<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4694
R. R. DONNELLEY & SONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1004130
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF JULY 31, 1994 153,864,474
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited) for the
three and six month periods ended June 30, 1994 and 1993...... 3
Condensed Consolidated Balance Sheets (Unaudited) as of June
30, 1994 and December 31, 1993................................ 4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the six months ended June 30, 1994 and 1993................... 6
Notes to Condensed Consolidated Financial Statements (Unau-
dited)........................................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations--Comparison of Second Quarter and First
Half 1994 to 1993............................................. 8
Financial Condition............................................ 8-9
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................. $ 1,117,338 $ 993,964 $ 2,188,215 $ 1,954,305
Cost of sales............. 899,519 798,613 1,776,543 1,584,119
----------- ----------- ----------- -----------
Gross profit............ 217,819 195,351 411,672 370,186
Selling and administrative
expenses................. 118,120 105,431 233,270 209,285
Restructuring charge...... -- -- -- 90,000
----------- ----------- ----------- -----------
Earnings from
operations............. 99,699 89,920 178,402 70,901
Interest expense.......... (12,472) (11,254) (24,199) (22,464)
Other expense, net........ (1,435) (486) (5,476) (3,010)
----------- ----------- ----------- -----------
Earnings before income
taxes and cumulative
effect of accounting
changes ................. 85,792 78,180 148,727 45,427
Provision for income
taxes.................... 27,454 25,409 47,593 14,764
----------- ----------- ----------- -----------
Net income from operations
before cumulative effect
of accounting changes.... 58,338 52,771 101,134 30,663
Cumulative effect of
change in accounting for
post-retirement benefits
other than pensions (net
of tax benefits of $80.1
million)................. -- -- -- (127,700)
Cumulative effect of
change in accounting for
income taxes............. -- -- -- 58,200
----------- ----------- ----------- -----------
Net income (loss)......... $ 58,338 $ 52,771 $ 101,134 $ (38,837)
=========== =========== =========== ===========
Income (charge) per share:
Operations before
cumulative effects of
accounting changes..... $ 0.38 $ 0.34 $ 0.66 $ 0.20
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions (net of tax
benefits).............. -- -- -- (0.82)
Cumulative effect of
change in accounting
for income taxes....... -- -- -- 0.37
----------- ----------- ----------- -----------
Net income (loss)....... $ 0.38 $ 0.34 $ 0.66 $ (0.25)
=========== =========== =========== ===========
Cash dividends.......... $ 0.14 $ 0.13 $ 0.28 $ 0.26
=========== =========== =========== ===========
Average number of shares
outstanding.............. 154,367,000 154,701,000 154,288,000 154,805,000
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents............................... $ 19,949 $ 10,716
Receivables, less allowance for doubtful accounts
of $15,377 and $14,795 at June 30, 1994 and
December 31, 1993, respectively................... 818,423 825,207
Inventories, principally at LIFO cost.............. 283,954 243,714
Prepaid expenses................................... 40,571 30,277
----------- -----------
Total current assets............................. 1,162,897 1,109,914
----------- -----------
Property, plant and equipment, at cost............... 3,619,850 3,361,255
Accumulated depreciation............................. (1,812,226) (1,686,779)
----------- -----------
Net property, plant and equipment................ 1,807,624 1,674,476
----------- -----------
Goodwill--net........................................ 541,687 493,672
Other assets......................................... 434,679 375,964
----------- -----------
Total assets..................................... $ 3,946,887 $ 3,654,026
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 364,047 $ 333,862
Accrued compensation................................. 70,152 78,284
Short-term debt...................................... 37,400 37,428
Current and deferred income taxes.................... 53,281 40,698
Other accrued liabilities............................ 195,134 195,169
---------- ----------
Total current liabilities.......................... 720,014 685,441
---------- ----------
Long-term debt......................................... 841,779 673,422
Deferred income taxes.................................. 262,083 272,959
Other noncurrent liabilities........................... 216,307 178,213
Shareholders' equity:
Common stock, at stated value........................ 330,612 330,612
Retained earnings, including cumulative translation
adjustments
of ($4,934) and ($13,140) at June 30, 1994 and
December 31, 1993, respectively..................... 1,699,061 1,629,673
Reacquired common stock, at cost..................... (122,969) (116,294)
---------- ----------
Total shareholders' equity......................... 1,906,704 1,843,991
---------- ----------
Total liabilities and shareholders' equity......... $3,946,887 $3,654,026
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income from operations before cumulative effect of
accounting changes..................................... $101,134 $ 30,663
Depreciation and amortization........................... 150,888 133,870
Net change in assets and liabilities.................... 482 3,582
Other................................................... (100) 5,441
-------- ---------
Net cash provided by operating activities............. 252,404 173,556
-------- ---------
Cash flows used for investing activities:
Capital expenditures.................................... (233,528) (145,289)
Other capital investments including acquisitions........ (103,521) (32,696)
-------- ---------
Net cash used for investing activities................ (337,049) (177,985)
-------- ---------
Cash flows from (used for) financing activities:
Net increase in borrowings.............................. 138,069 64,637
Disposition of reacquired common stock.................. 17,367 12,428
Acquisition of common stock............................. (20,783) (23,335)
Cash dividends on common stock.......................... (43,211) (40,247)
-------- ---------
Net cash from financing activities.................... 91,442 13,483
-------- ---------
Effect of exchange rate changes on cash and equivalents... 2,436 (424)
-------- ---------
Net increase in cash and equivalents...................... 9,233 8,630
Cash and equivalents at beginning of period............... 10,716 12,348
-------- ---------
Cash and equivalents at end of period..................... $ 19,949 $ 20,978
======== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1993 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1993 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods.
Note 2. Components of the company's inventories at June 30, 1994 and December
31, 1993 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
Raw materials........................................... $150,317 $142,739
Work in process......................................... 193,488 154,477
Other, including goods held for customers and operating
supplies............................................... 35,515 32,192
LIFO reserve............................................ (47,896) (45,395)
Progress billings....................................... (47,470) (40,299)
-------- --------
Total inventories................................... $283,954 $243,714
======== ========
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
SIX MONTHS ENDED
JUNE 30
----------------------
1994 1993
-------- ------------
<S> <C> <C>
Interest paid, net of capitalized interest.............. $ 24,137 $ 17,784
Income taxes paid....................................... $ 38,831 $ 14,644
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--COMPARISON OF SECOND QUARTER 1994 TO SECOND QUARTER 1993
Net sales increased 12.4%, reflecting new products and services, higher
volume from existing and new customers and recent acquisitions. Net sales from
international operations increased 29%, resulting from strong demand from
computer hardware and software customers in Europe and Asia and from existing
and new customers in book, catalog and magazine operations in the United
Kingdom and Mexico. As a result of this growth, international operations
represented over 10% of consolidated net sales in the quarter. The growth in
international sales is expected to continue in the second half with the
consolidation of Editorial Lord Cochrane, the major independent printer in
South America, in which the company acquired a majority interest in the second
quarter of 1994.
