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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
----------------------------- ----------------------------------------------
Common (Par Value $1.25) New York, Chicago and Pacific Stock Exchanges
Preferred Stock Purchase Rights New York, Chicago and Pacific Stock Exchanges
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.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
As of January 31, 2000, 122,348,993 shares of common stock were outstanding,
and the aggregate market value of the shares of common stock (based on the
closing price of these shares on the New York Stock Exchange--Composite Trans-
actions on January 31, 2000) held by nonaffiliates was $2,543,137,451.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement dated February 22,
2000, are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Form 10-K
Item No. Name of Item Page
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<C> <S> <C>
Part I
Item 1. Business................................................. 3
Item 2. Properties............................................... 6
Item 3. Legal Proceedings........................................ 6
Item 4. Submission of Matters to a Vote of Security Holders...... 7
Executive Officers and Other Principal Officers of R.R.
Donnelley & Sons Company................................ 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 10
Item 6. Selected Financial Data.................................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.................................................... 22
Item 8. Financial Statements and Supplementary Data.............. 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 22
Part III
Item 10. Directors and Executive Officers of the Registrant....... 22
Item 11. Executive Compensation................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 22
Item 13. Certain Relationships and Related Transactions........... 23
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................ 23
Signatures............................................... 24
Index to Financial Statements and Financial Statement
Item 14(a). Schedules............................................... F-1
Index to Exhibits........................................ E-1
</TABLE>
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PART I
ITEM 1. BUSINESS
Industry and Company Overview
R.R. Donnelley & Sons Company is a premier provider of commercial printing,
information services and logistics. We help our customers communicate more
efficiently and effectively as they use words and images to inform, educate,
entertain and sell. In each of our businesses, we use our distinctive
capabilities to manage and distribute words and images in ways that provide
the greatest value to every customer. Our common stock (NYSE:DNY) has been
publicly traded since 1956. Today, the company has approximately 34,000
employees on four continents. We have 55 manufacturing plants with a broad
range of capabilities to serve our customers' needs. While we have extended
our core competencies into selected international markets, 89% of our revenue
is currently generated in the United States.
Printing in the United States is a large and fragmented industry that
generates more than $150 billion in annual revenue. The commercial printing
portion of the industry generates more than $80 billion in annual revenue. The
commercial printing end-markets that we currently serve generate more than $40
billion in annual revenue.
We are first or second in annual revenue in all five of our primary end-
markets:
. Merchandise Media--serving the consumer and business-to-business catalog,
advertising insert and direct mail markets;
. Magazine Publishing Services--serving the consumer, trade and specialty
magazine markets;
. Telecommunications--serving the global directory needs of telecommunications
providers;
. Book Publishing Services--serving the trade, children's, religious,
professional and educational book markets; and
. Financial Services--serving the global communication needs of the financial
markets and mutual fund companies, as well as the banking, insurance and
health care industries.
Given the competitive nature of the U.S. commercial printing industry, our
intent is to differentiate ourselves based on our service offerings. Our
related services, designed to offer our customers complete solutions for
communicating their messages to a target audience regardless of the means of
distribution, include:
. Premedia--capturing content, converting it to the appropriate format and
channeling it to multiple communications media, including print and the
Internet;
. Online Services--helping customers effectively leverage the Internet and
their established brands by delivering content and commerce online; and
. R.R. Donnelley Logistics Services (Donnelley Logistics)--delivering printed
products, primarily via the U.S. Postal Service, more efficiently, saving
significant amounts of time and money.
While we believe print is a vital component of the communications process
and we expect the print market to grow given its unique capabilities, such as
portability and high-quality graphics that cannot be duplicated by other
communications methods, we see opportunities to create and expand
complementary businesses that leverage our core competencies and help our
customers succeed.
Our objective is to create above-average shareholder value through our
strategies to:
. transform our core printing businesses;
. speed growth in our high-value businesses; and
. logically extend into complementary businesses.
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The new business opportunities that we pursue will leverage our established
strengths and will further our goal of managing and distributing words and
images to help our customers succeed in informing, educating, entertaining and
selling.
Our distinctive capabilities include:
. relationships with customers who are the leaders in their respective
industries;
. a reputation for quality and service;
. standing as a trusted, neutral partner who recognizes the critical
importance of protecting the confidentiality of customer content;
. expertise in handling digital content;
. scale to partner with best-of-class providers and deliver economical
solutions for our customers; and
. technology to seamlessly help our customers communicate their messages
through various communications channels.
Geographically, our business is concentrated in the United States, where we
have 44 manufacturing plants that generated $4.6 billion in revenue in 1999.
In addition to our U.S. facilities, we operate 11 plants in Mexico, South
America, Europe and China. Our international strategy is to create value for
our stakeholders by extending our core competencies into new geographic
markets that have a need for high-quality print and related services, with no
local solution. These markets tend to be emerging, with favorable demographic
trends such as rising education levels and increasing disposable income.
International operations represented 11%, 9% and 8% of consolidated net
sales, 7%, 6% and 2% of earnings from operations and 16%, 15% and 13% of
consolidated assets in 1999, 1998 and 1997, respectively.
For reporting purposes, revenues from our facilities in China and England
serving primarily the directory market are reported within Telecommunications.
Revenues from our two Mexico facilities that serve primarily the magazine
market are reported within Magazine Publishing Services. Our third Mexico
facility serves the book market and is reported within Book Publishing
Services. Revenues from other international facilities in Poland and South
America serving more than one market are included in "Other." The "Other"
classification also includes net sales from Donnelley Logistics, our logistics
and distribution operation. Donnelley Logistics serves our print customers and
other mailers by consolidating and transporting mail so that it is delivered
to the U.S. Postal Service closer to the final destination, resulting in
reduced postage costs and improved delivery performance. Finally, revenue from
Stream International, Inc. (Stream International), which provides technical
and help-line computer support to its customers, is included in "Other,"
through its disposition date of November 23, 1999 (see the "Divestitures"
section on page 15 for additional details). For reporting purposes, premedia
revenue is reflected in each of the markets for which services are performed.
Online Services revenue is reported within Merchandise Media.
While our manufacturing plants, financial service centers and sales offices
are located throughout the United States and selected international markets,
the supporting technologies and knowledge base are common. Our locations have
a range of production capabilities to serve our customers and end-markets. We
manufacture products with the operational goal of optimizing the efficiency of
the common manufacturing and distribution platform. As a result, most plants
produce work for customers in two or three of our end-markets.
Commercial printing remains a competitive industry. Consolidation among our
customers and in the printing industry has put pressure on prices and
increased competition among printers. We expect these industry trends to
continue. We will perform in this environment by leveraging our market-leading
position, generating continued productivity improvements and enhancing the
value we deliver to our customers by offering them products and services that
improve their effectiveness and reduce their total delivered cost. While we
have contracts with many of our customers as discussed below, there are many
competing companies and renewal of these contracts is
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dependent, in part, on our ability to continue to differentiate ourself from
the competition. While our manufacturing facilities are well located for the
global, national or regional distribution of our products, competitors in some
areas of the United States have a competitive advantage in some instances due
to such factors as freight rates, wage scales and customer preference for
local services. In addition to location, other important competitive factors
are price and quality, as well as the range of available services.
Approximately 70% of our sales are under contracts with customers, with the
remainder on a single-order basis. For some customers, we print and provide
related services for different publications under different contracts.
Contracts with our larger customers normally run for a period of years
(usually three to five years, but longer in the case of contracts requiring
significant capital investment) or for an indefinite period subject to
termination on specified notice by either party. These sales contracts
generally provide for price adjustments to reflect price changes for
materials, wages and utilities. No single customer has a relationship with the
company that accounted for 10% or more of our sales in 1999.
The primary raw materials we use are paper and ink. In 1999, we spent
approximately $1.9 billion on raw materials. We are a large purchaser of paper
and our focus is to improve materials performance and total cost management
for our customers, which we believe is a competitive advantage. We negotiate
with leading suppliers to maximize our purchasing efficiencies, but we do not
rely on any one supplier. We have existing paper supply contracts (at
prevailing market prices) to cover substantially all of our requirements
through 2000, and management believes extensions and renewals of these
purchase contracts will provide adequate paper supplies in the future. Ink and
ink materials are currently available in sufficient amounts, and we believe
that we will have adequate supplies in the future. We also coordinate
purchasing activity at the local plant and corporate levels to increase
economies of scale.
Our overriding principles in the environmental arena are to create
sustainable compliance and an injury-free workplace. Our estimated capital
expenditures for environmental controls to comply with federal, state and
local provisions, as well as expenditures, if any, for our share of costs to
clean hazardous waste sites that have received our waste, will not have a
material effect upon our earnings or our competitive position.
As of December 31, 1999, we had approximately 34,000 employees, of whom more
than 7,200 had been our employees for 10 to 24 years and more than 2,600 for
25 years or longer. As of December 31, 1999, we employed approximately 28,400
people in the United States, approximately 1,025, or 4%, of whom were covered
by collective bargaining agreements. In addition, we employed approximately
5,400 people in our international operations, 24% of whom were covered by
collective bargaining agreements.
We made five strategic acquisitions in 1999 consistent with our strategy to
speed growth in our high-value businesses. In March, we purchased Cadmus
Financial, a financial printer in Charlotte, North Carolina. In April, we
purchased the Communicolor division of the Standard Register Company, a
provider of personalization services and printer of innovative direct-mail
campaigns with two plants located in Hebron, Ohio and Eudora, Kansas. In May,
we purchased Hamburg Grafica Editora, a Brazilian book printer. In July, we
purchased Freight Systems, Inc., a California-based transportation company. In
December, we purchased Penton Press, a short-run magazine printing facility in
Berea, Ohio. In addition to these acquisitions, we acquired a 30% interest in
MultiMedia Live, an Internet Web site design firm, and increased our ownership
position in Editorial Lord Cochrane S.A. (Cochrane), the largest printer in
Chile, to 99% from 78%. Cochrane also increased its ownership interest in
Atlantida Cochrane (located in Argentina) from 50% to 100%. See discussion on
page 17 for more information.
We made two small strategic acquisitions in 1998. In October, we purchased
Ediciones Eclipse S.A. de C.V., a Mexico City-based printer of retail inserts.
In December, we purchased GTE's St. Petersburg, Florida, directory-printing
plant. In addition, we increased our investment in two other international
operations. In July, we purchased additional outstanding shares of Cochrane to
increase our ownership position to 78% from 55%. In November, we purchased the
interests of our partner in our Poland operation, the Polish-American Printing
Company, to take 100% ownership.
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During the fourth quarter of 1999, we divested our interest in Modus Media
International (MMI), Stream International and Corporate Software & Technology
Holdings, Inc. (CS&T). In October 1999, we sold our investment in MMI for a
total of approximately $60 million ($47 million in cash and a $13 million
promissory note). In November 1999, we sold 93% of our investment in the
common stock of Stream International to a group led by Bain Capital for
approximately $96 million in cash. Also, in November 1999, we sold our entire
interest in CS&T to the management of CS&T for cash proceeds of approximately
$41 million.
In April 1998, we sold our remaining interest in Metromail Corporation for
$297 million in cash. In July 1998, we sold our remaining interest in
Donnelley Enterprise Solutions Incorporated (DESI) for $45 million in cash.
Special Note Regarding Forward-Looking Statements. Our Annual Report to
Shareholders and this Form 10-K are among certain communications that contain
forward-looking statements, including statements regarding our financial
position, results of operations, market position, product development and
regulatory matters. When used in such communications, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are based on our
estimates, assumptions, projections and current expectations and are subject
to a number of risks and uncertainties. Actual results in the future could
differ materially from those described in the forward-looking statements as a
result of many factors outside our control, including competition with other
printers based on pricing and other factors, fluctuations in the cost of paper
and other raw materials we use, changes in postal rates and postal
regulations, seasonal fluctuations in overall demand for printing, changes in
customer demand, changes in the advertising and printing markets, changes in
the capital markets that affect demand for commercial printing, the financial
condition of our customers, the general condition of the United States
economy, changes in the rules and regulations to which we are subject,
including environmental regulation, and other factors set forth in this Form
10-K and other company communications generally. We do not undertake and
specifically decline any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
ITEM 2. PROPERTIES
Our corporate office is located in a leased office building in Chicago,
Illinois. In addition, we lease or own 58 U.S. facilities, which may have
multiple buildings and warehouses. These facilities encompass approximately
18.3 million square feet. We have 11 plants encompassing approximately 1.6
million square feet in South America, Mexico, Europe and Asia. Of the total
manufacturing and warehouse facilities, approximately 18.0 million square feet
of space is owned, while the remaining 1.9 million square feet of space is
leased. In addition, we have sales offices across the United States, South
America, Mexico, Europe and Asia.
ITEM 3. LEGAL PROCEEDINGS
In November 1996, a purported class action was brought against the company
in federal district court in Chicago, Illinois, on behalf of current and
former African-American employees, alleging that the company racially
discriminated against them. The complaint seeks declaratory and injunctive
relief, and asks for actual, compensatory, consequential and punitive damages
in an amount not less than $500 million. Although the plaintiffs seek
nationwide class certification, most of the specific factual assertions of the
complaint relate to the closing of our Chicago catalog operations in 1993.
Other general claims relate to other company locations. In August 1999, the
district court denied our motion for partial summary judgment on the basis of
timeliness.
In December 1995, a purported class action was filed against the company in
federal district court in Chicago, alleging that older workers were
discriminated against in selection for termination upon closing of the Chicago
catalog operations. The suit also alleges that we violated the Employee
Retirement Income Security Act (ERISA) in determining benefits payable to
retiring or terminating employees. In August 1997, the court certified classes
in each of the age discrimination and ERISA claims limited to former employees
of the Chicago operation.
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In June 1998, a purported class action was filed against the company in
federal district court in Chicago on behalf of current and former African-
American employees, alleging that the company racially discriminated against
them. While making many of the same general discrimination claims contained in
the 1996 case, the plaintiffs in this case also claim retaliation by the
company for filing discrimination charges or otherwise complaining of race
discrimination. The complaint seeks the same relief and damages as sought in
the 1996 case.
The 1996 and 1995 cases relate primarily to the circumstances surrounding
the closing of the Chicago catalog operations. The company believes that it
acted properly in the closing of the operations. The company also believes
that it has a number of valid defenses to all of the claims made in all three
cases and it will vigorously defend its actions. However, because the cases
are in the preliminary stages, management cannot make a meaningful estimate of
any loss that could result from an unfavorable outcome of any of the pending
cases.
In December 1999, the U.S. Environmental Protection Agency, Region 5 (U.S.
EPA) issued a Notice of Violation against the company, pursuant to Section 113
of the Clean Air Act (the Act). The notice alleges that the company's facility
in Willard, Ohio, violated the Act and Ohio's State Implementation Plan in
installing and operating certain equipment without appropriate air permits.
While the notice does not specify the remedy sought, upon final determination
of a violation, U.S. EPA may issue an administrative order requiring the
installation of air pollution control equipment, assess penalties, or commence
civil or criminal action against the company. The company responded to U.S.
EPA on March 10, 2000. The company does not believe that any unfavorable
result of this proceeding will have a material impact on the company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1999.
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EXECUTIVE OFFICERS AND OTHER PRINCIPAL OFFICERS OF R.R. DONNELLEY & SONS
COMPANY
<TABLE>
<S> <C> <C>
Name, Age and Officer Business Experience During
Positions with the Company(1) Since Past Five Years(2)
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Haven E. Cockerham, 1998 Management responsibilities for Compensation;
52, Senior Vice President, Benefits; Employee Relations, Diversity and
Human Resources Corporate Human Resources; Recruiting; and
Management and Organizational Development. Prior
experience as Vice President, Human Resources, at
Detroit Edison Company, a provider of electrical
utilities, from May 1994 until March 1998, and as
President, Cockerham, McCain & Associates, Inc., a
provider of management consulting services, from
October 1991 until August 1994.
William L. Davis 1997 Management responsibilities as Chairman of the
56, Chairman of the Board and Chief Executive Officer. Prior experience
Board and Chief as Senior Executive Vice President at Emerson
Executive Officer(1) Electric Company, manufacturer of electrical,
electronic and related products, from January 1993
until March 1997.
James R. Donnelley 1983 Management responsibilities as Vice Chairman of the
64, Director, Vice Board and for Corporate Communication, Community
Chairman of the Board Relations and Government Affairs. Prior management
responsibility for Corporate Development.
Monica M. Fohrman 1988 Management responsibilities for Legal Department
50, Senior Vice President, and Secretary's Office.
General Counsel and Secretary(1)
Cheryl A. Francis 1995 Management responsibilities for Corporate
46, Executive Vice President Development, Investor Relations, Treasury,
and Chief Financial Officer(1)(3) Financial Reporting and Accounting, Real Estate,
Internal Audit and Taxes. Prior management
responsibilities for Purchasing. Prior experience
as Treasurer at FMC Corporation, a diversified
manufacturer of chemicals and machinery from 1993
until September 1995.
Gary L. Sutula, 1997 Management responsibilities for Technology Planning
55, Senior Vice President and Operations and Applications Solutions Delivery.
and Chief Information Officer Prior experience as Senior Vice President and Chief
Information Officer at Transamerica Financial
Services, a provider of international consumer
lending services, from June 1994 until November
1997.
Jonathan P. Ward 1985 Management responsibilities for Commercial Print
45, President and Operations, including Worldwide Procurement and
Chief Operating Officer(1) Paper Services, Merchandise Media, Magazine
Publishing Services, Telecommunications, Financial
Services, Book Publishing Services, R.R. Donnelley
Logistics Services, RRD Direct, Premedia
Technologies, Specialized Publishing Services and
International Operations. Prior sales and
manufacturing responsibility for Merchandise Media
and Financial Services.
</TABLE>
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<TABLE>
<S> <C> <C>
Name, Age and
Positions with the Officer Business Experience During
Company(1) Since Past Five Years(2)
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Michael W. Winkel 1999 Management responsibilities for Strategy Planning,
54, Executive R.R. Donnelley Online Services and new e-business
Vice President, opportunities. Prior experience as Corporate Vice
Strategy(1) President responsible for corporate planning and
global operations, and Senior Vice President of the
Chemicals Group responsible for operations at
Monsanto Company, a diversified manufacturer of
chemicals, pharmaceuticals and agricultural
products, from 1993 until March 1999.
Gregory A. Stoklosa, 1993 Management responsibilities for Financial
44; Vice President and Reporting; International Finance; Finance Process
Controller(3) Control; Financial Strategy and Analysis; Financial
Planning and Analysis; and Shared Services Center.
Prior management responsibility for Treasury.
</TABLE>
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(1) Executive officer of the Company.
(2) Each officer named has carried on his or her principal occupation and
employment in the company for more than five years with the exception of
Haven E. Cockerham, William L. Davis, Gary L. Sutula and Michael W. Winkel
as noted in the table above.
(3) Mr. Stoklosa will assume responsibility as Acting Chief Financial Officer
in conjunction with the resignation of Ms. Francis effective April 1,
2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock is listed and traded on the New York Stock Exchange,
Chicago Stock Exchange and Pacific Exchange, Inc.
As of January 27, 2000, there were 10,155 stockholders of record.
Information about the quarterly prices of the common stock, as reported on the
New York Stock Exchange-Composite Transactions, and dividends paid during the
two years ended December 31, 1999, is contained in the chart below:
<TABLE>
<CAPTION>
Common Stock Prices
---------------------------------------
Dividends
Paid 1999 1998
----------- ------------------- -------------------
1999 1998 High Low High Low
----- ----- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter............... $0.21 $0.20 $43 13/16 $32 1/8 $42 1/8 $35 1/8
Second Quarter.............. 0.21 0.20 37 15/16 31 3/8 46 1/4 42 1/16
Third Quarter............... 0.22 0.21 36 15/16 27 3/4 47 3/4 34 13/16
Fourth Quarter.............. 0.22 0.21 30 1/4 22 13/16 44 11/16 34
Full Year................... 0.86 0.82 43 13/16 22 13/16 47 3/4 34
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Not Covered by Auditors' Report)
(Thousands of dollars, except per-share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $5,183,408 $5,018,436 $4,892,944 $5,063,821 $5,080,775
Income (loss) from
continuing operations.. 311,515 374,647 206,525 (71,483) 275,952
Loss on disposal of
discontinued
operations............. -- -- (60,000) -- --
(Loss) income from
discontinued
operations............. (3,201) (80,067) (15,894) (86,142) 22,841
Net income (loss)*...... 308,314 294,580 130,631 (157,625) 298,793
Net income (loss) per
diluted common share*.. 2.38 2.08 0.89 (1.04) 1.92
Total assets............ 3,853,464 3,798,117 4,134,166 4,443,828 5,030,680
Noncurrent liabilities.. 1,511,743 1,447,852 1,730,047 2,044,818 2,012,635
Cash dividends per
common share........... 0.86 0.82 0.78 0.74 0.68
</TABLE>
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* Net income (loss) includes the following one-time items: 1999 gains on the
sale of businesses and investments ($27 million after-tax, or $0.20 per
diluted share); 1998 gains on the sale of the company's remaining interests
in two former subsidiaries of $169 million ($101 million after-tax, or
$0.71 per diluted share); 1997 restructuring and impairment charges of $71
million ($42 million after-tax, or $0.29 per diluted share); 1996
restructuring and impairment charges of $442 million ($374 million after
taxes and minority interest, or $2.45 per diluted share), and gains on
partial divestitures of subsidiaries of $80 million ($48 million after-tax,
or $0.31 per diluted share).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results
Highlights--Excluding the one-time items detailed below, 1999 net income from
continuing operations rose to $285 million, or $2.20 per diluted share, from
$273 million, or $1.93 per diluted share, a year ago. The improved results
reflect the benefits of our productivity initiatives as well as share
repurchases supported by our strong cash flows.
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One-Time Items In 1999, net income from continuing operations included:
. a gain on the sale of 93% of our interest in Stream International ($40
million pretax and $75 million after-tax due to tax benefits from
associated tax loss carrybacks);
. a gain on the sale of our interest in MMI ($3 million both pretax and
after-tax); and
. a provision for income taxes related to corporate-owned life insurance
($51 million) (see "Corporate-Owned Life Insurance" section on page 15
for additional details).
In 1998, net income from continuing operations included:
. a gain on the sale of our remaining interest in Metromail ($146 million
pretax and $87 million after-tax); and
. a gain on the sale of our remaining interest in DESI ($23 million pretax
and $14 million after-tax).
In 1997, net income from continuing operations included:
. an impairment and restructuring charge ($71 million pretax and $42
million after-tax).
Discontinued Operations In 1999, reported net income included:
. a loss from discontinued operations ($5 million pretax and $3 million
after-tax).
In 1998, reported net income included:
. a loss from discontinued operations of $80 million (with no associated
tax benefit), reflecting an impairment charge to write down the goodwill
of CS&T.
In 1997, reported net income included:
. a loss on disposal of discontinued operations to adjust the carrying
values of CS&T and MMI ($100 million pretax and $60 million net of income
tax benefit); and
. a loss from discontinued operations ($14 million pretax and $16 million
after-tax).
Including the one-time items and discontinued operations detailed above, in
1999 we earned $308 million in net income compared with $295 million in 1998.
Excluding all one-time items, the $100 million earned from continuing
operations in the fourth quarter of 1999 compared with $92 million in the same
period of 1998, and on a diluted per-share basis, $0.80 in the fourth quarter
of 1999 compared with $0.67 in the fourth quarter of 1998. Including fourth-
quarter one-time items and discontinued operations, reported net income of
$126 million in 1999 compared with $92 million of net income in the fourth
quarter of 1998.
In 1997, reported net income of $131 million was reduced by $118 million of
one-time items and losses related to discontinued operations as detailed
above. Excluding these amounts, 1997 net income was $249 million, or $1.69 per
diluted share.
An after-tax earnings summary is presented below:
<TABLE>
<CAPTION>
Full Year Results Per Diluted Share
---------------------------- ----------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
In Thousands
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before one-
time items.............. $285,171 $273,305 $248,946 $ 2.20 $ 1.93 $ 1.69
Restructuring and
impairment charges...... -- -- (42,421) -- -- (0.29)
Gain on sale of
businesses and
investments............. 77,532 101,342 -- 0.60 0.71 --
COLI tax provision....... (51,188) -- -- (0.40) -- --
-------- -------- -------- ------ ------ ------
Income from continuing
operations.............. $311,515 $374,647 $206,525 $ 2.40 $ 2.64 $ 1.40
Loss from discontinued
operations.............. (3,201) (80,067) (75,894) (0.02) (0.56) (0.51)
-------- -------- -------- ------ ------ ------
Net income............... $308,314 $294,580 $130,631 $ 2.38 $ 2.08 $ 0.89
======== ======== ======== ====== ====== ======
</TABLE>
11
<PAGE>
Revenue and Value-Added Revenue
Net sales in 1999 were $5.2 billion, up 3% from 1998's net sales of $5.0
billion. Value-added revenue, or net sales less the cost of materials
(primarily paper and ink), was $3.3 billion, up 7% from 1998. Because paper
prices as well as the amount of paper we purchase on behalf of our customers
affect our revenue, value-added revenue is a better indicator of our growth.
Because the price of paper can be volatile, in periods of rising prices the
company's revenues and costs for materials increase; in periods of falling
prices, revenues and material costs decline. While we do not assume the risk
for fluctuations in paper prices, our revenues are affected from year to year
by changes in paper prices. In 1999, the price of paper for grades employed in
our Magazine Publishing Services and Merchandise Media markets declined
approximately 8% from prior year levels due to oversupply and price
competition.
We purchase or customers supply paper used in the printing process.
Customer-supplied paper is reflected neither in our revenues nor our cost of
materials. If we purchase paper for a customer, we recover the cost as a pass-
through cost, at a margin that is lower than the margin we earn for printing
and related services. In 1999, we continued our focus on controlling the
quality of paper used in the manufacturing process through our Paper Services
organization, which is setting industry standards for paper specifications. We
are working with customers to ensure that all paper, regardless of whether it
is customer-supplied or purchased by us, meets our performance specifications.
Ideally, we would like to select the source and manage the delivery process
for all paper so that we can control the quality of the paper, optimize the
manufacturing process and minimize the amount of working capital tied up in
production. In some cases where we do not have input on the source or control
over the inventory, we have encouraged customers to buy materials directly
rather than through us. In these instances, neither the sales nor expense are
reflected in our financials. Because of these factors with respect to paper
prices and paper sales, which primarily affect Merchandise Media and Magazine
Publishing Services, value-added revenue is a better indicator of growth.
Volume in most of our end-markets was higher than a year ago. During 1999 we
benefited from strong magazine advertising; high consumer confidence, which
created more demand for catalogs and advertising inserts; and strong capital
markets. Independent directory publishers also generated additional titles in
1999. The book market had increased demand as the industry successfully worked
through some of its inventory management issues. Acquisitions and investments
made during the year contributed 40% of the growth in value-added revenue from
1998 (see "Investments" section on page 17 for additional details).
Favorable factors were offset partially by tight labor conditions in the
United States, which affected productivity through turnover, and poor economic
conditions in much of South America. While our operations in South America
remain profitable, financial results are down from a year ago. The trends
toward targeting and versioning in many of our end-markets accelerated and
resulted in increased complexity in the manufacturing process. We are
continuing to upgrade our equipment to be more flexible, while we
simultaneously work with customers to redesign products for manufacturing
efficiencies and ensure adequate compensation for our services. While our
productivity initiatives continue to generate improved results, the rate of
improvement is expected to slow as future initiatives require more initial
investment.
Net sales in 1998 were $5.0 billion, up 3% from 1997's net sales of $4.9
billion. Value-added revenue was $3.1 billion, up 4% from 1997.
Most of our end markets had higher volume in 1998 as compared with 1997.
During most of 1998, we benefited from strong magazine advertising; higher
demand for catalogs and retail inserts; and strong capital markets. Also, a
directory customer moved production from late 1997 into early 1998. These
favorable factors were partially offset by lower book sales as the industry
continued to work through inventory management issues caused by publishers
overstocking quantities in 1997. Pricing pressure continued in many of our
markets, but to a lesser degree than in past years as we continued to
differentiate our services.
In addition to the growth in 1998 sales, the composition of revenue was also
more favorable. Compared with 1997, fewer pass-through sales, or sales of
materials and services purchased on our customers' behalf,
12
<PAGE>
reduced revenue in 1998 but enhanced margins. We also reduced the amount of
paper purchased on behalf of customers in selected cases where the markup
recovered on the paper did not cover our associated costs.
The following table shows the trends in net sales by end-market and
consolidated value-added revenue:
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
----------- ------ ----------- ------ -----------
In Thousands
<S> <C> <C> <C> <C> <C>
Merchandise Media........ $ 1,255,054 (1.2)% $ 1,269,789 1.2% $ 1,254,918
Magazine Publishing
Services................ 1,166,551 (1.8) 1,187,403 3.9 1,142,818
Telecommunications....... 865,682 5.3 822,095 5.8 776,746
Book Publishing Services. 775,262 3.8 746,987 (7.5) 807,392
Financial Services....... 639,935 19.4 536,101 8.4 494,547
Other*................... 480,924 5.5 456,061 9.5 416,523
----------- ---- ----------- ---- -----------
Total net sales.......... $ 5,183,408 3.3% $ 5,018,436 2.6% $ 4,892,944
Cost of materials........ (1,888,764) (1,929,991) (1,917,977)
----------- ---- ----------- ---- -----------
Total Value-Added
Revenue................. $ 3,294,644 6.7% $ 3,088,445 3.8% $ 2,974,967
=========== ==== =========== ==== ===========
</TABLE>
- --------
* Other includes Stream International through its disposition, Donnelley
Logistics and international revenue from Poland and South America.
Expenses
Our cost of materials of $1.9 billion in 1999 declined as a percentage of
net sales to 36.4% from 38.5% in 1998. This reflects our focus on delivering
higher value-added products and services. The reduced paper prices and paper
sales in 1999, discussed on page 12, also were contributing factors.
In 1998, our cost of materials of $1.9 billion declined as a percentage of
net sales to 38.5% from 39.2% in 1997. This reflected our focus on the
composition of revenue as discussed on page 12.
Gross profit in 1999 and 1998 grew by $101 million and $107 million,
respectively. The 10% increase in 1999 and the 11% increase in 1998 came from
our focus on productivity initiatives as discussed below, as well as higher
volume. Gross profit as a percentage of net sales improved to 22.4% in 1999
compared with 21.1% in 1998 and 19.4% in 1997.
Selling and administrative expense increased by 10% to $629 million in 1999,
compared with the prior year. In addition to volume-related increases, our
consolidated results included some acquisitions (see "Investments" section on
page 17 for more details) that carried higher selling and administrative
expense ratios. A higher mix of service-oriented businesses, such as Financial
Services, that have higher operating margins in addition to higher selling and
administrative expenses also was a factor. Our investments to build new
businesses, such as Online Services and digital content services, increased
our selling and administrative expense ratios. In addition, we continued to
build corporate capabilities in areas such as marketing, procurement and
manufacturing productivity through Six Sigma and Process Variability
Reduction. We also continued to invest to standardize and enhance our
technology and systems capabilities to improve our connectivity internally and
with our customers and markets. The ratio of selling and administrative
expense to net sales was 12.1% in 1999 compared with 11.4% in 1998. We were
able to deliver improved operating margins while investing for future growth.
Selling and administrative expense increased by 11% to $570 million in 1998
compared with 1997. In addition to volume-related increases and higher
consolidated Stream International expenses, most of the increase was related
to information systems-related expenditures. The ratio of selling and
administrative expense to net sales was 11.4% in 1998 compared with 10.4% in
1997.
13
<PAGE>
Earnings from operations increased by $42 million, or 9%, from a year
earlier to reach $530 million in 1999. Operating margins were 10.2% in 1999
compared with 9.7% in 1998.
In 1998, earnings from operations increased by $49 million, or 11%, from
1997 (excluding the 1997 restructuring and impairment charge) to reach $488
million. The increase reflected the company's focus on productivity in our
core business. Operating margins were 9.7% in 1998 compared with 9.0% in 1997.
A summary analysis of expense trends is presented below:
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
---------- ------ ---------- ------ ----------
In Thousands
<S> <C> <C> <C> <C> <C>
Cost of materials.............. $1,888,764 (2.1)% $1,929,991 0.6% $1,917,977
Cost of manufacturing.......... 1,761,255 6.5 1,654,177 0.1 1,653,251
Depreciation................... 323,009 0.1 322,680 0.9 319,730
Amortization................... 51,373 (3.8) 53,391 3.9 51,381
Selling and administrative..... 628,580 10.3 569,779 11.5 511,115
Net interest expense........... 88,164 12.8% 78,166 (13.9)% 90,765
</TABLE>
Non-Operating Items
Net interest expense for 1999 increased 13% to $88 million due to higher
average debt balances associated with acquisitions and share repurchase
programs. In 1998, net interest expense declined 14% from 1997, reflecting
lower average interest rates and lower average debt balances due to
improvements in balance sheet management.
Other income for 1999 increased to $21 million from $10 million in 1998. The
increase was related primarily to lower corporate-owned life insurance expense
due to plan experience (see "COLI" discussion on page 15), and lower minority
interest expense as we increased our ownership percentage in two majority-
owned subsidiaries. Other income for 1998 decreased to $10 million from $26
million in 1997, due to non-recurring 1997 gains on the sale of investments in
our venture-capital portfolio.
Events Affecting Comparability
Restructuring/Impairment Charges for Continuing Operations--In December
1997, we announced a $71 million ($42 million after-tax) restructuring and
impairment charge to cover, in large part, the discontinuation of activities
no longer aligned with our strategic focus, including:
. the sale of our Coris content-management software operation;
. the shut-down of our Crawfordsville, Indiana, book fulfillment operations;
. the closing of a development office in Singapore; and
. the termination of development of certain manufacturing information systems.
As of December 31, 1998, we had substantially completed our restructuring
programs.
Restructuring/Impairment Charges for Discontinued Operations--In the second
quarter of 1998, we recorded an $80 million (with no associated tax benefit)
impairment charge related to the write-down of goodwill on the books of CS&T
remaining from the 1995 transaction that created Stream International
Holdings.
In the fourth quarter of 1997, we recognized a $100 million ($60 million
after-tax) provision to adjust the carrying costs of CS&T and MMI to their
estimated net realizable values.
14
<PAGE>
The following summarizes information about restructuring and impairment
charges after taxes and minority benefit:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
In Thousands
<S> <C> <C> <C>
Restructuring charges for continuing operations....... $ -- $ -- $ 42,421
Restructuring charges for discontinued operations..... -- 80,067 60,000
-------- ------- --------
Total restructuring charges....................... $ -- $80,067 $102,421
======== ======= ========
</TABLE>
Divestitures
Stream, CS&T and MMI--Consistent with our previously stated intent, we
divested our interest in CS&T and MMI in the fourth quarter of 1999. We also
sold 93% of our interest in Stream International. The three transactions
resulted in a pretax accounting gain of $43 million. Net cash proceeds from
the dispositions totaled $176 million and were used to pay down debt and for
other corporate purposes.
For reporting purposes, Stream International was consolidated in our
financial results until the transaction closed on November 23, 1999. CS&T's
net (loss) income was reported as discontinued operations through the
disposition date of November 12, 1999. MMI's net (loss) income was reported as
discontinued operations through December 15, 1997, when our interest was
restructured to non-voting preferred stock. We now have a 6% investment in
Stream International, representing the remaining 7% of our original 87%
interest, that has been reflected in other noncurrent assets.
For comparability purposes, summary income statement results for Stream
International based on our 87% ownership interest are shown in the table
below:
<TABLE>
<CAPTION>
1999* 1998 1997
-------- -------- --------
In Thousands
<S> <C> <C> <C>
Net sales.......................................... $212,387 $213,612 $186,846
Value-added revenue................................ 212,387 213,612 186,846
Gross profit....................................... 64,434 56,172 53,210
Selling and administrative expense................. 57,448 56,292 45,874
Earnings (loss) from operations.................... 6,986 (1,673) 7,336
</TABLE>
- --------
* Results are through disposition date of November 23, 1999.
Metromail Metromail, which had been wholly owned by us, completed an initial
public offering of its common stock in June 1996, reducing our interest to
approximately 38%. In March 1998, Metromail entered into a merger agreement
with The Great Universal Stores, P.L.C., and in April 1998, we received
approximately $297 million, or $238 million after-tax, for our remaining
interest in Metromail.
Donnelley Enterprise Solutions DESI, which had been wholly owned by us,
completed an initial public offering of its common stock in November 1996,
reducing our interest to approximately 43%. In May 1998, DESI entered into a
merger agreement with Bowne & Co., Inc., and in July 1998 we received
approximately $45 million, or $36 million after-tax, for our remaining
interest in DESI.
We used proceeds from the Metromail and DESI transactions to repurchase
shares (see "Share Repurchase" discussion on page 16).
Corporate-Owned Life Insurance (COLI) and Effective Tax Rate
We have used COLI to fund employee benefits for several years. In 1996, the
United States Health Care Reform Act was passed, eliminating the deduction for
interest from loans borrowed against COLI programs. Without the COLI
deduction, which was phased out after 1998, our effective tax rate (excluding
one-time items) increased from 35.0% in 1998 to 38.5% in 1999.
15
<PAGE>
The Internal Revenue Service (IRS), in its routine audit of the company, has
disallowed the $34 million COLI interest deductions we claimed in our 1990
through 1992 tax returns. We have challenged this position in a formal protest
filed with the IRS Appeals division. Litigation involving other taxpayers also
is pending. In October 1999, in a case involving a different company, the U.S.
Tax Court disallowed deductions for loans against that taxpayer's COLI
program. Should this position be upheld and applied to others, we could lose
an additional maximum of $152 million in tax benefits for the period from 1993
to 1998. Interest on these amounts also may be due and our exposure for
interest, should all prior COLI deductions be disallowed, is approximately $51
million after-tax through December 31, 1999. We believe our circumstances
differ from those involved in the recent Tax Court decision. During the fourth
quarter of 1999, however, we recorded an additional tax provision of $51
million ($0.40 per diluted share) related to COLI. We will continue to examine
our position with respect to the Tax Court opinion and resolution of other
pending cases. The ultimate resolution of these issues may take several years
and may have a material impact on our results of operations and financial
condition.
Share Repurchase
In 1999, we purchased 11.8 million shares of our stock for approximately
$379 million in open-market transactions. These repurchases were part of two
share repurchase programs undertaken in 1999. In September 1998, the Board of
Directors supplemented an earlier repurchase program with authorization to
purchase shares with a value up to an additional $300 million. This program
was under way at the beginning of 1999 and continued through mid-year. In
September 1999, a new repurchase program of $300 million was announced and
includes shares we ordinarily purchase for issuance under our various stock
plans. This program extends through September 2000, but may be completed
sooner depending on the market price of our stock. The recent weakness in our
stock price led us to accelerate our repurchase activity in the fourth quarter
of 1999. During first quarter 2000, we have slowed our share repurchase
activity as a result of increased acquisition activity, primarily the closing
of the purchase of CTC Distribution Direct (see discussion on page 18). The
number of diluted shares outstanding as of December 31, 1999, was 123 million,
while the full-year average number of diluted shares outstanding was 130
million.
In 1998, we purchased 13.2 million shares of our stock for approximately
$544 million. The number of diluted shares outstanding as of December 31, 1998
was 137 million, while the full-year average number of diluted shares
outstanding was 142 million. In 1997, we purchased approximately 2.3 million
shares to issue under various stock plans. The number of diluted shares
outstanding as of December 31, 1997, was 147 million, while the full-year
average number of diluted shares outstanding was similar. Since our first
repurchase program was initiated in 1996 through 1999, we have repurchased
$1.2 billion in stock and reduced the number of shares outstanding by 21%.
A summary of the shares outstanding is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
In Thousands
<S> <C> <C> <C>
As of December 31
Basic................................................. 123,237 134,322 145,118
Dilutive effect....................................... 125 2,754 2,103
------- ------- -------
Total............................................... 123,362 137,076 147,221
======= ======= =======
Full Year Average
Basic................................................. 128,872 139,624 145,929
Dilutive effect....................................... 694 2,241 1,579
------- ------- -------
Total............................................... 129,566 141,865 147,508
======= ======= =======
</TABLE>
Cash Flow
Operating Activities--Our main source of liquidity is cash from operating
activities. In 1999, cash provided from operating activities was $635 million,
down from 1998's $733 million. The decrease was due to higher working capital
requirements to support higher volumes. While the absolute level of working
capital increased
16
<PAGE>
in 1999, the ratio of working capital to sales continued to improve to 6.6% in
1999 from 7.0% in 1998 and 9.3% in 1997. Strong cash flow results in 1998 and
1997 were driven by the success of our program to reduce working capital.
Investing Activities--Our principal recurring investing activities are
capital expenditures to improve the productivity of operations, expand in
specific markets and establish complementary businesses that leverage our
distinctive capabilities. In 1999, capital expenditures totaled $276 million,
a $51 million increase from 1998, but still well below past years. Spending
levels in 1999 continued to reflect our disciplined investment process, which
includes evaluating a broad range of alternatives and optimizing the overall
manufacturing platform, and our focus on productivity, which tends to result
in less costly process-enhancement investments. In 1999, we also invested in
expanding into selected international markets. We opened a dedicated directory
plant in Brazil and expanded our operations in Poland based on the strong
market potential that we see in these regions. We also made systems-related
and other improvements that were capitalized. In 2000, we expect capital
spending to be between $300 million and $350 million, still well below levels
of recent years, reflecting the improved discipline supporting our investment
activities.
During 1999, we continued our initiative to sell operations and assets no
longer aligned with our strategic priorities. In 1999, we generated $176
million of cash net of taxes from our divestitures of Stream International,
CS&T and MMI. We generated an additional $8 million from the sale of other
assets. In 1998, we generated $301 million of cash net of taxes from
divestitures, which included selling our remaining interests in Metromail and
DESI, in addition to $26 million associated with the sale of other assets. In
1997, we generated $51 million of cash net of taxes from selling our interest
in three European joint ventures and disposing of interests from our venture
capital portfolio.
Investments--During 1999, other investments including acquisitions totaled
$222 million, net of cash acquired. In 1999, we increased our ownership
position in Editorial Lord Cochrane S.A. (Cochrane), to 99% from 78%, after
having increased our ownership position from 55% in 1998. In the third quarter
of 1999, Cochrane took 100% control of Atlantida Cochrane in Argentina.
Results from this operation are now consolidated in our financial results.
These actions strengthen our position as the largest printer in South America
and give us the ability to grow independently in the region to further our
strategy of providing networked services for our customers.
Our Online Services group made two equity investments in firms that offer
best-of-class services to expand our offering to our customers (see "Online
Services" discussion on page 19 for a description of this business). In
September, we made an equity investment in MultiMedia Live (MML), after having
established a partnership with it in March 1999. MML is a West Coast-based,
leading Web site design and development firm that provides customized e-
commerce solutions. In October, we made an equity investment in B2BWorks, the
first and largest online business-to-business advertising network. B2BWorks
uses an affiliate model to connect business-to-business marketers with
appropriate Internet sites.
Acquisitions in 1999 included:
. Cadmus Financial (March 1999)--The acquisition of the leading financial
printer in the Southeast, and the fourth-largest in the United States,
allowed us to rapidly establish our presence in several major financial
centers, including Charlotte, North Carolina, the second-largest banking and
financial center in the country, and Raleigh, North Carolina.
. Communicolor (April 1999)--The acquisition of Standard Register's direct-
mail marketing group expanded our capabilities to include high-quality,
four-color, shorter-run, highly personalized direct mail. RRD Direct
(reported within Merchandise Media) now has a full range of production
capabilities to serve the direct-mail business, a faster-growing market than
general commercial print.
. Hamburg Grafica Editora (May 1999)--Our acquisition of the largest
independent Brazilian book printer expands our service offering so that we
can provide customers with magazines, inserts, catalogs, books and telephone
directories, through our coordinated operations in Argentina, Chile and
Brazil. Book printing in Brazil is growing rapidly as the country has begun
emphasizing the importance of secondary education.
. Freight Systems, Inc. (July 1999)--The acquisition of this West Coast
distribution company allows us to expand its innovative programs to deliver
mail closer to its final distribution point, reducing delivery costs and
17
<PAGE>
improving timeliness for our customers. We intend to leverage our scale as
the largest private user of the U.S. Postal Service to expand these programs,
as well as to enhance our industry-leading mail and newsstand distribution
network.
. Penton Press (December 1999)--Our acquisition of Penton Press, the printing
division of Penton Media, included a long-term printing contract for more
than 30 of Penton's magazine titles, as well as its Ohio plant and
equipment. The plant specializes in short-run titles, which are generally
defined as those with quantities between 10,000 and 150,000. This market,
which has a different manufacturing focus due to its more transactional
nature, is growing faster than the overall magazine market. Our strategy is
to have a manufacturing platform focused on short-run production to better
leverage our assets, and this facility, the fourth in this platform, will
allow us to redistribute work to optimize production and distribution.
During the first quarter of 2000 through March 30, other investments totaled
$201 million, net of cash acquired.
In January 2000, we acquired Omega Studios, one of the largest dedicated
photography studios in the United States. This acquisition expands our
premedia offering to include digital photography and creative services, in
addition to our established content management, prepress, Internet, print and
distribution solutions. In January 2000, we also made an equity investment in
Noosh, Inc., a business-to-business Internet-based service designed to improve
the process of buying, selling and managing print.
In February 2000, we acquired CTC Distribution Direct, the largest mailer of
business-to-home parcels in the U.S. The purchase more than doubled the
revenues of Donnelley Logistics and gives us even more scale to deliver
printed products and parcels, leveraging the U.S. Postal Service for final
home delivery. Our expanded size and service offering, which now includes
parcel delivery, gives our customers more economical delivery options and
improved delivery performance. We also acquired Iridio, Inc., a Seattle-based
full-service premedia provider of digital photography, prepress, digital print
and online services; and EVACO, a leading financial printer in Florida. Each
of these investments has strengthened our position by expanding our
capabilities or geographic reach in our high-value businesses.
Financing Activities--Financing activities include net borrowings, dividend
payments and share repurchases. Our net borrowings increased by $117 million
in 1999. Debt levels decreased by $156 million in 1998 and $226 million in
1997. The increase in 1999 was a result of acquisitions, higher capital
spending, higher working capital needs based on the higher volume and share
repurchase activity, partially offset by cash generated from the disposition
of assets no longer aligned with our strategic priorities.
In April 1999, we issued $200 million of 6 5/8% debentures due in 2029.
Proceeds were used to reduce outstanding commercial paper borrowings, with the
remainder used for general corporate purposes.
Commercial paper is our primary source of short-term financing. On December
31, 1999, we had $142 million outstanding in commercial paper borrowings. In
addition, at December 31, 1999, we had a $400 million unused revolving credit
facility with a number of banks. This facility provides support for issuing
commercial paper and other credit needs. We believe our cash flow and
borrowing capability are sufficient to fund operations.
Net cash used to repurchase common stock, defined as cash used for share
repurchases net of proceeds from stock options exercised, was $356 million in
1999 (see "Share Repurchase" discussion on page 16). In 1998, $457 million of
net cash was used for share repurchase while $36 million of net cash was used
in 1997 to purchase common stock, primarily to cover options granted to
employees.
Dividends to shareholders totaled $111 million in 1999, $115 million in 1998
and $115 million in 1997.
Financial Condition--Our financial position remains strong as evidenced by
our year-end balance sheet. Our total assets were $3.9 billion, $55 million
higher than in 1998, due to investments made to speed growth in our high-value
businesses. Average invested capital (total debt and equity, computed on a
beginning-and-end of year
18
<PAGE>
average) was $2.3 billion in 1999, a $164 million decline from 1998. Increased
earnings from continuing operations, excluding one-time items, in conjunction
with the decrease in invested capital, raised return on invested capital to
14.6%.
At year-end 1999, the debt-to-capital ratio increased to 51% from 45% in
1998 and year-end debt-to-total-market-value increased to 33% from 19% a year
ago. Our ratio of earnings before interest, taxes, depreciation and
amortization (EBITDA), excluding one-time items, to interest expense, was 10.5
at year-end.
Other Information
Human Resources--As of December 31, 1999, approximately 34,000 employees
worked for the company. Approximately 84% of our employees work in the United
States, and approximately 4% of those are covered by collective bargaining
agreements. Of the approximately 5,400 people working in our international
operations, 24% are covered by collective bargaining agreements.
Minority and female representation among U.S. professionals, officials and
managers increased by 11% and 2%, respectively. Minority representation is now
13% among our U.S. professionals, officials and managers while female
representation is now 34%. Minorities represent 16% of our U.S. workforce and
females represent 33%.
A portion of executives' compensation is tied to their performance in
achieving inclusiveness objectives. In 1999, our five-part Diversity at Work
Program (employment, education and training, workplace quality, supplier
relationships and community involvement) was designated best-of-class by
Watson Wyatt Worldwide, a global human resources management consulting firm.
Technology--We remain a technology leader, investing not only in print-
related technologies such as computer-to-plate and digital printing, but also
in Internet-based business models such as our Online Services, and Internet-
enabled services such as SENDD(TM) and ImageMerchant(TM) (see below for a
description of these services). We are focused on investing in technologies
that contribute to our financial performance and help us deliver products,
services and solutions that are valued by our customers.
We have invested human and capital resources to upgrade our systems
infrastructure companywide. These investments in common systems improve our
ability to share information across the company and make informed decisions
rapidly. During 1999, we received recognition for our technology leadership
from both PC Week and Information Week. Among all U.S. companies, we were
named:
. #6 of the top 100 in Enterprise Solutions (PC Week, September 13, 1999)
. #25 of the top 100 in Internet Technology (PC Week, May 11, 1999)
. #36 of the top 100 in Desktop and Mobile Technology (PC Week, June 21, 1999)
. #66 of the top 500 e-business leaders (PC Week, November 15, 1999)
. #88 of the top 500 leading IT innovators (Information Week, September 27,
1999)
Online Services, SENDD, ImageMerchant, Digital Print and E-Books--Online
Services offers solutions to meet all of our customers' Internet needs. Online
Services provides a full suite of scalable e-commerce solutions including
consulting, Web site design and development, content production services to
"stock the shelves" or populate the site with content, and marketing services
to effectively drive site traffic. The markets that Online Services currently
serves include:
. eCommerce--to help catalogers and retailers showcase their products on the
Internet and drive sales
. ePublish--to help magazine publishers extend and enhance their brands online
by offering content as well as commerce and community
. eDirectory--to help businesses navigate and use the Internet to gain
exposure and streamline their business processes.
