through the closing of the Sale of DESI (as defined below),
you will be eligible for consideration for an award under both pools, as
explained in this letter.
1. Qualitative performance sale awards. The DESI Outside Board has
authorized a pool of up to $350,000 for "qualitative performance sale awards."
While it is contemplated that qualitative performance sale awards will be paid
to eligible individuals, the amount of any such award (which may vary among
recipients) will be determined by the non-employee members of DESI's board of
directors ("DESI Outside Board") acting in its sole discretion. Your qualitative
performance sale award, if any, will be based on the DESI Outside Board's
evaluation of the following factors:
- the extent of your cooperation in advancing the
interests of DESI shareholders throughout the sale
process;
- the enthusiasm with which you participate in the sale
process;
- the quality of your dealings with the prospective
buyers, the DESI board, investment bankers,
accountants, and their respective counsel and counsel
to DESI;
- the manner in which you present the company's story
to potential buyers and others.
2. Quantitative sale award. The DESI Outside Board has also authorized
a "quantitative sale award" pool. The size of the pool will be a percentage of
the amount by which the net proceeds from the Sale of DESI exceeds a threshold
amount. Both the
<PAGE> 2
- ----------
May 8, 1998
Page 2
percentage and the threshold have been determined by the DESI Outside Board.
There is no maximum limitation on the size of the quantitative sale award pool,
and at favorable sales prices the quantitative sale award pool could aggregate
$600,000 or more.
Although no quantitative sale award will be payable if less than 100%
of DESI is sold, the net proceeds from sales of all portions of DESI will be
taken into account in determining the net proceeds from the Sale of DESI.
3. Conditions applicable to both pools. Any award amount paid from
either pool is subject to the following:
a. It is contemplated that no more than five individuals will
be eligible for awards under the qualitative sale award pool and that
five individuals will be eligible for awards under the quantitative
sale award pool.
b. Award amounts, if any, under the qualitative sale award
pool will be determined by the DESI Outside Board in its sole
discretion. The DESI Outside Board need not allocate 100% of the
qualitative sale award pool.
c. Any award amounts payable will be paid at the closing of
the Sale of DESI.
d. Any award amount is subject to applicable withholding.
e. The DESI Outside Board retains the exclusive right to
construe and interpret the terms and conditions set forth in this
letter and to determine and apply the criteria for measuring and
payment of an award.
f. Nothing in this letter or the terms of the sale incentive
award pools grants or implies a right to continued employment by DESI.
4. "Sale of DESI" means any transaction or series of related
transactions, the last of which closes prior to January 1, 1999, which the DESI
Outside Board in its sole discretion determines to result in the transfer of all
or substantially all of DESI's business by sale, merger, or otherwise, to one or
more persons. The "closing" of the Sale of DESI will occur on the last date as
of which a transaction included as part of the Sale of DESI is completed, as
determined by the DESI Outside Board.
<PAGE> 3
- ------------
May 8, 1998
Page 3
Your enthusiastic participation in the sale of DESI is key to its
success and we look forward to an exciting few months.
Very truly yours,
DONNELLEY ENTERPRISE SOLUTIONS
INCORPORATED
By:
----------------------------------
Name:
----------------------------
Its:
------------------------------
<PAGE> 1
EXHIBIT 8
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of August 1, 1997 and modified on
March 12, 1998 by and among Donnelley Enterprise Solutions
Incorporated, a Delaware corporation (the "Company"), and Tom Munro
(the "Executive").
WHEREAS, the Company desires to employ the Executive as its Chief
Financial Officer and the Executive desires to accept such employment,
for the term and upon the conditions set forth in this Agreement.
Agreement
Now, therefore, the parties hereto hereby agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company offers and the Executive hereby accepts employment,
effective as of August 1, 1997.
2. Term. Subject to earlier termination as hereafter provided, the
Executive shall be employed hereunder for an original term commencing on the
Effective Date and ending at 5:00 p.m., Chicago time, on the third anniversary
of the Effective Date, or such later date to which the parties may agree. The
term of this Agreement is hereafter referred to as "the term of this Agreement"
or "the term hereof".
3. Capacity and Performance.
3.1. Offices. During the term hereof and for the compensation
described in Section 4 below, the Executive shall serve as the Chief
Financial Officer. The Executive shall be subject to the direction of
the CEO, Chairman, President (or any one of them to whom the Executive
then reports, hereinafter referred to as the "Reporting Executive"),
and shall have such other powers, duties and responsibilities
consistent with the Executive's position as Chief Financial Officer, as
may from time to time be prescribed by the Reporting Executive. In
addition, for so long as the Executive is employed by the Company and,
unless otherwise determined by the Reporting Executive, without further
compensation, the Executive shall serve as a director of one or more of
the Company's subsidiaries if so elected or appointed from time to
time.
3.2. Performance. During the term hereof, the Executive shall
be employed by
<PAGE> 2
the Company and shall perform and discharge (faithfully, diligently and
to the best of the Executive's ability) such duties and
responsibilities on behalf of the Company and its subsidiaries as may
be designated from time to time by the Reporting Executive. During the
term hereof, the Executive shall devote the Executive's full business
time and attention to the advancement of the business and interests of
the Company and its subsidiaries and to the discharge of the
Executive's duties and responsibilities hereunder. Nothing contained
herein shall be construed to prohibit or restrict the Executive from
(a) serving in various capacities in community, civic, religious or
charitable organizations, (b) serving as a member of the boards of
non-affiliated entities provided such entities do not compete with the
Company and such service does not create a conflict of interest as
determined by the Board, or (c) attending to personal business and
investment matters. It is expressly agreed that any such service or
activity permitted by the previous sentence shall not unreasonably
interfere with the performance of the Executive's duties and, if so,
the Executive, after consultation with the Board, will comply with the
reasonable requests to cease or limit the service or activity.
4. Compensation and Benefits. As compensation for all services
performed by the Executive under this Agreement and performance of the
Executive's duties and of the obligations to the Company and its subsidiaries,
pursuant to this Agreement or otherwise and subject to Section 5 hereof:
4.1. Base Salary. During the term hereof, the Company shall
pay the Executive a base salary at the rate of $170,000 per year,
payable in accordance with the payroll practices of the Company for
its executives but no less than monthly and subject to increase at any
time or from time to time by the Reporting Executive in his or her
sole discretion. Such base salary, as from time to time increased, is
hereafter referred to as the "Base Salary". The Base Salary payable
to the Executive shall be prorated for any subsequent period of
service less than one full year.
4.2. Bonus Compensation. During the term hereof, the Company
from time to time shall pay the Executive an annual bonus (the
"Bonus"). The Bonus will be calculated according to the Donnelley
Enterprise Solutions Incorporated Employee Incentive Compensation
Plan.
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4.2.1. Any compensation paid to the Executive as
Bonus shall be in addition to the Base Salary. All bonus and
benefit plans are subject to annual review and change by the
Board relative to key strategic objectives for the year. Bonus
payments to the Executive shall be prorated for any subsequent
period of service less than one full year.
4.3. Vacations. During the term hereof, the Executive shall
be entitled to four (4) weeks of vacation per annual vacation period of
the Company, such vacation to be taken at such times and intervals as
shall be determined by the Executive in the Executive's reasonable
discretion. The Executive may not accumulate or carry over from one
calendar year to another any unused, accrued vacation time, unless the
Reporting Executive determines that business demands require deferral
and carry over of vacation from any year into up to the first six (6)
months of the succeeding year. The Executive shall not be entitled to
compensation for vacation time not taken, except that upon termination
of employment, the Executive shall be paid for all vacation time
accrued but not taken.
