<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
R. R. DONNELLEY & SONS COMPANY
(Name of Registrant as Specified In Its Charter)
---------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
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NOTICE AND PROXY STATEMENT 77 West Wacker Drive
ANNUAL MEETING OF STOCKHOLDERS Chicago, Illinois 60601-1696
[LOGO OF R. R. DONNELLEY & SONS COMPANY] R. R. DONNELLEY & SONS COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 28, 1996
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The Annual Meeting of Stockholders of R. R. Donnelley & Sons Company will be
held on Thursday, March 28, 1996, at eight o'clock a.m., Chicago Time, at the
Company's headquarters offices, 77 West Wacker Drive, 19th Floor, Chicago,
Illinois, 60601 for the following purposes:
1. To elect five directors;
2. To consider and vote on a stockholder proposal regarding a Maquiladora
report, if properly presented at the meeting; and
3. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
Enclosed herewith is a Proxy Statement setting forth certain additional
information.
Only stockholders of record at the close of business on February 5, 1996 will
be entitled to notice of and to vote at the meeting.
Stockholders who do not expect to be present at the meeting are requested to
sign and date the enclosed proxy and return it promptly in the envelope
enclosed for that purpose. Any person giving a proxy has the power to revoke it
at any time before it is exercised and stockholders who are present at the
meeting may withdraw their proxies and vote in person. Revocation of a proxy
may be effected in the manner provided on page 1 of the Proxy Statement.
By Order of the Board of Directors
Deborah M. Regan
Secretary
February 20, 1996
[LOGO Printed on recycled paper]
<PAGE>
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77 West Wacker Drive
Chicago, Illinois 60601-1696
[LOGO OF R. R. DONNELLEY & SONS COMPANY] R. R. DONNELLEY & SONS COMPANY
February 20, 1996
PROXY STATEMENT
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This Proxy Statement is furnished to stockholders of R. R. Donnelley & Sons
Company in connection with the solicitation, by order of the Board of
Directors, of proxies for use at the Annual Meeting of Stockholders of the
Company to be held on Thursday, March 28, 1996 (the "1996 Annual Meeting") at
the time and place and for the purposes set forth in the accompanying notice of
the meeting. This Proxy Statement and the accompanying proxy are first being
mailed to stockholders on or about February 20, 1996.
The accompanying proxy is solicited on behalf of the Board of Directors of the
Company and is revocable at any time before it is exercised. A proxy may be
revoked at any time before it is exercised by delivering a written notice of
revocation to the Secretary of the Company or by executing a proxy bearing a
later date which is exercised at the 1996 Annual Meeting. Attendance at the
1996 Annual Meeting will not automatically revoke a proxy, but a stockholder in
attendance may request a ballot and vote in person, thereby revoking a prior
granted proxy.
All outstanding shares of the Company's common stock, par value $1.25 ("Common
Stock"), represented by properly executed and unrevoked proxies received in the
accompanying form in time for the 1996 Annual Meeting will be voted. A
stockholder may, with respect to the election of directors (i) vote for the
election of all five nominees named herein as directors, (ii) withhold
authority to vote for all such director nominees or (iii) vote for the election
of all such director nominees other than any nominee with respect to whom the
stockholder withholds authority to vote by so indicating in the appropriate
space on the proxy. A stockholder may, with respect to each other matter
specified in the notice of the meeting (i) vote "FOR" the matter, (ii) vote
"AGAINST" the matter or (iii) "ABSTAIN" from voting on the matter. Shares will
be voted as instructed in the accompanying proxy on each matter submitted to
stockholders. If no instructions are given, the shares will be voted for the
election of all five nominees named herein as directors, and against the
stockholder proposal regarding a Maquiladora report, if it is properly
presented at the 1996 Annual Meeting.
A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by such proxy are not being voted by such stockholder with
respect to a particular matter. This could occur, for example, when a broker is
not permitted to vote stock held in street name on certain matters in the
absence of instructions from the beneficial owner of the stock. The shares
subject to any such proxy which are not being voted with respect to a
particular matter (the "non-voted shares") will be considered shares not
present and entitled to vote on such matter, although such shares may be
considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum.
The affirmative vote of a plurality of the shares of Common Stock present in
person or by proxy at the meeting and entitled to vote on the election of
directors is required to elect directors. Accordingly, if a quorum is present
at the meeting, the five persons receiving the greatest number of votes will be
elected to serve as directors. Therefore, withholding authority to vote for a
director(s) and non-voted shares with respect to the election of directors will
not affect the outcome of the election of directors. If
a quorum is present at the meeting, approval of each matter other than the
election of directors requires
<PAGE>
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the affirmative vote of a majority of the shares of Common Stock present in
person or by proxy at the meeting and entitled to vote on such matter. An
abstention with respect to such matter has the legal effect of a vote against
such matter. Non-voted shares with respect to such matter will not affect the
determination of whether such matter is approved.
If a stockholder is a participant in the Company's Dividend Reinvestment Plan
or Employee Monthly Investment Plan and the accounts are registered in the same
name, the proxy represents the number of full shares in each plan account, as
well as shares registered in the participant's name. If a stockholder is a
participant in the Company's Tax Credit Stock Ownership Plan and the account is
registered in the same name, the proxy will also serve as a voting instruction
for the trustee of this plan.
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Common Stock of whom they have knowledge, and will reimburse them for
their expenses in so doing; and certain directors, officers and other employees
of the Company, not specially employed for the purpose, may solicit proxies,
without additional remuneration therefor, by personal interview, mail,
telephone or telegraph. The Company has retained Morrow & Co. to aid in the
solicitation of proxies for a fee of $8,000, plus out-of-pocket expenses.
There were issued and outstanding 154,021,226 shares of Common Stock
(exclusive of 4,587,574 shares held in the Treasury) as of February 5, 1996.
Each such issued and outstanding share is entitled to one vote upon each matter
to be voted on at the 1996 Annual Meeting. The close of business on February 5,
1996 has been fixed as the record date for the determination of stockholders
entitled to vote at the meeting.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for three classes of
directors of as nearly equal size as possible and further provides that the
total number of directors shall be determined by the Company's By-Laws, except
that the total number of directors shall be not less than nine nor more than
fifteen. The term of each class of directors is three years and the term of one
class expires each year in rotation.
The terms of the Directors of the Second Class expire at the 1996 annual
election to be held at the 1996 Annual Meeting. At the present time it is
intended that shares represented by the enclosed proxy will be voted for the
election of James R. Donnelley, Judith H. Hamilton, John M. Richman, William D.
Sanders and Bide L. Thomas as Directors of the Second Class for a three-year
term expiring at the 1999 annual election. Mr. Richman has informed the Company
that, if re-elected, he intends to retire in accordance with the Company's
Retirement Policy for directors on December 1, 1997, at age 70. In addition,
Richard M. Morrow, who is a Director of the First Class, will retire in
accordance with the Company's Retirement Policy for directors on March 1, 1996.
All of the nominees are currently members of the Board of Directors. In the
event that any nominee should become unavailable for reasons not now known, it
is intended that such shares will be voted for such substitute nominee as may
be selected by the Board of Directors or the Board may elect not to fill the
vacancy and to reduce the number of directors.
The affirmative vote of the holders of a plurality of the shares of Common
Stock present in person or by proxy at the 1996 Annual Meeting and entitled to
vote on the election of directors is required to elect the nominees as
Directors of the Second Class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR DIRECTORS
OF THE SECOND CLASS.
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INFORMATION ABOUT DIRECTORS AND NOMINEES FOR DIRECTORS
The names of the directors whose terms of office shall continue after the 1996
Annual Meeting and the nominees, their principal occupations during the past
five years, certain other directorships held, and certain other information are
set forth below.
2
<PAGE>
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DIRECTORS OF THE SECOND CLASS
Nominated for election at the 1996 Annual Meeting for Terms Expiring in 1999
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JAMES R. DONNELLEY, Vice Chairman of the Board of the Company
PHOTO OF since July, 1990. From June, 1988 to July, 1990, he was Group
JAMES R. President, Corporate Development. Prior to June, 1988, he was
DONNELLEY Group President, Financial Printing Services. He has been a
director since 1976. He is a director of Sierra Pacific Resources
and Pacific Magazines and Printing Limited. Mr. Donnelley is a
cousin of Charles C. Haffner III, a director of the Company. Age
60. Member of the Executive and Finance Committees.
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JUDITH H. HAMILTON, Former President and Chief Executive Officer
PHOTO OF of Dataquest Incorporated, a high-technology market research
JUDITH H. analysis and consulting firm, serving from July, 1992 until
HAMILTON December, 1995. She was Senior Vice President and General
Manager, Systems Division, of Locus Computing Corporation from
1991 to 1992 and a Partner of Ernst & Young and the National
Director of Market Development for the Information Technology
Organization of Ernst & Young from 1988 to 1991. She has been a
director since 1995. She is a director of Application Resources,
Inc. Age 51. Member of the Finance and Nominating and Governance
Committees.
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JOHN M. RICHMAN, Counsel to the law firm of Wachtell, Lipton,
PHOTO OF Rosen & Katz since January, 1990. He was Vice Chairman of Philip
JOHN M. Morris Companies, Inc., a consumer packaged goods company, from
RICHMAN December, 1988 until December, 1989, and was Chairman and Chief
Executive Officer of Kraft, Inc. from 1979 to December, 1989. He
has been a director since 1988. He is a director of BankAmerica
Corporation, Bank of America NT & SA, and USX Corporation. Age
68. Member of the Audit, Human Resources and Nominating and
Governance Committees.
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WILLIAM D. SANDERS, Chairman and Chief Executive Officer of
PHOTO OF Security Capital Group Incorporated, an owner and operator of
WILLIAM D. public real estate companies, since 1990. Prior to 1990, he was
SANDERS Chairman of La Salle Partners Limited. He has been a director
since 1986. He is a director of Security Capital Group
Incorporated. Age 54. Member of the Human Resources and
Nominating and Governance Committees.