19
<PAGE>
Our recent partnerships and investments in this arena strengthen our Online
Services offering, expand our solutions and help our customers leverage the
power of the Internet to communicate with their customers.
To meet our Financial Services customers' needs for speed, convenience,
confidentiality and accuracy, we developed SENDD. The software allows work
groups around the world to simultaneously proof a document securely via the
Internet. Financial Services is also working closely with the Securities and
Exchange Commission (SEC) on the modernization efforts under way for EDGAR
(Electronic Data Gathering and Retrieval). We currently provide EDGAR
electronic filing services for our customers, enabling them to use this option
to communicate with their target audiences while meeting tight time frames and
stringent filing requirements. We will continue to develop our offerings and
educate our clients as the SEC enhances EDGAR in the future.
In our premedia production process, increased digitization allows us to
capture customer content and distribute it via various communication media,
including print and the Internet. We have developed technology that allows a
customer to securely archive its digital content in an R.R. Donnelley database
and access it via the Internet so that it can be repurposed for multiple uses.
This ImageMerchant software allows customers to more effectively manage their
media assets. Customer benefits include lower costs, faster production times
and consistent quality because images are repurposed rather than recreated.
Analysis tools further enhance the value of ImageMerchant.
Additionally, we are a leading provider of digital print, which allows
customized marketing to an audience of one. With digital printing, images can
be varied as they are printed, allowing for each piece to be highly
personalized.
Book Publishing Services also applies technology to create solutions that
enable our customers to manage and distribute content in multiple media
formats. We currently convert content for many major e-book vendors.
Year 2000 and System Infrastructure
Process control and information systems are becoming increasingly important
to the effective management of the company. The upgrade and standardization of
our systems is necessary for us to succeed in using information technology to
our strategic advantage. In 1999, we focused our efforts on ensuring that
processes and systems were Year 2000 compliant. In addition, we began ongoing
initiatives to upgrade and standardize our information technology
infrastructure. In 1999, we deferred a number of other infrastructure and
systems initiatives that will support continuous productivity improvements and
enhance service capabilities, while we completed our Year 2000 efforts.
Company employees, assisted by the expertise of external consultants where
necessary, staffed the Year 2000 compliance efforts, which were executed
globally across all operations of our company.
During the transition from 1999 to 2000, all operations were fully supported
by trained personnel. Key efforts were focused on four business-critical
factors: safety of employees, continuity of production, environmental
compliance and reporting, and continuity of systems to support the ability of
personnel to continue working (such as the availability of utilities or
operation of payroll systems). At the end of the transition, no Year 2000
issues affecting any business-critical factors were reported by any operation.
To the extent that date-related issues were reported, they were limited to
instances where personnel available at the site were able to promptly correct
the issue without disruption to our operations.
In 1999, spending on our Year 2000 initiative was $49 million, which is
reflected in cost of sales and administrative expense. Expenses in 1998 were
$45 million and were reflected in administrative expense. These expenses do
not include costs capitalized with respect to our information and technology
infrastructure upgrade and standardization initiatives. As internal resources
complete their Year 2000 assignments, they are being reallocated to technology
projects that have been deferred, as well as other productivity projects.
These projects will improve our ability to share information across the
company and make informed decisions rapidly, enhancing future productivity.
20
<PAGE>
Litigation
In 1996, a purported class action was brought against the company in federal
district court in Chicago, Illinois, on behalf of current and former African-
American employees, alleging that the company racially discriminated against
them. The complaint seeks declaratory and injunctive relief, and asks for
actual, compensatory, consequential and punitive damages in an amount not less
than $500 million. Although the plaintiffs seek nationwide class
certification, most of the specific factual assertions of the complaint relate
to the closing of our Chicago catalog operations in 1993. Other general claims
relate to other company locations. In August 1999, the district court denied
our motion for partial summary judgment on the basis of timeliness.
In 1995, a purported class action was filed against the company in federal
district court in Chicago alleging that older workers were discriminated
against in selection for termination upon closing of the Chicago catalog
operations. The suit also alleges that we violated the Employee Retirement
Income Security Act (ERISA) in determining benefits payable to retiring or
terminating employees. In August 1997, the court certified classes in each of
the age discrimination and ERISA claims limited to former employees of the
Chicago operation.
In 1998, a purported class action was filed against the company in federal
district court in Chicago on behalf of current and former African-American
employees, alleging that the company racially discriminated against them.
While making many of the same general discrimination claims contained in the
1996 case, the plaintiffs in this case also claim retaliation by the company
for the filing of discrimination charges or otherwise complaining of race
discrimination. The complaint seeks the same relief and damages as sought in
the 1996 case.
The 1996 and 1995 cases relate primarily to the circumstances surrounding
the closing of the Chicago catalog operations. We believe we acted properly in
the closing of the operations. We also believe we have a number of valid
defenses to all of the claims made in all three cases and we will vigorously
defend our actions. However, because the cases are in the preliminary stages,
we cannot make a meaningful estimate of any loss that could result from an
unfavorable outcome of any of the pending cases.
Environmental, Health and Safety Regulations
Our business is subject to various laws and regulations relating to employee
health and safety and to environmental protection. Our policy is to comply
with all laws and regulations that govern protection of the environment and
employee health and safety. Our overriding principles are to create
sustainable compliance and an injury-free workplace. We do not anticipate that
compliance will have a material adverse effect on our competitive or
consolidated financial positions.
Outlook
Our primary business remains commercial printing and our primary geographic
market is the United States. The environment remains highly competitive in
most of our product categories and geographic regions. Competition is based
largely on price, quality and servicing the special needs of customers.
Industry analysts believe that there is overcapacity in most commercial
printing markets. Therefore, competition is intense. Our intent is to
differentiate our service offering so that we are viewed by our customers as a
partner that can help them more effectively use words and images in a variety
of ways, whether through print or the Internet, to reach their target
audience.
We are a large user of paper, bought by us or supplied to us by our
customers. The cost and supply of certain paper grades used in the
manufacturing process will continue to affect our financial results. However,
management currently does not see any disruptive conditions affecting prices
and supply of paper in 2000.
Postal costs are a significant component of our customers' cost structures.
Changes in postal rates, which are anticipated early in 2001, may negatively
affect the demand for our core print capabilities, but postal rate increases
enhance the value of Donnelley Logistics to our customers, as we are able to
improve the cost efficiency of mail processing and distribution.
21
<PAGE>
In addition to paper and postage costs, consumer confidence and economic
growth are key drivers of print demand. A significant change in the economic
outlook could affect demand for our products, particularly in the financial
printing market.
In the longer term, technological changes, including the electronic
distribution of information, present both risks and opportunities for the
company. Many of our new business initiatives are designed to leverage our
distinctive capabilities to participate in the rapid growth in electronic
communications. Our goal remains to manage and distribute words and images,
regardless of the means of distribution, to help our customers succeed in
informing, educating, entertaining and selling. We believe that with our
competitive strengths, including our comprehensive service offerings,
technology leadership, depth of management experience, customer relationships
and economies of scale, we can develop the most valuable solutions for our
customers, which should result in increased shareholder value.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risk from changes in interest rates and
foreign exchange rates. However, the company generally maintains more than
half of its debt at fixed rates (approximately 60% at December 31, 1999), and
therefore its exposure to short-term interest rate fluctuations is immaterial
to the consolidated financial statements of the company as a whole. The
company's exposure to adverse changes in foreign exchange rates also is
immaterial to the consolidated financial statements of the company as a whole,
and the company occasionally uses financial instruments to hedge exposures to
foreign exchange rate changes. The company does not use financial instruments
for trading purposes and is not a party to any leveraged derivatives. Further
disclosure relating to financial instruments is included in the Debt Financing
and Interest Expense note in the Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of Part
IV and listed on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and officers of the company is
contained on pages 6 and 20-21 of the company's definitive Proxy Statement
dated February 22, 2000, and is incorporated herein by reference. See also the
list of the company's officers and related information under "Executive
Officers and Principal Officers of R.R. Donnelley & Sons Company" at the end
of Part I of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning director and executive compensation for the year
ended December 31, 1999, and, with respect to certain of such information,
prior years, is contained on pages 23 and 27-36 of the company's definitive
Proxy Statement dated February 22, 2000, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the beneficial ownership of the company's common
stock is contained on pages
24-26 of the company's definitive Proxy Statement dated February 22, 2000, and
is incorporated herein by reference.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The financial statements listed in the accompanying index (page F-1) to
the financial statements are filed as part of this annual report.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying index (page
F-1) to the financial statements is filed as part of this annual
report.
3. Exhibits
The exhibits listed on the accompanying index to exhibits (pages E-1
through E-2) are filed as part of this annual report.
(b)Reports on Form 8-K
No current Report on Form 8-K was filed during the quarter ended
December 31, 1999.
(c)Exhibits
The exhibits listed on the accompanying index (pages E-1 through E-2)
are filed as part of this annual report.
(d)Financial Statements omitted--
Certain schedules have been omitted because the required information is
included in the consolidated financial statements or notes thereto or
because they are not applicable or not required.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day
of March 2000.
R.R. DONNELLEY & SONS COMPANY
/s/ Gregory A. Stoklosa
By __________________________________
Gregory A. Stoklosa
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 30th day of March 2000.
Signature and Title Signature and Title
/s/ William L. Davis /s/ Thomas S. Johnson
- ------------------------------------- -------------------------------------
William L. Davis Thomas S. Johnson
Chairman of the Board and Director
Chief Executive Officer, Director
(Principal Executive Officer) /s/ George A. Lorch
-------------------------------------
/s/ Cheryl A. Francis George A. Lorch
- ------------------------------------- Director
Cheryl A. Francis
Executive Vice President and Oliver R. Sockwell
Chief Financial Officer -------------------------------------
(Principal Financial Officer) Oliver R. Sockwell
Director
/s/ Gregory A. Stoklosa
- ------------------------------------- /s/ Bide L. Thomas
Gregory A. Stoklosa -------------------------------------
Vice President and Controller Bide L. Thomas
(Principal Accounting Officer) Director
Joseph B. Anderson, Jr. /s/ Stephen M. Wolf
- ------------------------------------- -------------------------------------
Joseph B. Anderson, Jr. Stephen M. Wolf
Director Director
Martha Layne Collins
- -------------------------------------
Martha Layne Collins
Director
/s/ James R. Donnelley
- -------------------------------------
James R. Donnelley
Director
/s/ Judith H. Hamilton
- -------------------------------------
Judith H. Hamilton
Director
24
<PAGE>
ITEM 14(a). INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Consolidated Statements of Income for each of the three years ended
December 31, 1999..................................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998.............. F-3
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1999..................................................... F-4
Consolidated Statements of Shareholders' Equity for each of the three
years ended December 31, 1999......................................... F-5
Notes to Consolidated Financial Statements............................. F-6
Report of Independent Public Accountants............................... F-22
Unaudited Interim Financial Information, Dividend Summary and Financial
Summary............................................................... F-23
Report of Independent Public Accountants on Financial Statement
Schedule.............................................................. F-25
Financial Statement Schedule
II--Valuation and Qualifying Accounts................................ F-26
</TABLE>
F-1
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars, Except Per-Share Data
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $5,183,408 $5,018,436 $4,892,944
Cost of sales.............................. 4,024,401 3,960,239 3,942,339
---------- ---------- ----------
Gross profit............................... 1,159,007 1,058,197 950,605
Selling and administrative expenses........ 628,580 569,779 511,115
Restructuring and impairment charge........ -- -- 70,702
---------- ---------- ----------
Earnings from operations................... 530,427 488,418 368,788
Other income (expense):
Interest expense......................... (88,164) (78,166) (90,765)
Gain on sale of businesses and
investments............................. 42,835 168,903 --
Other, net............................... 21,431 10,217 25,742
---------- ---------- ----------
Earnings from continuing operations before
income taxes.............................. 506,529 589,372 303,765
Income taxes............................... 195,014 214,725 97,240
---------- ---------- ----------
Income from continuing operations...... 311,515 374,647 206,525
Loss on disposal of discontinued
operations, net of income taxes........... -- -- (60,000)
Loss from discontinued operations, net of
income taxes.............................. (3,201) (80,067) (15,894)
---------- ---------- ----------
Net Income............................. $ 308,314 $ 294,580 $ 130,631
========== ========== ==========
Income from Continuing Operations per Share
of Common Stock
Basic.................................... $ 2.41 $ 2.68 $ 1.42
Diluted.................................. 2.40 2.64 1.40
Loss from Discontinued Operations per Share
of Common Stock
Basic.................................... $ (0.02) $ (0.57) $ (0.52)
Diluted.................................. (0.02) (0.56) (0.51)
Net Income per Share of Common Stock
Basic.................................... $ 2.39 $ 2.11 $ 0.90
Diluted.................................. 2.38 2.08 0.89
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars, Except Share Data
<TABLE>
<CAPTION>
December 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Assets
Cash and equivalents................................. $ 41,873 $ 66,226
Receivables, less allowances for doubtful accounts of
$15,461 in 1999 and $14,279 in 1998................. 865,305 843,094
Inventories.......................................... 194,312 182,931
Prepaid expenses..................................... 51,781 63,040
Refundable income taxes.............................. 76,579 --
---------- ----------
Total Current Assets............................... 1,229,850 1,155,291
========== ==========
Net property, plant and equipment, at cost, less
accumulated depreciation of $2,822,737 in 1999 and
$2,667,827 in 1998.................................. 1,710,669 1,700,927
Goodwill and other intangibles, net of accumulated
amortization of $217,616 in 1999 and $183,589 in
1998................................................ 397,983 381,394
Other noncurrent assets.............................. 514,962 515,029
Net assets of discontinued operations ............... -- 45,476
---------- ----------
Total Assets....................................... $3,853,464 $3,798,117
========== ==========
Liabilities
Accounts payable..................................... $ 334,389 $ 331,257
Accrued compensation................................. 175,590 188,187
Short-term debt...................................... 419,555 285,429
Current and deferred income taxes.................... 10,894 2,263
Other accrued liabilities............................ 263,035 242,251
---------- ----------
Total Current Liabilities.......................... 1,203,463 1,049,387
========== ==========
Long-term debt....................................... 748,498 773,549
Deferred income taxes................................ 252,884 260,692
Other noncurrent liabilities......................... 510,361 413,611
---------- ----------
Total Noncurrent Liabilities....................... 1,511,743 1,447,852
========== ==========
Shareholders' Equity
Common stock at stated value ($1.25 par value)
Authorized shares: 500,000,000; Issued: 140,889,050
in 1999 and 1998.................................... 308,462 308,462
Retained earnings.................................... 1,521,474 1,325,634
Accumulated other comprehensive income............... (64,154) (55,050)
Unearned compensation................................ (6,222) (6,118)
Reacquired common stock, at cost..................... (621,302) (272,050)
---------- ----------
Total Shareholders' Equity......................... 1,138,258 1,300,878
---------- ----------
Total Liabilities and Shareholders' Equity......... $3,853,464 $3,798,117
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used for) operating
activities:
Net income.................................. $ 308,314 $ 294,580 $ 130,631
Loss from discontinued operations, net of
tax........................................ 3,201 80,067 15,894
Loss on disposal of discontinued operations,
net of tax................................. -- -- 60,000
Gain on sale of businesses and investments,
net of tax................................. (77,532) (101,342) --
Restructuring and impairment charges, net of
tax........................................ -- -- 42,421
Depreciation................................ 323,009 322,680 319,730
Amortization................................ 51,373 53,391 51,381
Gain on sale of assets...................... (6,524) (13,446) (16,028)
Net change in operating working capital..... (27,915) 68,848 117,386
Net change in other assets and liabilities.. 41,829 47,935 18,802
Other....................................... 19,562 (19,878) 2,021
--------- --------- ---------
Net Cash Provided by Operating Activities. 635,317 732,835 742,238
========= ========= =========
Cash flows provided by (used for) investing
activities:
Capital expenditures........................ (275,826) (225,222) (360,195)
Other investments including acquisitions,
net of cash acquired....................... (222,066) (91,184) (47,526)
Disposition of assets....................... 7,837 26,498 51,276
Disposition of business and investments, net
of tax..................................... 135,664 274,079 --
--------- --------- ---------
Net Cash Used For Investing Activities.... (354,391) (15,829) (356,445)
========= ========= =========
Cash flows provided by (used for) financing
activities:
Net increase (decrease) in borrowings....... 116,621 (155,545) (225,967)
Disposition of reacquired common stock...... 22,591 82,710 45,762
Acquisition of common stock................. (372,403) (539,434) (82,041)
Cash dividends paid......................... (111,133) (114,898) (114,934)
--------- --------- ---------
Net Cash Used for Financing Activities.... (344,324) (727,167) (377,180)
========= ========= =========
Effect of exchange rate changes on cash and
equivalents.................................. (1,460) (592) (775)
--------- --------- ---------
Net (Decrease) Increase in Cash and
Equivalents from Continuing Operations....... (64,858) (10,753) 7,838
--------- --------- ---------
Net Increase in Cash from Discontinued
Operations................................... 40,505 29,165 18,659
--------- --------- ---------
Net (Decrease) Increase in Cash and
Equivalents.................................. (24,353) 18,412 26,497
--------- --------- ---------
Cash and Equivalents at Beginning of Year..... 66,226 47,814 21,317
--------- --------- ---------
Cash and Equivalents at End of Year........... $ 41,873 $ 66,226 $ 47,814
========= ========= =========
Changes in operating working capital, net of acquisitions and divestitures:
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables--net............................ $ (15,860) $ (27,041) $ 103,077
Inventories--net............................ (1,814) 18,846 (3,496)
Prepaid expenses............................ 7,664 19,674 5,116
Increase (decrease) in liabilities:
Accounts payable............................ (7,651) 37,352 6,249
Accrued compensation........................ (10,274) 30,049 30,347
Other accrued liabilities................... 20 (10,032) (23,907)
--------- --------- ---------
Net Change in Operating Working Capital....... $ (27,915) $ 68,848 $ 117,386
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Thousands of Dollars, Except Share Data
<TABLE>
<CAPTION>
Reacquired Common Unearned
Common Stock Stock Compensation Other
--------------------- ---------------------- Restricted Retained Comprehensive
Shares Amount Shares Amount Stock Earnings Income Total
----------- -------- ----------- --------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 150,889,050 $320,962 (5,335,255) $(170,494) $(5,402) $1,512,795 $(26,580) $1,631,281
Net income.............. 130,631 130,631
Translation adjustments. (19,202) (19,202)
----------
Comprehensive income.... 111,429
Treasury stock
purchases.............. (2,293,757) (82,041) (82,041)
Cash dividends.......... (114,934) (114,934)
Common shares issued
under stock programs 1,857,792 49,860 (4,012) (86) 45,762
----------- -------- ----------- --------- ------- ---------- -------- ----------
Balance at December 31,
1997................... 150,889,050 $320,962 (5,771,220) $(202,675) $(9,414) $1,528,406 $(45,782) $1,591,497
Net income.............. 294,580 294,580
Translation adjustments. (9,268) (9,268)
----------
Comprehensive income.... 285,312
Treasury stock
purchases.............. (13,196,393) (543,743) (543,743)
Cash dividends.......... (114,898) (114,898)
Common shares issued
under stock programs 2,400,991 78,444 3,296 970 82,710
Common shares retired... (10,000,000) (12,500) 10,000,000 395,924 (383,424) --
----------- -------- ----------- --------- ------- ---------- -------- ----------
Balance at December 31,
1998................... 140,889,050 $308,462 (6,566,622) $(272,050) $(6,118) $1,325,634 $(55,050) $1,300,878
Net income.............. 308,314 308,314
Translation adjustments. (8,613) (8,613)
Minimum pension
liability adjustment... (491) (491)
----------
Comprehensive income.... 299,210
Treasury stock
purchases.............. (11,850,254) (379,074) (379,074)
Cash dividends.......... (110,078) (110,078)
Common shares issued
under stock programs... 765,231 29,822 (104) (2,396) 27,322
----------- -------- ----------- --------- ------- ---------- -------- ----------
Balance at December 31,
1999................... 140,889,050 $308,462 (17,651,645) $(621,302) $(6,222) $1,521,474 $(64,154) $1,138,258
=========== ======== =========== ========= ======= ========== ======== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Basis of Consolidation--The consolidated financial statements include the
accounts of the company and its majority-owned subsidiaries. Minority
interests in the income (loss) of consolidated subsidiaries ($1 million of
expense, $4 million of expense and $6 million of expense in 1999, 1998 and
1997, respectively) are included in other expense in the Consolidated
Statements of Income. Intercompany items and transactions are eliminated in
consolidation. The company held investments in unconsolidated affiliates of
$39 million and $87 million at December 31, 1999 and 1998, respectively.
Nature of Operations--The company provides a wide variety of print and
print-related services and products for specific customers, of which
approximately 70% was under contract in 1999. Some contracts provide for
progress payments from customers as certain phases of the work are completed;
however, revenue is not recognized until the earnings process has been
completed in accordance with the terms of the contracts. Some customers
furnish paper for their work, while in other cases the company purchases the
paper and resells it to the customer.
Cash and Equivalents--The company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
Inventories--Inventories include material, labor and factory overhead and
are stated at the lower of cost or market. The cost of approximately 74% and
78% of the inventories at December 31, 1999 and 1998, respectively, has been
determined using the Last-In, First-Out (LIFO) method. This method reflects
the effect of inventory replacement costs in earnings; accordingly, charges to
cost of sales reflect recent costs of material, labor and factory overhead.
The remaining inventories are valued using the First-In, First-Out (FIFO) or
specific identification methods.
Capitalization, Depreciation and Amortization--Property, plant and equipment
are stated at cost. Depreciation is computed principally on the straight-line
method based on useful lives of 15 to 33 years for buildings and 3 to 15 years
for machinery and equipment. Maintenance and repair costs are charged to
expense as incurred. Major overhauls which extend the useful lives of existing
assets are capitalized. When properties are retired or disposed, the costs and
accumulated depreciation are eliminated and the resulting profit or loss is
recognized in income. Goodwill ($212 million and $174 million, net of
accumulated amortization, at December 31, 1999 and 1998, respectively) is
amortized over periods ranging from 10 to 40 years. Other intangibles
represent primarily the cost of acquiring print contracts and volume
guarantees and are amortized over the periods in which benefits will be
realized.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income--In 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income, minimum pension
liability adjustments and foreign currency translation adjustments and is
presented in the Consolidated Statements of Shareholders' Equity. The adoption
of SFAS No. 130 had no impact on total shareholders' equity.
Reclassifications--Certain prior-year amounts have been reclassified to
conform to the 1999 presentation.
F-6
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Discontinued Operations
During 1996, Stream International Holdings, Inc. (SIH), an 80%-owned equity
investment of the company, reorganized into three independent businesses:
Stream International, which provides outsource technical support services;
Corporate Software & Technology (CS&T), a software distribution business; and
Modus Media International (MMI), a global manufacturing and fulfillment
business. CS&T and MMI comprised substantially all of the company's investment
and net income in SIH.
On December 15, 1997, SIH's businesses became separate companies and the
company's ownership interest in SIH was restructured. The company converted
its equity and debt positions in Stream International into 87% of the common
stock of that business. Additionally, the company converted its equity and
debt positions in CS&T into 86% of the common stock of CS&T and sold its
equity and debt positions in MMI for nonvoting preferred stock of MMI.
In connection with the company's planned disposition of CS&T, the company
reported its interest in CS&T as discontinued operations at December 31, 1997.
The company's interest in MMI was reported as discontinued operations through
December 15, 1997, when its interest was restructured. Thereafter, the
company's investment in MMI was classified in other noncurrent assets. The
company also recorded a fourth quarter 1997 impairment charge of $100 million
($60 million after-tax) to adjust the carrying costs of CS&T and MMI to their
estimated net realizable values. The $60 million after-tax charge was
classified as a loss on disposal of discontinued operations in 1997.
During 1998, the company recorded an $80 million (with no associated tax
benefit) impairment charge related to the write-down of goodwill at CS&T. The
$80 million charge was classified as a loss from discontinued operations in
1998. The net assets of CS&T were classified as net assets of discontinued
operations at December 31, 1998.
During 1999, the company recorded a pretax loss from discontinued operations
of $5 million ($3 million after-tax). In November 1999, the company sold its
entire interest in CS&T to the management of CS&T for cash proceeds of
approximately $41 million. There was no gain or loss recognized from this
transaction in 1999.
As of December 31, 1999, the company has reclassified the net assets and
results of operations of CS&T for 1999 and prior years as a discontinued
operation (from businesses held for sale), since the sale of CS&T was finally
completed in 1999. During the fourth quarter of 1998, since the company had
not sold its investment in CS&T (which was classified as a discontinued
operation) within one year, the net assets and results of operations of CS&T
were reclassified at that time as businesses held for sale.
Refer to "Divestitures" footnote below for additional information with
respect to MMI and Stream International. Also included in the "Divestitures"
footnote is a discussion of the tax impact from the sale of the three Stream-
related businesses and investments.
Divestitures
In October 1999, the company sold its investment in Modus Media
International (MMI), which consisted of 9.50% Series Senior Cumulative
Preferred shares, for a total of approximately $60 million ($47 million in
cash and a $13 million promissory note due no later than October 2002). The
promissory note is interest bearing at 9.5% per annum, payable quarterly. The
company's investment in MMI was classified in other noncurrent assets at
December 31, 1998. The company recognized both a pretax and after-tax gain of
$3 million from this transaction.
F-7
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 1999, the company sold 93% of its investment in the common stock
of Stream International to a group led by Bain Capital for approximately $96
million in cash. The company recognized a pretax gain of $40 million and a tax
benefit of $35 million (total of $75 million after-tax) from this transaction.
The tax benefit in 1999 was recognized because of the company's ability to
carry back the capital tax losses generated from the sale of Stream
International to years 1996 through 1998.
The total pretax gain in 1999 from the sales of the company's investments in
MMI and Stream International ($43 million) is included in gain on sale of
businesses and investments. These sales resulted in an after-tax gain of $78
million ($0.60 per diluted share), prior to a $51 million charge ($0.40 per
diluted share) in the fourth quarter of 1999 to record an additional tax
provision related to the company's corporate-owned life insurance (COLI)
program. Refer to "Income Taxes" on page F-14 for further information.
As a result of the company's sales in 1999 of CS&T (refer to "Discontinued
Operations" on page F-7) and Stream International and the sale of its
investment in MMI, the company generated approximately $77 million in
refundable income taxes from the carryback of associated capital losses for
tax purposes, expected to be received in 2000.
In 1996, Metromail Corporation (Metromail), the company's previously wholly
owned subsidiary and provider of market-oriented consumer information and
reference services, completed an initial public offering of shares of its
common stock. As a result of the offering, the company's interest in Metromail
was reduced to approximately 38%. In March 1998, Metromail entered into a
merger agreement with The Great Universal Stores, P.L.C. (GUS), pursuant to
which GUS initiated a tender offer for the outstanding shares of Metromail. In
April 1998, the company received $297 million in cash, or approximately $238
million after-tax, for its remaining interest in Metromail. The company
recognized a pretax gain in 1998 of $146 million ($87 million after-tax) from
this transaction.
Also in 1996, Donnelley Enterprise Solutions Incorporated (DESI), the
company's previously wholly owned subsidiary and a single-source provider of
integrated information-management services, completed an initial public
offering of shares of its common stock. As a result of the offering, the
company's interest in DESI was reduced to approximately 43%. In May 1998, DESI
entered into a merger agreement with Bowne & Co., Inc. (Bowne), pursuant to
which Bowne initiated a tender offer to acquire all outstanding shares of
DESI. In July 1998, the company received $45 million in cash, or approximately
$36 million after-tax, for its remaining interest in DESI. The company
recognized a pretax gain of $23 million ($14 million after-tax) from this
transaction.
Acquisitions
During 1999, the company acquired certain net assets of Cadmus Financial, a
financial printer; the Communicolor division of the Standard Register Company,
a provider of personalization services and printer of innovative direct-mail
campaigns; Hamburg Grafica Editora, a Brazilian book printer; Freight Systems,
Inc., a California-based transportation company; and Penton Press, a short-run
magazine printing facility. All of these acquisitions have been accounted for
as purchases. In 1999, the company also acquired a 30% interest in MultiMedia
Live, an Internet Web site design firm, and increased its ownership position
in Editorial Lord Cochrane S.A. (Cochrane) to 99% from 78%. In addition,
Cochrane also increased its ownership interest in Atlantida Cochrane
(Argentina) in 1999 from 50% to 100% through the assumption of its debt. The
aggregate cost of these acquisitions and investments in 1999 was $199 million.
During 1998, the company acquired Ediciones Eclipse S.A. de C.V., a Mexico
City-based printer of retail inserts; and a directory-printing plant in St.
Petersburg, Florida. Both of these acquisitions have been accounted for as
purchases. In 1998, the company also increased its ownership position in
Cochrane to 78% from 55% and increased its ownership position in the Polish-
American Printing Company to 100% from 51%. The aggregate cost of these
acquisitions and investments was $69 million in 1998.
F-8
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The company also increased its investment in affordable housing by $23
million and $22 million in 1999 and 1998, respectively (refer to "Commitments
and Contingencies" on page F-10 for further information).
Subsequent Event
In February 2000, the company paid approximately $161 million, net of cash
acquired, to acquire CTC Distribution Direct (CTC), the largest mailer of
business-to-home parcels in the U.S. This acquisition will be accounted for as
a purchase.
Restructuring and Impairment Charges
In December 1997, the company provided for the impairment of assets and
restructuring costs related primarily to the elimination of activities that no
longer supported the company's strategic focus. These included the impaired
development costs of certain manufacturing systems; the sale of Coris, the
company's content-management software operation; the closing of a development
office in Singapore; and the shutdown of book fulfillment operations in
Crawfordsville, Indiana.
Impairment losses related to the 1997 charges totaled $57 million pretax and
were calculated based on the excess of the carrying amount of assets over the
assets' fair values. The fair value of an asset is generally determined as the
discounted estimate of future cash flows generated by the asset.
As of December 31, 1998, the company's restructuring programs were
substantially complete.
Inventories
The components of the company's inventories were as follows:
<TABLE>
<CAPTION>
December 31
------------------
1999 1998
-------- --------
In thousands
<S> <C> <C>
Raw materials and manufacturing supplies.................... $125,014 $121,490
Work in process............................................. 150,992 150,775
Finished goods.............................................. 1,388 1,220
Progress billings........................................... (39,901) (42,217)
LIFO reserve................................................ (43,181) (48,337)
-------- --------
Total................................................... $194,312 $182,931
======== ========
</TABLE>
The company recognized a LIFO benefit of $5.2 million in 1999 due to
declining prices and lower inventories subject to LIFO, which reduced 1999
cost of sales. The company's cost of sales was increased by LIFO provisions of
$4.5 million and $0.6 million in 1998 and 1997, respectively. The company uses
the external-index method of valuing LIFO inventories.
Property, Plant and Equipment
The following table summarizes the components of property, plant and
equipment (at cost):
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- ----------
In thousands
<S> <C> <C>
Land...................................................... $ 31,779 $ 32,336
Buildings................................................. 582,868 617,029
Machinery and equipment................................... 3,918,759 3,719,389
---------- ----------
Total................................................. $4,533,406 $4,368,754
========== ==========
</TABLE>
F-9
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Commitments and Contingencies
As of December 31, 1999, authorized expenditures on incomplete projects for
the purchase of property, plant and equipment totaled $411 million. Of this
total, $97 million has been contractually committed. The company has a variety
of commitments with suppliers for the purchase of paper, ink and other
materials for delivery in future years at prevailing market prices.
The company has operating lease commitments totaling $251 million extending
through various periods to 2009. The lease commitments total $49 million for
2000, range from $28 million to $38 million in each of the years 2001-2004 and
total $69 million for years 2005 and thereafter.
The company also has future annual commitments totaling $11 million to
invest in various affordable housing limited partnerships that provide
cumulative annual tax benefits and credits in amounts greater than the
investments.
The company is not exposed to significant accounts receivable credit risk,
due to its customer diversity with respect to industry classification,
distribution channels and geographic locations.
On November 25, 1996, a purported class action was brought against the
company in federal district court in Chicago, Illinois, on behalf of all
current and former African-American employees, alleging that the company
racially discriminated against them in violation of the Civil Rights Act of
1871, as amended, and the U.S. Constitution (Jones, et al. v. R.R. Donnelley &
Sons Co.). The complaint seeks declaratory and injunctive relief, and asks for
actual, compensatory, consequential and punitive damages in an amount not less
than $500 million. Although plaintiffs seek nationwide class certification,
most of the specific factual assertions of the complaint relate to the closing
by the company of its Chicago catalog operations in 1993. Other general claims
relate to other company locations. On August 10, 1999, the district court
judge denied the company's motion for partial summary judgment on the basis of
timeliness.
On December 18, 1995, a class action was filed against the company in
federal district court in Chicago alleging that older workers were
discriminated against in selection for termination upon the closing of the
Chicago catalog operations (Gerlib, et al. v. R.R. Donnelley & Sons Co.). The
suit also alleges that the company violated the Employee Retirement Income
Security Act (ERISA) in determining benefits payable to retiring or terminated
employees. On August 14, 1997, the court certified classes in both the age
discrimination and ERISA claims limited to former employees of the Chicago
catalog operations.
On June 30, 1998, a purported class action was filed against the company in
federal district court in Chicago on behalf of current and former African-
American employees, alleging that the company racially discriminated against
them in violation of Title VII of the Civil Rights Act of 1964 (Adams, et al.
v. R.R. Donnelley & Sons Co.). While making many of the same general
discrimination claims contained in the Jones complaint, the Adams plaintiffs
are also claiming retaliation by the company for the filing of discrimination
charges or otherwise complaining of race discrimination. The complaint seeks
the same relief and damages as sought in the Jones case.
Both the Jones and Gerlib cases relate primarily to the circumstances
surrounding the closing of the Chicago catalog operations. The company
believes that it acted properly in the closing of the operations. Further,
with regard to all three cases, the company believes it has a number of valid
defenses to all of the claims made and will vigorously defend its actions.
However, management is unable to make a meaningful estimate of any loss that
could result from an unfavorable outcome of any of the pending cases.
F-10
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the company is a party to certain litigation arising in the
ordinary course of business which, in the opinion of management, will not have
a material adverse effect on the operations or financial condition of the
company.
Retirement Plans
The company has seven principal retirement plans: the Retirement Benefit
Plan of R.R. Donnelley & Sons Company; an unfunded Supplemental Benefit Plan;
the Merged Retirement Income Plan for Employees at R.R. Donnelley Printing
Company, L.P. and R.R. Donnelley Printing Company; the Supplemental Unfunded
Retirement Income Plan for Employees of Meredith-Burda Corporation Limited
Partnership; the Supplemental Unfunded Retirement Income Plan for Employees of
Meredith-Burda Corporation; the Haddon Craftsman, Inc. Retirement Plan; and
the R.R. Donnelley UK Pension Plan.
The company's restated Retirement Benefit Plan (the Plan) is a
noncontributory defined benefit plan. Substantially all U.S. employees age 21
or older are covered by the Plan. Normal retirement age is 65, but reduced
early retirement benefits are paid to fully vested participants at or after
age 55. As required, the company uses the projected unit credit actuarial cost
method to determine pension cost for financial reporting purposes. In
conjunction with this method, the company amortizes deferred gains and losses
(using the corridor method) and prior service costs over the average remaining
service life of its active employee population. In addition, a transition
credit (the excess of Plan assets plus balance sheet accruals over the
projected obligation as of January 1, 1987) is amortized over 19 years. For
tax and funding purposes, the entry age normal actuarial cost method is used.
Plan assets include primarily government and corporate debt securities,
marketable equity securities, commingled funds and group annuity contracts
purchased from a life insurance company. In the event of Plan termination, the
Plan provides that no funds can revert to the company and any excess assets
over Plan liabilities must be used to fund retirement benefits.
In addition to pension benefits, the company provides certain health care
and life insurance benefits for retired employees. Most of the company's
regular full-time U.S. employees become eligible for these benefits upon
reaching age 55 while working for the company and having 10 years of
continuous service at retirement. The company funds a portion of the
liabilities associated with these plans through a tax-exempt trust. The assets
of the trust are invested primarily in life insurance covering some of the
company's employees.
F-11
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following represents the obligations and plan assets at fair value for
the company's pension and postretirement benefit plans at the respective year-
ends:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
---------------------- ------------------
1999 1998 1999 1998
---------- ---------- -------- --------
In Thousands
<S> <C> <C> <C> <C>
Benefit obligation at beginning of
year................................ $1,239,266 $1,109,098 $240,654 $233,437
Service cost......................... 54,220 42,979 7,742 9,508
Interest cost........................ 80,570 76,037 12,067 15,626
Plan participants' contribution...... 659 872 1,592 1,848
Amendments........................... 10,638 13,103 (4,223) --
Actuarial (gain) loss................ (100,892) 52,473 8,565 (1,894)
Acquisitions/plan
initiations/curtailments............ -- 3,008 -- 244
Expected benefits paid............... (51,658) (58,304) (14,683) (18,115)
---------- ---------- -------- --------
Benefit obligation at end of
year............................ $1,232,803 $1,239,266 $251,714 $240,654
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
---------------------- -----------------
1999 1998 1999 1998
---------- ---------- -------- --------
In Thousands
<S> <C> <C> <C> <C>
Fair value of plan assets at
beginning of year................... $1,671,693 $1,582,806 $317,586 $262,813
Actual return on plan assets......... 83,776 139,693 13,761 54,773
Acquisition.......................... -- 4,099 -- --
Employer contribution................ 1,621 2,527 -- --
Plan participants' contributions..... 659 872 -- --
Expected benefits paid............... (51,658) (58,304) -- --
---------- ---------- -------- --------
Fair value of plan assets at end
of year......................... $1,706,091 $1,671,693 $331,347 $317,586
========== ========== ======== ========
</TABLE>
The funded status of the plans reconcile with amounts on the consolidated
balance sheet as follows:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
In Thousands
<S> <C> <C> <C> <C>
Funded status........................ $ 473,288 $ 432,427 $ 79,633 $ 76,933
Unrecognized transition obligation... (64,484) (75,407) -- --
Unrecognized net actuarial (gain)
loss................................ (185,183) (140,141) (65,817) (77,739)
Unrecognized prior service cost...... 44,610 37,774 (16,093) (18,215)
Fourth quarter contribution
(payment)........................... 956 N/A (13,092) N/A
--------- --------- -------- --------
Net amount recognized............ $ 269,187 $ 254,653 $(15,369) $(19,021)
========= ========= ======== ========
</TABLE>
Amounts recognized in the consolidated statements of financial position
consist of:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
In Thousands
<S> <C> <C> <C> <C>
Prepaid benefit cost..................... $291,853 $254,653 $ -- $ --
Accrued benefit cost..................... (29,100) -- (15,369) (19,021)
Intangible asset......................... 5,943 -- -- --
Minimum pension liability adjustment..... 491 -- -- --
-------- -------- -------- --------
Net amount recognized................ $269,187 $254,653 $(15,369) $(19,021)
======== ======== ======== ========
</TABLE>
F-12
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average assumptions used in the actuarial computation that
derived the above amounts were as follows:
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate............................... 7.25% 6.75% 7.00% 7.25% 6.75% 7.00%
Expected return on plan assets.............. 9.50% 9.50% 9.50% 9.00% 9.00% 9.00%
Average rate of compensation increase....... 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
</TABLE>
For measuring other retirement benefits, a 6.6% annual rate of increase in
the per-capita cost of covered health care benefits was assumed for 2001 (the
trend rate occurring during 2000 to arrive at 2001 levels). The rate was
assumed to decrease gradually to 5.0% for 2008 and remain at that level
thereafter.
The components of the net periodic benefit cost and total income and expense
were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---------- --------- --------- -------- -------- --------
In Thousands
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 54,220 $ 42,979 $ 36,950 $ 10,322 $ 9,508 $ 8,584
Interest cost........... 80,570 76,037 71,548 16,089 15,626 16,010
Expected return on plan
assets................. (141,237) (130,140) (117,100) (23,734) (20,671) (18,304)
Amortization of
transition obligation.. (10,840) (10,863) (10,856) -- -- --
Amortization of prior
service cost........... 3,541 2,888 2,258 (6,345) (6,345) (6,463)
Amortization of
actuarial loss (gain).. 1,011 227 143 15 -- --
---------- --------- --------- -------- -------- --------
Net periodic benefit
cost............... $ (12,735) $ (18,872) $ (17,057) $ (3,653) $ (1,882) $ (173)
Curtailment loss (gain). 6 -- (1,281) -- 244 --
Settlement (income)
expense................ 688 -- 683 -- -- --
---------- --------- --------- -------- -------- --------
Total (income)
expense............ $ (12,041) $ (18,872) $ (17,655) $ (3,653) $ (1,638) $ (173)
========== ========= ========= ======== ======== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for all pension plans with accumulated benefit
obligations in excess of plan assets were $50 million, $37 million and $8
million, respectively, in 1999, and $150 million, $137 million and $107
million, respectively, in 1998.
Assumed health care cost trend rates have a significant effect on the
amounts reported for postretirement benefits. A one-percentage-point change in
assumed health care cost trend rates would have the following effects in 1999:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -----------
In Thousands
<S> <C> <C>
Effect on total of service and interest cost
components..................................... $ 170 $ (234)
Effect on postretirement benefit obligation..... $1,282 $(1,843)
</TABLE>
Employee 401(k) Savings Plan--The company has maintained a savings plan that
is qualified under Section 401(k) of the Internal Revenue Code. Substantially
all of the company's domestic employees are eligible for this plan. Under
provisions for this plan, employees may contribute up to 15% of eligible
compensation on a before-tax basis and up to 10% of eligible compensation on
an after-tax basis. During 1999, the company introduced a company match. The
company matches 50% of a participating employee's first 3% of before-tax
contributions. The total expense attributable to the match was $4.9 million in
1999.
F-13
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Cash payments for income taxes were $122 million, $152 million and $60
million in 1999, 1998 and 1997, respectively. The components of income tax
expense for the years ending December 31, 1999, 1998 and 1997, were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
In Thousands
<S> <C> <C> <C>
Federal
Current............................................. $102,086 $139,180 $66,609
Deferred............................................ 56,610 35,222 14,725
State................................................. 36,318 40,323 15,906
-------- -------- -------
Total............................................. $195,014 $214,725 $97,240
======== ======== =======
</TABLE>
The significant deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31
-----------------
1999 1998
-------- --------
In Thousands
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation................................... $171,086 $181,589
Investments................................................ 45,081 71,653
Pensions................................................... 108,464 102,600
Other...................................................... 52,766 60,195
-------- --------
Total deferred tax liabilities........................... 377,397 416,037
-------- --------
Deferred tax assets:
Postretirement benefits.................................... 6,563 8,122
Accrued liabilities........................................ 69,765 82,391
Net operating loss and other tax carryforwards............. 23,949 18,683
Investments................................................ 9,981 78,249
Other...................................................... 52,427 31,158
-------- --------
Total deferred tax assets................................ 162,685 218,603
Valuation allowance.......................................... 23,966 44,949
-------- --------
Net deferred tax liabilities................................. $238,678 $242,383
======== ========
</TABLE>
The company has used corporate-owned life insurance (COLI) to fund employee
benefits for several years. In 1996, the United States Health Care Reform Act
was passed, eliminating the deduction for interest from loans borrowed against
COLI programs. 1998 was the final year of the phase-out for deductions. The
Internal Revenue Service (IRS), in its routine audit of the company, has
disallowed the $34 million of tax benefit that resulted from the COLI interest
deductions claimed by the company in its 1990 to 1992 tax returns. The company
has challenged this position in a formal protest filed with the IRS Appeals
division.
On October 19, 1999, in a case involving a different corporate taxpayer, the
U.S. Tax Court disallowed deductions for loans against that taxpayer's COLI
program. Litigation involving other taxpayers also is pending in other courts.
Should the position of the U.S. Tax Court be upheld and applied to others, the
company could lose an additional maximum of $152 million in tax benefits for
periods from 1993 through 1998. In addition, should all or a portion of the
company's COLI deductions ultimately be disallowed, the company would be
liable for interest on those amounts. The company's maximum exposure for
interest should all prior COLI deductions be disallowed is approximately $51
million after-tax through December 31, 1999.
F-14
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The company believes that its circumstances differ from those involved in
the recent Tax Court decision. During the fourth quarter of 1999, however, the
company recorded an additional tax provision of $51 million ($0.40 per diluted
share) related to COLI. The company will continue to examine its position with
respect to the Tax Court opinion and resolution of other pending cases. The
ultimate resolution of these issues may have a material impact on the
company's results of operations and financial condition.
Also during the fourth quarter of 1999, the company recognized a tax benefit
of $35 million related to the sale of Stream International (refer to
"Divestitures" on page F-7 for additional information).
The following table outlines the reconciliation of differences between the
U.S. statutory tax rates and the rates used by the company in determining net
income:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate....................................... 35.0% 35.0% 35.0%
Sale of Stream International................................. (7.1) -- --
Foreign tax rates over (under) U.S. statutory rate........... 0.6 -- (1.6)
State and local income taxes, net of U.S. federal income tax
benefit..................................................... 4.7 4.4 3.4
Goodwill amortization........................................ 0.2 0.2 0.2
Expense (benefit) resulting from corporate-owned life
insurance programs.......................................... 10.9 (1.3) (4.4)
Affordable housing investment credits........................ (4.0) (3.4) (6.5)
Change in valuation allowance................................ (2.1) (0.1) 1.8
Other........................................................ 0.3 1.6 4.1
---- ---- ----
Total.................................................... 38.5% 36.4% 32.0%
==== ==== ====
</TABLE>
Debt Financing and Interest Expense
The company's debt consisted of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- ----------
In Thousands
<S> <C> <C>
Commercial paper and extendable commercial notes......... $ 141,521 $ 121,500
Medium-term notes due 2000-2005 at a weighted average
interest rate of 6.58%.................................. 266,000 370,000
9.125% debentures due December 1, 2000................... 199,934 199,862
8.875% debentures due April 15, 2021..................... 80,814 80,807
6.625% debentures due April 15, 2029..................... 198,886 --
8.820% debentures due April 15, 2031..................... 68,902 68,898
7.000% notes due January 1, 2003......................... 109,882 109,843
Other.................................................... 102,114 108,068
---------- ----------
Total................................................ $1,168,053 $1,058,978
========== ==========
</TABLE>
Based upon the interest rates currently available to the company for
borrowings with similar terms and maturities, the book value of the company's
debt exceeded its fair value at December 31, 1999, by approximately $18
million. The company's notes and debentures are not actively traded and all
but $200 million cannot be called, with the remainder callable by the company
at a premium.
At December 31, 1999, the company had available credit facilities of $400
million with a group of domestic and foreign banks, of which $200 million
expires October 14, 2000. The remaining $200 million is a five-year facility
that expires December 10, 2003. The credit arrangements provide support for
the issuance of commercial
F-15
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
paper and other credit needs. As of December 31, 1999, there has been no
borrowing under these credit facilities. The company pays an annual commitment
fee on the total unused credit facilities of 0.06% for the 364-day facility
and 0.08% for the five-year facility.
In 1999, the company changed its classification of short-term debt to
represent maturities within one year and restated the prior year to conform to
the current year presentation. Previously, commercial paper and certain short-
term debt were classified as long-term to the extent the company had the
ability and intent to maintain such debt on a long-term basis.
The weighted average interest rate on all commercial paper and extendable
commercial notes outstanding during 1999 was 5.12% (5.25% at December 31,
1999). Annual maturities of long-term debt (excluding commercial paper and
short-term debt) are as follows: 2001--$12 million, 2002--$81 million, 2003--
$134 million, 2004--$4 million, and $517 million thereafter.
The following table summarizes interest expense included in the Consolidated
Statements of Income:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
In Thousands
<S> <C> <C> <C>
Interest incurred.................................. $95,176 $83,162 $100,724
Amount capitalized as property, plant and
equipment......................................... (7,012) (4,996) (9,959)
------- ------- --------
Total.......................................... $88,164 $78,166 $ 90,765
======= ======= ========
</TABLE>
Interest paid, net of capitalized interest, was $86 million, $79 million and
$90 million in 1999, 1998 and 1997, respectively.
Earnings per Share
In accordance with SFAS No. 128, Earnings per Share, the company has
computed basic and diluted earnings per share (EPS), using the treasury stock
method.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
In Thousands, Except Per-
Share Data
<S> <C> <C> <C>
Average shares outstanding....................... 128,872 139,624 145,929
Effect of dilutive securities--options........... 694 2,241 1,579
-------- -------- --------
Average shares outstanding, adjusted for dilutive
effects......................................... 129,566 141,865 147,508
======== ======== ========
Income from continuing operations................ $311,515 $374,647 $206,525
Basic EPS...................................... $ 2.41 $ 2.68 $ 1.42
Diluted EPS.................................... 2.40 2.64 1.40
======== ======== ========
Loss from discontinued operations................ $ (3,201) $(80,067) $(15,894)
Loss on disposal of discontinued operations...... $ -- $ -- $(60,000)
Basic EPS...................................... $ (0.02) $ (0.57) $ (0.52)
Diluted EPS.................................... (0.02) (0.56) (0.51)
======== ======== ========
Net income....................................... $308,314 $294,580 $130,631
Basic EPS...................................... $ 2.39 $ 2.11 $ 0.90
Diluted EPS.................................... 2.38 2.08 0.89
======== ======== ========
</TABLE>
F-16
<PAGE>
Stock and Incentive Programs for Employees
Restricted Stock Awards--At December 31, 1999 and 1998, respectively, the
company had outstanding 424,000 and 400,000 restricted shares of its common
stock granted to certain officers. These shares are registered in the names of
the recipients, but are subject to conditions of forfeiture and restrictions
on sale or transfer for one to five years from the grant date. Dividends on
the restricted shares are paid currently to the recipients and, accordingly,
the restricted shares are treated as outstanding shares. The expense of the
grant is recognized evenly over the vesting period.
The value of the restricted stock awards was $11 million and $18 million
based upon the closing price of the company's stock at each year-end ($24.81
and $43.81 at December 31, 1999 and 1998, respectively). During 1999, a total
of 89,000 shares of restricted stock were issued with a grant date fair value
of $3 million. Charges to expense for this stock plan were $3 million, $4
million and $5 million in 1999, 1998 and 1997, respectively.
Stock Purchase Plan--Prior to 1999, the company had a stock purchase plan
for selected managers and key staff employees. Under the plan, the company was
required to contribute an amount equal to 70% of participants' contributions,
of which 50% was applied to the purchase of stock and 20% was paid in cash.
The amount charged to expense for this plan was $9 million in 1998. In 1997,
the company failed to meet performance targets required under the plan, and no
expenses were incurred.
