<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4694
R. R. DONNELLEY & SONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1004130
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF SEPTEMBER 30, 1996 150,385,660
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited) for the
three and nine month periods ended September 30, 1996 and
1995.......................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 1996
(Unaudited) and December 31, 1995............................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1996 and 1995............. 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................... 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations--Comparison of Third Quarter and First
Nine Months 1996 to 1995...................................... 9-12
Changes in Financial Condition................................. 12
Other Information.............................................. 12-13
Outlook........................................................ 14
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................ $ 1,602,528 $ 1,704,793 $ 4,727,024 $ 4,513,515
Cost of sales............ 1,319,346 1,366,047 3,912,957 3,666,822
------------ ------------ ------------ ------------
Gross profit............. 283,182 338,746 814,067 846,693
Selling and
administrative expenses. 157,419 170,762 520,692 461,437
Restructuring charge..... -- -- 560,632 --
------------ ------------ ------------ ------------
Earnings (loss) from
operations.............. 125,763 167,984 (267,257) 385,256
Interest expense......... 21,818 30,366 71,614 80,233
Gain on Metromail stock
offering................ -- -- (44,158) --
Other (income) expense--
net..................... (1,198) 2,240 (30,757) 5,964
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes............ 105,143 135,378 (263,956) 299,059
Provision (benefit) for
income taxes............ 37,275 43,321 (9,182) 95,699
------------ ------------ ------------ ------------
Net income (loss)........ $ 67,868 $ 92,057 $ (254,774) $ 203,360
============ ============ ============ ============
Per common share:
Net income (loss)...... $ 0.45 $ 0.60 $ (1.66) $ 1.33
============ ============ ============ ============
Cash dividends......... $ 0.19 $ 0.18 $ 0.55 $ 0.50
============ ============ ============ ============
Average shares
outstanding............. 152,444,000 153,629,000 153,416,000 153,408,000
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C> <C>
ASSETS
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C> <C>
Cash and equivalents............................ $ 21,567 $ 33,122
Receivables, less allowance for doubtful
accounts of $25,097 and $25,311 at September
30, 1996 and December 31, 1995, respectively... 1,202,749 1,466,159
Inventories..................................... 368,338 380,078
Prepaid expenses................................ 37,019 28,600
---------- -----------
Total current assets.......................... 1,629,673 1,907,959
---------- -----------
Property, plant and equipment, at cost.......... 4,233,454 4,120,449
Accumulated depreciation........................ (2,320,061) (2,111,461)
---------- -----------
Net property, plant and equipment............. 1,913,393 2,008,988
Goodwill and other intangibles--net............. 560,592 1,024,954
Other noncurrent assets......................... 545,659 442,909
---------- -----------
Total assets.................................. $4,649,317 $ 5,384,810
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................ $ 451,894 $ 601,814
Accrued compensation............................ 96,324 126,483
Short-term debt................................. 50,000 50,000
Current and deferred income taxes............... 74,602 86,737
Other accrued liabilities....................... 535,860 265,340
---------- -----------
Total current liabilities..................... 1,208,680 1,130,374
---------- -----------
Long-term debt.................................. 1,314,358 1,560,960
Deferred income taxes........................... 252,652 300,840
Other noncurrent liabilities.................... 196,535 219,466
Shareholders' equity:
Common stock, at stated value ($1.25 par
value)....................................... 326,705 330,612
Retained earnings, net of cumulative
translation adjustments of $31,699 and
$29,031 at September 30, 1996 and December
31, 1995, respectively....................... 1,520,044 1,994,098
Unearned compensation......................... (7,371) (9,297)
Reacquired common stock, at cost.............. (162,286) (142,243)
---------- -----------
Total shareholders' equity................ 1,677,092 2,173,170
---------- -----------
Total liabilities and shareholders'
equity................................... $4,649,317 $ 5,384,810
========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income (loss)...................................... $(254,774) $ 203,360
Restructuring charge, net of tax and minority interest. 435,380 --
Depreciation........................................... 256,995 240,014
Amortization........................................... 43,112 52,176
Gain on Metromail stock offering....................... (44,158) --
Net change in operating working capital................ 118,882 (300,650)
Net change in other assets and liabilities............. (17,472) (3,442)
Other.................................................. 2,488 5,649
--------- ---------
Net cash provided by operating activities................ 540,453 197,107
--------- ---------
Cash flows provided by (used for) investing activities:
Capital expenditures................................... (321,675) (353,664)
Proceeds from receivables from Metromail............... 248,510 --
Other investments including acquisitions, net of cash
acquired.............................................. (22,278) (53,711)
--------- ---------
Net cash used for investing activities................... (95,443) (407,375)
--------- ---------
Cash flows provided by (used for) financing activities:
Net increase (decrease) in borrowings.................. (246,603) 278,492
Disposition of reacquired common stock................. 32,420 33,191
Acquisition of common stock............................ (157,887) (27,952)
Cash dividends on common stock......................... (84,597) (76,710)
--------- ---------
Net cash provided by (used for) financing activities..... (456,667) 207,021
--------- ---------
Effect of exchange rate changes on cash and equivalents.. 102 1,909
--------- ---------
Net decrease in cash and equivalents..................... (11,555) (1,338)
--------- ---------
Cash and equivalents at beginning of period.............. 33,122 20,569
--------- ---------
Cash and equivalents at end of period.................... $ 21,567 $ 19,231
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1995 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the related notes included in the company's 1995 annual report
on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods.
Note 2. Components of the company's inventories at September 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials and manufacturing supplies.................... $193,041 $230,694
Work in process............................................. 264,959 213,741
Finished goods.............................................. 27,938 34,041
Progress billings........................................... (58,651) (47,549)
LIFO reserve................................................ (58,949) (50,849)
-------- --------
Total inventories....................................... $368,338 $380,078
======== ========
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF
DOLLARS)
------------------
NINE MONTHS ENDED
SEPTEMBER 30
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flow data:
Interest paid, net of capitalized interest................. $ 54,927 $ 61,235
Income taxes paid.......................................... $ 56,845 $ 63,706
</TABLE>
6
<PAGE>
Note 4. In the first half of 1996, the company provided for the
restructuring and realignment of its gravure printing operations in North
America, the repositioning of other businesses, the write-down of certain
equipment, and the impairment of intangible assets and investments in non-core
businesses. These actions resulted in pre-tax charges of $560 million ($435
million after taxes and a minority interest benefit). Approximately $195
million of the charges related to the gravure platform realignment and
approximately $233 million related to other manufacturing restructuring. Pre-
tax cash outlays associated with the restructuring and realignment charges are
expected to total approximately $177 million and will be incurred in 1996 and
1997. In addition, the company has recognized the impairment of approximately
$133 million in equipment, intangibles and investments in non-core businesses.
The impairment loss was calculated based on the excess of the carrying amount
of the assets over the assets' fair values. The fair value of an asset is
generally determined as the discounted estimates of future cash flows
generated by the asset. Reflected in the total charges is $127 million to
reposition Stream International's worldwide operations.
The following table presents the components of the company's restructuring
reserves along with charges against these reserves from their establishment
until September 30, 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
WRITEDOWN OF
PROPERTY AND
ORIGINAL INVESTMENTS RESTRUCTURING
RESTRUCTURING TO FAIR CASH RESERVES AS OF
RESERVES VALUE PAYMENTS SEPTEMBER 30, 1996
------------- ------------ -------- ------------------
<S> <C> <C> <C> <C>
Restructuring loss on
writedown of property,
plant and equipment,
and
other assets........... $250,731 $(250,731) $ -- $ --
Restructuring
expenditures to
reposition
operations and close
facilities............. 176,960 -- (22,751) 154,209
Impairment loss on
intangible assets and
investments............ 132,941 (132,941) -- --
-------- --------- -------- --------
Total restructuring
reserves........... $560,632 $(383,672) $(22,751) $154,209
======== ========= ======== ========
</TABLE>
Note 5. On June 19, 1996, Metromail (the company's previously wholly-owned
subsidiary, which is a leading provider of market-oriented consumer
information and reference services) completed an initial public offering of
13.8 million shares of its common stock at $20.50 per share. As a result of
the offering, the company's interest in Metromail has been reduced to
approximately 38%. Approximately $250 million of the proceeds from the
completed offering were used by Metromail to retire certain indebtedness owed
to the company. The company in turn used the payment from Metromail to pay
down debt and for general corporate purposes. The transaction resulted in a
pre-tax gain for the company of approximately $44 million and a deferred tax
provision of approximately $18 million. As a result of this transaction, the
company has changed its method of accounting for Metromail from consolidation
to the equity method, effective July 1, 1996. Under the equity method, the
company recognizes in income its proportionate share of the net income of
Metromail ($2 million in the 1996 third quarter). Metromail had net sales and
operating earnings of $63 million and $9 million, respectively, in the third
quarter of 1995 and $174 million and $24 million, respectively, in the first
nine months of 1995. Metromail's 1996 net sales and operating earnings were
$126 million and $13 million, respectively, through the date of the initial
public offering.
Note 6. On October 31, 1996, Donnelley Enterprise Solutions Incorporated
(DESI), a wholly-owned subsidiary of the company and a single-source provider
of integrated information management services to professional service
organizations, announced that the initial public offering of approximately 2.9
million shares of its common stock was priced at $25 per share. Upon
completion of the offering (which is expected to occur on November 5, 1996),
the company's interest in DESI will be reduced to approximately 43% (34% if
the underwriters' over-allotment option is exercised in full). The
7
<PAGE>
company expects to receive approximately $50 million ($60 million if the
underwriters' over-allotment option is exercised in full) from the net
proceeds of the shares sold by it and from repayment of amounts owed to it by
DESI, which will be used for general corporate purposes. The company estimated
that the transaction will result in a pre-tax gain to the company of
approximately $30 million, or $20 million after taxes ($35 million, or $25
million after taxes, if the underwriters' over-allotment is exercised in
full). Upon completion of this transaction, the company will change its method
of accounting for DESI from consolidation to the equity method. Under the
equity method, the company will recognize in income its proportionate share of
the net income of DESI. DESI's net sales and operating earnings are not
material to the consolidated results of the company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF THIRD QUARTER 1996 TO THIRD QUARTER 1995
ABOUT THE COMPANY
R.R. Donnelley & Sons Company is a world leader in distributing, managing and
reproducing print and digital information for the publishing, retailing,
merchandising and information technology markets worldwide. The company is the
largest commercial printer headquartered in North America, with approximately
38,000 employees in 26 countries on five continents.
The company is organized into the following business sectors, which accounted
for the following sales results during the third quarter of 1996:
Commercial Print Sector, which includes consumer and trade magazines
($276 million, or 17% of 1996 third quarter consolidated net sales), and
catalogs, retail advertising circulars and direct mail products ($353
million, or 22% of 1996 third quarter consolidated net sales).
Global Commercial Print Sector, which includes the company's commercial
print operations outside the United States--in Europe, Latin America and
Asia ($85 million, or 5% of 1996 third quarter consolidated net sales).
Information Management Sector, which includes Book Publishing Services
($190 million, or 12% of 1996 third quarter consolidated net sales),
Telecommunications ($168 million, or 11% of 1996 third quarter consolidated
net sales), and Financial Services ($103 million, or 6% of 1996 third
quarter consolidated net sales), as well as the company's Digital Division,
the 77 Capital venture-capital fund, creative design and communication
services and a variety of information services ($43 million, or 3% of 1996
third quarter consolidated net sales).
Stream International, the world's largest software manufacturer, marketer
and technical-support and services provider, approximately 80% owned by the
company, formed in April 1995 from the merger of the company's Global
Software Services business with Corporate Software Inc. ($383 million, or
24% of 1996 third quarter consolidated net sales).
NET SALES BY BUSINESS UNIT
(AS A PERCENTAGE OF CONSOLIDATED NET SALES)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- --------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Stream International/Global Software Services... 24 24 11 25 21 12
Catalogs, Retail, Direct-Mail................... 22 22 25 20 21 25
Consumer & Trade Magazines...................... 17 17 22 17 19 22
Book Publishing................................. 12 12 15 11 12 14
Telecommunications.............................. 11 9 9 10 10 10
Financial Services.............................. 6 5 6 6 5 7
Global Commercial Print......................... 5 5 5 5 5 4
Other........................................... 3* 6 7 6 7 6
*Reflects the company's reduced ownership in
Metromail
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
The company reported third quarter 1996 net income of $68 million, a 26%
decline from last year's third quarter. Earnings per share decreased $0.15 to
$0.45. Third quarter net sales of $1.6 billion were down 6% from the year-
earlier quarter.
9
<PAGE>
For the nine months, the company reported a net loss of $255 million, or
$1.66 per share, reflecting $560 million in pre-tax restructuring charges
($435 million after taxes and minority interest benefit) recorded in the first
half, primarily to realign gravure operations in North America and reposition
Stream International. These charges were partially offset by a $44 million
pre-tax gain ($26 million after taxes) on the initial public offering of
Metromail Corporation common shares in the second quarter. Excluding the
restructuring charges and the Metromail gain, net income declined by 24% from
last year's first nine months to $154 million. Earnings per share decreased
$0.32 to $1.01. Nine month net sales of $4.7 billion were up 5% from the year-
earlier period.
Excluding the restructuring charges, the company's 1996 third-quarter and
nine-month operating earnings performance declined primarily due to a drop in
by-product revenue; developments that affected the performance of Stream
International, primarily the slower-than-expected corporate demand for new
systems and software and substantially reduced demand for printed product and
diskette replication, as well as software price competition; and the company's
reduced ownership of Metromail following the second-quarter public offering.
CONSOLIDATED NET SALES
Net sales for the third quarter decreased $102 million, or 6%, to $1.6
billion, reflecting significantly lower paper prices (down $133 million), the
company's reduced ownership of Metromail following the second-quarter public
offering ($63 million of sales in 1995's third quarter) and lower by-product
revenue (down $20 million). In addition, Stream International's sales
decreased by $26 million, primarily reflecting reduced demand for software
documentation printing and diskette replication. These decreases were
partially offset by higher volume across most business units.
Net sales from foreign operations represented $239 million, or 15%, of net
sales in the third quarter, down 12% from $273 million, or 16%, of net sales
in the year-earlier quarter. The decrease in foreign sales reflected lower
sales volume in Stream International's foreign locations and lower volume in
Latin America due to continued recessionary conditions in Argentina and
Brazil.
Net sales for the nine months increased $214 million, or 5%, to $4.7
billion, reflecting the inclusion of Corporate Software Inc. (CSI) beginning
in April 1995. This increase was partially offset by lower by-product revenue
(down $50 million), the company's reduced ownership of Metromail following the
public offering ($174 million of sales in the first nine months of 1995 versus
$126 million of sales in 1996 through the date of the public offering) and
lower paper prices (down $13 million).
Net sales from foreign operations represented approximately $765 million, or
16%, of net sales in the first nine months, up from $744 million, or 16%, of
net sales in the year-earlier period.
CONSOLIDATED EXPENSES
Gross profit for the third quarter decreased by $56 million, or 16%, to $283
million due to the revenue and by-product variations as noted above.
Amortization expense decreased 48% to $10 million, primarily reflecting the
impact of goodwill writedowns taken during the first half restructuring.
Selling and administrative expenses decreased 8% to $157 million, reflecting
the company's reduced ownership of Metromail ($17 million of expenses),
partially offset by an increase in volume-related expenses in Financial
Services. The ratio of selling and administrative expenses to net sales
remained consistent with the year-earlier quarter at 10%. Net interest expense
decreased $9 million to $22 million, reflecting both lower interest rates and
lower average debt balances.
For the first nine months, gross profit decreased by $33 million, or 4%, to
$814 million primarily reflecting lower by-product revenue (down $50 million).
Amortization expense decreased 17% to $43 million, primarily reflecting the
impact of goodwill writedowns taken during the first half restructuring.
Selling and administrative expenses increased 13% to $521 million, primarily
due to the
10
<PAGE>
inclusion of CSI beginning in April 1995 ($37 million of expenses in the 1996
first quarter) and higher volume-related expenses in Financial Services,
partially offset by the company's reduced ownership of Metromail ($17 million
of expenses). The ratio of selling and administrative expenses to net sales, at
11% in the first nine months, increased from the 1995 ratio of 10% reflecting
higher expenses at Stream International (partly due to the inclusion of CSI
beginning in April 1995). Net interest expense decreased $9 million to $72
million, reflecting lower interest rates and lower average debt balances. Other
income increased $37 million, primarily due to $17 million of minority interest
benefits related to the restructuring charges and $18 million of gains on the
sales of investments in the company's venture-capital portfolio.
