<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 JUNE 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 JULY 31, 1995 153,617,459
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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 six month periods ended June 30, 1995 and 1994...... 3
Condensed Consolidated Balance Sheets as of June 30, 1995
(Unaudited) and December 31, 1994............................. 4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the six months ended June 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 Second Quarter and First
Half 1995 to 1994............................................. 8
Changes in Financial Condition................................. 9
Recent Developments............................................ 9
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................. $ 1,490,633 $ 1,117,338 $ 2,808,722 $ 2,188,215
Cost of sales.............. 1,212,501 899,519 2,300,775 1,776,543
------------ ------------ ------------ ------------
Gross profit............... 278,132 217,819 507,947 411,672
Selling and administrative
expenses.................. 155,485 118,120 290,840 233,270
------------ ------------ ------------ ------------
Earnings from operations... 122,647 99,699 217,107 178,402
Interest expense........... 27,246 12,472 49,830 24,199
Other expense--net......... 605 1,435 3,596 5,476
------------ ------------ ------------ ------------
Earnings before income
taxes..................... 94,796 85,792 163,681 148,727
Provision for income taxes. 30,335 27,454 52,378 47,593
------------ ------------ ------------ ------------
Net income................. $ 64,461 $ 58,338 $ 111,303 $ 101,134
============ ============ ============ ============
Per common share:
Net income............... $ 0.42 $ 0.38 $ 0.73 $ 0.66
============ ============ ============ ============
Cash dividends........... $ 0.16 $ 0.14 $ 0.32 $ 0.28
============ ============ ============ ============
Average shares outstanding. 153,526,000 154,367,000 153,308,000 154,288,000
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1995 AND DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C> <C>
ASSETS
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C> <C>
Cash and equivalents............................... $ 11,552 $ 20,569
Receivables, less allowance for doubtful accounts
of $24,342 and $19,168 at June 30, 1995 and
December 31, 1994, respectively................... 1,112,929 987,520
Inventories, principally at LIFO cost.............. 466,509 311,237
Prepaid expenses................................... 90,544 34,004
---------- ----------
Total current assets............................. 1,681,534 1,353,330
---------- ----------
Property, plant and equipment, at cost............. 3,929,694 3,708,844
Accumulated depreciation........................... 1,977,712 1,852,084
---------- ----------
Net property, plant and equipment................ 1,951,982 1,856,760
Goodwill and other intangibles--net................ 1,026,715 887,071
Other noncurrent assets............................ 408,241 354,982
---------- ----------
Total assets..................................... $5,068,472 $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)
JUNE 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................................. $ 469,789 $ 422,703
Accrued compensation............................. 84,461 107,167
Short-term debt.................................. 32,400 32,400
Current and deferred income taxes................ 100,003 46,912
Other accrued liabilities........................ 221,922 192,668
---------- ----------
Total current liabilities...................... 908,575 801,850
---------- ----------
Long-term debt................................... 1,600,335 1,212,332
Deferred income taxes............................ 282,284 286,904
Other noncurrent liabilities..................... 228,856 172,688
Shareholders' equity:
Common stock, at stated value.................. 330,612 330,612
Retained earnings, net of cumulative
translation adjustments of $17,894 and $18,235
at June 30, 1995 and December 31, 1994,
respectively.................................. 1,867,421 1,802,777
Reacquired common stock, at cost............... (149,611) (155,020)
---------- ----------
Total shareholders' equity................. 2,048,422 1,978,369
---------- ----------
Total liabilities and shareholders' equity. $5,068,472 $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 SIX MONTHS ENDED JUNE 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income............................................. $ 111,303 $ 101,134
Depreciation and amortization.......................... 192,284 150,888
Net change in assets and liabilities................... (260,133) 482
Other.................................................. (11,590) (100)
--------- ---------
Net cash provided by operating activities................ 31,864 252,404
--------- ---------
Cash flows used for investing activities:
Capital expenditures................................... (224,739) (233,528)
Other investments including acquisitions, net of cash
acquired.............................................. (23,812) (103,521)
--------- ---------
Net cash used for investing activities................... (248,551) (337,049)
--------- ---------
Cash flows from (used for) financing activities:
Net increase in borrowings............................. 249,584 138,069
Disposition of reacquired common stock................. 28,205 17,367
Acquisition of common stock............................ (20,744) (20,783)
Cash dividends on common stock......................... (49,052) (43,211)
--------- ---------
Net cash from financing activities....................... 207,993 91,442
--------- ---------
Effect of exchange rate changes on cash and equivalents.. (323) 2,436
--------- ---------
Net increase (decrease) in cash and equivalents.......... (9,017) 9,233
Cash and equivalents at beginning of period.............. 20,569 10,716
--------- ---------
Cash and equivalents at end of period.................... $ 11,552 $ 19,949
========= =========
</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 June 30, 1995 and December
31, 1994 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
Raw materials and manufacturing supplies................ $285,154 $185,527
Work in process......................................... 244,036 208,553
Finished goods.......................................... 38,163 5,821
Progress billings....................................... (54,703) (45,523)
LIFO reserve............................................ (46,141) (43,141)
-------- --------
Total inventories................................... $466,509 $311,237
======== ========
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
SIX MONTHS ENDED
JUNE 30
----------------------
1995 1994
-------- ------------
<S> <C> <C>
Cash flow data:
Interest paid, net of capitalized interest............. $ 41,312 $ 24,137
Income taxes paid...................................... $ 31,161 $ 38,831
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 SECOND QUARTER 1995 TO SECOND QUARTER 1994
Net sales increased 33.4% from the prior year reflecting recent acquisitions
and mergers, increased materials sales, continued growth in foreign operations
and strong demand across most business units. Acquisitions and mergers
accounted for approximately 50% 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. Higher materials
sales, principally paper provided to customers, accounted for approximately 30%
of the revenue growth in the quarter.
Net sales from foreign operations represented approximately 15% of total
sales for the quarter, up from approximately 10% in the prior year. The growth
in foreign sales reflected volume increases from both established foreign
operations and new operations in Latin America, Central Europe and Asia.
Demand in telecommunications was notably higher, reflecting the contract to
produce directories for Southwestern Bell and its affiliates, which began
production in the first quarter of 1995.
Gross profit increased 27.7%, which was less than the sales growth rate due
to the impact of higher paper costs, which are generally recovered, but at low
margins, and the change in revenue mix associated with the Stream International
merger. Selling and administrative expenses were 31.6% above the prior year,
reflecting volume related increases, recent expansions and new operations, and
the impact of the Stream International merger. Earnings from operations rose
23.0%, reflecting low margins on higher priced paper and the change in revenue
mix. Interest expense increased $14.8 million, reflecting higher interest rates
and debt balances to fund capital spending, increased working capital
requirements (primarily the impact of higher materials prices) and acquisitions
and mergers. As a result, net income and earnings per share grew 10.5%.
RESULTS OF OPERATIONS--COMPARISON OF FIRST HALF 1995 TO FIRST HALF 1994
Net sales increased 28.4% from the prior year, reflecting recent acquisitions
and mergers, increased materials sales, continued growth in foreign operations
and strong demand across most of the business units. Approximately 40% of the
revenue increase for the first half of the year was attributed to higher
materials sales, while 35% of the increase was due to acquisitions and mergers
(primarily Stream International).
Revenue growth is expected to increase in the second half of 1995, primarily
reflecting the impact of acquisitions and the Stream International merger,
higher materials sales and continued growth in foreign sales. Significant
revenue increases are expected with the anticipated release of Microsoft
Corporation's Windows 95(R) operating system. Through Stream International, the
company is a major global manufacturing and service provider to Microsoft
Corporation.
Gross profit increased 23.4%, which was lower than the sales growth due to
the impact of higher paper prices (which are generally recovered, but at low
margins) and the change in revenue mix associated with the Stream International
merger. Selling and administrative expenses increased 24.7% reflecting volume
increases and expenses associated with acquisitions and new operations,
particularly the Stream International merger. Earnings from operations
increased 21.7%, which included the impact of higher paper prices and the
change in revenue mix. Interest expense increased $25.6 million, reflecting
both higher interest rates and debt levels associated with capital spending,
increased working capital requirements (primarily the impact of higher
materials prices) and recent acquisitions and mergers. Net income grew 10.1%,
primarily due to volume increases, partially offset by the higher interest
expense. Earnings per share were $0.73, an increase of 10.6%, reflecting net
income growth and fewer shares outstanding.
8
<PAGE>
CHANGES IN FINANCIAL CONDITION
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. For the first
half, net income from operations plus depreciation and amortization was $303.6
million, up 20.5% from the prior year.
Capital expenditures during the first half totaled $224.7 million, including
the purchases and upgrades of equipment to meet the growing needs of present
and new customers and expansion of manufacturing plants. Working capital
increased $221.5 million from December 31, 1994, due to business growth, the
impact of the tight paper market and recent acquisitions and mergers.
Management estimates that the tight paper market increased the company's
working capital by approximately $150 million, primarily through higher
receivables and inventory balances.
At June 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 late June and early
July, the company issued $300 million of debt securities in the form of medium-
term notes, ranging in maturity from three to ten years at a weighted average
interest rate of 6.62%. The company also had an effective shelf registration
statement permitting it to issue, from time to time, up to an additional $500
million of debt securities. The company has no current intention to issue debt
securities under the latter registration statement in 1995.
Stream International has a credit facility of $200 million with a number of
banks. The credit facility provides funding for working capital requirements
and other credit needs. At June 30, 1995, Stream International had outstanding
borrowings against this line of credit of $110 million.
RECENT DEVELOPMENTS
On August 4, 1995, the Federal Trade Commission released its unanimous
opinion upholding the legality of the company's 1990 acquisition of the
Meredith/Burda companies, ending the earlier challenge to the acquisition.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 4, 1995, the Federal Trade Commission ("FTC") issued a final order
dismissing an administrative complaint brought against the company to require
divestiture of the Meredith/Burda companies.
In July, 1990, the FTC filed a complaint in U.S. District Court seeking a
preliminary injunction to enjoin the company from consummating the acquisition
of the Meredith/Burda companies, alleging that consummation might substantially
lessen competition in certain alleged rotogravure printing markets. The
acquisition was closed in September, 1990, after the U.S. District Court denied
the FTC's motion for an injunction. In October, 1990, the FTC Staff initiated
an administrative action challenging the acquisition on the same grounds raised
before the U.S. District Court in the injunction proceeding and seeking
divestiture. On December 30, 1993, an administrative law judge ("ALJ") of the
FTC ruled that the acquisition did create a "dominant firm" and significantly
increased concentration in the "high volume publication rotogravure market."
The ALJ ordered divestiture of the plants which had been acquired in the
Meredith/Burda acquisition.
The final order results from the appeal by the company of the ALJ's opinion.
The FTC found that the market proposed by the FTC Staff was not a relevant
market for the purposes of assessing the legality of the acquisition, and that
even assuming a broader market definition, there was no likelihood that the
acquisition of the Meredith/Burda companies would lead to anticompetitive
effects.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<C> <S>
10(a) Retirement and Release Agreement with retiring executive*
10(b) Employment Agreement among Stream International, R. R. Donnelley
& Sons Company and Rory Cowan*
12 Statement of Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
- --------
*Management Contract or Compensation Plan or Arrangement
(b) No current Report on Form 8-K was filed during the second 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)
August 11, 1995
Date __________________________
11
<PAGE>
EXHIBIT 10(a)
RETIREMENT AND RELEASE AGREEMENT
--------------------------------
This Retirement and Release Agreement ("Agreement") is entered into by
and between R.R. Donnelley & Sons Company, on behalf of itself, its subsidiaries
and affiliated entities and their respective shareholders, directors, officers,
employees, agents, and attorneys and their predecessors, successors, and assigns
("Company"), and Frank R. Jarc ("Jarc") this 18th day of May 1995.
PRELIMINARY RECITALS
WHEREAS, the Company has employed Jarc as Executive Vice President and
Chief Financial Officer;
WHEREAS, Jarc has elected to retire from his employment and all
offices he held with the Company, effective November 30, 1997 ("Retirement
Date"); and
WHEREAS, the Company and Jarc mutually agree to end the employment
relationship, provide for an orderly transition of responsibilities, secure
Jarc's availability in the future to assist in the prosecution or defense of
matters in which Jarc was involved, limit certain competitive activities, and
settle all matters and potential claims on the terms and conditions and for the
compensation stated in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Company and Jarc hereby agree as follows:
1. Jarc shall continue in his role as Executive Vice President and Chief
Financial Officer through a mutually agreed date, which shall be no later than
December 31, 1995 ("Leave Date") and shall be compensated therefor at his
current base salary. For the period from the Leave Date through the Retirement
Date, Jarc shall remain on the payroll of the Company and shall receive an
amount equal to one year's base salary at the current rate (to be paid in equal
monthly installments during the period from the Leave Date through the
Retirement Date). At the Retirement Date, Jarc shall be removed from the
payroll of the Company and his employment will terminate. Jarc shall cease to
perform services for the Company (except as provided in this Agreement) as of
the Leave Date. Effective as of the Leave Date, Jarc shall resign as the
Company's Executive Vice President and Chief Financial Officer (and any other
positions he may hold with any of the subsidiary corporations or affiliated
entities of the Company), but shall remain on leave of absence through the
Retirement Date. Jarc's separation on the Retirement Date shall be deemed to
be, and shall be, early retirement with the consent of the Company for purposes
of determining his rights under retirement, stock options and other benefit
plans of the
<PAGE>
Company providing for rights dependent upon whether a termination of employment
was early retirement with the consent of the Company.
2. So long as Jarc has complied with the terms of this Agreement and:
(i) Jarc does not revoke this Agreement within seven (7) days
after his execution and delivery of the Agreement; and
(ii) Jarc executes and delivers to the Company, the notarized (or
otherwise witnessed) Ratification Affidavit attached as
Exhibit A between eight (8) and fifteen (15) days after the
delivery of the executed Agreement to the Company,
the Company will cause the following compensation to be paid to Jarc and shall
cause the following events to occur:
a. Jarc shall be entitled to receive such retirement benefits as are
provided for him under the Company's various plans for retired
employees and such plans shall be honored in accordance with their
terms.
b. The rights of Jarc under the Company's stock bonus, restricted stock,
and stock option grants shall be honored in accordance with the terms
of such grants and the plans under which such grants were issued. No
such grants will be made to Jarc in 1995 or thereafter.
c. Jarc shall not participate in the Company's 1993 Stock Purchase Plan
for purchases after March 16, 1995.
d. The Company agrees, effective as of the Leave Date, to establish and
to credit to a hypothetical account (the "Account") the principal sum
of Seven Hundred Ninety-Eight Thousand Dollars ($798,000). Such
principal amount, as increased or decreased from time to time by
interest credited and distributions made, shall bear interest from the
Leave Date, creditable quarterly thereafter, at a rate equal to
Moody's Aaa corporate bond rate (with a duration of twenty (20) years
or more), but not less than six percent (6%). There shall be paid to
Jarc during his lifetime, and charged to the Account, the sum of one
hundred thousand and no/100 dollars ($100,000) on January 1, 1998, and
on each January 1 thereafter (or in the case of the last such
installment such lesser amount as shall remain in the Account) until
the first to occur of (i) the death of Jarc or (ii) the depletion of
the Account by reason of the charges for such distributions. Should
Jarc die before the Account is fully depleted, the balance remaining
in the Account shall be distributed as described below. The
obligation of the Company to make the payments contemplated by this
section shall be an unsecured
-2-
<PAGE>
general obligation of the Company, and shall terminate upon breach by
Jarc of the provisions of paragraph 7.
e. In January 1996, the Company shall pay Jarc the payment that would
have been called for under the 1993-1995 long term incentive grant
made to Jarc on December 10, 1992 pursuant to the terms of the 1991
Stock Incentive Plan (except that Jarc shall be deemed to have worked
through December 31, 1995). Jarc shall receive no payment under the
1995-1997 long term incentive grant made to Jarc pursuant to the terms
of the 1995 Stock Incentive Plan, and such grant is hereby canceled
and declared null and void. The obligation to make payment under the
1993-1995 long term incentive grant pursuant to this subparagraph
shall terminate upon breach by Jarc of the provisions of paragraph 7.
f. The Company shall pay Jarc the full 1995 annual bonus in accordance
with the terms of the 1995 Annual Incentive Plan, payable in January
1996 in accordance with the terms of that plan (except that Jarc shall
be deemed to have worked through December 31, 1995). Jarc shall not
receive a payment under that plan for any period after December 31,
1995.
g. The Company shall reimburse Jarc up to Eight Thousand Dollars ($8,000)
for 1995 for financial planning purposes in accordance with the terms
of the plan approved at the June 13, 1994 meeting of the Compensation
Committee of the Company's Board of Directors.
h. The Company shall pay the premium for excess life and disability
insurance benefits for Jarc for the period through June 30, 1996 in
accordance with the terms of the plan approved at the June 13, 1994
meeting of the Compensation Committee of the Company's Board of
Directors.
i. Jarc will continue to participate in the Company's medical, dental,
life insurance (but not the Company's travel, disability, AD&D, and
savings plan as to which participation shall terminate on the Leave
Date, to the extent permitted by law) benefit plans in accordance with
the terms of the plans through the Retirement Date and thereafter as
permitted by the plans. The Company shall provide Jarc his rights
under the Consolidated Budget Reconciliation Act ("COBRA") from and
after the Retirement Date, or, if earlier, the date of any "qualifying
event" under that law.
j. The Company shall provide outplacement assistance to Jarc to the same
extent as that usually provided to senior executives of the Company,
as described in Exhibit C.
