<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
R. R. DONNELLEY & SONS COMPANY
(Name of Registrant as Specified In Its Charter)
---------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
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NOTICE AND PROXY STATEMENT 77 West Wacker Drive
ANNUAL MEETING OF STOCKHOLDERS Chicago, Illinois
60601-1696
[LOGO OF R. R. DONNELLEY & SONS COMPANY] R. R. DONNELLEY & SONS COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 23, 1995
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The Annual Meeting of Stockholders of R. R. Donnelley & Sons Company will be
held on Thursday, March 23, 1995, at eight o'clock a.m., Chicago Time, at the
Company's headquarters offices, 77 West Wacker Drive, 19th Floor, Chicago,
Illinois, 60601 for the following purposes:
1. To elect five directors;
2. To consider and vote on a proposal to adopt the 1995 Stock Incentive Plan;
3. To consider and vote on a stockholder proposal regarding the CERES
Principles, described on pages 23 to 25, if properly presented at the
meeting;
4. To consider and vote on a stockholder proposal regarding a Maquiladora
report, described on pages 25 to 27, if properly presented at the meeting;
and
5. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
Enclosed herewith is a Proxy Statement setting forth certain additional
information.
Only stockholders of record at the close of business on February 6, 1995 will
be entitled to notice of and to vote at the meeting.
Stockholders who do not expect to be present at the meeting are requested to
sign and date the enclosed proxy and return it promptly in the envelope
enclosed for that purpose. Any person giving a proxy has the power to revoke it
at any time before it is exercised and stockholders who are present at the
meeting may withdraw their proxies and vote in person. Revocation may be
effected in the manner provided on page 1 of the Proxy Statement.
By Order of the Board of Directors
Deborah M. Regan
Secretary
February 16, 1995
[LOGO PRINTED ON RECYCLED PAPER]
<PAGE>
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77 West Wacker Drive
Chicago, Illinois
60601-1696
[LOGO OF R. R. DONNELLEY & SONS COMPANY] R. R. DONNELLEY & SONS COMPANY
February 16, 1995
PROXY STATEMENT
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This Proxy Statement is furnished to stockholders of R. R. Donnelley & Sons
Company in connection with the solicitation, by order of the Board of
Directors, of proxies for use at the Annual Meeting of Stockholders of the
Company to be held on Thursday, March 23, 1995 (the "1995 Annual Meeting") at
the time and place and for the purposes set forth in the accompanying notice of
the meeting. This Proxy Statement and the accompanying proxy are first being
mailed to stockholders on or about February 16, 1995.
The accompanying proxy is solicited on behalf of the Board of Directors of the
Company and is revocable at any time before it is exercised. A proxy may be
revoked at any time before it is exercised by delivering a written notice of
revocation to the Secretary of the Company or by executing a proxy bearing a
later date which is exercised at the meeting. Attendance at the 1995 Annual
Meeting will not automatically revoke a proxy, but a stockholder in attendance
may request a ballot and vote in person, thereby revoking a prior granted
proxy.
All outstanding shares of the Company's common stock, par value $1.25 ("Common
Stock"), represented by properly executed and unrevoked proxies received in the
accompanying form in time for the 1995 Annual Meeting will be voted. A
stockholder may, with respect to the election of directors (i) vote for the
election of all five nominees named herein as directors, (ii) withhold
authority to vote for all such director nominees or (iii) vote for the election
of all such director nominees other than any nominee with respect to whom the
stockholder withholds authority to vote by so indicating in the appropriate
space on the proxy. A stockholder may, with respect to each other matter
specified in the notice of the meeting (i) vote "FOR" the matter, (ii) vote
"AGAINST" the matter or (iii) "ABSTAIN" from voting on the matter. Shares will
be voted as instructed in the accompanying proxy on each matter submitted to
stockholders. If no instructions are given, the shares will be voted for the
election of all five nominees named herein as directors, for the approval of
the 1995 Stock Incentive Plan, against the stockholder proposal regarding the
CERES Principles, described on pages 23 to 25, if it is properly presented at
the 1995 Annual Meeting, and against the stockholder proposal regarding a
Maquiladora report, described on pages 25 to 27, if it is properly presented at
the 1995 Annual Meeting.
A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by such proxy are not being voted by such stockholder with
respect to a particular matter. This could occur, for example, when a broker is
not permitted to vote stock held in street name on certain matters in the
absence of instructions from the beneficial owner of the stock. The shares
subject to any such proxy which are not being voted with respect to a
particular matter (the "non-voted shares") will be considered shares not
present and entitled to vote on such matter, although such shares may be
considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum.
The affirmative vote of a plurality of the shares of Common Stock present in
person or by proxy at the meeting and entitled to vote in the election of
directors is required to elect directors. Accordingly, if a quorum is present
at the meeting, the five persons receiving the greatest number of votes will be
elected to serve as directors. Therefore, withholding authority to vote for a
director(s) and non-voted shares with respect to the election of directors will
not affect the outcome of the election of directors. If
<PAGE>
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a quorum is present at the meeting, approval of each matter other than the
election of directors requires the affirmative vote of a majority of the shares
of Common Stock present in person or by proxy at the meeting and entitled to
vote on such matter. An abstention with respect to such matter has the legal
effect of a vote against such matter. Non-voted shares with respect to such
matter will not affect the determination of whether such matter is approved.
If a stockholder is a participant in the Company's Dividend Reinvestment Plan
or Employee Monthly Investment Plan and the accounts are registered in the same
name, the proxy represents the number of full shares in each plan account, as
well as shares registered in the participant's name. If a stockholder is a
participant in the Company's Tax Credit Stock Ownership Plan and the account is
registered in the same name, the proxy will also serve as a voting instruction
for the trustee of this plan.
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Common Stock of whom they have knowledge, and will reimburse them for
their expenses in so doing; and certain directors, officers and other employees
of the Company, not specially employed for the purpose, may solicit proxies,
without additional remuneration therefor, by personal interview, mail,
telephone or telegraph. The Company has retained Morrow & Co. to aid in the
solicitation of proxies for a fee of $8,000, plus out-of-pocket expenses.
There were issued and outstanding 152,976,640 shares of Common Stock
(exclusive of 5,632,160 shares held in the Treasury) as of February 6, 1995.
Each such issued and outstanding share is entitled to one vote upon each matter
to be voted on at the 1995 Annual Meeting. The close of business on February 6,
1995 has been fixed as the record date for the determination of stockholders
entitled to vote at the meeting.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for three classes of
directors of as nearly equal size as possible and further provides that the
total number of directors shall be determined by the Company's By-Laws, except
that the total number of directors shall be not less than nine nor more than
fifteen. The term of each class of directors is three years and the term of one
class expires each year in rotation. The Company's By-Laws currently provide
that the number of directors is thirteen.
The terms of the Directors of the First Class expire at the 1995 annual
election to be held at the 1995 Annual Meeting. At the present time it is
intended that shares represented by the enclosed proxy will be voted for the
election of Martha Layne Collins, Charles C. Haffner III, Richard M. Morrow, H.
Blair White, and Stephen M. Wolf as Directors of the First Class for a three-
year term expiring at the 1998 annual election. Mr. Morrow has informed the
Company that, if re-elected, he intends to retire in accordance with the
Company's Retirement Policy for directors on March 1, 1996, at age 70. Mr.
White has informed the Company that, if re-elected, he intends to retire in
accordance with the Company's Retirement Policy for directors on September 1,
1997, at age 70.
All of the nominees are currently members of the Board of Directors. In the
event that any nominee should become unavailable for reasons not now known, it
is intended that such shares will be voted for such substitute nominee as may
be selected by the Board of Directors or the Board may elect not to fill the
vacancy and to reduce the number of directors.
The affirmative vote of the holders of a plurality of the shares of Common
Stock present in person or by proxy at the 1995 Annual Meeting and entitled to
vote on the election of directors is required to elect the nominees as
Directors of the First Class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR DIRECTORS
OF THE FIRST CLASS.
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INFORMATION ABOUT DIRECTORS AND NOMINEES FOR DIRECTORS
The names of the directors whose terms of office shall continue after the 1995
Annual Meeting and the nominees, their principal occupations during the past
five years, certain other directorships held, and certain other information are
set forth below.
2
<PAGE>
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DIRECTORS OF THE FIRST CLASS
Nominated for election at the 1995 Annual Meeting for Terms Expiring in 1998
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MARTHA LAYNE COLLINS, President of St. Catharine College,
PHOTO OF Springfield, Kentucky, since July, 1990 and President, Martha
MARTHA Layne Collins & Associates, a consulting firm, since January,
LAYNE 1988. She was a Fellow at John F. Kennedy School of Government at
COLLINS Harvard University from January, 1989 to May, 1989 and was
Executive-in- Residence, University of Louisville from January,
1988 to December, 1988. She was Governor of the Commonwealth of
Kentucky from December, 1983 to December, 1987 and Lieutenant
Governor from December, 1979 to December, 1983. She has been a
director since 1987. She is a director of Eastman Kodak Company
and Mid-America Bancorp (dba Bank of Louisville). Age 58. Member
of the Audit Committee.
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CHARLES C. HAFFNER III, Retired Vice Chairman of the Board of the
PHOTO OF Company. He was Vice Chairman of the Board from February, 1984
CHARLES C. until August, 1990. From March, 1983 to January, 1984, he served
HAFFNER III as Vice Chairman and Treasurer. He has been a director since
1961. He is a director of DuKane Corporation, The Lakeside Bank
and Protection Mutual Insurance Company. Mr. Haffner is a cousin
of James R. Donnelley, a director of the Company. Age 66. Member
of the Executive and Nominating Committees.
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RICHARD M. MORROW, Retired Chairman and Chief Executive Officer
PHOTO OF of Amoco Corporation, a producer and distributor of petroleum and
RICHARD M. chemical products. He was Chairman and Chief Executive Officer of
MORROW Amoco Corporation from 1983 until his retirement on February 27,
1991. He has been a director since January 1, 1990. He is a
director of First Chicago Corporation, The First National Bank of
Chicago, Marsh & McLennan Companies, Inc., Potlatch Corporation,
Seagull Energy Corporation and Westinghouse Electric Corporation.
Age 68. Member of the Finance and Nominating Committees.
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H. BLAIR WHITE, Counsel to the law firm of Sidley & Austin since
PHOTO OF January, 1995. He was the sole officer and shareholder of a
H. BLAIR corporate partner in the law firm of Sidley & Austin prior to
WHITE January, 1995. He has been a director since 1979. He is a
director of DEKALB Energy Company, DEKALB Genetics Corporation
and Kimberly-Clark Corporation. Age 67. Member of the Audit
Committee.
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STEPHEN M. WOLF, Senior Advisor to Lazard Freres & Co., an
PHOTO OF investment banking firm, since August, 1994. He was Chairman and
STEPHEN M. Chief Executive Officer of UAL Corporation and United Air Lines,
WOLF Inc. from 1987 to 1994. He has been a director since January,
1995. He is a director of Philip Morris Companies, Inc. Age 53.
Member of the Finance Committee.
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DIRECTORS OF THE SECOND CLASS
Terms Expire in 1996
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JAMES R. DONNELLEY, Vice Chairman of the Board since July 26,
PHOTO OF 1990. From June, 1988 to July 26, 1990, he was Group President,
JAMES R. Corporate Development. Prior to June, 1988, he was Group
DONNELLEY President, Financial Printing Services. He has been a director
since 1976. He is a director of Sierra Pacific Resources and
Pacific Magazines and Printing Limited. Mr. Donnelley is a cousin
of Charles C. Haffner III, a director of the Company. Age 59.
Member of the Executive and Finance Committees.
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3
<PAGE>
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JOHN M. RICHMAN, Counsel to the law firm of Wachtell, Lipton,
PHOTO OF Rosen & Katz since January, 1990. He was Vice Chairman of Philip
JOHN M. Morris Companies Inc., a consumer packaged goods company, from
RICHMAN December, 1988 until December, 1989, and was Chairman and Chief
Executive Officer of Kraft, Inc. from 1979 to December, 1989. He
has been a director since 1988. He is a director of BankAmerica
Corporation, Bank of America NT & SA, and USX Corporation. Age
67. Member of the Audit, Compensation and Nominating Committees.
- --------------------------------------------------------------------------------
WILLIAM D. SANDERS, Chairman and Chief Executive Officer since
PHOTO OF 1990 of Security Capital Group Incorporated, an owner and
WILLIAM D. operator of public real estate companies. Prior to 1990, he was
SANDERS Chairman of La Salle Partners Limited. He has been a director
since 1986. He is a director of Security Capital Group
Incorporated. Age 53. Member of the Compensation and Nominating
Committees.
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BIDE L. THOMAS, Retired President of Commonwealth Edison Company,
PHOTO OF a producer, distributor and seller of electric energy. He was
BIDE L. President of Commonwealth Edison Company from September, 1987
THOMAS until his retirement in December, 1992. He has been a director
since 1987. He is a director of L. E. Myers Company and The
Northern Trust Corporation. Age 59. Member of the Executive and
Finance Committees.
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DIRECTORS OF THE THIRD CLASS
Terms Expire in 1997
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THOMAS S. JOHNSON, Chairman, President and Chief Executive
PHOTO OF Officer of GP Financial Corp. and its subsidiary, The Green Point
THOMAS S. Savings Bank, since 1993. President of Manufacturers Hanover
JOHNSON Corporation and Manufacturers Hanover Trust Company, diversified
financial institutions, from December, 1989 until July, 1991. He
was President and a director of Chemical Banking Corporation and
Chemical Bank from 1983 until December, 1989. He has been a
director since February, 1990. He is a director of The Green
Point Savings Bank, Online Resources & Communications
Corporation, and U. S. Capital Group Inc. Age 54. Member of the
Compensation and Finance Committees.
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M. BERNARD PUCKETT, President and Chief Operating Officer of
PHOTO OF Mobile Telecommunication Technologies Corp., a provider of paging
M. BERNARD and wireless messaging services, since January 1994. He was
PUCKETT Senior Vice President, Corporate Strategy and Development of
International Business Machines from 1993 to 1994, Vice President
and General Manager, Applications Solutions Division of
International Business Machines from 1991 to 1993, and President,
Data Systems Division of International Business Machines from
1988 to 1991. He has been a director since January, 1995. He is a
director of Mobile Telecommunication Technologies Corp.,
Underwriters Reinsurance Co., and P-Com. Age 50. Member of the
Audit Committee.