SUMMARY OF CONSOLIDATED EXPENSE TRENDS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED
SEPTEMBER 30, % INCREASE % INCREASE
(THOUSANDS OF DOLLARS) 1996 (DECREASE) 1995 (DECREASE) 1994
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cost of materials....... $782,828 (6)% $835,098 64% $ 508,422
Cost of manufacturing... 446,174 4% 431,043 8% 399,575
Depreciation............ 80,387 (1)% 80,921 24% 65,494
Amortization............ 9,957 (48)% 18,985 17% 16,217
Selling and
administrative......... 157,419 (8)% 170,762 39% 122,830
Net interest expense.... 21,818 (28)% 30,366 115% 14,155
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, % INCREASE % INCREASE
(THOUSANDS OF DOLLARS) 1996 (DECREASE) 1995 (DECREASE) 1994
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cost of materials....... $2,275,818 7% $2,122,030 51% $1,402,832
Cost of manufacturing... 1,337,032 7% 1,252,601 10% 1,134,169
Depreciation............ 256,995 7% 240,014 26% 190,731
Amortization............ 43,112 (17)% 52,176 25% 41,868
Selling and
administrative......... 520,692 13% 461,437 30% 355,980
Net interest expense.... 71,614 (11)% 80,233 109% 38,354
</TABLE>
RESULTS OF OPERATIONS OF PRINT-RELATED BUSINESSES AND OF STREAM INTERNATIONAL
Print-Related Businesses
The company's print-related businesses (all business sectors other than
Stream International, and excluding Metromail) had third quarter net sales of
$1.2 billion, a $13 million or 1% decrease from last year's third quarter net
sales. The decrease was attributable primarily to significantly lower paper
prices (down $122 million) and decreased by-product revenue (down $19 million),
partially offset by higher volume across most business units. The print-related
businesses had operating income of $134 million, an 8% decrease from the same
quarter in 1995. The decrease was attributable primarily to lower by-product
revenue (down $19 million).
For the nine months, the company's print-related businesses had net sales of
$3.4 billion, a $40 million or 1% increase over last year's net sales. The
increase was attributable primarily to higher volume in Financial Services and
Telecommunications, partially offset by the decrease in by-product revenue
(down $47 million) and lower paper prices (down $13 million). Excluding the
restructuring charges, the print-related businesses had nine-month operating
income of $299 million, a 14% decrease from the year-earlier period. The
decrease primarily reflected the reduction in by-product revenue (down $47
million).
Stream International
Stream International had third quarter net sales of $383 million, a 6%
decrease from last year's third quarter net sales of $408 million, and an
operating loss of $9 million, compared to operating income of $13 million in
the same quarter in 1995. The decreases were attributable primarily to the
11
<PAGE>
slower-than-expected corporate demand for new systems and software and
substantially reduced demand for printed product and diskette replication, as
well as software price competition.
For the nine months, Stream International had net sales of $1.2 billion, a
23% increase over last year's net sales of $1.0 billion. The increase reflected
the inclusion of revenues from CSI beginning in April 1995 and increased demand
for help-desk services. Excluding the restructuring charges, Stream
International had an operating loss of $19 million for the nine months,
compared to operating income of $15 million for the same period in 1995. The
decrease was attributable to the unfavorable market factors mentioned above.
CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
For the nine months, cash flow from operating activities was $540 million, up
$343 from the year-earlier period. Of this amount, operating working capital
reductions provided cash of $119 million, compared to a $301 million use of
cash during the first nine months of 1995. This improvement primarily resulted
from decreases in receivables and inventories in 1996 versus increases in these
components during 1995 (primarily due to the impact of paper prices). In
addition, the company received $250 million immediately following the public
offering of Metromail, in repayment of debt owed by Metromail. Management
believes that the company's cash flow and borrowing capacity are sufficient to
fund current operations and growth. Capital expenditures for the nine months
totaled $322 million, including purchases of equipment to meet specific
customer needs and purchases related to improving manufacturing productivity
and efficiency. Full year capital spending is expected to be between $475
million and $500 million.
At September 30, 1996, the company had an available credit facility of $550
million with a number of banks. This credit facility provides support for the
issuance of commercial paper and other credit needs. In addition, certain
subsidiaries of the company had credit facilities with unused borrowing
capacities totaling approximately $130 million at September 30, 1996.
On July 25, 1996, the company's Board of Directors authorized the repurchase
and retirement of shares of its common stock with an aggregate purchase price
of up to $250 million through June 27, 1997, in addition to the company's
ordinary purchases of approximately 1.5 million shares annually for issuance
under various employee stock plans. During the third quarter, the company
repurchased and retired 3.1 million shares in open market transactions at an
average price of $33.30, for an aggregate purchase price of $104 million. Thus,
authorization remains for the repurchase and retirement of additional shares
with an aggregate purchase price of up to $146 million.
OTHER INFORMATION
Metromail--On June 19, 1996, Metromail completed an initial public offering
of its common stock. As a result of the offering, the company's interest in
Metromail had been reduced to approximately 38%. Approximately $250 million of
the proceeds from the completed offering were used by Metromail to retire
certain indebtedness owed to the company. The company in turn used the payment
from Metromail to pay down debt and for general corporate purposes. The
transaction resulted in a pre-tax gain of approximately $44 million ($26
million after taxes). As a result of this transaction, the company has changed
its method of accounting for Metromail from consolidation to the equity method.
Under the equity method, the company will recognize in income its proportionate
share of the net income of Metromail. Metromail had net sales and operating
earnings of $63 million and $9 million, respectively, in the third quarter of
1995, and $174 million and $24 million, respectively, in the first nine months
of 1995. Metromail's 1996 net sales and operating earnings were $126 million
and $13 million, respectively, through the date of the public offering. In the
fourth quarter of 1995, the company's results included Metromail's net sales
and operating earnings of $73 million and $12 million, respectively.
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<PAGE>
Corporate Restructurings--On March 28, 1996, the company announced a $512
million pre-tax charge to first quarter earnings ($411 million after taxes and
a minority interest benefit) to restructure and realign its gravure operations
in North America, resposition other businesses, and write down certain
equipment, investments in non-core businesses and intangible assets.
Approximately $195 million of the charge is related to the gravure platform
realignment. Approximately $189 million is related to other manufacturing
restructuring, including approximately $92 million to reposition Stream
International's worldwide operations. Additionally, the company wrote down
approximately $128 million in equipment, intangibles and investments in non-
core businesses, in accordance with SFAS 121.
On July 25, 1996, the company announced a $48 million pre-tax restructuring
charge ($24 million after taxes and a minority interest benefit) primarily to
restructure Stream International's software manufacturing, printing, kitting
and fulfillment operations. The restructuring reflects changes in customer
demand, which is shifting from disk-based media and printed materials to CD-
ROM and other forms of electronic media, packaging and delivery.
Pre-tax cash outlays associated with the restructuring and realignment
charges are expected to total approximately $177 million and will be incurred
in 1996 and 1997 ($23 million of this amount has been paid through September
30, 1996). The remaining $383 million relates to non-cash items, mainly the
write-down of fixed assets and goodwill. Because of this write-down, 1996
depreciation and amortization expenses will be approximately $11 million
(before taxes) less than they would have been had the charges not been
incurred. The company expects the restructuring and related actions to
generate increasing cost reductions in future years, growing to an annual
amount of approximately $75 million to $100 million in 1998.
Human Resources and Plant Closings--As part of the first-half restructuring
discussed above, the company has commenced the discontinuation of catalog and
magazine printing operations in the United Kingdom and closed Stream
International's Crawfordsville, IN documentation printing and diskette
replication operations. In addition, as part of the first-half restructuring,
the company announced plans to close or consolidate four other operations,
including gravure-printing plants in Newton, NC and Casa Grande, AZ; a book
prepress operation in Barbados; and a stand-alone book bindery in Scranton,
PA. Through these actions, the Metromail public offering and other
streamlining initiatives underway, the company expects to reduce its workforce
by approximately 15% before the end of 1997 (from the 41,000 employees as of
December 31, 1995). Almost half of these reductions have occurred during the
first nine months of 1996.
Donnelley Enterprise Solutions Incorporated--On October 31, 1996, Donnelley
Enterprise Solutions Incorporated (DESI), a wholly-owned subsidiary of the
company and a single-source provider of integrated information management
services to professional service organizations, announced that the initial
public offering of approximately 2.9 million shares of its common stock was
priced at $25 per share. Upon completion of the offering (which is expected to
occur on November 5, 1996), the company's interest in DESI will be reduced to
approximately 43% (34% if the underwriters' over-allotment option is exercised
in full). The company expects to receive approximately $50 million ($60
million if the underwriters' over-allotment option is exercised in full) from
the net proceeds of the shares sold by it and from repayment of amounts owed
to it by DESI, which will be used for general corporate purposes. The Company
estimated that the transaction will result in a pre-tax gain to the company of
approximately $30 million, or $20 million after taxes ($35 million, or $25
million after taxes, if the underwriters' over-allotment is exercised in
full). Upon completion of this transaction, the company will change its method
of accounting for DESI from consolidation to the equity method. Under the
equity method, the company will recognize in income its proportionate share of
the net income of DESI. DESI's net sales and operating earnings are not
material to the consolidated results of the company.
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OUTLOOK
The commercial printing business in North America (the company's primary
geographic market) is highly competitive in most product categories and
geographic regions. Industry analysts consider most commercial print markets
to have excess capacity. Competition is largely based on price, quality and
servicing the special needs of customers.
Management believes the company's prospects in the fourth quarter of 1996
will be challenging. Results will continue to be negatively impacted by lower
paper prices as compared to 1995, the company's reduced ownership of Metromail
and resulting change in accounting treatment, as well as reduced by-product
revenue (which is expected to be $10 million lower than the fourth quarter of
1995, assuming the continuation of current trends). Stream International's
results will continue to be affected by reduced demand for software updates
and software price competition, in addition to the significantly decreased
demand for software documentation printing and diskette replication. Stream
International continues to pursue methods to capitalize on the electronic and
digital opportunities in the software market.
As previously mentioned, due to the fixed asset and goodwill write-downs
associated with the first-half restructuring charges, 1996 depreciation and
amortization expenses will be approximately $11 million (pre-tax) less than
they would have been had the charges not been incurred. The company expects
the restructuring and related actions to generate increasing cost reductions
in future years, growing to an annual amount of approximately $75 million to
$100 million in 1998.
Additionally, legislation was passed in the third quarter by the United
States Congress to reduce and eventually eliminate the deduction for interest
on loans borrowed against corporate-owned life insurance (COLI). The company
has used this deduction for several years. The company's 1996 tax provision
will be $13 million higher than it would have been had this legislative change
not occurred. The company is currently assessing the impact of the change on
future years.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<C> <S>
10(a) 1986 Stock Incentive Plan, as amended*
10(b) 1991 Stock Incentive Plan, as amended*
10(c) 1995 Stock Incentive Plan, as amended*
10(d) 1993 Stock Purchase Plan for Selected Managers and Key Staff
Employees, as amended*
10(e) 1993 Stock Ownership Plan for Non-Employee Directors, as
amended*
10(f) Form of premium priced option agreement with certain executive
officers, as amended*
10(g) Amendment to Memorandum of Agreement and Understanding among
Stream International Holdings, Inc., R. R. Donnelley & Sons
Company and Rory J. Cowan*
27 Financial Data Schedule
</TABLE>
- --------
*Management contract or compensatory plan or arrangement
(b) No current Report on Form 8-K was filed during the third quarter of 1996.
15
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
/s/ Peter F. Murphy
By __________________________________
Peter F. Murphy
Corporate Controller
(Authorized Officer and
Chief Accounting Officer)
November 1, 1996
Date __________________________
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Exhibit 10(a)
R. R. DONNELLEY & SONS COMPANY
1986
STOCK INCENTIVE PLAN
(As amended on April 24, 1986, July 27, 1989, September 28, 1989,
October 26, 1995, January 25, 1996 and September 1, 1996)
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon
the ownership and performance of the common stock of R. R. Donnelley & Sons
Company (the "Company"), the Committee hereinafter designated, with the approval
of the Board of Directors, may grant stock bonus awards, stock options, stock
appreciation rights, or combinations thereof, to eligible officers and other key
management personnel, on the terms and subject to the conditions stated in this
Plan.
2. Eligibility. Officers and other key management employees of the
Company, its subsidiaries, and any other entity designated by the Board of
Directors or the Committee in which the Company has a direct or indirect equity
interest, shall be eligible, upon selection by the Committee, to receive stock
bonus awards, stock options or stock appreciation rights, either singly or in
combination, as the Committee, in its discretion, shall determine. For purposes
of the Plan, references to employment by the Company also mean employment by a
majority-owned subsidiary of the Company and employment by any other entity
designated by the Board or the Committee in which the Company has a direct or
indirect equity interest.
3. Limitation on Shares to be Issued. The maximum number of shares of
common stock, par value $1.25 per share, to be issued pursuant to all grants
made under the Plan shall be 3,200,000 of which no more than 1,200,000 shares
shall be issued pursuant to stock bonus awards granted under the Plan. Shares
awarded pursuant to grants which, by reason of the expiration, cancellation or
other termination of the grants prior to issuance are not issued, shall again be
available for future grants.
Shares of common stock to be issued may be authorized and unissued shares
of common stock, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a
Committee designated by the Board of Directors (the "Committee"). Each member
of the Committee shall be (i) an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) a "Non-Employee Director" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
shall, within the limits of the Plan and subject to the approval of the Board of
Directors, establish selection guidelines; select eligible persons
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for participation; and determine the form of grant, either as stock bonus, stock
option or stock appreciation rights or combination thereof, determine the form
of stock option, the number of shares subject to the grant, the fair market
value of the common stock when necessary, the time and conditions of vesting or
exercise, and all other terms and conditions of the grant. The Committee may
establish rules and regulations for the administration of the Plan, interpret
the Plan, and impose, incidental to a grant, conditions with respect to
competitive employment or other activities not inconsistent with or conflicting
with the Plan. All such rules, regulations, and interpretations relating to the
Plan adopted by the Committee shall be conclusive and binding on all parties.
5. Adjustments for Changes in Capitalization. Appropriate adjustments
shall be made by the Committee in the maximum number of shares to be issued
under the Plan, the maximum number of shares to be issued pursuant to stock
bonus awards, and in the number of shares the subject of any grant, to give
effect to any stock splits, stock dividends and other relevant changes in
capitalization occurring after the effective date of the Plan.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1986 annual meeting scheduled to
be held on March 27, 1986, and if approved shall become effective on that date.
The Plan shall terminate five years after it becomes effective unless terminated
prior thereto by action of the Board of Directors. No further grants shall be
made under the Plan after termination, but termination shall not affect the
rights of any participant under any grants made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board of
Directors in any respect except that no amendment may be made without
stockholder approval if such amendment would
(a) increase the maximum number of shares available for issuance under the
Plan or stock bonus awards;
(b) modify the class of eligible employees; or
(c) extend the period during which any option or other right may be
exercised under the Plan.
8. Prior Plans. Upon the effectiveness of this Plan, no further grants
shall be made under the Company's 1976 Stock Option Plan, as amended, and the
1981 Stock Incentive Plan, as amended, except that stock appreciation rights may
be granted with respect to options previously granted and outstanding under
these Plans. Bonuses awarded under the 1981 Stock Incentive Plan, as amended,
and options granted under the 1976 Stock Option Plan, as amended, and the 1981
Stock Incentive Plan, as amended, prior to the effectiveness of this Plan shall
continue in accordance with their terms.
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<PAGE>
9. Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of common stock or the payment of any
cash pursuant to a grant or award hereunder, payment by the holder thereof of
any Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. The holder may satisfy any such obligation by any
of the following means: (A) a cash payment to the Company, (B) delivery to the
Company of previously owned whole shares of common stock (which the holder has
held for at least six months prior to the delivery of such shares or which the
holder purchased on the open market and for which the holder has good title,
free and clear of all liens and encumbrances) having an aggregate fair market
value determined as of the date the obligation to withhold or pay taxes arises
(the "Tax Date"), (C) authorizing the Company to withhold whole shares of common
stock which would otherwise be delivered having an aggregate fair market value
determined as of the Tax Date or withhold an amount of cash which would
otherwise be payable to a holder, (D) in the case of the exercise of an option,
a cash payment by a broker-dealer acceptable to the Company to whom the optionee
has submitted an irrevocable notice of exercise or (E) any combination of (A),
(B) and (C); provided, however, that the Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(E). Shares of common
stock to be delivered or withheld may have an aggregate fair market value in
excess of the minimum amount required to be withheld, but not in excess of the
amount determined by applying the holder's maximum marginal tax rates. Any
fraction of a share of common stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the holder.