Gross profit increased 11.5%, reflecting higher sales volume partially offset
by higher depreciation and amortization, a higher LIFO provision and higher
start-up expenses. Selling and administrative expenses increased 12% (less than
the 12.4% growth in net sales), due to higher volume, recent expansions and new
operations. Total other expense increased $2.2 million, primarily reflecting
higher interest expense (due to larger commercial paper balances and higher
interest rates) and lower investment income. The effective tax rate of 32% in
1994 was lower than the 1993 rate of 32.5% reflecting benefits associated with
life insurance programs and credits associated with affordable housing
programs, partially offset by the impact of the higher federal statutory income
tax rate. Net income increased 10.5%, as a result of volume increases and a
lower effective tax rate. Earnings per share were $0.38 per share, up 11.8%,
reflecting the growth in net income and fewer average shares outstanding.
RESULTS OF OPERATIONS--COMPARISON OF FIRST HALF 1994 TO FIRST HALF 1993
Net sales increased 12%, reflecting new products and services, higher volume
from existing and new customers and recent acquisitions. Net sales from
international operations increased 24%, resulting from strong demand from
computer hardware and software customers in Europe and Asia, and from existing
and new customers in book, catalog and magazine operations in the United
Kingdom and Mexico. As a result of this growth, international operations
represented over 10% of consolidated net sales in the first half. The growth in
international sales is expected to continue in the second half with the
consolidation of Editorial Lord Cochrane, as discussed in the second quarter
comparison.
Gross profit increased 11.2%, reflecting higher sales volume partially offset
by higher depreciation and amortization, a higher LIFO provision and higher
start-up expenses. Selling and administrative expenses increased 11.5% (less
than the 12% growth in net sales), due to increased volume, recent expansions
and new operations. Total other expense increased $4.2 million, primarily
reflecting higher interest expense (due to larger commercial paper balances and
higher interest rates) and lower investment income. The effective tax rate of
32% in 1994 was lower than the 1993 rate of 32.5%, reflecting benefits
associated with life insurance programs and credits associated with affordable
housing programs, partially offset by the impact of the higher federal
statutory income tax rate. Due to volume increases and the lower effective tax
rate, net income increased 10.6% in the first half, excluding the restructuring
charge and accounting changes reflected in the first quarter of 1993. First
half earnings per share of $0.66 increased 11.9% over 1993, excluding the one-
time items recorded in the first quarter of 1993, reflecting growth in net
income and fewer average shares outstanding.
FINANCIAL CONDITION
With the growth in cash flow and the credit facilities and shelf registration
discussed below, management believes the company has the financial strength and
flexibility to fund current
8
<PAGE>
operations and growth. Net income from operations plus depreciation and
amortization increased to $252 million, up 12% over the prior year, excluding
the restructuring charge recorded in the first quarter of 1993.
Capital investments during the first half totaled $337 million, including new
equipment to meet the growing needs of present and new customers; expansion of
manufacturing plants; and acquisitions and joint venture investments. Full year
capital investments are expected to be $500 million, including the second-
quarter acquisition of a majority interest in Editorial Lord Cochrane. Working
capital increased by $18 million from December 31, 1993, primarily from higher
inventory levels to support expected second half volume increases, partially
offset by higher accounts payable balances.
At June 30, 1994, the company continues to have two unused revolving credit
facilities totaling $550 million with a number of banks. These credit
facilities provide support for the issuance of commercial paper and other
credit needs. As of June 30, 1994, the company continues to have effective
shelf registration statements permitting it to issue, from time to time, up to
$500 million in debt securities.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10(a) Retirement Agreement with retiring executive*
10(b) Donnelley Shares Stock Option Plan, as amended on July 28, 1994
12 Statement of Computation of Ratio of Earnings to Fixed Charges
- - --------
*Management Contract or Compensation Plan or Arrangement.
(b) No current Report on Form 8-K was filed during the second quarter of
1994.
10
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
/s/ William L. White
By __________________________________
William L. White
Controller
(Authorized Officer and
Chief Accounting Officer)
August 12, 1994
Date __________________________
11
<PAGE>
Exhibit 10(a)
(Form 10-Q for quarter
ended June 30, 1994)
RETIREMENT AND RELEASE AGREEMENT
--------------------------------
This Retirement and Release Agreement ("Agreement") is entered into by
and between R.R. Donnelley & Sons Company, on behalf of itself, its subsidiaries
and affiliated entities and their respective shareholders, directors, officers,
employees, agents, and attorneys and their predecessors, successors, and assigns
("Company"), and Frank J. Uvena ("Uvena") this 25th day of July 1994.
PRELIMINARY RECITALS:
---------------------
WHEREAS, the Company has employed Uvena as Senior Vice President of
Law and Corporate Staffs;
WHEREAS, Uvena has elected to retire from his employment and all
offices he held with the Company, effective March 31, 1995; and
WHEREAS, the Company and Uvena mutually agree to end the employment
relationship, provide for an orderly transition of responsibilities, secure
Uvena's availability in the future to assist in the prosecution or defense of
matters in which Uvena was involved, limit certain competitive activities
following Uvena's retirement, and settle all matters and potential claims on the
terms and conditions and for the compensation stated in this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company and Uvena hereby agree as follows:
1. Uvena shall remain on the payroll of the Company at his base salary
rate through March 31, 1995 ("Retirement Date"), at which time his employment
will terminate. Uvena shall cease to perform services for the Company (except
as provided in this Agreement) by no later than December 31, 1994 ("Leave
Date"). Effective on or before the Leave Date, Uvena shall resign as the
Company's Senior Vice President of Law and Corporate Staffs (and any other
positions he may hold with any of the subsidiary corporations or affiliated
entities of the Company). Uvena's separation shall be deemed to be, and shall
be, early retirement with the consent of the Company for purposes of determining
his rights under retirement, stock options and other benefit plans of the
Company providing for rights dependent upon whether a termination of employment
was early retirement with the consent of the Company.