-3-
<PAGE>
k. The Company shall pay to Jarc the actual attorney's fees incurred by
him, up to a maximum of Two Thousand Five Hundred Dollars ($2,500), in
preparation and negotiation of this Agreement.
l. Within one week after Jarc's Leave Date, the Company shall pay to him
all accrued but unused vacation through that date. Jarc shall not
accrue vacation after the Leave Date.
m. The Company shall provide Jarc, at the Company's expense, StockMax
service through Richard M. Sawdey or any comparable service Jarc
chooses having a cost not in excess of Nine Hundred Dollars ($900) per
year for 1995 and 1996. Such service shall not be provided for 1997
or any subsequent year.
n. As of the Retirement Date (provided Jarc shall have reached age 55 and
have 10 years of service with the Company), Jarc shall be eligible for
participation in the Company's retiree medical insurance benefit plan,
in accordance with the terms of the plan (which includes the right of
the Company to amend or terminate the plan).
Upon the death of Jarc, any balance then remaining to be paid pursuant to
paragraph 1 or in the Account described in subparagraph 2(d) or payment not yet
made pursuant to sub-paragraphs 2(e) or (f) shall be paid to such person(s) or
trust(s) as shall be designated in writing delivered to the Company by Jarc or
if no such person(s) or trust(s) have been so designated to the estate of Jarc;
and any other rights or benefits of Jarc under the other plans listed above
shall be determined in accordance with the terms of those plans.
The foregoing payments and benefits shall be subject to withholding taxes to the
extent required by law.
3. Until the Company files this Agreement as required by law with the
Securities and Exchange Commission, Jarc and the Company agree that they will
keep confidential, to the full extent permitted by law, the terms of this
Agreement, all performance hereunder and all circumstances relating to Jarc's
retirement from the Company; provided, however, that Jarc and the Company may
disclose the same as required by law, for purposes of tax reporting, pursuant to
legal process, in an action to enforce the Agreement, to claim benefits under
the Agreement or under Company benefit plans in which Jarc is a participant or
beneficiary, to seek new employment, to members of Jarc's immediate family,
legal advisors, and to persons from whom Jarc is seeking financial advice.
Notwithstanding the foregoing:
a. Neither Jarc nor the Company shall at any time disparage the other or
place the other in a negative and false light.
-4-
<PAGE>
b. Jarc shall not disclose to anyone (without the prior written consent
of the Company or compulsory process) any information regarding the
Company or its financial condition, contractual arrangements, internal
affairs, or governance which is non-public, confidential, or
proprietary and which would in any way injure the reputation of the
Company or of any of the (past or present) shareholders, members,
directors, officers, employees, agents or attorneys of the Company.
c. The Company shall respond to reference requests on behalf of Jarc in a
manner consistent with the press release (either attached as Exhibit D
or later agreed to by the Company and Jarc), provided that such
reference requests are directed to Steven J. Baumgartner, or his
successors as Senior Vice President and Chief Administrative Officer.
4. Jarc agrees that until his Leave Date he will perform such duties as are
assigned to him and will assist the Company to ensure a smooth transition to
employees or other individuals designated by the Company of his responsibilities
and the details concerning the projects and assignments in which he is and was
involved. Jarc will be available to respond to questions between the Leave Date
and the Retirement Date; provided, however, that Jarc shall not be required to
perform any duties which are materially different in nature, physical
requirements or skill level than that which he performed in his role as
Executive Vice President and Chief Financial Officer.
5. Jarc agrees to cooperate with the Company in the truthful and honest
prosecution and/or defense of any claim in which the Released Parties (as
defined below) may have an interest (subject to reasonable limitations
concerning time and place), which may include without limitation making himself
available to participate in any proceeding involving any of the Released
Parties, allowing himself to be interviewed by representatives of the Company,
appearing for depositions and testimony without requiring a subpoena, and
producing and/or providing any documents or names of other persons with relevant
information. Jarc shall provide such services during the period from the Leave
Date through the Retirement Date, up to Two Hundred (200) hours without
additional compensation and thereafter at the rate of Two Hundred Dollars ($200)
per hour, and in either case the Company shall pay Jarc's expenses incurred at
the Company's prior and specific request. If such services are required after
the Retirement Date, the Company shall compensate Jarc at the rate of Two
Hundred Dollars ($200) per hour for the time actually expended in such endeavors
in excess of One Hundred (100) hours per year for two (2) years following the
Retirement Date and for any such time expended in such activities following such
two (2) year period, and shall pay Jarc's expenses incurred at the Company's
prior and specific request. The Company further agrees that, if Jarc is sued
individually concerning any act, omission or conduct which he undertook in his
capacity as an employee, officer, director or agent of the Company or any of its
subsidiaries, then the Company shall defend Jarc from the claim and indemnify
Jarc
-5-
<PAGE>
for any judgment, fine or settlement resulting therefrom to the same extent as
was authorized by the Company's By-Laws and/or Certificate of Incorporation for
employees as of the date of execution of this Agreement.
6. Jarc reaffirms and agrees to comply with the terms of the Agreement
Regarding Confidential Information, Intellectual Property and Non-Solicitation
of Employees signed by Jarc on November 1, 1988, a copy of which is attached
hereto as Exhibit B and incorporated by reference herein. Jarc represents that
he has delivered (or will as requested, but no later than the Leave Date,
deliver) all Company papers, books, records, computer programs, or like
materials in his possession or control and all copies thereof to the Company.
7. In consideration of the covenants and agreements of the Company herein
contained, the payments to be made by the Company pursuant to this Agreement,
the positions of trust and confidence he occupied with the Company and the
information of a highly sensitive and confidential nature he garnered as a
result of such position, Jarc agrees that he will not, during the period
commencing on the date of this Agreement and ending on the Retirement Date,
without the prior written consent of the Company, either directly or indirectly
accept employment by or serve as a consultant, agent, principal stockholder,
corporate officer, director, or any other individual or representative capacity
for any entity engaged in the commercial print industry, and which is a
competitor of the Company or any of its subsidiaries, or assist in the
solicitation of any work or engage in any other activity in competition with the
business then being conducted by the Company or any of its subsidiaries, or
solicit directly or indirectly the employees of the Company or any of its
subsidiaries to accept any other employment. Jarc acknowledges that the
business conducted by the Company is worldwide and that it is reasonably
necessary for the protection of the Company and its subsidiaries and their
goodwill, in view of his knowledge of its and their worldwide operations, that
he not provide to competitors of the Company or any of its subsidiaries anywhere
in the world the benefit of his knowledge of the Company and its subsidiaries
and its and their business. Jarc further acknowledges that a breach by him of
his agreements contained in this section would cause irreparable harm to the
Company which is not adequately measurable by money damages and that accordingly
in the event of such a breach, in addition to any and all other rights the
Company may have, including, without limitation, rights at law and in equity,
and the right of the Company to terminate the payment of funds under
subparagraphs 2(d) and (e), the Company shall be entitled to equitable remedies
in the nature of injunctive relief to stop any existing breaches and to prohibit
any future breaches.
Nothing in this paragraph shall be construed to prevent Jarc from engaging
in the private practice of accountancy or in a consulting practice (other than
in connection with a competitor of the Company), so long as Jarc maintains the
confidential nature of information pertaining to the Company. It is further
agreed and understood that the affiliation of Jarc with a public accounting firm
or a consulting firm
-6-
<PAGE>
which represents one or more clients in the commercial printing industry shall
not be a breach of this provision, provided that Jarc and any such firm take
appropriate steps to isolate Jarc from any work performed by that firm for a
competitor of the Company.
8. In the event that either the Company or Jarc fails to comply with its
obligation hereunder and the other party brings suit to secure performance and
prevails on said claim, then the breaching party shall be obligated to reimburse
the prevailing party for the actual attorney fees and costs incurred by the
prevailing party in bringing said claim. For purposes of this paragraph,
"prevail" shall mean obtaining a judgment or equitable order against the
breaching party or an agreement from the breaching party to perform
substantially as prayed by the prevailing party.
9. Jarc, on behalf of himself, his heirs, executors, attorneys,
administrators, successors and assigns, hereby fully and forever, to the full
extent permitted by law, releases and discharges the Company, and each of its
subsidiary and affiliated companies and entities and each of their partners,
principals, members, shareholders, directors, officers, trustees, employees,
contractors, consultants, agents and attorneys, past, present and future, and
all predecessors, successors and assigns thereof (collectively "Released
Parties") from any and all claims, demands, agreements, actions, suits, causes
of action, damages, injunctions, restraints and liabilities of whatever kind or
nature, in law, equity or otherwise, whether now known or unknown or which have
ever existed or which may now exist (except to enforce the terms of this
Agreement), including, but not limited to, any and all claims, liabilities,
demands or causes of action relating to or arising out of Jarc's employment,
resignation from the position of Executive Vice President and Chief Financial
Officer, or retirement from employment with the Company or the Severance
Agreement dated November 6, 1989 between Jarc and the Company (and amendment
thereto dated May 8, 1991), such as claims under Title VII of the Civil Rights
Act of 1964, as amended, 42 U.S.C. (S) 2000e et al., 42 U.S.C. (S) 1981, the
Civil Rights Act of 1991, the Americans with Disabilities Act, the Family and
Medical Leave Act, the Age Discrimination in Employment Act, as amended by the
Older Workers Benefit Protection Act, the anti-trust and restraint of trade
statutes and common law, the federal and state (including, without limitation,
Illinois) statutes or common law, or claims for breach of contract, for
misrepresentation, for violation of any other federal, state or local statute,
ordinance or regulation or common law dealing in any respect with discrimination
in employment or otherwise, defamation, retaliatory or wrongful discharge under
the common law of any state, infliction of emotional distress or any other tort
under the common law of any state or for attorney's fees. Jarc acknowledges and
agrees that this release and the covenant not to sue set forth in paragraph 10
are essential and material terms of this Agreement and that without such release
and covenant not to sue no agreement would have been reached by the parties.
Jarc understands and acknowledges the significance and consequences of this
release and this Agreement.
-7-
<PAGE>
The following provisions are applicable to, and made a part of, this
Agreement and the foregoing general release and waiver:
a. Jarc does not release or waive any right or claim that arises after
the date of execution of this Agreement which he may have under the
Age Discrimination in Employment Act, as amended by the Older Workers
Benefits Protection Act, provided that any claim based upon his
resignation from the positions of Executive Vice President and Chief
Financial Officer and his retirement from the Company or the Severance
Agreement dated November 6, 1989 between Jarc and the Company (and
amendment thereto dated May 8, 1991) has, for all purposes relating to
this Agreement, arisen prior to the execution of this Agreement.
b. Jarc does not waive any right to the receipt of payments or benefits
not yet due and owing, whether under this Agreement or under the
Company benefit and compensation plans in which Jarc is a participant
or beneficiary.
c. In exchange for this general release and waiver hereunder, Jarc hereby
acknowledges that he has received separate consideration beyond that
to which he is otherwise entitled under the Company's policy or
applicable law.
d. The Company has advised, and hereby again expressly advises, Jarc to
consult with an attorney of his choosing regarding, and prior to
executing, this Agreement which contains a general release and waiver.
e. Jarc has twenty-one (21) days from the date of receiving this document
to consider whether or not to execute this Agreement. In the event of
such execution, Jarc has a further period of seven (7) days from such
date in which to revoke said execution and this Agreement shall not
become effective or enforceable prior to the expiration of such
period.
This release and covenant not to sue shall not apply to workers' compensation
claims, and claims under state and federal unemployment insurance laws.
10. To the maximum extent permitted by law, Jarc covenants not to sue or to
institute or cause to be instituted any kind of claim or action (except to
enforce this Agreement) in any federal, state or local agency or court against
any of the Released Parties relating to the matters covered by the foregoing
release.
11. Jarc warrants and represents that he has neither made, will make, nor
suffered to be made any assignment or transfer of any right, claim, demand or
cause of action covered by the above release or covenant not to sue, that Jarc
is the sole and
-8-
<PAGE>
absolute owner of all thereof, and that Jarc has not filed or suffered to be
filed on his behalf any claim, action, demand of any kind covered by the above
release or covenant not to sue as of the date and time of the execution of this
Agreement.
12. Jarc agrees that neither this Agreement nor performance hereunder
constitutes an admission by the Company of any violation of any federal, state
or local law, regulation, common law, of any breach of any contract or any other
wrongdoing of any type.
13. In the event that any paragraph, subparagraph or provision of this
Agreement shall be determined to be contrary to governing law or otherwise
unenforceable, all remaining portions of this Agreement shall be enforced to the
maximum extent permitted by law; the unenforceable paragraph, subparagraph or
provision shall first be construed or interpreted, if possible, to render it
enforceable and, if that is not possible, then the provision shall be severed
and disregarded, and the remainder of this Agreement shall be enforced to the
maximum extent permitted by law.
14. This Agreement is being made and entered into in the State of Illinois and
its construction, validity and enforceability shall be determined under, and in
accordance with, the laws of the State of Illinois.
15. This instrument plus the exhibits attached hereto constitute the entire
agreement between the parties and supersedes the Severance Agreement dated
November 6, 1989 (and the amendment thereto dated May 8, 1991) between Jarc and
the Company which is hereby declared null and void. No modification of this
Agreement shall be valid unless signed by the party against whom such
modification is sought to be enforced.
IN WITNESS WHEREOF the parties have executed this Agreement the day
and year first above stated.
R.R. Donnelley & Sons Company
By: /s/ John R. Walter
------------------------------
John R. Walter
Chairman and
Chief Executive Officer
/s/ Frank R. Jarc
------------------------------
Frank R. Jarc
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<PAGE>
EXHIBIT A
STATE OF ILLINOIS ) RATIFICATION AFFIDAVIT
) SS:
COUNTY OF COOK )
Frank R. Jarc, being first duly cautioned and sworn on oath, deposes
and states:
1. I am the same Frank R. Jarc who is a party to a Retirement and
Release Agreement ("Agreement") between R.R. Donnelley & Sons Company ("the
Company") and myself dated May 18, 1995.
2. I affirm that, prior to my acceptance of that Agreement on MaY
18,1995, I was advised to seek my own lawyer's advice, and further I was advised
that I had 21 days in which to consider the matter (which period of time I
utilized to the extent deemed prudent by myself, I being under no compulsion to
make a decision sooner). I further affirm that the Agreement was written in
such a manner that I understood the terms, and that the consideration called for
by the Agreement in exchange for the release and covenant not to sue arises
solely from that aspect of the Agreement, and is something to which I would not
otherwise be entitled absent the Agreement and the release and covenant not to
sue.
3. More than seven calendar days have passed since I executed the
Agreement and I have not taken any action to revoke the Agreement or the release
and covenant not to sue. In full recognition of my rights and obligations under
that Agreement and release and covenant not to sue, I ratify my initial
acceptance.
4. I have read all of the statements in this Ratification Affidavit,
and all of the facts are true to my own personal knowledge.
5. Further this affiant sayeth naught.
/s/ Frank R. Jarc
--------------------------
Frank R. Jarc
[Notarized or witnessed on following page]
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<PAGE>
Alternative 1:
- --------------
- -----------------------------
Witness
Alternative 2:
- --------------
Subscribed and sworn to before me, the undersigned notary public, this
25th day of May, 1995.