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JERRE L. STEAD, Chairman and Chief Executive Officer of Legent
PHOTO OF Corporation, a supplier of systems management solutions to users
JERRE L. of computer technology, since January, 1995. He was Executive
STEAD Vice President of AT&T Corp. and Chairman and Chief Executive
Officer of AT&T Global Information Solutions, formerly NCR
Corporation, a subsidiary of AT&T, from 1993 to 1994. He was
President of Global Business Communications Systems, AT&T from
1991 to 1993. He was Chairman, President and Chief Executive
Officer of Square D Company from 1989 to 1991 and President and
Chief Operating Officer from 1987 to 1989. He has been a director
since January, 1994. He is a director of Armstrong World
Industries, Inc., Legent Corporation and TGB Holdings, bv. Age
52. Member of the Audit and Compensation Committees.
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4
<PAGE>
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JOHN R. WALTER, Chairman of the Board of the Company since
PHOTO OF September, 1989 and Chief Executive Officer since January, 1989.
JOHN R. He was President from June, 1987 until March, 1991, Executive
WALTER Vice President from October, 1986 until June, 1987 and Group
President of the Directory Group from February, 1985 to October,
1986. He has been a director since June, 1987. He is a director
of Abbott Laboratories, Dayton Hudson Corporation and Deere &
Company. Age 48. Member of the Executive Committee.
- --------------------------------------------------------------------------------
In 1994, the Board of Directors met six times. Each incumbent director who was
a director during 1994 was present for 75% or more of the total number of
meetings of the Board of Directors and Committees of the Board of which such
director was a member.
H. Blair White, a director of the Company, is Counsel to the law firm of
Sidley & Austin. Sidley & Austin furnished legal services to the Company in
1994 and the Company expects the firm to continue to furnish legal services in
1995. The Company provides reprographics management services at market rates to
Sidley & Austin. The Company also provides printing services at market rates to
certain firms of which the Company's directors are now or were formerly
officers and/or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has standing Audit, Compensation, Executive, Finance and Nominating
Committees of the Board of Directors. The members of these Committees have been
identified above.
The Audit Committee recommends the selection of independent public accountants
to the Board of Directors; reviews the scope of the audits performed by the
independent public accountants and internal audit department, together with
their audit reports and any recommendations made by them; reviews in January of
each year the results of the audit for the prior fiscal year with the
independent public accountants before the earnings report for such fiscal year
is released publicly; and reviews periodically the performance of the Company's
accounting and financial personnel. The Audit Committee also reviews the
Company's financial disclosure documents, management perquisites, material
litigation and regulatory proceedings and other issues relative to potentially
significant corporate liability and reviews and monitors the Company's codes of
conduct. The Audit Committee met three times in 1994.
The Compensation Committee determines the annual salary, bonus and other
benefits of selected senior officers of the Company and establishes and
reviews, as appropriate, performance standards under compensation programs for
senior officers. The Compensation Committee recommends new employee benefit
plans and changes to stock incentive plans to the Board of Directors, approves
amendments to the non-stock employee benefit plans and administers all of the
Company's employee benefit plans. The Compensation Committee also recommends to
the Board of Directors candidates for election as corporate officers. The
Compensation Committee met four times in 1994.
The Executive Committee is empowered to exercise all of the authority of the
Board of Directors, except that it does not have the power to take specific
actions delegated to other Committees or to take certain other actions
enumerated in the Company's By-Laws. The Executive Committee meets as necessary
and did not meet in 1994.
The Finance Committee reviews the financial policies of the Company and makes
recommendations to the Board of Directors regarding the Company's financial
condition and requirements for and disposition of funds, including the payment
of dividends. The Finance Committee also reviews the performance and management
of the Company's Retirement Benefit Plan. The Finance Committee met four times
in 1994.
The Nominating Committee recommends to the full Board nominees for election to
the Board of Directors in connection with any meeting of stockholders at which
directors are to be elected, and recommends to the full Board persons for
appointment to fill any Board vacancy, such as may occur due to death,
resignation, retirement or the creation of a new directorship, which the Board
of Directors is authorized under the By-Laws to fill. The Nominating Committee
met four times in 1994.
5
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BENEFICIAL OWNERSHIP OF COMMON STOCK
CERTAIN PRINCIPAL OWNERS
The following table lists the beneficial ownership of Common Stock with respect
to all persons known to the Company to be the beneficial owner of more than 5%
of Common Stock. The information shown was furnished by the respective persons.
As explained in the footnotes to the following table, the two beneficial owners
listed in the table share beneficial ownership with each other with respect to
4,971,854 shares (3.25%) of Common Stock. The percentage of outstanding Common
Stock owned by each such person or entity is based on outstanding shares of
Common Stock as of December 31, 1994.
<TABLE>
<CAPTION>
Number of Shares
Beneficially % of Outstanding
Name and address Owned Common Stock
- -----------------------------------------------------------------------------------
<S> <C> <C>
Northern Trust Corporation 16,850,400(1)(2) 11.01%
50 South LaSalle Street
Chicago, Illinois 60675
Strachan Donnelley 8,039,901(2)(3) 5.25%
Hastings Center
255 Elm Road
Briarcliff Manor, NY 10510
</TABLE>
- --------
(1) Northern Trust Corporation is a parent holding company for The Northern
Trust Company and other affiliates and files one Schedule 13G to report
beneficial ownership by all such entities of the Common Stock. Includes
shares as to which Northern Trust Corporation has or shares investment and
voting power as follows: sole investment power, 4,636,256 shares (3.03%);
shared investment power, 8,940,371 shares (5.84%); sole voting power,
11,372,251 shares (7.43%); shared voting power, 1,727,648 shares (1.13%).
Also includes 5,515,849 (3.60%) shares which are shown elsewhere in this
Proxy Statement as beneficially owned by James R. Donnelley; 879,222 shares
which are shown elsewhere in this Proxy Statement as beneficially owned by
Charles C. Haffner III.
(2) Includes 4,971,854 shares (3.25%) as to which beneficial ownership is
shared by Northern Trust Corporation and Strachan Donnelley.
(3) Includes shares as to which Strachan Donnelley has or shares investment and
voting power as follows: sole investment power, 946,424; shared investment
power, 6,783,290 (4.43%); sole voting power, 946,424; shared voting power,
6,783,290 (4.43%).
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The descendants of Richard Robert Donnelley (1836-1899), the Company's
founder, and members of their families, including the family member included in
the foregoing table, own approximately 18% of the outstanding Common Stock.
6
<PAGE>
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the beneficial ownership, as of December 31, 1994, of
Common Stock by all directors and nominees, each of the executive officers
named in the Summary Compensation Table and the directors and all eight
individuals serving as executive officers on December 31, 1994 as a group. The
percentage of outstanding Common Stock owned by each such person is based on
outstanding shares of Common Stock as of December 31, 1994, plus shares subject
to stock options held by each such person.
<TABLE>
<S> <C> <C>
Number of Shares % of Outstanding
Name Beneficially Owned Common Stock
- --------------------------------------------------------------------------------------------
Directors
Martha Layne Collins 12,200(1) *
James R. Donnelley 6,446,799(2) 4.21%
Charles C. Haffner III 1,407,903(3) *
Thomas S. Johnson 15,402(1) *
Richard M. Morrow 16,030(1)(4) *
M. Bernard Puckett 0 *
John M. Richman 14,684(1) *
William D. Sanders 15,605(1) *
Jerre L. Stead 400 *
Bide L. Thomas 13,766(1) *
H. Blair White 23,600(1) *
Stephen M. Wolf 10,000 *
Named Executive Officers
Rory J. Cowan 106,053(5) *
Frank R. Jarc 104,525(6) *
W. Ed Tyler 115,025(7) *
John R. Walter 425,020(8) *
Jonathan P. Ward 102,828(9) *
Directors and all 8 Executive Officers as a group 8,928,278 5.80%
</TABLE>
- --------
* Less than one percent.
(1) Includes 12,000 shares which are not now owned but which could be acquired
by exercise of non-employee director stock options.
(2) Includes 6,200 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 67,368 shares
which are not now owned but could be acquired by exercise of stock options.
Includes 1,304,555 shares as to which he has sole investment and voting
power and 5,074,876 (3.31%) shares as to which he shares investment and
voting power. Does not include 33,680 shares owned by a family member as to
which beneficial ownership is disclaimed.
(3) Includes 33,000 shares not now owned but which could be acquired by
exercise of stock options, including 12,000 shares subject to non-employee
director stock options. Includes 495,681 shares as to which he has sole
investment and voting power and 879,222 shares as to which he shares
investment and voting power. Does not include 72,230 shares owned by family
members as to which beneficial ownership is disclaimed.
(4) Does not include 1,350 shares owned by a family member as to which
beneficial ownership is disclaimed.
(5) Includes 19,800 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 78,600 shares
which are not now owned but which could be acquired by exercise of stock
options.
(6) Includes 15,800 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 78,600 shares
which are not now owned but which could be acquired by exercise of stock
options.
(7) Includes 13,550 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 85,200 shares
which are not now owned but which could be acquired by exercise of stock
options.
(8) Includes 105,750 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 238,768 shares
which are not now owned but which could be acquired by exercise of stock
options. Does not include 100 shares owned by a family member as to which
beneficial ownership is disclaimed.
(9) Includes 13,350 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 78,700 shares
which are not now owned but which could be acquired by exercise of stock
options.
7
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Each director and each officer of the Company who is subject to Section 16 of
the Securities Exchange Act of 1934 (the "Act") is required by Section 16(a) of
the Act to report to the Securities and Exchange Commission, by a specified
date, his or her beneficial ownership of or transactions in the Company's
securities. Reports received by the Company indicate that all such officers and
directors have filed all requisite reports with the Securities and Exchange
Commission on a timely basis during 1994.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following Summary Compensation Table sets forth the cash compensation and
certain other components of the compensation of J. R. Walter, the Chairman and
Chief Executive Officer of the Company, and the other four most highly
compensated executive officers of the Company serving as such on December 31,
1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------
Annual Compensation Awards Payouts
-------------------------- --------------------- -------
Other
Annual Restricted Securities All
Name and Compen- Stock Underlying LTIP Other
Principal sation Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) ($)(1) ($)(2) SARs(#) ($)(3) sation($)(4)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. R. Walter 1994 800,000 494,316 50,220 269,563 59,500 0 18,495
Chairman and
CEO 1993 800,000 499,481 39,766 349,313 72,500 0 0
1992 675,000 506,250 3,445 311,250 65,000 0 0
R. J. Cowan 1994 400,000 164,772 25,276 93,638 21,000 0 7,805
Executive VP
and Sector
President, 1993 400,000 166,494 23,398 121,500 26,000 0 0
Information
Resources 1992 325,000 195,000 1,360 124,500 26,000 0 0
F. R. Jarc 1994 360,000 148,295 19,689 65,263 16,500 0 11,729
Executive VP
and CFO 1993 360,000 149,844 18,386 91,125 21,000 0 0
1992 325,000 195,000 913 93,375 21,000 0 0
W. E. Tyler 1994 277,500 108,003 13,514 93,638 21,000 0 5,565
Executive VP
and Sector 1993 245,000 59,519 11,201 75,938 17,000 49,295 0
President,
Networked
Services 1992 210,000 108,300 0 77,813 17,000 0 0
J. P. Ward 1994 312,500 121,391 20,087 93,638 21,000 0 5,872
Executive VP
and Sector 1993 261,700 54,804 11,901 75,938 17,000 224,233 0
President,
Commercial 1992 210,000 110,250 0 77,813 17,000 0 0
Print
</TABLE>
- --------
(1) Included in this column is the amount of the 50% Company matched
contribution under the Stock Purchase Plan. Under this Plan, officers,
selected managers and key staff employees are permitted to contribute up to
5% of their gross annual salary and bonus from the prior year toward the
purchase during the first quarter of the next year of Common Stock. The
Company contributes an additional 50% of the amount contributed by the
employee toward the purchase of Common Stock for the employee's account,
and another 20% of the amount the employee contributes is paid in cash to
the employee to assist in the payment of taxes owed by the employee as a
result of the Company matched contribution. This 20% cash payment is also
included in this column. No purchases were made under the Stock Purchase
Plan in 1992 due to the Company's failure to achieve the required
performance goal under the Stock Purchase Plan for the 1991 year.
(2) Values of Restricted Stock Awards shown in the Summary Compensation Table
are based on the closing price of Common Stock on the date of grant. As of
December 31, 1994, J. R. Walter held 105,750 shares of restricted Common
Stock, valued at $3,119,625 in the aggregate; R. J. Cowan held 19,800
shares of restricted Common Stock, valued at $584,100 in the aggregate; F.
R. Jarc held 15,800 shares of restricted Common Stock, valued at $466,100
in the aggregate; W. E. Tyler held 13,550 shares of restricted Common
Stock, valued at $399,725 in the aggregate; and J. P.
8
<PAGE>
- --------------------------------------------------------------------------------
Ward held 13,350 shares of restricted Common Stock valued at $393,825 in the
aggregate. Values as of December 31, 1994 of restricted Common Stock are
based on the closing price of the Common Stock on December 30, 1994.
Dividends are paid on restricted Common Stock at the same rate and at the
same time as on the Common Stock. All restricted Common Stock vests on the
fifth anniversary of the date of grant.
(3) Dollar value of payouts on long-term performance awards granted in 1991
(the "1991 Long-Term Awards"). Long-term performance awards were not
granted prior to 1991. In the Company's 1993 proxy statement, payouts of
stock bonus awards were reported in this column. These awards vested on the
fifth anniversary of the grant date and were denominated in stock units,
with each unit valued on the vesting date based on the value of one share
of Common Stock on such date. There were no conditions to vesting other
than the passage of time and continued employment. The last stock bonus
awards granted vested in 1994. Subsequent to publication of the 1993 proxy
statement, the Securities and Exchange Commission noted in a release that
awards having the terms of the stock bonus awards did not qualify as
LTIP's. The Company has therefore omitted these stock bonus award payout
amounts from the LTIP column.
(4) Premiums paid by the Company during 1994 in connection with whole life
insurance policies which are owned by the named executive officers.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN 1994
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1994 to the individuals named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Expiration Present
Name Granted(#)(1) 1994 Price($/sh)(2) Date Value($)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. R. Walter 59,500 1.48% 28.4375 12/12/04 658,665
R. J. Cowan 21,000 .52% 28.4375 12/12/04 232,470
F. R. Jarc 16,500 .41% 28.4375 12/12/04 182,655
W. E. Tyler 21,000 .52% 28.4375 12/12/04 232,470
J. P. Ward 21,000 .52% 28.4375 12/12/04 232,470
</TABLE>
- --------
(1) All options granted and reported in this table have the following terms:
each option vests over a four year period, with 20% of the shares becoming
exercisable at the beginning of each of the second, third and fourth years
following the date of grant and with the entire option becoming exercisable
at the end of the fourth year, 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 1991 Stock Incentive Plan.