Incentive Compensation Plans--In 1998, the company implemented a new
management incentive plan designed to provide incentive compensation to
executive officers that is closely tied to the creation of value for company
shareholders. Awards under the new plan have been based largely on the
achievement of Economic Value Added (EVA) improvement targets, along with
earnings-per-share objectives and other individual and strategic targets. The
new plan combines aspects of both an annual and long-term plan by adding a
"banking" feature, in which a portion of the amount earned in the year is paid
out to participants and a portion is deferred for payout in subsequent years.
The company has accrued for both the portion currently payable and the
deferred component. Prior to 1998, the company had both an annual incentive
plan and a long-term incentive plan for its executive officers. The company's
incentive compensation plans for other officers, managers and supervisors are
based primarily on annual improvements in EVA.
Stock Options--The company had two authorized stock incentive plans that
expired in 1999. Under these plans, there were 3.2 million shares and 2.1
million shares, respectively, that were authorized but not granted as of the
respective plan expiration dates of January 24, 1999, and December 31, 1999.
None of these authorized but ungranted shares may be awarded after the
respective plan expiration dates. Options granted prior to plan expiration
remain outstanding subject to the terms of the awards. Options under these
plans vest from one to nine and one-half years after date of grant and may be
exercised, once vested, up to 10 years from the date of grant. The company
accounts for employee stock options under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, under which no
compensation cost has been recognized. Had compensation cost been determined
consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the
company's net income from continuing operations and respective earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
In Thousands, Except Per-
Share Data
<S> <C> <C> <C>
Income from continuing operations:
As reported....................................... $311,515 $374,647 $206,525
Pro forma......................................... 297,131 358,991 191,331
Basic earnings per share:
As reported....................................... $ 2.41 $ 2.68 $ 1.42
Pro forma......................................... 2.31 2.57 1.31
Diluted earnings per share:
As reported....................................... $ 2.40 $ 2.64 $ 1.40
Pro forma......................................... 2.29 2.53 1.30
</TABLE>
F-17
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option granted during the year is estimated on the
date of grant using the Black Scholes option-pricing model with the following
range of assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yield.................................... 2.66% 1.98% 2.24%
Expected volatility............................... 34.13% 26.51% 25.10%
Risk-free interest rate........................... 5.85% 5.28% 6.32%
Expected life..................................... 10 Years 10 Years 10 Years
</TABLE>
A summary of the status of the company's option activity is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(Thousands) Price (Thousands) Price (Thousands) Price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 12,398 $34.80 13,958 $33.04 14,916 $31.68
Options granted......... 1,863 34.23 1,627 41.81 1,485 40.28
Options exercised....... (257) 26.18 (2,387) 29.77 (1,535) 25.25
Options forfeited....... (572) 38.29 (800) 33.47 (908) 35.60
------ ------ ------ ------ ------ ------
Options outstanding at
end of year............ 13,432 $34.73 12,398 $34.80 13,958 $33.05
====== ====== ====== ====== ====== ======
Options exercisable at
end of year............ 8,980 $33.10 7,344 $31.93 6,397 $28.57
====== ====== ====== ====== ====== ======
Weighted average fair
value of options
granted with:
Exercise price equal
to stock price on
grant date........... $13.21 $15.01 $11.20
Exercise price
exceeding stock price
on grant date........ N/A N/A $ 8.10
</TABLE>
The following summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Average Weighted Weighted
Remaining Average Average
Shares Contractual Exercise Shares Exercise
(Thousands) Life Price (Thousands) Price
----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$19.63-$38.06............. 10,530 5.83 $31.88 7,854 $31.53
$38.07-$76.96............. 2,902 7.51 $45.07 1,126 $44.09
------ ---- ------ ----- ------
$19.63-$76.96............. 13,432 6.19 $34.73 8,980 $33.10
====== ==== ====== ===== ======
</TABLE>
Other Information--Under the stock programs, authorized unissued shares or
treasury shares may be used. The company intends to reacquire shares of its
common stock to meet the stock requirements of these programs in the future.
F-18
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred Stock
The company has two million shares of $1.00 par value preferred stock
authorized for issuance. The Board of Directors may divide the preferred stock
into one or more series and fix the redemption, dividend, voting, conversion,
sinking fund, liquidation and other rights. The company has no present plans
to issue any preferred stock. One million of the shares are reserved for
issuance under the "Shareholder Rights Plan" discussed below.
Shareholder Rights Plan
The company maintains a Shareholder Rights Plan (the Plan) designed to deter
coercive or unfair takeover tactics, to prevent a person or group from gaining
control of the company without offering fair value to all shareholders and to
deter other abusive takeover tactics that are not in the best interest of
shareholders.
Under the terms of the Plan, each share of common stock is accompanied by
one right; each right entitles the shareholder to purchase from the company
one one-thousandth of a newly issued share of Series A Junior Preferred Stock
at an exercise price of $140.
The rights become exercisable 10 days after a public announcement that an
acquiring person (as defined in the Plan) has acquired 15% or more of the
outstanding common stock of the company (the Stock Acquisition Date), 10
business days after the commencement of a tender offer that would result in a
person owning 15% or more of such shares or 10 business days after an adverse
person (as defined in the Plan) has acquired 10% or more of such shares and
such ownership interest is likely to have a material adverse impact on the
company. The company can redeem the rights for $0.01 per right at any time
until 10 days following the Stock Acquisition Date (under certain
circumstances, the 10-day period can be shortened or lengthened by the
company). The rights will expire on August 8, 2006, unless redeemed earlier by
the company.
If, subsequent to the rights becoming exercisable, the company is acquired
in a merger or other business combination at any time when there is a 15% or
more holder, the rights will then entitle a holder (other than a 15% or more
shareholder or an adverse person) to buy shares of the acquiring company with
a market value equal to twice the exercise price of each right. Alternatively,
if a 15% holder acquires the company by means of a merger in which the company
and its stock survives, if any person acquires 15% or more of the company's
common stock or if an adverse person acquires 10% or more of the company's
common stock and such ownership is likely to have a material adverse impact on
the company, each right not owned by a 15% or more shareholder or an adverse
person would become exercisable for common stock of the company (or, in
certain circumstances, other consideration) having a market value equal to
twice the exercise price of the right.
Industry Segment Information
The company operates exclusively in the commercial printing industry.
Substantially all revenues result from the sale of printed products to
customers in the following end-markets: Book Publishing Services, Financial
Services, Magazine Publishing Services, Merchandise Media and
Telecommunications. The company's management has aggregated its commercial
print businesses as one reportable segment because of strong similarities in
the economic characteristics, nature of products and services, production
processes, class of customer and distribution methods used. The company's
investment in discontinued operations has been disclosed as a separate
reportable segment, as the revenues generated from these businesses are
unrelated to the commercial printing industry (refer to the "Discontinued
Operations" footnote on page F-7 for additional information).
F-19
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The company has disclosed earnings (loss) from operations as the primary
measure of segment earnings (loss). This is the measure of profitability used
by the company's chief operating decision-maker that is most consistent with
the presentation of profitability reported within the consolidated financial
statements. The accounting policies of the business segments reported are the
same as those described in the "Summary of Significant Accounting Policies"
(page F-6).
<TABLE>
<CAPTION>
Commercial Discontinued Consolidated
Print Operations(1) Corporate(2) Other(3) Total
---------- ------------- ------------ -------- ------------
In Thousands
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Sales................... $4,971,021 $ -- $ -- $212,387 $5,183,408
Restructuring and
impairment charges..... -- -- -- -- --
Earnings from
operations............. 518,848 -- 4,593 6,986 530,427
Earnings (loss) from
continuing operations
before income taxes.... 537,595 -- (37,189) 6,123 506,529
Assets.................. 3,179,418 -- 674,046 -- 3,853,464
Depreciation and
amortization........... 339,975 -- 19,288 15,119 374,382
Capital expenditures.... 209,120 -- 56,346 10,360 275,826
1998
Sales................... $4,804,824 $ -- $ -- $213,612 $5,018,436
Restructuring and
impairment charges..... -- -- -- -- --
Earnings (loss) from
operations............. 488,126 -- 1,965 (1,673) 488,418
Earnings (loss) from
continuing operations
before income taxes.... 508,390 -- 82,343 (1,361) 589,372
Assets.................. 3,055,084 45,476 606,471 91,086 3,798,117
Depreciation and
amortization........... 342,318 -- 16,507 17,246 376,071
Capital expenditures.... 169,748 -- 38,916 16,558 225,222
1997
Sales................... $4,706,098 -- $ -- $186,846 $4,892,944
Restructuring and
impairment charges..... 56,979 -- 13,723 -- 70,702
Earnings from
operations............. 339,723 -- 21,729 7,336 368,788
Earnings (loss) from
continuing operations
before income taxes.... 366,631 -- (69,162) 6,296 303,765
Assets.................. 3,120,615 154,707 771,695 87,149 4,134,166
Depreciation and
amortization........... 336,176 -- 20,526 14,409 371,111
Capital expenditures.... 309,390 -- 31,359 19,446 360,195
</TABLE>
- --------
1 Refer to "Discontinued Operations" footnote (page F-7).
2 Corporate earnings consist primarily of the following unallocated items:
net earnings of benefit plans (excluding service costs) of $83 million, $84
million and $70 million in 1999, 1998 and 1997, respectively, which were
offset by general corporate, management and information technology costs.
In addition to earnings from operations, corporate earnings before income
taxes include: 1999 net interest expense of $80 million and gains on the
sale of businesses and investments of $43 million; 1998 net interest
expense of $79 million and gains on the sale of the company's remaining
interests in two former subsidiaries of $169 million; and 1997 net interest
expense of $90 million and gains on the sale of assets of $14 million.
Corporate assets consist primarily of the following unallocated items at
December 31: 1999--benefit plan assets of $298 million, investments in
affordable housing of $139 million, fixed assets of $95 million and
refundable income taxes of $77 million; 1998--benefit plan assets of $285
million, investments in affordable housing of $120 million and fixed assets
of $118 million; and 1997--benefit plan assets of $288 million, the
investment in Metromail of $145 million, investments in affordable housing
of $102 million and fixed assets of $90 million.
3 Represents other operating segments of the company.
F-20
<PAGE>
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic Area Information
<TABLE>
<CAPTION>
Domestic International Combined
---------- ------------- ----------
In Thousands
<S> <C> <C> <C>
1999
Sales....................................... $4,600,986 $582,422 $5,183,408
Long-lived assets(1)........................ 2,310,581 313,033 2,623,614
1998
Sales....................................... 4,517,882 500,554 5,018,436
Long-lived assets(1)........................ 2,362,042 280,784 2,642,826
1997
Sales....................................... 4,436,620 456,324 4,892,944
Long-lived assets(1)........................ 2,735,464 252,131 2,987,595
</TABLE>
- --------
(1) Includes net property, plant and equipment, goodwill and other intangibles,
net assets of discontinued operations and other noncurrent assets.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of R.R.
Donnelley & Sons Company (a Delaware corporation) and Subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of R.R. Donnelley & Sons
Company and Subsidiaries as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
January 27, 2000
(except with respect to the matter
discussed in the subsequent event
footnote, as to which the date is
February 7, 2000)
F-22
<PAGE>
UNAUDITED INTERIM FINANCIAL INFORMATION, DIVIDEND
SUMMARY AND FINANCIAL SUMMARY
In Thousands, Except Per-Share Data
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Full Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999
Net sales............... $1,179,816 $1,195,170 $1,340,143 $1,468,279 $5,183,408
Gross profit............ 242,936 259,250 321,655 335,166 1,159,007
Income from continuing
operations............. 45,800 53,674 85,587 126,454 311,515
Loss from discontinued
operations, net of
income taxes........... (1,820) (1,187) -- (194) (3,201)
Net income.............. 43,980 52,487 85,587 126,260 308,314
Net income per diluted
share.................. 0.33 0.40 0.67 1.01 2.38
Stock market high....... 43 13/16 37 15/16 36 15/16 30 1/4 43 13/16
Stock market low........ 32 1/8 31 3/8 27 3/4 22 13/16 22 13/16
Stock market closing
price.................. 32 3/16 37 1/16 28 7/8 24 13/16 24 13/16
1998
Net sales............... $1,173,598 $1,155,963 $1,274,479 $1,414,396 $5,018,436
Gross profit............ 218,059 240,748 294,020 305,370 1,058,197
Income from continuing
operations............. 44,206 138,804 99,244 92,393 374,647
Loss from discontinued
operations, net of
income taxes........... -- (80,067) -- -- (80,067)
Net income.............. 44,206 58,737 99,244 92,393 294,580
Net income per diluted
share.................. 0.30 0.41 0.71 0.67 2.08
Stock market high....... 42 1/8 46 1/4 47 3/4 44 11/16 47 3/4
Stock market low........ 35 1/8 42 1/16 34 13/16 34 34
Stock market closing
price.................. 41 1/16 45 3/4 35 3/16 43 13/16 43 13/16
</TABLE>
Stock prices reflect New York Stock Exchange composite quotes.
Dividend Summary
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Quarterly rate per common share*............ $0.215 $0.205 $0.195 $0.185 $0.170
Yearly rate per common share................ 0.86 0.82 0.78 0.74 0.68
</TABLE>
- --------
* Averages (1999--$0.21 first two quarters and $0.22 last two quarters;
1998--$0.20 first two quarters and $0.21 last two quarters; 1997--$0.19
first two quarters and $0.20 last two quarters; 1996--$0.18 first two
quarters and $0.19 last two quarters; 1995--$0.16 first two quarters and
$0.18 last two quarters).
F-23
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
In Thousands, Except Per-Share Data
<S> <C> <C> <C> <C> <C>
Net sales............... $5,183,408 $5,018,436 $4,892,944 $5,063,821 $5,080,775
Income (loss) from
continuing operations.. 311,515 374,647 206,525 (71,483) 275,952
Loss on disposal of
discontinued
operations............. -- -- (60,000) -- --
(Loss) income from
discontinued
operations............. (3,201) (80,067) (15,894) (86,142) 22,841
Net income (loss)**..... 308,314 294,580 130,631 (157,625) 298,793
Per diluted common
share**................ 2.38 2.08 0.89 (1.04) 1.92
Total assets............ 3,853,464 3,798,117 4,134,166 4,443,828 5,030,680
Noncurrent liabilities.. 1,511,743 1,447,852 1,730,047 2,044,818 2,012,635
</TABLE>
- --------
** Net income (loss) includes the following one-time items: 1999 gains on the
sale of businesses and investments ($27 million after-tax, or $0.20 per
diluted share); 1998 gains on the sale of the company's remaining interests
in two former subsidiaries of $169 million ($101 million after-tax, or
$0.71 per diluted share); 1997 restructuring and impairment charges of $71
million ($42 million after-tax, or $0.29 per diluted share); 1996
restructuring and impairment charges of $442 million ($374 million after
taxes and minority interest, or $2.45 per diluted share), and gains on
partial divestiture of subsidiaries of $80 million ($48 million after-tax,
or $0.31 per diluted share).
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders of
R.R. Donnelley & Sons Company:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in the Company's Annual Report to
Shareholders included in this Form 10-K, and have issued our report thereon
dated January 27, 2000 (except with respect to the matter discussed in the
subsequent event footnote, as to which the date is February 7, 2000). Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the index to the financial statements and
financial statement schedules is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 27, 2000
(except with respect to the
matter discussed in the
subsequent event footnote,
as to which the date is
February 7, 2000)
F-25
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts
Transactions affecting the allowances for doubtful accounts during the years
ended December 31, 1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
Thousands of dollars
<S> <C> <C> <C>
Allowance for trade receivable losses:
Balance, beginning of year................. $ 14,279 $ 16,259 $14,205
Balance, companies (sold) acquired during
year...................................... 1,768 -- --
Provisions charged to income............... 11,259 12,551 10,676
-------- -------- -------
27,306 28,810 24,881
Uncollectible accounts written off, net of
recoveries................................ (11,845) (14,531) (8,622)
-------- -------- -------
Balance, end of year....................... $ 15,461 $ 14,279 $16,259
======== ======== =======
</TABLE>
F-26
<PAGE>
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
Description Exhibit No.
------- --------
<S> <C>
Restated Certificate of Incorporation(1)....................... 3(1)
By-Laws........................................................ 3(ii)(a)
Amendment to By-Laws adopted January 27, 2000 ................. 3(ii)(b)
Form of Rights Agreement, dated as of April 25, 1996 between
R.R. Donnelley & Sons Company and First Chicago Trust Company
of New York(2)................................................ 4(a)
Instruments Defining the Rights of Security Holders(3)......... 4(b)
Indenture dated as of November 1, 1990 between the Company and
Citibank, N.A. as Trustee(4).................................. 4(c)
Five-Year Credit Agreement dated December 11, 1998 among R.R.
Donnelley & Sons Company, the Banks named therein and The
First National Bank of Chicago, as Administrative Agent(5).... 4(d)
364-Day Credit Agreement dated October 14, 1999 among R.R.
Donnelley & Sons Company, the Banks named therein and The
First National Bank of Chicago, as Administrative Agent....... 4(e)
Donnelley Deferred Compensation and Voluntary Savings Plan(6).. 4(f)
Amendment to Donnelley Deferred Compensation and Voluntary
Savings Plan adopted June 30, 1999............................ 4(g)
Retirement Policy for Directors, as amended**.................. 10(a)
Directors' Deferred Compensation Agreement, as amended(7)**.... 10(b)
Donnelley Shares Stock Option Plan, as amended(8).............. 10(c)
1993 Stock Ownership Plan for Non-Employee Directors, as 10(d)
amended(9)**...................................................
Senior Management Annual Incentive Plan, as amended(7)**....... 10(e)
Form of Severance Agreement for Senior Officers, as amended**.. 10(f)
1986 Stock Incentive Plan, as amended(9)**..................... 10(g)
1991 Stock Incentive Plan, as amended(9)**..................... 10(h)
1995 Stock Incentive Plan, as amended(7)**..................... 10(i)
Forms of option agreement with certain executive officers and
directors, as amended(10)**................................... 10(j)
Form of option agreement with non-employee directors, as
amended(7)**.................................................. 10(k)
Unfunded Supplemental Benefit Plan(4)**........................ 10(l)
Amendment to Unfunded Supplemental Benefit Plan adopted on
April 25, 1991(11)**.......................................... 10(m)
Employment Agreement between R.R. Donnelley & Sons Company and
William L. Davis(12)**........................................ 10(n)
Premium-Priced Option Agreement between R.R. Donnelley & Sons
Company and William L. Davis(12)**............................ 10(o)
Employment Agreement between R.R. Donnelley & Sons Company and
Cheryl A. Francis(7)**........................................ 10(p)
Computation of Ratio of Earnings to Fixed Charges.............. 12
Subsidiaries of R.R. Donnelley & Sons Company.................. 21
Consent of Independent Public Accountants dated March 30, 23
2000..........................................................
Financial Data Schedule........................................ 27
</TABLE>
E-1
<PAGE>
- --------
*Filed with the Securities and Exchange Commission. Each such exhibit
may be obtained by a shareholder of the Company upon payment of $5.00
per exhibit.
**Management contract or compensatory plan or arrangement.
(1) Filed as Exhibit to Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996, filed on May 3, 1996, and incorporated
herein by reference.
(2) Filed as Exhibit to Form 8-A filed on June 5, 1996, and
incorporated herein by reference.
(3) Instruments, other than that described in 4(c) and 4(d), defining
the rights of holders of long-term debt not registered under the
Securities Exchange Act of 1934 of the registrant and of all
subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed are being omitted pursuant to
paragraph (4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees
to furnish a copy of any such instrument to the Commission upon
request.
(4) Filed as Exhibit with Form SE filed on March 26, 1992, and
incorporated herein by reference.
(5) Filed as Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1998 filed on March 31, 1999 and incorporated herein by
reference.
(6) Filed as Exhibit to Form S-8, filed on June 18, 1999 and
incorporated herein by reference.
(7) Filed as Exhibit to Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998, filed on November 12, 1998, and
incorporated herein by reference.
(8) Filed as Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1996, filed on March 10, 1997, and incorporated herein by
reference.
(9) Filed as Exhibit to Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996, filed on November 1, 1996, and
incorporated herein by reference.
(10) Filed as Exhibit to Form S-3 filed on January 15, 1998, and
incorporated herein by reference.
(11) Filed as Exhibit with Form SE filed on May 9, 1991 and
incorporated herein by reference.
(12) Filed as Exhibit to Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, filed on May 7, 1997, and
incorporated herein by reference.
E-2
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 3(ii)(a)
As Amended through March 23, 2000
BY-LAWS OF
R. R. DONNELLEY & SONS COMPANY
ARTICLE I
---------
Section 1.1. Principal Office. The principal office in the State of
------------ -----------------
Delaware shall be in the City of Wilmington, County of New Castle, State of
Delaware, and the name of the resident agent in charge thereof is The
Corporation Trust Company.
Section 1.2. Other Offices. The corporation may also have offices at such
------------ --------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 2.1. Annual Meeting. The annual meeting of the stockholders shall
------------ ---------------
be held on the fourth Thursday in March of each year for the purpose of electing
Directors of the class for which the term expires on that date and for the
transaction of such other business as may properly be brought before the
meeting. Such meeting shall be held at eight o'clock in the morning or such
other time during normal business hours as may be fixed by the Board of
Directors and stated in the notice of the meeting. If the day fixed for the
annual meeting shall be a legal holiday, the Board of Directors may, subject to
the provisions of Article X hereof, designate another day on which such meeting
shall be held. If the election of Directors shall not be held on the date
designated for any annual meeting, or any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as conveniently may be.
Except as otherwise provided by statute or the certificate of incorporation,
the only business which properly shall be conducted at any annual meeting of the
stockholders shall (i) have been specified in the written notice of the meeting
(or any supplement thereto) given as provided in Section 2.4, (ii) be brought
before the meeting by or at the direction of the Board of Directors or the
officer of the corporation presiding at the
<PAGE>
meeting or (iii) have been specified in a written notice (a "Stockholder Meeting
Notice") given to the corporation, in accordance with all of the following
requirements, by or on behalf of any stockholder who is entitled to vote at such
meeting. Each Stockholder Meeting Notice must be delivered personally to, or be
mailed to and received by, the Secretary of the corporation at the principal
executive offices of the corporation in the City of Chicago, State of Illinois,
not less than 60 days nor more than 90 days prior to the annual meeting;
provided, however, that in the event that less than 75 days' notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made, whichever first occurs. Each Stockholder Meeting Notice shall set
forth: (i) a description of each item of business proposed to be brought before
the meeting and the reasons for conducting such business at the annual meeting;
(ii) the name and record address of the stockholder proposing to bring such item
of business before the meeting and the reasons for conducting such business at
the annual meeting; (iii) the class and number of shares of stock held of
record, owned beneficially and represented by proxy by such stockholder as of
the record date for the meeting (if such date shall then have been made publicly
available) and as of the date of such Stockholder Meeting Notice and (iv) all
other information which would be required to be included in a proxy statement
filed with the Securities and Exchange Commission if, with respect to any such
item of business, such stockholder were a participant in a solicitation subject
to Section 14 of the Securities Exchange Act of 1934. No business shall be
brought before any annual meeting of stockholders of the corporation otherwise
than as provided in this Section; provided, however, that nothing contained in
this Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting. The officer of the
corporation presiding at the annual meeting of stockholders shall, if the facts
so warrant, determine that business was not properly brought before the meeting
in accordance with the provisions of this Section and, if he should so
determine, he should so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted. (Amended 10/27/94)
Section 2.2. Special Meetings. Special meetings of the stockholders, for
------------ -----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chief Executive Officer,
President, or the Chairman of the Board, and shall be called by the Secretary
pursuant to a resolution
2
<PAGE>
duly adopted by the affirmative vote of a majority of the whole Board of
Directors. Such call shall state the purposes of the proposed meeting. Business
transacted at any special meeting shall be limited to the general objectives
stated in the call. (Amended 12/15/88)
Section 2.3. Place of Meeting. All meetings of stockholders for the
------------ -----------------
election of Directors shall be held in the City of Chicago, County of Cook,
State of Illinois and the Board of Directors is authorized to fix the place
within the City of Chicago for the holding of such meeting. Meetings of
stockholders for any other purpose may be held at such place, within or without
the State of Delaware, and time as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof. (Amended 1/9/57)
Section 2.4. Notice of Meetings. Written or printed notice stating the
------------ -------------------
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the Board of Directors, the
Chief Executive Officer, the Chairman of the Board or the President, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail in a
sealed envelope addressed to the stockholder at his address as it appears on the
records of the corporation, with postage thereon prepaid. (Amended 12/15/88)
Section 2.5. Closing Transfer Books or Fixing Record Date. The Board of
------------ ---------------------------------------------
Directors may close the stock transfer books of the corporation for a period not
exceeding fifty (50) days preceding the date of any meeting of stockholders, or
the date for payment of any dividend, or the date for the allotment of rights or
the date when any change, or conversion or exchange of capital stock shall go
into effect or for a period of not exceeding fifty (50) days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding fifty (50) days preceding the date of any meeting of the
stockholders, or the date for payment of any dividend, or the date for the
allotment of rights, or the date when any change, or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining such
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such
3
<PAGE>
consent and in such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such notice
of and to vote at, such meeting and any adjournment thereof, or to receive
payments of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
Section 2.6. Voting List. At least ten days before every election of
------------ ------------
Directors, a complete list of the stockholders entitled to vote at such
election, arranged in alphabetical order with the residence of and the number of
voting shares held by each, shall be prepared by the Secretary. Such list shall
be open at the place where said election is to be held for ten days, to the
examination of any stockholders, and shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 2.7. Quorum. The holders of a majority of the stock issued and
------------ -------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.8. Proxies. At all meetings of stockholders a stockholder may
------------ --------
vote by proxy properly submitted by the stockholder or his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy. (Amended 1/28/99)
Section 2.9. Voting. When a quorum is present at any meeting of
------------ -------
stockholders, the affirmative vote of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall decide any question brought before such meeting, unless
the question is one upon which, by express provision of the statutes, the
certificate of incorporation or these by-laws, a
4
<PAGE>
different vote is required, in which case such express provision shall govern
and control the decision of such question. Every stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than
eleven months prior to voting, unless such instrument provides for a longer
period. Every such stockholder shall have one vote for each share of stock
having voting power registered in his name on the books of the corporation.
Except where the transfer books of the corporation shall have been closed or a
date shall have been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted on at any
election for Directors which has been transferred on the books of the
corporation within twenty days next preceding such election of Directors.
(Amended 1/28/93)
Section 2.10. Voting of Stock of Certain Holders. Shares standing in the
------------- -----------------------------------
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by
executor or administrator of such deceased person, either in person or by proxy.
Shares standing in the name of a guardian, conservator or trustee may be voted
by such fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of
such shares into the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A stockholder whose shares are pledged
shall be entitled to vote such shares, unless in the transfer by the pledger or
on the books of the corporation, he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent the stock
and vote thereon.
Section 2.11. Treasury Stock. The corporation shall not vote shares of its
------------- ---------------
own stock directly or indirectly; and such shares shall not be counted in
determining the total number of outstanding shares.
Section 2.12. Election of Directors. When a quorum is present at any
------------ ---------------------
meeting of stockholders, directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at such meeting of
stockholders and entitled to vote on the election of directors. (New Section
10/22/92)
ARTICLE III
-----------
Directors
---------
5
<PAGE>
Section 3.1. General Powers. The property and business of the corporation
------------ ---------------
shall be managed by its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders. (Amended 9/28/90)
Without limiting the generality of the foregoing, it shall be the
responsibility of the Board of Directors to establish broad objectives and the
general course of the business, determine basic policies, appraise the adequacy
of overall results, and generally represent and further the interests of the
Company's stockholders and insure the most effective use of the Company's
assets.
Several examples of the responsibilities of the Board are as follows:
1. Establish broad Company objectives and basic policies and maintain overall
control of the business.
2. Make necessary revisions of the by-laws (in accordance with Article X).
3. Determine dividend action (in accordance with Article VIII).
4. Authorize necessary action with respect to issuance of new securities and
listing securities for trading on exchanges.
5. Fix time and place and take other necessary action with respect to
stockholders meetings (in accordance with Article II).
6. Approve issuance of stock certificates to replace those lost or destroyed
(in accordance with Section 7.2).
7. Fill Vacancies in the Board of Directors (in accordance with Section 3.8).
8. Elect the officers of the corporation (in accordance with Section 4.2.)
and appraise their performance.
9. Determine the basic organization structure of the business.
10. Authorize any necessary action with respect to loans and pledging of
assets (in accordance with Section 6.2.).
6
<PAGE>
11. Designate officers authorized to buy or sell corporate investment
securities.
12. Designate persons authorized to execute contracts and other documents
requiring signatures of officers or specific individuals (in accordance
with Section 6.1).
13. Select, or designate those authorized to select, depositaries for
corporate funds and investment securities and designate check signatories
and persons authorized to have access to safe deposit boxes (in accordance
with Sections 6.3 and 6.4).
14. Approve proposals to convey corporate-owned land or buildings or
designate those authorized to take such action.
15. Designate the person or persons authorized to appoint proxies to vote
stock in subsidiary and other concerns in which the corporation has a
significant interest and the person or persons authorized to determine
who shall serve as Directors in representing the parent corporation in
such concerns.
16. Designate stock transfer agents, registrars, and paying agents with
respect to corporate securities and other special purpose agents.
17. Procure special professional services required by and for the Board.
18. Provide for issuance of an annual report to stockholders and such other
reports and notices as the Board deems advisable.
19. Employ, upon recommendation of the Audit Committee (in accordance with
Section 3.13), public accountants to audit the corporation's financial
statements.
20. Review and approve new employee benefit plans and major revisions of
employee stock incentive plans.
21. Review and approve the actions of the Executive Committee as reported in
the minutes of their meetings.
22. Approve the annual operating budget.
23. Review and approve the annual capital budget.
24. Direct the manner of handling matters outside the ordinary course of
business of the corporation.
7
<PAGE>
Section 3.2. Number, Election and Term. The number of Directors which shall
------------ --------------------------
constitute the whole Board shall be ten (10) of whom four (4) shall be Directors
of the First Class, three (3) shall be Directors of the Second Class and three
(3) shall be Directors of the Third Class. The term of office of each class
shall be three years, with the term of one class expiring in each year, and the
successors to the class of Directors whose terms shall expire shall be elected
at each annual election or adjournment thereof. Each Director shall hold office
until his successor shall be elected and shall qualify or until his earlier
resignation or removal. Directors need not be residents of Delaware or
stockholders. (Amended 9/29/95, 11/7/96, 3/18/97, 12/1/97, 3/25/99, 3/23/00)
Section 3.3. Meetings. The Board of Directors may hold meetings, both
------------ ---------
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
such place as may from time to time be determined by the Board. Special
meetings of the Board of Directors may be called by or at the request of the
Chief Executive Officer, the Chairman of the Board, a Vice Chairman, President,
or any two directors. (Amended 12/15/88)
Section 3.4. Notice. Notice of any special meeting of the Board of
------------ -------
Directors stating the place, date and hour of the special meeting shall be given
in writing to each director, either personally, or by mail, telex, telegram or
cable, addressed to the director's residence or usual place of business, not
less than two days before the date of such meeting, or by such other means,
whether or not in writing, and within such lesser period, as circumstances
require in the reasonable judgment of the person calling the meetings. If
mailed, such notice shall be deemed to be given at the time when it is deposited
in the United States mail with first class postage prepaid. Notice by telegram
or cable shall be deemed given when the notice is delivered to the telegraph or
cable company; notice by telex shall be deemed given when the notice is
transmitted by telex. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice at
such meeting, except where the director attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting, unless otherwise provided by
statute, the Certificate of Incorporation or these By-Laws. (Amended 6/24/76)
8
<PAGE>
Section 3.5. Quorum. A majority of the Board of Directors shall constitute
------------ -------
a quorum for the transaction of business at any meeting of the Board of
Directors, provided, that if less than a majority of the Directors are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice. (Renumbered 6/24/76)
Section 3.6. Manner of Acting. The act of the majority of the Directors
------------ -----------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. (Renumbered 6/24/76)
Section 3.7. Use of Communications Equipment. Members of the Board of
------------ --------------------------------
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting. (New Section
6/24/76)
Section 3.8. Vacancies and Additional Directors. Any director may resign at
------------ -----------------------------------
any time upon written notice to the corporation. If any vacancy occurs in the
Board of Directors caused by death, resignation, retirement, disqualification or
removal from office of any Director, or otherwise, or if any new directorship is
created by any increase in the authorized number of Directors, a majority of the
Directors then in office, though less than a quorum may choose a successor or
fill the newly created directorship; and a Director so chosen shall hold office
until the next annual election at which Directors of the class to which he was
chosen are elected and until his successor shall be duly elected and shall
qualify or until his earlier resignation or removal. (Amended 3/26/70)
Section 3.9. Compensation. Directors who are not full-time employees of the
------------ -------------
Company shall receive a stated salary and may receive options to purchase shares
of the Company's stock as provided under the Company's stock plans, for their
services, and, in addition thereto, shall receive a fixed fee and expenses, if
any, for attendance at each regular or special meeting of the Board of Directors
from time to time. Directors who are full-time employees of the Company shall
not receive any compensation for their services as such; provided that nothing
herein contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation thereof. (Amended
3/28/91)
Section 3.10. Executive Committee. The Board of Directors, by resolution
------------- --------------------
adopted by a majority of the
9
<PAGE>
whole Board, may designate not fewer than three nor more than seven Directors to
constitute an Executive Committee. The Chairman of the Executive Committee shall
be the Chief Executive Officer. The Executive Committee shall have and exercise
all of the authority of the Board of Directors in the management of the
corporation, except that such Committee shall not have the power to take
specific actions which have been delegated to other committees of the Board and
shall not be empowered to take action with respect to: declaring dividends;
issuing bonds, debentures, or the borrowing of moneys except within limits
expressly approved by the Board of Directors; amending by-laws; filling
vacancies and newly created directorships in the Board of Directors; removing
Directors of the corporation; mergers or consolidations; the sale, lease or
exchange of all or substantially all of the assets of the corporation;
dissolution; or any other action requiring the approval of stockholders. The
designation of such Committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors or any member thereof of any
responsibility imposed upon it or him by law. (Amended 9/28/90, 10/26/95)
Section 3.11. Finance Committee. The Board of Directors, by resolution
------------- ------------------
adopted by a majority of the whole Board, may designate not fewer than three nor
more than seven Directors, a majority of whom shall not be employees of the
Company, to constitute a Finance Committee, which Committee is charged with
reviewing the overall financial policies of the Company and making
recommendations to the Board regarding the Company's financial condition and
requirements for and disposition of funds, including: capital structure,
raising long-term capital, dividend policy, and material changes in the
Company's financial position with respect to cash, investments, debt and
accounts receivable. The Committee shall review the performance and management
of the Company's Retirement Benefit Plan including the investment policy, the
performance of the Investment Trustee on a regular periodic basis, the
reasonableness of the actuarial assumptions in relation to investment
performance, the funding status of the Plan and shall make recommendations with
respect to the selection of one or more investment trustees or other investment
agencies, and undertake such other studies and make such other recommendations
to the Board as it may deem desirable with respect to the Investment Trust of
the Retirement Benefit Plan. (Amended and Renamed 9/28/90, 10/26/95)
Section 3.12. Human Resources Committee. The Board of Directors, by
------------- --------------------------
resolution adopted by a majority of the whole Board, may designate not fewer
than three nor more than seven Directors who are not employees of the Company,
to constitute a Human Resources Committee. The Human Resources Committee shall
determine the annual
10
<PAGE>
salary, bonus and other benefits of selected senior officers and key management
employees of the Company and review, as appropriate, performance standards under
compensation programs for key employees. The Human Resources Committee shall
also recommend to the Board candidates for election as corporate officers.
The Human Resources Committee shall recommend new employee benefit plans and
changes to stock incentive plans to the Board, approve amendments to the non-
stock employee benefit plans of the Company and oversee the administration of
all of the Company's employee benefit plans. The Human Resources Committee may
delegate to one or more officers of the Company the power to approve any
amendment of any non-stock employee benefit plan of the Company or the Donnelley
Tax Credit Stock Ownership Plan which in the reasonable opinion of such officer
will not materially affect the costs to the Company of, or benefits under, such
plans. (Amended 7/22/93, 10/26/95, 1/25/96)
Section 3.13. Audit Committee. The Board of Directors, by resolution
------------- ----------------
adopted by a majority of the whole Board, may designate not fewer than three nor
more than seven Directors who are not employees of the Company to constitute an
Audit Committee, which Committee shall review on behalf of the stockholders of
the Company: the qualifications and services of the independent public
accountants employed by the Company from time to time to audit the books of the
Company, the scope of their audits, the adequacy of their audit reports, and
recommendations made by them. The Committee may also make such reviews of
internal financial audits and controls as the Committee considers desirable.
The Audit Committee will recommend to the Board the selection of the
independent public accountants.
The Audit Committee shall review the Company's financial disclosure
documents, management perquisites, significant developments in accounting
principles and significant proposed changes in financial statements. The Audit
Committee shall also review and monitor the Company's codes of conduct to guard
against significant conflicts of interest and dishonest, unethical or illegal
activities. The Audit Committee shall review periodically the performance of
the Company's accounting and financial personnel, and shall review material
litigation and regulatory proceedings and other issues relating to potentially
significant corporate liability. (Amended 9/28/90, 10/26/95)
Section 3.14. Corporate Responsibility and Governance Committee. The Board
------------- --------------------------------------------------
of Directors, by resolution adopted by a majority of the whole Board, may
designate not fewer than three nor more than seven Directors to constitute a
Corporate Responsibility and Governance Committee, which
11
<PAGE>
Committee shall oversee the Company's commitment to employee health and safety,
equal employment opportunity and the environment.
The Committee shall also recommend to the Board nominees for election to the
Board of Directors in connection with any meeting of stockholders at which
directors are to be elected and persons for appointment to fill any Board
vacancy which the Board of Directors is authorized under the By-Laws to fill,
and may also recommend to the Board policies or guidelines concerning criteria
for Board membership, the structure and composition of Board Committees, the
size and composition of the Board and the selection, tenure and retirement of
Directors and matters related thereto. (Amended 9/28/90, 10/26/95, 1/25/96,
9/25/97)
Section 3.15. Other Committees. The Board of Directors, by resolution
------------- -----------------
adopted by a majority of the whole Board, may designate two or more Directors to
constitute committees other than the Executive Committee, Finance Committee,
Human Resources Committee, Audit Committee and Corporate Responsibility and
Governance Committee, which committees shall have and exercise such authority as
may be provided for in the resolution creating such committee. (Amended
9/28/90, 1/25/96, 9/25/97)
Section 3.16. Honorary Directors. The Board of Directors may select from
------------- -------------------
time to time, and for such periods of time as it may deem appropriate, one or
more past Chairmen of the Board, Presidents or Chief Executive Officers elected
a Director prior to September 28, 1990, to serve as Honorary Directors. Honorary
Directors shall be entitled to receive notice of and to attend all meetings of
the Board of Directors, to receive copies of all reports or other communications
made to the Board of Directors, to give counsel and advice on any subject, to
receive such fees and expense reimbursements as may be provided from time to
time by the Board of Directors. The Board of Directors, Chief Executive Officer,
Chairman of the Board or President may invite an Honorary Director to attend
meetings of any committee of the Board of Directors or to undertake temporary
assignments, but this shall not preclude any other arrangements, consulting or
otherwise, between the corporation and an Honorary Director. The presence or
absence of an Honorary Director shall not be counted for purposes or determining
the existence of a quorum. Honorary Directors shall not have the right to vote
on any matters voted on by the Board of Directors or any of the rights, duties,
privileges, or responsibilities of Directors of the corporation. (Amended
9/28/90)
Section 3.17. Nomination of Directors. Except as otherwise fixed pursuant
------------- ------------------------
to the certificate of incorporation relating to the rights of the holders of
12
<PAGE>
any one or more classes or series of Preferred Stock issued by the corporation,
acting separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors pursuant to Section 3.14 or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting at which directors are to be elected only
if written notice of such stockholder's intent to make such nomination or
nominations has been delivered personally to, or been mailed to and received by,
the Secretary of the corporation at the principal executive offices of the
corporation in the City of Chicago, State of Illinois, not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that, in the event
that less than 75 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Each such notice shall
set forth: (i) the name and record address of the stockholder who intends to
make the nomination; (ii) the name, age, principal occupation or employment,
business address and residence address of the person or persons to be nominated;
(iii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder and by the person or persons to be
nominated as of the record date for the meeting (if such date shall then have
been made publicly available) and of the date of such notice; (iv) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (v) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder; (vi) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the Securities Exchange Act of 1934 and the proxy rules of the
Securities and Exchange Commission; and (vii) the consent of each nominee to
serve as a director of the corporation if so elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. The officer of the
corporation presiding at the annual meeting of stockholders shall, if the facts
so warrant, determine
13
<PAGE>
that a nomination was not made in accordance with the provisions of this
Section, and if he should so determine, he should so declare to the meeting and
the defective nomination shall be disregarded. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth herein. (Added 3/24/88)
ARTICLE IV
----------
Officers of the Corporation
---------------------------
Section 4.1. Officers and Number. The officers of the corporation shall be
------------ --------------------
a Chief Executive Officer, a Chairman of the Board, one or more Vice Chairmen, a
President, one or more Executive Vice Presidents, one or more Business Unit
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Secretary, a Treasurer, a Controller, a General Counsel, one or more Assistant
Secretaries, one or more Assistant General Counsels, one or more Assistant
Treasurers and one or more Assistant Controllers. Any two or more offices may be
held by the same person except the offices of President and Secretary. The Board
of Directors may distinguish among officers bearing the same title by the
addition of other designations, such as Chief Financial Officer or the like. The
Chief Executive Officer shall be either the Chairman, a Vice Chairman or the
President, as designated by the Board of Directors. The Board of Directors may
elect an Honorary Director to the office of Honorary Chairman of the Board.
(Amended 1/27/94, 11/20/97)
Section 4.2. Election and Term of Office. The officers of the corporation
------------ ----------------------------
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. (Adopted 10/21/60)
Section 4.3. Removal. Any officer elected by the Board of Directors may be
------------ --------
removed by the Board of Directors whenever in its judgment the best interests of
the corporation would be served thereby. (Amended 12/15/88)
Section 4.4. Vacancies. A vacancy in any office because of death,
------------ ----------
resignation, removal, disqualification
14
<PAGE>
or otherwise, may be filled by the Board of Directors for the unexpired portion
of the term. (Adopted 10/21/60)
Section 4.5. Salaries. No officer shall be prevented from receiving a
------------ ---------
salary for his services as an officer by reason of the fact that he is also a
Director of the corporation.
Section 4.6. Chief Executive Officer. The Chief Executive Officer shall
------------ ------------------------
have overall supervision of, and responsibility for, the business, and shall
direct the affairs and policies of the corporation. (Adopted 12/15/88)
Section 4.7. Chairman of the Board. The Chairman of the Board shall
------------ ----------------------
preside at all meetings of the stockholders and Board of Directors. The Chairman
of the Board shall perform such other duties and responsibilities as may be
assigned to him by the Board of Directors. (Amended 9/28/90)
Section 4.8. Vice Chairmen of the Board. The Vice Chairmen of the Board
------------ ---------------------------
shall, in the absence of the Chairman of the Board (in the order prescribed by
the Board), preside at all meetings of the stockholders and Board of Directors,
and shall perform such other duties as may be assigned to them by the Board of
Directors. (Amended 12/15/88)
Section 4.9. Honorary Chairman of the Board. The Honorary Chairman of the
------------ -------------------------------
Board shall consult with the Chief Executive Officer and other officers of the
corporation, as he or they shall determine, with respect to the general policies
and affairs of the corporation, and shall have such authority and perform such
duties as from time to time may be prescribed by the Board of Directors or as
may be granted by the Chief Executive Officer. (Renumbered 9/28/90)
Section 4.10. President. Subject to the supervision and direction of the
------------- ----------
Chief Executive Officer, the President shall have responsibility for such of the
operations and other functions of the corporation as may be assigned to him. The
President shall perform such other duties and responsibilities as may be
assigned to him by the Chief Executive Officer. In the absence of the Chairman
of the Board and Vice Chairmen of the Board, the President shall preside at
meetings of the stockholders and Board of Directors. (Renumbered and Amended
9/28/90)
Section 4.11. Vice Presidents. Each Vice President shall have such
------------- ----------------
corporate powers, if any, as may be assigned to him from time to time by the
Board of Directors, Chief Executive Officer, Chairman of the Board or the
President. (Renumbered 9/28/90)
15
<PAGE>
Section 4.12. Senior Vice Presidents. Each Senior Vice President shall
------------ -----------------------
have such corporate powers, if any, as may be assigned to him by the Board of
Directors, Chief Executive Officer, Chairman of the Board or the President.
(Renumbered 9/28/90)
Section 4.13. Business Unit Presidents. The Board of Directors may from
------------- -------------------------
time to time designate as Business Unit President one or more of the individuals
who occupies the position of senior officer heading a business unit consisting
of one or more divisions and/or one or more sales units and who reports to one
or more of the senior officers of the corporation. (Added 1/27/94; Amended and
Renumbered 11/20/97; Amended 1/28/00)
Section 4.14. Executive Vice Presidents. The Board of Directors may
------------- --------------------------
designate as an Executive Vice President the officer to whom one or more other
senior officers of this corporation reports. (Amended and Renumbered 1/27/94;
Renumbered 11/20/97)
Section 4.15. Order of Succession. Such of the directors of the
------------- -------------------
corporation as shall be designated by resolution of the Board of Directors, and
in the order of such designation, shall in the absence of the Chairman of the
Board perform the duties of the Chairman of the Board and shall have all of the
powers and shall be subject to any restrictions imposed upon the Chairman.
Such of the officers of the corporation as may be designated by resolution
of the Board of Directors, and in the order of such designation, shall in the
absence of the Chief Executive Officer, perform the duties of the Chief
Executive Officer and when so acting shall have all the powers of and be subject
to any restrictions imposed upon the Chief Executive Officer.
Such of the officers of the corporation as may be designated by resolution
of the Board of Directors, and in the order of such designation, shall in the
absence of the President perform the duties of the President and when so acting
shall have all the powers of and be subject to any restrictions imposed upon the
President. (Renumbered 1/27/94, 11/20/97)
Section 4.16. Secretary. The Secretary shall keep the minutes of all
------------- ----------
meetings of the stockholders and Board of Directors of the corporation, shall
have charge of the corporate records and the corporate seal, and shall have the
power to attach the seal to all instruments which shall require sealing after
the same shall have been signed as authorized by the Board of Directors.
(Renumbered 1/27/94, 11/20/97)
Section 4.17. Treasurer. The Treasurer shall be responsible for the
------------- ----------
receipt, custody and disbursement of
16
<PAGE>
all funds of the corporation in the form of both cash and securities. He may
delegate the details of his office to someone in his stead, but this shall
nowise relieve him of the responsibilities and liability of his office. The
Treasurer shall have the power to attach the seal to all instruments which shall
require sealing after the same shall have been signed as authorized by the Board
of Directors. (Renumbered 1/27/94, 11/20/97)
Section 4.18. Controller. The Controller reports to the Chief Executive
------------- -----------
Officer directly or through such other management executives as the Chief
Executive Officer may direct. The Controller, however, may directly submit any
matter to the Board of Directors for their consideration. The Controller shall
maintain adequate records of all assets, liabilities, and transactions of the
corporation, and in conjunction with other officers and department heads, shall
initiate and enforce measures and procedures whereby the business of the
corporation shall be conducted with the maximum of safety, efficiency and
economy. He shall attend that part of the meetings of the Board of Directors
which is concerned with the review of the financial and operating reports of the
business, except when, in the discretion of the Board, he shall be asked not to
attend. (Renumbered 1/27/94, 11/20/97)
Section 4.19. General Counsel. The General Counsel shall be the chief
------------- ----------------
legal officer of the corporation and have legal responsibility for all aspects
of the business. The General Counsel shall have the power to attach the seal to
all instruments which shall require sealing after the same shall have been
signed as authorized by the Board of Directors. (Renumbered 1/27/94, 11/20/97)
Section 4.20. Assistant Treasurers. The Assistant Treasurers shall in the
------------- ---------------------
absence of the Treasurer perform all functions and duties of the Treasurer and
in addition shall perform such functions and duties as the Treasurer may
delegate, but this shall in nowise relieve the Treasurer of the responsibilities
and liability of his office. (Renumbered 1/27/94, 11/20/97)
Section 4.21. Assistant Secretaries. The Assistant Secretaries shall in
------------- ----------------------
the absence of the Secretary perform all functions and duties of the Secretary
and in addition shall assume such functions and duties as the Secretary may
delegate, but this shall in nowise relieve the Secretary of the responsibilities
and liability of his office. (Renumbered 1/27/94, 11/20/97)
Section 4.22. Assistant General Counsels. The Assistant General Counsels
------------- ---------------------------
shall in the absence of the General Counsel perform all functions and duties of
the General Counsel and in addition shall assume such
17
<PAGE>
functions and duties as the General Counsel may delegate, but this shall in
nowise relieve the General Counsel of the responsibilities and liabilities of
his office. (Renumbered 1/27/94, 11/20/97)
Section 4.23. Assistant Controllers. The Assistant Controllers shall in
------------- ----------------------
the absence of the Controller perform all functions and duties of the Controller
and in addition shall assume such functions and duties as the Controller may
delegate, but this shall in nowise relieve the Controller of the
responsibilities and liabilities of such office. (Renumbered 1/27/94, 11/20/97)
ARTICLE V
---------
Appointed Officers
------------------
The Chief Executive Officer may appoint any individual an officer having
such title as he shall deem appropriate, provided such officer is not a
participant in the Senior Officer Incentive Plan administered by the Board of
Directors or its Committees. Any such officer appointed by the Chief Executive
Officer may be removed by the Chief Executive Officer whenever in his judgment
the best interests of the corporation would be served thereby. The term of
office, compensation, powers and duties and other terms of employment of
appointed officers shall be such as the Chief Executive Officer may from time to
time deem proper, and the authority of such officers shall be limited to acts
pertaining to the business of the unit, operation or function to which they are
assigned. (Amended 1/27/94, 11/20/97, 1/28/00)
18
<PAGE>
ARTICLE VI
----------
Contracts, Loans, Checks and Deposits
-------------------------------------
Section 6.1. Contracts. The Board of Directors may authorize any officer
------------ ----------
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 6.2. Loans. No loans shall be contracted on behalf of the
------------ ------
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors (or a resolution of a
committee of Directors pursuant to authority conferred upon that committee).