4.4. Other Benefits. During the term hereof and subject to
any contribution therefor generally required of executives of the
Company, the Executive shall be entitled to participate in all
employee benefit plans and other programs (including, but not limited
to, any medical, dental, retirement, disability, life insurance, sick
leave and other benefits) from time to time adopted by the Board and
in effect for executives of the Company generally, except to the
extent such plans are in a category of benefit otherwise already
provided to the Executive. Such participation shall be subject to (i)
the terms of the applicable plan documents, (ii) generally applicable
Company policies and (iii) the discretion of the Board or any
administrative or other committee provided for in or contemplated by
such plan. The Company may alter, modify, add to or delete its
employee benefit plans at any time as the Board, in its sole judgment,
determines to be appropriate.
4.5. Business Expenses. The Company shall pay or reimburse
the Executive for all reasonable business expenses incurred or paid by
the Executive in the performance of the Executive's duties and
responsibilities hereunder, subject to (i) any expense policy of the
Company set by the Board from time to time, and (ii) such reasonable
substantiation and documentation requirements as may be specified by
the Board from time to time.
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4.6. Severance. In the event the Executive's employment with
the Company is (i) terminated by the Company other than for Cause in
accordance with Section 5.4 or (ii) terminated by the Executive in
accordance with Section 5.5, the Executive will be entitled to receive
twenty-four (24) monthly payments equal to the Executive's then
applicable Base Salary calculated on a monthly basis at the time of
such termination ( i.e., 1/12th of the Base Salary), paid on the last
day of a calendar month.
5. Termination of Employment and Severance Benefits. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term of this Agreement under the
following circumstances:
5.1. Retirement or Death. In the event of the Executive's
retirement or death during the term hereof, the Executive's employment
hereunder shall immediately and automatically terminate. In the event
of the Executive's retirement after the age of sixty- five, age
fifty-five with the prior consent of the Board or death during the
term hereof, the Company shall pay to the Executive (or in the case of
death, the Executive's designated beneficiary or, if no beneficiary
has been designated by the Executive, to the Executive's estate) (i)
Base Salary earned but unpaid through and including the date of such
retirement or death, (ii) any amount payable pursuant to Section 4.6,
(iii) any unpaid portion of any Bonus for any fiscal year preceding
the year in which such retirement or death occurs that was earned but
had not previously been paid and (iv) at the times the Company pays
its executives bonuses in accordance with its general payroll
policies, any Bonus which would have been paid had such retirement or
death not occurred during the fiscal year of such retirement or death
(pro-rated based on a formula, the numerator of which shall be the
number of days during the fiscal year of such retirement or death in
which the Executive was employed by the Company and the denominator of
which shall be 365 or 366, as the case may be).
5.2. Disability.
5.2.1. The Company may terminate the Executive's
employment hereunder, upon written notice to the Executive,
in the event that the Executive becomes disabled during the
Executive's employment hereunder through any illness, injury,
accident or condition of either a physical or psychological
nature and, as a result, is unable to perform substantially
all of the Executive's duties
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and responsibilities hereunder for an aggregate of one hundred
eighty (180) days during any period of three hundred and
sixty-five (365) consecutive calendar days.
5.2.2. The Board may designate another employee to
act temporarily in the Executive's place during any period of
the Executive's disability. Notwithstanding any such
designation, the Executive shall continue to receive the Base
Salary in accordance with Section 4.1 and to receive benefits
in accordance with Section 4.5, to the extent permitted by the
then current terms of the applicable benefit plans, until the
Executive becomes eligible for disability income benefits
under any disability income plan maintained by the Company or
until the termination of the Executive's employment, whichever
shall first occur. Upon becoming so eligible, or upon such
termination, whichever shall first occur, the Company shall
pay to the Executive (i) Base Salary earned but unpaid through
and including the date of such eligibility or termination,
(ii) any amount payable pursuant to Section 4.6, (iii) any
unpaid portion of any Bonus for any fiscal year preceding the
year in which such eligibility or termination occurs that was
earned but had not previously been paid and (iv) at the times
the Company pays its executives bonuses in accordance with its
general payroll policies, any Bonus which would have been paid
had disability not occurred during the fiscal year in which
such eligibility or termination occurs (pro-rated based on a
formula, the numerator of which shall be, as applicable, (i)
the number of days from and including January 1 of the fiscal
year in which such eligibility occurs to but excluding the
date of such eligibility or (ii) the number of days on which
the Executive was employed by the Company during the fiscal
year in which such termination occurs and the denominator of
which shall be 365 or 366, as the case may be).
5.2.3.Except as provided in Section 5.2.2, while
receiving disability income payments under any disability
income plan maintained by the Company, the Executive shall not
be entitled to receive any Base Salary under Section 4.1 or
Bonus payments under Section 4.2 but shall continue to
participate in the Company's benefit plans in accordance with
Section 4.5 and the terms of such plans, until the termination
of the Executive's employment. During the twelve (12) month
period from and including the date of termination, the Company
shall pay for the cost of the Executive's participation in the
Company's group medical and dental plans, provided that the
Executive
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<PAGE> 6
is entitled to continue such participation under applicable law
and the terms of such plan.
5.2.4. If any question shall arise as to whether
during any period the Executive is disabled through any
illness, injury, accident or condition of either a physical or
psychological nature so as to be unable to perform
substantially all of the Executive's duties and
responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination
by a physician either (i) mutually selected by the Company and
the Executive or the Executive's duly appointed guardian or
(ii) failing mutual agreement, a physician selected by each of
a physician selected by the Company and a physician selected
by the Executive, to determine whether the Executive is so
disabled and such determination shall for the purposes of this
Agreement be conclusive of the issue. If such question shall
arise and the Executive shall fail to submit to such medical
examination, the Board's determination of the issue shall be
binding on the Executive.
5.3. By the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause as provided in Section
11.2. If the Executive's employment hereunder is terminated for
Cause, the Company shall have no further obligation or liability to
the Executive relating to the Executive's employment hereunder, or the
termination thereof, except that the Company shall pay to the
Executive (i) Base Salary earned but unpaid through and including the
date of termination, (ii) any amount payable pursuant to Section 4.6,
and (iii) any other amounts accrued by the Executive but unpaid
through and including the date of termination (it being understood
that a Bonus does not accrue until December 31 of the year on which
such Bonus is based).
5.4. By the Company other than for Cause. The Company may
terminate the Executive's employment hereunder other than for Cause at
any time after the Effective Date upon two weeks prior written notice
to the Executive. In the event of such termination, then the Company
shall pay the Executive (i) Base Salary earned but unpaid through and
including the date of termination, (ii) any amount payable pursuant to
Section 4.6, (iii) the amounts specified in Section 4.7, (iv) any
unpaid portion of any Bonus for any fiscal year preceding the year in
which such termination occurs that was earned but had not previously
been paid, (v) at the times the Company pays its executives bonuses in
accordance with its general payroll policies, any Bonus which
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<PAGE> 7
would have been paid had termination not occurred during the fiscal
year in which such termination occurs (pro-rated based on a formula,
the numerator of which shall be the number of days during the fiscal
year in which such termination occurs the Executive was employed by
the Company and the denominator of which shall be 365 or 366, as the
case may be), and (vi) any other amounts accrued by the Executive but
unpaid through and including the date of termination. In addition,
100% of the number of shares of Common Stock subject to each option,
including the Options, held by the Executive on the date of such
termination and which are then unexercisable shall become exercisable
as of the date of such termination, and such Options may be exercised
for a period up to ninety (90) days following termination of the
Executive's employment.