(2) Exercise price is the fair market value on the date of grant, determined by
calculating the average of the high and low prices of Common Stock, as
reported in the New York Stock Exchange Composite Transactions report for
the date of grant.
(3) The Black-Scholes option pricing method has been used to calculate present
value as of date of grant, December 12, 1994. 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 executive officers differ from
exchange traded options in three key respects: options granted by the
Company to its executives 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
9
<PAGE>
- --------------------------------------------------------------------------------
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 22.016% has been assigned to the volatility of the Common Stock;
based on daily stock market quotations for the twelve months preceding the
date of grant, the yield on the Common Stock has been set at 2.25%; and
based upon its annual dividend rate of $0.64 per share at the date of grant,
the risk-free rate of return has been fixed at 7.81%, the rate for a ten
year U.S. Treasury Note on the date of grant as reported in the Federal
Reserve Statistical Release, and the exercise of the options has been
assumed to occur at the end of the actual option term of ten years. There is
no assurance that these assumptions will prove to be true in the future.
Consequently, the grant date present values set forth in the table are only
theoretical values and may not accurately determine present value. The
actual value, if any, that may be realized by each individual will depend on
the market price of Common Stock on the date of exercise.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1994 AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise in
1994 of options to purchase Common Stock by the individuals named in the
Summary Compensation Table and the unexercised options to purchase Common Stock
held by such individuals at December 31, 1994.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
12/31/94(#) at 12/31/94($)(2)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. R. Walter 0 0 238,768/187,500 1,903,145/293,938
R. J. Cowan 0 0 78,600/71,400 539,250/126,875
F. R. Jarc 0 0 78,600/56,900 577,813/99,688
W. E. Tyler 3,600 65,925 85,200/53,800 772,688/89,063
J. P. Ward 0 0 78,700/53,800 708,906/89,063
</TABLE>
- --------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the average of the high and low
prices of Common Stock as reported in the New York Stock Exchange Composite
Transactions report for the exercise date) over the relevant exercise
price(s).
(2) The value is calculated based on the aggregate amount of the excess of
$29.4375 (the average of the high and low prices of Common Stock as
reported in the New York Stock Exchange Composite Transactions report for
December 30, 1994) over the relevant exercise price(s).
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
RETIREMENT BENEFITS
Under the Company's Retirement Benefit Plan, employees who met the eligibility
requirements accrued in 1994 an annual retirement benefit computed at the rate
of 1.5% on compensation up to "covered compensation," and 2% on compensation in
excess of "covered compensation" but not in excess of $150,000 (the maximum
amount of compensation for 1994 on which benefits can accrue under current
law). The formula for determining benefits has been revised at various times
since the present Plan was adopted in 1951. The compensation covered by the
Plan includes wages and salaries, supplementary compensation and commissions.
An employee's "covered compensation" for a year is the average of the Social
Security wage bases for the thirty-five-year period ending with such year.
Prior to January 1, 1979, employees could elect to participate on a
contributory basis. Since then, the Plan has been noncontributory, so that the
Company pays the full cost of benefits credited under the Plan after December
31, 1978. Benefits are paid monthly after retirement for the life of the
participant (straight life annuity amount) or, if the participant is married or
has elected an optional benefit form, in an actuarially reduced amount for the
life of the participant and the participant's surviving spouse or other
surviving person named as a contingent member. Benefits under the Retirement
Benefit Plan are limited to the extent required by provisions of the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974. If
payment of actual retirement benefits is limited by such provisions, an amount
equal to any reduction in retirement benefits will be paid as a supplemental
benefit under the Unfunded Supplemental Benefit Plan adopted by the Board of
Directors in 1981.
The following table contains information concerning annual benefits payable
pursuant to the Retirement Benefit Plan on a straight life annuity basis upon
retirement at age 65 for the individuals named in the Summary Compensation
Table. These benefits include the annual benefits to be paid at age 65 computed
on service through December 31, 1994, estimated additional annual benefits
which may be earned in the future, assuming the individuals continue in the
Company's employ to age 65 and current compensation levels remain unchanged,
and total estimated annual benefits on retirement at age 65.
<TABLE>
<CAPTION>
Estimated Additional
Annual Benefits Total Estimated
Annual Benefits on Retirement Annual Benefits
to be paid at Age 65 Computed on Service
at Age 65 for Service after 1994 through December 31,
on the Basis Assuming Continuation 1994 Plus Benefits
of Service through of Employment Which May Be
Individual December 31, 1994 ($) Until Age 65 ($) Earned in Future ($)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
J. R. Walter 179,435 489,949 669,384
R. J. Cowan 54,175 255,763 309,938
F. R. Jarc 54,484 129,746 184,230
W. E. Tyler 51,361 221,834 273,195
J. P. Ward 71,707 270,537 342,244
</TABLE>
- --------------------------------------------------------------------------------
DIRECTOR COMPENSATION
Directors who are not officers receive annual retainer fees as follows: $27,000
for service as a director, plus $1,000 per committee for service as a member of
a Board committee, and $2,500 for service as Chairman of a Board committee
(payable in addition to retainer for service as a member of the committee). In
addition to these retainer fees, such directors receive an attendance fee of
$1,000 per day for attendance at Board meetings and any committee meetings held
on the same day. Such directors are paid an attendance fee of $1,000 per day
for any committee meetings held on days other than Board meeting days and for
each day spent at the Company's request on committee work when no formal
meeting is held. The 1991 Stock Incentive Plan provides that each individual
who, immediately following the annual meeting of stockholders each year during
the term of such Plan commencing in 1991, is a non-employee director shall
receive an option to purchase 4,000 shares of Common Stock at an option price
equal to 100% of the fair market value of such shares on the date the option is
granted. Such options are fully exercisable during the period beginning on the
earlier to
11
<PAGE>
- --------------------------------------------------------------------------------
occur of (a) the date that is the first anniversary of the date such option is
granted (the "Option Date") or (b) the day immediately preceding the date of
the Annual Meeting of Stockholders of the Company next following the Option
Date, provided that the date of the Annual Meeting is at least 355 days after
the Option Date, and ending ten years after the Option Date. The 1995 Stock
Incentive Plan, described on pages 18 to 23, will, if approved by stockholders
at the 1995 Annual Meeting, replace the 1991 Stock Incentive Plan and provides
for the grant to each non-employee director, commencing with the 1995 Annual
Meeting, of an option to purchase 4,000 shares of Common Stock on the same
terms and conditions as are provided in the 1991 Stock Incentive Plan. The 1993
Stock Ownership Plan for Non-Employee Directors, approved by the stockholders
at the 1993 Annual Meeting, permits directors who are not employees to elect to
apply all or a portion of retainer, meeting and committee fees toward the
purchase of shares of Common Stock at fair market value on the date of
purchase.
The Company will pay a retirement benefit to directors. A director with 10 or
more years of service as a director will receive an annual retirement benefit
equal to the then current annual retainer fee paid to active directors. A
director with less than 10 years of service as a director will receive an
annual retirement benefit equal to 10% of such fee for each year or fraction
thereof of service as a director. These retirement benefits to directors will
be paid in addition to any retirement benefits payable to a director under the
Company's Retirement Benefit Plan or any other supplementary retirement benefit
arrangement. The retirement benefit of a director whose retirement occurs at or
after age 65 will begin following the effective date of retirement. The
retirement benefit of a director whose retirement occurs prior to age 65, for
any reason except disability that ends the director's active business career or
employment, will begin at age 65. The retirement benefit of a director whose
retirement occurs prior to age 65 due to disability that ends the director's
active business career or employment, will begin following the effective date
of retirement. Retired directors will receive any future increases in these
retirement benefits from and after the time such increases become effective.
SEVERANCE PAY PROGRAM AND SPECIAL SEVERANCE PLAN
The Company has adopted a Severance Pay Program consisting of severance
agreements between the Company and approximately 155 officers and key employees
(including the executive officers named in the Summary Compensation Table) and
a Special Severance Plan applicable to all other employees of the Company and
certain subsidiaries. The agreements and the Plan provide severance benefits in
the event of a change in control (as defined in the agreement and Plan) of the
Company followed by termination of employment. In connection with the Severance
Pay Program, the Company has entered into severance agreements with the five
individuals named in the Summary Compensation Table. These agreements provide
that if the executive's employment is terminated following a change in control
of the Company either (a) by the Company for reasons other than cause (as
defined in the agreements) or other than as a consequence of death, disability
or retirement, or (b) by the executive for reasons relating to a diminution of
responsibilities, compensation or benefits or relocation requiring a change in
residence or a significant increase in travel, the executive will receive
certain payments and benefits. These include (i) a lump sum payment equal to up
to three times the executive's current planned compensation (salary and bonus),
(ii) an amount in cash in lieu of outstanding stock bonus awards under the
Company's Stock Incentive Plans, (iii) an amount in cash equal to the value of
outstanding stock options, (iv) an amount in cash equal to three years of
additional accrued benefits under the Company's pension plan and (v) life,
disability, accident and health insurance benefits for a period of 24 months
after termination of employment. These agreements also provide that if after a
change in control of the Company any compensation paid to the executive,
whether or not pursuant to such agreement, is subject to the federal excise tax
on "excess parachute payments," the Company will pay to the executive such
additional amount as may be necessary so that the executive realizes, after the
payment of such excise tax and any income or excise tax on such additional
amount, the amount of such compensation.
12
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION WITH EXECUTIVE OFFICER AND DIRECTOR
In November, 1994, as part of a transaction in which certain investors acquired
a majority of the equity interest in GeoSystems Global Corporation, a
subsidiary of the Company ("GeoSystems"), a limited partnership of which James
R. Donnelley and two of his brothers are the sole general partners and James R.
Donnelley and three of his brothers are limited partners, purchased for
$150,000 approximately 3% of the equity interest in GeoSystems. Such purchase
was at the same price and on the same terms and conditions as the purchases
made by all investors not affiliated with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMMITTEE APPROACH TO COMPENSATION EVALUATION
The Compensation Committee (the "Committee") is responsible for determining the
annual salary, short-term and long-term cash and stock incentive compensation,
and other compensation of the executive officers, including the executive
officers named in the Summary Compensation Table (the "named executive
officers"). This report describes the policies and rationales of the Committee
in establishing the principal components of executive compensation during 1994.
In its deliberations regarding compensation of executive officers, the
Committee considers the following factors: (a) Company performance, both
separately and in relation to other companies, (b) the individual performance
of each executive officer, (c) a number of comparative compensation surveys
(supplied by professional compensation consultants approved by the Committee
and retained by the Company for this purpose) and other material concerning
compensation levels and stock grants at other companies, such as compensation
and stock award information disclosed in the proxy statements of other
companies, (d) historical compensation levels and stock awards at the Company,
(e) the overall competitive environment for executives and the level of
compensation necessary to attract and retain executive talent and (f) the
recommendations of professional compensation consultants and management.
Companies used to define the market for executive compensation pay comparison
purposes are selected with the assistance of professional compensation
consultants. The market includes a broad group of industrial companies similar
in revenue size to the Company, as well as a specific group of printing and
publishing companies also similar in revenue size to the Company. In addition,
market pay data is collected from several general industry compensation
surveys. The companies used to define the market for pay comparison purposes
include 10 of the 29 companies in the Peer Group used in the Performance Graph.
The Committee relies on market data comprised of a broad array of companies in
various industries for comparative analysis of executive compensation because
the Committee believes that the Company's competitors for executive talent are
more varied than the Peer Group chosen for comparing stockholder return in the
Performance Graph.
EXECUTIVE OFFICERS GENERALLY
Generally, total compensation for executive officers (other than J. R. Walter,
discussed separately below), including salary, short and long-term incentive
compensation and the projected value of stock awards, is targeted to
approximate the median of the market. Total compensation for J. R. Walter is
targeted between the median and the high end of the market. The Committee
determines the individual components of the total compensation package based on
the desired mix between salary and at-risk components of compensation and short
and long-term compensation.
The Company's pay package for executive officers, including J. R. Walter, is
structured so that a significant portion (between 38% and 52%, depending on the
level of responsibility of the executive officer) of targeted annual cash
compensation (salary, plus short and long-term incentive compensation) is
linked to Company performance (based on factors described below), because it is
paid only if certain performance goals are achieved. Additionally, the value of
restricted stock and stock options is tied to the Company's stock price
performance.
13
<PAGE>
- --------------------------------------------------------------------------------
Salary
1994 salaries for executive officers were not increased over 1993 salaries,
except that Messrs. Ward and Tyler received 1994 salary increases to reflect
their promotions to Sector President.
Short and Long-Term Incentive Compensation
Both the Senior Annual Incentive Compensation Plan (the "Annual Plan") and the
Long-Term Performance Awards granted in 1993 (the "Long-Term Awards") tie
payouts to Company performance. Under the Annual Plan and the Long-Term Awards,
potential payout amounts (expressed as a percentage of salary) and related
performance goals were established at the beginning of the relevant performance
period by the Committee, after assessing recommendations of management and
professional compensation consultants.
With respect to corporate executive officers (all named executive officers are
corporate officers), Company performance under the Annual Plan was measured by
earnings per share and return on average stockholders' equity, with each factor
being weighted equally in the calculation. With respect to executive officers
responsible for various businesses, under the Annual Plan the Company's
earnings per share and return on average stockholders' equity each count for
between 20% and 40% in the performance calculation and performance factors
unique to the relevant business (such as business revenues and earnings) count
for between 20% and 60%.
Under the Long-Term Awards granted to corporate executive officers, Company
performance is measured by return on average stockholders' equity, with the
potential for increased payout if net asset growth is also achieved. Under the
Long-Term Awards granted to executive officers responsible for various
businesses, Company performance is measured by the return on average
stockholders' equity, with the potential for increased payout if net asset
growth is also achieved, and on factors unique to the relevant business (such
as growth in business revenues, growth in business earnings and return on net
assets of the relevant business), with the potential for increased payouts in
certain cases if net asset growth is achieved in the relevant business. Return
on average stockholders' equity counts for 50% in the calculation of the Long-
Term Awards for these executive officers, and the factors specific to the
relevant business also count for 50%.