II. STOCK BONUS AWARDS
1. Form of Award. Stock bonus awards, whether Performance Awards or Fixed
Awards, may be made to eligible officers and other key management personnel in
the form of stock units, each of which is the equivalent of a share of common
stock but for the power to vote and the entitlement to current dividends, or in
the form of shares of common stock issued to the employee but forfeitable and
with restrictions on transfer in any form as hereinafter provided.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum number of units or shares, with the actual number to be determined by
reference to the level of achievement of corporate, group, division, individual
or other specific objectives over a period of not less than three nor more than
ten years. No rights or interests of any kind shall be vested in an individual
receiving a performance award until the conclusion of the period and the
determination of the level of achievement specified in the award, and the time
of vesting thereafter shall be as specified in the award.
3
<PAGE>
3. Fixed Awards. Awards may be made which are not contingent on the
performance of objectives, but are contingent on the participant's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than five nor more than ten years from the date of award.
4. Rights with Respect to Restricted Shares. If shares of restricted
common stock are issued pursuant to an award, the participant shall have the
right to vote the shares and to receive dividends thereon from the date of
issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, amounts equal to dividends otherwise payable
on a like number of shares of common stock after the crediting of the units
shall be credited to an account for the participant and held until the award is
forfeited or paid out. Interest shall be credited on the account annually at a
rate equal to the return on five year U.S. Treasury obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion
provide for early vesting of an award in the event of the participant's death,
permanent and total disability or retirement. At the time of vesting, the
award, if in units, shall be paid to the participant either in shares of common
stock equal to the number of units, in cash equal to the fair market value of
such shares, or in such combination thereof as the Committee shall determine,
and the participant's account to which dividends and interest have been credited
shall be paid in cash. Shares of restricted common stock issued pursuant to an
award shall, at the time of vesting, be released from the restrictions.
7. Acceleration Upon Change in Control. If while any Performance
Award or Fixed Award remains outstanding under this Plan--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as modified and
used in Section 13(d) and 14(d) thereof (but not including (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company) (hereinafter a "Person") is or becomes the
beneficial owner, as defined in Rule 13d-3 of the Exchange Act,
directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates) representing 50%
or more of the combined voting power of the Company's then outstanding
securities; or
4
<PAGE>
(b) during any period of two (2) consecutive years (not including
any period prior to the execution of this Amendment), individuals who
at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered
into any agreement with the Company to effect a transaction described
in Clause (a), (c) or (d) of this Section) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no Person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets,
any of such events being hereinafter referred to as a "Change in Control") then
from and after the date on which public announcement of the acquisition of such
percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such Performance Awards, all levels of
achievement specified in the award shall be deemed met and the award shall be
immediately and fully vested, and (ii) with respect to such Fixed Awards, the
period of continued employment specified in the award upon which the award is
contingent shall be deemed completed and the award shall be immediately and
fully vested.
5
<PAGE>
III. STOCK OPTIONS
1. Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible officers and other key management personnel as may be
selected by the Committee and approved by the Board of Directors. These options
may, but need not, constitute "incentive stock options" under Part II of
subchapter D of the Internal Revenue Code of 1986, as amended, or any other form
of option under the Code as hereafter amended.
2. Terms of Options. No option shall be exercisable less than one nor more
than ten years after the date of grant. The per share option price shall be not
less than 100% of the fair market value at the time the option is granted. Upon
exercise, the option price may be paid in cash, in shares of common stock of the
Company having a fair market value equal to the option price, or in a
combination thereof. In the event of the death of an optionee (i) during
employment, (ii) within a period not in excess of five years after termination
of employment by reason of retirement or total and permanent disability or (iii)
within ninety days after termination of employment for any other reason,
outstanding options held by such optionee at the time of death may be exercised
to the extent set forth in the agreement relating to the option by the executor,
administrator, personal representative, beneficiary or similar persons of such
deceased optionee within ninety days of the date of death. Options may be
exercised during the individual's continued employment with the Company and for
a period not in excess of ninety days following termination of employment and
only within the original term of that option; provided, however, that if
employment of the optionee by the Company and its subsidiaries shall have
terminated by reason of retirement or total and permanent disability, then the
option may be exercised for a period not in excess of five years following
termination of employment but not after the expiration of the term of the
option.
3. Acceleration of Stock Options Upon a Change in Control. If while any stock
option granted pursuant to this Article III of the Plan remains unexercised and
outstanding, a Change in Control (as defined in Article II, Section 7, above)
occurs, then from and after the Acceleration Date (as defined in Article II,
Section 7, above) all such outstanding and unexercised options, whether or not
then vested, shall be fully and immediately exercisable.
6
<PAGE>
IV. UK STOCK OPTION SUB-PLAN
1. GENERAL
(a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been
established in order to vary the terms on which options may be given to officers
and key management personnel who are employed in the United Kingdom by the
Company or any of its subsidiaries. Stock options granted under the Sub-Plan
shall be deemed granted under this Stock Incentive Plan and shall comply in all
respects with the terms and conditions applicable to options granted under
Article III of this Stock Incentive Plan.
(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:
"the Subsidiaries" shall mean all companies which are controlled by the
Company (as defined in Section 534 of the Income and
Corporation Taxes Act 1970) and which are an affiliate
controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of rule 12b -2
of the U.S. Securities Exchange Act of 1934;
"the Group" shall mean the Company and the Subsidiaries;
"Associated Company" shall have the meaning attributed to it in section 302 of
the Income and Corporation Taxes Act 1970;
"the Committee" shall mean the committee designated to administer this
Stock Incentive Plan;
"Full Time Employee" shall mean any director or employee of the Group who is
required to devote to his duties not less than 25 hours
(or in the case of an employee who is not a director of
any company in the Group, 20 hours) per week (excluding
meal breaks) and is not precluded by paragraph 4(1)(b) of
Schedule 10 from participating in the Sub-Plan;
"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 5 of Schedule 10 by virtue of
sub-paragraph 5 of that paragraph;
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<PAGE>
"Year of Assessment" shall mean a year beginning on any 6 April and ending on
the following 5 April;
"Market Value" shall mean on any day the average of high and low
transaction prices in trading in the common stock of the
Company as reported on the New York Stock Exchange -
Composite Transaction compiled by Associated Press or if
no trading occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 10" shall mean Schedule 10 of the United Kingdom Finance
Act of 1984.
"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in Paragraphs
7 to 11 inclusive of Schedule 10.
(c) Sub-Plan. The Committee, with the approval of the Board of Directors of
the Company, may grant stock options to officers and other key management
personnel eligible to participate in the Sub-Plan on the terms and subject to
the conditions stated in this Sub-Plan.
(d) Eligibility. Full time employees who are officers or key management
personnel employed by the Group in the United Kingdom under selection guidelines
to be established by the Committee, shall be eligible, upon selection by the
Committee, to receive stock options.
(e) Shares to be Issued. Shares to be issued shall be authorized and unissued
shares of common stock, treasury stock or a combination thereof. The issue of
shares of common stock, par value $1.25 per share shall be subject to the
maximum specified in this Stock Incentive Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in this Stock Incentive Plan.
(g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted
to the stockholders of the Company for approval at the 1986 annual meeting
scheduled to be held on March 27, 1986, and if approved shall become effective
on that date. The Sub-Plan shall terminate five years after it becomes
effective unless terminated prior thereto by action of the Board of Directors.
No further grants shall be made under the Sub-Plan after
8
<PAGE>
termination but termination shall not affect the right of any participation
under the grants made prior to termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board of
Directors subject to the conditions specified in this Stock Incentive Plan. No
amendment may be made which will put the Sub-Plan in breach of conditions for
approval set out in Schedule 10 and no amendment to the Sub-Plan or any
provision in this Stock Incentive Plan which applies to options granted under
the Sub-Plan shall be made without prior approval of the Board of UK Inland
Revenue.
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible officers and eligible key management personnel as may
be selected by the Committee and approved by the Board of Directors.
(b) Variations in Options. Variations may not be made to options granted
under the Sub-Plan pursuant to Article I clause 5 of this Stock Incentive Plan
without prior consent of the Board of UK Inland Revenue.
(c) Terms of Options. No options shall be exercisable less than one nor more
than ten years after the date of the grant. The per share option price shall be
stated at the time the option is granted and shall be not less than 100% of the
Market Value of the share on the date on which the optionee is offered options
under the Sub-Plan. Upon exercise, the option price shall be paid in cash.
Options shall not be transferable except that such options may be exercised by
the personal representative of a deceased optionee within ninety days of the
death of the optionee. Options may be exercised during the individual's
continued employment with the Group and for a period not in excess of ninety
days following termination of employment. No option may be exercised by an
individual at any time when he is precluded by Paragraph 4(1)(b) of Schedule 10
from participating in the Sub-Plan.
(d) Exercise of Option. An option may be exercised by delivery of written
notice to the Company specifying the number of shares to be purchased and
accompanied by payment in full of the option price for the number of shares so
purchased. The Company shall within 30 days post to the optionee certificates
representing the number of shares specified, and shall pay all original issue or
transfer taxes and all other fees and expenses incidental to such delivery.
(e) Limits on Options. No person shall be granted options under this Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which he may acquire in pursuant of rights obtained under
the Sub-Plan or under any other scheme established by the Group or by any
Associated Company of the Company and
9
<PAGE>
approved by the Revenue under Schedule 10 (and not exercised) to exceed or
further exceed the greater of:
(1) 100,000 British Pounds Sterling or
(2) Four times the Relevant Emoluments of the optionee for the current or
preceding Year of Assessment (whichever of those years gives the greater
amount) or if there were no Relevant Emoluments for the preceding Year of
Assessment four times the amount of the Relevant Emoluments for the period
of twelve months beginning with the first day during the current Year of
Assessment in respect of which there are Relevant Emoluments. For the
purposes of this clause the Market Value of the shares shall be converted
from US Dollars to sterling at the middle rate for the buying and selling
of that amount of sterling for US Dollars as quoted by the Barclays Bank
PLC at the opening of business on the day on which the optionee is offered
options under the Sub-Plan.
V. STOCK APPRECIATION RIGHTS
1. Grants. Rights entitling the grantee to receive cash or shares of common
stock having a fair market value equal to the appreciation in market value of a
stated number of shares of common stock of the Company from the date of grant,
or in the case of rights granted in tandem with or by reference to a stock
option granted prior to the grant of such rights, from the date of grant of the
related stock option to the date of exercise may be granted to such eligible
officers and other key management personnel as may be selected by the Committee
and approved by the Board of Directors.
2. Terms of Grant. Such rights may be granted in tandem with or with
reference to a related stock option, in which event the grantee may elect to
exercise either the option or the right, but not both, as to the same share of
common stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall be
exercisable not more than ten years after the date of grant. Stock appreciation
rights shall not be transferable, except that in the event of the death of a
grantee during employment or within a period not in excess of five years after
termination of employment by reason of retirement or total and permanent
disability or within ninety days after termination of employment for any other
reason, outstanding rights may be exercised by the executor, administrator or
personal representative of such deceased grantee within ninety days of the death
of such grantee. Stock appreciation rights may be exercised during the
individual's continued employment with the Company and for a period not in
excess of ninety days following termination of employment and only within the
original term of that grant; provided, however, that if employment of the
grantee by
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the Company and its subsidiaries shall have terminated by reason of retirement
or total and permanent disability, then the grant may be exercised for a period
not in excess of five years following termination of employment but not after
the expiration of the term of the grant.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be paid
the excess of the then fair market value of the number of shares to which the
right relates over the fair market value of such number of shares at the date of
grant of the right or of the related stock option, as the case may be. Such
excess shall be paid in cash or in shares of common stock having a fair market
value equal to such excess or in such combination thereof as the Committee shall
determine.
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Exhibit 10(b)
R.R. DONNELLEY & SONS COMPANY
1991 STOCK INCENTIVE PLAN
(as amended on September 1, 1992, October 26, 1995, January 25, 1996 and
September 1, 1996)
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of R.R. Donnelley & Sons Company
(the "Company"), the Committee hereinafter designated, may grant cash or stock
bonus awards, stock options, stock appreciation rights, or combinations thereof,
to eligible officers and other key management employees, on the terms and
subject to the conditions stated in this Plan. In addition, to provide
incentives to members of the Board of Directors ("Board") who are not employees
of the Company ("non-employee directors"), such non-employee directors are
hereby granted options on the terms and subject to the conditions set forth in
this Plan.
2. Eligibility. Officers and other key management employees of the Company,
its subsidiaries, and any other entity designated by the Board or the Committee
in which the Company has a direct or indirect equity interest, shall be
eligible, upon selection by the Committee, to receive cash or bonus awards,
stock options or stock appreciation rights, either singly or in combination, as
the Committee, in its discretion, shall determine. Non-employee directors shall
receive stock options on the terms and subject to the conditions stated in the
Plan. For purposes of the Plan, references to employment by the Company also
mean employment by a majority-owned subsidiary of the Company and employment by
any other entity designated by the Board or the Committee in which the Company
has a direct or indirect equity interest.
3. Limitation on Shares to be Issued. The maximum number of shares of common
stock, par value $1.25 per share, to be issued pursuant to all grants made under
the Plan shall be 3,600,000. Shares awarded pursuant to grants (other than
shares of restricted common stock) which, by reason of the expiration,
cancellation or other termination of the grants prior to issuance, are not
issued, shall again be available for future grants.
Shares of common stock to be issued may be authorized and unissued shares of
common stock, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a Committee
consisting of two or more members of the Board of Directors designated by the
Board of Directors (the "Committee"). Each member of the Committee shall be (i)
an
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"outside director" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) a "Non-Employee Director" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Committee shall, subject to the terms of the Plan,
establish selection guidelines; select eligible officers and key management
employees for participation; determine the form of grant, either as a bonus
award, or as stock option or stock appreciation rights or combination thereof;
and determine the form of stock option, the number of shares subject to the
grant, the fair market value of the common stock when necessary, the time and
conditions of vesting or exercise, and all other terms and conditions of the
grant. The Committee may establish rules and regulations for the administration
of the Plan, interpret the Plan, and impose, incidental to a grant, conditions
with respect to competitive employment or other activities not inconsistent with
or conflicting with the Plan. All such rules, regulations, and interpretations
relating to the Plan adopted by the Committee shall be conclusive and binding on
all parties. All grants and awards under this Plan shall be evidenced by
written instruments delivered by the Company to the participants, and no such
grant or award shall be valid until so evidenced.
Notwithstanding the foregoing, neither the Board nor the Committee shall have
any discretion to alter the number of shares granted to non-employee directors
pursuant to Article III, Section 1(b) or the terms or conditions under which
such shares are granted.
5. Adjustments for Changes in Capitalization. Appropriate adjustments shall be
made by the Committee in the class and maximum number of shares to be issued
under the Plan, the class and maximum number of shares to be issued pursuant to
bonus awards, and the class and number of shares the subject of any grant and
the option price therefor, if applicable, to give effect to any stock splits,
stock dividends and other relevant changes in capitalization occurring after the
effective date of the Plan.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1991 annual meeting scheduled to
be held on March 28, 1991, and if approved shall become effective on that date.
The Plan shall terminate five years after it becomes effective unless terminated
prior thereto by action of the Board. No further grants shall be made under the
Plan after termination, but termination shall not affect the rights of any
participant under any grants made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect, except that (i) no amendment may be made without stockholder approval
if such amendment would increase the maximum number of shares available for
issuance under the Plan or otherwise require stockholder approval, (ii) Article
III, Section 1(b) shall not be amended more than once every six months, other
than amendments to
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comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act of 1974, as amended, or the rules and
regulations thereunder, and (iii) notwithstanding the foregoing clause (ii), no
amendment may be made without stockholder approval if such amendment would
change the number of shares to be granted, pursuant to stock options, to non-
employee directors.
8. Prior Plans. Upon the effectiveness of this Plan, no further grants shall
be made under the Company's 1981 Stock Incentive Plan, as amended, and the 1986
Stock Incentive Plan, as amended, except that stock appreciation rights may be
granted with respect to options previously granted and outstanding under such
Plans. Bonuses awarded under the 1986 Stock Incentive Plan, as amended, and
options granted under the 1981 Stock Incentive Plan, as amended, and the 1986
Stock Incentive Plan, as amended, prior to the effectiveness of this Plan shall
continue in effect in accordance with their terms.
9. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of common stock or the payment of any cash
pursuant to a grant or award hereunder, payment by the holder thereof of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. The holder may satisfy any such obligation by any
of the following means: (A) a cash payment to the Company, (B) delivery to the
Company of previously owned whole shares of common stock (which the holder has
held for at least six months prior to the delivery of such shares or which the
holder purchased on the open market and for which the holder has good title,
free and clear of all liens and encumbrances) having an aggregate fair market
value determined as of the date the obligation to withhold or pay taxes arises
(the "Tax Date"), (C) authorizing the Company to withhold whole shares of common
stock which would otherwise be delivered having an aggregate fair market value
determined as of the Tax Date or withhold an amount of cash which would
otherwise be payable to a holder, (D) in the case of the exercise of an option,
a cash payment by a broker-dealer acceptable to the Company to whom the optionee
has submitted an irrevocable notice of exercise or (E) any combination of (A),
(B) and (C); provided, however, that the Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(E). Shares of common
stock to be delivered or withheld may have an aggregate fair market value in
excess of the minimum amount required to be withheld, but not in excess of the
amount determined by applying the holder's maximum marginal tax rates. Any
fraction of a share of common stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the holder.
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II. BONUS AWARDS
1. Form of Award. Bonus awards, whether Performance Awards or Fixed Awards,
may be made to eligible officers and other key management employees in the form
of (i) cash, whether in an absolute amount or as a percentage of compensation,
(ii) stock units, each of which is substantially the equivalent of a share of
common stock but for the power to vote and the entitlement to current dividends,
(iii) in the form of shares of common stock issued to the employee but
forfeitable and with restrictions on transfer in any form as hereinafter
provided or (iv) any combination of the foregoing.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or shares,
with the actual such amount, percentage or number to be determined by reference
to the level of achievement of corporate, group, division, individual or other
specific objectives over a performance period of not less than one nor more than
ten years, as determined by the Committee. No rights or interests of any kind
shall be vested in an individual receiving a Performance Award until the
conclusion of the performance period and the determination of the level of
achievement specified in the award, and the time of vesting, if any, thereafter
shall be as specified in the award.
3. Fixed Awards. Awards may be made which are not contingent on the
performance of objectives, but are contingent on the participant's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than one nor more than ten years from the date of award.
4. Rights with Respect to the Restricted Shares. If shares of restricted
common stock are issued pursuant to an award, the participant shall have the
right to vote the shares and to receive dividends thereon from the date of
issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, amounts equal to dividends otherwise payable
on a like number of shares of common stock after the crediting of the units
shall be credited to an account for the participant and held until the award is
forfeited or paid out. Interest shall be credited on the account annually at a
rate equal to the return on five year U.S. Treasury obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion, provide
for early vesting of an award in the event of the participant's death, permanent
and total disability or retirement. At the time of vesting, (i) the award, if
in units, shall be paid to the participant either in shares of common stock
equal to the number of units, in cash equal to the fair market value of such
shares, or in such combination thereof as the Committee shall determine, and the
participant's account to which dividends and
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interest have been credited shall be paid in cash, (ii) the award, if a cash
bonus award, shall be paid to the participant either in cash, or in shares of
common stock with a then fair market value equal to the amount of such award, or
in such combination thereof as the Committee shall determine and (iii) shares of
restricted common stock issued pursuant to an award shall be released from the
restrictions. A Bonus Award is not transferable other than by will or the laws
of descent and distribution.
7. Acceleration Upon Change in Control. If while any Performance Award or
Fixed Award remains outstanding under this Plan--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as modified and used
in Section 13(d) and 14(d) thereof (but not including (i) the Company or
any of its subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company) (hereinafter a
"Person") is or becomes the beneficial owner, as defined in Rule 13d-3 of
the Exchange Act, directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates)
representing 50% or more of the combined voting power of the Company's then
outstanding securities; or
(b) during any period of two (2) consecutive years, individuals who at
the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into any
agreement with the Company to effect a transaction described in Clause (a),
(c) or (d) of this Section) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a
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recapitalization of the Company (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets,
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such Performance Awards, the highest
level of achievement specified in the award shall be deemed met and the award
shall be immediately and fully vested, and (ii) with respect to such Fixed
Awards, the period of continued employment specified in the award upon which the
award is contingent shall be deemed completed and the award shall be immediately
and fully vested.
III. STOCK OPTIONS
1. Grants. (a) Options for Officers and Key Management Employees. Options to
purchase shares of common stock of the Company may be granted to such eligible
officers and key management employees as may be selected by the Committee.
These options may, but need not, constitute "incentive stock options" under
Section 422A of the Internal Revenue Code of 1986, as amended, or any other form
of option under the Code as hereafter amended.
(b) Options for Non-Employee Directors. An option to purchase 2,000 shares of
common stock of the Company shall be granted on March 28, 1991 and, thereafter,
annually on the date of the Company's annual meeting of stockholders to each
individual who immediately following such meeting on such date is a non-employee
director.
2. Terms of Options. No option shall be exercisable earlier than one, nor more
than ten years after, the date of grant. The per share option price shall be
not less than 100% of the fair market value of a share of common stock of the
Company at the time the option is granted; provided that options granted to non-
employee directors shall be
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100% of the fair market value of a share of common stock of the Company at the
time the option is granted. Upon exercise, the option price may be paid in
cash, in shares of common stock of the Company having a fair market value equal
to the option price, or in a combination thereof. Options may be exercised
during the individual's continued employment with the Company or service on the
Board, as the case may be, and for a period not in excess of ninety days
following termination of employment or service on the Board and only within the
original term of that option; provided, however, that if employment of the
optionee by the Company and its subsidiaries or service on the Board, as the
case may be, shall have terminated by reason of retirement or total and
permanent disability, then the option may be exercised for a period not in
excess of five years following termination of employment or service on the
Board, but not after the expiration of the term of the option. In the event of
the death of an optionee (i) during employment or service on the Board, as the
case may be, (ii) within a period not in excess of five years after termination
of employment or service on the Board, as the case may be, by reason of
retirement or total and permanent disability or (iii) within ninety days after
termination of employment or service on the Board, as the case may be, for any
other reason, outstanding options held by such optionee at the time of death may
be exercised to the extent set forth in the agreement relating to the option by
the executor, administrator, personal representative, beneficiary or similar
persons of such deceased optionee within ninety days of the date of death.
3. Acceleration of Stock Options Upon a Change in Control. If while any stock
option granted pursuant to this Article III of the Plan remains unexercised and
outstanding, a Change in Control (as defined in Article II, Section 8, above)
occurs, then from and after the Acceleration Date (as defined in Article II,
Section 8, above) all such outstanding and unexercised options, whether or not
then vested, shall be fully and immediately exercisable.
IV. UK STOCK OPTION SUB-PLAN
1. GENERAL
(a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been
established in order to vary the terms on which options may be given to officers
and other key management employees who are employed in the United Kingdom by the
Company or any of its subsidiaries. Stock options granted under the Sub-Plan
shall be deemed granted under this Stock Incentive Plan and shall comply in all
respects with the terms and conditions applicable to options granted under
Article III of this Stock Incentive Plan.
(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:
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"the Subsidiaries" shall mean all companies which are controlled by the
Company (as defined in Section 840 of the Income and
Corporation Taxes Act 1988) and which are affiliates
controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of rule 12b-2
of the U.S. Securities Exchange Act of 1934;
"the Group" shall mean the Company and the Subsidiaries;
"Associated Company" shall have the meaning attributed to it in Section 416(1)
of the Income and Corporation Taxes Act 1988;
"the Committee" shall mean the committee designated to administer this
Stock Incentive Plan;
"Full Time Employee" shall mean any director or employee who is employed by
the Group in the United Kingdom and who is required to
devote to his duties not less than 25 hours (or in the
case of an employee who is not a director of any company
in the Group, 20 hours) per week (excluding meal breaks)
and is not precluded by paragraph 8 of Schedule 9 from
participating in the Sub-Plan;
"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 28 of Schedule 9 by virtue of
sub-paragraph (4) of that paragraph;
"Year of Assessment" shall mean a year beginning on any 6 April and ending on
the following 5 April;
"Market Value" shall mean on any day the average of high and low
transaction prices in trading in the common stock of the
Company as reported on the New York Stock Exchange--
Composite Transaction compiled by Associated Press or if
no trading occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 9" shall mean Schedule 9 of the United Kingdom Income and
Corporation Taxes Act 1988.
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"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in
Paragraphs 10 to 14 inclusive of Schedule 9.
(c) Sub-Plan. The Committee may grant stock options to officers and other key
management employees eligible to participate in the Sub-Plan on the terms and
subject to the conditions stated in this Sub-Plan.
(d) Eligibility. Full Time Employees who are officers or other key management
employees employed by the Group in the United Kingdom under selection guidelines
to be established by the Committee, shall be eligible, upon selection by the
Committee, to receive stock options.
(e) Shares to be Issued. Shares to be issued shall be authorized and unissued
shares of common stock, treasury stock or a combination thereof. The issue of
shares of common stock, par value $1.25 per share, shall be subject to the
maximum specified in this Stock Incentive Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in this Stock Incentive Plan and varied
by the terms of this Sub-Plan.
(g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted to
the stockholders of the Company for approval at the 1991 annual meeting
scheduled to be held on March 28, 1991, and if approved shall become effective
on that date. The Sub-Plan shall terminate five years after it becomes
effective unless terminated prior thereto by action of the Board. No further
grants shall be made under the Sub-Plan after termination but termination shall
not affect the right of any participation under the grants made prior to
termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board subject
to the conditions specified in this Stock Incentive Plan. No amendment may be
made which will put the Sub-Plan in breach of conditions for approval set out in
Schedule 9 and no amendment to the Sub-Plan or any provision in this Stock
Incentive Plan which applies to options granted under the Sub-Plan shall be made
without prior approval of the Board of UK Inland Revenue.
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible Full-Time Employees as may be selected by the
Committee.
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(b) Variations in Options. Variations may not be made to options granted under
the Sub-Plan pursuant to Article I clause 5 of this Stock Incentive Plan without
prior consent of the Board of UK Inland Revenue.
(c) Terms of Options. No options shall be exercisable less than one nor more
than ten years after the date of the grant. The per share option price shall be
stated at the time the option is granted and shall be not less than 100% of the
Market Value of the share on the date on which the optionee is offered options
under the Sub-Plan. Upon exercise, the option price shall be paid in cash.
Options shall not be transferable except that such options may be exercised by
the personal representative of a deceased optionee within ninety days of the
death of the optionee. Options may be exercised during the individual's
continued employment with the Group and for a period not in excess of ninety
days following termination of employment and only within the original term of
the option. No option may be exercised by an individual at any time when he is
precluded by Paragraph 8 of Schedule 9 from participating in the Sub-Plan.
(d) Exercise of Option. An option may be exercised by delivery of written
notice to the Company specifying the number of shares to be purchased and
accompanied by payment in full of the option price for the number of shares so
purchased. The Company shall within thirty days post to the optionee
certificates representing the number of shares specified, and shall pay all
original issue or transfer taxes and all other fees and expenses incidental to
such delivery.
(e) Limits on Options. No person shall be granted options under this Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which he may acquire in pursuance of rights obtained under
the Sub-Plan or under any other scheme established by the Group or by any
Associated Company of the Company and approved by the Board of U.K. Inland
Revenue under Schedule 9 (and not exercised) to exceed or further exceed the
greater of:
(1) 100,000 British Pounds Sterling or
(2) Four times the Relevant Emoluments of the optionee for the current
or preceding Year of Assessment (whichever of those years gives the greater
amount) or if there were no Relevant Emoluments for the preceding Year of
Assessment four times the amount of the Relevant Emoluments for the period
of twelve months beginning with the first day during the current Year of
Assessment in respect of which there are Relevant Emoluments. For the
purposes of this clause the Market Value of the shares shall be converted
from US Dollars to sterling at the middle rate for the buying and selling
of that amount of sterling for US Dollars as quoted by the Barclays Bank
PLC at the opening of business on the day on which the optionee is offered
options under the Sub-Plan.
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(f) Withholding Tax. Article III Clause 3 of this Stock Incentive Plan shall
not apply to the Sub-Plan.
V. STOCK APPRECIATION RIGHTS
1. Grants. Rights entitling the grantee to receive cash or shares of common
stock having a fair market value equal to the appreciation in market value of a
stated number of shares of common stock of the Company from the date of grant,
or in the case of rights granted in tandem with or by reference to a stock
option granted prior to the grant of such rights, from the date of grant of the
related stock option to the date of exercise may be granted to such eligible
officers and other key management employees as may be selected by the Committee.
2. Terms of Grant. Such rights may be granted in tandem with or with reference
to a related stock option, in which event the grantee may elect to exercise
either the option or the right, but not both, as to the same share of common
stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall be
exercisable not more than ten years after the date of grant. Stock appreciation
rights shall not be transferable, except that in the event of the death of a
grantee during employment or within a period not in excess of five years after
termination of employment by reason of retirement or total and permanent
disability or within ninety days after termination of employment for any other
reason, outstanding rights may be exercised by the executor, administrator or
personal representative of such deceased grantee within ninety days of the death
of such grantee. Stock appreciation rights may be exercised during the
individual's continued employment with the Company and for a period not in
excess of ninety days following termination of employment and only within the
original term of that grant; provided, however, that if employment of the
grantee by the Company and its subsidiaries shall have terminated by reason of
retirement or total and permanent disability, then the grant may be exercised
for a period not in excess of five years following termination of employment but
not after the expiration of the term of the grant.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be paid the
excess of the then fair market value of the number of shares to which the right
relates over the fair market value of such number of shares at the date of grant
of the right or of the related stock option, as the case may be. Such excess
shall be paid in cash or in shares of common stock having a fair market value
equal to such excess or in such combination thereof as the Committee shall
determine.
4. Withholding Tax. A stock appreciation right may provide that the holder
thereof may elect to deliver to the Company (or authorize the Company to retain
from any shares of common stock of the Company to be delivered in payment
thereof) whole
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shares of common stock of the Company to satisfy the Company's obligation, if
any, to withhold federal, state, local or other taxes required to be withheld in
respect of such award.
5. Acceleration Upon Change in Control. If while any stock appreciation right
granted pursuant to this Article V of the Plan remains unexercised and
outstanding, a Change in Control (as defined in Article II, Section 8, above)
occurs, then from and after the Acceleration Date (as defined in Article II,
Section 8, above) all such outstanding and unexercised stock appreciation
rights, whether or not then vested, shall be fully and immediately exercisable.
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Exhibit 10(c)
R.R. DONNELLEY & SONS COMPANY
1995 STOCK INCENTIVE PLAN
(AS AMENDED ON JANUARY 25, 1996 AND SEPTEMBER 1, 1996)
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of R.R. Donnelley & Sons Company
(the "Company"), the Committee hereinafter designated, may grant cash or bonus
awards, stock options, stock appreciation rights ("SARs"), or combinations
thereof, to eligible officers and other key management employees, on the terms
and subject to the conditions stated in the Plan. In addition, to provide
incentives to members of the Board of Directors ("Board") who are not employees
of the Company ("non-employee directors"), such non-employee directors are
hereby granted options on the terms and subject to the conditions set forth in
the Plan. For purposes of the Plan, references to employment by the Company
also means employment by a majority-owned subsidiary of the Company and
employment by any other entity designated by the Board or the Committee in which
the Company has a direct or indirect equity interest.
2. Eligibility. Officers and other key management employees of the Company,
its subsidiaries, and any other entity designated by the Board or the Committee
in which the Company has a direct or indirect equity interest, shall be
eligible, upon selection by the Committee, to receive cash or bonus awards,
stock options or SARs, either singly or in combination, as the Committee, in its
discretion, shall determine. Non-employee directors shall receive stock options
on the terms and subject to the conditions stated in the Plan.
3. Limitation on Shares to be Issued. Subject to adjustment as provided in
Section 5 of this Article I, 7,500,000 shares of common stock, par value $1.25
per share ("common stock"), shall be available under the Plan, reduced by the
aggregate number of shares of common stock which become subject to outstanding
bonus awards, stock options and SARs which are not granted in tandem with or by
reference to a stock option ("free-standing SARs"). Shares subject to a grant
or award which for any reason are not issued or delivered, including by reason
of the expiration, termination, cancellation or forfeiture of all or a portion
of the grant or award or by reason of the delivery or withholding of shares to
pay all or a portion of the exercise price or to satisfy tax withholding
obligations, shall again be available for future grants and awards; provided,
however, that for purposes of this sentence, stock options and SARs granted in
tandem with or by reference to a stock option granted prior to the grant of such
SARs ("tandem SARs") shall be treated as one
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grant. For the purpose of complying with Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations thereunder,
the maximum number of shares of common stock with respect to which options or
SARs or a combination thereof may be granted during any three-year period to any
person shall be 1,000,000, subject to adjustment as provided in Section 5 of
this Article I. The maximum number of shares of common stock with respect to
which fixed awards in the form of restricted stock may be granted hereunder is
500,000 in the aggregate, subject to adjustment as provided in Section 5 of this
Article I.