5.5. By the Executive upon Breach or for Good Reason. The
Executive may terminate the Executive's employment hereunder (i) in
the event that the Company fails to perform, in any material respect,
its obligations under this Agreement, after written notice to the
Company setting forth in reasonable detail the nature of such breach
if such breach remains uncured for a period of 30 days following such
written notice to the Company provided that said notice shall not be
required in the event of repeated, intentional or willful failure to
perform by the Company, or (ii) there is a material diminution in the
responsibilities, duties and powers of the Executive. In the event of
termination in accordance with this Section 5.5, then the Company
shall pay to the Executive (i) Base Salary earned but unpaid through
and including the date of termination, (ii) any amount payable
pursuant to Section 4.6, (iii) the amounts specified in Section 4.7,
(iv) any unpaid portion of any Bonus for any fiscal year preceding the
year in which such termination occurs that was earned but had not
previously been paid, (v) at the times the Company pays its executives
bonuses in accordance with its general payroll policies, any Bonus
which would have been paid had termination not occurred during the
fiscal year in which such termination occurs (pro-rated based on a
formula, the numerator of which shall be the number of days during the
fiscal year in which such termination occurs the Executive was
employed by the Company and the denominator of which shall be 365 or
366, as the case may be), and (vi) any other amounts accrued by the
Executive but unpaid through and including the date of termination. In
addition, 100% of the number of shares of Common Stock subject to each
option, including the Options, held by the Executive on the date of
such termination and which are then unexercisable shall become
exercisable as of the date of such termination, and such Options may
be exercised for a period up to ninety (90) days following termination
of the Executive's employment.
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<PAGE> 8
5.6. By the Executive Other than upon Breach or for Good
Reason. The Executive may terminate the Executive's employment
hereunder at any time upon ninety (90) days' written notice to the
Company. In the event of termination of the Executive pursuant to
this Section 5.6, the Board may elect to waive the period of notice,
or any portion thereof, and, whether or not the Board so elects, the
Company shall pay to the Executive (i) Base Salary for the full notice
period, (ii) any amount payable pursuant to Section 4.6, (iii) at the
times the Company pays its executives bonuses in accordance with its
general payroll policies, any Bonus which would have been paid had
termination not occurred during the fiscal year in which such
termination occurs (pro-rated as set forth in Section 5.5 above), and
(iv) any other amounts accrued by the Executive but unpaid through and
including the date of termination.
5.7. Post-Agreement Employment. In the event the Executive
remains in the employ of the Company or any of its Affiliates
following termination of this Agreement, by the expiration of the term
hereof or otherwise, then such employment shall be at will, unless
otherwise agreed in writing.
6. Effect of Termination. The provisions of this Section 6
shall apply in the event of termination due to the expiration of the
term of this Agreement, pursuant to Section 5 or otherwise.
6.1. Receipt of Certain Benefits. It is the mutual intention
of the Company and the Executive that the Executive receive the full
benefit of the compensation and benefits provided to the Executive
during the term hereof which compensation and benefits may be payable
over periods beyond the particular year of employment. The Executive
shall not be obligated to seek other employment by way of mitigation
of the amounts due to the Executive nor shall the Executive's earnings
after termination reduce the Company's obligations hereunder. Nothing
in this Section 6.1 is intended or shall be construed to affect the
rights and obligations of the Company and its Affiliates, on the one
hand, and the Executive, on the other, with respect to any loans,
stock pledge arrangements, option plans or other agreements to the
extent said rights or obligations survive termination of employment
under the provisions of the documents relating thereto.
6.2. Termination of Health and Welfare Benefits. Except for
medical and
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<PAGE> 9
dental insurance coverage continued pursuant to Sections 5.2 hereof
and any right of continuation of health coverage to the extent
provided by Sections 601 through 608 of ERISA, health and welfare
benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive's
employment without regard to any continuation of Base Salary or other
payments to the Executive following such date of termination pursuant
to Section 5.
6.3. Survival of Certain Provisions. Provisions of this
Agreement shall survive any termination if so provided herein or if
necessary or desirable fully to accomplish the purposes of such
provision, including, without limitation, the obligations of the
Executive under Sections 7 and 8 hereof. The obligation of the
Company to make payments to or on behalf of the Executive under
Sections 4.7, 5.4 or 5.5 hereof is expressly conditioned upon the
Executive's continued full performance of obligations under Sections 7
and 8 hereof. The Executive recognizes that, except as expressly
provided in Section 4.7, 5.4 or 5.5, no compensation is earned after
termination of employment.
7. Confidential Information; Intellectual Property.
7.1. Confidentiality. The Executive acknowledges that the
Company and its Affiliates continually develop Confidential
Information, that the Executive may develop Confidential Information
for the Company or its Affiliates and that the Executive may learn of
Confidential Information during the course of employment. The
Executive will comply with the policies and procedures of the Company
for protecting Confidential Information and shall never disclose to
any Person (except as required by applicable law or for the proper
performance of the Executive's duties and responsibilities to the
Company and its Affiliates), or use for the Executive's own benefit or
gain or otherwise use in a manner adverse to the interests of the
Company and its Affiliates, any Confidential Information obtained by
the Executive incident to the Executive's employment or other
association with the Company or any of its Affiliates. The Executive
understands that this restriction shall continue to apply after the
Executive's employment terminates, regardless of the reason for such
termination. Notwithstanding the foregoing, the Executive's covenant
not to disclose Confidential Information does not apply to information
which (i) becomes generally available to the public or otherwise
becomes known through sources other than the Executive, (ii) is
subsequently disclosed to the Executive by a source other than the
Company who was under no duty of confidence or (iii) is required to be
disclosed by the Executive
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<PAGE> 10
through discovery in litigation or by order of a court or otherwise as
required by law.
7.2. Return of Documents. All documents, records, tapes and
other media of every kind and description relating to the business,
present or otherwise, of the Company or its Affiliates and any copies,
in whole or in part, thereof (the " Documents"), whether or not
prepared by the Executive, shall be the sole and exclusive property of
the Company and its Affiliates, provided, however, that Executive
shall in all cases be entitled to retain copies of documents relating
to the Executive's employment rights, compensation, benefits or other
obligations of the Company to the Executive and the Executive to the
Company. The Executive shall safeguard all Documents and shall
surrender to the Company at the time the Executive's employment
terminates, or at such earlier time or times as the Board or its
designee may specify, all Documents then in the Executive's possession
or control.
7.3. Assignment of Rights to Intellectual Property. The
Executive shall promptly and fully disclose all Intellectual Property
to the Company. The Executive hereby assigns and agrees to assign to
the Company (or as otherwise directed by the Company) the Executive's
full right, title and interest in and to all Intellectual Property.
The Executive agrees to execute any and all applications for domestic
and foreign patents, copyrights or other proprietary rights and to do
such other acts (including without limitation the execution and
delivery of instruments of further assurance or confirmation)
requested by the Company to assign the Intellectual Property to the
Company and to permit the Company to enforce any patents, copyrights
or other proprietary rights to the Intellectual Property. The
Executive will not charge the Company for time spent in complying with
these obligations. All copyrightable works that the Executive creates
shall be considered "work made for hire".
8. Agreement not to Compete with the Business. The Executive agrees
that during the term of the Executive's employment hereunder and for a period of
two (2) years following the date of termination thereof (the "Non-Competition
Period"), the Executive will not, directly or indirectly (a) own, manage,
operate, control or participate in any manner in the ownership, management,
operation or control of, or be connected as an officer, employee, partner,
director, principal, consultant, agent or otherwise with, or have any financial
interest in, or aid or assist anyone else in the conduct of, any business,
venture or activity which
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competes with the business of the Company, or any group, division or subsidiary
of the Company, as described in the Company's Registration Statement on Form
S-1 relating to the Company's initial public offering of Common Stock or,
beginning with the Company's Annual Report on Form 10-K for the year ending
December 31, 1996, the Company's most recent Annual Report on Form 10-K filed
with the Securities and Exchange Commission prior to the date (the "Date of
Termination") the Executive's employment under this Agreement is terminated
(hereinafter, "Competitive Business") in the United States or any other
geographic area where such Competitive Business is being conducted at the Date
of Termination or (b) recruit or otherwise seek to induce any employees of the
Company or any of its subsidiaries to terminate their employment or violate any
agreement with or duty to the Company or any of its subsidiaries. It is
understood and agreed that, for the purposes of the foregoing provisions of
this Section 8, (i) no business, venture or activity shall be deemed to be a
Competitive Business unless not less than five percent of the Company's
consolidated gross sales or operating income is derived from, or not less than
five percent of the Company's consolidated assets are devoted to, such
business, venture or activity; and (ii) no business, venture or activity
conducted by any entity by which the Executive is employed or in which the
Executive is interested or with which the Executive is connected or associated
shall be deemed to be a Competitive Business unless it is one from which five
percent or more of such entity's consolidated gross sales or operating income
is derived, or to which five percent or more of such entity's consolidated
assets are devoted; provided, however, that if the actual gross sales or
operating income or assets of such entity derived from or devoted to such
business, venture or activity is equal to or in excess of 10% of the most
nearly comparable figure for the Company, such business, venture or activity of
such entity shall be deemed to be a Competitive Business. Further, ownership
of not more than five percent of the voting stock of any publicly held
corporation shall not, of itself, constitute a violation of this Section 8.