If the Company (and, where relevant, a particular business within the Company)
does not achieve at least the minimum performance levels established under the
Annual Plan for a particular year or, in the case of the Long-Term Awards, the
specified years, then the payout amount under the relevant plan or award is
zero. The Committee may in its discretion increase or decrease any payout to be
made to a particular executive officer to reflect any special circumstances
that the Committee deems significant. The Committee authorized payouts under
the Annual Plan for the 1994 year reflecting the achievement of the established
performance objectives (discussed above) of the Annual Plan and no
discretionary adjustments were made, other than one discretionary increase of
$5,000 made to an executive officer due to the achievement of the established
performance objectives of the Annual Plan and the attainment of additional cost
control results.
No payouts to executive officers were made in 1994 under Long-Term Awards as
no such awards vested in 1994. The most recent Long-Term Award covers the 1993-
1995 performance period with a potential payout in 1995 based on achievement of
the established performance objectives (discussed above).
Stock Awards
The stock awards of various kinds made to executive officers are designed to
align the interests of management more closely with those of the stockholders
of the Company by increasing stock ownership by management. To emphasize the
importance of stock ownership by management, the Committee and management have
implemented stock ownership guidelines for all officers which require all
officers to hold Company stock acquired through the Company's stock programs
and progress over a period of years toward ownership of shares having a market
value relative to salary; the minimum ownership guideline is owning Company
stock having a market value at least equal to salary, with the level of target
ownership increasing as levels of responsibility increase, up to five times
salary which is the ownership guideline for the Chief Executive Officer.
14
<PAGE>
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In determining the size and terms of stock grants, the Committee establishes a
target grant level by management position, based on the Committee's assessment
of the desired mix of short and long-term compensation, as well as the desired
target total pay positioning relative to the market. Actual stock grants to
executives may differ from target grant levels. The Committee considers the
individual performance of each executive officer, historical stock grants made
by the Company, and the recommendations of professional compensation
consultants and management when determining the actual grants. Generally,
restricted stock awards are viewed by the Committee as providing motivation to
executive officers to remain with the Company during the five year period of
cliff vesting. Stock option awards focus executives on the Company's stock
price performance, while also providing incentives to remain with the Company
and aligning the interests of executive officers more closely with
stockholders. These factors, along with the recommendations of compensation
consultants, are considered by the Committee in determining the appropriate
balance between restricted stock awards and stock option awards. Restricted
stock awards and stock option grants in 1994 were made to executive officers
generally at target levels.
Deductibility of Executive Compensation
In 1993, the tax laws were amended to limit the deduction a publicly-held
company is allowed for compensation paid in 1994 and thereafter to the chief
executive officer and to the four most highly compensated executive officers
other than the chief executive officer. Generally, amounts paid in excess of $1
million to a covered executive, other than performance-based compensation,
cannot be deducted. The Committee will consider ways to maximize the
deductibility of executive compensation, while retaining the discretion the
Committee deems necessary to compensate executive officers in a manner
commensurate with performance and the competitive environment for executive
talent.
COMPENSATION OF JOHN R. WALTER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Committee established the compensation of John R. Walter, the Chairman and
Chief Executive Officer, for 1994 using substantially the same criteria that
were used to determine compensation levels for other executive officers,
discussed at the beginning of this report. Mr. Walter's compensation is
reviewed against the compensation paid to Chief Executive Officers in the
comparison groups referred to earlier in this report. Mr. Walter's total
compensation (including salary, short and long-term incentive compensation, and
the annualized projected value of stock awards) is targeted between the median
and high end of the market. In the Committee's view, this targeted level of
compensation provides adequate and necessary incentives for Mr. Walter in
meeting the challenges he faces in leading the Company to continued success in
the future.
Mr. Walter's 1994 salary was not increased over his 1993 salary, as was the
case with most other executive officers.
Mr. Walter's 1994 annual incentive compensation payout under the Annual Plan
of $494,316 was entirely based on the Company's performance, as measured by
earnings per share and return on average stockholders' equity for the 1994
fiscal year, with each of these two factors having equal weight in the
incentive compensation calculation. Performance factors that determined payout
levels under the Annual Plan in 1994 were established for each of the executive
officers, including Mr. Walter, at the beginning of 1994, with payout at each
level being dependent on the degree of achievement of the above performance
standards. Mr. Walter, like other executive officers, did not receive a payout
in 1994 under any Long-Term Award as no such awards vested in 1994. The most
recent Long-Term Award covers the 1993-1995 performance period, with a
potential payout in 1995 based on achievement of established Company
performance objectives for corporate executive officers (discussed above under
"Short and Long-Term Incentive Compensation").
In determining the size and terms of stock grants to Mr. Walter, the Committee
establishes a target grant level based on his position as CEO and the
Committee's assessment of the desired mix of short and long-term compensation,
as well as the desired target total pay positioning relative to the market.
15
<PAGE>
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The Committee considers the individual performance of Mr. Walter, historical
stock grants made to him by the Company, and the recommendations of
professional compensation consultants when determining the actual grants to Mr.
Walter. The Committee made restricted stock and stock option grants at target
levels to Mr. Walter in 1994. In determining the appropriate balance between
the number of shares of restricted stock and the number of option shares to
award to Mr. Walter, the Committee considered the same factors noted above that
were considered with respect to the other executive officers.
The foregoing report has been approved by all members of the Committee.
The Compensation Committee
John M. Richman, Chairman
Thomas S. Johnson
William D. Sanders
Jerre L. Stead
16
<PAGE>
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PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five-year period (December 31,
1989 to December 31, 1994) with the cumulative total return of the Standard &
Poor's 500 stock index (which includes the Company) and a peer group of
companies selected by the Company for purposes of the comparison and described
more fully below (the "Peer Group"). Dividend reinvestment has been assumed
and, with respect to companies in the Peer Group, the returns of each such
company have been weighted to reflect relative stock market capitalization.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG R. R. DONNELLEY, S&P 500 INDEX AND PEER GROUP**
PERFORMANCE GRAPH
Assumes $100 Invested on December 31, 1989 in R. R. Donnelley Common
Stock, S&P 500 Index and Peer Group.
* Total Return Assumes Reinvestment of Dividends
** Fiscal Year Ending December 31
The data points for the above graph are as follows:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
R. R. Donnelley 100 79.38 102.00 136.01 131.63 127.33
Standard & Poor's 500 100 96.89 126.42 136.05 149.76 151.74
Peer Group 100 79.87 100.65 118.28 135.75 130.81
</TABLE>
- --------------------------------------------------------------------------------
The Company provides a broad range of services to a diverse group of customers
in several industries, including publishers (of, for example, magazines and
books), merchandisers (such as retailers and catalog merchants), technology
companies (such as computer hardware manufacturers and software publishers) and
information providers. Because the Company's services and customers are
diverse, the Company does not believe that there is a single published industry
or line of business index that is appropriate for comparing stockholder return.
The Peer Group selected by the Company for the above Performance Graph is a
combination of two industry groups of companies identified by Value Line
Publishing, Inc., a publisher of investment surveys ("Value Line")--the
publishing group (which includes printing companies) and the newspaper group--
except that the Company and those
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companies whose common stock has not been traded on domestic exchanges for the
relevant five-year period have been excluded. Other printing companies (as well
as the Company) are included by Value Line in its publishing group. Many
companies included in these two Value Line groups are ones with whom the
Company is most frequently compared by investment analysts. This combination of
printing, publishing and newspaper companies has been selected to best
represent the Company's diverse range of products, services and customers.
The companies included in the Peer Group are: Banta Corporation; Bowne & Co.
Inc.; Commerce Clearing House, Inc. (class A stock); Deluxe Corporation; Dow
Jones & Company, Inc.; The Dun & Bradstreet Corporation; Gannett Co., Inc.;
Graphic Industries; Harcourt General Inc.; Houghton Mifflin Company; John H.
Harland Company; Knight-Ridder, Inc.; Lee Enterprises, Inc.; McClatchy
Newspapers, Inc. (class A stock); McGraw-Hill, Inc.; Media General, Inc. (class
A stock); Meredith Corporation; National Education Corporation; News Corp Ltd;
The New York Times Company (class A stock); Playboy Enterprises, Inc. (class B
stock); Pulitzer Publishing Company; The E.W. Scripps Company (class A stock);
Southam Inc.; The Times Mirror Company (class A stock); Thomson Corp.; Tribune
Company; The Washington Post Company (class B stock); and Western Publishing
Group.
Maclean Hunter, which was in the Peer Group last year, was acquired in 1994
and therefore is no longer included in the Value Line publishing or newspaper
group. One additional company, Harcourt General, was added to the Peer Group
because Value Line added it to the relevant industry group in 1994.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company has not selected its independent public accountants for 1995. This
selection is normally made at the Board of Directors meeting in April, after
the Audit Committee, the members of which are identified under "Information
about Directors and Nominees for Directors," has reviewed audit proposals for
such year. After such review, the Audit Committee will recommend the selection
of accountants for 1995 to the Board of Directors, which will make the final
selection.
Arthur Andersen LLP served as the Company's independent public accountants in
1994 and for twenty-eight years prior thereto. Representatives of that firm are
expected to be present at the 1995 Annual Meeting with the opportunity to make
a statement if they so desire and to be available to respond to appropriate
questions.
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PROPOSED 1995 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors is proposing for stockholder approval the 1995 Stock
Incentive Plan (the "Plan"). The purposes of the Plan are to provide incentives
to (i) management through rewards based upon the ownership or performance of
the Common Stock and (ii) non-employee directors of the Company through the
grant of options to purchase Common Stock. Under the Plan, the Company may
grant options to purchase Common Stock, including "incentive stock options"
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), stock appreciation rights ("SARs"), restricted stock,
stock units and cash awards. Non-qualified options to purchase 4,000 shares of
Common Stock will also be granted automatically to non-employee directors on
the date of each annual meeting of stockholders of the Company. Eleven non-
employee directors and approximately 12,000 employees and are eligible to
participate in the Plan. If the Plan is approved by the stockholders, no
further grants or awards will be made under the 1981 Stock Incentive Plan, the
1986 Stock Incentive Plan or the 1991 Stock Incentive Plan, except that SARs
may be granted with respect to options previously granted and outstanding under
such plans. Reference is made to Exhibit A to this Proxy Statement for the
complete text of the Plan which is summarized below.
DESCRIPTION OF THE PLAN
Administration. The Plan will be administered by a committee designated by the
Board of Directors (the "Committee"). No member of the Committee is eligible to
receive a discretionary award of
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Common Stock or other equity securities of the Company or an affiliate of the
Company under the Plan or any other plan of the Company or an affiliate of the
Company.
Subject to the express provisions of the Plan, and except for options granted
to non-employee directors, the Committee has the authority to select eligible
officers and key management employees of the Company and its subsidiaries for
participation in the Plan and determine all of the terms and conditions of each
grant and award. Each grant and award will be evidenced by a written agreement
containing such provisions not inconsistent with the Plan as the Committee
shall approve. The Committee will also have authority to prescribe rules and
regulations for administering the Plan and to decide questions of
interpretation of any provision of the Plan. Except with respect to grants to
officers of the Company who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, or a person whose compensation is likely to
be subject to the $1 million deduction limit under section 162(m) of the Code
(described below under "Federal Income Tax Consequences"), the Committee may
delegate some or all of its power and authority to administer the Plan to the
Chief Executive Officer or other executive officer of the Company.
Available Shares. Under the Plan, 7,500,000 shares of Common Stock are
available for grants and awards to officers, other key management employees and
non-employee directors, subject to adjustment in the event of a stock split,
stock dividend, recapitalization, reorganization, merger or other similar event
or change in capitalization. In general, shares subject to a grant or award
which for any reason are not issued or delivered, including by reason of the
expiration, termination, cancellation or forfeiture of all or a portion of a
grant or award or by reason of the delivery or withholding of shares to pay all
or a portion of the exercise price of an option or to satisfy tax withholding
obligations, would again be available under the Plan. The maximum number of
shares of Common Stock with respect to which (i) options and SARs or a
combination thereof may be granted during any three-year period to any person
is 1,000,000, and (ii) fixed awards in the form of restricted stock may be
granted under the Plan is 500,000 in the aggregate, in each case subject to
adjustment in the event of a stock split, stock dividend, recapitalization,
reorganization, merger or other similar event or change in capitalization.
Change in Control. In the event (i) a person (subject to certain exceptions)
becomes the beneficial owner of 50% or more of the voting power of the
Company's outstanding securities, (ii) during any period of two consecutive
years beginning on January 1, 1995, individuals who at the beginning of such
period constitute the Board and any new director whose election was approved by
at least two-thirds of the directors still in office who either were directors
at the beginning of the period or whose election was previously so approved,
cease to constitute a majority of the Board of Directors or (iii) the
stockholders approve a merger or consolidation with any other corporation
(unless the Company's stockholders and any employee benefit plan of the Company
receive 50% or more of the voting stock of the surviving company or unless the
merger or consolidation implements a recapitalization in which no person
acquires more than 50% of the combined voting power of the Company's
outstanding securities) or the stockholders approve a complete liquidation of
the Company or sale of all or substantially all of the Company's assets, all
options and SARs will be fully and immediately exercisable, the highest level
of achievement will be deemed to be met with respect to performance awards of
restricted stock, stock units or cash and such performance awards will be fully
and immediately vested, and the period of continued employment for all fixed
awards of restricted stock, stock units or cash will be deemed completed and
such fixed awards will be fully and immediately vested.
Effective Date, Termination and Amendment. If approved by stockholders, the
Plan will become effective as of January 1, 1995 and will terminate on December
31, 1999, unless terminated earlier by the Board of Directors. The Board of
Directors may amend the Plan at any time except that (i) no amendment may be
made without stockholder approval if stockholder approval would be required by
applicable law, rule or regulation or such amendment would increase the maximum
number of shares of Common Stock available under the Plan and (ii) the number
of shares subject to options granted to non-employee directors, the purchase
price therefor, the date of grant of any such option, the termination
provisions relating to such options and the category of persons eligible to be
granted such options will not be amended more than once every six months, other
than to comply with changes in
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the Code or the Employee Retirement Income Security Act of 1974, as amended, or
the rules and regulations thereunder.
Stock Options and Stock Appreciation Rights. The period for the exercise of a
non-qualified stock option (other than options granted to non-employee
directors) or SAR and the option exercise price and base price of an SAR will
be determined by the Committee; provided that the option exercise price and the
base price of an SAR will not be less than the fair market value of a share of
Common Stock on the date of grant. SARs may be granted in tandem with a related
stock option, in which event the grantee may elect to exercise either the SARs
or the option, but not both, or SARs may be granted independently of a stock
option. The exercise of an SAR entitles the holder thereof to receive (subject
to withholding taxes) shares of Common Stock, cash or a combination thereof
with a value equal to the appreciation in market value of a stated number of
shares of Common Stock from the date of grant to the date of exercise.