- --------------------------------
Notary public in and for the
State of Illinois, County of Cook
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<PAGE>
EXHIBIT B
Frank R. Jarc
---------------------------------
(Type or print name of employee)
AGREEMENT REGARDING CONFIDENTIAL INFORMATION,
INTELLECTUAL PROPERTY AND
NON-SOLICITATION OF EMPLOYEES
In consideration of my employment or continued employment by R. R.
Donnelley & Sons Company or any subsidiary, affiliate, successor or assignee
thereof (collectively "Donnelley"), and the salary, commission or other
compensation paid to me from time to time by Donnelley, I agree as follows:
1. Competitive Employment. While employed by Donnelley, I will devote my
entire skill and best efforts to the duties that are assigned to me from
time to time, and I will not, without Donnelley's prior written consent,
engage in any employment or activity other than for Donnelley in any
business in which Donnelley is or becomes engaged.
2. Definition of Confidential Information. I realize that my position with
Donnelley creates a relationship of high trust and confidence with respect
to Confidential Information owned by Donnelley, its customers or suppliers
that may be learned or developed by me while employed by Donnelley. For
purposes of this Agreement, "Confidential Information" means all
information that meets one or more of the following three conditions: (a)
it has not been made available generally to the public either by Donnelley
or by a third party with Donnelley's consent, (b) it is useful or of value
to Donnelley's current or anticipated business or research and development
activities or those of a customer or supplier of Donnelley, or (c) it
either has been identified as confidential to me by Donnelley (orally or in
writing) or it has been maintained as confidential from outside parties and
is recognized as intended for internal disclosure only. Confidential
Information includes, but is not limited to, "Trade Secrets" to the full
extent of the definition of that term under Illinois law. It does not
include "general skills, knowledge and experience" as those terms are
defined under Illinois law.
3. Examples of Confidential Information. Confidential Information includes,
but is not limited to: computer programs, unpatented inventions,
discoveries or improvements; marketing, manufacturing, organizational,
research and
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<PAGE>
development, and business plans; company policies; sales forecasts;
personnel information (including the identity of Donnelley employees, their
responsibilities, competence and abilities, and compensation); medical
information about employees; pricing and nonpublic financial information;
current and prospective customer lists and information on customers or
their employees; information concerning planned or pending acquisitions or
divestitures; and information concerning purchases of major equipment or
property.
4. General Skills, Knowledge and Experience. If I leave Donnelley, I may take
with me and use the general skills, knowledge and experience that I have
learned or developed in my position or positions with Donnelley or others.
5. Confidentiality Obligations. During and after my employment with
Donnelley, I will not (a) disclose, directly or indirectly, any
Confidential Information to anyone outside of Donnelley or to any employees
of Donnelley not authorized to receive such information or (b) use any
Confidential Information other than as may be necessary to perform my
duties at Donnelley. In no event will I disclose any Confidential
Information to, or use any Confidential Information for the benefit of, any
current or future competitor, supplier or customer of Donnelley, whether
myself, any subsequent employer, or any other person or entity.
6. Duration. With respect to Trade Secrets, my obligations under paragraph 5
shall continue indefinitely or until such Trade Secret Information has been
made available generally to the public either by Donnelley or by a third
party with Donnelley's consent or is otherwise not considered a Trade
Secret under Illinois law. With respect to Confidential Information which
is not a Trade Secret (hereinafter referred to as "Proprietary
Information"), my obligations under paragraph 5 shall continue in duration
until the first to occur of the following: (a) five (5) years has elapsed
since termination of my employment with Donnelley for any reason, including
termination by Donnelley with or without cause, or (b) the Proprietary
Information has been made available generally to the public either by
Donnelley or by a third party with Donnelley's consent.
7. Geographic Scope. I understand that Donnelley has sales and manufacturing
facilities throughout the United States and in a number of foreign
countries, that it purchases equipment and materials from suppliers located
throughout the world, and that it expects to expand the scope of its
international activities in the future, I therefore agree that my
obligations under paragraph 5 shall extend worldwide.
8. Former Employers. I acknowledge that Donnelley expects me to respect and
safeguard the trade secrets and confidential information of my former
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<PAGE>
employers. I will not disclose to Donnelley, use in Donnelley's business,
or cause Donnelley to use, any information or material that is confidential
to any former employer, unless such information is no longer confidential
or Donnelley or I have obtained the written consent of such former employer
to do so.
9. Return of Property. Upon termination of my employment with Donnelley, I
will return all Donnelley property in my possession, including notebooks,
reports, manuals programming data, listings and materials, engineering or
patent drawings, patent applications, any other documents, files or
materials which contain, mention or relate to Confidential Information, and
all copies and summaries of such materials, whether in human-or machine-
readable-only form, that I may have or that may come into my custody while
employed by Donnelley.
10. Non-Solicitation of Employees. I shall not while employed by Donnelley and
for a period of two (2) years from the date of termination of my employment
with Donnelley for any reason, including termination by Donnelley with or
without cause, either directly or indirectly solicit, induce or encourage
any Donnelley employee(s) to terminate their employment with Donnelley or
to accept employment with any competitor, supplier or customer of
Donnelley, nor shall I cooperate with any others in doing or attempting to
do so. As used herein, the term "solicit, induce or encourage" includes,
but is not limited to, (a) initiating communications with a Donnelley
employee relating to possible employment, (b) offering bonuses or
additional compensation to encourage Donnelley employees to terminate their
employment with Donnelley and accept employment with a competitor, supplier
or customer of Donnelley, or (c) referring Donnelley employees to personnel
or agents employed by competitors, suppliers or customers of Donnelley.
11. Injunctive Relief. I acknowledge that violation of the foregoing
confidentiality and non-solicitation obligations will cause Donnelley
irreparable harm. I agree that Donnelley is entitled to protection from
such violations, including protection by injunctive relief, in addition to
other remedies available under the law.
12. Disclosure of Developments. I will disclose promptly to Donnelley all
inventions, discoveries, developments, improvements, works of authorship
and computer programs and related documentation (collectively,
"Developments") that are made, conceived, first reduced to practice or
learned by me either solely or jointly with another or others while
employed by Donnelley, whether or not they are patentable, copyrightable or
subject to trade secret protection.
13. Ownership of Developments. I agree that, except as otherwise provided in
paragraph 17 hereof, all Developments shall be the sole and exclusive
property of Donnelley. Any Development for which copyright protection is
available shall be considered a work made for hire or, if I am an
independent
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<PAGE>
contractor, assigned by me to Donnelley, I agree to assign and do hereby
assign to Donnelley, or to some other legal entity ("Assignee") designated
by Donnelley, all of my right, title and interest in and to all
Developments.
14. Protection of Developments. Donnelley or Assignee shall have the right to
use the Developments and obtain Letters Patent, copyrights (as author or
assignee) or other statutory or common law protections for Developments in
any and all countries. I will provide Donnelley or Assignee such
assistance as may be requested in order for Donnelley or Assignee to obtain
or otherwise secure, and from time to time enforce. U.S. or foreign
Letters Patent, copyrights or other statutory or common law protections for
Developments, including the execution of any and all documents that
Donnelley or Assignee may wish to use to obtain or otherwise secure or
enforce such rights, together with any assignments thereof to Donnelley or
Assignee, and to the successors and assigns of Donnelley or Assignee,
transferring all of my right, title and interest in and to any Development,
and the right to apply for or otherwise obtain any such rights. Donnelley
or Assignee shall have the sole right to determine what action, if any, to
take with respect to any Development. All expenses incurred in obtaining
and enforcing rights in Developments owned by or assigned to Donnelley
shall be borne by Donnelley.
15. Post-Employment Assistance. If I am no longer employed by Donnelley,
Donnelley or Assignee shall compensate me at a reasonable rate for time
actually spent by me at the request of Donnelley or Assignee on the
assistance referred to in paragraph 14. Such rate shall be determined by
Donnelley and shall be based on my compensation at the time my employment
with Donnelley was terminated. Donnelley or Assignee shall also reimburse
me for pre-approved traveling and personal expenses incurred in complying
with such request.
16. Employee Inventions. I understand that the provisions of paragraphs 13, 14
and 15 of this Agreement do not apply to an invention for which none of
Donnelley's equipment, supplies, facilities or trade secret information was
used and which was developed entirely on my own time, unless the invention
relates directly to Donnelley's business or to Donnelley's actual or
demonstrably anticipated research or development activities, or unless the
invention results from work I perform for Donnelley.
17. Pre-Existing Developments. I have identified at the end of this agreement
all Developments that have been made or conceived or first reduced to
practice by me alone or jointly with others prior to my employment with
Donnelley, and that I desire to exclude from operation of this agreement.
If there are no Developments listed, I represent that I have made no such
Developments
-15-
<PAGE>
18. Payments. With respect to any Development for which Donnelley seeks to
obtain U.S. or foreign letters patent, Donnelley will pay me the sum of
Five Hundred Dollars ($500) when I execute an assignment of the Development
to Donnelley, or when I execute the first patent application and assignment
covering the Development, whichever occurs first. Divisional or
continuation-in-part applications shall be considered to cover separate
Developments. The payment of the sum of Five Hundred Dollars ($500) shall
relieve Donnelley of any obligation to make any further payments to me with
respect to such Development. If there are several co-inventors, this sum
shall be divided equally between them.
19. Partial Termination. If, subsequent to the date of this agreement, I am
placed into a position at Donnelley in which disclosure and assignment of
Developments is not required under Donnelley's Standard Practice on
Patents, SP5-0500, I may terminate paragraphs 12-18 of this Agreement in
accordance with the terms of such Standard Practice with respect to
Developments conceived subsequent to the date of my placement.
20. Identification of Authorship. Donnelley, its assignees and licensees are
not required to designate me as the author of any design, computer program
or related documentation or other work of authorship created as a work made
for hire or assigned under this agreement when any such work is distributed
publicly, nor to make any such public distribution.
21. Subsidiaries and Affiliates. I understand and agree that this agreement is
executed by R. R. Donnelley & Sons Company on its own behalf and on behalf
of each of its subsidiaries, that my obligations under this agreement shall
apply equally to each of Donnelley's subsidiaries and that such
subsidiaries may enforce this agreement in their own names as if they were
parties to this agreement.
22. Prior Agreements. The provisions of any previous agreement relating to the
same subject matter shall remain in effect with respect to any Developments
disclosed by me to Donnelley prior to the date of this agreement. Any
Development made or conceived during the term of such previous agreement
but not disclosed until after the date of this agreement shall be governed
by the terms of this agreement.
23. Severability. If any provision of this agreement is held by a court to be
void or unenforceable for any reason, the remaining provisions of this
agreement shall continue in full force and effect. If a court is of the
opinion that any part of this Agreement is unreasonable, it may modify this
Agreement to make it reasonable and enforceable in all respects.
-16-
<PAGE>
24. Recovery of Expenses. I agree to pay to Donnelley the costs and reasonable
attorneys' fees incurred by Donnelley if it prevails in enforcing any or
all of the terms of this Agreement.
25. Survival of Obligations. The provisions of paragraphs 2-16, 18, 20, and
23-26 of this Agreement shall survive its termination.
26. Governing Law. This agreement shall be construed in accordance with laws
governing contracts made and to be performed in the State of Illinois.
/s/ Frank R. Jarc November 1, 1988
------------------------ ----------------
Employee Date
R. R. DONNELLEY & SONS COMPANY
By /s/ JE Treadway
-----------------------------------
The following are Developments not covered by paragraph 17, in which I have any
right, title or interest, and which were conceived or written either wholly or
in part by me prior to my employment with Donnelley, but neither published nor
filed in any Patent Office.
DESCRIPTION OF DOCUMENTS (if applicable)
Date of
Name of Witness
Title of Document Document
on Document
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<PAGE>
EXHIBIT C
DBM'S CAREER TRANSITION COUNSELING
FOR EXECUTIVES
DRAKE BEAM MORIN, INC.
State of the Art Support Services
=================================
DBM's experience has been that environment plays a critical role in a successful
job search. Throughout your job search you'll have unlimited access to:
- - A professionally-trained consultant who understands both your personal and
professional needs during the job search.
- - A private workspace from which to conduct your job search activities.
- - Telephones complete with a fully-staffed, courteous message service.
- - Word processing and secretarial support for the typing of resumes, cover
letters, etc.
- - Mail facilities, including postage and supplies for the production of mass
mailings.
- - Complete reference library of business publications, directories and current
periodicals and newspapers.
- - Videotape room for practice interviews and screening for the viewing of
programs covering aspects of the job search.
- - Job development activities including access to DBM's Job Lead Bank listing
thousands of positions nationwide and job postings.
- - A support system and camaraderie that will provide continuous motivation
and foster a genuine sense of esprit de corps.
The Consultant/Client Partnership
=================================
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When you begin DBM's Career Transition Counseling Program you will be assigned a
personal consultant who will assist and you throughout your job search.
DBM consultants are specially trained counseling professionals who have strong
business backgrounds. The majority of our consultants have advanced degrees,
many hold Ph.D.s.
The partnership forged between you and your consultant will insure that you
receive all of the attention, direction and understanding you need to
efficiently and effectively make progress towards your desired career goals.
About Drake Beam Morin, Inc.
============================
DBM is the world's leading provider of career transition counseling. Annually,
we help thousands of executives-in-transition to pursue meaningful and
satisfying reemployment.
For more than 20 years, DBM has been the leader and innovator responsible for
the job search tools and techniques that have become industry standards.
With early 100 offices worldwide, DBM is capable of marshalling resources
throughout our network to assist our clients during their career transition.
The Career Transition Process
=============================
Career Transition Counseling is a proven process of support offering you the
best means for finding a new position. Career Transition Counseling offers you
all the advantages of personalized one-on-one counseling plus appropriate,
private workspace and a full range of support services providing a base of
operations and assistance as you launch your job search.
Each year, thousands of executives around the world find the right job, not just
a job though DBM's individualized program of career transition counseling. Our
research indicates that, on the average, executives participating in our career
transition program find new employment within six months. The vast majority of
executives in our program find positions at a salary-level and title equal to or
greater than their previous job.
Career transition counseling can be a remarkable life experience for you. DBM's
process involves more than merely grinding out resumes and cover letters. Our
program is designed to provide you the opportunity to evaluate your talents,
skills and values, acquire new insights into yourself and maximize your personal
and professional potential.
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What the Process Involves
=========================
Working closely with your personal DBM consultant, you will undergo a
comprehensive process of self-discovery leading to the creation and
implementation of an active and effective campaign of self-marketing. This
process includes:
- - Counseling aimed at understanding your work history, including as
necessary, your financial, tax and general economic situation.
- - Suggestions on how to enlist the active support of your family, friends
and business associates.
- - Examination of your accomplishments which becomes the foundation on which
to build your job search campaign.
- - Articulation of your skills and abilities to determine the essence of
those marketable qualities you offer prospective employers.
- - Assessment instruments revealing interests and abilities in various
occupations. Interpreted by your personal consultant and DBM psychologist, the
assessment battery will provide you with insight into your strengths,
self-development needs and possible career choices.
- - Definition of your "ideal job preference." This examines your preferences
for organization type, size, location, industry, corporate culture and
management styles.
- - Creation of effective resumes promoting you, your skills and strengths and
preparation of business references.
- - Selection of companies/industries to target during your search and listing
of contacts for gaining initial entry into companies.
Real Skills Get Real Results
============================
Throughout your counseling, emphasis is placed on acquiring all the skills,
techniques and strategies necessary to launch a results-oriented job search
campaign. During the career transition program you'll acquire all the skills
required to:
- - Prepare a comprehensive resume in a format which effectively highlights
your skills and accomplishments.
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- - Thoroughly research target companies to insure that prospective employers
meet your defined criteria.
- - Write compelling cover and marketing letters which result in interviews.
- - Successfully interview with decision-makers, field the tough questions and
adapt your communication style to complement the style of those with whom you
interview.
- - Network and constantly expand your contact base.
- - Create a systematic, action-oriented campaign of self-promotion.
- - Negotiate compensation and other relevant employment factors once an
offer is extended.
- - Accept an offer and plan for a smooth entry into the new job and new
organization.