<PAGE>
2. So long as Uvena has complied with the terms of this Agreement and:
(i) Uvena does not revoke this Agreement within seven (7) days after
his execution and delivery of the Agreement; and
(ii) Uvena executes and delivers to the Company the notarized
Ratification Affidavit attached as Exhibit A between eight (8)
and fifteen (15) days after the delivery of the executed
Agreement to the Company,
the Company will cause the following compensation to be paid to Uvena and shall
cause the following events to occur:
a. Uvena shall be entitled to receive such retirement benefits as
are provided for him under the Company's various plans for
retired employees except for the following adjustment and such
plans shall be honored in accordance with their terms. Uvena
shall be credited with four years of additional benefit accrual
based on Annual Covered Earnings for 1994 as defined by the
plans. The additional four years will not be credited to his age
for the purpose of calculating Early Retirement Reductions.
However, there will be no actuarial reduction for retirement
prior to normal retirement age regarding the additional four
years of additional benefit accrual.
b. The rights of Uvena under the Company's stock bonus, restricted
stock, and stock option grants shall be honored in accordance
with the terms of such grants and the plans under which such
grants were issued. No such grants will be made to Uvena in 1994
or 1995.
c. Uvena may participate in the Company's 1993 Stock Purchase Plan
in accordance with the terms of the plan.
d. The Company agrees, effective as of the Retirement Date, to
establish and to credit to a hypothetical account (the "Account")
the principal sum of $550,000. Such principal amount, as
increased or decreased from time to time by interest credited and
distributions made, shall bear interest from April 1, 1995,
creditable quarterly thereafter, at a rate equal to Moody's Aaa,
but not less than six percent (6%). There shall be paid to Uvena
during his lifetime, and charged to the Account the sum of
$50,000 on April 1, 1995, and on each April 1 thereafter (or in
the case of the last such installment such lesser amount as shall
remain in the Account) until the first to occur of (i) the death
of Uvena or (ii) the depletion of the Account by reason of the
charges for such distributions. The obligation of the Company to
make the payments contemplated by this section shall be an
unsecured general obligation of the Company.
2
<PAGE>
e. In January 1996, the Company shall pay Uvena two-thirds of the
payment that would have been called for under the 1993-1995 long
term incentive grant made to Uvena on December 10, 1992 pursuant
to the terms of the 1991 Stock Incentive Plan.
f. The Company shall pay Uvena the full 1994 annual bonus in
accordance with the terms of the 1994 Annual Incentive Plan,
payable in January 1995 in accordance with the terms of that
plan. Uvena shall not receive a payment under that plan for any
period after December 31, 1994.
g. The Company shall reimburse Uvena up to $5,000 for 1994 and an
additional $5,000 for 1995 for financial planning purposes in
accordance with the terms of the plan approved at the June 13,
1994 meeting of the Compensation Committee of the Company's Board
of Directors.
h. The Company shall pay the premium for excess life and disability
insurance benefits for Uvena for the period through the
Retirement Date in accordance with the terms of the plan approved
at the June 13, 1994 meeting of the Compensation Committee of the
Company's Board of Directors.
i. Uvena may continue to participate in the Company's benefit plans
in accordance with the terms of the plans through the Retirement
Date and thereafter as permitted by the plans. The Company shall
provide Uvena his rights under the Consolidated Budget
Reconciliation Act ("COBRA") from and after the Retirement Date
or, if earlier, the date of any "qualifying event" under that
law.
j. The Company shall provide outplacement assistance to Uvena, if
desired by Uvena, in the Company's discretion.
Upon the death of Uvena, any balance then remaining in the Account described in
sub-paragraph 2(d) or payment not yet made pursuant to sub-paragraphs 2(e) or
(f) shall be paid to such person(s) or trust(s) as shall be designated in
writing delivered to the Company by Uvena or if no such person(s) or trust(s)
have been so designated to the estate of Uvena.
The foregoing payments and benefits shall be subject to withholding taxes to the
extent required by law.
3. Uvena shall not at any time hereafter disparage or portray in a
negative light the Company, its subsidiary or affiliated entities, or their
shareholders, members, directors, officers, employees, agents or attorneys (past
or present) and shall not disclose to any one (without the prior written consent
of the Company) any information
3
<PAGE>
regarding the Company or its financial condition, contractual arrangements,
internal affairs, or governance which is non-public, confidential, or
proprietary or which would in any way injure the reputation of the Company or of
any of the (past or present) shareholders, members, directors, officers,
employees, agents or attorneys of the Company.
4. Uvena agrees that as a part of his responsibilities he will perform
such duties as are assigned to him and will assist the Company to ensure a
smooth transition to employees or other individuals designated by the Company of
his responsibilities and the details concerning the projects and assignments in
which he is and was involved.
5. Uvena agrees to cooperate with the Company in the truthful and honest
prosecution and/or defense of any claim in which the Released Parties (as
defined below) may have an interest (subject to reasonable limitations
concerning time and place), which may include without limitation making himself
available to participate in any proceeding involving any of the Released
Parties, allowing himself to be interviewed by representatives of the Company,
appearing for depositions and testimony without requiring a subpoena, and
producing and/or providing any documents or names of other persons with relevant
information.
6. Uvena agrees that during the two year period commencing March 31, 1995
and ending March 30, 1997, he will hold himself available to provide, and will
provide, if requested by the Company, consulting services relating to the areas
of his expertise developed during his career with the Company. To the extent
that he shall provide such consulting services, Uvena shall be entitled to
reimbursement for all reasonable out-of-pocket expenses incurred in the
performance of such services, but shall not be entitled to other compensation
therefor, it being the intent of the parties that the benefits provided
elsewhere in this Agreement include compensation for a reasonable amount of
consulting services. In the event the Company should request Uvena to provide
consulting services which would require more than one hundred (100) hours in any
twelve month period, Uvena shall not be obligated to provide such services
unless he and the Company shall agree upon a basis of compensation for such
excess hours. The inability of Uvena to provide required consulting services
under this paragraph due to his death or disability shall not be deemed a breach
of this Agreement.
7. Uvena reaffirms and agrees to comply with the terms of the Agreement
Regarding Confidential Information, Intellectual Property and Non-Solicitation
of Employees signed by Uvena on November 1, 1988, a copy of which is attached
hereto as Exhibit B and incorporated by reference herein. Uvena represents that
he has delivered (or will as requested, but no later than the Leave Date,
deliver) all papers, books, records, computer programs, or like materials in his
possession or control and all copies thereof to the Company.