No incentive stock option will be exercisable more than ten years after its
date of grant, unless the recipient of the incentive stock option owns greater
than ten percent of the voting power of all shares of capital stock of the
Company (a "ten percent holder"), in which case the option will be exercisable
for no more than five years after its date of grant. If the recipient of an
incentive stock option is a ten percent holder, the option exercise price will
be the price required by the Code, currently 110% of fair market value.
Beginning on the date of the 1995 Annual Meeting, non-employee directors will
automatically be granted, on the date of each annual meeting, non-qualified
options to purchase 4,000 shares of Common Stock at an exercise price per share
equal to the fair market value of a share of Common Stock on the date of grant.
Such options will expire on the first business day preceding the tenth
anniversary of the date of grant and will become exercisable as to all of the
shares of Common Stock subject to the option on and after the earlier to occur
of (i) the date which is the first anniversary of the date of grant or (ii) the
day immediately preceding the date of the first annual meeting of stockholders
following the date of grant (provided that the date of such annual meeting is
at least 355 days after the date of grant).
Upon exercise, the option exercise price may be paid in cash or by the
delivery of previously owned shares of Common Stock, as determined by the
Committee. In the event of termination of employment or service on the Board by
reason of retirement or total and permanent disability, each option and SAR
will be exercisable to the extent set forth in the agreement evidencing such
option or SAR for a period of no more than five years after the date of such
termination of employment or service on the Board, but in no event after the
expiration of such option or SAR. In the event of termination of employment or
service on the Board by reason of death or any reason other than retirement or
total and permanent disability, each option and SAR will be exercisable to the
extent set forth in the agreement evidencing such option or SAR for a period of
90 days after the date of death, but in no event after the expiration of such
option or SAR.
The Plan includes a UK Stock Option Sub-Plan in order to vary the terms on
which options may be granted to officers and key management employees who are
employed in the United Kingdom by the Company or any of its subsidiaries. The
terms and conditions of stock options granted under the Sub-Plan will be
substantially the same as the terms and conditions applicable to other options
granted under the Plan, but will contain additional terms and conditions, as
set forth in the Sub-Plan, required to cause such options to qualify for
certain favorable tax consequences to the optionees provided under Schedule 9
of the United Kingdom Income and Corporation Taxes Act 1988.
Performance Awards and Fixed Awards. Under the Plan, bonus awards, whether
performance awards or fixed awards, may be made in the form of (i) cash,
whether in an absolute amount or as a percentage of compensation, (ii) stock
units, each of which is substantially the equivalent of a share of Common Stock
but for the power to vote and, subject to the Committee's discretion, the
entitlement to an amount equal to dividends or other distributions otherwise
payable on a like number of shares of Common Stock and (iii) shares of Common
Stock issued to the employee but forfeitable and with restrictions on transfer.
Performance Awards may be made in terms of a stated potential maximum dollar
amount, percentage of compensation or number of units or shares, with the
actual such amount, percentage or
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number to be determined by reference to the level of achievement of corporate,
sector, business unit, division, individual or other specific objectives over a
performance period of not less than one nor more than ten years, as determined
by the Committee. Fixed awards are not contingent on the achievement of
specific objectives, but are contingent on the participant's continuing in the
Company's employ for a period specified in the award.
If shares of restricted stock are subject to a bonus award, the participant
will have the right, unless and until such award is forfeited or unless
otherwise determined by the Committee at the time of grant, to vote the shares
and to receive dividends thereon from the date of grant and the right to
participate in any capital adjustment applicable to all holders of Common
Stock; provided, however, that a distribution with respect to shares of Common
Stock, other than a regular quarterly cash dividend, shall be deposited with
the Company and shall be subject to the same restrictions as the shares of
Common Stock with respect to which such distribution was made. Upon termination
of any applicable restriction period, including, if applicable, the
satisfaction or achievement of applicable performance objectives, a certificate
evidencing ownership of the shares of Common Stock will be delivered to the
holder of such award.
If stock units are credited to a participant pursuant to a bonus award, then,
subject to the Committee's discretion, amounts equal to dividends and other
distributions otherwise payable on a like number of shares of Common Stock
after the crediting of the units will be credited to an account for the
participant and held until the award is forfeited or paid out. Interest shall
be credited on the account annually at a rate equal to the return on five year
U.S. Treasury obligations.
The Committee may provide for early vesting of an award in the event of the
participant's death, permanent and total disability or retirement. At the time
of vesting, (i) the award, if in units, will be paid to the participant either
in shares of Common Stock equal to the number of units, in cash equal to the
fair market value of such shares, or in such combination thereof as the
Committee determines, and the participant's account to which dividend
equivalents, other distributions and interest have been credited will be paid
in cash, (ii) the award, if a cash bonus award, will be paid to the participant
either in cash, or in shares of Common Stock with a then fair market value
equal to the amount of such award, or in such combination thereof as the
Committee determines and (iii) shares of restricted Common Stock issued
pursuant to an award will be released from the restrictions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the U.S. federal income tax
consequences generally arising with respect to grants and awards under the
Plan.
Stock Options. A participant will not recognize any income upon the grant of a
stock option. A participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding) upon exercise of a non-qualified
stock option equal to the excess of the fair market value of the shares
purchased over their exercise price, and the Company will be entitled to a
corresponding deduction. A participant will not recognize any income (except
for purposes of the alternative minimum tax) upon exercise of an incentive
stock option. If the shares acquired by exercise of an incentive stock option
are held for the longer of two years from the date the option was granted and
one year from the date it was exercised, any gain or loss arising from a
subsequent disposition of such shares will be taxed as long-term capital gain
or loss, and the Company will not be entitled to any deduction. If, however,
such shares are disposed of within such period, then in the year of such
disposition the participant will recognize compensation taxable as ordinary
income equal to the excess of the lesser of the excess of (A) either (i) the
amount realized upon such disposition and (ii) the fair market value of such
shares on the date of exercise, over (B) the exercise price, and the Company
will be entitled to a corresponding deduction.
SARs. A participant will not recognize any income upon the grant of SARs. A
participant will recognize compensation taxable as ordinary income (and subject
to income tax withholding) upon exercise of an SAR equal to the fair market
value of any shares delivered and the amount of cash paid by the Company upon
such exercise, and the Company will be entitled to a corresponding deduction.
Restricted Stock and Stock Units. A participant will not recognize any income
at the time of the grant of shares of restricted stock (unless the participant
makes an election to be taxed at the time the
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restricted stock is granted) or stock units, and the Company will not be
entitled to a tax deduction at such time. A participant will recognize
compensation taxable as ordinary income at the time the restrictions lapse on
restricted stock (if such election was not made) and stock units in an amount
equal to the excess of the fair market value of the shares or units at such
time over the amount, if any, paid for such shares or units. The amount of
ordinary income recognized by a participant is deductible by the Company as
compensation expense, except to the extent the deduction limit of section
162(m) of the Code (described below) applies. In addition, a participant
receiving dividends with respect to restricted stock for which the above-
described election has not been made and prior to the time the restrictions
lapse will recognize compensation taxable as ordinary income (subject to income
tax withholding), rather than dividend income, in an amount equal to the
dividends paid and the Company will be entitled to a corresponding deduction,
except to the extent the deduction limit of section 162(m) of the Code applies.
A participant will recognize compensation taxable as ordinary income (subject
to income tax withholding) when amounts attributable to stock units are paid
(or made available) and the Company will be entitled to a corresponding
deduction, except to the extent the deduction limit of section 162(m) of the
Code applies.
Cash Bonus Awards. A participant will not recognize any income upon the grant
of a bonus award payable in cash and the Company will not be entitled to a tax
deduction at such time. At the time such award is paid (or made available), the
participant will recognize compensation taxable as ordinary income (subject to
income tax withholding) in an amount equal to any cash paid by the Company, and
the Company will be entitled to a corresponding deduction, except to the extent
the deduction limit of section 162(m) of the Code applies.
Section 162(m) of the Code. Section 162(m) of the Code generally limits to $1
million the amount that a publicly held corporation is allowed each year to
deduct for the compensation paid to each of the corporation's chief executive
officer and the corporation's four most highly compensated executive officers
other than the chief executive officer. However, "performance-based"
compensation is not subject to the $1 million deduction limit. To qualify as
performance-based compensation, the following requirements must be satisfied:
(i) the performance goals are determined by a committee consisting solely of
two or more "outside directors", (ii) the material terms under which the
compensation is to be paid, including the performance goals, are approved by a
majority of the corporation's stockholders and (iii) the committee certifies
that the applicable performance goals were satisfied before payment of any
performance-based compensation is made. The Committee administering the Plan
will consist solely of "outside directors" as defined for purposes of section
162(m) of the Code. As a result, and based on certain proposed regulations
issued by the U.S. Department of the Treasury, certain compensation under the
Plan, such as that payable with respect to options and SARs, is not expected to
be subject to the $1 million deduction limit, but other compensation payable
under the Plan, such as any restricted stock award which is not subject to a
performance condition to vesting, would be subject to such limit.
DETERMINABLE PLAN BENEFITS
The following table sets forth the number of shares of Common Stock underlying
options which would be granted automatically to non-employee directors on the
date of each annual meeting of stockholders beginning with the 1995 Annual
Meeting.
1995 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
Position Stock Options
- -------- -------------
<S> <C>
All Non-Employee Directors as a Group (11 persons)................ 44,000(1)
</TABLE>
- --------
(1) The option exercise price per share will be the average of the high and low
transactions prices in trading of the Common Stock on the date of grant as
reported in the New York Stock Exchange Composite Transactions. On February
6, 1995, the average of the high and low transactions prices
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in trading of the Common Stock, as reported in the New York Stock Exchange
Composite Transactions was $31.6875 per share. Each option will expire on
the first business day preceding the tenth anniversary of the date of grant
and will become exercisable as to all of the shares of Common Stock subject
to the option on and after the earlier to occur of (i) the date which is the
first anniversary of the date of grant or (ii) the day immediately preceding
the date of the first annual meeting of stockholders following the date of
grant (provided that the date of such annual meeting is at least 355 days
after the date of grant).
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the 1995 Annual Meeting and entitled to
vote on the proposal to adopt the Plan is required to approve the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1995 STOCK
INCENTIVE PLAN.
STOCKHOLDER PROPOSAL REGARDING CERES PRINCIPLES
The Company has been notified that the following stockholders intend to
introduce and support the following proposal at the 1995 Annual Meeting:
Christian Brothers Investment Services, Inc., 675 Third Avenue, 31st Floor, New
York, New York 10017-5704, which has provided certification to the Company
indicating that, as of October 13,1994, it was the beneficial owner of 215,490
shares of Common Stock; The Domini Social Equity Fund, 6 St. James Avenue,
Boston, Massachusetts 02116, which has provided certification to the Company
indicating that as of October 17, 1994, it was the beneficial owner of 3,200
shares of Common Stock; Informed Investors Group, Washington Mutual Tower, 1201
Third Avenue, Suite 2770, Seattle, Washington 98101, which has provided
certification to the Company that, as of September 30, 1994, it was the
beneficial owner of 4,700 shares of Common Stock; and Sisters of Divine
Providence, St. Anne Convent, Melbourne, Kentucky 41059, which has provided
certification to the Company that, as of October 17, 1994, it was the
beneficial owner of 3,200 shares of Common Stock. Based on the certifications
of ownership outlined above, the stockholder proponents own a total of 226,590
shares of Common Stock which represents less than one percent (1%) of the total
shares of Common Stock outstanding on December 31, 1994.
WHEREAS WE BELIEVE:
The responsible implementation of a sound, credible environmental policy
increases long-term shareholder value by raising efficiency, decreasing
clean-up costs, reducing litigation, and enhancing public image and product
attractiveness;
Adherence to public standards for environmental performance gives a
company greater public credibility than following standards created by
industry alone. For maximum credibility and usefulness, such standards
should reflect what investors and other stakeholders want to know about the
environmental records of their companies;
Companies are increasingly being expected by investors to do meaningful,
regular, comprehensive and impartial environmental reports. These help
investors and the public to understand environmental progress and problems;
Uniform standards for environmental reports permits comparisons of
performance over time. It also allows companies to attract new capital from
investors seeking investments which are environmentally responsible and
responsive and which minimize risk of environmental liability.
WHEREAS:
The Coalition for Environmentally Responsible Economies (CERES)--which
comprises large institutional investors (including shareholders of this
Company) with $160 billion in stockholdings, public interest
representatives, and environmental experts--consulted with corporations and
produced comprehensive public standards for both environmental performance
and reporting. Over 80 companies, including Sun (Oil), General Motors, H.B.
Fuller, Polaroid, and Arizona Public Service Company have endorsed the
CERES Principles to demonstrate their commitment to public environmental
accountability. Fortune-500 endorsers speak enthusiastically about the
benefits that flow from working with CERES: increasing public credibility;
adding "value' to the company's
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environmental initiatives; and advancing the company's own environmental
plans and agenda.
In endorsing the CERES Principles, a company commits to work toward:
1. Protection of the biosphere 4. Energy conversation 7. Environmental
2. Sustainable use of natural resources restoration
5. Risk reduction
3. Waste reduction and disposal 8. Informing the
public
6. Safe products and services
9. Management
commitment
10. Audits and reports
[Full text of the CERES Principles and accompanying CERES Report Form
obtainable from CERES, 711 Atlantic Avenue, Boston, MA 02110, tel. 617/451-
0927].
RESOLVED: Shareholders request the Company to endorse the CERES Principles as a
part of its commitment to be publicly accountable for its
environmental impact.
SUPPORTING STATEMENT
Concerned investors are asking the Company to be publicly accountable for
its environmental impact, including collaborating with this corporate-
environmental-investor-community coalition to develop: standards for
environmental performance and disclosure; methods for measuring progress
toward these goals; and a format for public reporting of progress. We
believe that is comparable to the European Community regulation for
voluntary participation in verified and publicly-reported eco-management
and auditing.
We invite our Company to endorse the CERES Principles by (1) stating its
endorsement in a letter signed by a senior officer; (2) committing to
implement the Principles; and (3) annually publishing an environmental
report in the format of the CERES Report. This will complement--not
supplant--internal corporate environmental policies and procedures.
Without such public scrutiny, corporate environmental policies and reports
lack the critical component of adherence to standards upheld by management
and stakeholders alike. Shareholders are asked to vote FOR this resolution
to encourage our Company to demonstrate environmental leadership and
accountability.