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EXHIBIT D
INFORMATION FROM
R R DONNELLEY & SONS COMPANY
Contact:
Ronald G. Eidell Diane M. Dunne
Sr. VP and Treasurer Director, Corporate Communication
(312) 326-8375 (312) 326-8419
FOR IMMEDIATE RELEASE
R. R. DONNELLEY CFO TO LEAVE COMPANY AUGUST 31
CHICAGO, May 16, 1995 -- Frank R. Jarc, executive vice president and chief
financial officer of R. R. Donnelley & Sons Company, today announced he will
leave the company August 31.
"Frank has made significant contributions to this company's financial
management and built a strong financial organization," said John R. Walter,
chairman and chief executive officer. "During his eight years with Donnelley,
the company has had significant growth and progress while undertaking major
investments in advanced technology and global expansion. These investments are
paying off in double-digit gains in revenues, earnings and cash flow, and in
improving shareholder returns."
Walter said the company is looking for replacement and plans to have a new
CFO in place before Mr. Jarc's departure.
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<PAGE>
Exhibit 10(b)
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of April 21, 1995 by and among Stream
International Inc., a Delaware corporation (the "Company"), RRD (as hereinafter
defined) and Rory J. Cowan (the "Executive").
Recitals
--------
1. The Executive has been employed by R.R. Donnelley & Sons Company, a
Delaware corporation ("RRD").
2. It is currently contemplated that a business combination (the "Merger")
will be effected between the Company and Corporate Software Incorporated, a
Delaware corporation, or certain of their respective affiliates pursuant to a
contribution agreement dated on or about the date hereof (the "Merger
Agreement") among the Company, Software Holdings, Inc., a Delaware corporation
and the indirect parent of Corporate Software Incorporated ("CSI"), and RRD, as
a result of which the Company and its subsidiaries will operate the businesses
currently operated by Corporate Software Incorporated and previously operated by
the GSS Division of RRD.
3. The operations of the Company and its affiliates are and following the
Merger will be a complex matter requiring direction and leadership in a variety
of areas.
4. The Executive has certain experience and expertise that qualify him to
provide the direction and leadership required by the Company and its
subsidiaries.
5. Subject to the terms and conditions hereinafter set forth, the Company
therefore wishes to employ the Executive as its Chairman and the Executive
wishes to accept such employment.
Agreement
---------
Now, therefore, the parties hereto hereby agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company offers and the Executive hereby accepts employment,
effective as of the effective time of the Merger (the date on which the Merger
takes effect being referred to herein as the "Effective Date").
<PAGE>
2. Term. Subject to earlier termination as hereafter provided, the
Executive shall be employed hereunder for an original term commencing on the
Effective Date and ending on December 31, 1999, which term shall be
automatically extended thereafter for successive terms of one year each, unless
either party provides notice to the other at least three months prior to the
expiration of the original or any extension term that this Agreement is not to
be extended. The term of this Agreement, as from time to time modified and in
effect, is hereafter referred to as "the term of this Agreement" or "the term
hereof". If the Merger Agreement is terminated pursuant to Section 10 thereof
prior to the consummation of the Merger, this Agreement shall automatically
terminate and be without further force or effect.
3. Capacity and Performance.
------------------------
3.1. Offices. During the term hereof, the Executive shall serve the
Company in the office of Chairman. In such capacity, the Executive will be
responsible for overall coordination of the Company's strategic direction
and external relations between the Company and its shareholders and bank.
In addition, for so long as the Executive is employed by the Company and
without further compensation, the Executive shall serve as a member of the
Company's Board of Directors (the "Board") and as a director of one or more
of the Company's subsidiaries if so elected or appointed from time to time.
The Executive shall be subject to the direction of, and shall have such
other powers, duties and responsibilities consistent with the Executive's
position as an operating chairman as may from time to time be prescribed
by, the Board.
3.2. Performance. During the term hereof, the Executive shall be
employed by the Company and shall perform and discharge (faithfully,
diligently and to the best of his ability) such duties and responsibilities
on behalf of the Company and its subsidiaries as may be designated from
time to time by the Board and which are consistent with the Executive's
position as an operating chairman. During the term hereof, the Executive
shall devote not less than 85% of his business time exclusively to the
advancement of the business and interests of the Company and its
subsidiaries and to the discharge of his duties and responsibilities
hereunder. The Executive shall not engage in any other business activity
or serve in any industry, trade, professional, governmental or academic
position during the term of this Agreement, except for such directorships
or other positions which he currently holds and has disclosed to the
Company and except as otherwise may be approved in advance by the Board;
and except that the Company and the Board have agreed that the Executive
may spend up to 15% of his business time on corporate activities for RRD.
The portion of the Executive's time that may be devoted to such RRD
activities will be subject to review and change on an annual basis through
collaborative deliberation between the
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management of RRD and the Board, with the mutual understanding of all
parties that, over the term of this Agreement, the Executive is expected to
transition away from operating obligations to RRD matters and increase his
focus on Company matters.
4. Compensation and Benefits. As compensation for all services performed
by the Executive under this Agreement and subject to Section 5 hereof and
performance of the Executive's duties and of the obligations of the Executive to
the Company and its subsidiaries, pursuant to this Agreement or otherwise:
4.1. Base Salary. During the term hereof, the Company shall pay the
Executive a base salary at the rate of $425,000 per year, payable in
accordance with the payroll practices of the Company for its executives and
subject to increase from time to time (based on an annual review) by the
Board in its sole discretion. Such base salary, as from time to time
increased, is hereafter referred to as the "Base Salary". The Base Salary
payable to the Executive in 1995 shall be prorated for the period from the
Effective Date through December 31, 1995 and for any subsequent period of
service less than one full year.
4.2. Bonus Compensation. During the term hereof, the Company from
time to time shall pay the Executive an annual bonus (the "Bonus") of up to 80%
of Base Salary per year. The annual bonus in respect of 1995 operations will be
calculated and payable in accordance with and based on the following factors:
(a) The Executive shall receive $170,000 of the potential bonus amount
(the "Tier One Bonus") if the Company attains both the $1.5772 billion
revenue target (the "Revenue Target") and the $80.5 million EBITA
target (the "EBITA Target") set forth in the Company's budget for 1995
(the "Budget"; it being understood that the 1995 Budget is attached
hereto as Exhibit A and that for each subsequent year the Board shall
adopt an annual operating Budget, which will become the basis of
determination for such year's bonus targets), provided, however, that
if the Company attains over 85% of both the Revenue Target and EBITA
Target set forth in the 1995 Budget but less than 100% of either such
Revenue Target or such EBITA Target then the Executive shall receive a
scaled portion of the maximum Tier One Bonus, which portion shall be
determined in accordance with the following formula: amount of Tier
One Bonus is equal to the sum of (i) $85,000 plus (ii) the number
obtained by multiplying
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(x) $42,500 times (y) a fraction (not greater than one), the numerator
of which is the amount by which the actual EBITA realized in 1995
exceeds 85% of the EBITA Target and the denominator of which is 15% of
the EBITA Target; plus (iii) the number obtained by multiplying (x)
$42,500 times (y) a fraction (not greater than one), the numerator of
which is the amount by which the actual revenue realized in 1995
exceeds 85% of the Revenue Target and the denominator of which is 15%
of the Revenue Target; and
(b) The Executive shall receive $170,000 of the potential bonus amount
(the "Tier Two Bonus") if the Company attains 100% of the goals and
targets in its "synergies plan" as set forth in Exhibit B hereto.
Any compensation paid to the Executive as Bonus shall be in addition to the Base
Salary, but shall be in lieu of participation in any other incentive, profit
sharing or bonus compensation program (other than a stock option plan to be
adopted on or around the Effective Date and in which it is anticipated that the
Executive will participate to the extent described in Section 4.3) which the
Company may adopt or continue from time to time. Any Bonus payable to the
Executive shall be pro-rated for any period of service less than a full year
and, therefore, the Company shall pay to the Executive as the Bonus in respect
of 1995 operations only an amount equal to the number obtained by multiplying
the (x) the amount of the Bonus calculated for 1995 as set forth above by (y) a
fraction, the numerator of which is the number of days from and including the
Effective Date through and including December 31, 1995 and the denominator of
which is 365. All bonus and benefit plans are subject to annual review and
change by the Board relative to key strategic objectives for the year provided
that the potential bonus for each year shall be at least 80% of Base Salary.
All Base Salary to the Executive will initially be funded 85% by the Company and
15% by RRD; with the understanding of all parties that such proportions will be
adjusted in each year to reflect the annual decision by the management of both
RRD and the Board as to the portion of the Executive's time which may be devoted
to RRD activities in accordance with Section 3.2 hereof. By its execution
hereof, RRD agrees to reimburse the Company for its portion of any Base Salary
paid by the Company to the Executive.
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4.3. Stock/Options.
-------------
4.3.1. The Executive shall purchase from the Company 50,000 shares of
the Company's Class A Common Stock (the "Minimum Number of Purchased Shares") at
a purchase price of $30 per share (or an aggregate minimum subscription amount
of $1,500,000 (the "Minimum Investment Amount"). The purchase and sale of such
shares, together with any additional shares up to a maximum additional
subscription amount of $1,500,000 purchased as contemplated by Section 4.3.4
(the "Additional Purchased Shares" and, together with the Minimum Number of
Purchased Shares, the "Purchased Shares"), will occur no later than June 23,
1995. On or before June 16, 1995, the Executive shall deliver written notice to
the Company of the total number of Purchased Shares he intends to purchase and
the principal amount of the Loan (as defined in Section 4.3.4(a)) he will
require.
4.3.2. The Company shall establish the 1995 Stock Option Plan (the "Plan")
for management/employees of the Company. The Company shall grant to the
Executive, pursuant to the Plan, options to purchase a total of 115,000 shares
of Class A Common Stock comprised of options to purchase (i) 46,000 shares of
Class A Common Stock at an exercise price of $30.00 per share (ii) 34,500 shares
of Class A Common Stock at an exercise price of $50.00 per share; and (iii)
34,500 shares of Class A Common Stock at an exercise price of $72.50 per share.
The options granted to the Executive as contemplated hereby will become
exercisable in eight semi-annual installments on the six-month (10%), one year
(10%), 18-month (12.5%), two year (12.5%), 30-month (12.5%), three year (12.5%),
42-month (15%) and four year (15%) anniversaries of the Effective Date, subject
to acceleration of vesting in accordance with the terms of the Plan as in effect
on the date of this Agreement.
4.3.3. Prior to issuing any shares or options to the Executive, the
Company may require that the Executive provide such representations regarding
the Executive's sophistication and investment intent and other matters as the
Company may reasonably request. None of the Company's securities will be
registered under applicable securities laws for the indefinite future and there
will be substantial restrictions on resale imposed by the Company's corporate
charter, the stockholders agreement and applicable law.
4.3.4. (a) At the time the Executive purchases shares pursuant to
Section 4.3.1, the Company will cause CSI to loan to the Executive up to two
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times the aggregate out-of-pocket amount paid by him to the Company for the
Minimum Number of Purchased Shares plus the purchase price of any Additional
Purchased Shares purchased by the Executive for cash, or an aggregate of up to
$2,000,000 (the "Loan"), provided that 100% of the proceeds of the Loan are
applied by the Executive to the purchase of additional shares of the Company's
Class A Common Stock (such shares to be in addition to the Minimum Number of
Purchased Shares). The Executive shall repay the principal amount of the Loan
and interest thereon in accordance with the terms of a promissory note
substantially in the form of Exhibit C hereto (the "Note") executed by the
Executive and delivered to the Company on the date (the "Share Purchase Date")
on which the Loan is advanced. The Note will be secured by a pledge of the
Purchased Shares and certain other shares of, and options to purchase shares of,
the Company's capital stock at a collateral to debt coverage ratio of not less
than 1.5:1 (or, at the Executive's election, secured in whole or in part by a
pledge of Publicly Traded Securities at a collateral to debt coverage ratio of
not less than 1.25:1) all as more particularly described in and on the terms and
subject to the conditions of a pledge agreement substantially in the form of
Exhibit D hereto (the "Pledge Agreement"), which shall be executed and delivered
by the Company and the Executive on the Share Purchase Date. As used in this
Section 4.3.4, the term "Publicly Traded Securities" means securities listed for
trading on the New York Stock Exchange or the American Stock Exchange or quoted
on the NASDAQ National Market System.
(b) In addition to the Loan contemplated by paragraph (a) of this
Section, the Company agrees that it will cause CSI to loan the Executive up to
$300,000 (the "Tax Loan") at times and in amounts sufficient to enable the
Executive to pay when due all federal and state income taxes (exclusive of any
interest or penalties thereon) owed by him as a result of such Executive's
exercise of options held by him to purchase shares of RRD common stock, $1.25
par value per share (the "RRD Stock") and subsequent sale of the RRD Stock
received upon such exercise and/or sale of RRD Stock held by him, prior to the
Merger, as necessary to enable the Executive to raise the amount of cash the
Executive is required to give to the Company to purchase the Minimum Number of
Purchased Shares. Each loan made as part of the Tax Loan shall be extended by
CSI from time to time not less than 5 days prior to the date such taxes are due
and payable, provided that the Executive has given CSI not less than 15 days
prior notice that such loan is necessary. The Executive shall pay the principal
amount of the Tax Loan and interest thereon in accordance with the terms of a
promissory note substantially in the form of Exhibit E hereto (the
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<PAGE>
"Tax Loan Note"), which shall be executed by the Executive and delivered to CSI
on or prior to the date on which the first installment of Tax Loan is advanced.
The Tax Loan Note will also be secured by the pledge of securities under the
Pledge Agreement.
4.3.5. (a) Upon any termination of the Executive's employment other than
pursuant to Section 5.3 for Causes described in Section 11.3(i) and Section
11.3(ii) or after expiration of this Agreement, the Company may, but shall have
no obligation to, repurchase at a price equal to the "Repurchase Price"
determined in accordance with subsection (c) below, (i) in the case of any such
termination before the first anniversary of the Effective Date, up to 0%, (ii)
in the case of any such termination on or after such first anniversary and
before the second anniversary of the Effective Date, up to 0%, (iii) in the case
of any such termination on or after such second anniversary and before the third
anniversary of the Effective Date, up to 45%, (iv) in the case of any such
termination after such third anniversary and before the fourth anniversary of
the Effective Date, up to 35%, and (v) in the case of any such termination on or
after such fourth anniversary, up to 25%, of the total number of Purchased
Shares, provided, however, that upon any such termination other than pursuant to
Section 5.3 or 5.6, 50% of each unvested option granted by the Company to the
Executive to purchase the Company's Class A Common Stock shall immediately vest
and be treated as exercised in determining the total number of shares which may
be subject to repurchase by the Company.
(b) Upon any termination of the Executive's employment pursuant to
Section 5.3 for Causes described in Section 11.3(i) or Section 11.3(ii), the
Company may, but shall have no obligation to, repurchase at a price equal to the
Repurchase Price determined in accordance with subsection (c) below, all of the
total number of Purchased Shares and all shares issued or issuable by the
Company to the Executive upon his exercise of any vested options granted to the
Executive pursuant to Section 4.3.2 (or upon exercise of any vested options
subsequently granted by the Company to the Executive).
(c) For purposes of this Section, the Repurchase Price shall equal,
(i) in the case of a termination of the Executive's employment pursuant to
Section 5.3 for Causes described in Section 11.3(i) or Section 11.3(ii), the
lower of cost or Fair Value (as defined in and determined pursuant to the Plan
as in effect on the date hereof), and (ii) in all other cases of a termination
of the Executive's employment, Fair Value (as defined and determined pursuant to
the
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<PAGE>
Plan).
(d) The Company shall exercise any repurchase election pursuant
to subsections (a) or (b) by notice to the Executive within 90 days of
termination of the Executive's employment. Notwithstanding anything to the
contrary contained herein, the repurchase rights of the Company set forth
in this Section 4.3.5 shall terminate upon the completion of a firm
commitment underwritten initial public offering of the Company's Common
Stock.
4.3.6. Treatment of Purchased Shares as Class B Common Stock in
Certain Instances. In the case of any Trigger Event (and only in such
case), all Purchased Shares held by the Executive will have the same
rights, preferences and obligations as those accorded to the Company's
Class B Common Stock (the "B Shares") under the Company's Restated
Certificate of Incorporation, provided, however, (i) that the Purchased
Shares shall not be considered B Shares for purposes of calculating the
number of B Shares each holder can sell pursuant to such holder's Tag Along
Rights but rather RRD shall be required to reduce its participation in such
sale by an amount sufficient to allow the Executive to sell his Purchased
Shares and (ii) all such rights, preferences and obligations are subject to
any repurchase rights of the Company pursuant to the terms hereof.