Shares of common stock to be issued may be authorized and unissued shares
of common stock, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a Committee
designated by the Board of Directors (the "Committee"). Each member of the
Committee shall be (i) an "outside director" within the meaning of Section
162(m) of the Code and (ii) a "Non-Employee Director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Committee shall, subject to the terms of the Plan, select eligible
officers and key management employees for participation; determine the form of
each grant and award, either as cash, a bonus award, stock options or SARs or a
combination thereof; and determine the number of shares or units subject to the
grant or award, the fair market value of the common stock or units when
necessary, the time and conditions of vesting, exercise or settlement, and all
other terms and conditions of each grant and award, including, without
limitation, the form of instrument evidencing the grant or award. The Committee
may establish rules and regulations for the administration of the Plan,
interpret the Plan, and impose, incidental to a grant or award, conditions with
respect to competitive employment or other activities not inconsistent with the
Plan. All such rules, regulations, interpretations and conditions shall be
conclusive and binding on all parties. Each grant and award shall be evidenced
by a written instrument and no grant or award shall be valid until an agreement
is executed by the Company and the recipient thereof and, upon execution by each
party and delivery of the agreement to the Company, such grant or award shall be
effective as of the effective date set forth in the agreement.
The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (i) the selection for
participation in the Plan of (A) an employee who is a "covered employee" within
the meaning of Section 162(m) of the Code or who, in the Committee's judgment,
is likely to be a covered employee at any time during the period a grant or
award hereunder to such employee would be outstanding or (B) an officer or other
person subject to Section 16 of the Exchange Act or (ii) decisions concerning
the timing, pricing or amount of a grant or award to such an employee, officer
or other person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a
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quorum is present or (ii) acts approved in writing by a majority of the members
of the Committee without a meeting.
5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular cash
dividend, the number and class of securities available under the Plan, the
number and class of securities subject to each outstanding bonus award, the
number and class of securities subject to each outstanding stock option and the
purchase price per security, the number of securities subject to each stock
option to be granted to non-employee directors pursuant to Article III and the
terms of each outstanding SAR shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding stock options and SARs
without a change in the aggregate purchase price or base price. If any such
adjustment would result in a fractional security being (i) available under the
Plan, such fractional security shall be disregarded, or (ii) subject to an
outstanding grant or award under the Plan, the Company shall pay the holder
thereof, in connection with the first vesting, exercise or settlement of such
grant or award, in whole or in part, occurring after such adjustment, an amount
in cash determined by multiplying (i) the fraction of such security (rounded to
the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value
on the vesting, exercise or settlement date over (B) the exercise or base price,
if any, of such grant or award.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995. The
Plan shall terminate on December 31, 1999 unless terminated prior thereto by
action of the Board. No further grants or awards shall be made under the Plan
after termination, but termination shall not affect the rights of any
participant under any grants or awards made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect except that no amendment may be made without stockholder approval if
stockholder approval is required by applicable law, rule or regulation,
including Section 162(m) of the Code, or such amendment would increase (subject
to Section 5 of this Article I) the maximum number of shares available under the
Plan. No amendment may impair the rights of a holder of an outstanding grant or
award without the consent of such holder.
8. Prior Plans. Upon approval of the Plan by the stockholders of the Company,
no further grants or awards shall be made under the Company's 1981 Stock
Incentive Plan, as amended (the "1981 Plan"), the 1986 Stock Incentive Plan, as
amended (the "1986 Plan"), or the 1991 Stock Incentive Plan, as amended (the
"1991 Plan"), except that SARs may be granted with respect to options previously
granted and outstanding under such Plans. Grants and awards made under the 1981
Plan, the 1986 Plan and the 1991 Plan prior to approval of the Plan by the
stockholders of the Company shall continue in effect in accordance with their
terms.
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II. BONUS AWARDS
1. Form of Award. Bonus awards, whether performance awards or fixed awards,
may be made to eligible officers and other key management employees in the form
of (i) cash, whether in an absolute amount or as a percentage of compensation,
(ii) stock units, each of which is substantially the equivalent of a share of
common stock but for the power to vote and, subject to the Committee's
discretion, the entitlement to an amount equal to dividends or other
distributions otherwise payable on a like number of shares of common stock,
(iii) shares of common stock issued to the employee but forfeitable and with
restrictions on transfer in any form as hereinafter provided or (iv) any
combination of the foregoing.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or shares,
with the actual such amount, percentage or number to be determined by reference
to the level of achievement of corporate, sector, business unit, division,
individual or other specific objectives over a performance period of not less
than one nor more than ten years, as determined by the Committee. No rights or
interests of any kind shall be vested in an individual receiving a performance
award until the conclusion of the performance period and the determination of
the level of achievement specified in the award, and the time of vesting, if
any, thereafter shall be as specified in the award.
3. Fixed Awards. Awards may be made which are not contingent on the
achievement of specific objectives, but are contingent on the participant's
continuing in the Company's employ for a period specified in the award.
4. Rights with Respect to Restricted Shares. If shares of restricted common
stock are subject to an award, the participant shall have the right, unless and
until such award is forfeited or unless otherwise determined by the Committee at
the time of grant, to vote the shares and to receive dividends thereon from the
date of grant and the right to participate in any capital adjustment applicable
to all holders of common stock; provided, however, that a distribution with
respect to shares of common stock, other than a regular quarterly cash dividend,
shall be deposited with the Company and shall be subject to the same
restrictions as the shares of common stock with respect to which such
distribution was made.
During the restriction period, a certificate or certificates representing
restricted shares shall be registered in the holder's name and may bear a
legend, in addition to any legend which may be required under applicable laws,
rules or regulations, indicating that the ownership of the shares of common
stock represented by such certificate is subject to the restrictions, terms and
conditions of the Plan and the agreement relating to the restricted shares. All
such certificates shall be deposited with the Company, together with stock
powers or other instruments of assignment (including a power of attorney), each
endorsed in blank with a guarantee of signature if deemed necessary or
appropriate, which would permit transfer to the Company of all or a portion of
the shares of common stock subject to the award in the event such award is
forfeited in whole or in part. Upon termination of any applicable restriction
period, including, if applicable,
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the satisfaction or achievement of applicable objectives, and subject to the
Company's right to require payment of any taxes, a certificate or certificates
evidencing ownership of the requisite number of shares of common stock shall be
delivered to the holder of such award.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, then, subject to the Committee's discretion,
amounts equal to dividends and other distributions otherwise payable on a like
number of shares of common stock after the crediting of the units (unless the
record date for such dividends or other distributions precedes the date of grant
of such award) shall be credited to an account for the participant and held
until the award is forfeited or paid out. Interest shall be credited on the
account annually at a rate equal to the return on five year U.S. Treasury
obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion, provide
for early vesting of an award in the event of the participant's death, permanent
and total disability or retirement. At the time of vesting, (i) the award, if
in units, shall be paid to the participant either in shares of common stock
equal to the number of units, in cash equal to the fair market value of such
shares, or in such combination thereof as the Committee shall determine, and the
participant's account to which dividend equivalents, other distributions and
interest have been credited shall be paid in cash, (ii) the award, if a cash
bonus award, shall be paid to the participant either in cash, or in shares of
common stock with a then fair market value equal to the amount of such award, or
in such combination thereof as the Committee shall determine and (iii) shares of
restricted common stock issued pursuant to an award shall be released from the
restrictions.
III. STOCK OPTIONS
1. Grants. (a) Options for Officers and Key Management Employees. Options to
purchase shares of common stock of the Company may be granted to such eligible
officers and key management employees as may be selected by the Committee.
These options may, but need not, constitute "incentive stock options" under
Section 422 of the Code or any other form of option under the Code. To the
extent that the aggregate fair market value (determined as of the date of grant)
of shares of common stock with respect to which options designated as incentive
stock options are exercisable for the first time by a participant during any
calendar year (under the Plan or any other plan of the Company, or any parent or
subsidiary) exceeds the amount (currently $100,000) established by the Code,
such options shall not constitute incentive stock options.
(b) Options for Non-Employee Directors. An option to purchase 4,000 shares
of common stock of the Company shall be granted on the date of the 1995 annual
meeting of stockholders and, thereafter, annually on the date of the Company's
annual meeting of stockholders to each individual who immediately following such
meeting on such date is a director but not an employee (hereinafter, a "non-
employee director"). An option granted to a non-employee director pursuant to
this Section 1(b) (a "Director Option") shall become exercisable in whole or in
part on the earlier to occur of (i) the date which is the first anniversary of
the date the Director Option is
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granted (the date of grant being hereafter referred to as the "Option Date") or
(ii) the day immediately preceding the date of the first annual meeting of
stockholders of the Company next following the Option Date.
2. Number of Shares and Purchase Price. The number of shares of common stock
subject to an option and the purchase price per share of common stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of common stock shall not
be less than 100% of the fair market value of a share of common stock on the
date of grant of the option; provided further, that if an incentive stock option
shall be granted to any person who, on the date of grant of such option, owns
capital stock possessing more than ten percent of the total combined voting
power of all classes of capital stock of the Company (or of any parent or
subsidiary) (a "Ten Percent Holder"), the purchase price per share of common
stock shall be the price (currently 110% of fair market value) required by the
Code in order to constitute an incentive stock option; and provided further,
that the purchase price per share of common stock subject to a Director Option
shall be 100% of the fair market value of a share of common stock on the date of
grant of such option.
3. Exercise of Options. The period during which options granted hereunder
(other than options granted to non-employee directors) may be exercised shall be
determined by the Committee; provided, however, that no incentive stock option
shall be exercised later than ten years after its date of grant; provided
further, that if an incentive stock option shall be granted to a Ten Percent
Holder, such option shall not be exercisable more than five years after its date
of grant. The Committee may, in its discretion, establish performance measures
which shall be satisfied or met as a condition to the grant of an option or to
the exercisability of all or a portion of an option. The Committee shall
determine whether an option shall become exercisable in cumulative or non-
cumulative installments and in part or in full at any time. An exercisable
option, or portion thereof, may be exercised only with respect to whole shares
of common stock.
An option may be exercised (i) by giving written notice to the Company
specifying the number of whole shares of common stock to be purchased and
accompanied by payment therefor in full (or arrangement made for such payment to
the Company's satisfaction) either (A) in cash, (B) in previously owned whole
shares of common stock (which the optionee has held for at least six months
prior to delivery of such shares or which the optionee purchased on the open
market and for which the optionee has good title free and clear of all liens and
encumbrances) having a fair market value, determined as of the date of exercise,
equal to the aggregate purchase price payable by reason of such exercise, (C) in
cash by a broker-dealer acceptable to the Company to whom the optionee has
submitted an irrevocable notice of exercise or (D) a combination of (A) and (B),
(ii) if applicable, by surrendering to the Company any SARs which are cancelled
by reason of the exercise of the option and (iii) by executing such documents as
the Company may reasonably request. The Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(D). Any fraction of a
share of common stock which would be required to pay such purchase price shall
be disregarded and the remaining amount due shall be
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paid in cash by the optionee. No certificate representing common stock shall be
delivered until the full purchase price therefor has been paid.
4. Termination of Employment or Service. An option may be exercised during the
optionee's continued employment with the Company or service on the Board, as the
case may be, and, unless otherwise determined by the Committee as set forth in
the agreement relating to the option, for a period not in excess of ninety days
following termination of employment or service on the Board and only within the
original term of the option; provided, however, that if employment of the
optionee by the Company or service on the Board, as the case may be, shall have
terminated by reason of retirement or total and permanent disability, then the
option may be exercised to the extent set forth in the agreement relating to the
option for a period not in excess of five years following termination of
employment or service on the Board, but not after the expiration of the term of
the option. In the event of the death of an optionee (i) during employment or
service on the Board, as the case may be, (ii) within a period not in excess of
five years after termination of employment or service on the Board, as the case
may be, by reason of retirement or total and permanent disability or (iii)
within ninety days after termination of employment or service on the Board, as
the case may be, for any other reason, outstanding options held by such optionee
at the time of death may be exercised to the extent set forth in the agreement
relating to the option by the executor, administrator, personal representative,
beneficiary or similar persons of such deceased optionee within ninety days of
the date of death.
IV. UK STOCK OPTION SUB-PLAN
1. GENERAL
(a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been
established in order to vary the terms on which options may be given to officers
and other key management employees who are employed in the United Kingdom by the
Company or any of its subsidiaries. Stock options granted under the Sub-Plan
shall be deemed granted under the Plan and shall, unless otherwise stated or
implied in this Article IV, comply in all respects with the terms and conditions
applicable to options granted under Article III of the Plan. Articles II and V
and Clause 2 of Article VI shall not apply to options granted under the Sub-
Plan.
(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:
"the Subsidiaries" shall mean all companies which are controlled by the
Company (as defined in Section 840 of the Income and
Corporation Taxes Act 1988) and which are affiliates
controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of Rule 12b-2
of the Exchange Act;
"the Group" shall mean the Company and the Subsidiaries;
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"Associated Company" shall have the meaning attributed to it in Section 416(1)
of the Income and Corporation Taxes Act 1988;
"the Committee" shall mean the committee designated to administer the
Plan;
"Full Time Employee" shall mean any director or employee who is employed by
the Group in the United Kingdom and who is required to
devote to his duties not less than 25 hours (or in the
case of an employee who is not a director of any company
in the Group, 20 hours) per week (excluding meal breaks)
and is not precluded by paragraph 8 of Schedule 9 from
participating in the Sub-Plan;
"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 28 of Schedule 9 by virtue of
sub-paragraph (4) of that paragraph;
"Year of Assessment" shall mean a year beginning on any 6 April and ending on
the following 5 April;
"Market Value" shall mean on any day the average of high and low
transaction prices in trading in the common stock of the
Company as reported on the New York Stock Exchange--
Composite Transactions compiled by Associated Press or if
no trading occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 9" shall mean Schedule 9 of the United Kingdom Income and
Corporation Taxes Act 1988;
"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in
Paragraphs 10 to 14 inclusive of Schedule 9.
(c) Sub-Plan. The Committee may grant stock options to officers and other key
management employees eligible to participate in the Sub-Plan on the terms and
subject to the conditions stated in the Sub-Plan.
(d) Eligibility. Full Time Employees who are officers or other key management
employees employed by the Group in the United Kingdom under selection guidelines
to be established by the Committee, shall be eligible, upon selection by the
Committee, to receive stock options.
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(e) Shares to be Issued. Shares to be issued shall be authorized and unissued
shares of common stock, treasury stock or a combination thereof. The issue of
shares of common stock shall be subject to the maximum specified in the Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in the Plan and varied by the terms of
the Sub-Plan.
(g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted to
the stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995.
Options shall not be granted until the Sub-Plan has been approved by the Board
of UK Inland Revenue under the provisions of paragraph 1 of Schedule 9. Any
change required to be made to the Plan by the Board of UK Inland Revenue in
order to obtain its approval may be made without stockholder approval, except as
otherwise provided in Clause 7 of Article I. The Sub-Plan shall terminate on
December 31, 1999 unless terminated prior thereto by action of the Board. No
further grants shall be made under the Sub-Plan after termination, but
termination shall not affect the rights of any participant under the grants made
prior to termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board subject
to the conditions specified in the Plan. No amendment may be made which will
put the Sub-Plan in breach of conditions for approval set out in Schedule 9 and
no amendment to the Sub-Plan or any provision in the Plan which applies to
options granted under the Sub-Plan shall be made without prior approval of the
Board of UK Inland Revenue.
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock may be granted to such
eligible Full-Time Employees as may be selected by the Committee. No variation
shall be made in relation to a spin-off nor to any class of securities available
under the Sub-Plan.
(b) Variations in Options. Variations may not be made to options granted under
the Sub-Plan pursuant to Article I clause 5 of the Plan without prior consent of
the Board of UK Inland Revenue.
(c) Terms of Options. Terms attaching to options shall be contained in a stock
option agreement, the form of which must be approved in advance by the Board of
UK Inland Revenue. If any performance targets are attached to the
exercisability of an option, these shall be objectively determined and subject
to the prior approval of the Board of UK Inland Revenue. No option shall be
exercisable more than ten years after its date of grant. The per share option
price shall be stated at the time the option is granted and shall be not less
than 100% of the Market Value of the share on the date on which the optionee is
offered options under the Sub-Plan. Upon exercise, the option price shall be
paid in cash. The provisions in Clause 3 of Article III for the exercise of
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options by payment in whole shares of common stock or in cash by a broker-dealer
to whom the optionee has submitted an irrevocable notice of exercise will not
apply for the purposes of the Sub-Plan unless, in the case of the latter,
approved by the Board of UK Inland Revenue. Options shall not be transferable
except that such options may be exercised by the personal representative of a
deceased optionee or a beneficiary of such deceased optionee who has been
designated pursuant to beneficiary designation procedures approved by the
Company, in each case within ninety days of the death of the optionee. Options
may be exercised during the individual's continued employment with the Group and
for a period not in excess of ninety days following termination of employment
and only within the original term of the option. No option may be exercised by
an individual at any time when he is precluded by Paragraph 8 of Schedule 9 from
participating in the Sub-Plan.