Such authority may be general or confined to specific instances.
Section 6.3. Checks, etc. All checks, demands, drafts or other orders for
------------ ------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as may be designated by
the Board of Directors or by one or more officers of the corporation named by
the Board of Directors for such purpose.
Section 6.4. Deposits. All funds of the corporation not otherwise employed
------------ ---------
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies and other depositaries as the Board of Directors may
select.
(Entire Article Renumbered 6/28/84)
ARTICLE VII
-----------
Certificates of Stock and Their Transfer
----------------------------------------
Section 7.1. Certificates of Stock. Certificates of stock of the
------------ ----------------------
corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the Chief Executive Officer, Chairman of the
Board or President or a Vice President and by the Secretary or Assistant
Secretary or the Treasurer or an Assistant Treasurer. If any stock certificate
is signed manually (a) by a transfer agent other than the corporation or its
employee or (b) by a registrar other than the corporation or its employee, any
other signature on the certificate may be a facsimile.
19
<PAGE>
In case any officer, transfer agent, or registrar who has signed or whose
facsimile has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
All certificates properly surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued to evidence transferred shares
until the former certificate for at least a like number of shares shall have
been surrendered and cancelled and the corporation reimbursed for any applicable
taxes on the transfer, except that in the case of a lost, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms, and with such
indemnification (if any) to the corporation, as the Board of Directors may
prescribe specifically or in general terms or by delegation to a transfer agent
for the corporation. Certificates shall not be issued representing fractional
shares of stock. (Amended 12/15/88)
Section 7.2. Lost Certificates. The Board of Directors may direct a new
------------ ------------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost or destroyed.
Section 7.3. Transfers. Upon surrender to the corporation or the transfer
------------ ----------
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof or by his attorney thereunto
authorized by power of attorney and filed with the Secretary or transfer agent
of the corporation.
Section 7.4. Registered Stockholders. The corporation shall be entitled to
------------ ------------------------
treat the holder of record of any share or shares of stock as the holder in
20
<PAGE>
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
(Entire Article Renumbered 6/28/84)
ARTICLE VIII
------------
Dividends
---------
Section 8.1. Declaration. Dividends upon the capital stock of the
------------ ------------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 8.2. Reserve. Before payment of any dividend, there may be set
------------ --------
aside out of any funds of the corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
such other purposes as the Directors shall think conducive to the interest of
the corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
(Entire Article Renumbered 6/28/84)
ARTICLE IX
----------
Miscellaneous
-------------
Section 9.1. Fiscal Year. Unless otherwise fixed by the resolution of the
------------ ------------
Board of Directors, the fiscal year of the corporation shall be the calendar
year.
Section 9.2. Seal. The corporate seal shall have inscribed thereon the
------------ -----
name of the corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
Section 9.3. Books. The books of the corporation may be kept (subject to
------------ ------
any provision contained in the statutes) outside the State of Delaware at the
offices of the corporation at Chicago, Illinois, or at such other place or
places as may be designated from time to time by the Board of Directors.
21
<PAGE>
(Entire Article Renumbered 6/28/84)
ARTICLE X
---------
Amendment
---------
These by-laws may be altered or repealed at any regular meeting of the
Board of Directors or at any special meeting of the Board of Directors if notice
of such alteration or repeal be contained in the notice of such special meeting,
provided that no amendment of these by-laws shall conflict with the provisions
of the Certificate of Incorporation, whether relating to the number of Directors
which shall constitute the whole Board or the number of Directors of any class
or otherwise. (Renumbered 6/28/84)
22
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 3(ii)(b)
RESOLUTION OF
THE BOARD OF DIRECTORS OF
R.R. DONNELLEY & SONS COMPANY
January 27, 2000
RESOLVED, that the By-Laws of the corporation be and hereby are amended as
follows:
That, effective immediately, Section 4.13 is deleted
and the following is substituted therefor:
"Business Unit Presidents. The Board of Directors
------------------------
may from time to time designate as Business
Unit President one or more of the
individuals who occupies the position of
senior officer heading a business unit
consisting of one or more divisions and/or
one or more sales units, and who reports to
one or more of the senior officers of the
corporation."
That, effective immediately, the first sentence of
ARTICLE V is deleted and the following is substituted
therefor:
"The Chief Executive Officer may appoint any
individual an officer having such title as
he shall deem appropriate, provided such
officer is not a participant in the Senior
Officer Incentive Plan administered by the
Board of Directors or its committees."
That, effective immediately, the last phrase of the
last sentence of ARTICLE V is amended to read as
follows:
"...shall be limited to acts pertaining to
the business of the unit, operation or
function to which they are assigned."
That, effective on March 23, 2000, the first sentence
of Section 3.2 of ARTICLE III is deleted and the
following is substituted therefor:
"The number of Directors which shall
constitute the whole Board shall be ten (10)
of whom four (4) shall be Directors of the
First Class, three (3) shall be Directors of
the Second Class and three (3) shall be
Directors of the Third Class."
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 4(d)
EXECUTION COPY
364-DAY CREDIT AGREEMENT
Dated as of October 14, 1999
R.R. DONNELLEY & SONS COMPANY, a Delaware corporation (the "Company"), the
banks listed on the signature pages hereof, and BANK ONE, NA, as Administrative
Agent (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acceptance Deadline" has the meaning specified in Section
------------------- -------
2.03(a)(iii).
------------
"Administrative Agent" means Bank One, in its capacity as the
--------------------
contractual representative for all of the Banks for purposes of this
Agreement, as designated and appointed in accordance with Article VIII, and
-------------
any successor thereto as provided herein.
"Advance" means a Committed Advance or an Uncommitted Advance.
-------
"Affiliate" means, with respect to any Person, any other Person that,
---------
directly or indirectly, controls, is controlled by or is under common
control with such Person.
"Affordable Housing Debt" means Debt of the Company or of any of its
-----------------------
Subsidiaries which is associated with the direct or indirect investment by
the Company or such Subsidiary in affordable housing where the expected tax
benefits of such investment exceed the total amount of the future annual
payments required as part of such investment.
"Agreement" shall mean this 364-Day Credit Agreement, as the same may
---------
be amended, modified, supplemented or restated from time to time.
-1-
<PAGE>
"Alternative Currency" means Sterling, German Marks, Swiss Francs, Yen
--------------------
and any other currency (other than Dollars) (i) which is readily available,
freely transferable and convertible into Dollars in the international
currency and exchange markets, (ii) in which deposits are customarily
offered to banks in the London interbank market and (iii) as to which an
equivalent amount in Dollars may be readily calculated, including the Euro.
"Applicable Lending Office" means, with respect to each Bank, such
-------------------------
Bank's Domestic Lending Office in the case of a Base Rate Advance, and such
Bank's Eurocurrency Lending Office in the case of a Eurocurrency Rate
Advance and, in the case of an Uncommitted Advance, the office of such Bank
notified by such Bank to the Administrative Agent as its Applicable Lending
Office with respect to such Uncommitted Advance.
"Applicable Margin" means on any day 0.19%.
-----------------
"Arranger" means Banc One Capital Markets, Inc.
--------
"Assignment and Acceptance" means an Assignment and Acceptance
---------------------------
executed by a Bank (other than a Designated Bidder) and an Eligible
Assignee and accepted by the Administrative Agent and the Company,
substantially in the form of Exhibit A hereto.
----------
"Assumption Letter" means a letter of a Subsidiary of the Company
-----------------
addressed to the Banks in substantially the form of Exhibit B hereto
---------
pursuant to which such Subsidiary agrees to become a "Borrowing Subsidiary"
and agrees to be bound by the terms and conditions hereof.
"Available Commitment" has the meaning specified in Section 2.01.
-------------------- ------------
"Bank One" means Bank One, NA, a national banking association having
--------
its headquarters in Chicago, Illinois, in its individual capacity, and its
successors.
"Banks" means the banks listed on Schedule I hereto and each
----- ----------
Person that becomes a party hereto pursuant to Section 9.07(a), (b) and
--------------- -
(c), and, except when used in reference to a Committed Advance, a Committed
-
Borrowing, a Committed Note, a Commitment or a related term, each
Designated Bidder.
"Base Rate" means a fluctuating interest rate per annum in effect from
---------
time to time, which rate per annum shall at all times be equal to the higher of:
(a) the corporate base rate of interest announced by Bank One
from time to time, changing when and as said corporate base rate
changes; and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
-2-
<PAGE>
"Base Rate Advance" means a Committed Advance which bears interest at
-----------------
a rate based upon the Base Rate, as provided in Section 2.07(a).
---------------
"Borrower" means the Company or any Borrowing Subsidiary.
--------
"Borrowing" means a Committed Borrowing or an Uncommitted Borrowing.
---------
"Borrowing Subsidiary" means any Subsidiary of the Company duly
--------------------
designated by the Company pursuant to Section 2.17 hereof to make
------------
Borrowings hereunder, which Subsidiary shall have delivered an Assumption
Letter to the Administrative Agent in accordance with Section 2.17.
------------
"Business Day" means a day of the year (other than a Saturday or
------------
Sunday) on which banks are not required or authorized by law to close in
New York City and Chicago and, if the applicable Business Day relates to
any Eurocurrency Rate Advances, on which dealings are carried on in the
London interbank market (and, if such Eurocurrency Rate Advances are
denominated in the Euro, a day upon which such clearing system as is
determined by the Administrative Agent to be suitable for clearing or
settlement of the Euro is open for business).
"Category Status" means Category 1 Status, Category 2 Status, Category
---------------
3 Status, Category 4 Status or Category 5 Status, as appropriate.
"Category 1 Status" exists at any date if at such date the Public Debt
-----------------
Rating announced by S&P is AA- (or the equivalent) or better or the Public
--
Debt Rating announced by Moody's is Aa3 (or the equivalent) or better.
"Category 2 Status" exists at any date if at such date (i) the Public
-----------------
Debt Rating announced by S&P is A (or the equivalent) or better or the
--
Public Debt Rating announced by Moody's is A2 (or the equivalent) or
better, and (ii) Category 1 Status does not exist.
"Category 3 Status" exists at any date if at such date (i) the Public
-----------------
Debt Rating announced by S&P is A- (or the equivalent) or better or the
--
Public Debt Rating announced by Moody's is A3 (or the equivalent) or
better, and (ii) neither Category 1 Status nor Category 2 Status exists.
"Category 4 Status" exists at any date if at such date (i) the Public
-----------------
Debt Rating announced by S&P is BBB (or the equivalent) or better or the
--
Public Debt Rating announced by Moody's is Baa2 (or the equivalent) or
better, and (ii) none of Category 1 Status, Category 2 Status or Category 3
Status exists.
"Category 5 Status" exists at any date if at such date (i) the Public
-----------------
Debt Rating announced by S&P is lower than BBB (or the equivalent) and
---
-3-
<PAGE>
the Public Debt Rating announced by Moody's is lower than Baa2 (or the
equivalent), or (ii) neither S&P nor Moody's shall have a Public Debt
--
Rating in effect at such date.
"Commission" means the Securities and Exchange Commission or any
----------
federal body succeeding to its functions.
"Commitment" has the meaning specified in Section 2.01.
---------- ------------
"Committed Advance" means an advance by a Bank to a Borrower as part
-----------------
of a Committed Borrowing and refers to a Base Rate Advance or a
Eurocurrency Rate Advance, each of which shall be a "Type" of Committed
----
Advance.
"Committed Borrowing" means a borrowing consisting of simultaneous
-------------------
Committed Advances of the same Type made by each of the Banks to a Borrower
pursuant to Section 2.01.
------------
"Committed Note" means a promissory note, in substantially the form of
--------------
Exhibit D-1 hereto, duly executed by the Company or a Borrowing Subsidiary
-----------
and payable to the order of a Bank in the amount of its Commitment,
including any amendment, modification, renewal or replacement of such
promissory note.
"Consolidated EBIT" means, for any period, on a consolidated basis for
-----------------
the Company and its Consolidated Subsidiaries, the sum of the amounts for
such period of (a) Consolidated Net Income (excluding non-recurring or
extraordinary gains, losses, expenses and charges but including cash
charges and payments during such period related to extraordinary or non-
recurring gains, losses, charges and expenses), plus (b) charges against
----
income for foreign, federal, state and local taxes, plus (c) Consolidated
----
Interest Expense plus (or minus) (d) pre-tax income (or loss) from
---- -----
discontinued operations.
"Consolidated Interest Expense" means, for any period, the sum of
-----------------------------
total interest expense of the Company and its Consolidated Subsidiaries,
whether paid or accrued, as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
-----------------------
earnings (or loss) after taxes of the Company and its Consolidated
Subsidiaries for such period, determined in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary the
-----------------------
accounts of which would be consolidated with those of the Company in its
consolidated financial statements at such date in accordance with GAAP;
provided, that for purposes of Sections 5.02 and 5.03, "Consolidated
--------- ------------- ----
Subsidiary" shall mean any subsidiary the accounts of which would be
consolidated with those of the Company in its consolidated financial
statements at such date in accordance with GAAP.
-4-
<PAGE>
"Consolidated Tangible Net Worth" means, as of any date, an amount
-------------------------------
equal to the sum of (i) the par or stated value of the outstanding shares
of all classes of capital stock of the Company, (ii) paid-in capital and
capital surplus of the Company and (iii) retained earnings of the Company,
as each of which would appear on a consolidated balance sheet of the
Company and its Consolidated Subsidiaries prepared as of the last day of
the most recently completed fiscal quarter in accordance with GAAP, less
----
the aggregate net amount of (i) all assets so appearing which in accordance
with GAAP are deemed intangible, such intangible assets to specifically
include, but not be limited to, licenses, copyrights, trademarks,
tradenames, patents and goodwill, and (ii) any write-up in the book value
of assets made after December 31, 1997, other than any such write-up to an
appraised fair market value in accordance with the purchase accounting
requirements of GAAP.
"Continuation Notice" has the meaning specified in Section 2.23.
------------------- ------------
"Continuing Bank" has the meaning specified in Section 2.23.
--------------- ------------
"Debt" means (but without duplication of any item) (i) indebtedness
----
for borrowed money, (ii) obligations evidenced by bonds, debentures, notes
or other similar instruments, (iii) obligations as lessee under leases
which shall have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases, and (iv) obligations
under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise
assure a creditor against loss in respect of, indebtedness or obligations
of others of the kinds referred to in clause (i), (ii) or (iii) above.
"Defaulted Advance" means, with respect to any Bank at any time, the
-----------------
amount of any Advance required to be made by such Bank to the Borrower
pursuant to Section 2.01 or Section 2.03(a) at or prior to such time that
------------ ---------------
has not been so-made as of such time; provided, however, that any Advance
made by the Administrative Agent for the account of such Bank pursuant to
Section 2.02(e) shall not be considered a Defaulted Advance even if, at
---------------
such time, such Bank shall not have reimbursed the Administrative Agent
therefor as provided in Section 2.02(e). If part of a Defaulted Advance
---------------
shall be deemed made pursuant to Section 2.20(a), the remaining part of
---------------
such Defaulted Advance shall be considered a Defaulted Advance originally
required to be made pursuant to Section 2.01 or Section 2.03(a) on the same
------------ ---------------
date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Bank at any time, any
----------------
amount required to be paid by such Bank to the Administrative Agent or any
other Bank hereunder at or prior to such time that has not been so paid as
of such time, including, without limitation, any amount required to be paid
by such Bank to (a) the Administrative Agent pursuant to Section 2.02(e) to
---------------
reimburse the Administrative Agent for the amount of any Advance made by
-5-
<PAGE>
the Administrative Agent for the account of such Bank, (b) any other Bank
pursuant to Section 2.15 to purchase any participation in Advances owing to
------------
such other Bank and (c) the Administrative Agent pursuant to Section 8.06
------------
to reimburse the Administrative Agent for such Bank's ratable share of any
amount required to be paid by the Banks to the Administrative Agent as
provided therein. If part of a Defaulted Amount shall be deemed paid
pursuant to Section 2.20(b), the remaining part of such Defaulted Amount
---------------
shall be considered a Defaulted Amount originally required to be made
hereunder on the same date as the Defaulted Amount so deemed paid in part.
"Defaulting Bank" means, at any time, any Bank that, at such time,
---------------
(a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be
the subject of any action or proceeding of a type described in Section 6.01(f).
---------------
"Designated Bidder" means (a) an Eligible Assignee or (b) a special
-----------------
purpose corporation that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and
that issues (or the parent of which issues) commercial paper rated at least
"Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or the then
equivalent grade) by S&P that, in the case of either clause (a) or clause
(b), (i) is organized under the laws of the United States or any State
thereof, (ii) shall have become a party hereto pursuant to Section 9.07(d),
---------------
(e) and (f), and (iii) is not otherwise a Bank.
--- --- -----
"Designation Agreement" means a designation agreement entered into
---------------------
by a Bank (other than a Designated Bidder) and a Designated Bidder, and
accepted by the Administrative Agent and the Company, in substantially the
form of Exhibit C hereto.
---------
"Dollar Amount" means, for any date of determination:
-------------
(a) with respect to any amount denominated in Dollars, such amount;
and
(b) with respect to an amount denominated in any Alternative Currency,
the amount of Dollars into which the Administrative Agent could, in
accordance with its practice from time to time in the London interbank
foreign exchange market, convert such amount of Alternative Currency at its
spot rate of exchange applicable to the relevant transaction at or about
11:00 a.m., London time, on the date of such determination, for the
delivery of Dollars two Business Days thereafter. For purposes of this
Agreement, the Dollar Amount of any amount received by a Bank hereunder
shall be determined as of the date of such receipt.
"Dollars" and the sign "$" each means the lawful currency of the
------- -
United States.
-6-
<PAGE>
"Domestic Lending Office" means, with respect to any Bank, the office
-----------------------
of such Bank specified as its "Domestic Lending Office" opposite its name
on Schedule I hereto or in the Assignment and Acceptance pursuant to which
----------
it became a Bank, as the case may be, or such other office of such Bank as
such Bank may from time to time specify to the Company and the
Administrative Agent.
"Effective Date" has the meaning specified in Section 3.01.
-------------- ------------
"Eligible Assignee" means (i) a Bank (other than a Designated Bidder);
-----------------
(ii) an Affiliate of a Bank (other than a Designated Bidder); (iii) a
commercial bank organized under the laws of the United States or any State
thereof, and having a combined capital and surplus of at least
$500,000,000; (iv) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development, has a combined capital and surplus of at least $500,000,000
and is acting through a branch or agency located in the United States, and
(v) any other Person approved by the Company and the Administrative Agent,
such approvals not to be unreasonably withheld or delayed (it being
understood that the Company may reasonably withhold its approval of any
such other Person if at the time it would become a Bank hereunder payments
to it would not be exempt from United States withholding tax).
"Environmental Action" means any administrative, regulatory or
--------------------
judicial action, suit, demand, demand letter, claim, notice of
noncompliance or violation, notice of liability or potential liability,
investigation, proceeding, consent order or consent agreement relating in
any way to any Environmental Law, Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any governmental
or regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial interpretation relating to the environment, health, safety or
Hazardous Materials.
"Environmental Permit" means any permit, approval, indemnification
--------------------
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
-----
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
-7-
<PAGE>
"ERISA Affiliate" means any Person that for purposes of Title IV of
---------------
ERISA is a member of the Company's controlled group, or under common
control with the Company, as determined under Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event, within
-----------
the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the application for a minimum funding waiver with respect to a
Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of
the Company or any of its ERISA Affiliates in the circumstances described
in Section 4062(e) of ERISA; (e) the withdrawal by the Company or any of
its ERISA Affiliates from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (f) the failure by the Company or any of its ERISA Affiliates to
make a payment to a Plan if the conditions for the imposition of a lien
under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan,
pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that could constitute grounds for the termination of, or the appointment of
trustee to administer, a Plan.
"Euro" and/or "EUR" means the euro referred to in Council Regulation
---- ---
(EC) No. 1103/97 dated June 17, 1997 passed by the Council of the European
Union, or, if different, the then lawful currency of the member states of
the European Union that participate in the third stage of Economic and
Monetary Union.
"Eurocurrency Lending Office" means, with respect to any Bank, the
---------------------------
office of such Bank specified as its "Eurocurrency Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
----------
to which it became a Bank (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Bank as such Bank may from
time to time specify to the Company and the Administrative Agent.
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurocurrency Rate" means, with respect to any Eurocurrency Rate
-----------------
Advance for any specified Interest Period or for the term of any
Uncommitted Advance with respect to which interest is calculated by
reference to the Eurocurrency Rate, either:
-8-
<PAGE>
(i) the rate of interest per annum equal to the rate for deposits
in Dollars or the applicable Alternative Currency of such Eurocurrency
Rate Advance with a maturity approximately equal to such Interest
Period which appears on Dow Jones Markets (Telerate) Page 3740 or
3750, as applicable, or, if there is more than one such rate, the
average of such rates rounded to the nearest 1/100 of 1% (if such
average is not a multiple of 1/16 of 1%), as of 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest
Period, or
(ii) if no such rate of interest appears on Dow Jones Markets
(Telerate) Page 3740 or 3750, as applicable, for any specified
Interest Period, or if Dow Jones Markets (Telerate) Page 3740 or 3750
is unavailable for any reason, the applicable per annum London
interbank offered rate for deposits in Dollars or the applicable
Alternative Currency appearing on Reuters Screen FRBD as of 11:00 a.m.
(London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period.
"Eurocurrency Rate Advance" means a Committed Advance which bears
-------------------------
interest at a rate based upon the Eurocurrency Rate, as provided in Section
-------
2.07(c).
-------
"Eurocurrency Rate Reserve Percentage" of any Bank (other than a
------------------------------------
Designated Bidder) for any Interest Period for a Eurocurrency Rate Advance
means the reserve percentage applicable two Business Days before the first
day of such Interest Period under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
any emergency, supplemental or other marginal reserve requirement) for such
Bank with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurocurrency Rate Advances of such currency is determined) having a term
equal to such Interest Period.
"Eurocurrency Rate Uncommitted Borrowing" means an Uncommitted
---------------------------------------
Borrowing comprised of Uncommitted Advances denominated in Dollars, bearing
interest based upon the Eurocurrency Rate.
"Events of Default" has the meaning specified in Section 6.01.
----------------- ------------
"Extension Request" has the meaning specified in Section 2.23.
----------------- ------------
"Facility Fee" has the meaning specified in Section 2.04.
------------ ------------
-9-
<PAGE>
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day for such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"Fixed Rate Uncommitted Borrowing" means an Uncommitted Borrowing
--------------------------------
consisting of Uncommitted Advances bearing interest at a fixed percentage
rate per annum (expressed in the form of a decimal to no more than four
decimal places) specified by the respective Banks making such Uncommitted
Advances pursuant to the procedure described in Section 2.03.
------------
"GAAP" has the meaning specified in Section 1.03.
---- ------------
"German Marks" means the lawful currency of the Federal Republic of
------------
Germany.
"Hazardous Materials" means petroleum and petroleum products,
-------------------
breakdown products, radioactive materials, asbestos-containing materials,
radon gas and any other chemicals, materials or substances designated,
classified or regulated as being "hazardous" or "toxic", or words of
similar import, under any federal, state, local or foreign statute, law,
ordinance, rule, regulation, code, order, judgment, decree or judicial
interpretation.
"Insurance Policy Debt" means Debt of the Company or any of its
---------------------
Subsidiaries under policies of life insurance now or hereafter owned by the
Company or any of its Subsidiaries under which policies the sole recourse
for such borrowing is against such policies.
"Interest Coverage Ratio" means the ratio, determined on a
-----------------------
consolidated basis for the Company and its Consolidated Subsidiaries in
accordance with GAAP as of the end of any fiscal quarter, of Consolidated
EBIT to Consolidated Interest Expense, in each case determined as of the
last day of such fiscal quarter for the four-quarter period then ended.
"Interest Period" means, for each Eurocurrency Rate Advance
---------------
comprising part of the same Committed Borrowing, the period commencing on
the date of such Eurocurrency Rate Advance or the date of any conversion or
continuation thereof, and ending on the last day of the period selected by
a Borrower pursuant to the provisions below. The duration of each such
Interest Period shall be one, two, three or six months, in each case as a
Borrower may select, upon notice received by the Administrative Agent
pursuant to Section 2.02 or 2.06; provided, however, that
------------ ----- -------- -------
-10-
<PAGE>
(i) Interest Periods commencing on the same date for
Eurocurrency Rate Advances comprising part of the same Committed
Borrowing shall be of the same duration;
(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided that if such extension would cause the last day
--------
of such Interest Period to occur in the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day;
(iii) whenever the first day of any Interest Period occurs on a
day in an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month; and
(iv) no Interest Period may terminate later than the Termination
Date (or, if the Company has made the Term Loan Election, the Maturity
Date).
"Lien" means, with respect to any asset, any security interest,
----
mortgage, pledge, lien, claim, charge or encumbrance of any kind in
respect of such asset.
"Majority Banks" means at any time Banks holding more than 50%
--------------
aggregate unpaid principal amount of the Committed Advances held by the
Banks, or, if no such principal amount is then outstanding, Banks having
more than 50% of the Commitments.
"Margin Stock" has the meaning specified in Regulation U issued
------------
by the Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on (i)
-----------------------
the business, financial condition, operations, properties or performance of
the Company and its Subsidiaries, taken as a whole, (ii) the legality,
validity or enforceability of this Agreement or the Notes or (iii) the
ability of the Company to perform its obligations under this Agreement and
the Notes.
"Material Subsidiary" means a Subsidiary of the Company which,
-------------------
at the time of determination, (i) shall own assets comprising in excess of
10% of all of the assets of the Company and its consolidated Subsidiaries
on a consolidated basis, or (ii) has operating income for the four fiscal
quarters
-11-
<PAGE>
most recently ended in excess of 10% of the operating income of the Company
and its consolidated Subsidiaries on a consolidated basis.
"Maturity Date" means the earlier of (a) the first anniversary
-------------
of the Termination Date and (b) the date on which all amounts payable
hereunder have become due and payable pursuant to Section 6.01.
------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan, as defined in
------------------
Section 4001(a)(3) of ERISA, to which the Company or any of its ERISA
Affiliates is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
----------------------
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Company or any of its ERISA Affiliates and at least one
Person other than the Company and its ERISA Affiliates or (b) was so
maintained and in respect of which the Company or any of its ERISA
Affiliates could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"National Currency Unit" means the unit of currency (other than
----------------------
a Euro unit) of each member state of the European Union that participates
in the third stage of Economic and Monetary Union.
"Non-Extending Bank" has the meaning specified in Section 2.23.
------------------ ------------
"Note" means a Committed Note or an Uncommitted Note.
----
"Notice of Committed Borrowing" has the meaning specified in
-----------------------------
Section 2.02(a).
---------------
"Notice of Conversion or Continuation" has the meaning specified
------------------------------------
in Section 2.06(b).
---------------
"Notice of Uncommitted Borrowing" has the meaning specified in
-------------------------------
Section 2.03(a).
---------------
"PBGC" means the Pension Benefit Guaranty Corporation and its
----
successors and assigns.
"Person" means an individual, partnership, corporation
------
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other entity,
or a government or any political subdivision or agency thereof.
-12-
<PAGE>
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
"Pro Rata Share" means, at any time with respect to any Bank,
--------------
the ratio (expressed as a percentage) that such Bank's Commitment bears to
the aggregate Commitments of all Banks at such time or, at any time after
the Commitments have been terminated, the ratio (expressed as a percentage)
that such Bank?s outstanding Committed Advances bears to the aggregate
outstanding Committed Advances of all Banks at such time.
"Public Debt Rating" means, on any date, the rating that has been most
------------------
recently announced by S&P or Moody's, as the case may be, for any class of
long-term senior non-credit-enhanced unsecured debt issued by the Company,
changing when and as the applicable rating agency publicly announces a
change in its Public Debt Rating.
"Quote Deadline" has the meaning specified in Section 2.03(a)(ii).
-------------- -------------------
"Register" has the meaning specified in Section 9.07(g).
-------- ---------------
"Replacement Bank" has the meaning specified in Section 2.23(b).
---------------- ---------------
"Request Deadline" has the meaning specified in Section 2.03(a)(i).
---------------- ------------------
"Responsible Officer" means the Executive Vice President and Chief
-------------------
Financial Officer of the Company, the Vice President and Treasurer of the
Company, or any other officer of the Company or any other Borrower
responsible for overseeing or reviewing compliance with this Agreement or
any Note.
"S&P" means Standard & Poor's Ratings Group, a division of The
---
McGraw-Hill Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any of its ERISA Affiliates and no Person other than the Company
and its ERISA Affiliates or (b) was so maintained and in respect of which
the Company or any of its ERISA Affiliates could have liability under
Section 4069 of ERISA in the event such plan has been or were to be
terminated.
"Sterling" means the lawful currency of the United Kingdom.
--------
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, limited liability company, association or other business
entity of which securities or other ownership interests having (a) ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions or (b) having the ability to direct the
management of such corporation, partnership, limited liability company,
-13-
<PAGE>
association or other business entity, are at the time directly or
indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries; provided however, that Stream International Inc., a Delaware
--------
corporation ("Stream"), shall not be considered a "Subsidiary" of the
------
Company until the earlier of (i) the date of the first regularly scheduled
annual meeting of Stream after such time as the Company has gained ordinary
voting power to elect a majority of the board of directors of Stream and
(ii) the date on which the Company elects the majority of a new board of
directors of Stream.
"Swiss Francs" means the lawful currency of Switzerland.
------------
"Termination Date" means the earlier of (i) October 12, 2000 (or such
----------------
later date as is established pursuant to Section 2.23(d)) or (ii) the
---------------
date the Commitments are terminated in whole pursuant to Section 2.05 or
------------
6.01.
----
"Term Loan Election" has the meaning specified in Section 2.06.
------------------ ------------
"Uncommitted Advance" means an advance by a Bank to a Borrower as
-------------------
part of an Uncommitted Borrowing resulting from the auction bidding
procedure described in Section 2.03.
------------
"Uncommitted Borrowing" means a borrowing consisting of simultaneous
---------------------
Uncommitted Advances from each of the Banks whose offer to make one or more
Uncommitted Advances as part of such borrowing has been accepted by a
Borrower under the auction bidding procedure described in Section 2.03.
------------
"Uncommitted Borrowing Margin" means, with respect to any
----------------------------
Eurocurrency Rate specified by a Borrower in a Notice of Uncommitted
Borrowing and any offer made by a Bank in response to such Notice of
Uncommitted Borrowing, the margin (expressed as a percentage rate per
annum) to be added to or subtracted from such Eurocurrency Rate in order to
determine the interest rate per annum at which such Bank is willing to, and
offers to, make an Uncommitted Advance to such Borrower as part of a
Eurocurrency Rate Uncommitted Borrowing.
"Uncommitted Note" means a promissory note, in substantially the form
----------------
of Exhibit D-2 hereto, duly executed by the Company or a Borrowing
-----------
evidencing an Uncommitted Advance made by such Bank, including any
amendment, modification, renewal or replacement of such promissory note.
"Utilization Fee" has the meaning specified in Section 2.04.
--------------- ------------
"Withdrawal Liability" has the meaning specified in Part 1 of
--------------------
Subtitle E of Title IV of ERISA.
-14-
<PAGE>
"Year 2000 Problem" means anticipated costs, problems and
-----------------
uncertainties associated with the inability of certain computer
applications to effectively handle data including dates on and after
January 1, 2000.
"Yen" means the lawful currency of Japan.
---
"1998 364-Day Credit Agreement" means that certain 364-Day Credit
-----------------------------
Agreement dated as of December 11, 1998, among the Company, the banks
listed on the signature pages thereto, and Bank One (f/k/a The First
National Bank of Chicago), as Administrative Agent, as amended, modified,
restated or supplemented from time to time.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. Accounting Terms; Modifications due to Implementation of
--------------------------------------------------------
Euro. (a) All accounting terms not specifically defined herein shall be
- ----
construed in accordance with generally accepted accounting principles consistent
with those applied in the preparation of the financial statements then most
recently delivered by the Company to the Banks in accordance with Section 5.03
------------
("GAAP"); provided, however, that, if any changes in accounting principles from
those used in the preparation of the consolidated financial statements of the
Company and its Subsidiaries for the fiscal year of the Company ended December
31, 1998 (as delivered to the Lenders pursuant to Section 4.01(e)) occur by
---------------
reason of the promulgation of rules, regulations, pronouncements, opinions or
other requirements of the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants (or successors thereto or agencies
with similar functions) and such changes would affect (or would result in a
change in the method of calculation of) the covenant set forth in Section 5.02,
------------
or any of the defined terms related thereto contained in Section 1.01, then upon
------------
the request of any party hereto, the Company, the Administrative Agent and the
Banks shall enter into negotiations in good faith, if and to the extent
necessary, to amend such covenant or such terms as would be affected by such
changes in GAAP, in accordance with Section 9.01, in such manner as would
------------
maintain the economic terms of such covenant as in effect under this Agreement,
prior to giving effect to the occurrence of any such changes; and provided
further, however, that until the amendment of the covenant and the defined terms
referred to in the immediately preceding proviso becomes effective, such
covenant and defined terms shall be performed, observed and determined, and any
determination of compliance with such covenant shall be made, as though no such
changes in accounting principles had been made and the Company shall deliver to
the Banks, in addition to the consolidated financial statements otherwise
required to be delivered to the Banks under Sections 5.03(a) or 5.03(b) during
---------------- -------
such period, a statement of reconciliation conforming such consolidated
financial statements to GAAP prior to such changes.
(b) If the Administrative Agent determines that modifications to this
Agreement are necessary as a result of the commencement of the third stage of
European Economic and Monetary Union, then the Company, the Administrative Agent
and the Banks shall enter
-15-
<PAGE>
into negotiations in good faith to amend this Agreement in such manner as to put
the parties in the same position as if the Euro Implementation Date had not
occurred. No such modifications shall become effective until this Agreement has
been amended in accordance with Section 9.01 to incorporate such modifications.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
---------------------------------
SECTION 2.01. The Committed Advances. Each Bank severally agrees, on the
----------------------
terms and conditions hereinafter set forth, to make Committed Advances to the
Borrowers from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an aggregate amount with respect to
all Borrowers not to exceed at any time outstanding an amount (such Bank's
"Available Commitment") equal to (i) the amount set forth opposite such Bank's
name on Schedule I hereto or, if such Bank has entered into any Assignment and
----------
Acceptance, set forth for such Bank in the Register, as such amount may be
reduced pursuant to Section 2.05 (such Bank's "Commitment") minus (ii) such
------------ -----
Bank's Pro Rata Share of the aggregate amount of the Uncommitted Advances then
outstanding. Each Committed Borrowing shall be in an aggregate amount of not
less than $20,000,000 or an integral multiple of $1,000,000 in excess thereof
or, if the requested currency for such Committed Advance is not Dollars, an
equivalent amount (determined in accordance with Section 2.16) and multiple in
------------
the requested Alternative Currency, and, subject to Section 2.02, shall consist
------------
of Committed Advances of the same Type made on the same day to the same Borrower
by the Banks ratably according to their respective Commitments in the currency
so requested. Within the limits of each Bank's Available Commitment, a Borrower
may borrow under this Section 2.01, prepay pursuant to Section 2.10, and
------------ ------------
reborrow under this Section 2.01.
------------
SECTION 2.02. Making the Committed Advances. (a) Each Committed
-----------------------------
Borrowing shall be made on notice by the Company (or, if such Borrower is a
Borrowing Subsidiary, by the Company on behalf of such Borrowing Subsidiary) to
the Administrative Agent (which shall give each Bank prompt notice thereof by
telecopy), given not later than 10:00 A.M. (Chicago time) on (i) the date of a
proposed Committed Borrowing comprised of Base Rate Advances, (ii) the third
Business Day prior to the date of a proposed Committed Borrowing comprised of
Eurocurrency Rate Advances to be denominated in Dollars, and (iii) the fourth
Business Day prior to the date of a proposed Committed Borrowing comprised of
Eurocurrency Rate Advances to be denominated in an Alternative Currency. Each
such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall
be by telecopy confirmed immediately in writing, in substantially the form of
Exhibit E-1 hereto, specifying therein the requested (i) date of such Committed
- -----------
Borrowing, (ii) Type of Committed Advances comprising such Committed Borrowing,
which, in the case of a Committed Borrowing denominated in an Alternative
Currency, shall be Eurocurrency Rate Advances, (iii) currency for such Committed
Borrowing, which shall be in Dollars or an Alternative Currency, (iv) aggregate
amount of such Committed Borrowing, (v) in the case of a Committed Borrowing
consisting of Eurocurrency Advances, the initial Interest Period for each
Committed Advance comprising such Committed Borrowing, and (vi) whether such
Committed Borrowing is to be made by the Company or by a specified Borrowing
-16-
<PAGE>
Subsidiary. The Administrative Agent shall, promptly after such time as the
Company or such Borrower may no longer revoke the Notice of Committed Borrowing
without any liability to the Banks, notify each Bank and the Company or such
Borrower of the applicable interest rate under Section 2.07(a) or (b). Each
--------------- ---
Bank shall, before 12:00 P.M. (Chicago time) on the date of such Committed
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at the Domestic Lending Office of the Bank then acting
as Administrative Agent, in federal or otherwise immediately available funds,
such Bank's Pro Rata Share of such Committed Borrowing. After the
Administrative Agent receives such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Administrative Agent will make such
-----------
funds available to the applicable Borrower at the Administrative Agent's
aforesaid address.
(b) Anything in subsection (a) above to the contrary notwithstanding:
(i) If with respect to a request for a Committed
Borrowing of an Alternative Currency other than Sterling, German
Marks, Swiss Francs or Yen, any Bank shall, prior to 10:00 A.M.
(Chicago time) on the second Business Day before the requested
date of such Committed Borrowing, notify the Administrative Agent
that the requested Alternative Currency is not practically
available to such Bank in the amount required to make its
Committed Advance in connection therewith; or
(ii) If any Bank shall, prior to making any requested
Committed Borrowing consisting of Eurocurrency Rate Advances in
an Alternative Currency, notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any
law or regulation makes it unlawful, or that any central bank or
other governmental authority asserts that it is unlawful, for
such Bank or its Eurocurrency Lending Office or any other
Applicable Lending Office to perform its obligations hereunder to
make Eurocurrency Rate Advances in such currency or to fund or
maintain Eurocurrency Rate Advances in such currency hereunder;
or
(iii) If the Majority Banks shall, prior to making any
requested Committed Borrowing of an Alternative Currency other
than Sterling, German Marks, Swiss Francs, Yen or the Euro,
notify the Administrative Agent or the Administrative Agent shall
reasonably determine that currency control or other exchange
regulations are imposed in the country in which such currency is
issued which result in the introduction of different types of
such currency or that there is a change in national or
international financial, political or economic conditions or
currency exchange rates or exchange controls which would make it
impracticable for such Advance to be denominated in the
Alternative Currency;
then, upon receipt of such notice, the Administrative Agent shall so notify the
Company and the applicable Borrower (if other than the Company) and the Company
or such Borrower may, without incurring an obligation to indemnify for losses,
costs or expenses under Section 2.02(d), by notice to the Administrative Agent
---------------
(which shall promptly notify each Bank), either
-17-
<PAGE>
(x) withdraw the applicable Notice of Committed Borrowing,
in which case the Committed Borrowing shall not occur;
(y) request that such Committed Borrowing be made by the
Banks in Dollars as a Committed Borrowing comprised of either
Eurocurrency Rate Advances or Base Rate Advances, in which case
the original Notice of Committed Borrowing shall be deemed to be
a Notice of Committed Borrowing which requests a Committed
Borrowing in an aggregate principal amount in Dollars equivalent,
on the date the Company or such Borrower so notifies the
Administrative Agent, to the amount of the originally requested
currency for such Type of Committed Advances (determined in
accordance with Section 2.16); provided that such request may not
------------- --------
be made by the Company or such Borrower if the requested Type of
Committed Advances is Eurocurrency Rate Advances and the request
by the Company or such Borrower is not given to the
Administrative Agent prior to 2:00 P.M. (London time) on the
second Business Day before the requested date of such Committed
Borrowing; or
(z) only in the case of a Bank giving a notice described in
Section 2.02(b)(ii) above, request that such Committed Borrowing
-------------------
be made by the Banks (other than the notifying Bank) and that no
Committed Advance be made by the notifying Bank in connection
with such Committed Borrowing.
In the case of any notice given under clause (y) above, the Company or such
Borrower shall specify in such notice the amount and type of Committed Advance
to be made by each Bank in connection therewith. Any notice under this
subsection (b) shall be given no later than 2:00 P.M. (London time) two Business
Days before the date of the requested Committed Borrowing, may be given by
telephone and, if by telephone, shall be confirmed promptly in writing. If
neither the Company nor the applicable Borrower shall provide a timely notice as
contemplated in clause (x), (y) or (z) above in response to a notice by any Bank
under clause (i) or (ii) above, the applicable Notice of Committed Borrowing
shall be deemed withdrawn.
(c) Anything in subsection (a) above to the contrary notwithstanding, if
the Majority Banks shall, no later than 5:00 P.M. (Chicago time) three Business
Days before the date of any requested Committed Borrowing, continuation or
conversion consisting of Eurocurrency Rate Advances, or any continuation thereof
or conversion thereto, notify the Administrative Agent that the Eurocurrency
Rate for any Interest Period for such Eurocurrency Rate Advances, plus
additional interest, if any, payable under Section 2.08, will not adequately
------------
reflect the cost to such Majority Banks of making, funding, converting to or
continuing their respective Eurocurrency Rate Advances for such Committed
Borrowing for such Interest Period, then the Administrative Agent shall promptly
notify the Company, the applicable Borrower (if other than the Company) and the
Banks of such circumstances and upon receipt of such notice, the Company or such
Borrower may, without incurring an obligation to indemnify for losses, costs or
expenses under Section 2.02(d), by notice to the Administrative Agent (which
---------------
shall promptly notify each Bank), either:
-18-
<PAGE>
(i) withdraw the applicable Notice of Committed Borrowing, in which
case the Committed Borrowing shall not occur;
(ii) withdraw the applicable Notice of Conversion or Continuation, in
which case the conversion or continuation of such Committed Borrowing shall
not occur; or
(iii) request that such Committed Borrowing, continuation or
conversion be made by the Banks in Dollars as a Committed Borrowing,
continuation or conversion, in which case the original Notice of Committed
Borrowing, or Notice of Conversion or Continuation shall be deemed to be a
Notice of Committed Borrowing, or Notice of Conversion or Continuation
which requests a Committed Borrowing, continuation or conversion in an
aggregate principal amount in Dollars equivalent, on the date the Company
or such Borrower so notifies the Administrative Agent, to the amount of the
originally-requested currency for such Committed Advances; provided that
--------
such request may not be made by the Company or such Borrower if the request
by the Company or such Borrower is not given to the Administrative Agent
prior to 2:00 P.M. (London time) on the second Business Day before the
requested date of such Committed Borrowing, continuation or conversion.
In the case of any notice given under clause (iii) above, the Company or such
Borrower shall specify in such notice the amount and Type of Committed Advances
to be made, continued or converted by the Banks in connection therewith. Any
notice under this subsection (c) shall be given no later than 2:00 P.M. (London
time) two Business Days before the date of the requested Committed Borrowing,
may be given by telephone, and, if by telephone, shall be confirmed promptly in
writing. From and after the date the Administrative Agent receives the notice
described in Section 2.02(c), the Banks' obligation to make Eurocurrency
---------------
Advances for any affected Interest Period shall be suspended until the Majority
Banks notify the Administrative Agent that the circumstances giving rise to such
notice no longer exist. If neither the Company nor the applicable Borrower
shall provide a timely notice as contemplated in clauses (i), (ii) or (iii)
above with respect to a Notice of Committed Borrowing, the applicable Notice of
Committed Borrowing shall be deemed withdrawn. If neither the Company nor the
applicable Borrower shall provide timely a notice as contemplated in clauses
(i), (ii) or (iii) above with respect to a Notice of Continuation or Conversion,
the Company or such applicable Borrower shall be deemed to have made the request
described in clause (iii).
(d) Each Notice of Committed Borrowing and Notice of Conversion or
Continuation may be revoked by the Company or, if other than the Company, the
applicable Borrower, by notice to the Administrative Agent without any liability
on the part of the Company or such Borrower at any time prior to (i) 10:00 A.M.
(Chicago time) on the date of a proposed Committed Borrowing, continuation or
conversion comprised of Base Rate Advances, (ii) 11:00 A.M. (London time) on the
second Business Day prior to the date of a proposed Committed Borrowing,
continuation or conversion comprised of Eurocurrency Rate Advances to be
denominated in Dollars, and (iii) 11:00 A.M. (London time) on the third Business
Day prior to the date of a proposed Committed Borrowing, continuation or
conversion comprised of Eurocurrency Rate Advances to be denominated in an
Alternative
-19-
<PAGE>
Currency. In the case of any Committed Borrowing, continuation or conversion
which the related Notice of Committed Borrowing, or Notice of Conversion or
Continuation, specifies is to be comprised of Eurocurrency Rate Advances, unless
the Company or the applicable Borrower revokes such Notice of Committed
Borrowing or Notice of Conversion or Continuation in accordance with the
preceding sentence and except as otherwise provided in Sections 2.02(b) and
----------------
(c), the Company or such Borrower shall indemnify each Bank against any loss,
- ---
cost or expense reasonably incurred by such Bank as a result of any failure to
fulfill on or before the date specified in such Notice of Borrowing or Notice of
Conversion or Continuation for such Committed Borrowing, conversion or
continuation, the applicable conditions set forth in Article III, including,
-----------
without limitation, any loss (excluding loss of anticipated profits), cost or
expense reasonably incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund the Committed Advance to
be made by such Bank as part of such Committed Borrowing, conversion or
continuation, when such Committed Advance, as a result of such failure, is not
made, continued or converted on such date.
(e) Unless the Administrative Agent shall have received notice from a Bank
prior to the date of any Committed Borrowing that such Bank will not make
available to the Administrative Agent such Bank's Pro Rata Share of such
Committed Borrowing, the Administrative Agent may assume that such Bank has made
such Pro Rata Share available to the Administrative Agent on the date of such
Committed Borrowing in accordance with subsection (a) of this Section 2.02 and
------------
the Administrative Agent may, in reliance upon such assumption, make a
corresponding amount available to the applicable Borrower on such date. If and
to the extent that such Bank shall not have so made such Pro Rata Share
available to the Administrative Agent, such Bank and such Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to such Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of such Borrower, the
interest rate applicable at the time to Committed Advances comprising such
Committed Borrowing and (ii) in the case of such Bank, the Federal Funds Rate.
If such Bank shall repay such corresponding amount to the Administrative Agent,
such amount so repaid shall constitute such Bank's Committed Advance as part of
such Committed Borrowing for purposes of this Agreement.
(f) A Bank's failure to make the Committed Advance to be made by it as
part of any Committed Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Committed Advance on the date of such
Committed Borrowing. No Bank shall be responsible for the failure of any other
Bank to make the Committed Advance to be made by such other Bank on the date of
any Committed Borrowing.
SECTION 2.03. The Uncommitted Advances. (a) Each Bank severally agrees
------------------------
that any Borrower may make Uncommitted Borrowings in Dollars from time to time
on any Business Day during the period from the date hereof until 30 days before
the Termination Date in the manner set forth below; provided that, following the
--------
making of each Uncommitted Borrowing, the aggregate amount with respect to all
Borrowers of the Advances then outstanding shall not exceed the aggregate amount
of the Commitments of the Banks.
-20-
<PAGE>
(i) A Borrower may request, and the Company may request for the
benefit of any Borrowing Subsidiary, an Uncommitted Borrowing to be made by
such Borrower under this Section 2.03 by delivering to the Administrative
------------
Agent, by telecopier not later than the applicable Request Deadline a
notice of an Uncommitted Borrowing (a "Notice of Uncommitted Borrowing"),
in substantially the form of Exhibit E-2 hereto, specifying therein (A) the
-----------
requested date of the proposed Uncommitted Borrowing, (B) the aggregate
amount of the proposed Uncommitted Borrowing, (C) that each Bank submitting
an offer shall quote an Uncommitted Borrowing Margin, or that each Bank
submitting an offer shall quote a fixed interest rate per annum without
reference to the Eurocurrency Rate, (D) maturity date for repayment of each
Uncommitted Advance to be made as part of such Uncommitted Borrowing (which
maturity date may not be earlier than seven (7) days, or later than 180
days after the date of the proposed Uncommitted Borrowing or later than the
Termination Date) and whether such Uncommitted Advance may be prepaid, and
if so, whether with or without penalty, (E) interest payment date or dates
relating thereto, (F) Borrower and (G) other material terms to be
applicable to such Uncommitted Borrowing. The Administrative Agent shall
promptly notify each Bank of its receipt of each such Notice of Uncommitted
Borrowing by sending each Bank a copy thereof. "Request Deadline"
----------------
means (x) in the case of a Fixed Rate Uncommitted Borrowing, 4:00 P.M.
(Chicago time) on the Business Day prior to the date of such proposed
Uncommitted Borrowing and (y) in the case of a Eurocurrency Rate
Uncommitted Borrowing, 4:00 P.M. (Chicago time) four (4) Business Days
prior to the date of such proposed Uncommitted Borrowing.
(ii) Each Bank shall, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more Uncommitted Advances to such Borrower
as part of such proposed Uncommitted Borrowing at a rate or rates of
interest specified by such Bank, in its sole discretion, by notifying the
Administrative Agent not later than the applicable Quote Deadline of the
minimum amount (if any) and maximum amount of each Uncommitted Advance
which such Bank would be willing to make as part of such proposed
Uncommitted Borrowing (which amounts may, subject to the proviso to the
first sentence of this Section 2.03(a), exceed such Bank's Commitment, if
---------------
any), the Uncommitted Borrowing Margin or Margins to be applied in the
determination of the rate or rates of interest therefor (or, if the Notice
of Uncommitted Borrowing shall have requested that fixed rates per annum be
quoted, the fixed rate or rates per annum therefor) and such Bank's
Applicable Lending Office with respect to such Uncommitted Advance. If any
Bank shall elect not to make such an offer, such Bank shall so notify the
Administrative Agent before the applicable Quote Deadline, and such Bank
shall not be obligated to, and shall not, make any Uncommitted Advance as
part of such Uncommitted Borrowing; provided that the failure by any Bank
--------
to give such notice shall not cause such Bank to be obligated to make any
Uncommitted Advance as part of such proposed Uncommitted Borrowing. The
Administrative Agent shall promptly notify the Company and, if applicable,
the applicable Borrowing Subsidiary of each Bank's response
-21-
<PAGE>
pursuant to this paragraph (ii); provided, that if Bank One shall elect to
--------
make an offer under this paragraph (ii), such offer shall be delivered to
the Company and, if applicable, the Borrowing Subsidiary not later than
one-half hour prior to the applicable Quote Deadline. Each Borrower shall
be entitled to assume that each quote of an Uncommitted Borrowing Margin or
a fixed rate per annum by a Bank includes, and such Bank shall not be
entitled to claim as additional interest or costs under Section 2.08 or
------------
otherwise, any costs to such Bank in the nature of a reserve requirement,
assessment or other charge in connection with the Uncommitted Advance to
which such quote relates, except that such Bank shall be entitled to claim
increased costs and additional compensation under Section 2.12(a) and (b)
---------------
and Section 2.19, but solely with respect to the changes described in such
------------
provisions that occur after the date such Uncommitted Advance is made.