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BIDE L. THOMAS, Retired President of Commonwealth Edison Company,
PHOTO OF a producer, distributor and seller of electric energy. He was
BIDE L. President of Commonwealth Edison Company from September, 1987
THOMAS until his retirement in December, 1992. He has been a director
since 1987. He is a director of MYR Group Inc. and The Northern
Trust Corporation. Age 60. Member of the Executive and Finance
Committees.
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DIRECTORS OF THE THIRD CLASS
Terms Expire in 1997
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THOMAS S. JOHNSON, Chairman, President and Chief Executive
PHOTO OF Officer of GreenPoint Financial Corp. and its subsidiary,
THOMAS S. GreenPoint Bank, since 1993. He was President of Manufacturers
JOHNSON Hanover Corporation and Manufacturers Hanover Trust Company,
diversified financial institutions, from December, 1989 until
July, 1991. He was President and a director of Chemical Banking
Corporation and Chemical Bank from 1983 until December, 1989. He
has been a director since 1990. He is a director of GreenPoint
Financial Corp. and GreenPoint Bank, Online Resources &
Communications Corporation, and U. S. Capital Group Inc. Age 55.
Member of the Finance and Human Resources Committees.
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3
<PAGE>
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M. BERNARD PUCKETT, Former President and Chief Executive Officer
PHOTO OF of Mobile Telecommunication Technologies Corp., a provider of
M. BERNARD paging and wireless messaging services, serving from January,
PUCKETT 1994 until January, 1996. He was Senior Vice President, Corporate
Strategy and Development of International Business Machines from
1993 to 1994, Vice President and General Manager, Applications
Solutions Division of International Business Machines from 1991
to 1993, and President, Data Systems Division of International
Business Machines from 1988 to 1991. He has been a director since
1995. He is a director of Dun & Bradstreet Corp. and P-Com. Age
51. Member of the Audit and Finance Committees.
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JERRE L. STEAD, Former Chairman and Chief Executive Officer of
PHOTO OF Legent Corporation, a supplier of systems management solutions to
JERRE L. users of computer technology, serving from January until
STEAD November, 1995. He was Executive Vice President of AT&T Corp. and
Chairman and Chief Executive Officer of AT&T Global Information
Solutions, formerly NCR Corporation, a subsidiary of AT&T, from
1993 to 1994. He was President of Global Business Communications
Systems, AT&T from 1991 to 1993. He was Chairman, President and
Chief Executive Officer of Square D Company from 1989 to 1991 and
President and Chief Operating Officer from 1987 to 1989. He has
been a director since 1994. He is a director of American
Precision Industries Inc., Armstrong World Industries, Inc.,
Autodesk Inc. and TGB Holdings, bv. Age 53. Member of the Audit
and Human Resources Committees.
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JOHN R. WALTER, Chairman of the Board of the Company since
PHOTO OF September, 1989 and Chief Executive Officer since January, 1989.
JOHN R. He was President from June, 1987 until March, 1991, Executive
WALTER Vice President from October, 1986 until June, 1987 and Group
President of the Directory Group from February, 1985 to October,
1986. He has been a director since 1987. He is a director of
Abbott Laboratories, Dayton Hudson Corporation and Deere &
Company. Age 49. Member of the Executive Committee.
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DIRECTORS OF THE FIRST CLASS
Terms Expire in 1998
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MARTHA LAYNE COLLINS, President of St. Catharine College,
PHOTO OF Springfield, Kentucky, since July, 1990 and President, Martha
MARTHA Layne Collins & Associates, a consulting firm, since January,
LAYNE 1988. She was a Fellow at John F. Kennedy School of Government at
COLLINS Harvard University from January, 1989 to May, 1989 and was
Executive-in- Residence, University of Louisville from January,
1988 to December, 1988. She was Governor of the Commonwealth of
Kentucky from December, 1983 to December, 1987 and Lieutenant
Governor from December, 1979 to December, 1983. She has been a
director since 1987. She is a director of Eastman Kodak Company
and Mid-America Bancorp (dba Bank of Louisville). Age 59. Member
of the Audit and Executive Committees.
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CHARLES C. HAFFNER III, Retired Vice Chairman of the Board of the
PHOTO OF Company. He was Vice Chairman of the Board from February, 1984
CHARLES C. until August, 1990. From March, 1983 to January, 1984, he served
HAFFNER III as Vice Chairman and Treasurer. He has been a director since
1961. He is a director of DuKane Corporation, The Lakeside Bank
and Protection Mutual Insurance Company. Mr. Haffner is a cousin
of James R. Donnelley, a director of the Company. Age 67. Member
of the Executive and Nominating and Governance Committees.
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4
<PAGE>
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H. BLAIR WHITE, Counsel to the law firm of Sidley & Austin since
PHOTO OF January, 1995. He was the sole officer and shareholder of a
H. BLAIR corporate partner in the law firm of Sidley & Austin prior to
WHITE January, 1995. He has been a director since 1979. He is a
director of DEKALB Genetics Corporation. Age 68. Member of the
Audit and Executive Committees.
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STEPHEN M. WOLF, Chairman and Chief Executive Officer of USAir
PHOTO OF Group, Inc. and USAir, Inc. since January, 1996. He was Senior
STEPHEN M. Advisor to Lazard Freres & Co., an investment banking firm, from
WOLF August, 1994 until January, 1996. He was Chairman and Chief
Executive Officer of UAL Corporation and United Air Lines, Inc.
from 1987 to 1994. He has been a director since 1995. He is a
director of Philip Morris Companies, Inc., USAir Group, Inc. and
USAir, Inc. Age 54. Member of the Finance and Human Resources
Committees.
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In 1995, the Board of Directors met six times. During 1995, each director was
present for 75% or more of the total number of meetings of the Board of
Directors and Committees of the Board of which such director was a member.
H. Blair White, a director of the Company, is Counsel to the law firm of
Sidley & Austin. Sidley & Austin furnished legal services to the Company in
1995 and the Company expects the firm to continue to furnish legal services in
1996. The Company provides services at market rates to Sidley & Austin and to
certain firms of which the Company's directors are now or were formerly
officers and/or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has standing Audit, Executive, Finance, Human Resources and
Nominating and Governance Committees of the Board of Directors. The members of
these Committees have been identified above.
The Audit Committee recommends the selection of independent public accountants
to the Board of Directors; reviews the scope of the audits performed by the
independent public accountants and internal audit department, together with
their audit reports and any recommendations made by them; reviews in January of
each year the results of the audit for the prior fiscal year with the
independent public accountants before the earnings report for such fiscal year
is released publicly; and reviews periodically the performance of the Company's
accounting and financial personnel. The Audit Committee also reviews the
Company's financial disclosure documents, management perquisites, material
litigation and regulatory proceedings and other issues relative to potentially
significant corporate liability and reviews and monitors the Company's codes of
conduct. The Audit Committee met three times in 1995.
The Executive Committee is empowered to exercise all of the authority of the
Board of Directors, except that it does not have the power to take specific
actions delegated to other Committees or to take certain other actions
enumerated in the Company's By-Laws. The Executive Committee meets as necessary
and did not meet in 1995.
The Finance Committee reviews the financial policies of the Company and makes
recommendations to the Board of Directors regarding the Company's financial
condition and requirements for and disposition of funds, including the payment
of dividends. The Finance Committee also reviews the performance and management
of the Company's Retirement Benefit Plan. The Finance Committee met four times
in 1995.
The Human Resources Committee determines the annual salary, bonus and other
benefits of selected senior officers of the Company and establishes and
reviews, as appropriate, performance standards under compensation programs for
senior officers. The Human Resources Committee recommends new employee benefit
plans and changes to stock incentive plans to the Board of Directors, approves
5
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amendments to the non-stock employee benefit plans and administers all of the
Company's employee benefit plans. The Human Resources Committee also recommends
to the Board of Directors candidates for election as corporate officers. The
Human Resources Committee met seven times in 1995.
The Nominating and Governance Committee recommends to the full Board nominees
for election to the Board of Directors in connection with any meeting of
stockholders at which directors are to be elected, and recommends to the full
Board persons for appointment to fill any Board vacancy, such as may occur due
to death, resignation, retirement or the creation of a new directorship, which
the Board of Directors is authorized under the By-Laws to fill. The Nominating
and Governance Committee also recommends to the Board policies and guidelines
concerning criteria for Board membership, the structure and composition of
Board Committees and other matters related to tenure and retirement of the
Board members. The Nominating and Governance Committee met three times in 1995.
BENEFICIAL OWNERSHIP OF COMMON STOCK
CERTAIN PRINCIPAL OWNERS
The following table lists the beneficial ownership of Common Stock with respect
to all persons known to the Company to be the beneficial owner of more than 5%
of Common Stock. The information shown was furnished by Northern Trust
Corporation. The percentage of outstanding Common Stock owned by Northern Trust
Corporation is based on outstanding shares of Common Stock as of December 31,
1995.
<TABLE>
<CAPTION>
Number of Shares % of Outstanding
Name and address Beneficially Owned Common Stock
- -------------------------------------------------------------------------------------
<S> <C> <C>
Northern Trust Corporation 16,454,020(1) 10.69%
50 South LaSalle Street
Chicago, Illinois 60675
</TABLE>
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(1) Northern Trust Corporation is a parent holding company for The Northern
Trust Company and other affiliates and files one Schedule 13G to report
beneficial ownership by all such entities of the Common Stock. Includes
shares as to which Northern Trust Corporation has or shares investment and
voting power as follows: sole investment power, 5,143,910 shares (3.34%);
shared investment power, 9,735,909 shares (6.32%); sole voting power,
10,100,383 shares (6.56%); shared voting power, 2,576,123 shares (1.67%).