4.4. Vacations. During the term hereof, the Executive shall be entitled
to eight (8) weeks of vacation during the period beginning the Effective Date
and ending December 31, 1996 and thereafter to five (5) weeks of vacation per
annum, to be taken at such times and intervals as shall be determined by the
Executive in his reasonable discretion, provided, that, no more than four weeks
vacation may be taken by the Executive before December 31, 1995. The Executive
may not accumulate or carry over from one calendar year to another any unused,
accrued vacation time. The Executive shall not be entitled to compensation for
vacation time not taken.
4.5. Other Benefits. During the term hereof and subject to any
contribution therefor generally required of executives of the Company, the
Executive shall be entitled to participate in all employee benefit plans (other
than any profit sharing or bonus compensation programs) from time to time
adopted by the Board and in effect for executives of the Company generally,
except to the extent such plans are in a category of benefit otherwise provided
to the Executive. Such participation shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable Company policies and (iii)
the discretion of the Board or any administrative or other
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<PAGE>
committee provided for in or contemplated by such plan. The Company may
alter, modify, add to or delete its employee benefit plans at any time as
the Board, in its sole judgment, determines to be appropriate. The
Executive acknowledges and agrees that he will no longer participate in any
pension plan maintained by or on behalf of RRD.
4.6. Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable business expenses incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to (i) any expense policy of the Company set by the Board from time
to time, and (ii) such reasonable substantiation and documentation
requirements as may be specified by the Board from time to time.
4.7. Minimum Guaranteed Severance. In the event Executive's
employment with the Company terminates other than by resignation pursuant
to Section 5.6 or by the Company for Cause, Executive will be entitled to
eighteen (18) monthly severance payments, each in an amount equal to the
Executive's monthly base compensation at the time of such termination
(i.e., 1/12th of the Base Salary).
5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term of this Agreement under the
following circumstances:
5.1. Retirement or Death. In the event of the Executive's
retirement or death during the term hereof, the Executive's employment
hereunder shall immediately and automatically terminate. In the event of
the Executive's retirement after the age of sixty-five with the prior
consent of the Board or death during the term hereof, the Company shall pay
to the Executive (or in the case of death, the Executive's designated
beneficiary or, if no beneficiary has been designated by the Executive, to
his estate) any Base Salary earned but unpaid through the date of such
retirement or death, any Bonus for the fiscal year preceding the year in
which such retirement or death occurs that was earned but has not yet been
paid and, at the times the Company pays its executives bonuses in
accordance with its general payroll policies, an amount equal to that
portion of any Bonus earned but unpaid during the fiscal year of such
retirement or death (pro-rated based on a formula, the denominator of which
shall be 365 and the numerator of which shall be the number of days during
the fiscal year of such retirement or death in which the Executive was
employed by the Company).
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5.2. Disability.
----------
5.2.1. The Company may terminate the Executive's employment hereunder,
upon notice to the Executive, in the event that the Executive becomes disabled
during his employment hereunder through any illness, injury, accident or
condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and responsibilities hereunder
for an aggregate of one hundred twenty (120) days during any period of three
hundred and sixty-five (365) consecutive calendar days.
5.2.2. The Board may designate another employee to act in the Executive's
place during any period of the Executive's disability. Notwithstanding any such
designation, the Executive shall continue to receive the Base Salary in
accordance with Section 4.1 and to receive benefits in accordance with Section
4.5, to the extent permitted by the then-current terms of the applicable benefit
plans, until the Executive becomes eligible for disability income benefits under
any disability income plan maintained by the Company or until the termination of
his employment, whichever shall first occur. Upon becoming so eligible, or upon
such termination, whichever shall first occur, the Company shall pay to the
Executive (i) any Base Salary earned but unpaid through the date of such
eligibility or termination and any Bonus for the fiscal year preceding the year
of such eligibility or termination that was earned but unpaid, (ii) during the
eighteen month period from such date, amounts (payable from time to time at the
times the Company pays its executive in accordance with its general payroll
policies) equal to the difference between the Base Salary for the Executive for
such period, or portion thereof, and the amounts of disability income benefits
that the Executive receives pursuant to the above-referenced disability income
plan in respect of such period, and (iii) at the times the Company pays its
executives bonuses in accordance with its general payroll policies, an amount
equal to that portion of any Bonus earned but unpaid during the fiscal year of
such eligibility or termination (pro-rated based on a formula, the denominator
of which shall be 365 and the numerator of which shall be the number of days
during the fiscal year of such eligibility or termination in which the Executive
was employed by the Company).
5.2.3. Except as provided in Section 5.2.2, while receiving disability
income payments under any disability income plan maintained by the Company, the
Executive shall not be entitled to receive any Base Salary under Section 4.1 or
Bonus payments under Section 4.2 but shall continue to participate in the
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Company's benefit plans in accordance with Section 4.5 and the terms of
such plans, until the termination of his employment. During the eighteen-
month period from the date of termination, the Company shall contribute to
the cost of the Executive's participation in the Company's group medical
and dental plans, provided that the Executive is entitled to continue such
participation under applicable law and plan term.
5.2.4. If any question shall arise as to whether during any period
the Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to be unable
to perform substantially all of his duties and responsibilities hereunder,
the Executive may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Company to whom the
Executive or his duly appointed guardian, if any, has no reasonable
objection to determine whether the Executive is so disabled and such
determination shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and the Executive shall fail to submit
to such medical examination, the Board's determination of the issue shall
be binding on the Executive.
5.3. By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause at any time upon notice to the Executive setting
forth in reasonable detail the nature of such Cause. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the Company
shall have no further obligation or liability to the Executive relating to the
Executive's employment hereunder, or the termination thereof, other than for
Base Salary earned but unpaid through the date of termination. Without limiting
the generality of the foregoing, the Company shall have no further obligation to
pay any Bonus amounts for any year(s) in the event of termination of employment
pursuant to this Section 5.3, whether or not earned but unpaid in respect of a
fiscal year preceding the year in which such termination occurs.
5.4. By the Company other than for Cause. The Company may terminate the
Executive's employment hereunder other than for Cause at any time upon notice to
the Executive. In the event of such termination, then the Company shall pay the
Executive (i) Base Salary earned but unpaid through the date of termination plus
(ii) the amounts specified in Section 4.7 plus (iii) any unpaid portion of any
Bonus for the fiscal year preceding the year in which such termination occurs
that was earned but has not been paid, plus (iv) at the times the Company pays
its executives bonuses in accordance with its general payroll policies, an
amount equal to that portion of any Bonus earned but
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unpaid during the fiscal year of such termination (pro-rated based on a formula,
the denominator of which shall be 365 and the numerator of which shall be the
number of days during the fiscal year of such termination in which the Executive
was employed by the Company). In addition, 50% of each unvested option granted
to the Executive to purchase the Company's Class A Common Stock shall
immediately vest.
5.5. By the Executive Upon Breach or for Good Reason. The Executive may
terminate his employment hereunder (i) in the event that the Company fails to
perform, in any material respect, its obligations under this Agreement, after
written notice to the Company setting forth in reasonable detail the nature of
such breach if such breach remains uncured for a period of 30 days following
such written notice to the Company, (ii) there is a substantial diminution in
the responsibilities, duties and powers of the Executive or (iii) in the event
the Executive is relocated to an area more than 50 miles from the metropolitan
Boston area. In the event of termination in accordance with this Section 5.5,
then the Company shall pay the Executive (i) Base Salary earned but unpaid
through the date of termination plus (ii) any Bonus for the fiscal year
preceding the year in which such termination occurs that was earned but has not
been paid plus (iii) the amounts specified in Section 4.7 hereof plus (iv) at
the times the Company pays its executives bonuses in accordance with its general
payroll policies, an amount equal to that portion of any Bonus earned but unpaid
during the fiscal year of such termination (pro-rated based on a formula, the
denominator of which shall be 365 and the numerator of which shall be the number
of days during the fiscal year of such termination in which the Executive was
employed by the Company). In addition, 50% of each unvested option granted to
the Executive to purchase the Company's Class A Common Stock shall immediately
vest.
5.6. By the Executive Other than Upon Breach. The Executive may terminate
his employment hereunder at any time upon ninety (90) days' notice to the
Company. In the event of termination of the Executive pursuant to this Section
5.6, the Board may elect to waive the period of notice, or any portion thereof,
and, whether or not the Board so elects, the Company will pay the Executive his
Base Salary for the notice period, except to the extent so waived by the Board
(or for any remaining portion of such period). Upon the giving of notice of
termination of the Executive's employment hereunder pursuant to this Section
5.6, the Company shall have no further obligation or liability to the Executive
relating to the Executive's employment hereunder, or the termination thereof,
other than payment to the Executive of his Base Salary for the period (or
portion of such period) indicated above. Without limiting the generality of the
foregoing, the Company shall have no further obligation to pay any Bonus amounts
for any year(s) in the event of termination of employment pursuant to this
Section 5.6,
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whether or not earned but unpaid in respect of a fiscal year preceding the
year in which such termination occurs.
5.7. Post-Agreement Employment. In the event the Executive remains in
the employ of the Company or any of its Affiliates following termination of
this Agreement, by the expiration of the term hereof or otherwise, then
such employment shall be at will, unless otherwise agreed in writing.
6. Effect of Termination. The provisions of this Section 6 shall apply
in the event of termination due to the expiration of the term, pursuant to
Section 5 or otherwise.
6.1. Payment in Full. Payment by the Company of any Base Salary, Bonus
and other amounts and contributions to the cost of the Executive's
continued participation in the Company's group health and dental plans that
may be due the Executive under the applicable termination provision of
Section 5 shall constitute the entire obligation of the Company to the
Executive, except that nothing in this Section 6.1 is intended or shall be
construed to affect the rights and obligations of the Company and its
Affiliates, on the one hand, and the Executive, on the other, with respect
to any loans, stock pledge arrangements, option plans or other agreements
to the extent said rights or obligations survive termination of employment
under the provision of documents relating thereto. Acceptance by the
Executive of performance by the Company shall constitute full settlement of
any claim that the Executive might otherwise assert against the Company,
its Affiliates or any of their respective shareholders, partners,
directors, officers, employees or agents relating to such termination.
6.2. Termination of Benefits. Except for medical and dental insurance
coverage continued pursuant to Sections 5.2 hereof and any right of
continuation of health coverage to the extent provided by Sections 601
through 608 of ERISA, benefits shall terminate pursuant to the terms of the
applicable benefit plans based on the date of termination of the
Executive's employment without regard to any continuation of Base Salary or
other payments to the Executive following such date of termination pursuant
to Section 5.
6.3. Survival of Certain Provisions. Provisions of this Agreement
shall survive any termination if so provided herein or if necessary or
desirable fully to accomplish the purposes of such provision, including,
without limitation, the obligations of the Executive under Sections 7 and 8
hereof. The obligation of the Company to make payments to or on behalf of
the Executive under Sections 4.7, 5.4 or 5.5 hereof is
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expressly conditioned upon the Executive's continued full performance of
obligations under Sections 7 and 8 hereof. The Executive recognizes that,
except as expressly provided in Section 4.7, 5.4 or 5.5, no compensation is
earned after termination of employment.
7. Confidential Information; Intellectual Property.
-----------------------------------------------
7.1. Confidentiality. The Executive acknowledges that the Company and
its Affiliates continually develop Confidential Information, that the
Executive may develop Confidential Information for the Company or its
Affiliates and that the Executive may learn of Confidential Information
during the course of employment. The Executive will comply with the
policies and procedures of the Company for protecting Confidential
Information and shall never disclose to any Person (except as required by
applicable law or for the proper performance of his duties and
responsibilities to the Company and its Affiliates), or use for his own
benefit or gain or otherwise use in a manner adverse to the interests of
the Company and its Affiliates, any Confidential Information obtained by
the Executive incident to his employment or other association with the
Company or any of its Affiliates. The Executive understands that this
restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
7.2. Return of Documents. All documents, records, tapes and other
media of every kind and description relating to the business, present or
otherwise, of the Company or its Affiliates and any copies, in whole or in
part, thereof (the "Documents"), whether or not prepared by the Executive,
shall be the sole and exclusive property of the Company and its Affiliates.
The Executive shall safeguard all Documents and shall surrender to the
Company at the time his employment terminates, or at such earlier time or
times as the Board or its designee may specify, all Documents then in the
Executive's possession or control.
7.3. Assignment of Rights to Intellectual Property. The Executive
shall promptly and fully disclose all Intellectual Property to the Company.
The Executive hereby assigns and agrees to assign to the Company (or as
otherwise directed by the Company) the Executive's full right, title and
interest in and to all Intellectual Property. The Executive agrees to
execute any and all applications for domestic and foreign patents,
copyrights or other proprietary rights and to do such other acts (including
without limitation the execution and delivery of instruments of further
assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce
any patents, copyrights
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or other proprietary rights to the Intellectual Property. The Executive
will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered "work made for hire".
8. Agreement not to Compete with the Business. The Executive agrees that
during the term of his employment hereunder and for a period of eighteen (18)
months following the date of termination thereof (the "Non-Competition Period"),
he will not, directly or indirectly (a) own, manage, operate, control or
participate in any manner in the ownership, management, operation or control of,
or be connected as an officer, employee, partner, director, principal,
consultant, agent or otherwise with, or have any financial interest in, or aid
or assist anyone else in the conduct of, any business, venture or activity which
competes with, any business, venture or activity being conducted or proposed to
be conducted by the Company at the date (the "Date of Termination") on which the
Executive's employment under this Agreement is terminated, or by any group,
division or subsidiary of the Company, in the United States, Australia, Belgium,
Canada, Denmark, England, France, Germany, Ireland, Japan, Korea, Singapore or
any other geographic area where such business is being conducted or is proposed
to be conducted at the Date of Termination (each a "Restricted Business"), or
(b) recruit or otherwise seek to induce any employees of the Company or any of
its subsidiaries to terminate their employment or violate any agreement with or
duty to the Company or any of its subsidiaries; provided, however, that if the
Executive's employment hereunder is terminated for any reason, (i) he may work
for RRD in any capacity so long as RRD owns not less than 50% of the outstanding
common stock of the Company, and (ii) he may work for RRD at a time when RRD
owns less than 50% of the outstanding common stock of the Company, provided that
for a period of two years from the date he returns to RRD, the Executive shall
not directly or indirectly engage, control, manage or participate in any
Restricted Business conducted by RRD. The Executive acknowledges that RRD in
the Merger Agreement will agree, for the periods of time set forth therein, to a
non-solicitation provision relating to the Company employees, as well as to a
covenant not to compete with the Company, and the Executive agrees that RRD's
obligations under the Merger Agreement are in addition to, and not a
substitution for, the Executive's obligations under this Agreement. It is
understood and agreed that, for the purposes of the foregoing provisions of this
Section 8, (i) no business, venture or activity shall be deemed to be a
business, venture or activity conducted by
the Company or any group, division or subsidiary of the Company, unless not less
than five percent of the Company's consolidated gross sales or
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<PAGE>
operating income is derived from, or not less than five percent of the Company's
consolidated assets are devoted to, such business, venture or activity; and (ii)
no business, venture or activity conducted by any entity by which the Executive
is employed or in which he is interested or with which he is connected or
associated shall be deemed competitive with any business, venture or activity
conducted by the Company unless it is one from which five percent or more of its
consolidated gross sales or operating income is derived, or to which five
percent or more of its consolidated assets are devoted; provided, however, that
if the actual gross sales or operating income or assets of such entity derived
from or devoted to such business, venture or activity is equal to or in excess
of 10% of the most nearly comparable figure for the Company, such business,
venture or activity of such entity shall be deemed to be competitive with a
business of the Company. Further, ownership of not more than five percent of the
voting stock of any publicly held corporation shall not, of itself, constitute a
violation of this Section 8.
9. Enforcement of Covenants. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including without limitation the restraints imposed upon him pursuant to
Sections 7 and 8 hereof. The Executive agrees that said restraints are
necessary for the reasonable and proper protection of the Company and its
Affiliates and that each and every one of the restraints is reasonable in
respect to subject matter, length of time and geographic area. The Executive
further acknowledges that, were he to breach any of the covenants or agreements
contained in Sections 7 or 8 hereof, the damage to the Company could be
irreparable. The Executive therefore agrees that the Company, in addition to
any other remedies available to it, shall be entitled to preliminary and
permanent injunctive relief against any breach or threatened breach by the
Executive of any of said covenants or agreements. The parties further agree
that in the event that any provision of Section 7 or 8 hereof shall be
determined by any Court of competent jurisdiction to be unenforceable by reason
of its being extended over too great a time, too large a geographic area or too
great a range of activities, such provision shall be deemed to be modified to
permit its enforcement to the maximum extent permitted by law.
10. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which or
by which the Executive is a party or is bound and that the Executive is not now
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose to or use on behalf of the Company or any of its Affiliates any
proprietary information of a third party without such party's consent.
11. Definitions. Terms defined elsewhere in this Agreement are used
herein as so defined. In addition, capitalized terms used and not otherwise
defined herein are used in this Agreement as defined in the Merger Agreement;
and the following terms shall have the following meanings:
11.1. Affiliates. "Affiliates" means all persons and entities directly
or indirectly controlling, controlled by or under common control with the
Company.
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<PAGE>
11.2. Business. Any service including any and all computer software
reselling, documentation and other services currently or hereafter
provided, directly or indirectly, by or on behalf of the Company or any of
its subsidiaries.
11.3. Cause. The following events or conditions shall constitute
"Cause" for termination: (i) fraud, embezzlement or other act of dishonesty
by the Executive that causes material injury to the Company or any of its
Affiliates, (ii) conviction of, or plea of nolo contendere to, any felony
involving dishonesty or moral turpitude, or (iii) a failure by the
Executive to take or refrain from taking any corporate action consistent
with his duties as an operating chairman as specified in written directions
of the Board following receipt by the Executive of such written directions
which such failure is not cured within 30 days after written notice that
failure to take or refrain from taking such action shall constitute "Cause"
for purposes hereof.
11.4. Confidential Information. "Confidential Information" means any
and all information of the Company and its Affiliates that is not generally
known by others with whom they compete or do business, or with whom they
plan to compete or do business and any and all information the disclosure
of which would otherwise be adverse to the interests of the Company or any
of its Affiliates. Confidential Information includes without limitation
such information relating to (i) the services or products sold or offered
by the Company or any of its Affiliates, (ii) the costs, sources of supply,
financial performance and strategic plans of the Company and its
Affiliates, (iii) the identity and special needs of the customers of the
Company and its Affiliates and (iv) the people and organizations with whom
the Company and its Affiliates have business relationships and those
relationships. Confidential Information also includes comparable
information that the Company or any of its Affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding that it would not be disclosed.
11.5. EBITA. "EBITA" shall have the meaning assigned to such term in
the Company's Restated Certificate of Incorporation.
11.6. ERISA. "ERISA" means the federal Employee Retirement Income
Security Act of 1974 or any successor statute, and the rules and
regulations thereunder, and in the case of any referenced section thereof
any successor section thereto, collectively and as from time to time
amended and in effect.
11.7. Intellectual Property. "Intellectual Property" means inventions,
discoveries, developments, methods, processes, compositions, works,
concepts and
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ideas (whether or not patentable or copyrightable or constituting trade
secrets) conceived, made, created, developed or reduced to practice by the
Executive (whether alone or with others, whether or not during normal
business hours or on or off Company premises) during the Executive's
employment that relate to either the Business or any prospective activity
of the Company or any of its Affiliates.
11.8. Person. "Person" means an individual, a corporation, an
association, a partnership, a limited liability company, an estate, a trust
and any other entity or organization.
11.9. Trigger Event. "Trigger Event" means any of a Disposition or
Total Disposition (as such terms are defined in the Company's Restated
Certificate of Incorporation) by RRD which triggers certain Tag Along and
Drag Along Rights (as such are defined in the Company's Restated
Certificate of Incorporation) or the exercise by any stockholder of the
Company of the Put Right described in the Company's Restated Certificate of
Incorporation, or the exercise by the Company of its Call Right described
in the Company's Restated Certificate of Incorporation.
12. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law. In addition, the Company shall be entitled to
reduce any payments by the Company of Base Salary or Bonus under this Agreement
by the amount of any tax or other amounts required to be withheld by the Company
under applicable law with respect to deemed compensation arising out of or
related to imputed interest on any loans by the Company to the Executive.
13. Miscellaneous.
-------------
13.1. Assignment. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein (provided, however,
that nothing contained herein shall be construed to place any limitation or
restriction on the transfer of the Company's Class A Common Stock in
addition to any restrictions set forth in the Company's Restated
Certificate of Incorporation, the Merger Agreement or any stockholder
agreement applicable to the holders of such shares), by operation of law or
otherwise, without the prior written consent of the other; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of the Executive in the event that the
Company shall hereafter affect a reorganization, consolidate with, or merge
into, any other Person or transfer all or substantially all of its
properties or assets to any other Person, in which event such
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<PAGE>
other Person shall be deemed the "Company" hereunder for all purposes and
provided, further that the Executive may assign his rights and obligations
contained in Sections 4.3.1 and 4.3.4 hereof to that certain living trust
of which Mr. Milton Bordwin is the sole trustee and which is known as the
Cowan Stream Trust under an Indenture dated April 21, 1995, so long as such
trust has agreed by signing this Agreement to be bound by all of the
provisions contained herein and in the Note and Pledge Agreement. This
Agreement shall inure to the benefit of and be binding upon the Company and
the Executive, and their respective successors, executors, administrators,
heirs and permitted assigns.
13.2. Severability. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the application of such provision in such
circumstances shall be deemed modified to permit its enforcement to the
maximum extent permitted by law, and both the application of such portion
or provision in circumstances other than those as to which it is so
declared illegal or unenforceable and the remainder of this Agreement shall
not be affected thereby, and each portion and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
13.3. Waiver; Amendment. No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party. The
failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any breach
of this Agreement, shall not prevent any subsequent enforcement of such
term or obligation or be deemed a waiver of any subsequent breach. This
Agreement may be amended or modified only by a written instrument signed by
the Executive and the Company.
13.4. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall
be effective when delivered in person or two business days after being
deposited in the United States mail, postage prepaid, registered or
certified, and addressed (a) in the case of the Executive, to:
Mr. Rory J. Cowan
Chairman
Stream International Inc.
2 Edgewater Drive
Norwood, Massachusetts 02062-4637
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<PAGE>
or, (b) in the case of the Company, at its principal place of business and
to the attention of Board of Directors; or to such other address as either
party may specify by notice to the other.
13.5. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the terms and conditions of
the Executive's employment and, except as otherwise provided herein,
supersedes all prior communications, agreements and understandings, written
or oral, with the Company or any of its Affiliates or predecessors with
respect to the terms and conditions of the Executive's employment.
13.6. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of
any provision of this Agreement.
13.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
13.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
13.9. Consent to Jurisdiction. Each of the Company and the Executive,
by its or his execution hereof, (i) hereby irrevocably submits to the
exclusive jurisdiction of the state courts of The Commonwealth of
Massachusetts for the purpose of any claim or action arising out of or
based upon this Agreement or relating to the subject matter hereof, (ii)
hereby waives, to the extent not prohibited by applicable law, and agrees
not to assert by way of motion, as a defense or otherwise, in any such
claim or action, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in
the above-named courts is improper, or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (iii) hereby
agrees not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before
the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such claim or
action to any court other than the above-named courts whether on the
grounds of inconvenient forum or otherwise. Each of the
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Company and the Executive hereby consents to service of process in any such
proceeding in any manner permitted by Massachusetts law, and agrees that
service of process by registered or certified mail, return receipt
requested, at its address specified pursuant to Section 13.4 hereof is
reasonably calculated to give actual notice.
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized representative, and by the Executive, as of the date first above
written.
THE COMPANY: STREAM INTERNATIONAL INC.
By: /s/ Robert E. Logan, Jr.
--------------------------
Title: Vice President
THE EXECUTIVE: /s/ Rory J. Cowan
-----------------
Name: Rory J. Cowan
RRD: R.R. DONNELLEY & SONS COMPANY
By: /s/ Robert E. Logan, Jr.
-------------------------
Title: Vice President
TRUSTEE: /s/ Milton Bordwin
------------------
Milton Bordwin, Trustee under a Trust established
by an indenture dated April 21, 1995, and known
as the Cowan Stream Trust, who by execution
hereof agrees to be bound by the provisions of
this Agreement, together with any Secured Non-
Recourse Promissory Note or Stock Pledge
Agreement required hereunder, insofar as they
relate to Purchased Shares and/or Pledged
Securities.
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Exhibit A
- ---------
[1995 Budget]
Exhibit B
- ---------
[Synergies Plan]
Exhibit C
- ---------
[Form of Note]
Exhibit D
- ---------
[Form of Pledge Agreement]
Exhibit E
- ---------
[Form of Tax Loan Note]
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EXHIBIT A
---------
BASE PROJECTIONS
----------------
FY ENDED 12/31/95
-----------------
Sales $1,577,200,000
EBITA (ex synergy) 80,500,000
<PAGE>
EXHIBIT B
---------
SYNERGY PLAN
------------
Synergy Plan $ 4,200,000
Sales 1,577,200,000
EBITA (w synergy) 84,700,000
<PAGE>
Exhibit C
---------
FORM OF
7.34% SECURED NON-RECOURSE PROMISSORY NOTE
("SECURED NON-RECOURSE NOTE")
-------------------------
(June __, 1995)
FOR VALUE RECEIVED, the undersigned, _________________ (the
"Borrower"), hereby promises to pay to Corporate Software Incorporated, a
Delaware corporation (the "Company"), or to the legal holder of this Secured
Non-Recourse Note at the time of payment, the principal sum of
_________________ dollars ($__________) in lawful money of the United States of
America, and to pay simple interest (computed on the basis of a 365 or 366 day
year, as the case may be) on the principal amount hereof from and after the date
of this Secured Non-Recourse Note until the entire principal amount hereof has
been paid in full, at the rate of 7.34% per annum. The entire principal amount
of indebtedness evidenced by this note, to the extent not theretofore prepaid as
provided herein, shall be repaid on the Maturity Date. Each payment of
principal shall be accompanied by payment of any accrued and unpaid interest
thereon.
If the date set for any payment or prepayment of principal or interest
hereunder is a Saturday, Sunday or legal holiday, then such payment or
prepayment shall be made on the next preceding business day.
This Secured Non-Recourse Note has been delivered to evidence
indebtedness of the Borrower to the Company arising out of a loan made to the
Borrower in connection with his purchase of shares of Class A Common Stock, par
value $.01 per Share, of Stream International Inc., a Delaware corporation and
the parent of the Company (the "Parent") in accordance with the terms of the
Employment Agreement, dated as of April 21, 1995 (the "Employment Agreement"),
between Stream International Inc. and the Borrower, and this Secured Non-
Recourse Note is the "Note" of the Borrower referred to in Section 4 of the
Employment Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Employment Agreement. Payment of
the principal of and interest on this Secured Non-Recourse Note is secured
pursuant to the terms of a Stock Pledge Agreement, dated as of April 21,
<PAGE>
1995, between the Borrower and the Company (the "Pledge Agreement"), reference
to which is made for a description of the collateral provided thereby and the
rights of the Company and any subsequent holder of this Secured Non-Recourse
Note in respect of such collateral.
Recourse of the holder of this Note for payment of the principal of
and interest on this Note or any claim based thereon shall be limited solely to
the collateral held pursuant to the Pledge Agreement, and the holder of this
Note shall have no recourse to any other assets of the Borrower for such
payment, whether before or after an Event of Default.
As used in this Note:
(a) the term "Maturity Date" means the earliest of (i) April 21, 2000
or, at the election of the Parent's Board of Directors and as a result of
the completion of any public offering of shares of the Parent registered
under the Securities Act of 1933, as amended, in connection with which the
Borrower is given an opportunity to sell shares having a value equal to or
greater than the amount of borrowings evidenced by this Secured Non-
Recourse Note outstanding at the time of such offering, provided, that,
such offering is completed prior to April 21, 2000, and (ii) the first date
on which a Liquidity Event (as defined below) shall occur; and
(b) the term "Liquidity Event" means any of the following: (i) any
sale of a majority of the capital stock or assets of the Parent (including
without limitation a sale of a majority of the capital stock resulting from
a Disposition (as defined in the Parent's Restated Certificate of
Incorporation) or Total Disposition (as defined in the Parent's Restated
Certificate of Incorporation) by R.R. Donnelley & Sons which triggers
certain Tag Along (as defined in the Parent's Restated Certificate of
Incorporation) and Drag Along Rights (as defined in the Parent's Restated
Certificate of Incorporation), the exercise by any stockholder of the Put
Right (as defined in the Parent's Restated Certificate of Incorporation) or
the exercise by the Parent of its Call Right (as defined in the Parent's
Restated Certificate of Incorporation) all in accordance with the
provisions of Article Fifth of the Parent's Restated Certificate of
Incorporation), (ii) any liquidation or
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winding-up of the Parent or distribution of a majority of the Parent's
assets, other than to an Affiliate of the Parent or (iii) any merger,
consolidation or similar business combination with or into any entity other
than an entity controlled by Bain Capital Fund IV, L.P., Bain Capital Fund
IV-B, L.P. and Information Partners Capital Fund, L.P. (collectively, the
"Funds") or by R.R. Donnelley & Sons Company.
Interest on the principal amount hereof outstanding from time to time
shall be payable quarterly on the last business day of March, June, September
and December of each year commencing June 30, 1995 and on the Maturity Date;
provided, however, that, so long as the Borrower remains an employee of the
Parent and no Event of Default (as hereinafter defined) has occurred, interest
shall continue to accrue but shall not be payable until the Maturity Date.
This Secured Non-Recourse Note is subject to the following further terms
and conditions:
1. Mandatory Prepayments. If at any time the Borrower receives any
proceeds from the sale by the Borrower of Shares to anyone (including the
Company), the proceeds from such sale of Shares shall be applied to the
prepayment first [of the accrued and unpaid interest of the Replacement Note and
then to the unpaid principal thereof second]/1/, of the prepayment of the
accrued and unpaid interest on the Tax Loan Note and then to the unpaid
principal thereof and [third][second], to the prepayment of the accrued and
unpaid interest hereon and then to the unpaid principal hereof. For purposes of
this Section 1, the term "sale" in the context of a sale of Shares shall
include, in addition to any direct sale of Shares, any transaction (including,
without limitation, a merger, consolidation or recapitalization) pursuant to
which Shares are converted into a right to receive, in whole or partial exchange
or substitution for Shares, cash or cash equivalents.
In addition, until such time as the entire principal amount of this
Secured Non-Recourse Note is paid in full, together with all accrued and unpaid
interest, the Borrower shall pay to the Company, for application against such
principal and interest, 30% of any and all Bonus amounts that become payable to
the Borrower
- ---------------
/1/ Bracketed language for Messrs. Rosenthal and Moore only.
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<PAGE>
under the Employment Agreement.
The right of the Borrower to receive proceeds upon the sale of Shares is
subject to the prior right of the Company (or other holder of this Secured Non-
Recourse Note) (i) in the case of a sale of Shares to the Company (or other
holder of this Secured Non-Recourse Note), in lieu of the Company (or such other
holder) paying the proceeds from such sale to the Borrower or his heirs,
successors or permitted assigns to set off against this Secured Non-Recourse
Note an amount equal to the Net Proceeds of such sale, or (ii) in the case of a
sale of Shares to any other person or entity (collectively, the "Transfer
Parties"), in lieu of any of such Transfer Parties paying the purchase price
therefor to the Borrower or his heirs, successors or permitted assigns, to
direct such Transfer Parties to pay an amount equal to the Net Proceeds of such
sale to the Company (or other holder of this Secured Non-Recourse Note) which
shall set off such amount against this Secured Non-Recourse Note.
Concurrently with any prepayment (including by set-off) of any portion of
the principal amount of this Secured Non-Recourse Note pursuant to this Section
1 or Section 2 hereof, the Company (or other holder of this Secured Non-Recourse
Note) shall make a notation of such payment hereon. If full payment of the
principal of and accrued and unpaid interest on this Secured Non-Recourse Note
is made, this Secured Non-Recourse Note shall be cancelled. Any partial
prepayment (including by reason of set-off) shall be applied first to accrued
and unpaid interest hereon and then to the unpaid principal hereof.