4
<PAGE>
8. In consideration of the covenants and agreements of the Company herein
contained, the payments to be made by the Company pursuant to this Agreement,
the positions of trust and confidence he occupied with the Company and the
information of a highly sensitive and confidential nature he garnered as a
result of such position, Uvena agrees that he will not, during the period
commencing on the date of this Agreement and ending on December 31, 1996,
without the prior written consent of the Company, either directly or indirectly
accept employment by or serve as a consultant, agent, principal stockholder,
corporate officer, director, or any other individual or representative capacity
for any competitor, identified in the graphic arts industry, of the Company or
any of its subsidiaries or assist in the solicitation of any work or engage in
any other activity in competition with the business then being conducted by the
Company or any of its subsidiaries, or solicit directly or indirectly the
employees of the Company or any of its subsidiaries to accept any other
employment. Uvena acknowledges that the business conducted by the Company is
worldwide and that it is reasonably necessary for the protection of the Company
and its subsidiaries and their goodwill, in view of his knowledge of its and
their worldwide operations, that he not provide to competitors of the Company or
any of its subsidiaries anywhere in the world the benefit of his knowledge of
the Company and its subsidiaries and its and their business. Uvena further
acknowledges that a breach by him of his agreements contained in this section
would cause irreparable harm to the Company which is not adequately measurable
by money damages and that accordingly in the event of such a breach, in addition
to any and all other rights the Company may have, including, without limitation,
rights at law and in equity, and the right of the Company to terminate its
obligations under this Agreement and the payment of any monies hereunder, the
Company shall be entitled to equitable remedies in the nature of injunctive
relief to stop any existing breaches and to prohibit any future breaches.
9. Uvena, on behalf of himself, his heirs, executors, attorneys,
administrators, successors and assigns, hereby fully and forever, to the full
extent permitted by law, releases and discharges the Company, and each of its
subsidiary and affiliated companies and entities and each of their partners,
principals, members, shareholders, directors, officers, trustees, employees,
contractors, consultants, agents and attorneys, past, present and future, and
all predecessors, successors and assigns thereof (collectively "Released
Parties") from any and all claims, demands, agreements, actions, suits, causes
of action, damages, injunctions, restraints and liabilities, of whatever kind or
nature, in law, equity or otherwise, whether now known or unknown or which have
ever existed or which may now exist (except to enforce the terms of this
Agreement), including, but not limited to, any and all claims, liabilities,
demands or causes of action relating to or arising out of Uvena's employment,
resignation from the position of Senior Vice President of Law and Corporate
Staffs, or retirement from employment with the Company, such as claims under
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S) 2000e et
seq., 42 U.S.C. (S) 1981, the Civil Rights Act of 1991, the Americans with
Disabilities Act, the Family and Medical Leave Act, the Age Discrimination in
Employment Act, as amended by the Older
5
<PAGE>
Workers Benefit Protection Act, the anti-trust and restraint of trade statutes
and common law, the federal and state (including, without limitation, Illinois)
statutes or common law, or claims for breach of contract, for misrepresentation,
for violation of any other federal, state or local statute, ordinance or
regulation or common law dealing in any respect with discrimination in
employment or otherwise, defamation, retaliatory or wrongful discharge under the
common law of any state, infliction of emotional distress or any other tort
under the common law of any state or for attorney's fees. Uvena acknowledges
and agrees that this release and the covenant not to sue set forth in paragraph
10 are essential and material terms of this Agreement and that without such
release and covenant not to sue no agreement would have been reached by the
parties. Uvena understands and acknowledges the significance and consequences
of this release and this Agreement.
The following provisions are applicable to, and made a part of, this
Agreement and the foregoing general release and waiver:
a. Uvena does not release or waive any right or claim that arises
after the date of execution of this Agreement which he may have
under the Age Discrimination in Employment Act, as amended by the
Older Workers Benefits Protection Act, provided that any claim
based upon his resignation from the position of Senior Vice
President of Law and Corporate Staffs and his retirement from the
Company has arisen prior to the execution of this Agreement;
b. In exchange for this general release and waiver hereunder, Uvena
hereby acknowledges that he has received separate consideration
beyond that to which he is otherwise entitled under the Company's
policy or applicable law;
c. The Company has advised, and hereby again expressly advises,
Uvena to consult with an attorney of his choosing regarding, and
prior to executing, this Agreement which contains a general
release and waiver.
d. Uvena has twenty-one (21) days from the date of receiving this
document to consider whether or not to execute this Agreement. In
the event of such execution, Uvena has a further period of seven
(7) days from such date in which to revoke said execution and
this Agreement shall not become effective or enforceable prior to
the expiration of such period.
This release and covenant not to sue shall not apply to workers, compensation
claims, and claims under state and federal unemployment insurance laws.
10. To the maximum extent permitted by law, Uvena covenants not to sue or
to institute or cause to be instituted any kind of claim or action (except to
enforce this
6
<PAGE>
Agreement) in any federal, state or local agency or court against any of the
Released Parties relating to the matters covered by the foregoing release.
11. Uvena warrants and represents that he has neither made, will make,
nor suffered to be made any assignment or transfer of any right, claim, demand
or cause of action covered by the above release or covenant not to sue, that
Uvena is the sole and absolute owner of all thereof, and that Uvena has not
filed or suffered to be filed on his behalf any claim, action, demand of any
kind covered by the above release or covenant not to sue as of the date and time
of the execution of this Agreement.
12. Uvena agrees that Uvena's breach, or failure to fulfill the
conditions, of paragraphs 2 through 10 of this Agreement will cause the Released
Parties great injury which will be difficult, if not impossible, to measure and
that such injury will be immediate and irreparable for which the Released
Parties will have no adequate remedy at law. Consequently, Uvena agrees that,
notwithstanding the availability to the Company of any other relief, any breach
by Uvena or Uvena's agents or attorneys of any of the provisions of this
Agreement shall entitle the Released Parties to injunctive relief, and shall
discharge Uvena from its obligations under this Agreement. Further, Uvena agrees
that, in the event of a breach by Uvena or Uvena's agents or attorneys of the
provisions of this Agreement, the Released Parties would be more harmed by the
denial of an injunction or other equitable relief than Uvena would be harmed by
the issuance of an injunction or other equitable relief and that the public
interest would be furthered by the issuance of an injunction or other equitable
relief to prevent a further or additional breach of the provisions of this
Agreement by Uvena or Uvena's agents or attorneys.