9. Enforcement of Covenants. The Executive acknowledges that the
Executive has carefully read and considered all the terms and conditions of this
Agreement, including without limitation the restraints imposed upon the
Executive pursuant to Sections 7 and 8 hereof. The Executive agrees that said
restraints are necessary for the reasonable and proper protection of the Company
and its Affiliates and that the restraints are reasonable as to the definition
of Competitive Business and length of time. The Executive further acknowledges
that, were the Executive to breach any of the covenants or agreements contained
in Sections 7 or 8 hereof, the damage to the Company could be irreparable. The
Executive therefore agrees that the Company, in addition to any other remedies
available to it, shall be entitled to preliminary and permanent injunctive
relief against any breach or threatened breach by the
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Executive of any of said covenants or agreements. The parties further agree
that in the event that any provision of Section 7 or 8 hereof shall be
determined by any Court of competent jurisdiction to be unenforceable by reason
of its being extended over too great a time, too large a geographic area or too
great a range of activities, such provision shall be deemed to be modified to
permit its enforcement to the maximum extent permitted by law.
10. Conflicting Agreements. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of the
Executive's obligations hereunder will not breach or be in conflict with any
other agreement to which or by which the Executive is a party or is bound and
that the Executive is not now subject to any covenants against competition or
similar covenants that would affect the performance of the Executive's
obligations hereunder. The Executive will not disclose to or use on behalf of
the Company or any of its Affiliates any proprietary information of a third
party without such party's consent.
11. Definitions. Terms defined elsewhere in this Agreement are used
herein as so defined. In addition, the following terms shall have the
following meanings:
11.1. Affiliates. "Affiliates" means all persons and
entities directly or indirectly controlling, controlled by or under
common control with the Company.
11.2. Cause. The following events or conditions shall
constitute "Cause" for termination: (i) the willful refusal of the
Executive to substantially perform the Executive's duties to the
Company (other than any refusal resulting from the Executive's
incapacity due to physical or mental illness), including the
Executive's obligations under this Agreement or (ii) a willful and
material breach by the Executive of Section 7.1, 7.3 or 8 or (iii) a
conviction for fraud, embezzlement or other act of dishonesty by the
Executive that causes material injury to the Company or any of its
Affiliates or (iv) conviction of, or plea of nolo contendere to, any
felony involving dishonesty or moral turpitude; or (v) the Executive's
engaging in activities (A) which constitute a violation of any policy,
rule or regulation adopted by the Company, including policies related
to conflicts of interest, insider trading, reimbursement of business
expenses and the like, or (B) which result in a material injury to the
business, financial condition, results of operations or prospects of
the Company or its Affiliates, as determined by the Board or a
committee thereof.
For purposes of this Section 11.2, no act or failure to act on
the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not
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in good faith and without reasonable belief that the actions or
omissions were in the best interest of the Company.
11.3. Confidential Information. "Confidential Information"
means any and all information of the Company and its Affiliates that
is not generally known by others with whom they compete or do
business, or with whom they plan to compete or do business and any and
all information the disclosure of which would otherwise be adverse to
the interests of the Company or any of its Affiliates. Confidential
Information includes without limitation such information relating to
(i) the services or products sold or offered by the Company or any of
its Affiliates, (ii) the costs, sources of supply, financial
performance and strategic plans of the Company and its Affiliates,
(iii) the identity and special needs of the customers of the Company
and its Affiliates and (iv) the people and organizations with whom the
Company and its Affiliates have business relationships and those
relationships. Confidential Information also includes comparable
information that the Company or any of its Affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding that it would not be disclosed.
11.4. ERISA. "ERISA" means the federal Employee Retirement
Income Security Act of 1974 or any successor statute, and the rules
and regulations thereunder, and in the case of any referenced section
thereof any successor section thereto, collectively and as from time
to time amended and in effect.
11.5. Intellectual Property. "Intellectual Property" means
inventions, discoveries, developments, methods, processes,
compositions, works, concepts and ideas (whether or not patentable or
copyrightable or constituting trade secrets) conceived, made, created,
developed or reduced to practice by the Executive (whether alone or
with others, whether or not during normal business hours or on or off
Company premises) during the Executive's employment that relate to
either the business of the Company or any of its Affiliates or any
prospective activity of the Company or any of its Affiliates.
11.6. Person. "Person" means an individual, a corporation,
an association, a partnership, a limited liability company, an estate,
a trust and any other entity or organization.
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12. Withholding. All payments made by the Company under this
Agreement shall be reduced by any tax or other amounts required to be
withheld by the Company under applicable law.
13. Miscellaneous.
13.1. Assignment. Neither the Company nor the Executive may
make any assignment of this Agreement or any interest herein
(provided, however, that nothing contained herein shall be construed
to place any limitation or restriction on the transfer of the Common
Stock in addition to any restrictions set forth in any agreement
applicable to such shares) without the prior written consent of the
other. This Agreement shall inure to the benefit of and be binding
upon the Company and the Executive, and their respective successors,
executors, administrators, heirs and permitted assigns.
13.2. Severability. If any portion or provision of this
Agreement shall to any extent be declared illegal or unenforceable by
a court of competent jurisdiction, then the application of such
provision in such circumstances shall be deemed modified to permit its
enforcement to the maximum extent permitted by law, and both the
application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable and the
remainder of this Agreement shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13.3. Waiver; Amendment. No waiver of any provision hereof
shall be effective unless made in writing and signed by the waiving
party. The failure of either party to require the performance of any
term or obligation of this Agreement, or the waiver by either party of
any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any
subsequent breach. This Agreement may be amended or modified only by
a written instrument signed by the Executive and the Company.
13.4. Notices. Any and all notices, requests, demands and
other communications provided for by this Agreement shall be in
writing and shall be effective when delivered in person or two
business days after being deposited in the United States mail, postage
prepaid, registered or certified, and addressed (a) in the case of the
Executive, to Tom Munro at his home address or, (b) in the case of the
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Company, at its principal place of business and to the attention of
the Chairman, President & CEO; or to such other address as either
party may specify by notice to the other.
13.5. Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the terms and
conditions of the Executive's employment and, except as otherwise
provided herein, supersedes all prior communications, agreements and
understandings, written or oral, with the Company with respect to the
terms and conditions of the Executive's employment, including the
Original Agreement.
13.6. Headings. The headings and captions in this Agreement
are for convenience only and in no way define or describe the scope or
content of any provision of this Agreement.
13.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original and all of
which together shall constitute one and the same instrument.
13.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of the
State of Illinois without giving effect to any choice or conflict of
laws provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
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<PAGE> 16
IN WITNESS WHEREOF, this agreement has been executed by the COMPANY,
by its duly authorized representative, and by the Executive, as of the date
first above written.