If at any time, or from time to time, after the date hereof and following
the occurrence and during the continuance of an Event of Default (as hereinafter
defined), the Borrower shall receive or shall otherwise become entitled to
receive from the Company (or other holder of this Secured Non-Recourse Note) any
cash payments, cash dividends or other cash distributions in respect of any
Shares, then and in each case, the Borrower or any of his heirs, successors or
permitted assigns to whom such distribution may be made shall, upon the receipt
thereof, return to the Company (or other holder of this Secured Non-Recourse
Note) such payments, dividends and distributions, and the Company (or other
holder of this Secured Non-Recourse Note) shall apply such amount to the
prepayment of the accrued and unpaid interest on and unpaid principal of this
Secured Non-Recourse
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<PAGE>
Note in the manner set forth in the first paragraph of this Section 1, and the
Company (or other holder of this Secured Non-Recourse Note) shall not be
obligated to make any such cash payment, cash dividend or other cash
distribution not theretofore made to which the Borrower or any of his heirs,
successor or permitted assigns are otherwise entitled in respect of their Shares
and may, in lieu of paying such amount to the Borrower, set off the amount of
such cash payment, cash dividend or other cash distribution against the accrued
and unpaid interest on and unpaid principal of this Secured Non-Recourse Note in
the manner set forth in the third paragraph of this Section 1.
2. Payment and Prepayment. All payments and prepayments of principal
of and interest on this Secured Non-Recourse Note shall be made to the Company
or its order, or to the legal holder of this Secured Non-Recourse Note or such
holder's order, in lawful money of the United States of America at the principal
offices of the Company (or at such other place as the holder hereof shall notify
the Borrower in writing). The Borrower may, at his option, prepay this Secured
Non-Recourse Note in whole or in part at any time or from time to time without
penalty or premium. Any prepayments of any portion of the principal amount of
this Secured Non-Recourse Note shall be accompanied by payment of all interest
accrued but unpaid hereunder. Upon final payment of principal of and interest
on this Secured Non-Recourse Note it shall be surrendered for cancellation. THE
PLEDGE AGREEMENT REQUIRES PAYMENT OR PREPAYMENT OF ALL OBLIGATIONS UNDER THIS
SECURED PROMISSORY NOTE AS A CONDITION PRECEDENT TO THE RELEASE OF, OR TRANSFER
OF THE BORROWER'S INTERESTS IN, THE COLLATERAL SUBJECT TO THE PLEDGE AGREEMENT,
ALL AS DESCRIBED MORE FULLY IN THE PLEDGE AGREEMENT.
3. Events of Default. Upon the occurrence of any of the following events
("Events of Default"):
(a) Failure to pay the principal of this Secured Non-Recourse Note,
including any prepayments required hereunder or under the Pledge Agreement
which shall remain unremedied for ten days following the date when such
principal payment was originally due hereunder;
(b) Failure to pay any interest installment due under this Secured
Non-Recourse Note which shall remain unremedied for ten days following
-5-
<PAGE>
the date when such installment was originally due hereunder; or
(c) Failure of the Borrower to perform the Borrower's obligations
(i) under the Employment Agreement which shall remain unremedied for ten
days following notice from the Company or the Parent or (ii) under the
Pledge Agreement;
then, and in any such event, the holder of this Secured Non-Recourse Note may
declare, by notice of default given to the Borrower, the entire principal amount
of this Secured Non-Recourse Note to be forthwith due and payable, whereupon the
entire principal amount of this Secured Non-Recourse Note outstanding and any
accrued and unpaid interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other demands and
notices of any kind, all of which are hereby expressly waived. Upon the
occurrence of an Event of Default, the accrued and unpaid interest hereunder
shall thereafter bear the same rate of interest as on the principal hereunder,
but in no event shall such interest be charged which would violate any
applicable usury law. If an Event of Default shall occur hereunder, the Borrower
shall pay costs of collection, including reasonable attorneys' fees, incurred by
the holder in the enforcement hereof.
No delay or failure by the holder of this Secured Non-Recourse Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no single
or partial exercise by the holder hereof of any right or remedy shall preclude
other or future exercise thereof or the exercise of any other right or remedy.
4. Miscellaneous.
-------------
(a) The provisions of this Secured Non-Recourse Note shall be
governed by and construed in accordance with the laws of the Commonwealth
of Massachusetts, without regard to the conflicts of law rules thereof.
(b) All notices and other communications hereunder shall be in
writing and will be deemed to have been duly given if delivered or mailed
in accordance with the Employment Agreement.
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<PAGE>
(c) The headings contained in this Secured Non-Recourse Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
IN WITNESS WHEREOF, this Secured Non-Recourse Note has been duly executed
and delivered by the Borrower on the date first above written.
_____________________________
(Signature of Borrower)
Witness
______________________
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<PAGE>
EXHIBIT D
---------
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT dated as of June __, 1995 (this "Stock Pledge
Agreement"), between Rory J. Cowan (the "Pledgor") both personally and in his
capacity as trustee under a Declaration of Trust dated as of _______ and known
as the _______ Trust (the "Trust") and Corporate Software Incorporated, a
Delaware corporation (the "Company").
WITNESSETH
----------
WHEREAS, Stream International Inc., a Delaware corporation and the
parent of the Company (the "Parent"), has entered into an agreement, dated as
of April 21 , 1995 (the "Employment Agreement"), between the Parent and the
Pledgor pursuant to which the Parent has agreed to sell shares of Class A Common
Stock, par value $.01 per share, of the Parent (the "Purchased Shares") to the
Pledgor and has further agreed that the Pledgor may assign his right to purchase
the Purchased Shares to the Trust. Capitalized terms used and not otherwise
defined herein shall have the meanings ascribed to them in the Employment
Agreement, and the Pledgor hereunder is the "Executive" as such term is defined
in the Employment Agreement;
WHEREAS, in connection with the sale of the Purchased Shares to the
Pledgor, the Company has lent to the Pledgor $__________ on a non-recourse basis
and, as evidence of the indebtedness created by such loan, the Pledgor is
delivering to the Company a duly executed 7.34% Secured Promissory Note (the
"Note") of the Pledgor in the principal amount of $____________ dated as of the
date hereof;
WHEREAS, pursuant to the Employment Agreement, the Company has agreed
to make additional advances to the Pledgor to cover certain future tax
obligations of the Pledgor and the Pledgor has agreed to deliver to the Company
a duly executed 7.34% Secured Promissory Note (the "Tax Loan Note") on the date
the first installment of the Tax Loan is advanced;
WHEREAS, the Pledgor wishes to grant further security and assurance to
the Company in order to secure the payment of the principal of and interest on
the Note and the Tax Loan Note (hereinafter collectively referred to as the
"Note Obligations") and to pledge to the Company the Purchased Shares to be
acquired by such Pledgor (or at such Pledgor's election, by the Trust) pursuant
to the Employment Agreement, the New Options to be granted to Pledgor pursuant
to
<PAGE>
the Employment Agreement, certain additional shares of and/or options to
purchase additional shares of the Parent's capital stock and certain Publicly
Traded Securities described as to issuer, type and number of shares on Exhibit A
hereto, all as more particularly described herein;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. As collateral security for the full and timely payment of
the principal of and interest on the Note Obligations and all other amounts
payable by the Pledgor thereunder or under this Stock Pledge Agreement
(including, without limitation, any and all reasonable fees and expenses,
including reasonable legal fees and expenses, incurred by the Company in
connection with any exercise of its rights under the Note Obligations or
hereunder), the Pledgor hereby delivers, deposits, pledges, transfers and
assigns to the Company, in form transferable for delivery, and creates in the
Company a security interest in:
(a) all Purchased Shares and all certificates evidencing the
Purchased Shares and other instruments or documents evidencing the same now
owned by the Pledgor and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Purchased Shares;
(b) Zero shares of Class B Common Stock of the Parent
(collectively, the "Owned Shares") and all certificates evidencing the Owned
Shares and other instruments or documents evidencing the same and all dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Owned
Shares;
(c) options to purchase ______ shares of Class A Common Stock and
options to purchase ______ shares of Class B Common Stock of the Parent
(collectively, the "Options") and all certificates evidencing the Options and
other instruments or documents evidencing the same and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Options
including without limitation any shares of Class A Common Stock and Class B
Common Stock received upon the exercise of any Option; and
(d) The Publicly Traded Securities described on Exhibit A hereto
(the
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<PAGE>
"Additional Securities") and all certificates evidencing the Additional
Securities and other instruments or documents evidencing the same and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Additional Securities.
The Purchased Shares, Owned Shares, Additional Securities and Options (together
with any securities or property delivered to the Pledgor pursuant to Section
2(b) hereof) are hereinafter collectively referred to as the "Pledged
Securities".
The Pledgor hereby delivers to the Company appropriate undated
security transfer powers duly executed in blank for the Pledged Securities set
forth above and will deliver appropriate undated security transfer powers duly
executed in blank for the Pledged Securities to be pledged hereunder from time
to time hereafter. The Pledgor agrees that all certificates evidencing the
Pledged Securities shall be marked with the following legend:
THE SHARES/OPTION TO PURCHASE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE PROVISIONS OF A STOCK PLEDGE AGREEMENT DATED AS OF APRIL 21,
1995 BY AND BETWEEN CORPORATE SOFTWARE INCORPORATED, A DELAWARE CORPORATION
AND A WHOLLY-OWNED SUBSIDIARY OF STREAM INTERNATIONAL INC., A DELAWARE
CORPORATION (THE "CORPORATION"), AND THE BORROWER NAMED THEREIN, A COPY OF
WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION.
The Pledgor agrees to deliver to the Company all Pledged Securities currently
held by him in order that such legend may be placed thereon. The Pledgor
further agrees, with respect to the Additional Securities, to deliver written
notice to each issuer of an Additional Security of the pledge of such security
to the Company.
2. Administration of Security. The following provisions shall govern the
administration of the Pledged Securities:
(a) So long as no Event of Default has occurred and is continuing (as
used herein, "Event of Default" shall mean the occurrence of any Event of
Default as defined in the Note Obligations), the Pledgor shall be entitled to
act with respect to the Pledged Securities in any manner not inconsistent with
this Stock Pledge Agreement, the Employment Agreement, the
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<PAGE>
Note Obligations or any document or instrument delivered or to be delivered
pursuant to or in connection with the Employment Agreement, including
transferring the Pledged Securities to a nominee for purposes of exercising the
Options, and/or voting the Pledged Securities and receiving all cash
distributions thereon and giving consents, waivers and ratifications in respect
thereof.
(b) If while this Stock Pledge Agreement is in effect, the Pledgor
shall become entitled to receive or shall receive any debt or equity security
certificate (including, without limitation, any certificates representing shares
of stock received in connection with the exercise of any Option, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), option or right, whether as a dividend or distribution in
respect of, in substitution of, or in exchange for any Pledged Securities, the
Pledgor agrees to accept the same as the Company agent and to hold the same in
trust on behalf of and for the benefit of the Company and to deliver the same
forthwith to the Company in the exact form received, with the endorsement of the
Pledgor when necessary and/or appropriate undated security transfer powers duly
executed in blank, to be held by the Company, subject to the terms of this Stock
Pledge Agreement, as additional collateral security for the Note Obligations.
Notwithstanding the foregoing, it is agreed that the Pledgor may exercise any
option or right received as contemplated in the preceding sentence, and the
Company will exercise any such option or right upon receipt of written
instructions to that effect and any required payments or documents from the
Pledgor, and the securities received upon such exercise of any such option or
right shall thereafter be held by the Pledgor or the Company as contemplated by
the preceding sentence.
(c) The Pledgor shall immediately upon request by the Company and in
confirmation of the security interests hereby created, execute and deliver to
the Company such further instruments, deeds, transfers, assurances and
agreements, in form and substance as the Company shall request, including any
financing statements and amendments thereto, or any other documents, as required
under Massachusetts law and any other applicable law to protect the security
interests created hereunder.
(d) Subject to any sale by the Company or other disposition by the
Company of the Pledged Securities or other property pursuant to this Stock
Pledge Agreement and subject to Sections 5 and 6 below, the Pledged Securities
shall be returned to the Pledgor upon payment in full of the principal of and
accrued and unpaid interest on the Note Obligations.
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<PAGE>
3. Remedies in Case of an Event of Default.
---------------------------------------
(a) In case an Event of Default shall have occurred and be continuing,
the Company shall have in each case all of the remedies of a secured party under
the Massachusetts Uniform Commercial Code, and, without limiting the foregoing,
shall have the right, in its sole discretion, to sell, resell, assign and
deliver all or, from time to time, any part of the Pledged Securities, or any
interest in or option or right to purchase any part thereof, on any securities
exchange on which the Pledged Securities or any of them may be listed, at any
private sale or at public auction, with or without demand of performance or
other demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (except that the Company shall give ten days'
notice to the Pledgor of the time and place of any sale pursuant to this Section
3), for cash, on credit or for other property, for immediate or future delivery,
and for such price or prices and on such terms as the Company shall, in its sole
discretion, determine, the Pledgor hereby waiving and releasing any and all
right or equity of redemption whether before or after sale hereunder. At any
such sale the Company may bid for and purchase the whole or any part of the
Pledged Securities so sold free from any such right or equity of redemption.
The Company shall apply the proceeds of any such sale first to the payment of
all costs and expenses, including reasonable attorneys' fees, incurred by the
Company in enforcing its rights under this Stock Pledge Agreement, second to the
payment of accrued and unpaid interest on (i) the Tax Loan Note and (ii) the
Note and third to the payment of unpaid principal of the (i) the Tax Loan Note
and (ii) the Note.
(b) The Pledgor recognizes that the Company may be unable to effect a
public sale of all or a part of the Pledged Securities by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), or in the rules and regulations promulgated thereunder or in
applicable state securities or "blue sky" laws, but may be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor understands that private sales so made may be at
prices and on other terms less favorable to the seller than if the Pledged
Securities were sold at public sale, and agrees that the Company has no
obligation to delay the sale of the Pledged Securities for the period of time
necessary to permit the registration of the Pledged Securities for public sale
under the Securities Act and under applicable state securities or "blue sky"
laws. The Pledgor agrees that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
-5-
<PAGE>
(c) If any consent, approval or authorization of any state, municipal
or other governmental department, agency or authority should be necessary to
effectuate any sale or disposition by the Company pursuant to this Section 3 of
the Pledged Securities, the Pledgor will execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use his or her best efforts to
secure the same.
(d) Neither failure nor delay on the part of the Company to exercise
any right, remedy, power or privilege provided for herein or by statute or at
law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
4. Pledgor's Obligations Not Affected. The obligations of the Pledgor
under this Stock Pledge Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by: (a) any subordination,
amendment or modification of or addition or supplement to the Employment
Agreement or the Note Obligations, or any assignment or transfer of any thereof;
(b) any exercise or non-exercise by the Company of any right, remedy, power or
privilege under or in respect of this Stock Pledge Agreement, the Employment
Agreement or the Note Obligations, or any waiver of any such right, remedy,
power or privilege; (c) any waiver, consent, extension, indulgence or other
action or inaction in respect of this Stock Pledge Agreement, the Employment
Agreement or the Note Obligations, or any assignment or transfer of any thereof;
or (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like, of the Company, whether or not the Pledgor
shall have notice or knowledge of any of the foregoing.
5. Transfer by Pledgor. The Pledgor will not sell, assign, transfer or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber (collectively, a "Disposition") the Pledged Securities or any
interest therein except as permitted by the Company's Restated Certificate of
Incorporation (the "Charter"), the Employment Agreement and any Stockholders
Agreement to which Pledgor and the Company or its stockholders may be or become
bound. In the event of any Disposition of Pledged Securities pursuant to and in
accordance with the terms and conditions of the Charter, the Employment
Agreement and any such Stockholders Agreement, the Company shall release such
Pledged Securities from the pledge hereunder to permit consummation of such
transaction solely to the extent that, after such release, the sum (the
"Coverage Amount") of (i) the product of the number of shares of Class A Common
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<PAGE>
Stock owned by the Pledgor and subject to this Stock Pledge Agreement multiplied
by $30 (the "Class A Calculated Value") plus (ii) the product of the number of
shares of Class B Common Stock owned by the Pledgor and subject to this Stock
Pledge Agreement multiplied by $30 (the "Class B Calculated Value") exceeds 150%
of the aggregate principal amount of the Note Obligations of the Pledgor then
outstanding (the "Note Amount") is greater than zero. Notwithstanding the
foregoing, (i) upon the written request of the Pledgor, the Company shall
release Additional Securities from the pledge hereunder to permit consummation
of a Disposition solely to the extent that, after such release, the Value (as
defined below) of the Additional Securities subject to this Stock Pledge
Agreement exceeds 125% of the difference between the Note Amount and a fraction,
the numerator of which is the Coverage Amount and the denominator of which is
1.5, and (ii) in the case of any Disposition in connection with the occurrence
of a Trigger Event (as such term is defined in the Employment Agreement), the
Company shall release such Pledged Securities regardless of whether the Coverage
Amount is greater than zero, provided, that any proceeds received upon such
Disposition are either pledged to the Company as additional collateral and/or
used to reduce the Note Amount so that the foregoing collateral coverage test
continues to be satisfied after giving effect to such Disposition.
