<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4694
R. R. DONNELLEY & SONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1004130
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF OCTOBER 31, 1995 153,628,487
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited) for the
three and nine month periods ended September 30, 1995 and
1994.......................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 1995
(Unaudited) and December 31, 1994............................. 4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1995 and 1994............. 6
Notes to Condensed Consolidated Financial Statements (Unau-
dited)........................................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations--Comparison of Third Quarter and First
Nine Months 1995 to 1994...................................... 8
Outlook........................................................ 9
Changes in Financial Condition................................. 9
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................. $ 1,704,793 $ 1,242,973 $ 4,513,515 $ 3,431,188
Cost of sales.............. 1,366,047 987,927 3,666,822 2,764,470
------------ ------------ ------------ ------------
Gross profit............... 338,746 255,046 846,693 666,718
Selling and administrative
expenses.................. 170,924 122,848 461,764 356,118
------------ ------------ ------------ ------------
Earnings from operations... 167,822 132,198 384,929 310,600
Interest expense........... 30,353 13,569 80,183 37,768
Other expense--net......... 2,091 880 5,687 6,356
------------ ------------ ------------ ------------
Earnings before income
taxes..................... 135,378 117,749 299,059 266,476
Provision for income taxes. 43,321 37,679 95,699 85,272
------------ ------------ ------------ ------------
Net income................. $ 92,057 $ 80,070 $ 203,360 $ 181,204
============ ============ ============ ============
Per common share:
Net income............... $ 0.60 $ 0.52 $ 1.33 $ 1.18
============ ============ ============ ============
Cash dividends........... $ 0.18 $ 0.16 $ 0.50 $ 0.44
============ ============ ============ ============
Average shares outstanding. 153,629,000 153,816,000 153,408,000 154,117,000
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C> <C>
ASSETS
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C> <C>
Cash and equivalents............................... $ 19,231 $ 20,569
Receivables, less allowance for doubtful accounts
of $27,719 and $19,168 at September 30, 1995 and
December 31, 1994, respectively................... 1,264,766 987,520
Inventories, principally at LIFO cost.............. 532,374 311,237
Prepaid expenses................................... 50,914 34,004
---------- ----------
Total current assets............................. 1,867,285 1,353,330
---------- ----------
Property, plant and equipment, at cost............. 4,039,916 3,708,844
Accumulated depreciation........................... 2,044,975 1,852,084
---------- ----------
Net property, plant and equipment................ 1,994,941 1,856,760
Goodwill and other intangibles--net................ 1,023,247 887,071
Other noncurrent assets............................ 437,171 354,982
---------- ----------
Total assets..................................... $5,322,644 $4,452,143
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C> <C>
Accounts payable................................. $ 535,610 $ 422,703
Accrued compensation............................. 103,437 107,167
Short-term debt.................................. 32,400 32,400
Current and deferred income taxes................ 124,288 46,912
Other accrued liabilities........................ 270,072 192,668
---------- ----------
Total current liabilities...................... 1,065,807 801,850
---------- ----------
Long-term debt................................... 1,629,243 1,212,332
Deferred income taxes............................ 278,177 286,904
Other noncurrent liabilities..................... 236,905 172,688
Shareholders' equity:
Common stock, at stated value ($1.25 per
share)........................................ 330,612 330,612
Retained earnings, net of cumulative
translation adjustments of $15,981 and $18,235
at September 30, 1995 and December 31, 1994,
respectively.................................. 1,931,240 1,802,777
Reacquired common stock, at cost............... (149,340) (155,020)
---------- ----------
Total shareholders' equity................. 2,112,512 1,978,369
---------- ----------
Total liabilities and shareholders' equity. $5,322,644 $4,452,143
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income.............................................. $ 203,360 $181,204
Depreciation and amortization........................... 292,190 232,599
Net change in assets and liabilities.................... (287,651) (47,395)
Other................................................... (10,792) 5,598
--------- --------
Net cash provided by operating activities................. 197,107 372,006
--------- --------
Cash flows used for investing activities:
Capital expenditures.................................... (353,664) (338,584)
Other investments including acquisitions, net of cash
acquired............................................... (53,711) (104,860)
--------- --------
Net cash used for investing activities.................... (407,375) (443,444)
--------- --------
Cash flows from (used for) financing activities:
Net increase in borrowings.............................. 278,492 170,008
Disposition of reacquired common stock.................. 33,191 18,689
Acquisition of common stock............................. (27,952) (38,637)
Cash dividends on common stock.......................... (76,710) (67,821)
--------- --------
Net cash from financing activities........................ 207,021 82,239
--------- --------
Effect of exchange rate changes on cash and equivalents... 1,909 (57)
--------- --------
Net increase (decrease) in cash and equivalents........... (1,338) 10,744
Cash and equivalents at beginning of period............... 20,569 10,716
--------- --------
Cash and equivalents at end of period..................... $ 19,231 $ 21,460
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1994 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1994 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods.
Note 2. Components of the company's inventories at September 30, 1995 and
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
--------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Raw materials and manufacturing supplies............ $ 315,037 $185,527
Work in process..................................... 298,700 208,553
Finished goods...................................... 40,540 5,821
Progress billings................................... (68,012) (45,523)
LIFO reserve........................................ (53,891) (43,141)
--------- --------
Total inventories............................... $ 532,374 $311,237
========= ========
The company's cost of sales for the third quarter was increased by LIFO
provisions of $7.8 million and $1.3 million in 1995 and 1994, respectively. For
the nine months ended September 30, 1995 and 1994, LIFO provisions were $10.8
million and $3.8 million, respectively. In the third quarter of 1995, the
company changed from the double-extension method of valuing LIFO inventories to
the external-index method. The company believes that this change will result in
a better measurement of operating results by properly reflecting the effect of
productivity improvements in the company's cost of sales. Because the cumulative
effect of this change on periods prior to 1995 cannot be determined, the impact
has been reflected in current operations. The effect of the change on the first
two quarters of 1995 was immaterial, and therefore the financial statements for
those periods have not been restated. Net income for the quarter and nine months
ended September 30, 1995 was approximately $8 million ($0.05 per share) higher
than it would have been had the change not been made.
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF DOLLARS)
--------------------------
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1995 1994
------------- ------------
<S> <C> <C>
Cash flow data:
Interest paid, net of capitalized interest......... $ 61,235 $ 30,797
Income taxes paid.................................. $ 63,706 $ 65,945
Noncash investing and financing activities:
Liabilities incurred and assumed in connection with
acquisitions...................................... $ 354,158 $ 87,110
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--COMPARISON OF THIRD QUARTER 1995 TO THIRD QUARTER 1994
Net sales increased 37.2% from the prior year, reflecting acquisitions and
mergers, higher paper prices, continued growth in foreign operations and strong
demand across most business units. Acquisitions and mergers accounted for
approximately 39% of the revenue increase in the quarter, primarily due to the
merger of the company's Global Software Services unit with Corporate Software
Inc. to form Stream International Inc., which is approximately 80% owned by the
company. Higher prices for paper provided to customers accounted for
approximately 30% of the revenue growth in the quarter.
Net sales from foreign operations represented approximately 16% of total
sales for the quarter, up from approximately 11% in the prior year. The growth
in foreign sales reflected acquisitions and volume increases from both
established foreign operations and newer operations in Latin America, Central
Europe and Asia.
Gross profit increased 32.8%, which was less than the sales growth rate due
to a change in revenue mix associated with the Stream International merger, a
higher LIFO provision ($6.5 million before taxes, or $0.03 per share after
taxes, above the prior year) and the impact of higher paper costs (which are
generally recovered, but at low margins). Selling and administrative expenses
were 39.1% above the prior year, reflecting volume related increases,
expansions and new operations, and the impact of the Stream International
merger. Interest expense increased $16.8 million, reflecting both higher
average interest rates and higher average debt balances associated with capital
spending, acquisitions and increased working capital needs primarily from
higher paper quantities and prices. As a result, net income increased 15.0% to
$92.1 million for the quarter. Earnings per share grew 15.4%, due to net income
growth and fewer shares outstanding.
RESULTS OF OPERATIONS--COMPARISON OF FIRST NINE MONTHS 1995 TO FIRST NINE
MONTHS 1994
Net sales increased 31.5% from the prior year. The growth reflected
acquisitions and mergers, higher paper prices, continued growth in foreign
operations and strong demand across most business units. Approximately 36% of
the revenue increase was due to acquisitions and mergers, primarily Stream
International, while higher paper prices accounted for approximately 24% of the
gain.
Net sales from foreign operations represented approximately 16% of total
sales for the first nine months, up from approximately 11% in the prior year.
The growth in foreign sales reflected acquisitions and volume increases from
both established foreign operations and newer operations in Latin America,
Central Europe and Asia.
Gross profit increased 27.0%, which was lower than the sales growth rate due
to the impact of the change in revenue mix associated with the Stream
International merger, a higher LIFO provision ($7.0 million before taxes, or
$0.03 per share after taxes, above the prior year) and higher paper costs
(which are generally recovered, but at low margins). Selling and administrative
expenses increased 29.7%, reflecting volume increases and expenses of acquired
companies (primarily Stream International) and new operations. Interest expense
increased $42.4 million, reflecting both higher average interest rates and
higher average debt balances associated with capital spending, acquisitions and
increased working capital needs primarily from higher paper quantities and
prices. Net income grew 12.2%, primarily due to volume increases, partially
offset by the higher interest expense. Earnings per share were $1.33, an
increase of 12.7% from the prior year, reflecting net income growth and fewer
shares outstanding.
8
<PAGE>
OUTLOOK
Strong sales growth is expected to continue during the remainder of 1995,
reflecting the impact of growth in existing businesses, acquisitions and
mergers (primarily Stream International), higher paper prices and foreign sales
growth. Demand for software services is expected to continue to grow in the
fourth quarter and well into 1996, reflecting the release of Microsoft's
Windows 95(R) operating system. Effects of companies acquired as well as higher
materials sales (including higher paper prices) will continue to impact the
company's financial results. In addition, higher paper costs will likely cause
the fourth-quarter LIFO provision to increase.