Also includes 5,463,948 (3.55%) shares which are shown elsewhere in this
Proxy Statement as beneficially owned by James R. Donnelley; and 879,222
shares which are shown elsewhere in this Proxy Statement as beneficially
owned by Charles C. Haffner III.
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The descendants of Richard Robert Donnelley (1836-1899), the Company's
founder, and members of their families, own approximately 17.48% of the
outstanding Common Stock.
6
<PAGE>
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the beneficial ownership, as of December 31, 1995, of
Common Stock by all directors and nominees (except for Judith H. Hamilton for
whom beneficial ownership is reported as of January 30, 1996), each of the
individuals named in the Summary Compensation Table and the directors and all
eight individuals serving as executive officers on December 31, 1995 as a
group. The percentage of outstanding Common Stock owned by each such person is
based on outstanding shares of Common Stock as of December 31, 1995, plus
shares subject to stock options held by each such person.
<TABLE>
<S> <C> <C>
Number of Shares % of Outstanding
Name Beneficially Owned Common Stock
- ----------------------------------------------------------------------------------------------
Directors
Martha Layne Collins 16,200(1) *
James R. Donnelley 6,437,081(2) 4.18%
Charles C. Haffner III 1,368,619(3) *
Judith H. Hamilton 300 *
Thomas S. Johnson 20,631(1) *
M. Bernard Puckett 1,000 *
John M. Richman 20,405(1) *
William D. Sanders 20,817(1) *
Jerre L. Stead 5,700(4) *
Bide L. Thomas 17,774(1) *
H. Blair White 27,600(1) *
Stephen M. Wolf 30,000 *
Named Executive Officers
Steven J. Baumgartner 35,160(5)
Rory J. Cowan 97,693(6) *
Frank R. Jarc 24,770(7) *
W. Ed Tyler 148,213(8) *
John R. Walter 513,768(9) *
Jonathan P. Ward 136,197(10) *
Directors and all eight Executive Officers as a group 9,045,223 5.84%
</TABLE>
- --------
* Less than one percent.
(1) Includes 16,000 shares which are not now owned but which could be acquired
by exercise of non-employee director stock options.
(2) Includes 9,800 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 64,240 shares
which are not now owned but could be acquired by exercise of stock options.
Includes 1,308,545 shares as to which he has sole investment and voting
power and 5,064,296 (3.29%) shares as to which he shares investment and
voting power. Does not include 33,513 shares owned by a family member as to
which beneficial ownership is disclaimed.
(3) Includes 16,000 shares subject to non-employee director stock options.
Includes 473,397 shares as to which he has sole investment and voting power
and 879,222 shares as to which he shares investment and voting power. Does
not include 72,980 shares owned by family members as to which beneficial
ownership is disclaimed.
(4) Includes 4,000 shares which are not now owned but which could be acquired
by exercise of non-employee director stock options.
(5) Includes 19,800 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 14,100 shares
which are not now owned but which could be acquired by exercise of stock
options.
(6) Includes 16,800 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 75,200 shares
which are not now owned but which could be acquired by exercise of stock
options. Mr. Cowan also owns 557,500 shares of Class A common stock of
Stream International Inc., which is approximately 80% owned by the Company
("Stream"), including 57,500 shares of such Class A common stock which are
not now owned but which could be acquired by exercise of stock options.
(7) Includes 12,050 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 12,720 shares
which are not now owned but which could be acquired by exercise of stock
options.
(8) Includes 26,550 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 101,200 shares
which are not now owned but which could be acquired by exercise of stock
options.
7
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(9) Includes 93,500 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 290,900 shares
which are not now owned but which could be acquired by exercise of stock
options. Does not include 100 shares owned by a family member as to which
beneficial ownership is disclaimed.
(10) Includes 26,550 shares which are subject to conditions of forfeiture and
restrictions on sale, transfer or other disposition, and 94,700 shares
which are not now owned but which could be acquired by exercise of stock
options.
Each director and each officer of the Company who is subject to Section 16 of
the Securities Exchange Act of 1934 (the "Act") is required by Section 16(a) of
the Act to report to the Securities and Exchange Commission, by a specified
date, his or her beneficial ownership of or transactions in the Company's
equity securities. In 1995, Mr. Richard M. Morrow became aware of an aggregate
of nineteen transactions occurring during the years 1990-1994 (eighteen
acquisitions of less than sixty (60) shares of Common Stock in the aggregate
and one disposition of less than one (1) share of Common Stock) by a family
member through the Company's Dividend Reinvestment Plan. Mr. Morrow failed to
file five Forms 5 relating to such transactions. These transactions were all
reported in 1995 on Form 4, shortly after these transactions were discovered.
The Company filed a Form 3 in 1995 on behalf of Peter F. Murphy, an officer of
the Company, that contained a clerical error regarding his option holdings. The
error was corrected in an amendment to the Form 3, filed shortly thereafter.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following Summary Compensation Table sets forth the cash compensation and
certain other components of the compensation of J. R. Walter, the Chairman and
Chief Executive Officer of the Company, the other four most highly compensated
executive officers of the Company serving as such on December 31, 1995, and a
former executive officer, F. R. Jarc, who would have been among the four most
highly compensated executive officers serving as such on December 31, 1995 had
he not ceased serving as an executive officer in August, 1995, based on salary
and bonus he earned in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
-------------------------- --------------------- ---------
Other
Annual Restricted Securities All
Name and Compen- Stock Underlying LTIP Other
Principal sation Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) ($)(1) ($)(2) SARs(#) ($)(3) sation($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. R. Walter 1995 900,000 555,000 36,427 1,912,500 559,500 1,230,159 18,495(4)
Chairman and
CEO 1994 800,000 494,316 50,220 269,563 59,500 0 18,495
1993 800,000 499,481 39,766 349,313 72,500 0 0
S. J. Baum-
gartner 1995 325,000 133,611 9,467 573,750 141,000 401,826 4,007(4)
Executive VP
and Sector 1994 250,000 90,110 9,716 65,263 16,500 0 4,007
President 1993 156,300 56,925 0 75,938 17,000 0 0
R. J. Cowan 1995 425,000 48,241 15,589 0 575,000(5) 370,688 9,392(6)
Executive VP;
CEO, Stream 1994 400,000 164,772 25,276 93,638 21,000 0 7,805
International
Inc. 1993 400,000 166,494 23,398 121,500 26,000 0 0
F. R. Jarc 1995 349,632 156,222 15,360 0 120,000 433,016 822,029(7)
Former Execu-
tive VP and
CFO 1994 360,000 148,295 19,689 65,263 16,500 0 11,729
1993 360,000 149,844 18,386 91,125 21,000 0 0
W. E. Tyler 1995 350,000 143,889 14,479 573,750 196,000 296,335 6,745(4)
Executive VP
and Sector 1994 277,500 108,003 13,514 93,638 21,000 0 5,565
President 1993 245,000 59,519 11,201 75,938 17,000 49,295 0
J. P. Ward 1995 400,000 164,444 16,893 573,750 196,000 339,867 7,538(4)
Executive VP
and Sector 1994 312,500 121,391 20,087 93,638 21,000 0 5,872
President 1993 261,700 54,804 11,901 75,938 17,000 224,233 0
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
- --------
(1) Included in this column is the amount of the 50% Company matched
contribution under the Stock Purchase Plan. Under this Plan, officers,
selected managers and key staff employees are permitted to contribute up to
5% of their gross annual salary and bonus from the prior year toward the
purchase during the first quarter of the next year of Common Stock. The
Company contributes an additional 50% of the amount contributed by the
employee toward the purchase of Common Stock for the employee's account,
and another 20% of the amount the employee contributes is paid in cash to
the employee to assist in the payment of taxes owed by the employee as a
result of the Company matched contribution. This 20% cash payment is also
included in this column.
(2) Values of Restricted Stock Awards shown in the Summary Compensation Table
are based on the closing price of Common Stock on the date of grant. As of
December 31, 1995, J. R. Walter held 93,500 shares of restricted Common
Stock, valued at $3,681,563 in the aggregate; S. J. Baumgartner held 19,800
shares of restricted Common Stock, valued at $779,625 in the aggregate; R.
J. Cowan held 16,800 shares of restricted Common Stock, valued at $661,500
in the aggregate; F. R. Jarc held 12,050 shares of restricted Common Stock,
valued at $474,469 in the aggregate; W. E. Tyler held 26,550 shares of
restricted Common Stock, valued at $1,045,406 in the aggregate; and J. P.
Ward held 26,550 shares of restricted Common Stock valued at $1,045,406 in
the aggregate. Values as of December 31, 1995 of restricted Common Stock
are based on the closing price of the Common Stock on December 29, 1995.
Dividends are paid on restricted Common Stock at the same rate and at the
same time as on the Common Stock. All restricted Common Stock vests on the
fifth anniversary of the date of grant, except that the restricted stock
award granted to Mr. Walter in 1995 vests as to one-third of the shares
subject to the award on each of the fifth, sixth and seventh anniversaries
of the date of grant.
(3) Dollar value of payouts on long-term performance awards granted in 1991 and
1993.
(4) Premiums paid by the Company in connection with whole life insurance
policies which are owned by the named executive officers.
(5) Represents options to purchase Class A common stock of Stream. For more
information regarding the grant of options and Mr. Cowan's employment
agreement with Stream, see "Options/SAR Grants in 1995" and "Employment
Agreement" below.
(6) Consists of $7,805 in premiums paid by the Company during 1995 in
connection with whole life insurance policies which are owned by Mr. Cowan,
and $1,587 in matching contributions paid by Stream to Mr. Cowan's account
under a 401(k) plan maintained at Stream for its employees.
(7) Consists of $11,729 in premiums paid by the Company during 1995 in
connection with whole life insurance policies which are owned by Mr. Jarc,
and $798,000 plus interest to be paid in annual installments beginning on
January 1, 1998; up to $9,800 for financial planning services and up to
$2,500 for attorneys' fees. For more information regarding Mr. Jarc's
retirement agreement, see "Agreement with Retiring Executive".