THE COMPANY: DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
By /s/ RHONDA I. KOCHLEFL
--------------------------------------------------
Name: Rhonda Kochlefl Date:
Title: Chairman, President & CEO
THE EXECUTIVE: /s/ TOM MUNRO 3/27/98
--------------------------------------------------
Tom Munro Date:
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EXHIBIT 11
AGREEMENT REGARDING CONFIDENTIAL
INFORMATION, INTELLECTUAL PROPERTY
NON-COMPETITION, NON-SOLICITATION
AND CHANGE OF CONTROL
In consideration of my promotion to the position of Chief Technology Officer by
Donnelley Enterprise Solutions Incorporated or any division, subsidiary,
affiliate, successor or assignee thereof (collectively "DESI"), and the salary,
commission or other compensation paid to me from time to time by DESI, I, Nestor
P. Holynskyj, agree as follows:
1. Competitive Employment. While I am employed by DESI, I agree that, other than
for DESI, I will not, either directly or indirectly, either as a principal,
agent, employee, employer, partner or shareholder (other than as an owner of 2%
or less of the stock of a public corporation) or in any other capacity, engage
in any manner in the business conducted by DESI or any of its divisions or
affiliates.
2. Definition of Confidential Information. I realize that my position with DESI
creates a relationship of high trust and confidence with respect to Confidential
Information owned by DESI, its clients or suppliers that may be learned or
developed by me while employed by DESI. For purposes of this Agreement,
"Confidential Information" includes all information that DESI desires to protect
and keep confidential or that DESI is obligated to third parties to keep
confidential, including but not limited to "Trade Secrets" to the full extent of
the definition of that term under Illinois law. It does not include "general
skills, knowledge and experience" as those terms are defined under Illinois law.
3. Examples of Confidential Information. Confidential Information includes, but
is not limited to: computer programs, unpatented inventions, discoveries or
improvements; marketing, manufacturing, organizational, operating, research and
development, and business plans, company policies and manuals, sales forecasts;
personnel information (including the identity of DESI employees, their
responsibilities, competence and abilities, and compensation); medical
information about employees; pricing and nonpublic financial information;
current and prospective client lists and information on clients or their
employees; information concerning planned or pending acquisitions or
divestitures; and information concerning purchases of major equipment or
property.
4. General Skills, Knowledge and Experience. If I leave DESI, I may take with me
and use the general skills, knowledge and experience that I have learned or
developed in my position or positions with DESI or others.
5. Confidentiality Obligations. During and after my employment with DESI, I will
not (a) disclose, directly or indirectly, any
<PAGE> 2
Confidential Information to anyone outside of DESI or to any employees of DESI
not authorized to receive such information or (b) use any Confidential
Information other than as may be necessary to perform my duties at DESI. In no
event will I disclose any Confidential Information to, or use any Confidential
Information for the benefit of, any current or future competitor, supplier or
client of DESI, whether on behalf of myself, any subsequent employer, or any
other person or entity.
6. Duration. With respect to Trade Secrets, my obligations under paragraph 5
shall continue indefinitely or until such Trade Secret information has been made
available generally to the public either by DESI or by a third party with DESI's
consent or is otherwise not considered a Trade Secret under Illinois law. With
respect to Confidential Information which is not a Trade Secret (herein referred
to as "Proprietary Information"), my obligations under paragraph 5 shall
continue in duration until the first to occur of the following (a) five (5)
years has elapsed since termination of my employment with DESI for any reason
including termination by DESI with or without cause, or (b) the Proprietary
Information has been made available generally to the public either by DESI or by
a third party with DESI's consent.
7. Geographic Scope. I understand that DESI has sales and operations facilities
throughout the United States and in a number of foreign countries, that it
purchases equipment and materials from suppliers located throughout the world,
and that it expects to expand the scope of its international activities in the
future. I therefore agree that my obligations under paragraph 5 shall extend
worldwide.
8. Former Employers. I acknowledge that DESI expects me to respect and safeguard
the trade secrets and confidential information of my former employers. I will
not disclose to DESI, use in DESI's business, or cause DESI to use, any
information or material that is confidential to any former employer, unless such
information is no longer confidential or DESI or I have obtained the written
consent of such former employer to do so.
9. Return of Property. Upon termination of my employment with DESI or upon
DESI's request, I will deliver to DESI all DESI property in my possession,
including notebooks, reports, manuals, programming data, listings and materials,
engineering or patent drawings, patent applications, any other documents, file
or materials which contain, mention or relate to Confidential Information, and
all copies and summaries of such material whether in human- or
machine-readable-only form, that I may have or that may come into my custody
while employed by DESI.
10. Insider Trading Prohibitions. I understand that I may not buy or sell
securities on the basis of material information which
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<PAGE> 3
has not been disclosed to the public ("Inside Information"). "Inside
Information" includes anything learned as a result of my employment or other
relationship with DESI which has not been released to the public. It also
includes any information about DESI and its securities and any information about
other companies and other securities learned as a result of my employment or
other relationship with DESI, such as information to which I have access which
has not been delivered or released to the public.
11. Restrictive Covenants. (a) Non-Solicitation of Employees. While employed by
DESI and for a period of eighteen (18) months from the date of termination of my
employment with DESI for any reason, including termination by DESI with or
without cause, I shall not directly or indirectly solicit, induce or encourage
any DESI employee(s) to terminate their employment with DESI or to accept
employment with any competitor, supplier or client of DESI, nor shall I
cooperate with any others in doing or attempting to do so. As used herein, the
term "solicit, induce or encourage" includes, but is not limited to, (i)
initiating communications with a DESI employee relating to possible employment,
(ii) offering bonuses or additional compensation to encourage DESI employees to
terminate their employment with DESI and accept employment with a competitor,
supplier or client of DESI, or (iii) referring DESI employees to personnel or
agents employed by competitors, suppliers or clients of DESI.
(b) Non-Solicitation of Customers. For a period of eighteen (18) months from
the date of termination of my employment for any reason, except termination by
DESI without cause, I agree that I will not, either directly or indirectly, as a
principal, agent, contractor, employee, employer, partner or shareholder (other
than as an owner of 2% or less of the stock of a public corporation) or in any
other capacity, solicit or engage in software consulting, systems integration,
custom software development, facilities management, outsourcing, provision of
contract labor, desktop publishing, word processing, graphics or any other areas
of business engaged in by DESI as of the date of termination of my employment
("DESI Business") with any client which was a client, or a prospective client,
of DESI (provided I had responsibilities or duties with respect to, or was
involved in the development of, such prospective client), within the twelve (12)
months immediately preceding my termination.
(c) Non-Compete. I agree that while I am employed by DESI and for a period
of eighteen (18) months from the date of termination of my employment for any
reason, except termination by DESI without cause, I will not, directly or
indirectly, as a principal, agent, contractor, employee, employer, partner,
shareholder (other than as an owner of 2% or less of the stock of a public
corporation) or in any other capacity engage in, solicit or perform any
technological services for any corporation, partnership or any other entity
which is competitive with DESI
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<PAGE> 4
Business in the United States. Notwithstanding the foregoing provisions of this
subparagraph, it is understood and agreed that upon termination of my employment
with DESI, I may accept employment with a competitive concern whose business is
diversified; provided that, prior to such employment, DESI is given reasonable
assurance in writing that I will not, during said eighteen-month period, render
technological services directly or indirectly to any line of business of such
concern which is competitive with DESI Business.
(d) In the event that any provision of this paragraph is held to be
unreasonable, a court may modify such provision in any manner which results in
an enforceable restriction.
12. Injunctive Relief. I acknowledge that violation of the foregoing
confidentiality, non-solicitation and non-competition obligations will cause
DESI irreparable harm. I agree that DESI is entitled to protection from such
violations, including protection by injunctive relief, in addition to other
remedies available under the law.
13. Disclosure of Developments. I will disclose promptly to DESI all inventions,
discoveries, developments, improvements, works of authorship and computer
programs, ideas, concepts, enhancements, writings, graphics, designs, models,
artwork, code, routines, compilations and related documentation (collectively,
"Developments") that are made, conceived, first reduced to practice or learned
by me either solely or jointly with another or others while employed by DESI,
whether or not they are patentable, copyrightable or subject to trade secret
protection.
14. Ownership of Developments. I agree that, except as otherwise provided in
paragraph 17 hereof, all Developments shall be the sole and exclusive property
of DESI. Any Development for which copyright protection is available shall be
considered a work made for hire or, if I am an independent contractor, assigned
by me to DESI. I agree to assign and do hereby assign to DESI, or to some other
legal entity ("Assignee") designated by DESI, all of my right, title and
interest in and to all Developments in all media throughout the world in
perpetuity. I further agree to waive any moral or similar rights to the
Developments.