CHANGES IN FINANCIAL CONDITION
For the first nine months, operating cash flow (net income plus depreciation
and amortization) was $495.6 million, up 19.8% from the prior year. With the
growth in cash flow, the company's credit facility and the shelf registration
discussed below, management believes the company has the financial strength and
flexibility to fund current operations and growth.
Capital expenditures during the first nine months totaled $353.7 million,
including purchases of equipment to meet the growing needs of present and new
customers and expansions of manufacturing plants. Full year capital spending is
expected to be $450 million. Working capital increased $250 million from
December 31, 1994, due to the impact of the tight paper market, business growth
and acquisitions and mergers. Management estimates that the tight paper market
increased the company's working capital by approximately $175 million,
primarily through higher receivables and inventory balances.
At September 30, 1995, the company had an unused revolving credit facility of
$550 million with a number of banks. This credit facility provides support for
the issuance of commercial paper and other credit needs. In addition, the
company has an effective shelf registration statement permitting it to issue up
to an additional $500 million of debt securities. The company has no current
intention to issue debt securities under the registration statement during
1995.
In addition, certain subsidiaries of the company have credit facilities with
unused borrowing capacities totaling approximately $75 million at September 30,
1995.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January, 1995, an administrative complaint by the U.S. Environmental
Protection Agency Region V seeking $304,500 in penalties was filed against the
company's Warsaw, Indiana facility alleging violations of the Resource
Conservation and Recovery Act. The complaint alleges that filtercake from
wastewater treatment operations was mischaracterized by the company as non-
hazardous waste. The complaint originally also alleged failure of the company
to give certain land disposal restriction notices, but the administrative law
judge granted a motion to dismiss these allegations, reducing the penalties now
sought by the complaint to $210,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<C> <S> <C>
3(ii)(a) By-Laws, as amended
3(ii)(b) Amendments to By-Laws adopted on September 29 and October
26, 1995
10(a) 1986 Stock Incentive Plan, as amended on October 26, 1995*
10(b) 1991 Stock Incentive Plan, as amended on October 26, 1995*
10(c) 1993 Stock Purchase Plan, as amended on October 26, 1995*
10(d) Agreement with retiring executive*
12 Statement of Computation of Ratio of Earnings to Fixed
Charges
18 Letter re change in accounting principles
27 Financial Data Schedule
</TABLE>
- --------
*Management Contract or Compensatory Plan, Contract, or Arrangement
(b) No current Report on Form 8-K was filed during the third quarter of 1995.
10
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
/s/ Peter F. Murphy
By __________________________________
Peter F. Murphy
Controller
(Authorized Officer and
Chief Accounting Officer)
11/13/95
Date __________________________
11
<PAGE>
Exhibit 3(ii)(a)
As Amended through October 26, 1995
BY-LAWS OF
R. R. DONNELLEY & SONS COMPANY
ARTICLE I
---------
SECTION 1.1. PRINCIPAL OFFICE. The principal office in the State of
Delaware shall be in the City of Wilmington, County of New Castle, State of
Delaware, and the name of the resident agent in charge thereof is The
Corporation Trust Company.
SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders shall
be held on the fourth Thursday in March of each year for the purpose of electing
Directors of the class for which the term expires on that date and for the
transaction of such other business as may properly be brought before the
meeting. Such meeting shall be held at eight o'clock in the morning or such
other time during normal business hours as may be fixed by the Board of
Directors and stated in the notice of the meeting. If the day fixed for the
annual meeting shall be a legal holiday, the Board of Directors may, subject to
the provisions of Article X hereof, designate another day on which such meeting
shall be held. If the election of Directors shall not be held on the date
designated for any annual meeting, or any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as conveniently may be.
Except as otherwise provided by statute or the certificate of incorporation,
the only business which properly shall be conducted at any annual meeting of the
stockholders shall (i) have been specified in the written notice of the meeting
(or any supplement thereto) given as provided in Section 2.4, (ii) be brought
before the meeting by or at the direction of the Board of Directors or the
officer of the corporation presiding at the meeting or (iii) have been specified
in a written notice (a "Stockholder Meeting Notice") given to the corporation,
in accordance with all of the following requirements, by or on behalf of any
stockholder who is entitled to vote at such meeting. Each Stockholder Meeting
Notice must be delivered personally to, or be mailed to and received by, the
Secretary of the corporation at the principal executive offices of the
corporation in the City of Chicago, State of Illinois, not less than 60 days nor
more than 90 days prior to the annual meeting; provided, however,
<PAGE>
that in the event that less than 75 days' notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever first
occurs. Each Stockholder Meeting Notice shall set forth: (i) a description of
each item of business proposed to be brought before the meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and record
address of the stockholder proposing to bring such item of business before the
meeting and the reasons for conducting such business at the annual meeting;
(iii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting (if such date shall then have been made publicly available) and as of
the date of such Stockholder Meeting Notice and (iv) all other information which
would be required to be included in a proxy statement filed with the Securities
and Exchange Commission if, with respect to any such item of business, such
stockholder were a participant in a solicitation subject to Section 14 of the
Securities Exchange Act of 1934. No business shall be brought before any annual
meeting of stockholders of the corporation otherwise than as provided in this
Section; provided, however, that nothing contained in this Section shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting. The officer of the corporation presiding at
the annual meeting of stockholders shall, if the facts so warrant, determine
that business was not properly brought before the meeting in accordance with the
provisions of this Section and, if he should so determine, he should so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted. (Amended 10/27/94)
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chief Executive Officer,
President, or the Chairman of the Board, and shall be called by the Secretary
pursuant to a resolution duly adopted by the affirmative vote of a majority of
the whole Board of Directors. Such call shall state the purposes of the proposed
meeting. Business transacted at any special meeting shall be limited to the
general objectives stated in the call. (Amended 12/15/88)
SECTION 2.3. PLACE OF MEETING. All meetings of stockholders for the
election of Directors shall be held in the City of Chicago, County of Cook,
State of Illinois and the Board of Directors is authorized to fix the place
within the City of Chicago for the holding of such meeting. Meetings of
stockholders for any other purpose may be held at such place, within or without
the State of Delaware, and time as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof. (Amended 1/9/57)
SECTION 2.4. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes
2
<PAGE>
for which the meeting is called, shall be delivered not less than ten nor more
than fifty days before the date of the meeting, either personally or by mail, by
or at the direction of the Board of Directors, the Chief Executive Officer, the
Chairman of the Board or the President, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail in a sealed envelope addressed to the
stockholder at his address as it appears on the records of the corporation, with
postage thereon prepaid. (Amended 12/15/88)
SECTION 2.5. CLOSING TRANSFER BOOKS OR FIXING RECORD DATE. The Board of
Directors may close the stock transfer books of the corporation for a period not
exceeding fifty (50) days preceding the date of any meeting of stockholders, or
the date for payment of any dividend, or the date for the allotment of rights or
the date when any change, or conversion or exchange of capital stock shall go
into effect or for a period of not exceeding fifty (50) days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding fifty (50) days preceding the date of any meeting of the
stockholders, or the date for payment of any dividend, or the date for the
allotment of rights, or the date when any change, or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining such
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent and in such case such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of and to vote at, such
meeting and any adjournment thereof, or to receive payments of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
SECTION 2.6. VOTING LIST. At least ten days before every election of
Directors, a complete list of the stockholders entitled to vote at such
election, arranged in alphabetical order with the residence of and the number of
voting shares held by each, shall be prepared by the Secretary. Such list shall
be open at the place where said election is to be held for ten days, to the
examination of any stockholders, and shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
SECTION 2.7. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of stockholders, the stockholders entitled to vote
thereat, present in person or
3
<PAGE>
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.8. PROXIES. At all meetings of stockholders a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
SECTION 2.9. VOTING. When a quorum is present at any meeting of
stockholders, the affirmative vote of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall decide any question brought before such meeting, unless
the question is one upon which, by express provision of the statutes, the
certificate of incorporation or these by-laws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. Every stockholder having the right to vote shall be entitled to vote
in person, or by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than eleven months prior to voting,
unless such instrument provides for a longer period. Every such stockholder
shall have one vote for each share of stock having voting power registered in
his name on the books of the corporation. Except where the transfer books of
the corporation shall have been closed or a date shall have been fixed as a
record date for the determination of its stockholders entitled to vote, no share
of stock shall be voted on at any election for Directors which has been
transferred on the books of the corporation within twenty days next preceding
such election of Directors. (Amended 1/28/93)
SECTION 2.10. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by
executor or administrator of such deceased person, either in person or by proxy.
Shares standing in the name of a guardian, conservator or trustee may be voted
by such fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of
such shares into the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A stockholder whose shares are pledged
shall be entitled to vote such shares, unless in the transfer by the pledger or
on the books of the corporation, he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent the stock
and vote thereon.
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SECTION 2.11. TREASURY STOCK. The corporation shall not vote shares of its
own stock directly or indirectly; and such shares shall not be counted in
determining the total number of outstanding shares.
SECTION 2.12. ELECTION OF DIRECTORS. When a quorum is present at any
meeting of stockholders, directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at such meeting of
stockholders and entitled to vote on the election of directors. (New Section
10/22/92)
ARTICLE III
-----------
Directors
---------
SECTION 3.1. GENERAL POWERS. The property and business of the corporation
shall be managed by its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders. (Amended 9/28/90)
Without limiting the generality of the foregoing, it shall be the
responsibility of the Board of Directors to establish broad objectives and the
general course of the business, determine basic policies, appraise the adequacy
of overall results, and generally represent and further the interests of the
Company's stockholders and insure the most effective use of the Company's
assets.
Several examples of the responsibilities of the Board are as follows:
1. Establish broad Company objectives and basic policies and maintain
overall control of the business.
2. Make necessary revisions of the by-laws (in accordance with Article X).
3. Determine dividend action (in accordance with Article VIII).
4. Authorize necessary action with respect to issuance of new securities
and listing securities for trading on exchanges.
5. Fix time and place and take other necessary action with respect to
stockholders meetings (in accordance with Article II).
6. Approve issuance of stock certificates to replace those lost or
destroyed (in accordance with Section 7.2).