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN 1995
The following table sets forth certain information concerning options to
purchase Common Stock (or, in the case of Mr. Cowan, Class A common stock of
Stream) granted in 1995 to the individuals named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Expiration Present
Name Granted(#)(1) 1995 Price($/sh) Date Value($)(5)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. R. Walter 166,667 3.35% 43.2750 12/31/2004 1,350,003
166,667 3.35% 50.4875 12/31/2004 1,120,002
166,666 3.35% 57.7000 12/31/2004 931,663
59,500(2) 1.19% 38.0625 12/14/2005 772,905(6)
S. J. Baum-
gartner 40,000 0.80% 43.2750 12/31/2004 324,000
40,000 0.80% 50.4875 12/31/2004 268,800
40,000 0.80% 57.7000 12/31/2004 223,600
21,000(2) 0.42% 38.0625 12/14/2005 272,790(6)
R. J. Cowan 230,000(3) 5.22%(4) 06.0000 04/21/2005 (8)
172,500(3) 3.91%(4) 10.0000 04/21/2005 (8)
172,500(3) 3.91%(4) 14.5000 04/21/2005 (8)
F. R. Jarc 40,000(7) 0.80% 43.2750 12/31/2004 324,000
40,000(7) 0.80% 50.4875 12/31/2004 268,800
40,000(7) 0.80% 57.7000 12/31/2004 223,600
W. E. Tyler 58,334 1.17% 43.2750 12/31/2004 472,505
58,333 1.17% 50.4875 12/31/2004 391,998
58,333 1.17% 57.7000 12/31/2004 326,081
21,000(2) 0.42% 38.0625 12/14/2005 272,790(6)
J. P. Ward 58,334 1.17% 43.2750 12/31/2004 472,505
58,333 1.17% 50.4875 12/31/2004 391,998
58,333 1.17% 57.7000 12/31/2004 326,081
21,000(2) 0.42% 38.0625 12/14/2005 272,790(6)
</TABLE>
- --------
(1) Unless otherwise indicated, option becomes fully exercisable (at a
significant premium above the thirty day average closing price as of
December 30, 1994) on June 30, 2004, except that exercisability may be
accelerated upon a change in control as defined in the Company's 1991 Stock
Incentive Plan or in the event Total Stockholder Return for any four-year
period (each, a "Performance Period") during the period commencing on
January 1, 1995 and ending on December 31, 2003 exceeds the cumulative
total return during such Performance Period of the Standard and Poor's
Industrial Index stock index. Total Stockholder Return means, with respect
to any Performance Period, the fair market value on the last day of such
Performance Period of the number of shares of Common Stock which is deemed
to be purchased by investing $100 as of the day immediately preceding the
first day of such Performance Period. In calculating Total Stockholder
Return, dividends on the Common Stock are assumed to be reinvested in
shares of Common Stock.
(2) Option becomes exercisable (at fair market value on the date of grant) over
a four year period, with 20% of the shares becoming exercisable at the
beginning of each of the second, third and fourth years following the date
of grant and with the remaining portion of the option becoming exercisable
at the end of the fourth year, unless the vesting schedule is accelerated
to become fully exercisable upon death, retirement, disability or a change
in control as defined in the Company's 1995 Stock Incentive Plan.
(3) Option to purchase Class A common stock of Stream. Option becomes
exercisable in eight semi-annual installments with 10% to 15% of the shares
subject to the option becoming exercisable on any one vesting date.
10
<PAGE>
- --------------------------------------------------------------------------------
(4) Represents the percent of total options on any class of capital stock of
Stream granted to employees of Stream.
(5) Unless otherwise indicated, the Black-Scholes option pricing method has
been used to calculate present value as of date of grant, January 1, 1995.
The present value as of the date of grant, calculated using the Black-
Scholes method, is based on assumptions about future interest rates, stock
price volatility and dividend yield. The Black-Scholes model is a
complicated mathematical formula widely used to value exchange traded
options. However, stock options granted by the Company to its executive
officers differ from exchange traded options in three key respects: options
granted by the Company to its executives are long-term, non-transferable
and subject to vesting restrictions while exchange traded options are
short-term and can be exercised or sold immediately in a liquid market. The
Black-Scholes model relies on several key assumptions to estimate the
present value of options, including the volatility of and dividend yield on
the security underlying the option, the risk-free rate of return on the
date of grant and the term of the option. In calculating the grant date
present values set forth in the table, a factor of 22.198% has been
assigned to the volatility of the Common Stock; based on daily stock market
quotations for the twelve months preceding the date of grant, the yield on
the Common Stock has been set at 2.17%; and based upon its annual dividend
rate of $.64 per share at the date of grant, the risk-free rate of return
has been fixed at 7.78%, the rate for a ten year U.S. Treasury Note on the
date of grant as reported in the Federal Reserve Statistical Release, and
the exercise of the options has been assumed to occur at the end of the
actual option term of ten years. There is no assurance that these
assumptions will prove to be true in the future. Consequently, the grant
date present values set forth in the table are only theoretical values and
may not accurately determine present value. The actual value, if any, that
may be realized by each individual will depend on the market price of
Common Stock on the date of exercise.
(6) The Black-Scholes option pricing method (as described above) has been used
to calculate present value as of date of grant, December 15, 1995. In
calculating the grant date present values set forth in the table, a factor
of 21.177% has been assigned to the volatility of the Common Stock; based
on daily stock market quotations for the twelve months preceding the date
of grant, the yield on the Common Stock has been set at 1.89%; and based
upon its annual dividend rate of $.72 per share at the date of grant, the
risk-free rate of return has been fixed at 5.71%, the rate for a ten year
U.S. Treasury Note on the date of grant as reported in the Federal Reserve
Statistical Release, and the exercise of the options has been assumed to
occur at the end of the actual option term of ten years.
(7) F. R. Jarc was granted these premium priced options on January 1, 1995, but
the options by their terms will be cancelled when Mr. Jarc ceases to be an
employee of the Company in 1997.
(8) Because the capital stock of Stream is not publicly traded, calculation of
the grant date present value of these option shares according to the Black-
Scholes valuation method described above is not possible.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise in
1995 of options to purchase Common Stock (and also, in the case of Mr. Cowan,
Class A common stock of Stream) by the individuals named in the Summary
Compensation Table and unexercised options to purchase such stock held by such
individuals at December 31, 1995.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
12/31/95(#) at 12/31/95($)(2)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. R. Walter 18,268 365,893 290,900/676,600 4,638,550/1,173,263
S. J. Baumgartner 0 0 14,100/170,400 137,675/ 318,825
R. J. Cowan 32,000 451,438 75,200/ 42,800 1,019,063/ 402,250
57,500/517,500(3) (4)
F. R. Jarc 101,300 1,461,871 12,720/141,480 113,115/ 207,810
W. E. Tyler 4,000 91,187 101,200/229,800 1,752,850/ 349,150
J. P. Ward 4,000 76,187 94,700/229,800 1,625,694/ 349,150
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
- --------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the average of the high and low
prices of Common Stock as reported in the New York Stock Exchange Composite
Transactions report for the exercise date) over the relevant exercise
price(s).
(2) The value is calculated based on the aggregate amount of the excess of the
average of the high and low prices of Common Stock as reported in the New
York Stock Exchange Composite Transactions report for December 29, 1995
over the relevant exercise price(s).
(3) Options to purchase Class A common stock of Stream.
(4) The capital stock of Stream is not publicly traded and, therefore, the
value of these options cannot be determined based on a public trading
market.
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS--AWARDS IN 1995
The following table describes the Long-Term Performance Awards granted under
the Company's 1995 Stock Incentive Plan in 1995 to the individuals named in the
Summary Compensation Table. Each of the awards will vest at the end of the
performance period which extends from January 1, 1995 to December 31, 1997,
provided that the recipient remains in the employment of the Company or a
subsidiary throughout the entire performance period. Payout with respect to the
awards granted to named executive officers is based on Company performance
during this period, measured by the return on average stockholders' equity,
with the potential for increased payout if net asset growth is also achieved.
The awards are to be paid in cash or Common Stock or a combination of both, in
the discretion of the Human Resources Committee. The Human Resources Committee
has the discretion to adjust the aggregate amount payable under any award to
reflect special circumstances. The dollar amounts listed in the table below
assume payment is made entirely in cash. Maximum net asset growth has been
assumed in the calculation of the estimated future payouts at the target and
maximum levels and no net asset growth has been assumed in the calculation of
the estimated future payouts at the threshold level.
<TABLE>
<S> <C> <C> <C> <C> <C>
Estimated Future Payouts under
Performance Non-Stock
Number of or Other Price-Based Plans
Shares, Units Period Until ------------------------------------
or Other Maturation or Threshold Target Maximum
Name Rights(#) Payout ($ or #) ($ or #) ($ or #)
- ---------------------------------------------------------------------------------
J. R. Walter n/a 1995-1997 $450,000 $1,200,000 $1,800,000
S. J. Baum-
gartner n/a 1995-1997 $130,000 $ 346,667 $ 520,000
R. J. Cowan n/a 1995-1997 (1) (1) (1)
F. R. Jarc n/a 1995-1997 $152,000(2) $ 405,333(2) $ 608,000(2)
W. E. Tyler n/a 1995-1997 $140,000 $ 373,333 $ 560,000
J. P. Ward n/a 1995-1997 $160,000 $ 426,667 $ 640,000
</TABLE>
- --------
(1) Mr. Cowan, who assumed new duties in 1995 as an executive officer of
Stream, and who devotes a majority of his time to Stream matters, did not
receive a Long-Term Award in 1995 due to his duties at Stream.
(2) Mr. Jarc's award was terminated pursuant to an agreement between the
Company and Mr. Jarc, entered into in connection with Mr. Jarc's ceasing to
serve as Executive Vice President and Chief Financial Officer in 1995,
which agreement is described under "Agreement with Retiring Executive".