15. Protection of Developments. DESI or Assignee shall have the right to use the
Developments and obtain Letters Patent, Copyrights (as author or assignee) or
other statutory or common law protections for Developments in any and all
countries. I will provide DESI or Assignee such assistance as may be requested
in order for DESI or Assignee to obtain or otherwise secure, and from time to
time enforce, U.S. or foreign Letters Patent, copyrights or other statutory or
common law protections for Developments, including the execution of any and all
documents
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<PAGE> 5
that DESI or Assignee may wish to use to obtain or otherwise secure or enforce
such rights, together with any assignments thereof to DESI or Assignee, and to
the successors and assigns of DESI or Assignee, transferring all of my right,
title and interest in and to any Development, and the right to apply for or
otherwise obtain any such rights. DESI or Assignee shall have the sole right to
determine what action, if any, to take with respect to any Development. All
expenses incurred in obtaining and enforcing rights in Developments owned by or
assigned to DESI shall be borne by DESI.
16. Post-Employment Assistance. If I am no longer employed by DESI, DESI or
Assignee shall compensate me at a reasonable rate for time actually spent by me
at the request of DESI or Assignee on the assistance referred to in paragraph
14. Such rate shall be determined by DESI and shall be based on my compensation
at the time my employment with DESI was terminated. DESI or Assignee shall also
reimburse me for pre-approved traveling and personal expenses incurred in
complying with such request.
17. Employee Inventions. I understand that the provisions of paragraphs 13, 14
and 15 of this Agreement do not apply to an invention for which none of DESI's
equipment, supplies, facilities or trade secret information was used and which
was developed entirely on my own time, unless the invention relates to DESI's
business or to DESI's actual or demonstrably anticipated research or development
activities, or unless the invention results from work I perform for DESI.
18. Pre-Existing Developments. I have identified at the end of this Agreement
all Developments that have been made or conceived or first reduced to practice
by me alone or jointly with others prior to my employment with DESI, and that I
desire to exclude from operation of this Agreement. If there are no Developments
listed, I represent that I have made no such Developments.
19. Payments. With respect to any Development for which DESI seeks to obtain
U.S. or foreign Letters Patent, DESI will pay me the sum of Five Hundred Dollars
($500) when I execute an assignment of the Development to DESI, or when I
execute the first patent application and assignment covering the Development,
whichever occurs first. Divisional or continuation-in-part applications shall be
considered to cover separate Developments. The payment of the sum of Five
Hundred Dollars ($500) shall relieve DESI of any obligation it may have had to
make any further payments to me with respect to such Development. If there are
several co-inventors, this sum shall be divided equally between them.
20. Identification of Authorship. DESI, its assignees and licensees are not
required to designate me as the author of any Developments created as a work
made for hire or assigned under
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<PAGE> 6
this Agreement when any such work is distributed publicly, nor to make any such
public distribution or any use thereof.
21. Subsidiaries and Affiliates. I understand and agree that this Agreement is
executed by DESI on its own behalf and on behalf of each of its subsidiaries,
that my obligations under this Agreement shall apply equally to each of DESI's
subsidiaries and that such subsidiaries may enforce this Agreement in their own
names as if they were parties to this Agreement.
22. Prior Agreements. The provisions of any previous agreement relating to the
same subject matter shall remain in effect with respect to any Developments
disclosed by me to DESI prior to the date of this Agreement. Any Development
made or conceived during the term of such previous agreement but not disclosed
until after the date of this Agreement shall be governed by the terms of this
Agreement.
23. Change of Control. DESI agrees that if my employment with the Company is
terminated as a result of a Change in Control of DESI, as hereinafter defined,
DESI shall pay me, within thirty (30) days of the date of termination, an amount
equivalent to my then current annual salary.
For purposes of this Agreement, "Change of Control" is defined as the
acquisition by any person or group of beneficial ownership, other R.R. Donnelley
& Sons Company, in one or a series of transactions, of more than 50% of either
the then outstanding stock or the combined voting power of the then outstanding
voting securities of DESI entitled to vote generally in the election of
directors.
24. Severability. If any provision of this Agreement is held by a court to be
void or unenforceable for any reason, the remaining provisions of this Agreement
shall continue in full force and effect. If a court is of the opinion that any
part of this Agreement is unreasonable, it may modify this Agreement to make it
reasonable and enforceable in all respects.
25. Recovery of Expenses. I agree to pay to DESI the costs and reasonable
attorneys' fees incurred by DESI if it prevails in enforcing any or all of the
terms of this Agreement.
26. Survival of Obligations. The provisions of paragraphs 2-16 and 18-26 of this
Agreement shall survive its termination.
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<PAGE> 7
27. Governing Law. This Agreement shall be construed in accordance with laws
governing contracts made and to be performed in the State of New York.
/s/ NESTOR P. HOLYNSKYJ 2/2/98 , 19
- ------------------------------------ --------------------------- -----
Nestor P. Holynskyj Date
DONNELLY ENTERPRISE SOLUTIONS INCORPORATED
By: /s/ RHONDA I. KOCHLEFL
---------------------------------
The following are pre-existing Developments not covered by paragraphs 12-15, in
which I have any right, title or interest, and which were conceived or written
either wholly or in part by me prior to my employment with DESI, but neither
published nor filed in any Patent Office.
DESCRIPTION OF DOCUMENTS AND PATENTS (IF APPLICABLE)
Date of Name of Witness
Title of Document Document Document
- ---------------------- ------------------ ----------------------
- ---------------------- ------------------ ----------------------
- ---------------------- ------------------ ----------------------
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<PAGE> 1
EXHIBIT 14
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, dated as of the ___ day of _______, ____, is made by
and between Donnelley Enterprise Solutions Incorporated, a Delaware corporation
having its principal place of business in the State of Illinois (the "Company")
and ________________ (the "Indemnitee"), a resident of the state of __________.
WHEREAS, it is essential to the Company to retain and attract the most
capable persons available as officers and directors; and
WHEREAS, Indemnitee is currently serving as the _________________
of the Company (the "Positions"); and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against officers and directors of
corporations, as a result of which competent and experienced persons have
become more reluctant to serve in such positions, and as a result of which
creative management and decision making has been deterred; and
WHEREAS, the provision of indemnification will assist the Company in
attracting and retaining the most skilled and competent officers and directors;
and
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enable Indemnitee to continue
to provide service to the Company in an effective manner, the Company wishes to
provide in this Agreement for the indemnification of the Indemnitee and for the
advancing of expenses to Indemnitee, in each case to the full extent permitted
by law and as set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee agree as follows:
1. Agreement to Serve. Indemnitee will continue to serve faithfully
and to the best of his/her ability in the Positions, at the will of the Company
or pursuant to the terms of any separate agreement which may exist, so long as
he is duly elected or appointed and qualified or until such time as he/she
tenders his/her resignation in writing.
2. Right to Indemnification. In the event Indemnitee was or is made a
party or was or is threatened to be made a party to or was or is involved in or
called as a witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and any appeal therefrom (hereinafter,
collectively a "proceeding"), by reason of the fact that he was, is or had
agreed to become a director, officer, employee, agent, fiduciary or Delegate
(as defined herein) of the Company, Indemnitee shall be indemnified and held
harmless by the Company to the fullest extent permitted under the Delaware
General Corporation Law (the "DGCL"), as the same now exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Company to provide broader
<PAGE> 2
indemnification rights than the DGCL permitted the corporation to provide prior
to such amendment) against all expenses (including, but not limited to,
attorneys' fees and expenses of litigation) and all liabilities and losses
(including, but not limited to, judgments; fines; liabilities under ERISA for
damages; excise taxes or penalties; damages, fines or penalties arising out of
violation of any law related to the protection of the public health, welfare or
the environment; and amounts paid or to be paid in settlement) incurred or
suffered by such person in connection therewith; provided, that except as
provided in Section 4 hereof, the Company shall indemnify any such person
seeking indemnity in connection with a proceeding (or part thereof) initiated
by such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company.