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7. Fill Vacancies in the Board of Directors (in accordance with Section
3.8).
8. Elect the officers of the corporation (in accordance with Section 4.2.)
and appraise their performance.
9. Determine the basic organization structure of the business.
10. Authorize any necessary action with respect to loans and pledging of
assets (in accordance with Section 6.2.).
11. Designate officers authorized to buy or sell corporate investment
securities.
12. Designate persons authorized to execute contracts and other documents
requiring signatures of officers or specific individuals (in accordance
with Section 6.1).
13. Select, or designate those authorized to select, depositaries for
corporate funds and investment securities and designate check
signatories and persons authorized to have access to safe deposit boxes
(in accordance with Sections 6.3 and 6.4).
14. Approve proposals to convey corporate-owned land or buildings or
designate those authorized to take such action.
15. Designate the person or persons authorized to appoint proxies to vote
stock in subsidiary and other concerns in which the corporation has a
significant interest and the person or persons authorized to determine
who shall serve as Directors in representing the parent corporation in
such concerns.
16. Designate stock transfer agents, registrars, and paying agents with
respect to corporate securities and other special purpose agents.
17. Procure special professional services required by and for the Board.
18. Provide for issuance of an annual report to stockholders and such other
reports and notices as the Board deems advisable.
19. Employ, upon recommendation of the Audit Committee (in accordance with
Section 3.13), public accountants to audit the corporation's financial
statements.
20. Review and approve new employee benefit plans and major revisions of
employee stock incentive plans.
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21. Review and approve the actions of the Executive Committee as reported in
the minutes of their meetings.
22. Approve the annual operating budget.
23. Review and approve the annual capital budget.
24. Direct the manner of handling matters outside the ordinary course of
business of the corporation.
SECTION 3.2. NUMBER, ELECTION AND TERM. The number of Directors which
shall constitute the whole Board shall be fourteen (14) of whom five (5) shall
be Directors of the First Class, five (5) shall be Directors of the Second Class
and four (4) shall be Directors of the Third Class. The term of office of each
class shall be three years, with the term of one class expiring in each year,
and the successors to the class of Directors whose terms shall expire shall be
elected at each annual election or adjournment thereof. Each Director shall
hold office until his successor shall be elected and shall qualify or until his
earlier resignation or removal. Directors need not be residents of Delaware or
stockholders. (Amended 9/29/95)
SECTION 3.3. MEETINGS. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
such place as may from time to time be determined by the Board. Special
meetings of the Board of Directors may be called by or at the request of the
Chief Executive Officer, the Chairman of the Board, a Vice Chairman, President,
or any two directors. (Amended 12/15/88)
SECTION 3.4. NOTICE. Notice of any special meeting of the Board of
Directors stating the place, date and hour of the special meeting shall be given
in writing to each director, either personally, or by mail, telex, telegram or
cable, addressed to the director's residence or usual place of business, not
less than two days before the date of such meeting, or by such other means,
whether or not in writing, and within such lesser period, as circumstances
require in the reasonable judgment of the person calling the meetings. If
mailed, such notice shall be deemed to be given at the time when it is deposited
in the United States mail with first class postage prepaid. Notice by telegram
or cable shall be deemed given when the notice is delivered to the telegraph or
cable company; notice by telex shall be deemed given when the notice is
transmitted by telex. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice at
such meeting, except where the director attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting, unless otherwise provided by
statute, the Certificate of Incorporation or these By-Laws.
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(Amended 6/24/76)
SECTION 3.5. QUORUM. A majority of the Board of Directors shall constitute
a quorum for the transaction of business at any meeting of the Board of
Directors, provided, that if less than a majority of the Directors are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice. (Renumbered 6/24/76)
SECTION 3.6. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. (Renumbered 6/24/76)
SECTION 3.7. USE OF COMMUNICATIONS EQUIPMENT. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting. (New Section
6/24/76)
SECTION 3.8. VACANCIES AND ADDITIONAL DIRECTORS. Any director may resign at
any time upon written notice to the corporation. If any vacancy occurs in the
Board of Directors caused by death, resignation, retirement, disqualification or
removal from office of any Director, or otherwise, or if any new directorship is
created by any increase in the authorized number of Directors, a majority of the
Directors then in office, though less than a quorum may choose a successor or
fill the newly created directorship; and a Director so chosen shall hold office
until the next annual election at which Directors of the class to which he was
chosen are elected and until his successor shall be duly elected and shall
qualify or until his earlier resignation or removal. (Amended 3/26/70)
SECTION 3.9. COMPENSATION. Directors who are not full-time employees of the
Company shall receive a stated salary and may receive options to purchase shares
of the Company's stock as provided under the Company's stock plans, for their
services, and, in addition thereto, shall receive a fixed fee and expenses, if
any, for attendance at each regular or special meeting of the Board of Directors
from time to time. Directors who are full-time employees of the Company shall
not receive any compensation for their services as such; provided that nothing
herein contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation thereof. (Amended
3/28/91)
SECTION 3.10. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not more than three nor
more than seven Directors to constitute an Executive Committee. The Chairman of
the Executive Committee shall be the Chief Executive Officer. The Executive
Committee shall have and exercise all of the authority of the Board of Directors
in the
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management of the corporation, except that such Committee shall not have the
power to take specific actions which have been delegated to other committees of
the Board and shall not be empowered to take action with respect to: declaring
dividends; issuing bonds, debentures, or the borrowing of moneys except within
limits expressly approved by the Board of Directors; amending by-laws; filling
vacancies and newly created directorships in the Board of Directors; removing
Directors of the corporation; mergers or consolidations; the sale, lease or
exchange of all or substantially all of the assets of the corporation;
dissolution; or any other action requiring the approval of stockholders. The
designation of such Committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors or any member thereof of any
responsibility imposed upon it or him by law. (Amended 9/28/90, 10/26/95)
SECTION 3.11. FINANCE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not more than three nor
more than seven Directors, a majority of whom shall not be employees of the
Company, to constitute a Finance Committee, which Committee is charged with
reviewing the overall financial policies of the Company and making
recommendations to the Board regarding the Company's financial condition and
requirements for and disposition of funds, including: capital structure,
raising long-term capital, dividend policy, and material changes in the
Company's financial position with respect to cash, investments, debt and
accounts receivable. The Committee shall review the performance and management
of the Company's Retirement Benefit Plan including the investment policy, the
performance of the Investment Trustee on a regular periodic basis, the
reasonableness of the actuarial assumptions in relation to investment
performance, the funding status of the Plan and shall make recommendations with
respect to the selection of one or more investment trustees or other investment
agencies, and undertake such other studies and make such other recommendations
to the Board as it may deem desirable with respect to the Investment Trust of
the Retirement Benefit Plan. (Amended and Renamed 9/28/90, 10/26/95)
SECTION 3.12. COMPENSATION COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not more than three nor
more than seven Directors who are not employees of the Company, to constitute a
Compensation Committee. The Compensation Committee shall determine the annual
salary, bonus and other benefits of selected senior officers and key management
employees of the Company and review, as appropriate, performance standards under
compensation programs for key employees. The Compensation Committee shall also
recommend to the Board candidates for election as corporate officers.
The Compensation Committee shall recommend new employee benefit plans and
changes to stock incentive plans to the Board, approve amendments to the non-
stock employee benefit plans of the Company and oversee the administration of
all of the Company's employee benefit plans. The Compensation Committee may
delegate to one or more officers of the Company the power to approve any
amendment of any
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non-stock employee benefit plan of the Company or the Donnelley Tax Credit Stock
Ownership Plan which in the reasonable opinion of such officer will not
materially affect the costs to the Company of, or benefits under, such plans.
(Amended 7/22/93, 10/26/95)
SECTION 3.13. AUDIT COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not more than three nor
more than seven Directors who are not employees of the Company to constitute an
Audit Committee, which Committee shall review on behalf of the stockholders of
the Company: the qualifications and services of the independent public
accountants employed by the Company from time to time to audit the books of the
Company, the scope of their audits, the adequacy of their audit reports, and
recommendations made by them. The Committee may also make such reviews of
internal financial audits and controls as the Committee considers desirable.
The Audit Committee will recommend to the Board the selection of the
independent public accountants.