- --------------------------------------------------------------------------------
RETIREMENT BENEFITS
Under the Company's Retirement Benefit Plan, employees who met the eligibility
requirements accrued in 1995 an annual retirement benefit computed at the rate
of 1.5% on compensation up to "covered compensation," and 2% on compensation in
excess of "covered compensation" but not in excess of $150,000 (the maximum
amount of compensation for 1995 on which benefits can accrue under current
law). The formula for determining benefits has been revised at various times
since the present Plan was adopted in 1951. The compensation covered by the
Plan includes wages and salaries, supplementary compensation and commissions.
An employee's "covered compensation" for a year is the average of
12
<PAGE>
- --------------------------------------------------------------------------------
the Social Security wage bases for the thirty-five-year period ending with such
year. Prior to January 1, 1979, employees could elect to participate on a
contributory basis. Since then, the Plan has been noncontributory, so that the
Company pays the full cost of benefits credited under the Plan after December
31, 1978. Benefits are paid monthly after retirement for the life of the
participant (straight life annuity amount) or, if the participant is married or
has elected an optional benefit form, in an actuarially reduced amount for the
life of the participant and the participant's surviving spouse or other
surviving person named as a contingent member. Benefits under the Retirement
Benefit Plan are limited to the extent required by provisions of the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974. If
payment of actual retirement benefits is limited by such provisions, an amount
equal to any reduction in retirement benefits will be paid as a supplemental
benefit under the Unfunded Supplemental Benefit Plan adopted by the Board of
Directors in 1981.
The following table contains information concerning annual benefits payable
pursuant to the Retirement Benefit Plan on a straight life annuity basis upon
retirement at age 65 for the individuals named in the Summary Compensation
Table. These benefits include the annual benefits to be paid at age 65 computed
on service through December 31, 1995, estimated additional annual benefits
which may be earned in the future, assuming the individuals continue in the
Company's employ to age 65 and current compensation levels remain unchanged,
and total estimated annual benefits on retirement at age 65.
<TABLE>
<CAPTION>
Estimated Additional
Annual Benefits Total Estimated
Annual Benefits on Retirement Annual Benefits
to be paid at Age 65 Computed on Service
at Age 65 for Service after 1995 through December 31,
on the Basis Assuming Continuation 1995 Plus Benefits
of Service through of Employment Which May Be
Individual December 31, 1995 ($) Until Age 65 ($) Earned in Future ($)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
J. R. Walter 207,186 504,453 711,639
S. J. Baum-
gartner 18,770 217,871 236,641
R. J. Cowan (1) (1) (1)
F. R. Jarc 65,944(2) (2) (2)
W. E. Tyler 60,386 247,067 307,453
J. P. Ward 82,000 301,724 383,724
</TABLE>
- --------------------------------------------------------------------------------
(1) R. J. Cowan ceased to earn additional benefits under the Retirement Benefit
Plan in April 1995 when he assumed new duties as an executive officer of
Stream. Mr. Cowan's estimated annual benefit to be paid at age 65 on the
basis of service through April, 1995 is $60,002.
(2) F. R. Jarc will cease to be an employee of the Company as of November 30,
1997. The estimated annual benefit to be paid to Mr. Jarc under the
Retirement Benefit Plan at age 65, based on service through November 30,
1997, will be $75,071.
DIRECTOR COMPENSATION
Directors who are not officers receive annual retainer fees as follows: $32,000
for service as a director, plus $1,000 per committee for service as a member of
a Board committee, and $2,500 for service as Chairman of a Board committee
(payable in addition to retainer for service as a member of the committee). In
addition to these retainer fees, such directors receive an attendance fee of
$1,000 per day for attendance at Board meetings and any committee meetings held
on the same day. Such directors are paid an attendance fee of $1,000 per day
for any committee meetings held on days other than Board meeting days and for
each day spent at the Company's request on committee work when no formal
meeting is held. The 1995 Stock Incentive Plan provides that each individual
who, immediately following the annual meeting of stockholders each year during
the term of such Plan commencing in 1995, is a non-employee director shall
receive an option to purchase 4,000 shares of Common Stock at an option price
equal to 100% of the fair market value of such shares on the date the option is
granted (the "Option Date"). Such options are fully exercisable during the
period beginning on the earlier to occur of (a) the date that is the first
anniversary of the Option Date or (b) the
13
<PAGE>
- --------------------------------------------------------------------------------
day immediately preceding the date of the Annual Meeting of Stockholders of the
Company next following the Option Date, provided that the date of the Annual
Meeting is at least 355 days after the Option Date, and ending ten years after
the Option Date. The 1993 Stock Ownership Plan for Non-Employee Directors,
approved by the stockholders at the 1993 Annual Meeting, permits directors who
are not employees to elect to apply all or a portion of retainer, meeting and
committee fees toward the purchase of shares of Common Stock at fair market
value on the date of purchase.
The Company will pay a retirement benefit to directors. A director with 10 or
more years of service as a director will receive an annual retirement benefit
equal to the then current annual retainer fee paid to active directors. A
director with less than 10 years of service as a director will receive an
annual retirement benefit equal to 10% of such fee for each year or fraction
thereof of service as a director. These retirement benefits to directors will
be paid in addition to any retirement benefits payable to a director under the
Company's Retirement Benefit Plan or any other supplementary retirement benefit
arrangement. The retirement benefit of a director whose retirement occurs at or
after age 65 will begin following the effective date of retirement. The
retirement benefit of a director whose retirement occurs prior to age 65, for
any reason except disability that ends the director's active business career or
employment, will begin at age 65. The retirement benefit of a director whose
retirement occurs prior to age 65 due to disability that ends the director's
active business career or employment, will begin following the effective date
of retirement. Retired directors will receive any future increases in these
retirement benefits from and after the time such increases become effective.
SEVERANCE PAY PROGRAM AND SPECIAL SEVERANCE PLAN
The Company has adopted a Severance Pay Program consisting of severance
agreements between the Company and certain officers and key employees
(including the executive officers named in the Summary Compensation Table,
except that F. R. Jarc's agreement is no longer in effect) and a Special
Severance Plan applicable to all other employees of the Company and certain
subsidiaries. The agreements and the Plan provide severance benefits in the
event of a change in control (as defined in the agreement and Plan) of the
Company followed by termination of employment. In connection with the Severance
Pay Program, the Company has entered into severance agreements with the
individuals named in the Summary Compensation Table, except that F. R. Jarc's
agreement is no longer in effect. These agreements provide that if the
executive's employment is terminated following a change in control of the
Company either (a) by the Company for reasons other than cause (as defined in
the agreements) or other than as a consequence of death, disability or
retirement, or (b) by the executive for reasons relating to a diminution of
responsibilities, compensation or benefits or relocation requiring a change in
residence or a significant increase in travel, the executive will receive
certain payments and benefits. These include (i) a lump sum payment equal to up
to three times the executive's current planned compensation (salary and bonus),
(ii) an amount in cash in lieu of outstanding stock bonus awards under the
Company's Stock Incentive Plans, (iii) an amount in cash equal to the value of
outstanding stock options, (iv) an amount in cash equal to three years of
additional accrued benefits under the Company's pension plan and (v) life,
disability, accident and health insurance benefits for a period of 24 months
after termination of employment. These agreements also provide that if after a
change in control of the Company any compensation paid to the executive,
whether or not pursuant to such agreement, is subject to the federal excise tax
on "excess parachute payments," the Company will pay to the executive such
additional amount as may be necessary so that the executive realizes, after the
payment of such excise tax and any income or excise tax on such additional
amount, the amount of such compensation.
EMPLOYMENT AGREEMENT
Pursuant to a merger in April 1995, the Company's Global Software Services unit
and Corporate Software Inc. were combined to form Stream, a software
manufacturing, distribution and technical support organization. Stream is not a
publicly traded corporation. In connection with the merger,
14
<PAGE>
- --------------------------------------------------------------------------------
R. J. Cowan entered into an employment agreement (the "Agreement") with Stream
pursuant to which Mr. Cowan is employed as an executive officer of Stream. The
Agreement expires on December 31, 1999, but will be automatically extended for
one-year terms unless either Mr. Cowan or Stream gives a three-month notice of
termination.
Under the Agreement, Mr. Cowan's annual base salary is $425,000 with a bonus
opportunity to earn up to 80% of base salary if certain pre-established
performance criteria are met. Any bonus paid will be in lieu of any other
incentive, profit-sharing or bonus program of Stream other than the stock
option plan of Stream.
Pursuant to the Agreement, Mr. Cowan purchased 500,000 shares (as adjusted to
reflect a five for one stock split) of Class A common stock of Stream for an
aggregate purchase price of $3,000,000, or $6 per share. In order to pay a
portion of the total purchase price, Mr. Cowan borrowed an aggregate of
$2,000,000 from Stream at an annual interest rate of 7.34%. The notes
evidencing such borrowing provide for a collateral to debt coverage ratio of
not less than 1.25 to 1. The largest aggregate amount outstanding at any time
since January 1, 1995 was $2,043,839 and the amount outstanding as of December
31, 1995 was $2,043,839.
Mr. Cowan was also granted options to purchase an aggregate of 230,000 shares
of Class A Common Stock of Stream at a purchase price of $6.00 per share,
options to purchase 172,500 shares of Class A common stock at a purchase price
of $10.00 per share, and options to purchase 172,500 shares of Class A common
stock at a purchase price of $14.50 per share. For a description of the
material terms of the options, see "Option/SAR Grants in 1995" above.
The Agreement provides that if Mr. Cowan's employment is terminated, he will
receive severance equal to (i) one and one-half times base salary minus the
amount of any disability benefits where termination is by reason of disability,
or (ii) one and one-half times base salary where termination is by reason of
Mr. Cowan's retirement or death, by Stream for any reason other than for cause,
or by Mr. Cowan upon breach by Stream of the Agreement or for good reason. Mr.