For purposes of this Agreement, a "Delegate" is any person serving at
the request of the corporation as a director, officer, trustee, fiduciary,
partner, employee or agent of an entity or enterprise other than the
corporation (including, but not limited to, service with respect to employee
benefit plans and trusts).
3. Expenses. Expenses, including attorneys' fees, incurred by
Indemnitee in defending or otherwise being involved in a proceeding shall be
paid by the corporation in advance of the final disposition of such proceeding,
including any appeal therefrom, upon receipt of an undertaking (the
"Undertaking") by or on behalf of Indemnitee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company; provided, that in connection with a proceeding (or part thereof)
initiated by Indemnitee, except as provided in Section 4 hereof, the Company
shall pay such expenses in advance of the final disposition only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Company. The Undertaking shall provide that if Indemnitee has commenced
proceedings in a court of competent jurisdiction to secure a determination that
he/she should be indemnified by the Company, he/she shall not be obligated to
repay the Company during the pendency of such proceeding.
4. Protection of Rights. If a claim under Section 2 or any agreement
("Other Agreement") providing indemnification to Indemnitee is not promptly
paid in full by the Company after a written claim has been received by the
Company or if expenses pursuant to Section 3 or an Other Agreement have not
been promptly advanced after a written request for such advancement accompanied
by the Undertaking has been received by the Company, the claimant may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim or the advancement of expenses. If successful, in whole or in part,
in such suit Indemnitee shall also be entitled to be paid the reasonable
expense thereof. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required Undertaking
has been tendered to the Company) that Indemnitee has not met the standards of
conduct which make it permissible under the DGCL for the Company to indemnify
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company. Neither the failure of the Company (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of
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<PAGE> 3
Indemnitee is proper in the circumstances because he/she has met the applicable
standard of conduct required under the DGCL, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that Indemnitee had
not met the applicable standard of conduct.
If a Change of Control has occurred, Indemnitee upon making a claim
under Section 2 or seeking to avoid repayment to the Company pursuant to an
Undertaking under Section 3 shall have (i) the right, but not the obligation,
to have a determination made by independent legal counsel, at the expense of
the Company, as to whether indemnification of the claimant is proper because
he/she has met the applicable standard of conduct required under the DGCL; and
(ii) shall have the right to select as independent legal counsel for such
purpose any law firm as designated (or within a category designated) for such
purpose in a resolution adopted by the Board of Directors of the Company prior
to the Change of Control and in full force and effect immediately prior to the
Change of Control (or if no such law firm has been so designated by the Board
of Directors, any law firm selected by such Indemnitee provided that such firm
has an AV rating by Martindale Hubbell). If a determination has been made in
accordance with the preceding sentence, no determination inconsistent therewith
by other legal counsel, by the Board of Directors, or by stockholders shall be
of any force or effect, provided however, that Indemnitee shall maintain all
rights granted hereby to bring an action as specified in the preceding
paragraph.
A "Change of Control" shall be deemed to have occurred if (i)
individuals who as of _________, ____ constitute the Board of Directors of the
Company (the "Incumbent Directors") cease for any reason to constitute at least
a majority of the Board of Directors of the Company, or (ii) there is a merger,
consolidation or reorganization ("Merger") of the Company in which the Company
is not the surviving entity (the "Survivor") and at any time following such
Merger, Incumbent Directors do not constitute a majority of the Board of
Directors of the Survivor; provided that any individual who becomes a director
after May 6, 1998 whose election, or nomination for election by the Company's
stockholders was approved by a vote or written consent of at least two-thirds
of the directors then comprising the Incumbent Directors shall be deemed to be
an Incumbent Director, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or
threatened election contest (as such term is used in Rule 14a-11 under the
Securities Exchange Act of 1934, as amended) relating to the election of the
directors of the Company.
5. No Presumption. For purposes of this Agreement, the termination of
any proceeding, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has
determined that indemnification or contribution is not permitted by applicable
law.
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<PAGE> 4
6. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Company's
Certificate of Incorporation or By-Laws, insurance policy, other agreement,
vote of stockholders or directors or otherwise.
7. Subrogation. In the event of any payment under this Agreement to
Indemnitee, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including execution of such documents as are necessary to enable the Company to
bring suit to enforce such rights.
8. Amendment; Waiver. No provision of this Agreement may be amended
or modified except with the consent in writing of Indemnitee and the Company,
nor may any provision of this Agreement be waived except in writing by the
party granting such waiver. A waiver of any provision hereof shall not be
deemed a waiver of any other provision hereof. Failure of either of the
parties hereto to insist upon strict compliance with any provision hereof shall
not be deemed to be a waiver of such provision or any other provision hereof.
9. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any proceeding to the
extent Indemnitee has otherwise actually received payment under any insurance
policy, statute, provision of the Company's Certificate of Incorporation or
By-Laws, other agreement, vote of stockholders or directors or otherwise of the
amounts otherwise indemnifiable.
10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns (including, without limitation, any successor by
purchase, merger, consolidation, reorganization or otherwise to all or
substantially all of the business and/or assets of the Company) and their
spouses, heirs, and personal and legal representatives.
11. Term. The provisions of this Agreement shall be applicable to all
proceedings, regardless of when commenced and regardless of whether relating to
events, acts or omissions occurring before, on or after the date on which this
Agreement becomes effective. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve in the Positions; provided,
however, that notwithstanding any other provision hereof, the Company shall
have no obligations hereunder with respect to liability, losses and expenses of
any proceeding to the extent that such liability, losses and expenses relate to
conduct of the Indemnitee which occurs after the earliest date on which
Indemnitee no longer holds the Positions nor a position of a corporate officer
or director of the Company or a President of any of the divisions of the
Company.
12. Severability. If this Agreement or any portion hereof shall be
invalidated or held to be unenforceable, such invalidity or unenforceability
shall not affect the other provisions
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<PAGE> 5
hereof, and this Agreement shall be deemed to be modified to the minimum extent
necessary to avoid such invalidity or unenforceability, and as so modified this
Agreement and the remaining provisions hereof shall remain valid and
enforceable in accordance with their terms to the fullest extent permitted by
law.
13. Notice. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Indemnitee:
____________________
____________________
____________________
If to the Company:
Donnelley Enterprise Solutions Incorporated
161 North Clark Street
Suite 2400
Chicago, Illinois 60601
Attention: Ms. Rhonda I. Kochlefl
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
14. Governing Law. This agreement shall be governed by and construed
and enforced in accordance with the laws of the state of Delaware, without
regard to its choice of law principles.
15. Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
16. Counterparts. This agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument originals.
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<PAGE> 6
IN WITNESS WHEREOF, Indemnitee and the Company, pursuant to the
authorization of its Board of Directors, execute and approve this Agreement in
all respects as to form and substance and make it fully effective as of the
date first above written.
________________________________________
Indemnitee
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
By:_____________________________________
Its:_________________________________
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EXHIBIT 18
May 27, 1998
Mr. Tom Munro
Donnelley Enterprise Solutions Inc.
161 N. Clark Street
24th Floor
Chicago, IL 60601
Dear Tom:
Reference is made to the Tax Allocation and Indemnification Agreement
(the "Agreement") dated as of October 25, 1996, between R.R. Donnelley & Sons
Company, a Delaware corporation ("RRD"), and Donnelley Enterprise Solutions
Incorporated, a Delaware corporation (the "Company"). This letter is intended to
document the procedures employed by RRD and the Company in settling certain tax
benefits and liabilities under the Agreement. Except as otherwise indicated, all
capitalized terms used herein have the same meaning as set forth in the
Agreement.