(d) Exercise of Option. An option may be exercised by delivery of written
notice to the Company specifying the number of shares to be purchased and
accompanied by payment in full of the option price for the number of shares so
purchased. The Company shall within thirty days post to the optionee
certificates representing the number of shares specified, and shall pay all
original issue or transfer taxes and all other fees and expenses incidental to
such delivery.
(e) Limits on Options. No person shall be granted options under the Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which such person may acquire in pursuance of rights
obtained under the Sub-Plan or under any other scheme established by the Group
or by any Associated Company of the Company and approved by the Board of UK
Inland Revenue under Schedule 9 (and not exercised) to exceed or further exceed
the greater of:
(1) 100,000 British Pounds Sterling or
(2) Four times the Relevant Emoluments of the optionee for the current
or preceding Year of Assessment (whichever of those years gives the greater
amount) or if there were no Relevant Emoluments for the preceding Year of
Assessment four times the amount of the Relevant Emoluments for the period
of twelve months beginning with the first day during the current Year of
Assessment in respect of which there are Relevant Emoluments. For the
purposes of this clause the Market Value of the shares shall be converted
from US Dollars to sterling at the middle rate for the buying and selling
of that amount of sterling for US Dollars as quoted by the Barclays Bank
PLC at the opening of business on the day on which the optionee is offered
options under the Sub-Plan./(1)/
V. STOCK APPRECIATION RIGHTS
1. Grants. Free-standing SARs entitling the grantee to receive cash or shares
of common stock having a fair market value equal to the appreciation in market
value of a stated number of shares of common stock from the date of grant to the
date of exercise of such SARs, or in the case of
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tandem SARs, from the date of grant of the related stock option to the date of
exercise of such tandem SARs, may be granted to such eligible officers and other
key management employees as may be selected by the Committee. The holder of a
tandem SAR may elect to exercise either the option or the SAR, but not both.
2. Number of SARs and Base Price. The number of SARs subject to a grant shall
be determined by the Committee. Any tandem SAR related to an incentive stock
option shall be granted at the same time that such incentive stock option is
granted. The base price of a tandem SAR shall be the purchase price per share
of common stock of the related option. The base price of a free-standing SAR
shall be determined by the Committee; provided, however, that such base price
shall not be less than 100% of the fair market value of a share of common stock
on the date of grant of such SAR.
3. Exercise of SARs. The agreement relating to a grant of SARs may specify
whether such grant shall be settled in shares of common stock (including
restricted shares of common stock) or cash or a combination thereof. Upon
exercise of an SAR, the grantee shall be paid the excess of the then fair market
value of the number of shares of common stock to which the SAR relates over the
fair market value of such number of shares at the date of grant of the SAR or of
the related stock option, as the case may be. Such excess shall be paid in cash
or in shares of common stock having a fair market value equal to such excess or
in such combination thereof as the Committee shall determine. The period during
which SARs granted hereunder may be exercised shall be determined by the
Committee; provided, however, that no tandem SAR shall be exercised if the
related option has expired or has been cancelled or forfeited or has otherwise
terminated. The Committee may, in its discretion, establish performance
measures which shall be satisfied or met as a condition to the grant of an SAR
or to the exercisability of all or a portion of an SAR. The Committee shall
determine whether an SAR may be exercised in cumulative or non-cumulative
installments and in part or in full at any time. An exercisable SAR, or portion
thereof, may be exercised, in the case of a tandem SAR, only with respect to
whole shares of common stock and, in the case of a free-standing SAR, only with
respect to a whole number of SARs. If an SAR is exercised for restricted shares
of common stock, a certificate or certificates representing such restricted
shares shall be issued in accordance with Section 4 of Article II and the holder
of such restricted shares shall have such rights of a stockholder of the Company
as determined pursuant to such Section. Prior to the exercise of an SAR for
shares of common stock, including restricted shares, the holder of such SAR
shall have no rights as a stockholder of the Company with respect to the shares
of common stock subject to such SAR.
A tandem SAR may be exercised (i) by giving written notice to the Company
specifying the number of whole SARs which are being exercised, (ii) by
surrendering to the Company any options which are cancelled by reason of the
exercise of such SAR and (iii) by executing such documents as the Company may
reasonably request. A free-standing SAR may be exercised (i) by giving written
notice to the Company specifying the whole number of SARs which are being
exercised and (ii) by executing such documents as the Company may reasonably
request.
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4. Termination of Employment. An SAR may be exercised during the grantee's
continued employment with the Company and, unless otherwise determined by the
Committee as set forth in the agreement relating to the SAR, for a period not in
excess of ninety days following termination of employment and only within the
original term of the SAR; provided, however, that if employment of the grantee
by the Company shall have terminated by reason of retirement or total and
permanent disability, then the SAR may be exercised to the extent set forth in
the agreement relating to the SAR for a period not in excess of five years
following termination of employment but not after the expiration of the term of
the SAR. In the event of the death of a holder of an SAR (i) during employment,
(ii) within a period not in excess of five years after termination of employment
by reason of retirement or total and permanent disability or (iii) within ninety
days after termination of employment for any other reason, outstanding SARs held
by such holder at the time of death may be exercised to the extent set forth in
the agreement relating to the SAR by the executor, administrator, personal
representative, beneficiary or similar persons of such deceased holder within
ninety days of the date of death.
VI. OTHER
1. Non-Transferability of Options and Stock Appreciation Rights. No option or
SAR shall be transferable other than (i) by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company or (ii) as otherwise set forth in the agreement relating to such option
or SAR. Each option or SAR may be exercised during the participant's lifetime
only by the participant or the participant's guardian, legal representative or
similar person. Except as permitted by the second preceding sentence, no option
or SAR may be sold, transferred, assigned, pledged, hypothecated, encumbered or
otherwise disposed of (whether by operation of law or otherwise) or be subject
to execution, attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any
option or SAR, such award and all rights thereunder shall immediately become
null and void.
2. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of common stock or the payment of any cash
pursuant to a grant or award hereunder, payment by the holder thereof of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. An agreement may provide that (i) the Company
shall withhold whole shares of common stock which would otherwise be delivered
to a holder, having an aggregate fair market value determined as of the date the
obligation to withhold or pay taxes arises in connection therewith (the "Tax
Date"), or withhold an amount of cash which would otherwise be payable to a
holder, in the amount necessary to satisfy any such obligation or (ii) the
holder may satisfy any such obligation by any of the following means: (A) a
cash payment to the Company, (B) delivery to the Company of previously owned
whole shares of common stock (which the holder has held for at least six months
prior to the delivery of such shares or which the holder purchased on the open
market and for which the holder has good title, free and clear of all liens and
encumbrances) having an aggregate fair market value determined as of the Tax
Date, (C) authorizing the Company to withhold whole shares of common stock which
-12-
<PAGE>
would otherwise be delivered having an aggregate fair market value determined as
of the Tax Date or withhold an amount of cash which would otherwise be payable
to a holder, (D) in the case of the exercise of an option, a cash payment by a
broker-dealer acceptable to the Company to whom the optionee has submitted an
irrevocable notice of exercise or (E) any combination of (A), (B) and (C);
provided, however, that the Committee shall have sole discretion to disapprove
of an election pursuant to any of clauses (B)-(E). An agreement relating to a
grant or award hereunder may provide for shares of common stock to be delivered
or withheld having an aggregate fair market value in excess of the minimum
amount required to be withheld, but not in excess of the amount determined by
applying the holder's maximum marginal tax rates. Any fraction of a share of
common stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the holder.
3. Acceleration Upon Change in Control. If while (i) any performance award or
fixed award granted under Article II is outstanding or (ii) any stock option
granted under Article III or IV of the Plan or SAR granted under Article V of
the Plan is outstanding --
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Company or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates, excluding an acquisition resulting from the
exercise of a conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities) representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of two (2) consecutive years (not including any
period prior to the effective date of the Plan), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into any agreement
with the Company to effect a transaction described in Clause (a), (c) or
(d) of this Section) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which
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<PAGE>
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company,
at least 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets,
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such performance awards, the highest
level of achievement specified in the award shall be deemed met and the award
shall be immediately and fully vested, (ii) with respect to such fixed awards,
the period of continued employment specified in the award upon which the award
is contingent shall be deemed completed and the award shall be immediately and
fully vested and (iii) with respect to such options and SARs, all such options
and SARs, whether or not then exercisable in whole or in part, shall be fully
and immediately exercisable.
4. Restrictions on Shares. Each grant and award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of common stock subject
thereto upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery of
shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of common stock
delivered pursuant to any grant or award made hereunder bear a legend indicating
that the sale, transfer or other disposition thereof by the holder is prohibited
except in compliance with the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
5. No Right of Participation or Employment. No person (other than non-employee
directors to the extent provided in Article III) shall have any right to
participate in the Plan. Neither the Plan nor any grant or award made hereunder
shall confer upon any person any right to continued employment by the Company,
any subsidiary or any affiliate of the Company or affect in any
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<PAGE>
manner the right of the Company, any subsidiary or any affiliate of the Company
to terminate the employment of any person at any time without liability
hereunder.
6. Rights as Stockholder. No person shall have any right as a stockholder of
the Company with respect to any shares of common stock or other equity security
of the Company which is subject to a grant or award hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
common stock or equity security.
7. Governing Law. The Plan, each grant and award hereunder and the related
agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Delaware and construed in
accordance therewith without giving effect to principles of conflicts of laws.
8. Approval of Plan. The Plan and all grants and awards made hereunder shall
be null and void if the adoption of the Plan is not approved by the affirmative
vote of a majority of the shares of common stock present in person or
represented by proxy at the 1995 annual meeting of stockholders.
/(1)/Note: Options granted on or after April 29, 1996 are subject to
(Pounds)30,000 limit instead of the (Pounds)100,000 limit set out in Article
IV, Section 2(e). For purposes of calculating whether this limit would be
exceeded by a subsequent option grant, it is necessary to include the value of
shares subject to unexercised options granted in the past (whether or not they
were granted before April 29, 1996) as well as the value of the shares which
would be subject to the proposed grant. The calculation would include
unexercised options granted under the UK Sub-Plans of the 1991 Stock Incentive
Plan, the 1986 Stock Incentive Plan and the Donnelley Shares Stock Option Plan.
The value of shares subject to unexercised options should be calculated on the
basis of their fair market value at the original dates of grant (that is, their
exercise price), converted into pounds Sterling at the exchange rates in effect
on such dates.
-15-
<PAGE>
Exhibit 10(d)
R. R. DONNELLEY & SONS COMPANY
1993 STOCK PURCHASE PLAN FOR SELECTED MANAGERS AND KEY STAFF EMPLOYEES
(AS AMENDED ON SEPTEMBER 22, 1994, OCTOBER 26, 1995, JANUARY 25, 1996 AND
SEPTEMBER 1, 1996)
1. Purpose.
The purpose of the Stock Purchase Plan (the "Plan") of R. R. Donnelley &
Sons Company (the "Company") is to align the interests of the Company's
stockholders and selected managers and key staff employees of the Company and
its majority-owned subsidiaries eligible to participate in the Plan by granting
incentives to such managers and key staff employees to increase their
proprietary interest in the Company's growth and success.
2. Administration.
The Plan will be administered by a Committee (the "Committee") of three or
more directors designated by the Board of Directors of the Company (the "Board).
The Committee may adopt such rules and regulations and make such determinations
and interpretations and provide for all terms and conditions of the Plan and
participation thereunder as it shall deem desirable and not inconsistent with
the limitations herein provided. All such rules, regulations, determinations
and interpretations relating to the Plan adopted by the Committee shall be
conclusive and binding upon all parties.
3. Eligibility.
(a) The Committee shall determine the classes (or portions thereof) of
managers and key staff employees of the Company and any of its subsidiaries that
are eligible to participate in the Plan (each such class determined to be so
eligible being referred to herein as an "Eligible Class"); provided that the
Committee may direct that the determination of such classes (or portions
thereof) be made by the Chief Executive Officer, either alone or together with
one or more designated officers of the Company, except that the determination of
the eligibility of any class in which there is an "officer" within the meaning
of Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), shall be made by the Committee. The determination of Eligible
Classes shall remain in effect unless and until changed in accordance with the
following. No elimination of an Eligible Class or portion thereof may be made
with respect to any calendar year after February 1 of such year. Additions of
Eligible Classes or portions thereof may be made at any time by the Committee,
or by the Chief Executive Officer, either alone or together with one or more
designated officers of the Company, if the Committee has delegated the authority
to determine such Eligible Classes to the Chief Executive Officer.
<PAGE>
(b) An employee of the Company or a subsidiary of the Company who either (i)
is employed in an Eligible Class on a Purchase Date (as hereinafter defined), or
(ii) was employed in an Eligible Class on the December 31 next preceding a
Purchase Date and who retired at age 55 or over on or after such December 31 and
on or prior to such Purchase Date, shall be eligible to purchase shares of
common stock, par value $1.25 per share, of the Company ("Common Stock") in
accordance with the Plan on such Purchase Date (each such employee being
referred to herein as an "Eligible Employee"); provided that any Eligible
Employee who disposes of Common Stock purchased under the Plan in contravention
of Section 7 hereof shall not be an Eligible Employee (and therefore not
entitled to purchase shares of Common Stock under the Plan) on either of the two
Purchase Dates next following the date on which the Company becomes aware of the
most recent such disposition and with respect to which the condition set forth
in Section 4(c) is satisfied.
4. Eligible Employee's and Company's Contributions for Purchase of Shares of
Common Stock.
(a) Subject to subsection (c) below, each Eligible Employee may, with respect
to each Purchase Date, contribute up to 5% of the Compensation (as hereinafter
defined) of such Eligible Employee for the calendar year next preceding such
Purchase Date; provided that the amount, if any, contributed by an Eligible
Employee (the "Eligible Employee's Contribution Amount") shall in no event be
less than $100. The Eligible Employee's Contribution Amount shall, subject to
the conditions contained herein, be applied, together with a Company
contribution equal to 50% of the Eligible Employee's Contribution Amount, to the
purchase of Common Stock as provided in Section 5. The Company will contribute
an additional amount equal to 20% of the Eligible Employee's Contribution
Amount, which amount will be paid in cash to the Eligible Employee in the last
pay period in the month of April next following the Purchase Date.
(b) The election of an Eligible Employee to contribute with respect to a
Purchase Date and the designation by such Eligible Employee of such Eligible
Employee's Contribution Amount for such Purchase Date must be made no later than
the March 15 next preceding such Purchase Date. An Eligible Employee shall pay
such Eligible Employee's Contribution Amount in full on or before the March 15
next preceding a Purchase Date.
(c) No Eligible Employee may make a contribution under the Plan following any
calendar year of the Company, unless the consolidated net earnings of the
Company for such year, before provision for Federal, state and other income
taxes, shall equal or exceed 6.5% of the consolidated net sales of the Company,
as determined in accordance with generally accepted accounting principles as in
effect for such year (the "Performance Threshold"); provided, however, that the
Committee may, in its sole discretion exercised at any time, exclude from the
calculation of the Performance Threshold for any year the effect of any
extraordinary, non-recurring or unusual charge or credit, any change in
accounting policy or any other factors (including, without limitation,
acquisitions or dispositions) deemed by the
2
<PAGE>
Committee to warrant such exclusion or change the Performance Threshold as it
deems appropriate.
(d) The "Compensation" of an Eligible Employee for a calendar year shall mean
the sum of (i) the base pay (before reduction on account of any election by the
Eligible Employee pursuant to a "qualified cash or deferred arrangement," as
defined in Section 401(k) of the Internal Revenue Code of 1986 (the "Code")), or
pursuant to a "cafeteria plan," as defined in Section 125 of the Code), and
overtime paid to such Eligible Employee by the Company and its subsidiaries
during such calendar year and (ii) the annual incentive compensation amount paid
to such Eligible Employee by the Company and its subsidiaries during such
calendar year, prorated, if necessary, for the portion of such calendar year
during which such employee was in an Eligible Class. Notwithstanding the
foregoing, Compensation shall not include expatriate benefits paid under the
Company's expatriate policy (as amended from time to time), including, without
limitation, any foreign service or hardship premium.