Cowan will not receive any severance payment where termination is by Stream for
cause or by Mr. Cowan for any reason other than upon breach by Stream of the
Agreement or for good reason.
AGREEMENT WITH RETIRING EXECUTIVE
F. R. Jarc ceased serving as Executive Vice President and Chief Financial
Officer of the Company effective August 31, 1995. Pursuant to an agreement
dated May 18, 1995 with Mr. Jarc, Mr. Jarc will be paid $380,000 over a twenty-
seven month period ending on November 30, 1997, and the aggregate principal
amount of $798,000 is payable to Mr. Jarc in consideration for his agreement
not to engage in activities that compete with the business of the Company until
November 30, 1997. Pursuant to the agreement, the principal amount of $798,000
was credited on December 31, 1995 to a hypothetical account (the "Account")
maintained for Mr. Jarc by the Company. Interest is credited to the outstanding
principal amount, commencing December 31, 1995 at a rate equal to Moody's Aaa
corporate bond rate with maturities of 20 years or more or 6% per annum,
whichever is greater. The sum of $100,000 is to be paid out and charged to such
account 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 the death of Mr. Jarc or depletion of the Account
by reason of the charges to the Account for such distributions. Upon the death
of Mr. Jarc, any balance remaining in the Account will be distributed to the
designated beneficiaries. In addition, the Company paid Mr. Jarc $40,000 as
compensation for services relating to the Company's businesses in South America
and this amount has been included in the salary column of the "Summary
Compensation Table." The Company has also agreed to pay up to $9,800 for
financial planning services, and up to $2,500 for attorneys' fees incurred by
Mr. Jarc in preparing the agreement. These amounts are payable in addition to
such amounts as Mr. Jarc is entitled to receive under the Company's plans for
retired employees and pursuant to stock awards and short- and long-term
incentive awards previously granted to Mr. Jarc.
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HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMMITTEE APPROACH TO COMPENSATION EVALUATION
The Human Resources Committee (the "Committee") is responsible for determining
the annual salary, short-term and long-term cash and stock incentive
compensation, and other compensation of the executive officers, including the
executive officers named in the Summary Compensation Table (the "named
executive officers") other than Rory J. Cowan with respect to 1995. In 1995,
Mr. Cowan assumed new duties as an executive officer of Stream International
Inc. ("Stream"), which is approximately eighty percent (80%) owned by the
Company. Mr. Cowan remains an Executive Vice President of the Company, but
devotes a majority of his time to Stream matters. The Board of Directors of
Stream determined all components of Mr. Cowan's compensation in 1995, except
that the Committee approved his 1995 salary of $425,000 and authorized the
payment of the bonus he earned prior to becoming an executive officer of Stream
in 1995 under the 1995 Annual Plan discussed below. As a consequence, in all
other respects, references in this report to the 1995 compensation of executive
officers exclude Mr. Cowan.
This report describes the policies and rationales of the Committee in
establishing the principal components of executive compensation during 1995. In
its deliberations regarding compensation of executive officers, the Committee
considers the following factors: (a) Company performance, both separately and
compared to other companies, (b) the individual performance of each executive
officer, (c) a number of comparative compensation surveys (supplied by
professional compensation consultants approved by the Committee and retained by
the Company for this purpose) and other material concerning compensation levels
and stock grants at other companies, such as compensation and stock award
information disclosed in the proxy statements of other companies, (d)
historical compensation levels and stock awards at the Company, (e) the overall
competitive environment for executives and the level of compensation necessary
to attract and retain executive talent and (f) the recommendations of
professional compensation consultants and management.
Companies used to define the market for executive compensation pay comparison
purposes are selected with the assistance of professional compensation
consultants. The market includes a broad group of premier companies similar in
revenue size to the Company, as well as a specific group of printing and
publishing companies also similar in revenue size to the Company. In addition,
market pay data are collected from several general industry compensation
surveys. The companies used to define the market for pay comparison purposes
include 10 of the 30 companies in the Peer Group used in the Performance Graph.
The Committee relies on market data comprised of a broad array of companies in
various industries for comparative analysis of executive compensation because
the Committee believes that the Company's competitors for executive talent are
more varied than the Peer Group chosen for comparing stockholder return in the
Performance Graph.
EXECUTIVE OFFICERS GENERALLY
Generally, total compensation for the Chief Executive Officer and other
executive officers, including salary, short- and long-term incentive
compensation and the annualized projected value of stock awards, is targeted
between the 50th and 75th percentile of the market. The Committee determines
the individual components of the total compensation package based on the
desired mix between salary and at-risk components of compensation and short and
long-term compensation.
The Company's targeted pay package for executive officers, including John R.
Walter, is structured so that a significant portion (between approximately 40%
and 60%, depending on the level of responsibility of the executive officer) of
targeted annual cash compensation (salary, plus short- and long-term incentive
compensation) is linked to Company performance (based on factors described
below), because it is paid only if certain performance goals are achieved.
Additionally, the value of restricted stock and stock options is tied to the
Company's stock price performance.
Salary
The Committee annually reviews the base salary of each executive officer. For
1995, the base salaries for executive officers named in the Summary
Compensation Table, excluding John R. Walter, were
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targeted, on average, at the median salaries at other comparable companies.
Increases in base salaries for 1995 were determined based on this market
positioning goal and on individual performance by executive officers.
Short- and Long-Term Incentive Compensation
Both the Senior Annual Incentive Compensation Plan (the "Annual Plan") and the
Long-Term Performance Awards (the "Long-Term Awards") tie payouts to Company
performance. Under the Annual Plan and the Long-Term Awards, potential payout
amounts (expressed as a percentage of salary) and related performance goals
were established at the beginning of the relevant performance period by the
Committee, after assessing recommendations of management and professional
compensation consultants.
With respect to corporate executive officers (all named executive officers are
corporate officers), Company performance under the Annual Plan was measured by
earnings per share and return on average stockholders' equity, with each factor
weighted equally in the calculation. With respect to executive officers
responsible for various businesses, under the Annual Plan the Company's
earnings per share and return on average stockholders' equity each count for
between 20% and 35% in the performance calculation and performance factors
unique to the relevant business (such as business revenues and earnings) count
for between 30% and 60%. Beginning in 1996, Company performance under the
Annual Plan will be measured by Economic Value Added (EVA). EVA represents the
cash operating earnings of the Company after deducting a charge for capital
employed. The Company and the Committee believe that EVA represents a key
financial indicator of shareholder value and is an appropriate measure of
Company financial performance.
Under the Long-Term Awards granted to executive officers, payouts for the
relevant performance period are based on Company performance, measured by
return on average stockholders' equity, with the potential for increased payout
if net asset growth is also achieved. Under the Long-Term Awards granted to
executive officers responsible for various businesses, Company performance is
measured by the return on average stockholders' equity, with the potential for
increased payout if net asset growth is also achieved, and on factors unique to
the relevant business (such as growth in business revenues, growth in business
earnings and return on net assets of the relevant business, with the potential
for increased payouts in certain cases if net asset growth is achieved). Return
on average stockholders' equity counts for 50% in the calculation of the Long-
Term Awards for these executive officers, and the factors specific to the
relevant business also count for 50%.
If the Company (and, where relevant, a particular business within the Company)
does not achieve at least the minimum performance levels established under the
Annual Plan for a particular year or, in the case of the Long-Term Awards, the
specified years, then the payout amount under the relevant plan or award is
zero. The Committee may in its discretion increase or decrease any payout to be
made to a particular executive officer to reflect any special circumstances
that the Committee deems significant. The Committee authorized payouts under
the Annual Plan for the 1995 year and under the 1993-1995 Long-Term Awards
reflecting the achievement of the established performance objectives (discussed
above), except that one discretionary adjustment of $10,000 was made in the
payout to one executive officer under the Annual Plan to reflect special
circumstances.
Stock Awards
The stock awards of various kinds made to executive officers are designed to
align the interests of management more closely with those of the stockholders
of the Company by increasing stock ownership by management and tying a
meaningful portion of compensation to the performance of the Company's stock.
To emphasize the importance of stock ownership by management, the Committee and
management have implemented stock ownership guidelines for all officers which
require all officers to hold Company stock acquired through the Company's stock
programs and progress over a period of years toward ownership of shares having
a market value relative to salary; the minimum ownership guideline is owning
Company stock having a market value at least equal to salary, with the level of
target ownership increasing as levels of responsibility increase, up to five
times salary which is the ownership guideline for Mr. Walter.
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In determining the size and terms of stock grants, the Committee establishes a
target grant level by management position, based on the Committee's assessment
of the desired mix of short and long-term compensation, as well as the desired
target total pay positioning relative to the market. Actual stock grants to
executives may differ from target grant levels. The Committee considers the
individual performance of each executive officer, historical stock grants made
by the Company, and the recommendations of professional compensation
consultants and management when determining the actual grants. The number of
restricted shares and stock options awarded to executive officers in 1995 was
determined based on an assessment of the Company's short- and long-term
performance and the importance of retaining the current management team over
the vesting period. These factors, along with the recommendations of
compensation consultants, were considered by the Committee in determining the
appropriate balance between restricted stock awards and stock option awards.