"Quote Deadline" means, (x) in the case of a Fixed Rate Uncommitted
--------------
Borrowing, 9:00 A.M. (Chicago time) on the date of such proposed
Uncommitted Borrowing and (y) in the case of a Eurocurrency Rate
Uncommitted Borrowing, 9:00 A.M. (Chicago time) three Business Days prior
to the date of such proposed Uncommitted Borrowing.
(iii) Such Borrower, or the Company on behalf of such Borrower, shall,
in turn, before the applicable Acceptance Deadline, either
(A) cancel, without incurring an obligation on the part of such
Burrower or the Company to indemniy for losses, costs or expenses
under Section 2.02(d), such Uncommitted Borrowing by giving the
---------------
Administrative Agent notice to that effect, in which case such
Uncommitted Borrowing shall not be made, or
(B) accept one or more of the offers made by any Bank or Banks
pursuant to paragraph (ii) above, in its sole discretion but in any
event in ascending order of the fixed rates of interest or Uncommitted
Borrowing Margins (as applicable) offered by all of the Banks
responding to such Notice of Uncommitted Borrowing, by giving notice
to the Administrative Agent of the relevant Banks and the respective
amounts of each Uncommitted Advance (each of which amounts shall be
equal to or greater than the minimum amount, and equal to or less than
the maximum amount, offered to be made by the respective Bank for such
Uncommitted Advance pursuant to Section 2.02(a)(ii) above) and reject
-------------------
any remaining offers made by Banks pursuant to such Section by giving
the Administrative Agent notice to that effect. The Company (either
for itself or on behalf of a Borrowing Subsidiary) may not accept
offers which, in the aggregate, exceed the requested Uncommitted
Borrowing specified in the applicable Notice of Uncommitted Borrowing.
If two or more Banks bid at the same Uncommitted Borrowing
-22-
<PAGE>
Margin or fixed rate of interest, as the case may be, and the amount
of accepted offers is less than the aggregate amount of such offers,
the amount to be borrowed from such Banks as part of such Uncommitted
Borrowing shall be allocated pro rata on the basis of the maximum
--------
amount offered by each such Bank at such fixed rates or Uncommitted
Borrowing Margins in connection with such Uncommitted Borrowing.
The Administrative Agent shall promptly notify the Banks of each notice it
receives pursuant to this paragraph (iii). "Acceptance Deadline" means, (x)
-------------------
in the case of an Uncommitted Borrowing to be denominated in Dollars, 10:00
A.M. (Chicago time) on the date of such proposed Uncommitted Borrowing and
(y) in the case of an Uncommitted Borrowing to be denominated in an
Alternative Currency, 4:00 P.M. (Chicago time) three Business Days prior to
the date of such proposed Uncommitted Borrowing.
(iv) If such Borrower accepts, or the Company accepts on such
Borrower's behalf, one or more of the offers made by any Bank or Banks
pursuant to Section 2.03(a)(iii)(B) above, the Administrative Agent shall
-----------------------
in turn promptly notify (A) each Bank that has made an offer pursuant to
Section 2.03(a)(ii) of the date and aggregate amount of such Uncommitted
-------------------
Borrowing and whether or not any offer or offers so made by such Bank have
been accepted by such Borrower, (B) each Bank that is to make an
Uncommitted Advance as a part of such Uncommitted Borrowing, of the amount
of each Uncommitted Advance to be made by such Bank as part of such
Uncommitted Borrowing, and (C) each Bank that is to make an Uncommitted
Advance as part of such Uncommitted Borrowing, upon receipt, that the
Administrative Agent has received forms of documents appearing to fulfill
the applicable conditions set forth in Article III. Each Bank that is to
-----------
make an Uncommitted Advance as part of such Uncommitted Borrowing shall,
before 1:00 P.M. (Chicago time) on the date of such Uncommitted Borrowing
specified in the notice received from the Administrative Agent pursuant to
clause (A) of the preceding sentence or any later time when such Bank shall
have received notice from the Administrative Agent pursuant to subclause
(C) of the preceding sentence, make available to the Administrative Agent
at the Administrative Agent's Domestic Lending Office, in federal or
otherwise immediately available funds, such Bank's portion of such
Uncommitted Borrowing. After the Administrative Agent receives such funds
and when the applicable conditions set forth in Article III have been
-----------
fulfilled, the Administrative Agent will make such funds available to the
applicable Borrower at the Administrative Agent's aforesaid address.
Promptly after (x) each Uncommitted Borrowing, the Administrative Agent
will notify each Bank of the amount and date of the Uncommitted Borrowing
and the maturity date thereof and the Available Commitment of each Bank
after giving effect to such Uncommitted Borrowing and (y) the prepayment of
any Uncommitted Borrowing by or on behalf of such Borrower, the
Administrative Agent will notify each Bank of the amount and date of each
-23-
<PAGE>
such prepayment and the Available Commitment of each Bank after giving
effect thereto.
(b) Each Uncommitted Borrowing shall be in an aggregate amount of not less
than $25,000,000 or an integral multiple of $1,000,000 in excess thereof, or if
the requested currency for such Advance is not Dollars, the equivalent of such
amount (determined in accordance with Section 2.16) or multiple in the requested
------------
Alternative Currency.
(c) Within the limits and on the conditions set forth in this Section
-------
2.03, each Borrower may from time to time borrow under this Section 2.03, repay
------------
pursuant to subsection (d) below, and reborrow under this Section 2.03; provided
------------ --------
that an Uncommitted Borrowing shall not be made within three Business Days of
any other Uncommitted Borrowing.
(d) Each Borrower shall repay to the Administrative Agent, for the account
of each Bank which has made an Uncommitted Advance to such Borrower, on the
maturity date of each such Uncommitted Advance (such maturity date being that
specified for repayment of such Uncommitted Advance in the related Notice of
Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above) the then
------------------
unpaid principal amount of such Uncommitted Advance. A Borrower shall not have
the right to prepay any principal amount of any Uncommitted Advance without the
consent of the Bank making such Advance.
(e) Each Borrower shall pay interest on the unpaid principal amount of
each Uncommitted Advance made to it, from the date of such Uncommitted Advance
to the date the principal amount of such Uncommitted Advance is repaid in full,
at the rate of interest for such Uncommitted Advance specified by the Bank
making such Uncommitted Advance in its notice with respect thereto delivered
pursuant to Section 2.03(a)(ii) above, payable on the interest payment date or
-------------------
dates specified for such Uncommitted Advance in the related Notice of
Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above.
------------------
(f) The Borrower of any Uncommitted Advance shall, promptly upon request
by the Bank making such Uncommitted Advance (either in the quote delivered by
such Bank pursuant to Section 2.03(a)(ii) or by notice to the Administrative
-------------------
Agent), execute and deliver to the Administrative Agent an Uncommitted Note
payable to the order of such Bank in a principal amount equal to the principal
amount of such Uncommitted Advance and otherwise on such terms as were agreed to
for such Uncommitted Advance in accordance with Section 2.03.
------------
SECTION 2.04. Facility Fee and Utilization Fee. (a) The Company and each
--------------------------------
Borrowing Subsidiary jointly and severally agree to pay to the Administrative
Agent, for the account of each Bank other than a Designated Bidder, a facility
fee ("Facility Fee") on the average daily Commitment of such Bank from the date
hereof until the Termination Date (or, if the Company has made the Term Loan
Election, until the Maturity Date), payable in arrears on the first Business Day
of each January, April, July and October during the term of such Bank's
Commitment, commencing January 3, 2000, and on the Termination Date (or, if the
Company has made the Term Loan Election, on the Maturity Date), at a rate per
annum equal to 0.06%.
-24-
<PAGE>
(b) To the extent, and for so long as, (i) the average daily aggregate
outstanding principal amount of Advances at any time exceeds one-half of the
aggregate Commitments at such time, and (ii) Category 3 Status, Category 4
---
Status or Category 5 Status exists, the Company and each Borrowing Subsidiary,
jointly and severally, agree to pay to each Bank other than a Designated Bidder
a utilization fee (the "Utilization Fee") equal to 0.05% per annum of the
aggregate principal amount of such Bank's Advances at such time. The
Utilization Fee shall be payable on each date the Facility Fee is payable.
(c) Notwithstanding the foregoing, (i) any Facility Fee or Utilization Fee
accrued with respect to any Commitment of a Defaulting Bank during the period
prior to the time such Bank became a Defaulting Bank and unpaid at such time
shall not be payable by the Borrowers so long as such Bank shall be a Defaulting
Bank, except to the extent such Facility Fee or Utilization Fee was due and
payable prior to such time, and (ii) no Facility Fee or Utilization Fee shall
accrue on the Commitment of a Defaulting Bank so long as such Bank is a
Defaulting Bank.
SECTION 2.05. Reduction and Termination of the Commitments. (a) The
--------------------------------------------
Company shall have the right, upon at least four (4) days' notice to the
Administrative Agent to terminate in whole or reduce ratably in part the unused
portions of the respective Commitments of the Banks, provided that the aggregate
--------
amount of the Commitments of the Banks shall not be reduced to an amount which
is less than the aggregate principal amount of the Uncommitted Advances then
outstanding and provided, further, that each partial reduction shall be in an
-------- -------
aggregate amount of $10,000,000 or any integral multiple of $1,000,000 in excess
thereof.
(b) Provided that no Event of Default shall have occurred and be
continuing, the Company may at any time replace any Bank, in whole but not in
part, by (i) giving such Bank and the Administrative Agent not less than ten
(10) Business Days' prior notice thereof, which notice shall be irrevocable and
effective only when received by such Bank and the Administrative Agent and shall
specify the effective date of such replacement, and (ii) effecting an assignment
of all of the Bank's Commitment and Advances in accordance with Section 9.07.
------------
(c) On the Termination Date, if the Company has made the Term Loan
Election in accordance with Section 2.06(a) prior to such date, and from time to
---------------
time thereafter upon each prepayment of the Advances, the aggregate Commitments
of the Banks shall be automatically and permanently reduced on a pro rata basis
--- ----
by an amount equal to the amount by which (i) the aggregate Commitments
immediately prior to such reduction exceeds (ii) the aggregate unpaid principal
-------
amount of all Advances (determined in the case of any Advances denominated in an
Alternative Currency by reference to the Dollar Amount) outstanding at such
time.
SECTION 2.06. Payment; Conversion and Continuation. (a) On the
------------------------------------
Termination Date, the Borrowers shall, subject to the next succeeding sentence,
repay to the Administrative Agent for the ratable account of the Banks, the
entire unpaid principal amount of the Advances made by each Bank. The Company
may, upon not less than 15 days' notice to the Administrative Agent, elect (the
"Term Loan Election") to convert all of the Advances outstanding on the
------------------
Termination Date in effect at such time into a term loan
-25-
<PAGE>
which the Borrowers shall repay in full, together with all accrued interest,
ratably to the Banks on the Maturity Date, with any prepayment thereof subject
to Section 2.11; provided that the Term Loan Election may not be exercised if an
------------ --------
event shall have occurred and be continuing which constitutes an Event of
Default or which would constitute an Event of Default but for the requirement
that notice be given or time elapse or both on the date of notice of the Term
Loan Election or on the date on which the Term Loan Election is to be effected.
All Advances converted to a term loan pursuant to this Section 2.06(a) shall
continue to constitute Advances except that the Borrowers may not reborrow
pursuant to Section 2.01 after all or any portion of the Advances have been
prepaid pursuant to Section 2.10.
(b) Any Borrower may elect (x) to convert Base Rate Advances or any
portion thereof to Eurocurrency Rate Advances, (y) to convert Eurocurrency Rate
Advances or any portion thereof into Base Rate Advances, or (z) to continue any
Eurocurrency Rate Advance or any portion thereof for an additional Interest
Period; provided, however, that the aggregate amount of Base Rate Advances being
-------- -------
converted into Eurocurrency Rate Advances or of Eurocurrency Rate Advances being
continued shall, in the aggregate, equal $20,000,000 or an integral multiple of
$1,000,000 in excess thereof. The applicable Interest Period for the
continuation of any Eurocurrency Rate Advance shall commence on the day on which
the immediately-preceding Interest Period expires. Each conversion or
continuation shall be allocated among the Committed Advances of each Bank in
accordance with its Pro Rata Share of the amount so converted or continued.
Each such election shall be in substantially the form of Exhibit F (a "Notice of
---------
Conversion or Continuation") and shall be made by giving the Administrative
Agent notice by 10:00 a.m. (Chicago time) on the date of such conversion or
continuation, in the case of a conversion to a Base Rate Advance, giving the
Administrative Agent at least three Business Days' prior written notice thereof
in the event of a conversion to or continuation of a Eurocurrency Advance
specifying, in each case (i) whether a conversion or continuation is to take
place, (ii) what Advances are to be converted or continued, and if converted,
the Type of Advance to which it is to be converted, (iii) the amount of the
conversion or continuation, (iv) the Interest Period therefor and (v) in the
case of a conversion, the date of conversion (which date shall be a Business
Day). The Administrative Agent shall promptly notify each Bank of its receipt
of a Notice of Conversion or Continuation by sending such Bank a copy thereof.
If, within the time period required under the terms of this Section 2.06(b), the
---------------
Administrative Agent does not receive a Notice of Conversion or Continuation
from the applicable Borrower containing an election to continue or convert any
Advances for an additional Interest Period, then, upon the expiration of the
Interest Period therefor, such Advances will be automatically converted to Base
Rate Advances.
SECTION 2.07. Interest on Committed Advances. Each Borrower shall pay
------------------------------
interest on the unpaid principal amount of each Committed Advance made by each
Bank to it from the date of such Committed Advance until such principal amount
shall be paid in full, at the following rates per annum:
(a) Base Rate Advances. During such period as such Committed Advance is a
------------------
Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the first Business Day
of each January, April, July and October, commencing January 3, 2000, and on the
Termination Date (or, if the Company
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<PAGE>
has made the Term Loan Election, on the Maturity Date). The Administrative Agent
shall give notice to the Company and the applicable Borrower (if other than the
Company) and each Bank of any change in the Base Rate promptly after such change
occurs, but the Administrative Agent's failure to give such notice shall not
affect the obligation of the Company or such Borrower to pay interest at such
rate when it becomes due and payable.
(b) Eurocurrency Rate Advances. During such period as such Committed
--------------------------
Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times
during each Interest Period for such Committed Advance to the sum of the
Eurocurrency Rate for such Interest Period plus the Applicable Margin, payable
on the last day of such Interest Period and, if such Interest Period has a
duration of more than three months, on each day which occurs during such
Interest Period every three months from the first day of such Interest Period
and on the date such Eurocurrency Rate Advance shall be converted or paid in
full.
(c) Default Interest. Notwithstanding the foregoing provisions of this
----------------
Section 2.07, any amount of principal and fees and, to the extent permitted by
- ------------
law, interest, that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable in arrears on the date
such amount shall be paid in full and on demand, at a rate per annum equal at
all times to 1% per annum above (i) in the case of principal, the rate of
interest otherwise thereto from time to time in accordance with the terms
hereof, and (ii) in the case of interest and fees, the Base Rate in effect from
time to time.
SECTION 2.08. Additional Interest on Eurocurrency Rate Advances. Each
-------------------------------------------------
Borrower shall pay to each Bank other than Designated Bidders, so long as and to
the extent such Bank shall be required under regulations of the Board of
Governors of the Federal Reserve System (or any similar authority outside the
United States, in the case of Committed Advances in Alternative Currencies) to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or any other category of liabilities that
includes deposits by reference to which the interest rate on Eurocurrency Rate
Advances in the applicable Alternative Currency is determined) and such Bank's
performance under this Agreement (and other like agreements) shall have given
rise to additional reserve requirements for such Bank thereunder, additional
interest on the unpaid principal amount of each Committed Advance constituting a
Eurocurrency Rate Advance of such Bank made to such Borrower, from the date of
such Committed Advance until such principal amount is paid in full, at an
interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurocurrency Rate for the applicable Interest Period for
such Committed Advance from (ii) the rate obtained by dividing such Eurocurrency
Rate by a percentage equal to 100% minus the Eurocurrency Rate Reserve
Percentage of such Bank for such Interest Period, payable on each date on which
interest is payable on such Committed Advance. Such Bank shall, not later than
the last day of the applicable Interest Period, provide notice to the
Administrative Agent, the Company and, if other than the Company, the applicable
Borrower of any such additional interest arising in connection with such
Committed Advance. Such additional interest so notified on a timely basis by
any Bank shall be payable to the Administrative Agent for the account of such
Bank on the dates specified for payment of interest for such Committed Advance
in Section 2.07.
------------
SECTION 2.09. Interest Rate Determination. (a) Reserved.
---------------------------
-27-
<PAGE>
(b) The Administrative Agent shall give prompt notice to the Company and
the applicable Borrower (if other than the Company) and each of the Banks (other
than the Designated Bidders) of the applicable interest rate determined by the
Administrative Agent for purposes of Section 2.07(a) or (b).
--------------- ---
(c) On the date on which the aggregate unpaid principal amount of
Eurocurrency Rate Advances comprising any Committed Borrowing shall be reduced,
by payment, prepayment or otherwise, to less than $20,000,000, such Advances
shall automatically convert into Base Rate Advances and such conversion shall be
subject to Section 2.11.
------------
SECTION 2.10. Prepayments. A Borrower may prepay, on any Business Day
-----------
following notice by 11:00 a.m. (Chicago time) on such Business Day to the
Administrative Agent (in the case of Base Rate Advances) and on three Business
Days' prior notice to the Administrative Agent (in the case of Eurocurrency Rate
Advances), each Committed Borrowing made to such Borrower, in whole or in part.
Such notice shall include the proposed date and aggregate principal amount of
such prepayment, and if such notice is given, such Borrower shall prepay such
principal amount, together with accrued interest to the date of such prepayment
on the principal amount prepaid. Any amounts payable, if any, pursuant to
Section 2.11 hereof in connection with any prepayment shall be paid on the date
- ------------
of such prepayment; provided, however, that each partial prepayment shall be in
-------- -------
an aggregate principal amount of not less than $10,000,000 or an integral
multiple of $1,000,000 in excess thereof. Subject to Sections 2.12 and 2.13,
------------- ----
each prepayment of a Committed Borrowing shall be made to each Bank in
accordance with such Bank's Pro Rata Share thereof. The Company shall, on the
first Business Day of each January, April, July and October, if the aggregate
outstanding principal Dollar Amount of all Advances, calculated by the
Administrative Agent on the seventh Business Day prior to such payment date and
reported to the Company by the fifth Business Day prior to such payment date,
exceeds (as the result of fluctuations in applicable foreign exchange rates or
otherwise) 105% of the then aggregate amount of the Banks' Commitments
(calculated as aforesaid), prepay a Committed Borrowing or Borrowings (in whole
or in part, and in any case as selected by the Company) in an aggregate Dollar
Amount (calculated as aforesaid, and rounded upward, if necessary, to the
nearest $1,000,000) equal to the excess of:
(i) the aggregate principal Dollar Amount (calculated
as aforesaid) of Advances outstanding, over
(ii) the then aggregate amount of the Banks'
Commitments (calculated as aforesaid).
Each prepayment of any Committed Borrowing (in whole or in part) made pursuant
to this Section 2.10 shall be without premium or penalty, but shall be subject
------------
to the provisions of Section 2.11. Any mandatory prepayment of a Committed
------------
Borrowing shall be made to the Administrative Agent for the account of each Bank
based on such Bank's Pro Rata Share of such Committed Borrowing and shall
include accrued and unpaid interest on the principal amount prepaid and all
amounts owing under Section 2.11.
------------
-28-
<PAGE>
SECTION 2.11. Funding Indemnification. If any payment of principal of any
-----------------------
Advance (other than a Base Rate Advance) is made other than on the last day of
an Interest Period for such Advance, as a result of acceleration of the maturity
of the Advances pursuant to Section 6.01 or for any other reason, or if any
------------
Eurocurrency Rate Advance is converted to a Base Rate Advance pursuant to
Section 2.13(b) on any day other than the last day of an Interest Period for
- ---------------
such Eurocurrency Rate Advance, the applicable Borrower shall, upon demand by
any Bank (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Bank any amounts required to
compensate such Bank for any additional losses, costs or expenses which it may
reasonably incur as a result of such payment or conversion, including without
limitation any loss (excluding loss of anticipated profits), cost or expense
reasonably incurred as a result of the liquidation or re-employment of deposits
or other funds acquired by such Bank to fund or maintain such Advance.
SECTION 2.12. Increased Costs and Reduced Return. (a) Subject to the
----------------------------------
limitation in Section 2.03(a)(ii), if, due to either (i) the introduction of or
-------------------
any change (other than any change by way of imposition or increase of reserve
requirements, in the case of Eurocurrency Rate Advances, included in the
Eurocurrency Rate Reserve Percentage), after the date hereof, in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) issued after the date hereof, there
shall be any increase in the cost to any Bank of agreeing to make, making,
funding or maintaining Eurocurrency Rate Advances (including, without
limitation, any conversion of any Advance denominated in an Alternative Currency
other than the Euro into an Advance denominated in Euro), by an amount
reasonably deemed by such Bank to be material, then from time to time, within
ten days after demand by such Bank (with a copy of such demand to the
Administrative Agent), such Borrower shall pay to the Administrative Agent for
the account of such Bank additional amounts sufficient to compensate such Bank
for such increased cost; provided that no Borrower shall be obligated to pay any
--------
such amount to the extent such amount results from a change, guideline or
request which took effect more than 90 days prior to the date of such demand.
(b) Subject to the limitation in Section 2.03(a)(ii), if any Bank shall
-------------------
have determined that the adoption, after the date hereof, of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive issued after the date hereof regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Bank's capital as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for such
adoption, change or compliance by an amount reasonably deemed by such Bank to be
material, then from time to time, within ten days after demand by such Bank
(with a copy of such demand to the Administrative Agent), the Company shall pay
to the Administrative Agent for the account of such Bank such additional amount
or amounts as will compensate such Bank, in light of such circumstances, to the
extent such Bank reasonably determines such reduction to be allocable to the
existence of such Bank's Commitment; provided that no Borrower shall be
--------
obligated to pay
-29-
<PAGE>
any such amount to the extent such amount results from an adoption, change,
request or directive which took effect or was issued more than 90 days prior to
the date of such demand.
(c) Each Bank will promptly notify the Administrative Agent and the
Company of any event of which it has knowledge, occurring after the date hereof,
which would entitle such Bank to compensation pursuant to this Section 2.12. A
------------
certificate of any Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall create a
rebuttable presumption as to the correctness of such additional amount or
amounts. Each Bank agrees not to request any payment under this Section 2.12
------------
unless similar requests are then generally being made by such Bank of other
borrowers similarly situated, and to use a reasonable basis for calculating
amounts allocable to its Commitment hereunder.
SECTION 2.13. Illegality. (a) If any Bank shall determine (which
----------
determination shall be rebuttably presumed correct as to all parties) at any
time that the making or continuance of its Eurocurrency Rate Advances has become
unlawful because of the introduction of or any change in or in the
interpretation of any law or regulation or because of the assertion of
unlawfulness by any central bank or other governmental authority, then, in any
such event, such Bank shall give prompt notice (by telephone confirmed in
writing) to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each Borrower and the other
Banks).
(b) Upon the giving of the notice to the Company referred to in subsection
(a) above, if the affected Advances are then outstanding, each Borrower shall,
upon at least one Business Day's written notice to the Administrative Agent and
the affected Bank, or if permitted by applicable law no later than the date
permitted thereby, in such Borrower's sole discretion, either (i) prepay the
principal amount of all outstanding Advances of such Bank to which such notice
relates, together with accrued interest thereon to the date of payment, or (ii)
convert each such Advance into a Base Rate Advance denominated in Dollars and,
in each case, be obligated to reimburse the Banks in respect thereof pursuant to
Section 2.11 hereof. If more than one Bank gives notice pursuant to Section
- ------------ -------
2.13(a) at any time, then all outstanding Advances of the affected Type or
- -------
currency of such Banks must be treated in the same manner by the Borrowers
pursuant to this subsection 2.13(b) and the Banks' obligations to make, convert
------------------
or continue Eurocurrency Rate Advances shall be suspended until the
Administrative Agent notifies the Borrowers that the circumstances causing such
suspension no longer exist.
SECTION 2.14. Payments and Computations. (a) The Company and each
-------------------------
Borrowing Subsidiary shall make each payment hereunder and under the Notes
without set-off, counterclaim or other deduction by causing a wire transfer of
immediately-available funds to be initiated to the Administrative Agent in an
amount equal to such payment not later than 12:00 noon (Chicago time) on the day
when due from the Company or such Borrowing Subsidiary. The Administrative
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest or fees ratably (other than amounts payable
pursuant to Sections 2.03, 2.05(b), 2.08, 2.11, 2.12, 2.15, 2.19 or 2.20) to the
------------- ------- ---- ---- ---- ---- ---- ----
Banks for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Bank to such
Bank for the
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<PAGE>
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. All such payments shall be made in
Dollars, except that payments of principal of and interest on Borrowings in an
Alternative Currency shall be made in such Alternative Currency or, where such
Alternative Currency has converted to the Euro, in the Euro; provided that if
the applicable Borrower fails to make any payment of principal or interest with
respect to any Borrowing in an Alternative Currency (including the Euro) on the
due date thereof because such Alternative Currency has ceased to be freely
transferable and convertible into Dollars in the international currency and
exchange markets, such failure shall not constitute an Event of Default or an
event which would constitute an Event of Default but for the requirement that
notice be given or time elapse or both, if such Borrower pays the equivalent in
Dollars of such payment on the due date thereof. In addition to any such Dollar
payment, such Borrower agrees to pay to each affected Bank an indemnity payment
within five Business Days after such Borrower shall have received a certificate
from such Bank setting forth in reasonable detail the amount of any loss, cost,
damage or expense suffered by such Bank as a consequence of such inability to
make any such payment in such Alternative Currency on the due date thereof. Each
Bank agrees to use reasonable efforts to avoid or minimize all such loss, cost,
damage or expense.
(b) All computations of interest based on the Base Rate, or the
Eurocurrency Rate applicable to Borrowings denominated in Sterling, shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurocurrency Rate
(as to all other currencies) or the Federal Funds Rate, all computations of
interest pursuant to Section 2.08 and all computations of the Facility Fee and
------------
the Utilization Fee shall be made by the Administrative Agent on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Administrative Agent
(or, in the case of Section 2.08, by a Bank) of an interest rate or fee owing
------------
hereunder shall create a rebuttable presumption as to the correctness of such
determination.
(c) Whenever any payment hereunder or under the Notes shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, if such extension would cause payment of interest on or
- -------- -------
principal of Eurocurrency Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice from the
applicable Borrower prior to the date on which any payment is due to the Banks
hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
such Borrower shall not have so made such payment in full to the Administrative
Agent, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date such
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<PAGE>
amount is distributed to such Bank until the date such Bank repays such amount
to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.15. Sharing of Payments, Etc. If any Bank shall obtain any
-------------------------
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Committed Advances made by it (other
than pursuant to Sections 2.08, 2.11, 2.12, 2.13(b), 2.19 or 2.20) in excess of
------------- ---- ---- ------- ---- ----
its ratable share of payments on account of the Committed Advances obtained by
all the Banks, such Bank shall forthwith purchase from the other Banks such
participations in the Committed Advances made by them as shall be necessary to
cause such purchasing Bank to share the excess payment ratably with each of
them, provided, however, that if all or any portion of such excess payment is
-------- -------
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the purchase
price to the extent of such recovery together with an amount equal to such
Bank's ratable share (according to the proportion of (i) the amount of such
Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. Each Borrower
agrees that any Bank so purchasing a participation from another Bank with
respect to Advances made to such Borrower pursuant to this Section 2.15 may, to
------------
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
SECTION 2.16. Currency Equivalents. (a) For purposes of this Article II,
-------------------- ----------
(i) the equivalent in Dollars of any Alternative Currency shall be determined by
using the arithmetical mean of the buy and sell spot rates at which Bank One's
principal office in London exchanges Dollars for such Alternative Currency in
the interbank market in London at 11:00 A.M. (London time) two Business Days
prior to the date on which such equivalent is to be determined, (ii) the
equivalent in any Alternative Currency of any other Alternative Currency shall
be determined by using the arithmetical mean of the buy and sell spot rates at
which Bank One's principal office in London exchanges such Alternative Currency
for the equivalent in such other Alternative Currency in London at 11:00 A.M.
(London time) two Business Days prior to the date on which such equivalent is to
be determined, and (iii) the equivalent in any Alternative Currency of Dollars
shall be determined by using the arithmetical mean of the buy and sell spot
rates at which Bank One's principal office in London exchanges such Alternative
Currency for Dollars in London at 11:00 A.M. (London time) two Business Days
prior to the date on which such equivalent is to be determined. The equivalent
in Dollars of each Eurocurrency Rate Advance made in an Alternative Currency
shall be recalculated hereunder on each day that it is necessary to determine
the unused portion of each Bank's Commitment, or any or all of the Advances on
such date.
(b) If for the purpose of obtaining a judgment in any court with respect
to any obligation of a Borrower hereunder, it shall become necessary for the
Administrative Agent or any Bank entitled to receive payments hereunder to
convert any amount into a currency other than the currency denominated hereunder
for such obligation, then such conversion shall be made on the basis of rates
(the "Exchange Rates") determined in the manner described in subsection (a)
above (or, if the applicable currency to be converted is not at the time of
conversion available in the interbank market in London, then in such other
interbank
-32-
<PAGE>
market as the Administrative Agent shall determine to have adequate availability
of such currency) and the date with respect to which such an equivalent is to be
determined shall be the first Business Day preceding the date on which final
judgment is entered. If pursuant to any such judgment conversion is to be made
with respect to a date other than the date referred to above, and there shall
occur a change between the Exchange Rates in effect on such date and the
Exchange Rates in effect on the date of payment, (i) the applicable Borrower
agrees to pay such additional amounts (if any) as may be necessary to ensure
that the amount paid is the amount in such other currency which, when converted
at the Exchange Rates as in effect on the date of payment or distribution, is
the amount then due hereunder in the relevant currency and (ii) such Borrower
shall not be required to pay any amount in excess of the amount determined to be
payable in connection with such obligation, calculated on the basis of the
Exchange Rates in effect on the first Business Day preceding the date on which
final judgment is entered. Any amount due from a Borrower under this subsection
(b) shall be due as a separate debt and is not to be affected by or merged into
any judgment being obtained for any other sums due hereunder.
SECTION 2.17. Borrowing Subsidiaries. The Company may at any time or from
----------------------
time to time add as a party to this Agreement any Subsidiary of the Company to
be a "Borrowing Subsidiary" hereunder by causing such Subsidiary to execute and
deliver a duly completed Assumption Letter to the Administrative Agent, with the
written consent of the Company at the foot thereof. Upon such execution,
delivery and consent such Subsidiary shall for all purposes be a party hereto as
a Borrowing Subsidiary as fully as if it had executed and delivered this
Agreement. So long as the principal of and interest on all Advances made to any
Borrowing Subsidiary under this Agreement shall have been paid in full and all
other obligations of such Borrowing Subsidiary shall have been fully performed,
such Borrowing Subsidiary may, by not less than five Business Days' prior notice
to the Administrative Agent (which shall promptly notify the Banks thereof),
terminate its status as a "Borrowing Subsidiary."
SECTION 2.18. Reserved.
--------
SECTION 2.19. Taxes. (a) Any and all payments by a Borrower hereunder or
-----
under the Notes shall be made in accordance with Section 2.14, free and clear of
------------
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank and the Administrative Agent, taxes imposed
- ---------
on its income, and franchise taxes imposed on it, by the jurisdiction under the
laws of which such Bank or the Administrative Agent is organized or any
political subdivision thereof and taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending
Office or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Bank or the Administrative Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
-------
2.19) such Bank or the Administrative Agent (as the case may be) receives an
- ----
amount equal to the sum it would have received had no deductions been made, (ii)
such Borrower shall make such
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<PAGE>
deductions and (iii) such Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, each Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.19) paid by such Bank or the Administrative Agent and any liability
- ------------
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted; provided, that the Borrowers shall have no obligation under this
--------
subsection (c) to indemnify any Bank or the Administrative Agent if a Borrower
shall have performed its obligations under subsection (a) and (b), thereby
providing such Bank or the Administrative Agent (as the case may be) the
wherewithal to make payment, or demonstrate that payment has been made, of any
such Taxes or Other Taxes, and such Bank or the Administrative Agent (as the
case may be) shall not have effected such payment or made such demonstration of
payment on a timely basis to the relevant taxing authorities. This
indemnification shall be made to the Administrative Agent for the account of
such Bank or the Administrative Agent (as the case may be) within 30 days from
the date such Bank or the Administrative Agent makes written demand therefor
(with a copy, in the case of a demand by a Bank, of such demand to the
Administrative Agent).
(d) Notwithstanding the foregoing, unless, prior to the date of the
initial Committed Borrowing (in the case of a Bank listed on Schedule I hereto),
----------
and prior to the effective date of the Assignment and Acceptance by which it
became a Bank (in the case of bank that became a Bank pursuant to such
Assignment and Acceptance), and in each case from time to time thereafter, if
requested by any Borrower,
(i) each Bank organized under the laws of a jurisdiction outside
the United States shall have provided the Company with the forms prescribed
by the Internal Revenue Service of the United States certifying as to such
Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank
hereunder or other documents satisfactory to the Company which shall
indicate that all payments to be made to such Bank hereunder are not
subject to United States withholding tax or are subject to such taxes at a
rate reduced to zero by an applicable tax treaty, neither the Company nor
any other Borrower shall have any obligation under the last sentence of
Section 2.19(a) to make any payments to or for the benefit of such Bank in
---------------
excess of the amounts otherwise payable under this Agreement, and
(ii) each Bank organized under the laws of a jurisdiction outside
the jurisdiction where any Borrowing Subsidiary is incorporated shall have
taken
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<PAGE>
all steps prescribed by the applicable governmental authority in the
jurisdiction where such Borrowing Subsidiary is located so that such Bank
is exempt from applicable withholding taxes with respect to all payments to
be made to such Bank hereunder or so that all payments to be made to such
Bank hereunder are not subject to applicable withholding taxes or are
subject to such taxes at a rate reduced to zero by an applicable tax
treaty, neither the Company nor any other Borrower shall have any
obligation under the last sentence of Section 2.19(a) to make any payments
---------------
to or for the benefit of such Bank in excess of the amounts otherwise
payable under this Agreement; provided, however, that the applicable
-------- -------
Borrower shall make the payments required by the last sentence of Section
-------
2.19(a) if the obligation to withhold arises from a change in applicable
-------
law after the date hereof (or, with respect to payments to a new Applicable
Lending Office designated pursuant to Section 2.21, after the date such
------------
Bank designates such new Applicable Lending Office).
Unless the applicable Borrower has received forms or other documents, including
Form 1001, Form 4224 or any other applicable tax forms from the United States or
any other applicable jurisdiction, such forms to be satisfactory to the Company,
indicating that payments hereunder are not subject to any withholding tax or are
subject to such tax at a rate reduced to zero by an applicable tax treaty, the
applicable Borrower shall withhold taxes from such payments at the applicable
statutory rate in the case of payments to or for any Bank organized under the
laws of a jurisdiction outside the United States (or in the case of a Borrowing
Subsidiary incorporated outside the United States, any Bank organized under the
laws outside of the jurisdiction where such Borrowing Subsidiary is
incorporated). Should a Bank become subject to Taxes because of its failure or
inability to deliver a form required hereunder, the Company shall take such
steps not requiring the expenditure of money as the Bank shall reasonably
request to assist the Bank to recover such Taxes.
SECTION 2.20. Defaulting Banks. (a) If at any time (i) any Bank shall be
----------------
a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Advance to
the Borrower and (iii) the Borrower shall be required to make any payment
hereunder or under any Note to or for the account of such Defaulting Bank, then
the Borrower may, so long as no Event of Default shall have occurred and be
continuing at such time and to the fullest extent permitted by applicable law,
set off and otherwise apply the amount owed by the Borrower to or for the
account of such Defaulting Bank against the obligation of such Defaulting Bank
to make such Defaulted Advance. If the Borrower shall so set off and otherwise
apply the amount owed by the Borrower to or for the account of such Defaulting
Bank against the obligation of such Defaulting Bank to make any such Defaulted
Advance on any date, the amount so set off and otherwise applied by the Borrower
shall constitute for all purposes of this Agreement and the Notes an Advance by
such Defaulting Bank made on the date of such setoff. Such Advance shall be a
Base Rate Advance and shall be considered, for all purposes of this Agreement,
to comprise part of the Borrowing in connection with which such Defaulted
Advance was originally required to have been made pursuant to Section 2.01 or
------------
Section 2.03(a), as the case may be, even if the other Advances comprising such
- ---------------
Borrowing shall be Eurocurrency Rate Advances on the date such Advance is deemed
to be made pursuant to this Section 2.20(a). The Borrower shall notify the
---------------
Administrative Agent at any time the Borrower makes a setoff under this Section
-------
2.20(a) and shall specify in such
- -------
-35-
<PAGE>
notice (A) the name of the Defaulting Bank and the Defaulted Advance required to
be made by such Defaulting Bank and (B) the amount set off and otherwise applied
in respect of such Defaulted Advance pursuant to this Section 2.20(a). Any part
---------------
of such payment otherwise required to be made by the Borrower to or for the
account of such Defaulting Bank that is paid by the Borrower, after giving
effect to the amount set off and otherwise applied by the Borrower pursuant to
this Section 2.20(a), shall be applied by the Administrative Agent as specified
---------------
in Section 2.20(b) or 2.20(c).
--------------- -------
(b) If at any time (i) any Bank shall be a Defaulting Bank, (ii) such
Defaulting Bank shall owe a Defaulted Amount to the Administrative Agent or any
of the other Banks and (iii) the Borrower shall make any payment hereunder or
under any Note to the Administrative Agent for the account of such Defaulting
Bank, then the Administrative Agent may, on its behalf or on behalf of such
other Banks and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Bank to the payment of each such Defaulted Amount to the extent required to pay
such Defaulted Amount. If the Administrative Agent shall so apply any such
amount to the payment of any such Defaulted Amount on any date, the amount so
applied by the Administrative Agent shall constitute for all purposes of this
Agreement and the Notes payment to such extent of such Defaulted Amount on such
date. Any such amount so applied by the Administrative Agent shall be retained
by the Administrative Agent or distributed by the Administrative Agent to such
other Banks, ratably in accordance with their respective portions of such
Defaulted Amounts payable at such time to the Administrative Agent and such
other Banks and, if the amount of such payment made by the Borrower shall at any
time be insufficient to pay all Defaulted Amounts owing at such time to the
Administrative Agent and the other Banks, in the following order of priority:
(A) first, to the Administrative Agent for any Defaulted Amounts
-----
owing to the Administrative Agent (solely in its capacity as Administrative
Agent) at such time; and
(B) second, to the other Banks for any Defaulted Amounts owing to the
------
other Banks (solely in their capacity as Banks) at such time, ratably in
accordance with such respective Defaulted Amounts owing to each other Bank
(solely in its capacity as a Bank) at such time.
Any part of such payment made by the Borrower for the account of such Defaulting
Bank remaining, after giving effect to the amount applied by the Administrative
Agent pursuant to this Section 2.20(b), shall be applied by the Administrative
---------------
Agent as specified in Section 2.20(c).
---------------
(c) If at any time, (i) any Bank shall be a Defaulting Bank, (ii) such
Defaulting Bank shall not owe a Defaulted Advance or a Defaulted Amount and
(iii) the Borrower, the Administrative Agent or any other Bank shall be required
to pay or to distribute any amount hereunder or under any Note to or for the
account of such Defaulting Bank, then the Borrower or such other Bank shall pay
such amount to the Administrative Agent to be held by the Administrative Agent,
to the fullest extent permitted by applicable law, in escrow or the
Administrative Agent shall, to the fullest extent permitted by applicable law,
hold in escrow such amount otherwise held by it. Any funds held by the
Administrative Agent in
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<PAGE>
escrow under this Section 2.20(c) shall be deposited by the Administrative Agent
---------------
in an account with Bank One, in the name and under the control of the
Administrative Agent, but subject to the provisions of this Section 2.20(c). The
---------------
terms applicable to such account, including the rate of interest payable with
respect to the credit balance of such account from time to time, shall be Bank
One's standard terms applicable to escrow accounts maintained with it. Any
interest credited to such account from time to time shall be held by the
Administrative Agent in escrow under, and applied by the Administrative Agent
from time to time in accordance with the provisions of, this Section 2.20(c).
---------------
The Administrative Agent shall, to the fullest extent permitted by applicable
law, apply all funds so held in escrow from time to time to the extent necessary
to make any Advances required to be made by such Defaulting Bank and to pay any
amount payable by such Defaulting Bank hereunder to the Administrative Agent or
any other Bank, as and when such Advances or such amounts are required to be
made or paid and, if the amount so held in escrow shall any time be insufficient
to make and pay all such Advances and all such amounts required to be made or
paid at such time, in the following order of priority:
(A) first, to the Administrative Agent for any amounts due and
-----
payable by such Defaulting Bank to the Administrative Agent hereunder
(solely in its capacity as Administrative Agent) at such time;
(B) second, to the other Banks for any amounts due and payable by
------
such Defaulting Bank to the other Banks hereunder (solely in their capacity
as Banks) at such time, ratably in accordance with such respective amounts
due and payable to each other Bank (solely in its capacity as Bank) at such
time; and
(C) third, to the Borrower for any Advances required to be made by
-----
such Defaulting Bank pursuant to the Commitment of such Defaulting Bank at
such time.
If such Defaulting Bank shall, at any time, cease to be a Defaulting Bank,
any funds held by the Administrative Agent in escrow at such time with respect
to such Defaulting Bank shall be distributed by the Administrative Agent to such
Defaulting Bank and applied by such Defaulting Bank to the amounts owing to such
Defaulting Bank at such time under this Agreement in accordance with the terms
of this Agreement.
(d) The rights and remedies against a Defaulting Bank under this Section
-------
2.20 are in addition to other rights and remedies that the Borrower may have
- ----
against such Defaulting Bank with respect to any Defaulted Advance and that the
Administrative Agent or any other Bank may have against such Defaulting Bank
with respect to any Defaulted Amount.
SECTION 2.21. Mitigation. Any Bank claiming any additional amounts
----------
payable pursuant to Sections 2.12 or 2.19 or subject to Section 2.13 shall use
------------- ---- ------------
its reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such additional amounts which may thereafter accrue under
Sections 2.12 or 2.19 or would avoid the unavailability of Eurocurrency Rate
- ------------- ----
-37-
<PAGE>
Advances under Section 2.13 and would not, in any such case, in the judgment of
------------
such Bank, be otherwise disadvantageous to such Bank.
SECTION 2.22. European Economic and Monetary Union. (a) Advances in the
------------------------------------ ---------------
Euro. If any Advance is capable of being made in either the Euro or in a
- ----
National Currency Unit, then such Advance shall be made in the Euro.
(b) Rounding and Other Consequential Changes. Without prejudice to any
----------------------------------------
method of conversion or rounding prescribed by any legislative measures of the
Council of the European Union, each reference in this Agreement to a fixed
amount or to fixed amounts in a National Currency Unit to be paid to or by the
Administrative Agent shall, notwithstanding any other provision of this
Agreement and to the extent the Euro has replaced such National Currency Unit,
be replaced by a reference to such comparable and convenient fixed amount or
fixed amounts of the Euro as the Administrative Agent may from time to time
reasonably specify.
SECTION 2.23. Extension of Termination Date. (a) The Company may, by
-----------------------------
written notice to the Administrative Agent (each such notice being an "Extension
Request") given no more than 59 days nor less than 30 days prior to each
anniversary date of this Agreement, extend the then applicable Termination Date
to a date 364 days after the then- applicable Termination Date; provided,
however, that such extension shall be effective only with respect to a Bank
which, by a written notice (a "Continuation Notice") to the Company and the
Administrative Agent given no more than 30 days and no less than 15 days before
such anniversary date, consents to such extension (each Bank giving a
Continuation Notice thereafter being referred to as a "Continuing Bank" and each
Bank other than a Continuing Bank being a "Non-Extending Bank"); provided
further, however, that the Borrowers shall not have made the Term Loan Election
for Advances outstanding on such Termination Date prior to such time; provided
further, however, that such extension shall be effective only if the aggregate
Commitments of the Continuing Banks are not less than 51% of the aggregate
Commitments in effect at the date the Company gives the applicable Extension
Request. Within five Business Days after the Administrative Agent receives an
Extension Request it shall notify each Bank thereof. If any Bank fails to
notify the Administrative Agent in writing of its consent to, or refusal of, any
such Extension Request at least 15 days prior to such anniversary date, such
Bank shall be deemed to be a Non-Extending Bank with respect to such Extension
Request. The Commitment of each Non-Extending Bank shall terminate on the
Termination Date in effect for such Non-Extending Bank immediately prior to such
Extension Request, and on such Termination Date the Company shall pay the
Administrative Agent, for the account of such Non-Extending Banks, an amount
equal to such Non-Extending Banks' Advances plus accrued but unpaid interest and
fees thereon; provided that the Company has not replaced such Non-Extending
--------
Banks pursuant to Section 2.23(b) below.
---------------
(b) A Non-Extending Bank shall be obligated, at the request of the Company
and subject to the Non-Extending Bank receiving payment in full of (i) the
principal amount of all Advances owing to such Non-Extending Bank, and (ii) all
accrued interest and fees owing to such Non-Extending Bank and all other amounts
owing to such Non-Extending Bank hereunder, to assign without recourse,
representation, warranty (other than good title to its Advances) or expense to
such Non-Extending Bank, at any time prior to the
-38-
<PAGE>
Termination Date applicable to such Non-Extending Bank, all of its rights (other
than rights that would survive the termination of this Agreement pursuant to
Section 9.13) and obligations hereunder to one or more Eligible Assignees (the
- ------------
"Replacement Banks") nominated by the Company and willing to take the place of
such Non-Extending Bank; provided that each such Replacement Bank satisfies all
--------
the requirements of this Agreement and the Administrative Agent shall have
consented to such assignment, which consent shall not be unreasonably withheld.
Each such Replacement Bank shall become a Continuing Bank hereunder in
replacement for the Non-Extending Bank.
(c) If the Termination Date shall have been extended in respect of
Continuing Banks in accordance with Section 2.23(a), any notice of borrowing
---------------
specifying a date for the borrowing of an Advance occurring after the
Termination Date applicable to a Non-Extending Bank or requesting an Interest
Period extending beyond such date shall (a) have no effect in respect of such
Non-Extending Bank and (b) not specify a requested aggregate principal amount
exceeding the Aggregate Commitment excluding the Commitments of all such Non-
Extending Banks.
(d) If the Termination Date shall have been extended in respect of
Continuing Banks in accordance with this Section 2.23, all references herein to
------------
the "Termination Date" shall, with respect to all parties hereto other than Non-
Extending Banks, refer to the Termination Date as so extended.
SECTION 2.24. Increase of Aggregate Commitments. (a) The Company may from
---------------------------------
time to time, on the terms set forth below, request that the aggregate amount of
the Commitments be increased to an amount which does not exceed $400,000,000;
provided, however, that an increase in the Commitments hereunder may only be
- -------- -------
made at a time when (i) no Event of Default or event which, with notice or the
passage of time or both, would constitute an Event of Default shall have
occurred and be continuing or would result therefrom and (ii) the Public Debt
Rating from S&P is at least BBB- and the Public Debt Rating from Moody's is at
least Baa3.
(b) If the Company requests an increase in the aggregate Commitments:
(i) each of the Banks shall be given the opportunity to participate
in the increased aggregate Commitments (x) initially, ratably in accordance
with its Pro Rata Share, and (y) next, to the extent that the requested
increase in the aggregate Commitments is not fulfilled pursuant to the
preceding clause (x) and subject to Section 2.24(d) below, in such
---------------
additional amounts as any Bank and the Company agree, and
(ii) if, after each Bank has been afforded an opportunity to increase
its Commitment to satisfy the Company's requested increase, the aggregate
increase in the Commitments offered by the Banks is less than the Company's
requested increase, then the Company shall consult with the Administrative
Agent as to the number, identity and requested Commitments of additional
financial institutions which the Company may, with the written consent of
the Administrative Agent (which consent shall not be unreasonably withheld)
invite to participate in the aggregate Commitments.
-39-
<PAGE>
(c) No Bank shall have any obligation to increase its Commitment pursuant
to a request by the Company hereunder. No Bank shall be deemed to have approved
an increase in its Commitment unless such approval is in writing. Failure on
the part of any Bank to respond to a request by the Company within 30 days of
such Bank's receipt of notice of such request hereunder shall be deemed a
rejection of such request.
(d) In no event shall any Bank's Commitment, after giving effect to an
increase in its Commitment hereunder, exceed 25% of the aggregate Commitments
under this Agreement.