The Audit Committee shall review the Company's financial disclosure
documents, management perquisites, significant developments in accounting
principles and significant proposed changes in financial statements. The Audit
Committee shall also review and monitor the Company's codes of conduct to guard
against significant conflicts of interest and dishonest, unethical or illegal
activities. The Audit Committee shall review periodically the performance of
the Company's accounting and financial personnel, and shall review material
litigation and regulatory proceedings and other issues relating to potentially
significant corporate liability. (Amended 9/28/90, 10/26/95)
SECTION 3.14. NOMINATING COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not more than three nor
more than seven Directors to constitute a Nominating Committee, which Committee
shall recommend to the Board nominees for election to the Board of Directors in
connection with any meeting of stockholders at which directors are to be elected
and persons for appointment to fill any Board vacancy which the Board of
Directors is authorized under the By-Laws to fill. The Committee may also
recommend to the Board policies or guidelines concerning criteria for Board
membership, the structure and composition of Board Committees, the size and
composition of the Board and the selection, tenure and retirement of Directors
and matters related thereto. (Amended 9/28/90, 10/26/95)
SECTION 3.15. OTHER COMMITTEES. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate two or more Directors to
constitute committees other than the Executive Committee, Finance Committee,
Compensation Committee, Audit Committee and Nominating Committee, which
committees shall have and exercise such authority as may be provided for in the
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resolution creating such committee. (Amended 9/28/90)
SECTION 3.16. HONORARY DIRECTORS. The Board of Directors may select from time
to time, and for such periods of time as it may deem appropriate, one or more
past Chairmen of the Board, Presidents or Chief Executive Officers elected a
Director prior to September 28, 1990, to serve as Honorary Directors. Honorary
Directors shall be entitled to receive notice of and to attend all meetings of
the Board of Directors, to receive copies of all reports or other communications
made to the Board of Directors, to give counsel and advice on any subject, to
receive such fees and expense reimbursements as may be provided from time to
time by the Board of Directors. The Board of Directors, Chief Executive Officer,
Chairman of the Board or President may invite an Honorary Director to attend
meetings of any committee of the Board of Directors or to undertake temporary
assignments, but this shall not preclude any other arrangements, consulting or
otherwise, between the corporation and an Honorary Director. The presence or
absence of an Honorary Director shall not be counted for purposes or determining
the existence of a quorum. Honorary Directors shall not have the right to vote
on any matters voted on by the Board of Directors or any of the rights, duties,
privileges, or responsibilities of Directors of the corporation. (Amended
9/28/90)
SECTION 3.17. NOMINATION OF DIRECTORS. Except as otherwise fixed pursuant
to the certificate of incorporation relating to the rights of the holders of any
one or more classes or series of Preferred Stock issued by the corporation,
acting separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors pursuant to Section 3.14 or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting at which directors are to be elected only
if written notice of such stockholder's intent to make such nomination or
nominations has been delivered personally to, or been mailed to and received by,
the Secretary of the corporation at the principal executive offices of the
corporation in the City of Chicago, State of Illinois, not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that, in the event
that less than 75 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Each such notice shall
set forth: (i) the name and record address of the stockholder who intends to
make the nomination; (ii) the name, age, principal occupation or employment,
business address and residence address of the person or persons to be nominated;
(iii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder and by the person or persons to be
nominated as of the record date for the meeting (if such date shall then have
been made publicly available) and of
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the date of such notice; (iv) a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (v) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder; (vi) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the Securities Exchange Act of 1934 and the
proxy rules of the Securities and Exchange Commission; and (vii) the consent of
each nominee to serve as a director of the corporation if so elected. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation. The officer of
the corporation presiding at the annual meeting of stockholders shall, if the
facts so warrant, determine that a nomination was not made in accordance with
the provisions of this Section, and if he should so determine, he should so
declare to the meeting and the defective nomination shall be disregarded. No
person shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth herein. (Added 3/24/88)
ARTICLE IV
----------
Officers of the Corporation
---------------------------
SECTION 4.1. OFFICERS AND NUMBER. The officers of the corporation shall be
a Chief Executive Officer, a Chairman of the Board, one or more Vice Chairmen, a
President, one or more Executive Vice Presidents, one or more Sector Presidents,
one or more Business Unit Presidents, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, a Treasurer, a Controller, a General Counsel,
one or more Assistant Secretaries, one or more Assistant General Counsels, one
or more Assistant Treasurers and one or more Assistant Controllers. Any two or
more offices may be held by the same person except the offices of President and
Secretary. The Chief Executive Officer shall be either the Chairman, a Vice
Chairman or the President, as designated by the Board of Directors. The Board
of Directors may elect one or more Vice Chairmen of the Board and one or more
Executive Vice Presidents. The Board of Directors may elect an Honorary Director
to the office of Honorary Chairman of the Board. (Amended 1/27/94)
SECTION 4.2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall
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resign or shall have been removed in the manner hereinafter provided. (Adopted
10/21/60)
SECTION 4.3. REMOVAL. Any officer elected by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of
the corporation would be served thereby. (Amended 12/15/88)
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term. (Adopted 10/21/60)
SECTION 4.5. SALARIES. No officer shall be prevented from receiving a
salary for his services as an officer by reason of the fact that he is also a
Director of the corporation.
SECTION 4.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have overall supervision of, and responsibility for, the business, and shall
direct the affairs and policies of the corporation. (Adopted 12/15/88)
SECTION 4.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the stockholders and Board of Directors. The Chairman of the
Board shall perform such other duties and responsibilities as may be assigned to
him by the Board of Directors. (Amended 9/28/90)
SECTION 4.8. VICE CHAIRMEN OF THE BOARD. The Vice Chairmen of the Board
shall, in the absence of the Chairman of the Board (in the order prescribed by
the Board), preside at all meetings of the stockholders and Board of Directors,
and shall perform such other duties as may be assigned to them by the Board of
Directors. (Amended 12/15/88)
SECTION 4.9. HONORARY CHAIRMAN OF THE BOARD. The Honorary Chairman of the
Board shall consult with the Chief Executive Officer and other officers of the
corporation, as he or they shall determine, with respect to the general policies
and affairs of the corporation, and shall have such authority and perform such
duties as from time to time may be prescribed by the Board of Directors or as
may be granted by the Chief Executive Officer. (Renumbered 9/28/90)
SECTION 4.10. PRESIDENT. Subject to the supervision and direction of the
Chief Executive Officer, the President shall have responsibility for such of the
operations and other functions of the corporation as may be assigned to him.
The President shall perform such other duties and responsibilities as may be
assigned to him by the Chief Executive Officer. In the absence of the Chairman
of the Board and Vice Chairmen of the Board, the President shall preside at
meetings of the stockholders and Board of Directors. (Renumbered and Amended
9/28/90)
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SECTION 4.11. VICE PRESIDENTS. Each Vice President shall have such
corporate powers, if any, as may be assigned to him from time to time by the
Board of Directors, Chief Executive Officer, Chairman of the Board or the
President. (Renumbered 9/28/90)
SECTION 4.12. SENIOR VICE PRESIDENTS. Each Senior Vice President shall have
such corporate powers, if any, as may be assigned to him by the Board of
Directors, Chief Executive Officer, Chairman of the Board or the President.
(Renumbered 9/28/90)
SECTION 4.13. SECTOR PRESIDENTS. The Board of Directors may from time to
time designate as Sector President one or more of the individuals who occupies
the position of senior officer heading a Sector consisting of one or more
business units and to whom one or more of the Business Unit Presidents reports.
(Amended 1/27/94)
SECTION 4.14. BUSINESS UNIT PRESIDENTS. The Board of Directors may from
time to time designate as Business Unit President one or more of the individuals
who occupies the position of senior officer heading a business unit consisting
of one or more divisions and one or more sales units and who reports to one or
more of the Sector Presidents or other senior officers of the corporation.
(Added 1/27/94)
SECTION 4.15. EXECUTIVE VICE PRESIDENTS. The Board of Directors may
designate as an Executive Vice President the officer to whom one or more other
senior officers of this corporation reports. (Amended and Renumbered 1/27/94)
SECTION 4.16. ORDER OF SUCCESSION. Such of the directors of the corporation
as shall be designated by resolution of the Board of Directors, and in the order
of such designation, shall in the absence of the Chairman of the Board perform
the duties of the Chairman of the Board and shall have all of the powers and
shall be subject to any restrictions imposed upon the Chairman.
Such of the officers of the corporation as may be designated by resolution of
the Board of Directors, and in the order of such designation, shall in the
absence of the Chief Executive Officer, perform the duties of the Chief
Executive Officer and when so acting shall have all the powers of and be subject
to any restrictions imposed upon the Chief Executive Officer.
Such of the officers of the corporation as may be designated by resolution of
the Board of Directors, and in the order of such designation, shall in the
absence of the President perform the duties of the President and when so acting
shall have all the powers of and be subject to any restrictions imposed upon the
President. (Renumbered 1/27/94)
SECTION 4.17. SECRETARY. The Secretary shall keep the minutes of all
meetings of the stockholders and Board of Directors of the corporation, shall
have charge of the
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corporate records and the corporate seal, and shall have the power to attach the
seal to all instruments which shall require sealing after the same shall have
been signed as authorized by the Board of Directors. (Renumbered 1/27/94)
SECTION 4.18. TREASURER. The Treasurer shall be responsible for the
receipt, custody and disbursement of all funds of the corporation in the form of
both cash and securities. He may delegate the details of his office to someone
in his stead, but this shall nowise relieve him of the responsibilities and
liability of his office. The Treasurer shall have the power to attach the seal
to all instruments which shall require sealing after the same shall have been
signed as authorized by the Board of Directors. (Renumbered 1/27/94)
SECTION 4.19. CONTROLLER. The Controller reports to the Chief Executive
Officer directly or through such other management executives as the Chief
Executive Officer may direct. The Controller, however, may directly submit any
matter to the Board of Directors for their consideration. The Controller shall
maintain adequate records of all assets, liabilities, and transactions of the
corporation, and in conjunction with other officers and department heads, shall
initiate and enforce measures and procedures whereby the business of the
corporation shall be conducted with the maximum of safety, efficiency and
economy. He shall attend that part of the meetings of the Board of Directors
which is concerned with the review of the financial and operating reports of the
business, except when, in the discretion of the Board, he shall be asked not to
attend. (Renumbered 1/27/94)
SECTION 4.20. GENERAL COUNSEL. The General Counsel shall be the chief legal
officer of the corporation and have legal responsibility for all aspects of the
business. The General Counsel shall have the power to attach the seal to all
instruments which shall require sealing after the same shall have been signed as
authorized by the Board of Directors. (Renumbered 1/27/94)
SECTION 4.21. ASSISTANT TREASURERS. The Assistant Treasurers shall in the
absence of the Treasurer perform all functions and duties of the Treasurer and
in addition shall perform such functions and duties as the Treasurer may
delegate, but this shall in nowise relieve the Treasurer of the responsibilities
and liability of his office. (Renumbered 1/27/94)
SECTION 4.22. ASSISTANT SECRETARIES. The Assistant Secretaries shall in the
absence of the Secretary perform all functions and duties of the Secretary and
in addition shall assume such functions and duties as the Secretary may
delegate, but this shall in nowise relieve the Secretary of the responsibilities
and liability of his office. (Renumbered 1/27/94)
SECTION 4.23. ASSISTANT GENERAL COUNSELS. The Assistant General Counsels
shall in the absence of the General Counsel perform all functions and duties of
the General Counsel and in addition shall assume such functions and duties as
the General
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Counsel may delegate, but this shall in nowise relieve the General Counsel of
the responsibilities and liabilities of his office. (Renumbered 1/27/94)
SECTION 4.24. ASSISTANT CONTROLLERS. The Assistant Controllers shall in the
absence of the Controller perform all functions and duties of the Controller and
in addition shall assume such functions and duties as the Controller may
delegate, but this shall in nowise relieve the Controller of the
responsibilities and liabilities of such office. (Renumbered 1/27/94)
ARTICLE V
---------
Appointed Officers
------------------
The Chief Executive Officer may appoint officials assigned to a particular
Sector or other business unit as such officers of such Sector or business unit
and having such titles as he shall deem appropriate. Any such officer appointed
by the Chief Executive Officer may be removed by the Chief Executive Officer
whenever in his judgment the best interests of the corporation would be served
thereby. The term of office, compensation, powers and duties and other terms of
employment of appointed officers shall be such as the Chief Executive Officer
may from time to time deem proper, and the authority of such officers shall be
limited to acts pertaining to the business of such Sector or business unit.