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POSITION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS SUPPORT THE
BOARD AND VOTE AGAINST THIS PROPOSAL.
This proposal is substantially the same as one that was defeated at the 1993
and 1994 Annual Meetings of Stockholders by over 92% of the votes cast
(excluding abstentions and broker non-votes), and the Board of Directors
continues to oppose this proposal.
Summary of the Board's Reasons. The Board of Directors continues to believe
that actions taken by the Company pursuant to its own extensive environmental
program have implemented substantially the objectives of the CERES Principles.
In the Company's view, superimposing the CERES Principles on the Company's
existing environmental programs would neither enhance the Company's
environmental commitment nor improve its environmental capabilities. Moreover,
while the Company respects the good intentions behind this proposal, as
discussed more fully below, there are similar proposals being debated by
responsible organizations around the world, and the Board believes that it
would not be advisable to give special favor to the CERES Principles at this
time.
Commitment of the Company. The Company is committed to protecting and
preserving the environment and to responding to the concerns of its customers,
suppliers, employees, shareholders and communities. To underscore this
commitment, the Company voluntarily publishes a public environmental report
which describes the Company's statement of principles for the protection of the
environment and which details the Company's progress in meeting its goals. This
report, entitled "Printing Clean," was first published in August, 1990, was
updated in February, 1993, and will be further updated as appropriate. Copies
of "Printing Clean" may be obtained by writing to the Corporate Communication
Department at the Company's headquarters address.
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Environmental Practices of the Company. The Company has moved its programs
beyond adoption of an environmental policy statement, such as the CERES
Principles, to implementation of a
comprehensive management system. Occasional problems may still arise, but the
Company is prepared to deal with them. The Company has cooperated fully with
federal and state regulatory agencies to resolve, at minimal cost, the few
regulatory and remedial matters which have arisen. Adoption of the CERES
Principles would not alter the Company's commitment to continue to cooperate
fully in the appropriate resolution of any such matters which may arise in the
future.
Other Model Environmental Principles. The proposal to adopt the CERES
Principles ignores the fact that many other model environmental principles are
currently being developed and debated by reputable entities in the U.S. and
around the world. These include the U.S. Environmental Protection Agency,
numerous states (including Illinois), the International Standards Organization
(ISO), ASTM (formerly the American Society for Testing and Materials), the
International Chamber of Commerce, the
United Nations Conference on Environment and Development, the United Nations
Environment Programme, the World Industry Council for the Environment, the
Global Environmental Management Initiative, and the Public Environmental
Reporting Initiative (PERI). The Company is being called upon to consider these
initiatives. Given the present lack of consensus among the numerous entities
advocating model environmental principles, however, the Company believes it
would not be responsible to subscribe unilaterally to any particular "model"
program at this time.
Adoption of CERES Principles is Not in the Best Interests of the Company. In
the Company's view, the CERES Principles are intended to address a myriad of
commercial operations unrelated to the Company's business and are vague and
subject to varying interpretations. The Company already expends considerable
resources: (1) to interpret and meet extensive, government-mandated permitting,
inspection, reporting and disclosure obligations that measure the Company's
compliance with federal, state and local environmental standards; and (2) to
implement Company-specific internal auditing and reporting programs that
evaluate the conformity of the Company's facilities and operations to
environmental laws and regulations and internal Company standards. The Board of
Directors believes that adopting the CERES Principles would not promote a
beneficial allocation of the Company's environmental resources and, thus, is
not in the best interests of the Company.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the 1995 Annual Meeting and entitled to
vote on the stockholder proposal on the CERES Principles is required to approve
it.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSAL.
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STOCKHOLDER PROPOSAL REGARDING MAQUILADORA REPORT
The Company has been notified that the following stockholders intend to
introduce and support the following proposal at the 1995 Annual Meeting: Adrian
Dominican Sisters, 1257 East Sienna Heights Drive, Adrian, Michigan 49221,
which has provided certification to the Company indicating that, as of October
19, 1994, it was the beneficial owner of 100 shares of Common Stock; Dominican
Sisters of the Sick Poor, Mariandale, Box 1200, Ossining, New York 10562, which
has provided certification to the Company indicating that, as of October 25,
1994, it was the beneficial owner of 4,400 shares of Common Stock; Mercy
Consolidated Assets Management Program, 20 Washington Square North, New York,
New York 10011, which has provided certification to the Company that, as of
October 18, 1994, it was the beneficial owner of 6000 shares of Common Stock.
Based on the certifications of ownership outlined above, the stockholder
proponents own a total of 10,500 shares of Common Stock which represents less
than one percent (1%) of the total shares of Common Stock outstanding on
December 31, 1994.
WHEREAS
NAFTA, the North American Free Trade Agreement and GATT, the General
Agreement on Trade and Tariffs, have emphasized the debate
surrounding U.S. corporations in Mexican maquiladora operations.
Critics deplore marginal survival wages paid Mexican
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maquiladora employees by a majority of U.S. companies, even though
those employees work productively and efficiently.
A 1994 market basket study reveals a maquiladora worker labors 69.0
minutes to purchase 5 lbs. of rice in comparison to the 13.5 minutes
of a U.S. worker. The purchasing power required by the maquiladora
worker for aspirin is 153.8 minutes versus 19.3 minutes for the U.S.
worker; American cheese, 214.3 to 12.6; chicken legs, 54.5 to 5.0;
bananas, 20.4 to 2.3 (Market Basket Survey, Ruth Rosenbaum, 1994).
An MIT study declares the Ford factory in Hermosillo, Mexico has
the highest quality of any auto plant in North America. Yet it pays
on average one-tenth of U.S. wages. Even in Mexico, these wages are
barely enough to feed a family, let alone buy a refrigerator or one
of the cars the workers assemble. ("Policy Advocate," The Center for
Ethics and Economic Policy, Spring 1994).
In 1982, the average Mexican blue collar employee worked 8.1 hours
to buy the basic basket of food: beef, beans, tortillas, tomatoes,
sugar, eggs and milk. In 1986, it was 12.7 hours and by 1993, 21.9
hours. (Dallas Morning News, 8/14/94).
WHEREAS the U.S. and Mexico could build a healthy model of North-South
integration for the 21st century IF Mexico is recognized not just as
a trading partner but as a country that contains fellow workers and
global citizens with whom we share much more than trade.
WHEREAS the socially-concerned proponents of this resolution firmly believe
there is a need for strict, enforceable standards of conduct for
corporations operating in Canada, Mexico and the United States. One
expectation, based on NAFTA, is that Mexican wages will rise,
thereby raising the standard of living of Mexican workers and their
families. However, we believe this will not happen unless
corporations commit to paying wages substantially higher than
marginal survival wages paid in maquiladoras. We find it ironic that
some of the same companies that publicly committed to paying entry-
level workers 50% above the poverty datum line in South Africa in
1974, are unresponsive when challenged with the reality of the
poverty level wages they pay employees in Mexico.
It is important that our company review maquiladora operations
including: minimum and average wages paid to employees; how these
compare with local cost of living and poverty level; other methods
of compensation such as profit sharing, special trust funds to
finance intrastructure improvements in nearby neighborhoods where
employees live. The religiously-affiliated proponents of this
resolution recommend the review contain a market basket survey.
RESOLVED The shareholders request management to initiate a review of wages
and benefits paid and environmental standards upheld in its
Maquiladora Operations. A summary report of findings of the review
and recommendations for changes in policy or performance in light of
this survey should be available to shareholders upon request within
six months of the 1995 annual meeting.
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POSITION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS SUPPORT THE
BOARD AND VOTE AGAINST THIS STOCKHOLDER PROPOSAL.
The Board of Directors believes that the Company has substantially complied
with the proposed resolution. The Company's only maquiladora plant is located
in Reynosa, Mexico. The Company has reviewed the plant's operations thoroughly,
including wage and benefit structure, environmental, safety and health
practices, training programs and community impact. The results of the Company's
review have been summarized in a report, dated December 1994, which is
available to any stockholder who requests it. The report has been provided to
the stockholder proponents. Based on its review of the Reynosa operation, the
Company has concluded that the plant operates in a satisfactory manner and that
no significant changes in wage and benefit structure, environmental, safety and
health standards,
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training programs or overall community impact are necessary. The Board of
Directors believes that it would not be in the best interests of the
stockholders of the Company to make any significant changes in its Reynosa
operations at this time.
The Board of Directors believes that the Company has been a responsible
corporate citizen in Reynosa. As set forth in the Company's report, the Reynosa
facility, in operation since early 1991, is an air-conditioned plant that
includes modern printing, communications and computer equipment, locker rooms,
cafeteria and break room, an infirmary and several recreation areas. The
Reynosa facility employs approximately 500 Mexican employees. Training programs
are available for employees of all levels, and a one-year apprentice program
enables participants to upgrade their skill and wage levels. Over 80 employees
have graduated from the apprentice program to date. Furthermore, as set forth
in the Company's report, because many jobs at Reynosa are skilled, the minimum
wage at the facility exceeds the legal minimum wage by a significant margin,
and the benefit package, which includes medical and life insurance and
financial aid packages, also surpasses minimum legal requirements. The
Company's commitment to work place safety and health and to protecting the
environment applies to its Reynosa facility as well as to its U. S. facilities.
Additionally, in July 1994, the Company hosted a tour of its Reynosa facility
for several interested stockholders, including representatives of the
stockholder proponents. The stockholders spoke with a number of Reynosa
employees, visited the plant floor and spent a day with members of management
discussing the Reynosa operation. The Reynosa operation has supported local
government programs concerning health, safety and training, the maquiladora
industry, and, through charitable contributions and the creation of jobs, the
local community.
The Board of Directors believes that the Company has evaluated its practices
at its Reynosa facility, that such practices are satisfactory at the present
time, and that it would not be in the best interests of the stockholders of the
Company to make any significant changes in these practices at this time.
The affirmative vote of the holders of a majority of the shares of the Common
Stock present in person or by proxy at the 1995 Annual Meeting and entitled to
vote on the stockholder proposal on the Maquiladora report is required to
approve it.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THE
STOCKHOLDER PROPOSAL.
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STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 1996 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1996 Annual Meeting
of Stockholders must be received by the Company by October 19, 1995, to be
considered for inclusion in the Company's Proxy Statement and Form of Proxy
relating to that meeting.
The Nominating Committee will consider nominees recommended by stockholders as
candidates for election to the Board of Directors at the Annual Meeting of
Stockholders. The By-Laws of the Company provide that a stockholder wishing to
nominate a candidate for election to the Board is required to give written
notice to the Secretary of the Company of his or her intention to make such a
nomination. The notice of nomination must be received by the Company not less
than sixty days nor more than ninety days prior to the stockholder's meeting,
or if less than seventy-five days' notice or prior public disclosure of the
meeting date is given or made, the notice of nomination must be received within
ten days after the meeting date is announced. The notice of nomination is
required to contain certain information about both the nominee and the
stockholder making the nomination. The Company may require that the proposed
nominee furnish other information to determine that person's eligibility to
serve as director. A nomination which does not comply with the above procedure
will be disregarded.
Such proposals or nominations should be addressed to Deborah M. Regan,
Secretary, R. R. Donnelley & Sons Company, 77 West Wacker Drive, Chicago,
Illinois 60601-1696.
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DISCRETIONARY VOTING OF PROXIES ON OTHER MATTERS
Management does not now intend to bring before the 1995 Annual Meeting any
matters other than those specified in the notice of the meeting, and it does
not know of any business which persons other than the management intend to
present at the meeting other than the stockholder proposals discussed in this
Proxy Statement. Should any other matter requiring a vote of the stockholders
properly come before the meeting, the persons named in the accompanying proxy
intend to vote the shares represented by them in accordance with their best
judgment.
By order of the Board of Directors
Deborah M. Regan
Secretary
Chicago, Illinois
February 16, 1995
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EXHIBIT A
R. R. DONNELLEY & SONS COMPANY
1995 STOCK INCENTIVE PLAN
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of R. R. Donnelley & Sons Company
(the "Company"), the Committee hereinafter designated, may grant cash or bonus
awards, stock options, stock appreciation rights ("SARs"), or combinations
thereof, to eligible officers and other key management employees, on the terms
and subject to the conditions stated in the Plan. In addition, to provide
incentives to members of the Board of Directors ("Board") who are not employees
of the Company ("non-employee directors"), such non-employee directors are
hereby granted options on the terms and subject to the conditions set forth in
the Plan. For purposes of the Plan, references to employment by the Company
also mean employment by a majority-owned subsidiary of the Company.
2. Eligibility. Officers and other key management employees of the Company and
its subsidiaries shall be eligible, upon selection by the Committee, to receive
cash or bonus awards, stock options or SARs, either singly or in combination,
as the Committee, in its discretion, shall determine. Non-employee directors
shall receive stock options on the terms and subject to the conditions stated
in the Plan.
3. Limitation on Shares to be Issued. Subject to adjustment as provided in
Section 5 of this Article I, 7,500,000 shares of common stock, par value $1.25
per share ("common stock"), shall be available under the Plan, reduced by the
aggregate number of shares of common stock which become subject to outstanding
bonus awards, stock options and SARs which are not granted in tandem with or by
reference to a stock option ("free-standing SARs"). Shares subject to a grant
or award which for any reason are not issued or delivered, including by reason
of the expiration, termination, cancellation or forfeiture of all or a portion
of the grant or award or by reason of the delivery or withholding of shares to
pay all or a portion of the exercise price or to satisfy tax withholding
obligations, shall again be available for future grants and awards; provided,
however, that for purposes of this sentence, stock options and SARs granted in
tandem with or by reference to a stock option granted prior to the grant of
such SARs ("tandem SARs") shall be treated as one grant. For the purpose of
complying with Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the rules and regulations thereunder, the maximum number of
shares of common stock with respect to which options or SARs or a combination
thereof may be granted during any three-year period to any person shall be
1,000,000, subject to adjustment as provided in Section 5 of this Article I.
The maximum number of shares of common stock with respect to which fixed awards
in the form of restricted stock may be granted hereunder is 500,000 in the
aggregate, subject to adjustment as provided in Section 5 of this Article I.