(e) If the Company and one or more of the Banks (or other financial
institutions) shall agree upon such an increase in the aggregate Commitments
hereunder (i) the Company, the Administrative Agent and each Bank or other
financial institution increasing its Commitment or extending a new Commitment
shall enter into a consent in a mutually satisfactory form and (ii) the Company
shall furnish new Notes to each financial institution that is extending a new
Commitment and to each Bank which is increasing its Commitment. Notwithstanding
anything else to the contrary contained in Section 2.06(b), if an increase in
---------------
the aggregate Commitments pursuant to this Section 2.24 occurs during an
------------
Interest Period for an outstanding Committed Borrowing, (a) such Committed
Borrowing may not be continued or converted pursuant to Section 2.06(b) and (b)
---------------
such Committed Borrowing shall be due and payable at the end of the current
Interest Period applicable thereto, without prejudice to the Company's right,
subject to the terms and conditions of this Agreement, to reborrow all or any
portion of the amount of such Committed Borrowing.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and
----------------------------------------------------------
2.03. Sections 2.01 and 2.03 shall become effective on the first day (the
- ---- ------------- ----
"Effective Date") on which all of the following conditions precedent have been
satisfied:
(a) The Administrative Agent shall have received the following, in
form and substance reasonably satisfactory to the Administrative Agent and
(except for the Committed Notes) in sufficient copies for the Banks:
(i) This Agreement, executed by the Company, the
Administrative Agent and each of the Banks;
(ii) A Committed Note executed by the Company,
payable to each Bank;
(iii) A certificate of the Secretary of the Company
certifying (A) copies attached thereto of the resolutions
of the Board of Directors of the Company authorizing and
empowering certain officers of the Company to effect such
borrowings as such officers may deem necessary or
desirable
-40-
<PAGE>
for proper corporate purposes, subject to the
limitations set forth in such resolutions, (B) copies
attached thereto of the Certificate of Incorporation and
by-laws of the Company, and (C) the names and true
signatures of the officers of the Company authorized to
sign this Agreement and the Notes and other documents to
be executed and delivered by the Company hereunder;
(iv) A certificate of a duly authorized officer of
the Company, dated the Effective Date, certifying that
as of such date, (A) the representations and warranties
contained in Section 4.01 are correct on and as of the
------------
Effective Date and (B) no event shall have occurred and
be continuing that constitutes an Event of Default or
which would constitute an Event of Default but for the
requirement that notice be given or time elapse or both;
(v) A favorable opinion of counsel for the Company,
substantially in the form of Exhibit H hereto; and
---------
(vi) Evidence that all amounts owing under the 1998
364-Day Credit Agreement are being paid in full, and that
the 1998 364-Day Credit Agreement is being terminated, no
later than the Effective Date;
(b) The Company shall have paid all accrued fees and expenses of the
Arranger, the Administrative Agent and the Banks which are due and payable
on the Effective Date (including, without limitation, the reasonable fees
and expenses of counsel for the Arranger and the Administrative Agent);
(c) There shall have occurred no material adverse change in the
business, financial condition, operations, properties or performance of the
Company and its Subsidiaries, taken as a whole, since December 31, 1998;
(d) There shall exist no action, suit or proceeding (investigative,
judicial or otherwise) against the Company or any of its Subsidiaries
pending before any court or arbitrator or any governmental body, agency or
official, or to the knowledge of any Responsible Officer of the Company,
threatened, that could reasonably be expected (i) to have a Material
Adverse Effect or (ii) to materially and adversely affect the legality,
validity or enforceability of this Agreement or any Note;
(e) The representations and warranties contained in Section 4.01
------------
shall be correct on and as of the Effective Date, as though made on and as
of such date; and
-41-
<PAGE>
(f) No event shall have occurred and be continuing which constitutes
an Event of Default or which would constitute an Event of Default but for
the requirement that notice be given or time elapse or both.
For purposes of determining compliance with the conditions specified above,
each Bank shall be deemed to have consented to, approved and accepted, and to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Banks unless
the officer of the Administrative Agent responsible for the transactions
contemplated by this Agreement shall have received notice from such Bank prior
to the proposed Effective Date, as notified by the Administrative Agent to the
Banks, specifying its objection thereto. The Administrative Agent shall
promptly notify the Banks of the occurrence of the Effective Date.
SECTION 3.02. Conditions Precedent to Initial Advance to Each Borrowing
---------------------------------------------------------
Subsidiary. The obligation of each Bank to make its initial Advance hereunder
- ----------
to any Borrowing Subsidiary is subject to the conditions precedent that the
Effective Date shall have occurred and the Administrative Agent shall have
received on or before the day of the initial Borrowing by such Borrowing
Subsidiary the following, each in form and substance reasonably satisfactory to
the Administrative Agent and in sufficient copies for the Banks:
(a) The Assumption Letter executed and delivered by such Borrowing
Subsidiary and containing the written consent of the Company at the foot
thereof, as contemplated by Section 2.17 hereof;
------------
(b) A Committed Note executed by such Borrowing Subsidiary, payable
to each Bank;
(c) Certified copies of the resolutions of the Board of Directors of
such Borrowing Subsidiary approving the Assumption Letter and all other
documents evidencing corporate action and governmental approvals, if any,
required with respect to the Assumption Letter;
(d) A certificate of the Secretary or an Assistant Secretary of such
Borrowing Subsidiary certifying the names and true signatures of the
officers of such Borrowing Subsidiary authorized to sign the Assumption
Letter and the other documents to be executed and delivered by such
Borrowing Subsidiary hereunder; and
(e) An opinion of counsel to such Borrowing Subsidiary, substantially
in the form of Exhibit I hereto and as to such other matters as the
---------
Administrative Agent shall reasonably request.
SECTION 3.03. Conditions Precedent to Each Committed Borrowing. The
------------------------------------------------
obligation of each Bank to make a Committed Advance on the occasion of each
Committed Borrowing (including the initial Committed Borrowing) shall be subject
to the further conditions precedent that the Effective Date shall have occurred
and on the date of such Committed Borrowing the following statements shall be
true (and each of the giving of the applicable Notice of Committed Borrowing and
the acceptance by the applicable Borrower
-42-
<PAGE>
of the proceeds of such Committed Borrowing shall constitute a representation
and warranty by such Borrower that on the date of such Committed Borrowing such
statements are true):
(i) The representations and warranties contained in subsections (a),
(b), (c), (d), (f)(ii) and (h) through (q) of Section 4.01 are correct on
------------
and as of the date of such Committed Borrowing, before and after giving
effect to such Committed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date;
(ii) No event has occurred and is continuing, or would result from
such Committed Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both; and
(iii) The aggregate principal amount (or, in the case of securities
issued at a discount from the principal amount at maturity, the accreted
amount) of indebtedness for borrowed money (after giving effect to such
Committed Borrowing and the application of the proceeds thereof) of the
Company and its Subsidiaries does not exceed the maximum amount then
authorized by the Company's Board of Directors.
SECTION 3.04. Conditions Precedent to Each Uncommitted Borrowing. Each
--------------------------------------------------
bidding Bank's obligation to make an Uncommitted Advance as part of an
Uncommitted Borrowing (including the initial Uncommitted Borrowing) is subject
to the conditions precedent that on the date of such Uncommitted Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Uncommitted Borrowing and the acceptance by such Borrower of the
proceeds of such Uncommitted Borrowing shall constitute a representation and
warranty by such Borrower that on the date of such Uncommitted Borrowing such
statements are true):
(a) The representations and warranties contained in subsections (a),
(b), (c), (d), f(ii) and (h) through (q) of Section 4.01 are correct on and
------------
as of the date of such Uncommitted Borrowing, before and after giving
effect to such Uncommitted Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date,
(b) No event has occurred and is continuing, or would result from
such Uncommitted Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would constitute
an Event of Default but for the requirement that notice be given or time
elapse or both, and
(c) The aggregate principal amount (or, in the case of securities
issued at a discount from the principal amount at maturity, the accreted
amount) of indebtedness for borrowed money (after giving effect to the
application of the proceeds of such Uncommitted Borrowing) of the
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<PAGE>
Company and its Subsidiaries does not exceed the maximum amount thereof
then authorized by the Company's Board of Directors.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 4.01. Representations and Warranties of the Company. The Company
----------------------------------------------
represents and warrants to the Banks as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement.
(b) The execution, delivery and performance by the Company of this
Agreement and the Notes are within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Company's certificate of incorporation, as amended, or
by-laws or (ii) law or any contractual restriction binding on or affecting
the Company.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery and performance by the Company of this
Agreement.
(d) This Agreement has been, and each of the Notes when delivered
hereunder will have been, duly executed and delivered by the applicable
Borrower. This Agreement is, and each of the Notes when delivered hereunder
will be, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with their respective terms, subject to
any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and to general
principles of equity.
(e) The consolidated balance sheets of the Company and its
Consolidated Subsidiaries as of December 31, 1998, and the related
consolidated statements of income, cash flow and shareholders' equity of
the Company and its Consolidated Subsidiaries for the fiscal year then
ended, copies of which have been furnished to each Bank, fairly present the
financial condition of the Company and its Consolidated Subsidiaries as at
such date and the consolidated results of the operations of the Company and
its Consolidated Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles, and since
December 31, 1998, there has been no material adverse change in the
business, financial condition, operations, properties or performance of the
Company and its Subsidiaries, taken as a whole.
-44-
<PAGE>
(f) There are no actions, suits or proceedings (investigative,
judicial or otherwise) against the Company or any of its Subsidiaries
pending before any court or arbitrator or any governmental body, agency or
official, or, to the knowledge of any Responsible Officer of the Company,
threatened, that could reasonably be expected (i) to have a Material
Adverse Effect or (ii) to materially and adversely affect the legality,
validity or enforceability of this Agreement or any Note.
(g) Reserved.
(h) Following application of the proceeds of each Advance to the
Company, not more than 25% of the value of the assets (either of the
Company only or of the Company and its Consolidated Subsidiaries) will be
Margin Stock subject to any restriction contained in any agreement or
instrument between the Company and any Bank or any affiliate of any Bank
relating to Debt within the scope of Section 6.01(e).
---------------
(i) The Company is not principally engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
(j) The Advances to each Borrower, and all related obligations of
such Borrower under this Agreement, rank pari passu with all other
---- -----
unsecured indebtedness for money borrowed or raised by such Borrower that
is not, by its terms, expressly subordinated to other such indebtedness of
such Borrower.
(k) No Borrower is an "investment company" or a company "controlled"
by an "investment company", within the meaning of the Investment Company
Act of 1940, as amended.
(l) (i) All necessary Environmental Permits have been obtained and
are in effect for the operations and properties of the Company and its
Subsidiaries, and the Company and its Subsidiaries are in compliance with
all such Environmental Permits, except to the extent that the failure to so
obtain or comply could not reasonably be expected to have a Material
Adverse Effect; and (ii) no circumstances exist that could reasonably be
expected to (A) form the basis of an Environmental Action against the
Company or any of its Subsidiaries or any of their properties that could
reasonably be expected to have a Material Adverse Effect or (B) cause any
such property to be subject to any restrictions on ownership, occupancy,
use or transferability under any Environmental Law that could reasonably be
expected to have a Material Adverse Effect.
(m) None of the properties owned or leased by the Company or any of
its Subsidiaries is the subject of any investigation or cleanup, whether
voluntary or required pursuant to any Environmental Law or ordered by any
governmental authority, that could reasonably be expected to have a
Material Adverse Effect.
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(n) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan.
(o) Neither the Company nor any of its ERISA Affiliates (i) has
incurred or is reasonably expected to incur any Withdrawal Liability with
respect to any Multiemployer Plan or (ii) has been notified by the sponsor
of a Multiemployer Plan that such Multiemployer Plan is in reorganization
or has been terminated, within the meaning of Title IV of ERISA, and no
such Multiemployer Plan is reasonably expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA.
(p) As of the last annual actuarial valuation date, the aggregate
current liability (as defined in Section 412 of the Internal Revenue Code)
under the Plans does not exceed the aggregate fair market value of the
assets of such Plans by more than $50,000,000.
(q) The Company's effort to address the problems which may arise in
connection with the Year 2000 Problem in its core business includes (i)
evaluating internal computing infrastructure, business applications and
shop-floor systems for issues related to the Year 2000 Problem, (ii)
replacing or renovating systems and applications as necessary to resolve
such issues, and (iii) testing the replaced or renovated systems and
applications. As of the date of this Agreement, the Company expects that
all phases of such efforts will be completed before December 31, 1999. In
addition to its internal remediation activities, the Company is continuing
to evaluate the Year 2000 Problem with respect to key suppliers and vendors
and other external companies, including customers whose systems interact
with those of the Company. As of the date of this Agreement, the Company
expects to complete this evaluation before December 31, 1999.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
So long as any Advance shall remain unpaid or any Bank shall have any
Commitment hereunder, unless the Majority Banks shall otherwise consent in
writing:
SECTION 5.01. Compliance with Laws, Etc. The Company will comply, and
--------------------------
cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders, except for laws, rules,
regulations and orders the violation of which, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.02. Interest Coverage Ratio. The Company will, as of the end of
-----------------------
each fiscal quarter after the Effective Date, maintain an Interest Coverage
Ratio of not less than 2.0 to 1.
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SECTION 5.03. Reporting Requirements. The Company will furnish to the
----------------------
Banks:
(a) within 60 days after the end of each of the first three quarters
of each fiscal year of the Company, but in no case earlier than when such
report shall be required to be filed with the Commission, a copy of the
Company's Form 10-Q filed with the Commission for such quarter, or any
similar quarterly report required to be filed by the Company with the
Commission; provided that if the Company shall no longer be required to so
--------
file with the Commission, the Company will nonetheless thereafter continue
to furnish to the Banks such financial statements and related materials as
would have comprised such filings, at such times as the Company would have
otherwise delivered the same to the Commission;
(b) within 120 days after the end of each fiscal year of the Company,
but in no case earlier than when such report shall be required to be filed
with the Commission, a copy of the Company's Form 10-K filed with the
Commission for such year, or any similar annual report required to be filed
by the Company with the Commission; provided that if the Company shall no
--------
longer be required to so file with the Commission, the Company will
nonetheless thereafter continue to furnish to the Banks such financial
statements and related materials as would have comprised such filings, at
such times as the Company would have otherwise delivered the same to the
Commission;
(c) simultaneously with the delivery of the reports referred to in
clauses (a) and (b) above, a certificate of a designated financial officer
of the Company (i) setting forth in reasonable detail the calculations
required to establish whether the Company was in compliance with the
requirements of Section 5.02 on the date of such financial statements and
------- ----
(ii) stating whether there exists on the date of such certificate any Event
of Default or condition or event which with notice or lapse of time or both
would become an Event of Default and, if any Event of Default or any such
condition or event then exists, setting forth the details thereof and the
action which the Company is taking with respect thereto;
(d) promptly after the sending or filing thereof, copies of all
reports which the Company sends to any of its security holders, and copies
of all reports and registration statements (other than Form S-8 or any
similar form) which the Company or any Borrowing Subsidiary files with the
Commission or any national securities exchange;
(e) promptly following any Responsible Officer's knowledge thereof,
notice in writing of (i) the occurrence of any Event of Default or
condition or event which with notice or lapse of time or both would become
an Event of Default and, if any Event of Default or any such condition or
event then exists, setting forth the details thereof and the action which
the Company is taking with respect thereto, or (ii) the institution of, or
any adverse final judgment in, any litigation, arbitration proceeding or
governmental
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proceeding which, in the Company's judgment, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; and
(f) such other pertinent information (including information relating
to the Company's plan to address the Year 2000 Problem) as any Bank may
reasonably request.
SECTION 5.04. Use of Proceeds. The Borrowers will use the proceeds of the
---------------
Advances made under this Agreement only for general corporate purposes otherwise
permitted under this Agreement, including, without limitation, mergers and
acquisitions, the purchase of stock of other Persons, the repurchase of shares
of capital stock of the Company, the repayment of indebtedness, the funding of
employee benefit plans of the Company or its Subsidiaries and for other lawful
purposes; provided that, no Borrower shall use the proceeds of any Advances made
--------
hereunder to acquire 20% or more of the outstanding shares of the capital stock
of any Person unless (a) at the time of such acquisition, such Person shall have
consented to such acquisition either by having entered into an agreement with
the Company or a subsidiary of the Company contemplating a merger of such Person
with or into the Company or such subsidiary or by its Board of Directors having
authorized, approved or consented to such acquisition, or (b) such Borrower
shall have obtained the prior written consent with respect thereto of (i) in the
case of any Committed Borrowing the proceeds of which shall be used to
facilitate such acquisition, the Banks and (ii) in the case of any Uncommitted
Borrowing the proceeds of which shall be used to facilitate such acquisition,
the Banks extending Uncommitted Advances in connection therewith; provided
--------
further that if the applicable Borrower shall have specified the intended use of
- -------
proceeds of an Uncommitted Borrowing in the Notice of Uncommitted Borrowing with
respect thereto, each Bank electing to offer to make one or more Uncommitted
Advances in response thereto shall be deemed to have provided the written
consent required under this Section 5.04 for such use of the proceeds of such
------------
Uncommitted Advances.
SECTION 5.05. Limitation on Liens, Etc. The Company will not create or
-------------------------
suffer to exist, or permit any of its Consolidated Subsidiaries to create or
suffer to exist, any Lien, upon or with respect to any of its properties (other
than Margin Stock), whether now owned or hereafter acquired, or assign, or
permit any of its Consolidated Subsidiaries to assign, any right to receive
income, in each case to secure any Debt of any Person or entity, other than:
(a) Liens arising in connection with the obligations of the Company
or any Subsidiary under industrial revenue bonds;
(b) Liens on assets of a Subsidiary of a Borrower to secure Debt of
such Subsidiary to any Borrower;
(c) Purchase money Liens claimed by sellers of goods on ordinary
trade terms provided that no financing statement has been filed to perfect
such Liens, and provided that no such Lien shall extend to assets of any
character other than the goods being acquired;
(d) Liens securing Debt existing as of December 31, 1997;
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(e) Liens securing Debt on property of a corporation or firm (or
division thereof) that becomes a Subsidiary of the Company or of any of its
Subsidiaries after the date hereof in accordance with Section 5.06 and
------------
existing at the time such corporation is merged or consolidated with the
Company or any Subsidiary, at the time such corporation or firm (or
division thereof) becomes a Subsidiary of the Company or any of its
Subsidiaries, or at the time of a sale, lease or other disposition of the
properties of a corporation or a firm (or division thereof) as an entirety
or substantially as an entirety to the Company or a Subsidiary, provided
that such Liens were not created in contemplation of such merger,
consolidation, acquisition, sale, lease or disposition and do not extend to
assets other than those of the Person merged into or consolidated with the
Company or such Subsidiary or acquired by the Company or such Subsidiary;
(f) Liens on life insurance policies owned by the Company or any
Subsidiary, securing Insurance Policy Debt;
(g) Purchase money Liens constituting the interest of a lessor under
a lease that would be capitalized on the lessee's balance sheet in
accordance with GAAP, or under a sale-leaseback transaction, in each case
relating to equipment, provided that after giving effect thereto, no Event
of Default under Section 5.02 shall exist;
------- ----
(h) Any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Liens referred to in
the foregoing subsections (a) through (g); provided that, in the case of
--------
Liens referred to in the foregoing subsections (c), (d), (e), (f) and (g),
the principal amount of Debt secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or
replacement, and that such extension, renewal or replacement Lien shall be
limited to all or a part of the property which is subject to the Lien so
extended, renewed or replaced (plus improvements on such property); and
(i) Additional Liens securing Debt other than as may be included in
the foregoing subsections (a) through (h), provided, that the aggregate
--------
outstanding principal amount of such Debt shall not at any time exceed 10%
of Consolidated Tangible Net Worth at such time.
SECTION 5.06. Merger; Sale of Assets. The Company will not, and will not
----------------------
permit its Material Subsidiaries to, merge or consolidate with or into any other
Person, or sell, transfer, lease or otherwise dispose of all or substantially
all of its assets (whether now owned or hereafter required), except that:
(i) the Company or a Material Subsidiary may acquire another
corporation by merger, provided that, if the Company is a party to such
merger, the Company is the surviving corporation, and provided further that
after giving effect to such merger, no Event of Default (or event which,
with
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<PAGE>
the giving of notice or the passing of time or both would constitute an
Event of Default) shall exist; and
(ii) any Material Subsidiary may merge or consolidate with or into, or
sell or otherwise dispose of any or all of its assets to, the Company or
another Subsidiary, and any Material Subsidiary that is not a Borrowing
Subsidiary may sell all or substantially all of its assets; provided that
(a) after giving effect to such merger, consolidation, sale or other
disposition, no Event of Default (or any event which, with the giving of
notice or the passing of time or both would constitute an Event of Default)
shall exist, and (b) in the case of an asset sale by such a Material
Subsidiary, the assets to be sold do not constitute all or substantially
all of the assets of the Company and its Subsidiaries, taken as a whole.
SECTION 5.07. Books and Records; Inspection. The Company will, and will
-----------------------------
cause each of its Subsidiaries to, (a) maintain complete and accurate books and
records, in which full and correct entries shall be made of all financial
transactions of the Company and each such Subsidiary in accordance with
generally accepted accounting principles, and (b) permit any Bank, the
Administrative Agent and their respective employees and agents, at such
reasonable times during normal business hours and as often as may be reasonably
requested, to inspect any of the properties of the Company or any of its
Subsidiaries and to inspect and make copies of the material books and records of
the Company and its Subsidiaries and to discuss the affairs and finances of the
Company and its Subsidiaries with their officers; provided that such Bank or the
--------
Administrative Agent shall have delivered a written request for such inspection
to the Company prior to the date of any such inspection.
SECTION 5.08. Corporate Existence. Subject to the Company's rights under
-------------------
Section 5.06, the Company will, and will cause each of its Material Subsidiaries
- ------------
to, at all times maintain its corporate existence and preserve and keep, or
cause to be preserved and kept, in full force and effect its rights and
franchises material to its businesses.
SECTION 5.09. Conduct of Business. The Company shall not, and shall not
-------------------
permit any Material Subsidiary to, engage in any line of business other than (A)
the businesses engaged in by the Company and its Subsidiaries on the date hereof
and (B) any business or activities substantially similar or related thereto
(which shall include, without limitation, other businesses related to the
handling and/or distribution of data used or processed in the businesses engaged
in by the Company and its Subsidiaries on the date hereof).
SECTION 5.10. Payment of Taxes. The Company will pay and discharge, and
----------------
cause each of its Material Subsidiaries to pay and discharge, before the same
shall become delinquent, all material taxes, assessments and governmental
charges or levies imposed upon it or its property; provided, however, that
-------- -------
neither the Company nor any of its Material Subsidiaries shall be required to
pay or discharge any such tax, assessment, charge or levy that is being
contested in good faith and by proper proceedings and as to which appropriate
reserves are being maintained in accordance with GAAP, as long as no action has
been commenced to enforce any Lien securing any such tax, assessment, charge or
levy.
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ARTICLE VI
EVENTS OF DEFAULT
-----------------
SECTION 6.01. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) A Borrower shall fail to pay when due any installment of
principal of any Advance; or
(b) A Borrower shall fail to pay any fee under this Agreement, or any
installment of interest on any Advance, within ten (10) days after the due
date thereof; or
(c) Any written representation or warranty made by a Borrower herein
or in connection with this Agreement shall prove to have been incorrect in
any material respect when made; or
(d) The Company shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02, 5.03(a), (b) or (e), 5.04,
---- ------- --- --- ----
5.05, 5.06, 5.07, 5.08, 5.09 or 5.10, or (ii) any other term, covenant or
---- ---- ---- ---- ---- ----
agreement contained in this Agreement, other than in (a) or (b) above, on
its part to be performed or observed if such failure shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Company by the Majority Banks through the Administrative Agent; or
(e) The Company or any Material Subsidiary shall fail to pay any
principal of or premium or interest on any Debt, or any obligations in
respect of acceptances, letters of credit or other similar instruments, of
the Company or such Material Subsidiary which is outstanding in a principal
amount of at least $50,000,000 in the aggregate (but excluding Debt arising
under this Agreement), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt or other obligation; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such Debt or other
obligation and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or permit the acceleration of, the maturity of
such Debt or other obligation; or any Debt or other such obligation in
which the outstanding principal exceeds $50,000,000 shall be otherwise
declared to be due and payable (by acceleration or otherwise) or required
to be prepaid, redeemed, defeased or otherwise repurchased by the Company
or any Material Subsidiary (other than by a regularly-scheduled required
prepayment), or any offer to prepay, redeem, defease or purchase such Debt
shall be required to be made, prior to the stated maturity thereof; or
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<PAGE>
(f) The Company or any Material Subsidiary shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
the Company or any Material Subsidiary seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property, and in the event of any such
proceeding instituted against the Company or any Material Subsidiary (but
not instituted by it), such proceeding shall remain undismissed or unstayed
for a period of 60 days or shall result in the entry of an order for
relief, the appointment of a trustee or receiver, or other action in such
proceeding or result adverse to the Company or such Material Subsidiary, as
applicable, or the Company or any Material Subsidiary shall take any
corporate action to authorize any of the actions set forth above in this
subsection (f); or
(g) Any Person, or a group of Persons acting in concert, shall at any
time acquire, directly or indirectly, in excess of 51% of the securities
having ordinary voting power to elect members of the board of directors of
the Company; or
(h) The Company shall incur liability in excess of $50,000,000 in the
aggregate as a result of one or more of the following: (i) the occurrence
of any ERISA Event; (ii) the partial or complete withdrawal of the Company
or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the
reorganization or termination of a Multiemployer Plan; or
(i) One or more final judgments or orders for the payment of money,
in an aggregate amount exceeding $50,000,000 at any one time outstanding
(exclusive of judgment amounts fully covered by insurance, to the extent
the insurer has admitted liability in respect thereof), shall be rendered
against the Company or any Material Subsidiary and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order, or (ii) such judgments or orders shall not be discharged (or
provision shall not have been made for such discharge), a stay of execution
thereof shall not be obtained, or such judgments or orders shall not be
paid or bonded, within 60 days from the date of entry thereof, and the
Company or such Material Subsidiary, as the case may be, shall not, within
such 60-day period, appeal therefrom and cause the execution thereof to be
stayed pending such appeal;
then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Majority Banks, by notice to the Company, (i)
declare the obligation of each Bank to make Advances to any Borrower to be
terminated, whereupon the same shall forthwith terminate, and (ii) declare the
Notes, all interest thereon and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all
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such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Company; provided, however, that in
-------- -------
the event of an actual or deemed entry of an order for relief with respect to
the Company under the Federal Bankruptcy Code, (A) the obligation of each Bank
to make Advances to any Borrower shall automatically be terminated and (B) the
Notes, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Company.
ARTICLE VII
GUARANTEE
---------
SECTION 7.01. Unconditional Guarantee. For valuable consideration,
-----------------------
receipt whereof is hereby acknowledged, and to induce the Banks to make Advances
to each Borrowing Subsidiary, the Company unconditionally guarantees to the
Banks and the Administrative Agent that the principal of and interest on each
Advance and all other amounts payable by each Borrowing Subsidiary hereunder
shall be promptly paid in full when due (whether at stated maturity, by
acceleration or otherwise) in accordance with the terms hereof and thereof, and,
in the case of any extension of time of payment, in whole or in part, that all
such amounts shall be promptly paid when due (whether at stated maturity, by
acceleration or otherwise) in accordance with the terms of such extension. In
addition, the Company unconditionally agrees that upon default in the payment
when due (whether at stated maturity, by acceleration or otherwise) of any of
such principal, interest or other amounts, the Company shall forthwith pay the
same. Without limiting the generality of the foregoing, the Company's liability
shall extend to all amounts that constitute part of the obligations of any
Borrowing Subsidiary guaranteed by the Company under this Article VII and would
-----------
be owed by any such Borrowing Subsidiary to any Bank or the Administrative Agent
under this Agreement or the Notes but for the fact that they are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Borrowing Subsidiary.
SECTION 7.02. Validity. The obligations of the Company under this Article
-------- -------
VII are independent of the obligations of the Borrowing Subsidiaries guaranteed
- ---
hereunder, and a separate action or actions may be brought and prosecuted
against the Company to enforce its obligations under this Article VII,
-----------
irrespective of whether any action is brought against any Borrowing Subsidiary
or whether any Borrowing Subsidiary is joined in any such action or actions.
The obligations of the Company under this Article VII shall be unconditional
-----------
irrespective of (i) the genuineness, validity, regularity or enforceability of
the obligations of the Borrowing Subsidiaries under this Agreement, any Note or
any Assumption Letter, (ii) any law, regulation or order of any jurisdiction
affecting any term of any obligation of any Borrowing Subsidiary under this
Agreement or the rights of any Bank or the Administrative Agent with respect
thereto, (iii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of any Borrowing Subsidiary
guaranteed by the Company under this Article VII, or any other amendment or
-----------
waiver of or any consent to departure from this Agreement or the Notes, (iv) any
change, restructuring or termination of the corporate structure or existence of
any Borrowing
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<PAGE>
Subsidiary or any of its Subsidiaries, or (v) to the fullest extent permitted by
applicable law, any other circumstance which might otherwise constitute a legal
or equitable discharge of a surety or guarantor.
SECTION 7.03. Waivers. The Company expressly waives promptness,
-------
diligence, presentment, protest and any other notice with respect to the
obligations of the Company under this Article VII and any requirement that any
-----------
right or power be exhausted or any action be taken against any Borrowing
Subsidiary and all notices and demands whatsoever.
SECTION 7.04. Subrogation. The Company shall be subrogated to the rights
-----------
of the Banks or the Administrative Agent against any Borrowing Subsidiary
hereunder only after the Banks and the Administrative Agent shall have been paid
in full all such amounts, with interest thereon, for which such Borrowing
Subsidiary shall have become indebted hereunder.
SECTION 7.05. Acceleration. The Company agrees that, as between the
------------
Company on the one hand, and the Banks and the Administrative Agent, on the
other hand, the obligations of each Borrowing Subsidiary guaranteed under this
Article VII may be declared to be forthwith due and payable, or may be deemed
- -----------
automatically to have been accelerated, as provided in Section 6.01 hereof for
------------
purposes of this Article VII, notwithstanding any stay, injunction or other
-----------
prohibition (whether in a bankruptcy proceeding affecting such Borrowing
Subsidiary or otherwise) preventing such declaration as against such Borrowing
Subsidiary and that, in the event of such declaration or automatic acceleration,
such obligations (whether or not due and payable by such Borrowing Subsidiary)
shall forthwith become due and payable by the Company for purposes of this
Article VII.
- -----------
SECTION 7.06. Reinstatement. The Company's obligations under this Article
------------- -------
VII shall be reinstated if at any time any payment received by any Bank or the
- ---
Administrative Agent from any Borrowing Subsidiary hereunder is required to be
repaid or returned by such Bank or the Administrative Agent, all as though such
payment had not been made.
SECTION 7.07. Continuing Guaranty; Assignments. This guarantee of the
--------------------------------
Company shall (a) remain in full force and effect until the later of (i) the
cash payment in full of the obligation of any Borrowing Subsidiary guaranteed by
the Company under this Article VII and (ii) the Termination Date (or, if the
-----------
Company has made the Term Loan Election, the Maturity Date), (b) be binding upon
the Company, its successors and assigns and (c) inure to the benefit of, and be
enforceable by, the Banks and the Administrative Agent and their successors,
transferees and assigns (provided that the applicable transfers and assignments
are made in accordance with the terms of this Agreement).
ARTICLE VIII
THE ADMINISTRATIVE AGENT; DOCUMENTATION AGENTS; CO-AGENTS
---------------------------------------------------------
SECTION 8.01. Reserved.
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SECTION 8.02. Authorization and Action. Each Bank appoints and authorizes
------------------------
Bank One to act as the Administrative Agent hereunder, and each Bank irrevocably
authorizes the Administrative Agent (for so long as the Administrative Agent
remains in such capacity under this Agreement) to act as the contractual
representative of such Bank with only the rights and duties expressly set forth
herein. The Administrative Agent agrees to act as such contractual
representative upon the express conditions contained in this Article VIII.
Notwithstanding the use of the defined term "Administrative Agent," it is
expressly understood and agreed that the Administrative Agent shall not have any
fiduciary responsibilities to any Bank by reason of this Agreement and that the
Administrative Agent is merely acting as the representative of the Banks with
only those duties as are expressly set forth in this Agreement. In its capacity
as the Banks' contractual representative, the Administrative Agent (i) does not
assume any fiduciary duties to any of the Banks, (ii) is a "representative" of
the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement. Each Bank agrees to
assert no claim against the Administrative Agent on any agency theory or any
other theory of liability for breach of fiduciary duty, all of which claims each
Bank waives. The Administrative Agent shall have and may exercise such powers
under this Agreement as are specifically delegated to the Administrative Agent
by the terms hereof, together with such powers as are reasonably incidental
hereto. The Administrative Agent shall have no implied duties to the Banks, or
any obligation to the Banks to take any action hereunder, except any action
specifically provided by this Agreement to be taken by the Administrative Agent.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes), the Administrative
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Majority
Banks, and such instructions shall be binding upon all Banks and all holders of
the Notes; provided, however, that the Administrative Agent shall not be
-------- -------
required to take any action which exposes the Administrative Agent to personal
liability or which is contrary to this Agreement or applicable law. The
Administrative Agent agrees to give to each Bank prompt notice of each notice
given to it by any Borrower pursuant to the terms of this Agreement. The
Administrative Agent may execute any of its duties as Administrative Agent
hereunder and under any other instrument, document or agreement executed in
connection herewith by or through employees, agents, and attorney-in-fact and
shall not be answerable to the Banks, except as to money or securities received
by it or its authorized agents, for the default or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care. Without limiting the
foregoing, the Administrative Agent may appoint any Affiliate as its agent for
all matters relating to Advances made in Alternative Currencies. Each such
agent shall be entitled to all of the rights and benefits granted to the
Administrative Agent hereunder, and each Bank shall treat any notice given by
any such agent as if it had been given directly by the Administrative Agent.
SECTION 8.03. Administrative Agent's Reliance, Etc. Neither the
-------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and
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<PAGE>
Acceptance entered into by the Bank that is the payee of such Note, as assignor,
and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may
------------
consult with legal counsel (including counsel for any Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iv) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of any Borrower or to inspect the
property (including the books and records) of any Borrower; (v) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (vi) shall not have any duty
to ascertain, inquire into or verify the financial condition of the Company or
any of its Subsidiaries; (vii) shall have no duty to disclose to the Banks
information that is not required to be furnished by the Company to the
Administrative Agent at such time, but is voluntarily furnished by the Company
to the Administrative Agent (either in its capacity as Administrative Agent or
in its individual capacity); and (viii) shall incur no liability under or in
respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram) believed by it to be
genuine and signed or sent by the proper party or parties. The Administrative
Agent shall be entitled to advice of counsel concerning the contractual
arrangement between the Administrative Agent and the Banks and all matters
pertaining to the Administrative Agent's duties hereunder.
SECTION 8.04. The Administrative Agent and Affiliates. With respect to
---------------------------------------
any financial institution which shall become the Administrative Agent hereunder,
and with respect to such financial institution's Commitment and the Advances
made by it, such financial institution shall have the same rights and powers
under this Agreement as any other Bank and may exercise the same as though it
were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless
otherwise expressly indicated, include such financial institution in its
individual capacity, if applicable. Each such financial institution and its
affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Borrower,
any of their respective Subsidiaries and any Person who may do business with or
own securities of any Borrower or any such Subsidiary, all as if such financial
institution were not the Administrative Agent and without any duty to account
therefor to the Banks.
SECTION 8.05. Bank Credit Decision; Notice of Default. Each Bank
---------------------------------------
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Bank and based on the financial statements
referred to in Section 4.01 and such other documents and information as it has
------------
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement. The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default, or an event which would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both, unless the Agent has received
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written notice from a Bank or the Company referring to this Agreement describing
such Event of Default, or such event which would constitute an Event of Default
but for the requirement that notice be given or time elapse or both, and stating
that such notice is a "notice of default". In the event that the Administrative
Agent receives such a notice, the Administrative Agent shall give prompt notice
thereof to the Banks.
SECTION 8.06. Indemnification. The Banks (other than the Designated
---------------
Bidders) agree to indemnify the Administrative Agent (to the extent not
reimbursed by the Borrowers), ratably according to the respective principal
amounts of the Notes held by each of them (or, if no Notes are outstanding at
the time or if any Notes are held by Persons that are not Banks, ratably
according to the respective amounts of their Commitments) from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by the Administrative Agent under this Agreement;
provided that no Bank shall be liable for any portion of such liabilities,
- --------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent any of the foregoing is found in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the Administrative Agent's gross negligence or willful misconduct. Without
limiting the foregoing, each Bank (other than the Designated Bidders) agrees to
reimburse the Administrative Agent promptly upon demand for its ratable share of
any out-of-pocket expenses (including counsel fees) incurred by the
Administrative Agent in connection with the administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, to the extent that the Administrative Agent is not reimbursed
for such expenses by the Borrowers. The obligation of the Banks under this
Section 8.06 shall survive payment of the Obligations and the termination of
- ------------
this Agreement.
SECTION 8.07. Successor Administrative Agent. The Administrative Agent
------------------------------
may resign at any time by giving written notice thereof to the Banks and the
Company and may be removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority Banks shall have the
right to appoint another Bank as successor Administrative Agent or, if
acceptable to the Company, any other commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000. If no successor Administrative
Agent shall have been so appointed by the Majority Banks, and shall have
accepted such appointment, within 30 days after the retiring Administrative
Agent gives notice of resignation or the Majority Banks remove the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000 and
otherwise acceptable to the Company. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as
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Administrative Agent, the provisions of this Article VIII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent.
SECTION 8.08. Documentation Agents; Co-Agents. The Banks identified in
-------------------------------
this Agreement as the Documentation Agents or Co-Agents shall not have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Banks as such. Without limiting the
foregoing, such Banks shall not have or be deemed to have a fiduciary
relationship with any Bank. Each Bank hereby makes the same acknowledgments
with respect to such Banks as it makes with respect to the Administrative Agent
in Section 8.05.
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Agreement or the Notes, nor any consent to any departure by any Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by all the Banks (other than the Designated Bidders),
directly do any of the following: (i) waive any of the conditions specified in
Section 3.01 or 5.04, (ii) increase the Commitments of the Banks or subject the
- ------------ ----
Banks to any additional obligations, (iii) reduce the principal of, or the
stated rate at which interest accrues on, the Notes or reduce the stated rate at
which the Facility Fee and the Utilization Fee are calculated, (iv) postpone any
date fixed for any payment of principal of, or interest on, the Committed
Advances or any fees or other amounts payable hereunder, (v) change the
percentage of the Commitments, or of the aggregate unpaid principal amount of
the Notes, or the number of Banks which shall be required for the Banks or any
of them to take any action hereunder or (vi) amend this Section 9.01; provided,
------------ --------
further, that no amendment, waiver or consent shall, unless in writing and
- -------
signed by the Administrative Agent in addition to the Banks required above to
take such action, affect the rights or duties of the Administrative Agent under
this Agreement or any Note.
SECTION 9.02. Notices, Etc. (a) All notices and other communications
-------------
provided for hereunder shall be in writing (including telegraphic or telecopy
communication) and mailed, telegraphed, telecopied or delivered,
(i) if to the Company, at its address at 77 West Wacker Drive,
Chicago, Illinois 60601 Attention: Treasurer, telecopy number (312) 326-
8557;
(ii) if to any Borrowing Subsidiary, at the address specified in the
Assumption Letter pursuant to which it became a Borrowing Subsidiary, with
a copy to the Company at the address specified herein; provided that any
--------
such notice may be given solely to the Company, at the option of the party
giving such notice;
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(iii) if to any bank listed on the signature pages hereof, at its
Domestic Lending Office specified opposite its name on Schedule I hereto;
----------
(iv) if to any other Bank, at its Domestic Lending Office specified
in the Assignment and Acceptance or Designation Agreement pursuant to which
it became a Bank;
(v) if to the Administrative Agent, at the Domestic Lending Office
specified opposite its name on Schedule I hereto;
----------
or as to the Borrowers and the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties, and
as to each such other party, at such other address as shall be designated by
such party in a written notice to the Company and the Administrative Agent. All
such notices and communications shall, when sent by overnight courier, mailed or
telecopied, be effective when delivered to such courier, deposited in the mails,
or telecopied and confirmed by return telecopy, respectively, except that
notices and communications to the Administrative Agent pursuant to Articles II,
-----------
III and VIII shall not be effective until received by the Administrative Agent.
- --- ----
(b) If any notice required under this Agreement is permitted to be made,
and is made, by telephone, actions taken or omitted to be taken in reliance
thereon by the Administrative Agent or by any Bank shall be binding upon the
Company and each other Borrower notwithstanding any inconsistency between the
notice provided by telephone and any subsequent writing in confirmation thereof
provided to the Administrative Agent or such Bank; provided that any such action
--------
taken or omitted to be taken by the Administrative Agent or such Bank shall have
been in good faith and in accordance with the terms of this Agreement.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any Bank or
-------------------
the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Company agrees to pay on
------------------
demand all reasonable, documented out-of-pocket costs and expenses of the
Arranger and the Administrative Agent (including, without limitation, reasonable
fees and expenses of counsel), in connection with any amendments, modifications
or waivers of the provisions hereof, or in determining the rights and
obligations of the parties hereto under this Agreement and the Notes, or the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement and the other documents to be delivered hereunder; provided that
--------
if, in the event of any enforcement undertaken by the Banks hereunder, it shall
be determined that sufficient conflicts exist such that a single law firm
engaged by the Administrative Agent or the Majority Banks is precluded by law or
by standards of conduct from representing the Banks as a group, and such
conflicts would exist with respect to any other law firm representing the Banks
as a group, the Company agrees to pay on demand all reasonable, documented out-
of-pocket costs and expenses of each Bank,
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<PAGE>
if any (including, without limitation, reasonable fees and expenses of counsel),
in connection with such enforcement undertaking.
(b) The Company agrees to pay to the Administrative Agent such fees as
shall have been agreed to by the Administrative Agent and the Company in a
separate agreement regarding the provision by the Administrative Agent of
services as Administrative Agent under this Agreement.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the
----------------
continuance of any Event of Default and (ii) the declaration that the Advances
are due and payable pursuant to the provisions of Section 6.01, each Bank is
------------
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of any Borrower
against any and all of the obligations of such Borrower now or hereafter
existing under this Agreement and the Notes held by such Bank, irrespective of
whether or not such Bank shall have made any demand under this Agreement or such
Notes and although such obligations may be unmatured. Each Bank shall promptly
notify the Company after any such set-off and application made by such Bank,
provided that the failure to give such notice shall not affect the validity of
- --------
such set-off and application. The rights of each Bank under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Bank may have.
SECTION 9.06. Binding Effect. This Agreement (other than Sections 2.01
-------------- -------------
and 2.03, which shall only become effective upon satisfaction of the conditions
----
set forth in Section 3.01) shall become effective when it shall have been
------------
executed by the Company and the Administrative Agent and when the Administrative
Agent shall have been notified by each bank listed on the signature pages hereof
that it has executed this Agreement and thereafter shall be binding upon and
inure to the benefit of the Company, the Administrative Agent and each Bank and
their respective successors and assigns, except that neither the Company nor any
Borrowing Subsidiary shall have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Banks.
SECTION 9.07. Assignments, Designations and Participations. (a) Each
--------------------------------------------
Bank (other than the Designated Bidders) may, upon obtaining the prior written
consent of the Company and the Administrative Agent (which consents shall not be
unreasonably withheld or delayed), and each Bank (including, without limitation,
the Designated Bidders) shall, if demanded by the Company in accordance with
Section 2.05(b), assign to one or more Eligible Assignees all or a portion of
- ---------------
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitment and the Committed Advances owing to it and
the Committed Notes held by it); provided, however, that:
-------- -------
(i) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this Agreement (other than
any right to make Uncommitted Advances, Uncommitted Advances owing to it
and Uncommitted Notes owing to it);
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<PAGE>
(ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Bank or an assignment of all of
a Bank's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Bank being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $20,000,000 (or
an integral multiple of $1,000,000 in excess thereof);
(iii) each such assignment made as a result of a demand by the Company
pursuant to Section 2.05(b) and this Section 9.07(a) shall be arranged by
--------------- ---------------
the Company with the approval of the Administrative Agent, which approval
shall not be unreasonably withheld or delayed, and shall be either an
assignment of all of the rights and obligations of the assigning Bank under
this Agreement or an assignment of a portion of such rights and obligations
made concurrently with another such assignment or other such assignments
that, in the aggregate, cover all of the rights and obligations of the
assigning Bank under this Agreement;
(iv) no Bank shall be obligated to make any such assignment as a
result of a demand by the Company pursuant to this Section 9.07(a) unless
---------------
and until such Bank shall have received one or more payments from one or
more Eligible Assignees in an aggregate amount equal to the aggregate
outstanding principal amount of the Advances owing to such Bank, together
with accrued interest thereon to the date of payment of such principal
amount and from the Company or one or more Eligible Assignees in an
aggregate amount equal to all other amounts payable to such Bank under this
Agreement and the Notes (including, without limitation, any amounts owing
under Sections 2.12, 2.13 or 2.19); and
------------------- ----
(v) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with any Note subject to such
assignment and a processing and recordation fee of $3,500;
and provided, further, that the consent of the Company and the Administrative
-------- -------
Agent shall not be required with respect to an assignment to an Eligible
Assignee which is a Bank or an Affiliate thereof. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and (y) the Bank assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto). Notwithstanding the foregoing, each Bank may, without the
Company's or the Administrative Agent's consent, assign all or a portion of its
rights and obligations
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<PAGE>
under this Agreement (including, without limitation, all or a portion of its
Commitment and the Advances owing to it) to an affiliate of such Bank or to
another Bank.
(b) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Company or any
Borrowing Subsidiary or the performance or observance by the Company or any
Borrowing Subsidiary of any of their respective obligations under this Agreement
or any other instrument or document furnished pursuant hereto; (iii) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the financial statements referred to in Section 4.01 and such other
------------
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Administrative Agent,
such assigning Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as contractual
representative on its behalf and to exercise such powers and discretion under
this Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Agreement are required to
be performed by it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee, and
consented to by the Company, together with any Note or Notes subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit A hereto, (i)
---------
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Company.
Within ten Business Days after its receipt of such notice, the Company shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Note a new Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it (in the case of a Committed Note) or the Uncommitted
Advance or part thereof purchased by it (in the case of an Uncommitted Note)
pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment or a part of such Uncommitted Advance hereunder, a new
Note to the order of the assigning Bank in an amount equal to the Commitment or
of such Uncommitted Advance retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit D-1 or Exhibit D-2 hereto (as the case may be).
----------- -----------
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<PAGE>
(d) Each Bank (other than the Designated Bidders) may, upon obtaining the
prior written consent of the Company and the Administrative Agent (which
consents shall not be unreasonably withheld or delayed), designate one or more
banks or other entities to have a right to make Uncommitted Advances as a Bank
pursuant to Section 2.03; provided, however, that (i) no such Bank shall be
------------ -------- -------
entitled to make more than one such designation, (ii) each such Bank making such
a designation shall retain the right to make Uncommitted Advances as a Bank
pursuant to Section 2.03, (iii) each such designation shall be to a Designated
------------
Bidder and (iv) the parties to each such designation shall execute and deliver a
Designation Agreement to the Administrative Agent, for its acceptance and
recording in the Register, together with the consent thereto executed by the
Company. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Designation Agreement, the designee
thereunder shall be a party hereto with a right to make Uncommitted Advances as
a Bank pursuant to Section 2.03 and the obligations related thereto.
------------
(e) By executing and delivering a Designation Agreement, the Bank making
the designation thereunder and its designee thereunder confirm and agree with
each other and the other parties hereto as follows: (i) such Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Company or any Borrowing Subsidiary or the performance or observance by the
Company or any Borrowing Subsidiary of any of their respective obligations under
this Agreement or any other instrument or document furnished pursuant hereto;
(iii) such designee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section 4.01 and
------------
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Designation Agreement; (iv)
such designee will, independently and without reliance upon the Administrative
Agent, such designating Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
designee confirms that it is a Designated Bidder; (vi) such designee appoints
and authorizes the Administrative Agent to take such action as contractual
representative on its behalf and to exercise such powers and discretion under
this Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such designee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Bank.
(f) Upon its receipt of a Designation Agreement executed by a designating
Bank and a designee representing that it is a Designated Bidder, and consented
to by the Company, the Administrative Agent shall, if such Designation Agreement
has been completed and is substantially in the form of Exhibit C hereto, (i)
---------
accept such Designation Agreement, (ii) record the information contained therein
in the Register and (iii) give prompt notice thereof to the Company.
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(g) The Administrative Agent shall maintain at its address referred to in
Section 9.02 a copy of each Assignment and Acceptance and each Designation
- ------------
Agreement delivered to and accepted by it and a register for the recordation of
the names and addresses of the Banks and, with respect to Banks other than
Designated Bidders, the Commitment of, and principal amount of the Advances
owing to, each Bank from time to time (the "Register"). The entries in the
--------
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Company, the Administrative Agent and the Banks may treat each
Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(h) Each Bank (other than a Designated Bidder) may sell participations to
one or more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Note or Notes held
by it); provided, however, that (i) such Bank's obligations under this Agreement
-------- -------
(including, without limitation, its Commitment hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of any such Note for all purposes of this Agreement, (iv) the Company,
the Administrative Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and (v) no participant under any such participation shall
have any right to approve any amendment or waiver of any provision of this
Agreement or any Note, or any consent to any departure by the Company or any
Borrowing Subsidiary therefrom, except to the extent that such amendment, waiver
or consent would reduce the principal of the Notes or the stated rate at which
interest, the Facility Fee or the Utilization Fee is calculated, in each case to
the extent subject to such participation, or postpone any date fixed for any
payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation.
(i) Any Bank may, in connection with any assignment, designation or
participation or proposed assignment, designation or participation pursuant to
this Section 9.07, disclose to the assignee, designee or participant or proposed
------------
assignee, designee or participant, any information relating to the Company or
any other Borrower furnished to such Bank by or on behalf of the Company or such
other Borrower; provided that, prior to any such disclosure of non-public
--------
information, such Bank shall have obtained the Company's consent and the
assignee or participant or proposed assignee or participant shall agree in a
manner satisfactory to the Company to preserve the confidentiality of any
confidential information relating to the Company received by it from such Bank.
(j) Notwithstanding any other provision set forth in this Agreement, any
Bank may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 9.08. Governing Law. This Agreement and the Notes shall be
-------------
governed by, and construed in accordance with, the laws of the State of
Illinois.
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SECTION 9.09. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
SECTION 9.10. Confidentiality. Each Bank agrees that it will use
---------------
reasonable efforts to keep confidential any information from time to time
supplied to it by the Company which the Company designates in writing at the
time of its delivery to the Bank is to be treated confidentially; provided,
--------
however, that nothing herein shall affect the disclosure of any such information
- -------
to: (i) the extent required by statute, rule, regulation or judicial process;
(ii) counsel for any Bank or to their respective accountants; (iii) bank
examiners and auditors; (iv) any Affiliate of such Bank; (v) any other Bank, or,
subject to Section 9.07(c), any transferee or prospective transferee of any
---------------
Advance, any Note or any Commitment; or (vi) any other Person in connection with
any litigation to which any one or more of the Banks is a party; provided
--------
further, however, that each Bank agrees that it will use reasonable efforts to
- ------- -------
promptly notify the Company of any request for information under this clause
(vi) or with respect to any request for information not enumerated in this
Section 9.10, if not otherwise prohibited from doing so.