For purposes of this Section 5, (i) fully vested Options shall be treated
as exercised in determining whether any Pledged Securities shall be released,
provided, however, that the Calculated Value applicable to each share of stock
for which the Option may be exercised shall be reduced by the per share exercise
price of such Option and (ii) the Value of the Additional Securities shall be
the market value of such securities determined by reference to the per share
closing price on the date prior to the requested release of such securities as
reported by the New York Stock Exchange, American Stock Exchange or the National
Association of Securities Dealers Automatic Quotation National Market System, as
the case may be.
6. Adjustments to Calculated Value. In the event of any stock dividend,
stock split, stock issuance, reverse stock split, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change in any
class of common stock of the Company, the dollar value used to determine the
Calculated Value applicable to such class of common stock shall be appropriately
adjusted to reflect such dividend, split, issuance, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change.
7. Attorney-in-Fact. The Company is hereby appointed the attorney-in-
fact of the Pledgor and the Pledgor's transferees for the purpose of carrying
out the provisions of this Stock Pledge Agreement and taking any action and
executing any instrument which the Company
-7-
<PAGE>
reasonably may deem necessary or advisable to accomplish the purposes hereof,
including without limitation, the execution of the applications and other
instruments described in Section 3(c) hereof, which appointment as attorney-in-
fact is irrevocable as one coupled with an interest.
8. Termination. Upon payment in full of the principal of and accrued and
unpaid interest on the Note Obligations and upon the due performance of and
compliance with all the provisions of the Note Obligations, this Stock Pledge
Agreement shall terminate and the Pledgor shall be entitled to the return of
such of the Pledged Securities as have not theretofore been sold, released
pursuant to Sections 5 and 6 hereof or otherwise applied pursuant to the
provisions of this Stock Pledge Agreement.
10. Notices. All notices or other communications required or permitted to
be given hereunder shall be delivered as provided in the Employment Agreement.
11. Binding Effect, Successors and Assigns. This Stock Pledge Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns and nothing herein is intended or shall be
construed to give any other person any right, remedy or claim under, to or in
respect of this Stock Pledge Agreement.
12. Miscellaneous. The Company and its assigns shall have no obligation
in respect of the Pledged Securities, except to hold and dispose of the same in
accordance with the terms of this Stock Pledge Agreement. Neither this Stock
Pledge Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the amendment, modification, waiver,
discharge or termination is sought. The provisions of this Stock Pledge
Agreement shall be binding upon the heirs, representatives, successors and
permitted assigns of the Pledgor. The captions in this Stock Pledge Agreement
are for convenience of reference only and shall not define or limit the
provisions hereof. This Stock Pledge Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof. This Stock
Pledge Agreement may be executed simultaneously in several counterparts, each of
which is an original, but all of which together shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be executed and delivered as of the date first above written.
CORPORATE SOFTWARE INCORPORATED
By____________________________
Title:
PLEDGOR
_______________________________
Rory J. Cowan
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<PAGE>
Exhibit E
---------
FORM OF
7.34% SECURED NON-RECOURSE PROMISSORY NOTE
("SECURED NON-RECOURSE NOTE")
-------------------------
(June __, 1995)
FOR VALUE RECEIVED, the undersigned, ______________ (the "Borrower"),
hereby promises to pay to Corporate Software Incorporated, a Delaware
corporation (the "Company"), or to the legal holder of this Secured Non-Recourse
Note at the time of payment, the principal sum of ___________ dollars ($_______)
in lawful money of the United States of America, and to pay simple interest
(computed on the basis of a 365 or 366 day year, as the case may be) on the
principal amount hereof from and after the date of this Secured Non-Recourse
Note until the entire principal amount hereof has been paid in full, at the rate
of 7.34% per annum. The entire principal amount of indebtedness evidenced by
this note, to the extent not theretofore prepaid as provided herein, shall be
repaid on the Maturity Date. Each payment of principal shall be accompanied by
payment of any accrued and unpaid interest thereon.
If the date set for any payment or prepayment of principal or interest
hereunder is a Saturday, Sunday or legal holiday, then such payment or
prepayment shall be made on the next preceding business day.
This Secured Non-Recourse Note has been delivered to evidence indebtedness
of the Borrower to the Company arising out of a loan made to the Borrower to
cover certain of the Borrower's tax obligations in connection with his exercise
of options to purchase shares of common stock of R.R. Donnelley & Sons Company
and the subsequent sale of the shares received upon such exercise and/or the
sale of shares of such common stock held by him in connection with the 1995
strategic alliance between Software Holdings, Inc. and the GSS Division of R.R.
Donnelley & Sons Company which required the Borrower to purchase shares of Class
A Common Stock, par value $.01 per Share, of Stream International Inc., a
Delaware corporation and the parent of the Company (the "Parent") in accordance
with the terms of the Employment Agreement, dated as of April 21, 1995 (the
"Employment Agreement"), between Stream International Inc.
<PAGE>
and the Borrower, and this Secured Non-Recourse Note is the "Tax Loan Note" of
the Borrower referred to in Section 4 of the Employment Agreement. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Employment Agreement. Payment of the principal of and interest on
this Secured Non-Recourse Note is secured pursuant to the terms of a Stock
Pledge Agreement, dated as of May __, 1995, between the Borrower and the Company
(the "Pledge Agreement"), reference to which is made for a description of the
collateral provided thereby and the rights of the Company and any subsequent
holder of this Secured Non-Recourse Note in respect of such collateral.
Recourse of the holder of this Note for payment of the principal of
and interest on this Note or any claim based thereon shall be limited solely to
the collateral held pursuant to the Pledge Agreement, and the holder of this
Note shall have no recourse to any other assets of the Borrower for such
payment, whether before or after an Event of Default.
As used in this Note:
(a) the term "Maturity Date" means the earliest of (i) April 21, 2000
or, at the election of the Parent's Board of Directors and as a result of
the completion of any public offering of shares of the Parent registered
under the Securities Act of 1933, as amended, in connection with which the
Borrower is given an opportunity to sell shares having a value equal to or
greater than the amount of borrowings evidenced by this Secured Non-
Recourse Note outstanding at the time of such offering, provided, that,
such offering is completed prior to April 21, 2000, and (ii) the first date
on which a Liquidity Event (as defined below) shall occur; and
(b) the term "Liquidity Event" means any of the following: (i) any
sale of a majority of the capital stock or assets of the Parent (including
without limitation a sale of a majority of the capital stock resulting from
a Disposition (as defined in the Parent's Restated Certificate of
Incorporation) or Total Disposition (as defined in the Parent's Restated
Certificate of Incorporation) by R.R. Donnelley & Sons which triggers
certain Tag Along (as defined in the Parent's Restated Certificate of
Incorporation) and Drag Along Rights (as defined in the Parent's Restated
Certificate of
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<PAGE>
Incorporation), the exercise by any stockholder of the Put Right (as
defined in the Parent's Restated Certificate of Incorporation) or the
exercise by the Parent of its Call Right (as defined in the Parent's
Restated Certificate of Incorporation) all in accordance with the
provisions of Article Fifth of the Parent's Restated Certificate of
Incorporation), (ii) any liquidation or winding-up of the Parent or
distribution of a majority of the Parent's assets, other than to an
Affiliate of the Parent or (iii) any merger, consolidation or similar
business combination with or into any entity other than an entity
controlled by Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P. and
Information Partners Capital Fund, L.P. (collectively, the "Funds") or by
R.R. Donnelley & Sons Company.
Interest on the principal amount hereof outstanding from time to time
shall be payable quarterly on the last business day of March, June, September
and December of each year commencing June 30, 1995 and on the Maturity Date.
This Secured Non-Recourse Note is subject to the following further
terms and conditions:
1. Mandatory Prepayments. If at any time the Borrower receives any
proceeds from the sale by the Borrower of Shares to anyone (including the
Company), the proceeds from such sale of Shares shall be applied first, to the
prepayment of the accrued and unpaid interest hereon and then to the unpaid
principal hereof. For purposes of this Section 1, the term "sale" in the
context of a sale of Shares shall include, in addition to any direct sale of
Shares, any transaction (including, without limitation, a merger, consolidation
or recapitalization) pursuant to which Shares are converted into a right to
receive, in whole or partial exchange or substitution for Shares, cash or cash
equivalents.
The right of the Borrower to receive proceeds upon the sale of Shares is
subject to the prior right of the Company (or other holder of this Secured Non-
Non-Recourse Note) (i) in the case of a sale of Shares to the Company (or other
holder of this Secured Non-Recourse Note), in lieu of the Company (or such other
holder) paying the proceeds from such sale to the Borrower or his heirs,
successors or permitted assigns to set off against this Secured Non-Recourse
Note an amount equal to the Net Proceeds of such sale, or (ii) in the case of a
sale of Shares to
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<PAGE>
any other person or entity (collectively, the "Transfer Parties"), in lieu of
any of such Transfer Parties paying the purchase price therefor to the Borrower
or his heirs, successors or permitted assigns, to direct such Transfer Parties
to pay an amount equal to the Net Proceeds of such sale to the Company (or other
holder of this Secured Non-Recourse Note) which shall set off such amount
against this Secured Non-Recourse Note.
Concurrently with any prepayment (including by set-off) of any portion
of the principal amount of this Secured Non-Recourse Note pursuant to this
Section 1 or Section 2 hereof, the Company (or other holder of this Secured Non-
Recourse Note) shall make a notation of such payment hereon. If full payment of
the principal of and accrued and unpaid interest on this Secured Non-Recourse
Note is made, this Secured Non-Recourse Note shall be cancelled. Any partial
prepayment (including by reason of set-off) shall be applied first to accrued
and unpaid interest hereon and then to the unpaid principal hereof.
If at any time, or from time to time, after the date hereof and following
the occurrence and during the continuance of an Event of Default (as hereinafter
defined), the Borrower shall receive or shall otherwise become entitled to
receive from the Company (or other holder of this Secured Non-Recourse Note) any
cash payments, cash dividends or other cash distributions in respect of any
Shares, then and in each case, the Borrower or any of his heirs, successors or
permitted assigns to whom such distribution may be made shall, upon the receipt
thereof, return to the Company (or other holder of this Secured Non-Recourse
Note) such payments, dividends and distributions, and the Company (or other
holder of this Secured Non-Recourse Note) shall apply such amount to the
prepayment of the accrued and unpaid interest on and unpaid principal of this
Secured Non-Recourse Note in the manner set forth in the first paragraph of this
Section 1, and the Company (or other holder of this Secured Non-Recourse Note)
shall not be obligated to make any such cash payment, cash dividend or other
cash distribution not theretofore made to which the Borrower or any of his
heirs, successor or permitted assigns are otherwise entitled in respect of their
Shares and may, in lieu of paying such amount to the Borrower, set off the
amount of such cash payment, cash dividend or other cash distribution against
the accrued and unpaid interest on and unpaid principal of this Secured Non-
Recourse Note in the manner set forth in the third paragraph of this Section 1.
-4-
<PAGE>
2. Payment and Prepayment. All payments and prepayments of principal of
and interest on this Secured Non-Recourse Note shall be made to the Company or
its order, or to the legal holder of this Secured Non-Recourse Note or such
holder's order, in lawful money of the United States of America at the principal
offices of the Company (or at such other place as the holder hereof shall notify
the Borrower in writing). The Borrower may, at his option, prepay this Secured
Non-Recourse Note in whole or in part at any time or from time to time without
penalty or premium. Any prepayments of any portion of the principal amount of
this Secured Non-Recourse Note shall be accompanied by payment of all interest
accrued but unpaid hereunder. Upon final payment of principal of and interest
on this Secured Non-Recourse Note it shall be surrendered for cancellation. THE
PLEDGE AGREEMENT REQUIRES PAYMENT OR PREPAYMENT OF ALL OBLIGATIONS UNDER THIS
SECURED PROMISSORY NOTE AS A CONDITION PRECEDENT TO THE RELEASE OF, OR TRANSFER
OF THE BORROWER'S INTERESTS IN, THE COLLATERAL SUBJECT TO THE PLEDGE AGREEMENT,
ALL AS DESCRIBED MORE FULLY IN THE PLEDGE AGREEMENT.
3. Events of Default. Upon the occurrence of any of the following events
("Events of Default"):
(a) Failure to pay the principal of this Secured Non-Recourse Note,
including any prepayments required hereunder or under the Pledge Agreement,
when due;
(b) Failure to pay any interest installment due under this Secured
Non-Recourse Note which shall remain unremedied for ten days following the
date when such installment was originally due hereunder; or
(c) Failure of the Borrower to perform the Borrower's obligations
(i) under the Employment Agreement which shall remain unremedied for ten
days following notice from the Company or the Parent or (ii) under the
Pledge Agreement;
then, and in any such event, the holder of this Secured Non-Recourse Note may
declare, by notice of default given to the Borrower, the entire principal amount
of this Secured Non-Recourse Note to be forthwith due and payable, whereupon the
entire principal amount of this Secured Non-Recourse Note outstanding and any
-5-
<PAGE>
accrued and unpaid interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other demands and
notices of any kind, all of which are hereby expressly waived. Upon the
occurrence of an Event of Default, the accrued and unpaid interest hereunder
shall thereafter bear the same rate of interest as on the principal hereunder,
but in no event shall such interest be charged which would violate any
applicable usury law. If an Event of Default shall occur hereunder, the
Borrower shall pay costs of collection, including reasonable attorneys' fees,
incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Secured Non-Recourse Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no single
or partial exercise by the holder hereof of any right or remedy shall preclude
other or future exercise thereof or the exercise of any other right or remedy.
4. Miscellaneous.
-------------
(a) The provisions of this Secured Non-Recourse Note shall be
governed by and construed in accordance with the laws of the Commonwealth
of Massachusetts, without regard to the conflicts of law rules thereof.
(b) All notices and other communications hereunder shall be in
writing and will be deemed to have been duly given if delivered or mailed
in accordance with the Employment Agreement.
(c) The headings contained in this Secured Non-Recourse Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
-6-
<PAGE>
IN WITNESS WHEREOF, this Secured Non-Recourse Note has been duly
executed and delivered by the Borrower on the date first above written.
_____________________________
(Signature of Borrower)
Witness
______________________
-7-
<PAGE>
EXHIBIT 12
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
6/30/95
--------
<S> <C>
Earnings
Earnings before income taxes........................................ $163,681
Interest expense.................................................... 49,830
One-third operating leases (1)...................................... 8,200
Amortization capitalized interest................................... 3,009
--------
Earnings available for fixed charges.............................. $224,720
========
Fixed charges
Interest expense.................................................... $ 49,830
Capitalized interest................................................ 5,499
--------
Interest incurred................................................... 55,329
One-third operating leases (1)...................................... 8,200
--------
Total fixed charges............................................... $ 63,529
========
Ratio of earnings to fixed charges (2)................................ 3.54
========
</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 June 30,
1995 was 4.73.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,552
<SECURITIES> 0
<RECEIVABLES> 1,137,271
<ALLOWANCES> 24,342
<INVENTORY> 466,509
<CURRENT-ASSETS> 1,681,534
<PP&E> 3,929,694
<DEPRECIATION> 1,977,712
<TOTAL-ASSETS> 5,068,472
<CURRENT-LIABILITIES> 908,575
<BONDS> 1,600,335
<COMMON> 330,612
0
0
<OTHER-SE> 1,717,810
<TOTAL-LIABILITY-AND-EQUITY> 5,068,472
<SALES> 2,808,722
<TOTAL-REVENUES> 2,808,722
<CGS> 2,300,775
<TOTAL-COSTS> 2,591,615
<OTHER-EXPENSES> 3,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,830
<INCOME-PRETAX> 163,681
<INCOME-TAX> 52,378
<INCOME-CONTINUING> 111,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,303
<EPS-PRIMARY> .73
<EPS-DILUTED> 0
</TABLE>