5. Purchase of Shares of Common Stock.
The Eligible Employee's Contribution Amount and the Company contribution equal
to 50% of such Eligible Employee's Contribution Amount shall be applied on the
first trading day following March 15 in any year when purchases may be made (a
"Purchase Date") to the purchase from the Company of whole shares of Common
Stock for the Eligible Employee's account at the average of the high and low
transaction prices reported in the New York Stock Exchange Composite
Transactions report for such Purchase Date. Any amount in excess of the amount
so applied to the purchase of whole shares of Common Stock shall be paid to the
Eligible Employee.
6. Certificate or other evidence of ownerships Representing Shares of Common
Stock.
Shares purchased under the Plan for the account of an Eligible Employee will
be represented by a certificate or other evidence of ownership registered in the
name of such Eligible Employee or, if such Eligible Employee shall so specify,
in the name of such Eligible Employee and such Eligible Employee's spouse as
joint tenants, and the certificate or other evidence of ownership shall be
delivered to the Eligible Employee as soon as practicable following the Purchase
Date.
7. Disposition of Shares of Common Stock.
An Eligible Employee who purchases shares of Common Stock under the Plan may
sell, assign, transfer or otherwise dispose of such shares at any time; provided
that the sale, assignment, transfer or other disposition of any shares of Common
Stock which are purchased under the Plan within three years of the date of
purchase of such shares under the Plan (other than a transfer into the name of
the Eligible Employee and such employee's spouse as joint tenants or a transfer
from joint tenancy into the name of the Eligible Employee individually)
3
<PAGE>
shall automatically terminate the right of such Eligible Employee to participate
in the Plan on the two Purchase Dates next following the date on which the
Company becomes aware of the most recent such disposition and with respect to
which the condition set forth in Section 4(c) is satisfied. An Eligible
Employee who transfers shares to a trust or brokerage account may restore such
Eligible Employee's right to participate in the Plan by re-registering such
shares in such Eligible Employee's name (or registering such shares in joint
tenancy with such Eligible Employee's spouse) within three months of notice from
the Company and delivering a copy of the certificate representing such re-
registered shares to the Compensation and Employee Benefits department of the
Company.
8. Number of Shares of Common Stock.
The maximum number of shares of Common Stock available for purchase under the
Plan shall be 7,000,000 shares of Common Stock; provided that such maximum
number shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a split-up or
consolidation of shares or like capital adjustment or the payment of any stock
dividend or other increase or decrease in the number of such issued shares
effected without receipt of consideration by the Company. Shares of Common
Stock purchased under the Plan shall, at the election of the Company, be
authorized and unissued shares of Common Stock or shares of Common Stock held as
treasury shares or a combination thereof.
9. Effective Date.
The Plan shall be submitted to the stockholders of the Company for approval at
the 1993 annual meeting of stockholders and, if approved, shall become effective
as of January 1, 1993.
10. Termination and Amendment.
The Plan shall terminate with respect to Compensation paid to employees after
December 31, 2002 unless terminated earlier by the Board. The Board may suspend
the Plan at any time. Any termination or suspension shall not affect the rights
of an Eligible Employee with respect to shares of Common Stock theretofore
purchased under the Plan. The Board may amend the Plan at any time, but no
amendment may be made without the approval of stockholders if such amendment
would increase the Company's total contribution to a percent greater than 70% of
an Eligible Employee's Contribution Amount, increase the maximum percentage to
more than 5% of an Eligible Employee's Compensation, reduce the purchase price
of shares of Common Stock under the Plan, or increase the aggregate number of
shares of Common Stock which may be purchased under the Plan.
4
<PAGE>
Exhibit 10(e)
As Amended
September 1, 1996
R. R. DONNELLEY & SONS COMPANY
1993 STOCK OWNERSHIP PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose.
The purpose of the Stock Ownership Plan for Non-Employee Directors (the
"Plan") of R. R. Donnelley & Sons Company (the "Company") is to align the
interests of the Company's stockholders and the members of the Board of
Directors of the Company (the "Board") who are not employees of the Company or
any of its subsidiaries (each a "Non-Employee Director") by facilitating the
purchase of common stock, $1.25 par value per share, of the Company ("Common
Stock") by Non-Employee Directors.
2. Administration.
The Plan shall be administered by the Board. The Board may adopt such rules
and regulations and make such determinations and interpretations as it shall
deem desirable and not inconsistent with the limitations herein provided. All
such rules, regulations, determinations and interpretations shall be conclusive
and binding upon all parties.
3. Eligibility.
Each Non-Employee Director shall be eligible to participate in the Plan.
4. Election to Purchase Shares of Common Stock.
(a) Each Non-Employee Director may elect to forego receipt of all or any
percentage of such Non-Employee Director's Fee (as hereinafter defined)
otherwise payable to such Non-Employee Director and to have the amount of such
Fee foregone by such Non-Employee Director (the "Non-Employee Director's
Foregone Fee Amount") applied to the purchase from the Company of shares of
Common Stock as provided in Section 5.
(b)The election referred to in subsection (a) of this Section 4 may be made
with respect to one or more quarters of any calendar year. Any such election
shall be delivered to the Corporate Secretary of the Company at any time prior
to, but in no event later than, the December 15, March 15, June 15 or September
15 immediately preceding the first calendar quarter with respect to which a Non-
Employee Director's Foregone Fee Amount shall apply.
<PAGE>
(c) "Fee" shall mean the cash retainer fee paid by the Company to a Non-Employee
Director for services as a director of the Company, any fees paid to a Non-
Employee Director for attendance at meetings of the Board or any committee of
the Board and any fees paid to a Non-Employee Director for serving as a member
or chairman of any committee of the Board.
5. Purchase of Shares of Common Stock.
The Non-Employee Director's Foregone Fee Amount shall be applied, to the
extent otherwise payable to the Non-Employee Director, on the first trading day
following January 1, April 1, July 1 and October 1, as the case may be, to the
purchase from the Company of whole shares of Common Stock for the account of
such Non-Employee Director at the average of the high and low transaction prices
reported in the New York Stock Exchange Composite Transactions report for such
day. Any amount in excess of the amount so applied to the purchase of whole
shares of Common Stock shall be retained by the Company and applied on the next
purchase date or paid to the Non-Employee Director upon notice of non-renewal of
an election to purchase hereunder.
6. Certificates Representing Shares of Common Stock.
Shares purchased under the Plan for the account of a Non-Employee Director
will be represented by a certificate which shall be delivered to the Non-
Employee Director as soon as practicable following the date of purchase.
7. Number of Shares of Common Stock.
The maximum number of shares of Common Stock available for purchase under the
Plan shall be 500,000 shares of Common Stock; provided that such maximum number
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a split-up or consolidation of
shares or like capital adjustment or the payment of any stock dividend or other
increase or decrease in the number of such issued shares effected without
receipt of consideration by the Company. Shares of Common Stock purchased under
the Plan shall, at the election of the Company, be authorized and unissued
shares of Common Stock or shares of Common Stock held as treasury shares or a
combination thereof.
8. Effective Date.
The Plan shall be submitted to the stockholders of the Company for approval at
the 1993 annual meeting of stockholders and, if approved, shall become effective
as of such date.
2
<PAGE>
9. Termination and Amendment.
The Plan shall terminate with respect to Fees paid after December 31, 2002
unless terminated earlier by the Board. The Board may suspend the Plan at any
time. The Board may amend the Plan at any time, but no amendment may be made
without the approval of stockholders if such amendment would reduce the purchase
price of shares of Common Stock under the Plan or increase the aggregate number
of shares of Common Stock which may be purchased under the Plan.
3
<PAGE>
Exhibit 10(f)
Options were granted to the executive officers listed below for the number of
shares and the exercise prices shown below:
PREMIUM-PRICED OPTIONS
GRANT DATE - 1/1/95
<TABLE>
<CAPTION>
# of Options # of Options # of Options
Exercisable @ Exercisable @ Exercisable @
Name $43.275 $50.4875 $57.70
- ---- ------------- ------------- -------------
<S> <C> <C> <C>
(1) John R. Walter 166,667 166,667 166,666*
(2) Jonathan P. Ward 58,334 58,333 58,333
(3) William E. Tyler 58,334 58,333 58,333
(4) Frank R. Jarc 40,000 40,000 40,000*
(5) Steven J. Baumgartner 40,000 40,000 40,000
</TABLE>
*Cancelled without vesting
<PAGE>
As Amended
September 1, 1996
R. R. DONNELLEY & SONS COMPANY
STOCK OPTION AGREEMENT
----------------------
(premium options)
R. R. DONNELLEY & SONS COMPANY, a Delaware corporation (herein called
the "Company"), acting pursuant to the provisions of its 1991 Stock Incentive
Plan, which was approved by stockholders on March 28, 1991 (herein called the
"Plan"), hereby grants to _______ (herein called "Optionee"), as of January 1,
1995 (herein called the "option date"), an option to purchase from the Company
(i) ______ shares of common stock of the Company, par value $1.25 per share
(herein called "common stock"), at a price of ______ per share (herein called
the "First Premium Option"), (ii) ____ shares of common stock at a price of
$_____ per share (herein called the "Second Premium Option") and (iii) _____
shares of common stock at a price of $______ per share (herein called the "Third
Premium Option" and the First Premium Option, the Second Premium Option and the
Third Premium Option are collectively referred to herein as the "option") to be
exercisable during the term commencing on January 1, 1995 and ending on December
31, 2004 (herein called the "option term"), but only upon the following terms
and conditions:
1. The option may be exercised by Optionee, in whole or in part, from
time to time, during the option term only in accordance with the following
conditions and limitations:
(a) Except as provided in Sections 5 and 7 hereof, Optionee must, at any time
the option becomes exercisable and at any time the option is exercised,
have been continuously in the employment of the Company since the date
hereof. Leave of absence for periods and purposes conforming to the
personnel policies of the Company and approved by the Committee
administering the Plan shall not be deemed terminations of employment or
interruptions of continuous service.
2
<PAGE>
(b) Unless a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), is in effect as to the shares purchasable
under the option, no shares of common stock may be purchased under the
option unless, prior to the purchase thereof, the Company shall have
received an opinion of counsel to the effect that the sale of such shares
by the Company to Optionee will not constitute a violation of the
Securities Act. Optionee hereby agrees that as a condition of exercise,
Optionee will, if requested by the Company, submit a written statement, in
form satisfactory to counsel for the Company, to the effect that any shares
of common stock purchased upon exercise of the option will be purchased for
investment and not with a view to the distribution thereof within the
meaning of the Securities Act, and the Company shall have the right, in its
discretion, to cause the certificates representing shares of common stock
purchased under the option to be appropriately legended to refer to such
undertaking or to any legal restrictions imposed upon the transferability
thereof by reason of such undertaking.
(c) Subject to Sections 5 and 7 hereof, the option shall become exercisable as
follows:
(1) In the event Total Stockholder Return (as hereinafter defined) for the
four-year period commencing January 1, 1995 and ending on December 31, 1998
(the "First Performance Period") exceeds the S&P Industrial Index Total
Return (as hereinafter defined) for the First Performance Period, the
option shall become exercisable on December 31, 1998 with respect to all of
the shares of common stock subject to the option and the following
subsections (2)-(8) shall not apply. In the event Total Stockholder Return
for the First Performance Period equals or is less than the S&P Industrial
Index Total Return for the First Performance Period, the option may become
exercisable as set forth below.
(2) In the event Total Stockholder Return for the four-year period
commencing January 1, 1996 and ending on December 31, 1999 (the "Second
Performance Period") exceeds the S&P Industrial Index Total Return for the
Second Performance Period, the option shall become exercisable on December
31, 1999 with respect to all of the shares of common stock subject to the
option and the following subsections (3)-(8) shall not apply. In the event
Total Stockholder Return for the Second Performance Period equals or is
less than the S&P Industrial Index Total Return for the Second Performance
Period, the option may become exercisable as set forth below.
(3) In the event Total Stockholder Return for the four-year period
commencing January 1, 1997 and ending on December 31, 2000 (the "Third
Performance Period") exceeds the S&P Industrial Index Total Return for the
Third Performance Period, the option shall become exercisable on December
31, 2000 with respect to all of the shares of common stock subject to the
option and the following subsections (4)-(8) shall not apply. In the event
Total Stockholder Return for the Third Performance Period equals or is less
than the S&P Industrial Index Total Return for the Third Performance
Period, the option may become exercisable as set forth below.
-3-
<PAGE>
(4) In the event Total Stockholder Return for the four-year period
commencing January 1, 1998 and ending on December 31, 2001 (the "Fourth
Performance Period") exceeds the S&P Industrial Index Total Return for the
Fourth Performance Period, the option shall become exercisable on December
31, 2001 with respect to all of the shares of common stock subject to the
option and the following subsections (5)-(8) shall not apply. In the event
Total Stockholder Return for the Fourth Performance Period equals or is
less than the S&P Industrial Index Total Return for the Fourth Performance
Period, the option may become exercisable as set forth below.
(5) In the event Total Stockholder Return for the four-year period
commencing January 1, 1999 and ending on December 31, 2002 (the "Fifth
Performance Period") exceeds the S&P Industrial Index Total Return for the
Fifth Performance Period, the option shall become exercisable on December
31, 2002 with respect to all of the shares of common stock subject to the
option and the following subsections (6)-(8) shall not apply. In the event
Total Stockholder Return for the Fifth Performance Period equals or is less
than the S&P Industrial Index Total Return for the Fifth Performance
Period, the option may become exercisable as set forth below.
(6) In the event Total Stockholder Return for the four-year period
commencing January 1, 2000 and ending on December 31, 2003 (the "Sixth
Performance Period") exceeds the S&P Industrial Index Total Return for the
Sixth Performance Period, the option shall become exercisable on December
31, 2003 with respect to all of the shares of common stock subject to the
option and the following subsection (7) shall not apply. In the event Total
Stockholder Return for the Sixth Performance Period equals or is less than
the S&P Industrial Index Total Return for the Sixth Performance Period, the
option shall become exercisable as set forth below.
(7) Notwithstanding the foregoing subsections (1)-(6), but subject to
Sections 5 and 7 hereof, the option shall become exercisable on June 30,
2004 with respect to all of the shares of common stock subject to the
option and the following subsection (8) shall not apply.
(8) If while any portion of the option is outstanding and unexercisable, a
Change in Control (as defined in the Plan) occurs, then from and after the
Acceleration Date (as defined in the Plan), the option shall be exercisable
with respect to all of the shares of common stock subject to such portion
of the option.
No fractional shares may be purchased at any time.
"Total Stockholder Return" means, with respect to any four-year
Performance Period, the fair market value (as defined in Section 2) on the last
day of such Performance Period of the number of shares of common stock (rounded
to the nearest thousandth) which is
-4-
<PAGE>
deemed to be purchased by investing $100 as of the day immediately preceding the
first day of such Performance Period. All dividends on common stock shall be
assumed to be reinvested in common stock as of each "ex dividend" trading date
of the common stock occurring during such Performance Period. For purposes of
calculating the number of shares of common stock which are purchased on the day
immediately preceding the first day of a Performance Period, the purchase price
per share of common stock shall be the fair market value of the common stock on
such day.
"S&P Industrial Index Total Return" means, with respect to any four-
year Performance Period, the cumulative total return during such Performance
Period of the Standard & Poor's Industrial Index stock index, computed on the
same basis as Total Stockholder Return. If the Standard & Poor's Industrial
Index is not published or otherwise available for the duration of a Performance
Period, "S&P Industrial Index Return" shall mean, with respect to such
Performance Period, the cumulative total return during such Performance Period
of any stock index determined by the Committee, computed on the same basis as
Total Stockholder Return.
2. Subject to the limitations herein set forth, the option may be
exercised by delivery of written notice to the Company specifying the number of
shares of common stock to be purchased and accompanied by payment in full of the
option price (or arrangement made for such payment to the Company's
satisfaction) for the number of shares so purchased. No shares of common stock
may be purchased under the option unless Optionee, or in the event of
-5-
<PAGE>
Optionee's death the executor, administrator, or personal representative of such
deceased Optionee, shall pay to the Company such amount as the Company is
advised it is required under applicable local, state and federal tax laws to
withhold and pay over to governmental taxing authorities by reason of the
purchase of shares of common stock pursuant to the option.