- ------------
SECTION 9.11. Non-Reliance by the Banks. Each Bank by its signature to
-------------------------
this Agreement represents and warrants that (i) it has not relied in the
extension of the credit contemplated by this Agreement, nor will it rely in the
maintenance thereof, upon any assets of the Company or its Subsidiaries
consisting of Margin Stock as collateral and (ii) after reviewing the financial
statements of the Company and its Consolidated Subsidiaries referred to in
Section 4.01(e), such Bank has concluded therefrom that the consolidated cash
- ---------------
flow of the Company and its Consolidated Subsidiaries is sufficient to support
the credit extended to the Company pursuant to this Agreement.
SECTION 9.12. No Indirect Security. Notwithstanding any Section or
--------------------
provision of this Agreement to the contrary, nothing in this Agreement shall (i)
restrict or limit the right or ability of the Company or any of its Subsidiaries
to pledge, mortgage, sell, assign, or otherwise encumber or dispose of any
Margin Stock, or (ii) create an Event of Default arising out of or relating to
any such pledge, mortgage, sale, assignment or other encumbrance or disposition.
SECTION 9.13. Indemnification. The Company agrees to indemnify and hold
---------------
harmless the Administrative Agent, each Bank, and their respective officers,
directors, employees and agents (any one of the foregoing being an "Indemnified
Party" and any two or more of the foregoing being "Indemnified Parties") from
and against, and pay the Indemnified Parties the amount of, any and all claims,
damages, liabilities, and reasonable, documented out-of-pocket costs and
expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against an Indemnified
Party relating in whole or in part to this Agreement, the Notes, any documents
delivered in connection herewith and the transactions contemplated hereby, and
in connection with or arising out of or by reason of, or in connection with the
preparation of a defense of, any investigation, litigation or proceeding brought
by a Person other than the Indemnified Parties or the Company and its
Subsidiaries, arising out of, related to or in
-65-
<PAGE>
connection with (i) this Agreement, the Notes, any of the transactions
contemplated herein or the use or proposed use of the proceeds of any Advances,
(ii) any acquisition or proposed acquisition by the Company or any of its
Subsidiaries of all or any portion of the stock or all or substantially all of
the assets of any Person, or (iii) the actual or alleged presence of Hazardous
Materials on any property of the Company or any of its Subsidiaries or any
Environmental Action relating to any of them, in each case whether or not such
investigation, litigation or proceeding is brought by the Company, any other
Borrower, their respective shareholders or creditors, an Indemnified Party or
any other Person, and whether or not an Indemnified Party is otherwise a party
thereto, provided, however, that this indemnification shall not apply to any
-------- -------
claim, damage, liability, cost or expense that is found in a final,
nonappealable judgment by a court of competent jurisdiction to have resulted
from an Indemnified Party's gross negligence or willful misconduct. The
covenants of the Company contained in this Section 9.13 and in Sections 9.04,
------------ -------------
2.11, 2.12 and 2.19 shall survive the repayment of all amounts due and payable
- ---- ---- ----
under this Agreement and the termination of this Agreement.
SECTION 9.14. Partial Invalidity. Wherever possible, each provision
------------------
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
SECTION 9.15. WAIVER OF JURY TRIAL. Each of the parties hereto
--------------------
irrevocably waives any right to have a jury participate in resolving any
dispute, whether sounding in contract, tort or otherwise, arising out of,
connected with, related to or incidental to the relationship established among
them in connection with this Agreement or the transactions contemplated hereby
or the actions of the Company, any Borrowing Subsidiary, the Administrative
Agent or any Bank in the negotiation, administration, performance or enforcement
thereof. Each of the parties hereto agrees that any such claim, demand, action
or cause of action shall be decided by bench trial without a jury and that any
party hereto may file an original counterpart or a copy of this Agreement with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to trial by jury.
SECTION 9.16. Jurisdiction, Etc. (a) Each of the parties hereto
------------------
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any Illinois state court or federal court of the
United States of America sitting in Chicago, Illinois, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in any such Illinois state court or, to the extent permitted by law, in such
federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any
-66-
<PAGE>
party may otherwise have to bring any action or proceeding relating to this
Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any
Illinois state or federal court. Each of the parties hereto irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
SECTION 9.17. Termination of Existing Credit Agreement. The Company and
----------------------------------------
each of the Banks hereunder that is a party to the 1998 364-Day Credit Agreement
consents to the termination of the "Commitments" thereunder, effective on the
Effective Date, notwithstanding the notice requirements for such termination set
forth in Section 2.05 of the 1998 364-Day Credit Agreement. Because such Banks
hereunder constitute the "Majority Banks" (as defined in the 1998 364-Day Credit
Agreement) under the 1998 364-Day Credit Agreement, the 1998 364-Day Credit
Agreement shall terminate and all amounts payable thereunder shall be due and
payable on the Effective Date.
SECTION 9.18. Nonliability of Banks. The relationship between the
---------------------
Borrowers on the one hand and the Banks and the Administrative Agent on the
other hand shall be solely that of borrower and lender. Neither the
Administrative Agent, the Arranger nor any Bank shall have any fiduciary
responsibilities to the Borrower. Neither the Administrative Agent, the
Arranger nor any Bank undertakes any responsibility to the Borrowers to review
or inform the Borrowers of any matter in connection with any phase of the
Borrowers' business or operations. Neither the Administrative Agent, the
Arranger nor any Bank shall have any liability with respect to, and the
Borrowers waive, release and agree not to sue for, any special, indirect or
consequential damages suffered by the Borrowers in connection with, arising out
of, or in any way related to this Agreement or the transactions contemplated
thereby.
Remainder of page intentionally left blank
-67-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
R.R. DONNELLEY & SONS COMPANY
By:__________________________________
Title: ________________________________
BANK ONE, NA, as Administrative Agent and as a
Bank
By:__________________________________
Title: ________________________________
-68-
<PAGE>
BANK OF MONTREAL, as a Documentation Agent
and as a Bank
By:____________________________________
Title: ________________________________
-69-
<PAGE>
FIRST UNION NATIONAL BANK, as a
Documentation Agent and as a Bank
By:____________________________________
Title: ________________________________
-70-
<PAGE>
BANK OF AMERICA, N.A., as a Co-Agent and as a
Bank
By:____________________________________
Title: ________________________________
-71-
<PAGE>
CITIBANK N.A., as a Co-Agent and as a Bank
By:____________________________________
Title: ________________________________
-72-
<PAGE>
THE NORTHERN TRUST COMPANY, as a Co-
Agent and as a Bank
By:____________________________________
Title: ________________________________
-73-
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
CHICAGO BRANCH, as a Bank
By:__________________________________
Title:
-74-
<PAGE>
WACHOVIA BANK, N.A., as a Bank
By:__________________________________
Title:
-75-
<PAGE>
SEAWAY NATIONAL BANK OF CHICAGO, as a
Bank
By:__________________________________
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Domestic Eurocurrency
Name of Bank Commitment Lending Office Lending Office
- ------------ ---------- -------------- -------------
<S> <C> <C> <C>
Bank One, NA $39,500,000 1 Bank One Plaza same
14th Floor, Suite 0088
Chicago, IL 60670
Attn: Deborah Stevens
Phone: (312) 732-2532
FAX: (312) 732-1117
Bank of Montreal $32,000,000 115 S. LaSalle Street same
12th Floor
Chicago, IL 60690
Attn: Leon Sinclair
Phone: (312) 750-4371
FAX: (312) 750-6057
First Union National Bank $32,000,000 301 S. College Street same
TW-10
Charlotte, NC 28288
Attn: Peter Steffen
Phone: (704) 383-9214
FAX: (704) 383-7236
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bank of America, N.A. $25,000,000 Bank of America Corporate same
Center
NC1-077-1715
100 N. Tryon Street
Charlotte, NC 28255-0001
Attn: Jack Williams
Phone: (704) 388-3234
FAX: (704) 388-0960
Citibank N.A. $25,000,000 500 West Madison Street same
35th Floor
Chicago, IL 60606
Attn: Carrie Stead
Phone: (312) 627-3983
FAX: (312) 627-3990
The Northern Trust Company $25,000,000 50 South LaSalle Street same
11th Floor
Chicago, IL 60675
Attn: Mark Taylor
Phone: (312) 557-1626
FAX: (312) 444-5055
The Industrial Bank of $10,000,000 227 West Monroe Street same
Japan, Limited, Chicago Suite 2600
Branch Chicago, IL 60606
Attn: Steve Ryan
Phone: (312) 855-8494
FAX: (312) 855-8200
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Wachovia Bank, N.A. $10,000,000 70 West Madison Street same
Suite 2440
Chicago, IL 60602
Attn: James Kinoshita
Phone: (312) 795-4331
FAX: (312) 853-0693
Seaway National Bank of $ 1,500,000 645 East 87th Street same
Chicago Chicago, IL 60619
Attn: Lorette Yamini
Phone: (773) 487-4800
FAX (773) 487-1850
</TABLE>
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the 364-Day Credit Agreement dated as of October 14,
1999 (as amended or modified from time to time, the "364-Day Credit Agreement")
------------------------
among R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"), the
-------
Banks (as defined in the 364-Day Credit Agreement) parties thereto and Bank One,
NA, as Administrative Agent for the Banks (the "Administrative Agent"). Terms
--------------------
defined in the 364-Day Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto agree as
follows:
1. The Assignor sells and assigns to the Assignee, and the Assignee
purchases and assumes from the Assignor, an interest in and to the Assignor's
rights and obligations under the 364-Day Credit Agreement as of the date hereof
(other than in respect of Uncommitted Advances and Uncommitted Notes) equal to
the percentage interest specified on Schedule 1 hereto of all outstanding rights
and obligations under the 364-Day Credit Agreement (other than in respect of
Uncommitted Advances and Uncommitted Notes). After giving effect to such sale
and assignment, the Assignee's Commitment and the amount of the Committed
Advances owing to the Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the 364-Day Credit
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the 364-Day Credit Agreement or any other instrument or
document furnished pursuant thereto; (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Company or any Borrowing Subsidiary or the performance or observance by the
Company or any Borrowing Subsidiary of any of their respective obligations under
the 364-Day Credit Agreement or any other instrument or document furnished
pursuant thereto; and (iv) attaches the Committed Note held by the Assignor and
requests that the Administrative Agent exchange such Committed Note for a new
Committed Note payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new Committed Notes
payable to the order of the Assignee in an amount equal to the Commitment
assumed by the Assignee pursuant hereto and the Assignor in an amount equal to
the Commitment retained by the Assignor under the 364-Day Credit Agreement,
respectively, as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the 364-Day
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
------------
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees
A-1
<PAGE>
that it will, independently and without reliance upon the Administrative Agent,
the Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the 364-Day Credit Agreement; (iii) confirms
that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative
Agent to take such action as contractual representative on its behalf and to
exercise such powers and discretion under the 364-Day Credit Agreement as are
delegated to the Administrative Agent by the terms thereof; (v) agrees that it
will perform in accordance with their terms all of the obligations that by the
terms of the 364-Day Credit Agreement are required to be performed by it as a
Bank; and (vi) attaches any U.S. Internal Revenue Service forms required under
Section 2.19 of the 364-Day Credit Agreement.
- ------------
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Company for acceptance and then to the Administrative Agent for
acceptance and recording. The effective date for this Assignment and Acceptance
(the "Effective Date") shall be the date of acceptance hereof by the
--------------
Administrative Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, (i) the Assignee shall be a party to the 364-Day Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the 364-Day Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all payments
under the 364-Day Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and facility fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the 364-
Day Credit Agreement and the Notes for periods prior to the Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
A-2
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to
this Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.
A-3
<PAGE>
SCHEDULE I
to
Assignment and Acceptance
dated _______________
Percentage interest assigned: ___%
Assignee's Commitment: $_____________
Aggregate outstanding principal
amount of Committed Advances
assigned: $_____________
Principal amount of Committed Note
payable to Assignee: $_____________
Principal amount of Committed Note
payable to Assignor: $_____________
Effective Date: _____________, ____
[NAME OF ASSIGNOR],
as Assignor
By:___________________
Title:
Dated:
[NAME OF ASSIGNEE], as
Assignee
By:___________________
Title:
Dated:
Applicable Lending Offices:
Domestic: [address]
Eurocurrency: [address]
Uncommitted
Advances: [address]
A-4
<PAGE>
Accepted and approved,
_____________, ____
BANK ONE, NA,
as Administrative Agent
By:_____________________
Title:
Accepted and approved,
______________, ____
R.R. DONNELLEY & SONS
COMPANY
By:_____________________
Title:
A-5
<PAGE>
EXHIBIT B
[Form of Assumption Letter]
_____________________, ____
To the Banks parties to the
364-Day Credit Agreement referred
to below
Ladies and Gentlemen:
Reference is made to the 364-Day Credit Agreement dated as of October 14,
1999 among R.R. Donnelley & Sons Company, the Banks named therein and Bank One,
NA, as Administrative Agent for such Banks (as amended and in effect from time
to time, the "364-Day Credit Agreement"). Terms defined in the 364-Day Credit
Agreement and capitalized herein are used herein as defined therein.
The undersigned, ___________ (the "Subsidiary"), a _________________
corporation, proposes to become a "Borrowing Subsidiary" under the 364-Day
Credit Agreement, and accordingly agrees that from the date hereof it shall
become a "Borrowing Subsidiary" under the 364-Day Credit Agreement and agrees
that from the date hereof and until the payment in full of the principal of and
interest on all Advances made to it under the 364-Day Credit Agreement and
performance of all of its other obligations thereunder, and termination
hereunder of its status as a "Borrowing Subsidiary" as provided below, it shall
perform, comply with and be bound by each of the provisions of the 364-Day
Credit Agreement which are stated to apply to the "Company", a "Borrowing
Subsidiary" or a "Borrower". Without limiting the generality of the foregoing,
that Subsidiary represents and warrants that: (i) each of the representations
and warranties set forth in Sections 4(a), (b), (c) and (d) of the 364-Day
------------- --- --- ---
Credit Agreement is hereby made by such Subsidiary on and as of the date hereof
as if made on and as of the date hereof and as if such Subsidiary is the
"Company", this Assumption Letter is the "Agreement" referenced therein and each
Note issued by such Borrowing Subsidiary is the "Note" referenced therein, and
(ii) it has heretofore received a true and correct copy of the 364-Day Credit
Agreement (including any modifications thereof or supplements or waivers
thereto) as in effect on the date hereof.
So long as the principal of and interest on all Advances made to the
Subsidiary under the 364-Day Credit Agreement shall have been paid in full and
all other obligations of the Subsidiary shall have been fully performed, the
Subsidiary may by not less than five Business Days' prior notice to the Banks
terminate its status as a "Borrowing Subsidiary."
B-1
<PAGE>
The Subsidiary irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any Illinois state court or
federal court of the United States of America sitting in Chicago, Illinois, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Assumption Letter, the 364-Day Credit Agreement or the
Notes, or for recognition or enforcement of any judgment, and the Subsidiary
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in any such Illinois state
court or, to the extent permitted by law, in such federal court. The Subsidiary
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Assumption Letter shall
affect any right that any Bank or the Administrative Agent may otherwise have to
bring any action or proceeding relating to this Assumption Letter, the 364-Day
Credit Agreement or the Notes in the courts of any jurisdiction.
The Subsidiary irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Assumption Letter, the 364-Day Credit Agreement or
the Notes in any Illinois state or federal court. The Subsidiary irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
This Assumption Letter shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
B-2
<PAGE>
IN WITNESS WHEREOF, the Subsidiary has duly executed and delivered this
Assumption Letter as of the date and year first above written.
[NAME OF BORROWING SUBSIDIARY]
By _______________________________
Title:
Address for Notices under
the 364-Day Credit Agreement:
Consented to:
R.R. DONNELLEY & SONS
COMPANY
By:_______________________
Title:
B-3
<PAGE>
EXHIBIT C
FORM OF DESIGNATION AGREEMENT
Dated _______________, ____
Reference is made to the 364-Day Credit Agreement dated as of October 14,
1999 (as amended or modified from time to time, the "364-Day Credit Agreement")
------------------------
among R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"), the
-------
Banks (as defined in the 364-Day Credit Agreement) parties thereto and Bank One,
NA, as Administrative Agent for the Banks (the "Administrative Agent"). Terms
--------------------
defined in the 364-Day Credit Agreement are used herein with the same meaning.
__________________ (the "Designor") and _________________ (the "Designee")
-------- --------
agree as follows:
1. The Designor designates the Designee, and the Designee accepts such
designation, to have a right to make Competitive Bid Advances pursuant to
Section 2.03 of the 364-Day Credit Agreement.
- ------------
2. The Designor makes no representation or warranty and assumes no
responsibility with respect to (i) any statements, warranties or representations
made in or in connection with the 364-Day Credit Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, the
364-Day Credit Agreement or any other instrument or document furnished pursuant
thereto; and (ii) the financial condition of the Company or any Borrowing
Subsidiary or the performance or observance by the Company or any Borrowing
Subsidiary of any of their respective obligations under the 364-Day Credit
Agreement or any other instrument or document furnished pursuant thereto.
3. The Designee (i) confirms that it has received a copy of the 364-Day
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
------------
deemed appropriate to make its own credit analysis and decision to enter into
this Designation Agreement; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Designor or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the 364-Day Credit Agreement; (iii) confirms that it is a Designated Bidder;
(iv) appoints and authorizes the Administrative Agent to take such action as
contractual representative on its behalf and to exercise such powers and
discretion under the 364-Day Credit Agreement as are delegated to the
Administrative Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; and (v) agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the 364-Day Credit Agreement are required to be performed by it as a Bank.
C-1
<PAGE>
4. Following the execution of this Designation Agreement by the Designor
and its Designee, it will be delivered to the Company for acceptance and then to
the Administrative Agent for acceptance and recording. The effective date for
this Designation Agreement (the "Effective Date") shall be the date of
--------------
acceptance hereof by the Administrative Agent, unless otherwise specified on the
signature page hereto.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, the Designee shall be a party to the 364-Day Credit
Agreement with a right to make Competitive Bid Advances as a Bank pursuant to
Section 2.03 of the 364-Day Credit Agreement and the rights and obligations of a
- ------------
Bank related thereto.
6. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
7. This Designation Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Designation Agreement by telecopier
shall be effective as delivery of a manually executed counterpart of this
Designation Agreement.
C-2
<PAGE>
IN WITNESS WHEREOF, the Designor and Designee have caused this Designation
Agreement to be executed by their officers thereunto duly authorized as of the
date specified thereon.
Effective Date: ____________________, ____
[NAME OF DESIGNOR],
as Designor
By:_______________________________
Title:
[NAME OF DESIGNEE],
as Designee
By:_______________________________
Title:
Applicable Lending Office (and
address for notices):
C-3
<PAGE>
Accepted and approved,
_____________, ____
BANK ONE, NA,
as Administrative Agent
By:_____________________
Title:
Accepted and approved,
______________, ____
R.R. DONNELLEY & SONS
COMPANY
By:_____________________
Title:
C-4
<PAGE>
EXHIBIT D-1
FORM OF COMMITTED NOTE
Dated: _______________, ____
FOR VALUE RECEIVED, the undersigned, [R.R. DONNELLEY & SONS COMPANY, a
Delaware corporation] [NAME OF APPLICABLE BORROWING SUBSIDIARY, a_______________
corporation] (the "Company"), PROMISES TO PAY to the order of___________________
-------
(the "Bank") for the account of its Applicable Lending Office on the Termination
----
Date (or, if the Company has made the Term Loan Election, the Maturity Date)
(each as defined in the 364-Day Credit Agreement referred to below) the
aggregate principal amount of the Committed Advances made by the Bank to the
Company pursuant to the 364-Day Credit Agreement dated as of October 14, 1999
among [the Company] [R.R. Donnelley & Sons Company], the Bank and certain other
banks parties thereto, and Bank One, NA, as Administrative Agent for the Bank
and such other banks (as amended or modified from time to time, the "364-Day
-------
Credit Agreement"); the terms defined therein being used herein as therein
- ----------------
defined) outstanding on the Termination Date (or, if the Company has made the
Term Loan Election, the Maturity Date).
The Company promises to pay interest on the unpaid principal amount of each
Committed Advance made to it from the date of such Committed Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the 364-Day Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Bank One, NA, as Administrative Agent, at the address
specified pursuant to Article II of the 364-Day Credit Agreement, in same day
funds. Each Committed Advance owing to the Bank by the Company pursuant to the
364-Day Credit Agreement, and all payments made on account of principal thereof,
shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the
grid attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Committed Notes referred to in, and is
entitled to the benefits of, the 364-Day Credit Agreement. The 364-Day Credit
Agreement, among other things, (i) provides for the making of Committed Advances
by the Bank to the Company from time to time, the indebtedness of the Company
resulting from each such Committed Advance being evidenced by this Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
D-1-1
<PAGE>
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
[R.R. DONNELLEY & SONS COMPANY]
[NAME OF APPLICABLE BORROWING
SUBSIDIARY]
By:____________________________
Title:
D-1-2
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Unpaid
Amount of Principal Paid Principal Notation
Date Advance or Prepaid Balance Made By
<S> <C> <C> <C> <C>
==============================================================================
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</TABLE>
D-1-3
<PAGE>
EXHIBIT D-2
FORM OF UNCOMMITTED NOTE
U.S. $_______________ Dated: _______________, ____
FOR VALUE RECEIVED, the undersigned, [R.R. DONNELLEY & SONS COMPANY, a
Delaware corporation] [NAME OF APPLICABLE BORROWING SUBSIDIARY, a_______________
corporation] (the "Company"), PROMISES TO PAY to the order of___________________
-------
(the "Bank") for the account of its Applicable Lending Office (as defined in the
----
364-Day Credit Agreement dated as of October 14, 1999 among [the Company] [R.R.
Donnelley & Sons Company], the Bank and certain other banks parties thereto, and
Bank One, NA, as Administrative Agent for the Bank and such other banks (as
amended or modified from time to time, the "364-Day Credit Agreement"; the terms
------------------------
defined therein being used herein as therein defined) on _______________, 19__,
the principal amount of U.S.$______________.
The Company promises to pay interest on the unpaid principal amount hereof
from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: ____% per annum (calculated on the basis of a year of
_____ days for the actual number of days elapsed).
Interest Payment Date(s):
Both principal and interest are payable in lawful money of the United
States of America to Bank One, NA, for the account of the Bank, at the address
specified pursuant to Article II of the 364-Day Credit Agreement, in same day
funds.
This Promissory Note is one of the Uncommitted Notes referred to in, and is
entitled to the benefits of, the 364-Day Credit Agreement. The 364-Day Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereupon upon the happening of certain stated events.
The Company waives presentment, demand, protest and notice of any kind. No
failure to exercise, and no delay in exercising, any rights hereunder on the
part of the holder hereof shall operate as a waiver of such rights.
D-2-1
<PAGE>
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
[R.R. DONNELLEY & SONS COMPANY]
[NAME OF APPLICABLE BORROWING
SUBSIDIARY]
By:____________________________
Title:
D-2-2
<PAGE>
EXHIBIT E-1
NOTICE OF COMMITTED BORROWING
[Administrative Agent's
name and address]
[Date]
Ladies and Gentlemen:
The undersigned, ________________, refers to the 364-Day Credit
Agreement dated as of October 14, 1999 (as amended, modified or supplemented
from time to time, the "364-Day Credit Agreement", the terms defined therein
being used herein as therein defined), among [the undersigned,] [R.R. Donnelley
& Sons Company (the "Company"], certain Banks parties thereto and Bank One, NA,
as Administrative Agent for such Banks, and notifies you, pursuant to Section
-------
2.02 of the 364-Day Credit Agreement, that the undersigned requests a Committed
- ----
Borrowing under the 364-Day Credit Agreement, and in that connection sets forth
below the information relating to such Committed Borrowing (the "Proposed
Committed Borrowing") as required by Section 2.02(a) of the 364-Day Credit
---------------
Agreement:
(i) The Business Day of the Proposed Committed Borrowing is
__________, ____.
(ii) The Type of Committed Advances comprising the Proposed
Committed Borrowing is [Base Rate Advances] [Eurocurrency Rate
Advances].
(iii) The currency for the Proposed Committed Borrowing is
[Dollars] [type of Alternative Currency].
(iv) The aggregate amount of the Proposed Committed Borrowing
is $__________.
(v) The Interest Period for each Eurocurrency Rate Advance
made as part of the Proposed Committed Borrowing is ______ month[s].
The undersigned certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Committed
Borrowing:
(a) the representations and warranties contained in
subsections (a), (b), (c), (d), (f)(ii) and (h) through (p) of Section
-------
4.01 of the 364-Day Credit Agreement are correct, before and after
----
giving effect to the Proposed Committed Borrowing and to the
application of the proceeds therefrom, as though made on and as of
such date;
(b) no event has occurred and is continuing, or would result
from the Proposed Committed Borrowing or from the application of the
proceeds
E-1-1
<PAGE>
therefrom, that constitutes an Event of Default or that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both; and
(c) the aggregate principal amount (or, in the case of
securities issued at a discount from the principal amount at maturity,
the accreted amount) of indebtedness for borrowed money (after giving
effect to the Proposed Committed Borrowing and the application of the
proceeds thereof) of [the undersigned] [the Company] and its
Subsidiaries does not exceed the maximum amount thereof presently
authorized by [the undersigned's] [the Company's] Board of Directors.
Very truly yours,
[NAME OF BORROWER]
By: __________________________
Title:
E-1-2
<PAGE>
EXHIBIT E-2
NOTICE OF UNCOMMITTED BORROWING
_________________________
_________________________
_________________________
[Date]
Attention: ____________________
Ladies and Gentlemen:
The undersigned, _____________, refers to the 364-Day Credit Agreement,
dated as of October 14, 1999 ( as amended, modified or supplemented from time to
time, the "364-Day Credit Agreement", the terms defined therein being used
herein as therein defined), among [the undersigned] [R.R. Donnelley & Sons
Company (the "Company")], certain Banks parties thereto and Bank One, NA, as
Administrative Agent for such Banks, and notifies you pursuant to Section 2.03
------------
of the 364-Day Credit Agreement that the undersigned requests an Uncommitted
Borrowing under the 364-Day Credit Agreement, and in that connection sets forth
the terms on which such Uncommitted Borrowing (the "Proposed Uncommitted
Borrowing") is requested to be made:
(A) Date: ________________________
(B) Amount: $_______________________
(C) Type of Quote Requested:/1/
Uncommitted Borrowing Margin ___ Fixed Rate ___
(D) Maturity Date: ________________________
Prepayment terms: May [not] be prepaid,
[with] [without] penalty
Prepayment penalty:/2/ ________________________
(E) Interest Payment Date(s): ________________________
________________
/1/Select one.
/2/Include if applicable.
E-2-1
<PAGE>
(F) Borrower: ________________________
(G) Other terms:
The undersigned certifies that the following statements are true on the
date hereof, and will be true on the date of the Proposed Uncommitted Borrowing:
(a) the representations and warranties contained in subsections (a),
(b), (c), (d), (f)(ii) and (h) through (p) of Section 4.01 are correct,
before and after giving effect to the Proposed Uncommitted Borrowing and to
the application of the proceeds therefrom, as though made on and as of such
date;
(b) no event has occurred and is continuing, or would result from the
Proposed Uncommitted Borrowing or from the application of the proceeds
therefrom, that constitutes an Event of Default or that would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both;
(c) the aggregate principal amount (or, in the case of securities
issued at a discount from the principal amount at maturity, the accreted
amount) of indebtedness for borrowed money (after giving effect to the
Proposed Uncommitted Borrowing and to the application of proceeds
therefrom) of [the undersigned] [the Company] and its Subsidiaries does not
exceed the maximum amount thereof presently authorized by the Board of
Directors of [the undersigned] [the Company];
The undersigned confirms that the Proposed Uncommitted Borrowing is to
be made available to it in accordance with Section 2.03(a)(iv) of the 364-Day
-------------------
Credit Agreement.
[NAME OF BORROWER]
By: __________________________
Title:
E-2-2
<PAGE>
EXHIBIT F
FORM OF NOTICE OF CONVERSION OR CONTINUATION
TO: Bank One, NA, as Administrative Agent (the "Administrative Agent")
under that certain 364-Day Credit Agreement dated as of October 14,
1999 (the "364-Day Credit Agreement") by and among R.R. Donnelley &
Sons Company (the "Company"), the Administrative Agent and the Banks
parties thereto.
Pursuant to the terms and conditions of the 364-Day Credit Agreement, this
Notice of Conversion or Continuation ("Notice") represents the election of the
Company to [insert one of the following]:
/1/convert $__________ in aggregate principal amount of Base Rate Advances to
Eurocurrency Rate Advances on __________, _____. The initial Interest Period
for such Eurocurrency Rate Advances is requested to be a __________ (_____)
month period. [and]/2/
/3/convert $__________ in aggregate principal amount of Eurocurrency Rate
Advances with a current Interest Period ending _____________ to Base Rate
Advances on __________, _____.
/4/continue as Eurocurrency Rate Advances $__________ in aggregate principal
amount of presently outstanding Eurocurrency Rate Advances with a current
Interest Period ending __________, for a _____ month period commencing on
__________, _____.
Unless otherwise defined herein, terms defined in the 364-Day Credit
Agreement shall have the same meanings in this Notice.
Dated: __________, ____.
/1/Use if converting Base Rate Advances to Eurocurrency Rate Advances.
/2/Use if converting only a portion of Eurocurrency Rate Advances and
continuing the balance as Eurocurrency Rate Advances.
/3/Use if converting Eurocurrency Rate Advances to Base Rate Advances.
/4/Use if continuing Eurocurrency Rate Advances.
F-1
<PAGE>
[NAME OF BORROWER]
By____________________________
Title:________________________
F-2
<PAGE>
EXHIBIT H
Opinion of Counsel to the Company
October 14, 1999
To each of the Banks parties to
the "364-Day Credit Agreement" (as defined below),
and to Bank One, NA, as Administrative Agent
Re: R.R. Donnelley & Sons Company
-----------------------------
Ladies and Gentlemen:
We have acted as counsel to R.R. Donnelley & Sons Company, a Delaware
corporation (the "Company"), in connection with the 364-Day Credit Agreement of
even date herewith (the "364-Day Credit Agreement") among the Company, the
financial institutions parties thereto (the "Banks") and Bank One, NA, as
Administrative Agent, and the transactions contemplated thereby.
This opinion is furnished to you at the request of the Company pursuant to
Section 3.01(a)(v) of the 364-Day Credit Agreement. Capitalized terms used
herein and not otherwise defined are used as defined in the 364-Day Credit
Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the 364-Day Credit
Agreement and the promissory notes delivered on the date hereof to the Banks
signatory to the 364-Day Credit Agreement (the "Notes").
In rendering the opinions set forth herein, we have also examined originals
or copies, certified to our satisfaction, of such (i) certificates of public
officials, (ii) certificates of officers and representatives of the Company, and
(iii) other documents and records, and we have made such inquiries of officers
and representatives of the Company, as we have deemed relevant or necessary as
the basis for such opinions. We have relied as to factual matters upon, and
assumed the accuracy of, such certificates, the representations and warranties
of the Company made in the 364-Day Credit Agreement, and other statements,
documents and records supplied to us by the Company, and we have assumed the
genuineness of all signatures (other than signatures of officers of the Company)
and the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies.
In rendering the opinions set forth herein, we have assumed that:
H-1
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 2
(i) all the parties to the 364-Day Credit Agreement, other than the
Company, are duly organized, validly existing, and in good standing under the
laws of their respective jurisdictions of organization and have the requisite
corporate power to enter into the 364-Day Credit Agreement; and
(ii) the execution and delivery of the 364-Day Credit Agreement have been
duly authorized by all necessary corporate action and proceedings on the part of
all parties thereto other than the Company; the 364-Day Credit Agreement has
been duly executed and delivered by all parties thereto and constitutes the
valid and binding obligation of all parties thereto other than the Company,
enforceable against such parties in accordance with its terms.
Based upon the foregoing and subject to the qualifications stated herein,
we are of the opinion that, as of the date hereof:
1. The Company has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware. The Company has the
requisite corporate power and authority to conduct its business as currently
conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the 364-Day Credit Agreement
and the Notes. Such execution, delivery and performance:
(a) have been duly authorized by all necessary and proper corporate action
of the Company,
(b) do not violate any provision of the certificate of incorporation or
by-laws of the Company or require any approval of the Company's
stockholders,
(c) do not violate the General Corporation Law of the State of Delaware,
any law or regulation of the State of Illinois (including, without
limitation, any usury laws) or of the United States of America applicable
to the Company,
(d) do not contravene that certain Indenture dated as of November 1,1990,
between the Company and Citibank, N.A., as Trustee, or, to our knowledge,
any other material agreement or instrument binding on the Company.
3. The 364-Day Credit Agreement constitutes, and from and after the
initial Committed Borrowing the Committed Notes will constitute, the valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
G-2
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 3
4. No approval, consent or authorization of, or filing or registration
with, any governmental department, agency or instrumentality is necessary for
the Company's execution or delivery of the 364-Day Credit Agreement or the
Notes, or for the Company's performance of any of the terms thereof.
Our opinions above are subject to the following qualifications:
(a) Our opinions relating to validity, binding effect and enforceability
in Paragraph 3 above are subject to limitations imposed by any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws affecting creditors' rights generally. In addition, our opinions
relating to enforceability in paragraph 3 above are subject to (i) the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law) and (ii) limitations imposed by public policy under certain
circumstances on the enforceability of provisions indemnifying a party against
liability for its own wrongful or negligent acts. In applying principles of
equity referred to in clause (i) above, a court, among other things, might not
allow a creditor to accelerate maturity of a debt upon the occurrence of a
default deemed immaterial. Such principles applied by a court might include a
requirement that a creditor act reasonably and in good faith.
(b) Certain remedial and waiver provisions of the 364-Day Credit Agreement
may be unenforceable in whole or in part, but the inclusion of such provisions
does not affect the validity of the 364-Day Credit Agreement; however, the
unenforceability of such provisions may result in delays in the enforcement of
the Administrative Agent's and the Banks' rights and remedies under the 364-Day
Credit Agreement (and we express no opinion as to the economic consequences, if
any, of such delays).
(c) We express no opinion as to the effect of the compliance or
noncompliance of the Administrative Agent or any of the Banks with any state or
federal laws or regulations applicable to the Administrative Agent or any of the
Banks because of the Administrative Agent's or any of the Banks' legal or
regulatory status, the nature of the business of the Administrative Agent or any
of the Banks or the qualification of any such party to conduct business in any
jurisdiction.
The foregoing opinions are limited to the laws of the United States, the
State of Illinois and the General Corporation Law of the State of Delaware, and
we express no opinion with respect to the laws of any other state or
jurisdiction.
The opinions expressed herein are being delivered to you as of the date
hereof and are solely for your benefit in connection with the transactions
contemplated in the 364-Day Credit Agreement and may not be relied on in any
manner or for any purpose by any other person, nor any copies published,
communicated or otherwise made available in whole or in part to any other person
or entity without our express prior written consent, except that you may furnish
copies
G-3
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 4
thereof to each party that becomes a Bank after the date hereof pursuant
to the 364-Day Credit Agreement, and such parties may rely on this opinion as if
it had been originally addressed to them.
We do not express any opinion, either implicitly or otherwise, on any issue
not expressly addressed in numbered Paragraphs 1 through 4. The opinions
expressed above are based solely on facts, laws and regulations existing and in
effect on the date hereof, and we assume no obligation to revise or supplement
this opinion should such facts change or should such laws or regulations be
changed by legislative or regulatory action, judicial decision or otherwise,
notwithstanding that such changes may affect the legal analysis or conclusions
contained in this opinion.
Very truly yours,
G-4
<PAGE>
EXHIBIT I
Opinion of Counsel to a Borrowing Subsidiary
[Date]
To each of the Banks parties to
the "364-Day Credit Agreement" (as defined below),
and to Bank One, NA, as Administrative Agent
Re: [Borrowing Subsidiary]
----------------------
Ladies and Gentlemen:
We have acted as counsel to R.R. Donnelley & Sons Company, a Delaware
corporation (the "Company") and __________________, a ___________ corporation
and Subsidiary of the Company (the "Borrowing Subsidiary"), in connection with
the 364-Day Credit Agreement dated as of October 14, 1999 (as the same has been
or may be amended, modified or supplemented, the "364-Day Credit Agreement")
among the Company, the financial institutions parties thereto (the "Banks") and
Bank One, NA, as Administrative Agent, and the transactions contemplated
thereby.
This opinion is furnished to you at the request of the Company pursuant to
Section 3.02(e) of the 364-Day Credit Agreement. Capitalized terms used herein
and not otherwise defined are used as defined in the 364-Day Credit Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the 364-Day Credit
Agreement, the Assumption Letter of even date herewith executed by the Borrowing
Subsidiary and delivered to the Banks (the "Assumption Letter") and the
promissory notes executed by the Borrowing Subsidiary on the date hereof and
delivered to the Banks (the "Notes").
In rendering the opinions set forth herein, we have also examined originals
or copies, certified to our satisfaction, of such (i) certificates of public
officials, (ii) certificates of officers and representatives of the Company and
the Borrowing Subsidiary (including the certificate attached hereto (the
"Certificate")), and (iii) other documents and records, and we have made such
inquiries of officers and representatives of the Company and the Borrowing
Subsidiary, as we have deemed relevant or necessary as the basis for such
opinions. We have relied as to factual matters upon, and assumed the accuracy
of, such certificates, the representations and warranties of the Company and the
Borrowing Subsidiary made (or deemed made) in the 364-Day Credit Agreement and
the Assumption Letter, and other statements, documents and records supplied to
us by the Company and the Borrowing Subsidiary, and we have assumed the
I-1
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 2
genuineness of all signatures (other than signatures of officers of the
Borrowing Subsidiary) and the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted to
us as certified or photostatic copies.
In rendering the opinions set forth herein, we have assumed that:
(i) all the parties to the 364-Day Credit Agreement and the Assumption
Letter, other than the Borrowing Subsidiary, are duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of organization and have the requisite corporate power to enter into the 364-Day
Credit Agreement and the Assumption Letter; and
(ii) the execution and delivery of the 364-Day Credit Agreement have been
duly authorized by all necessary corporate action and proceedings on the part of
all parties thereto; the 364-Day Credit Agreement has been duly executed and
delivered by all parties thereto and constitutes the valid and binding
obligation of all parties thereto, other than the Borrowing Subsidiary,
enforceable against such parties in accordance with its terms.
Based upon the foregoing and subject to the qualifications stated herein,
we are of the opinion that, as of the date hereof:
1. The Borrowing Subsidiary has been duly organized and is validly
existing and in good standing under the laws of _____________. The Borrowing
Subsidiary has the requisite corporate power and authority to conduct its
business as currently conducted.
2. The Borrowing Subsidiary has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Assumption
Letter, the 364-Day Credit Agreement and the Notes. Such execution, delivery
and performance:
(a) have been duly authorized by all necessary and proper corporate action
of the Borrowing Subsidiary,
(b) do not violate any provision of the certificate of incorporation or
by-laws of the Borrowing Subsidiary or require any approval of the
Borrowing Subsidiary's stockholders,
(c) will not violate any law or regulation of ____________, the State of
Illinois (including, without limitation, any usury laws) or of the United
States of America applicable to the Borrowing Subsidiary,/1/ and
- ----------------
/1/To be revised if the Borrowing Subsidiary is not a domestic corporation.
H-2
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 3
(d) do not contravene any agreement set forth on the Certificate, or, to
our knowledge, any other material agreement or instrument binding on the
Borrowing Subsidiary.
3. The Assumption Letter constitutes, and from and after the initial
Committed Borrowing to the Borrowing Subsidiary, the Notes will constitute, the
valid and binding obligations of the Borrowing Subsidiary, enforceable in
accordance with their respective terms.
4. No approval, consent or authorization of, or filing or registration
with, any governmental department, agency or instrumentality is necessary for
the Borrowing Subsidiary's execution or delivery of the Assumption Letter or the
Notes, or for the Borrowing Subsidiary's performance of any of the terms
thereof.
Our opinions above are subject to the following qualifications:
(a) Our opinions relating to validity, binding effect and enforceability
in Paragraph 3 above are subject to limitations imposed by any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws affecting creditors' rights generally. In addition, our opinions
relating to enforceability in paragraph 3 above are subject to (i) the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law) and (ii) limitations imposed by public policy under certain
circumstances on the enforceability of provisions indemnifying a party against
liability for its own wrongful or negligent acts. In applying principles of
equity referred to in clause (i) above, a court, among other things, might not
allow a creditor to accelerate maturity of a debt upon the occurrence of a
default deemed immaterial. Such principles applied by a court might include a
requirement that a creditor act reasonably and in good faith.
(b) Certain remedial and waiver provisions of the 364-Day Credit Agreement
applicable to the Borrowing Subsidiary pursuant to the Assumption Letter may be
unenforceable in whole or in part, but the inclusion of such provisions does not
affect the validity of the Assumption Letter; however, the unenforceability of
such provisions may result in delays in the enforcement of the Administrative
Agent's and the Banks' rights and remedies under the Assumption Letter (and we
express no opinion as to the economic consequences, if any, of such delays).
(c) We express no opinion as to the effect of the compliance or
noncompliance of the Administrative Agent or any of the Banks with any state or
federal laws or regulations applicable to the Administrative Agent or any of the
Banks because of the Administrative Agent's or any of the Banks' legal or
regulatory status, the nature of the business of the Administrative Agent or any
of the Banks or the qualification of any such party to conduct business in any
jurisdiction.
H-3
<PAGE>
Bank One, NA, et al.
October 14, 1999
Page 4
The foregoing opinions are limited to the laws of the United States, the
State of Illinois and the corporate law of [jurisdiction where the Borrowing
Subsidiary is incorporated] and we express no opinion with respect to the laws
of any other state or jurisdiction.
[Whenever in this opinion reference is made to our knowledge, such
reference is to the conscious awareness of [insert appropriate names] of
information regarding factual matters. With respect to such matters, such
persons have not, with your express permission and consent, undertaken any
investigation or inquiry either of other lawyers, files maintained by the firm,
or officers or employees of the Company or any of its Subsidiaries (including
without limitation the Borrowing Subsidiary). The reference to "conscious
awareness" as used in this paragraph has the meaning given that phrase in the
Third-Party Legal Opinion Report, Including the Legal Opinion Accord, of the
- ----------------------------------------------------------------------------
Section of Business Law, American Bar Association, 47 Bus. Law. 167, 192
- -------------------------------------------------
(1991).]
The opinions expressed herein are being delivered to you as of the date
hereof and are solely for your benefit in connection with the transactions
contemplated in the 364-Day Credit Agreement and may not be relied on in any
manner or for any purpose by any other person, nor any copies published,
communicated or otherwise made available in whole or in part to any other person
or entity without our express prior written consent, except that you may furnish
copies thereof to each party that becomes a Bank after the date hereof pursuant
to the 364-Day Credit Agreement, and such parties may rely on this opinion as if
it had been originally addressed to them.
We do not express any opinion, either implicitly or otherwise, on any issue
not expressly addressed in numbered Paragraphs 1 through 4. The opinions
expressed above are based solely on facts, laws and regulations existing and in
effect on the date hereof, and we assume no obligation to revise or supplement
this opinion should such facts change or should such laws or regulations be
changed by legislative or regulatory action, judicial decision or otherwise,
notwithstanding that such changes may affect the legal analysis or conclusions
contained in this opinion.
Very truly yours,
H-4
<PAGE>
CERTIFICATE
I, ___________________, am the _____________ ___________________ of
[Borrowing Subsidiary], a __________ corporation (the "Borrowing Subsidiary").
The Borrowing Subsidiary is entering into an Assumption Letter dated as of
_____________, 19__, pursuant to which it will become a party to the 364-Day
Credit Agreement dated as of October 14, 1999 among R.R. Donnelley & Sons
Company (the "Company"), the banks party thereto ("Banks") and Bank One, NA, as
Administrative Agent ("Administrative Agent") for such Banks (the "364-Day
Credit Agreement").
The 364-Day Credit Agreement requires that [name of law firm] issue a legal
opinion to the Administrative Agent and the Banks. In connection with such
legal opinion, the Company certifies to [name of law firm] that:
1. Not more than twenty-five percent (25%) of the value of the assets
subject to any "arrangement" (as such term is used in Section 221.2(g)(1) of
Regulation U of the Board of Governors of the Federal Reserve System) under the
364-Day Credit Agreement is represented by "margin stock" (as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve
System).
2. The Borrowing Subsidiary has not granted to the Administrative Agent
or the Banks any direct security for the Company's or the Borrowing Subsidiary's
obligations to the Administrative Agent and the Banks under the 364-Day Credit
Agreement.
3. There is no material agreement or instrument binding on the Borrowing
Subsidiary that governs or evidences indebtedness for borrowed money or would
affect the Borrowing Subsidiary's ability to perform its obligations under the
Assumption Letter, the 364-Day Credit Agreement or the Notes, except:
a. _______________________
b. _______________________
c. _______________________
[BORROWING SUBSIDIARY]
By:_______________________
Title:
Dated: _____________________
-5-
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 4(g)
R.R. DONNELLEY & SONS COMPANY
APPROVAL
BY
SENIOR VICE PRESIDENT, HUMAN RESOURCES
ADOPTING
AMENDMENT NUMBER ONE
to the
FEBRUARY 9, 1999 RESTATEMENT
-----------------------------
of the
DONNELLEY DEFERRED COMPENSATION AND
-----------------------------------
VOLUNTARY SAVINGS PLAN
----------------------
Pursuant to Section 3.12 of the By-Laws of R.R. Donnelley & Sons Company (the
"Company") and authority delegated pursuant thereto by the Human Resources
Committee of the Board of Directors of the Company, the undersigned Senior Vice
President, Human Resources (the "Senior Vice President") hereby adopts the
document attached hereto entitled "Amendment Number One to the February 9, 1999
Restatement of the Donnelley Deferred Compensation and Voluntary Savings Plan."
Executed by the Senior Vice President this 30th of June, 1999.
/s/ Haven E. Cockerham
----------------------
Haven E. Cockerham
Senior Vice President, Human Resources
<PAGE>
R.R. DONNELLEY & SONS COMPANY
AMENDMENT NUMBER ONE
--------------------
to the
February 9, 1999 Restatement
of the
DONNELLEY DEFERRED COMPENSATION AND
-----------------------------------
VOLUNTARY SAVINGS PLAN
----------------------
Providing for Automatic Enrollment in the Plan,
----------------------------------------------
Matching Contributions and a Match Equalization Feature
-------------------------------------------------------
WHEREAS, R.R. Donnelley & Sons Company (the "Company") maintains for the benefit
of certain of its employees and certain employees of its participating
subsidiaries the Donnelley Deferred Compensation and Voluntary Savings Plan (the
"Plan");
WHEREAS, the Company desires to automatically enroll newly hired employees in
the Plan;
WHEREAS, certain employees of the Company's Wheeling Division and certain
employees of R.R. Donnelley Seymour, Inc. currently receive a match under
Section 4.3(b) of the Plan;
WHEREAS, the Company desires to provide matching contributions to certain
Members who are not currently receiving matching contributions under the Plan;
WHEREAS, pursuant to Section 7.1(a) of the Plan, an investment fund will be
established for the purposes of (i) holding matching contributions and (ii)
permitting Members to invest in Company Stock under the Plan (the "Company Stock
Fund"); and
WHEREAS, the Company desires to allow Members to direct voting with respect to
shares of Company Stock represented by units of the Company Stock Fund credited
to Members' Accounts under the Plan.
NOW, THEREFORE, pursuant to the power of amendment in Section 18.1 of the Plan,
the Plan is amended, effective July 1, 1999, in the following respects:
1. Section 2(1) (the definition of "Account") is amended by adding "Donnelley
Matching Account," after "Matching Account," where it appears therein.
2. The following new Section 2(13) is added and the remaining subsections are
renumbered accordingly:
<PAGE>
Company Stock Fund. The "Company Stock Fund" is an investment fund
------------------
established by the Company pursuant to Section 7.1(a) which consists
of shares of Company Stock, cash and cash equivalents.
3. The following new Section 2(17) is added and the remaining subsections are
renumbered accordingly:
Donnelley Matching Account. A Member's "Donnelley Matching Account" is
--------------------------
the account maintained for a Member to which are allocated the
matching contributions made pursuant to Sections 4.3(a) and 4.3(b), if
any, made on such Member's behalf, plus earnings and net of any
withdrawals or losses.
4. Section 2(26) (the definition of "Matching Account") is amended by adding
"made pursuant to Section 4.3(d)" after "matching contributions" where it
appears therein.
5. Section 2(27) (the definition of "Member") is amended in its entirety to
read as follows:
A "Member" is an Eligible Employee who has elected, or who is deemed
to have elected, to make deferred compensation contributions under the
Plan as described in Section 4.1 on a before-tax basis, voluntary
savings contributions under the Plan as described in Section 3.1 on an
after-tax basis, a rollover contribution to the Plan as described in
Section 3.5 or on whose behalf a TRASOP Account is established
pursuant to Section 4.5. An Employee shall cease to be a Member as of
the date on which he receives a full and final distributions equal to
his entire Account balance.
6. Section 3.2 is amended by adding the following proviso at the end of the
first sentence thereof: "; provided, however, that the aggregate amount of
a Member's voluntary savings contribution under this Section, together with
his deferred compensation contribution made under Section 4.1, if any,
shall not exceed 23% of his Compensation per pay period."
7. Section 4.1 is amended by adding the following proviso at the end of the
first sentence of the second paragraph thereof: "; provided further,
however, that the aggregate amount of a Member's deferred compensation
contribution under this Section, together with his voluntary savings
contribution made under Section 3.2, if any, shall not exceed 23% of his
Compensation per pay period."