13. Uvena agrees that neither this Agreement nor performance hereunder
constitutes an admission by the Company of any violation of any federal, state
or local law, regulation, common law, of any breach of any contract or any other
wrongdoing of any type.
14. In the event that any paragraph, subparagraph or provision of this
Agreement shall be determined to be contrary to governing law or otherwise
unenforceable, all remaining portions of this Agreement shall be enforced to the
maximum extent permitted by law; the unenforceable paragraph, subparagraph or
provision shall first be construed or interpreted, if possible, to render it
enforceable and, if that is not possible, then the provision shall be severed
and disregarded, and the remainder of this Agreement shall be enforced to the
maximum extent permitted by law.
15. This Agreement is being made and entered into in the State of Illinois
and its construction, validity and enforceability shall be determined under, and
in accordance with, the laws of the State of Illinois.
7
<PAGE>
16. This instrument plus the exhibits attached hereto constitute the
entire agreement between the parties. No modification of this Agreement shall
be valid unless signed by the party against whom such modification is sought to
be enforced.
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above stated.
R.R. Donnelley & Sons Company
By: /s/ Steven J. Baumgartner
-----------------------------
Steven J. Baumgartner
Senior Vice President
of Human Resources
/s/ Frank J. Uvena
------------------------------
Frank J. Uvena
8
<PAGE>
EXHIBIT A
- - ---------
STATE OF ILLINOIS ) RATIFICATION AFFIDAVIT
)SS:
COUNTY OF COOK )
Frank J. Uvena, being first duly cautioned and sworn on oath, deposes
and states:
1. I am the same Frank J. Uvena who is a party to a Retirement and
Release Agreement ("Agreement") between R.R. Donnelley & Sons Company ("the
Company") and myself dated July 25, 1994.
2. I affirm that, prior to my acceptance of that Agreement on July
25, 1994, I was advised to seek my own lawyer,s advice, and further I was
advised that I had 21 days in which to consider the matter (which period of time
I utilized to the extent deemed prudent by myself, I being under no compulsion
to make a decision sooner). I further affirm that the Agreement was written in
such a manner that I understood the terms, and that the consideration called for
by the Agreement in exchange for the release and covenant not to sue arises
solely from that aspect of the Agreement, and is something to which I would not
otherwise be entitled absent the Agreement and the release and covenant not to
sue.
3. More than seven calendar days have passed since I executed the
Agreement and I have not taken any action to revoke the Agreement or the release
and covenant not to sue. In full recognition of my rights and obligations under
that Agreement and release and covenant not to sue, I ratify my initial
acceptance.
4. I have read all of the statements in this Ratification Affidavit,
and all of the facts are true to my own personal knowledge.
5. Further this affiant sayeth naught.
_______________________
Frank J. Uvena
[Notarized on following page]
9
<PAGE>
Subscribed and sworn to before me, the undersigned notary public, this
4th day of August, 1994.
_________________________________
Notary public in and for the
State of Illinois, County of Cook
10
<PAGE>
EXHIBIT B
Frank J. Uvena
--------------------------------
(Type or print name of employee)
AGREEMENT REGARDING CONFIDENTIAL INFORMATION,
INTELLECTUAL PROPERTY AND
NON-SOLICITATION OF EMPLOYEES
In consideration of my employment or continued employment by R. R.
Donnelley & Sons Company or any subsidiary, affiliate, successor or assignee
thereof (collectively "Donnelley"), and the salary, commission or other
compensation paid to me from time to time by Donnelley, I agree as follows:
1. Competitive Employment. While employed by Donnelley, I will devote my
entire skill and best efforts to the duties that are assigned to me from
time to time, and I will not, without Donnelley's prior written consent,
engage in any employment or activity other than for Donnelley in any
business in which Donnelley is or becomes engaged.
2. Definition of Confidential Information. I realize that my position with
Donnelley creates a relationship of high trust and confidence with respect
to Confidential Information owned by Donnelley, its customers or suppliers
that may be learned or developed by me while employed by Donnelley. For
purposes of this Agreement, "Confidential Information" means all
information that meets one or more of the following three conditions: (a)
it has not been made available generally to the public either by Donnelley
or by a third party with Donnelley's consent, (b) it is useful or of value
to Donnelley's current or anticipated business or research and development
activities or those of a customer or supplier of Donnelley, or (c) it
either has been identified as confidential to me by Donnelley (orally or in
writing) or it has been maintained as confidential from outside parties and
is recognized as intended for internal disclosure only. Confidential
Information includes, but is 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,
research and development, and business plans; company policies; sales
forecasts; personnel information (including the identity of Donnelley
employees, their responsibilities, competence and abilities, and
compensation); medical information about employees; pricing and nonpublic
financial information; current and prospective customer lists and
information on customers or
11
<PAGE>
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 Donnelley, 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 Donnelley or others.
5. Confidentiality Obligations. During and after my employment with Donnelley,
I will not (a) disclose, directly or indirectly, any Confidential
Information to anyone outside of Donnelley or to any employees of Donnelley
not authorized to receive such information or (b) use any Confidential
Information other than as may be necessary to perform my duties at
Donnelley. 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 customer of Donnelley, whether 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 Donnelley or by a third
party with Donnelley's consent or is otherwise not considered a Trade
Secret under Illinois law. With respect to Confidential Information which
is not a Trade Secret (hereinafter 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 Donnelley for any reason, including
termination by Donnelley with or without cause, or (b) the Proprietary
Information has been made available generally to the public either by
Donnelley or by a third party with Donnelley's consent.
7. Geographic Scope. I understand that Donnelley has sales and manufacturing
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 Donnelley expects me to respect and
safeguard the trade secrets and confidential information of my former
employers. I will not disclose to Donnelley, use in Donnelley's business,
or cause Donnelley to use, any information or material that is confidential
to any former employer, unless such information is no longer confidential
or Donnelley or I have obtained the written consent of such former employer
to do so.
9. Return of Property. Upon termination of my employment with Donnelley, I
will return all Donnelley property in my possession, including notebooks,
reports, manuals programming data, listings and materials, engineering or
patent drawings, patent applications, any other documents, files or
materials which contain, mention or relate to Confidential Information, and
all copies and summaries of such materials, whether
12
<PAGE>
in human-or machine-readable-only form, that I may have or that may come
into my custody while employed by Donnelley.