(Amended 1/27/94)
ARTICLE VI
----------
Contracts, Loans, Checks and Deposits
-------------------------------------
SECTION 6.1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 6.2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors (or a resolution of a
committee of Directors pursuant to authority conferred upon that committee).
Such authority may be general or confined to specific instances.
SECTION 6.3. CHECKS, ETC. All checks, demands, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as may be designated by
the Board of Directors or by
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one or more officers of the corporation named by the Board of Directors for such
purpose.
SECTION 6.4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies and other depositaries as the Board of Directors may
select.
(Entire Article Renumbered 6/28/84)
ARTICLE VII
-----------
Certificates of Stock and Their Transfer
----------------------------------------
SECTION 7.1. CERTIFICATES OF STOCK. Certificates of stock of the
corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the Chief Executive Officer, Chairman of the
Board or President or a Vice President and by the Secretary or Assistant
Secretary or the Treasurer or an Assistant Treasurer. If any stock certificate
is signed manually (a) by a transfer agent other than the corporation or its
employee or (b) by a registrar other than the corporation or its employee, any
other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
All certificates properly surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued to evidence transferred shares
until the former certificate for at least a like number of shares shall have
been surrendered and cancelled and the corporation reimbursed for any applicable
taxes on the transfer, except that in the case of a lost, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms, and with such
indemnification (if any) to the corporation, as the Board of Directors may
prescribe specifically or in general terms or by delegation to a transfer agent
for the corporation. Certificates shall not be issued representing fractional
shares of stock. (Amended 12/15/88)
SECTION 7.2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the
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Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificates, or
his legal representative, to advertise the same in such manner as it shall
require and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
SECTION 7.3. TRANSFERS. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof or by his attorney thereunto
authorized by power of attorney and filed with the Secretary or transfer agent
of the corporation.
SECTION 7.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
(Entire Article Renumbered 6/28/84)
ARTICLE VIII
------------
Dividends
---------
SECTION 8.1. DECLARATION. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
SECTION 8.2. RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
such other purposes as the Directors shall think conducive to the interest of
the corporation, and the
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Directors may modify or abolish any such reserve in the manner in which it was
created.
(Entire Article Renumbered 6/28/84)
ARTICLE IX
----------
Miscellaneous
-------------
SECTION 9.1. FISCAL YEAR. Unless otherwise fixed by the resolution of the
Board of Directors, the fiscal year of the corporation shall be the calendar
year.
SECTION 9.2. SEAL. The corporate seal shall have inscribed thereon the name
of the corporation and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
SECTION 9.3. BOOKS. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at the
offices of the corporation at Chicago, Illinois, or at such other place or
places as may be designated from time to time by the Board of Directors.
(Entire Article Renumbered 6/28/84)
ARTICLE X
---------
Amendment
---------
These by-laws may be altered or repealed at any regular meeting of the Board
of Directors or at any special meeting of the Board of Directors if notice of
such alteration or repeal be contained in the notice of such special meeting,
provided that no amendment of these by-laws shall conflict with the provisions
of the Certificate of Incorporation, whether relating to the number of Directors
which shall constitute the whole Board or the number of Directors of any class
or otherwise. (Renumbered 6/28/84)
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Exhibit 3(ii)(b)
R. R. DONNELLEY & SONS COMPANY
AMENDMENT TO BY-LAWS
ADOPTED SEPTEMBER 29, 1995
RESOLVED, that Section 3.2 of the Company's By-Laws be and hereby is amended,
effective immediately, to delete the first sentence thereof and substitute the
following therefor:
"The number of Directors which shall constitute the whole Board shall be
fourteen (14) of whom five (5) shall be Directors of the First Class, five
(5) shall be Directors of the Second Class and four (4) shall be Directors
of the Third Class."
<PAGE>
R. R. DONNELLEY & SONS COMPANY
AMENDMENT TO BY-LAWS
ADOPTED OCTOBER 26, 1995
The By-Laws of said corporation were amended by the Board of Directors at a
meeting held on October 26, 1995, at which meeting a quorum was present and
acting throughout, such that the wording "three, four or five" in the first
sentence of Sections 3.10, 3.11, 3.12, 3.13 and 3.14 of the Company's By-Laws
was amended to read "not fewer than three nor more than seven".
-2-
<PAGE>
Exhibit 10(a)
R. R. DONNELLEY & SONS COMPANY
1986
STOCK INCENTIVE PLAN
(As amended on April 24, 1986, July 27, 1989,September 28, 1989
and October 26, 1995)
I. GENERAL
1. Plan. To provide incentives to management through rewards based
upon the ownership and performance of the common stock of R. R. Donnelley & Sons
Company (the "Company"), the Committee hereinafter designated, with the approval
of the Board of Directors, may grant stock bonus awards, stock options, stock
appreciation rights, or combinations thereof, to eligible officers and other key
management personnel, on the terms and subject to the conditions stated in this
Plan.
2. Eligibility. Officers and other key management personnel of the
Company and its subsidiaries, under selection guidelines to be established by
the Committee, shall be eligible, upon selection by the Committee, to receive
stock bonus awards, stock options or stock appreciation rights, either singly or
in combination, as the Committee, in its discretion, shall determine.
3. Limitation on Shares to be Issued. The maximum number of shares of
common stock, par value $1.25 per share, to be issued pursuant to all grants
made under the Plan shall be 3,200,000 of which no more than 1,200,000 shares
shall be issued pursuant to stock bonus awards granted under the Plan. Shares
awarded pursuant to grants which, by reason of the expiration, cancellation or
other termination of the grants prior to issuance are not issued, shall again be
available for future grants.
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"). No member of
the Committee shall be eligible to participate in, or within one year prior to
appointment to the Committee have participated in, this Plan or any other stock
purchase, stock bonus, stock option, stock appreciation rights or other stock
incentive plan of the Company. The Committee shall, within the limits of the
Plan and subject to the approval of the Board of Directors, establish selection
guidelines; select eligible persons for participation; and determine the form of
grant, either as stock bonus, stock option or stock appreciation rights or
combination thereof, determine the form of stock option, the number of shares
subject to the grant, the fair market value of the common stock when necessary,
the time and conditions of vesting or exercise, and all other terms and
conditions of the grant. The Committee may establish rules and regulations for
the administration
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of the Plan, interpret the Plan, and impose, incidental to a grant, conditions
with respect to competitive employment or other activities not inconsistent with
or conflicting with the Plan. All such rules, regulations, and interpretations
relating to the Plan adopted by the Committee shall be conclusive and binding on
all parties.
5. Adjustments for Changes in Capitalization. Appropriate adjustments
shall be made by the Committee in the maximum number of shares to be issued
under the Plan, the maximum number of shares to be issued pursuant to stock
bonus awards, and in the number of shares the subject of any grant, to give
effect to any stock splits, stock dividends and other relevant changes in
capitalization occurring after the effective date of the Plan.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1986 annual meeting scheduled to
be held on March 27, 1986, and if approved shall become effective on that date.
The Plan shall terminate five years after it becomes effective unless terminated
prior thereto by action of the Board of Directors. No further grants shall be
made under the Plan after termination, but termination shall not affect the
rights of any participant under any grants made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board of
Directors in any respect except that no amendment may be made without
stockholder approval if such amendment would
(a) increase the maximum number of shares available for issuance under
the Plan or stock bonus awards;
(b) modify the class of eligible employees; or
(c) extend the period during which any option or other right may be
exercised under the Plan.
8. Prior Plans. Upon the effectiveness of this Plan, no further grants
shall be made under the Company's 1976 Stock Option Plan, as amended, and the
1981 Stock Incentive Plan, as amended, except that stock appreciation rights may
be granted with respect to options previously granted and outstanding under
these Plans. Bonuses awarded under the 1981 Stock Incentive Plan, as amended,
and options granted under the 1976 Stock Option Plan, as amended, and the 1981
Stock Incentive Plan, as amended, prior to the effectiveness of this Plan shall
continue in accordance with their terms.
9. 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. 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
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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 date the obligation to withhold or pay taxes arises (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 (as defined
below), the Company may require that the method of satisfying such an obligation
be in compliance with Section 16 and the rules and regulations thereunder.
Shares of common stock to be delivered or withheld may have 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.
II. STOCK BONUS AWARDS
1. Form of Award. Stock bonus awards, whether Performance Awards or
Fixed Awards, may be made to eligible officers and other key management
personnel in the form of stock units, each of which is the equivalent of a share
of common stock but for the power to vote and the entitlement to current
dividends, or in the form of shares of common stock issued to the employee but
forfeitable and with restrictions on transfer in any form as hereinafter
provided.
2. Performance Awards. Awards may be made in terms of a stated
potential maximum number of units or shares, with the actual number to be
determined by reference to the level of achievement of corporate, group,
division, individual or other specific objectives over a period of not less than
three nor more than ten years. No rights or interests of any kind shall be
vested in an individual receiving a performance award until the conclusion of
the period and the determination of the level of achievement specified in the
award, and the time of vesting thereafter shall be as specified in the award.
3. Fixed Awards. Awards may be made which are not contingent on the
performance of objectives, but are contingent on the participant's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than five nor more than ten years from the date of award.
4. Rights with Respect to Restricted Shares. If shares of restricted
common stock are issued pursuant to an award, the participant shall have the
right to vote the shares and to receive dividends thereon from the date of
issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to
a participant
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<PAGE>
pursuant to an award, amounts equal to dividends otherwise payable on a like
number of shares of common stock after the crediting of the units 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, 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 dividends and interest have been credited shall
be paid in cash. Shares of restricted common stock issued pursuant to an award
shall, at the time of vesting, be released from the restrictions.