Shares of common stock to be issued may be authorized and unissued shares of
common stock, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a Committee
designated by the Board of Directors (the "Committee"). Each member of the
Committee shall be (i) an "outside director" within the meaning of Section
162(m) of the Code, subject to any transitional rules applicable to the
definition of outside director, and (ii) a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Committee shall, subject to the terms of the Plan,
select eligible officers and key management employees for participation;
determine the form of each grant and award, either as cash, a bonus award,
stock options or SARs or a combination thereof; and determine the number of
shares or units subject to the grant or award, the fair market value of the
common stock or units when necessary, the time and conditions of vesting,
exercise or settlement, and all other terms and conditions of each grant and
award, including, without
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limitation, the form of instrument evidencing the grant or award. The Committee
may establish rules and regulations for the administration of the Plan,
interpret the Plan, and impose, incidental to a grant or award, conditions with
respect to competitive employment or other activities not inconsistent with the
Plan. All such rules, regulations, interpretations and conditions shall be
conclusive and binding on all parties. Each grant and award shall be evidenced
by a written instrument and no grant or award shall be valid until an agreement
is executed by the Company and the recipient thereof and, upon execution by
each party and delivery of the agreement to the Company, such grant or award
shall be effective as of the effective date set forth in the agreement.
The Committee may delegate some or all of its power and authority hereunder to
the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (i) the selection for
participation in the Plan of (A) an employee who is a "covered employee" within
the meaning of Section 162(m) of the Code or who, in the Committee's judgment,
is likely to be a covered employee at any time during the period a grant or
award hereunder to such employee would be outstanding or (B) an officer or
other person subject to Section 16 of the Exchange Act or (ii) decisions
concerning the timing, pricing or amount of a grant or award to such an
employee, officer or other person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by a majority of the members of the Committee without a
meeting.
5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular cash
dividend, the number and class of securities available under the Plan, the
number and class of securities subject to each outstanding bonus award, the
number and class of securities subject to each outstanding stock option and the
purchase price per security, the number of securities subject to each stock
option to be granted to non-employee directors pursuant to Article III and the
terms of each outstanding SAR shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding stock options and SARs
without a change in the aggregate purchase price or base price. If any such
adjustment would result in a fractional security being (i) available under the
Plan, such fractional security shall be disregarded, or (ii) subject to an
outstanding grant or award under the Plan, the Company shall pay the holder
thereof, in connection with the first vesting, exercise or settlement of such
grant or award, in whole or in part, occurring after such adjustment, an amount
in cash determined by multiplying (i) the fraction of such security (rounded to
the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value
on the vesting, exercise or settlement date over (B) the exercise or base
price, if any, of such grant or award.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995. The
Plan shall terminate on December 31, 1999 unless terminated prior thereto by
action of the Board. No further grants or awards shall be made under the Plan
after termination, but termination shall not affect the rights of any
participant under any grants or awards made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect except that no amendment may be made without stockholder approval if
stockholder approval is required by applicable law, rule or regulation,
including Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, or
such amendment would increase (subject to Section 5 of this Article I) the
maximum number of shares available under the Plan; provided, however, that
subject to Section 5 of this Article I, the number of shares subject to stock
options granted to non-employee directors, the purchase price therefor, the
date of grant of any such option, the termination provisions relating to such
options and the category of persons eligible to be granted such options shall
not be amended more than once every six
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months, other than to comply with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations thereunder. No amendment may impair the rights of a holder of an
outstanding grant or award without the consent of such holder.
8. Prior Plans. Upon the approval of the Plan by the stockholders of the
Company, no further grants or awards shall be made under the Company's 1981
Stock Incentive Plan, as amended (the "1981 Plan"), the 1986 Stock Incentive
Plan, as amended (the "1986 Plan"), or the 1991 Stock Incentive Plan, as
amended (the "1991 Plan"), except that SARs may be granted with respect to
options previously granted and outstanding under such Plans. Grants and awards
made under the 1981 Plan, the 1986 Plan and the 1991 Plan prior to approval of
the Plan by the stockholders of the Company shall continue in effect in
accordance with their terms.
II. BONUS AWARDS
1. Form of Award. Bonus awards, whether performance awards or fixed awards,
may be made to eligible officers and other key management employees in the form
of (i) cash, whether in an absolute amount or as a percentage of compensation,
(ii) stock units, each of which is substantially the equivalent of a share of
common stock but for the power to vote and, subject to the Committee's
discretion, the entitlement to an amount equal to dividends or other
distributions otherwise payable on a like number of shares of common stock,
(iii) shares of common stock issued to the employee but forfeitable and with
restrictions on transfer in any form as hereinafter provided or (iv) any
combination of the foregoing.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or shares,
with the actual such amount, percentage or number to be determined by reference
to the level of achievement of corporate, sector, business unit, division,
individual or other specific objectives over a performance period of not less
than one nor more than ten years, as determined by the Committee. No rights or
interests of any kind shall be vested in an individual receiving a performance
award until the conclusion of the performance period and the determination of
the level of achievement specified in the award, and the time of vesting, if
any, thereafter shall be as specified in the award.
3. Fixed Awards. Awards may be made which are not contingent on the
achievement of specific objectives, but are contingent on the participant's
continuing in the Company's employ for a period specified in the award.
4. Rights with Respect to Restricted Shares. If shares of restricted common
stock are subject to an award, the participant shall have the right, unless and
until such award is forfeited or unless otherwise determined by the Committee
at the time of grant, to vote the shares and to receive dividends thereon from
the date of grant and the right to participate in any capital adjustment
applicable to all holders of common stock; provided, however, that a
distribution with respect to shares of common stock, other than a regular
quarterly cash dividend, shall be deposited with the Company and shall be
subject to the same restrictions as the shares of common stock with respect to
which such distribution was made.
During the restriction period, a certificate or certificates representing
restricted shares shall be registered in the holder's name and may bear a
legend, in addition to any legend which may be required under applicable laws,
rules or regulations, indicating that the ownership of the shares of common
stock represented by such certificate is subject to the restrictions, terms and
conditions of the Plan and the agreement relating to the restricted shares. All
such certificates shall be deposited with the Company, together with stock
powers or other instruments of assignment (including a power of attorney), each
endorsed in blank with a guarantee of signature if deemed necessary or
appropriate, which would permit transfer to the Company of all or a portion of
the shares of common stock subject to the award in the event such award is
forfeited in whole or in part. Upon termination of any applicable restriction
period, including, if applicable, the satisfaction or achievement of applicable
objectives, and subject to the Company's right to require payment of any taxes,
a certificate or certificates evidencing ownership of the requisite number of
shares of common stock shall be delivered to the holder of such award.
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5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, then, subject to the Committee's discretion,
amounts equal to dividends and other distributions otherwise payable on a like
number of shares of common stock after the crediting of the units (unless the
record date for such dividends or other distributions precedes the date of
grant of such award) shall be credited to an account for the participant and
held until the award is forfeited or paid out. Interest shall be credited on
the account annually at a rate equal to the return on five year U.S. Treasury
obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion, provide
for early vesting of an award in the event of the participant's death,
permanent and total disability or retirement. At the time of vesting, (i) the
award, if in units, shall be paid to the participant either in shares of common
stock equal to the number of units, in cash equal to the fair market value of
such shares, or in such combination thereof as the Committee shall determine,
and the participant's account to which dividend equivalents, other
distributions and interest have been credited shall be paid in cash, (ii) the
award, if a cash bonus award, shall be paid to the participant either in cash,
or in shares of common stock with a then fair market value equal to the amount
of such award, or in such combination thereof as the Committee shall determine
and (iii) shares of restricted common stock issued pursuant to an award shall
be released from the restrictions.
III. STOCK OPTIONS
1. Grants. (a) Options for Officers and Key Management Employees. Options to
purchase shares of common stock of the Company may be granted to such eligible
officers and key management employees as may be selected by the Committee.
These options may, but need not, constitute "incentive stock options" under
Section 422 of the Code or any other form of option under the Code. To the
extent that the aggregate fair market value (determined as of the date of
grant) of shares of common stock with respect to which options designated as
incentive stock options are exercisable for the first time by a participant
during any calendar year (under the Plan or any other plan of the Company, or
any parent or subsidiary) exceeds the amount (currently $100,000) established
by the Code, such options shall not constitute incentive stock options.
(b) Options for Non-Employee Directors. An option to purchase 4,000 shares of
common stock of the Company shall be granted on the date of the 1995 annual
meeting of stockholders and, thereafter, annually on the date of the Company's
annual meeting of stockholders to each individual who immediately following
such meeting on such date is a non-employee director. An option granted to a
non-employee director pursuant to this Section 1(b) (a "Director Option") shall
become exercisable in whole or in part on the earlier to occur of (i) the date
which is the first anniversary of the date the Director Option is granted (the
date of grant being hereafter referred to as the "Option Date") or (ii) the day
immediately preceding the date of the first annual meeting of stockholders of
the Company next following the Option Date; provided, however, that the date of
such annual meeting is at least three hundred fifty-five (355) days after the
Option Date, and Director Options shall not be exercisable more than ten years
after the Option Date.
2. Number of Shares and Purchase Price. The number of shares of common stock
subject to an option and the purchase price per share of common stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of common stock shall not
be less than 100% of the fair market value of a share of common stock on the
date of grant of the option; provided further, that if an incentive stock
option shall be granted to any person who, on the date of grant of such option,
owns capital stock possessing more than ten percent of the total combined
voting power of all classes of capital stock of the Company (or of any parent
or subsidiary) (a "Ten Percent Holder"), the purchase price per share of common
stock shall be the price (currently 110% of fair market value) required by the
Code in order to constitute an incentive stock option; and provided further,
that the purchase price per share of common stock subject to a Director Option
shall be 100% of the fair market value of a share of common stock on the date
of grant of such option.
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3. Exercise of Options. The period during which options granted hereunder
(other than options granted to non-employee directors) may be exercised shall
be determined by the Committee; provided, however, that no incentive stock
option shall be exercised later than ten years after its date of grant;
provided further, that if an incentive stock option shall be granted to a Ten
Percent Holder, such option shall not be exercisable more than five years after
its date of grant. The Committee may, in its discretion, establish performance
measures which shall be satisfied or met as a condition to the grant of an
option or to the exercisability of all or a portion of an option. The Committee
shall determine whether an option shall become exercisable in cumulative or
non-cumulative installments and in part or in full at any time. An exercisable
option, or portion thereof, may be exercised only with respect to whole shares
of common stock.
An option may be exercised (i) by giving written notice to the Company
specifying the number of whole shares of common stock to be purchased and
accompanied by payment therefor in full (or arrangement made for such payment
to the Company's satisfaction) either (A) in cash, (B) in previously owned
whole shares of common stock (which the optionee has held for at least six
months prior to delivery of such shares or which the optionee purchased on the
open market and for which the optionee has good title free and clear of all
liens and encumbrances) having a fair market value, determined as of the date
of exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise or (D) a combination
of (A) and (B), (ii) if applicable, by surrendering to the Company any SARs
which are cancelled by reason of the exercise of the option and (iii) by
executing such documents as the Company may reasonably request. The Committee
shall have sole discretion to disapprove of an election pursuant to any of
clauses (B)-(D) and, in the case of an optionee who is subject to Section 16 of
the Exchange Act, the Company may require that the method of making such
payment be in compliance with Section 16 and the rules and regulations
thereunder. Any fraction of a share of common stock which would be required to
pay such purchase price shall be disregarded and the remaining amount due shall
be paid in cash by the optionee. No certificate representing common stock shall
be delivered until the full purchase price therefor has been paid.
4. Termination of Employment or Service. An option may be exercised during the
optionee's continued employment with the Company or service on the Board, as
the case may be, and, unless otherwise determined by the Committee as set forth
in the agreement relating to the option, for a period not in excess of ninety
days following termination of employment or service on the Board and only
within the original term of the option; provided, however, that if employment
of the optionee by the Company or service on the Board, as the case may be,
shall have terminated by reason of retirement or total and permanent
disability, then the option may be exercised to the extent set forth in the
agreement relating to the option for a period not in excess of five years
following termination of employment or service on the Board, but not after the
expiration of the term of the option. In the event of the death of an optionee
(i) during employment or service on the Board, as the case may be, (ii) within
a period not in excess of five years after termination of employment or service
on the Board, as the case may be, by reason of retirement or total and
permanent disability or (iii) within ninety days after termination of
employment or service on the Board, as the case may be, for any other reason,
outstanding options held by such optionee at the time of death may be exercised
to the extent set forth in the agreement relating to the option by the
executor, administrator, personal representative, beneficiary or similar
persons of such deceased optionee within ninety days of the date of death.
IV. UK STOCK OPTION SUB-PLAN
1. GENERAL
(a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been
established in order to vary the terms on which options may be given to
officers and other key management employees who are employed in the United
Kingdom by the Company or any of its subsidiaries. Stock options granted
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under the Sub-Plan shall be deemed granted under the Plan and shall, unless
otherwise stated or implied in this Article IV, comply in all respects with the
terms and conditions applicable to options granted under Article III of the
Plan. Articles II and V and Clause 2 of Article VI shall not apply to options
granted under the Sub-Plan.
(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:
"the Subsidiaries" shall mean all companies which are controlled
by the Company (as defined in Section 840 of
the Income and Corporation Taxes Act 1988) and
which are affiliates controlled by the Company
directly or indirectly through one or more
intermediaries for the purposes of Rule 12b-2
of the Exchange Act;
"the Group" shall mean the Company and the Subsidiaries;
"Associated Company" shall have the meaning attributed to it in
Section 416(1) of the Income and Corporation
Taxes Act 1988;
"the Committee" shall mean the committee designated to
administer the Plan;
"Full Time Employee" shall mean any director or employee who is
employed by the Group in the United Kingdom and
who is required to devote to his duties not
less than 25 hours (or in the case of an
employee who is not a director of any company
in the Group, 20 hours) per week (excluding
meal breaks) and is not precluded by paragraph
8 of Schedule 9 from participating in the Sub-
Plan;
"Relevant Emoluments" shall have the meaning which the term bears in
sub-paragraph (2) of paragraph 28 of Schedule 9
by virtue of sub-paragraph (4) of that
paragraph;
"Year of Assessment" shall mean a year beginning on any 6 April and
ending on the following 5 April;
"Market Value" shall mean on any day the average of high and
low transaction prices in trading in the common
stock of the Company as reported on the New
York Stock Exchange--Composite Transactions
compiled by Associated Press or if no trading
occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 9" shall mean Schedule 9 of the United Kingdom
Income and Corporation Taxes Act 1988;
"Share" or "Shares" shall mean a share or shares of common stock of
par value $1.25 which satisfy the conditions
specified in Paragraphs 10 to 14 inclusive of
Schedule 9.
(c) Sub-Plan. The Committee may grant stock options to officers and other key
management employees eligible to participate in the Sub-Plan on the terms and
subject to the conditions stated in the Sub-Plan.