10. Non-Solicitation of Employees. I shall not while employed by Donnelley and
for a period of two (2) years from the date of termination of my employment
with Donnelley for any reason, including termination by Donnelley with or
without cause, either directly or indirectly solicit, induce or encourage
any Donnelley employee(s) to terminate their employment with Donnelley or
to accept employment with any competitor, supplier or customer of
Donnelley, 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, (a) initiating communications with a Donnelley
employee relating to possible employment, (b) offering bonuses or
additional compensation to encourage Donnelley employees to terminate their
employment with Donnelley and accept employment with a competitor, supplier
or customer of Donnelley, or (c) referring Donnelley employees to personnel
or agents employed by competitors, suppliers or customers of Donnelley.
11. Injunctive Relief. I acknowledge that violation of the foregoing
confidentiality and non-solicitation obligations will cause Donnelley
irreparable harm. I agree that Donnelley is entitled to protection from
such violations, including protection by injunctive relief, in addition to
other remedies available under the law.
12. Disclosure of Developments. I will disclose promptly to Donnelley all
inventions, discoveries, developments, improvements, works of authorship
and computer programs 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 Donnelley, whether or not they are patentable, copyrightable or
subject to trade secret protection.
13. Ownership of Developments. I agree that, except as otherwise provided in
paragraph 17 hereof, all Developments shall be the sole and exclusive
property of Donnelley. 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 Donnelley, I agree to assign and
do hereby assign to Donnelley, or to some other legal entity ("Assignee")
designated by Donnelley, all of my right, title and interest in and to all
Developments.
14. Protection of Developments. Donnelley 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 Donnelley or Assignee such assistance
as may be requested in order for Donnelley 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 that
Donnelley or Assignee may wish to use to obtain or otherwise secure or
enforce such rights, together with any assignments thereof to Donnelley or
Assignee, and to the successors and
13
<PAGE>
assigns of Donnelley 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. Donnelley 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 Donnelley shall be borne by Donnelley.
15. Post-Employment Assistance. If I am no longer employed by Donnelley,
Donnelley or Assignee shall compensate me at a reasonable rate for time
actually spent by me at the request of Donnelley or Assignee on the
assistance referred to in paragraph 14. Such rate shall be determined by
Donnelley and shall be based on my compensation at the time my employment
with Donnelley was terminated. Donnelley or Assignee shall also reimburse
me for pre-approved traveling and personal expenses incurred in complying
with such request.
16. 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
Donnelley's equipment, supplies, facilities or trade secret information was
used and which was developed entirely on my own time, unless the invention
relates directly to Donnelley's business or to Donnelley's actual or
demonstrably anticipated research or development activities, or unless the
invention results from work I perform for Donnelley.
17. 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
Donnelley, 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
18. Payments. With respect to any Development for which Donnelley seeks to
obtain U.S. or foreign letters patent, Donnelley will pay me the sum of
Five Hundred Dollars ($500) when I execute an assignment of the Development
to Donnelley, 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 Donnelley of any obligation 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.
19. Partial Termination. If, subsequent to the date of this agreement, I am
placed into a position at Donnelley in which disclosure and assignment of
Developments is not required under Donnelley's Standard Practice on
Patents, SP5-0500, I may terminate paragraphs 12-18 of this Agreement in
accordance with the terms of such Standard Practice with respect to
Developments conceived subsequent to the date of my placement.
14
<PAGE>
20. Identification of Authorship. Donnelley, its assignees and licensees are
not required to designate me as the author of any design, computer program
or related documentation or other work of authorship created as a work made
for hire or assigned under this agreement when any such work is distributed
publicly, nor to make any such public distribution.
21. Subsidiaries and Affiliates. I understand and agree that this agreement is
executed by R. R. Donnelley & Sons Company on its own behalf and on behalf
of each of its subsidiaries, that my obligations under this agreement shall
apply equally to each of Donnelley'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 Donnelley 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. 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.
24. Recovery of Expenses. I agree to pay to Donnelley the costs and reasonable
attorneys' fees incurred by Donnelley if it prevails in enforcing any or
all of the terms of this Agreement.
25. Survival of Obligations. The provisions of paragraphs 2-16, 18, 20, and
23-26 of this Agreement shall survive its termination.
26. Governing Law. This agreement shall be construed in accordance with laws
governing contracts made and to be performed in the State of Illinois.
_________________________________________ _____________________, 19_____
Employee Date
R. R. DONNELLEY & SONS COMPANY
By ______________________________________
15
<PAGE>
The following are Developments not covered by paragraph 17, 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 Donnelley, but neither published nor
filed in any Patent Office.
DESCRIPTION OF DOCUMENTS (if applicable)
Date of Name of Witness
Title of Document Document on Document
- - ------------------------ ------------------ ------------------------
- - ------------------------ ------------------ ------------------------
- - ------------------------ ------------------ ------------------------
16
<PAGE>
Exhibit 10(b)
(Form 10-Q for
quarter ended 6/30/94)
Approved by Board of
Directors on January 27, 1994
Amended July 18, 1994
DONNELLEY SHARES STOCK OPTION PLAN
1. Plan. The purpose of this Donnelley Shares Stock Option Plan (the "Plan") is
to provide incentives to employees through rewards based upon the ownership and
performance of the common stock of R. R. Donnelley & Sons Company (the
"Company"). The Committee hereinafter designated shall grant options to
purchase shares of common stock, par value $1.25 per share, of the Company (the
"Common Stock") to eligible employees on the terms and subject to the conditions
stated in the Plan.
2. Eligibility. All employees (other than officers) of the Company and all of
its direct or indirect wholly-owned subsidiaries (the "Employers") who have
completed at least two (2) years of continuous service with any one or more of
the Employers shall be eligible, upon selection by the Committee, to receive
options under the Plan; provided, however, that an otherwise eligible employee
whose terms and conditions of employment are covered by a collective bargaining
agreement shall be eligible to receive options under the Plan only if expressly
provided for in a collective bargaining agreement or supplemental letter of
understanding signed by such employee's Employer and the recognized
representative of the collective bargaining unit in which the employee is a
member; provided further, that the preceding proviso shall not apply to
employees who are not subject to the United States labor laws. An employee
granted an option pursuant to the Plan shall be referred to herein from time to
time as an "Optionee".