8. Section 4.1 is further amended to add a new paragraph at the end thereof to
read as follows:
With respect to an Eligible Employee who commences or recommences
employment on or after July 1, 1999, such Employee shall be deemed to
have elected to have deferred compensation contributions made on the
Employee's behalf at a rate of 3 percent of the Employee's
-2-
<PAGE>
Compensation and to have his or her Compensation reduced by the same
amount (a "deemed deferred compensation contribution election") . An
Eligible Employee's deemed deferred compensation contribution election
shall become effective on the first day of the second month following
the date of the correspondence containing the Employee's personal
identification number (or as soon as administratively practicable
thereafter). Until the twentieth day of the month preceeding the
effective date of a Member's deemed deferred compensation contribution
election (or, if such twentieth day is not a trading day on the New
York Stock Exchange, such earlier day as is the last trading day on
the New York Stock Exchange prior to such twentieth day), such an
Employee shall have the right to file an application, in the manner
prescribed by the Applicable Named Fiduciary, specifying a different
rate of deferred compensation contributions from that described above,
or an election specifying the Employee's desire to have no deferred
compensation contributions made on his or her behalf. Such Employee
also shall have the right to change or terminate such contributions,
at the same time and in the same manner as prescribed for voluntary
savings contributions in Section 3.3. Notwithstanding anything
contained herein to the contrary, no deemed deferred compensation
contribution election shall be made pursuant to this paragraph on
behalf of any Eligible Employee who is (i) classified by his Employer
as a "task-force employee" or collectively bargained employee, and in
either case, is employed in Haddon Craftsman Inc.'s Bloomsburg
facility or (ii) an Employee of the Company's Wheeling Division or
R.R. Donnelley Seymour, Inc.
9. Paragraph (b) of Section 4.3 is redesignated paragraph (d) of such Section,
paragraph (a) is amended in its entirety, and new paragraphs (b) and (c)
are added to Section 4.3 as follows:
Section 4.3. Matching Contributions. (a) In General. Subject to
----------- ---------------------- ----------
the limitations of Section 4.4 and Article 5, each Employer shall
contribute for each Member for whom such Employer makes deferred
compensation contributions pursuant to Section 4.1 a matching
contribution equal to 50% of such deferred compensation contributions
up to the first 3% of Compensation. Deferred compensation
contributions made on behalf of a Member for any payroll period which
exceed 3% of the Member's Compensation for such payroll period shall
not be considered for purposes of this paragraph. Notwithstanding
anything herein to the contrary, no matching contributions shall be
made pursuant to this paragraph on behalf of any Member who is (i)
classified by his Employer as a "task-force employee" or collectively
bargained employee, and in either case, is employed in Haddon
Craftsman Inc.'s Bloomsburg facility or (ii) entitled to matching
contributions under subsection (d) below.
-3-
<PAGE>
(b) Supplemental Matching Contributions. Subject to the
-----------------------------------
limitations of Section 4.4 and Article 5, each Employer shall make a
supplemental matching contribution for each Member (i) who is an
Eligible Employee of such Employer on the last day of such Plan Year
or who (x) died, (y) became disabled or (z) terminated employment with
his Employer on or after attaining age 55 during such Plan Year, (ii)
for whom such Employer made deferred compensation contributions for
any payroll period during such Plan Year, and (iii) in the following
sentence, (A) is greater than (B). Such supplemental matching
contributions shall be in an amount equal to the difference, if any,
between (A) 50% of the deferred compensation contributions made on
behalf of such Member up to 1 1/2% of the Member's total Compensation
for such Plan Year and (B) the amount of matching contributions
contributed for the Member under paragraph (a) above with respect to
payroll periods ending in such Plan Year. Notwithstanding anything
herein to the contrary, no matching contributions shall be made
pursuant to this paragraph on behalf of any Member who is (i)
classified by his Employer as a "task-force employee" or collectively
bargained employee, and in either case, is employed in Haddon
Craftsman Inc.'s Bloomsburg facility or (ii) entitled to matching
contributions under subsection (d) below.
Notwithstanding anything contained herein to the contrary (but
subject to the limitations of Section 4.4 and Article 5), for the 1999
Plan Year, each Employer shall make a supplemental matching
contribution for each Member (i) who is an Eligible Employee of such
Employer on the last day of such Plan Year or who, during the period
beginning July 1, 1999 and ending December 31, 1999 (the "applicable
period"), (x) died, (y) became disabled or (z) terminated employment
with his Employer on or after attaining age 55, (ii) for whom such
Employer made deferred compensation contributions for any payroll
period during the Plan Year and (iii) in the following sentence, (A)
exceeds (B). Such supplemental matching contributions shall be in an
amount equal to the difference, if any, between (A) 50% of the
deferred compensation contributions made during the Plan Year on
behalf of such Member up to 1 1/2% of the Member's total Compensation
for the applicable period and (B) the amount of matching contributions
contributed for the Member under paragraph (a) above with respect to
payroll periods ending in such applicable period. Notwithstanding
anything herein to the contrary, no matching contributions shall be
made pursuant to this paragraph on behalf of any Member who is (i)
classified by his Employer as a "task-force employee" or collectively
bargained employee, and in either case, is employed in Haddon
Craftsman Inc.'s Bloomsburg facility or (ii) entitled to matching
contributions under subsection (d) below.
(c) Form of Matching Contributions. All matching contributions
------------------------------
made pursuant to paragraphs (a) and (b) shall be made in the form of
shares of Company Stock or in cash which the Trustee shall apply to
purchase Company Stock, unless it holds all or part in the cash
portion of the Company Stock Fund to fulfil the liquidity guidelines
established by the Asset Manager pursuant to Section 14.4(e)
-4-
<PAGE>
of the Trust, all as more particularly set forth below. In the case of
a Member who is entitled to receive matching contributions pursuant to
paragraph (a) above, each time the Employer of such Member makes a
deferred compensation contribution on behalf of such Member pursuant
to Section 4.1, such Member shall accrue a right to a corresponding
matching contribution subject to the limitation on the amount of such
matching contributions prescribed by paragraph (a). All matching
contributions made pursuant to paragraph (a) shall be funded by the
Company no later than the last day of the month following the month in
which a Member's right to such matching contributions arises. All
matching contributions made pursuant to paragraph (b) shall be funded
by the Company prior to the due date, including extensions thereof, of
the Company's federal income tax return for the taxable year of the
Company with or within which such Plan Year ends. To fund matching
contributions, the Company shall (i) contribute shares of Company
Stock then held by the Company as treasury stock with a Fair Market
Value (as hereinafter defined) equal to the aggregate amount of
matching contributions to be made to the Plan, (ii) contribute an
amount of cash equal to the sum of such matching contributions, which
the Trustee shall apply to purchase Company Stock as soon after
receipt as is practicable unless it holds all or part in the cash
portion of the Company Stock Fund to fulfil the liquidity guidelines
established by the Asset Manager pursuant to Section 14.4(e) of the
Trust or (iii) contribute a combination of cash and shares as
described in the preceding clauses (i) and (ii). For purposes of the
preceding sentence, "Fair Market Value" shall be the closing price (as
reported in the New York Stock Exchange-Composite Transactions) of
Company Stock on the last trading day prior to the day such shares are
transferred. Company Stock which is purchased by the Trustee shall
either be purchased on a national securities exchange, or elsewhere,
by a person who is a broker or dealer registered under Section 15 of
the Securities Exchange Act of 1934, as amended, who also shall be an
"agent independent of the issuer" as defined in Rule 10b-18(a)(6)
under such Act.
Any cash dividends paid with respect to shares of Company Stock
represented by units of the Company Stock Fund credited to a Member's
Donnelley Matching Account shall be applied to purchase additional
shares of Company Stock, unless all or part of such cash dividends are
held in the cash portion of the Company Stock Fund to fulfil the
liquidity guidelines established by the Asset Manager pursuant to
Section 14.4(e) of the Trust or invested in such other manner as the
Asset Manager may prescribe. Such additional shares of Company Stock
purchased pursuant to the foregoing sentence shall either be purchased
on a national securities exchange, or elsewhere, by a person who is a
broker or dealer registered under Section 15 of the Securities
Exchange Act of 1934, as amended, who also shall be an "agent
independent of the issuer" as defined in Rule 10b-18(a)(6) under such
Act.
10. Section 7.1(a)(3) is amended by adding at the end thereof: "and/or a
Donnelley Matching Account"
-5-
<PAGE>
11. Section 7.1(d) is amended in its entirety to read as follows:
(d) Special Rule for TRASOP Account and Donnelley Matching
------------------------------------------------------
Account. Notwithstanding subsections (b) and (c) above, a Member's
-------
TRASOP Account shall be invested primarily in shares of Company Stock.
To the extent provided by Section 4.3, all of a Member's Donnelley
Matching Account shall be invested in units of the Company Stock Fund.
Notwithstanding anything herein to the contrary, a Member shall not be
permitted to provide any investment direction with respect to the
balance of his TRASOP Account or the balance of his Donnelley Matching
Account. Any cash dividends paid with respect to shares of Company
Stock credited to a Member's TRASOP Account shall be held uninvested
in such account until such accumulated dividends are distributed in
accordance with Section 8.5. Any cash dividends paid with respect to
units of the Company Stock Fund credited to a Member's Donnelley
Matching Account shall be invested in accordance with Section 4.3.
12. Section 7.2(c) is amended in its entirety to read as follows:
(c) Allocation of Matching Contributions. All matching contributions
------------------------------------
made pursuant to Section 4.3(a) and supplemental matching
contributions made pursuant to Section 4.3(b) shall be allocated to
the Donnelley Matching Account of each Member for whom such
contributions are made as of the last day of the payroll period with
respect to which such Member's Employer makes the deferred
compensation contribution to which the Matching Contribution relates.
13. Section 7.3(b) is amended by adding "other" before "portions" where it
appears therein and by deleting "Matching" therefrom.
14. Section 7.3(c) is amended by adding "Donnelley Matching Account," after
"Matching Account," where it appears therein.
15. The first paragraph of Section 8.3(a) is amended by adding ", Donnelley
Matching Account" after "Matching Account" where it appears therein.
16. Section 8.3(d) is amended by deleting "and" from the end of clause (4)
thereof, adding a new clause (5) thereto which reads as follows: "Donnelley
Matching Account and", and renumbering the existing clause (5) as clause
(6).
17. Section 8.3(d) is further amended by adding ", Donnelley Matching Account"
after "Matching Account" where it appears in the last paragraph thereof.
18. Clause (1) of Section 9.1(b) is amended by adding ", Donnelley Matching
Account" after "Matching Account" where it appears therein.
-6-
<PAGE>
19. The second sentence of paragraph (c) of Section 9.1 is amended by inserting
the word "TRASOP" prior to the word "Account" and by changing the last word
thereof from "date" to "Valuation Date."
20. The first sentence of Section 9.3 is amended by deleting the phrase ", and
the portion of the Member's Matching Account that is invested in Company
Stock,".
21. Clause (b) of Section 9.4 is amended by deleting the phrase ", and the
portion of the Member's Matching Account that is invested in Company
Stock,".
22. Section 11.3(b) is amended by adding "or Donnelley Matching Account" after
"Matching Account" where it appears therein.
23. Sections 12.1 and 12.2 are amended in their entireties to read as follows:
Section 12.1. Voting Rights. Each Member, as a named fiduciary
------------ -------------
within the meaning of section 403(a)(1) of ERISA, shall be entitled to
direct the Trustee with respect to the vote of the shares of Company
Stock held by the Trustee and allocated to his Account or represented
by units of the Company Stock Fund credited to his Account (including
fractional shares or units as the case may be) as of the shareholder
record date for such vote, and the Trustee shall follow the directions
of such Member. To the extent that the Trustee does not receive timely
instructions from a Member who has the authority pursuant to the
preceding sentence to instruct the Trustee to vote the shares
allocated or units of the Company Stock Fund credited to his Account,
such Member, as a named fiduciary within the meaning of Section
403(a)(1) of ERISA, shall be deemed to have timely instructed the
Trustee to vote such shares, or the shares represented by such units,
as the case may be, against the proposal on which the vote is being
taken as such proposal is set forth in the proxy or other materials
distributed to stockholders of the Company. The Trustee shall vote all
unallocated shares of Company Stock, and shares of Company Stock
represented by units of the Company Stock Fund which are not credited
to Members' Accounts, to the extent permitted by law, against the
proposal on which the vote is being taken as such proposal is set
forth in the proxy or other materials distributed to stockholders of
the Company. Written notice of any meeting of stockholders of the
Company or other occasion for the exercise of voting or other rights
and a request for voting instructions, together with a description of
the consequences of a Member failing to provide timely instructions
with respect to the exercise of such voting or other rights, shall be
given by the Administrator in such manner as the Trustee shall
determine, to each Member entitled to give instructions for voting
such shares of Company Stock on such occasion, within the time for
furnishing such notice to stockholders of the Company.
-7-
<PAGE>
Section 12.2. Shareholder Rights in the Event of a Tender Offer.
------------ -------------------------------------------------
In the event a tender offer is made generally to the shareholders of
the Company to transfer all or a portion of their shares of stock in
return for valuable consideration, including but not limited to,
offers regulated by Section 14(d) of the Securities Exchange Act of
1934, each Member, as a named fiduciary within the meaning of Section
403(a)(1) of ERISA, shall be entitled to direct the Trustee with
respect to the sale, exchange or transfer of shares of Company Stock
held by the Trustee and allocated to such Member's Account or
represented by units of the Company Stock Fund credited to such
Member's Account (including fractional shares or units, as the case
may be), and the Trustee shall follow the directions of such Member.
To the extent that the Trustee does not receive timely instructions
from a Member who has the authority pursuant to the preceding sentence
to instruct the Trustee to tender or exchange either the shares
allocated to his Account or the shares represented by the units of the
Company Stock Fund credited to his Account, such Member, as a named
fiduciary within the meaning of Section 403(a)(1) of ERISA, shall be
deemed to have timely instructed the Trustee not to tender or exchange
such shares of Company Stock allocated to his Account or such shares
represented by the units of the Company Stock Fund credited to such
Member's Account. Written notice of any tender offer and a request for
tender instructions, together with written notice of the consequences
of a Member failing to provide timely instructions with respect to the
sale, exchange or transfer of such shares of Company Stock, shall be
given by the Administrator, in such manner as the Trustee shall
determine, to each Member entitled to give tender instructions for
such shares of Company Stock, within the time for furnishing such
notice to stockholders of the Company. With respect to the tender or
exchange of all unallocated shares of Company Stock, and shares of
Company Stock represented by units of the Company Stock Fund which are
not credited to Members' Accounts, to the extent permitted by law, the
Trustee shall not tender or exchange such shares of Company Stock. A
Member shall not be limited in the number of instructions to tender or
withdraw from tender which he can give but a Member shall not have the
right to give instructions to tender or withdraw from tender after a
reasonable time established by the Trustee. Notwithstanding Section
7.1(d), with respect to proceeds from the sale of any shares of
Company Stock sold pursuant to this paragraph, the Trustee shall
invest the proceeds as directed by the Member among the investment
options then available under the Plan.
24. Supplement Number One to the Plan is hereby deleted in its entirety.
-8-
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 10 (a)
RETIREMENT POLICY FOR DIRECTORS
(As revised, effective March 23, 2000)
1. An outside director will retire from the Board as of the first day of the
month following his or her attaining age 70. An outside director, for the
purposes of this policy, is one who has never been an employee of the
Company.
2. Any employee director who was first elected to the Board prior to September
28, 1990 will tender his or her resignation from the Board to be effective
no later than the effective date of his or her retirement from the Company
and such resignation will be accepted absent a determination by the Board
that the services of the director are unique and essential for such period
as the Board may determine.
3. Any employee director who was first elected to the Board on or after
September 28, 1990 will retire from the Board no later than the effective
date of his or her termination of employment for any reason or at the age
of 65, whichever occurs first. However, an employee director who is serving
as Chief Executive Officer will retire from the Board at the end of his or
her current term after retirement as an employee from the Company or no
later than the effective date of his or her termination of employment for
any reason other than retirement. If desired by the Board, such a retiring
Chief Executive Officer may serve as a consultant to the Board.
4. Nothing in this policy shall be construed to restrict the stockholders'
right to elect any person a director of the Company in accordance with the
Certificate of Incorporation and By-Laws.
<PAGE>
RETIREMENT BENEFITS, PHANTOM STOCK GRANTS AND STOCK OPTIONS FOR DIRECTORS
(Effective January 1, 1997, as revised September 24, 1998;
November 18, 1999; March 23, 2000)
No retirement benefit will be paid to any director whose service begins on
or after November 18, 1999. Retirement benefits for directors whose service
began prior to November 18, 1999, will be determined as follows:
. A director who is retired as of January 1, 1997 will receive an annual
retirement benefit equal to 10% of the annual retainer fee payable to
active directors at the time such benefit is actually paid for each year or
fraction thereof of service as a director (with a maximum of ten years).
. Each director who was active as of January 1, 1997 shall have elected,
prior to February 15, 1997, to:
(1) receive an annual retirement benefit equal to 10% of the annual
retainer fee payable to active directors at the time such benefit is
actually paid for each year or fraction thereof of service as a director
(with a maximum of ten years); or
(2) have an amount equal to the present value of that director's earned
annual retirement benefit at December 31, 1996 credited as of January 1,
1997 to a book-entry account of that director pursuant to a Deferred
Compensation Agreement; or
(3) convert the present value of that director's earned annual retirement
benefit at December 31, 1996 to the number of shares of phantom stock
(carried to four decimal places) determined by dividing such present value
by the fair market value of a share of common stock on the most recent
trading day of the common stock on the NYSE, which shares will be credited
as of January 1, 1997 to a book-entry phantom stock account.
. A non-employee director who (i) was active as of January 1, 1997 with less
than ten years of service as a director and who chose alternative (2) or
(3) in the preceding paragraph or (ii) is first elected to the Board on or
after January 1, 1997, but prior to November 18, 1999, will be credited as
of January 1 of each year beginning January 1, 1997 with the number of
shares of phantom stock (carried to four decimal places) determined by
dividing an amount equal to 35% of the annual retainer fee payable to
active directors for such year by the fair market value of a share of
common stock on the most recent trading day of the common stock; provided
that a non-employee director shall be credited with phantom shares only
until the commencement of the tenth year of service as a non-employee
director; provided, further, that a non-employee director may elect, as set
forth in and pursuant to the applicable Stock Incentive Plan of the
Company, to receive in lieu of crediting all or some of such shares of
phantom stock, an option to purchase shares of common stock.
Page 2
<PAGE>
PAYMENT OF ANNUAL RETIREMENT BENEFITS, DEFERRED COMPENSATION AND PHANTOM STOCK
AND TREATMENT OF STOCK OPTIONS
Annual Retirement Benefits
- --------------------------
Annual retirement benefits will be paid quarterly in advance as follows:
. The annual retirement benefit of a director whose service on the Board
terminates at or after age 65 for any reason will begin with the first
calendar quarter following the effective date of retirement.
. The annual retirement benefit of a director whose service on the Board
terminates prior to age 65 for any reason except disability that ends the
director's active business career or employment will begin with the first
calendar quarter following the attainment of age 65.
. The annual retirement benefit of a director whose service on the Board
terminates prior to age 65 by reason of disability that ends the director's
active business career or employment will begin with the first calendar
quarter following the effective date of retirement.
. In all cases, no payment of an annual retirement benefit will occur
following the date of death.
. A former director who is receiving an annual retirement benefit will
receive any future increases in annual retirement benefits from and after
the time such increases are put into effect.
Deferred Compensation
- ---------------------
. A director who was active as of January 1, 1997 who elected to have an
amount equal to the present value of that director's earned annual
retirement benefit at December 31, 1996 credited as of January 1, 1997 to a
book-entry account pursuant to a Deferred Compensation Agreement will be
paid in accordance with the terms and conditions of that Agreement.
Phantom Stock
- -------------
. On each dividend payment date in respect of the common stock, a director's
phantom stock account shall be credited with the number of shares of
phantom stock (carried to four decimal places) determined by dividing (i)
the product of the number of shares of phantom stock credited to that
director's phantom stock account as of the record date for such dividend
multiplied by the per share amount of the dividend by (ii) the fair market
value of a share of common stock on the dividend payment date (or if the
dividend payment date is not a trading day on the NYSE, the most recent
trading day of the common stock on the NYSE).
Page 3
<PAGE>
. 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 phantom securities credited to a
director's account shall be appropriately adjusted by a committee
designated by the Board.
. In connection with termination of service on the Board for any reason other
than death, the director may elect as of the effective date of such
cessation of service (and if the director's cessation of service is by
reason of death, the director shall be deemed to elect as of the date of
death), to convert the value of that director's phantom stock account
(determined by multiplying the number of shares of phantom stock by the
fair market value of the common stock on the effective date of such
cessation of service) to a cash amount to be credited to a book-entry cash
account. Such cash account shall be credited quarterly (beginning on the
last day of the calendar quarter in which the termination of service
occurred) with an amount of interest on the balance (including interest
previously credited) at an annual rate equal to the then current yield
obtainable on United States government bonds having a maturity date of
approximately five years. Failure to make an election under this clause
shall result in the continuation of the director's phantom stock account.
. If, as a result of any merger, consolidation, exchange, reclassification,
sale of assets or similar transaction or event, the common stock ceases, or
as a result of a transaction or event is intended to cease, to be listed
for trading on the NYSE (and is not otherwise publicly traded), the
director or any former director may elect at any time after the Company has
entered into an agreement providing for such transaction or event, as of a
date designated by the director or former director (and in the absence of
such an election and designation the director or former director shall be
deemed to elect as of the effective date of such transaction or event), to
convert the value of that director's phantom stock account (determined by
multiplying the number of shares of phantom stock by the fair market value
of the common stock on the effective date of such cessation of service) to
a cash amount to be credited to a book-entry cash account. Such cash
account shall be credited quarterly (beginning on the last day of the
calendar quarter in which the termination of service occurred) with an
amount of interest on the balance (including interest previously credited)
at an annual rate equal to the then current yield obtainable on United
States government bonds having a maturity date of approximately five years.
A director's cash account or phantom stock account will be paid as follows:
. A director whose service on the Board terminates at or after age 65 for any
reason except death shall elect to receive, as of the first day of the
first calendar quarter following the effective date of such cessation of
service, either (1) an annual amount in cash for a number of years not
exceeding ten determined by dividing the value of the director's phantom
stock account (the value of the phantom stock is to be determined by
reference to the fair market value of the common stock on the date of such
cessation of service), but not the director's cash account, as of the
effective date of such cessation of service by the number of annual
payments to be made; provided that the last payment made shall be for
Page 4
<PAGE>
100% of the value of the director's account as of the date of the last
payment, (2) an annual amount in cash for a number of years not exceeding
ten determined by dividing the value of the director's cash account or
phantom stock account (the value of the phantom stock is to be determined
by reference to the fair market value of the common stock on the effective
date of the distribution and after giving effect to the crediting of shares
of phantom stock on each dividend payment date on or prior to the date of
the distribution) as of the effective date of the distribution by the
number of annual payments remaining to be made; provided that the last
payment made shall be for 100% of the value of the director's cash account
or phantom stock account, as the case may be, as of the date of the last
payment, or (3) a lump sum amount in cash equal to the value of the
director's cash account or phantom stock account (the value of the phantom
stock is to be determined by reference to the fair market value of the
common stock on the effective date of such cessation of service). In the
absence of a timely election, a director shall be deemed to have elected
option (1) with ten annual payments with respect to his phantom stock
account, and option (2) with ten annual payments with respect to his cash
account.
. A director whose service on the Board terminates prior to age 65 for any
reason except death shall elect to receive (1) as of the first day of the
first calendar quarter following the attainment of age 65, an annual amount
in cash a number of years not exceeding ten determined by dividing the
value of the director's cash account or phantom stock account (the value of
the phantom stock is to be determined by reference to the fair market value
of the common stock on the effective date of the distribution and after
giving effect to the crediting of shares of phantom stock on each dividend
payment date on or prior to the date of the distribution) as of the
effective date of the distribution by the number of annual payments
remaining to be made; provided that the last payment made shall be for 100%
of the value of the director's account as of the date of the last payment,
or (2) shall elect to receive, as of the first day of the first calendar
quarter following the effective date of such cessation of service, either
(i) an annual amount in cash for a number of years not exceeding ten
determined by dividing the value of the director's phantom stock account
(the value of the phantom stock is to be determined by reference to the
fair market value of the common stock on the date of such cessation of
service), but not the director's cash account, as of the effective date of
such cessation of service by the number of annual payments to be made;
provided that the last payment made shall be for 100% of the value of the
director's account as of the date of the last payment, (ii) an annual
amount in cash for a number of years not exceeding ten determined by
dividing the value of the director's cash account or phantom stock account
(the value of the phantom stock is to be determined by reference to the
fair market value of the common stock on the effective date of the
distribution and after giving effect to the crediting of shares of phantom
stock on each dividend payment date on or prior to the date of the
distribution) as of the effective date of the distribution by the number of
annual payments remaining to be made; provided that the last payment made
shall be for 100% of the value of the director's cash account or phantom
stock account, as the case may be, as of the date of the last payment, or
(iii) a lump sum amount in cash equal to the value of the director's cash
account or phantom stock account (the value of the phantom stock is to be
determined by reference to the fair market value of the common stock on the
effective date of such cessation of service). In the absence of a timely
election, a director shall be deemed to
Page 5
<PAGE>
have elected option (2)(i) with ten annual payments with respect to his
phantom stock account, and (2)(ii) with ten annual payments with respect to
his cash account.
. In all cases, if a director's cessation of service as a director is by
reason of death or if a director dies while retired and amounts remain to
be paid under the director's cash account or phantom stock account, 100% of
the value of the director's cash account or phantom stock account (the
value of the phantom stock is to be determined by reference to the fair
market value of the common stock on the date of death) as of the date of
death shall be paid as soon as practicable after the date of death to the
director's estate or any beneficiaries designated by the director.
. If, as a result of any recapitalization, reorganization, merger,
consolidation, combination, exchange of shares or similar transaction or
event, the common stock will cease, or as a result of a transaction or
event is intended to cease, to be listed for trading on the NYSE (and is
not otherwise publicly traded), any former director who has amounts
remaining to be paid under the former director's cash account or phantom
stock account, may elect at any time after the Company has entered into an
agreement providing for such transaction or event, as of a date designated
by the former director to receive a lump sum amount in cash equal to the
value of the director's cash account or phantom stock account (the value of
the phantom stock is to be determined by reference to the fair market value
of the common stock on the date designated by the former director).
Stock Options
- -------------
. Each option to purchase shares of common stock held by a non-employee
director shall be governed by the terms and conditions of the applicable
stock option agreement and stock incentive plan.
MISCELLANEOUS
To be entitled to receive any benefits under this policy, a former director must
agree to consult with and render advice to the Company as requested at times
that do not unreasonably interfere with his personal or other business
activities. Conduct detrimental to the Company, as determined by the Board of
Directors, will result in forfeiture of all benefits under this policy.
These provisions on benefits will apply to all living, former directors
effective January 1, 1997, regardless of when they were first elected or ceased
to serve, to all active, non-employee directors as of January 1, 1997 whose
service on the Board terminates after January 1, 1997 and to all non-employee
directors who are first elected to the Board on or after January 1, 1997.
. A director's rights to receive benefits shall be no greater than the rights
of any unsecured general creditor of the Company.
. A director shall not have any rights as a stockholder of the Company with
respect to any shares of phantom stock.
Page 6
<PAGE>
. This policy and all determinations made and actions taken pursuant hereto,
to the extent not governed by the Internal Revenue 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
conflict of laws.
. Benefits described herein may not 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.
For the purposes of these provisions on retirement benefits and phantom stock
grants:
. A non-employee director is a director who is not currently an employee of
the Company and/or its subsidiaries and who never has been an employee of
the Company and/or its subsidiaries.
. The fair market value of the common stock shall be determined by reference
to the average of the high and low trading prices as reported in the New
York Stock Exchange Composite Transactions in The Wall Street Journal for
-----------------------
the relevant trading day.
Page 7
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 10(f)
AGREEMENT
THIS AGREEMENT dated as of _______________ , is made by and between
R.R. Donnelley & Sons Company, a Delaware corporation ("Donnelley"; Donnelley
and its Subsidiaries being hereafter referred to as the "Company"), and
____________ (the "Executive").
WHEREAS the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of Donnelley (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last Section hereof) exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
1
<PAGE>
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definition of capitalized terms used in this
-------------
Agreement is provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
-----------------
hereof and shall continue in effect through December 31, 199X; provided,
however, that commencing on January 1, 199X and each January 1 there-after, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control shall have occurred prior to such January 1; provided, however, if a
Change in Control shall have occurred during the term of this Agreement, this
Agreement shall continue in effect for a period of not less than twenty-four
(24) months beyond the month in which such Change in Control occurred.
2
<PAGE>
3. Company's Covenants Summarized. In order to induce the Executive to
------------------------------
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein in the event the Executive's
employment with the Company is terminated following a Change in Control and
during the term of this Agreement. No amount or benefit shall be payable under
this Agreement unless there shall have been (or, under the terms hereof, there
shall be deemed to have been) a termination of the Executive's employment with
the Company following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Executive and the Company, the Executive
shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
3
<PAGE>
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason), by
reason of death, Disability or Retirement, or (iv) the termination by the
Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
------------------------------------------
5.01 Following a Change in Control and during the term of this
Agreement, during any period that the Executive fails to perform the Executive's
full-time duties with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive's full salary to the
Executive at the rate in effect at the commencement of any such period, together
with all compensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained by the
Company during such period, until the Executive's employment is terminated by
the Company for Disability.
5.02 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through
4
<PAGE>
the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
5.03 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's normal post-termination compensation and benefits to
the Executive as such payments become due; provided that, in no event shall any
severance pay which might be payable to the Executive pursuant to the Company's
Standard Practice Manual or Special Severance Plan be paid if the Executive is
entitled to the Severance Payments as a result of such termination. Such post-
termination compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other compensation or
benefit plans, programs and arrangements.
6. Severance Payments.
------------------
6.01 The Company shall pay the Executive the payments described in
this Section 6.01 (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and during the
5
<PAGE>
term of this Agreement, in addition to the payments and benefits described in
Section 5 hereof, unless such termination is (i) by the Company for Cause, (ii)
by reason of death or Disability or (iii) by the Executive without Good Reason.
The Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason if the Executive's employment is terminated prior to a Change in Control
without Cause at the direction of a Person who has entered into an agreement
with the Company the consummation of which will constitute a Change in Control
or if the Executive terminates his employment with Good Reason prior to a Change
in Control (determined by treating a Potential Change in Control as a Change in
Control in applying the definition of Good Reason) if the circumstance or event
which constitutes Good Reason occurs at the direction of such Person.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to an
amount equal to three (3), or, if less, the number of years,
6
<PAGE>
including fractional parts thereof, from the Date of Termination until
the Executive reaches Normal Retirement Age, times the Executive's
Planned Compensation;
(B) Notwithstanding any provision of any Bonus Plan, the Company
shall pay to the Executive a lump sum amount, in cash, equal to the sum
of (i) any incentive compensation which has been allocated or awarded
to the Executive for a completed year or other measuring period
preceding the Date of Termination under any such Bonus Plan but has not
yet been paid (pursuant to Section 5.02 hereof or otherwise), and (ii)
the aggregate value of all contingent incentive compensation awards to
the Executive for all uncompleted periods under any such Bonus Plan,
assuming (a) any and all target levels of achievement for the period
with respect to which such awards have been made have been met and (b)
any period of continued employment specified in such awards upon which
such awards are contingent have been completed;
(C) Notwithstanding any provision of the Stock Plans, the Company
shall pay to the Executive, in lieu of any stock bonus awards granted
to the Executive under the Stock Plans, a lump sum payment,
7
<PAGE>
in cash, equal to the sum of (i) the amount determined by multiplying
the number of outstanding stock units granted at any time to the
Executive under the Stock Plan, whether or not vested, by the higher of
the Exchange Price and the Transaction Price and (ii) the amount of any
dividends and interest credited to the Executive's cash account in
connection with the grant of such units;
(D) In lieu of Company Shares issuable upon exercise of
outstanding Options (which Options shall be canceled upon the making of
the payment referred to below), the Company shall pay the Executive a
lump sum amount, in cash, equal to the product of (i) the excess of (x)
in the case of ISOs granted after the date hereof, the Exchange Price,
or in the case of all other Options, the higher of the Exchange Price
and the Transaction Price, over (y) the per share exercise price of
each such Option held by the Executive (whether or not then fully
exercisable), times (ii) the number of Company Shares covered by each
such Option;
(E) In addition to the retirement benefits to which the Executive
is entitled under the Pension Plan or any successor plans thereto, the
Company shall pay the Executive a lump sum amount,
8
<PAGE>
in cash, equal to the actuarial equivalent of the excess of (i) the
retirement pension (determined as a straight life annuity commencing at
Normal Retirement Age) which the Executive would have accrued under the
terms of the Pension Plan (without regard to any amendment to the
Pension Plan made subsequent to a Change in Control and on or prior to
the Date of Termination, which amendment adversely affects in any
manner the computation of retirement benefits thereunder), determined
as if the Executive were fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) (or, if less, a number
equal to the number of months, including fractional parts thereof, from
the Date of Termination until the Executive reaches Normal Retirement
Age) additional months of service credit thereunder at the Executive's
highest annual rate of compensation during the twelve (12) months
immediately preceding the Date of Termination, and (ii) the retirement
pension (determined as a straight life annuity commencing at Normal
Retirement Age) which the Executive had then accrued pursuant to the
provisions of the Pension Plan. For purposes of this Section 6.01(E),
"actuarial equiva-
9
<PAGE>
lent" shall be determined using the same assumptions utilized under the
Pension Plan immediately prior to the Date of Termination.
F. For a twenty-four (24) month period after the Date of
Termination, the Company shall arrange to provide the Executive with
life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to
the Notice of Termination (without giving effect to any reduction in
such benefits subsequent to a Change in Control which reduction
constitutes Good Reason); provided, however, that, in the event the
date upon which the Executive attains Normal Retirement Age occurs
during such twenty-four month period, the Executive shall thereafter
receive such life, disability, accident and health insurance benefits
as would be provided to him as a retiree. Benefits otherwise receivable
by the Executive pursuant to this Section 6.01(F) shall be reduced to
the extent comparable benefits are actually received by or made
available to the Executive without cost during the twenty-four (24)
month period following the Executive's termination of employment (and
any such benefits
10
<PAGE>
actually received by the Executive shall be reported to the Company by
the Executive).
6.02 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the Total Payments will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state and local income tax
and Excise Tax upon the payment provided for by this Section 6.02, shall be
equal to the excess of the Total Payments over the payment provided for by this
Section 6.02.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) any payments or benefits received or to be received by
the Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (the "Total Payments")
shall be treated as "parachute
11
<PAGE>
payments" (within the meaning of section 280G(b)(2) of the Code)
unless, in the opinion of tax counsel selected by the Company's
independent auditors and reasonably acceptable to the Executive, such
payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the Code, and
all "excess parachute payments" (within the meaning of section
280G(b)(1) of the Code) shall be treated as subject to the Excise Tax
unless, in the opinion of such tax counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B)
of the Code), or are otherwise not subject to the Excise Tax, and (ii)
the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at
the highest
12
<PAGE>
marginal rate of taxation in the state and locality of the Executive's
residence on the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such
state and local taxes.
(C) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of the Executive's employment, the Executive
shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of
the Gross-Up Payment attributable to the Excise Tax and federal, state
and local income tax imposed on the Gross-Up Payment being repaid by
the Executive to the extent that such repayment results in a reduction
in Excise Tax and/or a federal, state or local income tax deduction)
plus interest on the amount of such repayment at the rate provided in
section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of the termination of the Executive's employment (including
increases in the Excise Tax resulting
13
<PAGE>
from any payment the existence or amount of which could not be
determined at the time of the Gross-Up Payment), the Company shall make
an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect
to such excess) at the time that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability
for Excise Tax with respect to the Total Payments.
6.03 The payments provided for in Section 6.01 (other than
Section 6.01(F)) and 6.02 hereof shall be made not later than the fifth (5th)
day following the Date of Termination; provided, however, that, if the amounts
of such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Company, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined
14
<PAGE>
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code). At the time that payments are made under
this Section, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations including, without limitation, any opinions or other
advice the Company has received from outside counsel, auditors or consultants
(and any such opinions or advice which are in writing shall be attached to the
statement).
6.04 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive as a result of a termination which entitles
the Executive to the Severance Payments (including all such fees and expenses,
if any, incurred in disputing any such termination or in seeking in good faith
to obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of
15
<PAGE>
the Code to any payment or benefit provided hereunder). Such payments shall be
made within five (5) business days after delivery of the Executive's written
requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.01 Notice of Termination. After a Change in Control and during the
---------------------
term of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 10 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the purpose
of considering such termination (after
16
<PAGE>
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.02 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
17
<PAGE>
7.03 Dispute Concerning Termination. If within fifteen (15)
------------------------------
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.03), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree (which is not appealable or with
respect to which the time for appeal therefrom has expired and no appeal has
been perfected) of a court of competent jurisdiction; provided, however, that
the Date of Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
7.04 Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and during the term of this Agreement, and
such termination is disputed in accordance with Section 7.03 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant
18
<PAGE>
in all compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 7.03 hereof. Amounts paid
under this Section 7.04 are in addition to all other amounts due under this
Agreement (other than those due under Section 5.02 hereof) and shall not be
offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the term of this Agreement, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section 6
or Section 7.04 hereof. Further, the amount of any payment or benefit provided
for in Section 6 (other than Section 6.01(F)) or Section 7.04 hereof shall not
be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.01 In addition to any obligations imposed by law upon any
successor to Donnelley, Donnelley will
19
<PAGE>
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of Donnelley to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Donnelley would be required to
perform it if no such succession had taken place. Failure of Donnelley to obtain
such assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.02 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all
20
<PAGE>
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
-------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
To the Company:
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Attention: General Counsel
To the Executive:
_________________________
_________________________
_________________________
11. Miscellaneous. No provision of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver
21
<PAGE>
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
Sections 6 and 7 hereof shall survive the expiration of the term of this
Agreement.
12. Validity. The invalidity or unenforceability or any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other
22
<PAGE>
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied. Any further dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Chicago, Illinois,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
23
<PAGE>
award in any court having jurisdiction; provided, however, that the Executive
shall be entitled to seek specific performance of the Executive's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
-----------
following terms shall have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in
section 280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning defined
in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of
Donnelley.
(D) "Bonus Plan" shall mean the Senior Management Annual
Incentive Plan or other supplementary compensation plan or bonus plan
or arrangement, or any similar successor plan or arrangement,
applicable to the Executive, other than the 1991 Stock Incentive Plan.
(E) "Cause" for termination by the Company of the
Executive's employment, after any Change in Control, shall mean (i)
the willful and continued failure by the Executive to substantially
perform the Executive's duties with the Company
24
<PAGE>
(other than any such failure resulting from the Executive's incapacity
due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to Section 7.01 hereof) after a written
demand for substantial performance is delivered to the Executive by
the Board, which demand specifically identifies the manner in which
the Board believes that the Executive has not substantially performed
the Executive's duties, or (ii) the willful engaging by the Executive
in conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of clauses (i) and (ii)
of this definition, no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the
Company.
(F) A "Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(I) any Person is or becomes the
25
<PAGE>
Beneficial Owner, directly or indirectly, of securities of
Donnelley (not including in the securities beneficially owned
by such Person any securities acquired directly from Donnelley
or its affiliates) representing 50% or more of the combined
voting power of Donnelley's then outstanding securities; or
(II) during any period of two (2) consecutive years
(not including any period prior to the execution of this
Agreement), 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 an
agreement with Donnelley to effect a transaction described in
clause (I), (III) or (IV) of this paragraph) whose election by
the Board or nomination for election by Donnelley'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
(a "Continuing Director"), cease for any reason to constitute
a majority thereof; or
26
<PAGE>
(III) the stockholders of Donnelley approve a
merger or consolidation of Donnelley with any other
corporation, other than (i) a merger or consolidation which
would result in the voting securities of Donnelley 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
Donnelley or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of
Donnelley (or similar transaction) in which no Person acquires
more than 50% of the combined voting power of the Company's
then outstanding securities; or
(IV) the stockholders of Donnelley approve a plan
of complete liquidation of Donnelley or an agreement for the
sale or
27
<PAGE>
disposition by Donnelley of all or substantially all
Donnelley's assets.
The foregoing to the contrary notwithstanding, a Change in
Control shall not be deemed to have occurred with respect to the Executive if
(i) the event first giving rise to the Potential Change in Control involves a
publicly announced transaction or publicly announced proposed transaction which
at the time of the announcement has not been previously approved by the Board
and (ii) the Executive is "part of a purchasing group" proposing the
transaction. A Change in Control shall also not be deemed to have occurred with
respect to the Executive if the Executive is part of a purchasing group which
consummates the Change in Control transaction. The Executive shall be deemed
"part of a purchasing group" for purposes of the two preceding sentences if the
Executive is an equity participant or has agreed to become an equity participant
in the purchasing company or group (except for (i) passive ownership of less
than 5% of the stock of the purchasing company or (ii) ownership of equity
participation in the purchasing company or group which is otherwise not deemed
to be significant, as determined prior to the Change in Control by a majority of
the nonemployee Continuing Directors).
28
<PAGE>
(G) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(H) "Company" shall mean Donnelley and its
Subsidiaries.
(I) "Company Shares" shall mean shares of common
stock of Donnelley or any equity securities into which such shares
have been converted.
(J) "Date of Termination" shall have the meaning
stated in Section 7.02 hereof.
(K) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a
result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time
performance of the Executive's duties with the Company for a period of
six (6) consecutive months, the Company shall have given the Executive
a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(L) "Donnelley" shall mean R.R. Donnelley & Sons
Company and any successor to its business or assets which assumes and
agrees to perform this Agreement by operation of law, or otherwise
(except
29
<PAGE>
in determining, under Section 15(F) hereof, whether or not any Change
in Control of Donnelley has occurred in connection with such
succession).
(M) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(N) "Exchange Price" shall mean the higher of the
closing price of Company Shares reported on the New York Stock
Exchange--Composite Tape on or nearest the Date of Termination (or, if
not listed on such exchange, on the nationally recognized exchange or
quotation system on which trading volume in Company Shares is
highest).
(O) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(P) "Executive" shall mean the individual named in
the first paragraph of this Agreement.
(Q) "Good Reason" for termination by the Executive
of the Executive's employment shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts
by the Company, or failures by the Company to act, unless, in the case
of any act or failure to act described in paragraph (I), (V), (VI),
(VII), or (VIII) below, such act or failure to act is
30
<PAGE>
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
officer of the Company or a substantial adverse alteration in
the nature or status of the Executive's responsibilities from
those in effect immediately prior to the Change in Control;
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(III) the Company's requiring that the
Executive's principal place of business be at an office
located more than 25 miles from the site of the Executive's
principal place of business immediately prior to the Change in
Control except for required travel on the Company's business
to an extent substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
31
<PAGE>
without the Executive's consent, to pay to the Executive any
portion of the Executive's current compensation, or to pay to
the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation
is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's Senior Officers Supplementary
Compensation Plan and the Stock Plans, or any substitute plans
adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure
by the Company to continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of
32
<PAGE>
benefits provided and the level of the Executive's
participation relative to other participants, as existed at
the time of the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, life insurance, medical, health and accident, or
disability plans in which the Executive was participating at
the time of the Change in Control, the taking of any action by
the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time
of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to
which the Executive is entitled on the basis of years of
service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change in
Control; or
(VII) any purported termination of
33
<PAGE>
the Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
9.01 hereof; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's
employment for Good Reason shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(R) "Gross-Up Payment" shall have the meaning given
in Section 6.02 hereof.
(S) "ISOs" shall mean options qualifying as
incentive stock options under section 422A of the Code.
(T) "Normal Retirement Age" shall mean the earliest
age at which the Executive may commence Retirement and become entitled
to an unreduced pension under the Pension Plan.
(U) "Notice of Termination" shall have the meaning
stated in Section 7.01 hereof.
(V) "Options" shall mean options for
34
<PAGE>
Company Shares granted to the Executive under any Stock Plan, other
than ISOs granted on or before the date of this Agreement and ISOs
which have not become exercisable on the Date of Termination.
(W) "Pension Plan" shall mean the Company's
Retirement Benefit Plan.
(X) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof; provided, however, that a Person shall not include
(i) Donnelley or any of its Subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, (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 Donnelley in
substantially the same proportions as their ownership of stock of
Donnelley.
(Y) "Planned Compensation" shall mean the annual
"planned compensation" approved by the Executive Committee of the
Board to be paid to the Executive (or, if the Executive's "planned
compensation" is not presented for approval at the Executive
Committee level, then as otherwise
35
<PAGE>
established by Donnelley or one of its Subsidiaries) with respect to
the year in which the Date of Termination occurs, or with respect to
either of the previous two (2) calendar years, whichever is highest,
such "planned compensation" being a gross amount comprised of base
salary plus any bonus payable to the Executive under any Bonus Plan
for the calendar year in question, assuming any and all target levels
of achievement for the period with respect to which such bonus was
paid have been met.
(Z) a "Potential Change in Control" shall be deemed
to have occurred if the conditions set forth in any one of the
following paragraphs shall have been satisfied:
(I) Donnelley enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(II) Donnelley or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person who is or becomes
36
<PAGE>
the Beneficial Owner, directly or indirectly, of securities of
Donnelley representing at least 9-1/2% or more of the combined
voting power of Donnelley's then outstanding securities
increases such Person's beneficial ownership of such
securities by 5% or more over the percentage so owned by such
Person on the date hereof; or
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(AA) "Retirement" shall be deemed the reason for the
termination by the Company or the Executive of the Executive's
employment if such employment is terminated in accordance with the
Company's retirement policy, not including early retirement, generally
applicable to its salaried employees, as in effect immediately prior
to the Change in Control, or in accordance with any retirement
arrangement established with the Executive's consent with respect to
the Executive.
(BB) "Severance Payments" shall mean those payments
described in Section 6.01 hereof.
37
<PAGE>
(CC) "Stock Plans" shall mean the Company's 1981
Stock Incentive Plan, 1986 Stock Incentive Plan, 1991 Stock Incentive
Plan and any other stock compensation plan applicable to the
Executive, or any similar successor plan or arrangement.
(DD) "Subsidiary" shall mean any corporation,
partnership or other entity, at least a majority of the outstanding
voting shares or controlling interest of which is at the time directly
or indirectly owned or controlled (either alone or through
Subsidiaries or together with Subsidiaries) by Donnelley or another
Subsidiary.
(EE) "Total Payments" shall mean those payments
described in Section 6.02 hereof.
(FF) "Transaction Price" shall mean the highest per
share price for Company Shares actually paid in connection with any
Change in Control.
R.R. DONNELLEY & SONS COMPANY
By ____________________________
Authorized Officer
____________________________
38
<PAGE>
EXHIBIT 12
R.R. Donnelley & Sons Company
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Period Ending
31-Dec-99
-------------
(in thousands
except
ratios)
<S> <C>
Earnings available for fixed charges:
Earnings (loss) from continuing operations before income taxes. $506,529
Less: Equity earnings of minority-owned companies.............. (1,989)
Add: Dividends received from investees under the equity method. 2,757
Add: Minority interest expense in majority-owned subsidiaries.. 588
Add: Fixed charges before capitalized interest................. 106,026
Add: Amortization of capitalized interest...................... 8,127
--------
Total earnings available for fixed charges................... $622,036
========
Fixed charges:
Interest expense............................................... $ 88,164
Interest portion of rental expense............................. 17,077
Amortization of discount and capitalized expenses related to
indebtedness.................................................. 785
--------
Total fixed charges before capitalized interest................ 106,026
Capitalized interest........................................... 5,500
--------
Total fixed charges.......................................... $111,526
========
Ratio of earnings to fixed charges............................... 5.58
========
</TABLE>
<PAGE>
Form 10-K
Year Ended 12/31/99
Exhibit 21
SUBSIDIARIES OF R. R. DONNELLEY & SONS COMPANY
(As of March 15, 2000)
Subsidiaries of R. R. Donnelley & Sons Company Place of Incorporation
- ---------------------------------------------- ----------------------
Freight Systems, Inc. California
Caslon Incorporated Delaware
CTC Direct, Inc. Delaware
Donnelley Caribbean Graphics, Inc. Delaware
Haddon Craftsmen, Inc. Delaware
Mobium Corporation Delaware
R. R. Donnelley Far East Limited Delaware
R. R. Donnelley Mendota, Inc. Delaware
R. R. Donnelley Printing Company Delaware
R. R. Donnelley Printing Company, L. P. Delaware
R. R. Donnelley (Europe) Limited Delaware
77 Capital Partners II, L. P. Delaware
Housenet, Inc. Maryland
R. R. Donnelley Receivables, Inc. Nevada
R. R. Donnelley Seymour, Inc. New Jersey
R. R. Donnelley Norwest Inc. Oregon
Heritage Preservation Corporation South Carolina
Omega Studios-Southwest, Inc. Texas
Iridio, Inc. Washington
Donnelley Cochrane Argentina S. A. Argentina
Donnelley Cochrane Editora y Grafica Limitada Brazil
Editorial Lord Cochrane, S. A. Chile
Shenzhen Donnelley Bright Sun Printing Co. Republic of China
Donnelley Information Systems Limited India
R. R. Donnelley Printing (France) SARL France
R. R. Donnelley Deutschland GmbH Germany (Frankfort)
R. R. Donnelley Financial Asia Limited Hong Kong
Editorial Eclipse, S. A. de C. V. Mexico
Laboratorio Lito Color S. A. de C. V. Mexico
R. R. Donnelley (Mexico) S. A. de C. V. Mexico
Impresora Donneco Internacional, S. A. de C. V. Mexico
DPA Printing Company, sp. zo. o Poland
R. R. Donnelley Poland, sp. zo. o Poland
R. R. Donnelley U. K. Directory Ltd. United Kingdom
R. R. Donnelley (U. K.) Limited United Kingdom
R. R. Donnelley Limited United Kingdom
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
R.R. Donnelley and Sons Company and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 41,873
<SECURITIES> 0
<RECEIVABLES> 880,766
<ALLOWANCES> 15,461
<INVENTORY> 194,312
<CURRENT-ASSETS> 1,229,850
<PP&E> 4,533,406
<DEPRECIATION> 2,822,737
<TOTAL-ASSETS> 3,853,464
<CURRENT-LIABILITIES> 1,203,463
<BONDS> 748,498
0
0
<COMMON> 308,462
<OTHER-SE> 829,796
<TOTAL-LIABILITY-AND-EQUITY> 3,853,464
<SALES> 5,183,408
<TOTAL-REVENUES> 5,183,408
<CGS> 4,024,401
<TOTAL-COSTS> 4,652,981
<OTHER-EXPENSES> (21,431)
<LOSS-PROVISION> 9,095
<INTEREST-EXPENSE> 88,164
<INCOME-PRETAX> 506,529
<INCOME-TAX> 195,014
<INCOME-CONTINUING> 311,515
<DISCONTINUED> 3,201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,314
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.38
</TABLE>