The option price and any federal, state, local and other taxes
required to be withheld in connection with such exercise may be paid (i) in
cash, (ii) by delivering previously owned whole shares of common stock (which
Optionee has held for at least six months prior to the delivery of such shares
or which Optionee purchased on the open market and for which Optionee has good
title, free and clear of all liens and encumbrances) having a fair market value
equal to the option price and such amount of tax, (iii) with respect to taxes
only, by authorizing the Company to withhold whole shares of common stock which
would otherwise be delivered having a fair market value equal to such amount of
tax, or (iv) in a combination thereof. Payment of the option price and such
tax, or any part thereof, in previously owned shares of common stock shall not
be effective unless Optionee delivers one or more stock certificates (or
otherwise delivers shares of common stock to the satisfaction of the Company)
representing shares having a fair market value on the date of exercise equal to
or in excess of the option price and such tax, or applicable portion thereof,
accompanied by such endorsements, signature guarantees or other documents or
assurances as may reasonably be required to effect the transfer to the Company
of such number of shares. If Optionee delivers a certificate or certificates
(or otherwise delivers shares of common stock to the satisfaction of the
Company) representing shares in excess of the number required to cover the
option price
-6-
<PAGE>
and such tax, a certificate (or other evidence of ownership) representing such
excess number of shares will be issued and redelivered to Optionee. For
purposes of this Agreement, the fair market value of the common stock on a
specified date shall be determined by reference to the average of the high and
low transaction prices in trading of the common stock on such date as reported
in the New York Stock Exchange-Composite Transactions, or, if no such trading in
the common stock occurred on such date, then on the next preceding date when
such trading occurred; provided, that if the Committee administering the Plan
shall determine that such New York Stock Exchange-Composite Transactions prices
are not representative of the fair market value, such Committee shall determine
such fair market value by such other appropriate means as it shall determine.
3. Upon exercise of the option in whole or in part pursuant to
Section 2 hereof, the Company shall deliver certificates representing the number
of shares specified against payment therefor and shall pay all original issue or
transfer taxes and all other fees and expenses incident to such delivery.
4. Optionee shall be entitled to the privileges of ownership with
respect to shares subject to the option only as to shares purchased and
delivered to Optionee upon exercise of all or part of the option.
5. (a) If Optionee ceases to be employed by the Company by reason of
death prior to June 30, 2004, then the option shall be exercisable by the
executor, administrator,
-7-
<PAGE>
personal representative or beneficiary of Optionee during the 90-day period
commencing on the date of Optionee's death, but only during the option term,
with respect to all of the shares of common stock subject to the option if, on
or prior to the date of Optionee's death, the option had become exercisable with
respect to all of the shares of common stock subject to the option pursuant to
any of subsections 1(c)(1)-(6) or (8). If Optionee ceases to be employed by the
Company by reason of death prior to June 30, 2004 and the option had not become
exercisable on or prior to the date of Optionee's death pursuant to any of
subsections 1(c)(1)-(6) or (8), then the option shall become exercisable as of
the time of such death by the executor, administrator, personal representative
or beneficiary of Optionee for the 90-day period commencing on the date of
Optionee's death, but only during the option term, as to the number of shares of
common stock determined by multiplying the number of shares of common stock
subject to the First Premium Option, the Second Premium Option and the Third
Premium Option, respectively, by a fraction, the numerator of which is the
number of calendar months which have elapsed since and including January, 1995
through the date of such death (rounded up to the nearest whole number) and the
denominator of which is 114. The portion of the option which does not become
exercisable pursuant to the preceding sentence shall be cancelled as of the date
of Optionee's death. If Optionee ceases to be employed by the Company by reason
of death on or after June 30, 2004, then the option shall be exercisable by the
executor, administrator, personal representative or beneficiary of Optionee
during the 90-day period commencing on the date of Optionee's death, but only
during the option term, with respect to all of the shares of common stock
subject to the option.
-8-
<PAGE>
(b) If Optionee ceases to be employed by the Company prior to December
31, 1998 for any reason other than death, the option shall be cancelled as of
the effective date of such cessation of employment. If Optionee ceases to be
employed by the Company on or after December 31, 1998 by reason of retirement on
or after age 65, retirement on or after age 55 with the consent of the Company
or total and permanent disability, then the option shall be exercisable by
Optionee during the five-year period commencing on the effective date of such
cessation of employment, but only during the option term, with respect to all of
the shares of common stock subject to the option if, on or prior to the
effective date of such cessation of employment, the option had become
exercisable with respect to all of the shares of common stock subject to the
option pursuant to any of subsections 1(c)(1)-(8). If Optionee ceases to be
employed by the Company on or after December 31, 1998 by reason of retirement on
or after age 65, retirement on or after 55 with the consent of the Company or
total and permanent disability and the option had not become exercisable on or
prior to the effective date of such cessation of employment pursuant to any of
subsections 1(c)(1)-(8), then the option shall become exercisable by Optionee,
during the five-year period commencing on the effective date of such cessation
of employment, but only during the option term, and only in accordance with
subsections 1(c)(2)-(8); provided, however, that the option may (in the case of
subsections 1(c)(2)-(6)) or shall (in the case of subsections 1(c)(7)-(8))
become exercisable during such five-year period only as to the number of shares
of common stock determined by multiplying the number of shares of common stock
subject to the First Premium Option, the Second Premium Option and the Third
Premium Option, respectively, by a fraction, the numerator of which is the
number of calendar months which have elapsed since and including January, 1995
-9-
<PAGE>
through the effective date of such cessation of employment (rounded up to the
nearest whole number) and the denominator of which is 114. The portion of the
option which may not become exercisable pursuant to the preceding sentence shall
be cancelled as of the effective date of such cessation of employment.
(c) If Optionee ceases to be employed by the Company for any reason
other than death, retirement on or after age 65, retirement on or after age 55
with the consent of the Company or total and permanent disability, then the
option shall be exercisable by Optionee during the 90-day period commencing on
the effective date of such cessation of employment, but only during the option
term, to the extent Optionee was entitled under Section 1(c) hereof to exercise
the option on the effective date of such cessation of employment. The portion
of the option which may not become exercisable pursuant to the preceding
sentence shall be cancelled as of the effective date of Optionee's cessation of
employment.
6. Neither the option nor any rights hereunder may be transferred
other than by will or the laws of descent and distribution. During Optionee's
lifetime the option is exercisable only by Optionee or Optionee's guardian,
personal representative or similar person. Any other transfer or any attempted
assignment, pledge or hypothecation, whether by operation of law or otherwise,
shall be void. The option is not subject to execution, attachment or other
process and no person shall be entitled to any rights hereunder by virtue of any
attempted execution, attachment or other process.
-10-
<PAGE>
7. In the event of the death of Optionee (a) during the five-year
period commencing on the effective date of Optionee's cessation of employment by
reason of retirement on or after age 65, retirement on or after age 55 with the
consent of the Company or total and permanent disability or (b) during the 90-
day period commencing on the effective date of Optionee's cessation of
employment for any other reason, the option may be exercised by the executor,
administrator, personal representative or beneficiary of Optionee during the 90-
day period commencing on the date of Optionee's death, but only during the
option term, to the extent Optionee was entitled to exercise the option on the
date of Optionee's death.
8. Upon the occurrence of any of the following events subsequent to
the option date, the option shall be adjusted as follows:
(a) Appropriate adjustments shall be made by the Committee
administering the Plan in the number of shares purchasable under
the option to give effect to any stock splits, stock dividends and
other relevant changes in capitalization.
(b) In case the Company shall effect a merger, consolidation or other
reorganization pursuant to which the outstanding shares of common
stock of the Company shall be exchanged for other shares,
securities or consideration of the Company or of another
corporation or entity a party to such merger, consolidation or
other reorganization, Optionee shall have the right to purchase,
at the aggregate option price provided for in this Agreement and
on the same terms and conditions, the kind and number of other
shares, securities or consideration of the Company or such other
corporation or entity which would have been issuable or payable to
Optionee in respect of the number of shares of common stock of the
Company which were subject to the option immediately prior to the
effective date of such merger, consolidation or other
reorganization had such shares then been owned by Optionee. The
Company agrees that it will make appropriate provisions for the
preservation of Optionee's option rights in any agreement or plan
which it enters into or adopts to effect any such merger,
consolidation or other reorganization.
-11-
<PAGE>
Any adjustment required as a result of the foregoing provisions of
this Section 8 shall be effected in such manner that the difference between the
aggregate fair market value of the other shares, securities or consideration
subject to the option immediately after giving effect to such adjustment and the
aggregate option price of such other shares, securities or consideration shall
be substantially equal to (but shall not be more than) the difference between
the aggregate fair market value of the shares subject to the option immediately
prior to such adjustment and the aggregate option price of such shares. Any
adjustments made under this Section shall be determined by the Committee
administering the Plan.
9. For purposes of this Agreement, employment by the Company shall be
deemed to include employment by a corporation which is a "parent corporation" or
a "subsidiary corporation" of the Company (as defined in Section 425 of the
Internal Revenue Code of 1986 (hereinafter called the "Code")), employment by
any corporation which succeeds to the obligations of the Company hereunder
pursuant to Section 8(b) hereof, and employment by a corporation which is a
"parent corporation" or a "subsidiary corporation" of any such corporation (as
defined in the above-mentioned section of the Code).
10. The option is subject to the condition that if the listing,
registration or qualification of the shares subject to the option on any
securities exchange or under any state or federal law, or if the assent or
approval of any regulatory body shall be necessary as a condition of, or in
connection with, the granting of the option or the delivery or purchase of
shares thereunder, the option may not be exercised in whole or in part unless
and until such
-12-
<PAGE>
listing, registration, qualification, consent or approval shall have been
effected or obtained. The Company agrees to use its best efforts to obtain any
such requisite listing, registration, qualification, consent or approval.
11. The Committee administering the Plan, as from time to time
constituted, shall have the right to determine any questions which arise in
connection with this Agreement or the option. This Agreement and the option are
subject to the provisions of the Plan and shall be interpreted in accordance
therewith.
12. This Agreement shall not be construed as an employment contract
and does not give the Optionee any right to continued employment by the Company,
and the fact that the termination of Optionee's employment occurs during the
option term shall in no way be construed as giving the Optionee the right to
continue in the Company's employ.
13. The option shall not be treated as an incentive stock option
within the meaning of Section 422 of the Code.
14. This Agreement shall be binding upon and shall inure to the
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Optionee, acquire any rights in the option.
-13-
<PAGE>
15. Any notice, including a notice of exercise of the option,
required to be given hereunder to the Company shall be addressed to the Company
at its office at 77 West Wacker Drive, Chicago, Illinois 60601-1696, attention
of the Vice President, Compensation and Benefits, and any notice required to be
given hereunder to Optionee shall be addressed to Optionee at Optionee's
residence address as shown in the Company's records, subject to the right of
either party hereafter to designate in writing to the other some other address.
Any such notice shall be deemed to have been duly given on the day that such
notice is received by the Vice President, Compensation and Benefits. Any such
notice shall be (i) delivered to the Vice President, Compensation and Benefits
by personal delivery, facsimile, United States mail or by express courier
service and (ii) deemed to be received upon personal delivery, upon confirmation
of receipt of facsimile transmission or upon receipt by the Vice President,
Compensation and Benefits if by United States mail or express courier service;
provided, however, that if any notice is not received during regular business
hours, it shall be deemed to be received on the next succeeding business day of
the Company.
-14-
<PAGE>
IN WITNESS WHEREOF, R. R. DONNELLEY & SONS COMPANY has caused this
instrument to be executed as of the day and year first above written.
R. R. DONNELLEY & SONS COMPANY
By
---------------------------
Name:
Title:
The terms and conditions of the
foregoing Stock Option Agreement
are hereby accepted by the
undersigned this _____ day of
__________________, 199_
- --------------------------------
Optionee
-15-
<PAGE>
Exhibit 10(g)
AMENDMENT TO
MEMORANDUM OF AGREEMENT AND UNDERSTANDING
Amendment made as of this 30th day of August, 1996 to that Memorandum of
Agreement and Understanding dated as of June 21, 1996 (the "Memorandum") by and
between Rory J. Cowan of Concord, MA ("Cowan"), on the one hand, and Stream
International Holdings, Inc., a Delaware corporation ("Stream") and R. R.
Donnelley & Sons Company, a Delaware corporation ("RRD"), on the other hand.
WHEREAS, Cowan, Stream and RRD entered into the Memorandum to set forth the
terms and conditions of the termination of Cowan's employment relationship with
each of Stream and RRD; and
WHEREAS, the parties believe it is necessary to make certain changes in the
Memorandum to more clearly reflect their intent;
NOW, THEREFORE, in consideration of the mutual promises and covenants of the
parties, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties have agreed and do hereby agree as
follows:
That page 2 of the Memorandum as attached to this Amendment shall replace
in its entirety page 2 of the Memorandum as originally executed, and that
page 2 as attached hereto shall be deemed to have been effective from and
after June 21, 1996, notwithstanding the later execution of this Amendment.
Except as reflected herein, all provisions of the Memorandum shall remain in
full force and effect.
Executed as of the date and year first written above.
Stream International Holdings, Inc.
/s/ Rory J. Cowan By: /s/ Cheryl A. Francis
- ----------------------- -------------------------------
Rory J. Cowan Cheryl A. Francis, Director
R. R. Donnelley & Sons Company
By: /s/ Ann E. Weiser
-------------------------------
Ann E. Weiser
Senior Vice President
<PAGE>
4,200 shares, respectively; and (iii) the lapse by time of restrictions
applicable to, or the possibility of forfeiture of, a grant of restricted
RRD Stock under an agreement dated December 12, 1991 between Cowan and RRD.
Notwithstanding his employment status, by execution hereof, Cowan resigns
from any and all officerships and board memberships he holds in both Stream
and RRD, as well as any officerships and board memberships he holds in any
entity the majority of the equity of which is owned by either of Stream or
RRD, either directly or indirectly.
(b) Salary, Benefits, etc.:
(i) Cowan shall be paid all accrued base salary, one-half the full bonus
which would be paid to Cowan for 1996 (to be calculated and paid at such
time in 1997 as bonuses are calculated and paid to other executives of
Stream), pension and other benefits, and accrued vacation and reimbursed
expenses due from Stream under the Agreement for the period ending June 30,
1996.
(ii) Thereafter, in lieu of any other payments of salary and bonus under
the Agreement or otherwise, Cowan shall be paid the amount of the "Minimum
Guaranteed Severance" provided for in Para. 4.7 of the Agreement for and
during the 18-month period July 1, 1996 through December 31, 1997
("Severance Period"). Subject to the prior agreement of Stream, Cowan may
elect to receive prepayment of the entire sum due under said Para. 4.7 for
the entire 18-month period, i.e., so much as remains unpaid at his time of
election (as hereinafter provided), discounted to the date of prepayment at
an annual discount rate equal to the interest rate of The Note (hereinafter
defined) of 7.34%. Cowan shall give Stream two weeks' written notice of
such election at any time during the 18-month period and Stream shall
provide notice of its agreement within one week of receiving such notice
from Cowan.
(iii) In addition to the foregoing, Cowan shall also receive the
following:
a.) Should Cowan elect to continue coverage under Stream's group
health plans from and after the Termination Date pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), then
for any such coverage provided for benefits provided under COBRA for
calendar year 1997, Stream shall either (i) reimburse Cowan for his
COBRA expenses, or (ii) pay Cowan's COBRA expenses directly.
b.) Stream shall reimburse Cowan for his expenses in securing office
and administrative support services in the Boston area for use during
the period beginning July 1, 1996 and ending June 30, 1997, up to a
maximum reimbursement amount of $20,000. Such expenses shall be
reimbursed on receipt of a copy of an invoice, with sufficient
supporting documentation, from Cowan.
c.) Cowan shall be deemed to have purchased from Stream and/or RRD,
all computer, facsimile, office supply and telephonic equipment
currently held by Cowan at his permanent residence, and he shall be
free to continue to use such
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,567
<SECURITIES> 0
<RECEIVABLES> 1,227,846
<ALLOWANCES> 25,097
<INVENTORY> 368,338
<CURRENT-ASSETS> 1,629,673
<PP&E> 4,233,454
<DEPRECIATION> 2,320,061
<TOTAL-ASSETS> 4,649,317
<CURRENT-LIABILITIES> 1,208,680
<BONDS> 1,314,358
<COMMON> 326,705
0
0
<OTHER-SE> 1,350,387
<TOTAL-LIABILITY-AND-EQUITY> 4,649,317
<SALES> 4,727,024
<TOTAL-REVENUES> 4,727,024
<CGS> 3,912,957
<TOTAL-COSTS> 3,912,957
<OTHER-EXPENSES> 1,081,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,614
<INCOME-PRETAX> (263,956)
<INCOME-TAX> (9,182)
<INCOME-CONTINUING> (254,774)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (254,774)
<EPS-PRIMARY> (1.66)
<EPS-DILUTED> (1.66)
</TABLE>