3. Limitation on Shares Available. Subject to adjustment as provided in Section
5 of the Plan, the maximum number of shares of Common Stock available for all
grants made under the Plan shall be 6,000,000. Shares of Common Stock subject
to grants made hereunder which, by reason of the expiration, cancellation,
forfeiture or other termination of such grants prior to purchase, are not
purchased shall again be available for future grants.
Shares of Common Stock to be delivered may be authorized and unissued
shares of stock, treasury stock or a combination thereof. The Company reserves
the right to purchase shares of Common Stock for the Plan in the open market.
4. Administration of the Plan. The Plan shall be administered by a committee
(the "Committee") designated by the Board of Directors of the Company (the
"Board"). Except as otherwise set forth in the Plan, the Committee shall,
subject to the terms of the Plan, select groups of eligible employees for
participation in the Plan and, with respect to such groups of eligible
employees,
<PAGE>
shall determine the number of shares of Common Stock subject to each option
granted hereunder, the terms and conditions of exercise of such option and all
other terms and conditions of such option. The Committee shall, subject to the
terms of the Plan, have the authority to interpret the Plan, establish rules and
regulations for the administration of the Plan and impose, incidental to the
grant of an option, conditions with respect to the grant. All such rules,
regulations and interpretations adopted by the Committee shall be conclusive and
binding on all parties. The Committee may delegate its authority to interpret
all or part of the Plan to designated officers of the Company.
5. Adjustments for Changes in Capitalization. The Committee shall make
appropriate adjustments to the number of shares available under the Plan, the
option exercise price and the number of shares subject to any option granted
hereunder in order to give effect to any stock split, stock dividend, merger,
consolidation, reorganization, spin-off, liquidation or other similar change in
capitalization or event that occurs after the effective date of the Plan, such
adjustments to be made in the case of outstanding options without a change in
the aggregate purchase price. If any adjustment would result in a fractional
security being available under the Plan or subject to a grant under the Plan,
such fractional security shall be disregarded.
6. Effective Date and Term of Plan. The Plan shall become effective on January
27, 1994 (the "Effective Date"). The Plan shall terminate five (5) years after
the Effective Date unless terminated prior thereto by action of the Board. No
further grants shall be made under the Plan after termination, but termination
shall not affect the rights of any Optionee under any grants made prior to
termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect and at any time, provided that such action shall not adversely affect
any rights or obligations with respect to any outstanding grants under the Plan.
8. Grants. (a) Options to purchase 100 shares of Common Stock shall be granted
on March 24, 1994 to eligible employees employed on such date who had completed
at least two (2) years of continuous service with any one or more of the
Employers as of December 31, 1993; provided, however, that employees who, as of
March 24, 1994, are members of a collective bargaining unit shall be deemed
eligible employees for purposes of this paragraph 8(a) only if a collective
bargaining agreement or supplemental letter of understanding providing for the
receipt of such options by such employees was fully executed by such employee's
Employer and the recognized representative of the collective bargaining unit
prior to March 1, 1994; and provided further, that eligible employees who are
not employed in the United States of America as of March 24, 1994 shall not
receive such options. All options granted on March 24, 1994 shall become
exercisable in full on December 31, 1996.
(b) Additional options may be granted, in the sole and absolute
discretion of the Committee, to groups of eligible employees at any time.
(c) The option price per share of Common Stock purchasable upon the
exercise
-2-
<PAGE>
of any option granted pursuant to the Plan shall be the fair market value of a
share of Common Stock on the date of grant of such option. For purposes of the
Plan, the fair market value shall be determined by reference to the average of
the high and low transaction prices in trading of the Common Stock as reported
in the New York Stock Exchange-Composite Transactions on the date of grant.
(d) All options granted hereunder shall be evidenced by a certificate
substantially in the form of Exhibit A hereto. Each certificate shall be dated
and signed by an officer of the Company as of the date of the grant.
9. Terms of Options. (a) No option shall be exercisable earlier than one (1)
year, nor more than ten (10) years, after the date of grant. Each option
granted hereunder shall become exercisable in full on the third anniversary of
the date of the grant, unless otherwise determined by the Committee and except
as otherwise set forth in Section 8(a). Notwithstanding the foregoing, if an
Optionee is no longer employed by at least one of the Employers for any reason
(including due to death or long-term disability but excluding due to termination
of employment upon retirement at normal retirement age or early retirement at or
after age 55 with the consent of the Company), each option held by such Optionee
which is not exercisable on the date of termination of employment shall
terminate automatically on such date. Options held by an Optionee who retires
at normal retirement age or who takes early retirement at or after age 55 with
the consent of the Company, regardless of whether or not such options are
exercisable at the date of retirement, shall not terminate as a result of such
retirement but shall continue to remain outstanding and subject to the terms and
conditions of the Plan; provided, however, that in the event that such an
Optionee dies, each option held by such Optionee which is not exercisable on the
date of death of such Optionee shall terminate automatically upon the death of
such Optionee. Additionally, after an option held by an Optionee has become
exercisable, if such Optionee is no longer employed by at least one of the
Employers for any reason (other than retirement at normal retirement age or
early retirement at or after age 55 with the consent of the Company or for any
of the reasons specified in Section 9(c)) and/or such Optionee dies, then such
Optionee (or in the case of death, such Optionee's executor, administrator,
personal representative, beneficiary or similar person) may exercise such
exercisable option until ninety (90) days from the date of such termination of
employment and/or the date of death, as the case may be, or until the expiration
of the term of such option, whichever is earlier.
(b) No option hereunder shall be transferable other than by will, the laws
of descent and distribution or pursuant to the beneficiary designation
procedures approved by the Committee. Each option shall be exercisable during
the Optionee's lifetime only by the Optionee or the Optionee's guardian, legal
representative or similar person, provided that evidence of such person's
identity and rights with respect to such exercise are acceptable to the
Committee. Except as permitted by the first sentence of Section 9(b) of the
Plan, no option hereunder shall be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Any
such attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any option hereunder shall be null and void and no person
shall be entitled to any rights hereunder
-3-
<PAGE>
by virtue of any attempted execution, attachment or similar process. In the
event of the death of an Optionee, any unexercised portion of an option that,
but for the death of the Optionee, would have been exercisable on the date of
such Optionee's death by such Optionee may be exercised by the executor,
administrator, personal representative, beneficiary or similar person of such
deceased Optionee within ninety (90) days of the death of such Optionee, but not
after the expiration of the term of the option; provided that evidence of such
person's identity and rights with respect to such exercise are acceptable to the
Committee.