7. Acceleration Upon Change in Control. If while any Performance Award
or Fixed Award remains outstanding under this Plan--
(a) any "person," as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (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) 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 execution of this Amendment),
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
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<PAGE>
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, all levels of
achievement specified in the award shall be deemed met and the award shall be
immediately and fully vested, and (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.
III. STOCK OPTIONS
1. Grants. Options to purchase shares of common stock of the Company
may be granted to such eligible officers and other key management personnel as
may be selected by the Committee and approved by the Board of Directors. These
options may, but need not, constitute "incentive stock options" under Part II of
subchapter D of the Internal Revenue Code of 1986, as amended, or any other form
of option under the Code as hereafter amended.
2. Terms of Options. No option shall be exercisable less than one nor
more than ten years after the date of grant. The per share option price shall be
not less than 100% of the fair market value at the time the option is granted.
Upon exercise, the option price may be paid in cash, in shares of common stock
of the Company having a fair market value equal to the option price, or in a
combination thereof. Options shall not be transferable, except that in the event
of the death of an optionee during employment or within a period not in excess
of five years after termination
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<PAGE>
of employment by reason of retirement or total and permanent disability or
within ninety days after termination of employment for any other reason,
outstanding options may be exercised by the executor, administrator or personal
representative of such deceased optionee within ninety days of the death of such
optionee. Options may be exercised during the individual's continued employment
with the Company and for a period not in excess of ninety days following
termination of employment and only within the original term of that option;
provided, however, that if employment of the optionee by the Company and its
subsidiaries shall have terminated by reason of retirement or total and
permanent disability, then the option may be exercised for a period not in
excess of five years following termination of employment but not after the
expiration of the term of the option.
3. Acceleration of Stock Options Upon a Change in Control. If while any
stock option granted pursuant to this Article III of the Plan remains
unexercised and outstanding, a Change in Control (as defined in Article II,
Section 7, above) occurs, then from and after the Acceleration Date (as defined
in Article II, Section 7, above) all such outstanding and unexercised options,
whether or not then vested, shall be fully and immediately exercisable.
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 key management personnel who are employed in the United Kingdom by the
Company or any of its subsidiaries. Stock options granted under the Sub-Plan
shall be deemed granted under this Stock Incentive Plan and shall comply in all
respects with the terms and conditions applicable to options granted under
Article III of this Stock Incentive 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 534 of the Income and
Corporation Taxes Act 1970) and which are an affiliate
controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of rule 12b -
2 of the U.S. Securities Exchange Act of 1934;
"the Group" shall mean the Company and the Subsidiaries;
"Associated Company" shall have the meaning attributed to it in section 302 of
the Income and Corporation Taxes Act 1970;
"the Committee" shall mean the committee designated to administer this
Stock Incentive Plan;
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"Full Time Employee" shall mean any director or employee of the Group 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 4(1)(b) of
Schedule 10 from participating in the Sub-Plan;
"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 5 of Schedule 10 by virtue of
sub-paragraph 5 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 Transaction compiled by Associated Press or if
no trading occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 10" shall mean Schedule 10 of the United Kingdom Finance Act
of 1984.
"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in
Paragraphs 7 to 11 inclusive of Schedule 10.
(c) Sub-Plan. The Committee, with the approval of the Board of
Directors of the Company, may grant stock options to officers and other key
management personnel eligible to participate in the Sub-Plan on the terms and
subject to the conditions stated in this Sub-Plan.
(d) Eligibility. Full time employees who are officers or key management
personnel 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, par value $1.25 per share shall be subject to
the maximum specified in this Stock Incentive Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee
in accordance with the provisions set out in this Stock Incentive 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 1986 annual
meeting scheduled to be held on March 27, 1986, and if approved shall become
effective on that date. The Sub-Plan shall terminate five years after it becomes
effective unless terminated prior thereto by action of the Board of Directors.
No further grants shall be made under the Sub-Plan after termination but
termination shall not affect the right of any participation under the grants
made prior to termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board of
Directors subject to the conditions specified in this Stock Incentive Plan. No
amendment may be made which will put the Sub-Plan in breach of conditions for
approval set out in Schedule 10 and no amendment to the Sub-Plan or any
provision in this Stock Incentive 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 of the Company may
be granted to such eligible officers and eligible key management personnel as
may be selected by the Committee and approved by the Board of Directors.
(b) Variations in Options. Variations may not be made to options granted
under the Sub-Plan pursuant to Article I clause 5 of this Stock Incentive Plan
without prior consent of the Board of UK Inland Revenue.
(c) Terms of Options. No options shall be exercisable less than one nor
more than ten years after the date of the 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. Options shall not be transferable except that such options may be
exercised by the personal representative of a deceased optionee 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. No option may be exercised
by an individual at any time when he is precluded by Paragraph 4(1)(b) of
Schedule 10 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 30 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 this
Sub-Plan which would, at the time that they are obtained, cause the aggregate
Market Value of the shares which
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he may acquire in pursuant 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 Revenue under Schedule 10 (and not exercised) to
exceed or further exceed the greater of:
(1) 100,000 British Pounds Sterling or
(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. Rights 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 of the Company from the date
of grant, or in the case of rights granted in tandem with or by reference to a
stock option granted prior to the grant of such rights, from the date of grant
of the related stock option to the date of exercise may be granted to such
eligible officers and other key management personnel as may be selected by the
Committee and approved by the Board of Directors.
2. Terms of Grant. Such rights may be granted in tandem with or with
reference to a related stock option, in which event the grantee may elect to
exercise either the option or the right, but not both, as to the same share of
common stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall be
exercisable not more than ten years after the date of grant. Stock appreciation
rights shall not be transferable, except that in the event of the death of a
grantee during employment or within a period not in excess of five years after
termination of employment by reason of retirement or total and permanent
disability or within ninety days after termination of employment for any other
reason, outstanding rights may be exercised by the executor, administrator or
personal representative of such deceased grantee within ninety days of the death
of such grantee. Stock appreciation rights may be exercised during the
individual's continued employment with the Company and for a period not in
excess of ninety days following termination of employment and only within the
original term of that grant; provided, however, that if employment of the
grantee by the Company and its subsidiaries shall have terminated by reason of
retirement or total and
9
<PAGE>
permanent disability, then the grant may be exercised for a period not in excess
of five years following termination of employment but not after the expiration
of the term of the grant.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be
paid the excess of the then fair market value of the number of shares to which
the right relates over the fair market value of such number of shares at the
date of grant of the right 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.
10
<PAGE>
Exhibit 10(b)
REVISED TO SHOW AMENDMENTS THROUGH 10/26/95
R.R. DONNELLEY & SONS COMPANY
1991 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 stock
bonus awards, stock options, stock appreciation rights, or combinations thereof,
to eligible officers and other key management employees, on the terms and
subject to the conditions stated in this 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
this Plan.
2. Eligibility. Officers and other key management employees of the Company and
its subsidiaries, under selection guidelines to be established by the Committee,
shall be eligible, upon selection by the Committee, to receive cash or stock
bonus awards, stock options or stock appreciation rights, 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 this Plan.
3. Limitation on Shares to be Issued. The maximum number of shares of common
stock, par value $1.25 per share, to be issued pursuant to all grants made under
the Plan shall be 3,600,000. Shares awarded pursuant to grants which, by reason
of the expiration, cancellation or other termination of the grants prior to
issuance, are not issued shall again be available for future grants. 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"). No member of the
Committee shall be eligible to participate in, or within one year prior to
appointment to the Committee have participated in, the Plan or any other stock
purchase, bonus award, stock option, stock appreciation rights or other stock
incentive plan of the Company, except as provided in Article III, Section 1(b).
The Committee shall, subject to the terms of the Plan, establish selection
guidelines; select eligible officers and key management employees for
participation; determine the form of grant, either as a bonus award, or as stock
option or stock appreciation rights or combination thereof; and determine the
form of stock option, the number of shares subject to the grant, the fair market
value of the common stock when necessary, the time and conditions of vesting or
exercise, and all other terms and conditions of the grant. The Committee may
establish rules and regulations for
<PAGE>
the administration of the Plan, interpret the Plan, and impose, incidental to a
grant, conditions with respect to competitive employment or other activities not
inconsistent with or conflicting with the Plan. All such rules, regulations,
and interpretations relating to the Plan adopted by the Committee shall be
conclusive and binding on all parties. All grants and awards under this Plan
shall be evidenced by written instruments delivered by the Company to the
participants, and no such grant or award shall be valid until so evidenced.
Notwithstanding the foregoing, neither the Board nor the Committee shall
have any discretion to alter the number of shares granted to non-employee
directors pursuant to Article III, Section 1(b) or the terms or conditions under
which such shares are granted.
5. Adjustments for Changes in Capitalization. Appropriate adjustments shall be
made by the Committee in the maximum number of shares to be issued under the
Plan, the maximum number of shares to be issued pursuant to bonus awards, and
the number of shares the subject of any grant, to give effect to any stock
splits, stock dividends and other relevant changes in capitalization occurring
after the effective date of the Plan.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1991 annual meeting scheduled to
be held on March 28, 1991, and if approved shall become effective on that date.
The Plan shall terminate five years after it becomes effective unless terminated
prior thereto by action of the Board. No further grants shall be made under the
Plan after termination, but termination shall not affect the rights of any
participant under any grants made prior to termination.
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
such amendment would increase the maximum number of shares available for
issuance under the Plan or change the number of shares to be granted, pursuant
to stock options, to non-employee directors.
8. Prior Plans. Upon the effectiveness of this Plan, no further grants shall
be made under the Company's 1981 Stock Incentive Plan, as amended, and the 1986
Stock Incentive Plan, as amended, except that stock appreciation rights may be
granted with respect to options previously granted and outstanding under such
Plans. Bonuses awarded under the 1986 Stock Incentive Plan, as amended, and
options granted under the 1981 Stock Incentive Plan, as amended, and the 1986
Stock Incentive Plan, as amended, prior to the effectiveness of this Plan shall
continue in effect in accordance with their terms.