(d) Eligibility. Full Time Employees who are officers or other key management
employees employed by the Group in the United Kingdom under selection
guidelines to be established by the Committee, shall be eligible, upon
selection by the Committee, to receive stock options.
(e) Shares to be Issued. Shares to be issued shall be authorized and unissued
shares of common stock, treasury stock or a combination thereof. The issue of
shares of common stock shall be subject to the maximum specified in the Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in the Plan and varied by the terms of
the Sub-Plan.
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(g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted
to the stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995.
Options shall not be granted until the Sub-Plan has been approved by the Board
of UK Inland Revenue under the provisions of paragraph 1 of Schedule 9. Any
change required to be made to the Plan by the Board of UK Inland Revenue in
order to obtain its approval may be made without stockholder approval, except
as otherwise provided in Clause 7 of Article I. The Sub-Plan shall terminate on
December 31, 1999 unless terminated prior thereto by action of the Board. No
further grants shall be made under the Sub-Plan after termination, but
termination shall not affect the rights of any participant under the grants
made prior to termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board subject
to the conditions specified in the Plan. No amendment may be made which will
put the Sub-Plan in breach of conditions for approval set out in Schedule 9 and
no amendment to the Sub-Plan or any provision in the Plan which applies to
options granted under the Sub-Plan shall be made without prior approval of the
Board of UK Inland Revenue.
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock may be granted to such
eligible Full-Time Employees as may be selected by the Committee. No variation
shall be made in relation to a spin-off nor to any class of securities
available under the Sub-Plan.
(b) Variations in Options. Variations may not be made to options granted under
the Sub-Plan pursuant to Article I clause 5 of the Plan without prior consent
of the Board of UK Inland Revenue.
(c) Terms of Options. Terms attaching to options shall be contained in a stock
option agreement, the form of which must be approved in advance by the Board of
UK Inland Revenue. If any performance targets are attached to the
exercisability of an option, these shall be objectively determined and subject
to the prior approval of the Board of UK Inland Revenue. No option shall be
exercisable more than ten years after its date of grant. The per share option
price shall be stated at the time the option is granted and shall be not less
than 100% of the Market Value of the share on the date on which the optionee is
offered options under the Sub-Plan. Upon exercise, the option price shall be
paid in cash. The provisions in Clause 3 of Article III for the exercise of
options by payment in whole shares of common stock or in cash by a broker-
dealer to whom the optionee has submitted an irrevocable notice of exercise
will not apply for the purposes of the Sub-Plan unless, in the case of the
latter, approved by the Board of UK Inland Revenue. Options shall not be
transferable except that such options may be exercised by the personal
representative of a deceased optionee or a beneficiary of such deceased
optionee who has been designated pursuant to beneficiary designation procedures
approved by the Company, in each case within ninety days of the death of the
optionee. Options may be exercised during the individual's continued employment
with the Group and for a period not in excess of ninety days following
termination of employment and only within the original term of the option. No
option may be exercised by an individual at any time when he is precluded by
Paragraph 8 of Schedule 9 from participating in the Sub-Plan.
(d) Exercise of Option. An option may be exercised by delivery of written
notice to the Company specifying the number of shares to be purchased and
accompanied by payment in full of the option price for the number of shares so
purchased. The Company shall within thirty days post to the optionee
certificates representing the number of shares specified, and shall pay all
original issue or transfer taxes and all other fees and expenses incidental to
such delivery.
(e) Limits on Options. No person shall be granted options under the Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which such person may acquire in pursuance of rights
obtained under the Sub-Plan or under any other scheme established by the Group
or by any Associated Company of the Company and approved by the Board of UK
Inland Revenue under Schedule 9 (and not exercised) to exceed or further exceed
the greater of:
(1) 100,000 British Pounds Sterling or
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(2) Four times the Relevant Emoluments of the optionee for the current or
preceding Year of Assessment (whichever of those years gives the greater
amount) or if there were no Relevant Emoluments for the preceding Year of
Assessment four times the amount of the Relevant Emoluments for the period
of twelve months beginning with the first day during the current Year of
Assessment in respect of which there are Relevant Emoluments. For the
purposes of this clause the Market Value of the shares shall be converted
from US Dollars to sterling at the middle rate for the buying and selling
of that amount of sterling for US Dollars as quoted by the Barclays Bank
PLC at the opening of business on the day on which the optionee is offered
options under the Sub-Plan.
V. STOCK APPRECIATION RIGHTS
1. Grants. Free-standing SARs entitling the grantee to receive cash or shares
of common stock having a fair market value equal to the appreciation in market
value of a stated number of shares of common stock from the date of grant to
the date of exercise of such SARs, or in the case of tandem SARs, from the date
of grant of the related stock option to the date of exercise of such tandem
SARs, may be granted to such eligible officers and other key management
employees as may be selected by the Committee. The holder of a tandem SAR may
elect to exercise either the option or the SAR, but not both.
2. Number of SARs and Base Price. The number of SARs subject to a grant shall
be determined by the Committee. Any tandem SAR related to an incentive stock
option shall be granted at the same time that such incentive stock option is
granted. The base price of a tandem SAR shall be the purchase price per share
of common stock of the related option. The base price of a free-standing SAR
shall be determined by the Committee; provided, however, that such base price
shall not be less than 100% of the fair market value of a share of common stock
on the date of grant of such SAR.
3. Exercise of SARs. The agreement relating to a grant of SARs may specify
whether such grant shall be settled in shares of common stock (including
restricted shares of common stock) or cash or a combination thereof. Upon
exercise of an SAR, the grantee shall be paid the excess of the then fair
market value of the number of shares of common stock to which the SAR relates
over the fair market value of such number of shares at the date of grant of the
SAR or of the related stock option, as the case may be. Such excess shall be
paid in cash or in shares of common stock having a fair market value equal to
such excess or in such combination thereof as the Committee shall determine.
The period during which SARs granted hereunder may be exercised shall be
determined by the Committee; provided, however, that no tandem SAR shall be
exercised if the related option has expired or has been cancelled or forfeited
or has otherwise terminated. The Committee may, in its discretion, establish
performance measures which shall be satisfied or met as a condition to the
grant of an SAR or to the exercisability of all or a portion of an SAR. The
Committee shall determine whether an SAR may be exercised in cumulative or non-
cumulative installments and in part or in full at any time. An exercisable SAR,
or portion thereof, may be exercised, in the case of a tandem SAR, only with
respect to whole shares of common stock and, in the case of a free-standing
SAR, only with respect to a whole number of SARs. If an SAR is exercised for
restricted shares of common stock, a certificate or certificates representing
such restricted shares shall be issued in accordance with Section 4 of Article
II and the holder of such restricted shares shall have such rights of a
stockholder of the Company as determined pursuant to such Section. Prior to the
exercise of an SAR for shares of common stock, including restricted shares, the
holder of such SAR shall have no rights as a stockholder of the Company with
respect to the shares of common stock subject to such SAR.
A tandem SAR may be exercised (i) by giving written notice to the Company
specifying the number of whole SARs which are being exercised, (ii) by
surrendering to the Company any options which are cancelled by reason of the
exercise of such SAR and (iii) by executing such documents as the Company may
reasonably request. A free-standing SAR may be exercised (i) by giving written
notice to the Company specifying the whole number of SARs which are being
exercised and (ii) by executing
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such documents as the Company may reasonably request. In the case of the holder
of an SAR who is subject to Section 16 of the Exchange Act, the Company may
require that the exercise of an SAR be in compliance with Section 16 and the
rules and regulations thereunder.
4. Termination of Employment. An SAR may be exercised during the grantee's
continued employment with the Company and, unless otherwise determined by the
Committee as set forth in the agreement relating to the SAR, for a period not
in excess of ninety days following termination of employment and only within
the original term of the SAR; provided, however, that if employment of the
grantee by the Company shall have terminated by reason of retirement or total
and permanent disability, then the SAR may be exercised to the extent set forth
in the agreement relating to the SAR for a period not in excess of five years
following termination of employment but not after the expiration of the term of
the SAR. In the event of the death of a holder of an SAR (i) during employment,
(ii) within a period not in excess of five years after termination of
employment by reason of retirement or total and permanent disability or (iii)
within ninety days after termination of employment for any other reason,
outstanding SARs held by such holder at the time of death may be exercised to
the extent set forth in the agreement relating to the SAR by the executor,
administrator, personal representative, beneficiary or similar persons of such
deceased holder within ninety days of the date of death.
VI. OTHER
1. Non-Transferability of Options and Stock Appreciation Rights. No option or
SAR shall be transferable other than (i) by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act
as determined by the Committee and set forth in the agreement relating to such
option or SAR. Each option or SAR may be exercised during the participant's
lifetime only by the participant or the participant's guardian, legal
representative or similar person. Except as permitted by the second preceding
sentence, no option or SAR may be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any option or SAR, such award and all rights thereunder
shall immediately become null and void.
2. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of common stock or the payment of any cash
pursuant to a grant or award hereunder, payment by the holder thereof of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. An agreement may provide that (i) the Company
shall withhold whole shares of common stock which would otherwise be delivered
to a holder, having an aggregate fair market value determined as of the date
the obligation to withhold or pay taxes arises in connection therewith (the
"Tax Date"), or withhold an amount of cash which would otherwise be payable to
a holder, in the amount necessary to satisfy any such obligation or (ii) the
holder may satisfy any such obligation by any of the following means: (A) a
cash payment to the Company, (B) delivery to the Company of previously owned
whole shares of common stock (which the holder has held for at least six months
prior to the delivery of such shares or which the holder purchased on the open
market and for which the holder has good title, free and clear of all liens and
encumbrances) having an aggregate fair market value determined as of the Tax
Date, (C) authorizing the Company to withhold whole shares of common stock
which would otherwise be delivered having an aggregate fair market value
determined as of the Tax Date or withhold an amount of cash which would
otherwise be payable to a holder, (D) in the case of the exercise of an option,
a cash payment by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise or (E) any combination
of (A), (B) and (C); provided, however, that the Committee shall have sole
discretion to disapprove of an election pursuant to any of clauses (B)-(E) and
that in the case of a holder who is subject to Section 16 of the Exchange Act,
the Company may require that the method of satisfying such an obligation be in
compliance with Section 16 and the rules and regulations thereunder. An
agreement
A-9
<PAGE>
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relating to a grant or award hereunder may provide for shares of common stock
to be delivered or withheld having an aggregate fair market value in excess of
the minimum amount required to be withheld, but not in excess of the amount
determined by applying the holder's maximum marginal tax rates. Any fraction of
a share of common stock which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid in cash by the
holder.
3. Acceleration Upon Change in Control. If while (i) any performance award or
fixed award granted under Article II is outstanding or (ii) any stock option
granted under Article III or IV of the Plan or SAR granted under Article V of
the Plan is outstanding --
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Company or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates, excluding an acquisition resulting from the
exercise of a conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities) representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of two (2) consecutive years (not including any
period prior to the effective date of the Plan), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into any agreement
with the Company to effect a transaction described in Clause (a), (c) or
(d) of this Section) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
( 2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; or
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company
of all or substantially all the Company's assets,
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of
any such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such performance awards, the highest
level of achievement specified in the award shall be deemed met and the award
shall be immediately and fully vested, (ii) with respect to such fixed awards,
the period of continued employment specified in the award upon which the award
is contingent shall be deemed completed and the award shall be immediately and
fully vested and (iii) with respect to such options and SARs, all such options
A-10
<PAGE>
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and SARs, whether or not then exercisable in whole or in part, shall be fully
and immediately exercisable.
4. Restrictions on Shares. Each grant and award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of common stock subject
thereto upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of common stock
delivered pursuant to any grant or award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder
is prohibited except in compliance with the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
5. No Right of Participation or Employment. No person (other than non-employee
directors to the extent provided in Article III) shall have any right to
participate in the Plan. Neither the Plan nor any grant or award made hereunder
shall confer upon any person any right to continued employment by the Company,
any subsidiary or any affiliate of the Company or affect in any manner the
right of the Company, any subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
6. Rights as Stockholder. No person shall have any right as a stockholder of
the Company with respect to any shares of common stock or other equity security
of the Company which is subject to a grant or award hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
common stock or equity security.
7. Governing Law. The Plan, each grant and award hereunder and the related
agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Delaware and construed in
accordance therewith without giving effect to principles of conflicts of laws.
8. Approval of Plan. The Plan and all grants and awards made hereunder shall
be null and void if the adoption of the Plan is not approved by the affirmative
vote of a majority of the shares of common stock present in person or
represented by proxy at the 1995 annual meeting of stockholders.
A-11
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P R O X Y
R. R. DONNELLEY & SONS COMPANY PROXY/VOTING INSTRUCTION CARD
CHICAGO, ILLINOIS
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON MARCH 23, 1995.
The undersigned hereby appoints John R. Walter, James R. Donnelley and Frank R.
Jarc, or any of them, proxies for the undersigned, each with full power of
substitution, to attend the Annual Meeting of Stockholders of R. R. Donnelley &
Sons Company, to be held on March 23, 1995 at eight o'clock a.m., Chicago Time,
and at any adjournments thereof, and to vote as specified in this Proxy all the
shares of stock of the Company which the undersigned would be entitled to vote
if personally present.
Your vote with respect to the election of Directors and the other proposals may
be indicated on the reverse. Nominees for Director are: Martha Layne Collins,
Charles C. Haffner III, Richard M. Morrow, H. Blair White and Stephen M. Wolf.
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
This card also provides voting instructions for shares held in the Dividend
Reinvestment Plan and, if registrations are identical, shares held for the
benefit of Donnelley employees in the Tax Credit Stock Ownership Plan
("TRASOP") and the Employee Monthly Investment Plan ("EMIP").
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Comments: ______________________________________________________________________
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(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE "COMMENTS" BOX ON THE
REVERSE OF THIS CARD.)
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[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. | 7827
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL 2 AND AGAINST PROPOSALS 3 AND 4.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSAL 2.
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1. Election of Directors (see reverse)
FOR [_] WITHHELD [_]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
2. Approval of 1995 Stock Incentive Plan
FOR [_] AGAINST [_] ABSTAIN [_]
Change of Address/ Comments on Reverse Side
[_]
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
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3. Stockholder Proposal relating to CERES Principles
FOR [_] AGAINST [_] ABSTAIN [_]
4. Stockholder Proposal relating to a Maquiladora Report
FOR [_] AGAINST [_] ABSTAIN [_]
FOR [_] AGAINST [_] ABSTAIN [_]
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5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, guardian, officer,
general partner, etc., please give full title as such.
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SIGNATURE(S) DATE