(c) Notwithstanding anything contained herein to the contrary, in the event
the Committee shall determine that an Optionee's employment was terminated by
the Optionee's Employer on account of (i) an unauthorized disclosure of
confidential information or trade secrets of any Employer, (ii) unlawful trading
in the securities of the Company or any customers of any of the Employers, or
(iii) fraud, theft or embezzlement with respect to any of the Employers or any
breach of the Optionee's duties to the Optionee's Employer or any of the other
Employers, then such Optionee shall forfeit all rights to the unexercised
portion of any option held by the Optionee under the Plan, and all such options
shall automatically terminate.
(d) Options must be exercised in full. No partial exercise is permitted.
No shares of Common Stock may be purchased under any option granted under the
Plan unless prior to or simultaneously with the purchase, the Optionee shall
have delivered by such means as have been identified by the Committee notice to
the Company, accompanied by payment therefor in full of the option price, any
brokerage fees associated with the exercise of the options (the "Brokerage
Fees"), and any local, state, federal or other taxes required to be withheld and
paid over to governmental taxing authorities by the Company due to such exercise
("Taxes") (or arrangement made for such payment to the satisfaction of the
Company). Upon exercise, the option price, the Brokerage Fees and the Taxes may
be paid according to procedures established by the Committee as follows: (i) in
cash or (ii) by electing to sell, through an agent or broker designated by the
Company, whole shares of Common Stock issuable upon exercise of the option
having a fair market value determined on the date of exercise as close as is
practicable to the sum of (A) the option price for shares of Common Stock
subject to such exercise, (B) the Brokerage Fees associated with such exercise
and (C) the Taxes associated with such exercise, provided that the number of
whole shares sold shall be sufficient to pay in full the option price, the
Brokerage Fees and the Taxes. No option may be exercised by an Optionee through
any agent or broker other than an agent or broker designated by the Company.
Notwithstanding the foregoing, in the event that an Optionee has notified the
Company through the Company's electronic system that such Optionee is exercising
an option and is paying cash for the option price and the Taxes and such cash is
not received within 30 calendar days following such notice, then the Company may
automatically order the sale, through the designated agent or broker, of whole
shares of Common Stock to pay in full the option price, the Brokerage Fees and
the Taxes and deliver any whole shares of Common Stock not so applied to the
Optionee, plus any cash owed in lieu of fractional shares. The Committee shall
have sole discretion to disapprove of an election pursuant to clause (ii). No
shares of Common Stock shall be delivered to the Optionee until the full option
price, the Brokerage Fees and the Taxes have been paid. Optionees shall be
required to receive all shares acquired under an option in the form of stock
certificates; cash shall not be paid to an Optionee in
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<PAGE>
lieu of the delivery of stock certificates upon the exercise of any option,
except to the extent necessary to compensate for fractional shares.
(e) Optionees shall be entitled to the privilege of ownership with respect
to shares of Common Stock subject to options granted hereunder only as to shares
of Common Stock purchased and delivered to an Optionee upon exercise of an
option.
10. Miscellaneous.
(a) Effect of Leaves of Absence. Leaves of absence for periods and
purposes conforming to the personnel policies of the Company and approved by the
Employer shall not be deemed terminations of employment or interruptions of
continuous service.
(b) Restrictions on Shares. Notwithstanding any provision of the Plan to
the contrary, unless a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), is in effect as to the shares purchasable
under any option granted under the Plan, no shares of Common Stock may be
purchased under such option. In addition, notwithstanding any provision of this
Plan to the contrary, any option granted under the Plan is subject to the
condition that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, the consent or approval of
any regulatory body, or the taking of any other action is necessary or desirable
as a condition of, or in connection with, the delivery of the shares thereunder,
such shares shall not be delivered unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company.
(c) No Right to Employment. Neither the Plan nor the grant of options
hereunder shall be construed as giving any employee any right to be retained in
the employ of any Employer.
(d) Governing Law. The Plan shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
(e) Nature of Option. The options granted under the Plan shall not be
treated as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
11. Acceleration of Options Upon a Change in Control. If while any option
remains unexercised and outstanding under the Plan:
(a) any "person", as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
modified and used in Section 13(d) and 14(d) thereof (but not including (i)
the Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of
its subsidiaries, (iii) an underwriter temporarily holding securities
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<PAGE>
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company) (hereinafter a "Person") is or becomes the beneficial owner, as
defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such Person any securities acquired directly from the Company or
its affiliates) representing 50% or more of the combined voting power of
the Company's then outstanding securities; or
(b) during any period of two (2) consecutive years, individuals who at
the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into any
agreement with the Company to effect a transaction described in clause
(a), (c) or (d) of this Section) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person acquires more than 50% of the combined
voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets;
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), all such outstanding and unexercised options, whether or
not then exercisable, shall be fully and immediately exercisable.
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<PAGE>
Exhibit A
Donnelley Shares
STOCK OPTION PLAN
This is to certify that
(OPTIONEE NAME)
was granted on (DATE), an option to purchase
(NUMBER)
SHARES
of R. R. Donnelley & Sons Company common stock at a fixed
option price of (PRICE) per share. This option is subject to the
terms and conditions of the Donnelley Shares
Stock Option Plan.
This certificate has been
[logo] RR Donnelley executed as of (DATE),
& Sons Company on behalf of R. R. Donnelley
& Sons Company by
(FACSIMILE SIGNATURE)
John R. Walter
Chairman and
Chief Executive Officer
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<PAGE>
EXHIBIT 12
R. R. DONNELLEY & SONS COMPANY
----------------
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1994
----------------
<S> <C>
Earnings
Earnings before income taxes................................. $148,727
Interest expense............................................. 24,199
Interest component of operating leases....................... 10,133(1)
Amortization of capitalized interest......................... 3,120
--------
Earnings available for fixed charges......................... $186,179
========
Fixed Charges
Interest expense............................................. $ 24,199
Capitalized interest......................................... 4,700
--------
Interest incurred............................................ 28,899
Interest component of operating leases....................... 10,133(1)
--------
Total fixed charges.......................................... $ 39,032
========
Ratio of Earnings to Fixed Charges........................... 4.77(2)
========
</TABLE>
- - --------
(1) Management estimates one-third of current year operating lease payments to
be the interest factor of such rentals.
(2) On a rolling twelve month basis, the ratio of earnings to fixed charges was
6.03.