9. 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. 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)
<PAGE>
having an aggregate fair market value determined as of the date the obligation
to withhold or pay taxes arises (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 (as defined below), the Company may require that the method of
satisfying such an obligation be in compliance with Section 16 and the rules and
regulations thereunder. Shares of common stock to be delivered or withheld may
have 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.
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 the entitlement to current dividends,
(iii) in the form of 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, group, 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
performance of objectives, but are contingent on the participant's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than one nor more than ten years from the date of award.
4. Rights with Respect to the Restricted Shares. If shares of restricted
common stock are issued pursuant to an award, the participant shall have the
right to vote the shares and to receive
<PAGE>
dividends thereon from the date of issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, amounts equal to dividends otherwise payable
on a like number of shares of common stock after the crediting of the units
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 dividends 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.
7. Acceleration Upon Change in Control. If while any Performance Award or
Fixed Award remains outstanding under this Plan--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (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)
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 execution of this Amendment), 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
<PAGE>
(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, and (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.
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 422A of the Internal Revenue Code of 1986, as amended, or any other form
of option under the Code as hereafter amended.
(b) Options for Non-Employee Directors. An option to purchase 2,000 shares
of common stock of the Company shall be granted on March 28, 1991 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.
2. Terms of Options. An option granted to a non-employee director hereunder
pursuant to Section 1(b) (a "Director Option") shall become exercisable in whole
or in part on the earlier to
<PAGE>
occur of (a) 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 (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 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. All other options granted hereunder shall be
exercisable no earlier than one, nor more than ten, years after the date any
such option is granted. The per share option price shall be not less than 100%
of the fair market value of a share of common stock of the Company at the time
the option is granted; provided that options granted to non-employee directors
shall be 100% of the fair market value of a share of common stock of the Company
at the time the option is granted. Upon exercise, the option price may be paid
in cash, in shares of common stock of the Company having a fair market value
equal to the option price, or in a combination thereof. Options may be
exercised during the individual's continued employment with the Company or
service on the Board, as the case may be, and 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 that option; provided, however, that if employment
of the optionee by the Company and its subsidiaries 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 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. Options shall
not be transferable, except that 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 may be exercised by the executor, administrator or personal
representative of such deceased optionee within ninety days of the death of such
optionee. (Amended 9-23-93).
3. Acceleration of Stock Options Upon a Change in Control. If while any stock
option granted pursuant to this Article III of the Plan remains unexercised and
outstanding, a Change in Control (as defined in Article II, Section 8, above)
occurs, then from and after the Acceleration Date (as defined in Article II,
Section 8, above) all such outstanding and unexercised options, whether or not
then vested, shall be fully and immediately exercisable.
<PAGE>
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 under the Sub-Plan
shall be deemed granted under this Stock Incentive Plan and shall comply in all
respects with the terms and conditions applicable to options granted under
Article III of this Stock Incentive 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 U.S. Securities Exchange Act of 1934;
"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 this
Stock Incentive 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--
<PAGE>
Composite Transaction 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 this 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, par value $1.25 per share, shall be subject to the
maximum specified in this Stock Incentive Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in this Stock Incentive Plan and varied
by the terms of this Sub-Plan.
(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 1991 annual meeting
scheduled to be held on March 28, 1991, and if approved shall become effective
on that date. The Sub-Plan shall terminate five years after it becomes
effective 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 right of any participation 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 this Stock Incentive 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 this Stock
Incentive Plan which applies to options granted under the Sub-Plan shall be made
without prior approval of the Board of UK Inland Revenue.
<PAGE>
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible Full-Time Employees as may be selected by the
Committee.
(b) Variations in Options. Variations may not be made to options granted under
the Sub-Plan pursuant to Article I clause 5 of this Stock Incentive Plan without
prior consent of the Board of UK Inland Revenue.
(c) Terms of Options. No options shall be exercisable less than one nor more
than ten years after the date of the 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.
Options shall not be transferable except that such options may be exercised by
the personal representative of a deceased optionee 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 this Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which he 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 U.K. Inland
Revenue under Schedule 9 (and not exercised) to exceed or further exceed the
greater of:
(1) 100,000 British Pounds Sterling or
(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.
(f) Withholding Tax. Article III Clause 3 of this Stock Incentive Plan shall
not apply to the Sub-Plan.
<PAGE>
V. STOCK APPRECIATION RIGHTS
1. Grants. Rights 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 of the Company from the date of grant,
or in the case of rights granted in tandem with or by reference to a stock
option granted prior to the grant of such rights, from the date of grant of the
related stock option to the date of exercise may be granted to such eligible
officers and other key management employees as may be selected by the Committee.
2. Terms of Grant. Such rights may be granted in tandem with or with reference
to a related stock option, in which event the grantee may elect to exercise
either the option or the right, but not both, as to the same share of common
stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall be
exercisable not more than ten years after the date of grant. Stock appreciation
rights shall not be transferable, except that in the event of the death of a
grantee during employment or within a period not in excess of five years after
termination of employment by reason of retirement or total and permanent
disability or within ninety days after termination of employment for any other
reason, outstanding rights may be exercised by the executor, administrator or
personal representative of such deceased grantee within ninety days of the death
of such grantee. Stock appreciation rights may be exercised during the
individual's continued employment with the Company and for a period not in
excess of ninety days following termination of employment and only within the
original term of that grant; provided, however, that if employment of the
grantee by the Company and its subsidiaries shall have terminated by reason of
retirement or total and permanent disability, then the grant may be exercised
for a period not in excess of five years following termination of employment but
not after the expiration of the term of the grant.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be paid the
excess of the then fair market value of the number of shares to which the right
relates over the fair market value of such number of shares at the date of grant
of the right 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.
<PAGE>
Exhibit 10(c)
R. R. DONNELLEY & SONS COMPANY
1993 STOCK PURCHASE PLAN FOR SELECTED MANAGERS AND KEY STAFF EMPLOYEES
(AS AMENDED ON SEPTEMBER 22, 1994 AND OCTOBER 26, 1995)
1. Purpose.
The purpose of the Stock Purchase Plan (the "Plan") of R. R. Donnelley &
Sons Company (the "Company") is to align the interests of the Company's
stockholders and selected managers and key staff employees of the Company and
its majority-owned subsidiaries eligible to participate in the Plan by granting
incentives to such managers and key staff employees to increase their
proprietary interest in the Company's growth and success.
2. Administration.
The Plan will be administered by a Committee (the "Committee") of three or
more directors designated by the Board of Directors of the Company (the "Board).
No member of the Committee, during the one year prior to service on the
Committee or during service on the Committee, shall have been or be granted or
awarded shares of common stock, par value $1.25 per share, of the Company
("Common Stock"), options to purchase shares of Common Stock or other equity
securities of the Company pursuant to the Plan or any other plan of the Company
or any affiliate of the Company, except for any grant or award which would not
result in such member ceasing to be a "disinterested person" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee may adopt such rules and regulations and make
such determinations and interpretations and provide for all terms and conditions
of the Plan and participation thereunder as it shall deem desirable and not
inconsistent with the limitations herein provided. All such rules, regulations,
determinations and interpretations relating to the Plan adopted by the Committee
shall be conclusive and binding upon all parties.
3. Eligibility.
(a) The Committee shall determine the classes (or portions thereof) of
managers and key staff employees of the Company and any of its subsidiaries that
are eligible to participate in the Plan (each such class determined to be so
eligible being referred to herein as an "Eligible Class"); provided that the
Committee may direct that the determination of such classes (or portions
thereof) be made by the Chief Executive Officer, either alone or together with
one or more designated officers of the Company, except that the determination of
the eligibility of any class in which there is an "officer" within the meaning
of Rule 16a-1 under the Exchange Act shall be made by the Committee. The
determination of Eligible Classes shall remain in effect unless and until
changed in accordance with the following. No elimination of an Eligible Class or
portion thereof may be made with respect to any calendar year after February 1
of such year. Additions of Eligible Classes or portions thereof may be made at
any time by the
<PAGE>
Committee, or by the Chief Executive Officer, either alone or together with one
or more designated officers of the Company, if the Committee has delegated the
authority to determine such Eligible Classes to the Chief Executive Officer.
(b) An employee of the Company or a subsidiary of the Company who either
(i) is employed in an Eligible Class on a Purchase Date (as hereinafter
defined), or (ii) was employed in an Eligible Class on the December 31 next
preceding a Purchase Date and who retired at age 55 or over on or after such
December 31 and on or prior to such Purchase Date, shall be eligible to purchase
shares of Common Stock in accordance with the Plan on such Purchase Date (each
such employee being referred to herein as an "Eligible Employee"); provided that
any Eligible Employee who disposes of Common Stock purchased under the Plan in
contravention of Section 7 hereof shall not be an Eligible Employee (and
therefore not entitled to purchase shares of Common Stock under the Plan) on
either of the two Purchase Dates next following the date on which the Company
becomes aware of the most recent such disposition and with respect to which the
condition set forth in Section 4(c) is satisfied.
4. Eligible Employee's and Company's Contributions for Purchase of Shares of
Common Stock.
(a) Subject to subsection (c) below, each Eligible Employee may, with
respect to each Purchase Date, contribute up to 5% of the Compensation (as
hereinafter defined) of such Eligible Employee for the calendar year next
preceding such Purchase Date; provided that the amount, if any, contributed by
an Eligible Employee (the "Eligible Employee's Contribution Amount") shall in no
event be less than $100. The Eligible Employee's Contribution Amount shall,
subject to the conditions contained herein, be applied, together with a Company
contribution equal to 50% of the Eligible Employee's Contribution Amount, to the
purchase of Common Stock as provided in Section 5. The Company will contribute
an additional amount equal to 20% of the Eligible Employee's Contribution
Amount, which amount will be paid in cash to the Eligible Employee in the last
pay period in the month of April next following the Purchase Date.