This letter deals solely with the tax deduction for earn-out payments
made in October, 1996 under the terms of the Merger Agreement (the "Merger
Agreement") between Lan Systems, Inc., Donnelley DBS, Inc. and RRD dated as of
May 29, 1995. Earn-out payments of $8.7 million due under the Merger Agreement
were deducted by the Company on its U.S. Corporate Income Tax return for the
period ending October 31, 1996, which deduction resulted in a tax benefit to RRD
in RRD's consolidated U.S. Corporate Income Tax return for calendar 1996.
Approximately 26.2% of the $8.7 million earn-out payment (or $2,282,500) was
made to employee non-shareholders of Lan Systems; the remaining payments were
made to employee shareholders. All employees, whether or not they were
shareholders, were issued Form 1099-MISC reporting these payments as "other
income". The Company deducted the payment of $8.7 million on its tax return, and
RRD received the benefit of this deduction. The Company treated the entire
deduction of $8.7 million as a "Schedule M" adjustment under which taxable
income was different than book income for the year of payment. RRD has estimated
that the deduction for the 26.2% of the earn-out payment made to employee
non-shareholders has a high probability of being successfully defended on audit
by the IRS. RRD has estimated a lower probability of success for the balance of
the deduction of the earn-out payment.
<PAGE> 2
Mr. Tom Munro
May 27, 1998
Page
RRD's traditional practice for allocating tax benefits and liabilities
among its consolidated subsidiaries would have provided a payment to the Company
for the losses it contributed to the RRD consolidated tax return. RRD and the
Company agreed to utilize this traditional practice in determining the amounts
owed from one party to another under the Agreement. As an interim settlement of
the 1996 tax return, RRD and the Company agreed in December, 1997 that RRD would
pay the Company for 26.2% of the benefit generated by the earn-out deduction at
a 41.5% tax rate ($947,237.50). No cash payment was made from RRD to the
Company; instead, the Company received the benefit of a credit of $947,237.50 in
settling intercompany liabilities between RRD and the Company. The balance of
the benefit of the deduction has been retained by RRD pending conclusion of the
IRS audit of the 1996 consolidated tax return. When the tax treatment of this
issue has been concluded with the IRS, a final allocation settlement with the
Company will be made. If the IRS allows a deduction for the earn-out payment in
excess of the 26.2% previously paid to the Company, then RRD will pay the
Company the tax benefit associated with the deduction less the benefits
previously paid. If the IRS allows an earn-out deduction less than the 26.2%
previously paid to DESI, then the Company will refund to RRD the proportionate
tax benefit previously paid to DESI and subsequently disallowed. Each of these
payments and refunds will be computed under the terms of the Agreement.
Signed
/s/ Thomas A. Munro /s/ Cheryl A. Francis
-------------------------- ---------------------------
DESI RRD
Vice President & CFO Executive Vice President & CFO
<PAGE> 1
RHONDA I. KOCHLEFL
Chairman, President and
Chief Executive Officer
_____________________________
161 NORTH CLARK STREET
CHICAGO, ILLINOIS 60601-3221
EXHIBIT 20
[LOGO]
June 3, 1998
Dear Stockholder:
On behalf of the Board of Directors of Donnelley Enterprise Solutions
Incorporated (the "Company"), I am writing to inform you that the Company has
entered into an Agreement and Plan of Merger dated as of May 27, 1998 (the
"Merger Agreement") with Bowne & Co., Inc. ("Parent") and DESI Acquisition,
Inc., a wholly-owned subsidiary of Parent ("Purchaser"). Pursuant to the Merger
Agreement, Purchaser has commenced a cash tender offer (the "Offer") to purchase
all of the outstanding shares of the Company's common stock (the "Shares") at a
purchase price of $21.00 per Share, net to the seller in cash, without interest.
The Offer, if consummated, is to be followed by a merger of Purchaser with and
into the Company in which each Share not purchased in the Offer will be
converted into the right to receive the same cash consideration paid per Share
as is paid to stockholders in the Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
OFFER AND THE MERGER AND DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE OFFER AND TENDER ALL THEIR SHARES
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board carefully considered a number
of factors more fully described in the attached Schedule 14D-9, which has been
filed with the Securities and Exchange Commission, including, among other
things, the terms and conditions of the Merger Agreement and the opinion of
William Blair & Company, L.L.C., financial adviser to the Company, to the effect
that the cash consideration to be received by stockholders in the Offer and the
Merger is fair to such stockholders from a financial point of view. The full
text of the written opinion of William Blair & Company, L.L.C. is attached
hereto and stockholders are urged to read such opinion in its entirety.
Accompanying this letter, in addition to the attached Schedule 14D-9, is
the Offer to Purchase dated June 3, 1998, together with related materials,
including a Letter of Transmittal, to be used in tendering your Shares pursuant
to the Offer. These documents state the terms and conditions of the Offer and
the Merger, provide detailed information about the transactions and include
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ Rhonda I. Kochlefl
Rhonda I. Kochlefl
Chairman, President and Chief Executive
Officer
<PAGE> 1
EXHIBIT 21
[WILLIAM BLAIR COMPANY LOGO]
May 27, 1998
Board of Directors
Donnelley Enterprise Solutions Incorporated
161 North Clark Street, Suite 2400
Chicago, Illinois 60601
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Shareholders (other than Bowne & Co., Inc. or any of its
affiliates) of Donnelley Enterprise Solutions Incorporated ("the Company") of
the consideration to be received pursuant to the terms of the Agreement and Plan
of Merger dated as of May 27, 1998 (the "Merger Agreement") by and among Bowne &
Co., Inc. ("Bowne"), a wholly-owned subsidiary of Bowne ("Purchaser"), and the
Company. Pursuant to the terms of, and subject to the conditions of, the Merger
Agreement, Purchaser will make a tender offer (the "Tender Offer") at $21.00 per
share for all of the outstanding shares of the Company (the "Consideration").
Following consummation of the Tender Offer, Purchaser will be merged with and
into the Company in a merger ("Merger") in which all of the outstanding shares
of the Company (other than shares owned by Bowne, Purchaser or the Company or
their subsidiaries) will be converted into the right to receive the
Consideration (the transactions pursuant to the Merger Agreement are
collectively, the "Transaction").
In connection with our review of the proposed transaction (the "Transaction")
and the preparation of our opinion herein, we have examined, (a) the Merger
Agreement; (b) audited financial statements of the Company for the two fiscal
years ended December 31, 1997; (c) the unaudited quarterly financial statements
of the Company for the period ended March 31, 1998; (d) certain internal
financial information and forecasts for the Company, prepared by management of
the Company and (e) certain other publicly available information on the Company.
We have also held discussions with members of the senior management of the
Company to discuss the foregoing, and have considered other matters which we
have deemed relevant to our inquiry.
Although we have no reason to believe that any of the financial or other
information on which we have relied is not accurate or complete, we have assumed
the accuracy and completeness of all such information and have not attempted to
verify independently any of such information, nor have we made or obtained an
independent appraisal of the assets of the Company. With respect to financial
forecasts, we have assumed that such forecasts have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management, as the case may be, as to the respective future financial
performance of the Company. Our opinion herein is based upon circumstances
existing and disclosed to us and that can be evaluated as of May 27, 1998.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Merger Agreement dated May 27, 1998,
without any waiver of any material terms or conditions by the Company.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical revenues, operating earnings, operating cash flows, net
income and capitalization, as to the Company and certain publicly held companies
in businesses we believe to be comparable to the Company; (b) the current
financial position and results of operations of the Company; (c) the historical
market prices and trading volume of the Common Stock of the Company; (d)
financial
<PAGE> 2
information concerning selected actual and proposed business combinations which
we believe to be relevant; and (e) the general condition of the securities
markets.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is not a recommendation to the
Company's shareholders with respect to the Transaction.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee, a significant portion
of which is contingent upon consummation of the Transaction, and indemnify us
against certain liabilities.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of date hereof, the Consideration to be paid to the Shareholders of the
Company in the Transaction is fair, from a financial point of view, to such
Shareholders.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