On January 1, 1995, premium priced option grants were made to some executive
officers, including John R. Walter, to supplement the target total pay
structure so that total pay opportunity, including the premium priced options,
would approximate the 75th percentile of the market. The objective of the
premium priced option grant is to focus executives further on creating
incremental shareholder value by establishing option exercise prices
significantly in excess of the fair market value at time of grant. The premium
priced options were granted with exercise prices established at fifty percent
(50%), seventy-five percent (75%), and one hundred percent (100%) above the
fair market value at time of grant for one-third of the total number of shares
granted, respectively. The premium priced options vest nine and one-half years
from date of grant. However, these options may vest as early as four years from
date of grant, if the Company's "Total Stockholder Return" exceeds the
cumulative total return during the relevant performance period of the Standard
and Poor's Industrial Index stock index. Total Stockholder Return means, with
respect to the relevant performance period, the fair market value on the last
day of such period of the number of shares of Common Stock which is deemed to
be purchased by investing $100 as of the day immediately preceding the first
day of such performance period, with the reinvestment of dividends assumed in
the calculation. The Committee believes that the incremental pay opportunity
provided by the premium priced options is warranted by the significant
appreciation in the Company's stock price required in order for the options to
have value. In addition to the premium priced options discussed above, stock
options with exercise prices at fair market value on the date of grant were
made at target levels to executive officers in 1995.
Restricted stock awards are viewed by the Committee as providing motivation to
executive officers to remain with the Company over the vesting term and have
been made annually to executive officers based on target award levels. However,
in 1995 restricted stock awards significantly above target levels were made not
only to encourage executives to remain with the Company over the vesting term,
but also because the Committee does not intend to make future restricted stock
grants except on a selective basis for specific retention and recruiting
requirements. The restricted shares granted in 1995 cliff vest five years from
the date of grant, except one-third of the shares awarded to the CEO vest on
each of the fifth, sixth and seventh anniversaries of the date of grant.
Deductibility of Executive Compensation
In 1993, the tax laws were amended to limit the deduction a publicly-held
company is allowed for compensation paid in 1994 and thereafter to the chief
executive officer and to the four most highly compensated executive officers
other than the chief executive officer. Generally, amounts paid in excess of $1
million to a covered executive, other than performance-based compensation,
cannot be deducted. The Committee will consider ways to maximize the
deductibility of executive compensation, but intends to retain the discretion
the Committee deems necessary to compensate executive officers in a manner
commensurate with performance and the competitive environment for executive
talent.
Agreement with Executive
The Committee approved an agreement dated May 18, 1995 for Frank R. Jarc, the
former Executive Vice President and Chief Financial Officer of the Company,
based on his service to the Company and on the advice of compensation
consultants that the package (reflected in the Summary Compensation
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Table and described under the heading "Agreement with Retiring Executive") was
consistent with other agreements for executives in similar circumstances.
COMPENSATION OF JOHN R. WALTER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Committee established the compensation of John R. Walter, the Chairman and
Chief Executive Officer, for 1995 using substantially the same criteria that
were used to determine compensation levels for other executive officers,
discussed at the beginning of this report. Mr. Walter's compensation is
reviewed against the compensation paid to Chief Executive Officers in the
comparison groups referred to earlier in this report. Mr. Walter's total
compensation (including salary, short- and long-term incentive compensation,
and the annualized projected value of stock awards) is targeted at the 60th to
75th percentile of the market. In the Committee's view, this targeted level of
compensation provides adequate and necessary incentives for Mr. Walter in
meeting the challenges he faces in leading the Company to continued success in
the future.
Mr. Walter's salary was increased at the beginning of 1995 for the first time
in twenty-four months to align his salary with the market positioning goal.
Mr. Walter's 1995 annual incentive compensation payout under the Annual Plan
was entirely based on the Company's performance, as measured by earnings per
share and return on average stockholders' equity for the 1995 fiscal year, with
each of these two factors having equal weight in the incentive compensation
calculation. Performance factors that determined payout levels under the Annual
Plan in 1995 were established for each of the executive officers, including Mr.
Walter, at the beginning of 1995, with payout at each level being dependent on
the degree of achievement of the above performance standards. Additionally, Mr.
Walter received a payout under the 1993-1995 Long-Term Award, based on
achievement of established Company performance objectives for corporate
executive officers (discussed above under "Short- and Long-Term Incentive
Compensation").
In determining the size and terms of stock grants to Mr. Walter, the Committee
establishes a target grant level based on his position as CEO and the
Committee's assessment of the desired mix of short-and long-term compensation,
as well as the desired target total pay positioning relative to the market. The
Committee considers the individual performance of Mr. Walter, historical stock
grants made to him by the Company, and the recommendations of professional
compensation consultants when determining the actual grants to Mr. Walter. The
Committee made a restricted stock grant significantly above the target level to
Mr. Walter in 1995 not only to motivate him to remain with the Company over the
five to seven year vesting period but also because the Committee does not
intend to make future restricted stock grants except in limited circumstances,
as described above under "Stock Awards." The Committee made a stock option
grant at the target level to Mr. Walter in 1995, and a premium priced option
having the terms described under "Stock Awards" above was granted to Mr. Walter
in 1995 for the same reasons described above for other executive officers: to
supplement the total target pay structure for Mr. Walter and to provide a
further significant link between Mr. Walter's compensation and stockholder
return. In determining the appropriate balance between the number of shares of
restricted stock and the number of option shares to award to Mr. Walter, the
Committee considered the same factors noted above that were considered with
respect to the other executive officers.
The foregoing report has been approved by all members of the Committee.
The Human Resources Committee
John M. Richman, Chairman
Thomas S. Johnson
William D. Sanders
Jerre L. Stead
Stephen M. Wolf
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PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five-year period (December 31,
1990 to December 31, 1995) with the cumulative total return of the Standard &
Poor's 500 stock index (which includes the Company) and a peer group of
companies selected by the Company for purposes of the comparison and described
more fully below (the "Peer Group"). Dividend reinvestment has been assumed
and, with respect to companies in the Peer Group, the returns of each such
company have been weighted to reflect relative stock market capitalization.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG R. R. DONNELLEY, S&P 500 INDEX AND PEER GROUP**
[PERFORMANCE GRAPH APPEARS HERE]
Assumes $100 Invested on December 31, 1990 in R. R. Donnelley Common
Stock, S&P 500 Index and Peer Group.
* Total Return Assumes Reinvestment of Dividends
** Fiscal Year Ending December 31
The data points for the above graph are as follows:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
R. R. Donnelley 100 128.49 171.34 165.82 160.41 218.22
Standard & Poor's 500 100 130.47 140.41 154.56 156.60 215.45
Peer Group 100 129.10 152.57 169.40 165.06 211.68
</TABLE>
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The Company provides a broad range of services to a diverse group of customers
in several industries, including publishers (of, for example, magazines and
books), merchandisers (such as retailers and catalog merchants), technology
companies (such as computer hardware manufacturers and software publishers) and
information providers. Because the Company's services and customers are
diverse, the Company does not believe that there is a single published industry
or line of business index that is appropriate for comparing stockholder return.
The Peer Group selected by the Company for the above
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Performance Graph is a combination of two industry groups of companies
identified by Value Line Publishing, Inc., a publisher of investment surveys
("Value Line")--the publishing group (which includes printing companies) and
the newspaper group--except that the Company has been excluded. Also, any
company whose common stock has not been traded on domestic exchanges for the
relevant five-year period is excluded. All companies included by Value Line in
the two relevant industry groups have common stock that has been traded for the
relevant five-year period as of December 31, 1995. Other printing companies (as
well as the Company) are included by Value Line in its publishing group. Many
companies included in these two Value Line groups are ones with whom the
Company is most frequently compared by investment analysts. This combination of
printing, publishing and newspaper companies has been selected to best
represent the Company's diverse range of products, services and customers.
The companies included in the Peer Group are: Banta Corporation; Bowne & Co.
Inc.; CCH Incorporated (class A stock); Deluxe Corporation; Dow Jones &
Company, Inc.; The Dun & Bradstreet Corporation; Gannett Co., Inc.; Graphic
Industries; Harcourt General Inc.; Houghton Mifflin Company; John H. Harland
Company; Knight-Ridder, Inc.; Lee Enterprises, Inc.; McClatchy Newspapers, Inc.
(class A stock); McGraw-Hill, Inc.; Media General, Inc. (class A stock);
Meredith Corporation; National Education Corporation; News Corp Ltd; The New
York Times Company (class A stock); Playboy Enterprises, Inc. (class B stock);
Pulitzer Publishing Company; The Reader's Digest Association, Inc. (class A
stock); The E.W. Scripps Company (class A stock); Southam Inc.; The Times
Mirror Company (class A stock); Thomson Corp.; Tribune Company; The Washington
Post Company (class B stock); and Western Publishing Group, Inc. The Reader's
Digest Association, Inc. has been added to the Peer Group because as of
December 31, 1995 five years of data were available.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company has not selected its independent public accountants for 1996. This
selection is normally made at the Board of Directors meeting in April, after
the Audit Committee, the members of which are identified under "Information
about Directors and Nominees for Directors," has reviewed audit proposals for
such year. After such review, the Audit Committee will recommend the selection
of accountants for 1996 to the Board of Directors, which will make the final
selection.
Arthur Andersen LLP served as the Company's independent public accountants in
1995 and for twenty-nine years prior thereto. Representatives of that firm are
expected to be present at the 1996 Annual Meeting with the opportunity to make
a statement if they so desire and to be available to respond to appropriate
questions.
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STOCKHOLDER PROPOSAL REGARDING MAQUILADORA REPORT
The Company has been notified that the following stockholders intend to
introduce and support the following proposal at the 1996 Annual Meeting: Adrian
Dominican Sisters, 1257 East Siena Heights Drive, Adrian, Michigan 49221, which
has provided certification to the Company indicating that, as of November 8,
1995, it was the beneficial owner of 100 shares of Common Stock; The Domini
Social Equity Fund, 6 St. James Avenue, Boston, Massachusetts 02116, which has
provided certification to the Company that, as of October 18, 1995, it was the
beneficial owner of 4,200 shares of Common Stock; Mercy Consolidated Asset
Management Program, 20 Washington Square North, New York, New York 10011, which
has provided certification to the Company that, as of October 13, 1995, it was
the beneficial owner of 200 shares of Common Stock; and the Missionary Oblates
of Mary Immaculate, 8818 Cameron Street, Silver Spring, Maryland 20910, which
has provided certification to the Company that, as of November 15, 1995, it was
the beneficial owner of 3,200 shares of Common Stock. Based on the
certifications of ownership outlined above, the stockholder proponents own a
total of 7,700 shares of Common Stock which represents less than one percent
(1%) of the total shares of Common Stock outstanding on December 31, 1995.