(b) The election of an Eligible Employee to contribute with respect to a
Purchase Date and the designation by such Eligible Employee of such Eligible
Employee's Contribution Amount for such Purchase Date must be made no later than
the March 15 next preceding such Purchase Date; provided that in the case of an
Eligible Employee who is subject to Section 16 of the Exchange Act, such
election and designation with respect to a Purchase Date shall be made no later
than the September 15 next preceding such Purchase Date and shall be irrevocable
after such September 15. An Eligible Employee shall pay such Eligible Employee's
Contribution Amount in full on or before the March 15 next preceding a Purchase
Date.
<PAGE>
(c) No Eligible Employee may make a contribution under the Plan following
any calendar year of the Company, unless the consolidated net earnings of the
Company for such year, before provision for Federal, state and other income
taxes, shall equal or exceed 6.5% of the consolidated net sales of the Company,
as determined in accordance with generally accepted accounting principles as in
effect for such year (the "Performance Threshold"); provided, however, that the
Committee may, in its sole discretion exercised at any time, exclude from the
calculation of the Performance Threshold for any year the effect of any
extraordinary, non-recurring or unusual charge or credit, any change in
accounting policy or any other factors (including, without limitation,
acquisitions or dispositions) deemed by the Committee to warrant such exclusion
or change the Performance Threshold as it deems appropriate.
(d) The "Compensation" of an Eligible Employee for a calendar year shall
mean the sum of (i) the base pay (before reduction on account of any election by
the Eligible Employee pursuant to a "qualified cash or deferred arrangement," as
defined in Section 401(k) of the Internal Revenue Code of 1986 (the "Code")), or
pursuant to a "cafeteria plan," as defined in Section 125 of the Code), and
overtime paid to such Eligible Employee by the Company and its subsidiaries
during such calendar year and (ii) the annual incentive compensation amount paid
to such Eligible Employee by the Company and its subsidiaries during such
calendar year, prorated, if necessary, for the portion of such calendar year
during which such employee was in an Eligible Class. Notwithstanding the
foregoing, Compensation shall not include expatriate benefits paid under the
Company's expatriate policy (as amended from time to time), including, without
limitation, any foreign service or hardship premium.
5. Purchase of Shares of Common Stock.
The Eligible Employee's Contribution Amount and the Company contribution
equal to 50% of such Eligible Employee's Contribution Amount shall be applied on
the first trading day following March 15 in any year when purchases may be made
(a "Purchase Date") to the purchase from the Company of whole shares of Common
Stock for the Eligible Employee's account at the average of the high and low
transaction prices reported in the New York Stock Exchange Composite
Transactions report for such Purchase Date. Any amount in excess of the amount
so applied to the purchase of whole shares of Common Stock shall be paid to the
Eligible Employee.
6. Certificates Representing Shares of Common Stock.
Shares purchased under the Plan for the account of an Eligible Employee
will be represented by a certificate registered in the name of such Eligible
Employee or, if such Eligible Employee shall so specify, in the name of such
Eligible Employee and such Eligible Employee's spouse as joint tenants, and the
certificate shall be delivered to the Eligible Employee as soon as practicable
following the Purchase Date.
<PAGE>
7. Disposition of Shares of Common Stock.
An Eligible Employee who purchases shares of Common Stock under the Plan
may sell, assign, transfer or otherwise dispose of such shares at any time;
provided that the sale, assignment, transfer or other disposition of any shares
of Common Stock which are purchased under the Plan within three years of the
date of purchase of such shares under the Plan (other than a transfer into the
name of the Eligible Employee and such employee's spouse as joint tenants or a
transfer from joint tenancy into the name of the Eligible Employee individually)
shall automatically terminate the right of such Eligible Employee to participate
in the Plan on the two Purchase Dates next following the date on which the
Company becomes aware of the most recent such disposition and with respect to
which the condition set forth in Section 4(c) is satisfied. An Eligible Employee
who transfers shares to a trust or brokerage account may restore such Eligible
Employee's right to participate in the Plan by re-registering such shares in
such Eligible Employee's name (or registering such shares in joint tenancy with
such Eligible Employee's spouse) within three months of notice from the Company
and delivering a copy of the certificate representing such re-registered shares
to the Compensation and Employee Benefits department of the Company.
8. Number of Shares of Common Stock.
The maximum number of shares of Common Stock available for purchase under
the Plan shall be 7,000,000 shares of Common Stock; provided that such maximum
number shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a split-up or
consolidation of shares or like capital adjustment or the payment of any stock
dividend or other increase or decrease in the number of such issued shares
effected without receipt of consideration by the Company. Shares of Common Stock
purchased under the Plan shall, at the election of the Company, be authorized
and unissued shares of Common Stock or shares of Common Stock held as treasury
shares or a combination thereof.
9. Effective Date.
The Plan shall be submitted to the stockholders of the Company for approval
at the 1993 annual meeting of stockholders and, if approved, shall become
effective as of January 1, 1993.
<PAGE>
10. Termination and Amendment.
The Plan shall terminate with respect to Compensation paid to employees after
December 31, 2002 unless terminated earlier by the Board. The Board may suspend
the Plan at any time. Any termination or suspension shall not affect the rights
of an Eligible Employee with respect to shares of Common Stock theretofore
purchased under the Plan. The Board may amend the Plan at any time, but no
amendment may be made without the approval of stockholders if such amendment
would increase the Company's total contribution to a percent greater than 70% of
an Eligible Employee's Contribution Amount, increase the maximum percentage to
more than 5% of an Eligible Employee's Compensation, reduce the purchase price
of shares of Common Stock under the Plan, or increase the aggregate number of
shares of Common Stock which may be purchased under the Plan.
<PAGE>
EXHIBIT 10(d)
SUPPLEMENTAL AGREEMENT
----------------------
This Supplemental Agreement entered into as of the 1st day of November, 1995 by
and between Frank R. Jarc ("Jarc") and R. R. Donnelley & Sons Company
("Donnelley").
WITNESSETH:
WHEREAS, Jarc is currently on a leave of absence from Donnelley pursuant to the
terms of a Retirement and Release Agreement dated May 18, 1995 (the
"Agreement"); and
WHEREAS, Donnelley and Jarc have determined that notwithstanding his leave, Jarc
can provide certain services for Donnelley and related to Donnelley's businesses
in South America;
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties hereby agree as follows:
1. Jarc shall spend up to ten (10) business days traveling in South America
for Donnelley, and shall conduct meetings with government and business
representatives as approved by Donnelley for an assessment of on-going
opportunities in South America. Upon his return, Jarc shall summarize in
writing for Donnelley the results of his meetings and his impressions
therefrom.
2. As compensation for the services described, Donnelley shall pay to Jarc as
additional compensation to that otherwise due under the Agreement, the sum
of five hundred dollars ($500) per hour for up to four thousand dollars
($4,000) per day for each day spent by Jarc in South America, subject to
withholdings taxes as required by law. Further, Donnelley shall reimburse
Jarc for all out-of-pocket expenses incurred by him in traveling to South
America and conducting meetings there, as well as reimbursing Jarc for
travel expenses of Jarc's spouse should it be beneficial to Donnelley that
she accompany him.
3. Jarc acknowledges that he continues to be bound by the terms of the
Agreement Regarding Confidential Information, Intellectual Property and
Non-Solicitation of Employees, executed on November 1, 1988 and set forth
as Exhibit B to the Agreement.
4. The provisions hereof are in addition to the provisions of the Agreement,
but supersede and replace any other agreements, either oral or written,
between the parties as to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement as of
the date first above written.
R. R. DONNELLEY & SONS COMPANY
/s/ Frank R. Jarc By: /s/ Steven J. Baumgartner
- --------------------------------- -----------------------------
Frank R. Jarc Steven J. Baumgartner
<PAGE>
EXHIBIT 12
R.R. DONNELLEY & SONS COMPANY
----------------
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
9/30/95
-----------
<S> <C>
Earnings
Earnings before income taxes...................................... $299,059
Interest expense.................................................. 80,183
Interest factor in operating leases (1)........................... 12,300
Amortization of capitalized interest.............................. 4,471
--------
Earnings available for fixed charges.............................. $396,013
========
Fixed Charges
Interest expense.................................................. $ 80,183
Capitalized interest.............................................. 8,349
--------
Interest incurred................................................. 88,532
Interest factor in operating leases (1)........................... 12,300
--------
Total fixed charges............................................. $100,832
========
Ratio of earnings to fixed charges (2).............................. 3.93
========
</TABLE>
- --------
(1) Management estimates one-third of current year operating lease payments to
be the interest factor in such rentals.
(2) The ratio of earnings to fixed charges for the twelve months ended
September 30, 1995 was 4.41.
<PAGE>
Exhibit 18
November 10, 1995
Mr. Peter F. Murphy
Vice President and Corporate Controller
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Re: Form 10-Q Report for the quarter ended September 30, 1995.
Dear Mr. Murphy:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, effective January 1, 1995, the Company changed from
the double extension-component of cost method of accounting for LIFO inventories
to the external index LIFO method using a composite of applicable producer price
indices. According to the management of the Company, this change was made to
better measure operating results by reflecting the effect of productivity
improvements in the Company's cost of sales.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to December 31, 1994. Further, we have not examined and
do not express any opinion with respect to your financial statements for the
nine months ended September 30, 1995.
Very truly yours,
Arthur Andersen LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 19,231
<SECURITIES> 0
<RECEIVABLES> 1,292,485
<ALLOWANCES> 27,719
<INVENTORY> 532,374
<CURRENT-ASSETS> 1,867,285
<PP&E> 4,039,916
<DEPRECIATION> 2,044,975
<TOTAL-ASSETS> 5,322,644
<CURRENT-LIABILITIES> 1,065,807
<BONDS> 1,629,243
<COMMON> 330,612
0
0
<OTHER-SE> 1,781,900
<TOTAL-LIABILITY-AND-EQUITY> 5,322,644
<SALES> 4,513,515
<TOTAL-REVENUES> 4,513,515
<CGS> 3,666,822
<TOTAL-COSTS> 4,128,586
<OTHER-EXPENSES> 5,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,183
<INCOME-PRETAX> 299,059
<INCOME-TAX> 95,699
<INCOME-CONTINUING> 203,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,360
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 0
</TABLE>