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REQUEST FOR REVIEW OF MAQUILADORA OPERATIONS
Whereas, we believe U.S. companies have the responsibility wherever they do
business to pay employees a living sustainable wage, enabling them to provide
for themselves and their families.
The economic crisis in Mexico, precipitated by the peso devaluation in
December, 1994, has further undermined the purchasing power of maquiladora
workers. Prior to the crisis, the average pay of a maquiladora worker was $30
to $50 for a 48 hour week. Today, as a result of a 1995 projected annual
inflation rate of 50%, workers' purchasing power has been cut in half. The
modest wage increases suggested by the Mexican government of 7% in January 1995
and 12% in April 1995 do not begin to address the workers' loss of purchasing
power.
A 1994 market basket study, using First Quarter, 1994 figures, reveals a
maquiladora worker works 69.0 minutes to purchase 5 lbs. of rice, 113.2 minutes
for cooking oil (48 oz.), 87.0 minutes for 1 lb. of chicken, 142.9 minutes for
a gallon of milk, and 69.8 minutes for one dozen eggs (Market Basket Survey,
Ruth Rosenbaum, 1994).
Pollution from the maquiladora industry is a bi-national problem which
threatens the health of citizens both in Mexico and the United States.
Hazardous waste pollutes rivers and aquifers and contaminates drinking water.
Accidental chemical leaks from plants or transportation vehicles carrying
hazardous materials impact both sides of the border.
Resolved: The shareholders request the Board of Directors to initiate a review
of our company's maquiladora operations, which includes such areas as
environmental standards and practices, as well as the adequacy of wage levels.
A summary report of the review and recommendations for changes in policies,
programs and practices in light of this review will be made available to
shareholders within six months of the 1996 meeting.
SUPPORTING STATEMENT
The proponents of this resolution firmly believe there is a need for strict,
enforceable standards of conduct for corporations operating around the world,
including Mexico. We believe corporations should protect the environment and
pay sustainable community wages which are significantly higher than the
marginal survival wages paid in the maquiladoras. We define a sustainable
community wage as one that allows a worker to meet basic needs, set aside money
for future purchases and earn enough discretionary income to participate in
support of the development of small businesses in a local community (Market
Basket Survey).
It is essential that our company regularly review its environmental
performance, as well as its wages and benefits policies, including average
wages paid to employees, how these compare to the local cost of living and
poverty level, and the level of profit sharing with employees (required by
Mexican law). We propose that the reviews utilize an ongoing market basket
survey to determine sustainable wage purchasing power. Our company should
consider additional ways to support environmentally sound sustainable
development in the communities where it operates.
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POSITION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS SUPPORT THE
BOARD AND VOTE AGAINST THIS STOCKHOLDER PROPOSAL.
This proposal is similar to one that was defeated at the 1995 Annual Meeting
of Stockholders by over 91% of the votes cast (excluding abstentions and broker
non-votes), and the Board of Directors continues to oppose this proposal.
The Company's only maquiladora plant is located in Reynosa, Mexico. The
Company has reviewed the plant's operations thoroughly, including wage and
benefit structure, environmental, safety and health practices, training
programs and community impact. The results of the Company's review have been
summarized in a report, first written in 1993 and updated each year since then.
The latest report is dated December 1995 and is available to any stockholder
who requests it. The updated report has been provided to the stockholder
proponents. Based on the Company's review of the Reynosa
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operation, the Board of Directors believes that the plant operates in a
satisfactory manner and that no significant changes in wage and benefit
structure, environmental, safety and health standards, training programs or
overall community impact are necessary at this time.
The Board of Directors believes that the Company has been a responsible
corporate citizen in Reynosa. As set forth in the Company's report, the Reynosa
facility, in operation since early 1991, is an air-conditioned plant that
includes modern printing, communications and computer equipment, locker rooms,
cafeteria and break room, an infirmary and several recreation areas. The
Reynosa facility employs approximately 500 Mexican employees. Training programs
are available for employees of all levels and a one-year apprentice program
enables participants to upgrade their skill and wage levels. Over 100 employees
have graduated from the apprentice program to date. Because many jobs at
Reynosa are skilled, the minimum wage at the facility exceeds the legal minimum
wage by a significant margin, and the benefit package, which includes medical
and life insurance and financial aid packages, also surpasses minimum legal
requirements. In response to the devaluation of the Mexican peso, the Reynosa
Division granted three wage increases in 1995 to all employees at its Reynosa
plant: 15% in February, 12% in April and 10% in December.
The Company's commitment to workplace safety and health and environmental
protection applies to its Reynosa, as well as to its U. S. facilities. The
Reynosa Division has a Health and Safety Committee which recommends changes in
health and safety practices and files necessary reports with Mexican government
authorities. The Division has several training courses for management and all
employees regarding safety and a medical department with equipment and supplies
necessary to provide first aid. The Division has implemented a Pollution
Prevention Program that seeks to minimize the environmental impact of its
operations. For example, the Division evaluates raw materials prior to their
purchase, eliminating, whenever possible, those materials that adversely affect
the environment, has eliminated ozone-depleting substances from its printed
materials and has been recycling waste paper, aluminum, cardboard and silver
since production started in 1991, and plastics, metals, caseboard, and
corrugated and office paper since 1994.
The Reynosa operation has supported local government programs concerning
health, safety and training, the maquiladora industry, and, through charitable
contributions and the creation of jobs, the local community. The Board of
Directors believes that the Company has evaluated its practices at its Reynosa
facility and that these practices are satisfactory. Accordingly, the Board
believes that it would not be in the best interests of the stockholders of the
Company to make any significant changes in its Reynosa operation.
The affirmative vote of the holders of a majority of the shares of the Common
Stock present in person or by proxy at the 1996 Annual Meeting, and entitled to
vote on the stockholder proposal on the Maquiladora report, is required to
approve it.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THE
STOCKHOLDER PROPOSAL.
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STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 1997 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1997 Annual Meeting
of Stockholders must be received by the Company by October 23, 1996, to be
considered for inclusion in the Company's Proxy Statement and form of proxy
relating to that meeting. The 1997 Annual Meeting of Stockholders is currently
scheduled to be held on March 27, 1997.
The Nominating and Governance Committee will consider nominees recommended by
stockholders as candidates for election to the Board of Directors, and
proposals recommended by stockholders, at the Annual Meeting of Stockholders.
The By-Laws of the Company provide that a stockholder wishing to nominate a
candidate for election to the Board, or make a proposal, is required to give
written notice to the Secretary of the Company of his or her intention to do
so. The notice of nomination or proposal must be received by the Company not
less than sixty days nor more than ninety days prior to the stockholders'
meeting, or if less than seventy-five days' notice or prior public disclosure
of the meeting date is given or made, the notice of nomination or proposal must
be received within ten days after the
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meeting date is announced. The notice of nomination or proposal is required to
contain certain information about the nominee or proposal and the stockholder
making the nomination or proposal. The Company may require that a proposed
nominee furnish other information to determine that person's eligibility to
serve as director. A nomination or proposal which does not comply with the
above procedure will be disregarded.
Such proposals or nominations should be addressed to Deborah M. Regan,
Secretary, R. R. Donnelley & Sons Company, 77 West Wacker Drive, Chicago,
Illinois 60601-1696.
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DISCRETIONARY VOTING OF PROXIES ON OTHER MATTERS
Management does not now intend to bring before the 1996 Annual Meeting any
matters other than those specified in the notice of the meeting, and it does
not know of any business which persons other than the management could properly
present at the meeting other than the stockholder proposal discussed in this
Proxy Statement. Should any other matter requiring a vote of the stockholders
properly come before the meeting, the persons named in the accompanying proxy
intend to vote the shares represented by them in accordance with their best
judgment.
By order of the Board of Directors
Deborah M. Regan
Secretary
Chicago, Illinois
February 20, 1996
24
<PAGE>
PROXY
R. R. DONNELLEY & SONS COMPANY PROXY/VOTING INSTRUCTION CARD
CHICAGO, ILLINOIS
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON MARCH 28, 1996.
The undersigned hereby appoints John R. Walter, James R. Donnelley and Cheryl A.
Francis, or any of them, proxies for the undersigned, each with full power of
substitution, to attend the Annual Meeting of Stockholders of R. R. Donnelley &
Sons Company, to be held on March 28, 1996 at eight o'clock a.m., Chicago Time,
and at any adjournments thereof, and to vote as specified in this Proxy all the
shares of stock of the Company which the undersigned would be entitled to vote
if personally present.
Your vote with respect to the election of Directors and the other proposals may
be indicated on the reverse. Nominees for Director are: James R. Donnelley,
Judith H. Hamilton, John M. Richman, William D. Sanders and Bide L. Thomas.
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
This card also provides voting instructions for shares held in the Dividend
Reinvestment Plan and, if registrations are identical, shares held for the
benefit of Donnelley employees in the Tax Credit Stock Ownership Plan ("TRASOP")
and the Employee Monthly Investment Plan ("EMIP").
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Comments:_______________________________________________________________________
________________________________________________________________________________
(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE "COMMENTS" BOX ON THE
REVERSE OF THIS CARD.)
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. 7827
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS
AND AGAINST PROPOSAL 2.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
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FOR WITHHELD
1. Election of Directors (see reverse) [_] [_]
For, except vote withheld from the following nominee(s):
____________________________________________________________
Change of Address/Comments on Reverse side [_]
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 2.
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FOR AGAINST ABSTAIN
2. Stockholder Proposal relating to a Maquiladora
Report [_] [_] [_]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, guardian, officer,
general partner, etc., please give full title as such.
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SIGNATURE(S) DATE
